CNL Plowing $65M Into JV With Hersha

Their projection follows CNL's April 22 joint venture with Harrisburg, PA-based Hersha Hospitality Trust in which CNL will invest a total $65 million in three separate transactions with Hersha Hospitality Limited Partnership, the operating partnership of Hersha Hospitality Trust.

The two REITs plan a total capitalization of $150 million for the purchase of newly built hotels in CT, MA, MD, NJ, NY, PA, VA and Washington, DC, says Thomas J. Hutchison III, co-CEO of CNL Hospitality.

"This investment in Hersha's portfolio of mid-price hotels aligns with our diversification strategy, while leveraging on the company's excellent management and development capabilities," Hutchison says. CNL initially is investing $10 million in convertible preferred partnership units of Hersha LP; has committed up to an additional $15 million; and up to $40 million in a joint venture with HLP.

CNL owns or has contracted to own 64 hotels totaling 16,800 rooms in 23 states. Since its initial public offering in January 1991, Hersha has acquired 18 hotels in four states. The CNL-Hersha JV plans to acquire various branded properties including Hilton, Marriott and Six Continents.

"From a financial perspective, we are pleased with the economics of the deal," says Hersha chairman and CEO Hasu P. Shah. "At our size, the private placement offers us the equity necessary to pursue imminent investments that generate positive returns." Shah says the deal with CNL "also preserves our financial flexibility going forward and allows us to consider additional public offerings or enter into other institutional partnerships, as we expand our size and operating leverage."

CNL will own a majority limited partnership interest in the joint venture partnership. HT will be general manager.

"I am still struck by the similarities in culture and values between our companies," Shah says. Both companies have "the same core objectives: prudent investment and dividend discipline; quality properties and prominent markets; and integrity and service in management."

Shah says, "This, more than our attractive acquisition pipeline or strict investment criteria, gives me the faith to expect this relationship to prove mutually beneficial."

Hutchison says the preferred partnership units and joint venture interests purchased and to be purchased by CNL are convertible into HT common shares at $6.75 per share, the weighted average closing price of HT common stock for the last 20 trading days on the American Stock Exchange.

CNL Hospitality Properties Inc. is advised by CNL Hospitality Corp., a subsidiary of Orlando-based CNL Financial Group Inc., one of the nation's largest, privately held real estate investment and finance companies. Hersha Hospitality Trust is an affiliate of the Hersha Group of Cos.

Friend Development Group LLC advised Hersha on the CNL deal. Jennings Securities LLC acted as agent for Hersha in the private placement of the securities.