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Text: Neil, you may begin.
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 Hersha's history.
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 it out on our team shoulders as we share some good news today.
We begin 2021 with optimism toward 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 DC offsetting lock downs 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 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 kick-start 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 is 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 are 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 entering special events, generating occupancies approximating 90% with rate on pace to improve incrementally throughout the balance of the quarter.
Momentum has been 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 while continuing to operate in a cost-efficient manner as occupancy builds toward normalization.
Washington DC 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 Mason serve 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 through 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 continue to see strong performance from our JFK submarket, but also saw an uptick in first responder business at our Brooklyn and lower Manhattan asset.
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 homestretch of this pandemic.
Urban market recovery is not only driven by vaccine distribution and the return of business and international travel, but as 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 of forecasted an array of figures regarding the permanent supply reduction in New York.
It may not actualize as high as 25% as some of 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 is to generate $150 million to $200 million in proceeds from asset sales to pay down our senior credit facility.
The 6 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 don't 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 RevPAR and EBITDA per key of the remaining portfolio, but meaningfully enhance this 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 a $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've discussed on prior calls and in investor meetings, we've been steadfast in our approach to capital allocation.
Considering the cash flow profile and liquidity of our assets and the upcoming recovery and travel and lodging, we were loads 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 to 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 in the markets where we operate, innovation oriented urban gateway markets and regional resorts, a short drive away from them.
2020 showcase 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 [Indecipherable].
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 the 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 hotel sophisticated investors seek.
Our hotels have a high absolute RevPAR, 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.
As Neil mentioned, I'm going to do a deeper dive on our recently announced capital transactions, bank amendment, and their impact on our balance sheet and interest expense before closing with an update on our operating results and current outlook.
Last week, we announced a strategic financing commitment with affiliates of Goldman Sachs Merchant Bank to provide a $150 million in unsecured notes, which can be upsized to $200 million at any point on or before September 30th of this year with a maturity date on the notes of February of 2026.
We successfully closed on this financing yesterday and look forward to furthering our partnership with GS's Merchant Bank.
When we began our capital raising process earlier this year to provide us additional liquidity and optionality we prioritize two items, capital that was not dilutive to our equity and significant prepayment flexibility, and this bespoke solutions satisfied both of these key criteria and several others that we had prioritized.
This capital is unsecured and fully subordinated to our bank facility and allows us to defer cash interest on 50% of our financing for the first year, creating substantial near-term cash savings and providing us additional runway during this period of recovery.
This capital does not prohibit supplementary junior capital and allows us additional unsecured debt as long as we maintain compliance with certain incurrence test.
These unsecured notes do not place any further restrictions on our ability to operate the business or enter into strategic ventures that may be available to us.
Last week, we also highlighted that we went under contract to sell two additional hotels, bringing our year-to-date total asset value of disposition to $178.5 million.
The successful closing closing of these sales in addition to the Sheraton Wilmington, which closed in December and the Duane Street Hotel, which is expected to close during the second quarter will generate total proceeds of $216 million, and following the repayment of the $25 million mortgage loan on the Capitol Hill Hotel net proceeds from these dispositions will amount to approximately $191 million, which we will utilize in tandem with the proceeds from our unsecured notes to pay off our 2021 term loan and reduce our overall debt by approximately $150 million.
With the resulting reduction of overall leverage and the payment in current feature of our unsecured notes we estimate that our cash interest expense will decrease by approximately $4 million in 2021, and that our total interest expense including the deferred interest from the notes will remain similar to our 2020 interest expense.
We completed these asset sales and closed on the unsecured notes placement contemporaneously with the amendment of our revolving credit facility, and we're very pleased with the continued support from our consortium of over 15 Bank group members.
The amendment eliminates all term loan maturities until August of 2022 and extends our covenant-waiver holiday with our next financial covenant test occurring on June 30th of 2022.
The first test will be applied to the annualized second quarter performance with the third quarter test annualizing the second and third quarter results and so on.
The amendment allows us to pay off the accrual of our preferred dividends and maintain quarterly preferred dividend distributions moving forward.
At this time, we anticipate clearing our accrual on the preferred dividends by the end of the first quarter.
The completion of these capital transactions allows us to continue to focus on our operational performance, and accretive opportunity that may emerge in the recovery.
Results at our properties of incrementally improved over the past 6 weeks and ultimately led to the validation of our breakeven forecast during January, in what is seasonally the slowest month of the year our properties generated positive property-level cash flow during the month of January on 40% occupancy with RevPAR levels 60% below January of 2020.
In January, 20 of our 36 operational hotels broke even on the GOP line with 14 achieving EBITDA breakeven level.
These results represent a 75% increase and 40% increase in properties that broke even on the EBITDA line compared to November and December respectively.
Based on January's results and our forecast for the first quarter, we are comfortable with our previous estimates that the entire portfolio breaks even at property level with GOP with a 60% RevPAR decline.
At the corporate level, our RevPAR breakeven occurs at a 40% decline.
Our franchise operating strategy allows us to run our hotels in very lean labor models until improved demand warrants additional staffing.
Applying various cost cutting strategies such as cross-utilizing management personnel and outsourcing and job-sharing within the hotel and across our clusters lowers our overall cost.
The model affords flexibility to continue to operate in current staffing levels at our breakeven occupancies approximating 30% up to 55% to 60% at some of the hotels.
As occupancies increased at our hotels we are seeing flow throughs as high as 70% on the GOP line, and as we push both rate and occupancy we anticipate maintaining them for the remainder of the year.
The flexibility of the model and the resulting cost efficiencies economically justified continuing operations at our urban independent resort destinations throughout the pandemic mitigating cash burn over the course of 2020.
Our total property-level cash burn for the fourth quarter was $5.9 million and in January the property generated property-level cash flow for the first time since March of last year.
Corporate cash burn of $4.3 million in January represents a 60% reduction compared to April of 2020 at the depths of the crisis.
We expect our February performance to be in line with January with March operating results projected to surpass that of January and February as the pace of vaccination distribution, using government restrictions, spring break travel and warm weather along the Northeast should yield increased bookings across the portfolio.
Before I close with comments regarding our balance sheet, a quick update on Hersha's relationship with our New York City joint venture partner Cindat Capital Management.
As you may recall, following our 2016 transaction where we sold a majority of this portfolio and in which we netted a gain of $213 million, we retained a subordinated minority interest in the portfolio, which was junior to thin debt to equity position.
Earlier this month, the equity interest of that portfolio were transferred and we have no remaining equity interests or economic or legal commitments to the joint venture.
We removed these 7 hotels from our portfolio count and they will no longer be part of our operating results after the first quarter.
We ended the 4th quarter with $23.6 million in cash and cash equivalents and deposits.
During the quarter we received $8.1 million dollars in business interruption proceeds from Hurricane Irma's impact on our South Florida portfolio, and these receivables had a positive impact on our AFFO performance in the quarter.
We spent $4.3 million on capital projects last quarter, bringing our 2020 spend to $26 million, approximately $15 million below our forecast at the beginning of the year.
Our 2021 capex load will be primarily focused on maintenance capex and life safety renovation, and we anticipate it will be roughly 35% below our 2020 spent.
As we have very minimal capex moving forward after the $200 million we have spent on capital projects since 2017 and the recent disposition of lower growth, higher cost hotels our portfolio will experience very little disruption or capital spend for the coming years.
The unsecured note facility from Goldman Sachs Merchant Bank combined with the announced asset sale will be utilized to reduce our leverage, provide liquidity and pay off the accrual on our preferred dividends.
These actions increased our weighted average debt maturity to 3.6 years and resulted more than 88% of our debt being either fixed or swapped.
Over the past year, we've taken aggressive and swift action to minimize our operational losses.
We successfully zero-based budgeting our hotels allowing for margin improvement well into the recovery.
We reopened all of our wholly owned hotels and we incrementally reduced our cash burn rate to the lowest it has been since the onset of the pandemic, all are a testament to our aggressive asset management and nimble franchise operating model.
Following the strategic transactions announced last week we have right-sized the balance sheet and turned our focus to operational performance of the portfolio as demand reemerges and accretive opportunities become available across the recovery.
This concludes my portion of the call.
We can now proceed to Q&A, where we are happy to address any questions that you may have.

user
will forego providing full-year 2021 guidance at this time.
completed full year and q4 2020 with approximately $23.6 million of cash & cash equivalents and deposits.

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