Ashford Hospitality Trust Inc. formed a new joint venture with Prudential Real Estate Investors to take ownership of the 28-hotel Highland Hospitality portfolio. The acquisition and restructuring were completed through a consensual foreclosure for total consideration of $1.277 billion.
The total consideration equates to a purchase price of $158,000 per room compared with $244,000 per room before capital improvement funding when the portfolio was acquired in 2007 in a privatization of publicly traded Highland Hospitality.
The prized assets in the portfolio are 17 full-service, upper-upscale and luxury hotels with 5,684 rooms including such brands as Ritz-Carlton, Marriott, Hilton, Hyatt, Renaissance, Sheraton and Westin.
The remaining 11 hotels have 2,400 rooms and include brands such as Crowne Plaza, Hilton Garden Inn, Courtyard, Residence Inn and Hampton Inn.
There are also three independent hotels.
During the next 10 months the venture intends to invest approximately $43 million in a capital improvement program to upgrade the hotels.
At closing, Ashford invested $150 million and will own 71.74% of the joint venture. The new money investment from Ashford and PREI was used to reduce debt and to fund projected capital expenditures.
The joint venture worked out a consensual restructuring with the existing senior lenders, which agreed to provide $530 million of first mortgage 3-year financing with two 1-year extension options on 25 of the hotels and the joint venture assumed first mortgage financing of $146 million on three of the hotels with approximately two years remaining until maturity.
In addition, certain lenders will provide $419 million of mezzanine financing that will cover all 28 hotels. The structure provides for fixed- and floating-rates with LIBOR floors and spreads for various tranches with an anticipated first year interest rate of 5.25% based upon the current forward LIBOR curve.
Remington Lodging will manage 17 of the hotels, followed by six with Marriott, two each for Hyatt and McKibbon and one for Hilton. Ashford will asset manage the entire portfolio on behalf of the joint venture.
In a question and answer session with analysts, Ashford Hospitality CEO Monty Bennett said that, despite the distressed nature of the purchase, the revenues per available room (RevPAR) of this portfolio "is about five, six bucks higher than our existing portfolio, so it is a trade-up in that regard."
Bennett said that because as a REIT, it is more of a long-term holder than PREI, it could also at some point in the future end up owning 100% interest in the hotels - "and would be happy with that outcome."
"I don't think that we are going to be selling assets from this portfolio based upon trying to change our geographic mix per se," Bennett added. "There may be other reasons that we might want to sell an asset or two. A large part of the proceeds of any sales goes to pay down the debt. So we're probably generally disinclined to sell any of the assets unless it is part of a refinancing of this portfolio."
