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Colony Capital Offloads $2.7B Hotel Portfolio For $67M


Colony Capital has found assistance in escaping its hotel portfolio and the mountain of debt it was under.

Colony announced the sale Thursday of six hotel portfolios valued at a total of $2.8B to hospitality management firm Highgate Holdings. Colony will receive $67M in gross proceeds, while Highgate will assume the $2.7B of debt against the portfolios.

Highgate's purchase contains 22,676 rooms across 197 hotel properties, with the majority operating under either the Marriott or Hilton brand names, according to Securities and Exchange Commission filings for the fiscal year 2017. One of the portfolios involved is the THL Hotel Portfolio, a select-service hospitality portfolio of which Colony acquired 55% in 2017 but did not categorize in its hospitality real estate holdings in financial disclosure documents. Select-service hotels do not offer food or beverages and are almost always among the cheapest rooms in the sector.

With the sale, expected to close in the first quarter of next year, Colony all but exits the hospitality sector as it continues its pivot to focus almost exclusively on data centers and digital infrastructure, The Real Deal reports. The only hotel properties excluded from the sale are tied up in what Colony calls its Inland portfolio, which is under receivership.

Aside from Colony's internal mandate to shed assets that don't fit with its new direction, a major source of pressure to get rid of its hotels was that debt load. Though much of its debt wasn't scheduled to mature until 2022, according to SEC filings, Colony ceased payment on $3.2B worth of CMBS loans early in the coronavirus pandemic's course, which led to default in May.

Tom Barrack, Colony's executive chairman and former CEO, has continued to donate large sums to President Donald Trump's re-election campaign while he publicly solicited financial assistance for the commercial real estate sector this year.

Barrack's close association with the president — he chaired Trump's inauguration committee in early 2017 — has drawn scrutiny to the point where an activist minority investor blamed the relationship for hundreds of millions of dollars in losses while calling for his removal last year. Barrack stepped down as CEO earlier this year and passed the reins to his hand-picked successor, Marc Ganzi.

With the purchase of 197 hotels, Highgate will more than double the number of properties it owns, placing a multibillion-dollar bet on the industry that has been hit the hardest by the coronavirus pandemic.

“Despite the unprecedented disruption in hospitality over the past six months, we remain bullish on the long-term secular trends in our industry,” Highgate Managing Principal Mahmood Khimji said in the press release announcing the deal.

Colony stock prices jumped over 16% in after-hours trading after news of the sale broke on Thursday, Seeking Alpha reports.