Ashford Hospitality Trust has teamed up with Prudential Real Estate Investors to acquire the former JER Partners Highland Hospitality for $1.28 billion. JER Partners’ roughly $200 million of equity in the 28-property portfolio is believed to have been wiped out, people familiar with the matter told PERE.
Ashford and PREI acquired the group after snapping up discounted pieces of mezzanine debt over the past two years and working with other creditors to restructure Highland’s $1.8 billion debt load once the group defaulted in August. The deal will clear $891 million of debt and equity from Highland’s balance sheet, Monty Bennett, chief executive officer of the Ashford REIT, said on a conference call Friday.
Ashford said it had contributed $150 million of equity to the deal for a 71.74 percent stake in the venture. A spokesman for PREI was unavailable for comment at press time.
In 2008, the two firms launched a $300 million joint venture to target mezzanine debt investments in the hospitality sector, quickly acquiring the fourth mezzanine tranche secured against Highland, followed by the mezzanine six tranche. JER had taken the hotel group private in July 2007 for $2.1 billion, the firm said in a press release at the time, but defaulted on a reported $868 million of junior debt in August. JER was unavailable for comment at press time.
Bennett said in the call the journey to close the deal had been “long and arduous” but one that was “well worth the effort”. He added that the 2007 deal had seen the “borrower” (JER) invest $144 million of equity. The deal marks Ashford’s first acquisition since 2007, he added.
Ashford added that the portfolio, which includes 19 full-service and nine select-service hotels primarily upscale and upper-upscale hotels, was acquired at an EBITDA multiple of 13.4x and a 6.1 percent cap rate, with net operating income approximately 36 percent below its peak. In 2010, the portfolio’s revenue per available room increased 3.7 percent to $91.91 with occupancy at 69.4 percent. Total hotel revenues were $386 million.
The JV is expected to invest $43 million in capital improvements over the next 10 months, plans for which have yet to be finalised.