– Full-Year 2016 Net Income of $95.6 Million, or $2.18 per Share –
– FY 2016 Adjusted EBITDA of $171.6 Million –
PHILADELPHIA– Hersha Hospitality Trust (NYSE: HT) (“Hersha” or the “Company”), owner of upscale hotels in urban gateway markets, today announced results for the full-year and the fourth quarter ended December 31, 2016.
Full-Year and Fourth Quarter 2016 Financial Results
Net income applicable to common shareholders was $95.6 million, or $2.18 per diluted common share, in 2016, compared to net income applicable to common shareholders of $27.4 million, or $0.56 per diluted common share, in 2015. The increase in 2016 net income was primarily the result of gains recognized from the Company’s $640.3 million of hotel sales undertaken throughout the year.
Net income applicable to common shareholders was $1.1 million, or $0.03 per diluted common share, in fourth quarter 2016, compared to net income applicable to common shareholders of $8.8 million, or $0.19 per diluted common share, in fourth quarter 2015. The decrease in fourth quarter 2016 net income and net income per diluted common share were primarily due to the timing and volume of the Company’s 2016 asset sales, increased preferred distributions related to the Company’s 6.5% Series D and Series E Preferred Share issuances, weakness in the Company’s South Florida portfolio, as well as expenses related to the lease buyout at The Cadillac Courtyard Miami Beach.
Adjusted Funds from Operations (“AFFO”) in 2016 decreased by $8.3 million, or 7.0%, to $109.8 million, compared to $118.1 million in 2015 due to the factors previously mentioned. The Company’s weighted average diluted common shares and units of limited partnership interest in Hersha Hospitality Limited Partnership (“OP Unit”) outstanding declined to approximately 45.7 million as of December 31, 2016, compared to approximately 50.3 million as of December 31, 2015. AFFO per diluted common share and OP Unit in 2016 was $2.40, a 2.1% increase from AFFO of $2.35 per diluted common share and OP Unit reported in 2015.
AFFO in the fourth quarter 2016 decreased by $9.4 million, or 28.8%, to $23.0 million, compared to $32.4 million in the fourth quarter 2015. AFFO per diluted common share and OP Unit in the fourth quarter 2016 was $0.52, a 22.4% decrease from AFFO per diluted common share and OP Unit of $0.67 in the same quarter in 2015 as a result of the previously mentioned factors. An explanation of certain non-GAAP financial measures used in this press release, including, among others, AFFO, as well as reconciliations of those non-GAAP financial measures, to GAAP net income, is included at the end of this press release.
Mr. Jay H. Shah, Hersha’s Chief Executive Officer, stated, “2016 was a transformational year for Hersha as we executed several creative and unique entrepreneurial initiatives to unlock value, drive results, and continue our growth trajectory in our core markets, while further diversifying our income stream. During 2016, we entered into agreements to sell 16 hotels for $832.8 million and closed on 11 of these hotels for $640.3 million, highlighted by our 7-hotel, $571.4 million joint-venture transaction with Cindat, which materially reduced our exposure to the challenged Manhattan market. We utilized proceeds from our joint-venture sale and other suburban dispositions, while deferring over $186.0 million of tax gains, to acquire 5 high-quality, well-located hotels for $380.9 million, meaningfully increasing our exposure to the higher growth Washington, DC, Boston and California markets. The net result of our capital recycling activities is a young, differentiated, geographically focused, transient hotel portfolio in-tune with travelers’ tastes and preferences. We also executed several large capital raising transactions to optimize our balance sheet in 2016, expanding the Company’s unsecured borrowing capacity to $1.0 billion. In addition, we successfully accessed the best preferred market in years to raise $292.5 million of 6.5% Preferred Equity, which provided additional financial flexibility to execute our business plan. Finally, and in-line with the Company’s value creation philosophy and commitment to total shareholder returns, we repurchased $52.0 million of our common shares in 2016, representing approximately 6.2% of the float.”
Mr. Shah continued, “For the full-year period, our comparable portfolio reported 2.1% RevPAR growth to $171.27 driven by our Philadelphia, Washington, DC and West Coast hotel clusters. Excluding New York City, which continued to be negatively impacted by the delivery of new supply, we reported 3.5% RevPAR growth. Adjusted EBITDA totaled $171.6 million, while Adjusted FFO per share increased 2.1% to $2.40 for the full-year period. During fourth quarter 2016, we reported a 30 basis point RevPAR increase as continued strength in Washington, DC and on the West Coast offset weakness in South Florida, our most challenged market during the period. Excluding our South Florida portfolio, comparable portfolio RevPAR increased 1.8%. As we look forward, we are encouraged by improved sentiment post-election, and are hopeful lodging will benefit from an expected acceleration of GDP and increased business spending.”
Fourth Quarter 2016 Operating Results
The best performing market during the fourth quarter was the Company’s Washington, DC Metro portfolio, which reported 9.7% revenue per available room (“RevPAR”) growth. The Company’s Washington, DC Urban and West Coast portfolios reported 5.4% and 4.8% RevPAR growth, respectively, in fourth quarter 2016.
RevPAR at the Company's 43 comparable hotels increased 0.3% to $165.73 in fourth quarter 2016. The Company’s average daily rate (“ADR”) for the comparable hotel portfolio increased 2.1% to $211.95, while occupancy decreased 136 basis points to 78.2%. Hotel EBITDA margins for the comparable hotel portfolio decreased 70 bps to 34.9%. Excluding Hyatt Union Square and The Sanctuary Beach Resort, which reported disproportionate margin deterioration due to renovations in connection with the re-concepting of the restaurants’ food and beverage outlets, the Company’s comparable EBITDA margins decreased 30 basis points.
New York City and Manhattan
The New York City hotel portfolio, which includes the five boroughs, consisted of 10 hotels as of December 31, 2016. In the fourth quarter the Company’s comparable New York City hotel portfolio reported very strong occupancy of 92.1%. RevPAR increased 1.1% to $229.14, driven by a 1.3% ADR increase to $248.69.
The Manhattan hotel portfolio consisted of 7 hotels as of December 31, 2016. The Company’s comparable Manhattan hotel portfolio reported robust 94.0% occupancy, reflecting the inherent demand characteristic of the Manhattan market. RevPAR rose 1.2% to $261.96 as a result of 1.7% ADR growth to $278.82. The Company’s Manhattan portfolio reported Gross Operating Profitability (“GOP”) and EBITDA margins of 55.6% and 43.0%, respectively, in the fourth quarter 2016. In the fourth quarter, the Company outperformed greater Manhattan RevPAR by 70 basis points, and has outperformed the Manhattan market in 10 of the previous 12 quarters as a result of a young, well-located, and purpose-built hotel cluster in-tune with travelers’ tastes and preferences.
Financing
As of December 31, 2016, the Company maintained significant financial flexibility with approximately $185.6 million of cash and cash equivalents and full capacity on the Company’s senior unsecured credit facility. As of December 31, 2016, 42.0% 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 3.43% and a weighted average life-to-maturity of approximately 3.9 years.
Preferred Shares
On November 1, 2016, the Company priced a public offering of 6.5% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $.01 per share, for gross proceeds of $100.0 million.
Acquisitions
On October 20, 2016, the Company closed on the fee simple 145-room Courtyard by Marriott in Sunnyvale, CA for $75.0 million, or $517,200 per key. The acquisition included the assumption of $40.6 million in CMBS debt that matures in 2025. The debt is interest only until August 2020, incurring interest at a fixed rate of 4.72%.
On December 1, 2016, the Company closed on the purchase of the 77-room Ambrose Hotel in Santa Monica, CA for $47.5 million, or $617,000 per key. The Ambrose Hotel is located within Santa Monica’s 7.9 million square-foot Class A office market and is proximate to Silicon Beach, which includes high profile employers such as Google, Facebook, Apple, IMAX, Hulu and Riot Games. The Ambrose is one block from St. John’s Heath Center, a private, 234-room hospital renown for clinical excellence and award-winning care. The hotel includes a two-level, 82 space parking garage, in addition to an executive meeting room and a fitness center.
Dispositions
On November 4, 2016, the Company closed on the sale of the 125-room Residence Inn in Framingham, MA and the 96-room Residence Inn in Norwood, MA for a combined $47.0 million, or approximately $213,000 per key.
Subsequent Events
In January 2017, Hersha redeemed its interest in its Mystic Partners joint-venture. The Company transferred to its former joint-venture partner all of its partnership interests in the Hartford Marriott and the Hartford Hilton for $8.5 million, which represented a 100% recovery of the Company’s equity investment in these assets. The Company simultaneously assumed full ownership of the Mystic Marriott Hotel & Spa without any additional cash payment to the joint-venture partner.
In January 2017, Hersha closed on the sale of the 203-room Courtyard by Marriott in Alexandria, VA, and the 120-room Residence Inn in Greenbelt, MD for $62.0 million. In addition, the Company agreed to a 6-month extension to close on the sale of three suburban West Coast hotels for $130.5 million, a $7.5 million increase from the original purchase price, valuing the entire 757-room, 5-hotel suburban portfolio at $192.5 million, or $254,000 per key. In addition to the price increase, the Company has secured a $10.0 million non-refundable deposit from the purchaser. The suburban West Coast portfolio sale is anticipated to close in July 2017.
On February 1, 2017, the Company acquired the 115-room Ritz-Carlton in Coconut Grove, FL for $36.0 million, or $313,000 per key. The Company funded The Ritz-Carlton, Coconut Grove acquisition in part with proceeds from the recent sale of the Residence Inn Greenbelt as part of a tax-deferred like-kind exchange.
On February 21, 2017, Hersha acquired the 153-room Pan Pacific Hotel in Seattle, WA. The Company intends to engage in a tax-deferred reverse like-kind exchange with respect to its acquisition of The Pan Pacific and the expected disposition of the suburban West Coast portfolio that is anticipated to close in July 2017, which would allow deferral of the gain from the suburban West Coast portfolio sale.
Share Repurchase Activity
In the fourth quarter, the Company repurchased approximately 167,000 common shares for an aggregate repurchase price of $3.0 million. During 2016, the Company repurchased approximately 2.8 million common shares for an aggregate repurchase price of $52.0 million, which represented approximately 6.2% of the Company common shares outstanding as of December 31, 2015.
On October 3, 2016, the Company announced a new share repurchase program of up to $100 million of the Company’s outstanding common shares. The new repurchase program expires on December 31, 2017, unless extended by the Board of Trustees.
Dividends
Hersha paid a cash dividend of $0.4297 per Series C Preferred Share, and $0.40625 per Series D Preferred Share for the fourth quarter ending December 31, 2016, and a prorated initial dividend of $0.30694 per Series E Preferred Share. The preferred share dividends were paid January 17, 2017 to holders of record as of January 1, 2017.
The Company also paid cash dividends totaling $0.48 per common share and per limited partnership unit, consisting of a quarterly dividend of $0.28 per common share and limited partnership unit for the fourth quarter ending December 31, 2016, and an additional special dividend of $0.20 per common share and limited partnership unit. These common share dividends and limited partnership unit distributions were paid January 17, 2017 to holders of record as of January 5, 2017.
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