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Summit Hotel Properties (INN) Buys Residence Inn for $71M

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Continuing with its capital-recycling strategy,Summit Hotel Properties, Inc. (INN - Free Report) announced the acquisition of Residence Inn by Marriott Boston Watertown and the sale of Hyatt Place Fort Myers at the Forum.

Per management, with the Hyatt Place’s disposition, the company’s capital-recycling program has generated year-to-date gross proceeds of $107 million. This also indicates a blended capitalization rate of 7.7%, inclusive of estimated capital expenditures.    

In fact, management noted that it has utilized part of these to acquire the high-quality asset which offers attractive RevPAR, EBITDA margin and going-in yield as compared to hotels that were sold. Further, the acquisition offers greater diversification to the company’s portfolio of premium-branded hotels.

Acquisition Outline

The 150-guestroom hotel has been acquired for $71 million, equating to nearly $473,000 per key. Residence Inn was unveiled in August 2016 and hence, requires limited capital expenditures.

The property is situated in the emerging submarket of Watertown near Cambridge. It is conveniently located to capture demand from a large and diverse customer base. In fact, premium universities, such as Harvard, MIT, Boston University, Boston College, and Tufts University, are in the vicinity of this hotel. Furthermore, Boston's preeminent tech hub, which is home to well-known companies like Microsoft (MSFT - Free Report) , Facebook , Google, and Amazon (AMZN - Free Report) , as well as small startups, is in close proximity. 

Hence, the property location — nearly six miles from downtown Boston — will enable it to cater demand from one of the nation's robust markets. The acquisition is a strategic fit as it indicates a capitalization rate of 8.1%, based on management's current forecast of the hotel's forward 12-month net operating income (NOI).  For the remaining of 2018, management anticipates the hotel to contribute around $1.7 million in EBITDAre.

Disposition Details

Summit Hotel Properties sold Hyatt Place Fort Myers — the 148-guestroom property — for a total price of $16.5 million, or nearly $111,000 per key.  This, in addition to the estimated foregone capital improvements, indicates a capitalization rate of 7.5% based on its NOI for the 12-month period ending Aug 31, 2018.  Per the company, the property was expected to have contributed nearly $0.3 million of EBITDAre from the date of sale through the remainder of 2018.

While such efforts to dispose assets, in a bid to generate dry power for strategic acquisitions, are anticipated to reduce strain on the company’s balance sheet, dilution of earnings from asset sale cannot be ignored at the same time.

In fact, shares of this Zacks Rank #3 (Hold) company have underperformed its industry over the past year. The stock has lost 14.6% compared with the industry’s decline of 4.1% during the same time period.


 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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