NEW YORK—Attractive financing is playing a big role in American Realty Capital Hospitality Trust’s planned $1.9-billion acquisition of the Equity Inns portfolio, which includes 126 hotels totaling 14,934 rooms across 35 states.
The deal would create one of the largest hospitality-focused real estate investment trusts in North America with 132 hotels representing 16,115 rooms.
During a panel discussion Monday at the 36th annual New York University International Hospitality Industry Investment Conference, Jonathan P. Mehlman, chief investment officer at ARC Hospitality, pointed to a positive financing environment as being one of the main reasons why a deal is imminent. Representatives of Equity Inns could not be reached for comment.
“One of the driving factors behind the Equity Inns announcement is the (interest rate) environment that exists today and the willingness of seller to provide us with seller financing,” he said during the panel titled “Capital ideas.”
The assets in the Equity Inns portfolio are located primarily in top 100 metropolitan statistical area markets. Mehlman said ARC Hospitality is able to generate more yield by buying in markets such as Omaha, Nebraska; Ann Arbor, Michigan; and Madison, Wisconsin.
“We’re not buying in Chicago or Los Angeles or Dallas or Philadelphia or Washington, D.C., or Houston,” he said. “Those top 10 MSAs, we’re not there; we’re in the next rung, more in the perimeter of those markets.”
Mehlman declined to elaborate when asked for additional details of the deal following the panel discussion.
“We’re very excited. We have a lot of work to do,” he said.
On the fast track
The proposed Equity Inns portfolio transaction represents a dramatic leap forward for fledgling ARC Hospitality, which incorporated 25 July 2013 in Maryland. The non-traded REIT’s first acquisition, which comprised six hotels for a combined aggregate purchase price of $106.5 million excluding closing costs, closed 27 March 2014.
ARC Hospitality seeks to primarily acquire select-service and full-service hotels affiliated with major brands from the likes of Marriott International, Hilton Worldwide Holdings and Hyatt Hotels Corporation. The REIT’s offering overview also specifies acquisition targets characterized as:
- located in high barrier-to-entry, supply-constrained markets near sustainable growth diverse demand generators;
- well-maintained, with minimum deferred maintenance or renovation required; and
- purchased at a discount-to-replace cost.
The Equity Inns portfolio refers to the 126-property portfolio of the former Equity Inns, which in October 2007 merged with W2007 Grace Acquisition I and later WNT Holdings, each of which are indirectly owned by one or more Whitehall Real Estate Funds.
The portfolio includes hotels across 35 U.S. states encompassing a number of well-known flags, including Hampton Inn, Hilton Garden Inn, Homewood Suites, Embassy Suites, Courtyard by Marriott, Residence Inn, Hyatt Place and Holiday Inn.