Tennessee-based Equity Inns Inc. (NYSE: ENN) announced Thursday that it will purchase a Marriott Courtyard in Carlsbad from Huntington Hotel Group for $22 million.
The purchase marks Equity's entry into the California marketplace.
"It's expensive out there," said Ed Ansbro, senior vice president of real estate at Equity Inns, to explain the company's previous absence.
The company is the third largest hotel real estate investment trust in the U.S.
"We are pleased to have a presence in California and specifically its strongest MSA, while embarking on a new relationship with Huntington Hotel Group," said Howard Silver, president and CEO of Equity, in a statement.
"We have noting definitive right now," but the company is scouting additional properties in California, Ansbro said.
The acquisition is expected to close by the end of the forth quarter, after completion of due diligence. The capitalization rate of the acquisition is 9.2 percent on a trailing 12 month net operating income basis.
Acquisition of the 145 room hotel will follow the satisfactory completion of due diligence, and the transaction is expected to close by the end of the fourth quarter 2005.
Under the deal Huntington Hotel Group, which is a developer and operator of Marriott and Hilton branded hotels, will continue to manage the property under a three-year performance-based management contract.
"This was an opportunity that they [Huntington] brought to us," Ansbro said. He explained the purchase was a good fit for Equity because Marriott and Hilton are its preferred brand partners. About eighty percent of Equity's properties fall under those chains.
Equity Inns said it purchased the property in the Carlsbad submarket because the area has evolved from being primarily a weekend vacation market into a substantial commercial, residential and leisure destination. Since 1995, over eight million square feet of office space and research/development facilities and 15,000 housing units have been developed, and there are currently an additional three million square feet of office and research and development space in development.
"We've been looking at the market now for more than a year. We knew that Carlsbad was a good area," Ansbro said.
Separately, Equity Inns announced that it has finalized its purchase of four hotels in the Midwest. The company completed the purchase of four hotels from partnerships controlled by Hospitality Specialists, Inc., a hotel developer and management company, for approximately $25.9 million, or $69,000 per room. The hotels include a Hampton Inn and SpringHill Suites in Grand Rapids, Michigan, along with two Hampton Inns located in East Lansing, Michigan and Champaign/Urbana, Illinois.
The company said it expects that the acquisition of the hotels will be accretive to its 2006 funds from operations.
After the Carlsbad and Midwestern deals are complete, Equity Inns will own 123 hotels with 14,788 rooms in 36 states.