American Hotel Income Properties REIT LP Announces Agreement to Sell its Economy Lodging Portfolio of 45 Hotels for US$215.5 Million

• AHIP has agreed to sell its Economy Lodging portfolio of 45 hotel properties for a total sale price of US$215.5 million
  
  
• The sale price represents an attractive selling capitalization rate of approximately 8.2%, based on trailing 12-months net operating income, after management fees and FF&E reserve
  
  
• Post sale of the Economy Lodging Portfolio, AHIP's portfolio will be comprised of 100% Premium Branded hotels
  
  
• Transaction simplifies AHIP's business structure and allows management to focus exclusively on the Premium Branded hotel portfolio
  
  
• The sale will enhance AHIP's overall corporate liquidity and help fund its strategic objectives of expanding and driving growth from its Premium Branded hotel portfolio

VANCOUVER, July 29, 2019 /CNW/ - American Hotel Income Properties REIT LP ("AHIP" or the "Company") (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB.U) is pleased to announce that it has reached a definitive agreement (the "Definitive Agreement") to sell its Economy Lodging portfolio consisting of 45 hotel properties through certain of its subsidiaries to an affiliate of VCM, Ltd. ("VCM") for US$215.5 million (excluding closing and post-closing adjustments). This sale culminates an extensive review of the portfolio that reinforced AHIP's view that its long-term strategy is better focused on expanding and driving growth from its Premium Branded hotel portfolio, which currently consists of 67 hotels in larger U.S. secondary markets that are predominantly affiliated with Marriott, Hilton and IHG hotel brands.

After the repayment of property mortgages and transaction closing costs, the net proceeds from the sale of approximately US$90 million will be redeployed to acquire additional Premium Branded hotels that are better suited to AHIP's long-term strategy, and also used for general corporate purposes.

"This is a transformational transaction for our business, and will simplify our corporate structure, cost base and investment story, while providing us with the opportunity to redeploy capital towards initiatives we believe will generate stronger growth prospects, as well as higher and more consistent returns for our investors," said John O'Neill, CEO. "Following the sale of our Economy Lodging properties, AHIP will be better aligned with our U.S. hotel REIT peers by owning a focused portfolio of purely mid to upscale, select-service branded hotels. We anticipate this more focused strategy will help effectively value our business in the public markets."

"As part of our previously announced capital recycling initiative, this transaction also completes our shift away from Economy Lodging properties. Our long-term strategy is focused on enhancing the quality of our hotels and cash flow by concentrating on a growing portfolio of Premium Branded hotels. The sale of our 45 Economy Lodging properties is the first step in that strategy. While our existing total portfolio RevPAR for the trailing twelve months ended March 31, 2019 was $73.31, on its own, our Premium Branded portfolio RevPAR was 20% higher at $88.23. AHIP's Premium Branded hotels also deliver a higher Net Operating Income margin of 34.2% in the trailing twelve ended months March 31, 2019, compared to the Economy Lodging hotels at 31.7%. Going forward, we intend to concentrate on accretive growth within the upper-midscale to upper-upscale categories of hotels in secondary metropolitan U.S. cities. We have already begun our review of potential hotel acquisition opportunities that we believe could be highly complementary to our existing Premium Branded portfolio, and are available at capitalization rates near to what we are selling our Economy Lodging portfolio for. In addition, we expect such acquisitions to benefit from improved debt financing terms available to us today, including longer amortization periods and lower interest rates, which will meaningfully lower our financing costs relative to the debt currently secured against the Economy Lodging portfolio. Combined, we believe higher-quality properties, lower cost debt, and more attractive financing terms will drive accretion and preserve cash for our Company over the long-term."

Mr. O'Neill continued, "We're also pleased with the approximately 8.2% cap rate achieved on this sale of this portfolio, which demonstrates the enhanced value we built in that segment of our business since originally acquiring it in 2013."

AHIP intends to redeploy the net proceeds from the sale into new, income-generating investments. Based on AHIP's current estimates of go-forward cash flow for the Premium Branded portfolio and the strength of its balance sheet, the Company expects to maintain its current monthly cash distribution of US$0.054 per unit following the completion of the transaction.

CIBC Capital Markets and R.W. Baird & Co. Incorporated are acting as financial advisors, and Farris LLP is acting as legal advisor, to AHIP on this transaction.

Definitive Agreement:

The following is a brief summary of certain terms of the Definitive Agreement, which summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full terms of the Definitive Agreement, a copy of which will be filed under AHIP's profile on SEDAR at www.sedar.com.

AHIP, through certain of its subsidiaries, has entered into the Definitive Agreement with VCM to sell AHIP's Economy Lodging portfolio consisting of 45 hotel properties that have rail crew lodging agreements with large North American freight railway companies and long-term franchise agreements with Wyndham, to VCM for US$215.5 million. The purchase price is subject to customary closing and post-closing adjustments for real estate taxes, utilities, rents and other items of income and expense as more particularly set forth in the Definitive Agreement.

The Definitive Agreement contains representations, warranties and covenants typical of those contained in purchase and sale agreements negotiated between parties dealing at arm's length and which are customary for definitive agreements in respect of transactions of this nature. The completion of the transaction is subject to the satisfaction or waiver of various customary conditions in favour of AHIP and VCM as set forth in the Definitive Agreement, including obtaining certain third-party consents. The Definitive Agreement contains customary and specific indemnities and termination rights in favour of VCM as well us customary indemnities and termination rights in favour of AHIP.

The transaction is currently targeted for completion in September 2019.

Investor and Analyst Update Call:

AHIP management will hold a brief Investor and Analyst update conference call today, July 29, 2019 at 5:30 pm ET / 2:30 pm PT, to discuss this transaction and AHIP's long-term strategy. Interested parties are invited to participate by listening to the live webcast, available at the link below or dialing into the conference call using the dial-in information below.

• Webcast Link: http://event.on24.com/wcc/r/2058747-1/2FB6D464FD77BB32C95304B96F8CF545
• 1-877-291-4570 (Toll-Free North America)
• 1-647-788-4919 (International or Local Toronto)

Please ask to participate in the American Hotel Income Properties Update Call. To avoid any delays in joining the call, please dial in at least five minutes prior to the call start time. If prompted, please enter conference passcode 9339304. Note that only analysts will be able to ask questions on the live conference call.

A recording of the conference call will be available on AHIP's website, at: https://www.ahipreit.com/investor- relations/events-and-presentations, following completion of the call.

Forward-Looking Statements

Certain statements in this news release may constitute "forward-looking information" (also known as forward- looking statements) or "financial outlook" within the meaning of applicable securities laws. Forward-looking information and financial outlook involve known and unknown risks, uncertainties and other factors, which may cause actual results, performance or achievements or industry results, to be materially different from any future results, performance or achievements or industry results expressed or implied by such forward-looking information and financial outlook. Forward-looking information and financial outlook generally can be identified by the use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "feel", "intend", "may", "plan", "predict", "project", "subject to", "will", "would", and similar terms and phrases, including references to assumptions. Some of the specific forward-looking information and financial outlook in this news release includes, but is not limited to, statements with respect to: the sale transaction and the terms thereof; including as to timing; AHIP's expectation that it will use the net proceeds from the sale transaction for the acquisition of additional Premium Branded hotels that are better suited to AHIP's long-term strategy and for general corporate purposes; the estimated capitalization rate associated with the sale transaction; the expected strategic impacts of the sale transaction on AHIP, including, enhancing AHIP's overall corporate liquidity, helping fund AHIP's strategic objectives of expanding and driving growth from its Premium branded Hotel portfolio, providing AHIP with the opportunity to redeploy capital towards initiatives AHIP believes will generate stronger growth prospects as well as higher and more consistent returns, better aligning AHIP with its U.S. hotel REIT peers which is anticipated to help effectively value AHIP's business in the public markets; AHIP's long-term strategy of enhancing the quality of its hotels and cash flows by concentrating on a growing portfolio of Premium Branded hotels; AHIP's intention to concentrate on accretive growth within the upper-midscale to upper-upscale categories of hotels in secondary metropolitan U.S. cities; AHIP's expectation that future acquisitions will benefit from improved debt financing terms, resulting in a lower cost of borrowing; the expected date of the completion of the sale transaction; the expected composition of AHIP's portfolio following the completion of the sale transaction; AHIP's expectation that it will maintain its currently monthly distribution following completion of the sale transaction.

Forward-looking information and financial outlook are based on a number of key expectations and assumptions made by AHIP, including, without limitation: the sale transaction will be completed on the terms currently contemplated; the sale transaction will be completed in accordance with the timing currently expected; all conditions to the completion to the sale transaction will be satisfied or waived and the Definitive Agreement will not be terminated prior to the completion of the sale transaction; AHIP will realize the intended benefits of the sale transaction and be able to accretively redeploy the net proceeds thereof; AHIP will achieve its strategic objectives; the debt financing terms for future acquisitions will be consistent with current expectations; assumptions and expectations related to capitalization rates; a reasonably stable North American economy and stock market; the continued strength of the U.S. lodging industry; capital markets will provide AHIP with readily available access to equity and/or debt financing on terms acceptable to AHIP; AHIP will be able to successfully integrate any properties acquired into its portfolio; the value of the U.S. dollar. Although the forward-looking information and financial outlook contained in this news release is based on what AHIP's management believes to be reasonable assumptions, AHIP cannot assure investors that actual results will be consistent with such information.

Forward-looking information and financial outlook are provided for the purpose of presenting information about management's current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. Forward-looking information and financial outlook involve significant risks and uncertainties and should not be read as guarantees of future performance or results as actual results may differ materially from those expressed or implied in such statements. Those risks and uncertainties include, among other things, risks related to: the sale transaction may not be completed on the terms, or in accordance with the timing, currently contemplated, or at all; AHIP has incurred expenses in connection with the sale transaction and will be required to pay for those expenses regardless of whether or not the sale transaction is completed; AHIP may not be able to deploy the net proceeds from the sale transaction in a manner that is accretive to AHIP securityholders, or at all; AHIP and VCM may not be successful in satisfying the conditions to the sale transaction; AHIP may not realize the intended benefits of the transaction; AHIP may not be successful in achieving its intended strategic outcomes of the transaction; market financing terms are subject to change and currently contemplated financing terms may not be available for future acquisitions; distributions are not guaranteed and may be reduced or suspended at any time at the discretion of AHIP's board of directors. Additional information about risks and uncertainties is contained in AHIP's Management's Discussion and Analysis dated May 7, 2019 and annual information form for the year ended December 31, 2018, copies of which are available on SEDAR at www.sedar.com.

To the extent any forward-looking information in this news release constitute a "financial outlook" within the meaning of applicable securities laws, such information is being provided to assist investors in understanding the potential strategic and financial impact of the sale transaction on AHIP.

The forward-looking information and financial outlook contained herein is expressly qualified in its entirety by this cautionary statement. Forward-looking information and financial outlook reflect management's current beliefs and are based on information currently available to AHIP. The forward-looking information is made as of the date of this news release and AHIP assumes no obligation to update or revise such information to reflect new events or circumstances, except as may be required by applicable law.

Non-IFRS Measures

Net Operating Income or NOI is used as a non-IFRS financial measure in this news release. This term is not a measure recognized under International Financial Reporting Standards ("IFRS") and does not have a standardized meaning prescribed by IFRS. Real estate issuers often refer to NOI as a supplemental measure of performance. NOI should not be construed as an alternative to measurements determined in accordance with IFRS as an indicator of AHIP's performance or financial condition. AHIP's method of calculating NOI may differ from other issuers' methods and accordingly may not be comparable to measures used by other issuers. For further information, please refer to AHIP's Management's Discussion and Analysis for the quarter ended March 31, 2019 and the year ended December 31, 2018, copies of which are available on SEDAR.

ABOUT AMERICAN HOTEL INCOME PROPERTIES REIT LP

American Hotel Income Properties REIT LP (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB.U), or AHIP, is a limited partnership formed to invest in hotel real estate properties located in the United States. AHIP currently has 112 hotels, and is engaged in growing its portfolio of premium branded, select-service hotels in larger secondary markets that have diverse and stable demand. AHIP hotels operate under brands affiliated with Marriott, Hilton, IHG, Wyndham and Choice Hotels through license agreements. The Company's long-term objectives are to build on its proven track record of successful investment, deliver reliable and consistent U.S. dollar denominated distributions to unitholders, and generate value through the continued growth of its diversified hotel portfolio. More information is available at www.ahipreit.com.

ABOUT VCM, LTD.

VCM, Ltd. ("VCM") is an investment firm founded in 2010 which focuses on alternative investments. The firm and its affiliated companies manage over US$900 million on behalf of institutions, family offices, and high-net worth individuals. VCM's investment activities are focused on real estate private equity, public market investments, and private equity.

SOURCE American Hotel Income Properties REIT LP

Jamie Kokoska, Director, Investor Relations, American Hotel Income Properties REIT LP, Phone: [phone], Email: [email protected]

Related Links

www.ahipreit.com