Ashford Hospitality Trust Inc. has entered into an Enhanced Return Funding Program agreement with Ashford Inc. Subject to the terms of the two-year programmatic agreement, Ashford Inc. has committed to effectively fund amounts equal to 10% of the purchase price of Ashford Trust hotel acquisitions, up to an amount of $50 million in aggregate funding. The Program has the potential to be upsized to $100 million based upon mutual agreement.
The company believes the ERFP will result in a competitive advantage when bidding on hotel acquisitions and thereby could promote asset growth given that the program would initially be available for up to $500 million of new acquisitions, according to a prepared statement.
Ashford Trust currently holds $286 million of excess corporate cash which could be available in conjunction with the program for hotel investments.
The company anticipates the ERFP may result in enhanced returns for Ashford Trust’s shareholders by effectively reducing the total amount of equity required for investment purposes. The program is structured to improve the five-year internal rate of return for new hotel acquisitions at Ashford Trust and may achieve estimated increases of 700 to 1,200 basis points. Ashford Trust believes that access to the ERFP sets Ashford Trust apart from other lodging REIT peers and demonstrates another benefit of the alignment that the Company has with its advisor, the release states.
Overview of Hilton Alexandria Old Town Acquisition
Ashford Trust also revealed that it has signed a definitive agreement to acquire the 252-room Hilton Alexandria Old Town located in Alexandria, Virginia, for total consideration of $111 million.
The key features of the acquisition of the Hilton Alexandria Old Town are:
- 252-room hotel with 12,967 square feet of meeting and function space
- Opened in 2000 with $9.6 million in renovations since 2013
- Trailing 12-month occupancy, ADR and RevPAR of 85%, $190 and $161, respectively
- Strong location near office and retail demand generators
- Limited new supply
- Adjacent to Metro station
In conjunction with the transaction, the company expects to enter into a non-recourse mortgage loan of $73.5 million at closing. The loan is expected to have a term of five years and bear interest at a rate of LIBOR + 2.45%.
Impact of the ERFP on the Hilton Alexandria Old Town Acquisition
The acquisition of the Hilton Alexandria Old Town is expected to be Ashford Trust’s first hotel acquisition to benefit from the Enhanced Return Funding Program. In connection with this acquisition and subject to the terms of the ERFP, Ashford Inc. has committed to provide Ashford Trust with approximately $11.1 million of cash via the future purchase of hotel furniture, fixtures, and equipment at Ashford Trust properties.
“This anticipated purchase of the Hilton Alexandria is particularly attractive on its own merits, and we believe the returns for our shareholders should be significantly improved via the Enhanced Return Funding Program with Ashford Inc.,” said Douglas A. Kessler, Ashford Trust’s President and Chief Executive Officer. “We expect this programmatic funding arrangement should increase stockholder value from the investments we make on future acquisitions, and believe this will provide a clear competitive advantage for us.”