NEW YORK CITY—American Realty Capital Hospitality Trust said Monday it would buy the Equity Inns portfolio from private equity funds sponsored by Goldman Sachs. The REIT will pay $1.925 billion for the 126-hotel portfolio, which Goldman’s Whitehall real estate platform bought in 2007 for $2.2 billion.
When it’s completed, the Equity Inns deal will grow ARC Hospitality’s holdings from six properties to 132 in a single stroke. The 14,394-key select-service portfolio encompasses a number of well-known franchises, including Hampton Inn, Hilton Garden Inn, Homewood Suites, Embassy Suites, Courtyard, Residence Inn, Hyatt Place and Holiday Inn.
The acquisition from subsidiaries of W2007 Grace I LLC and WNT Holdings LLC provides ARC Hospitality with “a strong platform for further expansion,” says board chairman Nicholas Schorsch. “”We believe the select-service hotel segment offers tremendous value given the economic recovery in the US, higher profit margins and reduced operational risks characteristic of these assets. We further believe that now is an opportune time to acquire well-located, high-quality hotels in the upscale and upper midscale tiers as the lodging cycle continues its recovery and enters what we expect will be an extended upward trajectory.”
It was against the backdrop of an earlier such recovery that Goldman bought the Equity Inns portfolio seven years ago. “Securities firms and buyout companies, armed with record funds, are purchasing hotels as business travel rebounds from the Sept. 11 attacks,” Bloomberg reported at the time. The average daily room rate at US hotels increased 7.2% in 2006 to $97.61, lifting industry profits to a record $26.6 billion, according to Smith Travel Research in Henderson, TN.”
ARC Hospitality’s buy is expected to close in the fourth quarter. RCS Capital, the investment banking and capital division of Realty Capital Securities LLC, served as financial advisor to ARC Hospitality, while Goldman and Deutsche Bank Securities Inc. acted as financial advisors to the sellers. It’s expected that Goldman and DB will provide ARC Hospitality with financing in connection with the acquisition.