American Hotel Income Properties REIT LP
TSX : HOT.UN
OTCQX : AHOTF

American Hotel Income Properties REIT LP

July 05, 2016 15:21 ET

American Hotel Income Properties REIT LP Announces Cdn$90.0 Million Bought Deal Equity Financing for Strategic Hotel Acquisitions

VANCOUVER, BRITISH COLUMBIA--(Marketwired - July 5, 2016) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

American Hotel Income Properties REIT LP ("AHIP") (TSX:HOT.UN)(OTCQX:AHOTF) announced today that it has entered into an agreement with a syndicate of underwriters led by CIBC Capital Markets (collectively, the "Underwriters"), to sell, on a bought deal basis, 8,696,000 limited partnership units (each, a "Unit") of AHIP at a price of Cdn$10.35 per Unit for gross proceeds to AHIP of approximately Cdn$90.0 million (the "Offering").

AHIP has granted to the Underwriters an over-allotment option to purchase up to an additional 1,304,400 Units, representing 15% of the size of the Offering. The over-allotment option may be exercised in whole or in part at any time for a period of up to 30 days following closing of the Offering, to cover over-allotments, if any.

The closing of the Offering is expected to occur on or about July 26, 2016. The Offering is subject to customary regulatory approvals, including the Toronto Stock Exchange ("TSX"). The Units will be offered in each of the provinces of Canada pursuant to National Instrument 44-101 - Short Form Prospectus Distributions.

AHIP intends to use the net proceeds from the Offering to: (i) partially fund the potential acquisition of two high-quality Embassy Suites by Hilton branded hotels (the "Embassy Suites Portfolio"); (ii) partially fund the potential acquisition of a nine-property, branded hotel portfolio (the "Multi-Hotel Branded Portfolio"); (iii) partially fund the potential acquisition of two rail crew lodging facilities (the "Rail Crew Hotels"); and (iv) fund working capital and for general trust purposes. In the event that one or more of the acquisitions do not close, the net proceeds will be used for general trust purposes, which may include other potential future acquisitions.

Embassy Suites Portfolio

  • AHIP has entered into a conditional Purchase and Sale Agreement ("PSA") with affiliates of Sunstone Realty Advisors for the Embassy Suites Portfolio in Dallas, Texas and Tempe, Arizona containing 529 total guestrooms. The aggregate purchase price for the Embassy Suites Portfolio is approximately US$58.0 million or approximately US$110,000 per room, before property improvement plans, customary closing and post-acquisition adjustments. If the transaction is completed, the purchase price is expected to represent an average capitalization rate of approximately 8.3% after taking into account all hotel management fees, a reserve for furniture, fixtures and equipment ("FF&E Reserve") and brand-mandated property improvement plans. The PSA is subject to various conditions, including satisfactory completion of due diligence by AHIP, approval by AHIP's Board of Directors and negotiation of formal legal documents.

  • The Embassy Suites Portfolio is priced below management's estimates of replacement cost and would be accretive to Adjusted Funds from Operations ("AFFO") per Unit.

  • The acquisition of this portfolio is expected to be partially funded with approximately US$13.0 million in cash proceeds from the Offering and US$17.8 million in Units that would be issued to the vendors on the closing date, based on the 10-day volume weighted average trading price ("VWAP"). The remaining purchase price would be funded by the assumption of an existing US$19.0 million mortgage on the Texas property with a fixed interest rate of 5.25% and maturity date of October 11, 2024. In addition, AHIP would obtain a new, 10-year, US$13.5 million mortgage on the Arizona property with an expected interest rate under 4.90%.

  • If it proceeds, the closing date of the Embassy Suites Portfolio transaction is expected to occur in late August or early September 2016.

Multi-Hotel Branded Portfolio

  • AHIP has entered into a non-binding letter of intent ("LOI") for a nine-property, branded hotel portfolio in Arkansas, Indiana, Iowa, Virginia and West Virginia. The Multi Hotel Branded Portfolio has a total of 754 guest rooms and is franchised with leading hotel brands including Marriott, Hilton and IHG. The aggregate purchase price is expected to be approximately US$75.0 million or approximately US$99,000 per room, before property improvement plans, customary closing and post-acquisition adjustments. The hotels are targeted to be purchased at an average capitalization rate of approximately 9.0% after taking into account all hotel management fees, an FF&E Reserve and brand-mandated property improvement plans. The LOI is preliminary and subject to various conditions, including completion of a PSA, satisfactory completion of due diligence by AHIP, approval by AHIP's Board of Directors and negotiation of formal legal documents.

  • The acquisition of the Multi-Hotel Branded Portfolio is expected to be partially funded with US$39.7 million in cash proceeds from the Offering and US$35.3 million in mortgage debt.

  • The Multi-Hotel Branded Portfolio is priced below management's estimates of replacement cost and is expected to be accretive to AFFO per Unit.

Rail Crew Hotels

  • AHIP has entered into non-binding LOIs for two strategic rail crew lodging facilities comprising 245 total guestrooms servicing major railway companies in the U.S. The hotels are located along major rail lines in Tennessee and Kansas. The Rail Crew Hotels are being purchased at a combined price of approximately US$13.0 million before closing costs and capital expenditures, representing a weighted average capitalization rate of approximately 13.0% after taking into account all hotel management fees and an FF&E Reserve. The LOI is subject to various conditions, including completion of a PSA, satisfactory completion of due diligence by AHIP, approval by AHIP's Board of Directors and negotiation of formal legal documents.

  • The acquisition of the Rail Crew Hotels is expected to be partially funded with US$9.0 million in cash proceeds from the Offering and US$4.0 million in mortgage debt.

  • The rail crew properties are expected to have contracts with large U.S. railway companies, are priced below management's estimates of replacement cost and are expected to be accretive to AFFO per Unit.

Rob O'Neill, AHIP's CEO commented, "AHIP continues its stated growth strategy, both in our rail crew lodging and branded hotel segments. The potential announced acquisitions are strategic and would expand our relationships with leading national railway companies while also diversifying our high quality branded hotel portfolio with the addition of the industry-leading Embassy Suites by Hilton extended stay, select service hotels. These large hotels located in strong primary urban markets would provide further stability to AHIP's operating platform." Mr. O'Neill continued, "For example, the Dallas and Phoenix metro area markets have shown strong performance in 2016, with second quarter RevPAR growth of 11.6% and 9.9%, respectively."

AHIP's pro-forma leverage and payout ratios are expected by management to remain conservative and within management's target range after giving effect to the potential acquisition of the Embassy Suites Portfolio, the Multi-Hotel Branded Portfolio and the Rail Crew Hotels. After the completion of the acquisition of the Embassy Suites Portfolio, the Multi-Hotel Branded Portfolio and the Rail Crew Hotels, AHIP's rail crew portfolio would be comprised of 47 properties containing 4,011 guestrooms and its branded hotel portfolio will consist of 46 properties containing 4,613 guestrooms. Approximately 35% of AHIP's pro-forma guestrooms are expected to be guaranteed under long term revenue contracts with railway operators, with the balance of the portfolio benefitting from the continued expansion of the U.S. economy and the growth in the U.S. hotel industry.

This news release shall not constitute an offer to sell or a solicitation of any offer to buy nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. The securities being offered have not been, nor will they be, registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), and such securities may not be offered or sold within the United States absent registration under the U.S. Securities Act or an applicable exemption from the registration requirements thereunder.

FORWARD-LOOKING STATEMENTS

This news release contains forward-looking information within the meaning of applicable securities legislation, which reflects AHIP's current expectations regarding future events. Forward-looking information is identified by the use of terms and phrases such as "anticipate", "believe", "budget", "could", "estimate", "expect", "going-in", "intend", "may", "opportunities", "plan", "potential", "predict", "project", "will", "would" and similar terms and phrases, including references to assumptions. Such information includes, but is not limited to: statements with respect to the closing of the Offering or the over-allotment option and the use of proceeds therefrom, including the potential acquisition of the Embassy Suites Portfolio, the Multi-Hotel Branded Portfolio and the Rail Crew Hotels; references to the capitalization rates associated with the acquisitions; references to the purchase and closing costs of the acquisitions; calculations of the costs of the property improvement plans; references to the strategic impacts of the potential acquisition of the Rail Crew Hotels; the degree to which the acquisitions are accretive; pricing of the hotels relative to replacement cost; the expected date of the completion of the acquisitions; references to the amount of investment capital required for the acquisitions; references to the terms of the debt financing; references to the use of Units as consideration; the total number of hotels and rooms owned by AHIP after giving effect to the acquisitions; references to percentage of hotel rooms in AHIP's rail crew portfolio covered under long term occupancy guarantees with railroad operators after giving effect to acquisitions; RevPAR performance of hotels in particular markets; AHIP's leverage and payout ratios after giving effect to the acquisitions; and references to the expansion of the U.S. economy and U.S. hotel industry. Actual events or results may differ materially.

Forward-looking information contained in this news release is based on certain key expectations and assumptions made by AHIP, including, without limitation: a reasonably stable North American economy and stock market; the ability to successfully integrate newly-acquired hotels; capitalization rates; fees and reserves; targeted completion dates; pro forma leverage; and payout ratios. Although the forward-looking information contained in this news release is based upon what AHIP's management believes to be reasonable assumptions, AHIP cannot assure investors that actual events or results will be consistent with such information. Forward-looking information reflects current expectations of 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. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking information, and a description of these factors 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 information contained herein is expressly qualified in its entirety by this cautionary statement. The forward-looking information is made as of the date of this news release and AHIP assumes no obligation to update or revise such information to reflect new events or circumstances, except as may be required by applicable law.

The potential acquisitions described in this news release are indicative only, as these potential transactions are being evaluated and negotiated with the applicable sellers. In addition, each transaction, if it proceeds, would be subject to conditions, including satisfactory completion of AHIP's due diligence, as applicable, and negotiation of formal legal documents. For example, AHIP cautions that there can be no assurance that any transaction will result from the conditional PSAs described herein, or what the terms of such transactions, if any, may be. AHIP undertakes no obligation to update investors on the status of any potential transactions described in this news release unless and until its transaction due diligence is complete and the Board of Directors has approved the transaction, in each case.

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

  • American Hotel Income Properties REIT LP
    Andrew Greig
    Investor Relations
    604-630-3134
    agreig@ahipreit.com