Hersha Hospitality Adds Two Hotels to Its New York City Portfolio

Additionally, the Company closed on its previously announced acquisition of the 152 room Capitol Hill Suites in Washington, D.C. for $47.5 million, or $310 thousand per key excluding closing costs.

Jay H. Shah, Chief Executive Officer stated, “The opportunity to add to the Company’s growing presence in the strongest hotel markets in the country has been a stated objective for Hersha, and we are pleased with our progress in executing on this strategy as we now will own interests in 15 hotels in New York City and eight in Washington, D.C. Downtown New York City is an attractive hotel market with one of the country’s largest office markets, as well a thriving tourist destination, and these two new hotels complement our existing presence in the area. There remains robust demand for limited service hotels throughout the market, and we expect the dynamics of the market will result in very strong revenue per available room and EBITDA growth over time. Furthermore, with the acquisition of the Hampton Inn, the Company has further refined its strategic direction by eliminating an additional development loan.”

The Holiday Inn Express Wall Street is located at 126 Water Street at the corner of Wall and Water streets and is just six blocks from Hersha’s Hampton Inn Seaport and Holiday Inn Wall Street hotels. The newly constructed hotel was opened in July 2010 and the Company has closed on this acquisition at the end of the first quarter.

The Hampton Inn Downtown is located at 32 Pearl Street and is the Company’s fourth downtown New York City hotel. It is a re-development project which was begun in 2008. The Company is acquiring the building for cash and converting its $8.0 million mezzanine loan on the project to equity. Completion of the project, including FF&E upfit and full conversion to a Hampton Inn, is expected to cost approximately $4.5 million and be completed by the first quarter of 2012. The acquisition is subject to customary due diligence and closing conditions and the Company anticipates closing on this acquisition in the second quarter.

Both of the fee simple New York assets were acquired in separate off-market transactions from third party developers and are being purchased unencumbered of debt. The total purchase price on the assets represents a first year economic capitalization rate of 8.1% and an EBITDA multiple of 11.8x. The Company estimates that on a stabilized basis the assets are being purchased at a stabilized capitalization rate of approximately 10.1% or an EBITDA multiple of 9.1x. The assets will be managed by Hersha Hospitality Management, L.P.

The Capitol Hill Suites, an all-suite boutique hotel with rooms among the largest in the city, is centrally located in the Capitol Hill district and is the Company’s eighth hotel in the D.C. region. The purchase price represents a forward capitalization rate of approximately 7.3% on the hotel’s projected 2011 net operating income, stabilizing at approximately 10%. The acquisition was funded by assuming $32.5 million of existing debt with a 5.81% interest rate and cash on hand.

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