Ashford Hospitality Trust and Prudential Real Estate Investors on Friday announced they have signed a definitive agreement in which Ashford Trust will acquire for US$250.1 million the remaining 28.26% ownership interest of the 28-hotel Highland Hospitality portfolio from its joint venture partner, a value-add fund managed by PREI.
Ashford Trust currently has a 71.74% ownership interest in the joint venture and its buyout will be funded with cash and is expected to be completed sometime during the first quarter of 2015, with an anticipated refinancing of the Highland portfolio.
Ashford Inc. will become the advisor on the remaining 28.26% of the Highland portfolio.
The portfolio includes 19 full-service hotels and nine select-service hotels with a concentration in major brands such as Hilton, Marriott, Hyatt and Starwood. The expected total transaction value is US$1.735 billion ($215,000 per key).
The purchase of the Fund’s interest, which will be made by a cash payment, includes the Fund’s share of the venture’s net working capital balance. The purchase price represents a trailing 12-month cap rate of 6.9% on net operating income and a trailing 12.5x EBITDA multiple.
On a forward 12-month basis, the purchase price represents a cap rate of 7.4% on net operating income and an 11.6x forward EBITDA multiple.
“We had been expecting a refinancing of the joint venture in 1Q15, not a buyout by Ashford Trust,” said David Loeb, analyst with R.W. Barid. “We believe this transaction is a better outcome for Ashford Trust and provides several additional benefits to the company:
- The consolidation of a large off-balance sheet investment reduces modeling and valuation complexities;
- We expect Ashford Trust to structure its debt refinancing in a way that affords the company optionality with its five right-of-first-offer assets; and
- The consolidation of and increased ownership interest in nine select-service hotels moves the company one small step closer to potentially creating a select-service platform.