Hersha Hospitality Trust
Annual Report 2007

Plain-text annual report

A n n u a l R e p o r t 2 0 0 7 h e r s h a h o s p i t a l i t y t r u s t H E R S H A H E R S H A H O S P I T A L I T Y T R U S T ( H T ) Hersha Hospitality Trust (HT) is a real estate investment trust (REIT) focused on the acquisition and aggressive management of primarily upscale hotels in metropolitan markets. Hersha trades under the symbol HT on the American Stock Exchange. As of March 1, 2008, the Company owned interests in 73 upper upscale, upscale, and midscale hotels located predominantly in the Northeastern United States. Qualification as a REIT under the Internal Revenue Code enables the Company to distribute income to shareholders without federal income tax liability to the Company. total return since 1999 % % 2 2 4.7 % 1 7 5.3 % 1 7 5.2 % 1 2 3.9 % 1 1 2.9 % 1 0 1.7 1 0 1.1 % % 3 5.5 2 5 8.4 a h s r e h d e x o r g a n st a n le y r eit in o tels & r es o r ts o s pit a lit y p r o p e r ties t r u st a r rio tt in te r n a tio o st h st a r d h o h m w m o h 0 0 n a l o tels & r es o r ts r u ssell 2 0 s n l h o tel r eit in 0 d e x s & p 5 0 gin felc o r l o d % 5.7 g t r u st Total Returns from January 26, 1999 through December 31, 2007. Assumes dividends are re-invested at ex-dividend date. Source: FactSet ht portfolio by hotel brand (1) ht portfolio by market segment (2) Marriott 35% Hilton 28% Hyatt 17% Intercontinental 14% Other 6% Upscale 50% Midscale 38% Upper Upscale 12% (1) Based on pro-rata ownership share of 2007 EBITDA excluding preferred returns (2) Based on total room count as of December 31, 2007 ht portfolio by destination (3) ht portfolio by location (4) Major Metro 71% Secondary 18% Destination 11% New York Metro & New Jersey 34% Boston Metro & New England 25% Philadelphia Metro & Mid-Atlantic 24% Washington, DC Metro 10% West Coast & Arizona 7% (3) Based on total room count as of December 31, 2007 (4) Based on pro-rata ownership share of 2007 EBITDA excluding preferred returns A n n u a l R e p o r t 2 0 0 7 h e r s h a h o s p i t a l i t y t r u s t H E R S H A Financial Highlights (In thousands, except per share data) Year Ended December 31, hotel operating results (a) Total Revenues 2007 2006 2005 2004 2003 $ 366,314 $ 259,502 $ 127,170 $ 72,076 $ 38,428 Average Daily Rate Occupancy Revenue Per Available Room $ $ 134.12 73.07% 98.00 $ $ 117.91 71.75% 84.60 $ $ 106.18 71.32% 75.73 $ $ 97.62 67.21% 65.61 $ $ 85.52 64.80% 55.41 (a) Pertains to all hotels owned as of year end including the total results of hotels owned in a joint venture structure. (In thousands except per share data) Year Ended December 31, hersha hospitality trust OPERATING DATA : Total Revenues (Including Discontinued Operations) Net Income applicable to Common Shareholders Adjusted Funds from Operations (AFFO) (1) PER SHARE DATA : Basic Earnings Per Common Share Diluted Earnings Per Common Share AFFO Distributions to Common Shareholders BALANCE SHEET DATA (as of December 31): Total Assets Total Debt Minority Interest in Partnership Total Shareholder’s Equity 2007 2006 2005 2004 2003 $ $ 248,813 13,047 56,001 $ 153,887 298 29,888 $ 0.22 0.22 1.21 0.72 ) ) (0.04 (0.04 0.97 0.72 $ $ 89,466 1,377 15,567 0.04 0.04 0.67 0.72 $ $ 58,511 2,049 11,571 0.12 0.12 0.57 0.72 $ $ 19,324 785 7,728 0.06 0.06 0.69 0.72 $ 1,067,607 663,008 42,845 330,405 $ 968,208 580,542 25,933 331,619 $ 455,355 256,521 15,147 164,703 $ 261,021 111,846 16,779 119,792 $ 195,568 71,837 38,971 71,460 (1) Funds from Operations (FFO) as defined by NAREIT represents net income (loss) (computed in accordance with generally accepted accounting principles), excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated assets, plus certain non-cash items, such as depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We present Adjusted Funds From Operations (AFFO), which reflects FFO in accordance with the NAREIT definition plus the following additional adjustments: adding back write-offs of deferred financing costs on debt extinguishment, both for consolidated and unconsolidated properties, adding back amortization of deferred financing costs, adding back non-cash stock expense, adding back FFO attributed to our partners in consolidated joint ventures, and making adjustments to ground lease payments, which are required by GAAP to be amortized on a straight-line basis over the term of the lease, to reflect the actual lease payment. A n n u a l R e p o r t 2 0 0 7 h e r s h a h o s p i t a l i t y t r u s t H E R S H A Fellow Shareholders: In 2007, Hersha Hospitality Trust about a U.S. economic recession in leveraged the favorable hotel operating 2008 caused a widespread sell off of environment to post sector-leading hotel REIT stocks in the second half financial and operating results. New of the year. The SNL Hotel REIT supply growth was benign and demand Index declined approximately 27% for room nights was solid, enabling hotel during the year, and although our share operators to increase rates at a healthy price fared better than the benchmark, pace throughout the year. Our the price of our stock was not totally concentration in major gateway urban immune to the headwind facing the markets and a focus on owning particularly young assets, led to industry and the entire real estate sector. Nonetheless, our strong and substantially higher growth than the secure dividend continues to provide a overall industry growth rate. measure of cushion and an indication of financial stability for investors in these While Hersha's financial performance turbulent times. Our strategy and our in 2007 was strong, investor concerns portfolio are well positioned to Courtyard by Marriott, Boston-Brookline, Massachusettes Our concentration in major gateway urban markets and a focus on owning particularly young assets led to substantially higher growth than the industry. Duane Street Hotel, Tribeca, New York, New York Our organic approach to portfolio assembly enabled us to acquire only those assets that we believed would drive above portfolio average performance. A n n u a l R e p o r t 2007 h e r s h a h o s p i t a l i t y t r u s t weather a downturn. Our organic approach to portfolio assembly enabled us to acquire only those assets that we believed would drive above portfolio average performance. We purchased hotels rather than companies -- selectively We had several notable accomplishments in 2007. We began the year by deliberately slowing our pace of acquisitions in order to focus our attention on the internal growth aspects of our portfolio, including the management of revenue per available room (RevPAR) and profitability. adding properties in markets we identified as particularly high growth and resilient to new supply. We focused on newly built hotels that will have higher growth trajectories regardless of economic conditions. And we continued to concentrate on select Hampton Inn, Philadelphia, PA. Having purchased over 50 properties across the past three years, we have achieved efficient scale and have become more selective than ever before, carefully acquiring only those properties that are accretive to our net asset value (NAV) and those that will drive overall portfolio growth. service and extended stay assets that not only provide higher margins and more robust current income than the broader hotel sector, but have also demonstrated less volatility in market cycles. All boats generally rise with the tide, but only the most agile and purpose built craft can negotiate troubled seas. We registered a 25% increase in our Adjusted Funds from Operations (AFFO) for the year. We were able to achieve this growth by increasing our consolidated revenue nearly 70% and managing strong flow-through as evidenced by the 76% growth in our consolidated earnings before interest, A n n u a l R e p o r t 2007 h e r s h a h o s p i t a l i t y t r u s t taxes, depreciation, and amortization (EBITDA). Our balance sheet at the end of the year remained strong and will allow us to take advantage of opportunities that inevitably arise from market fluctuations. Owning franchised rather than brand both 2007 and 2006, RevPAR increased 9.0% with 7.4% ADR growth and occupancy of 72%, up from 70.9% in 2006. We sold two of our more mature assets, both in New Jersey, in 2007 for a blended 7.0% cap rate. We will continue managed hotels has enabled our employment of five best-in-class hotel management companies, who collectively maintained strong portfolio occupancy, which in turn provided the opportunity to increase rates and drive improved profitability. In 2007, our asset to explore opportunities for selling mature assets whose growth rates we believe to be below the average of our portfolio and assets in markets where we believe supply-demand dynamics may deteriorate due to unwarranted new supply additions. Marriott Downtown Hartford, Hartford, CT. In 2007, we purchased managers drove RevPAR growth of 16.1% with a 13.7% increase in average daily rate (ADR) and an improvement in occupancy to 73.7% from 72.1% for our consolidated portfolio. Our occupancy statistics compare very favorably to U.S. industry averages of approximately 63%. On a same-store basis, which reflects hotels open during seven properties with a total of 755 rooms that were each immediately accretive to earnings. Each of the hotels was less than one year old. Three of our acquisitions were in Manhattan, New York City, a very robust market with particularly favorable supply and demand characteristics. Our metro New York City portfolio Residence Inn, Philadelphia-Langhorne, Pennsylvania Our portfolio now consists of 21 upscale extended stay properties, which are expected to account for approximately 25% of our 2008 total EBITDA.... Hampton Inn-Chelsea, New York, New York Our development loan program...allows Hersha to earn development type returns without substantial development risk. A n n u a l R e p o r t 2007 h e r s h a h o s p i t a l i t y t r u s t now includes 13 hotels and accounts for over 30% of our EBITDA. We also acquired two Residence Inn by Marriott properties -- the category killing brand in the upscale extended stay segment. Historically, the upscale extended stay segment has offered among the highest gross margins in the sector and has off-market opportunity to acquire the newly developed asset on a negotiated basis. This program allows Hersha to earn development type returns without substantial development risk. The developers we lend to are strategic partners with whom we have programmatically executed multiple demonstrated an attractive resiliency to market volatility as compared to other lodging segments. Our portfolio now consists of 21 upscale extended stay properties, which are expected to account for approximately 25% of our 2008 total EBITDA. Hotel 373 Fifth Avenue, New York, NY transactions. Across the next several years, we expect to open and acquire several hotels currently being developed in Manhattan, Boston, and Washington, D.C. from this platform. This is a unique program in the REIT sector, and we believe will become even more attractive to leading We sourced five of our newly acquired hotels through our development loan program. On this platform, we make secure development loans to select development partners on projects in difficult to source markets, earning attractive interest yields during the development period, averaging 11%; and then, upon completion we have an developers in this capital constrained environment. Hersha's annualized dividend of $0.72 per common share represented an approximately 71% payout ratio as compared to the Company's AFFO, less capital expenditure reserves, for the fiscal year ending December 31, 2007. A n n u a l R e p o r t 2007 h e r s h a h o s p i t a l i t y t r u s t This compares favorably to a median payout ratio of approximately 78% for other hotel REITs. As our long-term shareholders may remember, Hersha was one of only two hotel REITs that did not cut their dividend in the aftermath of 9/11. Our Board of Trustees and senior management our financial profile. While there are many uncertain factors that we will continue to follow in 2008, we are optimistic that our strategy will continue to deliver value to shareholders during volatile times. Our strategy of owning smaller, more efficient hotels are committed to maintaining a safe and secure dividend. Our internal sensitivity analysis suggests that it would take a recession more significant than any experienced in the past two decades to impact our ability to pay a dividend and maintain our capital expenditure reserves. with a low average age in urban markets with high barriers to entry has enabled our market leadership during the expansion of the last four years and will now also provide stability and certainty during the anticipated contraction. We believe that Hersha is well on its way to building Hyatt Summerfield, Scottsdale, AZ 2007 marked another year of many milestones for Hersha as measured by financial growth, strengthening coverage of our dividend, and our improved position as a leading hotel REIT. We are looking forward to the continued ramp up of our assets in 2008 and the further improvement of a dominant hotel company. We appreciate having you as fellow shareholders and value the confidence that you have placed in us. We look forward to updating you on our continued growth through the year. Sincerely yours, Jay H. Shah Neil H. Shah Chief Executive Officer Chief Operating Officer Hampton Inn-Seaport/Financial District, New York, New York We believe that Hersha is well on its way to building a dominant hotel company. A n n u a l R e p o r t 2007 h e r s h a h o s p i t a l i t y t r u s t * S E I T R E P O R P T H new york & new jersey new york metro area: Duane Street Hotel, Manhattan/Tribeca Hotel 373 Fifth Avenue, Manhattan/Midtown Hampton Inn, Manhattan/Chelsea Hampton Inn, Manhattan/Herald Square Hampton Inn, Manhattan/Seaport Holiday Inn Express, Manhattan/Madison Square Nu Hotel, Brooklyn Hilton Garden Inn, JFK International Airport new england boston metro area: Courtyard by Marriott, Boston/Brookline Courtyard by Marriott, South Boston Holiday Inn Express, Cambridge Holiday Inn Express, South Boston Sheraton Four Points, Boston/Logan Airport Residence Inn by Marriott, Framingham Hawthorn Suites, Franklin Residence Inn by Marriott, Norwood Residence Inn by Marriott, North Dartmouth Comfort Inn, North Dartmouth Courtyard by Marriott, Warwick, RI mid-atlantic philadelphia metro area: Hampton Inn, Center City Philadelphia Courtyard by Marriott, Langhorne/Oxford Valley Residence Inn by Marriott, Langhorne/Oxford Valley Holiday Inn Express, Langhorne/Oxford Valley Holiday Inn Express, King of Prussia/Valley Forge Mainstay Suites, King of Prussia/Valley Forge Sleep Inn, King of Prussia/Valley Forge Holiday Inn Express, Frazer/Malvern Fairfield Inn & Suites, Allentown/Bethlehem pennsylvania: Hampton Inn & Suites, Hershey Holiday Inn Express, Hershey Comfort Inn, West Hanover/Hershey Hilton Garden Inn, Gettysburg Residence Inn by Marriott, Carlisle Holiday Inn Conference Center, Harrisburg West Holiday Inn Express Hotel and Suites, Harrisburg Hampton Inn, Carlisle Courtyard by Marriott, Scranton west coast Hampton Inn Brookhaven, Long Island/Farmingville Holiday Inn Express, Long Island/Hauppauge Holiday Inn Express Hotel and Suites, Chester Hyatt Summerfield Suites, White Plains new jersey: Hilton Garden Inn, Edison/Raritan Center Courtyard by Marriott, Ewing/Princeton Hyatt Summerfield Suites, Bridgewater connecticut: Marriott Downtown, Hartford Hilton Hotel, Hartford Hilton Garden Inn, Hartford South/Glastonbury Homewood Suites, Hartford South/Glastonbury Mystic Marriott Hotel and Spa, Groton Residence Inn by Marriott, Mystic SpringHill Suites, Waterford Residence Inn by Marriott, Southington Courtyard by Marriott, Norwich Residence Inn by Marriott, Danbury Holiday Inn, Norwich Hampton Inn, Danville Hampton Inn, Selinsgrove Holiday Inn Express, New Columbia wilmington, de.: Courtyard By Marriott, Wilmington Inn at Wilmington, Wilmington washington d.c. metro area: Residence Inn by Marriott, Tyson's Corner Courtyard by Marriott, Alexandria Residence Inn by Marriott, Greenbelt, MD Hyatt Summerfield Suites, Gaithersburg, MD Fairfield Inn, Laurel, MD Mainstay Suites, Frederick, MD Comfort Inn, Frederick, MD virginia/north carolina: Residence Inn by Marriott, Williamsburg Springhill Suites, Williamsburg Hyatt Summerfield Suites, Charlotte, NC california: Hyatt Summerfield Suites, Pleasant Hill/Walnut Creek, CA Hyatt Summerfield Suites, Pleasanton/Dublin, CA arizona: Hyatt Summerfield Suites, Scottsdale, AZ * HT Properties Listing as of March 1, 2008 A n n u a l R e p o r t 2007 h e r s h a h o s p i t a l i t y t r u s t S E E T S U R T F O D R A O B S R E C I F F O E T A R O P R O C N O I T A M R O F N I E T A R O P R O C Hasu P. Shah Chairman, Hersha Hospitality Trust Michael A. Leven Vice Chairman, Marcus Foundation Jay H. Shah Chief Executive Officer, Hersha Hospitality Trust Donald J. Landry Former CEO and President, Sunburst Hospitality, Inc. Thomas S. Capello Founder & Principal, First Capital Equities Kiran P. Patel Chief Investment Officer, Hersha Group John M. Sabin Executive Vice President, Phoenix Health Systems, Inc. Jay H. Shah Chief Executive Officer Robert C. Hazard III Vice President of Acquisitions and Development Neil H. Shah President and Chief Operating Officer Michael R. Gillespie Chief Accounting Officer Ashish R. Parikh Chief Financial Officer William J. Walsh Vice President of Asset Management co r p o r at e h e a d q u a r t e r s 44 Hersha Drive Harrisburg, PA 17102 Telephone: (717) 236-4400 Facsimile: (717) 774-7383 p h i l a d e l p h i a e x e c u t i v e o f f i c e s Penn Mutual Towers 510 Walnut Street, 9th Floor Philadelphia, PA 19106 Telephone: (215) 238-1046 Facsimile: (215) 238-0157 i n d e p e n d e n t a u d i to r s KPMG LLP Certified Public Accountants 1601 Market Street Philadelphia, PA 19103 Telephone: (267) 256-7000 David L. Desfor Treasurer and Corporate Secretary r e g i st r a r a n d sto c k t r a n s f e r a g e n t American Stock Transfer & Trust Company 10150 Mallard Creek Drive, Suite 307 Charlotte, NC 28262 Telephone: (800) 829-8432 l e g a l co u n s e l Hunton & Williams Riverfront Plaza 951 East Byrd Street Richmond, Virginia 23219 Telephone: (804) 788-8200 co m m o n sto c k i n f o r m at i o n The Common Stock of Hersha Hospitality Trust is traded on the American Stock Exchange under the Symbol “HT” H E R S H A www.hersha.com 

Continue reading text version or see original annual report in PDF format above