Hospitality Properties Trust (NYSE: HPT) last week acquired 21 Candlewood Suites hotels (2,593 suites) for $145 million. These hotels were simultaneously leased back to a subsidiary of Candlewood Hotel Company, Inc. (NASDQ: CNDL) for rent of $16 million/year, plus percentage rent equal to 10% of increases in gross revenues at the hotels after 2002. The transaction announced today has the security features which are typical of HPT transactions: HPT retained a cash security deposit equal to one year’s minimum rent of $16 million, the lease requires a capital expenditure reserve escrow equal to five percent (5%) of gross hotel revenues and the rent is guaranteed by the brand owner and franchisor, CNDL. Also, the 21 hotels purchased today have been added to a combination or pooled lease for 36 Candlewood hotels which HPT currently owns creating one lease for all 57 hotels (6,887 suites), and the combined lease term has been extended through 2018 plus all or none renewal options thereafter.
The 57 hotels included in the combined lease from HPT to CNDL are geographically diversified in 27 states. The average age of the 21 hotels which HPT purchased today is only three years, and the average age of the combined lease pool of 57 hotels is only 3.6 years.
Commenting upon today’s announcement, John Murray, President of HPT, made the following statement:
“HPT is pleased to expand its relationship with Candlewood. HPT now owns approximately half of the Candlewood Suites hotels in operation or under development. The Candlewood management team has done an outstanding job of responding to the challenges which now face the hospitality industry. Since September 11, our Candlewood hotels have suffered relatively minor declines in REVPAR [revenue per available room] and sometimes they have exceeded their prior year’s performance.”
HPT has funded this acquisition using cash on hand and borrowings under its recently renewed revolving bank credit facility.
Hospitality Properties Trust is a real estate investment trust headquartered in Newton, MA, which owns hotels.