ARA US Hospitality Trust Selling Four Hotels to Three Wall Capital for $32.5M

ARA US Hospitality Trust is selling a portfolio of four underperforming hotels in mid-tier American cities for $32.5 million, as the Singapore-listed REIT seeks to rebalance its portfolio in favour of higher-yielding core assets.

The 507-room portfolio comprises four Hyatt Place hotels serving Birmingham, Alabama; Pittsburgh, Pennsylvania; and the Ohio cities of Cleveland and Cincinnati. The properties are located in weak submarkets with declining demand exacerbated by the COVID-19 pandemic, ARA H-Trust’s managers said Thursday in a filing with the Singapore Exchange.

The all-cash sale of the portfolio to Three Wall Capital, a US investment group specialising in hotel properties, is expected to be completed in the third quarter of this year, with the $32.5 million price representing a 3.2 percent premium to an independent market valuation.

The disposal will allow ARA H-Trust to free up capital to be potentially deployed towards asset management initiatives for core assets that will drive returns, profits and distributions for unitholders, said Lee Jin Yong, chief executive of the trust’s managers.

Business Trips Lagging

Formerly known as AmeriSuites, Hyatt Place is positioned as a limited-service offering for business travellers, competing in the same space as brands like Courtyard by Marriott and Hilton Garden Inn. Fully 27 of ARA H-Trust’s 41 hotels operate under the Hyatt Place brand.

The four hotels earmarked for sale made up 4.4 percent of the total value of ARA H-Trust’s $722.6 million portfolio at the end of 2021. Divestment of the properties will boost the portfolio’s overall occupancy to 58.8 percent from 57.1 percent and increase revenue per available room to $66 from $64, the trust’s managers said.

New York-based Three Wall Capital was founded in 2008 by Alan Kanders and has completed over $1.5 billion in transactions in a principal investor capacity. The firm’s portfolio consists of 65 hotels throughout the US and Bermuda, including 58 extended-stay properties.

Kanders and Three Wall principals Raviraj Dave and Michael Mao graduated from Cornell University’s School of Hotel Administration, as did ARA H-Trust boss Lee, who is based in the US.

Chicago Departure

ARA H-Trust in March announced the proposed sale of its only asset in the state of Illinois, Hyatt Place Chicago Itasca, to Puerto Rican firm IHP Hospitality for $7.8 million. The 126-room hotel in a northwestern suburb of Chicago is located 12 miles (19.3 kilometres) from O’Hare International Airport and 27 miles from downtown Chicago.

The 1996-vintage property is one of the oldest and smallest assets within ARA H-Trust’s portfolio and is expected to require sizeable capital outlays relative to its value over the next few years, the managers said. The disposal was due to take place by the end of the second quarter.

In April, ARA H-Trust posted full-year revenue for 2021 of $130.7 million, up 67.2 percent from the previous year, as the portfolio experienced a recovery in occupancy rates from the start of 2021 after widespread distribution of COVID vaccines and the lifting of travel restrictions in the US.

Gross operating profit more than tripled to $40.5 million in 2021, with cost mitigation measures proving effective at containing an increase in operating expenses, the managers said.