American Hotel Income Properties REIT LP announces US$57.3 million hotel portfolio acquisition and $35.0 million equity financing

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VANCOUVER, Oct. 10, 2013 /CNW/ - American Hotel Income Properties REIT LP ("AHIP") (Toronto Stock Exchange: HOT.UN; OTCQX: AHOTF) announced today that it has agreed to acquire four hotel properties located in metropolitan Pittsburgh, Pennsylvania (the "Acquisition Portfolio") for an aggregate purchase price of approximately US$57.3 million, excluding post-acquisition adjustments and brand mandated property improvement plans.

AHIP has also entered into an agreement with a syndicate of underwriters co-led by Canaccord Genuity Corp. and National Bank Financial Inc. (collectively, the "Underwriters"), to sell, on a bought deal basis, 3,450,000 subscription receipts ("Subscription Receipts") of AHIP at a price of $10.15 per Subscription Receipt for gross proceeds to AHIP of approximately $35.0 million (the "Offering").

The Acquisition Portfolio will be purchased at a weighted average going-in capitalization rate of approximately 9.7% (after consideration for all hotel management fees, accounting fees, capital expenditure fees, and a reserve for furniture, fixtures and equipment), or approximately US$134,000 per suite, after accounting for brand mandated property improvement plans to upgrade furniture, fixtures and equipment, which is expected by AHIP to cost, in aggregate, approximately US$6.0 million.  Including the property improvement plans and closing costs, the aggregate cost to AHIP for the Acquisition Portfolio is expected to be approximately US$65.0 million.

Acquisition Highlights:

• Quality portfolio of four hotel properties located in metropolitan Pittsburgh, Pennsylvania, featuring stable historical operating metrics
• Entrance into the metropolitan Pittsburgh market, identified by HVS Global Hospitality Services, Inc. as the second most stable major lodging investment market in the United States
• Acquisition Portfolio operates under established hotel brand names including Hampton Inn (Hilton) and Residence Inn (Marriott)
• AHIP's pro forma leverage and payout ratios remain conservative after giving effect to the Acquisition Portfolio
• Expected by AHIP management to be immediately accretive to AFFO per unit
• The acquisition price is significantly below the appraised value and management's estimate of replacement cost

Rob O'Neill, AHIP's CEO, commented "We are very pleased to announce this acquisition, which represents the first major step in the execution of our stated growth strategy as outlined at the time of AHIP's initial public offering targeting acquisitions of transportation-oriented and select and limited-service hotels, located in secondary markets in the United States in close proximity to railroads, airports, highway interchanges and other transportation hubs and demand generators.  This acquisition represents a unique opportunity for AHIP to purchase a high quality, well-maintained portfolio at a price that is below its independently appraised value and below our estimate of its replacement cost. I am particularly pleased that we will now have a presence in the Pittsburgh area, which has strong underlying fundamentals with expectations for near term growth. We expect this acquisition to be immediately accretive to our AFFO per unit."

The Acquisition Portfolio

AHIP will acquire the Acquisition Portfolio for a purchase price of approximately US$57.3 million (the "Purchase Price"), subject to working capital and capital expenditure adjustments, excluding brand mandated property improvement plans to upgrade furniture, fixtures and equipment, expected to cost, in aggregate, approximately US$6.0 million.  Including the property improvement plans and closing costs, the aggregate cost to AHIP for the Acquisition Portfolio is expected to be approximately US$65.0 million. The properties comprising the Acquisition Portfolio were independently appraised by Cushman & Wakefield, Inc., who determined an aggregate as-is value of US$64.0 million, and an as-stabilized value of US$76.0 million, following the completion of the property improvement plans.

AHIP intends to finance the acquisition of the Acquisition Portfolio with proceeds from the Offering and first mortgage financing to be secured against the Acquisition Portfolio in the aggregate amount of approximately US$38.0 million, bearing an anticipated weighted average interest rate of approximately 5.15%.

The Acquisition Portfolio is comprised of an aggregate of 472 guest rooms and consists of three hotels under the 'Hampton Inn' flag (a Hilton brand), and one hotel under the 'Residence Inn' flag (a Marriott brand).  The properties are located in suburban areas of the city of Pittsburgh, Pennsylvania, near transportation hubs and other major demand generators such as the Pittsburgh International Airport, universities, hospitals and large office parks. The properties primarily cater to corporate travelers seeking select and focused-service lodging, including on an extended-stay basis. The following table sets out certain key characteristics of the Acquisition Portfolio:

Hotel	Location	Year Built	Rooms	Occup. (2012)	ADR (2012) US$	RevPAR (2012) US$
Hampton Inn - Airport	Caraopolis, PA	1986	127	78.5%	117.64	92.36
Hampton Inn - Greentree	Pittsburgh, PA	1986	132	72.7%	116.61	84.79
Hampton Inn - Cranberry	Cranberry Township, PA	1985	117	76.3%	126.56	96.57
Residence Inn - Cranberry	Cranberry Township, PA	1998	96	83.3%	126.48	105.37
Total / Weighted Average			472	77.3%	121.36	93.93

Following the closing of the Acquisition Portfolio, AHIP's portfolio will be comprised of 37 hotels located in 20 states across the United States, representing an aggregate of 3,114 rooms, including a recently acquired 77-room property in Jefferson City, Missouri, but excluding the two previously announced properties currently under development through SunOne Developments Inc. ("SunOne") which are expected by AHIP management to aggregate 81 additional rooms.

Of AHIP's 33 currently operating properties, 32 operate under AHIP's flagship 'Oak Tree Inn' brand and one under the 'Best Western' brand. All 33 properties are specifically designed for railway employee lodging customers. Following the closing of the Acquisition Portfolio, management estimates that approximately 61% of the total available room-nights in AHIP's portfolio will be covered under contracts containing minimum occupancy guarantees.

Public Offering of Subscription Receipts

AHIP has entered into an agreement with a syndicate of Underwriters co-led by Canaccord Genuity Corp. and National Bank Financial Inc. to sell, on a bought deal basis, 3,450,000 subscription receipts of AHIP at a price of $10.15 per Subscription Receipt for gross proceeds to AHIP of approximately $35.0 million. AHIP has also granted the Underwriters an over-allotment option to purchase up to an additional 517,500 Subscription Receipts (or, in certain circumstances, AHIP units) on the same terms and conditions, exercisable at any time, in whole or in part, up to 30 days after the closing of the Offering.

A significant portion of the net proceeds from the Offering, together with new first mortgage financing being arranged with a major international bank, will be used to fund the acquisition of the Acquisition Portfolio. The remaining net proceeds of the Offering will be used for future acquisitions of hotel properties, renovating and rebranding the recently acquired hotel property in Jefferson City, Missouri to Oak Tree Inn standards, funding mezzanine loans for properties to be developed by SunOne in accordance with the development agreement in place between AHIP and SunOne (including the Oak Tree Inn hotels being developed in Santa Teresa, New Mexico, and Brunswick, Maryland), and for general corporate purposes.

On the completion of the acquisition of at least three properties comprising the Acquisition Portfolio, (i) one unit of AHIP will be automatically issued in exchange for each Subscription Receipt (subject to customary anti-dilution protections), without payment of additional consideration, (ii) holders of Subscription Receipts shall be entitled to receive, without duplication, an amount per Subscription Receipt equal to the amount that would have been declared as distributions on the units issuable on the exchange of such Subscription Receipts, as if such units had been issued on the closing of the Offering in lieu of the Subscription Receipts, which amount will be payable on or about the third business day following the completion of such Acquisition Portfolio, except that if a distribution has been declared but not paid, then payment of that distribution will, at AHIP's option, be made on the date that distribution is paid to unitholders, and (iii) the net proceeds from the sale of the Subscription Receipts will be released from escrow to AHIP and will be used in partial payment of the Purchase Price for such Acquisition Portfolio.

If (i) the completion of the acquisition of at least three properties comprising the Acquisition Portfolio does not occur on or before January 10, 2014, or (ii) AHIP delivers a notice declaring that the acquisition agreement has been terminated or that AHIP will not be proceeding with the acquisition, or (iii) AHIP formally announces by press release that it does not intend to proceed with the acquisition of such Acquisition Portfolio, each Subscription Receipt will entitle the holder thereof to receive an amount equal to the full offering price and a pro rata share of interest thereon.

The Subscription Receipts will be offered by way of a short form prospectus to be filed on or before October 25, 2013 with the securities commissions and other similar regulatory authorities in each of the provinces and territories of Canada pursuant to National Instrument 44-101 - Short Form Prospectus Distributions.

Closing of the Offering is expected to take place on October 31, 2013 and is subject to certain conditions including, but not limited to, the receipt of all necessary approvals, including the approval of the Toronto Stock Exchange and the securities regulatory authorities.

Consistent with AHIP's past practices and in the normal course, AHIP engages in ongoing discussions with respect to possible acquisitions and has entered into an acquisition agreement in respect of the Acquisition Portfolio, which is subject to a number of conditions (including defeasance of the current debt outstanding on the properties). There can be no assurance that this acquisition will be completed on the terms of such agreement or at all. AHIP continues to actively pursue acquisition and investment opportunities.

This news release shall not constitute an offer to sell, or the solicitation of an offer to buy, any securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. The securities being offered have not been and will not be registered under the U.S. Securities Act of 1933 as amended and may not be offered or sold in the U.S. absent registration or pursuant to applicable exemption from registration.

Forward-Looking Statements

This news release contains forward-looking information within the meaning of applicable securities legislation, which reflects AHIP's current expectations regarding future events. Forward-looking information is identified by the use of terms and phrases such as "anticipate", "believe", "budget", "could", "estimate", "expect", "going-in", "intend", "may", "plan", "predict", "project", "will", "would" and similar terms and phrases, and includes, but is not limited to, the closing of the acquisition of the Acquisition Portfolio including the new mortgage financing, the aggregate cost of property improvement plans for the Acquisition Portfolio, the accretive nature of AHIP's investment in the Acquisition Portfolio, the expected number of rooms of the two previously announced properties under development  through SunOne and the closing date of the Offering.

Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond AHIP's control, that could cause actual results and events to differ materially from those that are disclosed in, or implied by, such forward-looking information. Such assumptions include, but are not limited to, the expected occupancy level for the Acquisition Portfolio and a reasonably stable North American economy and stock market. Such risks and uncertainties include, but are not limited to, budgeted net operating income, going-in capitalization rate and expected return on equity being materially different than projected as well as the factors discussed under "Risk Factors" in AHIP's amended Management's Discussion and Analysis dated September 27, 2013. The forward-looking information contained herein is made as of the date of this news release and, except as expressly required by applicable law, AHIP assumes no obligation to publicly update or revise such information.

About American Hotel Income Properties REIT LP

AHIP is a limited partnership formed under the Limited Partnership Act (Ontario) to invest in hotel real estate properties located substantially in the United States and engaged primarily in the railroad employee accommodation, transportation, and contract-focused lodging sectors. AHIP's long-term objectives are to: (i) generate stable and growing cash distributions from hotel properties substantially in the US; (ii) enhance the value of its assets and maximize the long-term value of the hotel properties through active management; and (iii) expand its asset base and increase its AFFO per Unit through an accretive acquisition program, participation in strategic development opportunities and improvements to its properties through targeted value-added capital expenditure programs.

Non-IFRS Measures

This press release uses the term "AFFO", which stands for adjusted funds from operations. AFFO is not a measure recognized under IFRS and does not have a standardized meaning prescribed by IFRS. It is a supplemental measure of performance for real estate investment trusts. AHIP believes that AFFO is an important measure of economic performance and is indicative of AHIP's ability to pay distributions.  For more information on AFFO, reference should be made to AHIP's annual information form for the year ended December 31, 2012 which has been filed on SEDAR at www.sedar.com.

Additional Information

Additional information relating to AHIP, including its other public filings, is available on SEDAR at www.sedar.com and on AHIP's website at www.ahipreit.com.

THE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR THE ACCURACY OF THIS NEWS RELEASE.

SOURCE: American Hotel Income Properties REIT LP

Andrew Greig, Investor Relations
American Hotel Income Properties REIT LP
Suite 1660, 401 West Georgia Street
Vancouver, BC V6B 5A1
Phone: [phone]
Email: [email protected]