HERSHA HOSPITALITY TRUST
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148 Sheraton Drive
Box A
New Cumberland, PA 17070
Phone: (717) 770-2405
Fax: (717) 774-7383
For Immediate Release
Contact: Chris Daly or Jerry Daly, media Ashish Parikh, investors
Ph: (703) 435-6293 Ph: (717) 770-2405
Hersha Hospitality Trust Reports First-Quarter 2004 Results
HARRISBURG, Pa., May 11, 2004-Hersha Hospitality Trust (AMEX: HT) today
announced financial results for the first quarter ended March 31, 2004. At 11
a.m. ET, today, May 11, 2004, the company's senior management team will conduct
a conference call to review first quarter 2004 financial results, followed by a
question-and-answer period. Stockholders and other interested parties may
participate in the conference call by calling (800) 219-6110, reference number
579342.
OPERATING RESULTS
First-quarter 2004 revenue per available room (RevPAR) for the company's
full portfolio, including recent acquisitions, rose 21.2 percent to $48.80.
Occupancy increased 1.6 percent to 55.7 percent, and average daily rate (ADR)
increased 17.7 percent to $87.62. The dramatic increase in RevPAR was due
primarily to the company's broadened strategic portfolio focus on stronger
central business districts and primary suburban office parks. This, coupled
with the size of the recent acquisitions as a percentage of the portfolio, as
well as franchise affiliations with stronger brands, such as Hilton Garden Inn,
Residence Inn and Four Points by
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Sheraton, also positively impacted RevPAR. The increase in occupancy was
particularly encouraging, considering the addition of seven new properties, all
in ramp-up stages, including two hotels opened in the fourth quarter of 2003 and
first quarter of 2004.
On a "same hotel" basis (which compares all hotels owned for all of each
period compared, excluding four metro Atlanta properties), Hersha's portfolio
achieved first quarter RevPAR growth of 6.1 percent to $42.74, based on
occupancy of 53.3 percent and ADR of $80.23. The company excludes its Atlanta
properties from "same hotel" analysis because that region is not part of its
core strategy for the future. As was discussed in the fourth quarter 2003, the
company's four Atlanta properties were particularly hard hit by the economic
downturn. Recently, the company changed operators at those properties to Hersha
Hospitality Management, a Hersha-affiliated, regional hotel management company,
which has a number of programs under way to enhance revenues and profits at
those hotels.
"We consciously pushed rates across the portfolio this quarter, positioning
us optimally for the recovery," said Jay H. Shah, Hersha's president and chief
operating officer. "We were pleased to see a robust increase in ADR, which
resulted from aggressive direct sales and yield management programs. Our hotel
performance continues to be strong, and we believe that our strategy of focusing
in the Northeast and Mid-Atlantic markets is well leveraged to the ongoing
economic recovery. This is evidenced by our strong first quarter operating
performance in these markets."
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FINANCIAL RESULTS
The company reported a loss applicable to common shareholders of
$(829,000), or $(0.07) per common share, for the first quarter, compared to net
income of $304,000, or $0.12 per share, during the same period of 2003.
Funds from operations (FFO) declined to $1.2 million in the 2004 first
quarter, compared to $1.5 million in the same period in the prior year. FFO per
common share and unit was $0.06 in the 2004 first quarter on 19.05 million fully
diluted weighted average shares and units outstanding, compared to $0.20 per
common share on 7.7 million fully diluted weighted shares and units outstanding
in the 2003 first quarter. The company completed a follow-on stock offering in
October 2003 of 9.775 million shares, which impacted the number of common shares
outstanding for the 2004 first quarter.
Net income and FFO were below the company's expectations due to several
factors, including conversion from a fixed and percentage lease structure to a
taxable REIT subsidiary (TRS) structure, the slower than expected timing of
acquisitions, and the seasonally weak demand associated with first quarter hotel
operations generally.
"When we converted to the TRS structure, we realized that it would impact
us over the short term, but we underestimated the interplay of the seasonality
of our business with expense recognition during the first quarter. We expect to
realize the benefits of the conversion during the subsequent three quarters in
2004," he said. "Our acquisition pipeline is progressing well;
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however, the timing of closings of two assets in the first quarter varied from
our assumptions by a month to two months, and at our current level of
capitalization and leverage, this negatively impacted our FFO.
"As the portfolio grows in the upcoming quarters, we expect to be less
vulnerable to the timing of acquisitions. That being said, we continue to
believe that seeking the best investments remains more important than the timing
of closings. We intend to stay true to our objective of being one of the most
profitable hotel REITs, not necessarily the largest," Shah noted.
FIRST QUARTER ACQUISITIONS
"We continue to aggressively seek acquisitions, but also remain highly
selective and prudent with our investment decisions, insisting on high-quality
mid-priced hotels clustered in high barriers-to-entry metro markets in the
Northeast," Shah said. "Since the end of the third quarter 2003, we have
purchased seven newly constructed or recently renovated hotels flying Hilton,
Marriott and Starwood flags in New York City, Connecticut and Boston."
In March, the company acquired sole ownership of the 125-room Residence Inn
Boston/Framingham and a joint-venture interest in the 180-room Four Points by
Sheraton Boston/Logan International Airport. The company also purchased the
96-room Holiday Inn Express in Hartford, Conn., and assumed the underlying
ground lease for the property. All three hotels are leased to the company's TRS
and are managed by Hersha Hospitality Management.
"These are high quality, mid-market assets," Shah said. "Furthermore, they
are consistent with our strategy of clustering hotels in attractive markets with
high barriers to new entry."
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Hersha also acquired in the 2004 first quarter an option to purchase the
newly constructed Hilton Garden Inn-JFK Airport in N.Y. from a third-party
developer. The company provided a first mortgage financing commitment of $11
million for this right, and as of March 31 of this year, $3 million of the
mortgage had been drawn and recorded in its notes receivable.
"Towards the end of the year, we are looking to close on the acquisition of
three more newly built hotels in New York City for which we have options and
several in the mid-Atlantic region," Shah said. "Through our acquisition
strategy, we seek to offer a strong current yield, inherent growth from the
ramp-up of newly built hotels, and develop a portfolio that is well positioned
to take advantage of an economic recovery."
CNL PUBLIC OFFERING OF HERSHA SHARES
Also in April, the company announced that CNL Hospitality Partners, L.P., a
significant shareholder of Hersha, completed a public offering of 2.6 million
Hersha common shares in connection with a strategic decision by CNL to refocus
its business platform and concentrate more on direct ownership of hotel real
estate. CNL received approximately $25 million in net proceeds from the
offering, net of discounts and commissions. Hersha did not receive any of the
proceeds from the sale of these common shares.
Shah noted that Hersha continues to own a hotel in a joint venture
partnership with CNL and continues to benefit from its strategic relationship
with them. "Our business relationship with CNL remains strong, and we expect to
work with them in the future," Shah said. "We view CNL's sale of our common
stock as a positive to Hersha because it further increases our common share
float and removes a significant overhang of convertible preferred stock."
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GUIDANCE
Based upon the current acquisition pipeline and the forecasted timing of
the acquisitions, the forecasted net income to common shareholders and
unitholders for the year ending December 31, 2004 is between $6.3 million and
$6.7 million, or $0.33 to $0.35 per fully diluted share and unit. FFO is
projected to be between $14.7 million and $15.1 million, or $0.77 to $.079 per
fully diluted share and unit.
The primary assumption utilized by the company in issuing this guidance is
that the company is able to complete an additional $75 million of asset
acquisitions during 2004. The company's guidance also forecasts interest rates
on variable rate financing to be within 50 to 75 basis points of current
interest rate levels for 2004.
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SUMMARY RESULTS
A summary of the three months ended March 31, 2004 and 2003 is presented
below:
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2004 2003
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REVENUE:
Percentage Lease Revenues - HHMLP $ 1,884 $ 2,534
Percentage Lease Revenues - Other - 700
Hotel Operating Revenues 5,470 -
Interest 75 -
Interest - Secured Loans Related Party 170 -
Interest - Secured Loans 240 -
Other Revenue 75 44
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TOTAL REVENUE 7,914 3,278
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EXPENSES:
Interest expense 1,465 1,268
Hotel Operating Expenses 4,185 -
Land Lease 129 -
Real Estate and Personal Property Taxes and Insurance 574 265
General and Administrative 499 240
Depreciation and Amortization 1,602 1,087
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TOTAL EXPENSES 8,454 2,860
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LOSS FROM UNCONSOLIDATED JOINT VENTURE INVESTMENTS (19) -
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(LOSS) INCOME BEFORE DISTRIBUTION TO PREFERRED UNITHOLDERS,
AND MINORITY INTEREST (559) 418
DISTRIBUTIONS TO PREFERRED UNITHOLDERS (499) -
LOSS (INCOME) ALLOCATED TO MINORITY INTERESTS 229 (114)
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NET (LOSS) INCOME (829) 304
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(LOSS) EARNINGS PER SHARE DATA:
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Basic (Loss) Earnings Per Common Share $ (0.07) $ 0.12
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Diluted (Loss) Earnings Per Common Share $ (0.07) $ 0.05
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FFO AND GAAP RECONCILIATION
The National Association of Real Estate Investment Trusts (NAREIT)
developed Funds from Operations (FFO) as a relative non-GAAP financial measure
of performance and liquidity of an equity REIT in order to recognize that
income-producing real estate historically has not depreciated on the basis
determined under GAAP. FFO, as defined under the definition adopted by NAREIT in
April 2002 and as presented by us, is net income (loss) (computed in accordance
with generally accepted accounting principles), excluding gains (or losses) from
debt restructuring or sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. We further
adjust FFO for preferred stock distributions. FFO does not represent cash flows
from operating activities in accordance with GAAP (which, unlike FFO, generally
reflects all cash effects of transactions and other events in the determination
of net income) and should not be considered an alternative to net income as an
indication of our performance or to cash flow as a measure of liquidity or
ability to make distributions. We consider FFO a meaningful, additional measure
of operating performance because it primarily excludes the effects of the
assumption that the value of real estate assets diminishes predictably over
time, and because it is widely used by industry analysts as a performance
measure. Comparison of our presentation of FFO to similarly titled measures for
other REITs may not necessarily be meaningful due to possible differences in the
application of the NAREIT definition used by such REITs or the use of other
definitions of that term.
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The table below reconciles FFO to Net Income calculated in accordance with
GAAP.
FUNDS FROM OPERATIONS
(In thousands, except per share data)
THREE MONTHS ENDING
3/31/04 3/31/03
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Net Income (Loss) $ (829) $ 304
Add:
Income (Loss) allocated to Minority Interest (229) 114
Distributions to Preferred Unitholders 499 -
Depreciation and Amortization 1,602 1,087
Adjustments for Unconsolidated Joint Ventures 160 -
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FFO applicable to common shareholders $ 1,203 $ 1,505
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Fully Diluted Weighted Average Shares and Units Outstanding 19,048,609 7,677,507
Funds from Operations per Diluted Share and Units $ 0.06 $ 0.20
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FUNDS FROM OPERATIONS
(In thousands, except per share data)
YEAR ENDING
12/31/04
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Net Income $ 5,000
Add:
Income allocated to Minority Interest 1,500
Distributions to Preferred Unitholders 499
Depreciation and Amortization 7,250
Adjustments for Unconsolidated Joint Ventures 640
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FFO applicable to common shareholders $ 14,889
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Fully Diluted Weighted Average Shares and Units Outstanding 19,200,000
Funds from Operations per Diluted Share and Units $ 0.78
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Hersha Hospitality Trust is a self-advised Maryland real estate investment
trust that focuses primarily on owning and operating high quality, mid-scale
limited service hotels in the Eastern United States.
This press release may contain forward-looking statements. Forward-looking
statements are statements that are not historical, including statements
regarding management's intentions, beliefs, expectations, representations, plans
or predictions of the future, and are typically identified by words such as
"believe," "expect," "anticipate," "intend," "estimate," "may," "will,"
"should," and "could." There are numerous risks and uncertainties that could
cause actual results to differ materially from those set forth in the
forward-looking statements. For a discussion of these factors, see the Company's
report on Form 10-K for the year ended December 31, 2003 under the section
headed "Management's Discussion and Analysis of Financial Condition and Results
of Operations-Risk Factors."
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