- Institutional Preferred Equity Stock offering to BentallGreenOak and Highgate
- Enhances AHIP’s liquidity, reduces leverage and positions Company for growth opportunities
- Extension of waivers and covenants on corporate credit facility
All amounts in U.S. dollars unless otherwise noted
VANCOUVER, BC, Jan. 28, 2021 /PRNewswire/ – 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 BentallGreenOak Real Estate Advisors LP («BentallGreenOak«) and Highgate Capital Investments, LP («Highgate«) through HCI-BGO Victoria JV LP (the «Investor«), a joint venture limited partnership, have made an aggregate $50 million strategic investment (the «Investment«) in AHIP and its subsidiary, American Hotel Income Properties REIT Inc., («AHIP REIT«), through the issuance of newly-created Series C preferred equity stock of AHIP REIT (the «Preferred Stock«) and warrants to acquire Units of AHIP («Warrants«), on a private placement basis. As part of the Investment, the Investor has nominated two seasoned investment and industry professionals to AHIP’s Board of Directors («Board«).
The Investment provides several immediate strategic benefits to AHIP:
- Validation of AHIP’s Business: The Investment demonstrates the strength of AHIP’s premium branded select-service hotel portfolio and asset management platform, and highlights that BentallGreenOak and Highgate, two leading institutional investors with significant experience in real estate and hospitality investing, recognize the value and growth potential of AHIP.
- Establishes Long-Term Strategic Unitholders: The addition of two well-capitalized strategic partners positions AHIP to pursue and capitalize on attractive acquisition opportunities.
- Strengthens AHIP’s Balance Sheet: Proceeds from the investment will enhance AHIP’s overall liquidity and capital structure, with net proceeds expected to be used towards immediate debt reduction. For accounting purposes, the Preferred Stock will be treated as $48.1 million in equity, and the Warrants will be recorded as a $1.9 million liability, on AHIP’s balance sheet. As a result of the Investment, AHIP now has total available liquidity of approximately $75 million, up from approximately $40 million at September 30, 2020, while at the same time decreasing AHIP’s pro-forma net debt-to-gross book value to 52.2%, compared to 56.2% at September 30, 2020.
- Equity Participation at Attractive Pricing: The exercise price for the Warrants of $3.20 per unit (approximately C$4.10) represents a 30.5% premium to AHIP’s closing price of C$3.14 on January 28, 2021, a 31.8% premium to AHIP’s 10-day volume weighted average Canadian dollar trading price as of January 28, 2021.
«This investment illustrates the quality of our portfolio and strategy, as recognized by two leading institutional investors in the hospitality space,» said Jonathan Korol, CEO of AHIP. «The proceeds received will assist us in strengthening our balance sheet, improving our capital structure, and enhancing our ability to act on growth opportunities that may arise. BentallGreenOak and Highgate are aligned with our strategy, and we are excited to have established this partnership as we continue to improve on the temporary sector challenges from the COVID-19 pandemic and advance our portfolio’s growth and cash flow objectives.»
Mr. Korol also said, «I am also very pleased to welcome Mark Van Zandt of BentallGreenOak and Mahmood Khimji of Highgate to AHIP’s Board of Directors.»
Mark Van Zandt, Managing Partner of BentallGreenOak, said, «We believe AHIP’s premium branded select-service portfolio, under the leadership of this high quality management team, is well positioned to outperform during the ongoing hotel market recovery. We’re excited to partner with our friends at Highgate on this strategic investment and look forward to working with AHIP to achieve the Company’s growth objectives.»
Mahmood Khimji, Co-Founder and Managing Principal of Highgate, said, «Highgate is thrilled to commence this partnership with AHIP, along with BentallGreenOak. AHIP’s select service and extended stay portfolio, overseen by an exceptionally talented management team, is well-positioned for a robust recovery as national lodging fundamentals emerge from COVID-driven disruption. We look forward to partnering with Jonathan and the AHIP team over the coming years, and collaborating with the Company in the pursuit of future growth initiatives.»
TRANSACTION SUMMARY
Key terms of the Investment include:
- The Investor received 50,000 Preferred Stock (the «Purchased Preferred Stock«) which is perpetual and redeemable by AHIP, and will be treated as equity on AHIP’s balance sheet. Subject to certain terms and conditions, the Purchased Preferred Stock provides for an annual dividend of 8.00% per annum for the first three years after issuance, and, to the extent still outstanding, increases to 9.00% per annum on the third anniversary of the issuance with further escalations after the fifth anniversary of the issuance.
- The Investor received 19,608,775 Warrants (the «Purchased Warrants«) exercisable at any time prior to January 28, 2026 for units in AHIP (each a «Unit«) on the Toronto Stock Exchange (the «TSX«), at an exercise price (the «Exercise Price«) of $3.20 per Unit (approximately C$4.10), equivalent to 19.99% of the outstanding Units of AHIP following the Investment on an as-exercised basis. The Purchased Warrants may only be exercised by means of cashless exercise which will lead to an exercised ownership position of less than 19.99%.
In connection with the Investment, the Investor entered into an investor rights agreement with AHIP providing for, among other things, the right to nominate two directors to AHIP’s Board, customary registration rights, participation rights, and certain standstill and transfer restriction rights including a 24-month lockup on both the Purchased Preferred Stock and the Purchased Warrants. With the addition of Mr. Van Zandt and Mr. Khimji, AHIP’s Board now consists of eight members.
Additional information regarding the Investment and the terms of the Purchased Preferred Stock and Purchased Warrants will be included in a material change report to be filed by AHIP on SEDAR at www.sedar.com. This news release is only a summary of certain principal terms of the Investment and is qualified in its entirety by reference to the more detailed information contained in the material change report.
REVOLVING CREDIT FACILITY AND TERM LOAN UPDATE
On January 28, 2021, AHIP amended its $225 million corporate credit facility (the «Facility«) with its lending syndicate. These amendments include:
- Waiver of key financial covenants through December 31, 2021 and modified covenants through December 31, 2022;
- Availability under the Facility fixed through December 31, 2021; and
- Borrowings not subject to swap agreements will remain at LIBOR + 300 basis points with a minimum LIBOR balance of 0.25%.
Additional information regarding the Facility and its terms will be included in a material change report to be filed by AHIP on SEDAR at www.sedar.com. This news release is only a summary of certain principal terms of the Facility and is qualified in its entirety by reference to the more detailed information contained in the material change report.
TRANSACTION ADVISORS
CIBC Capital Markets and Deutsche Bank Securities Inc. acted as financial advisors and Farris LLP and Womble Bond Dickinson (US) LLP acted as legal advisors to AHIP. Latham & Watkins LLP and Davies Ward Phillips & Vineberg LLP acted as legal advisors to BentallGreenOak and Highgate.
ADDITIONAL EARLY WARNING DISCLOSURE OF INVESTOR
BentallGreenOak and Highgate are making the Investment through the Investor, a joint venture Delaware limited partnership organized for purposes of making the Investment.
Pursuant to the subscription agreement with AHIP, the general partner of AHIP and AHIP REIT, the Investor subscribed for the Purchased Warrants. Of the total $50 million price paid by the Investor for the Purchased Preferred Stock and the Purchased Warrants, $1.9 million (approximately C$2.4 million) was allocated to the Purchased Warrants (or C$0.12 per Purchased Warrant). Each Purchased Warrant initially entitles the Investor to purchase one Unit at the Exercise Price per underlying Unit. The Purchased Warrants may be exercised at any time prior to January 28, 2026.
Immediately prior to the Investment, the Investor and its affiliates owned no voting or equity securities in the capital of AHIP. The Purchased Warrants may only be exercised by means of a cashless exercise whereby the in-the-money value of a portion of any exercised Purchased Warrants must be applied to fund the Exercise Price for the balance of the exercised Purchased Warrants. As of the date hereof, the Exercise Price exceeds the current market price of the Units and, consequently, the Investor is not entitled to acquire any Units on its exercise of the Purchased Warrants. However, if the Investor was entitled to, and did, exercise all of the Purchased Warrants by paying the full Exercise Price in cash, and not pursuant to a cashless exercise, the Investor and its affiliates would own 19,608,755 Units, or approximately 19.99% of the currently outstanding Units on a partially diluted basis, after giving effect to such exercise.
The Investor intends to hold the Purchased Preferred Stock, Purchased Warrants and any Units issued to the Investor on the exercise of the Purchased Warrants for investment purposes. Depending on market conditions and other factors, including AHIP’s business and financial condition, the Investor or its affiliates (including BentallGreenOak and Highgate) may acquire additional securities of AHIP or its subsidiaries or dispose of some or all of the securities of AHIP or its subsidiaries that it owns at such time.
An early warning report with additional information in respect of the foregoing matters will be filed and made available on the System for Electronic Document Analysis and Review (SEDAR) at www.sedar.com under AHIP’s profile. To obtain a copy of this report, you may also contact Rahim Ladha at (416) 681-6309. The Investor’s address is 870 7th Avenue, 2nd Floor, New York, NY 10019.
NON-IFRS MEASURES
Certain non-IFRS financial measures are included in this news release, which includes net debt-to-gross book value. 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 net debt-to-gross book value as a supplemental measure of financial condition.
Net debt-to-gross book values should not be construed as an alternative to measurement determined in accordance with IFRS as an indicator of AHIP’s financial condition. AHIP’s method of calculating net debt-to-gross book value may differ from other issuers’ methods and accordingly may not be comparable to measures used by other issuers. For further information, including reconciliations of certain of these non-IFRS financial measures to the closest comparable IFRS measure, please refer to AHIP’s MD&A dated November 9, 2020, which is available on SEDAR at www.sedar.com and on AHIP’s website at www.ahipreit.com.
FORWARD-LOOKING STATEMENTS
Certain statements in this news release may constitute «forward-looking information» within the meaning of applicable securities laws (also known as forward-looking statements). Forward-looking information involves known and unknown risks, uncertainties and other factors, and 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. Forward-looking information 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 in this news release includes, but is not limited to, statements with respect to: AHIP’s belief that the addition of BentallGreenOak and Highgate positions it to pursue and capitalize on attractive acquisition opportunities; proceeds from the Investment will enhance AHIP’s overall liquidity and capital structure, with net proceeds expected to be used towards immediate debt reduction; the treatment of the Preferred Stock and the Warrants will be equity and a liability, respectively, for accounting purposes; AHIP’s expectation of having a strengthened balance sheet with total available liquidity of approximately $75 million and decreasing its pro-forma net debt-to-gross book value to 52.2%; the belief that AHIP’s premium branded select-service portfolio is well positioned to outperform during an ongoing hotel market recovery in the U.S.; and AHIP’s stated long-term objectives.
Forward-looking information is based on a number of key expectations and assumptions made by AHIP, including, without limitation: AHIP will be able to capitalize on attractive acquisition opportunities with the assistance from BentallGreenOak and Highgate; AHIP’s overall liquidity and capital structure will be enhanced, and its balance sheet strengthened, from the Investment; the Preferred Stock and Warrants will be treated for accounting purposes as equity and a liability, respectively; sector challenges and disruption arising from the COVID-19 pandemic are of a temporary nature; there will be a sustained recovery of AHIP’s portfolio in 2021 and there will be a meaningful and sustained economic recovery in the U.S. and within the U.S. hotel industry overall. Although the forward-looking information 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 is 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 involves 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 forward-looking information. Those risks and uncertainties include, among other things, risks related to: AHIP will not be able to capitalize on attractive acquisition opportunities despite the assistance of BentallGreenOak and Highgate; the Investment does not meaningfully enhance AHIP’s overall liquidity and capital structure, nor strengthen its balance sheet; the Preferred Stock is not treated for accounting purposes as equity; sector challenges and disruptions arising from the COVID-19 pandemic are not of a temporary nature; there will not be a sustained recovery of AHIP’s portfolio in 2021 and a meaningful and sustained economic recovery in the U.S. and within the U.S. hotel industry overall may be delayed or muted; and AHIP may not achieve its stated long-term objectives. Management believes that the expectations reflected in forward-looking information contained herein are based upon reasonable assumptions and information currently available; however, management can give no assurance that actual results will be consistent with this forward-looking information. Additional information about risks and uncertainties is contained in AHIP’s MD&A dated November 9, 2020 and annual information form for the year ended December 31, 2019, copies of which are available on SEDAR at www.sedar.com.
The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. Forward-looking information reflects management’s current beliefs and is 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.
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 across the United States. AHIP’s 78 premium branded, select-service hotels are located in secondary metropolitan markets that benefit from diverse and stable demand. AHIP hotels operate under brands affiliated with Marriott, Hilton, IHG and Choice Hotels through license agreements. The Company’s long-term objectives are to build on its proven track record of successful investment, deliver monthly 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 BENTALLGREENOAK
BentallGreenOak is a leading, global real estate investment management advisor and a globally-recognized provider of real estate services. BentallGreenOak serves the interests of more than 750 institutional clients with approximately $50 billion of assets under management (as of September 30, 2020) and expertise in the asset management of office, industrial, multi-residential, retail, and hotel property across the globe. BentallGreenOak has offices in 24 cities across twelve countries with deep, local knowledge, experience, and extensive networks in the regions where we invest in and manage real estate assets on behalf of our clients. BentallGreenOak is a part of SLC Management, which is the institutional alternatives and traditional asset management business of Sun Life.
The assets under management shown above include real estate equity and mortgage investments managed by the BentallGreenOak group of companies and their affiliates.
For more information, please visit www.bentallgreenoak.com.
ABOUT HIGHGATE
Highgate is a fully-integrated real estate investment and hospitality management company with over $10 billion of hotels under management. Highgate has a longstanding track record of operating assets for the industry’s largest REITs, private equity firms, institutional funds and private investors. Highgate is an active investor in key gateway markets, and operates more than 160 hotels and approximately 45,000 rooms around the world.
For more information, please visit www.highgate.com.
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