Private-equity firm KSL Capital Partners agreed to buy Hersha Hospitality Trust, taking the hotel real estate investment trust private in an all-cash transaction valued at about $1.4 billion.
Under the terms of the transaction, KSL will acquire all the outstanding common shares of Hersha for $10 per share, according to a news release. The purchase price represents a premium of about 60% over Hersha’s closing share price on Aug. 25.
“Hersha and its team have built an impressive, curated portfolio of experiential luxury and lifestyle hotels and resorts in strategic markets,” said Marty Newburger, partner at KSL Capital. “With KSL’s extensive track record investing in high-quality assets in dynamic metropolitan markets across North America and around the world, we are uniquely suited to position the business for further success over the long term.”
As of Hersha’s second-quarter earnings report, the REIT had a portfolio of 25 hotels with 3,811 rooms. Their 23 comparable hotels generated an average daily rate of $303.34 and revenue per available room of $233.92. It reported net income of $1.7 million, down from $2.4 million in the second quarter of 2022. The REIT focuses on luxury and lifestyle hotels in urban gateway and regional resort markets.
Hersha’s independent transaction board and the board of trustees each unanimously approved the offer, the news release states. Shareholders, should they approve the deal, will receive $10 in cash for each common share they own. Holders of the company’s three types of preferred shares will receive $25 cash, along with any accrued and unpaid dividends to which they’re entitled, per owned share.
The deal is expected to close in the fourth quarter of 2023 subject to customary closing conditions and shareholder approval.
As of press time, it was unclear how the deal would affect Hersha Hospitality Management, the third-party hotel management company founded by the Shah family that runs a majority of the REIT’s portfolio.
Though it wasn’t stated explicitly in the news release, Hersha Executive Chairman Jay Shah indicated Hersha will continue to grow as a platform as part of KSL Capital.
“This transaction provides our shareholders with immediate and certain value at a substantial premium to our public valuation,” he said. “Following a multi-year comprehensive review by the independent transaction committee of Hersha’s Board of Trustees, the board and management team are confident this step will allow us to deliver value for our shareholders while refocusing on growing the business over a longer period of time.”
In a note to investors, C. Patrick Scholes, managing director of lodging and leisure equity research at Truist Securities, wrote this is the first time in years his team could remember private equity being interested in taking a full-service hotel REIT private. It noted the last was in 2017 when Blackstone offered RLJ Lodging Trust $24 a share, which RLJ’s board rejected.
“While REIT valuations have been depressed in our view, and major hotel industry leaders have speculated at conferences about the likelihood of potential buyouts, the high interest rate environment combined with Blackstone's disposition activity had been deemed a factor in the low current likelihood of privatization,” he wrote.
KSL Capital has acquired several hospitality companies over the years. Most recently, it acquired a majority of Italy's Sereno Hotels as well as buying The Pig Hotels in the United Kingdom and increased its investment in Under Canvas. It also acquired Outrigger Resorts & Hotels in 2016.
KSL Capital formed Alterra Mountain Company in 2018 in a joint venture with Henry Crown and Co. as a platform for the ski resorts they each own. The company also launched Mission Hill — a select service hotel acquisition platform — in 2021.