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Apple REIT to maintain deal activity
March 28 2013

Apple REIT will be an active buyer and seller of hotels during 2013, the company’s executive VP and chief investment officer said.

Highlights
  • Apple REIT reached an agreement in November to sell its Apple REIT Six to a Blackstone affiliate for $1.2 billion.
  • This year and next year are the years to begin pushing rates, and we’ve encouraged each of our management companies to do so,” Apple REIT’s Nelson Knight said.
  • Apple REIT is likely to be a net acquirer of assets during 2013, Knight said.

ATLANTA—Apple REIT Companies will continue to be an active player on the hotel transactions scene during 2013, executive VP and Chief Investment Officer Nelson Knight said.

“At this time in the market, we’re buying and selling,” Knight said during a break at last week’s 25th annual Hunter Hotel Conference. “It’s a good time to be considering both.”

It’s been a busy time for Apple REIT. The company in November reached an agreement to sell its Apple REIT Six fund, which consists of 66 hotels comprising 7,658 rooms, to BRE Select Hotels Corporation, an affiliate of Blackstone Real Estate Partners VII, in a deal valued at approximately $1.2 billion, including transaction costs and the assumption of debt.

More recently, Apple REIT Ten earlier this month closed on the purchase of three hotels comprising 485 rooms in Alabama and Virginia for $54.5 million. The hotels involved in the deal are:

  • a 310-room Marriott in Fairfax, Virginia, for $34 million;
  • a 98-room Hampton Inn & Suites in Huntsville, Alabama, for $11.5 million; and
  • a 77-room Home2 Suites by Hilton in Huntsville for $9 million.

Knight declined to provide details of the proposed deal with Blackstone, citing the fact that the transaction has not yet closed. “We’re excited to be doing a deal with Blackstone,” he said. “We recognize them as a good and strong partner in the industry.” Knight declined to identify when the proposed deal might close.

Regarding transactions, he expects the overall transactions environment to be robust, too.

“We saw coming out of (the Americas Lodging Investment Summit) that there was a tremendous amount of product coming to market,” he said.

Deals wish list
Overall, Knight said Apple REIT, which counts 290 hotels among its five acquisition funds, will be a net buyer of assets this year. “It’s a blend of one-off deals and portfolio deals,” he said. “Right now, we’re more weighted toward portfolio deals, but it’s a mix.”

On the company’s deal checklist, Knight said Apple REIT puts a lot of emphasis on institutional-quality assets that have strong brand affiliations. The company also considers the internal rate of return an investment could generate as well as whether the hotel can be purchased at a discount to replacement cost.

“We’re looking to provide the best return possible to our shareholders,” Knight said. He declined to say what IRR hurdle the company uses when evaluating potential deals.

As for location, Apple REIT, which has historically purchased deals using 100% equity, tries to keep a “geographically diverse” portfolio, Knight added.

“It’s a highly competitive (transactions) environment right now,” he said. “We’re making sure we’re still staying focused on … our investment criteria.”

This competition is especially present in the United States’ top 10 markets, where cap rates are being driven upward, he said.

Knight said he is optimistic over the direction the U.S. hotel industry is on this year. As a result, hotel values are also on the rise when compared with a year ago, he said.

“2014 and 2015 look to be as strong, if not stronger,” he said.

Knight added: “We’re seeing occupancy returning to 2007 levels. This year and next year are the years to begin pushing rates, and we’ve encouraged each of our management companies to do so.”

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