Hotel Portfolio Transaction

American Hotel Income Properties Acquires Three Embassy Suites Hotels for US$124.0 Million

American Hotel Income Properties

American Hotel Income Properties REIT LP (TSX: HOT.UN) (OTCQX: AHOTF) announced today that it has agreed to acquire through its subsidiaries the previously announced strategic portfolio of three Embassy Suites by Hilton branded hotels totaling 782 guestrooms located in proximity to Columbus, Cleveland and Cincinnati, Ohio for approximately US$124.0 million, including the expected cost of capital work on acquisition and the brand-mandated property improvement plans (the "PIPs").

The Midwestern 3 Embassy Suites Portfolio is being acquired at a weighted-average capitalization rate of approximately 8.0% 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 and the PIPs).

ACQUISITION HIGHLIGHTS

  • The three hotels are being acquired for approximately US$159,000 per guestroom, inclusive 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 expects to 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") and a new US$65.0 million commercial mortgage backed securities ("CMBS") loan (the "Mortgage").
  • The Mortgage is expected to have a 10-year term, with interest-only payments 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 4.70% for the entire term. In addition, the lender has agreed to provide an FF&E reserve waiver for the first two years.
  • The 284-room Embassy Suites Columbus Dublin is located in Dublin, Ohio approximately 15 miles north of downtown Columbus at the convergence of Interstate 270 and State Route 161. The hotel is ideally situated near a number of corporate and regional headquarters including Nationwide Insurance and Ohio State University, which is the third largest university campus in the United States. Columbus is the capital and largest city in the state of Ohio with an estimated population of approximately 850,000 people. The Columbus metro area has a population of approximately 2.1 million people.
  • The 271-room Embassy Suites Cleveland Rockside is located in Independence, Ohio approximately 10 miles south of downtown Cleveland and 12 miles east of Cleveland Hopkins Airport at the convergence of Interstate 480 and Interstate 77. The hotel is proximate to a number of demand generators including three major sporting venues that are home to MLB, NBA, and NFL teams. Cleveland is a health care hub with more than 60 hospitals including the world renowned Cleveland Clinic. It is the second largest city in the state of Ohio with an estimated population of approximately 400,000 people and the metro area has a population of approximately 2.1 million people.
  • The 227-room Embassy Suites Cincinnati Rivercenter is located on the banks of the Ohio River overlooking downtown Cincinnati in Covington, Kentucky. The hotel is situated on land leased from the city of Covington, with the next renewal of the lease due in 2040. The hotel is proximate to a number of demand generators including the Northern Kentucky Convention Center and the Duke Energy Convention Center as well as major sporting venues that are home to NFL and MLB teams. Cincinnati is home to nine Fortune 500 companies including The Kroger Co., Proctor and Gamble, and Macy's. It has an estimated population of approximately 300,000 people and the metro area has a population of approximately 2.2 million people.
  • This transaction is expected to close in late January 2017, subject to customary closing conditions and documentation and is expected to be immediately accretive to adjusted funds from operations ("AFFO") per unit.
  • Upon the completion of this acquisition and the previously announced acquisition of the Embassy Suites by Hilton hotels located in Dallas, Texas and Tempe, Arizona, AHIP's portfolio will consist of 96 hotels totaling 9,467 guestrooms, with 50 branded hotels totaling 5,574 guestrooms and 46 rail crew hotels totaling 3,893 guestrooms.
  • The hotels will be managed by AHIP's exclusive hotel manager, Tower Rock Hotels & Resorts Inc., a wholly owned subsidiary of O'Neill Hotels and Resorts Ltd.

Ian McAuley, President of AHIP, commented, "This strategic investment builds upon our previously-announced acquisitions of larger, select service hotels located in larger markets. These specific hotels are well located with great visibility and perform very well within their respective markets. When I toured these properties, I was impressed with their overall institutional quality." Rob O'Neill, AHIP's CEO 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 consistent and stable returns to our unitholders."



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