Boykin Lodging Company (NYSE: BOY), a hotel real estate investment trust, today announced the closing of a transaction with Hilton Hotels Corporation (NYSE: HLT) that enhances Boykin`s portfolio of upscale, commercial and resort hotels. The two companies exchanged certain hotel properties that were of equal value, but which would have more strategic value in each other`s portfolios.
In the transaction, Boykin transferred ownership of its Cleveland Marriott East in Beachwood, Ohio, to Hilton, which has converted the hotel to the Hilton brand. In exchange, Boykin obtained from Hilton two hotels in first-rate commercial markets, one in San Antonio, Texas, and the other, an all-suite hotel, in Southfield, Michigan.
The 290-room Doubletree Hotel San Antonio International Airport is in exceptional condition following a $4.5 million renovation by Hilton earlier this year. This full-service hotel is convenient to the San Antonio airport and commercial areas north of the city. The property has 11,800 square feet of meeting facilities, a restaurant and lounge, and other full-service amenities, and it serves a strong commercial and group market.
With over 15 million square feet of Class A office space, Southfield, Michigan, is Detroit`s premier suburban business location. The 239-suite Doubletree Guest Suites Hotel Southfield originally opened in 1987 as an Embassy Suites hotel. The ten-story building features 7,800 square feet of meeting space and an enclosed atrium. Boykin plans to invest $5.5 million to upgrade the property and return it to the Embassy Suites brand, enabling it to achieve significantly better rates and occupancy.
Hilton has converted the 403-room Cleveland Marriott East hotel to the Hilton brand. Located in the Cleveland suburb of Beachwood, the property is surrounded by a vibrant commercial area and is adjacent to the 650-acre Chagrin Highlands research/office park under development. The hotel has 14,400 square feet of meeting space plus eight executive suites, a restaurant, lounge and business center as well as other full-service hotel amenities.
Pursuant to a separate agreement, Boykin will retain the franchise for these two newly acquired hotels with Hilton as the franchisor, licensing its Doubletree and Embassy Suites brands. As part of this accord, if Boykin terminates Hilton`s long-term management contract relative to the three Doubletree hotels Boykin owns in the State of Washington, Hilton (the owner of the Doubletree brand) agreed to waive the contractual termination penalty, so long as Boykin flags these properties as Red Lion hotels or another mutually acceptable Hilton brand.
“This is great example of a win-win situation,” said Robert W. Boykin, chairman, president and chief executive officer. “The Cleveland property is a fine hotel, but its original franchise agreement with Marriott was coming up for renewal and we were looking at significantly higher franchise fees on top of the capital we were planning to invest in the property anyway. But now the hotel and its new brand are both owned by Hilton, so the franchise issue no longer exists: Hilton will get a better return on its investment in the Cleveland property than we could have, and the hotels we received from Hilton in exchange will give us better returns on the money we would have spent anyway.”
Dieter Huckestein, president of hotel operations for Hilton Hotels Corporation said, “This transaction allows us to increase our presence in a major market in which we had previously been underrepresented, giving us two full-service Hilton hotels in the Cleveland area. The proximity of our existing Embassy Suites property-which is adjacent to the new Hilton-will enable us to realize significant operational efficiencies, and provide even more opportunities for our guests and customers.”
“The San Antonio and Southfield properties give Boykin Lodging a new presence in vibrant commercial areas with significant upside in revenues from their respective renovations,” Mr. Boykin said. “Both of these first-class hotels should make significant contributions to the growth of our cash flow.”
“The contractual penalty clauses affecting the three Doubletree hotels in Washington would have required us to pay significant fees to Hilton if we opted to sell those hotels to someone who wanted to change management,” Mr. Boykin said. “This deal will make it more feasible for us to potentially sell or rebrand these Doubletree hotels.”
“We expect the transaction to begin increasing Funds From Operations in 2002, after renovations are completed in Southfield,” added Mr. Boykin.
“When all is said and done, we believe this transaction is advantageous for both Boykin and Hilton, and fits with Boykin`s strategy of increasing shareholder value over the long term,” Mr. Boykin concluded.
Boykin Lodging Company is a real estate investment trust that focuses on the ownership of full-service, upscale commercial and resort hotels. The company currently owns 33 hotels containing a total of 9,236 rooms located in nineteen states, and operating under such internationally known brands as Doubletree, Marriott, Hilton and Radisson, among others. For more information about Boykin Lodging Company, visit the company`s web site at www.boykinlodging.com.
Hilton Hotels Corporation is recognized internationally as a preeminent hospitality company. The company develops, owns, manages or franchises 1,800 hotels, resorts and vacation ownership properties. Its portfolio includes many of the world`s best known and most highly regarded hotel brands, including Hilton®, Doubletree®, Embassy Suites®, Hampton Inn®, Hampton Inn & Suites®, Harrison Conference Centers®, Hilton Garden Inn®, Homewood Suites® by Hilton, Red Lion Hotels & Inns® and Conrad International®.