Hersha Hospitality Trust's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Call Start: 09:05

Call End: 10:06

Hersha Hospitality Trust (HT)

Q2 2012 Earnings Conference Call

August 1, 2012 9:00 AM ET

Executives

Jay H. Shah - CEO

Neil H. Shah - President and COO

Ashish R. Parikh - CFO

Nikki Sacks - ICR

Analysts

Andrew Didora Bank - Bank of America-Merrill Lynch

David Loeb - Robert W. Baird & Co. Inc

William Marks - JMP Securities LLC, Research Division

Ryan Meliker - MLV & Company

Smedes Rose - KBW

Tim Wengerd - Deutsche Bank

Nikhil Bhalla - FBR Capital Markets & Co., Research Division

William Crow - Raymond James & Associates, Inc.

Daniel Donlan – Janney Capital Markets.

Presentation

Operator

Good morning ladies and gentlemen, and welcome to the Hersha Hospitality Trust Second Quarter 2012 Earnings Conference Call. Today’s call is being recorded. 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)

At this time, I would like to turn the conference over to Nikki Sacks of ICR. Please go ahead.

Nikki Sacks

Thank you and good morning, everyone. I want to remind you 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, and 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, CEO.

Jay H. Shah

Thank you, Nikki, and good morning to everyone. I’m joined today by Neil Shah, our Chief Operating Officer, and Ashish Parikh, our Chief Financial Officer. On today’s call we will touch on some highlights from the second quarter, discuss our portfolio strategy and update you on our lodging markets and impact from the overseas and particularly, European travel as it impacts our portfolio.

The second quarter portfolio result reflect the Company’s continued outperformance as Hersha delivered industry leading results as our consolidated and same-store portfolio generated RevPAR growth of 8.2% and 7.8% respectively. A particular note is our EBITDA margin. With our same-store hotels recording the highest quarterly EBITDA margins in our history at 43.9%.

This performance is the direct result of our urban gateway portfolio, which is focused on the high rated trend in business traveler combined with effective yield management and our aggressive asset management programs. Additionally, with the young age of our portfolio, the significant capital that we’ve reinvested in our assets and the high occupancies in our markets, we expect a meaningful runway in our multi-year growth platform.

Although we’re pleased to be harvesting the positive result of this strategic transformation, we’re even more pleased knowing that the inherent organic growth in the portfolio will be significantly bolstered in the coming quarters by over $350 million of newly developed or acquired assets, that will begin delivering EBITDA contributions later this year.

We’ve assembled a portfolio of high quality hotels in key urban markets with a variety of robust demand drivers and our portfolio wide occupancy at 81% is indicative of the strength of the markets and our assets. In fact, seven of our top 10 properties by EBITDA contribution had occupancy of approximately 90% or higher during the second quarter. And 8 of those top 10 EBITDA producers had an average daily rate of greater than $200. And the one that didn’t is the Courtyard Miami, which is undergoing significant construction.

Another demand indicator regarding our concentration in urban gateway markets is international travel. Through the end of the first quarter, total overseas visitation to the U.S. was up 13.4% with Western European travel up almost 10.1%.

Now let me turn specifically to New York City, vis-à-vis international travel. As a percentage of our total revenue in New York City year-to-date, international travelers on average account for approximately 18.5% of our room revenues, with roughly a quarter of that coming from Canada and the U.K. That means all other international guests comprise less than 14% of our business.

Among the top 10 international revenue contributors to our New York City portfolio, European countries represent approximately 5% of our total room revenues, while the Eurozone countries represent only 3.1% of total room revenues. From another relevant perspective, a hypothetical decline of 20% of European business to our portfolio would translate to less than a 1% decline in total room revenues and that is assuming that we cannot replace the lost rooms in a portfolio that consistently runs over 90% occupancy.

We had noticed a slowdown slightly in inbound Eurozone travel, but at the same time we’re seeing overall growth in international inbound travel suggesting that the strong growth in travel from Canada, Japan, Mexico, Brazil, China, Korea, and India seem to be displacing any loss experience from the Eurozone.

Now let me give you a little color on each of our key markets. Our Manhattan Hotels were again among the top performers in our portfolio. RevPAR growth of 12.3% was driven by a 6.8% increase in ADR and a 4.5% increase in occupancy to 92.3%. Running occupancy at this level means our hotels were effectively sold out five nights a week. In comparison, Manhattan as per the Smith Travel Research data achieved a 7.3% RevPAR growth, with ADR growth of 5.2%.

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