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.
Third Quarter 2009 Earnings Release and Conference
Call
The Company will host a conference call to discuss the results
at 9:00 AM Eastern time on Thursday, November 5, 2009. Hosting the
call will be Mr. Jay H. Shah, Chief Executive Officer, Mr. Neil H.
Shah, President and Chief Operating Officer, and Mr. Ashish Parikh,
Chief Financial Officer.
The live conference call can be accessed by dialing (877)
440-5807 or (719) 325-4802 for international participants. A replay
of the call will be available from 12:00 noon Eastern time on
November 5, 2009, through midnight Eastern Time on November 19,
2009. The replay can be accessed by dialing (888) 203-1112 or (719)
457-0820 for international participants. The passcode for the call
and the replay is 9337241.
About Hersha Hospitality
Hersha Hospitality Trust is a self-advised real estate
investment trust, which owns interests in 73 hotels, totaling 9,294
rooms, primarily along the Northeast Corridor from Boston to
Washington D.C. The Company also owns hotels in Northern California
and Scottsdale, Arizona. Hersha focuses on select service and
upscale hotels in major metropolitan markets. More information on
the Company and its portfolio of hotels is available on Hersha's
website at www.hersha.com.
Forward Looking Statement
Certain matters within this press release are discussed using
forward-looking language as specified in the Private Securities
Litigation Reform Act of 1995, and, as such, may involve known and
unknown risks, uncertainties and other factors that may cause the
actual results or performance to differ from those projected in the
forward-looking statement. These forward-looking statements include
statements related to the Company’s ability to capitalize on
selective opportunities in the future, stabilization in hotel
operating metrics (including operating metrics with respect to the
Company’s consolidated portfolio of New York City hotels) and the
Company’s forecasted estimates related to the financial outlook for
the full 2009 calendar year. For a description of factors that may
cause the Company’s actual results or performance to differ from
its forward-looking statements, please review the information under
the heading “Risk Factors” included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2008, as filed with
the Securities and Exchange Commission.
HERSHA HOSPITALITY TRUST Balance
Sheet (in thousands, except shares and per share data)
September 30, 2009 December 31, 2008 Assets:
Investment in Hotel Properties, net of Accumulated Depreciation $
936,031 $ 982,082 Investment in Unconsolidated Joint Ventures
44,042 46,283 Development Loans Receivable 47,990 81,500 Cash and
Cash Equivalents 12,494 15,697 Escrow Deposits 15,588 12,404 Hotel
Accounts Receivable, net of allowance for doubtful accounts of $88
and $120 9,784 6,870 Deferred Financing Costs, net of Accumulated
Amortization of $3,756 and $3,606 8,831 9,157 Due from Related
Parties 3,138 3,595 Intangible Assets, net of Accumulated
Amortization of $738 and $595 7,529 7,300 Other Assets 13,095
13,517 Assets Held for Sale 21,073 -
Total
Assets $ 1,119,595 $ 1,178,405
Liabilities and Equity: Line of Credit $ 80,000 $ 88,421
Mortgages and Notes Payable, net of unamortized discount of $52 and
$61 640,470 655,360 Accounts Payable, Accrued Expenses and Other
Liabilities 17,997 17,745 Dividends and Distributions Payable 4,232
11,240 Due to Related Parties 90 302 Liabilities Related to Assets
Held for Sale 20,908 -
Total Liabilities
763,697 773,068
Redeemable
Noncontrolling Interests - Common Units $ 15,391 $ 18,739
Equity: Shareholders' Equity:
Preferred Shares - 8% Series A,
$.01 Par Value, 2,400,000 Shares Issued and Outstanding
(Aggregate Liquidation Preference $60,000) at September
30, 2009 and December 31, 2008
24 24
Common Shares - Class A, $.01 Par
Value, 150,000,000 and 80,000,000 Shares Authorized at
September 30, 2009 and December 31, 2008,56,473,120 and 48,276,222
Shares Issued and Outstanding at September 30, 2009 and
December 31, 2008, respectively
564 483
Common Shares - Class B, $.01 Par
Value, 1,000,000 Shares Authorized, None Issued and
Outstanding
- - Accumulated Other Comprehensive Loss (160 ) (109 ) Additional
Paid-in Capital 483,226 463,772 Distributions in Excess of Net
Income (171,752 ) (114,207 ) Total Shareholders'
Equity 311,902 349,963 Noncontrolling Interests:
Noncontrolling Interests - Common Units 28,329 34,781
Noncontrolling Interests - Consolidated Joint Ventures 276
1,854 Total Noncontrolling Interests 28,605
36,635 Total Equity 340,507 386,598
Total Liabilities and Equity $ 1,119,595 $ 1,178,405
HERSHA HOSPITALITY TRUST Summary Results (in
thousands, except shares and per share data)
Three Months
Ended Nine Months Ended September 30, 2009
September 30, 2008 September 30, 2009 September
30, 2008 Revenues: Hotel Operating Revenues $ 60,245 $
68,471 $ 160,346 $ 180,912 Interest Income from Development Loans
1,427 1,586 5,990 5,759 Other Revenue 185 257
575 914
Total Revenues
61,857 70,314 166,911
187,585
Operating Expenses: Hotel
Operating Expenses 33,563 37,530 93,276 101,082 Hotel Ground Rent
292 308 876 750
Real Estate and Personal
Property Taxes and Property Insurance
3,788 3,194 10,364 9,013 General and Administrative 1,512 1,457
4,362 4,490 Stock Based Compensation 579 416 1,500 1,043
Acquisition and Terminated Transaction Costs 32 21 76 211 Loss on
Impairment of Assets 21,408 - 21,408 - Depreciation and
Amortization 10,924 10,221
32,122 28,543
Total Operating Expenses
72,098 53,147 163,984
145,132
Operating Loss (10,241 ) 17,167
2,927 42,453 Interest Income 49 69 159 252 Interest Expense
11,129 10,458 32,170 30,473 Other Expense 29 24 110 73 Loss on Debt
Extinguishment - 1,417 -
1,417
(Loss) Income before (Loss)
Income from
Unconsolidated Joint
Venture Investments
and Discontinued
Operations
(21,350 ) 5,337 (29,194 ) 10,742
(Loss) Income from
Unconsolidated
Joint Venture
Investments
(606 ) 1,629 (2,330 ) 2,251
(Loss) Income from Continuing Operations
(21,956 ) 6,966 (31,524 ) 12,993
Discontinued
Operations Gain on Disposition of Hotel Properties 1,868 -
1,868 - Loss from Impairment of Assets Held for Sale (17,683 ) -
(17,683 ) - (Loss) Income from Discontinued Operations (164
) 794 205 844
(Loss)
Income from Discontinued Operations (15,979 ) 794
(15,610 ) 844
Net (Loss)
Income (37,935 ) 7,760 (47,134 ) 13,837 Loss (Income)
Allocated to Noncontrolling Interests 5,560 (1,425 ) 7,162 (2,156 )
Preferred Distributions (1,200 ) (1,200 )
(3,600 ) (3,600 )
Net (Loss) Income Applicable
to
Common
Shareholders
$ (33,575 ) $ 5,135 $ (43,572 ) $ 8,081
Earnings per Share:
BASIC
(Loss) Income from Continuing
Operations Applicable to Common Shareholders
$ (0.39 ) $ 0.10 $ (0.62 ) $ 0.16 (Loss) Income from Discontinued
Operations (0.26 ) 0.01 (0.27 )
0.02
Net (Loss) Income Applicable to Common
Shareholders $ (0.65 ) $ 0.11 $ (0.89 ) $ 0.18
DILUTED
(Loss) Income from Continuing
Operations Applicable to Common Shareholders
$ (0.39 ) $ 0.10 $ (0.62 ) $ 0.16
(Loss) Income from Discontinued
Operations
(0.26 ) 0.01 (0.27 ) 0.02
Net (Loss) Income Applicable to Common Shareholders $
(0.65 ) $ 0.11 $ (0.89 ) $ 0.18
Weighted Average Common Shares
Outstanding:
Basic 51,878,482 47,764,168 49,187,465 44,315,615 Diluted
51,878,482 47,764,168 49,187,465 44,315,615
AFFO and GAAP Reconciliation
The National Association of Real Estate Investment Trusts
(“NAREIT”) developed Funds from Operations (“FFO”) as a non-GAAP
financial measure of performance of an equity REIT in order to
recognize that income-producing real estate historically has not
depreciated on the basis determined under GAAP. We calculate FFO
applicable to common shares and Partnership units in accordance
with the April 2002 National Policy Bulletin of NAREIT, which we
refer to as the White Paper. The White Paper defines FFO as net
income (loss) (computed in accordance with GAAP) excluding
extraordinary items as defined under GAAP and gains or losses from
sales of previously depreciated assets, plus certain non-cash
items, such as depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. Our
interpretation of the NAREIT definition is that noncontrolling
interest in net income (loss) should be added back to (deducted
from) net income (loss) as part of reconciling net income (loss) to
FFO. Our FFO computation may not be comparable to FFO reported by
other REITs that do not compute FFO in accordance with the NAREIT
definition, or that interpret the NAREIT definition differently
than we do.
The GAAP measure that we believe to be most directly comparable
to FFO, net income (loss) applicable to common shares, includes
depreciation and amortization expenses, gains or losses on property
sales and minority interest. In computing FFO, we eliminate these
items because, in our view, they are not indicative of the results
from our property operations.
Hersha also presents Adjusted Funds from Operations (AFFO),
which reflects FFO in accordance with the NAREIT definition further
adjusted by:
- adding back write-offs of
deferred financing costs on debt extinguishment, both for
consolidated and unconsolidated properties;
- adding back amortization of
deferred financing costs;
- making adjustments for the
amortization of original issue discount/premium;
- adding back non-cash stock
expense;
- adding back non-cash impairment
expenses;
- adding back FFO attributed to
our partners in consolidated joint ventures; and
- making adjustments to ground
lease payments, which are required by GAAP to be amortized on a
straight-line basis over the term of the lease, to reflect the
actual lease payment.
FFO and AFFO do not represent cash flows from operating
activities in accordance with GAAP and should not be considered an
alternative to net income as an indication of Hersha’s performance
or to cash flow as a measure of liquidity or ability to make
distributions. We consider FFO and AFFO to be meaningful,
additional measures of our operating performance because they
exclude the effects of the assumption that the value of real estate
assets diminishes predictably over time, and because they are
widely used by industry analysts as performance measures. We show
both FFO from consolidated hotel operations and FFO from
unconsolidated joint ventures because we believe it is meaningful
for the investor to understand the relative contributions from our
consolidated and unconsolidated hotels. The display of both FFO
from consolidated hotels and FFO from unconsolidated joint ventures
allows for a detailed analysis of the operating performance of our
hotel portfolio by management and investors. We present FFO and
AFFO applicable to common shares and Partnership units because our
Partnership units are redeemable for common shares. We believe it
is meaningful for the investor to understand FFO and AFFO
applicable to all common shares and Partnership units.
The following table reconciles FFO and AFFO for the periods
presented to the most directly comparable GAAP measure, net income
(loss) applicable to common shares, for the same periods:
HERSHA HOSPITALITY TRUST Funds from Operations
(FFO) and Adjusted Funds from Operations (AFFO) (in thousands,
except shares and per share data)
Three Months Ended
Nine Months Ended September 30, 2009 September 30,
2008 September 30, 2009 September 30, 2008
Net (loss) income applicable to common shares $ (33,575 ) $ 5,135 $
(43,572 ) $ 8,081 (Loss) income allocated to noncontrolling
interest (5,560 ) 1,425 (7,162 ) 2,156 Loss (income) from
unconsolidated joint ventures 606 (1,629 ) 2,330 (2,251 ) Gain on
disposition of hotel properties (1,868 ) - (1,868 ) - Depreciation
and amortization 10,924 10,221 32,122 28,543 Depreciation and
amortization from discontinued operations 139 636 1,129 1,948 FFO
allocated to noncontrolling interests in consolidated joint
ventures (23 ) (167 ) (98 ) (229 )
Funds from consolidated hotel
operations applicable to common shares and Partnership
units
(29,357 ) 15,621 (17,119 ) 38,248 (Loss) income from
unconsolidated joint venture investments (606 ) 1,629 (2,330 )
2,251 Add:
Depreciation and amortization of
purchase price in excess of historical cost
519 522 1,565 1,568
Interest in depreciation and
amortization of unconsolidated joint ventures
1,959 1,498 3,684
5,127
Funds from unconsolidated joint
venture operations applicable to common shares and
Partnership units
1,872 3,649 2,919 8,946
Funds from
Operations applicable to common shares and Partnership
units
(27,485 ) 19,271 (14,200 ) 47,194
Add:
FFO allocated to noncontrolling interests in consolidated joint
ventures 23 167 98 229 Impairment of development loan receivable
21,955 - 21,955 - Loss from impairment of assets held for sale
18,436 - 18,436 - Acquisition and terminated transaction costs 32
21 76 211 Amortization of deferred financing costs 486 589 1,553
1,487 Deferred financing costs written off in debt extinguishment -
1,417 - 1,417 Amortization of discounts and premiums 3 (13 ) 9 (289
) Non cash stock compensation expense 579 416 1,500 1,043
Straight-line amortization of ground lease expense 69
74 207 213
Adjusted Funds from Operations $ 14,098 $ 21,941
$ 29,634 $ 51,505
AFFO per Diluted Weighted Average
Common Shares and Units Outstanding
$ 0.23 $ 0.39 $ 0.51 $ 0.99
Diluted Weighted Average Common Shares and Units Outstanding
60,583,677 56,515,177 57,919,913 52,111,433
Adjusted EBITDA and GAAP Reconciliation
Adjusted Earnings Before Interest, Taxes, and Depreciation and
Amortization (EBITDA) is a non-GAAP financial measure within the
meaning of the Securities and Exchange Commission rules. Our
interpretation of Adjusted EBITDA is that EBITDA derived from our
investment in unconsolidated joint ventures should be added back to
net income (loss) as part of reconciling net income (loss) to
Adjusted EBITDA. Our Adjusted EBITDA computation may not be
comparable to EBITDA or Adjusted EBITDA reported by other companies
that interpret the definition of EBITDA differently than we do.
Management believes Adjusted EBITDA to be a meaningful measure of a
REIT's performance because it is widely followed by industry
analysts, lenders and investors and that it should be considered
along with, but not as an alternative to, net income, cash flow,
FFO and AFFO, as a measure of the company's operating
performance.
Hotel EBITDA is a commonly used measure of performance in the
hotel industry for a specific hotel or group of hotels. We believe
Hotel EBITDA provides a more complete understanding of the
operating results of the individual hotel or group of hotels. We
calculate Hotel EBITDA by utilizing the total revenues generated
from hotel operations less all operating expenses, property taxes,
insurance and management fees, which calculation excludes Company
expenses not specific to a hotel. Because Hotel EBITDA is specific
to individual hotels or groups of hotels and not to the Company as
a whole, it is not directly comparable to any GAAP measure and
should not be relied on as a measure of performance for our
portfolio of hotels taken as a whole.
HERSHA HOSPITALITY TRUST Adjusted EBITDA (in
thousands)
Three Months Ended
Nine Months Ended September 30, 2009
September 30, 2008 September 30, 2009
September 30, 2008 Net (loss) income applicable to
common shares $ (33,575 ) $ 5,135 $ (43,572 ) $ 8,081 Less: Loss
(income)from unconsolidated joint ventures 606 (1,629 ) 2,330
(2,251 ) Gain on disposition of hotel properties (1,868 ) - (1,868
) - Interest income (49 ) (69 ) (159 ) (252 ) Add: (Loss) income
allocated to noncontrolling interest (5,560 ) 1,425 (7,162 ) 2,156
Impairment of development loan receivable 21,955 - 21,955 - Loss
from impairment of assets held for sale 18,436 - 18,436 -
Distributions to Series A Preferred Shareholders 1,200 1,200 3,600
3,600 Interest expense from continuing operations 11,129 10,458
32,170 30,473 Interest expense from discontinued operations 283 438
1,050 1,546
Deferred financing
costs written off in debt extinguishment
- 1,417 - 1,417 Depreciation and amortization from continuing
operations 10,924 10,221 32,122 28,543 Depreciation and
amortization from discontinued operations 139 636 1,129 1,948
Non-cash stock compensation expense 579 416 1,500 1,043
Straight-line amortization of ground lease expense 69
74 207 213
Adjusted EBITDA from consolidated hotel operations
24,268 29,722 61,738
76,517 (Loss) income from unconsolidated joint
venture investments (606 ) 1,629 (2,330 ) 2,251 Add:
Depreciation and
amortization of purchase price in excess of historical
cost
519 522 1,565 1,568
Adjustment for interest in
interest expense, depreciation and amortization of
unconsolidated joint ventures
5,169 4,689 13,232
15,171
Adjusted EBITDA from unconsolidated joint
venture operations 5,082 6,840
12,467 18,990
Adjusted
EBITDA $ 29,350 $ 36,562 $ 74,205 $ 95,507
Supplemental Schedules
The company has published supplemental earnings schedules in
order to provide additional disclosure and financial information
for the benefit of the company's stakeholders. These can found in
the Investor Relations section and the “SEC Filings and
Presentations” page of the Company’s Web site, www.hersha.com.
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