AHIP to Acquire Strategic Railway Lodging Portfolio

VANCOUVER—American Hotel Income Properties REIT LP (AHIP) has agreed to acquire through its subsidiaries a portfolio of five strategic railway lodging facilities for an aggregate purchase price of just under $44.8 million, excluding closing and post-acquisition adjustments.

The railway portfolio consists of five hotels containing 586 total guestrooms that are being acquired for approximately $76,500 per key, which is below management’s estimate of replacement cost.

The five railway lodging facilities include a 160-room hotel in Belen, NM; a 156-room hotel in Gillette, WY; a 118-room hotel in Ravenna, NE; a 96-room hotel in Guernsey, WY; and a 56-room hotel in Edgemont, SD.

“This transaction will enable AHIP to unlock the embedded value of the five hotel properties through value add programs and management efficiencies,” said Rob O’Neill, AHIP’s CEO. “The properties are secured by railway contracts that we expect will create significant incremental value for AHIP and its unitholders. I have been working on this strategic investment for more than two years. There are few strategic hotel operators focused on U.S. railway lodging, and we are very pleased to be acquiring all of the lodging properties owned by a competitor that has been accommodating railway crews since 1973. Upon completion of this transaction, AHIP will have more than doubled its locations with a key railway client and will be its sole dedicated crew lodging provider, building on our Oak Tree Inn’s tradition of providing ‘dark and quiet’ room stays for railway companies and their employees.”

The railway portfolio is secured by long-term lodging contracts with one of the U.S.’ top three railway companies, which guarantee in excess of 80% of the available guestrooms for terms averaging nine years. AHIP presently owns three Oak Tree Inn hotels that are contracted with this railway company.

The investment is expected to be immediately accretive to adjusted funds from operations per unit, and at a trailing capitalization rate consistent with other rail hotel acquisitions.

AHIP will fund the purchase of the hotels with cash on hand from the proceeds of the bought deal that was completed on Aug. 11, and additional debt financing. AHIP’s term financing on the railway portfolio will be $20 million of the aggregate purchase price with a 10-year term and fixed interest rates of approximately 4% for the first five years.

This transaction is expected to close within the coming weeks upon finalization of the formal debt agreements. Upon completion of the acquisition, AHIP’s portfolio will consist of 78 hotels totaling 6,798 guestrooms, with 43 rail hotels totaling 3,467 guestrooms and 35 branded hotels totaling 3,331 guestrooms.

“Negotiations are also under way with this railway client for two additional, previously announced property conversions, totaling 250 guestrooms in Mississippi and Kansas,” said O’Neill. “Upon the expected completion of these transactions, these seven rail initiatives are expected to provide further scale and stability to our rail portfolio through diversification of railway clients and longer-term contracts.”

The railway portfolio will be managed for AHIP by its exclusive hotel manager, TR Lodging Enterprises Inc., a wholly owned subsidiary of Tower Rock Hotels & Resorts Ltd. Tower Rock is a wholly owned subsidiary of O’Neill Hotels and Resorts Ltd.