|The Marriott Griffin Gate Resort & Spa in Lexington, Kentucky, is one of three hotels Inland American Real Estate Trust acquired from DiamondRock Hospitality Company.
OAK BROOK, Illinois—Inland American Real Estate Trust is beginning its move up the chain scale.
The public, non-traded real-estate investment trust on Wednesday announced its subsidiary closed on the purchases of five hotels, representing 2,302 rooms, for a purchase price of $393.1 million.
The properties acquired are indicative of the REIT’s desire to add upper-upscale properties to its portfolio, which numbers approximately 100 hotels and comprises brands such as Hilton Garden Inn, Residence Inn by Marriott, Courtyard by Marriott and Homewood Suites by Hilton, said Craig Lambert, executive VP of asset management for Inland American.
Lambert said the company sees group demand increasing, and acquiring upper-upscale hotels will help the company get its share of that business. Also, Lambert noted supply growth of upper-upscale properties is lower even than overall hotel supply growth, which was at 0.3% year to date through February, according to HotelNewsNow.com’s parent company STR.
“We think midsize, full-service hotels with good convention and meeting space will be very successful hotels over the next two to five years,” Lambert said.
The hotels acquired—including a three-hotel portfolio bought from DiamondRock Hospitality Company—are:
• Renaissance Arboretum in Austin, Texas (492 rooms)
• Renaissance Waverly in Atlanta (521 rooms)
• Marriott Griffin Gate Resort & Spa in Lexington, Kentucky (409 rooms)
• Marriott San Francisco Airport Waterfront in Burlingame, California (685 rooms)
• Hilton St. Louis Downtown in St. Louis (195 rooms)
The hotels have approximately 217,500 square feet of meeting and banquet space combined.
The company intends to invest $50 million in renovating the hotels. The renovations will cover such areas as guestrooms, public spaces and meeting areas.
The renovations also will help the REIT drive rate, which Lambert said is key to the industry’s prospects for recovery.
“Moving rate isn’t easy, but it’s important that we do that,” Lambert said.
While there’s no automatic number as far as average-daily-rate growth that comes with the renovation of a property, Lambert said the work could yield a one- or two-point ADR increase over the hotels’ competitive sets.
“Our group customers appreciate the reinvestment and give us the benefit of the doubt over pricing,” he said.
Overall, Lambert said Inland American is upbeat about hotels. “I think we are very positive about the sector and the growth we’re expecting,” he said.
Hotel sales could be possible as Inland American looks to rebalance its portfolio, Lambert said. “I would not be surprised if we sell some of our hotels, also,” Lambert said.
The company, Lambert said, is marketing a 17-hotel portfolio, comprised of brands such as Holiday Inn Express, Comfort Inn, Hilton Garden Inn and Hampton Inn.
“We continue to like these brands,” Lambert said. He added that at this time, however, the company wants to recycle capital from the sale of these hotels.
Still, Inland American is likely to be a net buyer rather than a net seller of hotels during 2012, Lambert said. The company doesn’t have a “hard number” as far as how much capital might be deployed for hotel acquisitions this year, he said. Inland American is lower 48 states focused in the United States.
Hotels represent approximately 30% of the company’s total $11 billion in assets, making it the second largest sector in which Inland American is invested. Its largest investment sector is in retail, which represents 36% or 37% of the total portfolio.