ARA US Hospitality Trust has agreed to acquire a 390-key trio of select-service hotels in the US for $84.5 million, just six months after the trust raised $498 million in its debut on the Singapore stock exchange.
The trust has entered into a conditional agreement to purchase the portfolio of mid-range Marriott-branded hotels in North Carolina and Texas from US-based hotel developer and operator Concord Hospitality Enterprises, according to a bourse announcement.
The addition of the three assets will bring the REIT’s previously all Hyatt-branded portfolio to 5,340 rooms in 41 hotels across 22 US states, according to the statement by the Warburg Pincus-backed real estate fund manager.
Picking Up Three Marriotts in Two Southern States
“We are excited with the addition of this high quality freehold portfolio which will broaden our earnings base with diversified and increased net property incomes,” said Lee Jin Yong, the CEO of the trust’s managers, ARA Trust Management (USH) and ARA Business Trust Management (USH).
Lee’s recently purchased properties include the AC by Marriott Raleigh North Hills hotel, a two-year-old 135-key property in Raleigh, North Carolina. The three-star business hotel had an occupancy level of 77.6 percent and daily revenue per available room of $134 for the 12 months ending 30 June 2019, according to a presentation by ARA.
Located in Raleigh’s North Hills mixed-use hub, ARA H-Trust’s manager explained that growth in the area’s tech industry at the nearby Research Triangle Park and business from financial firms such as PwC, KPMG and Bank of America that are tenants in North Hills’ one million square feet of office space would drive demand for the 2017-vintage hotel.
The pair of Texan hotels – the Courtyard San Antonio and the Residence Inn San Antonio – are next to each other on the edge of a 2.8 million square foot (260,129 square metre) retail and entertainment development called The Rim in the Lone Star state’s second-largest city.
Located five kilometres (3.1 miles) from the US Army training facility at Camp Bullis, the 124-key Courtyard San Antonio had an occupancy level of 80.7 percent and daily revenue per available room of $104 for the 12-months through 30 June, while occupancy at the 131-key Residence Inn San Antonio was 82 percent with a daily revenue per average room of $102 for the same period.
Acquisition Expected to Boost Distributions
ARA H-Trust said in a statement that the portfolio’s net property income of eight percent, based on the period from 9 May to 30 September, is expected to increase the REIT’s distributions per security by 8.1 percent, from 3.13 US cents to 3.38 US cents.
“The portfolio has outperformed its competitive set recording RevPAR indices between 120 percent to 146 percent,” Lee said, adding that the revenue per available room will contribute stable cash flow to the trust’s bottom-line.
The trust’s managers also highlighted that acquisition could be managed through ARA H-Trust’s available debt headroom without needing to issue new stapled securities
Lee said that the acquisition gives ARA H-Trust an affiliation with Marriott, which manages 7,200 properties worldwide under brands including Ritz-Carlton, Sheraton, and Westin. Prior to the acquisition, ARA H-Trust’s portfolio comprised 27 Hyatt Place and 11 Hyatt House hotels.
He added that it will also open up opportunities for future acquisitions through the relationship with Concord, a North Carolina-based hotel developer and operator that manages 130 properties across the US.
Under the terms of the deal, subsidiaries of ARA H-Trust also have agreed to pay the trust’s managers a 1 percent fee of $0.8 million for executing the acquisition, as well as compensating for professional fees including legal costs of $3.5 million on top of the $84.5 million purchase consideration for acquiring the portfolio.
The acquisition is expected to close following a 25 day due diligence period commencing on the date of the agreement, which was 6 November.
The acquisition of the trio of hotels will be funded through debt and internal cash resources.
Giving Singapore Investors Access to US Hotel Properties
ARA Asset Management, which CEO John Lim took private three years ago with backing from Warburg Pincus and China’s AVIC Trust, celebrated the IPO of ARA H-Trust in May as the first Singapore-listed REIT focused on US hotel properties.
The SGX listing came just six months after the fund manager had acquired its initial portfolio of 38 mid-range Hyatt-branded hotels from a unit of Lone Star Funds for a reported $590 million.
ARA said at the time at the time of the IPO that it had confidence in the potential yields of the US hospitality sector, especially in select service hotels targeted at budget-conscious business travellers.