Hersha Hospitality Trust entered into a definitive agreement to sell a five-hotel suburban portfolio totaling 757 rooms for $185 million, or $244,000 per key.
The assets comprising the portfolio are: The 203-room Courtyard by Marriott in Alexandria, Va.; the 120-room Residence Inn in Greenbelt, Md.; the 164-room Hyatt House in Scottsdale, Ariz.; the 142-room Hyatt House in Pleasant Hill, Calif.; and the 128-room Hyatt House in Pleasanton, Calif.
In addition, Hersha Hospitality Trust closed on the sale of the 100-room Hawthorn Suites in Franklin, Mass., for $8.9 million. The sale further reduces the company’s exposure to suburban markets.
“These five hotels performed very well during our 10-year hold period, delivering a levered IRR in the teens at 50-percent 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,” said Jay H. Shah, Hersha’s CEO. “This sale significantly improves our portfolio’s RevPAR as these hotels reported a trailing twelve-month RevPAR that was 34.1-percent 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.”
Based upon the sales price and debt payoffs, Hersha 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 percent, 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.
“Including this five-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 percent and 15.3x, respectively,” Shah said. “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 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 Dec. 31, 2016, subject to reauthorization or increase by the company’s board of trustees.