Summit Hotel Properties through its joint venture with GIC is set to add 27 hotels and other assets to its portfolio by entering into an $822 million deal with NewcrestImage.
On Wednesday, the Austin, Texas-based real estate investment trust announced that through its joint venture with Singaporean wealth fund GIC, it would purchase a 27-hotel portfolio, two parking structures and financial investments from affiliates of NewcrestImage.
The total consideration for the deal is said to be $776.5 million for the 27-hotel portfolio — $209,000 per key —$24.8 million for the two parking structures and $20.7 million for the various financial investments. All assets are located in the United States, in Texas, Oklahoma and Louisiana.
The deal does not include the Sinclair Hotel in Fort Worth, Texas, or the Magnolia Hotel in Dallas, which NewcrestImage will continue to own and operate. The company purchased the Magnolia Hotel in March from Stout Street Hospitality.
Summit expects to enter into management agreements with Aimbridge Hospitality for all 27 hotels.
In 2019, Summit struck a joint venture with GIC to acquire hotel assets in the United States, with Summit serving as asset manager, investing 51% of the equity capitalization and GIC investing 49%. The joint venture has made some hotel acquisitions, including the Hampton Inn & Suites Silverthorne, in Silverthorne, Colorado.
Upon completion of the deal with NewcrestImage, the joint venture will have invested approximately $1.3 billion of capital.
Currently, Summit has 73 hotels in its portfolio; 61 are wholly owned.
Jonathan Stanner, Summit's president and CEO, said in a news release announcing the deal that these hotels are complementary to its existing portfolio and are well-located with presence in "high-growth Sun Belt markets."
"We have creatively structured the transaction with the issuance of both common and preferred operating partnership units and continued our partnership with GIC, which will preserve nearly all our existing liquidity of approximately $450 million. We expect the transaction to be immediately accretive to earnings and leverage-neutral to our balance sheet leaving us ample investment capacity to continue to grow our portfolio,” he said.
During Summit's third-quarter earnings call with investors Thursday morning, Stanner described the deal as both a bet on the Sun Belt and the beginning of what they expect to be a long-term relationship with NewcrestImage.
The lion's share of the NewcrestImage portfolio is within the state of Texas, with much of it dispersed across across smaller markets. Stanner believes those markets are poised for outsized growth.
"A lot of these are in our backyard," he said."We're based here. We can see the growth that's happening in Texas and the migration down here from a people perspective. With corporate relocation activity, the job growth is very real, and in many ways, Dallas is kind of the epicenter of that growth. So I think the concentration, particularly in some of these markets, is something we think in the near term is very good from a growth perspective."
Stanner is not worried the deal leaves his company overexposed in Texas. After closing the deal in late 2021 or early first quarter 2022, 70% of Summit's portfolio will be in Texas.
"While it's a lot of concentration, it's a very big state, and the properties are located in fairly distinct submarkets," he said. "Amarillo is actually closer to Denver than it is to Austin or Houston."
He said he's excited about the prospects in some of the smaller markets where they're gaining a foothold.
"Some of these smaller markets are actually kind of sneaky good little markets," Stanner said. "We didn't really know a lot about the Amarillos of the world, the Lubbocks of the world, the Tyler, Texases of the world, but as we got into the due diligence, I think we got more and more comfortable with them. While they're smaller markets, they're actually very good, and some of our best acquisitions over the course of the last three or four years have been in smaller markets."
He's also optimistic due to the overall makeup of the portfolio, roughly a third of which was built within the last three years, including and unopened property in New Orleans.
Stanner noted the structure of the deal doesn't tap into Summit's liquidity position and leaves them with the same amount of debt on their balance sheet, leaving the company poised to make continued acquisitions as they see fit, although he did note closing on and integrating the portfolio will take a significant amount of time and attention.
"We did want to make sure that we continue to have capacity to grow the business, and we will look to continue to do that on an opportunistic basis," he said.
Summit is funding its contribution to the deal with common and preferred operating partnership units to NewcrestImage, making that company the single largest shareholder in the lodging real estate investment trust and guaranteeing them a seat on the board.
Asked during the earnings call if Summit officials had any insight into how long NewcrestImage plans to hold their stock position, Stanner said all indications are this is a long-term relationship.
"I can't speak directly to what their intentions are for the stock, but I think, conceptually, as we talked about putting this deal together and particularly with their representation on the board, the expectation is for it to lead to a longer-term relationship. And hopefully they can help us continue to grow the business."
The 27 hotels within the portfolio include brands under Marriott International, Hilton and Hyatt Hotels Corp flags. The two parking structures are in Texas.