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| Holiday Inn Express Wall Street |
PHILADELPHIA—Hersha Hospitality Trust has signed definitive agreements with Cindat Capital Management Limited to form a joint venture for seven of the company’s limited-service hotels in Manhattan totaling 1,087 rooms for a total purchase price, including closing costs, of $571.4 million, or $526,000 per key. The proposed joint venture is structured with Cindat as the preferred joint venture partner holding a 70% ownership stake, while Hersha retains a 30% equity interest.
The assets that will be contributed to the joint venture are Holiday Inn Express Times Square (210 rooms), Candlewood Suites Times Square (188), Hampton Inn Times Square (184), Hampton Inn Chelsea (144), Hampton Inn Herald Square (136), Holiday Inn Wall Street (113) and Holiday Inn Express Wall Street (112).
“The city’s preeminence as a financial, cultural and technological hub, combined with the security and scarcity of its real estate, provides significant yield for a strategic, long-term partner such as Cindat,” said Neil H. Shah, Hersha’s president and COO. “On a pro forma basis, the sale reduces Hersha’s EBITDA exposure in New York City from approximately 43% in 2015 to 25% of consolidated EBITDA in 2016. The company intends to utilize a portion of the sale proceeds to make hotel investments in Washington, DC and California, continue its share repurchase program and repay debt.”
Based upon the sales price, estimated closing costs and debt payoffs, Hersha Hospitality Trust anticipates approximately $300 million in net proceeds, with taxable gains on the sale between $170 million and $180 million. Due to the large tax gain on the sale of the seven hotels, the Philadelphia-based company intends to acquire assets as part of a like-kind exchange under Internal Revenue Code Section 1031.
To date, Hersha Hospitality Trust has accounted for a significant portion of the 1031 exchange through the purchase of The Sanctuary Beach Resort on Monterey Bay, the Ritz-Carlton Georgetown and the Hilton Garden Inn M Street, Washington, DC. In addition to acquiring high-quality hotels in strategic markets, the company intends to utilize the remaining proceeds to repurchase common shares, pay down debt and for general corporate purposes.
In 2015, Hersha Hospitality Trust repurchased 5.2 million shares for $124.5 million representing 10.4% of shares outstanding. The company plans to continue opportunistic share repurchases to take advantage of capital market dislocations and views share buybacks as an attractive use of available capital and a driver of total shareholder value. The company has approximately $72 million remaining on its $100 million share repurchase program, and may seek to increase its 2016 authorization, subject to approval by the company’s board of trustees.
