Ashford JV Paying $1.3B for Highland Hospitality Portfolio
Posted March 10, 2011
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DALLAS - In a consensual foreclosure, Ashford Hospitality Trust Inc. has emerged as the buyer of the 28-property portfolio of Highland Hospitality Corp., putting $1.3 billion on the line to expand its footprint in key markets, including Boston and Washington, D.C.
The Dallas-based REIT and an institutional partner are paying $158,000 per key for 19 full-service and nine select-service properties sporting influential flags such as Hilton, Marriott, Hyatt and Starwood. The 8,084-room acquisition is equal to a 13.4x EBITDA multiple for 2010 and a 6.1 percent cap rate.
Ashford secured a 71.74 percent interest, paying $150 million in cash for its stake and the pro rata assumption of $786 million of debt. Ashford used cash on hand to fund its share. In addition, a $32 million reserve was set aside for owner-funded capital expenditures. In the next 10 months, the buyer expects to invest $43 million into upgrading the real estate.
The close was made through a consensual restructuring with senior lenders, who are providing $530 million of first mortgage financing with a three-year term and two one-year extension options on 25 hotels. The JV assumed $146 million of first mortgage financing on three hotels, with two years remaining on the term. Also, certain lenders are providing $419 million of mezzanine financing for the entire portfolio. The financing is a mix of fixed and floating rates wit LIBOR floors and spreads for various tranches. The anticipated first-year interest rate is 5.25 percent, based on the current LIBOR curve.
"Of all the hotel transactions we have seen completed, we believe it would be hard to match the many benefits of this investment," said Ashford CEO Monty Bennett. "We believe there is a substantial opportunity to improve the hotels' performance with an aggressive asset management strategy similar to what we have accomplished with our existing hotels."
The acquisition came with the opportunity for new management at 17 hotels and additional growth from the net operating income, which is 36 percent below the portfolio's peak levels. Remington Lodging will manage 17 of the hotels, followed by six with Marriott, two each for Hyatt and McKibbon and one for Hilton. Ashford will asset manage the entire portfolio on behalf of the joint venture. The deal jumps Ashford's portfolio to 26,411 rooms, making it the second-largest lodging REIT in the U.S.
In a comparison of the numbers, Highland paid $244,000 per key in 2007 when it acquired the portfolio via a privatization of the publicly traded Highland Hospitality. The portfolio underwent capital improvements from 2003 to 2007. Prior to the upgrades, Highland originally paid $150,000 per room for the portfolio.
Ashford also reported that the just-bought portfolio had 2.7 percent revenue growth last year in comparison to Ashford's 2010 revenue growth of 1.1 percent. However, Ashford's existing portfolio had 104 percent EBITDA flow last year and the Highland package had just 18 percent.
Seventeen hotels are full-service, upper-upscale and luxury brands that generated 67 percent of the 2010 EBITDA. The package includes three independent hotels.
Last year, the portfolio's RevPAR climbed 3.7 percent to $91.91. Occupancy was 69.4 percent while ADR rang up at $132.48. The hotel revenues totaled $386 million. Ashford will hold a conference call Friday at 11 a.m. ET to discuss the transaction.
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