LaSalle buys 2 San Francisco hotels

LaSalle Hotel Properties announced on Friday that it acquired the 131-room Harbor Court Hotel and 140-room Hotel Triton, both located in San Francisco for US$47.8 million from Kimpton Hotels and Restaurants affiliates.

LaSalle Hotel Properties, Bethesda, Maryland, funded the transaction with borrowings from its senior unsecured credit facility. Both hotels will continue to be operated by Kimpton Hotels and Restaurants, San Francisco.

“We are very excited to have acquired these two well-located assets in one of the strongest markets in the United States,” said Michael Barnello, president and CEO of LaSalle Hotel Properties. “After exceeding cyclical prior peak demand in 2011, the market continues to grow. We are equally encouraged by the very limited supply growth slated for the next several years.”

Both hotels are subject to building leases, both of which expire in approximately 34 years. LaSalle has budgeted US$1 million and US$2.5 million of capex for the Harbor Court Hotel and the Hotel Triton, respectively.

“These two acquisitions are more market-specific plays than property-specific plays, in our view, which we view as a positive given that San Francisco is expected to be one of the best-performing markets over the next several years,” said David Loeb, an analyst with R.W. Baird & Co. in a note to investors. “LaSalle is the building lessee for both properties; the Harbor Court Hotel lessor is the YMCA and the Hotel Triton lessor is a family. LaSalle acquired the two hotels at an 8.5% TTM cap rate, which is extremely attractive, in our view. LaSalle pays percent rent to the lessors, which only modestly affects the growth profile of the  properties, according to management; the lease payments are approximately 17% of revenues. The ‘expensive’ building lease creates leverage for LaSalle and provides enhanced returns on its equity.”

Exterior of the Harbor Court Hotel, located in San Francisco.
Exterior of the Harbor Court Hotel, located in San Francisco.