SYgle>Industry Information>American Hotel Income Properties REIT LP to Acquire 18 Hotel Northeastern U.S. Portfolio for US$407.4 Million

American Hotel Income Properties REIT LP to Acquire 18 Hotel Northeastern U.S. Portfolio for US$407.4 Million

Column: industry Tag: American Hotel Income Properties,REIT LP,Marriott hotels,Hilton hotels Published: 2017-06-02 16:14 Source: Author:

American Hotel Income Properties REIT LP (TSX:HOT.UN)(OTCQX:AHOTF) announced today that it has agreed to acquire through its subsidiaries a geographically targeted portfolio of 18 premium branded Marriott and Hilton hotels containing 2,187 guestrooms and located in Maryland, New Jersey, New York, Connecticut and Pennsylvania for approximately US$407.4 million, including brand-mandated property improvement plans.

"The Eastern Seaboard Portfolio meets our disciplined investment strategy to acquire premium branded, select-service hotels with stabilized in-place income, which are younger and well-maintained and where acquisition costs are below replacement cost," said Rob O'Neill, CEO of AHIP. Mr. O'Neill continued, "Additionally, these branded hotels are located within high barrier-to-entry secondary metropolitan markets in close proximity to major population centers such as Washington, D.C., Philadelphia, Baltimore and New York City."

The Eastern Seaboard Portfolio consists of ten Marriott branded hotels totaling 1,206 guestrooms (five Residence Inns, two Springhill Suites, one Courtyard, one Fairfield Inn and Suites and one TownePlace Suites) and eight Hilton branded hotels totaling 981 guestrooms (four Homewood Suites, two Hampton Inns and two Hilton Garden Inns).

"This transformational transaction increases our total guestroom count by over 23% and is immediately accretive to AHIP's adjusted funds from operations ("AFFO") per Unit. It is also a significant step in geographically diversifying our portfolio into the dominant Northeast corridor of the United States, which generates approximately 20% of the country's GDP," said Ian McAuley, President of AHIP. Mr. McAuley continued, "Each acquired property currently outperforms its competitive set in occupancy and revenue per available room ("RevPAR"), in part, as suite-style guestrooms make up 69% of this portfolio leading to above average RevPAR potential and higher margins given their extended stay clientele."

ACQUISITION HIGHLIGHTS

The Eastern Seaboard Portfolio is being acquired at a weighted-average capitalization rate of approximately 7.9% on trailing twelve months net operating income (after inclusion of all hotel management fees, brand franchise fees, a 4.0% furniture, fixtures and equipment ("FF&E") reserve and the PIPs).

The 18 premium branded hotels are being acquired for approximately US$186,000 per guestroom, inclusive of the cost of the PIPs, which is below management's estimate of replacement cost.

The average age of the hotels is 10 years and each hotel has been recently built or renovated.

AHIP expects to fund the purchase price, including the PIPs, using a combination of a portion of the net proceeds from the Offering (defined below) and an approximately US$236.2 million commercial mortgage-backed securities ("CMBS") loan packaged into four pools (collectively the "Mortgage Pools"), with each of the four pools receiving an FF&E reserve waiver for the first two years.

The Mortgage Pools are expected to be US$69.6 million, US$57.7 million, US$52.4 million and US$56.5 million, with an expected weighted average fixed interest rate of approximately 4.55%. The first three pools are expected to have 10-year terms, with interest-only payments for the first five years and the fourth pool is expected to have a five-year term, with interest-only payments for the first two and a half years. The Mortgage Pools will then be amortized over 30 year terms. The Mortgage Pools are expected to be secured against 17 of the 18 hotels in the Eastern Seaboard Portfolio.

The hotels will be managed by AHIP's exclusive hotel manager, ONE Lodging Management, a wholly- owned subsidiary of O'Neill Hotels and Resorts Ltd.

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