ARA H-Trust to sell Chicago hotel asset for US$7.75m

ARA US Hospitality Trust (ARA H-Trust) XZL is proposing to divest Hyatt Place Chicago Itasca for US$7.75 million to family-owned corporation IHP Hospitality Group, the stapled group's managers announced on Thursday (Mar 17).

The consideration will be satisfied wholly in cash and represents a slight 0.6 per cent discount to the asset's independent valuation of US$7.8 million as at end-2021.

IHP Hospitality Group has paid a non-refundable deposit of US$0.5 million after entering into a conditional purchase and sale agreement with a subsidiary of ARA H-Trust as the vendor.

Upon completion, net proceeds from the divestment will be used to pare down existing bank borrowings to improve ARA H-Trust's aggregate leverage ratio, aside from general working capital requirements.

Hyatt Place Chicago Itasca is a 6-storey hotel with 126 rooms. It commenced operations in 1996 and was last renovated in 2015.

Located at Arlington Heights Road in Itasca, a suburb of Chicago, the freehold property is about 19.3 kilometres (km) from the O'Hare International Airport and 43km away from downtown Chicago.

It accounts for 1.1 per cent of ARA H-Trust's total portfolio as at end-2021, and is among the oldest and smallest assets within the portfolio.

In a regulatory filing, ARA H-Trust's managers said selling the asset will help to optimise ARA H-Trust's portfolio as they anticipate the hotel to have a comparatively longer road to recovery. This is considering the asset's location in a market with declining economic conditions, exacerbated by the Covid-19 pandemic.

The property is believed to require sizeable capital expenditure outlays relative to its value over the next few years, being one of the oldest assets in the portfolio, they added.

Divesting Hyatt Place Chicago Itasca is also expected to free up capital for ARA H-Trust, which may be re-deployed to either accretive and higher-yield acquisitions, or pare down existing bank borrowings to improve ARA H-Trust's aggregate leverage ratio.

For illustrative purposes, the managers estimate ARA H-Trust's distribution per stapled security (DPS) for the financial year ended Dec 31, 2021 to have been higher at 0.371 US cents as compared to the actual FY2021 DPS of 0.355 US cents, had the sale been completed on Jan 1, 2021.

Pro-forma net asset value (NAV) per unit would have remained unchanged at US$0.70.

Stapled securities of ARA H-Trust ended Wednesday unchanged at US$0.48.

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