Hersha Hospitality Trust (NYSE:HT) (“Hersha” or the “Company”), owner of upscale hotels in urban gateway markets, today announced the Company has entered into a definitive agreement to purchase the 122-room Hotel Oceana in Santa Barbara, California for $42 million.
“The acquisition of Hotel Oceana exemplifies the investment characteristics that we target, a high quality independently managed hotel driven by significant transient demand in arguably the highest barrier to entry market for new hotel development in the United States,” stated Mr. Jay Shah, Hersha’s Chief Executive Officer. “Santa Barbara is one of the highest RevPAR leisure markets in the United States, and combined with our properties in Los Angeles and San Diego, the Company will benefit from strong growth fundamentals in key markets on the West Coast. This transaction evidences Hersha’s focused expansion and commitment to recycle capital into high quality, high growth assets that deliver value to shareholders.”
The Hotel Oceana is located on two oceanfront acres between Santa Barbara Harbor and Stearns Wharf, directly across from the beach on Cabrillo Boulevard, Santa Barbara’s main thoroughfare, and within walking distance to downtown Santa Barbara. For the twelve-months ended September 30, 2013, the hotel had an average daily rate (“ADR”) of $208.51 and occupancy of 93%. The Hotel Oceana requires no immediate capital expenditures and will be independently operated and managed by HHM and benefit from the Company’s active asset management program.
The purchase price reflects a 7.6% capitalization rate on trailing-twelve month net operating income and an 8.5% - 9.5% capitalization rate on stabilized earnings.
The Hotel Oceana acquisition will be funded with cash on hand, and includes the assumption of $25.3 million in mortgage debt, incurring interest at a fixed rate of 4.4% per year and maturing in 2023. In addition, the Hotel Oceana is subject to a 99-year ground lease with 86 years remaining.