VANCOUVER—American Hotel Income Properties REIT LP (AHIP) has agreed to sell its economy lodging portfolio of 45 hotel properties to an affiliate of VCM, Ltd., for a total sale price of $215.5 million. AHIP expects the transaction to simplify its business structure and allow management to focus exclusively on its portfolio of midscale to upscale, select-service hotels.
This sale is part of AHIP’s long-term strategy to focus on expanding and driving growth from its premium-branded hotel portfolio, which currently consists of 67 hotels in larger U.S. secondary markets that are predominantly affiliated with Marriott, Hilton, and IHG brands. After the repayment of property mortgages and transaction closing costs, AHIP plans to redeploy the net proceeds from the sale of approximately $90 million to acquire more premium-branded hotels as well as use the funds for general corporate purposes.
“This is a transformational transaction for our business, and will simplify our corporate structure, cost base, and investment story, while providing us with the opportunity to redeploy capital towards initiatives we believe will generate stronger growth prospects, as well as higher and more consistent returns for our investors,” said John O’Neill, AHIP CEO. “Following the sale of our economy lodging properties, AHIP will be better aligned with our U.S. hotel REIT peers by owning a focused portfolio of purely mid- to upscale, select-service-branded hotels. We anticipate this more focused strategy will help effectively value our business in the public markets.”
“While our existing total portfolio RevPAR for the trailing twelve months ended March 31, 2019, was $73.31, on its own, our premium-branded portfolio RevPAR was 20 percent higher at $88.23,” O’Neill continued. “AHIP’s premium-branded hotels also deliver a higher net operating income margin of 34.2 percent in the trailing twelve ended months March 31, 2019, compared to the economy lodging hotels at 31.7 percent.”
O’Neill added that moving forward, the REIT plans to focus on upper-midscale and upper-upscale hotels in secondary U.S. cities. “We have already begun our review of potential hotel acquisition opportunities that we believe could be highly complementary to our existing premium-branded portfolio, and are available at capitalization rates near to what we are selling our economy lodging portfolio for,” O’Neill said. “In addition, we expect such acquisitions to benefit from improved debt financing terms available to us today, including longer amortization periods and lower interest rates, which will meaningfully lower our financing costs relative to the debt currently secured against the economy lodging portfolio. Combined, we believe higher-quality properties, lower cost debt, and more attractive financing terms will drive accretion and preserve cash for our company over the long-term.”