Chatham-Cerberus Venture to Sell 51 Innkeepers Hotels

Chatham Lodging Trust’s joint venture with Cerberus Capital Management LP is offering for sale 51 extended-stay hotels operated under the Innkeepers brand two years after they were acquired.

The U.S. properties, with 6,847 rooms, have $950 million of interest-only debt and are unencumbered by management contracts, Palm Beach, Florida-based Chatham said today in a statement. The venture has made back 92 percent of its original capital investment, and the value to Chatham of a sale “could be meaningful,” Chief Executive Officer Jeffrey Fisher said.

Chatham and New York-based private-equity firm Cerberus paid $1.02 billion in October 2011 for 64 Innkeepers hotels. The price was less than the $1.12 billion the companies had previously offered after a dispute over whether the deal could be called off because of signs of a slowing economy at the time. Now the partnership is seeking to sell the properties as hotel occupancies and revenue climb.

“We know these hotels very well,” Fisher said in the statement. “Results are very strong, and with industry experts projecting attractive growth in the future, we would expect the portfolio to continue to produce great results.”

Cancellation Sought

After Innkeepers won approval of the terms of a bankruptcy reorganization in August 2011, Cerberus and Chatham sought to cancel their purchase of the bulk of the company’s extended-stay, mid-priced and upscale hotels. They cited a clause that allowed them to back out if there was an adverse change to Innkeepers’ business or the economy. Innkeepers sued, saying there had been no such change since reaching the binding agreement in May of that year.

The U.S. hotel industry has since recovered, with revenue per available room, an industry measure of average daily room rates and occupancies, climbing 5.3 percent in January through November of 2013 from a year earlier, according to Hendersonville, Tennessee-based research company STR.

Chatham last year rejected a takeover bid from New York-based shareholder BlueMountain Capital Management LLC. Shares of Chatham, which said it could achieve greater returns for its stockholders on its own, are trading close to the company’s $20 initial public offering price from April 2010. V3 Capital Management LP, Chatham’s largest shareholder, with an 8.2 percent stake, also is pushing for a sale.

Chatham rose 1 percent to $20.50 at 12:03 p.m. in New York.

About $171 million, or about $25,000 per room, has been invested in the Innkeepers properties since 2007, Chatham said today. The portfolio’s revenue per available room grew by an estimated 5.5 percent last year, with earnings before taxes and other items of about $101 million.

Eastdil Secured LLC is the adviser on the offering.

Before it's here, it's on the Bloomberg Terminal.