Hersha Parts Ways with Suburban Hotel Portfolio

The $185 million sale of five hotels is part of the company's ongoing capital recycling program.
Hyatt House, Scottsdale, Ariz.

Hyatt House, Scottsdale, Ariz.

PhiladelphiaHersha Hospitality Trust plans to sell a five-hotel portfolio comprising 757 rooms for $185 million as part of its ongoing capital recycling program. This time, instead of New York City assets, the Philadelphia-based REIT is disposing of several suburban sites.

The sale of the portfolio is expected to close by the end of the year. Hersha did not disclose the name of the buyer but the Central Penn Business Journal reported it was The Shidler Group, a Honolulu-based commercial real estate investment firm.

The hotels to be sold are: Courtyard in Alexandria, Va., 203 rooms; Residence Inn, Greenbelt, Md., 120 rooms; Hyatt House, Scottsdale, Ariz., 164 rooms; Hyatt House, Pleasant Hill, Calif., 142 rooms; and Hyatt House, Pleasanton, Calif., 128 rooms.

“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 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 this time,” Jay Shah, Hersha’s CEO, said in a prepared statement.

Shah noted that the sale of the portfolio “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.”

He stated 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.”

In a separate sale, Hersha recently closed on the sale of the 100-key Hawthorn Suites in Franklin, Mass., for $8.9 million. The buyer was not identified but Hersha notes that the sale “further reduces the company exposure to suburban markets and improves portfolio quality.”

The suburban sales come four months after the REIT sold seven Manhattan hotels through the closing of a joint venture with China-based Cindat Capital Management Ltd. The premium limited-service hotels, which had a total of 1,087 rooms, were sold for $571.4 million. Three were located in Times Square, while the others were in Herald Square, Wall Street and Water Street. Under that deal, Hersha retained a 30 percent equity interest as well as a $37 million preferred equity interest.

The announcement of that sale was followed two days later in May that it was selling Hyatt Place in King of Prussia in Pennsylvania for $13 million to Dove Hill and Wurzak Hotel Group.

“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,” Shah noted in prepared remarks.

He noted that the REIT had sold 55 stabilized hotels with 6,399 rooms over the last five years and recycled the proceeds “into upscale and luxury lifestyle hotels that meet the tastes and preferences of travelers in markets core to our strategy.”

Hersha owns and operates high quality upscale hotels in urban gateway markets. It has 55 hotels totaling 8,799 rooms in New York, Boston, Philadelphia, Washington, D.C., Miami and select markets on the West Coast.