American Realty Capital Hospitality Trust Inc. (ARC Hospitality) agreed to acquire the Equity Inns lodging portfolio for an expected purchase price of $1.925 billion from affiliates of the Whitehall Real Estate Funds, real estate private equity funds sponsored by Goldman Sachs.
The deal includes 126 hotels in 35 states and marks ARC Hospitality’s biggest portfolio acquisition to date.
The portfolio, which consists of 14,934 rooms, is franchised by several different hotel brands including Hilton Hotels & Resorts, Marriott International, Hyatt Hotels and InterContinental Hotels Group that operate under a number of different hotel flags, including Hampton Inn, Hilton Garden Inn, Homewood Suites, Embassy Suites, Courtyard, Residence Inn, Hyatt Place and Holiday Inn.
The acquisition of Equity Inns will boost ARC Hospitality's lodging portfolio to 132 hotels totaling 16,115 rooms, ranking it as one of the largest owners of select-service hotels in the North American lodging REIT sector.
"The acquisition of the Equity Inns lodging portfolio is a transformational event for ARC Hospitality. We believe this acquisition catapults ARC Hospitality into a position of leadership within the hospitality industry, becoming a top-tier player in the select-service lodging REIT sector and providing us a strong foundation for further expansion," said Nicholas S. Schorsch, chairman of ARC Hospitality.
Schorsch said he sees a great deal of opportunity in the select-service hotel segment given the ongoing economic recovery and higher profit margins and reduced operational risks he said are characteristic of these types of hotels.
"We further believe that now is an opportune time to acquire well-located, high-quality hotels in the upscale and upper midscale tiers as the lodging cycle continues its recovery and enters what we expect will be an extended upward trajectory," Schorsch added.
RCS Capital, the investment banking and capital division of Realty Capital Securities LLC, acted as financial advisor to ARC Hospitality, and Goldman, Sachs & Co. and Deutsche Bank Securities Inc. acted as financial advisors to the sellers. Deutsche Bank Securities and Goldman Sachs are expected to provide ARC Hospitality with financing in connection with the acquisition.
A total of 106 of the 126 Hotels in the portfolio currently carry debt totaling $976 million, which ARC Hospitality intends to assume. The debt matures on May 1, 2016, and is subject to three (one-year) extension. The remaining 20 hotels will be delivered unencumbered by debt at closing. ARC Hospitality intends to incur additional debt secured by those remaining properties.
The Whitehall-affiliated entities originally acquired the portfolio in 2007 from then publicly held Equity Inns for $2.2 billion.
Equity Inns had spent about $1 billion to acquire the portfolio from 1994 through 2006.
The ARC Hospitality expects to close on the acquisition in the fourth quarter of 2014 after customary closing conditions are met.