The $213,000-per-room transaction consists of the Residence Inn San Diego, with 192 rooms; Residence Inn Anaheim, with 200 rooms; Hilton Suites Anaheim, with 230 rooms; and the Hilton Ontario, with 309 rooms. The Bethesda, MD-based seller is an affiliate of RLJ Development, LLC.
"We seek to acquire quality properties in markets with high barriers to new competition. Southern California is a great market that we believe will continue to perform well," an Innkeepers CFO Dennis Craven tells GlobeSt.com. "We have a lot of experience with Residence Inns, which is one of our favorite brands as evidence by our being a large franchisor, and the two Residence Inn hotels are top-quality assets. An additional external growth strategy is to selectively acquire upscale premium branded full service assets in markets that we believe have substantial upside potential. The two Hiltons fit that strategy well and is a reason why we liked this portfolio."
According to Innkeepers, the company "will use borrowings under its unsecured line of credit and the issuance of approximately $165 million in non-recourse debt at a weighted average interest of approximately 6.25%, including the assumption of $13.7 million of debt to finance the deal." After the deal closes, which is slated for the third quarter, Innkeepers estimates "its debt to total investment in hotels at cost will be approximately 40%, without regard to any future borrowings or equity offerings."
The hotels are being acquired at a NOI capitalization rate of approximately 7% on projected 2007 NOI and a multiple of approximately 12.5 times projected 2007 EBITDA.
Innkeepers Hospitality Management will take over the management of the four hotels under long-term agreements. Innkeepers Hospitality Management is owned by Jeffrey H. Fisher, CEO of Innkeepers USA Trust.
Residence Inn San Diego and the Residence Inn Anaheim are upscale, all-suite properties that opened in 2003. In addition, Fisher says in a statement that the seller has invested $12.5 million in capital improvements over the past five years to the Hilton Suites Anaheim and the Hilton Ontario, with the Hilton Ontario renovation slated for completion this year. "All four properties are well-positioned to take advantage of the expected aggressive average rate growth in their respective markets," he adds.
"San Diego is one of the most desirable commercial real estate markets in the United States," Craven tells GlobeSt.com "The areas benefits from an unparalleled year-round temperate climate, fast airport accessibility, waterfront location, first-class attractions, recreational amenities, and the convention center's high level of demand."
In addition, "Anaheim/Orange County is world renowned as the home of Disneyland, which attracted 20 million visitors in 2005," he adds. "California's second largest county in population, Orange County contains some of the most valuable real estate in the country, evidenced by the fact that the Anaheim-Santa Ana MSA had the nation's second highest median home sales price in the third quarter of 2005 at $710,700."
And Innkeepers finds Ontario attractive because of its proximity to Los Angeles. "Ontario, just 35 miles west of Downtown Los Angeles, is at the center of the Inland Empire, one of the largest and most dynamic real estate markets in the United States," Craven says. He also points to the area's nickname as a reason to own assets there. "Known as the 'Gateway to Southern California,' the Inland Empire contains more than 307 million sf of industrial/flex space and is expanding rapidly. In fact, according to CB Richard Ellis, the Inland Empire accounts for nearly 30% of the nation's new industrial construction starts, with 26 million sf of space currently under construction."
Craven adds the company is "always in the market for additional opportunities in the areas we have always liked, the two coasts and markets with high barriers to entry or assets that can be converted in these markets under one of the leading brands."
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