BentallGreenOak and Highgate Capital Investments have made a $63.75-million investment in Vancouver-based American Hotel Income Properties (AHIP), which owns and operates 78 hotels in the United States.
The firms say the investment will strengthen AHIP’s balance sheet by reducing debt and improving the firm’s liquidity. Like other major hotel owners and operators, AHIP (HOT-UN-T) has been impacted by the economic impacts of the ongoing COVID-19 pandemic although its portfolio has outperformed many others in the sector.
“This investment illustrates the quality of our portfolio and strategy, as recognized by two leading institutional investors in the hospitality space,” said Jonathan Korol, CEO of AHIP, in the announcement Friday morning. “The proceeds received will assist us in strengthening our balance sheet, improving our capital structure and enhancing our ability to act on growth opportunities that may arise.
“BentallGreenOak and Highgate are aligned with our strategy, and we are excited to have established this partnership as we continue to improve on the temporary sector challenges from the COVID-19 pandemic and advance our portfolio’s growth and cash-flow objectives.”
The BentallGreenOak, Highgate investment
In addition to the financial investment in AHIP, both BentallGreenOak and Highgate will have positions on its board of directors, which is expanding to eight members.
Mark Van Zandt, managing partner of BentallGreenOak, and Mahmood Khimji, co-founder and managing principal of Highgate, have been nominated to fill the new positions.
“We believe AHIP’s premium-branded select-service portfolio, under the leadership of this high-quality management team, is well-positioned to outperform during the ongoing hotel market recovery,” said Van Zandt in the release.
“We’re excited to partner with our friends at Highgate on this strategic investment and look forward to working with AHIP to achieve the company’s growth objectives.”
The investment takes the form of newly created Series C preferred equity stock of AHIP REIT ($61.3 million) and warrants to acquire units of AHIP ($2.4 million), via a private placement. The preferred stock units promise an annual dividend of eight per cent for the first three years, with incremental increases after that period.
Prior to this investment, neither BGO nor Highgate held a financial position with AHIP.
In addition to a validation of AHIP’s portfolio and strategy, the firms say the investment offers several strategic benefits:
– adding two well-capitalized strategic partners, which positions AHIP to pursue and capitalize on acquisition opportunities;
– the investment leaves AHIP with total available liquidity of approximately $75 million, up from approximately $40 million as of Sept. 30, 2020, while decreasing its net debt-to-gross book value four per cent to 52.2 per cent; and
– the exercise price for the warrants of approximately $4.10 represents a 30.5 per cent premium to AHIP’s closing price of $3.14 on Jan. 28, and a 31.8 per cent premium to AHIP’s 10-day volume-weighted average trading price as of Jan. 28.
AHIP’s recent performance
While the pandemic has had a severe impact on the entire hospitality industry, through Q3 2020, the latest financial data available, AHIP reported its portfolio was holding up comparatively well.
Occupancy in the quarter was at 57.1 per cent (down from 76.5 per cent for Q3 2019), while revenues decreased 47.7 per cent year-over-year to $59 million.
AHIP reported a $15.4 million loss in Q3, and for the first nine months of 2020 its loss was $58 million.
Interestingly, however, AHIP reported its STR RevPAR (a comparison of its portfolio to others in the industry), was 122.6 during Q3. A score of 100 represents a “fair share” of the available market.
“Highgate is thrilled to commence this partnership with AHIP, along with BentallGreenOak,” Khimji said in the release.
“AHIP’s select service and extended-stay portfolio, overseen by an exceptionally talented management team, is well-positioned for a robust recovery as national lodging fundamentals emerge from COVID-driven disruption.
“We look forward to partnering with Jonathan and the AHIP team over the coming years, and collaborating with the company in the pursuit of future growth initiatives.”
About AHIP, BentallGreenOak, Highgate
AHIP is a limited partnership formed to invest in U.S. hotels. Its 78 premium-branded, select-service hotels are in secondary metropolitan markets under brands affiliated with Marriott, Hilton, IHG and Choice Hotels.
BentallGreenOak is a global real estate investment management advisor and a globally recognized provider of real estate services.
The firm serves over 750 institutional clients with approximately $61 billion of assets under management (as of Sept. 30, 2020) in office, industrial, multiresidential, retail, and hotel properties across the globe.
BentallGreenOak has offices in 24 cities in 12 countries and is a part of SLC Management, the institutional alternatives and traditional asset management business of Sun Life.
Highgate is a fully integrated real estate investment and hospitality management company with over $12.5 billion of hotels under management. It operates assets for the industry’s largest REITs, private equity firms, institutional funds and private investors.
Highgate is an active investor in key gateway markets and operates more than 160 hotels and approximately 45,000 rooms around the world.