PHILADELPHIA—Despite a strong start to the first quarter of 2020, Hersha Hospitality Trust reported a net loss of $29.1 million for the time period, largely due to the COVID-19 pandemic.
“Since our last earnings report just over two months ago, the COVID-19 pandemic has delivered a catastrophic impact on the lodging industry,” said Jay H. Shah, CEO, Hersha Hospitality Trust. “The first two months of 2020 exceeded our high expectations for our portfolio, generating strong incremental EBITDA from the holistic renovations we undertook over the last few years, led by our two largest EBITDA-producing assets in South Florida. January and February gave us a glimpse of the profitability of our newly aligned comparable portfolio, which grew RevPAR by 3.9% during that period.”
That did not last. “Unfortunately, momentum during the peak South Florida travel season ground to a halt as the spread of COVID-19 led to increased cancellations,” Neil H. Shah, president/COO, Hersha Hospitality Trust, said in the company’s earnings call. “[There was] a travel ban on international visitors and, ultimately, a government-mandated closure of all hotels in the region not housing essential lifesaving personnel. In early March, we entered an unimaginable operating environment in our industry.”
The company then pivoted to a near-term operating strategy of curbing expenses and boosting liquidity. “In close alignment with our independent third-party management partners, we implemented significant on property cost cuts in real time,” said Jay H. Shah. “We also made extensive corporate cost cuts expected to yield approximately 25% in savings in SG&A expenses on an annualized basis for 2020. At the hotel level, the suspension of operations at 21 of our 48 hotels has resulted in an 80% reduction of on-property labor costs. Employing a select-service model at the majority of our assets allows us to efficiently operate our hotels with a skeleton crew, leading to a significant reduction in expenses while also generating revenue through unique channels with medical personnel, government agencies, emergency first responders and law enforcement.”
The company also reached an agreement with its bank group to amend its existing bank credit facility to access an additional $100 million on its $250 million senior revolving credit facility. “Our amendment also includes a financial covenant holiday through March 31, 2021, yielding operational and financial flexibility for the portfolio through June 30, 2021,” he said. “This liquidity, in addition to the revocation and suspension of our common and preferred dividends, and our expense mitigation strategies we have implemented, has significantly boosted our liquidity profile.
He continued, “Despite uncertainty for the lodging industry, we are confident in our ability to navigate through this crisis to the other side with a more efficiently operated portfolio in the most valuable, sought after real estate markets in the country, and we remain ready to welcome guests when demand for travel re-emerges across the coming months.”
First Quarter 2020 Operating Results
The company’s portfolio markets were significantly hampered by shelter-in-place orders and travel bans enacted during March and led to double-digit RevPAR loss across its clusters, excluding South Florida.
RevPAR at the company’s 38 comparable hotels decreased 22.4% to $127.25 in the first quarter 2020. The company’s ADR for the comparable hotel portfolio decreased 0.8% to $206.38, while occupancy fell 1,714 basis points to 61.7%. Occupancy-driven RevPAR loss for the quarter resulted in EBITDA margin loss of 840 basis points to 17.2%.
On a regional basis, the South Florida portfolio was its best performing market during the first quarter with a RevPAR loss of 1.2%, highlighted by the Cadillac Hotel & Beach Club, which generated 11.7% RevPAR growth for the quarter. The hotel was able to capture significant rate growth during January and February before the impact on travel from the COVID-19 pandemic exacerbated in March, which resulted in 17.5% ADR growth to $327.64 during the first quarter.
Financing
The company completed the first quarter 2020 with approximately $23.9 million of cash and cash equivalents. As of March 31, 2020, 87% 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 3.87% and a weighted average life-to-maturity of approximately 3.5 years.
Dividends
As a part of plans to preserve cash, the company suspended dividend distribution on its common shares, 6.875% Series C Cumulative Redeemable Preferred Shares, 6.5% Series D Cumulative Redeemable Preferred Shares and 6.5% Series E Cumulative Redeemable Preferred Shares. Unpaid dividends on Hersha’s preferred shares shall accrue without interest.
