Hersha Hospitality Trust, owner of upscale hotels in urban gateway markets, announced the company has acquired the fee simple 145-room Courtyard by Marriott in Sunnyvale, Calif., for $75 million, and signed a definitive agreement to acquire the fee simple 77-room Ambrose Hotel in Santa Monica, CA.
“We are pleased to add a newly built and recently renovated hotel to our California hotel portfolio, utilizing proceeds from the recent dispositions in New York City and suburban Boston,” said Jay H. Shah, Hersha’s CEO. “Through a series of accretive investments in California, Boston and Washington, DC, we have diversified and upgraded the portfolio, while deferring $186.3 million of taxable gains. The company’s ability to reinvest gains to reposition the portfolio with younger, higher quality, higher growth hotels demonstrates our ability to recycle capital and sustained commitment to shareholder value creation. Across the last several years, the company has invested approximately $350 million in Northern and Southern California, compelled by the markets’ sound lodging fundamentals, which are supported by strong demand growth and limited new hotel supply constrained by the high cost of land and lengthy entitlement process. These California investments add to our already outperforming high-quality hotel portfolio that provides a unique combination of high absolute RevPAR and sector leading margins, while meeting the tastes and preferences of today’s corporate and leisure transient travelers.”
The new Courtyard Sunnyvale, which opened in October 2014, is located at the central Sunnyvale intersection of El Camino Real and Mathilda Avenue, equidistant to Google’s headquarters to the north and the Apple Campus to the south. The hotel is proximate to more than 9.6 million square feet of office space, with Yahoo, HP, AMD and Lockheed Martin among other notable demand generating tenants. The hotel’s amenities include an outdoor pool, bistro, exercise room, a 500 square foot boardroom and business center.
The Ambrose Hotel is located within Santa Monica’s 7.9 million square-foot Class A office market and is proximate to Silicon Beach, which includes high profile employers such as Google, Facebook, Apple, IMAX, Hulu and Riot Games. The Ambrose is one block from St. John’s Heath Center, a private, 234-room hospital renown for clinical excellence and award-winning care. The hotel includes a two-level, 82 space parking garage, in addition to an executive meeting room and a fitness center.
The combined purchase price reflects a blended economic capitalization rate and EBITDA multiple of 7.2 percent and 12.9x, respectively, for full-year 2017. The acquisition of the Courtyard Sunnyvale includes the assumption of $40.6 million in CMBS debt that matures in 2025. The debt is interest only until August 2020 at a fixed rate of 4.7 percent. The acquisition of the Courtyard Sunnyvale was funded with proceeds from the company’s sale of seven limited service assets in Manhattan to the Cindat joint venture at a trailing 5.4 percent economic capitalization rate. The acquisition of The Ambrose Hotel will be funded with 1031 exchange proceeds from the sale of two suburban Boston hotels at a blended trailing economic capitalization rate of 7.7 percent. The suburban Boston transaction generated $18.6 million in taxable gains for the company.
HHM will manage both properties, and will implement a more aggressive revenue management approach, and update guestroom touchpoints and hotel programming, according to Shah.
The acquisition of The Ambrose Hotel is anticipated to close by year-end 2016. The acquisition remains subject to customary closing conditions, with no assurance the transaction will close within the expected time frame, or at all.