PALM BEACH, Florida—Sometimes you have to go with what you know. That, at least, was the route Chatham Lodging Trust took recently when the blind pool real-estate investment trust acquired interests in 69 former Innkeepers USA Trust hotels along with joint-venture partner Cerberus Capital Management.
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| Jeffrey H. Fisher, chairman, CEO, president, Chatham Lodging Trust |
Chatham’s chairman, CEO and president Jeffrey H. Fisher held the same position for 13 years at Innkeepers, the company he founded in 1994.
• Read “Chatham’s Innkeepers deal born of familiarity.”
Fisher recently discussed with the Hotel Investment Barometer the Innkeepers deal and his thoughts on the deal-making environment at large.
Q: What about this portfolio led you to this deal?
A: Our target markets are coastal markets. That’s exactly where Innkeepers’ hotels are. In fact, I believe that 77-80% of the hotels in that portfolio are in coastal markets.
Q: Do you see yourself as a long-term holder of these hotels?
A: Cerberus is not a long-term holder, but Chatham is. … Are we a net seller (this year or next)? We aren’t looking to sell.
Q: This deal essentially doubles the size of your company. Does this alter your operating strategy at all?
A: No, it doesn’t alter our operating strategy. From the perspective of our company, we’re looking at doing more deals. We’re looking at upscale, extended-stay and premium-branded, select-service hotels.
Q: What are you seeing in the debt markets these days?
A: Finding financing is still tough, but it’s not impossible. We primarily use our revolving line of credit. There is a little bit of debt out there.
Q: What kind of cap rates are you seeing?
A: We’re seeing 7-8% cap rates. … With cap rates in the sevens or low sevens, we are still finding the ability to acquire hotels.
Q: Chatham occupies a unique niche in the marketplace. Who are you butting heads with out there?
A: The opportunities for us are strong, but we’re not the only ones looking. … Hersha (Hospitality Trust) is mostly in New York City, (CIM Urban REIT) has a different focus, RLJ (Lodging Trust) is not new.
There are plenty of opportunities for everybody to grow over the next five years.
Q: What kind of debt do you have on your balance sheet? What’s your strategy for paying down this debt?
A: Most of our debt is on our revolver, which has another couple years, with an option to extend. After (the Innkeepers deal), we would be 50% levered, (US)$200 million in debt. The next thing we would do is try to issue some equity to pay down that debt and then grow again after that.
Q: Do you believe REITs have a buying advantage in the marketplace?
A: That seems to be the general thinking. But private opportunity and private-equity funds are attempting to acquire (too).
Q: Are you seeing a lot of bank-owned properties on the market?
A: That has stayed stable and there’s been no dramatic increase there.