SOURCE: American Hotel Income Properties REIT LP

American Hotel Income Properties REIT LP

July 13, 2016 06:00 ET

American Hotel Income Properties REIT LP Announces Agreement to Acquire Two Embassy Suites by Hilton Hotels for US$57.6 Million

VANCOUVER, BC--(Marketwired - July 13, 2016) - American Hotel Income Properties REIT LP ("AHIP") (TSX: HOT.UN) (OTCQX: AHOTF) announced today that it has agreed to acquire the previously announced two Embassy Suites by Hilton hotels located in Dallas, Texas and Tempe, Arizona for an aggregate purchase price of approximately US$57.6 million, excluding approximately US$5.7 million in brand mandated property improvement plans ("PIPs") and customary and any negotiated closing and post-acquisition adjustments.

The Embassy Suites hotels are being purchased at a weighted-average capitalization rate of approximately 8.3% 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 contribution and PIPs).

ACQUISITION HIGHLIGHTS

  • The two hotels consist of 529 total guestrooms and are being acquired for approximately US$109,000 per guestroom, exclusive of the cost of the PIPs, which is below management's estimate of replacement cost. Embassy Suites by Hilton is an industry leading all-suite, select-service product that offers free cooked-to-order breakfasts and a complimentary evening reception.
  • AHIP will fund the purchase price, including the PIPs, using a combination of a portion of the net proceeds from AHIP's recently announced bought deal offering of units (the "Offering"), the issuance to the vendors of approximately US$17.4 million in new AHIP units (the "Units"), the assumption of an existing US$19.0 million commercial mortgage backed securities ("CMBS") loan on the Dallas property (the "Dallas Mortgage"), and a new US$13.5 million CMBS loan on the Tempe property (the "Tempe Mortgage"). The Units will be issued based on the 10-day volume weighted average trading price prior to the closing of the transaction and will be subject to a four-month hold period.
  • The Dallas Mortgage matures in October 2024 and is interest-only until November 2019 and will then be amortized over a 30-year period for the remaining term. The mortgage has a fixed interest rate of 5.25%.
  • The Tempe Mortgage is expected to be for a 10-year term, interest-only for the first three years and then amortized over a 30-year period for the remaining seven years. The mortgage is expected to have a fixed interest rate of approximately 4.80% for the entire term. In addition, the lender has agreed to provide an FF&E reserve waiver for the first two years.
  • AHIP has also agreed to a term sheet with the vendor of the Tempe property to advance a US$10.2 million bridge loan (the "Bridge Loan") to pay off the current expiring mortgage on the Tempe property. The Bridge Loan will be funded on or about August 1, 2016 and will carry an interest rate of 8.00% per annum. It will be fully secured by a first charge on the Tempe property with an initial term of 60 days with an option to extend for a further term of up to 90 days. The Bridge Loan is subject to the completion of mutually agreed documentation.
  • The 305-room Embassy Suites Dallas - DFW International Airport South hotel is located in Irving, Texas (a suburb of Dallas) which is two miles from Dallas/Fort Worth International Airport, the tenth busiest airport in the world by total passenger traffic.
  • The 224-room Embassy Suites Phoenix - Tempe hotel is located in Tempe, Arizona which is located minutes from Arizona State University, the largest public university in the U.S., and Phoenix Sky Harbor International Airport, the 11th largest airport in the U.S. by total passenger traffic.
  • This transaction is expected to close by early September 2016, subject to customary closing conditions and documentation and is expected to be accretive to adjusted funds from operations ("AFFO") per unit.
  • Upon the completion of this acquisition, AHIP's portfolio will consist of 82 hotels totaling 7,625 guestrooms with 37 branded hotels totaling 3,859 guestrooms and 45 rail crew hotels totaling 3,766 guestrooms.

Rob O'Neill, AHIP's Chief Executive Officer, commented, "This investment is consistent with our stated growth strategy targeting acquisitions of branded, select-service hotels located in diverse markets in the U.S. that are proximate to significant demand generators such as airports, universities, sports venues, among others. This acquisition diversifies our portfolio by entering into two top-25 U.S. metropolitan markets, and introduces the strong Embassy Suites by Hilton brand to AHIP's portfolio." Mr. O'Neill continued, "AHIP's ability to use conservatively financed, long-term, low-cost, fixed-rate debt with a significant interest-only period highlights a key aspect of our strategy of providing highly stable returns to our unitholders."

The acquisition was approved by the independent members of the board of directors of AHIP's general partner.

The issuance of US$17.4 million in Units to the vendors of the two Embassy Suites by Hilton hotels is subject to the prior approval of the Toronto Stock Exchange ("TSX").

FORWARD-LOOKING INFORMATION

Certain statements contained in this news release may constitute forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "plan", "expect", "may", "will", "intend", "should", and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Forward-looking statements in this news release include, without limitation, the following: references to the acquisition of the two Embassy Suites by Hilton hotels, including purchase prices and closing costs therefor; the expected completion timing for the acquisition of the two Embassy Suites by Hilton hotels; the means by which the purchase price for the two Embassy Suites by Hilton hotels will be satisfied, including the issuance of approximately US$17.4 million in new AHIP units; the approval of the TSX for the issuance of approximately US$17.4 million in new AHIP units to the vendors of the two Embassy Suites by Hilton hotels; the terms of the Bridge Loan; the estimated costs of PIPs for the two Embassy Suites by Hilton hotels; the degree to which the two Embassy Suites by Hilton hotels are expected to be accretive; the amount and terms of the Tempe Mortgage and the availability of future CMBS financing; and the total number of hotels and rooms owned by AHIP after giving effect to the acquisition of the two Embassy Suites by Hilton hotels.

Forward-looking information is based on a number of key expectations and assumptions made by AHIP, including, without limitation: a reasonably stable North American economy and stock market, the continued strength of the U.S. lodging industry, the ability to secure CMBS financing, the successful completion of the Offering, the ability of AHIP to obtain the approval of the TSX for the issuance of approximately US$17.4 million in new AHIP units to the vendors of the two Embassy Suites by Hilton hotels, the ability to successfully integrate the Embassy Suites by Hilton hotels and expectations and assumptions related to capitalization rates, fees and reserves and replacement costs for the Embassy Suites by Hilton hotels, as applicable. Although the forward-looking information contained in this news release is based on what AHIP's management believes to be reasonable assumptions, AHIP cannot assure investors that actual results will be consistent with such information.

Forward-looking information reflects current expectations of AHIP's management regarding future events and operating performance as of the date of this news release. Such information involves significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, without limitation, those factors that can be found under "Risk Factors" in AHIP's Annual Information Form dated March 17, 2016 and under "Risks and Uncertainties" in AHIP's Management's Discussion and Analysis dated May 11, 2016, both of which are available on SEDAR at www.sedar.com.

The forward-looking statements contained herein represent AHIP's expectations as of the date of this news release, and are subject to change after this date. AHIP assumes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.

ABOUT AMERICAN HOTEL INCOME PROPERTIES REIT LP

AHIP is a limited partnership formed under the Limited Partnerships Act (Ontario) to invest in hotel real estate properties located substantially in the United States and is engaged primarily in the rail crew accommodation, transportation-oriented, and select-service lodging sectors. AHIP's hotels are mostly located in secondary and tertiary markets in the United States in close proximity to railroads, airports, highway interchanges, and other demand generators. AHIP currently owns 80 hotels including 45 hotels serving the U.S. rail industry pursuant to long-term rail crew contracts and 35 hotels affiliated with leading national and international hotel brands. AHIP's long-term objectives are to: (i) generate stable and growing cash distributions from hotel properties substantially in the U.S.; (ii) enhance the value of its assets and maximize the long-term value of the hotel properties through active management; and (iii) expand its asset base and increase its AFFO per unit through an accretive acquisition program, participation in strategic development opportunities and improvements to its properties through targeted value-added capital expenditure programs.

ADDITIONAL INFORMATION

Additional information relating to AHIP, including its other public filings, is available on SEDAR at www.sedar.com and on AHIP's website at www.ahipreit.com.

THE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR THE ACCURACY OF THIS NEWS RELEASE.

Contact Information

  • FOR FURTHER INFORMATION, PLEASE CONTACT:
    Andrew Greig
    Investor Relations
    American Hotel Income Properties REIT LP
    Suite 1660 - 401 West Georgia Street
    Vancouver, B.C. V6B 5A1
    Phone: 604-630-3134
    Email: agreig@ahipreit.com