Consolidated Hotel RevPAR decreased 9.7% - Adjusted Funds from Operation was $0.07 per diluted common share
Hersha Hospitality Trust (NYSE: HT), owner of select service and upscale hotels in major metropolitan markets, today announced results for the fourth quarter and year ended December 31, 2009. “With our improved liquidity position and strengthened balance sheet we were successfully able to access the capital markets and complete a three hotel acquisition in New York City” Financial Results
For the fourth quarter ending December 31, 2009, Adjusted Funds from Operation (“AFFO”) was $4.3 million, compared to $9.2 million in the fourth quarter of 2008. AFFO per diluted common share and limited partnership unit was $0.07 compared to $0.16 for the same quarter of 2008. For the full year 2009, AFFO was $34.0 million, compared to $61.3 million in 2008. AFFO per diluted common share and limited partnership unit was $0.57 in 2009 compared to $1.15 for the full year 2008.
Net loss applicable to common shareholders was $(11.0) million, or $(0.20) per diluted common share for the fourth quarter of 2009, compared to a net loss of $(21.7) million, or $(0.46) per common share for the comparable quarter of 2008. Net loss applicable to common shareholders was $(54.7) million, or $(1.08) per diluted common share for the full year 2009, compared to net loss of $(13.6) million, or $(0.31) per common share for 2008. Excluding the non-cash impairment charges, the Company would have recorded a net loss for the full year 2009 of $(17.4) million, or $(0.35) per diluted common share, and net income of $5.8 million, or $0.12 per diluted common share in 2008.
A reconciliation of FFO and AFFO and EBITDA and Adjusted EBITDA to net income (loss) applicable to common shares, the most directly applicable U.S. GAAP measure, is included at the end of this release.
Mr. Jay H. Shah, Hersha Hospitality’s Chief Executive Officer, stated, “Hersha not only successfully navigated the challenges through the downturn of 2009, by managing our RevPAR and implementing sustainable cost containment measures, we also positioned ourselves to outperform as the market stabilizes and recovers. Our year over year RevPAR performance improved each quarter in 2009, and our aggressive asset management programs have allowed us to preserve our industry leading operating margins. Our portfolio maintained a RevPAR of $87 through the third quarter of 2009 (the period for which our peers have reported) which compares favorably to our peers. Our EBITDA margin of 35.0% outperformed our peers by more than 1100 basis points.
In our important New York City market we delivered positive margin growth in the fourth quarter, and this region’s RevPAR results led our portfolio for the first time in 4 quarters. As stabilization in New York City takes hold, we will continue to test our ability to restore rate which should allow us to drive further expansion of our earnings and cash flow.”
“With our improved liquidity position and strengthened balance sheet we were successfully able to access the capital markets and complete a three hotel acquisition in New York City,” Mr. Shah continued. “We have assembled an attractive portfolio of select service hotels focusing on core urban northeast markets. I am confident that we are well positioned for the recovery as our new properties stabilize, demand returns and we are able to start moving rates. The cost containment programs and more efficient infrastructure that we have put into place will lead to positive operating leverage in the recovery.”
Operating Results
For the quarter ended December 31, 2009, revenue per available room (“RevPAR”) for the Company's consolidated hotels was down 9.7% to $81.3 compared to $90.0 in the prior year period. The decline was a result of an average daily rate (“ADR”) decrease of 7.8% to $127.1 and a 1.3 percentage point decline in occupancy to 64.0%. The fourth quarter of 2009 was the third quarter of consecutive improvement in RevPAR declines. The Company’s RevPAR has shown an improving trend as the year progressed as the magnitude of decline abated each subsequent quarter.
Hotel earnings before interest, taxes, depreciation, and amortization (“Hotel EBITDA”) for Hersha's consolidated hotels was $17.6 million for the quarter ended December 31, 2009 compared to $19.4 million for the same period in 2008. Hotel EBITDA margins deteriorated 117 basis points year over year during the fourth quarter of 2009 from approximately 35.1% to 33.9%. The margin deterioration was primarily related to a rate based decline in revenues in the fourth quarter of 2009 which was primarily offset by ongoing cost-cutting initiatives and the stabilization of the Company’s new asset acquisitions. Hotel EBITDA differs from other measures of EBITDA because it excludes any expenses not directly related to a specific hotel.
On a same-store basis for Hersha's consolidated hotels (56 hotels), RevPAR was down 12.6% to $78.6 for the quarter ended December 31, 2009 compared to $90.0 in the prior year period. The decline was a result of an ADR decrease of 9.9% to $124.1 and a 2.0 percentage point decline in occupancy.
Same-store consolidated Hotel EBITDA for the quarter ended December 31, 2009 was $16.1 million compared to $19.4 million for the quarter ended December 31, 2008. The Company's same-store Hotel EBITDA margin declined 205 bps to 33.0% in the fourth quarter of 2009 compared to 35.1% in the fourth quarter of 2008. The pace of margin decline improved significantly on a quarter over quarter basis as the Company reported Hotel EBITDA margin declines of 333 bps in the third quarter of 2009.
New York City
The Company’s properties in New York City have historically accounted for approximately 35% of consolidated EBITDA and this percentage is expected to increase going forward with the addition of the recently acquired hotels. For the fourth quarter of 2009, the Company’s consolidated portfolio of New York City properties realized a 5.8% growth in occupancy to 86.4% and a 2.9% decline in RevPAR to $166.0. During the same period, Hotel EBITDA margins for the Company’s consolidated portfolio improved 393 basis points to 44.7% as a result of aggressive cost containment programs, continued stabilization of newer assets and the 2009 acquisition of the Hilton Garden Inn, Tribeca.
Hersha’s New York City portfolio includes a number of relatively new properties that are still ramping up their operations, including three which were recently acquired in February 2010. With the addition of these three assets, the average age of the Company’s NYC portfolio is approximately two years. The continued stabilization of the operating results and market share growth of these newer assets should continue to contribute to the Company’s ability to improve RevPAR results and deliver industry-leading EBITDA margins.
Financing
Subsequent to the fourth quarter, in January 2010, the Company sold a total of 51,750,000 common shares in a public offering for gross proceeds of approximately $155.3 million. The proceeds were used to acquire three hotels in Times Square in New York City.
During the fourth quarter, the Company sold 1.19 million common shares through its cost-effective “at the market” equity offering program at a weighted average offering price of $3.14 per share, generating net proceeds of approximately $3.6 million.
Additionally, during the fourth quarter, the Company completed an amendment to its $175 million existing revolving credit facility. Significant amendments to the credit agreement include a decrease in the minimum permitted debt service coverage requirement to 1.20x and a decrease in the minimum ratio of EBITDA to debt service to 1.25x. Additionally, the interest rate payable is the prime rate plus 150 basis points. The interest rate payable on the LIBOR rate loan will now be LIBOR plus 350 basis points with a 4.25% floor.
Since the beginning of the credit crisis in 2008, the Company has taken significant steps to refinance its debt outstanding and to extend its maturity profile. Including the existing credit line, the Company has refinanced approximately $264 million of debt at a weighted average interest rate of 4.94% and has increased its debt capacity by $56 million. Approximately 87 percent of the Company’s debt is fixed or capped with a weighted average maturity of 7.2 years.
Acquisitions
In February 2010, the Company closed on the acquisition of three brand new hotels in Times Square, New York City for $165.0 million. The 184-room Hampton Inn, 188-room Candlewood Suites and 210-room Holiday Inn Express were recently opened in July 2009, are all unencumbered of debt. The Company’s basis for the three hotels is approximately $284,000 per key, which is below replacement cost. The addition of these assets to the Hersha portfolio reduces the average age of Hersha’s overall portfolio and increases its New York City room mix.
Financial Outlook for 2010
The Company is providing certain projections for full-year 2010. The outlook assumes that operating conditions remain challenging but continue to stabilize as the year progresses.
Based on this outlook, the Company is providing the following set of projections for the portfolio for the full 2010 calendar year:
* Same store RevPAR for 2010 in the range of a 2% decline to a 1% increase versus 2009.
* Same store Hotel EBITDA margin deterioration of 100 basis points to 200 basis points.
* 2010 results will reflect full year operational results for the two assets purchased in 2009, and the majority of the year for the three assets purchased in February 2010.
Dividend
For the fourth quarter of 2009, Hersha Hospitality Trust paid dividends of $0.05 per common share and limited partnership unit. The Company also paid a fourth quarter cash dividend of $0.50 per Series A Preferred Share.
