Hersha Hospitality Trust Class A Common Shares of Beneficial Interest

Good morning and welcome to the Herschel Hospitality Trust fourth quarter 2020 earnings call and webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Greg Costa, Investor Relations. Please go ahead.

Thank you, Grant, and good morning to everyone joining us today. Welcome to the Hersha Hospitality Trust full year and fourth quarter 2020 conference call. Today's call will be based on the full year and fourth quarter 2020 earnings release, which was distributed yesterday afternoon. Before proceeding, I'd like to remind everyone that today's conference call may contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the company's actual results, performance, or financial positions to be considerably different from any future results, performance, or financial positions. These factors are detailed within the company's press release as well as within the company's filings with the SEC. With that, it is now my pleasure to turn the call over to Mr. Neil H. Shah, Hersha Hospitality Trust President and Chief Operating Officer. Neil, you may begin.

Thank you, Greg, and good morning, everyone. Joining me this morning are Jade Shah, our Chief Executive Officer, and Ashish Parikh, our Chief Financial Officer. We appreciate your joining us early this morning on such a busy day for earnings. I'm going to focus my comments this morning on recent performance and our announced asset sales before turning it over to Ash to provide some further details on our recent capital raise the newly amended credit facility, and what we are seeing in our portfolio year to date and through the first quarter. The conclusion of the fourth quarter closes the most challenging year in HRSA's history. Our operating teams remained on property throughout the pandemic, allowing us to welcome first responders and those that have begun to travel in these early days of the recovery. And our above property team members, many here in our offices today, enabled us to remain nimble, make prudent decisions, and execute multiple levers to provide financial flexibility for the foreseeable future. Jay, Ash, and I stand on our team's shoulders as we share some good news today. We begin 2021 with optimism towards the recovery as the rollout of vaccinations gains momentum and more and more people choose to travel. January started off stronger than we anticipated for our portfolio, returning to greater than $60 revpar, with South Florida and Washington, D.C. offsetting lockdowns on the West Coast and the Northeast. We had our first month of hotel-level positive EBITDA in January, and we are encouraged with February performance to date. The booking pace for President's Day weekend across the portfolio was was the strongest since the pandemic one year ago. We agree that leisure demand aided by continued government stimulus will again come first, but with significantly more pent up demand than was actualized last summer. We are also encouraged by data from the airlines. Most corporate accounts anticipate returning to at least 50% of pre-COVID travel by the end of 2021, and more than 40% of these accounts expect a full recovery in corporate travel by 2022. The return of leisure travel will kickstart this year's recovery to be sure, but the industry should see meaningful acceleration with the return of business travel, which we believe could begin as early as the second quarter and ramp up through the back half of the year. Drive-to resorts have been our strongest performers since the inception of the pandemic. This portfolio of hotels, about 25% of our pre-pandemic EBITDA, had a weighted average occupancy nearing 40% and realized ADR growth of 2% for the full year 2020. Government-mandated shutdowns in California impacted performance in December and January for our coastal California properties, but we are seeing immediate improvement in February with the lifting of these restrictions. Not only have leisure travelers returned, but we are also seeing early signs of business and small group activity. New corporate accounts for near-term projects and deposits for spring and fall weddings are building a base at the Sanctuary Beach Resort and Hotel Milo. Across the country in Key West, the Parrot Key Hotel and Villas was our best performing asset during the fourth quarter, generating 55% occupancy and 8.4% year-over-year ADR growth to $306 for the period. The holiday weeks were especially strong, most notably the period between Christmas and New Year's, which had greater than 90% occupancy and saw ADR exceed 2019 levels at the hotel. We're expecting several strong quarters ahead at this exceptionally positioned resort. Our largest asset, the Cadillac Hotel and Beach Club on Miami Beach, is seeing increased demand on weekends and during special events, generating occupancies approximating 90% with rate on pace to improve incrementally throughout the balance of the quarter. Momentum has been building year to date in Miami from leisure demand. and recent announcements around major corporate relocations highlight the tremendous draw to the region, which leaves us optimistic for this year's recovery and substantial market growth for years to come. Urban destinations were essentially shut down from March to September of last year, and then again from November through January. We believe that the reopening of museums, national parks, theaters, sports venues, and more bars and restaurants in the coming months will lead to a pickup in both pent-up leisure and business demand to our great cities. As travel begins to resume, which we have already seen in warmer climates such as South Florida and even at our lifestyle hotels up north over President's Day weekend, our unique portfolio provides us multiple levers to capture market share and while continuing to operate in a cost-efficient manner as occupancy builds towards normalization. Washington, D.C. has been a very strong performing market, despite the significantly abbreviated inauguration activity. Although the public was unable to attend the event, the St. Gregory Hotel contracted with media outlets, including CBS, BBC, and Al Jazeera. The Hilton Garden Inn M Street and the Hampton Inn Mass Ave served the men and women of the National Guard who were deployed to the city leading up to and through the event. The Ritz-Carlton Georgetown was able to hold a $1,000 ADR for the peak nights for the few leisure guests in town. Washington has begun 2021 on strong footing, ending January with portfolio revenues more than double our expectations at the beginning of the month. The new presidential administration is expected to lead to a pickup in activity among the lobbying, federal government, and diplomatic segments. And we are also looking forward to the upcoming Cherry Blossom Festival in the coming quarter. One of our better performing markets during the fourth quarter from our forecast perspective was our New York City portfolio, finishing the quarter with close to 40% occupancy, which came in spite of having few leisure-oriented attractions open in the city. We continued to see strong performance from our JFK sub-market, but also saw an uptick in first responder business at our Brooklyn and Lower Manhattan assets. These customers, the New York Fire and Police Departments, and a few medical groups, continue to get rest at the new Hotel Brooklyn and the Hampton Inn Seaport, resulting in January occupancy of 97% and 51% respectively. Although this business is transitory and related to the ongoing COVID-19 spread, we are grateful that these frontline workers are able to utilize our hotels to stay safe and guide us through this home stretch of this pandemic. Urban market recovery is not only driven by vaccine distribution and the return of business and international travel, but is meaningfully enhanced with reductions or deterioration of supply. In markets around the country, aging hotels are being rendered obsolete. The Wardman Park in D.C., the Embassy Suites in Philadelphia, the Buckminster in Boston. New York, more than anywhere else. Consultants have forecasted an array of figures regarding the permanent supply reduction in New York. It may not actualize as high as 25%, as some have predicted. But the confirmed closures in 2020 alone provide a concrete realism that the supply will contract. Adding to this is the newly announced proposal requiring special permits for new hotels and expansions in zoning districts throughout the city by the Department of Planning. Public hearings on this proposal have commenced. and if passed, will materially impact hotel construction across the five boroughs and provide a significant tailwind for hotel owners for years to come. Before Ash takes a deeper dive into our balance sheet and burn rates, I want to spend a few minutes on our capital allocation strategy and sources of additional liquidity. As we've outlined on our previous earnings calls, dispositions represented the lowest cost of capital as we considered alternatives to raise liquidity and increase our financial flexibility. We ran wide and robust marketing processes with multiple brokers beginning this fall. Our strong locations in major gateway markets attracted tremendous interest from private equity firms, family offices, and residential developers. These were fee-simple hotels that have remained open throughout the pandemic, unencumbered of management and onerous labor contracts. Many were unencumbered of brand, all of which made the bidding process quite competitive. Our goal was to generate $150 to $200 million in proceeds from asset sales to pay down our senior credit facility. The six recently announced asset sales will generate net proceeds of approximately $191 million. The Sheraton Wilmington closed in December, while the Courtyard San Diego closed last week. The residents in Coconut Grove, Capitol Hill Hotel, Washington, and Holiday Inn Express Cambridge are all expected to close by the end of the first quarter, while the sale of the Duane Street Hotel is slated to close in early Q2. Many of these hotels represented those with capital-intensive projects on the horizon, and the successful completion of these sales will lower our CapEx budget by approximately $20 million over the coming years. As part of a long-term capital recycling strategy, the dispositions achieve liquidity and flexibility at a reasonable cost. We transacted at a discount to pre-COVID value, but we focused our sales on mature hotels, hotels that we'd owned for nearly 10 years, hotels that would require additional capital investment during the recovery, and the slowest growth hotel in each of our geographic clusters. The successful sale of these hotels marginally improves the absolute rev par and EBITDA per key of the remaining portfolio, but meaningfully enhances portfolio quality, EBITDA growth rate, and reduces capex spending and disruption at these assets in the recovery. We were also pleased to announce last week and fund just yesterday, our strategic financial commitment with affiliates of Goldman Sachs Merchant Bank, providing $150 million unsecured term loan, which can be expanded to $200 million. This capital infusion, in conjunction with asset sales, led to the successful amendment of our credit facility, extending our covenant waiver until June 2022 and eliminating term loan maturities in 2021. we are pleased to have cleared the runway and provided the financial flexibility to focus on the ramp-up of our portfolio in the coming year. As we have discussed on prior calls and in investor meetings, we have been steadfast in our approach to capital allocation. Considering the cash flow profile and liquidity of our assets and the upcoming recovery in travel and lodging, we were loath to pursue a transaction that would be unnecessarily dilutive to shareholders or constrain our strategic alternatives in the future. For this capital raise, we ran a fulsome process. We were delighted with the depth and quality of investors interested in financing our portfolio and look forward to future transactions with many of them. Ultimately, the Goldman Merchant Bank offered the prepayment flexibility draw and pick features, and importantly, the potential for future partnership in the coming cycle. As we navigate through the tail end of the crisis and into the recovery, we remain bullish on our portfolio positions and the markets where we operate. Innovation-oriented urban gateway markets and regional resorts, a short drive away from them. 2020 showcased the allure of drive-to resorts for all segments of the traveler, and we believe this trend will not go away soon. But we remind investors that innovation markets provided strong results prior to the pandemic, and these markets have the most to recover with the rollout of the vaccine. Since the pandemic, Facebook and Google have expanded office space near our hotels on Manhattan's West Side. And our Tribeca, Union Square, and Midtown East hotels will all have major new office developments opening in the coming years. Amazon announcing the addition of 3,000 jobs in the Boston Seaport, walking distance from our Envoy Hotel. Our Courtyard LA is well-positioned in Culver City for the booming tech and studio-related office growth in Playa del Vista. Philadelphia has attracted several new life science and pharma companies downtown in state-of-the-art new space. Even our locations in Miami are attracting new Class A office space in Coconut Grove and on Miami Beach, as there is increasing momentum from Northeastern asset management firms and West Coast technology firms. all of this proving out that corporate expansion remains intact and will add to the already robust demand generators in our gateway markets, particularly for our carefully assembled submarkets and locations. Our disposition announcements this year should also reinforce the high-quality nature of our portfolio. Our hotels are precisely the kind of hotels sophisticated investors seek. Our hotels have a high absolute rev par while still producing sector-leading margins. The hotels are young and purpose-built for today's traveler with minimal capex requirements for the foreseeable future. Our hotels are fee-simple and have prepayable financing and have few management or brand encumbrances, all located in the most valuable markets in the United States. Our portfolio has proven to be attractive to a vast buyer pool and still offers incredible operational and financial leverage to this recovery. And with the increased financial flexibility from our capital infusion and no near-term encumbrances following our credit facility amendment, we are able to focus on capturing market share and operating our hotels in a cost-efficient manner to drive cash flow. With that, let me turn it over to Ash to discuss in more detail our balance sheet.