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

The private equity firm and lodging company are buying 22 hotels in seven Canadian provinces from Fortis Properties, the real estate arm of gas and electricity provider Fortis Inc., for C$365 million ($278 million), according to a person with knowledge of the transaction. Citigroup Inc. and Brookfield Asset Management Inc. will provide debt for the deal, said the person, who asked not to be identified because the terms aren’t public.

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, Newfoundland-based company, declined to comment beyond the July press release. Anthony Messina, president of Westmont’s Canada unit, didn’t respond to a request for comment. John Dillard, a spokesman for New York-based Cerberus, and representatives from Citigroup and Brookfield declined to comment.

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 expansion plans.

The Fortis hotel portfolio includes a 93-room Holiday Inn Express in Medicine Hat, a town of about 60,000 people in Alberta where many residents are employed by one of the hundreds of companies that service the energy industry. Fortis also owns the Greenwood Inn, a 102-room hotel in Corner Brook, Newfoundland, a 20,000-person town on Canada’s east coast in a province with a handful of offshore oilfields.

Oil Plunge

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 percent this year, and the number of people migrating to Alberta for work will slow to 31,000 annually, less than half the average intake over the past four years. In Newfoundland, Husky Energy Inc. announced last year it was delaying a C$2.8 billion ($2.1 billion) expansion in the province.

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 York-based 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 that it started a year ago. It marks the last stage in divesting its property holdings after selling 2.8 million square feet (260,000 square meters) of office and retail buildings to Slate Office REIT for $430 million in June. Fortis will use the proceeds to pay down debt and focus on its core business, Chief Financial Officer Karl Smith said on a second- quarter conference call.

Westmont owns more than 500 hotels spanning three continents. The closely held company’s properties range from budget accommodations to luxury hotels under brands including Fairmont, Hilton, Comfort Inn and Holiday Inn Express.

–With assistance from Rebecca Penty in Calgary.

This article was written by Sarah Mulholland and Katia Dmitrieva from Bloomberg and was legally licensed through the NewsCred publisher network.

Photo Credit: The Holiday Inn Express in Medicine Hat, Alberta. Intercontinental Hotel Group