Innkeepers USA has
announced that it has entered into an agreement to acquire from RLJ Urban Lodging Fund, four hotel properties with 931 rooms in Southern California for a
total cost of $215 million, or $231,000 per room.The company expects to fund the acquisition with borrowings under its
unsecured line of credit and the issuance of approximately $165.0 million
in non-recourse debt at a weighted average interest rate of approximately
6.25 percent, including the assumption of $13.7 million of debt. After the
acquisition, the company estimates that its debt to total investment in
hotels at cost will be approximately 40 percent, without regard to any
future borrowings or equity offerings.
  Innkeepers Hospitality Management, which is owned by Jeffrey H. Fisher,
chief executive officer of Innkeepers USA Trust, will manage the hotels
under long-term management agreements. The acquisition, which is expected
to close in the 2006 third quarter, is subject to a number of customary
contractual closing conditions.
  The four hotels are being acquired at a net operating income (NOI)
capitalization rate of approximately 7 percent on projected 2007 net
operating income and a multiple of approximately 12.5 times projected 2007
earnings before interest, taxes, depreciation and amortization (EBITDA).
  “This transaction combines one of the most dynamic regional lodging
markets in the U.S. with strongly performing hotels, affiliated with two of
the best-performing and most desirable brands among hotel investors—
Residence Inn by Marriott and Hilton,” Fisher said. “The addition of these
properties to our portfolio further diversifies our distribution throughout
the state; marks our initial entry into San Diego, one of the very best and
highest-barriers-to-entry hotel markets in the country; establishes a
significant footprint in the desirable Anaheim market; and bolsters our
existing presence in the fast growing Ontario market.
  “With this acquisition, we are also furthering our strategy of
opportunistically acquiring full-service hotels. Perhaps more important,
this transaction gives us the opportunity to acquire a unique mix of
high-quality, profitable, full-service and extended-stay hotels on a
portfolio basis at an attractive price, with upside potential.
  “Southern California remains one of the nation’s most sought-after
locations for real estate investment,” he added. “Business and leisure
travel to the region remains robust, with Smith Travel reporting revenue
per available room (RevPAR) growth for all hotels in Southern California of
11- plus percent in 2005 and 9.3 percent in 2006 through June. Each of
these properties is in an outstanding location in its respective market,
which we believe will provide us an advantage over current and future
competition.”
  The two Residence Inns are upscale, interior-corridor, all-suite
buildings that opened in 2003. “No expense was spared in creating
high-quality, upscale extended-stay properties that are among the best in
the entire Residence Inn chain. The Hilton and Hilton Suites also are in
excellent physical condition, with the sellers indicating that they have
made $12.5 million in capital improvements in the last five years,
equivalent to $23,100 per room. The renovation of the Hilton Ontario should
be completed later this year. We have budgeted approximately $2.0 million
for additional upgrades that may be required by franchisors as a result of
the transfer. All four properties are well-positioned to take advantage of
the expected aggressive average rate growth in their respective markets.”
  Fisher noted that the company will continue to seek acquisition and
development opportunities that achieve high shareholder returns, with the
primary focus remaining premium-branded upscale extended-stay and select-
service hotels, the core of the company’s portfolio; selected full-service
hotels; and turn-around opportunities for hotels that operate under or can
be converted to the industry’s leading brands.
——-