Hersha Hospitality Trust entered into definitive agreements to sell 18 properties to an affiliate of Starwood Capital Group for approximately $155 million, including the assumption of outstanding mortgage debt.
Hersha estimates that it is selling these hotels at a trailing 12 month net operating income capitalization rate of approximately 8.4 percent and a trailing 12 month Hotel EBITDA multiple of approximately 10.3 times. The sale reduces the average age of hotels in Hersha’s portfolio to less than seven years old, while the average age of the non-core hotels to be sold is approximately 11.5 years. For the second quarter ended June 30, 2011, Average Daily Rate for the consolidated non-core hotels being sold (14 hotels) was $107.01, 32.2 percent less than the ADR for the remainder of the consolidated portfolio (53 hotels), which was $157.91. Hotel EBITDA margins of 34.4 percent for the consolidated non-core hotels being sold were approximately 810 basis points less than the Hotel EBITDA margins for the remainder of the consolidated portfolio, which were 42.5 percent. On a pro forma basis, adjusted to reflect the sale of the 14 consolidated non-core hotels, Hersha Hospitality Trust’s second quarter consolidated RevPAR of $125.10 would have been approximately 18.2 percent higher than 2010 second quarter RevPAR, while Hotel EBITDA margin of 42.5 percent would represent approximately 240 basis points of margin expansion from the comparable period in 2010.
Upon the sale of the 18 non-core hotels, Hersha expects to generate net proceeds of approximately $54 million, reduce its consolidated mortgage debt by approximately $61.5 million and reduce its proportionate share of unconsolidated mortgage debt by approximately $18.3 million. Hersha anticipates utilizing the net proceeds from these sales for further debt reduction and for general corporate purposes. The transaction is expected to close by the end of the fourth quarter of 2011 and is subject to the satisfaction of customary closing conditions, including the receipt of lender and franchisor consents.