ARA US Hospitality Trust, on Jan 4, announced that it has proposed to acquire Home2 Suites by Hilton Colorado Springs South hotel from CH Tenderfoot Hill for a consideration of US$29.0 million ($38.9 million).
A conditional purchase and sale agreement (PSA) was entered into between the trust’s indirectly wholly owned subsidiary, ARA H2CS and CH Tenderfoot Hill on Jan 3 (US time).
The property is a recently-built select-service, extended-stay hotel located at 1235 Tenderfoot Hill Road, Colorado Springs. It has a total of 119 rooms.
The current manager of the property, Chartwell Hospitality, is a fully integrated platform specialising in the acquisition, development, and management of branded, limited and full-service hotels. The hotel manager manages a wide portfolio of 27 Marriott and Hilton branded hotels across nine US states.
The property is located at the south end of Colorado Springs, a popular attraction among tourists, being at the centre of the Rocky Mountain recreation activities. It is also close to the Fort Carson military base and the Broadmoor Convention and Resort with over 200,000 sq ft of meeting space
The property is said to benefit from a consistent demand base that’s well-supported by a dominant military and aerospace presence, nationally recognised universities, popular leisure attractions, premier Olympic training facilities, and high-tech corporations that are significant economic contributors to the local economy.
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It commenced operations in October 2019 and achieved a revenue per available room (RevPAR) of US$129 for its historical trailing 12-month performance through to October 2022.
According to the managers, the property’s RevPAR had “shown resilience” during the Covid-19 pandemic and surpassed 2019 levels for the year up to Oct 31, 2022. Year-to-date, its occupancy and average daily rate (ADR) as at October 2022 stood at 83.7% and US$164 respectively. Its RevPAR of US$137 outperformed the Colorado Springs market, sub-market and its competitive set. The gross operating margin and net property income (NPI) margin for the Property were over 55% and 45% respectively in the same period.
According to the managers of the trust, the acquisition of the property is expected to be accretive to its stapled securityholders on a historical pro forma basis.
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If the proposed acquisition and the sale of the five Hyatt Place properties, which were sold in the 3QFY2022 were completed on Jan 1, 2021, the trust’s distribution per stapled security (DPS) would have increased by 121% from 0.355 US cents to 0.784 US cents.
The property is expected to be acquired at a NPI yield of about 9.0% based on its trailing 12-month NPI as at Oct 31, 2022. This is higher than the NPI yield that the trust had derived from the sale of the five Hyatt Place properties.
The acquisition is also reflective of the trust’s move to optimise its portfolio and rebalancing strategy to re-deploy capital into core assets to increase returns, profits and distributions.
Under the PSA, completion is subject to several conditions including the completion of due diligence, as well as the termination of the existing franchise agreement between CH Tenderfoot Hill and Hilton Franchise Holding with respect to the branding and operation of the hotel.
The total acquisition cost is expected to be wholly funded by cash. The completion of the proposed acquisition is expected to take place in the 1QFY2023.
Units in ARA US Hospitality Trust closed flat at 35 US cents on Jan 3.
