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Hersha Hospitality Trust Announces Full Year and Fourth Quarter 2018 Results

Hersha Hospitality Trust Announces Full Year and Fourth Quarter 2018 Results

- Fourth Quarter 2018 Comparable Portfolio RevPAR Growth of 2.8% -
- Limited Capex Disruption Leads to Portfolio Outperformance -
- Asset Management Initiatives Result in Margin Expansion -
- Newly Acquired Hotels Continue to Drive Results -

PHILADELPHIA, Feb. 25, 2019 (GLOBE NEWSWIRE) -- Hersha Hospitality Trust (HT) (“Hersha,” “Company,” “we” or “our”), owner of high-quality upscale, luxury and lifestyle hotels in urban gateway markets and coastal destinations, today announced results for the full-year and fourth quarter ended December 31, 2018.

Full-Year and Fourth Quarter 2018 Financial Results

Net loss applicable to common shareholders was ($14.2 million), or ($0.38) per diluted common share, in 2018, compared to net income applicable to common shareholders of $75.7 million, or $1.79 per diluted common share, in 2017.  The decrease in full year 2018 net income and net income per diluted common share was primarily due to a decline in gains on dispositions of hotel assets.

Net loss applicable to common shareholders was ($3.4 million), or ($0.09) per diluted common share, in fourth quarter 2018, compared to net loss applicable to common shareholders of ($14.3 million), or ($0.36) per diluted common share, in fourth quarter 2017.  The increase in fourth quarter 2018 net income and net income per diluted common share was primarily a result of stronger operating performance.  The fourth quarter of 2017 was also impacted by an impairment loss as a result of damage to several of the South Florida assets from Hurricane Irma.

AFFO in the fourth quarter 2018 increased by $4.1 million, or 18.6%, to $26.3 million, compared to $22.2 million in the fourth quarter 2017.  AFFO per diluted common share and OP Unit in the fourth quarter 2018 was $0.61, a 22% increase from AFFO per diluted common share and OP Unit of $0.50 in the same quarter in 2017.  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, “Our operating results for the fourth quarter exceeded our forecasts on RevPAR and EBITDA margin.  The quarter yielded strong results in the majority of our markets as contributions were driven through the business, leisure, and group channels.  Corporate demand was especially robust in our innovation districts and leisure travel around the holidays in Manhattan and Philadelphia reflected strong consumer confidence.  New York City was a bright spot again in the fourth quarter with 6.0% RevPAR growth allowing us to drive 360 basis points of margin growth.  Additionally, our assets acquired over the last two years continued to exhibit their potential as these hotels produced a weighted average RevPAR growth of 6.8% during the fourth quarter.”

Mr. Shah continued, “Last year was transformative for our Company as we completed our asset recycling campaign and allocated close to $90 million to repositioning and renovating many of our legacy hotels to unlock their long-term growth potential.  By the fourth quarter, the vast majority of these operationally disruptive projects were completed, allowing us to showcase the earnings potential of the portfolio, which is continuing into 2019.  After four years of disruption from portfolio recycling, Hurricane Irma remediation, and significant capital expenditures, we are solely focused on executing our business plan to generate meaningful EBITDA growth.  We believe the results this quarter reflect our ability to drive market leading earnings growth even in a challenging operating environment.”

Fourth Quarter 2018 Operating Results

Revenue per available room (“RevPAR”) at the Company's 37 comparable hotels increased 2.8% to $189.82 in the fourth quarter 2018.  The Company’s average daily rate (“ADR”) for the comparable hotel portfolio increased 3.2% to $233.21, while occupancy declined 27 basis points to 81.4%.  Hotel EBITDA margins for the comparable hotel portfolio increased 90 basis points to 34.3%.  Excluding our Washington, DC properties, our comparable RevPAR grew 4.8% to $193.62 during the fourth quarter while Hotel EBITDA margins increased by 160 basis points to 34.9%. 

Markets

Our West Coast hotel portfolio was our best performing cluster during the fourth quarter as robust demand in San Diego and in our innovation districts yielded 6.7% RevPAR growth, driven by 5.6% ADR growth.  Our Courtyard San Diego was our best performing asset last quarter, growing RevPAR by 21.2% driven by a strong quarter for citywide convention demand.  Additionally, our assets in Silicon Beach and Silicon Valley continued to capture market share on robust business transient demand.

Our Philadelphia portfolio was strong for the second-consecutive quarter, growing RevPAR by 6.2% to $179.62.  We remain bullish on the Philadelphia market and we believe our recently refreshed cluster of hotels is well positioned to capture increased occupancy and rate with the city hosting the strongest convention calendar we have seen since the convention center’s expansion in 2011. 

Our New York City portfolio, which includes nine hotels across the five boroughs, reported RevPAR growth of 6.0% to $251.98, driven by ADR growth of 4.3% and an occupancy increase of 156 basis points to 95.8%.  Hotel EBITDA margins for the Company’s comparable New York City portfolio increased 360 basis points during the quarter due to operational efficiencies at our JFK cluster and Duane Street Hotel along with strong growth from the new restaurant and bar at the Hyatt Union Square.

The Company’s comparable Manhattan portfolio, which consisted of six hotels as of December 31, 2018, reported RevPAR growth of 5.3% to $285.15 driven by ADR growth of 4.7% and an occupancy increase of 53 basis points to 95.7%.  The Company’s comparable Manhattan portfolio RevPAR outperformed the Manhattan market by 250 basis points of growth. This outperformance has occurred in 17 of the previous 20 quarters as a result of a young, well-located and purpose-built hotel cluster that appeals to the tastes and preferences of today’s traveler.  

Business Interruption Insurance

During the fourth quarter, the Company received approximately $1.5 million of business interruption insurance.  Fourth quarter recoveries were below the forecasted recovery of $2 million that was included in our fourth quarter and full year 2018 guidance.  For the full year 2018, the Company recognized approximately $13.4 million of business interruption insurance. 

Financing

As of December 31, 2018, the Company maintained significant financial flexibility with approximately $32.6 million of cash and cash equivalents and ample capacity on the Company’s $250 million senior unsecured revolving line of credit.  As of December 31, 2018, 88.0% of the Company’s consolidated debt was fixed rate debt or hedged through interest rate swaps and caps.  The Company’s total consolidated debt had a weighted average interest rate of approximately 4.32% and a weighted average life-to-maturity of approximately 3.3 years.

Dividends

Hersha 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 fourth quarter ending December 31, 2018.  The preferred share dividends were paid January 15, 2019 to holders of record as of January 1, 2019.

The Company also declared cash dividends totaling $0.28 per common share and per limited partnership unit for the fourth quarter ending December 31, 2018.  These common share dividends and limited partnership unit distributions were paid January 15, 2019 to holders of record as of January 5, 2019.

First Quarter and Full-Year 2019 Outlook

The Company is providing its operating and financial expectations for the first quarter and full-year 2019.  The Company’s expectations do not build in any additional business interruption proceeds, acquisitions, dispositions or capital market activities for 2019.  Based on management’s current outlook for its hotels and the markets in which it operates, the Company’s 2019 expectations are as follows:

  Q1'19 Outlook 2019  Outlook
($’s in millions except per share amounts) Low High Low High
Net Income Applicable to Common Shareholders ($16.75) ($15.50) ($22.0) ($16.0)
Net Income per share ($0.42) ($0.39) ($0.56) ($0.41)
         
Comparable Property RevPAR Growth 1.25% 2.25% 1.50% 3.00%
Comparable Property EBITDA Margin Growth -0.50% 0.00% -0.25% 0.25%
         
Adjusted EBITDA $25.25 $26.50 $178.0 $184.0
         
Adjusted FFO $4.75 $6.00 $96.0 $102.0
Adjusted FFO per share $0.11 $0.14 $2.23 $2.37

*For detailed reconciliations of the Company’s 2019 operating expectations, please see “Reconciliation of Non-GAAP Financial Measures Included in 2019 Outlook”

Fourth Quarter 2018 Conference Call

The Company will host a conference call to discuss these results at 9:00 a.m. Eastern Time on Tuesday, February 26, 2019.  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.

A live audio webcast of the conference call will be available on the Company’s website at www.hersha.com.  The conference call can be accessed by dialing 1-888-317-6003 or 1-412-317-6061 for international participants and entering the passcode 6058386 approximately 10 minutes in advance of the call.  A replay of the call will be available from 11:00 AM Eastern Time on Tuesday, February 26, 2019, through 11:59 PM Eastern Time on Tuesday, March 26, 2019. The replay can be accessed by dialing 1-877-344-7529 or 1-412-317-0088 for international participants. The passcode for the replay is 10127122. A replay of the webcast will be available on the Company’s website for a limited time.

About Hersha Hospitality Trust

Hersha Hospitality Trust (HT) is a self-advised real estate investment trust in the hospitality sector, which owns and operates high quality upscale, luxury and lifestyle hotels in urban gateway markets and coastal destinations. The Company's 48 hotels totaling 7,644 rooms are located in New York, Washington, DC, Boston, Philadelphia, South Florida and select markets on the West Coast. The Company's common shares are traded on The New York Stock Exchange under the ticker “HT”. 

Non-GAAP Financial Measures

An explanation of Funds from Operations (“FFO”), AFFO, Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), EBITDAre, Adjusted EBITDA and Hotel EBITDA, as well as reconciliations of such non-GAAP financial measures to the most directly comparable U.S. GAAP measures, is included at the end of this release.

Cautionary Statements Regarding Forward Looking Statements

Certain matters within this press release are discussed using “forward-looking statements” within the meaning of the safe harbor provisions of 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 statements. These forward-looking statements may include statements related to, among other things: the Company’s 2019 outlook for net income attributable to common shareholders, net income per weighted average common share and OP Units outstanding, Adjusted EBITDA, AFFO, AFFO per weighted average common share and OP Units outstanding, consolidated and comparable RevPAR growth and consolidated and comparable Hotel EBITDA margin growth, economic and other assumptions underlying the Company’s 2019 outlook and assumptions regarding economic growth, labor markets, real estate values, lodging fundamentals, corporate travel, and the economic vibrancy of our target markets, the Company’s ability to grow operating cash flow, return capital to its shareholders, whether in the form of increased dividends or otherwise, the Company’s ability to match or outperform its competitors’ performance, the ability of the Company’s hotels to achieve stabilized or projected revenue, cap rates or EBITDA multiples consistent with our expectations, the stability of the lodging industry and the markets in which the Company’s hotel properties are located, the Company’s ability to generate internal and external growth, the Company’s expectations regarding foreign exchange rates and the Company’s ability to increase margins, including hotel EBITDA margins. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company’s current beliefs, expectations and assumptions regarding the future of its business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company’s control. The Company’s actual results and financial condition may differ materially from those indicated in the forward-looking statements contained in this press release. Therefore, you should not rely on any of these forward-looking statements.  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, 2018 filed by the Company with the Securities and Exchange Commission (“SEC”) and other documents filed by the Company with the SEC from time to time.  All information provided in this press release, unless otherwise stated, is as of February 25, 2019, and the Company undertakes no duty to update this information unless required by law.

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HERSHA HOSPITALITY TRUST        
Balance Sheet (unaudited)        
(in thousands, except shares and per share data)        
                 
    December 31, 2018       December 31, 2017    
Assets: