Hersha Hospitality Trust CEO Discusses Q3 2010 Results – Earnings Call Transcript
Hersha Hospitality Trust (
)
Q3 2010 Earnings Conference Call
November 5, 2010 9:00 AM ET
Executives
Brad Cohen – Senior Managing Director, ICR
Jay Shah – CEO
Ashish Parikh – CFO
Neil Shah – President and COO
Analysts
Shaun Kelley – Bank of America – Merrill Lynch
Will Marks – JMP Securities
David Loeb – Robert W. Baird
Bill Crow – Raymond James
Smedes Rose – KBW
Jeffrey Donnelly – Wells Fargo
Presentation
Operator
Compare to:
Previous Statements by HT
»
Hersha Hospitality Trust Q2 2010 Earnings Call Transcript
»
Hersha Hospitality Trust Q1 2010 Earnings Call Transcript
»
Hersha Hospitality Trust Q4 2008 Earnings Call Transcript
Good day, ladies and gentlemen, and welcome to the Hersha Hospitality Trust third quarter 2010 earnings conference call. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions).
With that, I would now like to turn the conference over to your host for today’s conference, Mr. Brad Cohen with ICR. You may proceed.
Brad Cohen
Thank you, and good morning, everyone. I want to remind everyone that this conference call contains forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements reflect Hersha Hospitality Trust’s trends and expectations, including the company’s anticipated results of operations to capital investments. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the company’s actual results, performance, achievements or financial provisions to be materially different from any future results, performance, achievements or financial position expressed or implied by these forward-looking statements.
These factors are detailed in the company’s press release and in the company’s SEC filings.
With that, let me turn the call over to Mr. Jay Shah, Chief Executive Officer. Jay?
Jay Shah
Thanks Brad. Good morning, everyone. Joining me today on the call are Neil Shah, our President and Chief Operating Officer; and Ashish Parikh, our Chief Financial Officer.
Our performance in the third quarter continued to demonstrate the strength of our platform. We delivered another industry leading quarter as we benefited from our market leverage, and our strategically assembled portfolio of upscale and select service hotels focused on the highest barrier to entry urban markets in the northeast. The combination of our markets and portfolio along with our revenue management and cost containment strategies has positioned us for a continued out performance.
In the third quarter, our performance was strong with our solid metrics at our consolidated hotels. We increased our average daily rate for ADR by 8.9% and grew occupant stay by 346 basis points resulting in RevPAR growth of 13.9%.
We closely tracked the economic activity in our four major metropolitan areas in the northeast and the related gross metro product to rooms ratio. A historical GMP of our four key markets has exceeded overall growth of the country’s GDP growth over the past one, three, five and 10-year periods, and we expect this out performance to continue.
Based on our research, the ratio of the GMP in these four core markets as compared to the rooms’ inventory is more than twice that of the national average. The high barriers to entry that these markets possess also leads to favorable supply pictures compared to the overall economic activity.
These indicators show the relative strength of our core markets and the ability of our portfolio to outperform do the recovery. For the lodging industry, the third quarter of 2010 marked another inflection point as the industry recognized its first quarter of ADR growth since the third quarter of 2008. According to Smith Travel, industry RevPAR increased 8.8% in the quarter, still largely driven by occupancy gains up 7.1% along with 1.6% growth in ADR.
As I’ve discussed, a larger percentage of our RevPAR growth was driven by rates during the quarter, and we aggressively managed our revenue management strategies to optimize our mix between occupancy and rate.
Our portfolio has maintained a high level of occupancy at approximately 78% over the past two quarters and more than 90% occupancy in our New York City portfolio. With this level of occupancy, we were able to focus on driving rate, allowing us to achieve our primary goal of expanding our margins and improving our flow through to EBITDA from incremental revenues.
The rate driven recovery that we had predicted is clearly materializing resulting in continued market improvements. During the quarter, we improved our margins by a 148 basis points year-over-year to 39.3%. We’re pleased with this progress but believe there is further room for expansion for several reasons.
First, in looking at where we are now compared to our historical peak, our overall hotel EBITDA margins are approximately a 100 basis points below the level in 2008, but our rates are still more than 15% lower than at the same time in most of our markets and over 20% lower in the New York City portfolio.
Furthermore, our portfolio has evolved since 2008, and with our younger more urban focused assets along with our more efficient expense structure we believe margin improvement should continue for several years.
The second reason for optimism is based on the strength of our core markets and the simultaneous wave of urbanization. Our acquisition efforts are focused on the best urban markets in the country with a particular focus on New York and Washington DC as you know.
Growth in relative and nominal RevPAR in these markets has clearly been higher than the rest of the country and is expected to outpace that of the majority of the country throughout the cycle. Even within these markets Hersha has outperformed. RevPAR growth of 16.1% at Hersha’s same-store Manhattan portfolio was a 170 basis points better than Manhattan overall.
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