Starwood to buy Hersha’s noncore hotel portfolio

An affiliate of Starwood Capital has agreed to acquire an 18-property hotel portfolio from the Philadelphia-based hospitality REIT for $155 million.

Starwood Capital Group has agreed to purchase 18 non-core hotel properties currently owned by Hersha Hospitality Trust through a special-purpose vehicle set up on behalf of its Starwood Global Opportunity Fund VIII, according to an SEC filing by Hersha. The transaction is expected to close by the end of the fourth quarter.

The portfolio includes hotels under the Residence Inn, Hampton Inn, Hilton Garden Inn, Fairfield Inn, Springhill Suites, Summerfield Suites, Holiday Inn and Courtyard by Marriott brands. The properties, which total 1,924 rooms, are located in Connecticut, Virginia, Massachusetts, North Carolina, Pennsylvania, New Jersey and Maryland.

“The sale of these 18 properties represents a major step in the transformation of our portfolio as we continue to execute on our non-core disposition program,” said Jay Shah, chief executive of Hersha, in a statement. The hospitality REIT, which owns interests in 79 hotels located primarily in the Northeast, has been realigning its portfolio towards urban gateway markets, he noted.

For the quarter ended 30 June, the average daily rate for the consolidated non-core hotels being sold was $107.01, or 32.2 percent less than the average daily rate for the remainder of the consolidated portfolio, which was $157.91.

Hotel earnings before interest, taxes, depreciation and amortization (EBITDA) margins for the consolidated non-core hotels being sold are 34.4 percent, which is about 810 basis points less than the hotel EBITDA margins for the rest of the portfolio, which was 42.5 percent.

Starwood declined to comment on the transaction. The firm’s eighth opportunistic fund, which closed in March 2010, has total equity commitments of $1.83 billion.

This isn't the first time that Starwood and Hersha have come together on a deal. In a related transaction, Starwood last year acquired a 49.9 percent stake in Hersha Hospitality Management, a separate entity that manages many of the REIT's assets, in an effort to target the US hospitality sector.