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Sunray Group buys 4 Ontario, Alberta hotels for $76.7M

Acquisitions in Ottawa, Sault Ste. Marie and Calgary in 3 transactions

The Sheraton Ottawa Hotel, which has been acquired by Sunray Group. (Courtesy Sunray Group)
The Sheraton Ottawa Hotel, which has been acquired by Sunray Group. (Courtesy Sunray Group)

A continuing recovery from the lows of the COVID-19 pandemic and strong fundamentals in Canada’s hotel industry are behind Sunray Group’s acquisition of four hotels in recent weeks.

“We are bullish all the way through the hotel business in Canada,” Sunray Group president Kenny Gibson told RENX.

“We're seeing pretty solid metrics in the hotel business, both in occupancy and rate, which translates to RevPAR (revenue per available room). The recovery has been much stronger than anybody thought.” 

In its most recent transactions, Sunray Group acquired the Sheraton Ottawa Hotel in an off-market deal for $43.2 million from Hong Kong-based Keck Seng Investments on Feb. 29. 

The Toronto-headquartered hospitality and development company also acquired Fairfield Inn & Suites by Marriott and Quality Inn & Suites Bay Front in Sault Ste. Marie, Ont., for a combined price of $21 million from a locally owned numbered company in another off-market deal that same day.

Those deals follow the late-January acquisition of Hampton Inn & Suites by Hilton Calgary Airport for $12.5 million from Triple One Properties Ltd.

Sheraton Ottawa Hotel

The 236-guest room Sheraton Ottawa Hotel at 150 Albert St. W. is located in the heart of the city near Parliament Hill, government buildings, foreign embassies, consulates, restaurants, bars, retail and entertainment options.

On-site amenities include 9,600 square feet of meeting space, a restaurant, a bar, a convenience store, an indoor swimming pool and a fitness centre.

The property is managed by Marriott International, the largest hotel corporation in the world. 

“This group knew that we were Marriott franchisees and the hotel needed a significant amount of capital,” Gibson explained. “So they approached us knowing that we have a good reputation and a good track record of spending capital on hotels.

“We were supported by Marriott and, quite frankly, the seller felt that it was a good idea to sell to us as well.”

Gibson believes needed cosmetic renovations at the hotel will cost between $15 million and $20 million and include guest room upgrades as well as reimagined public space to make it more appealing.

“It’s a great investment,” said Gibson. “It's just the right size to be able to yield rate and occupancy very well.”

The hotel is Sunray Group’s first foray into Ottawa and fits well into its expansion strategy.

“We've typically been purchasers of hotels along the Highway 401 corridor (in Ontario) and more focused-service hotels,” Gibson said. “As the company continues to grow, we’re looking at more strategic buys that are on the full-service side.”

Sault Ste. Marie acquisitions

The two Sault. Ste. Marie hotels combined have about 200 guest rooms and were acquired from a local group that Gibson said was comprised of members looking for an exit strategy to finance their retirements and enhance their estates.

Fairfield Inn & Suites, at 633 Northern Rd., features an indoor pool and hot tub, an exercise room, a gift shop, a business centre and 1,100 square feet of meeting space.

Quality Inn & Suites Bay Front, at 180 Bay St. across from Station Mall, features an indoor heated pool and sauna, an exercise room, a restaurant, a lounge/bar, a business centre, and four meeting and banquet rooms.

“There's a product improvement plan for the Fairfield that we're going to have to do, but it’s not material, and we plan to do some renovations to the Quality to bring it more into line with what we would view as an acceptable hotel in that location,” Gibson said.

The Fairfield Inn will retain the same brand. Sunray Group has entered into a longer-term arrangement with Choice Hotels for the Quality Inn under which it can re-evaluate the branding in a few years.

Gibson said very few hotels are put on the market in Ontario, but Sunray Group is interested when what it considers to be the right ones come along. 

The new acquisitions increase the size of the company’s lodging portfolio to 65 across Canada. It also has an ownership stake in three hotels in Texas. 

Calgary acquisition

The 103-guest room Hampton Inn & Suites by Hilton Calgary Airport, at 2420 37th Ave. NE, features a children’s play area, a gift shop, an indoor pool, a games room, a fitness centre and barbecue grills.

The hotel also fits well with Sunray Group’s growth strategy.

“We think that there's some upside in Western Canada,” Gibson observed. “It’s less expensive on a per-room basis in Western Canada. 

“We have to have a longer investment horizon because it's going to take some time for that market to recover, but I think the capital gains there will be greater than in Eastern Canada. But you have to have the wherewithal to sustain and support the asset in the interim term in order to realize those gains.”

CFO Capital arranged the acquisition financing for both the Sheraton Ottawa Hotel and the Hampton Inn & Suites by Hilton Calgary Airport.

“Even in light of where the financial rates are today, we still think there's room to continue to grow our business,” Gibson said.

“We're doing shorter-term debt with the notion that, in the medium term, interest rates are going to come down to a more normal level.”

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