Bluesky Hotels and Resorts Inc., a privately-held Canadian company backed by Chinese capital, agreed to acquire InnVest Real Estate Investment Trust (TSX:INN.UN), one of Canada’s largest hotel owners, for C$2.1 billion ($1.6 billion), including the assumption of InnVest’s net debt.
InnVest REIT holds one of Canada’s largest hotel portfolios together with a 50% interest in Choice Hotels Canada Inc., one of the largest franchisors of hotels in Canada. InnVest owns a portfolio of 109 hotels across Canada representing over 14,500 guest rooms. The hotels are managed by five hotel management companies, Westmont Hospitality Management Canada, Marriott International, Fairmont Hotels & Resorts, Hilton Canada and Hyatt Hotels. InnVest Real Estate Investment Trust was founded in 2001 and is headquartered in Mississauga, Canada.
InnVest went public in 2002 as a way for Westmont Hospitality Group and a partner to sell a stake in a portfolio of hotels they owned. Westmont was founded in 1975 by now renowned hotelier Majid Mangalji, its president, who in a relatively short period of time, built Westmont from a single property in the Pacific Northwest into one of the largest privately-held hospitality organizations in the world, with significant presence in North America, Europe and Asia. Mangalji served as chairman of InnVest from 2002 to June 2015, when he was designated as chairman emeritus. He officially retired from InnVest’s board of trustees in January this year.
Bluesky is focused on the development of a diversified asset portfolio of hotels, hospitality services, real-estate and other long-term holdings, and was formed to own and acquire hotels and other real-estate properties.
The company is said to have ties to China’s Anbang Insurance, which in 2014 acquired the Waldorf Astoria New York hotel from private equity firm Blackstone Group (NYSE: BX) for nearly $2 billion. In March 2016 a consortium led by Anbang made a $14 Billion offer for Starwood Hotels and Resorts Worldwide, but it subsequently abandoned the deal.
“Bluesky welcomes the opportunity to acquire the InnVest business,” stated Li Chen, president and CEO of Bluesky, a former Anbang executive based in Beijing.
“We are impressed with InnVest’s hotel assets and its management team. This transaction is an investment that will establish a global platform from which Bluesky will continue to pursue growth opportunities in North America,” Chen added.
“Speculation linking Anbang to Bluesky is incorrect. There is no connection between Anbang and Bluesky,” a spokesman for Anbang told The Wall Street Journal.
Under the deal, unitholders of InnVest will receive $7.25 per InnVest unit in cash, representing a premium of 37% over the 30-day volume weighted average trading price of InnVest units of $5.28 per unit on May 10, 2016.
“This transaction is a winning outcome for all stakeholders. The dedicated work of InnVest to improve its portfolio quality and strengthen its balance sheet has culminated in the crystallization of value that this transaction represents. Bluesky is aligned with InnVest’s strategic objectives for the portfolio, and I look forward to continuing to lead InnVest on the path of asset quality driven growth,” said Drew Coles, president and CEO of InnVest, who will remain in his position after the closing.
HVS, which tracks the hotel industry in Canada, said that RevPAR — revenue per available room — hit record levels in 2015 of $92. It forecast that number to climb to $95 in 2016 and then $98 by 2017, according to the Financial Post.
The deal has been unanimously approved by InnVest’s board of trustees. Binding agreements have been entered into with unitholders accounting for approximately 29.1% of InnVest’s total outstanding units, including affiliates of KingSett Capital and Orange Capital. Bluesky has made a $100 million deposit in escrow and the transaction is not subject to obtaining financing commitments. InnVest’s headquarters will remain in Toronto, Canada.
The transaction is expected to close in the third quarter of 2016 subject to customary conditions, including the approval of InnVest unitholders, and Canadian regulatory approvals.
CIBC World Markets Inc. is acting as financial advisor to InnVest and provided a fairness opinion to the Board in connection with the transaction. Norton Rose Fulbright Canada LLP is acting as legal advisor to InnVest. Bayfield Strategy, Inc. has been retained as InnVest’s communications and media advisor.
Bluesky’s legal advisor is McCarthy Tétrault. Navigator Ltd. has been retained as Bluesky’s public affairs advisor.
RBC Capital Markets acted as KingSett’s financial advisor in connection with this transaction. Osler, Hoskin & Harcourt LLP is acting as legal advisor to KingSett.
Trimaven Capital Advisors Inc. acted as Orange Capital’s financial advisor in connection with this transaction. Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal advisor to Orange Capital.