Cerberus bets on hotels in towns hit by oil price decline

Cerberus Capital Management and Westmont Hospitality Group are betting on small Canadian hotels in Alberta and other regions hit hardest by the slide in oil prices.

The private equity firm and lodging company are buying 22 hotels in seven provinces from Fortis Properties, the real estate arm of gas and electricity provider Fortis Inc., for $ 365 million, says a person with knowledge of the transaction. Citigroup Inc. and Brookfield Asset Management will provide debt for the deal, the person said.

Fortis announced in July an agreement to sell the hotels without identifying the buyers. Nora Duke, head of the real estate unit at the St. John’s- based company, declined to comment beyond the July news release.

Cerberus and Westmont are buying the hotels at a time when Canadian economic growth is slowing. About half of the assets are in Alberta and Newfoundland and Labrador, two provinces reliant on oil and gas where local energy companies are cutting employees and scaling back their expansion plans.

The Fortis hotel portfolio includes the Ramada Plaza Calgary Airport Hotel; Holiday Inn properties in Edmonton, Lethbridge and Medicine Hat and a Best Western Plus in Medicine Hat.

Low oil prices are set to slow Alberta’s economic growth for years to come, according to the Conference Board of Canada. The province’s gross domestic product is likely to contract by 1 per cent this year, and the number of people migrating to Alberta for work will slow to 31,000 annually.

Cerberus, which oversees about $ 25 billion in assets ranging from amusement parks to debt issued by the bankrupt oil and gas company Samson Resources Corp., manages an array of real estate holdings around the world. The company has taken stakes in extended- stay hotel operator Chatham Lodging Trust and resorts in Hawaii. In recent months, the New Yorkbased firm has snapped up soured property loans from Royal Bank of Scotland Group Plc.

Fortis is selling the hotels as part of its real estate strategic review it started a year ago.