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After Anbang-Starwood, timing of another China-US hotel deal is uncertain

As thereal estate industry assesses the risks and rewards of courting Chinese propertyinvestors in the aftermath of AnbangInsurance Group Co.'s withdrawalfrom the bidding for Starwood Hotels& Resorts Worldwide Inc., another prominent China-U.S. hotel transactionfaces uncertain timing.

On Feb.4, Hersha Hospitality Trustsaid it agreed with CindatCapital Management Ltd., a platform backed by Chinese institutional and privatecapital, to form a joint venture for seven of the company's Manhattan, N.Y., propertiesfor a purchase price of $571.4 million.

The deal,in which Hersha is to retain a 30% interest in the properties while Cindat takeson a 70% ownership stake, was expected to close no later than March 31, the companysaid at the time.

As ofApril 7 the transaction had not closed, and Peter Majeski, a Hersha spokesman, saidin an email that the company now expects a second-quarter closing.

Majeskidid not specify the reason for the delay, but as far back as the company's year-end2015 earnings conference call, on Feb. 17, company executives were signaling thatthe timing could be unpredictable.

Whilethe company was targeting the end of the first quarter, "I think that we wouldsay, there's as good of a chance it happens sometime between the end of the firstquarter and the end of the second quarter,"  CFO Ashish Parikh said, according to a .

"Ithink that, right now, we don't see us going past June 30," he added.

"Butthe biggest sort of unknown here is the proceeds coming out of China," Parikhcontinued. "The debt is moving along at a very healthy pace. No issues on thatside. But right now, as you may know, there is a big push to get money out of China.It has to go through government approval. And they have started the process, it'sjust a timing issue."

AfterAnbang's dramatic entranceinto the Starwood bidding, and its subsequent decision to abandon a roughly $14billion offer for the company, citing "various market considerations,"U.S. players have sought to put the recent wave of interest from Chinese capitalsources into context.If nothing else, cross-border M&A involving Chinese firms involves greater uncertainty,which could affect pricing, market participants say.

In anApril 7 note, Robert W. Baird analysts said they believe investors "have beenincreasingly concerned" about Hersha's ability to close the Cindat joint venture,especially in light of the Anbang-Starwood negotiation and the passing of the originallyforecast closing date.

"However,while management acknowledged that risks to closing the transaction still exist,Hersha remains confident that the deal will close later this quarter and noted thatCindat and its LPs now have the entire non-refundable $20 million deposit in escrow,"the analysts wrote, citing April conversations with Hersha leadership.

Asidefrom Hersha and Cindat, the two limited partners in the joint venture are ChinaCinda Asset Management Corp., which is listed on the Hong Kong Stock Exchange, andBeijing-based Taikang Life Insurance Co., the Baird analysts said.

In theFeb. 17 earnings call, President and COO Neil Shah said the Cindat agreement followedmultiple inquiries from Asian investors, after which Hersha ran a process focusingon Asian institutional capital. Cindat's experience investing in the New York, LosAngeles and London markets, and completing large transactions, made its offer themost credible and compelling, he said.

Parikhsaid a closing at the end of the second quarter rather than the end of the firstquarter would cost Hersha roughly $10 million to $12 million in EBITDA for 2016.

The Bairdanalysts suggested that Hersha executives' confidence in the deal may have improvedsince Parikh made those comments.

"Managementnoted that it feels better today about getting the deal done versus one or two monthsago," they wrote, citing the $20 million deposit.