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Hersha to Sell Non-Core Assets

HT BEE

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Hersha Hospitality Trust (HT - Snapshot Report), a hotel real estate investment trust (REIT), has recently announced its plans to sell an assortment of 18 non-core assets as part of its portfolio repositioning and capital recycling program. The company has signed a definitive agreement with an affiliate of Starwood Capital Group – a privately held global investment firm, to execute the asset sale transaction for $155 million, including the assumption of mortgage debt associated with the properties.

The asset sale will enable Hersha to reduce its consolidated mortgage debt by approximately $61.5 million and lower its proportionate share of unconsolidated mortgage debt by $18.3 million. Besides improving its hotel operating metrics, Hersha further expects to generate net proceeds of approximately $54 million from the transaction, which it intends to utilize to ease its additional debt burden and for general corporate purposes. The transaction is expected to close by the end of fourth quarter 2011.

The portfolio repositioning program is aimed to focus on core urban gateway markets with higher growth opportunities that in turn would result in higher RevPAR (revenue per available room), improved Hotel EBITDA (earnings before interest, tax, depreciation, and amortization) margins, lower debt and a higher net asset value for the entire portfolio. With the sale of the non-core assets, Hersha has further reduced the average age of the portfolio to less than seven years old.

As part of its corporate strategy, Hersha focuses on upscale, mid-priced and extended stay hotels in major metropolitan markets in the U.S. Currently, Hersha has ownership interests in 79 hotels totaling 10,702 rooms, primarily along the Northeast Corridor from Boston, Massachusetts to Washington DC. The company also owns hotels in Los Angeles, Northern California and Arizona.

We presently have a long-term ‘Neutral’ recommendation on Hersha, which currently has a Zacks #3 Rank that translates into a short-term ‘Hold’ rating. We also have a ‘Neutral’ recommendation and a Zacks #2 Rank (short-term ‘Buy’) for Strategic Hotels & Resorts, Inc. (BEE - Snapshot Report), one of the peers of Hersha.

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