Fourth Quarter 2020 Financial Results
Net loss applicable to common shareholders was approximately ($190.5 million), or ($4.93) per diluted common share, in 2020, compared to net loss applicable to common shareholders of approximately ($27.8 million), or ($0.74) per diluted common share, in 2019. Net loss applicable to common shareholders was ($44.8 million), or ($1.16) per diluted common share, in the fourth quarter 2020, compared to net loss applicable to common shareholders of approximately ($9.3 million), or ($0.24) per diluted common share, in fourth quarter 2019. The decrease in full year and fourth quarter 2020 net income and net income per diluted common share was due to the ongoing COVID-19 pandemic and its impact on the hospitality industry.
AFFO in the fourth quarter 2020 decreased to ($10.1 million), compared to $21.9 million in the fourth quarter 2019. AFFO per diluted common share and OP Unit in the fourth quarter 2020 was ($0.23). Fourth quarter 2020 AFFO results were positively impacted by $8.1 million in business interruption proceeds related to Hurricane Irma’s impact on our South Florida portfolio. An explanation of certain non-GAAP financial measures used in this press release, including, among others, AFFO, as well as reconciliations of those non-GAAP financial measures, to GAAP net income, is included at the end of this press release.
Mr. Jay H. Shah, Hersha’s Chief Executive Officer, stated, “As we move forward from the extraordinary challenges our industry encountered last year, we remain confident that our purpose-built portfolio of high-quality, recently renovated, transient hotels, gives us the ability to outperform through the recovery. One of the silver linings of 2020 was our franchise model and close collaborative relationship with our operating partners, which gave us ample autonomy and control to make material changes to our operating model to preserve cash. In addition to creating sustainable cost savings in our expense structure, our operating model enabled us to reopen every one of our wholly owned hotels by the end of last year. Our operating results in January provide credible signs that the resumption in travel demand has begun as leisure bookings accelerated across the portfolio and property-level cash flow turned positive for the first time since March of last year.”
Mr. Shah continued, “Last week, we announced several strategic steps to provide us with near and medium-term financial flexibility. Our announced asset sales and our unsecured notes facility with affiliates of the Merchant Banking business of The Goldman Sachs Group, Inc. (“GS Purchasers”) allows us to simultaneously pay down our 2021 term loan, amend the Revolving Credit Facility agreement, and extend the covenant waiver holiday through March 31, 2022. Our bespoke solution with the GS Purchasers in conjunction with our selling certain older, more mature assets from our various clusters, addresses our financing and liquidity needs with no equity dilution. Our successful sales of these hotels at attractive pricing completes our asset sales strategy and highlights the liquidity and inherent real estate value of our portfolio.”
Mr. Shah concluded, “During the disruption from these historic times, we took the opportunity to zero-base budget our assets, dispose of lower growth, higher cost hotels to reduce leverage, equitize the portfolio with non-dilutive, highly flexible near-term financing, and successfully amend our revolving credit facility. We begin 2021 on stronger footing with a keen focus on operational performance as demand returns, and accretive opportunities that will emerge in the recovery.”
Strategic Capital Commitment
The Company closed on the previously announced unsecured notes placement with West Street Strategic Solutions Fund I, L.P. and Broad Street Credit Holdings LLC, each of which is an affiliate of the Merchant Banking business of The Goldman Sachs Group, Inc. (“GS Purchasers”). The unsecured notes facility the Company entered into with the GS Purchasers provides an initial $150 million draw at closing and an incremental $50 million delayed draw that can be drawn at the Company’s discretion in minimum installments of $25 million at any point on or prior to September 30, 2021.
Asset Sales
Year to-date 2021, the Company has completed the sale of or entered into binding sales contracts on four consolidated hotels for a total sale price of $178.5 million, before customary closing costs:
- The 245-room Courtyard Downtown San Diego, CA
- The 140-room Residence Inn in Coconut Grove, FL
- The 153-room Capitol Hill Hotel in Washington, DC
- The 112-room Holiday Inn Express in Cambridge, MA
These binding contracts, in addition to the previously announced sales of the Duane Street Hotel and Sheraton Wilmington, will generate net proceeds totaling $191.0 million, before customary closing costs. In conjunction with the proceeds from the committed GS Purchasers notes facility the Company will utilize portions of the Asset Sales proceeds to satisfy its 2021 Term Loan.
The sale of the Sheraton Wilmington closed on December 1, 2020, while the sale of the Courtyard Downtown San Diego closed on February 19, 2021. The sales of the Residence Inn Coconut Grove, Capitol Hill Hotel, and Holiday Inn Express Cambridge are forecasted to close by the end of the first quarter 2021, while the sale of the Duane Street Hotel is expected to close in the second quarter 2021.
Credit Facility Amendment
In conjunction with the aforementioned asset sales and the unsecured notes facility from the GS Purchasers, the Company successfully amended its revolving credit facility and term loan agreements with its banking group. The amendment eliminates all term loan maturities until August 2022 and waives all financial covenants through March 31, 2022.
Fourth Quarter 2020 Operating Results
The Company had 36 comparable hotels fully open and operational throughout the fourth-quarter, which generated 33.0% occupancy and an average daily rate of $157.06. The Sanctuary Beach Resort was our best performing asset during the fourth quarter, ending the period with an occupancy of 56.4% and an absolute ADR of $463.43, an increase of 45.4% versus fourth quarter 2019. Our open New York City hotels, which constitutes the 5 boroughs, generated 39.7% occupancy during the fourth quarter, highlighted by our select-service offerings in the JFK sub-market and our Nu Hotel in Brooklyn which ended the quarter with 45.7% occupancy.
Cash Burn and Breakeven Levels
Total property level cash loss during the fourth quarter was $5.9 million and total corporate level cash loss was $19.2 million, 6.5% better than forecasted at the beginning of the quarter. Monthly cash burn rates for January were better than expected as the portfolio generated positive EBITDA, eliminating the property level cash loss and resulting in corporate level cash loss of $4.3 million, the Company’s lowest corporate cash burn since the onset of the pandemic.
Based upon performance over the past three quarters and aggressive cost control measures, the Company’s forecasted property-level breakeven is expected to occur at 35-40% occupancy with RevPAR losses approximating 60% from 2019 levels. At the corporate level, the Company’s breakeven occupancy is expected to be 55-60% with RevPAR losses approximating 40% from 2019 levels.
Financing
The Company completed the full year and fourth quarter 2020 with approximately $23.6 million of cash & cash equivalents and deposits. As of February 1, 2021, the Company had drawn $138 million of its $250 million Senior Revolving Line of Credit. The Company’s pro forma consolidated debt has a weighted average interest rate of approximately 4.54% and a weighted average life-to-maturity of approximately 3.6 years.
Full-Year 2021 Outlook
Due to the uncertainty surrounding the lodging industry stemming from the COVID-19 pandemic, the Company will forego providing full-year 2021 guidance at this time.
Fourth Quarter 2020 Conference Call
The Company will host a conference call to discuss these results at 8:00 AM Eastern Time on Wednesday, February 24, 2021. Hosting the call will be Mr. Jay H. Shah, Chief Executive Officer, Mr. Neil H. Shah, President and Chief Operating Officer, and Mr. Ashish Parikh, Chief Financial Officer.
A live audio webcast of the conference call will be available on the Company’s website at www.hersha.com. The conference call can be accessed by dialing 1-888-317-6003 or 1-412-317-6061 for international participants and entering the passcode 2142150 approximately 10 minutes in advance of the call. A replay of the call will be available from 10:00 AM Eastern Time on Wednesday, February 24, 2021 through 11:59 PM Eastern Time on Tuesday, March 23, 2021. The replay can be accessed by dialing 1-877-344-7529 or 1-412-317-0088 for international participants. The passcode for the replay is 10150829. A replay of the webcast will be available on the Company’s website for a limited time.
About Hersha Hospitality Trust
Hersha Hospitality Trust (HT) is a self-advised real estate investment trust in the hospitality sector, which owns and operates high-quality hotels in urban gateway markets and regional resort destinations. The Company’s 40 hotels totaling 6,250 rooms are located in New York, Washington, DC, Boston, Philadelphia, South Florida and select markets on the West Coast. The Company’s common shares are traded on The New York Stock Exchange under the ticker “HT.”
Non-GAAP Financial Measures and Key Performance Metrics
Common key performance metrics utilized by the lodging industry are occupancy, average daily rate (“ADR”), and revenue per available room (“RevPAR”). Occupancy is calculated as the percentage total rooms sold compared to rooms available to be sold, while ADR measures the average rate earned per occupied room, calculate as total room revenue divided by total rooms sold. RevPAR is a derivative of these two metrics which shows the total room revenue earned per room available to be sold. Management uses these metrics in comparison to other hotels in our self-defined competitive peer set within proximity to each of our hotel properties.
An explanation of Funds from Operations (“FFO”), AFFO, Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), EBITDAre, Adjusted EBITDA and Hotel EBITDA, as well as reconciliations of such non-GAAP financial measures to the most directly comparable U.S. GAAP measures, is included at the end of this release.
Cautionary Statements Regarding Forward Looking Statements
Certain matters within this press release are discussed using “forward-looking statements,” including those with regard to the potential future impact of COVID-19, within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. One of the most significant factors is the ongoing impact of the current outbreak of COVID-19 on the United States, regional and global economies, the broader financial markets, the Company’s customers and employees, governmental responses thereto and the operation changes the Company has and may implement in response thereto. The current outbreak of COVID-19 has also impacted, and is likely to continue to impact, directly or indirectly, many of the other important factors below. These forward-looking statements may include statements related to, among other things: assumptions regarding the impact to international and domestic business and leisure travel pertaining to any pandemic or outbreak of disease, including COVID-19, the uncertainty and economic impact of pandemics, epidemics or other public health emergencies or fear of such events, such as the recent outbreak of COVID-19, the impact of and changes to various government programs, including in response to COVID-19, the timing of the development of any effective cure or treatment for COVID-19, the Company’s access to capital on the terms and timing the Company expects, the restoration of public confidence in domestic and international travel, permanent structural changes in demand for conference centers by business and leisure clientele, the Company’s ability to dispose of selected hotel properties on the terms and timing the Company expects, if at all, economic growth, labor markets, real estate values, lodging fundamentals, corporate travel, and the economic vibrancy of our target markets, the Company’s ability to grow operating cash flow, the Company’s ability to forecast breakeven levels and cash burn accurately, the Company’s ability to match or outperform its competitors’ performance, the ability of the Company’s hotels to achieve stabilized or projected revenue, cap rates or EBITDA multiples consistent with our expectations, the stability of the lodging industry and the markets in which the Company’s hotel properties are located, the Company’s ability to generate internal and external growth, and the Company’s ability to increase margins, including hotel EBITDA margins. Certain statements contained in this press release, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements within the meaning of the federal securities laws and as such are based upon the Company’s current beliefs as to the outcome and timing of future events. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” and words of similar import. Such forward-looking statements relate to future events, the Company’s plans, strategies, prospects and future financial performance, and involve known and unknown risks that are difficult to predict, uncertainties and other factors which may cause the Company’s actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement, including with respect to the disposition of hotel properties, the amendments to the Company’s revolving credit facility and term loan agreements and the placement of unsecured notes with the GS Purchasers. There can be no assurance that the disposition of hotel properties, the amendments to the Company’s revolving credit facility and term loan agreements or the placement of unsecured notes with the GS Purchasers will be consummated on the terms and timing expected, if at all. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company’s current beliefs, expectations and assumptions regarding the future of its business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company’s control. The Company’s actual results and financial condition may differ materially from those indicated in the forward-looking statements contained in this press release. Therefore, you should not rely on any of these forward-looking statements. For a description of factors that may cause the Company’s actual results or performance to differ from its forward-looking statements, please review the information under the heading “Risk Factors” included in the Company’s most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q filed by the Company with the Securities and Exchange Commission (“SEC”) and other documents filed by the Company with the SEC from time to time. All information provided in this press release, unless otherwise stated, is as of February 23, 2021, and the Company undertakes no duty to update this information unless required by law.
| HERSHA HOSPITALITY TRUST | ||||||||
| Balance Sheet (unaudited) | ||||||||
| (in thousands, except shares and per share data) | ||||||||
| December 31, 2020 | December 31, 2019 | |||||||
| Assets: | ||||||||
| Investment in Hotel Properties, Net of Accumulated Depreciation | $ | 1,784,838 | $ | 1,975,973 | ||||
| Investment in Unconsolidated Joint Ventures | 6,633 | 8,446 | ||||||
| Cash and Cash Equivalents | 16,637 | 27,012 | ||||||
| Escrow Deposits | 6,970 | 9,973 | ||||||
| Hotel Accounts Receivable | 5,690 | 9,213 | ||||||
| Due from Related Parties | 2,641 | 6,113 | ||||||
| Intangible Assets, Net of Accumulated Amortization of $6,840 and $6,545 | 1,739 | 2,137 | ||||||
| Right of Use Assets | 44,126 | 45,384 | ||||||
| Other Assets | 15,494 | 38,177 | ||||||
| Hotel Assets Held for Sale | 96,220 | – | ||||||
| Total Assets | $ | 1,980,988 | $ | 2,122,428 | ||||
| Liabilities and Equity: | ||||||||
| Line of Credit | $ | 133,053 | $ | 48,000 | ||||
| Term Loan, Net of Unamortized Deferred Financing Costs | 681,744 | 697,183 | ||||||
| Unsecured Notes Payable, Net of Unamortized Deferred Financing Costs | 50,789 | 50,736 | ||||||
| Mortgages Payable, Net of Unamortized Premium and Unamortized Deferred Financing Costs | 330,848 | 332,280 | ||||||
| Lease Liabilities | 53,852 | 54,548 | ||||||
| Accounts Payable, Accrued Expenses and Other Liabilities | 58,453 | 47,626 | ||||||
| Dividends and Distributions Payable | – | 17,058 | ||||||
| Total Liabilities | $ | 1,308,739 | $ | 1,247,431 | ||||
| Redeemable Noncontrolling Interest – Consolidated Joint Venture | $ | – | $ | 3,196 | ||||
| Equity: | ||||||||
| Shareholders’ Equity: | ||||||||
| Preferred Shares: $.01 Par Value, 29,000,000 Shares Authorized, 3,000,000 Series C, 7,701,700 Series D and 4,001,514 Series E Shares Issued and Outstanding at December 31, 2020 and December 31, 2019, with Liquidation Preferences of $25 Per Share | $ | 147 | $ | 147 | ||||
| Common Shares: Class A, $0.01 Par Value, 104,000,000 Shares Authorized at December 31, 2020 and December 31, 2019; 38,843,482 and 38,652,650 Shares Issued and Outstanding at December 31, 2020 and December 31, 2019, respectively | 389 | 387 | ||||||
| Common Shares: Class B, $0.01 Par Value, 1,000,000 Shares Authorized, None Issued and Outstanding at December 31, 2020 and December 31, 2019 | – | – | ||||||
| Accumulated Other Comprehensive (Loss) Income | (19,275 | ) | 1,010 | |||||
| Additional Paid-in Capital | 1,150,985 | 1,144,808 | ||||||
| Distributions in Excess of Net Income | (509,243 | ) | (338,695 | ) | ||||
| Total Shareholders’ Equity | 623,003 | 807,657 | ||||||
| Noncontrolling Interests – Common Units and LTIP Units | 49,246 | 64,144 | ||||||
| Total Equity | 672,249 | 871,801 | ||||||
| Total Liabilities and Equity | $ | 1,980,988 | $ | 2,122,428 | ||||
| HERSHA HOSPITALITY TRUST | |||||||||||||||
| Summary Results (unaudited) | |||||||||||||||
| (in thousands, except shares and per share data) | |||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||
| December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | ||||||||||||
| Revenues: | |||||||||||||||
| Hotel Operating Revenues: | |||||||||||||||
| Room | $ | 28,492 | $ | 105,324 | $ | 142,260 | $ | 424,698 | |||||||
| Food & Beverage | 2,766 | 17,028 | 15,418 | 65,379 | |||||||||||
| Other Operating Revenues | 4,114 | 10,241 | 18,765 | 39,591 | |||||||||||
| Total Hotel Operating Revenues | 35,372 | 132,593 | 176,443 | 529,668 | |||||||||||
| Other Revenue | (36 | ) | 78 | 217 | 292 | ||||||||||
| Total Revenues | 35,336 | 132,671 | 176,660 | 529,960 | |||||||||||
| Operating Expenses: | |||||||||||||||
| Hotel Operating Expenses: | |||||||||||||||
| Room | 8,637 | 23,385 | 38,787 | 93,488 | |||||||||||
| Food & Beverage | 2,513 | 13,393 | 16,199 | 52,820 | |||||||||||
| Other Operating Revenues | 17,464 | 42,856 | 85,270 | 171,128 | |||||||||||
| Total Hotel Operating Expenses | 28,614 | 79,634 | 140,256 | 317,436 | |||||||||||
| Gain on Insurance Settlements | (8,960 | ) | – | (8,960 | ) | – | |||||||||
| Property Losses in Excess of Insurance Recoveries | – | 12 | – | 12 | |||||||||||
| Hotel Ground Rent | 1,118 | 1,129 | 4,301 | 4,581 | |||||||||||
| Real Estate and Personal Property Taxes and Property Insurance | 10,420 | 9,490 | 40,928 | 38,601 | |||||||||||
| General and Administrative | 2,363 | 3,756 | 10,590 | 15,628 | |||||||||||
| Share Based Compensation | 3,297 | 3,362 | 9,488 | 10,803 | |||||||||||
| Acquisition and Terminated Transaction Costs | 4,419 | – | 4,419 | – | |||||||||||
| Depreciation and Amortization | 24,393 | 24,345 | 96,958 | 96,529 | |||||||||||
| Loss on Impairment of Assets | – | – | 1,069 | – | |||||||||||
| Total Operating Expenses | 65,664 | 121,728 | 299,049 | 483,590 | |||||||||||
| Operating (Loss) Income | (30,328 | ) | 10,943 | (122,389 | ) | 46,370 | |||||||||
| Interest Income | – | 46 | 39 | 253 | |||||||||||
| Interest Expense | (13,441 | ) | (13,047 | ) | (53,279 | ) | (52,205 | ) | |||||||
| Other Income (Expense) | 8 | (255 | ) | (522 | ) | (584 | ) | ||||||||
| Gain on Disposition of Hotel Properties | 1,158 | – | 1,158 | – | |||||||||||
| Loss on Debt Extinguishment | – | (15 | ) | – | (280 | ) | |||||||||
| Loss before Results from Unconsolidated Joint Venture Investments and Income Taxes | (42,603 | ) | (2,328 | ) | (174,993 | ) | (6,446 | ) | |||||||
| (Loss) Income from Unconsolidated Joint Venture Investments | (749 | ) | 173 | (2,938 | ) | 691 | |||||||||
| Loss before Income Taxes | (43,352 | ) | (2,155 | ) | (177,931 | ) | (5,755 | ) | |||||||
| Income Tax Benefit (Expense) | 17 | (1,876 | ) | (11,329 | ) | (92 | ) | ||||||||
| Net Loss | (43,335 | ) | (4,031 | ) | (189,260 | ) | (5,847 | ) | |||||||
| Loss Allocated to Noncontrolling Interests | |||||||||||||||
| Common Units | 4,626 | 812 | 19,698 | 2,366 | |||||||||||
| Consolidated Joint Venture | – | – | 3,217 | (188 | ) | ||||||||||
| Preferred Distributions | (6,044 | ) | (6,043 | ) | (24,176 | ) | (24,174 | ) | |||||||
| Net Loss Applicable to Common Shareholders | $ | (44,753 | ) | $ | (9,262 | ) | $ | (190,521 | ) | $ | (27,843 | ) | |||
| Earnings per Share: | |||||||||||||||
| BASIC | |||||||||||||||
| Net Loss Applicable to Common Shareholders | $ | (1.16 | ) | $ | (0.24 | ) | $ | (4.93 | ) | $ | (0.74 | ) | |||
| DILUTED | |||||||||||||||
| Net Loss Applicable to Common Shareholders | $ | (1.16 | ) | $ | (0.24 | ) | $ | (4.93 | ) | $ | (0.74 | ) | |||
| Weighted Average Common Shares Outstanding: | |||||||||||||||
| Basic | 38,640,604 | 38,516,879 | 38,613,563 | 38,907,894 | |||||||||||
| Diluted | 38,640,604 | 38,516,879 | 38,613,563 | 38,907,894 | |||||||||||
Non-GAAP Measures
FFO and AFFO
The National Association of Real Estate Investment Trusts (“NAREIT”) developed Funds from Operations (“FFO”) as a non-GAAP financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. We calculate FFO applicable to common shares and Common Units in accordance with the December 2018 Financial Standards White Paper of NAREIT, which we refer to as the White Paper. The White Paper defines FFO as net income (loss) (computed in accordance with GAAP) excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by an entity. Our interpretation of the NAREIT definition is that non-controlling interest in net income (loss) should be added back to (deducted from) net income (loss) as part of reconciling net income (loss) to FFO. Our FFO computation may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than we do.
The GAAP measure that we believe to be most directly comparable to FFO, net income (loss) applicable to common shareholders, includes loss from the impairment of certain depreciable assets, our investment in unconsolidated joint ventures and land, depreciation and amortization expenses, gains or losses on property sales, non-controlling interest and preferred dividends. In computing FFO, we eliminate these items because, in our view, they are not indicative of the results from our property operations. We determined that the loss from the impairment of certain depreciable assets, including investments in unconsolidated joint ventures and land, was driven by a measurable decrease in the fair value of certain hotel properties and other assets as determined by our analysis of those assets in accordance with applicable GAAP. As such, these impairments have been eliminated from net income (loss) to determine FFO.
Hersha also presents Adjusted Funds from Operations (AFFO), which reflects FFO in accordance with the NAREIT definition further adjusted by:
- deducting or adding back income tax benefit or expense;
- adding back non-cash share-based compensation expense;
- adding back acquisition and terminated transaction expenses;
- adding back contingent considerations;
- adding back amortization of discounts, premiums, and deferred financing costs;
- adding back amortization of amended interest rate swap liability;
- adding back write-offs of deferred financing costs on debt extinguishment, both for consolidated and unconsolidated properties;
- adding back straight-line amortization of ground lease expense and prior period tax assessment expenses; and
- adding back state and local tax expense related to prior period assessment.
FFO and AFFO do not represent cash flows from operating activities in accordance with GAAP and should not be considered an alternative to net income as an indication of the Company’s performance or to cash flow as a measure of liquidity or ability to make distributions. We consider FFO and AFFO to be meaningful, additional measures of our operating performance because they exclude the effects of the assumption that the value of real estate assets diminishes predictably over time, and because they are widely used by industry analysts as performance measures. We evaluate our performance by reviewing AFFO, in addition to FFO, because we believe that adjusting FFO to exclude certain recurring and non-recurring items as described above provides useful supplemental information regarding our ongoing operating performance and that the presentation of AFFO, when combined with the primary GAAP presentation of net income (loss), more completely describes our operating performance. We show both FFO from consolidated hotel operations and FFO from unconsolidated joint ventures because we believe it is meaningful for the investor to understand the relative contributions from our consolidated and unconsolidated hotels. The display of both FFO from consolidated hotels and FFO from unconsolidated joint ventures allows for a detailed analysis of the operating performance of our hotel portfolio by management and investors. We present FFO and AFFO applicable to common shares and OP Units because our OP Units are redeemable for common shares. We believe it is meaningful for the investor to understand FFO and AFFO applicable to all common shares and OP Units. In addition, based on guidance provided by NAREIT, we have eliminated loss from the impairment of certain depreciable assets, including investments in unconsolidated joint ventures and land, from net (income) loss to arrive at FFO in each year presented.
The following table reconciles FFO and AFFO for the periods presented to the most directly comparable GAAP measure, net income (loss) applicable to common shares, for the same periods:
| Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) | ||||||||||||||||
| (in thousands, except shares and per share data) | ||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||
| December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||||
| Net loss applicable to common shares | $ | (44,753 | ) | $ | (9,262 | ) | $ | (190,521 | ) | $ | (27,843 | ) | ||||
| Loss allocated to noncontrolling interest | (4,626 | ) | (812 | ) | (22,915 | ) | (2,178 | ) | ||||||||
| Loss (Income) from unconsolidated joint ventures | 749 | (173 | ) | 2,938 | (691 | ) | ||||||||||
| Gain on disposition of hotel properties | (1,158 | ) | – | (1,158 | ) | – | ||||||||||
| Loss from impairment of depreciable assets | – | – | 1,069 | – | ||||||||||||
| Depreciation and amortization | 24,393 | 24,345 | 96,958 | 96,529 | ||||||||||||
| Funds from consolidated hotel operations applicable to common shares and Partnership units | (25,395 | ) | 14,098 | (113,629 | ) | 65,817 | ||||||||||
| (Loss) income from unconsolidated joint venture investments | (749 | ) | 173 | (2,938 | ) | 691 | ||||||||||
| Unrecognized pro rata interest in loss of unconsolidated joint ventures | (500 | ) | (583 | ) | (1,416 | ) | (4,247 | ) | ||||||||
| Depreciation and amortization of difference between purchase price and historical cost | 20 | 23 | 83 | 96 | ||||||||||||
| Interest in depreciation and amortization of unconsolidated joint ventures | 619 | 1,355 | 1,828 | 5,234 | ||||||||||||
| Funds from unconsolidated joint venture operations applicable to common shares and Partnership units | (610 | ) | 968 | (2,443 | ) | 1,774 | ||||||||||
| Funds from Operations applicable to common shares and Partnership units | (26,005 | ) | 15,066 | (116,072 | ) | 67,591 | ||||||||||
| Income tax (benefit) expense | (17 | ) | 1,876 | 11,329 | 92 | |||||||||||
| Non-cash share based compensation expense | 3,297 | 3,362 | 9,488 | 10,803 | ||||||||||||
| Straight-line amortization of lease expense | 131 | 150 | 564 | 603 | ||||||||||||
| Acquisition and terminated transaction costs | 4,419 | – | 4,419 | – | ||||||||||||
| Amortization of discounts, premiums and deferred financing costs | 1,288 | 441 | 3,235 | 1,758 | ||||||||||||
| Amortization of amended interest rate swap liability | 811 | 775 | 4,061 | 851 | ||||||||||||
| Deferred financing costs and debt premium written off in debt extinguishment | – | 15 | – | 280 | ||||||||||||
| Interest in amortization and write-off of deferred financing costs of unconsolidated joint venture | 19 | 202 | 70 | 807 | ||||||||||||
| Preferred Distributions in arrears | 6,044 | – | 24,176 | – | ||||||||||||
| Interest in unconsolidated joint venture write-off of prior period receivable and accrual of prior period charges | – | 356 | – | 526 | ||||||||||||
| Loss on remediation of damage, excluding impairment of depreciable assets | – | 12 | – | 12 | ||||||||||||
| Operating loss incurred on properties closed | – | 118 | 983 | 929 | ||||||||||||
| State and local tax expense related to reassessment of prior period assessment | (38 | ) | (433 | ) | 54 | (50 | ) | |||||||||
| Adjusted Funds from Operations | $ | (10,051 | ) | $ | 21,940 | $ | (57,693 | ) | $ | 84,202 | ||||||
| AFFO per Diluted Weighted Average Common Shares and Partnership Units Outstanding | $ | (0.23 | ) | $ | 0.51 | $ | (1.31 | ) | $ | 1.94 | ||||||
| Diluted Weighted Average Common Shares and Partnership Units Outstanding | 44,361,461 | 42,974,693 | 44,066,289 | 43,390,093 | ||||||||||||
EBITDAre and Adjusted EBITDA
Earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”) is a supplemental measure of our operating performance and facilitates comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital-intensive companies. NAREIT adopted EBITDA for real estate (“EBITDAre”) a measure calculated by adding gains from the disposition of hotel operations, in order to promote an industry-wide measure of REIT operating performance. We also adjust EBITDAre for interest in amortization and write-off of deferred financing costs of our unconsolidated joint ventures, deferred financing costs write-offs in debt extinguishment, non-cash share-based compensation expense, acquisition and terminated transaction costs and net operating loss incurred on non-operation properties to calculate Adjusted EBITDA.
Our EBITDAre and Adjusted EBITDA computation may not be comparable to EBITDAre or Adjusted EBITDA reported by other companies that interpret the definition of EBITDA differently than we do. Management believes Adjusted EBITDA and EBITDAre to be meaningful measures of a REIT’s performance because they are widely followed by industry analysts, lenders and investors and that they should be considered along with, but not as an alternative to, GAAP net income (loss) as a measure of the Company’s operating performance.
| HERSHA HOSPITALITY TRUST | ||||||||||||||||
| EBITDAre and Adjusted EBITDA | ||||||||||||||||
| (in thousands) | ||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||
| December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||||
| Net (loss) income | $ | (43,335 | ) | $ | (4,031 | ) | $ | (189,260 | ) | $ | (5,847 | ) | ||||
| Loss (income) from unconsolidated joint ventures | 749 | (173 | ) | 2,938 | (691 | ) | ||||||||||
| Interest expense | 13,441 | 13,047 | 53,279 | 52,205 | ||||||||||||
| Non-operating interest income | – | (46 | ) | (39 | ) | (253 | ) | |||||||||
| Income tax (benefit) expense | (17 | ) | 1,876 | 11,329 | 92 | |||||||||||
| Depreciation and amortization | 24,393 | 24,345 | 96,958 | 96,529 | ||||||||||||
| EBITDA from consolidated hotel operations | (4,769 | ) | 35,018 | (24,795 | ) | 142,035 | ||||||||||
| Gain on disposition of hotel properties | (1,158 | ) | – | (1,158 | ) | – | ||||||||||
| Loss from impairment of depreciable assets | – | 12 | 1,069 | 12 | ||||||||||||
| EBITDAre from consolidated hotel operations | (5,927 | ) | 35,030 | (24,884 | ) | 142,047 | ||||||||||
| (Loss) income from unconsolidated joint venture investments | (749 | ) | 173 | (2,938 | ) | 691 | ||||||||||
| Unrecognized pro rata interest in loss of unconsolidated joint ventures | (500 | ) | (583 | ) | (1,416 | ) | (4,247 | ) | ||||||||
| Depreciation and amortization of difference between purchase price and historical cost | 20 | 23 | 83 | 96 | ||||||||||||
| Adjustment for interest in interest expense, depreciation and amortization of unconsolidated joint ventures | 904 | 3,315 | 2,721 | 13,491 | ||||||||||||
| EBITDAre from unconsolidated joint venture operations | (325 | ) | 2,928 | (1,550 | ) | 10,031 | ||||||||||
| EBITDAre | (6,252 | ) | 37,958 | (26,434 | ) | 152,078 | ||||||||||
| Non-cash share based compensation expense | 3,297 | 3,362 | 9,488 | 10,803 | ||||||||||||
| Straight-line amortization of lease expense | 131 | 150 | 564 | 603 | ||||||||||||
| Acquisition and terminated transaction costs | 4,419 | – | 4,419 | – | ||||||||||||
| Deferred financing costs and debt premium written off in debt extinguishment | – | 15 | – | 280 | ||||||||||||
| Interest in amortization and write-off of deferred financing costs of unconsolidated joint venture | 19 | 202 | 70 | 807 | ||||||||||||
| Interest in unconsolidated joint venture write-off of prior period receivable and accrual of prior period charges | – | 356 | – | 526 | ||||||||||||
| Operating loss incurred on properties closed due to physical damage | – | 118 | 983 | 929 | ||||||||||||
| State and local tax expense related to reassessment of prior period assessment | (38 | ) | (433 | ) | 54 | (50 | ) | |||||||||
| Adjusted EBITDA | $ | 1,576 | $ | 41,728 | $ | (10,856 | ) | $ | 165,976 | |||||||
Hotel EBITDA
Hotel EBITDA is a commonly used measure of performance in the hotel industry for a specific hotel or group of hotels. We believe Hotel EBITDA provides a more complete understanding of the operating results of the individual hotel or group of hotels. We calculate Hotel EBITDA by utilizing the total revenues generated from hotel operations less all operating expenses, property taxes, insurance and management fees, which calculation excludes Company expenses not specific to a hotel, such as corporate overhead. Because Hotel EBITDA is specific to individual hotels or groups of hotels and not to the Company as a whole, it is not directly comparable to any GAAP measure. In addition, our Hotel EBITDA computation may not be comparable to Hotel EBITDA or other similar metrics reported by other companies that interpret the definition of Hotel EBITDA differently than we do. Management believes Hotel EBITDA to be a meaningful measure of performance of a portfolio of hotels because it is followed by industry analysts, lenders and investors and that it should be considered along with, but not as an alternative to, operating income (loss) as reported in our unaudited summary results as a measure of our hotel portfolio’s operating performance.
| HERSHA HOSPITALITY TRUST | ||||||||||||||||
| Hotel EBITDA | ||||||||||||||||
| (in thousands) | ||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||
| December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||||
| Operating (loss) income | $ | (30,328 | ) | $ | 10,943 | $ | (122,389 | ) | $ | 46,370 | ||||||
| Other revenue | 36 | (78 | ) | (217 | ) | (292 | ) | |||||||||
| Gain on insurance settlement | (8,960 | ) | – | (8,960 | ) | – | ||||||||||
| Loss from impairment of depreciable assets | – | 12 | 1,069 | 12 | ||||||||||||
| Depreciation and amortization | 24,393 | 24,345 | 96,958 | 96,529 | ||||||||||||
| General and administrative | 2,363 | 3,756 | 10,590 | 15,628 | ||||||||||||
| Share based compensation | 3,297 | 3,362 | 9,488 | 10,803 | ||||||||||||
| Acquisition and terminated transaction costs | 4,419 | – | 4,419 | – | ||||||||||||
| Loss on impairment of assets | – | – | 1,069 | – | ||||||||||||
| Straight-line amortization of ground lease expense | 131 | 150 | 564 | 603 | ||||||||||||
| Costs accrued for furloughed employees | – | – | 893 | – | ||||||||||||
| State and local tax expense related to reassessment of prior period assessment | (38 | ) | (433 | ) | 54 | (50 | ) | |||||||||
| Other | (1,018 | ) | 177 | (508 | ) | (2,842 | ) | |||||||||
| Hotel EBITDA | $ | (5,705 | ) | $ | 42,234 | $ | (6,970 | ) | $ | 166,761 | ||||||
Supplemental Schedules
The Company has published supplemental earnings schedules in order to provide additional disclosure and financial information for the benefit of the Company’s stakeholders. These can be found in the Investor Relations section and the “SEC Filings and Presentations” page of the Company’s website, www.hersha.com.
Contact:
Ashish Parikh, Chief Financial Officer
Greg Costa, Director of Investor Relations
Phone: 215-238-1046
