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Edited Transcript of HT earnings conference call or presentation 26-Feb-19 2:00pm GMT

Q4 2018 Hersha Hospitality Trust Earnings Call

HARRISBURG Mar 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Hersha Hospitality Trust earnings conference call or presentation Tuesday, February 26, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ashish R. Parikh

Hersha Hospitality Trust - CFO & Assistant Secretary

* Greg Costa

Hersha Hospitality Trust - Manager, IR & Finance

* Neil H. Shah

Hersha Hospitality Trust - President & COO

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Conference Call Participants

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* Anthony Franklin Powell

Barclays Bank PLC, Research Division - Research Analyst

* David Brian Katz

Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure

* Michael Joseph Bellisario

Robert W. Baird & Co. Incorporated, Research Division - VP and Senior Research Analyst

* Shaun Clisby Kelley

BofA Merrill Lynch, Research Division - MD

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Presentation

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Operator [1]

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Good day and welcome to the Hersha Hospitality Fourth Quarter 2018 Conference Call and Webcast. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Greg Costa, Manager of Investor Relations. Please go ahead.

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Greg Costa, Hersha Hospitality Trust - Manager, IR & Finance [2]

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Thank you Alexine, and good morning to everyone joining us today. Welcome to the Hersha Hospitality Trust full year and fourth quarter of 2018 conference call. Today's call will be based on the full year and fourth quarter 2018 earnings release which was distributed yesterday afternoon. Prior to proceeding, I'd like to remind everyone that today's conference call may contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the company's actual results, performance, or financial positions to be materially different from any future results, performance, or financial position. These factors are detailed within the company's press release as well as within the company's filings with the SEC.

With that, it is now my pleasure to turn the call over to Mr. Neil H. Shah, Hersha Hospitality Trust President and Chief Operating Officer. Neil, you may begin.

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Neil H. Shah, Hersha Hospitality Trust - President & COO [3]

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Thank you Greg. Good morning and thank you for joining us on today's call. Joining me this morning are Jay Shah, our Chief Executive Officer; and Ashish Parikh, our Chief Financial Officer. We understand that this is a busy day and week of earnings releases for all of you, so we will jump right in this morning.

This quarter's out-performance clearly exhibits the earnings potential of our portfolio even in its early stages of stabilization. For the majority of 2018, we encountered significant disruption from capital recycling, hurricane-related remediation and large-scale capital expenditures. The fourth quarter was the first quarter that we had limited disruption from these items and our portfolio produced notable results.

We exceeded our internal expectations and the fourth quarter guidance we provided on RevPAR and margin growth and are confident in our growth trajectory for 2019. Our comparable portfolio ended the fourth quarter with 2.8% RevPAR growth, while we grew EBITDA margins by 90 basis points. Additionally, if we exclude our Washington D.C. cluster, which continued to be hampered by soft demand from government-related business, specially around the mid-term elections in November, our portfolio grew RevPAR by 4.8% and margins by 160 basis points. Ash will go into more detail on the specific initiatives the company is pursuing to maintain our industry-leading margins in a challenging operating expense environment.

Performance was especially strong in December with high single-digit RevPAR growth for our portfolio driven by significant demand in Philadelphia, South Florida and on the West Coast, which has continued into 2019. However, a soft convention calendar in Boston, weaker demand in D.C. from the government shutdown and a difficult comp in New York following 10% growth for our portfolio in Q1 2018 will offset some of the positive fundamentals.

Before providing some more color and data by market, a quick update on our South Florida projects. During the fourth quarter, we successfully completed our 2 REIT development projects in Miami Beach and Key West. Both hotels opened to glowing reviews from the media, Architectural Digest, Travel + Leisure, (inaudible), USA Today, and the New York Times, and thousands of early guests. Our Cadillac Hotel and Beach Club on Miami Beach was operational for the fourth quarter, and the Parrot Key Hotel and villas in Key West had all of its room inventory available for the December holiday season.

The Cadillac Hotel and Beach Club which we transformed from a courtyard to an autograph collection hotel posted strong results in December, registering an average daily rate $53 higher than the Cadillac's best December performance of the Courtyard. Performance during Art Basel was especially strong operating at 98.5% occupancy with an absolute RevPAR that was more than 20% higher than the best Art Basel weekend for the hotels of Courtyard.

The Cadillac will ramp up across several years, but early returns are compelling. The Parrot Key Hotel and Villas on Key West opened as demand began to return to normalized levels post-Hurricane Irma. Key West is a truly unique destination. Many frequent visitors to the Key's and even first-time Bucket Listers avoided the Key's post-Hurricane Irma. It's an expensive destination and this pent up demand returned in the fourth quarter and 2019 appears very strong for the entire market. We believe our oceanfront resort is well positioned to capture more than our fair share in this market for several years to come.

Combined with our still ramping acquisitions from the last several years, our completed capital projects provided steady tailwind for our portfolio and despite capital market's volatility, the business environment remained strong. Demand from all 3 travel segments boosted fourth quarter performance. We yielded strong corporate demand in our tech and innovation center districts of Northern California, New York and Boston, while group contributions drove RevPAR growth from stronger convention calendars in San Diego and Philadelphia and leisure demand accelerated rate growth in popular holiday travel destinations such as Manhattan and Miami.

Our West Coast portfolio was our best-performing cluster in the fourth quarter, generating 6.7% RevPAR growth driven by a 5.6% ADR increase. Our best-performing asset on the West Coast and across our portfolio during the quarter was the Courtyard San Diego, which increased RevPAR by 21%, capitalizing on a robust convention calendar leading to significant room demand.

Our innovation district hotels in Silicon Valley continued to generate strong corporate demand as our 2 Sunnyvale Hotels registered combined weighted average RevPAR growth of 7.1%. L&R business was robust at these assets as our 2 largest corporate accounts Google and Apple continued to drive significant midweek ADR and occupancy growth. Our most recent RFP negotiations were positive for 2019, yielding mid-single-digit rate growth from our key corporate partners on the peninsula.

Also benefiting from a boost in demand following its renovation is our Sanctuary Beach Resort in Monterey, growing RevPAR by 7.5% in the fourth quarter. Our fully refreshed restaurant and bar and lobby and spa have become a destination for hotel guests and the Monterey community and attract corporate retreats from Silicon Valley and weekend getaways from San Francisco.

The Ambrose Hotel in Santa Monica recently completed a lobby and outdoor patio renovation, which directly led to increased bookings in the fourth quarter. Growth in transient business has spiked since completion and has yielded us a top 5 TripAdvisor rating which helped drive an occupancy bump of 805 basis points to 90% last quarter. The growth of Silicon Beach will boost demand for the foreseeable future with Oracle's cloud business and some of the leading gaming and entertainment-related technology businesses proximate to The Ambrose.

Our Philadelphia cluster was strong again this quarter, achieving 6.2% RevPAR growth, outperforming the market by 480 basis points as Philadelphia continues to become a popular destination for both corporate and leisure travelers. Our out-performance this quarter was led by our Hampton Inn Center City, which underwent a major renovation during the first half of 2018 and was able to capitalize on its new standing in the marketplace during a strong convention calendar in the fourth quarter with 10.7% RevPAR growth.

Robust corporate transient demand led to 7.2% RevPAR growth at our recently acquired Philadelphia Westin, while rate growth of The Rittenhouse led to absolute ADR of $492. That's the highest ADR we have generated since we purchased the hotel in 2012 and the largest fourth quarter ADR in Philadelphia's history. During the first half of 2018, The Rittenhouse was materially disrupted due to significant room renovations.

We are beginning to see the benefits of this enhancement so far in 2019 with our full-slated rooms back online to capture the increasing growth and visitation to Philadelphia. We remain very bullish on the fundamentals of this city with its growing corporate technology and innovation sector downtown, our research and convection center slated for historic year in 2019, and growth in airlift with several new domestic and international nonstop flights slated to be added during 2019, not to mention our operating advantage, our best-in-class team of associates at our hotels here in town.

Demand fundamentals were also especially strong in New York City during the fourth quarter as our operators were able to drive 6% RevPAR growth by raising ADR 4.3% and taking occupancy to nearly 96%. Our purpose-built portfolio outperformed the Manhattan market by 250 basis points in RevPAR growth in the fourth quarter.

Lower Manhattan and especially the area proximate to our Hyatt Union Square saw robust transient and leisure demand during the quarter. New York City has become a hotbed of technology and innovation and our locations and operating advantage are driving out-performance. We had our best year in New York since 2014. Our teams delivered 5.6% RevPAR growth for the full year and 280 basis points of margin growth in 2018. We do face a tough comp in New York in the first quarter, but as we look forward to the next several quarters, we should begin to benefit from decelerating supply growth, allowing us to push rate and strengthen our margins.

Our Boston portfolio registered 3.8% RevPAR growth for the quarter. New supply impacted occupancy at The Boxer and Brookline. The Envoy led the cluster again with 10.1% RevPAR growth on robust L&R contribution. We also continue to drive F&B revenue higher with the success of the OUTLOOK restaurant and Lookout rooftop bar. The Envoy continues to build on its market-leading performance and its reputation as the leading hotel for corporates and leisure travelers in the highly sought after Seaport District. The Envoy should continue to drive growth for our Boston portfolio as we enter a softer 2019 in Boston.

The Washington, D.C. market experienced another soft quarter down 6.2% RevPAR hampered by a weak convention calendar and sluggish results from traditional demand generators in the region. Unfortunately, this has continued into Q1 as the convention calendar remains weak in 2019 and an already soft leisure quarter in D.C. was exacerbated by the government shutdown in January.

However, with the shutdown now over, the city is getting back its footing and we anticipate stronger demand during the D.C. peak stretch, which begins in the early spring. Aiding our cluster's RevPAR growth during the softer time frame will be the continued ramp-up of our St. Gregory Hotel, which underwent a holistic renovation during the first half of 2018. And in Miami, we faced a tough comp in Q4, up 22.5% last year on Hurricane Irma-related demand. Despite this challenge, we were able to maintain rates, but lost occupancy as hotels came back online in South Florida, Puerto Rico and the Caribbean and we were down 9% for the fourth quarter. The first quarter will still face some tough comps, but performance will accelerate across 2019.

2018 as a whole was very positive for the Miami Beach market, boasting 200 basis points of occupancy growth, a 9% ADR increase, and 11% RevPAR growth. Miami continues to benefit from strong leisure travel trends, less new supply and the reopening of the Convention Center. Miami International Airport continues to attract additional nonstop domestic and international flights and visitation continues to hit record highs.

This demand has continued in 2019 and the outlook is very strong in the region for the next several years. We just completed the repositioning of the Ritz-Carlton and Coconut Grove. We renovated all of the guestrooms and suites in the late fall and just launched our new restaurant and bar Isabel's and The Commodore. Our team there is expecting a breakout year.

Before I turn the call over to Ash to discuss margin growth in today's environment and our guidance for 2019, a few thoughts on how we are thinking about capital allocation right now. As you may remember, we've sold over $1 billion of hotels across the last several years and recycled into higher-growth, higher-quality hotels and a more diversified portfolio. We are delighted to have very little anticipated disruption in this portfolio for the foreseeable future and are confident that our differentiated portfolio can produce sector-leading organic growth for several years.

With a significantly reduced CapEx load in 2019 and 2020, we are focused on utilizing our free cash flow for debt pay downs while we drive EBITDA. We still do not see compelling acquisition opportunities in the market today, but would fund any acquisitions with dispositions as we have done across the last 5 years. We are not planning any asset sales at this time.

In December, our board authorized a new $50 million share repurchase program and we utilized this program in the early part of the quarter to repurchase $4.6 million of shares at a weighted average price of $16.91, a 12% discount to yesterday's closing price and more than a 30% discount to private market values. We do remain very focused on achieving our leverage targets, but we are also keenly aware of our EBITDA growth profile. We don't buy back to signal the market, but we will capitalize on volatility when it's a prudent investment decision.

2018 was a transformative year for Hersha. We finalized our capital recycling program that we began in 2015. We successfully completed the transformation of our 2 South Florida assets impacted by Hurricane Irma. And we invested an additional $90 million to significantly upgrade our legacy assets to the tastes and preferences of today's traveler. It was a long but extremely productive year and sets up what we believe to be a solid year ahead.

With that let me turn it over to Ash to discuss in more detail our capital expenditures, margin performance and our updated guidance for the year.

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Ashish R. Parikh, Hersha Hospitality Trust - CFO & Assistant Secretary [4]

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Great. Thanks Neil. And good morning everyone. So lodging industry continues to generate record occupancy and profitability, but 10 years into a recovery we are clearly seeing a more tepid RevPAR growth environment mixed with increased operating expenses, driven primarily by higher wages and benefits, growth and property insurance costs at our South Florida hotels and higher property tax. We are seeing a leveling of property increase -- property tax increases in most markets, but we continue to feel the effects of Prop 13 reassessments in California and the burn-off of tax incentives at a few of our New York properties.

We believe that one of our core differentiators from our peers is the ability to grow margins in the face of these mounting cost pressures. It has been challenging to clearly show this differentiation over the past few years with the level of asset recycling and portfolio renovation that we have undertaken, but the fourth quarter clearly exhibited the benefits of our operating model and the out-performance that we can drive from our strategic investment.

Our operating model which is almost exclusively a franchise operating model affords us the ability to work directly with our management companies to adjust staffing levels and restructure labor hours in real time. This, along with our continued focus on cost controls, an active asset management at our restaurant and bars, provides us with additional flexibility to control the segment of the industry that continues to face mounting cost pressures in an environment where wages are increasing at untenable level.

Based on increases in minimum wages and tip credit, we're seeing significant increases at certain restaurant and bars on the West Coast compared to our East Coast hotels. For example, California has recently implemented plans to move to a $15 minimum wage with no tip credit starting this year. In addition, margins benefited with the fourth quarter having immaterial disruption from asset recycling or capital expenditures similar to what we've undertaken over the past few years.

2018 was quiet on the acquisition disposition front as we made a few accretive dispositions while also adding the Annapolis Waterfront Hotel to our portfolio. Compared to the last few years, this was a quiet year for transactions and allowed us to focus on the completion of our CapEx projects.

Since 2016 we allocated close to $195 million in capital improvement to transform our legacy assets as well as upgrade a few of our recently acquired hotels such as the Ritz-Carlton Coconut Grove, Sanctuary Beach Resort, The Ambrose Hotel and the St. Gregory in Dupont Circle.

Fourth quarter performance at The Rittenhouse and The Ambrose are prime examples of executing margin growth at hotels coming off recently renovated project. At The Rittenhouse we completed a full room renovation during the first half of 2018 and we are clearly seeing the benefits of our multiyear transformation of the asset with 360 basis points of margin growth last quarter. We look forward to continued rate capture at this asset with the full suite of rooms back online.

The Ambrose underwent a public space refresh in 2018 and was able to deliver 390 basis points of margin growth following significant occupancy growth from transient and L&R business, along with new revenue management initiatives at the hotel to drive ADR. In New York, despite the challenging operating environment as it relates to labor expenses, a few of our Manhattan assets noted margin growth in the fourth quarter. At the Duane Street Hotel robust L&R contribution led to increased occupancy and an ADR lift driving 470 basis points of margin growth.

At the Hyatt Union Square increased stabilization of our restaurant and lounge, Bowery Road and the Library of Distilled Spirits drove F&B revenue in the fourth quarter leading to 200 basis points of margin growth.

We see other examples of margin growth from our ROI investment and recent acquisitions on the West Coast. In Monterey, our Sanctuary Beach Resort saw 320 basis points of margin growth in the fourth quarter as rate increases and the popularity of our newly renovated Lodge and Spa and Saltwood Kitchen and Oysterette helped drive demand to the resort. Here in Philadelphia at our Westin, significant occupancy growth and stronger group contribution drove margins higher by 320 basis points. We continued to see positive results from our revenue management initiative instilled since we purchased the asset 18 months ago.

I will now shift to the balance sheet and business interruption proceeds before closing with our guidance for 2019. We maintained significant financial flexibility as we ended the quarter with $32.6 million in cash on-hand and ample capacity on our $250 million line of credit. With the stabilization of operations and the collection of business interruption insurance, our dividend payout ratio is forecasted to be below our 50% payout target in 2019 and one of the lowest in the sector along with a solid fixed charge coverage ratio.

With the continued ramp-up of our newly acquired asset and transformed South Florida assets coming back online along with less CapEx spending in 2019 and 2020, we continue to target a leverage range of 4x to 5x debt to EBITDA. We believe this is attainable through organic EBITDA growth, debt paid down from free cash flow and calculated property sales across the next few years.

In our fourth quarter 2018 guidance we have forecasted approximately $2 million of business interruption recovery. However, during the period we collected $1.5 million in proceeds. Despite collecting less business interruption insurance proceeds than forecasted, our fourth quarter EBITDA significantly exceeded our internal forecast, driven solely by our core operation. We continue to negotiate with our insurance providers to recover additional proceeds as renovation delays will have an impact on our ramp-up of these 2 assets during 2019, but we have not built in any additional business interruption proceeds into our first quarter or full year 2019 guidance.

We shifted our CapEx strategy for 2018 and accelerated a number of planned renovations, especially in South Florida, with demand fundamentals looking robust over the next few years allowing us to more clearly showcase our organic RevPAR and margin growth potential. As we look out in 2019, we anticipate our CapEx spend inclusive of maintenance CapEx to be in the range of $32 million to $35 million with a very limited number of renovations resulting in rooms out of order or operational disruption.

We believe this shift in strategy, coupled with our (inaudible) focused on organic growth, will yield positive results in 2019 and prove our case for holding one of the highest FFO per share and EBITDA growth outlook among the lodging rates for 2019. Building off a very strong fourth quarter, we remain encouraged by our 2019 operating results to-date and our full year outlook, as we are seeing positive fundamentals in our core market driven by results from our recently renovated asset and strength on the West Coast and Philadelphia.

This helps to offset some of the declines we experienced from the government shutdown and the difficult comparisons we faced in the first quarter from our South Florida portfolio that benefited from Hurricane Irma-related remediation work in the first quarter of 2018 and registered 20.3% RevPAR growth with 790 basis points of margin growth, as well as our York portfolio which experienced 10.3% RevPAR growth with 120 basis points of margin growth in the first quarter of 2018.

For the first quarter, we're forecasting comparable portfolio RevPAR growth between 1 1/4% and 2 1/4%, a negative 50 basis points to flat margin growth with an EBITDA range of $25.25 million to $26.5 million. For the full year 2019, we're forecasting comparable portfolio RevPAR growth between 1 1/2% and 3% and flat to 50 basis points of EBITDA margin growth. Our full year EBITDA guidance is between $178 million to $184 million.

So that includes my portion of the call. We can now proceed to Q&A where Jay, Neil and I are happy to address any questions that you may have. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question will come from David Katz of Jefferies.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [2]

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Nice job on the quarter and congrats on the guidance et cetera. I just want to go back to the capital allocation commentary, which was relatively clear about what you might buy and what seems to be a reticence to sell anything. Is it fair to assume that whatever you would buy would be something that would not increase leverage, that would be a delevering act in all manners?

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Neil H. Shah, Hersha Hospitality Trust - President & COO [3]

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David, I think that's right. We don't -- our pipeline isn't particularly full right now, so it's hard to talk about anything in specifics, but generally we would -- we believe that we have sufficient organic growth in our portfolio to kind of -- to achieve our business plan and our longer term goals for the portfolio. And on the acquisitions front, if we were to find something that was compelling, it would likely be something that had significant cash flow accretion as well as NAV growth accretion for our portfolio, and yes, we would generally not only kind of match fund it with dispositions, but we would be looking for assets that clearly would bring down debt to EBITDA kind of metrics.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [4]

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Are there any other avenues that you can -- that maybe we haven't thought of yet to sort of reduce the leverage a little bit faster? I mean we have a clear sense of where you're headed from an operating perspective and how much EBITDA we think you can get to next year and the year after, but are there any other levers that you think you might be able to pull in that regard?

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Neil H. Shah, Hersha Hospitality Trust - President & COO [5]

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We can -- there are asset sales at high enough multiples that could also kind of achieve some of our goals there. Last year we sold an asset in New York at close to 20x EBITDA. There is likely other opportunities within the portfolio to do so in New York as well as in other markets across our portfolio. So there are other levers that we could pull if our confidence in EBITDA production were to wane or if there was something else happening in the marketplace that made us look into that. As you know, our portfolio is in arguably the best markets in the country, clearly the most liquid markets in the country. There's clearly a private market bid for single assets as well as for portfolios and so we feel like that's a lever that we can pull very quickly if we need to or if we feel like we need to kind of accelerate our trajectory to getting back to below 5x debt to EBITDA. But today we feel like our EBITDA growth profile will get us a long way there. We can use free cash flow to pay it down, we can entertain a few asset sales when the year comes to a close, but today we feel pretty comfortable, David.

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Operator [6]

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Our next question will come from Shaun Kelley of Bank of America.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [7]

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I just wanted to maybe dig in a little deeper on your New York outlook and the trajectory throughout the year. Obviously, you guys have a better crystal ball here than other people in the industry. So can you just give us sort of your underwriting of how the market plays out? I think it's well noted you have a tough comp in Q1. I think maybe also timing of Easter may impact the market. But just how do you see the market overall and just key drivers on international inbound, broader business activity et cetera.

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Neil H. Shah, Hersha Hospitality Trust - President & COO [8]

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Maybe I can get started and then you guys can jump in. This is Neil, Shaun. The New York market, we finished the year at 95% occupancy for the full year in New York. We did the fourth quarter at 96%. There is just a tremendous amount of demand in this city. We've been operating in New York for over 20 years now as a management team and we can't remember a time when there was better demand fundamentals. It is tough to move rates in the city because the supply does keep coming. As we've been saying, we've kind of gotten to the point where it's decelerating relative to the last 3 years to 5 years, but we still do have pockets of 4% kind of supply growth that we're going to hit across the next couple of years and so that's the only thing that kind of decreases our optimism a bit, but we feel like there's -- the demand side is very strong. International -- there has been a lot of headline risk about international demand, but we had a breakout international quarter in New York last year. The business transient mix, it's been developing all across this cycle, but we've gone from being a market that was overly -- arguably overly reliant on financial services to one that is now really well diversified and particularly has great exposure to technology, innovation and biotech. We've seen great infrastructure improvements throughout the city that give us great confidence in future visitation patterns in New York. So we feel very strong about New York and particularly the locations that we're doing business in. We've had great performance downtown across the last year, 1.5 years around Hyatt Union Square in the technology areas, as well as far downtown in the Seaport and in Tribeca. But Midtown East as you may be reading about in New York these days is also looking very strong. We've had some challenging quarters at our Hilton Garden Inn, Midtown. We think that will reverse pretty significantly as the year progresses and particularly in the next few years as supply continues to decrease, actual decreases in supply in Midtown East. I think on the -- I mentioned on supply is the only thing that kind of reduces kind of enthusiasm for the market, but even on that side we do have some positive news. On the shadow supply side the Airbnb and sharing kinds of sites, there has been a clear change here. It's not only the public narrative that's changed, I think there is -- now it's commonplace in the New York Times and in newspapers across the country to talk about some of the negative impacts from "Home Sharing" in the sector. But we're now seeing real significant enforcement by regulatory authorities in New York City, as well as major cities all across the United States. That shadow supply and its impact on pricing could be significant. We've seen some data about the number of compression nights significantly increasing for the lodging industry in the last couple of years, at the same time that kind of consumer, the awareness and the growth of Airbnb and other Home Sharing channels are -- is kind of decreasing or at least the rate of growth is decreasing. And so there seems to be a pretty good connection there. So we feel good about demand fundamentals. We feel kind of -- we feel really good about demand fundamentals. The supply side, which has been the challenge of this cycle, is starting to get better. And that makes us feel pretty good about New York for the next several years.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [9]

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And then maybe similar question for LA. Your I think submarkets are probably a little bit differently here mixed views because it does seem like there's a lot of supply in downtown. So just what's your outlook for sort of LA/Southern California broadly?

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Neil H. Shah, Hersha Hospitality Trust - President & COO [10]

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Yes. In Los Angeles -- well, Southern California for us includes 4 prime assets, primary assets. We have San Diego, The Courtyard and San Diego and there we have a very good convention calendar across this year and that will continue to be a very strong performer for us. In the Los Angeles area, we have 2 independent hotels and The Courtyard. We have The Hotel Milo in Santa Barbara, the Ambrose in Santa Monica and The Courtyard on the west side of LA in Culver City. Ambrose I mentioned a bit about in our prepared remarks that that submarket continues to grow. Great business transient mix, great weekend business for leisure on the weekends and our asset is right-sized and particularly well located for all of those kinds of demand growth in the market. Milo up in Santa Barbara, we've just had -- as you've been probably hearing about in California, there just seems to be a natural disasters occurring at a greater pace and we were getting over the wild fires and now we've had significant rain and that kind of disruption for our hotel in Santa Barbara has been significant. So we continue to have some challenges in Santa Barbara, not really related to supply, but truly just related to the environment and to weather patterns currently in the market. But that hotel is one that we do expect to have some growth as the year goes on. Our Courtyard in Westside LA is just coming off of several years of high single-digit RevPAR growth. And so it's been moderating as a market and part of -- as an asset and part of that is the impact of supply in downtown that's a good 7 miles, 8 miles away, but it has an impact on the market particularly on compression nights and big convention calendar kinds of times. But here again, we're in that area of Los Angeles that has the most growth in technology companies. Google recently made a big announcement in downtown, but they've already been very active along with Apple in Playa Vista, which is just miles down the street from us. And so we think the long-term health of that market is sound. We're probably going to have a couple of choppy quarters as we kind of find our next leg of growth on rates. But it continues to be -- it's not one that we're calling out as one of our top markets, but it remains something that we're very -- over a couple of year point of time we think it will continue to have above average growth.

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Operator [11]

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(Operator Instructions) Our next question will come from [Matt Daon] of B. Riley FBR.

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Unidentified Analyst, [12]

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Just kind of following that line of questioning on supply, specifically looking at your entire portfolio, where are you seeing the most pressure and how can we expect that to shape the rest of 2019?

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Neil H. Shah, Hersha Hospitality Trust - President & COO [13]

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On supply in particular?

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Unidentified Analyst, [14]

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Yes. Yes, just looking at your core markets, I mean you've kind of alluded to that for a couple of them, but looking at all them --

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Neil H. Shah, Hersha Hospitality Trust - President & COO [15]

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Yes.

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Unidentified Analyst, [16]

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As a whole, where are you seeing the most pressure and how is that kind of shaping your expectations for 2019?

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Neil H. Shah, Hersha Hospitality Trust - President & COO [17]

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For 2019 probably the most -- the kind of the most vivid supplier, the most concerning supply for a single asset in our portfolio is in Seattle where a new 1,200 room hotel just recently opened near the Convention Center. The Convention Center unfortunately hasn't fully expanded yet, so we're getting 1,200 new rooms into a market without an expanded Convention Center. Fortunately the hotel that was built by Hyatt has a -- has significant meeting space and there likely will be overflow from and self-generated kind of demand from the hotel. But that's been -- that will be a challenge across the years. Seattle and our Pan Pacific has been registering high single-digit or low double-digit kind of RevPAR growth nearly every quarter since we acquired the hotel a couple of years ago and that will begin to moderate this year for a bit. But again, over the 2 years to 3 year kind of horizon we feel really good about the demand fundamentals in Seattle. If the market was going to take supply, this market has the demand for the foreseeable future to kind of mitigate the impact of it. I think the greatest kind of upside from our portfolio is -- will be in New York when supply starts to moderate and that's -- we've already seen early signs of that across the last couple of years, but we continue to believe that that will begin to accelerate as the coming quarters come and in the coming couple of years. A market that's at 95% -- or a portfolio that's at 95% occupancy with all -- with such great kind of news and trends ahead on the demand side, that's where the greatest opportunity will be for margin growth and significant rate growth in the coming years.

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Unidentified Analyst, [18]

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Then one more, I understand you guys are being very opportunistic as it pertains to acquisitions and dispositions. Can you comment on any inbound interest that you've had in the portfolio? And I get you're not marketing any assets specifically, but are there any that you would feel comfortable sharing with us as opposed to pursuing acquisitions?

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Neil H. Shah, Hersha Hospitality Trust - President & COO [19]

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Just on the disposition front, there is a handful of assets in the portfolio that we get a lot of inbound inquiries on. They're not even just a handful on many hotels through the portfolio. Our hotels are in the absolute right markets. They're generally recently built, so they don't have big CapEx drags or big CapEx that people have to underwrite going into a deal. So we do get lot of interest. But for us it's really what is -- it's how much an asset can grow after all of the kind of capital we've put into it. We've pruned a lot of our kind of non-core kinds of assets and now we'll truly be opportunistic and really it's hard to narrow it down. There's assets in each of our markets that we do get inbound inquiries on.

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Operator [20]

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Our next question will come from Anthony Powell of Barclays.

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Anthony Franklin Powell, Barclays Bank PLC, Research Division - Research Analyst [21]

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And sorry if I missed this earlier, but could you give us your projected CapEx spend for the next couple of years?

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Ashish R. Parikh, Hersha Hospitality Trust - CFO & Assistant Secretary [22]

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Yes, Anthony, this is Ashish. So in 2019 we're looking at between $32 million and $35 million. That includes our maintenance CapEx, so that's the full year spend for '19. Right now for 2020 we probably will be a little bit above that, but somewhere in the range of say $40 million or so.

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Anthony Franklin Powell, Barclays Bank PLC, Research Division - Research Analyst [23]

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And maybe a broader big-picture question; with Amazon HQ2 leaving New York, are you concerned about any kind of secondary impacts of that type of event impacting some of the technology innovation that we've seen in the city recently?

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Neil H. Shah, Hersha Hospitality Trust - President & COO [24]

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Not really, Anthony. We didn't have enough time to really celebrate Amazon's coming to New York. There's just -- there's so much strong fundamentals in New York City from companies large and small that Amazon was kind of nice icing on the cake for Long Island City and for Queens and for parts of Manhattan, but it wasn't something that was driving our optimism for this market. What's driving our optimism for this market is much more broad-based on the demand side and a slowing kind of supply picture. I happened to be with someone from the corporate real state department of Google around the time that Amazon announced that they were stepping out on the -- and how they described it was they were adding 18,000 to 20,000 people in New York across the next several years and we never made an announcement. And I think there's a lot of companies like that out there. The investments that Mayor Bloomberg and Cornell University made in the city across last several -- across last 5 years-7 years are really starting to take hold as well and I think that will continue to attract new technology business over the coming years. Around our markets, like around our assets in Union Square, there's been a new corporate tech center that's being built there, a new incubator space. There's new centers going up in Chelsea and in other areas of lower Manhattan. So we think that the Amazon -- the loss of Amazon, it will be -- we will miss it at least.

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Ashish R. Parikh, Hersha Hospitality Trust - CFO & Assistant Secretary [25]

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And we've got a pretty strong market.

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Anthony Franklin Powell, Barclays Bank PLC, Research Division - Research Analyst [26]

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And I guess I know you focus on kind of operating and generating growth for this portfolio over the next couple of years, but when will be the right time for you maybe to increase your exposure back in New York given some of the positive trends you've described?

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Neil H. Shah, Hersha Hospitality Trust - President & COO [27]

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We generate nearly 25% of our EBITDA from New York City and we do expect across the next couple of years that that is going to increase just organically. Our hotels are really well positioned in that market and they will grow. Across several years they're going to grow faster than the rest of our portfolio. So we feel pretty good about our exposure. At one time, we had nearly 50% of our EBITDA coming from New York City and looking back that may have been too high. We went through a pretty thoughtful conscious effort beginning in 2011 and then really accelerated it after 2015 to diversify our market positions. We entered Miami and Los Angeles in 2011 and then you'll remember in 2015 is when we sold a lot of assets in New York and in other markets and again redeployed on the West Coast and in South Florida. So we feel pretty good about our market exposures today and our market exposure to New York. So we're not actively looking at growing our exposure.

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Ashish R. Parikh, Hersha Hospitality Trust - CFO & Assistant Secretary [28]

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Anthony, one of the things, our basis in our New York portfolio is right around the mid-300s, so right around 350,000 at Key right now. When we look at comparable sales, they're all exceeding 500,000 in Key including our kind of lower tier assets that we entered into the JV with Cindat, which sold for 525 at Key. So it's hard for us to re-opt that basis, so what -- we'd probably look at somewhere around 550 to 600 to buy similar assets today.

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Operator [29]

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Our next question will come from Michael Bellisario of Baird.

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Michael Joseph Bellisario, Robert W. Baird & Co. Incorporated, Research Division - VP and Senior Research Analyst [30]

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Neil, could you maybe update us on your $200 million EBITDA target, how you're tracking towards this goal and then kind of what needs to occur and maybe what are the risks in the portfolio to get you to this number and when?

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Neil H. Shah, Hersha Hospitality Trust - President & COO [31]

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Sure Michael. We wanted to make most of this call and most of our discussion about 2019, but we continue to feel very confident in our plans for 2020. The -- between 2019 and 2020 to kind of achieve our goals for this portfolio, we will continue -- we continue to anticipate significant growth from Cadillac and Parrot Key. Those 2 assets were absolutely kind of brand new hotels as of December of this year. And for assets of this size and scope and markets as complex as Miami Beach and Key West, we do expect 2 years to 3 year kind of stabilization periods. And so we are planning -- we are going to have some significant growth throughout this year, Cadillac and Parrot Key, but in 2020 we expect to have additional significant growth from those assets and that's the biggest kind of gap in the numbers. We also believe that our renovated hotels that were highly disrupted in 2018 are beginning to ramp up in 2019 and will again continue to grow above their markets and above industry metrics through 2020. And so that's kind of second part to our growth between '20 -- in 2020. And then our recent acquisitions that we've made across the last several years, they also have 3 years to 5 year kind of business plans that allow them to grow at a higher pace than their markets. Our same-store portfolio in 2020 is going to be highly refreshed, completely renovated, in the right markets and the right exposures and we believe that will also produce incremental EBITDA relative to market expectations. So those are the key drivers to get there. Our confidences is as it was last year. We don't see anything to be a significant impediment achieving our goals there. The Cadillac and Parrot Key were late in delivery and so that makes it maybe a little bit more challenge or stress to achieve it, but right now we feel very good about it. If you think of assets like -- if you think of like an asset like The Envoy for us, which was also kind of a brand new asset that entered the portfolio in 2016, that grew -- each year it grew at kind of 8% to 10% on RevPAR growth. On EBITDA it had a CAGR of nearly 14% since we've acquired the asset. We're expecting that kind of performance from The Cadillac and Parrot Key, as well as some of the other new assets that we brought into the portfolio. We're able to -- when we've -- all of the recycling we've done and the investments we've made, we've made them in locations that we think can outperform their markets and then we add our layer of operating advantage to drive even better results. And so today, we're feeling very confident about our outlook not only for 2019, but our vision for 2020 as well.

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Michael Joseph Bellisario, Robert W. Baird & Co. Incorporated, Research Division - VP and Senior Research Analyst [32]

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And just on that 2019 outlook, kind of what are you assuming in terms of EBITDA contribution for the 2 South Florida asset? And then how should we think about renovation tailwinds from last year boosting RevPAR growth this year?

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Ashish R. Parikh, Hersha Hospitality Trust - CFO & Assistant Secretary [33]

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Hey Michael. So we're looking at somewhere between $14 million to $15 million of EBITDA contribution for those 2 assets this year. Just as a reminder, those 2 assets back in 2015 -- 2016 were generating close to $17.5 million, so very much a stabilization year this year -- a ramp-up year, I'm sorry, this year. 2020 we would expect Parrot Key margins to be about 1,000 basis points higher than they are today, what we're forecasting today to be comparable to what we used to do at the asset. Cadillac probably closer to 500 basis points of margin growth from '19 to '20. So there is lot of ramp-up at these assets to get us to kind of that $23 million to $25 million range which is what we're targeting for both of these properties.

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Michael Joseph Bellisario, Robert W. Baird & Co. Incorporated, Research Division - VP and Senior Research Analyst [34]

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And then if you think about the 2019 RevPAR growth guidance range, can you quantify the renovation tailwind or the renovation boost to that range?

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Ashish R. Parikh, Hersha Hospitality Trust - CFO & Assistant Secretary [35]

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Yes. So for 2019 we're looking at somewhere between 80 basis points and 100 basis points of renovation-related growth in 2019. So assets that were disrupted last year that are helping our RevPAR this year.

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Operator [36]

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Ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to management for closing remarks.

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Neil H. Shah, Hersha Hospitality Trust - President & COO [37]

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Thank you. With no more questions, we'll leave you all to your next calls. You know that Jay, Ash and I are here if you have any further questions today. Thank you.

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Operator [38]

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The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.