Updated 11:45 a.m. Eastern Daylight Time, 17 June 2015
NEW YORK CITY—American Realty Capital Hospitality Trust on 16 June announced it would acquire a portfolio of 13 hotels (the “Noble Portfolio”) for a purchase price of $300 million from affiliates of Noble Investment Group. The portfolio includes 12 premium-branded select-service and extended-stay hotels and one full-service hotel totaling 1,913 guestrooms. The portfolio spans nine states and includes brands such as Hyatt Place, Hilton Garden Inn, Hyatt House, Courtyard by Marriott and Hilton.
Originally posted 7:20 a.m. Eastern Daylight Time, 11 June 2015
NEW YORK CITY—Due diligence continues to pay off for American Realty Capital Hospitality Trust, which announced two portfolio acquisitions in less than a week.
The first, when completed in the fourth quarter of 2015, will see ARC acquire five select-service hotels comprising 565 rooms for $92.5 million from affiliates of Wheelock Real Estate Fund.
In the second, which is expected to close in three separate tranches from September 2015 through January 2016, ARC will add 26 select-service and extended-stay hotels comprising 2,793 rooms from Summit Hotel Properties for a total purchase price of $351.4 million.
The moves will increase ARC’s portfolio from 122 hotels to 153 when all is said and done, continuing the accelerated pace of growth that saw the trust grow from zero to 122 properties within 11 months.
But although they’ve come in rapid succession, each deal represents considerable due diligence on the front end, according to Jonathan Mehlman, president and CEO of ARC Hospitality Trust.
“These two deals we’ve been working on for two years,” he said. “These are long-term relationships of (ARC Hospitality’s senior management) with regards to the senior management at Summit as well as the Wheelock private equity team. We’ve been sourcing these, and it’s just the right time. …
“It’s not like they’ve cropped up overnight,” Mehlman added. “We’ve been methodical in earmarking certain portfolios.”
Strategy in action
The Wheelock and Summit portfolio acquisitions are in line with the strategy Mehlman shared with Hotel News Now in March.
“We’ll put a deposit down and we’ll buy either a 10-pack or a 20-pack or a 50-pack over the next nine months from an owner that will sell from three different acquisition dates, and we’ll match our fundraising over those three dates,” Mehlman had said then.
The approach—announcing the deals first and then engaging in fundraising—provides further clarity and assurance to investors.
“We tried to build our forward pipeline and to work on the purchase-and-sale agreements where we would put money down hard during our diligence period and enable us to programmatically announce these transactions and then raise our monies and procure the attendant debt so that we can show the marketplace that these 31 hotels are similar to what we bought,” Mehlman told HNN on Wednesday.
Endgame agnostic
Mehlman is working with two possible endgames in mind: take the non-listed real estate investment trust public or engage in a sale or merger.
Do the Wheelock or Summit deals suggest ARC is leaning one way or the other?
“It all depends,” Mehlman said. “We’re building our company to provide our investors the greatest diversification of cash flow stream from a brand as well as a subsector of hotels in certain states. … We are very focused on liquidity, but we’re agnostic to which way we go.
“Nothing’s really changed,” he added.