Hersha Hospitality Trust Announces Second Quarter 2023 Results

PHILADELPHIA, PA — Hersha Hospitality Trust (NYSE: HT) announced results for the second quarter ended June 30, 2023.

Second Quarter 2023 Financial Results

^{1 Non-GAAP financial measure. An explanation of certain non-GAAP financial measures used in this press release, including, among others, AFFO, FFO, EBITDA and EBITDA margin, as well as reconciliations of those non-GAAP financial measures to GAAP net income, is included at the end of this press release.} 

Net income applicable to common shareholders was approximately $1.7 million, or $0.04 per diluted common share, in the second quarter 2023, compared to net income applicable to common shareholders of approximately $2.4 million, or $0.06 per diluted common share, in the second quarter 2022.

Adjusted Funds from Operations (“AFFO”) decreased to $18.1 million, or $0.38 per diluted common share and OP Unit, in the second quarter 2023, as compared to AFFO of approximately $26.1 million, or $0.57 per diluted common share and OP Unit, in the second quarter of 2022.   This decrease from the prior year was primarily driven by the sale of 10 hotels in second half of 2022 as well as normalization in resort markets that was partially offset by stronger operating results in the Company’s urban markets.

Mr. Neil H. Shah, Hersha’s Chief Executive Officer, stated, “We were pleased to see the strong recovery in our core urban markets during the quarter that allowed us to achieve double digit RevPAR growth for this segment of our overall portfolio. Outperformance in our New York, Boston and Washington DC markets allowed us to offset some of the retracement in domestic leisure travel seen in our resort markets and the wider lodging industry. Despite this normalization at our resort properties, we are significantly outperforming pre-Covid levels and view this year as a new base for growth moving forward. In July, our resort RevPAR further stabilized, while our urban markets continued to outperform and exceeded prior year performance by 12%. We are confident that the stabilizing operating environment in our resorts, coupled with the ongoing dynamics in our urban markets will drive outsized growth in our portfolio.”

Mr. Shah continued, “At present, there are a wide array of viewpoints as to how the economy will unfold in the second half of 2023 and how those macro-economic factors will impact lodging. However, US GDP growth along with fundamental on the ground hotel performance remains resilient. Our outlook for the ongoing travel recovery and long-term lodging fundamentals remains positive, driven by the return of corporate and international travel as well as a very benign supply outlook that will continue to serve as a significant tailwind for the foreseeable future.”

Second Quarter 2023 Operating Results

During the second quarter 2023, the Company’s comparable portfolio of 23 hotels generated 77.1% occupancy, an Average Daily Rate (“ADR”) of $303.34, and Revenue per Available Room (“RevPAR”) of $233.92.

The Company’s core urban markets generated $22.5 million of EBITDA in the second quarter, 67% of the Company’s portfolio’s production, up from 18% in the first quarter. Second quarter RevPAR for the urban portfolio was up 12.2% from the prior year driven by over 800 bps of occupancy growth.

Manhattan was the largest contributor to EBITDA for the quarter, generating $8.4 million, 25% of total portfolio EBITDA. The Company’s New York City portfolio recorded 13.4% RevPAR growth compared to the second quarter of 2022 and generated a 41% EBITDA margin. The Hilton Garden Inn Midtown East and Hyatt Union Square were the highest producing New York assets in the second quarter generating $2.4 and $2.1 million in EBITDA, respectively. Four of the Company’s top ten EBITDA producing assets were located in Manhattan. For the quarter, the Company’s Manhattan portfolio recorded occupancy of 86.4%, more than 1,000 bps greater than 2022. In June, the Manhattan portfolio topped 90% occupancy for the first time since 2019. This growth continued into July with occupancy of approximately 91%.

Boston was another strong contributor, registering 10% RevPAR growth compared to 2022 driven by nearly 8% ADR growth. The Boston Envoy was the portfolio’s top EBITDA producer, generating $3.4 million, with a 46% EBITDA margin. In Philadelphia, the Westin generated $2.6 million in EBITDA, the second highest in the portfolio for the second quarter despite the impact of renovation activity during the quarter. Overall, the Company’s top three EBITDA producers and six of the top ten were urban assets.

Despite difficult comparisons to the record setting year in 2022, the Company’s resort portfolio generated just under $11 million in EBITDA, down approximately 24% to prior year, but up 37% compared to 2019.

Debt Repayment

In May, the Company paid down the outstanding $23 million floating rate mortgage on the St. Gregory Hotel. The note was accruing interest of approximately 9.5%. The Company also paid down $25 million of the principal balance on the Company’s term loan, which was accruing interest of approximately 7.5%. On an annualized basis, these pay-downs will save the company approximately $4 million in interest expense.

Financing

The Company’s credit facility consists of a $346 million term loan and an undrawn $100 million revolving credit line. The facility bears interest at 2.50% over the applicable adjusted term SOFR. The nearly $450 million credit facility matures in August 2024 and has one 12-month extension option subject to certain conditions, which would result in an extended maturity to August 2025.

The Company utilized an existing swap to hedge $300 million of the new term loan at a fixed rate of approximately 3.93%. Following the refinancings, and additional debt pay downs, 79% of the Company’s outstanding debt is either fixed or hedged through various derivative instruments. The Company’s second-quarter weighted average interest rate was approximately 5.42% across all borrowings with a weighted average life-to-maturity of approximately 2 years. The Company closed the quarter with a cash balance of approximately $147 million and a $100 million undrawn line of credit.

Dividends

The Company paid a cash dividend of $0.4297 per Series C Preferred Share, $0.40625 per Series D Preferred Share, and $0.40625 per Series E Preferred Share for the second quarter ended June 30, 2023. The preferred share dividends were paid July 17, 2023 to holders of record as of July 1, 2023.

The Company also paid a cash dividend of $0.05 per common share and per limited partnership unit for the second quarter ended June 30, 2023. These common share dividends and limited partnership unit distributions were paid on July 17, 2023 to holders of record as of June 30, 2023.

Third Quarter 2023 Outlook

In July the comparable portfolio realized RevPAR growth of 5.1% driven by the Company’s urban properties, which realized 12.3% RevPAR growth for the month. For July and the third quarter, the Winter Haven Hotel is excluded from the comparable portfolio as it is closed for renovation with an expectation of reopening in the fourth quarter of 2023.

The Company is providing its operating and financial expectations for the third quarter 2023. The Company’s expectations do not build in any acquisitions, dispositions or capital market activities for 2023. These expectations are based on management’s current outlook for its hotels and the markets in which it operates and does not take into account any unanticipated developments in its business or changes in its operating environment. The Company’s third quarter 2023 expectations are as follows:

Hersha’s third quarter 2023 outlook is based on a number of factors, many of which are outside the Company’s control, including macro-economic factors such as, inflation, increases in interest rates, supply chain disruptions, the potential effects of an epidemic or pandemic and the possibility of an economic recession or slowdown in 2023, all of which are subject to change. Please see the section below titled “Cautionary Statements Regarding Forward Looking Statements.”

For more information on the Company, and the Company’s hotel portfolio, visit the Company’s website at www.hersha.com.

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