Hersha Hospitality Trust

The comparable hotel portfolio generated approximately 77% occupancy, $303 ADR, and $234 RevPAR in Q2 2023, which was nearly 4% RevPAR growth versus Q2 2022. Urban RevPAR grew 12.2% year over year, urban EBITDA was $22.5 million, and Manhattan produced $8.4 million of EBITDA. Boston RevPAR grew 10.5%, and the Boston Envoy posted $3.4 million of EBITDA with 84% occupancy and $431 ADR. The resort portfolio produced just under $11 million of EBITDA, down approximately 24% year over year but up 37% versus 2019. Comparable portfolio GOP margin was 44% and EBITDA margin was 34.3%, while urban margins were 46% and 36.5%; resort margins were 40.5% and 30.6%. On the balance sheet, Hersha paid off a $23 million floating-rate mortgage and paid down $25 million of term loan principal, saving about $4 million annually in interest expense. The company ended Q2 with about $147 million in cash, an undrawn $100 million revolver, 79% of debt fixed or hedged, and 4.2x debt-to-EBITDA on a TTM basis. For Q3, July comparable RevPAR grew 5.1%, with urban properties up 12.3%. Management said back-half margins could come in very close to 2022 and implied margin growth of roughly 150 basis points versus 2019 in the second half.

Neil Shah framed the quarter as evidence that the portfolio is benefiting from a stronger urban recovery and improving demand in New York, Philadelphia, Boston and Washington, D.C. He said urban markets, which represent nearly 60% of room count, are offsetting softer resort comparisons, and he characterized 2023 as a base year for future resort growth as those markets stabilize. His tone was constructive and confident, with repeated emphasis on low supply, improving international and business travel, and the long runway for New York in particular.

Ashish Parikh focused on operating leverage, margin durability, and balance-sheet strength. He said Q2 comparable GOP margin was 44% and EBITDA margin was 34.3%, both above 2019 by 50 basis points and 70 basis points, and noted urban margins were back in line with 2019. He also highlighted $30 million to $33 million of expected 2023 CapEx, roughly $16 million already deployed, about $1 million of property insurance cost inflation, and the benefit of debt paydowns that cut second-quarter interest expense by $5.5 million versus 2022. He emphasized liquidity of about $147 million in cash plus a $100 million undrawn revolver, with 79% of debt fixed or hedged and a weighted average interest rate of 5.42%.

Analysts pressed management on whether resort markets had bottomed, how much further Manhattan occupancy could rise, and whether ADR would catch up after strong occupancy gains. Neil Shah said the rate of decline in resorts is slowing, especially in Northern California, and that South Florida remains challenging but less severe; he pointed to stronger booking pace and said urban markets will dominate results in the back half. On Manhattan, Ashish Parikh said July occupancies were still below 2019 levels and that there is room to push rate, especially in stronger business-travel months like September through December. Questions also focused on asset sales, the interest-rate backdrop, and CapEx timing; management said a couple of smaller noncore assets are in process, with proceeds likely used to reduce floating-rate debt, and that 2024 renovations will be timed for softer periods.