VANCOUVER — American Hotel Income Properties REIT LP, a Vancouver-based company that is publicly traded on the Toronto Stock Exchange (TSX: HOT.UN), has agreed to acquire a portfolio of nine branded, select-service hotels in the Midwest for an aggregate purchase price of USD$53.5 million. The properties are located in Illinois, Iowa, Kansas, Missouri and Oklahoma and total 632 guestrooms. The average age of the portfolio is approximately five years.
American Hotel Income Properties’ (AHIP) portfolio comprises seven Holiday Inn Express properties, including a 69-room hotel in Bethany, Okla.; a 62-room hotel in Chickasha, Okla.; an 87-room hotel in Dubuque, Iowa; a 68-room hotel in Emporia, Kan.; a 69-room hotel in Jacksonville, Ill.; a 69-room hotel in Mattoon, Ill.; and a 68-room hotel in Nevada, Mo. The remaining hotels include a 63-room Hampton Inn in Chickasha, Okla., and a 77-room Country Inn and Suites in Norman, Okla.
“This acquisition diversifies our portfolio into new U.S. markets coupled with the introduction of the Holiday Inn Express brand to the AHIP portfolio,” says Rob O’Neill, CEO of AHIP. “It is one of the fastest growing brands in the industry, opening an average of two hotels a week.”
The portfolio will require brand-mandated property improvement plans of $3.5 million to be completed over the next 30 months. The sales price of roughly $90,000 per room includes the cost of the property improvement plans. The portfolio sold at a weighted-average capitalization rate of approximately 9 percent, based on trailing 12 months of net operating income.
AHIP will fund the purchase using a combination of cash on hand and a new $32 million CMBS loan. The new mortgage was structured with a 10-year term, interest-only payments for the first seven years and then amortized over a 30-year period for the remaining three years. The mortgage is expected to have a fixed interest rate of approximately 4.1 percent for the entire term.
“The availability of long-term, low-cost, fixed-rate CMBS debt with a significant interest-only period highlights a key aspect of our conservative approach to leverage, aimed at providing highly stable returns to AHIP’s unit holders,” says O’Neill.
AHIP’s exclusive hotel manager, Tower Rock Hotels & Resorts Inc., a wholly owned subsidiary of O’Neill Hotels & Resorts Ltd., will manage the portfolio going forward.
Upon the completion of this acquisition at the end of June, AHIP will own 70 hotels (32 branded hotels and 38 rail hotels) totaling 5,860 guest rooms.
AHIP’s stock price closed Friday, May 29 at USD$8.57 per share, up from USD$8.14 per share at this time last year.
— John Nelson