Chatham Lodging Completes 47-Hotel Acquisition in Joint Venture

PALM BEACH, Fla.—Chatham Lodging Trust today announced that it completed the previously announced acquisition of a 51-hotel, 6,848-room portfolio from a joint venture comprised of Cerberus Capital Management LP and Chatham in two separate transactions. The combined total purchase price was $1.3 billion, before capital expenditure reserves credited to the buyers of $39.7 million. Barclays Capital served as exclusive financial advisor to Chatham. Wachtell, Lipton, Rosen & Katz and Hunton & Williams served as legal advisors to Chatham.

Chatham acquired four Residence Inns by Marriott in Silicon Valley, comprising 751 rooms, as part of the sale of the 51-hotel portfolio for a net cash purchase price of $272.6 million, or approximately $363k per room. The transaction consists of the gross purchase price of $341.5 million less reserve credits of $15.1 million, resulting in a net purchase price of $326.4 million.

Chatham is considering the redevelopment and expansion of all four Silicon Valley Residence Inn hotels to increase the room count by 36 percent to a total of 1,023 rooms. The 272-room expansion would include a new lobby and public spaces in each location with an estimated aggregate cost of approximately $59 million, or approximately $217k per additional room. On a pro-forma basis, the all-in cash cost for the four hotels would be approximately $331.9 million, or approximately $324k per room. The expansion/upgrade would take approximately 12 months in each location, but given the campus layout of the sites, disruption is expected to be minimal.

The remaining 47 hotels in the 51-hotel portfolio were purchased by a joint venture between NorthStar Realty Finance Corp, a diversified commercial real estate investment and asset management company, and Chatham for a gross purchase price of $958.5 million, a net cash purchase price of $933.9 million after reserve credits, or $153k per room. NorthStar acquired Cerberus’ 89.7 percent interest in the prior joint venture, while Chatham retained its 10.3 percent interest.

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Based on the net purchase price for the sale of the 51-hotel Innkeepers JV portfolio, Chatham experienced a non-GAAP economic gain of approximately $80 million, or over $3 per share. Chatham expects to recognize approximately $54 million of the economic gain in the 2014 second quarter, net of its continued 10.3 percent interest in the Innkeepers JV. Chatham expects to roll most of this gain tax-free between the basis of Chatham’s investments in the joint venture and the four Silicon Valley hotels.

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