Update from the ARCHT 10-Q (8/14/14)
[...]
Pending Acquisition
On May 23, 2014, the Company entered into a Real Estate Sale Agreement to acquire (the "Grace Acquisition") the fee simple or leasehold interests in 126 hotels (the "Portfolio") from 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") which are indirectly owned by one or more Whitehall Real Estate Funds, an investment arm controlled by The Goldman Sachs Group, Inc.
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 $271.0 million of the purchase price with cash generated through equity raises, funding approximately $976.0 million through the assumption of existing mezzanine and mortgage indebtedness and funding approximately $227.0 million through additional mortgage and mezzanine financing. The mortgage indebtedness that the Company expects to assume is for $865.0 million at an interest rate of London Interbank Offered Rate ("LIBOR") plus 3.11% and the mezzanine indebtedness is for $111.0 million at an interest rate of LIBOR plus 4.77%. Both the mortgage and mezzanine indebtedness are secured by 106 of the 126 hotels in the Portfolio and mature 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.
Consistent with the terms of the Grace Acquisition, the Company anticipates that the remaining $451.0 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 in the original principal amount of approximately $63.0 million, which represents the portfolio owned assets and joint venture promissory notes, or (ii) the date the gross amount of IPO proceeds received by the Company exceeds $150.0 million (See Note 7 - Promissory Notes Payable), the Company will be required to use 35.0% of any IPO proceeds to redeem the preferred equity interests at par, up to a maximum of $350.0 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 Grace Acquisition, the Company is required to have redeemed 50.0% of the preferred equity interests, and as of the end of the fourth year following the closing of the Grace Acquisition, the Company is required to redeem 100.0% 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 the 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 the preferred equity interests will have certain rights, including the ability to assume control of the operations of the Portfolio. Due to their characteristics and the fact that they are mandatorily redeemable, the preferred equity interests will be treated as debt in accordance with accounting principles generally accepted in the United States of America ("GAAP").
Pursuant to the terms of the Grace Acquisition, the Company’s obligation to consummate the acquisition of the Portfolio is subject to certain customary closing conditions. Among these 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. The Company was required to make a $50.0 million earnest money deposit, with an additional $25.0 million due if the Company exercises its right to extend closing of the acquisition to December 15, 2014. This right was exercised on July 21, 2014 (See Note 15 - Subsequent Events).
[...]
Note 15 - Subsequent Events
Grace Portfolio Closing Extension
On July 21, 2014, the Company entered into an amendment to the Real Estate Sale Agreement for the Grace Acquisition to defer the closing date to December 15, 2014. As a result of the amendment, the $25.0 million supplemental earnest money deposit is due to the Sellers on September 19, 2014.
