The Montreal Sheraton Centre, an 825-room downtown hotel, is being acquired by VM Hotel Acquisition Corp. (Google Maps)

The 825-room Montreal Sheraton Centre is among a portfolio of five North American properties to be acquired in a $520-million (all figures Can) transaction by special purpose acquisition company VM Hotel Acquisition Corp. (VMH-U-T).

The properties, which are all considered premier-quality hotels, comprise a total of 2,079 rooms in four cities – also including Boston, Cleveland and Panama City Beach, Fla. The Montreal Sheraton is the largest of the five hotels.

Following the qualifying transaction, Toronto-based VMH will be a publicly traded real estate operation company. In the announcement Tuesday morning, VMH’s management says it plans to employ a long-term real estate strategy of acquiring and growing a portfolio of high-quality, iconic and well-located upper-upscale and luxury North American hotel and resort properties at a discount to their stabilized values and replacement costs.

“We are excited to announce the qualifying acquisition, which, upon closing, will allow our shareholders to participate in the unique buying opportunity created by the COVID-19 pandemic to acquire high-quality hotels at significant discounted prices relative to their intrinsic value and replacement cost,” said Ian McAuley, VMH’s president and CEO, in the announcement.

“Following closing of our qualifying acquisition, we believe that our REOC structure will offer investors private equity-like returns and liquidity of the public capital markets, while we continue to invest in the rebound of the hotel industry.”

The hotels involved are:

The Montreal Sheraton Centre

The Montreal Sheraton Centre is located at 1201 René-Lévesque Blvd W. In the downtown. One of the largest hotels in the city, it has been undergoing significant recent renovations and upgrades to incorporate Sheraton’s updated branding.

It’s about two blocks from Concordia University and a short walk to the port area, Mont Royal Park, the Montreal Museum of Fine Art and many other downtown attractions.

VMH is acquiring 100 per cent interests in all the properties except for the Cleveland Renaissance.

Skyline Investments will maintain a 10 per cent interest in that property as part of a strategic partnership with VMH. Skyline currently holds both the Cleveland Renaissance and Hyatt Regency.

The portfolio is being acquired at an attractive valuation, the announcement states. The purchase price represents a 25 per cent discount to appraised stabilized values, a 65 per cent discount to replacement cost and a weighted average of approximately $250,000 per key.

The acquisition also partners VMH with several leading hotel brands including Hyatt Hotels Corporation, Marriott International, Inc., Aimbridge Hospitality, Westmont Hospitality Group and Crescent Hotels and Resorts.

VM Hotel financing and leadership

Following the acquisition, VMH’s leadership team of McAuley, executive chair Tom Vukota  and CFO Tom Wenner will continue to lead the business.

McAuley and Vukota have extensive experience in the sector, having led multi-billion dollars worth of transactions, while Wenner has completed over 175 real estate transactions and over $1.2 billion in debt and equity financings.

VMH’s board comprises independent members Tracy Sherren (president, Canadian commercial, Starlight Investments), Charles Suddaby (who has provided advisory and valuation services to the hotel industry for over 40 years) and Dr. John Andrew (executive director of the Queen’s University commercial real estate executive seminars and a professor at Queen’s School of Urban and Regional Planning).

Blake D. Lyon (CEO and a director at Skyline Investments) will join the board at closing.

The $520-million purchase price is expected to be funded through a combination of approximately $329 million of mortgage financing, $25 million raised through the issuance of VMH shares to a vendor, and the remaining portion funded through cash on hand and a PIPE Investment.

The private placement (the PIPE investment) is intended to raise $183 million through the issuance of 14.5 million subscription receipts (to be converted into shares when the transaction closes) at $10 US per unit.

The proceeds will satisfy the minimum cash required to complete the qualifying acquisition, and are intended to be used to provide working capital and fund VMH’s growth.

The investment is conditional on a number of factors, including closing of the acquisition.

“As a publicly listed REOC targeting the upper-upscale and luxury hotel segment, we believe VMH will be uniquely positioned to consolidate the space and transact on an expected significant pipeline of follow-on U.S. and Canadian acquisitions the company expects to pursue post-closing,” Vukota said in the announcement.