American Hotel Income Properties REIT LP announces Cdn$57.5 million bought deal equity financing

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VANCOUVER, April 8, 2015 /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, 5,375,000 limited partnership units (each, a "Unit") of AHIP at a price of Cdn$10.70 per Unit for gross proceeds to AHIP of approximately Cdn$57.5 million (the "Offering").

AHIP has granted to the Underwriters an over-allotment option to purchase up to an additional 806,250 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.

The closing of the Offering is expected to occur on or about April 28, 2015. 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 to: (i) partially fund the potential acquisition of two high-quality nationally-branded hotel portfolios (the "Branded Hotel Portfolios"); (ii) fund potential expansion, conversion and new-build opportunities, including the recently announced US$2.7 million expansion of the Oak Tree Inn railway lodging facility in Dexter, Missouri; and (iii) fund working capital and general corporate purposes.

Branded Hotel Portfolios

• AHIP has entered into a conditional Purchase and Sale Agreement ("PSA") and a non-binding letter of intent ("LOI") for two branded hotel portfolios in the Midwestern and Southeastern United States, respectively. Together, the Branded Hotel Portfolios consist of 12 hotels totaling 984 guest rooms and operate with leading hotel franchisors, including Hilton, Marriott and IHG. The aggregate purchase price for the Branded Hotel Portfolios is approximately US$86.0 million or approximately US$87,400 per room, before property improvement plans, customary closing and post-acquisition adjustments. They are targeted to be purchased at an average trailing capitalization rate of approximately 9.0% after taking into account all hotel management fees, a reserve for furniture, fixtures and equipment and brand-mandated property improvement plans of approximately US$5.3 million. Each of the PSA and LOI are preliminary and subject to various conditions, including satisfactory completion of due diligence by AHIP and negotiation of formal legal documents.
  
  
• The Branded Hotel Portfolios are priced significantly below management's estimates of replacement cost and are expected by management to be immediately accretive to Adjusted Funds from Operations ("AFFO") per Unit.
  
  
• AHIP has received term sheets for the provision of debt on the Branded Hotel Portfolios for 10-year terms with long term interest only periods at a fixed interest rate below 4%. 

Additional Railway Hotels

• The Offering will also finance the recently announced 24 room expansion of the Oak Tree Inn railway lodging facility in Dexter, Missouri for approximately US$2.7 million, which is currently operating in excess of 100% capacity.  Completion of the expansion is targeted for Q4 2015.
   
  
• AHIP is actively working with its railway partners on additional conversion opportunities, expansions, and locations for new-build Oak Tree Inn railway lodging facilities. The conversions, expansions and new-build opportunities under consideration are currently expected by management to require approximately US$10 million of new investment capital if they are completed over the next 12 months.

AHIP's pro forma leverage and payout ratios are expected to remain conservative and within management's target range after giving effect to the potential acquisition of the Branded Hotel Portfolios and the expansion of the Dexter, Missouri property. Taking into account the proposed acquisitions and Dexter expansion, AHIP's railway portfolio will be comprised of 38 properties containing 2,906 guestrooms and its branded hotel portfolio will consist of 35 properties containing 3,331 guestrooms.  Approximately 74% of AHIP's pro forma railway guestrooms are expected to be covered under long term occupancy guarantees with railroad operators, with the balance of the portfolio benefitting from the continued expansion of the U.S. economy and sustained improvements in U.S. hotel fundamentals.

AHIP continues to actively review a deep pipeline of potential portfolio acquisition opportunities of branded hotels.  For branded hotel acquisitions, AHIP is targeting portfolio capitalization rates of 8.0% to 9.0% (after taking into account all hotel management fees and a reserve for furniture, fixtures and equipment, and after accounting for brand-mandated property improvement plans).

Rob O'Neill, AHIP's CEO commented, "AHIP is achieving its stated growth strategy, both in our railway lodging and branded hotel segments. I strongly believe that this is an opportune time to acquire transportation-oriented, select-service and extended stay hotels in the United States in close proximity to railroads, airports, highway interchanges, transportation hubs and other demand generators. The new Branded Hotel Portfolios that we are considering are consistent with our recently acquired portfolios, both in terms of quality and yield. In addition, AHIP continues to benefit from the improving United States economy and strengthening U.S. dollar to fund our Canadian dollar distributions."

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 "U.S. Securities Act"), and such securities may not be offered or sold within the United States absent registration under the U.S. Securities Act or an applicable exemption from the registration requirements thereunder.

FORWARD-LOOKING STATEMENTS 

This news release contains forward-looking information within the meaning of applicable securities legislation, which reflects AHIP's current expectations regarding future events. Forward-looking information is identified by the use of terms and phrases such as "anticipate", "believe", "budget", "could", "estimate", "expect", "going-in", "intend", "may", "plan", "predict", "project", "will", "would" and similar terms and phrases, including references to assumptions. Such information includes, but is not limited to: statements with respect to the closing of the Offering or the over-allotment option and the use of proceeds therefrom, including the potential acquisition of the Branded Hotel Portfolios, the expansion of the Dexter, Missouri property and other potential conversion, expansion and new-build opportunities for Oak Tree Inn railway lodging facilities; references to the capitalization rate associated with the acquisition of the Branded Hotel Portfolios; references to the purchase and closing costs for the Branded Hotel Portfolios; the cost of brand-mandated property improvement plans for the Branded Hotel Portfolios; the degree to which the Branded Hotel Portfolios are accretive; references to the cost of the expansion of the Dexter, Missouri property and the expected date of the completion of the expansion; references to the amount and timing of investment capital required for the conversions, expansions and new-build opportunities currently under consideration for Oak Tree Inn railway lodging facilities; references to the terms of the debt financing for the Branded Hotel Portfolios; the total number of hotels and rooms owned by AHIP after giving effect to the acquisition of the Branded Hotel Portfolios and the expansion of the Dexter, Missouri property; references to percentage of hotel rooms in AHIP's railway portfolio covered under long term occupancy guarantees with railroad operators after giving effect to the expansion of the Dexter, Missouri property;  AHIP's leverage and payout ratios after giving effect to the acquisitions of the Branded Hotel Portfolios and the expansion of the Dexter, Missouri property; references to AHIP's review of other potential portfolio acquisition opportunities of branded hotels and the targeted capitalization rates for such acquisitions; references to the expansion of the U.S. economy and sustained improvements in U.S. hotel fundamentals; and references to AHIP's long-term objectives. Actual events or results may differ materially.

Forward-looking information contained in this news release is based on certain key expectations and assumptions made by AHIP, including, without limitation: the acquisition and successful integration, as applicable, of the Branded Hotel Portfolios; capitalization rates; fees and reserves; targeted completion dates; replacement costs; pro forma leverage; and payout ratios. Although the forward-looking information contained in this news release is based upon what AHIP's management believes to be reasonable assumptions, AHIP cannot assure investors that actual events or results will be consistent with such information. Forward-looking information reflects current expectations of 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. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking information, and a description of these factors can be found under "Risk Factors" in AHIP's Annual Information Form dated March 27, 2015 and under "Risks and Uncertainties" in AHIP's Management's Discussion and Analysis dated March 19, 2015, both of which are available on SEDAR at www.sedar.com.

The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. The forward-looking information is made as of the date of this news release and AHIP assumes no obligation to update or revise such information to reflect new events or circumstances, except as may be required by applicable law.

The potential acquisitions described in this news release are indicative only, as these potential transactions are being evaluated and negotiated with the applicable sellers.  In addition, each acquisition, if it proceeds, would be subject to conditions, including satisfactory completion of AHIP's due diligence and negotiation of formal legal documents. For example, AHIP cautions that there can be no assurance that any transaction will result from the conditional PSA and non-binding LOI described herein, or what the terms of such a transaction, if any, may be. AHIP undertakes no obligation to update investors on the status of any potential acquisitions described in this news release unless and until its acquisition due diligence is complete and the Board of Directors has approved the transaction, in each case.

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 U.S.; (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

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 TSX HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR THE ACCURACY OF THIS NEWS 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, BC, V6B 5A1, Phone: [phone], Email: [email protected]