CNL did the deal in partnership with Beverley Hills, CA-based Hilton Hotels Corp., the third joint venture for the two companies. CNL will be the majority owner in the two properties. Hilton, the minority owner, will manage and operate the hotels under a long-term contract. Hilton contributed both hotels to the partnership.
CNL-Hilton is also negotiating to buy the under-construction, 1,200-room, 30-story Hilton San Diego Convention Center Hotel when it is completed in 2006, the companies report in a jointly prepared statement.
The $212-million transaction is being partly funded by a $127-million, five-year first mortgage loan at a fixed rate of 5.5%. Hilton will recognize a book gain on the deal of about $61 million. This amount will be deferred and recognized over the life of the long-term management contracts retained on the properties.
Hilton will also generate about $189 million in cash proceeds from the two-hotel transaction. The money will be used to pay down debt. Additionally, Hilton plans to use a portion of its available tax loss carry-forwards to offset a majority of the tax gain on the transaction.
"This transaction allows us to continue to reduce the amount of long-term debt of the company and secure long-term management contracts on two solid hotels, while still retaining an ownership interest," says Matthew J. Hart, Hilton's executive vice president and chief financial officer.
CNL Hospitality CEO Thomas J. Hutchison III says the two-hotel acquisition allows his company "to build a significant presence of CNL-owned properties in the Southern California area, which we believe is an important market with meaningful upside potential over the next several years."
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