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Hersha Hospitality Trust Q2 2010 Earnings Call Transcript

Hersha Hospitality Trust Q2 2010 Earnings Call Transcript

Hersha Hospitality Trust (HT)

Q2 2010 Earnings Call

August 5, 2010 09:00 am

Executives

TST Recommends

Nikki Sacks - ICR

Jay Shah - CEO

Ashish Parikh - CFO

Neil Shah - President & COO

Analysts

Shaun Kelley - Bank of America

David Loeb - Baird Investments

Bill Crow - Raymond James

Will Marks - JMP Security

Smedes Rose - KBW

Jeffrey Donnelly - Wells Fargo

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Hersha Hospitality Trust second quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions). One final reminder, today’s call is being recorded.

With that, I would now like to turn the presentation over to your host for today's conference, Ms. Nikki Sacks of ICR. Please go ahead.

Nikki Sack

s

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 plans and expectations; including the company's anticipated results of operations through 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

Thank you Nikki. Good morning every, here with me today on the call are Neil Shah, our President and Chief operating officer and Ashish Parikh, our chief financial officer.

Since March our portfolio has experienced positive RevPAR and our second quarter results clearly demonstrate that the recovery in lodging is underway and that the strategic course that we continue to pursue positions Hersha very well to outperform in this environment. Our strategy of concentrating ownership on high quality select service hotels in urban gateway markets in the northeast such as New York and Boston is intact and our focus is being rewarded in our results. These are markets which typically turn positive first and as expected as leading in this recovery.

The early signs of a return in demand that we first experienced in the third and fourth quarter of last year and that continued into the first quarter, noticeably accelerated in the second quarter when we were able to capitalize on the return of the corporate transient traveler

During the second quarter, we again delivered industry leading RevPAR growth of 13.3% along with industry-leading margins of 40.8%, a 160 basis point increase over last year’s second quarter. Hersha benefits from significant positive market leverage with 78% occupancy across our consolidated hotels and 90% in our New York city hotels, we were able to employ aggressive revenue management strategies driving ADR growth which flows disproportionately to the bottom line and positively impacts our margins. A good example of the impact of our revenue management strategy is the performance of our Manhattan Hotels.

During the second quarter, our consolidated Manhattan portfolio realized a 13.1% growth in RevPAR driven by a 13.2% increase in ADR and relatively stable occupancy at 92%. This positive market leverage resulted in an expansion of EBITDA margins of 329 basis points to 47%. This represents an 85% flowthrough of incremental revenues to the company’s gross operating profit.

Additionally, the performance of our consolidated portfolio over prior year demonstrates in our recent acquisitions are having a positive impact on our results. The acquisitions that we’ve made over the last 12 months have significantly increased our portfolio’s RevPAR and EBITDA and have been transformative to the portfolio’s net asset value. Their performance and growth were higher than our portfolio average in the second quarter and given their young age as these properties stabilize and increase market share, we expect increasing contributions from them.

Given the seemingly bright fundamental shift for us in the industry in this quarter, we are well aware that this economic recovery is prone to fits and starts, but we are comfortable that we see a consistent fundamental improvement in our key strategic markets. From a market perspective, Manhattan undoubtedly remains our strongest region, but the other areas that are exhibiting strength and contribution to our growth include the Boston in Mid-Atlantic regions, along with Philadelphia, Connecticut and Rhode Island.

On the other hands, regions that have yet to stabilize relative to the others in our portfolio are California and Arizona and New York, New Jersey metro. Our Washington D.C. metro portfolio consists of some very attractive suburban office markets such as Alexandria and Tysons Corner, Virginia and Green Belt, Maryland which were relatively stable last year, but because we don’t have exposure to the Washington D.C. CBD yet, our Washington portfolio underperformed the market average there.

Through this downturn, we have concentrated on enhancing our portfolio and our operations and as we have discussed before, our asset management team and our operators have been very focused on cost containment measures. We have adopted a more efficient cost structure that we believe is sustainable moving forward. We are very focused on limiting our expense growth over the next few years and believe that these initiatives along with a sustained market recovery will generate attractive EBITDA growth in the coming quarters.

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