Boykin Lodging Company (NYSE: BOY), a multitenant hotel real estate investment trust with a portfolio of 31 full-service hotels, announced today that it has formed a joint venture with AEW Partners III, L.P. (AEW), an investment partnership managed by AEW Capital Management, L.P., a Boston-based real estate investment firm that manages a portfolio of approximately $6 billion. AEW will provide $50 million of equity capital for the joint venture, and Boykin will provide approximately $17 million and serve as the operating partner of the joint venture.
Boykin and AEW plan to use the joint venture to take advantage of acquisition opportunities in the lodging industry. Combined with debt financing, the initial capital commitments would allow the joint venture to complete approximately $175 million of acquisitions over a 24-month period. The joint venture agreement also contains provisions for AEW and Boykin to double their respective capital commitments under certain circumstances, which could result in total acquisitions by the joint venture of approximately $350 million. In addition, as part of the transaction, Boykin will receive incentive returns based on the performance of acquired assets as well as other compensation as a result of the joint venture’s activities.
The joint venture will continue Boykin’s strategy of targeting upscale, full-service hotels and resorts located in major markets where Boykin can add value through its expertise in renovation, repositioning, and asset management, while utilizing its multitenant approach to leasing hotel assets.
“We are delighted at the formation of this strategic alliance with AEW, one of the most sophisticated and well respected real estate investment groups in the United States,” said Boykin Lodging’s Chairman, Robert W. Boykin. “This venture gives Boykin access to private equity in order to capitalize on acquisition opportunities and increase our cash flow at a time when the public equity markets are relatively inaccessible. We are particularly excited about working with a capital partner that recognizes and values our industry expertise and understands and shares our strategic goals.”
Thomas H. Nolan, Jr., Managing Director of AEW, commented, “For almost 20 years, AEW has been successful in creating this type of strategic joint venture by carefully selecting its partners. We seek firms with proven real estate skills and particular industry expertise in deal sourcing, execution, and asset management. We believe Boykin has demonstrated strength in all of these areas and will be a terrific partner.”
During the past several months, as the pace of hotel acquisitions has slowed, Boykin has researched hospitality trends in major U.S. markets in order to better target its future acquisitions. “We are particularly impressed with Boykin’s disciplined approach to acquisitions and with the extensive market research that is part of its underwriting methodology,” noted Henry Vickers, Director of Hospitality Investments at AEW. “We believe there will be exceptional hotel investment opportunities in the coming years, and we are confident that Boykin is the right partner to help us take advantage of those opportunities.”
William Chadwick, Managing Partner for Chadwick, Saylor & Co., the Los Angeles-based real estate investment banking firm that brought AEW and Boykin together, commented, “There has been an increasing amount of discussion in the hotel industry about forming joint ventures of this kind, but Boykin and AEW are the first to actually do so. Through this agreement with AEW, Boykin has distinguished itself from its REIT peers and created a capital base to execute its strategic growth plan for the future.”
After the end of the two-year investment period, AEW has the option to convert its capital invested in the joint venture into Boykin convertible preferred shares. This aligns the respective interests of the partners toward the fundamental goals of executing quality real estate acquisitions for the joint venture and increasing the value of Boykin’s common shares. If issued, the preferred shares would be convertible into common shares at $16.48 per common share and have a minimum cumulative annual dividend equivalent to $1.88 per common share, Boykin’s current common share dividend.
Boykin Lodging Company is a multitenant real estate investment trust which focuses on the acquisition of full-service, upscale commercial and resort hotels. The company currently owns 31 full-service commercial and resort hotels containing a total of 8,689 rooms located in California, Colorado, Florida, Idaho, Indiana, Maryland, Minnesota, Missouri, Nebraska, New York, New Jersey, North Carolina, Tennessee, Ohio, Oregon, and Washington. Since January 1998, Boykin has increased its portfolio by 14 hotels and a total of 4,121 rooms.
AEW Capital Management, L.P. serves as investment advisor to institutional and private investors, including some of the nation’s largest corporate, public, and union pension funds, university endowments, and governmental entities. The firm focuses on high-yield equity investing, real estate securities portfolios (REITs, CMBS, and private placements), and the acquisition and management of directly held property portfolios. On behalf of its clients, the firm currently manages approximately $6 billion of capital, which is invested in more than $12 billion of real estate nationwide.