Hotel Portfolio Transaction

American Hotel Income Properties Acquires 12 Hotels for $191.0 Million

AHIP also confirms completion of the previously announced profitable sale of the Economy Lodging portfolio for gross proceeds of $215.5 million
The hotels part of the AHIP acquisition
American Hotel Income Properties Acquires 12 Hotels for $191.0 Million

  • Acquisition of the 12 Premium Branded hotels at an approximate 8% capitalization rate
  • The hotels, all built in the last five years, are being acquired below replacement cost
  • Transaction follows completion of the sale of the Economy Lodging portfolio; AHIP is now exclusively a premium branded hotel REIT
  • The acquisition will be financed using proceeds from the sale of the Economy Lodging portfolio and a new interest-only fixed-rate term loan

(All numbers are in U.S. dollars unless otherwise indicated)

American Hotel Income Properties REIT LP (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB.U) announced that it has reached a definitive agreement to acquire a portfolio of 12 well-maintained Premium Branded hotels for $191.0 million excluding closing and post-closing adjustments.

The 12 hotels, totaling 1,203 guestrooms, are located across the United States and will significantly strengthen AHIP's geographic presence in Texas and the Midwest. The properties have all been constructed within the past five years, are stabilized and have minimal brand mandated property improvement plans.

The transaction is expected to close during December 2019, at which point AHIP's portfolio will consist of 79 Premium Branded hotels, representing 8,887 total guestrooms, that are licensed primarily with Marriott, Hilton and IHG.

"We're very excited to complete a significant component of our 2019 capital recycling program by adding these 12 high-quality, mostly all-suite focused, recently built select-service hotels to our portfolio of Premium Branded hotels," said John O'Neill, CEO.  "We're especially pleased with the acquisition cap rate and short closing timeline for this transaction, as the cash flow from these newer hotels will minimize the dilution from the sale of the Economy Lodging portfolio.  With no major capital renovations required, the hotels in this portfolio should perform without any income displacement. In addition, the improved debt financing terms we've secured for this transaction, including interest only payments at lower fixed interest rates, will meaningfully reduce our financing costs and drive higher cash flows.  We continue to believe higher-quality properties and attractive financing terms will drive better risk-adjusted FFO accretion and create value for our unitholders over the long term."

AHIP intends to use net proceeds from the sale of its Economy Lodging portfolio, alongside an approximately $105 million new fixed-rate term loan to finance the Acquisition.  Specifically, the facility will have a five-year term with fixed interest rates less than 4%, secured by the 12 new hotel properties.  Exact debt terms will be confirmed at the time the Acquisition closes. The hotels are being acquired for approximately $158,800 per key, which is below AHIP's estimate of replacement cost.

The 12 hotels in the Acquisition include six Marriott branded properties (two Courtyards, two Residence Inns, one Fairfield Inn & Suites and one TownePlace property), five Hilton branded properties (three Home2 Suites, one Hampton Inn and one Homewood Suites), and one IHG branded property (a Staybridge Suites).  Eight of the twelve hotels are all-suite products and all of these brands are complementary to AHIP's existing hotel portfolio of select-service, premium branded, upper-midscale to upper-upscale properties.  Importantly, all of the properties are already managed by Aimbridge Hospitality – AHIP's exclusive hotel manager, which should ensure a seamless transition into AHIP's portfolio.

The Acquisition also further diversifies AHIP's geographic markets, strengthening the Company's presence in markets outside of the U.S. East Coast.  Six of the new hotels are located in Texas, while the remainder are located in the Midwest (Michigan, Minnesota, North Dakota and Pennsylvania).  In line with AHIP's long-term strategy, all 12 hotels are located in metropolitan secondary markets that benefit from multiple demand generators and industries to support the local economies. 

THE ACQUISITION PORTFOLIO

HOTEL

LOCATION

HOTEL BRAND

YEAR BUILT

# of ROOMS

Courtyard St. Paul Woodbury

(Minneapolis)

Woodbury, MN

 

Marriott

 

2018

 

120

 

Residence Inn St. Paul Woodbury

(Minneapolis)

Woodbury, MN

 

Marriott

 

2016

 

116

 

Home2 Suites Houston

Willowbrook

Houston, TX

 

Hilton

 

2016

 

108

 

Fairfield Inn & Suites Pittsburgh

Airport Robinson Township

Pittsburgh, PA

 

Marriott

 

2015

 

103

 

Hampton Inn & Suites Corpus

Christi

Corpus Christi, TX

 

Hilton

 

2015

 

101

 

Staybridge Suites Midland

Midland, TX

IHG

2015

98

Homewood Suites Kalamazoo

Portage

Portage, MI

 

Hilton

 

2015

 

97

 

Home2 Suites Midland

Midland, TX

Hilton

2015

93

Home2 Suites San Angelo

San Angelo, TX

Hilton

2015

93

TownePlace Suites Pittsburgh

Airport Robinson Township

Pittsburgh, PA

 

Marriott

 

2016

 

93

 

Residence Inn San Angelo

San Angelo, TX

Marriott

2015

92

Courtyard Bismarck North

Bismarck, ND

Marriott

2014

89

COMPLETION OF THE PREVIOUSLY ANNOUNCED SALE OF THE ECONOMY LODGING PORTFOLIO

AHIP is also pleased to confirm that it has now closed the previously announced sale of its Economy Lodging portfolio of 45 hotels to VCM Ltd. (an affiliate of Vukota Capital Management), for total gross proceeds of $215.5 million excluding closing and post-closing adjustments, effective today.  This profitable sale culminates an extensive review of the portfolio that reinforced AHIP's view that its long-term strategy is better focused on expanding and driving growth from its Premium Branded select-service hotel portfolio.

In connection with closing of this transaction, AHIP has agreed that approximately $7.0 million of the gross proceeds will be subject to an earn-out to be settled in the next 12 months based on the achievement of certain criteria. In addition, AHIP has agreed to pre-fund from the gross proceeds a maximum of $7.4 million of brand mandated property improvement plans for the Economy Lodging hotels with a credit for any cost savings.



Logos, product and company names mentioned are the property of their respective owners.