The sale price represents an attractive selling capitalization rate of approximately 8.2%, based on trailing 12-months net operating income, after management fees and FF&E reserve
- AHIP has agreed to sell its Economy Lodging portfolio of 45 hotel properties for a total sale price of US$215.5 million
- The sale price represents an attractive selling capitalization rate of approximately 8.2%, based on trailing 12-months net operating income, after management fees and FF&E reserve
- Post sale of the Economy Lodging Portfolio, AHIP's portfolio will be comprised of 100% Premium Branded hotels
- Transaction simplifies AHIP's business structure and allows management to focus exclusively on the Premium Branded hotel portfolio
- The sale will enhance AHIP's overall corporate liquidity and help fund its strategic objectives of expanding and driving growth from its Premium Branded hotel portfolio
American Hotel Income Properties REIT LP (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB.U) is pleased to announce that it has reached a definitive agreement to sell its Economy Lodging portfolio consisting of 45 hotel properties through certain of its subsidiaries to an affiliate of VCM, Ltd. for US$215.5 million (excluding closing and post-closing adjustments). This 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 hotel portfolio, which currently consists of 67 hotels in larger U.S. secondary markets that are predominantly affiliated with Marriott, Hilton and IHG hotel brands.
After the repayment of property mortgages and transaction closing costs, the net proceeds from the sale of approximately US$90 million will be redeployed to acquire additional Premium Branded hotels that are better suited to AHIP's long-term strategy, and also used for general corporate purposes.
“This is a transformational transaction for our business, and will simplify our corporate structure, cost base and investment story, while providing us with the opportunity to redeploy capital towards initiatives we believe will generate stronger growth prospects, as well as higher and more consistent returns for our investors,” said John O'Neill, CEO. “Following the sale of our Economy Lodging properties, AHIP will be better aligned with our U.S. hotel REIT peers by owning a focused portfolio of purely mid to upscale, select-service branded hotels. We anticipate this more focused strategy will help effectively value our business in the public markets.”
“As part of our previously announced capital recycling initiative, this transaction also completes our shift away from Economy Lodging properties. Our long-term strategy is focused on enhancing the quality of our hotels and cash flow by concentrating on a growing portfolio of Premium Branded hotels. The sale of our 45 Economy Lodging properties is the first step in that strategy. While our existing total portfolio RevPAR for the trailing twelve months ended March 31, 2019 was $73.31, on its own, our Premium Branded portfolio RevPAR was 20% higher at $88.23. AHIP's Premium Branded hotels also deliver a higher Net Operating Income margin of 34.2% in the trailing twelve ended months March 31, 2019, compared to the Economy Lodging hotels at 31.7%. Going forward, we intend to concentrate on accretive growth within the upper-midscale to upper-upscale categories of hotels in secondary metropolitan U.S. cities. We have already begun our review of potential hotel acquisition opportunities that we believe could be highly complementary to our existing Premium Branded portfolio, and are available at capitalization rates near to what we are selling our Economy Lodging portfolio for. In addition, we expect such acquisitions to benefit from improved debt financing terms available to us today, including longer amortization periods and lower interest rates, which will meaningfully lower our financing costs relative to the debt currently secured against the Economy Lodging portfolio. Combined, we believe higher-quality properties, lower cost debt, and more attractive financing terms will drive accretion and preserve cash for our Company over the long-term.”
Mr. O'Neill continued, “We're also pleased with the approximately 8.2% cap rate achieved on this sale of this portfolio, which demonstrates the enhanced value we built in that segment of our business since originally acquiring it in 2013.”
AHIP intends to redeploy the net proceeds from the sale into new, income-generating investments. Based on AHIP's current estimates of go-forward cash flow for the Premium Branded portfolio and the strength of its balance sheet, the Company expects to maintain its current monthly cash distribution of US$0.054 per unit following the completion of the transaction.
CIBC Capital Markets and R.W. Baird & Co. Incorporated are acting as financial advisors, and Farris LLP is acting as legal advisor, to AHIP on this transaction.
The following is a brief summary of certain terms of the Definitive Agreement, which summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full terms of the Definitive Agreement, a copy of which will be filed under AHIP's profile on SEDAR at
AHIP, through certain of its subsidiaries, has entered into the Definitive Agreement with VCM to sell AHIP's Economy Lodging portfolio consisting of 45 hotel properties that have rail crew lodging agreements with large North American freight railway companies and long-term franchise agreements with Wyndham, to VCM for US$215.5 million. The purchase price is subject to customary closing and post-closing adjustments for real estate taxes, utilities, rents and other items of income and expense as more particularly set forth in the Definitive Agreement.
The Definitive Agreement contains representations, warranties and covenants typical of those contained in purchase and sale agreements negotiated between parties dealing at arm's length and which are customary for definitive agreements in respect of transactions of this nature. The completion of the transaction is subject to the satisfaction or waiver of various customary conditions in favour of AHIP and VCM as set forth in the Definitive Agreement, including obtaining certain third-party consents. The Definitive Agreement contains customary and specific indemnities and termination rights in favour of VCM as well us customary indemnities and termination rights in favour of AHIP.
The transaction is currently targeted for completion in September 2019.