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VANCOUVER, July 23, 2015 /CNW/ – American Hotel Income Properties REIT LP (“AHIP“) (TSX: HOT.UN; OTCQX: AHOTF) announced today that it has entered into an agreement with a syndicate of underwriters co-led by Canaccord Genuity Corp. and National Bank Financial Inc. (collectively, the “Underwriters“), to sell, on a bought deal basis, 3,800,000 limited partnership units (each, a “Unit“) of AHIP at a price of Cdn$10.15 per Unit for gross proceeds to AHIP of approximately Cdn$38.6 million (the “Offering“).
AHIP has granted to the Underwriters an over-allotment option to purchase up to an additional 570,000 Units, representing 15% of the size of the Offering. The over-allotment option may be exercised in whole or in part at any time for a period of up to 30 days following closing of the Offering, to cover over-allotments.
The closing of the Offering is expected to occur on or about August 11, 2015. The Offering is subject to customary regulatory approvals, including the Toronto Stock Exchange (“TSX“). The Units will be offered in each of the provinces of Canada pursuant to National Instrument 44-101 – Short Form Prospectus Distributions.
AHIP intends to use the net proceeds from the Offering to: (i) partially fund the potential acquisition of a portfolio of railway lodging facilities (the “Railway Portfolio“); (ii) partially fund potential expansion, conversion and new-build opportunities; and (iii) fund working capital and for general corporate purposes.
Railway Portfolio
- AHIP has entered into a conditional Purchase and Sale Agreement (“PSA“) for a strategic portfolio of five railway lodging facilities comprising approximately 600 total guest rooms servicing one of the top three major railway companies in the U.S. The hotels are located along major rail lines in New Mexico, South Dakota, Wyoming and Nebraska. The Railway Portfolio is being purchased at a price of US$45 million before closing costs, representing a weighted average trailing twelve month capitalization rate of approximately 10% after taking into account all hotel management fees and a reserve for furniture, fixtures and equipment. The PSA is subject to various conditions, including satisfactory completion of due diligence by AHIP, negotiation of formal legal documents, approval by AHIP’s Board of Directors and assignment of railway contracts.
- The railway properties are secured by long term lodging contracts with one of the U.S.’s top three railway companies that guarantee in excess of 80% of the available guestrooms for terms approaching on average nine years.
- Management expects the Railway Portfolio to be immediately accretive to Adjusted Funds from Operations (“AFFO“) per Unit.
AHIP has received indicative term sheets for debt financing on the Railway Portfolio for approximately 45% of the portfolio purchase price with 10-year terms and interest rates of between 4.00% and 4.25%.
Additional Railway Hotels
AHIP is actively working with its railway partners on additional expansions involving three existing, high occupancy properties totaling over 70 guestrooms in Hearne, Texas, North Platte, Nebraska, and Hermiston, Oregon. AHIP is also working with its railway partners on two property conversions, totaling 250 rooms in Mississippi and Kansas and multiple new-build opportunities for Oak Tree Inn railway lodging facilities. In aggregate, AHIP estimates the potential investment in expansions, conversions and new-build opportunities is approximately US$16 million. The additional expansion and conversion opportunities under contract are currently expected by management to be completed over the next 12 months subject to final negotiation of railway contracts and the completion of diligence on the proposed acquisitions.
AHIP’s pro forma leverage and payout ratios are expected to remain conservative and within management’s target range after giving effect to the potential acquisition of the Railway Portfolio and the three proposed expansions and two proposed conversions. After the completion of the Railway Portfolio, AHIP’s railway portfolio will be comprised of 43 properties containing approximately 3,500 guestrooms and its branded hotel portfolio will consist of 32 properties containing 2,979 guestrooms. Approximately 43% of AHIP’s pro forma guestrooms are expected to be covered under long term occupancy guarantees with railroad operators, with the balance of the portfolio benefitting from the continued expansion of the U.S. economy and the U.S. hotel industry.
Rob O’Neill, AHIP’s CEO commented, “The new railway portfolio is a strategic acquisition that will significantly expand our contracted lodging business and strengthen our relationship with a leading national railway company. The additional rail hotel expansions and conversions represent a continuation of our strategy to maximize existing relationships by identifying unserved needs and deploying capital on a timely basis to serve the needs of our rail customers and providing accretive returns to our unitholders. AHIP continues to implement its growth strategy in our railway lodging segments, and continues to benefit from the improving United States economy and strengthening U.S. dollar to fund our Canadian dollar distributions.”
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This news release shall not constitute an offer to sell or a solicitation of any offer to buy nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. The securities being offered have not been, nor will they be, registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act“), and such securities may not be offered or sold within the United States absent registration under the U.S. Securities Act or an applicable exemption from the registration requirements thereunder.
FORWARD-LOOKING STATEMENTS
This news release contains forward-looking information within the meaning of applicable securities legislation, which reflects AHIP’s current expectations regarding future events. Forward-looking information is identified by the use of terms and phrases such as “anticipate”, “believe”, “budget”, “could”, “estimate”, “expect”, “going-in”, “intend”, “may”, “opportunities”, “plan”, “potential”, “predict”, “project”, “will”, “would” and similar terms and phrases, including references to assumptions. Such information includes, but is not limited to: statements with respect to the closing of the Offering or the over-allotment option and the use of proceeds therefrom, including the potential acquisition of the Railway Portfolio and potential expansion, conversion and new-build opportunities for Oak Tree Inn railway lodging facilities; references to the capitalization rate associated with the acquisition of the Railway Portfolio; references to the purchase and closing costs for the Railway Portfolio; references to the strategic impacts of the potential acquisition of the Railway Portfolio, including the potential to strengthen AHIP’s relationship with a leading national railway company; the degree to which the Railway Portfolio is accretive; the expected date of the completion of the expansions; references to the expected timing of the completion of the three expansions and two conversion opportunities for Oak Tree Inn lodging facilities; references to the amount of investment capital required for the conversions, expansions and new-build opportunities currently under consideration for Oak Tree Inn railway lodging facilities; references to the terms of the debt financing for the Railway Portfolio; the total number of hotels and rooms owned by AHIP after giving effect to the acquisition of the Railway Portfolio; references to percentage of hotel rooms in AHIP’s railway portfolio covered under long term occupancy guarantees with railroad operators after giving effect to acquisition of the Railway Portfolio and the three expansions and two conversion opportunities for Oak Tree Inn Lodging Facilities; AHIP’s leverage and payout ratios after giving effect to the acquisitions of the Railway Portfolio and the three expansions and two conversion opportunities for Oak Tree Inn Lodging Facilities; and references to the expansion of the U.S. economy and U.S. hotel industry. Actual events or results may differ materially.
Forward-looking information contained in this news release is based on certain key expectations and assumptions made by AHIP, including, without limitation those with respect to: the acquisition, expansion, conversion, opening and successful integration, as applicable, of the Railway Portfolio and the additional Oak Tree Inn Lodging facilities; capitalization rates; fees and reserves; targeted completion dates; pro forma leverage; and payout ratios. Although the forward-looking information contained in this news release is based upon what AHIP’s management believes to be reasonable assumptions, AHIP cannot assure investors that actual events or results will be consistent with such information. Forward-looking information reflects current expectations of 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. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking information, and a description of these factors can be found under “Risk Factors” in AHIP’s Annual Information Form dated March 27, 2015 and under “Risks and Uncertainties” in AHIP’s Management’s Discussion and Analysis dated May 13, 2015, both of which are available on SEDAR at www.sedar.com.
The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. The forward-looking information is made as of the date of this news release and AHIP assumes no obligation to update or revise such information to reflect new events or circumstances, except as may be required by applicable law.
The potential acquisitions, expansions and conversions described in this news release are indicative only, as these potential transactions are being evaluated and negotiated with the applicable sellers. In addition, each transaction, if it proceeds, would be subject to conditions, including satisfactory completion of AHIP’s due diligence and negotiation or assignment of railway contracts, as applicable, and negotiation of formal legal documents. For example, AHIP cautions that there can be no assurance that any transaction will result from the conditional PSA described herein, or what the terms of such a transaction, if any, may be. AHIP undertakes no obligation to update investors on the status of any potential transactions described in this news release unless and until its transaction due diligence is complete and the Board of Directors has approved the transaction, in each case.
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 U.S.; (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
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.
THE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR THE ACCURACY OF THIS NEWS RELEASE.
SOURCE American Hotel Income Properties REIT LP
