Hotel Portfolio Transaction

American Hotel Income Properties REIT LP Acquires Two Embassy Suites by Hilton Hotels

American Hotel Income Properties REIT LP (TSX: HOT.UN) (OTCQX: AHOTF) announced last week 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

American Hotel Income Properties

American Hotel Income Properties REIT LP (TSX: HOT.UN) (OTCQX: AHOTF) announced last week 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 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 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 issuance to the vendors of approximately US$17.4 million in new AHIP units, the assumption of an existing US$19.0 million commercial mortgage backed securities loan on the Dallas property, and a new US$13.5 million CMBS loan on the Tempe property. 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 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 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").



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