AR Capital Forms New Hospitality REIT; Purchases Majority Stake in Hotel Operator
Intending to launch a new hotel REIT and become as big a player in the hospitality property sector as it has in net-leased propertry, AR Capital LLC this week bought a controlling interest (60%) in Crestline Hotels and Resort Inc. from Grupo Barcelo, a hotel company based in Majorca, Spain.
ARC paid $5.4 million for its share of Crestline, the 17th-largest hotel manager in the U.S., and said it expects the Fairfax, VA-based company will be instrumental in supporting AR Capital’s launch of its 12th publicly offered REIT.
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Last month AR Capital filed registration papers for the initial public common stock offering of American Realty Capital Hospitality Trust. It will be seeking to raise up to $2 billion to invest in hotel-related assets.
The deal with Grupo Barcelo to acquire control of Crestline also includes an agreement for ARC's new REIT to acquire six properties from Grupo Barcelo and Crestline once the IPO has commenced. The six properties are located throughout the East Coast and vary from select service to full-service hotels.
“ARC’s investment in Crestline was opportune in light of the improving U.S. economy, the resurgence of consumer confidence and business travel, strong pricing power emerging in many markets and the lack of new supply in the industry,” noted Nicholas S. Schorsch, chairman and CEO of AR Capital.
Crestline has extensive experience acquiring hotels, managing hospitality assets and providing operating oversight. It currently manages 43 hotels containing more than 7,000 rooms, and operates mostly in the select service and full service segments. It serves as an "approved operator" for Hilton Hotels, Intercontinental Hotel Group, Marriott International and Starwood Hotels and Resorts, among others, and acts as a property manager for hospitality industry owners such as: Apple REIT; Armada Hoffler; Barcelo Crestline; Chesapeake Lodging Trust; Host Hotels & Resorts; RLJ Lodging Trust; and Sunstone Hotel Investors.
Extremely Rosy Outlook for Hotel Room Rates
Last week, hotel industry tracking firm PKF Hospitality Research affirmed its forecast of strong fundamental performance for the U.S. lodging industry. In noting the lack of meaningful increases in hotel supply, favorable economic conditions for growth in lodging demand and market leverage that should allow hotels to achieve room rate growth, PKF-HR forecast healthy increases in both revenues and profits in 2013 and 2014.
"It is very rare for us to say we have no concerns about the near-term outlook for the U.S. lodging industry, but that is what we see from our econometric models, as well as discussions with our clients,” said R. Mark Woodworth, president of PKF-HR. “If you look at the factors that historically have derailed the good times for hotel profit growth, very few, if any, exist today.”
According to the September 2013 Hotel Horizons report, PKF-HR is forecasting U.S. hotels to attain a 5.9 percent increase in revenue per available room (RevPAR) in 2013, followed by even bigger RevPAR gains of 7.2 percent in 2014 and 8.1 percent in 2015. All of these projections are well above the long-run average annual RevPAR increase of 2.9 percent as reported by Smith Travel Research (STR).