AUSTIN–Summit Hotel Properties, Inc. (NYSE: INN) (the “Company” or “Summit”) today announced that it 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 (the “Transaction”) from affiliates of NewcrestImage. The total consideration for the Transaction is comprised of $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.
“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. 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,” said Jonathan P. Stanner, the Company’s President and Chief Executive Officer “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, wellpositioned balance sheet, and overall resilient portfolio,” continued Mr. Stanner.
“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,” said Mehul Patel, Managing Partner and Chief Executive Officer of NewcrestImage.
Strategic Rationale for the Acquisition
Newer Assets Complement Company’s Existing Portfolio and Minimizes Near-Term Capital Expenditures:
The newer vintage hotels and premium Marriott, Hilton, Hyatt and IHG brand affiliations are highly complementary to the Company’s existing portfolio of well-located hotels with efficient operating models. 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 over 70% of the guestrooms were developed since 2015 which will minimize near-term capital expenditure needs.
Acquisition Expands Presence in High-Growth Sun Belt Markets:
The Transaction significantly expands the Company’s exposure to high-growth Sun Belt markets characterized by robust population and job growth. From 2010 to 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 United States for 2021 by CBRE’s 2021 Americas Investor Intentions Survey and continues to be a national leader in population growth adding over 300 new residents per day in 2020.
Attractive Basis and Discount to Estimated Replacement Cost
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 acquisition is expected to generate a stabilized net operating income yield of 8.0%-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.
Operational Enhancement Opportunities
There are numerous revenue and expense operational enhancement opportunities through the integration of the
portfolio into Company’s sophisticated 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.
Increased Scale of the Company and Joint Venture with GIC
The Transaction would increase the Company’s total room count by nearly 35% to over 15,000 keys across 100 hotels in 42 markets across the country. Through the issuance of common operating partnership units, the Company’s equity capitalization will increase by approximately 15% and the Company’s total enterprise value will increase by approximately 20%. Upon completion of the Transaction, the Company’s joint venture with GIC will have invested approximately $1.3 billion of capital.
Leverage Neutral Transaction While Preserving the Company’s Existing $450 Million of Liquidity and Extending
Debt Maturity Ladder
The Transaction is expected to be leverage neutral, and through the issuance of common and preferred operating partnership units, the Company will preserve nearly all its current liquidity of approximately $450 million. Additionally, the Company has obtained a financing commitment for $410 million to fund a portion of the Transaction, which will extend its average duration to maturity with attractive terms.
Capital Structure and Financing
The Company expects to fund its 51% equity contribution for the Transaction with a combination of common operating partnership units and preferred operating partnership units. The Company plans to issue 15.9 million common operating partnership units valued at $160 million to seller affiliates, based on the 10-day trailing VWAP of $10.0853 per unit as of November 2, 2021, and will result in an approximate 13% pro forma seller ownership interest. The Company will also issue $50 million worth of newly designated 5.25% Series Z Preferred Units. The preferred operating partnership units will be entitled to distributions at a rate of 5.25% per annum, may be redeemed
by the holder on the 10th anniversary of the issuance date and may be called by the Company at any time after the
5th anniversary of the issuance date. GIC’s 49% estimated equity contribution of $208 million will be in the form
The Company has secured a $410 million financing commitment from Bank of America and Wells Fargo Bank which will be the primary debt financing for the Transaction.
Pursuant to a director nomination agreement, NewcrestImage will have the right to nominate one director to the Company’s Board of Directors at closing of the Transaction.
The Transaction is expected to close late in the fourth quarter of 2021 or early in the first quarter of 2022. The Transaction remains subject to customary closing conditions and no assurances can be made that the proposed. Transaction will close based on the terms outlined above if at all.