Hersha Announces Third Quarter 2009 Results

Consolidated Hotel RevPAR decreased 14.8%

• 
  SAVE
• 
  SHARE
• 
  TEXT SIZE
• 
  PRINT
• 
  COMMENT
• 
  PDF

. November 06, 2009

NOVEMBER 5, 2009 - Hersha Hospitality Trust (NYSE: HT), owner of select service and upscale hotels in major metropolitan markets, today announced results for the third quarter ended September 30, 2009.

Financial Results

For the third quarter ending September 30, 2009, AFFO was $14.1 million, compared to $21.9 million in the third quarter of 2008. AFFO per diluted common share and limited partnership unit was $0.23 compared to $0.39 for the same quarter of 2008. AFFO for the third quarter of 2009 excludes an aggregate of $39.1 million, or $0.75 per diluted share and limited partnership unit, in non-cash impairment charges, consisting of $17.7 million in non-cash impairment charges on one hotel and two land parcels that are classified as held for sale as of September 30, 2009, and $21.4 million in non-cash impairment charges on two mezzanine loans in the Company's development loan portfolio.

Net loss applicable to common shareholders was $(33.6) million, or $(0.65) per diluted common share, compared to net income of $5.1 million, or $0.11 per common share for the third quarter of 2008. Excluding the non-cash impairment charges, the Company would have recorded Net Income for the third quarter of 2009 of $5.5 million, or $0.11 per diluted common share for the third quarter of 2009. 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, 'We again delivered industry-leading margins in the third quarter as we realized the positive attributes of our select service portfolio, combined with our ongoing cost containment programs. We believe we are beginning to see early signs of stabilization as the year over year declines moderated for the second straight quarter, but we recognize that the environment will remain challenging for at least the next several quarters. We have also successfully taken steps to improve our liquidity position and to strengthen our balance sheet. During the third quarter we completed the sale of four assets, brought on a new strategic capital partner and initiated a cost effective 'at the market' equity program. We intend to continue to enhance our liquidity position while also evaluating and potentially pursuing selective opportunities within our key markets as we move forward.'

Operating Results

For the quarter ended September 30, 2009, revenue per available room ('RevPAR') for the Company's consolidated hotels was down 14.8% to $95.7 compared to $112.4 in the prior year period. The decline was a result of an average daily rate ('ADR') decrease of 11.6% to $128.1 and a 2.8 percentage point decline in occupancy to 74.7%. In comparison to the first and second quarters of 2009, the portfolio of consolidated hotels is showing that the pace of RevPAR declines is abating.

Hotel earnings before interest, taxes, depreciation, and amortization ('Hotel EBITDA') for Hersha's consolidated hotels was $22.7 million for the quarter ended September 30, 2009 compared to $27.6 million for the same period in 2008. Hotel EBITDA margins deteriorated 263 basis points during the third quarter of 2009 from approximately 40.3% to 37.7%. The margin deterioration was primarily related to a decline in revenues in the third quarter of 2009, the resulting loss of operating leverage and higher property taxes, which was partially offset by ongoing cost-cutting initiatives.

On a same-store basis for Hersha's consolidated hotels (54 hotels), RevPAR was down 17.1% to $93.7 for the quarter ended September 30, 2009 compared to $113.0 in the prior year period. The decline was a result of an ADR decrease of 12.9% to $125.7 and a 3.7 percentage point decline in occupancy.

Same-store consolidated Hotel EBITDA for the quarter ended September 30, 2009 was $20.8 million compared to $27.2 million for the quarter ended September 30, 2008. The Company's same-store Hotel EBITDA margin was 37.2% in the third quarter of 2009 compared to 40.6% in the third quarter of 2008. On a same-store basis, the increase in property taxes accounted for almost half of the decline in EBITDA margin.

New York City

For the Company's consolidated portfolio of New York City properties (which historically have accounted for approximately 35% of the Company's EBITDA), occupancy has been greater than 90% for the second quarter in a row. As demand appears to be stabilizing, the Company will continue to test its ability to restore rate. Hersha's New York City portfolio includes a number of relatively new properties that are still ramping up their operations. The continued stabilization of their operating results and market share growth has contributed to the Company's ability to outperform the overall NYC market on its RevPAR results.

The year over year rate of RevPAR decline for the Company's consolidated portfolio of New York City properties has shown improvement in the third quarter of 2009 compared to what the Company experienced in the first and second quarter of 2009. Same-store RevPAR for the Company's consolidated portfolio of New York City hotels declined 22.7% from the prior year third quarter, driven by an ADR decrease of 26.7% partially offset by an improvement of 4.7 percentage points in occupancy to 91.6%. The year over year decline was primarily due to the ongoing difficult economic environment and strong results in the year ago period. Hotel EBITDA margin was 39.1%, despite the decline in same store RevPAR and a 17.5% increase in property taxes.

Financing

During the third quarter and through the date of this release, the Company sold 2.7 million common shares through its cost-effective 'at the market' equity offering program at a weighted average offering price of $3.10 per share, generating net proceeds of approximately $8.1 million.

Assets Held for Sale and Non-Cash Impairment Charges

The Company has reclassified one consolidated hotel and two land parcels as assets held for sale. In conjunction with this reclassification the Company has performed an impairment analysis based upon the likely sale value of these assets which it considers to be fair value. The Company has also performed an impairment analysis on the loans in its development loan portfolio. Based on the results of this analysis, the Company is recognizing a non-cash impairment charge of $17.7 million on its assets held for sale and a non-cash impairment charge of $21.4 million on two mezzanine loans in its development loan portfolio.

Financial Outlook for 2009

The Company is refining its financial projections for full-year 2009. The outlook assumes that operating conditions remain challenging for the remainder of the year but also assumes that the overall economy continues to stabilize in the fourth quarter.

Based on those expectations, the Company is providing the following set of projections for the portfolio for the full 2009 calendar year:

• RevPAR for 2009 is forecasted to decline by 15.0% to 18.0% versus 2008, compared to the prior range of 14.0% to 20.0%.

• Operating margin deterioration of 300 basis points to 350 basis points, compared to the prior range of 200 basis points to 400 basis points.

• 2009 results will reflect full year operational results for the six assets purchased in 2008 and the stabilization of other assets opened and purchased in 2007.

Dividend

For the third quarter of 2009, Hersha Hospitality Trust paid dividends of $0.05 per common share and limited partnership unit. The Company also paid a third quarter cash dividend of $0.50 per Series A Preferred Share.