PHILADELPHIA, PA — Hersha Hospitality Trust (NYSE: HT) this week announced results for the second quarter ended June 30, 2021.
Second Quarter 2021 Financial Results
Net loss applicable to common shareholders was approximately ($28.6 million), or ($0.73) per diluted common share, in the second quarter 2021, compared to net loss applicable to common shareholders of approximately ($67.5 million), or ($1.75) per diluted common share, in the second quarter 2020. Second quarter 2021 results continue to be impacted by the ongoing COVID-19 pandemic, but materially improved compared to second quarter 2020 results.
Adjusted Funds from Operations (“AFFO”) in the second quarter 2021 was ($1.7 million), compared to ($32.9 million) in the second quarter 2020. AFFO per diluted common share and OP Unit in the second quarter 2021 was ($0.04) versus second quarter 2020 AFFO per diluted common share and OP unit of ($0.76). 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, “Results this quarter were driven by a continuation of the strong recovery in our resort and leisure-oriented markets and were bolstered by the first signs of business travel in our urban clusters. This strength in demand, combined with our revenue management strategies and proprietary cost containment initiatives, resulted in Hersha achieving positive corporate-level cash flow for the first time since March 2020. Property-level cash flow sequentially improved through the balance of the quarter from $3.8 million in April to $7.7 million in June, resulting in corporate-level cash flow of $334,000 in June. Portfolio RevPAR increased 28% over the same period and exceeded $130 in June. South Florida was our best performing cluster again this quarter, producing ADR-driven RevPAR growth of 39.7%. Our Parrot Key Hotel & Villas in Key West led the portfolio as robust demand, coupled with our ability to strategically push rate, yielded 80.4% RevPAR growth versus the second quarter 2019.”
Mr. Shah continued, “The second quarter is typically our strongest quarter of the year as business transient and group demand is aided by the start of the summer travel season. Despite this past quarter’s results being primarily driven by strong leisure travel across the portfolio, we were encouraged by the material improvements in weekday demand in our urban clusters. From March to June, ADRs across our urban portfolio grew 40% with occupancy increasing 850 basis points over the same period. During June and into July, weekday demand continued to increase, and although the booking window across our portfolio remains short, conversations with our larger corporate accounts indicate the return to office and business travel is slated to accelerate in September and into the fourth quarter. As cities have reopened and lifted restrictions, large conferences are set to return during the third quarter, which will provide an increased benefit to our urban clusters.”
Mr. Shah concluded, “Last quarter, we closed on the sale of the Duane Street Hotel at an attractive price bringing the asset-disposition strategy we embarked on last year to a conclusion. During the first half of the year, we took swift action to address our near-term financing and liquidity needs to strengthen our balance sheet. With that in the rearview, we continued to focus on operational performance and cash flow generation to drive high RevPAR and industry-leading, sustainable margins. The operational leverage of our purpose-built portfolio was highlighted during the second quarter and our assets are well positioned to generate outsized profitability as we capture continued demand from more rate tolerant leisure travelers, large group conferences, and increased business travel, while driving market-leading cash flow through proprietary operational efficiencies.”
Second Quarter 2021 Operating Results
The Company had 33 comparable hotels fully open and operational throughout the second-quarter, which generated 55.8% occupancy, an average daily rate of $208.81, and RevPAR of $116.48. The Parrot Key Hotel & Resort was the Company’s best performing asset during the quarter, ending the period with 91.7% occupancy and an ADR of $454.58, an increase of 63.6% versus second quarter 2019, resulting in 80.4% RevPAR growth. The Cadillac Hotel & Beach Club also witnessed strong performance last quarter with 38.6% RevPAR growth driven by 11.2% ADR growth and 80.1% occupancy. Outperformance from these assets led to the Company’s South Florida portfolio generating 39.7% RevPAR growth last quarter compared to the second quarter 2019.
Out on the West Coast, the Sanctuary Beach Resort continued to outperform, ending the period with a 21.1% RevPAR improvement versus the second quarter of 2019 driven by 32.2% ADR growth to $506.55. Down the coast in Santa Barbara, the Hotel Milo ended the second quarter with 76.6% occupancy and an ADR of $333.70, 31.8% higher than the second quarter of 2019. The Company’s New York City portfolio generated 59.0% occupancy during the second quarter, highlighted by the Company’s select-service offerings in the JFK sub-market, the Nu Hotel in Brooklyn, and the Hampton Inn Seaport. Total occupancy for the New York portfolio increased incrementally through the balance of the quarter from 55.6% in April to 63.2% in June with RevPAR growing 44% over the same period.
Better-than-expected topline results combined with the asset management initiatives applied across the Company’s portfolio over the past 15 months led to meaningful margin improvement for the portfolio. Second quarter GOP margin for the comparable portfolio was 44.2%, which represented an increase of 830 basis points compared to the first quarter 2021 and just 260 basis points lower than second quarter 2019 comparable portfolio GOP margin.
Cash Flow and Breakeven Levels
Improved operating trends during the second quarter combined with stringent operations and expense management resulted in positive corporate-level cash flow for the first time since the onset of the pandemic. The Company’s hotel portfolio produced positive cash flow of $3.8 million in April which increased to $7.7 million in June and resulted in corporate cash flow of $334,000 for June. The Company’s second quarter property level cash flow of $18.3 million represents an increase of 281% compared to the Company’s property level cash flow of $4.8 million during the first quarter. Current and forecasted operating results for the third quarter indicate that the Company is on pace to consistently generate positive hotel level EBITDA at levels necessary for them to be cash flow positive on a corporate wide basis for the remainder of 2021, as they continue to see improved demand fundamentals coupled with the Company’s aggressive on-property cost controls.
During the second quarter, Hersha closed on the previously announced sale of the 43-room Duane Street Hotel in TriBeCa, NYC for $18.0 million or $419,000 per key. The transaction was executed at a 19.5x multiple and a 4.3% capitalization rate on 2019 hotel operating metrics. Proceeds from the sale were utilized to pay down debt.
Preferred Dividend Distribution
Hersha’s Board of Trustees declared a cash dividend of $0.4297 per Series C Preferred Share and a cash dividend of $0.40625 per Series D Preferred Share and Series E Preferred Share for the second quarter ending June 30, 2021. The preferred share dividends were paid on July 15, 2021 to holders of record as of July 1, 2021.
The Company completed the second quarter 2021 with approximately $80.2 million of cash & cash equivalents and deposits. As of July 1, 2021, the Company had approximately $46 million of capacity on its $250 million Senior Revolving Line of Credit and $50 million of undrawn credit from its Unsecured Notes Facility with affiliates of Goldman Sachs Merchant Bank. As of June 30, 2021, the Company’s consolidated debt had a weighted average interest rate of 4.48% and a weighted average life-to-maturity of 3.1 years.
Full-Year 2021 Outlook
Due to the uncertainty surrounding the lodging industry stemming from the COVID-19 pandemic, the Company will forego providing full-year 2021 guidance at this time.
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