Morguard Corp. is offloading the majority of its Canadian hotels as the company shifts its focus to its core real estate investments, including office, industrial, and retail properties.
The real estate company announced this week that it has inked a $410M deal to sell a portfolio of 14 hotels across Ontario and Nova Scotia, a "strategic move" that includes Marriott, Hilton, and IHG properties, as well as independent hotels.
Ten of the hotels are located in the Greater Toronto Area, including in Toronto, Mississauga, Markham, and Vaughan, while the remaining four are found in Ottawa, Sudbury, and Halifax.
The Courtyard by Marriott Toronto Airport, Hotel Carlingview Toronto Airport, Residence Inn by Marriott Toronto Airport, and Toronto Airport Marriott are included in the sale, as are the Courtyard Marriott Vaughan, Courtyard Marriott Mississauga, and Cambridge Suites Mississauga.
Mississauga’s Hilton Garden Inn Toronto Airport West, the Courtyard Marriott Markham, and Residence Inn Marriott - Markham will be changing hands as well. Outside the GTA, the sale includes Ottawa’s Holiday Inn Express, Sudbury’s Towne Place Suites by Marriott, and Halifax’s The Prince George Hotel and Cambridge Suites Hotel Halifax.
The dual-brand Hilton Garden Inn and Homewood Suites in Ottawa and Inn at the Quay in New Westminster, British Columbia, are not included in the sale and will continue to be owned by Morguard.
"It is an opportune moment to divest these properties given the current market demand for a hotel portfolio of this size and quality, as well as their enhanced market value," said K. Rai Sahi, Chief Executive Officer and Chairman at Morguard.
"Morguard has strategically divested our hotel portfolio to align with our objectives of strengthening the company's balance sheet while owning a high-quality portfolio of income producing real estate."
Amidst pent-up demand for leisure trips and the resumption of business travel, hotel stays exceeded pre-pandemic levels in several Canadian cities in 2023, according to CBRE. National revenue per available room – a key indicator of hotel performance – is expected to reach $133 in 2024, up from $128 in 2023 and $106 in 2019, as the industry continues to "stabilize and grow" post-pandemic. The average daily rate is forecast to hit $198 this year, a $35 increase over 2019, as costs for operators creep up, too.
The deal is subject to customary closing conditions and is expected to close in the first quarter of 2024, Morguard said. After the transaction is complete, the company plans to repay $48.7M in first-mortgage debt, leading to net proceeds of $361.3M.
"The heightened level of financial flexibility provided by this transaction will empower us to strategically deleverage, which is important given the current interest rate environment," said Paul Miatello, Morguard's Chief Financial Officer.
The hotel sector represents the smallest proportion of Morguard’s $14.9B real estate portfolio. By asset class, residential properties account for the greatest share at $6.4 B, followed by retail at $4B, office at $3.1B, and industrial at $1B.