American Hotel Income Properties REIT LP Announces CDN$45.0 Million Bought Deal Equity Financing and Acquisition of Seven Hotels in Oklahoma and Texas

/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/

VANCOUVER, Oct. 6, 2014 /CNW/ - American Hotel Income Properties REIT LP ("AHIP") (TSX: HOT.UN; OTCQX: AHOTF) announced today that it has entered into an agreement with a syndicate of underwriters co-led by Canaccord Genuity Corp. and National Bank Financial Inc. (collectively, the "Underwriters"), to sell, on a bought deal basis, 4,310,000 limited partnership units (each, a "Unit") of AHIP at a price of Cdn$10.45 per Unit for gross proceeds to AHIP of approximately Cdn$45.0 million (the "Offering"). AHIP also announced today that it has entered into definitive agreements to acquire through its subsidiaries two hotel portfolios comprised of seven branded hotel properties (the "Acquisition Properties") located in Oklahoma and Texas for an aggregate purchase price of approximately US$79.4 million (or US$108,000 per room) before customary closing and post-acquisition adjustments.

AHIP has granted to the Underwriters an over-allotment option to purchase up to an additional 646,500 Units, representing 15% of the size of the Offering. The over-allotment option may be exercised in whole or in part at any time for a period of up to 30 days following closing of the Offering, to cover over-allotments, if any.

The closing of the Offering is expected to occur on or about October 28, 2014. The Offering is subject to customary regulatory approvals, including the Toronto Stock Exchange ("TSX"). The Units will be offered in each of the provinces of Canada pursuant to National Instrument 44-101 - Short Form Prospectus Distributions.

AHIP intends to use the net proceeds from the Offering, in conjunction with the remaining proceeds from its equity offering that closed on June 4, 2014, to: (i) partially fund the purchase of the Acquisition Properties, which consist of two high-quality nationally-branded hotel portfolios in Oklahoma (the "Oklahoma Portfolio") and Texas (the "Texas Portfolio"); (ii) partially fund the potential acquisition of another portfolio of hotels in the southeast United States that is under preliminary review and subject to various conditions (the "Southeast Portfolio"); and (iii) fund working capital and other potential acquisitions.

Acquisition Highlights:

• The Acquisition Properties total 733 guest rooms and are affiliated with leading hotel brands including Marriott, Hilton, Intercontinental Hotels Group ("IHG") and Choice Hotels. The purchase price for the two portfolios together represents a weighted average capitalization rate of approximately 8.0% on trailing net operating income (including all hotel management fees and a reserve for furniture, fixtures and equipment and accounting for brand-mandated property improvement plans) for the twelve month period ended June 30, 2014 and a 11.7% annualized return on equity.  The acquisitions are priced below management's estimates of replacement cost and are expected to be immediately accretive to Adjusted Funds from Operations ("AFFO") per Unit.
  
  
• The Oklahoma Portfolio comprises four branded hotels with 440 guestrooms, which includes a Hampton Inn and Suites (a Hilton brand), two Holiday Inn properties (an IHG brand) and a Staybridge Suites (an IHG brand).  The portfolio is being acquired for US$48.0 million or approximately US$109,000 per room, excluding brand-mandated property improvement plans of approximately US$0.7 million.  The properties are located in and around Oklahoma City, which has a population of approximately 610,000 and is one of the top 30 cities in the United States by population.  The properties are located approximately 200 miles north of Dallas, Texas, 100 miles southwest of Tulsa, Oklahoma and 350 miles southwest of Kansas City, Missouri.  Two of the properties are located next to an international airport.  The properties are all less than four years old and are in very good physical condition. Major employers in the local area include Chesapeake Energy, DEVON Energy (both Fortune 500 companies) and OGE Energy (a Fortune 1,000 company).
  
  
• The Texas Portfolio is comprised of three branded hotels with 293 guestrooms, which includes a Fairfield Inn and Suites (a Marriott brand), a Holiday Inn (an IHG brand) and a Sleep Inn and Suites (a Choice brand). The portfolio is being acquired for US$31.4 million or approximately US$107,000 per room, excluding brand-mandated property improvement plans of approximately US$0.4 million. The properties are situated in Amarillo, Texas on the I-40 corridor between Oklahoma City, Oklahoma and Albuquerque, New Mexico and the US-287 corridor between Dallas, Texas and Denver, Colorado.  Amarillo is located 260 miles west of Oklahoma City. One of the properties is adjacent to an international airport. The properties are all less than five years old and are in very good physical condition.  Major employers in the local area include Tyson Foods, Affiliated Foods, BWXT Pantex, Bell Helicopter, Western National Life Insurance, Amarillo College and BNSF.
  
  
• AHIP expects to fund the purchase price of the Acquisition Properties, including the brand mandated property improvement plans, using a combination of cash and CMBS loans. The CMBS loans are expected to be provided at approximately 50-55% loan-to-value, for a 10-year term, interest-only for the entire term at an expected fixed interest rate of approximately 4.5%.
  
  
• The transactions are expected to close during the fourth quarter of 2014, subject to customary closing conditions and documentation.

Robert O'Neill, AHIP's Chief Executive Officer, commented, "This investment is consistent with our stated growth strategy targeting acquisitions of transportation-oriented and select-service hotels, located in secondary markets in the United States close to railroads, airports, highway interchanges, other transportation hubs and major demand generators.  Locking in 10-year, approximately 4.5% fixed rate, interest-only CMBS financing on these portfolios highlights a key aspect of our conservative approach to leverage, aimed at providing highly stable returns to AHIP's unitholders.  Furthermore, U.S. hotel metrics continue to improve with the trend expected to continue through 2016.  PKF-Hospitality Research's latest forecast calls for the U.S. lodging industry to achieve record hotel occupancy of 65% in 2015 due to increased tourism.  The combination of high occupancy and significant real average daily rate growth is expected to perpetuate strong gains in net operating income through 2016. We believe that AHIP is well positioned to capitalize on these favourable lodging industry fundamentals."

The Acquisition Properties will be managed for AHIP by its exclusive hotel manager, Tower Rock Hotels & Resorts Inc., a subsidiary of ONE Hospitality Group.

Following closing of the Acquisition Properties, AHIP's total hotel portfolio will be comprised of 54 properties containing 4,691 rooms across 22 U.S. states.  AHIP's "Oak Tree Inn" railway hotel portfolio will be comprised of 35 properties with 2,697 rooms, and its branded hotel portfolio will be comprised of 19 properties with 1,994 rooms. Approximately 43.3% of AHIP's total pro forma rooms are expected to be covered under long term occupancy guarantees with railroad operators, with the balance of the portfolio benefitting from the continued recovery in the U.S. economy and sustained improvements in U.S. hotel fundamentals.

AHIP continues to actively review a number of potential portfolio acquisition opportunities of branded hotels, including the Southeast Portfolio for which AHIP has entered into a conditional purchase and sale agreement.  The aggregate purchase price for such portfolio is expected to be approximately US$45 million, including brand-mandated property improvement plans and closing costs, which management expects to finance in part with new interest-only CMBS loans at approximately 55-60% loan-to-value.  For this acquisition, AHIP is targeting a portfolio capitalization rate of approximately 8.0% (after including all hotel management fees and a reserve for furniture, fixtures and equipment, and accounting for brand-mandated property improvement plans). The purchase and sale agreement in connection with this portfolio is preliminary and subject to various conditions, including satisfactory completion of due diligence by AHIP.

This news release shall not constitute an offer to sell or a solicitation of any offer to buy, nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.  The securities being offered have not been, nor will they be, registered under the United States Securities Act of 1933, as amended (the "Securities Act"), and such securities may not be offered or sold within the United States absent registration under the Securities Act or an applicable exemption from the registration requirements thereunder.

Forward-Looking Information

Certain statements contained in this news release may constitute forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "plan", "expect", "may", "will", "intend", "should", and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Forward-looking statements in this news release include, without limitation, the following: statements with respect to the closing of the Offering or the over-allotment option and the use of proceeds therefrom, including the acquisition of the Acquisition Properties; references to the completion of the acquisitions of the Acquisition Properties; references to the capitalization rate associated with the acquisition of the Acquisition Properties and the Southeast Portfolio; references to the purchase and closing costs of the Acquisition Properties and the Southeast Portfolio; local lodging demand generators; the completion and estimated costs of property improvement plans; references to the terms of the CMBS financing on the Acquisition Properties and the Southeast Portfolio; the near term growth of the Acquisition Properties and United States hotel industry overall; references to the recovery of the U.S. economy; increases in occupancy rates, average daily rates and net operating income in the United States hotel industry; the degree to which the Acquisition Properties are accretive; the total number of hotels and rooms owned by AHIP; future availability of low cost CMBS financing; references to AHIP's review of other potential portfolio acquisition opportunities of branded hotels; references to the management of the Acquisition Properties after their acquisition; and references to AHIP's long-term objectives.

Forward-looking information is based on a number of key expectations and assumptions made by AHIP, including, without limitation: a reasonably stable North American economy and stock market; the ability to successfully integrate the Acquisition Properties; if acquired, the ability to successfully integrate the Southeast Portfolio that is under preliminary review; capitalization rates; fees and reserves; hotel locations; and the ability to acquire additional hotels on an accretive basis. Although the forward-looking information contained in this news release is based on what AHIP's management believes to be reasonable assumptions, AHIP cannot assure investors that actual results will be consistent with such information.

Forward-looking information reflects current expectations of AHIP's management regarding future events and operating performance as of the date of this news release. Such information involves significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, without limitation, those factors that can be found under "Risk Factors" in AHIP's Annual Information Form dated March 26, 2014 and Management's Discussion and Analysis of Results and Operations and Financial Condition dated August 14, 2014.

The forward-looking statements contained herein represent AHIP's expectations as of the date of this news release, and are subject to change after this date. AHIP assumes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.

The potential acquisition of the Southeast Portfolio described in this news release is indicative only, as this potential transaction is being evaluated and negotiated with the applicable sellers. In addition, such acquisition, if it proceeds, would be subject to conditions, including satisfactory completion of AHIP's due diligence. AHIP cautions that there can be no assurance that any transaction will result from its preliminary review of the Southeast Portfolio, or what the terms of such transaction, if any, may be. AHIP undertakes no obligation to update investors on the status of the potential acquisition of the Southeast Portfolio unless and until its acquisition due diligence is complete and the Board of Directors of American Hotel Income Properties REIT (GP) Inc. has approved the transaction.

About American Hotel Income Properties REIT LP

AHIP is a limited partnership formed under the Limited Partnerships Act (Ontario) to invest in hotel real estate properties located substantially in the United States and engaged primarily in the railroad employee accommodation, transportation and contract-focused lodging sectors. AHIP's long-term objectives are to: (i) generate stable and growing cash distributions from hotel properties substantially in the United States; (ii) enhance the value of its assets and maximize the long-term value of the hotel properties through active management; and (iii) expand its asset base and increase its AFFO per Unit through an accretive acquisition program, participation in strategic development opportunities and improvements to its properties through targeted value-added capital expenditure programs.

Additional information relating to AHIP, including its other public filings, is available on SEDAR at www.sedar.com and on AHIP's website at www.ahipreit.com.

THE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR THE ACCURACY OF THIS RELEASE.

SOURCE: American Hotel Income Properties REIT LP

Andrew Greig, Investor Relations, American Hotel Income Properties REIT LP, Suite 1660 - 401 West Georgia Street, Vancouver, B.C. V6B 5A1, Tel: [phone], Email: [email protected]