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Deals & Dealmakers

HPT to acquire $2B net leased portfolio of stores, gyms, restaurants

Hospitality Properties Trust (HPT) announced a deal to acquire a net lease portfolio from Spirit MTA REIT (SMTA) for $2.4 billion.

The portfolio consists of 774 service-oriented retail properties net leased to tenants in 22 different industries.

The portfolio has a weighted average remaining lease term of 8.6 years, a weighted average property level rent coverage of 2.68x and annual cash rent of $172 million.

John Murray, President and Chief Executive Officer of HPT, said: “We believe that the acquisition of this high-quality, net lease portfolio creates a stronger HPT.

“The combination of this diversified portfolio with our unique lodging structure and net lease travel centers, yields a REIT with greater scale, a more secure financial profile, and greater diversity in tenant base, property type and geography.”

The portfolio includes 774 net lease properties with approximately 12 million rentable square feet nd located across 43 states.

The portfolio is 98 percent occupied with a weighted average lease term of 8.6 years and annual cash rents of $172 million.

Leases comprising 81 percent of the portfolio have contractual rent increases and 52 percent of portfolio rents are from master leases with cross default provisions.

Tenants that span 22 different industries and 164 brands that include quick service and casual dining restaurants, movie theaters, health and fitness, specialty retail, automotive parts and services, and other service-oriented and necessity-based industries.

Manageable near-term lease expirations averaging 4% of contractual rents per year over the next six years.

HPT expects the acquisition will result in stronger property level rent coverage for its consolidated portfolio.

The number of HPT properties will increase from 506 properties to 1,280 properties, and HPT’s gross assets will increase from $10.2 billion to $12.6 billion.

The deal will give HPT a more diverse and resilient portfolio with the mix of net lease income increasing from 31 to 43 percent.

Limited capital expenditure requirements -Tenants under the leases bear the cost of maintaining the portfolio.

To finance the transaction, HPT has secured commitments from lenders for an up to $2 billion unsecured term loan facility.

HPT may use the proceeds from this term loan facility, borrowings under its existing revolving credit facility, proceeds from the sale of certain assets and/or proceeds from the issuance of new unsecured notes to finance the transaction.

In addition to the $2.4 billion purchase price, HPT has agreed to pay the prepayment penalties to extinguish the existing mortgage debt on the portfolio, which are estimated to be approximately $72 million.

HPT intends to sell approximately $500 million of the acquired assets and approximately $300 million of hotel and other assets following the closing of the acquisition in order to reduce its debt levels .

BofA Merrill Lynch is acting as exclusive financial advisor and Hunton Andrews Kurth LLP is acting as legal advisor to HPT.

Joint Lead Arrangers for the unsecured term loan are BofA Securities, Inc., Citigroup, Morgan Stanley Senior Funding, Inc., RBC Capital Markets, and Wells Fargo Securities, LLC.

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