PALM BEACH, FL—Chatham Lodging Trust has completed the acquisition of a 51-hotel, 6,848-room portfolio from a joint venture with 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. Capital was the exclusive financial advisor to Chatham. Watchell, Lipton, Rosen & Katz and Hunton & Williams were legal advisors to Chatham.
Chatham acquired four Residence Inns by Marriott in Silicon Valley, comprising 751 rooms, for a net cash purchase price of $272.6 million, or approximately $363,000 per room, as part of the sale of the 51-hotel portfolio. 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 hotels to increase the room count by 36 percent to a total of 1,023 rooms. The 272-room expansion would comprise a new lobby and public spaces in each location with an estimated aggregate cost of $59 million, or $217,000 per additional room. The all-in-cash cost for the four hotels, on a pro-forma basis, would be $331.9 million, or approximately $324,000 per room. The expansion would take approximately 12 months in each location and disruption is expected to be minimal.
A JV between NorthStar Realty Finance Corp and Chatham purchased the remaining 47 hotels in the acquisition for a gross purchase of $958.5 million, a net cash purchase price of $933.9 million after reserve credits, or $153,000 per room. NorthStar acquired Cerberus’ 89.7 percent interest in the prior JV 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 $80 million, or more than $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.