Soilbuild JV Braves Virus Scare to Buy Discounted US Hotels for $477M

A joint venture between Singapore-listed Soilbuild Construction Group and iProsperity, an asset manager which manages funds for Chinese high net worth individuals, has acquired a portfolio of US boutique hotels at a discount, braving the coronavirus crisis for the chance to pick up hospitality assets in the world’s largest market.

Sydney-based iProsperity said in a statement that the joint venture has agreed to purchase the set of seven hotels from Xenia Hotels & Resorts for $477 million – $2 million less than what the NYSE-listed REIT acquired them for between 2013 and 2015.

The deal, which is expected to close in May, is the second hospitality acquisition in six months for iProsperity, following its September purchase of a set of 23 Australian hotels for a reported A$300 million ($194 million).

The proportional ownership interest in the joint venture between Soilbuild and iProsperity has not been disclosed with enquiries to the two parties remaining unanswered at the time of publication.

Growing Demand for American Assets

Soilbuild director Lim Han Feng said that the JV is acquiring the set of hotels at a time when volatility in global markets is creating investment opportunities that promise long-term returns.

“The Kimpton portfolio is an example of buying assets below their most recent accumulated purchase price and still with scope for further value add,” Lim noted.

The 1,124-key portfolio comprises hotels under Intercontinental Hotels Group’s boutique Kimpton brand in Chicago, Denver, Salt Lake City and Philadelphia, as well as in Santa Barbara, California; Alexandria, Virginia and Portland, Oregon.

Based on the transaction price, the JV will be paying $424,377 per key for its new hostelries, with Xenia Hotels & Resorts indicating that the acquisition is being made at an initial capitalization rate of 5.3 percent. Following the deal, Kimpton Hotels & Resorts will continue to manage the hotels.

Getting a Cheap Rate on US Hotels

The acquisition marks the first time that iProsperity has joined forces with the 40-year old Singapore property group, which has expanded its operations from building residential and commercial projects to fund management. The group also sponsors a Singapore-listed REIT with a portfolio of 12 business parks and industrial properties valued at S$1.2 billion.

iProsperity group CEO Michael Gu said that the tie-up with Soilbuild comes as international investors grow increasingly interested in US real estate assets.

Xenia chairman and CEO, Marcel Verbaas, said that the disposal was consistent with the trust’s strategy of unlocking value within its portfolio to increase shareholder value, with the REIT manager adding that in 2019, the Kimpton portfolio contributed $30 million to the trust’s earnings before interest, taxes, depreciation and amortization.

Beefing Up a Hotel Portfolio

The Kimpton deal comes after a series of Australian real estate transactions involving iProsperity, which owns Melbourne’s Pullman on the Park Hotel as well as the city’s Chatswood Central shopping centre.

Two months before the firm’s acquisition last September of a portfolio of Accor hotels includings Ibis, Mercure and Novotel properties, iProsperity sold the 200-key Novotel Melbourne hotel and adjoining Century City Walk shopping centre in a A$150 million deal.

The company is also reportedly looking to sell 333 Kent Street in Sydney, which is approved for redevelopment as a luxury hotel and residential tower. iProsperity bought the asset on behalf of a group of Chinese investors in 2016 for the symbolic price of A$88.88 million.

For Soilbuild, the acquisition marks its second overseas purchase in six months, after the Singapore property group acquired a student accommodation project in the UK last September.

US REIT Exits at a Loss

Xenia is selling the hotels after acquiring them over a period of three years for a total of $479 million

The REIT acquired three of the hotels – the RiverPlace Hotel in Portland, the Canary Hotel in Santa Barbara and the Hotel Palomar in Philadelphia – for a combined $245 million in 2015.

In 2013 – before Xenia was spun off from the Inland American REIT – Inland Lodging Group acquired the Hotel Monaco Chicago, the Hotel Monaco Denver and the Hotel Monaco Salt Lake City for a combined $189 million, with all three now part of the Kimpton portfolio.

Inland American REIT had acquired the seventh hotel – the Lorien Hotel & Spa in Alexandria, Virginia – for $45 million in 2013.