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American Hotel Income Properties REIT LP announces US$37.1 million Hotel Portfolio acquisition and February 2014 cash distribution

VANCOUVER, Feb. 17, 2014 /PRNewswire/ - American Hotel Income Properties REIT LP ("AHIP") (Toronto Stock Exchange: HOT.UN; OTCQX: AHOTF) announced today that it has agreed to acquire, through its subsidiaries, four hotel properties located in Virginia (the "Acquisition Portfolio") for an aggregate purchase price of approximately US$37.1 million, including up to US$1.6 million for defeasance of existing debt, and excluding post-acquisition adjustments and brand mandated property improvement plans.

The Acquisition Portfolio will be purchased at a weighted average going-in capitalization rate of approximately 10.0%, after inclusion of all hotel management fees, administration fees and brand franchise fees, or approximately US$92,060 per room (excluding brand mandated property improvement plans to upgrade furniture, fixtures and equipment, which AHIP expects to be approximately US$6.0 million). Including the property improvement plans and closing costs, the aggregate cost to AHIP for the Acquisition Portfolio is expected by management to be approximately US$44.5 million.

Acquisition Highlights:

  • Quality portfolio of four select-service hotel properties located in Harrisonburg, Emporia, and South Hill, Virginia
  • The properties operate under well-established, leading national hotel brands: Hampton Inn (Hilton) and Fairfield Inn & Suites (Marriott)
  • The Acquisition Portfolio has stable historical operating metrics and all four properties are located in close proximity to Interstate highway exits
  • The Harrisonburg University hotel is close to James Madison University, which has approximately 20,000 students enrolled
  • AHIP's pro forma payout and leverage ratios remain conservative after giving effect to the Acquisition Portfolio, at approximately 73.4% on projected 2014 AFFO of the Acquisition Portfolio and a projected debt to gross book value of approximately 51.2%
  • Expected by to be immediately accretive to AFFO per unit
  • The total acquisition price including budgeted property improvement plan costs of the Acquisition Portfolio are significantly below the as-stabilized appraised value of US$45.8 million as determined by a third party appraiser, and management's estimate of replacement cost
  • Finance with a first mortgage of up to US$24.5 million, bearing an anticipated weighted average interest rate of approximately 4.85%, fixed for 10 years, with the remainder financed with cash from the bought deal offering that closed on October 31, 2013
  • The transaction is expected to close in mid-March, 2014

Rob O'Neill, AHIP's CEO commented, "We are very pleased to announce this acquisition, which is consistent with our stated growth strategy as outlined at the time of AHIP's initial public offering, targeting acquisitions of transportation-oriented and select and limited-service hotels, located in secondary markets in the United States in close proximity to railroads, airports, highway interchanges, and other transportation hubs and demand generators. This acquisition represents another opportunity for AHIP to purchase a high quality, well-maintained portfolio at a price that is below our estimate of its replacement cost. We expect this acquisition to be immediately accretive to our AFFO per unit."

The Acquisition Portfolio

The Acquisition Portfolio is comprised of an aggregate of 403 guest rooms and consists of three hotels under the "Hampton Inn" flag (a Hilton brand), and one hotel under the "Fairfield Inn & Suites" flag (a Marriott brand). The properties are located in Harrisonburg, Emporia and South Hill, Virginia, near transportation hubs and other major demand generators such as James Madison University, manufacturing facilities, distribution centres and medical centres. The properties cater primarily to corporate travelers seeking select-service lodging. The following table sets out certain key characteristics of the Acquisition Portfolio:

Hotel Location Year
Rooms Occup.
(2013) US$
(2013) US$
Hampton Inn University Harrisonburg, Virginia 1988 160 67.90% $99.55 $67.61
Hampton Inn South Harrisonburg, Virginia 2008 90 75.20% $90.32 $67.94
Hampton Inn Emporia, Virginia 2005 85 77.00% $90.79 $69.95
Fairfield Inn & Suites South Hill, Virginia 2007 68 80.50% $81.66 $65.73
Total / Weighted Average 403 73.60% $92.21 $67.86

AHIP is also purchasing land adjacent to two of the properties for US$0.1 million, primarily to serve as a buffer to adjacent businesses.

Following the closing of the Acquisition Portfolio, AHIP's portfolio will be comprised of 41 hotels located in 20 states across the United States, representing an aggregate of 3,517 rooms, excluding the four previously announced properties currently under development through SunOne Developments Inc. ("SunOne"), which represent 241 additional rooms in the aggregate.

AHIP currently owns 37 hotel properties, of which three operate under the "Hampton Inn" flag (a Hilton brand) and one operates under the "Residence Inn" flag (a Marriott brand). The remaining 33 hotels, with an aggregate of 2,642 rooms, are focused on serving railway customers (32 operate under AHIP's proprietary "Oak Tree Inn" brand and one operates under the "Best Western" brand), with approximately 61% of the total available room-nights covered under contracts containing minimum occupancy guarantees.

February Cash Distribution

AHIP also announced the cash distribution of Cdn$0.075 per limited partnership unit ("Unit") of AHIP for the period of February 1, 2014 to February 28, 2014, which is equivalent to Cdn$0.90 per Unit on an annualized basis. The distribution will be paid on March 14, 2014 to unitholders of record at the close of business on February 28, 2014. There are currently 14,437,800 Units issued and outstanding.

The policy of AHIP is to pay cash distributions on or about the 15th day of each month to the unitholders of record on the last business day of the preceding month.

Forward-Looking Information

Certain statements contained in this news release may constitute forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "plan", "expect", "may", "will", "intend", "should", and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Forward-looking statements in this news release include, without limitation, the following: references to the purchase and closing costs of the Acquisition Portfolio; the components used in the determination of weighted average going-in capitalization rates, pro forma leverage and payout ratios; the completion and estimated costs of property improvement plans; as stabilized values of the Acquisition Portfolio; accretive effect of the Acquisition Portfolio on AFFO per unit; the expected time of closing of the transaction; the obtainment and interest rates of new mortgage financing on the Acquisition Portfolio; the development of four hotels by SunOne and the focus on acquiring additional suitable hotels in strategic locations.

Forward-looking information is based on a number of key expectations and assumptions made by AHIP, including, without limitation: a reasonably stable North American economy and stock market and the ability to successfully integrate the Acquisition Portfolio. Although the forward-looking information contained in this news release is based on what AHIP's management believes to be reasonable assumptions, AHIP cannot assure investors that actual results will be consistent with such information.

Forward-looking information reflects current expectations of AHIP's management regarding future events and operating performance as of the date of this news release. Such information involves significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, without limitation, those factors that can be found under "Risk Factors" in AHIP's Annual Information Form dated March 28, 2013 and AHIP's Management's Discussion and Analysis dated November 7, 2013.

The forward-looking statements contained herein represent AHIP's expectations as of the date of this news release, and are subject to change after this date. AHIP assumes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.

About American Hotel Income Properties REIT LP

AHIP is a limited partnership formed under the Limited Partnerships Act (Ontario) to invest in hotel real estate properties located substantially in the United States and engaged primarily in the railroad employee accommodation, transportation and contract-focused lodging sectors. AHIP's long-term objectives are to: (i) generate stable and growing cash distributions from hotel properties substantially in the US; (ii) enhance the value of its assets and maximize the long-term value of the hotel properties through active management; and (iii) expand its asset base and increase its AFFO per Unit through an accretive acquisition program, participation in strategic development opportunities and improvements to its properties through targeted value-added capital expenditure programs.

Additional information relating to AHIP, including its other public filings, is available on SEDAR at www.sedar.com and on AHIP's website at www.ahipreit.com.



SOURCE American Hotel Income Properties REIT LP

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