Hersha Hospitality to Pick Up Parrot Key Hotel in Key West for $100M

By Barbra Murray, Contributing Editor

In its latest move toward disposing of stabilized assets to finance the acquisition of properties with higher growth potential, Hersha Hospitality Trust has entered into an agreement to purchase Parrot Key Hotel & Resort in Key West, Fla. The REIT will buy the 148-room luxury resort from a partnership consisting of Northwood Investors and the property’s original developer, Pritam Singh. As for the price tag, Singh developed the property in 2008 for $100 million, and Hersha will acquire it for … $100 million.

Carrying the address of 2801 N. Roosevelt Blvd., Parrot Key spans five acres along the Florida Bay. But the property, which underwent a comprehensive renovation in 2012, has more than just waterfront views and the largest guestrooms in Key West to offer its future owner. In 2013, Parrot Key boasted an average occupancy level of 92.3 percent and an ADR of $230.52. Additionally, the upscale resort is expected to experience more than 10 percent RevPAR growth in 2014.

Parrot Key’s premier quality is undeniable, as is its advantage of being located in a market with high barriers to entry. But whether the purchase of the property is a good move for Hersha is up for debate.

“At $100 million, it’s a large asset for Hersha that uses a good portion of the company’s investment capacity,” Michael Bellisario, research analyst with financial services firm R.W. Baird, told Commercial Property Executive. “The opportunity cost of this capital is high, given the shares’ discounted valuation; we would have preferred acquisitions be match funded with new disposition proceeds.”

Hersha plans to finance the acquisition with cash on hand and funds from its $250 million senior unsecured term loan. The term loan is part of a recently closed $500 million senior unsecured credit facility that is expandable to $850 million and includes a $250 million senior unsecured revolving line of credit. If all goes as planned, the transaction will be completed during the second quarter.

Hersha’s agreement to purchase Parrot Key comes roughly two months after the REIT closed the acquisition of the 122-room Hotel Oceana in Santa Barbara, Calif., in a $41.7 million deal, and approximately one week after it completed the $37 million sale of the 70-room Hotel 373 in Midtown Manhattan. Overall, many view the company’s recycling program optimistically. Bellisario added: “The portfolio has been upgraded, which is a positive, but per-share value has been sacrificed to achieve this goal. On a go-forward basis, the growth trajectory of the upgraded portfolio is clear and per-share metrics should improve.”