– Consolidated Portfolio RevPAR Growth Excluding Renovations of 4.6% –
– Comparable Portfolio RevPAR Growth Excluding Renovations of 2.7% –
– Q1 2016 Hotel EBITDA Growth of 6.3% –
– 7 Hotel Cindat JV on Track to Close –
PHILADELPHIA– Hersha Hospitality Trust (NYSE: HT) (“Hersha” or the “Company”), owner of upscale hotels in urban gateway markets, today announced results for the first quarter ended March 31, 2016.
First Quarter 2016 Financial Results
Adjusted Funds from Operations (“AFFO”) per diluted common share and OP Unit was $0.28 in first quarter 2016, a 7.7% increase from AFFO of $0.26 per diluted common share and OP Unit reported in first quarter 2015.
AFFO in first quarter 2016 decreased by $563,000, or 4.1%, to $13.2 million, compared to $13.7 million in first quarter 2015. The decline in AFFO was the result of decreased revenue due to renovation disruption at five of the Company’s consolidated properties, as well as renovation disruption at one of the Company’s joint-venture hotels. The Company’s weighted average diluted common shares and units of limited partnership interest in Hersha Hospitality Limited Partnership (“OP Unit”) outstanding were approximately 46.9 million as of March 31, 2016, compared to approximately 51.9 million as of March 31, 2015.
Mr. Jay H. Shah, Hersha’s Chief Executive Officer, stated, “We were pleased to generate 6.3% EBITDA growth in the year’s most difficult quarter. Our view for the remainder of 2016 is constructive. We are operating in a favorable macroeconomic environment, with increasing consumer and government spending, and an improving housing market. Combined with sustained lodging demand and high occupancies within our six gateway markets, we are expecting our renovated, high-quality and geographically diverse portfolio in 2016 to generate accelerating growth in the coming months. In the first quarter, our comparable portfolio, excluding renovations at our Courtyard in Brookline and four of our Hampton Inns in Manhattan, reported 2.7% RevPAR growth year-over-year, in-line with our expectations. Rate-based gains drove Hotel EBITDA to increase to $31.3 million, as the industry and our portfolio continued to benefit from pricing power from continuing demand growth despite increasing supply. As we proceed through 2016, we remain focused on executing revenue management, international mix and ecommerce strategies. Close alignment with our operators is expected to help drive outperformance in our markets, and allows us to leverage the industry’s positive fundamentals and drive profitability.”
Mr. Shah continued, “The sale of seven of our limited service hotels in Manhattan to a newly formed joint venture with Cindat announced in February is on track to close. The transformative $571.4 million joint venture is structured with Cindat as the 70% preferred joint venture partner and we will retain a 30.0% equity interest. The transaction illustrates the strong demand from offshore capital sources seeking yield from cash generating real estate in leading gateway markets in the United States. The anticipated capital gains have been re-invested in acquisitions of higher growth hotels in our strategic gateway markets of Washington, DC and Northern California. Since 2010, the Company has re-deployed more than $1.0 billion of sales proceeds into high growth acquisitions and accretive share repurchases, demonstrating our value creation philosophy and commitment to driving total shareholder returns.”
First Quarter 2016 Operating Results
The best performing market during the first quarter was the Company’s comparable Washington, DC Urban portfolio, which reported 9.4% RevPAR growth. The Company’s comparable West Coast and Philadelphia portfolios reported 6.5% and 3.5% RevPAR growth, respectively.
As planned, during the first quarter the Company undertook significant, brand-mandated refreshes at five hotels – four in Manhattan and the Company’s largest Boston hotel, which negatively impacted operating results. Revenue per available room (“RevPAR”) at the Company's 51 comparable hotels increased 0.6% to $141.58 in first quarter 2016. Excluding these renovations, the Company's comparable portfolio reported 2.7% RevPAR growth to $144.50, while average daily rate (“ADR”) rose 2.4% to $184.92, and occupancy increased 25 basis points to 78.1%. Excluding renovations, comparable hotel EBITDA margins were flat at 30.6%. Consolidated portfolio Hotel EBITDA increased 6.3%, or $1.9 million, to $31.3 million.
New York City and Manhattan
The New York City hotel portfolio, which includes the five boroughs, consisted of 17 hotels as of March 31, 2016. As previously mentioned, four of the Company’s Hampton Inn properties in Manhattan were under renovation during the first quarter. Excluding renovations, the Company’s comparable New York City hotel portfolio reported a 2.0% RevPAR increase to $142.71, despite a 2.0% ADR decline to $165.59 as new supply continued to impact rate growth. Occupancy rose 340 basis points to 86.2%, a high for the New York City portfolio during the current cycle.
The Manhattan hotel portfolio consisted of 14 hotels as of March 31, 2016. The Company’s comparable Manhattan hotel portfolio reported 3.8% RevPAR growth to $149.32 excluding the four Hampton Inns under renovation. However, the delivery of new supply inhibited rate growth, driving a 1.5% ADR decline to $169.29. Occupancies remained robust at 88.2%, increasing 451 basis points. In the first quarter, excluding hotels under renovation, the Company outperformed the Manhattan market by 550 basis points, the 9th consecutive quarter of market outperformance. Excluding the hotels under renovation, Hotel EBITDA margins increased 40 basis points to 22.6%.
Financing
As of March 31, 2016, the Company maintained significant financial flexibility with approximately $23.7 million of cash and cash equivalents, and $68.2 million available on the Company’s senior unsecured credit facility. As of March 31, 2016, 47.0% of the Company’s consolidated debt was fixed rate debt or hedged through interest rate swaps and caps. The Company’s total consolidated debt had a weighted average interest rate of approximately 3.65% and a weighted average life-to-maturity of approximately 3.4 years.
Acquisitions
On January 28, 2016, the Company closed on the 60-room Sanctuary Beach Resort in Monterey, CA for $39.4 million following the assumption of the property’s $14.7 million loan.
On March 9, 2016, the Company closed on the 238-room Hilton Garden Inn M Street for $106.5 million. The Hilton Garden Inn M Street, which opened in May 2014, occupies a prime location on the corner of 22nd and M Streets at the confluence of DuPont Circle, Foggy Bottom, Georgetown, Downtown and the West End. The hotel is surrounded by 4.5 million square feet of office space, and proximate to all of Washington, DC’s major corporate, government, diplomatic, and leisure demand drivers.
Share Repurchase Activity
In first quarter 2016, the Company repurchased approximately 116,000 common shares for an aggregate repurchase price of approximately $2.3 million.
As of April 28, 2016, the Company has repurchased approximately 389,000 common shares for an aggregate repurchase price of $7.8 million in the second quarter. The Company has approximately $62.0 million remaining on its $100 Million Share Repurchase Program.
Dividends
Hersha paid a dividend of $0.50 per Series B Preferred Share and $0.4297 per Series C Preferred Share for the first quarter ended March 31, 2016. The preferred share dividends were paid April 15, 2016 to holders of record as of April 1, 2016.
The Board of Trustees also declared quarterly cash dividends of $0.28 per common share and per Limited Partnership unit for the first quarter ended March 31, 2016. The common share dividend and limited partnership unit distribution were paid April 15, 2016 to holders of record as of April 1, 2016.
Net Income/(Loss)
Net loss applicable to common shareholders was $11.3 million, or ($0.26) per diluted common share in first quarter 2016, compared to a net loss applicable to common shareholders of $7.5 million, or ($0.15) per diluted common share in first quarter 2015. The increase in the first quarter 2016 net loss was the result of the previously mentioned renovation disruption.
2016 Outlook
The Company is updating its operating and financial expectations for 2016 to reflect the anticipated sale of seven New York City hotels to Cindat, and the simultaneous formation of the Cindat joint venture. The Company’s expectations are based on the Company’s current view of operating and economic fundamentals, ownership of The Sanctuary Beach Resort as of January 28, 2016, ownership of the Hilton Garden Inn M Street as of March 9, 2016, full ownership of the seven hotels contributed to the Cindat JV through May 1, 2016, and the 30% joint venture ownership of these seven hotels thereafter. The Company’s updated outlook does not build in any additional acquisitions, dispositions or capital market activities for 2016. Based on management’s current outlook and assumptions, the Company’s updated full-year 2016 operating expectations are as follows:
Previous 2016 Outlook Updated 2016 Outlook ($’s in millions except per share amounts) Low High Low High Net income $37.0 $47.0 $20.0 $30.0 Net income per share $0.82 $1.05 $0.44 $0.67 Comparable Property RevPAR Growth 4.0% 6.0% 4.0% 6.0% Comparable Property EBITDA Margin Growth 50 bps 75 bps 50 bps 75 bps Adjusted EBITDA $198.0 $208.0 $175.0 $185.0 Adjusted FFO $131.0 $141.0 $117.0 $127.0 Adjusted FFO per share $2.79 $3.00 $2.48 $2.69
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