Skift Take

Smaller owners of hotels are finding it tough to compete against giant players like Host. The Hersha takeover may not be the last opportunistic move by private equity we see in the lifestyle hotel segment.

Private equity firm KSL said on Monday it intends to buy Hersha Hospitality Trust, the owner of 25 U.S. lifestyle and luxury hotels, in an all-cash transaction worth about $1.4 billion. The move would take private Hersha at an approximately 60% premium to the real-estate investment trust’s closing stock price on Friday.

The deal is slated to close by year-end after shareholders okay the move. Its value was 14 times Hersha’s estimated year-to-date earnings before interest, taxes, depreciation, and amortization of $99 million for 2023, according to S&P Capital IQ.

“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.

About 60% of Hersha’s 3,900 room count is at properties in urban markets that have not recovered as quickly from the pandemic as resort-based hotels. Some of Hersha’s hotels include Hyatt Union Square in New York City, The Rittenhouse Hotel in Philadelphia, The Envoy in Boston Seaport, The Ritz-Carlton Georgetown in Washington, D.C., and The Cadillac Hotel & Beach Club in Miami Beach.

The KSL/Hersha deal underscored the ongoing popularity of lifestyle properties. Developers plan to build as many as 60,000 upper-end lifestyle hotels in the U.S. over the next four years, according to an analysis by The Highland Group of CoStar’s STR data.

The deal also highlighted private equity’s ongoing interest in the hotel sector, especially as some segments of commercial real estate in some urban parts of the U.S. stagger under the weight of rising interest rates and changed post-pandemic demand needs for office space.

KSL has focused on travel and leisure businesses, deploying about $21 billion of capital across its equity, credit, and tactical opportunities funds since 2005. It recently took a stake in Soneva Holdings, which owns three hotels in Asia.

Some questions that Skift’s Daily Lodging Report newsletter will be asking:

  • Is this the start of a new trend?
  • Is this deal a sign that the stock prices of hotel real-estate investment trusts are being undervalued by Wall Street?
  • Will this be where the next mergers and acquisition spree in the hotel space will be concentrated?
  • “Ever since interest rates started rising, analysts have shunned the hotel REIT space,” said Alan Woinski, editor of Daily Lodging Report. “Will they take a fresh look and focus on net asset value, overall valuation, or both?”

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Tags: future of lodging, lifestyle hotels, mergers and acquisitions

Photo credit: Cadillac Hotel and Beach Club in Miami. Public spaces designed by Bill Rooney Studio. Source: HHM Hospitality.

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