The managers of ARA US Hospitality Trust are proposing to sell four Hyatt Place hotels for a total consideration of US$32.5 million ($45.2 million).
On June 30, ARA US Hospitality Trust’s indirectly wholly-owned subsidiary, ARA USH Chicago entered into a conditional purchase and sale agreement with Three Wall Capital, who will be purchasing the portfolio of hotels.
The four hotels are: Hyatt Place Pittsburgh Cranberry located in Pennsylvania, Hyatt Place Birmingham Inverness in Alabama, as well as Hyatt Place Cincinnati Northeast and Hyatt Place Cleveland Independence located in Ohio.
The consideration represents a premium of 3.2% of the hotels’ collective valuation of US$31.5 million. The value of the hotels was determined by independent valuer JLL Valuation & Advisory Services as at Dec 31, 2021. At ARA US Hospitality Trust's IPO in 2019, the appraised value of these four hotels was US$45.1 million.
According to the managers of the trust, the hotels are “non-core assets with declining historical performance”. These hotels are ranked bottom quartile in terms of historical performance in key performance metrics such as gross operating profit margin, revenue per available room (RevPAR), average daily rate and so on.
In addition, they are located in sub-markets with declining demand, that was made worse by the Covid-19 pandemic. In addition, asset enhancement is not expected to boost cashflow yield in the future years.
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“As such, the proposed sale will allow the managers to realise the value for the four-property hotel portfolio, freeing up capital to be potentially deployed towards asset management initiatives for core assets that will drive returns, profits and distributions for ARA H-Trust and the stapled securityholders,” says the managers.
The sale is said to be 39.4% accretive to the trust’s distribution per stapled security (DPS). Had the sale been completed on Jan 1, 2021, ARA US Hospitality Trust’s DPS would have increased to 0.495 US cents from 0.355 US cents on a pro forma basis.
The sale is expected to be completed in the third quarter of 2022.
Units in ARA US Hospitality Trust closed 0.5 US cent higher or 1.06% up at 47.5 US cents on June 30.
