Hospitality Properties Trust agreed to acquire a net lease portfolio from retail-focused Spirit MTA REIT for $2.4 billion in cash, excluding transaction costs.
The assets comprise 774 service-oriented retail properties, including those held in the seller's master trust in 2014 and three assets owned by Spirit Realty Capital Inc., Spirit MTA's external manager. These assets are leased to tenants from 22 different industries and have a weighted average lease term of 8.6 years, with annual cash rent of $172 million as of March 31.
At the request of the buyer, a unit of Spirit MTA has agreed to acquire the fee interest in three travel centers from a subsidiary of Spirit Realty for $55 million, subject to certain conditions. As part of the deal, the properties' ownership will be transferred to Hospitality Properties, Spirit MTA said in a release.
The hotel real estate investment trust will fund the transaction with a new fully committed $2.0 billion term loan facility, available funds from its existing revolving credit facility, asset sales and the potential issuance of unsecured notes. The seller will use the proceeds from the sale to redeem all of the then-outstanding notes collateralized by the assets of the master trust. Under the terms of the transaction, Hospitality Properties will also pay Spirit MTA the make-whole amounts payable in connection with the redemption of the trust notes. The payable amount is estimated at $72 million, assuming a closing in the third quarter, but it is subject to change primarily based on the applicable U.S. Treasury rates at the time of redemption.
Spirit MTA expects to receive net proceeds of roughly $450 million from the transaction.
Spirit MTA said it, at closing, plans to repurchase from Spirit Realty its $150 million preferred shares in the company, and roughly $5.6 million plus any accrued and unpaid dividends will be paid to satisfy the SubREIT preferred shares.
Additionally, when the deal is closed, the existing asset management agreement with Spirit Realty and the trust property management agreement will terminate, for which Spirit MTA will pay a termination fee of roughly $48 million. Spirit MTA and Spirit Realty will then enter into an interim asset management agreement with a reduced management fee of $1 million during the initial one-year term and $4 million for any one-year renewal plus certain cost reimbursements.
The acquisition agreement contains termination rights, including termination by either party if the deal is not consummated by Dec. 31. If Spirit MTA terminates the deal in favor of a superior proposal, it will have to pay Hospitality Properties a termination fee of roughly $11.4 million. If the deal is terminated because Spirit MTA fails to secure shareholder approval, it will pay Hospitality Properties an aggregate amount of up to $10 million to cover the latter's out-of-pocket fees, costs and expenses incurred in connection with the transaction.
Spirit MTA said the deal is the first step in its plan to wind down and liquidate the company. It will also sell its other properties and will take steps to recover amounts owed by bankrupt tenant Shopko. The company will return net proceeds from this sale and the sale of its other assets.
The transaction is subject to approval by Spirit MTA REIT's shareholders and other customary conditions.