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ARC Hospitality Announces Brookfield Investment and Internalization

January 17, 2017

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ARC Hospitality Announces Brookfield Investment and Internalization

The REIT will also change its name to Hospitality Investors Trust, Inc. and has suspended stock distributions

January 17, 2017 | by James Sprow | Blue Vault

Money transfer

American Realty Capital Hospitality Trust, Inc. (“ARC Hospitality” or the “Company”) announced on January 13 that it has entered into an agreement with an affiliate of Brookfield Asset Management, Inc., which includes a commitment by Brookfield to invest up to $400 million in the form of convertible preferred limited partnership units of the Company’s operating partnership, American Realty Capital Hospitality Operating Partnership L.P. An initial issuance to Brookfield of convertible preferred units for $135 million will be used to repay preferred equity interests held by affiliates of Whitehall, real estate private equity funds sponsored by a division of Goldman Sachs, which mature in 2018 and 2019, repayment of Company debt, property improvement plans, and acquisition of a seven-hotel portfolio from Summit Hotel Properties, Inc.

The convertible preferred units in the Brookfield transaction will be convertible into common units of limited partnership interest in the operating partnership at an initial per-unit conversion price of $14.75, which may be exchanged for cash or ARC Hospitality common shares on a 1-for-1 basis. On July 1, 2016, the board of directors had approved a net asset value per share of common stock (“NAV”) equal to $21.48 as of March 31, 2016. Given the conversion price in the agreement with Brookfield, the deal appears to be dilutive to existing common shareholders. The Company had ceased paying cash distributions in April, 2016, and was paying stock distributions to be consistent with a 6.80% annual rate based on the Estimated Per-Share NAV. With the announcement of the Brookfield deal, the REIT’s board suspended payment of the monthly common share distribution to stockholders.

The Company has a pending agreement with Summit Hotel Properties, Inc. which calls for the Company to acquire seven hotels for a purchase price of $66.8 million, branded either by Marriott International, Hilton Hotels & Resorts or InterContinental Hotels Group and located in Germantown, Tennessee; Ridgeland, Mississippi and Jackson, Mississippi. The transaction will increase the Company’s lodging portfolio to 148 hotels totaling 17,844 keys across 33 states. The Company previously acquired 16 hotels from Summit for a combined purchase price of $258.4 million.

Upon closing the Brookfield transaction, currently expected in March 2017, ARC Hospitality will become self-managed and will terminate its existing advisory agreement with ARC Hospitality Advisors, LLC. Furthermore, the Company and American Realty Capital Hospitality Properties, LLC (together with its subsidiaries, the “Property Manager”) have agreed to modify the property management arrangements for some of the Company’s hotel properties currently managed by the Property Manager by reducing the property management fees and the length of the property management agreements in the case of certain sale events. This will result in significant annual savings to the Company. In consideration of these changes to the property management agreements, the Property Manager and its affiliates will receive consideration in cash and shares of the Company’s common stock. As part of this transition to self-management, the Advisor and its affiliates are expected to provide transition services to the Company. The employees of the Advisor and its affiliates who are currently involved in the day-to-day management of the Company’s assets, including all of the Company’s executive officers, are expected to become employees of the Company. As a self-managed REIT, the Company intends to continue its business operations under a new corporate name: Hospitality Investors Trust, Inc.

As part of the transaction, Brookfield will be afforded certain corporate governance and approval rights over certain activities with respect to the Company, the operating partnership and their subsidiaries. Also, as part of the transaction, the Company’s Board of Directors will be increased from four to seven members. Of these seven members, two members will be appointed by Brookfield, who are anticipated to be Bruce G. Wiles who will serve as Chairman of the Board, and Lowell G. Baron, both of whom currently hold senior management positions at Brookfield. As part of this reconfiguration of the Company’s Board of Directors, William M. Kahane will resign from the Company’s Board of Directors and it is expected that Robert H. Burns will resign from the Company’s Board of Directors, in each case concurrently with the closing of the transaction.

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