Hersha Hospitality Trust entered into a definitive agreement to sell 16 hotels in the U.S. East Coast region to an affiliate of Blackstone Real Estate Advisors for US$217 million.
The transaction is expected to close by the end of first quarter 2014, and is subject to customary closing conditions. Hersha Hospitality Trust, Philadelphia, values the anticipated sale of these hotels at a trailing twelve months capitalization rate of approximately 8% and a hotel EBITDA multiple of 11x. In conjunction with the anticipated sale, Hersha said it expects to repay approximately US$79 million of outstanding debt, which will result in Hersha receiving cash proceeds of US$138 million before customary closing costs and transaction expenses. Hersha anticipates recording a book gain of approximately US$30 million on the sale of these assets.
“The anticipated sale of these non-core portfolio hotels completes our transformation into a pure play, urban transient portfolio with exposure to some of the highest demand gateway markets in the United States,” said Jay Shah, Hersha CEO. “The sale of these assets will result in material improvement to our RevPAR quality and EBITDA growth potential, and demonstrates our ability to achieve diverse strategic objectives across the company. We are pleased to have timed our two portfolio sale processes to capitalize on private equity interest in stabilized, select service assets in suburban markets. Including the anticipated sale of these 16 non-core hotels, we have sold 46 non-strategic hotels generating approximately US$460 million in gross proceeds since 2008. In addition to further reducing leverage, we expect to redeploy the cash proceeds from this sale into higher growth opportunities in Miami and the West Coast.”
Hersha said that assuming the sale of these 16 assets was completed January 1, 2013, pro forma 2013 RevPAR for the company’s core portfolio is forecasted to be US$146, 70% higher than the RevPAR of the non-core assets being sold. Based on the same time period, pro forma EBITDA margins for the company’s core portfolio are forecasted to be 38.8%, 350 bps higher than the non-core portfolio being sold.
“We believe this transaction demonstrates private equity’s continued appetite for stabilized select-service assets,” said David Loeb, an analyst with R.W. Baird & Co. wrote in a note to investors. “Given solid pricing and still-strong private equity interest for select-service portfolios, we believe this transaction bodes well for the valuation of other select-service focused REITs, especially Chatham, RLJ, and Summit.”
The hotels bought by Blackstone include:
- The 118-room Courtyard by Marriott Philadelphia Langhorne, located in Langhorne, Pennsylvania
- The 100-room Residence Inn Philadelphia Langhorne, located in Langhorne
- The 88-room Holiday Inn Express Langhorne – Oxford Valley, located in Langhorne
- The 130-room Courtyard by Marriott Ewing Princeton, located in Princeton, New Jersey
- The 155-room Holiday Inn Express & Suites King of Prussia, located in King of Prussia, Pennsylvania
- The 78-room Courtyard Wilmington Brandywine, located in Wilmington, Delaware
- The 71-room Inn at Wilmington, located in Wilmington
- The 107-room TownePlace Suites by Marriott Harrisburg Hershey, located in Harrisburg
- The 78-room Holiday Inn Express Hershey (Harrisburg Area), located in Hummelstown, Pennsylvania
- The 78-room Residence Inn Harrisburg Carlisle, located in Carlisle, Pennsylvania
- The 110-room Hampton Inn & Suites Hershey, located in Hershey, Pennsylvania
- The 133-room Holiday Inn Express Hauppauge-Long Island, located in Hauppauge, New York
- The 161-room Hampton Inn Long Island – Brookhaven, located in Farmingville, New York
- The 128-rom Hyatt House Bridgewater, located in Bridgewater, New Jersey
- The 98-room Hampton Inn New Haven – South – West Haven, located in West Haven, Connecticut
- The 101-room Hampton Inn & Suites Providence/Smithfield, located in Smithfield, Rhode Island
