Ashford Hospitality Joint Venture Acquires Highland Hospitality Portfolio for $1.3 Billion

Includes 19 full-service hotels and nine select-service hotels, Concentration in major brands such as Hilton, Marriott, Hyatt and Starwood.

Ashford Hospitality Trust, Inc. (NYSE: AHT) announced it has formed a new joint venture with an institutional partner to take ownership of the 28-hotel Highland Hospitality portfolio. The acquisition and restructuring were completed through a consensual foreclosure for total consideration of $1.277 billion.

Transaction Details

The total consideration equates to a purchase price of $158,000 per key compared with $244,000 per key before capital improvement funding when the portfolio was acquired in 2007 in a privatization of publicly traded Highland Hospitality. Based on 2010 results, the purchase price equates to an EBITDA multiple of 13.4x and a capitalization rate of 6.1% utilizing NOI that is approximately 36% below its peak levels.

The portfolio’s total revenues for 2010 grew 2.7% from 2009, compared to Ashford’s existing portfolio which grew 1.1% in 2010. Ashford’s existing portfolio had 104% EBITDA flow in 2010 while the new portfolio had only 18% flow. Ashford currently trades at a 2010 EBITDA multiple of 15.6x based on its closing price yesterday. Highland Hospitality originally paid $150,000 per key before capital improvement funding for the portfolio from 2003 to 2007.

At closing, Ashford invested $150 million and will own 71.74% of the joint venture. The new money investment from Ashford and the institutional partner was utilized to reduce debt and to fund projected capital expenditures. Ashford funded its contribution from available cash. From the total new money investment a $32 million reserve was set aside at closing to be used for owner funded capital expenditures. Ashford’s 71.74% ownership interest partially reflects previous investments made by Ashford.

The joint venture worked out a consensual restructuring with the existing senior lenders. The existing senior lenders will provide $530 million of first mortgage three-year financing with two one-year extension options on 25 of the hotels and the joint venture assumed first mortgage financing of $146 million on three of the hotels with approximately two years remaining until maturity. Additionally certain lenders will provide $419 million of mezzanine financing that will cover all 28 hotels. The structure provides for fixed and floating rates with LIBOR floors and spreads for various tranches with an anticipated first year interest rate of 5.25% based upon the current forward LIBOR curve.

Monty Bennett, CEO of Ashford, noted, “We are pleased to complete this strategic and accretive transaction. Of all the hotel transactions we have seen completed, we believe it would be hard to match the many benefits of this investment. We believe there is a substantial opportunity to improve the hotels’ performance with an aggressive asset management strategy similar to what we have accomplished with our existing hotels.”

Portfolio Composition

The portfolio is mostly comprised of full-service, upper-upscale and luxury hotels that generate 67% of 2010 EBITDA. These 17 hotels have 5,684 rooms and include brands such as Ritz-Carlton, Marriott, Hilton, Hyatt, Renaissance, Sheraton and Westin. The remaining 11 hotels have 2,400 rooms and include brands such as Crowne Plaza, Hilton Garden Inn, Courtyard, Residence Inn and Hampton Inn. There are also three independent hotels. For 2010, the portfolio’s RevPAR increased 3.7% to $91.91 with occupancy at 69.4% and ADR at $132.48, and total hotel revenues were $386 million.

Based on 2010 EBITDA, the hotels are 65% upper-upscale, 32% upscale, 2% luxury and 1% upper midscale; and 47% Marriott, 26% Hilton and 9% Hyatt. Geographic diversification by EBITDA includes 36% for South Atlantic, 29% for South Central, 17% for New England, 11% Middle Atlantic and 5% North Central.

During the next 10 months the venture intends to invest approximately $43 million in a capital improvement program to upgrade these hotels. This program will be funded through existing and on-going reserves at the property level together with the $32 million set aside for owner funded capital improvements.

Remington Lodging will manage 17 of the hotels, followed by 6 with Marriott, 2 each for Hyatt and McKibbon and 1 for Hilton. Ashford will asset manage the entire portfolio on behalf of the joint venture.


                       
Portfolio Listing
2011
Hotel Chain Scale Brand Family Market State Rooms Renovation
Ritz-Carlton Atlanta Luxury Marriott Atlanta GA 444 Yes
Hilton Tampa Westshore Upper-Upscale Hilton Tampa FL 238
Hilton Parsippany Upper-Upscale Hilton NY/NJ NJ 354
Hilton Boston Back Bay Upper-Upscale Hilton Boston MA 390 Yes
Hyatt Regency Savannah Upper-Upscale Hyatt Savannah GA 351
Hyatt Regency Windwatch Upper-Upscale Hyatt NY/NJ NY 358 Yes
Portsmouth Renaissance Upper-Upscale Marriott Norfolk/Va. Beach VA 249
Sugar Land Marriott Upper-Upscale Marriott Houston TX 300
Plaza San Antonio Marriott Upper-Upscale Marriott San Antonio TX 251 Yes
DFW Airport Marriott Upper-Upscale Marriott Dallas TX 491 Yes
Omaha Marriott Upper-Upscale Marriott Omaha NE 300 Yes
Renaissance Palm Springs Upper-Upscale Marriott Palm Springs CA 410
Nashville Renaissance Upper-Upscale Marriott Nashville TN 673
The Churchill Upper-Upscale Other Washington DC DC 173 Yes
The Melrose (DC) Upper-Upscale Other Washington DC DC 240 Yes
Sheraton Annapolis Upper-Upscale Starwood Baltimore MD 196
Westin Princeton Upper-Upscale Starwood Trenton NJ 296
Hilton Garden Inn Austin Upscale Hilton Austin TX 254
Hilton Garden Inn BWI Airport Upscale Hilton Baltimore MD 158
Hilton Garden Inn Virginia Beach Upscale Hilton Norfolk/Va. Beach VA 176
Crowne Plaza Ravinia Upscale IHG Atlanta GA 495 Yes
Courtyard Boston Tremont Upscale Marriott Boston MA 315 Yes
Courtyard Denver Airport Upscale Marriott Denver CO 202 Yes
Courtyard Gaithersburg Upscale Marriott Washington DC MD 210
Courtyard Savannah Upscale Marriott Savannah GA 156 Yes
Residence Inn Tampa Downtown Upscale Marriott Tampa FL 109
Silversmith Upscale Other Chicago IL 143 Yes
Hampton Inn Parsippany Upper Midscale Hilton NY/NJ NJ 152
8,084