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Hersha Completes NY Hotel Buyout

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Hersha Hospitality Trust (HT - Free Report) ), a self-advised real estate investment trust, recently announced that it has purchased the remaining 50% ownership stake in the ‘Holiday Inn Express 29th Street’ hotel in New York for $10.0 million. The purchase price totaled $87.5 million, including the company’s initial investment at the start of operations in February 2007.

The acquisition price signifies an initial capitalization rate of around 8.4% on the company’s estimated net operating income for the twelve months ending December 2012 and an expected stabilized capitalization rate of 10.5%.

Midtown South-based, Holiday Inn Express 29th Street, consists of 228 rooms, a business center and other modern amenities. Located centrally between 8th Avenue and 7th Avenue, the property is well linked with the largest intercity train stations and major commuter rail hubs of Manhattan- Madison Square Garden and Penn Station.

Since 2007, the property had been considered as an unconsolidated joint venture investment but from now it will be treated as consolidated asset. The acquisition transaction follows the company’s previous acquisition of 50% ownership share for $7.5 million way back in February 2007. The property bears an outstanding first mortgage loan balance of $54.6 million at interest rate of 6.5% having a maturation date of November 2016. Alongside, it also bears a mezzanine loan of $15.0 million, which matures by the end of the second quarter of 2012.  

The portfolio repositioning program is aimed towards 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.

Management remains upbeat about the acquisition as it fulfills the company’s strategic goals. They expect the hotel to be a quality addition to its existing high-quality properties in New York and strengthen the RevPAR to reach prior peak levels. Hersha Hospitality currently owns around 15 properties in New York.

New Cumberland, Pennsylvania-based Hersha Hospitality focuses on upscale, mid-priced and extended stay hotels in major metropolitan markets in the U.S. The company currently owns 64 hotels totaling 9,221 rooms, primarily along the Northeast Corridor from Boston, Massachusetts to Washington DC. The company also owns hotels in Los Angeles, Northern California and Arizona.

The company, which competes with the likes of Ashford Hospitality Trust Inc. (AHT - Free Report) and Host Hotels & Resorts Inc. (HST - Free Report) , presently has a long-term ‘Neutral’ recommendation and a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.

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