UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 of 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

Date of Report (Date of earliest event reported): June 2, 2014 (May 23, 2014)

 

American Realty Capital Hospitality Trust, Inc.

(Exact Name of Registrant as Specified in Charter)

 

Maryland		333-190698		80-0943668
(State or other jurisdiction		(Commission File Number)		(IRS Employer
of incorporation or				Identification No.)
organization)

 

405 Park Avenue

New York, New York 10022
(Address, including zip code, of Principal Executive Offices)

Registrant’s telephone number, including area code: (212) 415-6500

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 1.01. Entry into a Material Definitive Agreement

 

On May 23, 2014, American Realty Capital Hospitality Trust, Inc. (the “Company”), through a wholly owned subsidiary of the Company’s operating partnership, entered into a Real Estate Sale Agreement (the “Agreement”) with W2007 Equity Inns Realty, LLC, W2007 Equity Inns Realty, L.P., W2007 EQI Urbana Partnership, L.P., W2007 EQI Seattle Partnership, L.P., W2007 EQI Savannah 2 Partnership, L.P., W2007 EQI Rio Rancho Partnership, L.P., W2007 EQI Orlando Partnership, L.P., W2007 EQI Orlando 2 Partnership, L.P., W2007 EQI Naperville Partnership, L.P., W2007 EQI Milford Corporation, W2007 EQI Louisville Partnership, L.P., W2007 EQI Knoxville Partnership, L.P., W2007 EQI Jacksonville Partnership I, L.P., W2007 EQI Indianapolis Partnership, L.P., W2007 EQI Houston Partnership, L.P., W2007 EQI HI Austin Partnership, L.P., W2007 EQI East Lansing Partnership, L.P., W2007 EQI Dalton Partnership, L.P., W2007 EQI College Station Partnership, L.P., W2007 EQI Carlsbad Partnership, L.P., W2007 EQI Augusta Partnership, L.P. and W2007 EQI Asheville Partnership, L.P. (collectively, the “Sellers”) pursuant to which one or more subsidiaries of the Company will acquire the fee simple or leasehold interests held by the Sellers in each of the 126 hotels described below under “The Portfolio” (each, a “Hotel” and, collectively, the “Portfolio”). W2007 Grace I, LLC is indirectly owned by one or more Whitehall Real Estate Funds (“Whitehall”), an investment fund controlled by The Goldman Sachs Group, Inc. (“Goldman”). In connection with the origination of the Deutsche Bank Loan (as defined below), the ownership of 106 of the Hotels was transferred to WNT Holdings, LLC, which is also indirectly owned by Whitehall.

 

None of W2007 Grace I, LLC, Whitehall, Goldman or the Sellers have any material relationship with the Company or its subsidiaries, other than through the Agreement and other related contracts to be entered into upon closing of the transaction described in the Agreement.

 

The Company currently anticipates closing this transaction in the fourth quarter of 2014. Although the Company has entered into the Agreement relating to the acquisition of the Portfolio, there is no guarantee that the Company will be able to consummate the acquisition of such assets.

 

Real Estate Sale Agreement

 

The aggregate contract purchase price for the Portfolio is approximately $1.925 billion, exclusive of closing costs and subject to certain adjustments at closing. The Company anticipates funding approximately $271 million of the purchase price with cash-on-hand, funding approximately $976 million through the assumption of existing mezzanine and mortgage indebtedness, and funding approximately $227 million through additional mortgage and mezzanine financing. There can be no assurance that the Company will be able to assume such indebtedness, raise sufficient capital, secure alternative financing or secure additional financing on terms that it deems favorable or at all.

 

The Company anticipates that the remaining $451 million of the contract purchase price will be satisfied by the issuance of preferred equity interests in two newly-formed Delaware limited liability companies, ARC Hospitality Portfolio I Holdco, LLC and ARC Hospitality Portfolio II Holdco, LLC, each of which will be an indirect subsidiary of the Company and an indirect owner of the Portfolio. The holders of the preferred equity interests are entitled to monthly distributions at a rate of 7.50% per annum for the first 18 months following closing and 8.00% per annum thereafter. On liquidation, the preferred equity interests will be entitled to receive their original value (as reduced by redemptions) prior to any distributions being made to the Company or its shareholders. After the earlier to occur of either (i) the date of repayment in full of currently outstanding unsecured obligations of the Company’s operating partnership in the original principal amount of approximately $63 million or (ii) the date the gross amount of equity proceeds received by the Company exceeds $150 million, the Company will be required to use 35% of any equity offering proceeds to redeem the preferred equity interests at par, up to a maximum of $350 million for any 12-month period. The Company is also required in certain circumstances to apply debt proceeds to redeem the preferred equity interests at par. As of the end of the third year following the closing of the acquisition, the Company is required to have redeemed 50% of the preferred equity interests, and as of the end of the fourth year following the closing of the acquisition, the Company is required to redeem 100% of the preferred equity interests remaining outstanding at such time. In addition, the Company has the right, at its option, to redeem the preferred equity interests, in whole or in part, at any time at par. The holders of preferred equity interests will have certain customary consent rights over actions by the Company relating to the Portfolio. If the Company is unable to satisfy the redemptions requirements, the holders of preferred equity interests will have certain rights, including the ability to assume control of the operations of the Portfolio.

 

 

Pursuant to the terms of the Agreement, the Company’s obligation to consummate the acquisition of the Portfolio is subject to certain conditions customary to closing. Among other customary conditions, the Company must enter into replacement franchise agreements for each Hotel and the Company must obtain the consent of certain ground lessors for certain Hotels. In addition, there is a sixteen-day due diligence period that expires on June 8, 2014, during which the Company has the unilateral right to terminate the Agreement for any reason or no reason. At the end of such due diligence period, the Company will be required to make a $50 million customary earnest money deposit, with an additional $25 million due if the Company exercises its right to extend closing of the acquisition to December 15, 2014. The Company pre-funded the $50 million deposit on May 27, 2014, which deposit will be refunded to the Company if the Agreement is terminated prior to the end of the due diligence period.

 

The Sellers have agreed to indemnify the Company against any losses incurred by it, to the extent that such losses arise out of breaches of their representations and warranties contained in the Agreement, breaches of certain covenants in the Agreement, and for any liabilities to third parties arising out of the use, operation or maintenance of the Hotels prior to the closing of the acquisition and, additionally, for any liabilities to any third parties arising out of the use, operation or maintenance of the Hotels prior to closing. The maximum aggregate liability of the Sellers pursuant to this indemnity is $30,000,000 and will only be paid if such losses exceed $10,000,000. The Company has agreed to indemnify the Sellers for any losses incurred by them, to the extent such losses arise out of breaches of the Company’s representations and warranties or certain covenants in the Agreement or certain other events for which buyers may typically indemnify sellers in connection with the sales of similar hotel properties and, additionally, for any liabilities to any third parties arising out of the use, operation or maintenance of the Hotels subsequent to closing of the acquisition. The Agreement contains customary representations and warranties by the Sellers.

 

The summary above is qualified in its entirety by reference to the copy of the Agreement and the Form of Amended and Restated Limited Liability Company Agreement of ARC Hospitality Portfolio I Holdco, LLC, which are being filed with this Current Report on Form 8-K as Exhibit 10.1.

 

The Portfolio

 

The Hotels are located in 35 states, operate under franchise agreements under the Hilton Worldwide (“Hilton”), Marriott International (“Marriott”), Hyatt Hotels Corporation (“Hyatt”) and Intercontinental Hotels Group (“Intercontinental”) brands and comprise a total of 14,934 rooms.

 

The Hotels described below were selected for potential acquisition because they each meet the Company’s investment criteria relating to location, market position and hotel condition. The Hotels are globally branded select-service and full-service hotels, and are located near landmarks such as corporate headquarters, colleges or universities, tourist attractions, airports, retail centers or convention centers. The Hotels are located in high barrier-to-entry markets with multiple demand generators and sustainable growth, and they are market share leaders in their respective locations. The Company believes each Hotel is currently well maintained, with minimum deferred maintenance or renovation required. The purchase price for the Hotels was determined based on a number of factors, including underwriting of historical and projected cash flow from the Hotel, discounted cash flow, internal rate of return and market comparable analyses, analyses of national comparable sales, inspection of each Hotel and its market, reviews of recent appraisal and loan documentation, as well as consultations with market experts such as brokers, appraisers, asset managers and the current property manager.

 

 

 

 

Properties

 

The following table provides a comprehensive list of the Hotels in the Portfolio, including information such as each Hotel’s brand and franchise affiliation:

 

City		State		Fee/Lease		Brand/Flag		Number of Rooms		Year Opened
Hilton Assets
Birmingham		AL		Lease		Hampton Inn		129		1987
Phoenix		AZ		Lease		Homewood Suites		124		1996
Colorado Springs		CO		Fee		Hampton Inn		125		1985
Milford		CT		Fee		Hampton Inn		148		1986
Windsor Locks		CT		Fee		Homewood Suites		132		1990
Boynton Beach		FL		Fee		Hampton Inn		164		1997
Boca Raton		FL		Fee		Hampton Inn		94		1996
Deerfield Beach		FL		Fee		Hampton Inn		106		2002
Orlando		FL		Fee		Hampton Inn		170		2000
Palm Beach Gardens		FL		Fee		Hampton Inn		116		1999
West Palm Beach		FL		Fee		Hampton Inn		110		2001
Orlando		FL		Fee		Homewood Suites		252		1999
Orlando		FL		Fee		Embassy Suites		246		1987
Columbus		GA		Fee		Hampton Inn		118		1986
Augusta		GA		Fee		Homewood Suites		65		1997
Gurnee		IL		Fee		Hampton Inn		134		1988
Naperville		IL		Fee		Hampton Inn		129		1987
Urbana		IL		Fee		Hampton Inn		130		1995
Chicago		IL		Fee		Homewood Suites		233		1999
Indianapolis		IN		Fee		Hampton Inn		128		1987
Overland Park		KS		Fee		Hampton Inn		133		1991
Louisville		KY		Fee		Hilton Garden Inn		112		1999
Peabody		MA		Fee		Hampton Inn		120		1999
Peabody		MA		Fee		Homewood Suites		85		1999
Glen Burnie		MD		Lease		Hampton Inn		116		1989
Madison Heights		MI		Fee		Hampton Inn		123		1987
Northville		MI		Fee		Hampton Inn		124		1989
East Lansing		MI		Fee		Hampton Inn		86		2000
Grand Rapids		MI		Fee		Hampton Inn		84		1998
Kansas City		MO		Fee		Hampton Inn		120		1987

 

 

City		State		Fee/Lease		Brand/Flag		Number of Rooms		Year Opened
Maryland Heights		MO		Fee		Hampton Inn		122		1987
Fayetteville		NC		Fee		Hampton Inn		121		1986
Gastonia		NC		Fee		Hampton Inn		107		1989
Rio Rancho		NM		Fee		Hilton Garden Inn		129		1999
Albany		NY		Fee		Hampton Inn		153		1986
Westlake		OH		Fee		Hampton Inn		122		1987
Dublin		OH		Fee		Hampton Inn		123		1988
Sharonville		OH		Fee		Homewood Suites		111		1990
Scranton		PA		Fee		Hampton Inn		129		1994
State College		PA		Fee		Hampton Inn		119		1987
Charleston		SC		Fee		Hampton Inn		124		1985
West Columbia		SC		Fee		Hampton Inn		120		1985
Franklin		TN		Fee		Hampton Inn		127		1996
Chattanooga		TN		Fee		Hampton Inn		167		1988
Alcoa		TN		Fee		Hampton Inn		118		1991
Memphis		TN		Fee		Hampton Inn		124		1985
Pickwick Dam		TN		Fee		Hampton Inn		50		1994
Germantown		TN		Fee		Homewood Suites		92		1996
Austin		TX		Fee		Hampton Inn		121		1987
College Station		TX		Fee		Hampton Inn		133		1986
Addison		TX		Fee		Hampton Inn		158		1985
San Antonio		TX		Fee		Homewood Suites		123		1996
Round Rock		TX		Fee		Hilton Garden Inn		122		1999
Norfolk		VA		Lease		Hampton Inn		117		1990
Seattle		WA		Fee		Homewood Suites		161		1998
Beckley		WV		Fee		Hampton Inn		108		1992
Morgantown		WV		Fee		Hampton Inn		107		1991
Total Hilton (57 Assets)								7,264
Marriott Assets
Mobile		AL		Lease		Residence Inn		66		1996
Mobile		AL		Lease		Courtyard		78		1995
Tucson		AZ		Fee		Residence Inn		128		1985
El Segundo		CA		Fee		Residence Inn		150		2001
San Diego		CA		Fee		Residence Inn		95		2003
Carlsbad		CA		Fee		Courtyard		145		1999
San Diego		CA		Fee		SpringHill Suites		137		2003
Colorado Springs		CO		Fee		Residence Inn		96		1984
Tampa		FL		Fee		Residence Inn		78		1997
Fort Myers		FL		Fee		Residence Inn		78		1997
Jacksonville		FL		Fee		Residence Inn		78		2000
Sarasota		FL		Fee		Residence Inn		78		1998
Tallahassee		FL		Fee		Residence Inn		78		1996
Tampa		FL		Fee		Residence Inn		102		1998
Gainesville		FL		Fee		Courtyard		81		1996
Jacksonville		FL		Fee		Courtyard		81		1996
Orlando		FL		Fee		Courtyard		112		1998
Sarasota		FL		Fee		Courtyard		81		1997

 

 

City		State		Fee/Lease		Brand/Flag		Number of Rooms		Year Opened
Tallahassee		FL		Fee		Courtyard		93		2000
Macon		GA		Fee		Residence Inn		78		1996
Savannah		GA		Fee		Residence Inn		66		1996
Athens		GA		Fee		Courtyard		105		1998
Dalton		GA		Fee		Courtyard		93		1999
Atlanta		GA		Fee		Fairfield Inn & Suites		143		1996
Savannah		GA		Fee1		TownePlace Suites		95		2000
Boise		ID		Fee		Residence Inn		104		1986
Elmhurst		IL		Fee		Courtyard		140		2003
Lexington		KY		Fee		Residence Inn		91		1993
Bowling Green		KY		Fee		Courtyard		93		1997
Lexington		KY		Fee		Courtyard		90		1999
Louisville		KY		Fee		Courtyard		140		1999
Lexington		KY		Fee		SpringHill Suites		108		2003
Grand Rapids		MI		Fee		SpringHill Suites		76		2002
Eagan		MN		Fee		Residence Inn		120		1988
Asheville		NC		Fee		Courtyard		78		1996
Asheville		NC		Fee		SpringHill Suites		88		2002
Omaha		NE		Fee		Residence Inn		80		1981
Monmouth Junction		NJ		Fee		Residence Inn		208		1988
Somers Point		NJ		Fee		Residence Inn		119		1988
Tinton Falls		NJ		Lease		Residence Inn		96		1988
Oklahoma City		OK		Fee		Residence Inn		136		1982
Portland		OR		Fee		Residence Inn		168		1990
Chattanooga		TN		Fee		Residence Inn		76		1996
Knoxville		TN		Fee		Residence Inn		78		1997
Knoxville		TN		Fee		Courtyard		78		1996
Dallas		TX		Lease		Courtyard		184		1991
Houston		TX		Fee		Courtyard		176		2002
Round Rock		TX		Fee		SpringHill Suites		104		2000
Houston		TX		Fee		SpringHill Suites		122		1996
San Antonio		TX		Lease		SpringHill Suites		112		1995
Dallas		TX		Fee		Fairfield Inn & Suites		116		1998
Williston		VT		Fee		Residence Inn		96		1988
Total Marriott (52 Assets)								5,492
Hyatt Assets
Birmingham		AL		Fee		Hyatt Place		126		1997
Miami		FL		Fee		Hyatt Place		124		1996
Tampa		FL		Fee		Hyatt Place		124		1994
Indianapolis		IN		Fee		Hyatt Place		124		1992
Overland Park		KS		Fee		Hyatt Place		124		1994
Baton Rouge		LA		Fee		Hyatt Place		126		1997
Linthicum Heights		MD		Fee		Hyatt Place		127		1996

 

¹ Affiliated ground lease to be terminated at closing.

 

 

City		State		Fee/Lease		Brand/Flag		Number of Rooms		Year Opened
Bloomington		MN		Fee		Hyatt Place		126		1997
Albuquerque		NM		Fee		Hyatt Place		126		1997
Las Vegas		NV		Fee		Hyatt Place		202		1998
Blue Ash		OH		Fee		Hyatt Place		125		1990
Columbus		OH		Fee		Hyatt Place		124		1994
Memphis		TN		Fee		Hyatt Place		126		1996
Franklin		TN		Fee		Hyatt Place		126		1997
Glen Allen		VA		Fee		Hyatt Place		124		1992
Total Hyatt (15 Assets)								1,954
InterContinental Assets
Miami		FL		Fee		Holiday Inn Express		66		1996
Mt. Pleasant		SC		Fee		Holiday Inn		158		1988
Total InterContinental (2 Assets)								224
Total Portfolio (126 Assets)								14,934

 

Portfolio Indebtedness

 

A total of 106 of the 126 Hotels in the Portfolio are currently encumbered by debt in an aggregate principal amount of $976 million, which amount includes (i) a loan in original principal amount of $865 million made by German American Capital Corporation to W2007 Equity Inns Realty, L.P. and W2007 Equity Inns Realty, LLC (the “Deutsche Bank Loan”) and (ii) a loan in original principal amount of $111 million made by German American Capital Corporation to WNT Mezz I, LLC (the “Mezzanine Loan”). The Company intends to assume both of these loans.

 

The Deutsche Bank Loan matures on May 1, 2016, subject to three (one-year) extension rights which, if all three are exercised, result in an outside maturity date of May 1, 2019 and has an interest rate of (i) for a LIBOR loan, LIBOR plus 3.30% (the “LIBOR Rate”), and (ii) for a prime rate loan, the sum of the “Prime Rate” published in the Wall Street Journal plus the difference (expressed as a number of basis points) between (A) the sum of the LIBOR Rate, minus (B) the Prime Rate. The Deutsche Bank Loan is fully prepayable with certain prepayment penalties prior to May 1, 2015 and prepayable at par after May 1, 2015.

 

The Mezzanine Loan matures on May 1, 2016, subject to three (one-year) extension rights which, if all three are exercised, result in an outside maturity date of May 1, 2019. The Mezzanine Loan has an interest rate of: (i) for a LIBOR loan, LIBOR plus 5.7705%, and (ii) for prime rate loans, the sum of the Prime Rate, plus the difference (expressed as a number of basis points) between (A) LIBOR plus 5.7705%, minus (B) the Prime Rate. The Mezzanine Loan is fully prepayable with certain prepayment penalties prior to May 1, 2015 and prepayable at par after May 1, 2015.

 

The Company anticipates that the remaining 20 Hotels will be delivered unencumbered by debt at closing. The Company intends to incur additional debt secured by such remaining properties, but there can be no assurance that it will be able to obtain such financing on favorable terms or at all.

 

Forward-Looking Statements

 

This Current Report (including information included or incorporated by reference herein) contains “forward-looking statements” (as defined in Section 21E of the Securities Exchange Act of 1934, as amended), which reflect the Company’s expectations regarding future events. Except for historical information, the matters discussed in this Current Report are forward-looking statements subject to certain risks and uncertainties. Actual results could differ materially from the Company’s projections. Factors that may contribute to these differences include, but are not limited to, the following: whether and when the transaction contemplated by the Agreement will be consummated; unexpected costs or unexpected liabilities that may arise from the transaction, whether or not consummated; market and other expectations, objectives, intentions and other statements that are not historical facts; the inability to retain key personnel; the effects of economic conditions and disruptions in financial markets upon business and leisure travel and the hotel markets in which the Company invests; the Company’s liquidity and refinancing demands; the Company’s ability to obtain, refinance or extend maturing debt; the Company’s ability to maintain compliance with covenants contained in its debt facilities; increases in interest rates and operating costs, including insurance premiums and real property taxes; changes in real estate and zoning laws or regulations; and future regulatory or legislative actions that could adversely affect the Company.

 

Additional risks are discussed in the Company’s filings with the Securities and Exchange Commission, including those appearing under the heading “Item 1A. Risk Factors” in the Company’s most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q. Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, there can be no assurance that its expectations will be attained. The forward-looking statements are made as of the date of this Current Report, and the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

 

 

Item 9.01. Financial Statements and Exhibits

 

(a) Financial Statements. The following is required financial information relating to the Portfolio:

 

The audited consolidated financial statements of W2007 Grace I, LLC as of December 31, 2013 and December 31, 2012 and for each of the three years in the period ended December 31, 2013 and the notes related thereto are attached as Exhibit 99.2. The unaudited condensed consolidated financial statements of W2007 Grace I, LLC as of March 31, 2014 and December 31, 2013 and for the three-month period ended March 31, 2014 and March 31, 2013 and the notes related thereto are attached as Exhibit 99.3.

 

(b) Pro Forma Financial Information:

 

Pro forma financial information pursuant to Article 11 of Regulation S-X is attached as Exhibit 99.4 hereto.

 

(d) Exhibits.

 

Exhibit No.		Description
Exhibit 10.1		Real Estate Sale Agreement, dated May 23, 2014
Exhibit 23.1		Consent of Ernst & Young LLP
Exhibit 99.1		Press Release dated June 2, 2014
Exhibit 99.2		Audited consolidated financial statements of W2007 Grace I, LLC as of December 31, 2013 and December 31, 2012 and for each of the three years in the period ended December 31, 2013
Exhibit 99.3		Unaudited condensed consolidated financial statements of W2007 Grace I, LLC as of March 31, 2014 and December 31, 2013 and for the three-month period ended March 31, 2014 and March 31, 2013
Exhibit 99.4		Unaudited Pro Forma Condensed Consolidated Financial Information

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

	AMERICAN REALTY CAPITAL HOSPITALITY TRUST, INC.
Date:  June 2, 2014	By:	/s/ William M. Kahane
	Name:	William M. Kahane
	Title:	Chief Executive Officer, President and Director