Hotel Portfolio Transaction

American Hotel Income Properties Acquires Three Embassy Suites by Hilton Hotels for US$124 Million

Embassy Suites by Hilton Cincinnati Rivercenter Hotel - Exterior
Embassy Suites by Hilton Cincinnati Rivercenter Hotel

Embassy Suites by Hllton

American Hotel Income Properties REIT LP (TSX: HOT.UN) (OTCQX: AHOTF) announced today the completion of its previously announced strategic acquisition of three Embassy Suites by Hilton hotels located in proximity to Columbus, Cleveland and Cincinnati, Ohio for an aggregate purchase price of approximately US$124 million, including the expected cost of capital work on acquisition and brand-mandated property improvement plan.

The Acquisition Properties comprise 782 total guestrooms, and were acquired for approximately US$159,000 per guestroom, which is below management's estimate of replacement cost. The aggregate purchase price represents a weighted-average capitalization rate of approximately 8.0% on trailing twelve months net operating income (after inclusion of all hotel management fees, brand franchise fees, a 4.0% furniture, fixtures and equipment reserve and the PIPs). The portfolio includes the following hotels:

  • the 284-room Embassy Suites by Hilton Columbus Dublin hotel located in proximity to Ohio State University; 
  • the 271-room Embassy Suites by Hilton Cleveland Rockside hotel located next to numerous healthcare and professional sports demand generators; and 
  • the 227-room Embassy Suites by Hilton Cincinnati Rivercenter hotel, which is located in Covington, Kentucky, on the banks of the Ohio River overlooking downtown Cincinnati and near a number of Fortune 500 companies and professional sports demand generators. 

AHIP funded the purchase price and the PIPs with cash on hand from its December 2016 bought deal unit offering and a new US$65.0 million commercial mortgage backed securities loan. The Mortgage has a 10-year term, and has a fixed interest rate of 4.72%. The Mortgage is interest-only for the first three years and will then be amortized over a 30-year term. The lender has provided an FF&E reserve waiver for the first two years.

Ian McAuley, President of AHIP, stated, "During the first three weeks of 2017, we have acquired five market-leading Embassy Suites by Hilton hotels with more than 1,300 guestrooms, for an aggregate investment of approximately US$187.3 million, or approximately US$143,000 per guestroom. That price per guestroom is well below our estimated replacement cost for hotels of this calibre within major metropolitan markets. AHIP's ability to acquire high quality, upscale hotels at favourable per room prices supports our strategic objective of further diversifying the portfolio with larger institutional-grade properties, and augments the overall stability provided by our guaranteed rail crew lodging contracts."

Rob O'Neill, CEO of AHIP commented, "As we continue to prudently grow AHIP's asset base with larger, well-maintained select-service hotels located within higher barrier-to-entry metropolitan markets, we also continue to build a defensive balance sheet that includes moderate leverage and long term, fixed rate debt. This conservative approach, coupled with a modest payout ratio, continues to allow AHIP to provide consistent and stable returns to our unitholders." 

With the completion of this acquisition, AHIP's portfolio now consists of 96 hotels totaling 9,467 guestrooms, with 50 branded hotels totaling 5,574 guestrooms and 46 rail crew hotels totaling 3,893 guestrooms.

The Acquisition Properties will be managed for AHIP by its exclusive hotel manager, Tower Rock Hotels & Resorts Inc., a wholly owned subsidiary of O'Neill Hotels & Resorts Ltd.

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