Private Notes Placement
The unsecured notes facility the Company entered into with the GS Purchasers will provide an initial $150 million draw at closing and an incremental $50 million delayed draw that can be drawn at the Company’s discretion in minimum installments of $25 million at any point on or prior to September 30, 2021. Additionally, the notes facility includes other features that provide the Company flexibility well into the recovery:
- Five-year term maturing in February 2026
- Interest rate of 9.50%, 4.75% cash pay and 4.75% payment-in-kind through March 31, 2022
- Non-callable in year 1, redeemable at 104% beginning in February 2022, 102% beginning in February 2023 and at par any time beginning in February 2024
- Incurrence-based covenants using metrics in-line with the amended revolving credit facility
- Creates flexibility well into the recovery enabling the Company to execute its strategic and operating plan
Revolving Credit Facility and Term Loans Amended
The Company successfully executed amendments to its revolving credit facility and term loan facilities with its bank group in conjunction with the financing commitment from the GS Purchasers and recently announced dispositions. The amended revolving credit facility:
- Eliminates term loan maturities until August 2022
- Waives all financial covenants through March 31, 2022
- Establishes accommodative covenant testing methodology through December 31, 2022 for operational and financial flexibility
- Enables the Company to pay down the accrual of the Company’s preferred dividends and keep them current
- Provides additional liquidity at the Company’s discretion
“We are pleased to announce our unsecured notes placement with the GS Purchasers, the culmination of a robust and competitive process with a high-quality field of private institutional investors. We sought to address the Company’s financing and liquidity needs without diluting our shareholders — this bespoke solution crafted with the GS Purchasers accomplished that. Additionally, we preserve the optionality to prepay this financing as early as the first quarter of 2022. This capital allows us to eliminate all term loan maturities until August 2022, and simultaneously amend the revolving credit facility agreement extending the financial covenant holiday. The completion of these capital transactions gives us the flexibility to clear our preferred dividend accrual and keep it current as we turn our immediate focus to operational performance as demand returns, and to accretive opportunities that emerge in the recovery,” stated Mr. Jay H. Shah, Hersha’s Chief Executive Officer.
Asset Sales Strategy Completed
Year-to-date 2021, the Company has entered into binding sales contracts on four consolidated hotels for a total sale price of $178.5 million, before customary closing costs:
- The 245-room Courtyard Downtown San Diego, CA
- The 140-room Residence Inn in Coconut Grove, FL
- The 153-room Capitol Hill Hotel in Washington, DC
- The 112-room Holiday Inn Express in Cambridge, MA
These binding contracts, in addition to the previously announced sales of the Duane Street Hotel and Sheraton Wilmington, will generate net proceeds totaling $191.0 million, before customary closing costs. In conjunction with the proceeds from the committed GS Purchasers notes placement the Company will utilize portions of the Asset Sales proceeds to satisfy its 2021 Term Loan.
The sale of the Sheraton Wilmington closed on December 1, 2020. The sales of the Courtyard Downtown San Diego, Residence Inn Coconut Grove, Capitol Hill Hotel, and Holiday Inn Express Cambridge are forecasted to close by the end of the first quarter 2021 while the sale of the Duane Street Hotel is expected to close in the second quarter 2021.
Mr. Shah continued, “Our disposition strategy focused on generating efficiently priced liquidity by selling certain older, more mature assets from our various clusters that will require more capital investment in the coming two to three years relative to the rest of the portfolio. We owned these hotels for an average of 10.5 years and they proved to be successful investments for the Company, generating a net book gain of roughly $53 million over their hold period. The hotel sales represent a weighted average 11.7x multiple and a 7.5% capitalization rate on the six hotels’ total 2019 Hotel EBITDA and Net Operating Income, respectively. The transactions further hone the real estate value of our high-quality, purpose-built hotel portfolio and demonstrate the substantial investment appeal of hotels in urban gateway markets to sophisticated, institutional investors. We are pleased with the value retention and liquidity of our hotels during this extraordinary time.”
These transactions remain subject to customary closing conditions and no assurance can be given that the transaction will close within the expected time frame, or at all.
Citigroup Global Markets Inc. and Wells Fargo Securities, LLC act as Joint Lead Arrangers and Joint Bookrunners on the Company’s Bank Credit Facility and term loan agreements. Citibank, N.A. is the Administrative Agent and Wells Fargo Bank, N.A. is the Syndication Agent.
Citigroup Global Markets, Inc. served as placement agent in relation to the unsecured notes offering and Latham & Watkins LLP and Hunton Andrews Kurth LLP served as legal counsel.
The Company has posted a presentation of supplemental information detailing the Private Notes Placement, Revolving Credit Facility Amendment, and Announced Dispositions on its website in the Investor Relations section under “Presentations”.
Hersha Hospitality Trust (HT) is a self-advised real estate investment trust in the hospitality sector, which owns and operates high-quality hotels in urban gateway markets and regional resort destinations. The Company’s 41 hotels totaling 6,495 rooms are located in New York, Washington, DC, Boston, Philadelphia, South Florida and select markets on the West Coast. The Company’s common shares are traded on The New York Stock Exchange under the ticker “HT”. For more information on the Company, and the Company’s hotel portfolio, please visit the Company’s website at www.hersha.com
West Street Strategic Solutions Fund I, L.P. (WSSS I) is Goldman Sachs & Co. LLC’s $14 billion flagship alternative investing vehicle focused on direct origination of credit and structured equity opportunities across market conditions, with an emphasis on bespoke solutions for high quality borrowers. WSSS I is part of Goldman Sachs’ Merchant Banking Credit platform, which is one of the world’s largest alternative credit investing platforms with approximately $75 billion of assets under management as of December 31, 2020 and 25 years of credit investing experience.
Forward Looking Statement
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Certain statements contained in this press release, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements within the meaning of the federal securities laws and as such are based upon the Company’s current beliefs as to the outcome and timing of future events. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” and words of similar import. Such forward-looking statements relate to future events, the Company’s plans, strategies, prospects and future financial performance, and involve known and unknown risks that are difficult to predict, uncertainties and other factors which may cause the Company’s actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement, including with respect to the disposition of hotel properties, the amendments to the Company’s revolving credit facility and term loan agreements and the placement of unsecured notes with the GS Purchasers. There can be no assurance that the disposition of hotel properties, the amendments to the Company’s revolving credit facility and term loan agreements or the placement of unsecured notes with the GS Purchasers will be consummated on the terms and timing expected, if at all. Factors that could cause actual results to differ materially include, among other things, the factors, risks and uncertainties described above and other factors described in the Company’s news releases and filings with the United States Securities and Exchange Commission, including but not limited to those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, once filed.
| Contact: | Ashish Parikh, Chief Financial Officer |
| Greg Costa, Director of Investor Relations | |
| Phone: (215) 238-1046 |
