Hersha Hospitality Trust (NYSE: HT, “Hersha” or the “Company”), owner of upscale hotels in urban gateway markets, announced the Company has entered into a definitive agreement to sell a 5-hotel suburban portfolio totaling 757 rooms for $185.0 million, or $244,000 per key.
“The sale of this high-quality portfolio highlights Hersha’s capability to successfully execute accretive capital recycling and opportunistically upgrade the portfolio with newly built, higher growth hotels. These five hotels performed very well during our 10-year hold period, delivering a levered IRR in the teens at 50% leverage and a 2.0x equity return multiple, in addition to being foundational to our major metro, premium RevPAR, select service strategy at the time. This sale significantly improves our portfolio’s RevPAR as these hotels reported a trailing twelve month RevPAR that was 34.1% below the average of the remaining portfolio. The sale further hones our footprint of higher barrier-to-entry urban gateway and destination markets, while focusing resources on younger, higher quality, higher growth hotels,” stated Jay H. Shah, Hersha’s Chief Executive Officer.
Based upon the sales price and debt payoffs, the Company anticipates approximately $105.3 million in net proceeds, with taxable gains on the sale approximating $78.5 million. The sale price for the portfolio reflects a trailing economic capitalization rate of 8.0% based on the hotel’s net operating income for the twelve-month period ended July 31, 2016, and a hotel EBITDA multiple of 11.4x.
Mr. Shah continued, “Including this 5-hotel portfolio, we have sold 16 stabilized New York City and Suburban East and West Coast hotels during 2016 for $825.3 million at a blended trailing economic cap rate and EBITDA multiple of 5.9% and 15.3x, respectively. In the last five years, the Company has sold 55 stabilized hotels totaling 6,399 rooms for $1.26 billion, recycling sales proceeds into upscale and luxury lifestyle hotels that meet the tastes and preferences of travelers in markets core to our strategy. Simultaneous to our active portfolio recycling, we have repurchased $186.6 million of our common shares across the last three years. These actions clearly evidence our sustained and unique value creation philosophy and commitment to driving total shareholder returns.”
The assets comprising the 5-hotel suburban portfolio are as follows:
Courtyard Alexandria, VA – 203 rooms
Residence Inn Greenbelt, MD – 120 rooms
Hyatt House Scottsdale, AZ – 164 rooms
Hyatt House Pleasant Hill, CA – 142 rooms
Hyatt House Pleasanton, CA – 128 rooms
Total rooms – 757
The portfolio sale is anticipated to close by year-end 2016. The sale remains subject to customary closing conditions and no assurance can be given that this portfolio will be sold within the expected time frame, or at all. All share repurchases, if any, will be made pursuant to the previously announced program expiring on December 31, 2016, subject to reauthorization or increase by the Company’s Board of Trustees.
In addition, the Company closed on the sale of the 100-room Hawthorn Suites in Franklin, MA for $8.9 million. The sale further reduces the Company exposure to suburban markets, and improves portfolio quality.
Hersha Hospitality Trust is a self-advised real estate investment trust in the hospitality sector, which owns and operates high quality upscale hotels in urban gateway markets. The Company’s 55 hotels totaling 8,799 rooms are located in New York, Boston, Philadelphia, Washington, DC, Miami and select markets on the West Coast. The Company’s shares are traded on The New York Stock Exchange under the ticker “HT.”