PHILADELPHIA—Hersha Hospitality Trust for the second quarter ended June 30 reported a net loss of $67.5 million, but was encouraged by cash burn rates that were better than expected and occupancy levels that rose monthly during the period.
“We expect to have all of our hotels operating by the end of September and now, more than ever, our ability to stay nimble and leverage our flexible operating model in close connection with our independent franchise operators allows us to reopen and operate our hotels in a cost-efficient manner, which gives us the opportunity to reduce our cash burn rate and sets up our portfolio to generate cash flow as we navigate this recovery,” said Neil H. Shah, president/COO.
California hotels fared well in the company’s portfolio considering the circumstances surrounding the pandemic.
“Drive-to resorts have been our strongest performers. Local regulations and travel bans dictated our opening of these hotels, but with each month’s performance, we are seeing meaningful growth in occupancy and strong rate integrity. We expect a longer leisure season this year, with disrupted schools, work-from-home employees, low gas prices and continued stimulus,” said Shah. “Our Sanctuary Beach Resort [in Marina, CA] was the best-performing asset during the second quarter, ending the period at 71% occupancy with a $340 ADR, and success continued in July with RevPAR growth of 12.4% for the month. The ramp up began in mid-April and extended throughout the quarter as travelers became more comfortable leaving their homes and socially distancing on the California coast. We opened Hotel Milo in Santa Barbara more recently, but it is ramping up quickly, particularly around the weekends where ADR is close to prior years.”
Some of the East Coast hotels are performing relatively well, but a rise in COVID-19 cases slowed down the ramp-up in Florida.
“On the East Coast, the Annapolis Waterfront Hotel [in Maryland] on the Chesapeake and the Mystic Marriott [in Connecticut], which opened in mid-June, are delivering operating profits this summer,” noted the executive. “South Florida has been more choppy. Government-mandated closures impacted our portfolio as Key West was closed to visitors and nonessential personnel, and Miami Beach hotels were mandated to close to prohibit the spread of the virus. Restrictions at both municipalities were lifted on June 1, and this led us to reopening our Parrot Key Hotel in Key West and two of our Miami Beach hotels, the Winter Haven and the Cadillac. Early results in both locations were promising, but notably at the Parrot Key, which saw travelers arrive from the Southeast and even from the Northeast and Midwest. But, the recent rise in case counts across the Sun Belt led to the closure of Miami Beach and restrictions at bars and restaurants in Key West over the July 4 weekend, which hampered the rapid ramp-up we were seeing in these markets. We believe occupancies at these hotels will re-accelerate in conjunction with decreasing case counts and easing restrictions across the Southern state.”
Hersha’s New York metro area properties were boosted by their service to first responders.
“Our sales and marketing teams have stayed nimble throughout the pandemic, remaining cognizant of travelers’ increased selectivity as it pertains to authentic and relevant experiences, but also proactively staying connected with local demand generators,” said Shah. “This approach was very productive during the second quarter as our team secured contracts with local hospitals and frontline personnel across our portfolio, with perhaps the biggest success in New York City. We have government groups and medical staff at our JFK [hotels], police and fire department crews in Brooklyn and at our Hilton Garden Inns in Tribeca and Midtown East and, lastly, contracted with a leading medical institution in Lower Manhattan at our Hampton Inn in the seaport. All of this led to 61% occupancy for our seven open New York City hotels during the second quarter.”
Second Quarter 2020 Financial Results
Net loss applicable to common shareholders was approximately $67.5 million, or -$1.75 per diluted common share, in the second quarter 2020, compared to net loss applicable to common shareholders of approximately -$0.4 million, or -2 cents per diluted common share, in the second quarter 2019. The decrease in second quarter 2020 net income and net income per diluted common share is due to the unprecedented impact on the travel industry from the COVID-19 pandemic.
Adjusted funds for operations (AFFO) in Q2 2020 decreased by $60.3 million, or 180.2%, to -$26.8 million, compared to $33.4 million in the Q2 2019.
Second Quarter 2020 Operating Results
Hersha had 21 comparable hotels fully open and operational throughout the second quarter, which generated 33.7% occupancy and ADR of $133.47. The open New York City hotels, across the five boroughs, generated 61.0% occupancy during the second quarter, highlighted by the select-service offerings in the JFK submarket and the Hampton Inn Manhattan-Seaport-Financial District in Manhattan, which ended the quarter with 94.9% occupancy. On the West Coast, The Sanctuary Beach Resort, just north of Monterey, CA, ended Q2 with an ADR of $340.28 and occupancy of 71.2%.
As of Aug. 1, 15 of the company’s 48 hotels continued to have suspended operations due to the COVID-19 pandemic. It anticipates all but four of these closed hotels will be open by mid-September.
Cash Burn
Entering Q2, the company anticipated it would lose approximately $11 million per month based on forecasted trends. Burn rates throughout the quarter improved from $10.5 million in April to $7.8 million during June, a 26% decline, bringing the total cash loss for Q2 to $26.9 million, approximately 13% better than forecasted at the beginning of the quarter.
