REIT Sells US Economy Hotel Portfolio for $216M

VANCOUVER, CANADA—Locally-based American Hotel Income Properties REIT has reached a definitive agreement to sell its 45-asset economy lodging portfolio to an affiliate of VCM, Ltd. for $215.5 million.

The portfolio is trading at a 8.2% cap rate.

The sale followed a review of the portfolio by AHIP, which concluded that its long-term strategy is better focused on expanding its premium branded hotel portfolio, which currently consists of 67 hotels in larger US secondary markets that are affiliated with Marriott, Hilton and IHG hotel brands.

Net proceeds of $90 million from the sale will be redeployed to acquire additional premium branded hotels that are better suited to AHIP’s long-term strategy, and also used for general corporate purposes.

“Following the sale of our economy lodging properties, AHIP will be better aligned with our US hotel REIT peers by owning a focused portfolio of purely mid to upscale, select-service branded hotels, says CEO John O’Neill in prepared remarks.

AHIP’s existing total portfolio RevPAR for the trailing twelve months ended March 31, 2019 was $73.31, however its premium branded portfolio RevPAR was 20% higher at $88.23. AHIP’s premium branded hotels also deliver a higher NOI margin of 34.2% in the trailing twelve ended months March 31, 2019, compared to the economy lodging hotels at 31.7%.

“Going forward, we intend to concentrate on accretive growth within the upper-midscale to upper-upscale categories of hotels in secondary metropolitan US cities,” O’Neill says. He adds that the REIT has already begun a review of potential hotel acquisition opportunities that are available at capitalization rates near to what it is selling its economy lodging portfolio for.