American Hotel Income Properties REIT LP (TSX: HOT.UN) (OTCQX: AHOTF) announced today the completion of its previously announced acquisition of two Embassy Suites by Hilton hotels located in Dallas, Texas and Tempe, Arizona for an aggregate purchase price of US$57.6 million excluding approximately US$5.7 million for brand-mandated property improvement plans and before customary closing and post-acquisition adjustments.
The Acquisition Properties comprise 529 total guest rooms and were acquired for approximately US$109,000 per guest room, exclusive of the cost of the PIPs, which is below management's estimate of replacement cost. The two hotels include the 305-room Embassy Suites by Hilton Dallas DFW Airport South hotel located in proximity to Dallas/Fort Worth International Airport and the 224-room Embassy Suites by Hilton Phoenix Tempe, which is located near Arizona State University. Consistent with AHIP's stated acquisition objectives, the Acquisition Properties are strategically located in larger population centers, near major transportation corridors and high-volume international airports, and close to a diverse group of corporate, medical, education, and sports demand generators.
AHIP funded the purchase price and the PIPs with cash on hand from its bought deal unit offerings completed in 2016, the issuance to the vendors of approximately US$17.4 million in new AHIP units (the "Units"), the assumption of an existing US$19.0 million commercial mortgage backed securities ("CMBS") loan on the Dallas property (the "Dallas Mortgage"), and a new US$13.5 million CMBS loan on the Tempe property (the "Tempe Mortgage"). The Tempe bridge loan of US$10.2 million was repaid by the Vendors at the closing of the transaction. The Dallas Mortgage is interest-only until November 2019, matures in October 2024 and has a fixed interest rate of 5.25%. The Tempe Mortgage has a 10-year term, matures in January 2027 and has a fixed interest rate of 5.14%. The Tempe Mortgage is interest only for the first three years and is then amortized over a 30-year term. The lender has also agreed to provide an FF&E reserve waiver for two years. The Units were issued at a price of Cdn$10.3099, which was based on the 10-day volume weighted average trading price of the Units on the Toronto Stock Exchange prior to the closing of the transaction. The Units are also subject to a four-month hold period.
Rob O'Neill, CEO of AHIP stated, "The acquisition of two larger, upscale select service hotels located within two of the Top 25 U.S. markets further diversifies our expanding branded portfolio." Mr. O'Neill continued, "With the application of conservative long term, fixed rate leverage, we continue to focus on providing consistent and stable returns to our unitholders."
With the completion of this acquisition, AHIP's portfolio now consists of 93 hotels totaling 8,685 guestrooms, with 47 branded hotels totaling 4,792 guestrooms and 46 rail crew hotels totaling 3,893 guestrooms.
The Acquisition Properties will be managed for AHIP by its exclusive hotel manager, Tower Rock Hotels & Resorts Inc., a wholly owned subsidiary of O'Neill Hotels & Resorts Ltd.
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