Summit Hotel Properties Inc. has entered into a definitive contribution and purchase agreement to acquire a 27-hotel portfolio totaling 3,709 guestrooms, two parking structures and various financial incentives through its existing joint venture with GIC for total consideration of $822 million from affiliates of NewcrestImage. The total consideration for the transaction comprises $776.5 million, or $209,000 per key, for the 27-hotel portfolio, $24.8 million for the two parking structures and $20.7 million for the various financial incentives.
NewcrestImage will continue to own and operate two hotels—the 325-room, 29-floor Magnolia Hotel in downtown Dallas and the 164-room, 17-floor Sinclair Hotel in downtown Fort Worth, TX.
“We are thrilled to announce this transformational investment opportunity for the acquisition of 27 hotels that are complementary to our existing portfolio of high-quality, well-located assets and significantly expands our presence in high-growth Sun Belt markets,” said Jonathan P. Stanner, president/CEO, Summit Hotel Properties. “We have creatively structured the transaction with the issuance of both common and preferred operating partnership units and continued our partnership with GIC, which will preserve nearly all our existing liquidity of approximately $450 million. We expect the transaction to be immediately accretive to earnings and leverage-neutral to our balance sheet leaving us ample investment capacity to continue to grow our portfolio. The announcement reinforces our optimism about the outlook for our business and validates our unique ability to source and pursue a broad range of capital alternatives and external growth opportunities given our strong liquidity profile, well-positioned balance sheet, and overall resilient portfolio.
Mehul Patel, managing partner/CEO, NewcrestImage, added, “We at NewcrestImage are extremely honored and proud to craft this transaction with the outstanding team at Summit Hotel Properties. NewcrestImage has assembled a collection of high-quality distinctive Marriott, Hilton, Hyatt and IHG hotel properties throughout the Sun Belt region, which will be a great addition to Summit’s portfolio. As we will become one of Summit’s largest shareholders, we have confidence in Summit as one of the industry’s leading owners with a highly regarded public platform. We believe the two portfolios create an excellent combination of hotels that have tremendous growth potential and are well-positioned to create long-term shareholder value as the lodging recovery continues.”
The newer vintage hotels and premium Marriott, Hilton, Hyatt and IHG brand affiliations are highly complementary to the Summit’s existing portfolio of well-located hotels with efficient operating models, the company reports. Six of the hotels in the portfolio, comprising approximately one-third of the total portfolio valuation, opened in 2019 or later providing significant organic growth opportunities. The average effective age of the acquisition portfolio is only 3.8 years and more than 70% of the guestrooms were developed since 2015 which will minimize near-term capital expenditure needs.
Summit reports that the transaction significantly expands the company’s exposure to high-growth Sun Belt markets characterized by robust population and job growth. From 2010-2020, population growth of the U.S. Sun Belt was 11.2%, significantly exceeding the 4.4% population growth in the rest of the U.S. Approximately 50% of the acquisition portfolio is located in four distinct submarkets of the greater Dallas/Fort Worth MSA, which led the nation in job growth three straight years (2016-2019), was named the No. 2 investment market in the U.S. for 2021 by CBRE’s 2021 Americas Investor Intentions Survey and continues to be a national leader in population growth adding more than 300 new residents per day in 2020.
The hotel portfolio acquisition cost of approximately $209,000 per key represents a significant discount to current replacement cost and is attractive relative to recent similar high-quality, comparable hotel sales, the company reports. The acquisition is expected to generate a stabilized net operating income yield of 8%-8.5% after underwritten capital expenditures and prior to the consideration of incremental ongoing asset and capital management fees earned by the company on behalf of the joint venture. The transaction is expected to be immediately accretive to adjusted FFO per share.
Summit reports that there are numerous revenue and expense operational enhancement opportunities through the integration of the portfolio into its revenue and asset management functions, including significant complexing opportunities in markets where the company will own asset clusters such as Dallas/Fort Worth, New Orleans and Oklahoma City. The company expects to enter into management agreements with Aimbridge Hospitality for all 27 hotels.
If the transaction is completed, it would increase Summit’s total room count by nearly 35% to more than 15,000 keys across 100 hotels in 42 markets across the country.
The transaction is expected to close late in the fourth quarter of this year or early in the first quarter of 2022.
BofA Securities Inc. is acting as financial advisor and Hunton Andrews Kurth is acting as legal counsel to Summit on the transaction. Goodwin Procter, Munsch Hardt Kopf & Harr, Haynes and Boone, and Colven & Tran are acting as legal counselors to NewcrestImage.
Hotel Business will have more on this story as it develops soon.