Morgan Stanley Real Estate,

"This is one of the highest quality portfolios that we've seen in a decade," Monty J. Bennett, president and CEO of the Dallas-based REIT, said during this morning's conference call about the deal. The Ashford piece, per key, factors out to $215,000 for the 24 full-service hotels and $125,000 for the 27 select-service properties. A second-quarter closing is in the works.

When the deal closes, Ashford catapults into position as one of the largest lodging REITs in the US. The deal practically doubles its portfolio, creating a $4.7-billion hospitality block with 131 hotels and 29,016 rooms. The average age is 17.7 years; occupancy, 73.4%. The combined ADR will be $128.62 and RevPAR, $94.47.

In the next 12 months, Ashford will set plans into play for asset sales, joint venture partners and capital market transactions to de-leverage so it's in line with its policy level, which is below 60%. "As you de-lever, the level of accretion drops generally, but we've examined this on a leverage-neutral basis," Bennett said, "and it's still accretive."

If there are no hotel sales agreements prior to closing, Ashford will start the play at a low 70% leverage. More realistically, it will be in the high 60% at closing, said Douglas Kessler, the REIT's CFO. But, he added, getting it to sub-60% within a year's time shouldn't be too difficult to achieve.

Bennett said Ashford's comfort level with the leverage is due to its liquidity. It will be $200 million to $300 million at closing time. The annual debt service will be $200 million per year. "We feel very confident about the ongoing sustainability of this platform even if we would go into a recession, heaven forbid," he told analysts. In addition, the trailing 12-month gross revenue of the CNL portfolio is $681 million.

Bennett said the cost is 20% to 30% below replacement. When the deeds change hands, the trailing NOI cap rate will be 7% and EBITDA will be 8.4%. The portfolio expansion not only brings new markets, but will add 35 cents per share to the FFO in the first year, he added.

The deal culminates one year of talks and nearly two years of "communication" with the Orlando-based CNL for a second piece of its portfolio, according to Bennett. In 2005, Ashford acquired 30 hotels from CNL.

Charlotte, NC-based Wachovia Bank is financing the deal. Wachovia Securities and Eastdil Secured of New York City had been hired to line up $2.5 billion of debt and equity, which is rolling out in several vehicles with five- and 10-year loans of fixed and floating rates. The deal comes with a $150-million revolving credit line.

Kessler said talks already are under way with JV prospects. Neither he nor Bennett said which hotels would be shed.

Ashford has been eyeing inroads into the coastal markets. The portfolio opens doors on the both coasts. "We believe it transforms us overnight into a best-in-class lodging REIT," Kessler said.

About $55 million for the next two years has been earmarked for upgrades. But, Bennett explained, it's more about soft goods since there is no deferred maintenance in the lot, which is flying flags like Marriott, Hilton, Hyatt and Starwood brands. All but five hotels are managed by their brands under long-term contracts. In the combined portfolio, Marriott is the largest with a 44% stake of overall EBITDA; Ashford's affiliate, Remington Hotels, will have 21%. Hilton has 18% of the package and Hyatt, 8%. In addition, 18 of the CNL properties are JV-owned, with ownership interests ranging from 70% to 89%. Ashford's new deeds include the Marriott Legacy, Marriott Seattle Waterfront, Marriott Legacy Center in Plano, TX, Renaissance Tampa, Hyatt Regency Montreal, Hilton El Conquistador, Hilton Torrey Pines, Hilton Costa Mesa and Capital Hilton.

Instant Insights /

Ashford Lays Out Strategy for CNL Hotel Deal

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