DC's K street
BETHESDA, MD–Pebblebrook Hotel Trust and Denihan Hospitality Group have carved up between them the six hotels they had owned jointly in New York City with Pebblebrook taking two of the assets and Denihan taking six.
The portfolio was valued at $820 million in the transaction.
Some background behind the split is in order first: Pebblebrook acquired its 49% stake in this portfolio in 2011 for $152 million. The transaction allowed for an exit option in late summer of 2016 and early this year the REIT tapped two investment advisors to market its joint venture interest in the venture.
Based on comments made by Pebblebrook CEO Jon Bortz in earnings calls and industry events, Denihan was not interested in selling its stake in the portfolio.
The contract allowed that, should Pebblebrook decide to exercise its exit option and it didn't sell its 49% interest to Denihan, it had the ability to trigger a right-of-first offer process that would have led to the sale of the six assets. “And suffice it to say it's a very complicated situation and the motivation of the parties is far more important than any of the other issues that are out there,” Bortz said at Citi's Global Property CEO conference held earlier this year (per Fair Disclosure).
The following is the deal they crafted.
Pebblebrook is assuming full interest in the 618-room Manhattan NYC and the 252-room Dumont NYC, which have been valued at $342.5 million.
Denihan is taking the full interest in the remaining four hotels: The Benjamin, Fifty NYC, Shelburne NYC and Gardens NYC.
The Manhattan NYC and Dumont NYC hotel are transferring to Pebblebrook fully unencumbered by brand and management, “which significantly enhances the saleability of these hotels,” says Pebblebrook CEO Jon Bortz.
The total $820 million portfolio valuation was calculated based on the assumption of a 19.4x EBITDA multiple and a 4.3% NOI cap rate, based on the trailing twelve-month operating performance for the period ended September 30, 2016.
Pebblebrook received $59.3 million of proceeds from Denihan in connection with the exchange in a partial disposition of the joint assets. It also received full repayment of its $50.0 million, 9.75% preferred investment in the joint venture.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
