Hong Kong's Bluesky in Deal to Buy InnVest for $1.6 Billion

  • Bluesky agrees to pay 33% premium in all-cash purchase
  • InnVest hotel holdings to help Bluesky expand in North America

Bluesky Hotels & Resorts Inc., a closely held company backed by capital from Hong Kong, agreed to buy InnVest Real Estate Investment Trust for C$2.1 billion ($1.6 billion), giving the firm a stake in some of Canada’s most historic hotels and beachhead for expansion in North America.

Bluesky will pay C$7.25 a share, the companies said in a statement Tuesday. That’s a 33 percent premium to Tuesday’s closing price of C$5.47 for Toronto-based InnVest, including debt. Shares of InnVest jumped 27 percent, the most on record, to C$6.96 at 9:46 a.m. Toronto time Wednesday.

The deal would give Bluesky one of Canada’s largest hotel portfolios with 109 properties, including a stake in Toronto’s Fairmont Royal York Hotel, which was built in 1929 and host to British royalty. InnVest also holds a 50 percent stake in Choice Hotels Canada Inc., one of the biggest franchisers of hotels in the country.

“This transaction is an investment that will establish a global platform from which Bluesky will continue to pursue growth opportunities in North America,” Bluesky Chief Executive Officer Li Chen said in the statement.

Bluesky is the latest firm with Asian ties to wade into the North American hotel industry. A unit of China’s HNA Group Co. agreed to buy closely held Carlson Hotels Inc. in April, gaining brands including Radisson and Park Plaza. Beijing-based Anbang Insurance Group Co. made a surprise $14 billion bid for Starwood Hotels & Resorts Worldwide Inc. in March before walking away.

Hyatt, Travelodge

The deal is the largest purchase of a Canadian REIT since H&R REIT bought Primaris Retail REIT for C$4 billion in 2013 to become Canada’s largest REIT at the time, according to data compiled by Bloomberg. It gives Blue Sky 14,500 rooms that span brands including Fairmont, Hyatt, Travelodge and Holiday Inn.

The deal received support from InnVest unitholders Orange Capital LLC and KingSett Capital, who in 2014 successfully campaigned to force the company to manage its assets internally and add new board members and who own about 29 percent of the stock. The transaction is expected to close in the third quarter.

Since then, the firm has purchased several assets, including the Marriott hotel in Ottawa, and made investments alongside KingSett Capital. It adopted a new unitholder rights plan on April 29 to "ensure that all unitholders are treated fairly and have an equal opportunity to participate in an offer for units of InnVest" that could result in a change of control of InnVest, it said at the time.

KingSett will retain its majority ownership of Toronto’s Fairmont Royal York hotel and Courtyard Marriott properties, according to the statement, according to the statement.

Canadian Imperial Bank of Commerce was financial adviser to InnVest and Royal Bank of Canada was KingSett’s financial adviser.

InnVest, with a market value of C$731.7 million, has lost 20 percent in the past five years through Tuesday, while the benchmark Canadian index, S&P/TSX Composite index has been flat.

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