Acrophyte Hospitality Trust proposes disposal of Michigan hotel for US$6.7 million
[SINGAPORE] Acrophyte Hospitality Trust has proposed the disposal of a hotel in the US city of Auburn Hills in Michigan for a consideration of around US$6.7 million, said managers of the stapled group on Thursday (Jun 5).
Through its indirect wholly owned subsidiary ARA USH Chicago, the stapled group on Wednesday entered into a conditional purchase and sale agreement to sell Hyatt Place Detroit/Auburn Hills to AHM Hospitality.
The property is a 127-room hotel in Auburn Hills which commenced operations in 1996. It is around 50 kilometres outside of Detroit and is located off Highway 75, among other economy-branded hotels, residential buildings and small retail centres.
An independent appraiser valued the property at US$7 million as at December 2024, said the managers.
The sale consideration will be satisfied entirely in cash. Negotiated on a willing buyer and willing seller basis, it took into account the independent valuation and represents a 5 per cent discount to it, the managers added.
Net divestment proceeds are estimated to be around US$6.2 million, after factoring in a divestment fee for the managers of US$33,000, or 0.5 per cent of the sale consideration, and US$436,000 in transaction costs that the sale is expected to incur.
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The transaction is set to be completed in the third quarter of 2025, subject to conditions.
Net proceeds from the proposed sale may be used to acquire accretive and higher-yielding properties, pare down existing debt, and fund the capital expenditure and general working capital needs, stated the managers.
For illustrative purposes, assuming the sale was completed on Jan 1, 2024, Acrophyte’s distributable income would have risen from US$10.3 million before the divestment to US$11.2 million after the transaction, as at Dec 31, 2024. Its distribution per stapled security would have increased from US$0.01772 to US$0.01927.
Rationale for sale
The divestment would benefit Acrophyte’s stapled securityholders by allowing the stapled group to avoid unnecessary capital outlay and reallocate resources towards higher-performing assets, said the managers.
They pointed out that the hotel ranks in the bottom quartile of Acrophyte’s portfolio in terms of valuation and gross operating profit (GOP), accounting for just 1 per cent of its total portfolio valuation as at Dec 31, 2024, the lowest among all assets.
Its GOP margin for the 2024 financial year stood at 0.7 per cent, which was significantly below the portfolio average of 35.3 per cent. This resulted in negative net property income which had an adverse impact on distributable income, the managers noted.
Moreover, the property’s value has declined by 43 per cent on persistent market weakness and ongoing underperformance. Its RevPar Index (a measure of competitive performance) remains weak at 78 per cent.
The hotel also faces operational challenges due to the tight labour market in the Detroit suburb, where a shortage of skilled workers has created staffing difficulties and reduced operational efficiency.
As one of the older assets in Acrophyte’s portfolio, it will require substantial capital expenditure relative to its current value – much of which would go towards maintenance and renovations, with limited upside potential given the market’s continued underperformance, the managers added.
Hence, any capital investment in the property would dilute distributable income.
Acrophyte Hospitality Trust’s stapled securities closed down 3.1 per cent or US$0.01 at US$0.31, after the announcement.
