PHILADELPHIA--(BUSINESS WIRE)--Hersha Hospitality Trust (NYSE: HT) (“Hersha” or the “Company”), owner of upscale hotels in urban gateway markets, today announced that the Company has entered into a definitive agreement to purchase the 148-room Parrot Key Hotel & Resort (“Parrot Key”) in Key West, FL for $100 million.
“The acquisition of Parrot Key further demonstrates our commitment to recycle capital from the sale of stabilized assets into higher growth opportunities,” stated Mr. Jay H. Shah, Hersha’s Chief Executive Officer. “Parrot Key and the Key West market possess very attractive investment characteristics. The hotel is a high quality oceanfront asset, independently managed and well-positioned in the market to leverage high rated transient demand. The controlled guestroom inventory and consistent year-round demand make Key West very desirable from an investment perspective. This acquisition increases our presence in South Florida, and combined with our West Coast portfolio, is indicative of the continued expansion of our strategy outside of the northeastern corridor. In three years, we have increased the combined EBITDA contribution from South Florida and the West Coast to approximately 26% of total portfolio EBITDA.”
Parrot Key is situated on 5 oceanfront acres and is the most recently built waterfront hotel boasting the largest rooms and the most oceanfront suites in Key West. The hotel operated at an average daily rate (“ADR”) of $230.52 and occupancy of 92.3% in 2013. The Key West market is currently forecasted as one of the strongest RevPAR growth markets in the country and the property is forecasting RevPAR growth in excess of 10% for 2014. Parrot Key was fully renovated in 2012 and requires no immediate capital expenditures. The property will continue to be independently operated and managed by Northwood Hospitality, while benefitting from Hersha’s active asset management program.
The Company anticipates the purchase price for Parrot Key reflects a trailing and forward 12-month economic capitalization rate, as of April 2014, of approximately 7.2% and 7.5%, respectively, and a 9.0% capitalization rate on stabilized earnings. For the trailing twelve months as of March 31, 2014, the hotel generated $7.5 million in EBITDA or approximately $50,000 per room.
Key West is one of the most supply constrained hotel markets in the United States as a result of a Rate of Growth Ordinance (“ROGO”), which caps the number of building permits in the Florida Keys. The implementation of ROGO combined with a lack of available land creates significant barriers-to-entry in Key West. As a result, the market has a negative long-term supply CAGR. This dynamic has supported a healthy lodging environment as evidenced by a RevPAR CAGR of 5.3% since 2000, and a 13.5% CAGR since 2010.
The acquisition of Parrot Key will be funded with cash on hand and with a portion of the Company’s $250 million senior unsecured term loan. The Parrot Key transaction is expected to close during the second quarter and is subject to a variety of closing conditions, including the Company’s completion of due diligence. As a result, there can be no assurance that the Company will be able to consummate the acquisition on the schedule or on the terms described.
The Company has posted a presentation of supplemental information regarding the purchase of Parrot Key on its website at www.hersha.com in the Investor Relations section under “Presentations”.
About Hersha Hospitality
Hersha Hospitality Trust (HT) is a self-advised real estate investment trust in the hospitality sector, which owns and operates high quality, upscale hotels in urban gateway markets. The Company’s 50 hotels totaling 8,050 rooms are located in New York, Boston, Philadelphia, Washington, DC, South Florida and select markets on the West Coast. The Company’s shares are traded on The New York Stock Exchange-Euronext under the ticker “HT”. For more information on the Company, and the Company’s hotel portfolio, please visit the Company's website at www.hersha.com.
Forward Looking Statement
Certain matters within this press release, including, among others, the anticipated closing of the purchase of the hotel and anticipated capitalization rate, are discussed using “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statement. For a description of these factors, please review the information under the heading “Risk Factors” in Hersha Hospitality Trust’s filings with the SEC, including its Annual Report on Form 10-K for the year ended December 31, 2013.
