Inland Taking on More Upscale Hotel Properties

Inland American Real Estate Trust's subsidiary Inland American Lodging Group Inc. is refocusing its portfolio on full-service hotels.

The company announced Mar. 28 that it had purchased five "upper-upperscale" hotels, including three it acquired from DiamondRock Hospitality Co. (NYSE: DRH), for a total of approximately $393.1 million. The upper-upperscale category consists of full-service brands, such as Marriott and Hilton.

"We've slowly been expanding the percentage of our portfolio into the upper-upperscale. We feel like it's really the best play for the next few years in the cycle," said Marcel Verbaas, president and CEO of Inland American Lodging Advisor Inc., which acquires and manages lodging properties on behalf of Inland American Real Estate Trust, in an interview with REIT.com. "Group business is slowly coming back, and by having these hotels, it will give us the best value growth over the next few years."

Although the group business is witnessing a rebound, Verbaas added that leisure travelers aren't as predictable.

"The leisure business is very price sensitive, but overall the fundamentals are looking favorable. Supply growth is muted over the next few years," he said.

over the past few years, the company has sold some of its midscale hotels, which include brands like Hampton Inn, to prepare for the rebalancing of its portfolio.

The three-property portfolio from DiamondRock consists of the Renaissance Arboretum in Austin, Texas; the Renaissance Waverly in Atlanta; and the Marriott Griffin Gate Resort and Spa in Lexington, Ky. They totaled $262.4 million and come with 1,422 rooms and more than 153,000 square feet of meeting and banquet space.

In a separate transaction, Inland also purchased the Marriott San Francisco Airport Waterfront for $108 million and the Hilton St. Louis Downtown for $22.6 million.

As hotel fundamentals gradually improve and more lodging guests begin to book meetings and conventions, Verbaas said Inland American Lodging had bought the high quality assets at attractive prices. From the perspective of Inland American Real Estate Trust, the transaction is small, Verbaas noted. However, he said the acquisitions are important for the lodging subsidiary.

"Within Inland American Lodging Group's portfolio, it's significant, as it just continues to increase the percentage of revenue that we receive from upper-upperscale hotels," he said.