Chatham Lodging Trust (NYSE: CLDT) 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 $59.0 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 (NYSE: NRF), 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.
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.
Chatham Lodging Trust is a self-advised REIT that was organized to invest in upscale extended-stay hotels and premium-branded, select-service hotels. The company owns interests in 77 hotels totaling 10,688 rooms/suites, comprised of 29 hotels it wholly owns with an aggregate of 4,343 rooms/suites in 15 states and the District of Columbia and a minority investment in two joint ventures that own 48 hotels with an aggregate of 6,345 rooms/suites.
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