NEW YORK AND IRVING, TEXAS — American Realty Capital Hospitality Trust Inc. (ARC Hospitality), a non-traded, hotel-focused real estate investment trust (REIT) based in New York, has completed the previously announced acquisition of the Equity Inns Lodging Portfolio. ARC Hospitality purchased the portfolio from subsidiaries of Irving-based W2007 Grace Acquisition I Inc. and WNT Holdings LLC, which are affiliates of the Whitehall Real Estate Funds sponsored by Goldman Sachs.
The total purchase price was $1.8 billion, which is the largest purchase by a non-traded REIT, according to Jonathan Mehlman, president and CEO of ARC Hospitality.
“The Equity Inns purchase marks the largest acquisition in the history of the non-traded REIT industry, and propels ARC Hospitality into a leadership position among select-service lodging REITs in North America,” says Mehlman.
The portfolio consists of 116 hotels totaling 13,744 rooms across 31 states, all franchised by Hilton Hotels & Resorts, Marriott International, Hyatt Hotels or InterContinental Hotels Group. The hotels include brands such as Hampton Inn, Hilton Garden Inn, Homewood Suites, Embassy Suites, Courtyard, Residence Inn, Hyatt Place and Holiday Inn.
“In our opinion, Equity Inns offers compelling value among recently marketed and comparable select-service portfolios from the standpoint of both price per key, as well as on a yield basis. This nationwide portfolio of high-quality, stabilized hotels with strong brand affiliations, geographic diversification and healthy growth dynamics, supports our strategy of providing consistent distributions and the potential for capital appreciation to our investors,” says William Kahane, chairman of ARC Hospitality.
In connection with the acquisition, ARC Hospitality assumed $903.9 million of debt financing, which is collateralized by 96 of the 116 properties. Simultaneously with the closing, ARC Hospitality obtained $227 million in first mortgage financing for the remaining 20 properties. The sellers will retain a preferred equity interest of $447.1 million that carries no prepayment restrictions or penalties. ARC Hospitality funded the remaining $230.1 million with cash-on-hand from proceeds of the offering of its common stock.
RCS Capital, the investment banking and capital markets division of Realty Capital Securities LLC, a subsidiary of RCS Capital Corp. (NYSE: RCAP), acted as financial advisor to ARC Hospitality. RCS Capital Corp. is under common control with the parent of the sponsor of ARC Hospitality.
Goldman, Sachs & Co. and Deutsche Bank Securities Inc. acted as financial advisors to the sellers. Goodwin Procter LLP and Proskauer Rose LLP acted as legal advisors to ARC Hospitality. Sullivan & Cromwell LLP acted as legal advisor to the sellers.
The acquisition increases ARC Hospitality’s lodging portfolio to 122 hotels totaling 14,925 rooms, making ARC Hospitality one of the largest owners of select-service hotels in the North American lodging REIT sector.
— John Nelson