Hersha Hospitality Trust (HT) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Hersha Hospitality Trust First Quarter 2009 Earnings Conference Call.

(OPERATOR INSTRUCTIONS)

With that, I would now like to turn the presentation over to your host for today's conference, Brad Cohen, with ICR. You may proceed.

Thank you very much, Sunny. I wanted to remind everyone that this conference call contains forward-looking statements within the meaning of section 27-A of the Securities Exchange Act of 1933, and section 21-E of the Securities Exchange Act of 1934, and as amended by the Private Securities Litigation Reform Act of 1995.

These forward-looking statements reflect Hersha Hospitality's plans and expectations, including the Company's anticipated results of operations, joint ventures and capital investments.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, performance achievements or financial position to be materially different from any future results, performance achievements or financial position expressed or implied by these forward-looking statements.

These factors are detailed in the Company's press release, and from time to time in the Company's SEC filings. With that, let me turn the call over to Chief Executive Officer, Mr. Jay Shah. Jay?

Thank you, Brad.

Good morning, everyone.

Joining me today on the call are Neil Shah, or Chief Operating Officer, and Ashish Parikh, our Chief Financial Officer.

The first quarter of 2009 was a particularly challenging one for the Company and the industry at large. However, we don't believe it to be reflective of our expectations for the remainder of the year. The challenges were caused by a number of factors.

The first is the difficult economic environment which has been negatively impacting the entire lodging sector. Second was the difficult year-over-year comparisons to a record quarterly performance last year for the Company. And third was the impact of seasonality on our first quarter.

In terms of the economic environment, the impact on our business was quite clear in our first-quarter revenue per available room, or RevPAR, which was down 209% year over year, on a same-store basis.

The year-over-year decline was also due, in part, to the strength of the first quarter of 2008, which was one of the Company's strongest first quarters ever, particularly in New York City, Boston and Northern California. Since these markets typically account for approximately 50% of total company EBITDA, they had a meaningful impact on our performance.

For example, in the first quarter of last year, our New York RevPAR was up 19.4% on a rate increase of 13.7%, and an occupancy increase of 4.2%. In the first quarter of this year, our New York RevPAR was down 31.4%, on a rate of 22.6%, and an occupancy decrease of 9.8%.

It's also helpful to look at the first-quarter RevPAR trends over the past few years. From the first quarter of 2006 to the first quarter of 2008, our portfolio RevPAR increased from $119 in 2006 to $136 in 2007, and up to $164 in 2008.

In the first quarter of 2009, our portfolio RevPAR was approximately down to the level of 2006, at $114. We believe that this trend should start to reverse, as we are beginning to see early signs of stabilizing demand trends, and expect to see improvement from these levels.

Additionally, our first-quarter performance was driven by the seasonality of our business. The seasonal nature of the Company's revenues due to our concentration in the Northeastern Corridor limit our ability to control operating margin in the first quarter, due to its lower revenue contribution for our full-year results.

While we expect the economic environment to remain challenging, we also expect that our performance will improve as the year progresses. We believe that the occupancy trends that our industry has been experiencing are showing signs of stabilizing.

For instance, in April, our urban Boston portfolio achieved more than 80% in occupancy, as compared to 60.3% for the first quarter. And our urban New York portfolio in April achieved more than 90% occupancy, as compared to 72.6% for the first quarter.

Although our rates are certainly lower than in 2008, as the demand trends continue to firm up in our markets, we're beginning to test our pricing power.

Additionally, though, we acknowledge that we are operating with limited visibility. We are also confident that our strategic positioning, combined with our cost-containment efforts will help to mitigate some of the stress of the current economic turmoil.

As revenue continued to deteriorate in the quarter, we increased our vigilance on the cost side, to better align our expense structure with current revenues. We have successful been implementing cost-realignment efforts since the beginning of 2008, and in the first quarter, we worked with all of our managers to put forth additional expense-control measures to limit margin erosion.

Through the implementation of these programs, we are anticipating close to an additional $5.3 million of savings, just at our Hersha Hospitality managed same-store hotels across the remaining 10 months of 2009.

Cuts are focused on limiting margin deterioration, and driving as close to a negative 50% flow-through target as possible. Some examples of cuts at this level include a restructuring of the engineering function portfolio-wide. In the rooms department, we've renegotiated labor contracts and most service contracts, reduced complimentary shuttle costs, and reduced food labor and food costs for both for-sale and complimentary food service.

Additionally, salary freezes, combinations of positions, suspension of 401(k) contributions, reduction in HR program fees, and reductions in forces, will yield significant savings for the company.

Restructuring of the sales-and-marketing function portfolio-wide, without elimination of any customer-facing associates, and the reduction in associate travel and meeting expense will also generate meaningful savings.

We are encouraged that our latest cost-containment programs implemented late in the first quarter, combined with the higher revenues as the quarter progressed, due to our traditional seasonality, resulted in a meaningful margin improvement of more than 200 basis points in March, as compared to January and February.

We take a close look at every cost-cutting opportunity to determine its potential impact to the guest experience, and work to ensure minimal negative impact. While we have implemented measures on the cost side to help minimize margin erosion, we're also focused on driving revenue and continuing to gain share.

In terms of strategic positioning, our portfolio of valuable limited-service hotels is located in some of the country's highest barrier-to-entry locations. We have a solid portfolio of high-quality, newly built assets in both urban and stable suburban markets. These are markets with good travel infrastructure that are attracting both business and leisure travelers during this time.

Additionally, the smaller size of our hotels, relative to the big-box conference hotels in the marketplace is a distinct advantage that allows us to yield and manage very responsibly and effectively.

From a capital and liquidity perspective, we have a strong balance sheet, with little in the way of maturity risk until 2013. Our balance-sheet flexibility is an asset in the current liquidity crisis, and serves as an additional defense measure in this uncertain market.

I'd also like to point out that, subsequent to the close of the first quarter, we acted on an opportunity to further secure and enhance our portfolio. We acquired a 49% interest for $5 million in the Hilton Garden Inn in Tribeca, New York.

This 151-room fee-simple asset is newly built, and has a popular upscale-restaurant tenant as a lessee for its F&B operations. The hotel is on York Street, just a block away, on 6th Avenue, from the Tribeca Grand Hotel, a New York icon.

We currently maintain a $15 million mezzanine loan on this asset, and we have found our transaction value to be very attractive. As importantly, our joint-venture acquisition also serves as a mechanism to take control of a high-quality upscale asset in a top location, and to further secure the position of our mezzanine loan.

With the overview of the quarter, let me now turn the call over to Ashish, to go into some additional details on our financials. Ashish?

Great. Thanks, Jay. I'd like to provide a little more detail about our hotel-operating metrics during the first quarter, then focus on our balance sheet, development loan, portfolio, financial outlook, and updated dividend policy for 2009.

Operating results from our core consolidated portfolio reflected the effects of a seasonally soft first quarter, and faced particularly difficult comparisons on a year-over-year basis.

RevPAR at our same-store consolidated portfolio fell by 20% during the first quarter, as our ADR declined by 8.9%, and occupancy was down 8%. These declines in both rate and occupancy produced gross operating-margin declines of 473 basis points, or our same-store portfolio.

Consolidated hotel RevPAR for the first quarter, including new acquisitions completed in 2008, declined 19.9%, as occupancy declined 8.1% and rate fell 8.5%.

Gross operating margins for this portfolio declined by approximately 503 basis points from the comparable quarter. And contributing to our lower GOP margins for the entire consolidated portfolio were the six newly built hotels we acquired in 2008.

We estimate that new assets take approximately 24 to 36 months to stabilize under normal operating conditions, and potentially longer in difficult environments such as this. Our first-quarter adjusted FFO was $1.2 million, or $0.02 per share in unit, as compared to adjusted FFO of $7.2 million, or $0.15 per share in unit in the first quarter of last year.

In addition to the first-quarter performance, the first quarter 2009 per-share adjusted FFO results were impacted by the issuance of $6.6 million additional common shares, and $2.5 million additional operating partnership units issued in the first half of 2008.

Turning to our balance sheet, as we've outlined previously, increasing our financial flexibility remained a primary objective, and we are taking steps to enhance our balance sheet and liquidity.

During the first quarter, we have exercised one of our unilateral extension options, and extended out a $22 million loan for one of our New York City assets for an additional year. We currently have $32.3 million of consolidated debt that is maturing in 2009. And we're working with our bank lenders to refinance this debt.

This debt is collateralized by four separate assets, and the debt amounts are very manageable, with outstanding balances ranging from approximately $5 million to $13.25 million. We have begun our refinancing discussions with these debt lenders, and feel confident that we will be able to refinance these debt amounts at fairly similar terms to our existing terms.

The market for secure-debt financing remains extremely challenging, but there is still the semblance of a debt market for well-located, limited and select service assets requiring debt of less than $20 million. The primary originators of this debt are regional and community banks that are still initiating and refinancing loans for performing assets.

Regarding our capital expenditures for 2009, the young average age of our portfolio enables us to be more flexible in terms of timing for major capital projects. We expect that this will enable us to limit capital investments in 2009 at our properties, to those related to life-safety and critical-capital maintenance.

We further expect that there will be no measurable impact to the experience of our hotel guests -- that our hotel guests have come to expect from a service or infrastructure perspective, in our hotels.

We would estimate that our capital spending will be between $8 million and $10 million for 2009, of which we have spent $2 million year-to-date. We also currently have approximately $6.4 million in CapEx reserves that can be utilized towards these expenditures.

Moving on to our development-loan portfolio, we ended the first quarter with approximately $84 million in development loans to 12 hotel projects. We continue to closely monitor our development-loan portfolio, and our working with our development partners on an ongoing basis. At this time, approximately 40% of our development loans are on projects that are operational, 35% are on projects that are in construction, and 25% are on early stage construction projects.

Let me now turn to our financial outlook for 2009. Visibility on the demand side of our business remains cloudy and difficult to predict. But as Jay mentioned, we do believe we are seeing some signs of stabilization in the negative-occupancy trend the industry had been experiencing.

We continue to believe that the characteristics of our portfolio should help us as we move through this difficult period, but we are operating under the assumption that the operating environment will remain historically challenging.

Based on our first-quarter performance and our outlook for the remainder of the year, we have updated the assumptions for our portfolio in 2009. we are estimating that RevPAR for our consolidated portfolio will deteriorate between 14% and 20% for the full year, compared to our prior expectation of deterioration between 12% and 15%.

In terms of quarterly progression, the Company expects that RevPAR declines will moderate in the third and fourth quarters. And we are now targeting EBITDA-margin declines to range between 200 to 400 basis points, which is wider than our previous range of 200 to 300 basis points. This is based upon the limited visibility related to average daily rates and pricing power, and we felt that it was prudent to widen out this range.

Let me just finish my formal remarks with some discussion regarding our dividend. The Company has modified its common dividend policy, and declared a quarterly cash dividend of $0.05 per common share and limited-partnership unit, and a series-A preferred-share dividend of $0.50 per share for the second quarter.

The Board decided to reduce the common dividend in response to the difficult the unprecedented operating environment in the lodging industry, coupled with credit markets that remain constrained. This decision was considered at length because of the Company's 10-year track record of never having cut our common dividend since our initial public offering in 1999.

As fundamentals improve and the market stabilizes, our board is committed to reevaluating the dividend policy. The new dividend policy is expected to result in cash preservation of approximately $30 million on an annual basis, which will further strengthen our liquidity and balance-sheet position. This concludes my formal remarks. Now, I'd like to turn the call back to Jay.

Thanks, Ashish. Let me finish by saying that despite the economic deterioration, our properties remained resilient. And we expect to outperform as we move forward, for several reasons.

Our portfolio consists primarily of smaller hotels, which allow us to better manage yields during periods of weaker demand. Our mix of urban and stable suburban markets will help to offset the volatility that the industry is currently experiencing.

We have best-in-class brands at our hotels. We are aligned with the category leading limited and select service brands, which, historically, benefit from trading down. Our portfolio is located in solid markets that are served by a broad range of demand generators, and are not overly reliant on air travel. And we believe supply growth, in general, will remain tempered through this cycle, and our markets, which will allow for a steeper recovery when demand returns.

The current environment offers very little visibility, but our balance sheet has virtually no debt maturities until 2013. We have a well-located portfolio, and believe the concentration on select and limited service will be quite beneficial in helping us to ride out this cycle.

With the following initiatives we have in place, we'll continue to manage our business effectively, focusing on maintaining a strong and flexible balance sheet, improving hotel operating performance, and driving occupancy gains and industry occupancy share.

This strategy makes sense when navigating through the uncertainty we're experiencing. We recognize that these are unprecedented times, and remain prepared to take extraordinary measures to best manage the Company, and will remain committed to returning defensive out-performance, and building long-term value for our shareholders. That concludes our formal remarks. Operator, we can open the line for questions.

Thank you. (Operator Instructions). We'll take our first question from William Truelove, with UBS.

Morning, guys.

Good morning, William.

Can you give us a little color about the New York City -- basically, occupancy rates? What's going on relative to your [pure set] in the first quarter? And how do you see that trending going forward, given that you're somewhat targeting a little bit of a lower price point than a typically New York City kind of hotel? Thanks.

Yes. Just generally speaking about New York -- and this applies to some of the other markets as well, Will -- our occupancy trends are stabilizing for a variety of reasons.

I think one of them is that when we saw the quarter-four results coming in as they did, we instructed our operators to start welcoming back business that had been displaced during our high-rated times. And we really pursued trying to build some semblance of order and demand, with very much a heads-in-beds policy.

That's allowed us, in New York, for instance -- and what you asked about, too -- to see some firming in demand. We're at a rate level that we believe is extremely low. But we felt that the best way to go about trying to work back into a recovery -- was to firm-up demand first, and then start to assert some pricing power.

And as we see some of firming going on in March and April, we will start to test that, and we'll hope for a continued firming, and that that kind of demand holds. And then we can get to business.

It is very dependent on the whole market also having a similar view. And so it's very difficult to tell when we'll be able to assert that pricing power in any meaningful way, because the whole market needs to hopefully analyze this data the same way that we are. And we need to push rate and [moss].

All right. Thanks so much.

We'll move on to David Loeb, with Baird.

Good morning, gentlemen.

Good morning.

Jay, I wonder if you could just give us a little more color about the board's process in thinking about the dividend reduction. The reduced rate will obviously save you more than, I think, what you had originally anticipated. But you had talked about a cut that might be in the order of 30% to 50%. And this was clearly a bit more substantial. What was behind that?

David, that's correct.

We had anticipated that, should there have been a need for a cut, it would have been less than what we had done.

The Board's decision was driven by a couple of -- driven by a couple of factors. The -- I think the continued lack of visibility -- we had expected that we -- as we moved through the first quarter, that we would be able to give the Board a little more -- a little more clarity on where the markets were going to be, going into the second and third quarter. And we weren't able to do that.

Secondly, because of the deterioration in rate that contributed to the RevPAR decline -- and the rate played a big factor -- it really took away our ability to defend the margins as well as we thought we could. And I think that also played a factor in the Board's decision.

We had anticipated that if we could keep it inside of 300 basis points in deterioration, that we would feel a lot more comfortable about things. And we weren't able to demonstrate that to the Board either.

So I think those two factors played a big role in increasing the amount. We wanted to, as a company, show the public and the retail shareholder base, and those institutional investors that hold our stock for dividend purposes, that we are committed to a dividend policy. And so we believe that the number that we've come to is still a pretty attractive dividend, and the only one in the lodging sector.

Right. You were the last to cut. And I think you'll have the highest yields among the hotel rates, which is pretty interesting.

That makes sense. And I do appreciate the fact that you were able to provide us this clarity at the time of the earnings release, rather than leaving that uncertainty out until the next dividend declaration.

To follow up on the visibility question, and I guess to go a little further than where Will asked, can you talk a little bit about what you're seeing in terms of New York's supply, and whether you're anticipating that in higher-occupancy seasons -- will rate cuts be less dramatic? Will you be able to rebalance your mix towards higher-end business?

And, then, on the same token, if you could just talk about the other East Coast markets, particularly the benefit you got from D.C. -- how material that was, and what you're seeing in Boston and Philadelphia?

Sure. You know, David, maybe I can get started in terms of the New York market.

You asked two questions -- just how we see rate moving, and the supply issue. I think they are somewhat related. As we had discussed, I think, on the last call, we found that, in 2008, we had an extra 2,300 rooms in the inventory, or about 3%. Across 2009, we think it could be as high as 4,000 rooms entering into the marketplace, which would be closer to 5% -- 6% new supply this year. We see that tailing off in 2010, and don't see much beyond 2011 at all.

But that additional new supply into the marketplace is likely impacting our ability to raise rates as much as we hoped to by this time in the year. The new hotels that are opening are ramping up.

And as they ramp up, they're willing to drop their rates pretty significantly to get some revenue flowing through their hotels. And so we do find that the new supply is targeting our key accounts, and is targeting our customers, and is providing rates that are below ours. So we are feeling that challenge on a daily basis in terms of our being able to raise our rates.

In New York, just to add to what Jay had said earlier, the mix that's kind of taking up where corporate and government used to the lead the charge has been leisure. And leisure has been -- it's been a lower-rated segment, and always has been. But it's particularly low-rated this time. And, unfortunately, it also offers the least visibility, because you see a lot of last-minute bookings because of how low rates are in New York, from customers.

We are continuing to see, at our properties, a lot of international travelers. It's a different kind of international traveler. It's the FIT series that we generally didn't accept in most of our hotels.

Now, we're finding that we do open up our inventory to FIT groups. And whenever we do, they're getting taken pretty quickly. So there is demand there.

That said, we're seeing those same customers -- we're seeing international customers in our lobbies, but they don't have as many shopping bags in their hands, and they're being more frugal during their stays, which impacts rate as well. That's what we're seeing in New York --

Yes.

-- in terms of supply and in terms of the performance so far.

David, let me give you a little bit of color on our D.C. And then I can give you some -- just some overall direction that we're seeing in our portfolio for April.

In D.C., for us -- our D.C. urban and metro portfolio that doesn't have any central business-district assets in D.C. -- did not benefit as greatly from the first quarter as some of our peers. On our consolidated same-store basis, our D.C. RevPAR was down 9.9%. And we had, on the total portfolio -- same-store was also the same.

So it was a relatively better market than some of our other markets for the first quarter, but not as strong as some of the others saw in our space.

All of these markets, as we look at the portfolio going into April -- unfortunately the RevPAR picture hasn't improved that greatly. For the full month of April, we're looking at same-store -- total portfolio RevPAR being off about 18.8%.

The same-store metric is a little higher than that. So we're still not seeing the trends improving -- again, driven largely by rate. We are seeing, again, demand trends stabilizing a little bit. But rate is not being pushed.

We've looked at the first five days of May, and it's difficult, from five days, to draw any kind of a trend, particularly on a year-over-year basis, because the days don't necessarily align. But, currently, on a same-store basis, the first five days of May, for us, on a same-store basis, has been about 15% off.

So it looks a little better. But, again, I would caution that that's a five-day metric and is subject to revision with the addition of two or three more days, if things don't go well.

It's still pretty bad, just not quite as much bad as the last four months.

That's right.

Correct.

Okay, great. Thank you very much. That was helpful.

We'll move next to Bill Crow, with Raymond James.

Good morning, guys.

Good morning, Bill.

This is a question, so -- and not a criticism. Don't take it that way.

But I'm just wondering whether there is anything within either the management company, your systems, that kind of has you guys seemingly a step behind -- whether it's the decision to implement the deeper cuts in the operating teams in February, or the dividend decision -- it just seems like maybe the Street was much more pessimist coming into this downturn late last year than you were. And I wonder if there is something there that you're not seeing the data as timely, maybe, as some of the peers that implemented these cuts nine months ago, or a year ago.

Yes. No, that's a fair question, Bill. I think there is probably two reasons that our margin defenses didn't respond as quickly as some of the others. I think our optimism might have been driven in part by ramp-up assets that we had in the portfolio.

We had a significant number of ramp-up assets, and we felt that we would see -- not necessarily the same sort of incremental growth over average market growth as we normally see from a ramp-up asset, knowing that there was a heavy down draft. But we thought that that might give us some buoyancy.

And secondly, our fourth quarter -- as we were taking a look at our fourth quarter, as the wheels were coming off, we were making assumptions on rate deterioration not nearly as deep as we ended up experiencing. And that was very much informed by our fourth quarter.

Our fourth-quarter rates hung in better -- significantly better -- than our first-quarter rates. And so some of the cuts that we made in February, if our rates would have held, we were not likely to make them as deeply. And that's -- those were the two drivers. I think we were looking at the information. I think we just had a unique perspective on it or these two reasons I mentioned.

Well, let me ask you this -- it's a rate issue, obviously, not an occupancy issue. So why not implement those cuts anyhow? In other words, why not be more aggressive, rather than less aggressive -- more anticipatory than reactionary. You have the same number of guests you anticipated, so making these cuts isn't necessarily impacting the guests any different than you would have otherwise.

Yes. I think, there, that was what we were -- what was going through our head at that time is that if the rates hung in there the way the did, we wanted to continue to be leading the charge on market share, and capture as much trade-down as we could, and retain what business we already had. And that put us two months behind -- I would say two to three months behind. Let's put it that way. But it was --

Sure enough. Yes.

Yes, but it was literally as simple as that. And it was a difficult time. And we can probably be charged with slightly more optimism than the facts suggested we should have had, as we look back on it.

No. Fair enough. And how much of it was just New York City that drove the surprise? Or are you surprised also by rate declines in -- really, across the markets. Or is it just so much of it New York City, now?

Bill, this is Ashish.

Hey, Ashish.

I mean, certainly, the rates did decline precipitously in most of the markets. But New York really saw sort of a 22.6% ADR decline, and a 10% occupancy decline in the quarter. And that, once again, was in comparison to very, very difficult numbers for the first quarter of '08, which were record numbers. So that had a disproportionate effect on our margins.

And in addition, January and February are our slowest months for the entire year, for almost all of our markets. So the operating margins are disproportionately affected because of just the seasonal nature of our revenues.

Yes. Okay.

And so the savings in margin -- coming back -- won't be, necessarily, linear. It's driven both by seasonality, which is tough to quantify -- it's not that tough to -- but you're going to see more positive operating leverage. And, in addition, we'll hope to see some -- less deterioration in RevPAR.

Right.

But when you're asking about markets -- it was New York at 22.6% down in rate, and then California and Arizona was off almost 17% in rate for us.

Yes.

And Boston was off about 8.3%. And that's about 50% of our portfolio -- 50% of our EBITDA.

Is there a market today for the type of assets you own, if you wanted to more aggressively sell to reduce leverage levels? What are the brokers telling you about the opportunities out there?

I think there is a market. There is a market for these kinds of assets, particularly because many of our assets have assumable debt financing, which makes it more attractive.

It's just a matter or pricing for -- in order to ensure a sale and to try to make a sale happen within three to six months requires going into double-digit cap rates. And in certain markets, that may be justifiable. And others, we're hesitant to do so.

I think what we're seeing in kind of secondary markets and suburban markets is -- to trade an asset requires a cap rate, non-leverage yield of 11% to 12%. And in an urban market, if there are buyers who can afford the equity check, it's 9% to 10% kind of cap rates.

Fair enough. I appreciate the answers. Thanks, guys.

Thank you.

We'll move next, now, to David Katz, with Oppenheimer.

Hi. Good morning.

Good morning, David.

A couple of questions -- you make some reference to margin improvement in the back half of the year. And I guess -- circling back on some of the prior commentary, I'd ask what gives you -- where do you get your confidence to that end? And we recognize easy comps, but are there other factors that lead you to that comfort?

Sure. David, this is Ashish. I mean, when we just look at -- one of the primary reasons is just the seasonality. And when you look at our January, February and March numbers, what we noted was just that our March revenues, from a seasonal basis, are 20% higher than the revenues that we encounter in January and February.

March had margin deteriorations that were approximately 270 basis points better than the deterioration that we experienced in January and February. And March is still one of our weakest months.

So when you look out into the second and third quarters, it's just a matter or a much higher revenue base, in addition to all of the tier-three cost-containment that we've done, that leads us to believe that the margins should improve pretty significantly, going into quarters two and three. And, then, quarter four is still a fairly strong quarter for us in comparison to quarter one.

Okay, got it. Now, one other sort of broader question, if I May -- we've seen some loosening of the debt markets within the last week or two. And just from an industry perspective, does it appear to you that we've taken steps in the direction of being able to trade properties -- buying or selling? And are you more or less likely to engage in some of that activity than you were even a couple of weeks ago? And what else should we be looking for, going forward?

I think the debt deals that we have seen have been fairly large, sort of unsecured deals in the hotel sector. There has been a few financings for urban assets that have been accomplished in the first four months. But when we look out -- and Neil can certainly talk about the transaction market more -- but when we look out at asset trades, I think that the primary component of that would be that there is some type of assumable financing on the assets.

And we've soft-marketed several assets -- or we've spoken to buyers over the last six months or so. And I think that as conditions firm up over the next nine months, we may be more likely to engage in some additional non-core asset sales. Neil, you want to --?

Yes. David, just to add to that -- I think, on the smaller-asset front -- assets less than $20 million -- particularly for assets less than $10 million -- I think you will see a pretty active pickup in transaction activity.

But as you get to the more kind of investment-grade or institutional-grade assets, I'm not sure we've seen anything recently to let us believe that there's going to be more transactions in that market in the next three to six months. There just doesn't seem to be -- beyond the debt, there is just not enough equity with conviction out there, to do deals.

The private-equity buyers do not exist today. The public buyers are not active yet. So we're left with more regional owner-operators or high-net-worth families. And I don't think they're going to be able to make as big of a dent in the volume of transactions that I think everyone would expect.

So I am -- for the next three to six months -- don't believe that there is going to be a significant upturn in transaction activity. There will be exceptions here the there, and there will be a market for smaller assets. Fortunately, some of the assets we would consider selling are those kinds of smaller assets. And so we likely will engage in that activity across the rest of this year.

And this is Jay. And if you're asking about dispositions, as well as acquisitions, I think the acquisition opportunities for public companies will probably be there at some point. There is probably select opportunities now, and they'll probably continue to grow. But, again, I don't think it's going to be a short window. I think it'll be a pretty protracted period of time when deals will make sense.

Got it. Thank you very much.

(Operator Instructions). We'll move onto Will Marks, with JMP Securities.

Thanks. Hi. Good morning, Jay. Good morning, Ashish.

Good morning.

A question on the guidance, and that -- you took RevPAR way down. But the language stayed the same in that you said that the first-half declines will be in the mid-to-high teens, and then moderate in the third and fourth quarter.

Maybe you could talk a little bit about -- I think we're getting a sense of second quarter, but is summer going to benefit from leisure doing a little bit better than business? And are you basing on -- are you assuming the economy gets better in the fourth quarter -- just any kind of qualitative thoughts or quantitative thoughts?

Sure. Well, I mean, I think we're -- the second quarter is -- you've seen the star numbers and they're still coming in, in the mid-to-high teen range for RevPAR declines. What we're looking at, really, in the third is, because of our regional focus, here in the Northeast and the travel -- overall leisure trends are sort of "Stay closer at home," we're anticipating a little bit of a pickup, and the comps to become a little easier in the third quarter than our first two quarters.

And, then, the fourth quarter is the first time that we see sort of -- we saw meaningful deterioration in trends. Last year, I think, the portfolio was down about 9%, with New York down almost 20%. And we believe that the year-over-year numbers should be impacted just from that -- just from sort of a -- maybe a mid-single-digit type of RevPAR decline in the fourth quarter.

And, Will, if I could add to that -- if there would have been a little more encouragement from rates stabilizing, to something closer to prior-period numbers, then you had the possibility of, maybe, the fourth quarter being down very little to the prior-year fourth quarter. But I think we, as many others in the sector, are just seeing just this complete lack of certainty on where rates are going to be and, very possibly, where occupancies are going to be. And that's the reason we widened out our range.

Okay. Perfect. Thank you very much.

We'll move on to Andrew Wittmann, with Robert W. Baird.

Hi, guys. You get both Baird analysts, today, I guess.

Yes.

I just wanted to ask a question, Ashish, on -- you said you were -- you're fairly comfortable with the maturity picture for 2009. you mentioned similar terms -- I guess, does that mean both on loan-to-value and rate? And, then, can you just talk about how the maturities on the land -- how the banks are thinking about loaning or extending on land, versus extending or doing new loans on the assets, which actually have cash flow?

Sure. Of the $32 million that we have that's coming due this year, approximately $20 million of it is on two separate land parcels -- on in Manhattan, and one in Brooklyn. When we've spoken to the banks, I mean the overall loans that we have are not at high loan-to-values. We don't anticipate that there'll be a material change in the amount of the proceeds that we can refinance -- I think, for sure, on the operational assets.

On the land parcels, there may be $1 million per loan that we may have to pay down -- somewhere in that range -- just as overall lending on land has become stricter over the last year or two.

Overall rates -- we would anticipate that, just with the low rate environment for LIBOR and prime -- that we don't anticipate material increases in the interest rates that we would have to pay for either the operational or the land loans.

Okay. That sounds fair. And then just a -- I wasn't writing quick enough, I guess, on Tribeca. Can you just give us a little bit more clarity? You said it was a 50% interest. What was the capital out the door? And can you just give us an idea of what that price for key is implied there and, I guess, also whether or not that venture is going to be consolidated or unconsolidated, just for modeling purposes?

Yes. Currently -- and Ashish will confirm this -- but we only acquired a 49% interest. So it won't be consolidated at this time.

The asset -- it took $5 million equity out the door. The asset valuation on that basis comes to about [$360] a key, which compares very favorably with a recent Hilton Garden Inn transaction in Manhattan at [$424] a key.

The purpose for acquiring this 50% interest in addition to we having a strong long-term belief in the asset -- but that's for another day. I think, more importantly, we have a $15 million mezzanine position on this asset. And we felt, by entering into this transaction, and with the provisions that we have, and the mechanisms we have in place, and the joint-venture agreement -- we have an opportunity to take control of the entire asset, and really secure our mezzanine position, A, and to achieve a very strong basis for the asset in our portfolio. That was the reason we moved forward with it.

It's a part of our campaign to reduce our exposure to development loans. It's something that we are -- that we have been thinking about, and we've been working on, and we'll continue to work on through the year.

We just feel, in this environment, it's -- it makes sense to have a fee-simple operational asset in lieu of a development loan. There is a possibility that the remainder of this transaction might happen for no additional cash, but for other considerations. So it was very strategic in that way.

Going back to the performance of the hotel -- it's newly built. It's just opened. And it's doing very well, actually. We expect to see some good performance from it across the next couple of years, and really hope that it will outperform as we look even further into the future.

So when you -- just to hone in on one point there -- when you say "No additional cash," you mean, potentially, the $15 mezz gets converted to an equity stake -- Hersha's equity stake?

That's a possibility or consideration to the same developer, on another loan, on another asset.

I see.

Possibly.

Okay, interesting. Great -- that's all I had.

Okay.

Great, thanks.

We'll go next to Smedes Rose, with KBW.

Hi. I was just curious -- would you -- I think you've talked about this before -- but would you revisit the idea of issuing stock in lieu of cash for your dividend requirements for this year or next year?

Yes. Good morning, Smedes. This is Ashish.

Hi.

For 2009, what we've paid already, we believe is more than sufficient to cover our tax-income obligations. So, as the Board looked at the dividend, there was not a thought that we would pay any type of a stock dividend for 2009.

We'll look at our taxable-income requirements for 2010, and make the decision accordingly. But based upon our forecasts, if we were to keep the current dividend policy, cash-pay, into 2010, we don't believe that we would be required to pay an additional stock dividend.

Okay. And, then, the other thing -- the development loans that you have -- it looks like the bulk of them come due over the course of 2009. Would you expect those to be renewed by the bars, or do you think they'll just wrap those up or --?

I think that there is a strong likelihood that a portion of them would be -- a good portion of them -- would be renewed by the borrowers.

Okay. Thank you.

(Operator Instructions). We'll take our next question from Jeff Donnelly, with Wachovia.

Good morning, guys -- just another question on the mezz piece that you had bought in. If you look at that asset, I guess, on the value that you put out there before -- where you see the asset, today, I guess, in market-value terms -- what is the capital structure that's in place today look like on an LTV basis?

On the Hilton Garden Inn?

Yes. Yes, I'm sorry.

There is a $30 million first mortgage on the property, a $15 mezzanine position that we carry on the property. And that would imply -- and then our $5 million for a 49% stake in the property. So it implies a total capital stack of $55 million in value, with the first-position mortgage being approximately.

55%.

55%.

Okay. So, like, all-in, a little north of 80% on total leverage versus gross asset value, if you will?

Right. And of that, 15% is our --

Is our mezzanine.

(inaudible) -- right.

As we looked at it, we looked at -- as we underwrote this alternative for this asset, we looked at it as a -- what kind of return could we get on the equity that we're putting out? And that was a very solid, well over a 30% kind of return.

But if we even looked at our mezz as equity, it remained an -- over a 20% return. So whether you call it debt or equity, the -- our $15 million position, and our additional $5 million of investment should yield some very strong returns.

Do you see other opportunities like this, whether they're in your portfolio, or just elsewhere in the market, that you're maybe not involved with today, that you can step into putting capital into assets like this? Or is this really just sort of a one-out circumstance?

We see the opportunity for it significantly in a lot of our major markets, and in New York. Whether we would be willing to do so in a situation where we don't already have exposure to an asset is unlikely. Here, it was the combination of a great deal, plus securing our position in the asset already.

We've looked at a lot of other opportunities where we didn't have a position in the asset, and could get maybe not as good of a deal, but pretty similar economics, and we've shied away from it, to this point. Those opportunities do exist, and if the far capitalization, and if we were able to find a partner to go at those kind of opportunities, we would -- we'd find a lot of opportunities.

If I could switch gears a little bit, I guess, and ask a question that pertains, actually to the Hersha management arm -- I think you guys are doing a deal or a development with Hyatt -- on a Hyatt place, in Brooklyn, that's supposed to be completed, I think, in 2011, I believe.

Can I ask you guys how that arm of the Company is thinking about pursuing development deals? I mean, what sort of returns are you looking at, or what sort of per-key pricing are you trying to underwrite new product at?

Generally speaking, I think most developers are -- if they are going to pursue development -- are looking for a -- to be able to open a property, and, within a couple of years, to have an un-leveraged yield of 12% to 14%. It's very hard to make those kind of deals work, except for the most unique situations, whether it be a great location, a great brand or something. So I don't see a lot of projects like that happening.

The one that was announced by Hyatt is one that could be, given financing -- market coming in -- and given construction, if construction pricing can be held to the right level. That project has not broken ground, but is in design development.

Do you have a sense of what your per-key costs will be there, at that point -- and just a rough range, or --?

Really, it's too early to tell.

Okay. And then, just a last question, if I could, I guess, maybe, drill into some of your market-share data -- particularly for New York -- and I apologize if I missed this in your opening remarks.

But, I think, in prior quarters, you've told us that you've been picking up share using FTR data on a year-over-year basis. But I'm curious what that's been like on more of a -- I guess I'll call it a sequential basis. Are you still gaining share year over year? But is the rate of that pickup sequential waning as, maybe, full-service hotels become more price-competitive in your market, particularly in New York?

Jeff, I'll apologize. I don't have that data with me here. What we have noticed is, at some of the very successful hotels, which our New York hotels were, the rate of increasing share has either slowed or flattened, and, in some cases, in individual hotels, decreased. And that is just due to an overall lack of demand.

It's difficult to quantify what portion of that is driven by somebody being able to stay at a Waldorf-Astoria versus a Hampton Inn, for a $20 premium. But there is some of that, I'm certain of it -- particularly, during this initial stage of demand displacement.

But over time, we have found that we -- in the last cycle, we experienced the ability to really continue to be able to drive share, even with limited demand, just as we have a little more visibility on rates, just because of the size of the hotel, and the ability to be able to yield it better. And we talk about that a lot. But it really does translate to star-level out-performance.

But right now, what portion of it -- we went to a heads-in-beds policy, and I think, so did a lot of New York, as they saw New York -- as they saw the fourth quarter unfolding. And so that all needs to settle down a little bit, and then we all have to start the -- sort of the long slog back to rebuilding our place in the market.

The root of my question, actually, was just -- because, in the late '90s, during the whole tech bust -- and I know you guys didn't operate in this market at the time -- but in San Francisco, where you saw just tremendous fall-off in rate, as hotels began to cut rate effectively just to put heads in beds -- you saw a lot of the full-service hotels effectively begin to take share from the limited-service and extended-stay hotels. And it proved to be very challenging for those hotels, because there's really little cost to cut out of the limited-service structure.

And I guess that's the -- my concern is that, as we move through 2009, that that's going to end up being -- the concern is that the rate integrity in full-service erodes, and begins to put pressure on more mid-scale hotels in the market.

Yes. I think that would be a legitimate concern.

For New York -- there, specifically -- just because we're seeing demand where it is, I would expect that we'll be able to -- that the hotel market will be able to maintain some rate integrity as we move further into the year, just based on what I'm seeing, from early demand-stabilization outlooks.

Okay, great. Thank you, guys.

We'll move next to Bill Grant, with Morgan Stanley.

Hi, guys -- just a couple questions on the development-loan book. I guess, first, on the York Street restructuring -- this $30 million first-mortgage loan you're speaking of -- when is that maturing? When does that come due? And then, I guess, secondly, on that York Street project -- I understand it just opened and it's a ramp-up in a tough environment, but what do you think that $55 million capital stack implies on a cash-flow basis, just for a yield in year one, just so we know what we're dealing with?

And I guess the last question would be -- you've got about -- aside from the York Street deal, which you've recapitalized, you've got about $50 million of capital tied up in mezz loans that mature in 2009 -- the majority of that, really, in the next three months.

So I'm wondering what dollar amount on the $50 million of maturities -- remaining maturities -- do you think will be paid off at maturity? Thanks.

Let me tackle a couple of those, B.G. The $30 million loan that's outstanding right now is to a regional bank, that comes due in 2010. That's the first-mortgage loan. We would look to extend that loan out at -- with the loan to value that that loan is currently at, we don't really see a major issue with that.

From a standpoint of the other loans and their maturing, they're -- of the projects that we have outside of York Street -- or including the York Street -- about 40% are operational projects. The developers on those may or may not want to sell those assets. And if they do, we would get paid off. And we'll continue to work with the developers on those properties.

The assets that are in construction -- we would anticipate that those -- the two major ones are the Lexington Street project and the Union Square project. Those are going to be completed in 2010. So we would anticipate that those loans would get extended out until at least 2010. And, similarly, with our two other projects in Manhattan, which total about $20 million -- we would anticipate that those would roll into 2010 as well.

Okay. And, sorry, just -- in this number two -- just how much EBITDA do you think this Hilton Garden Inn on York Street might produce in 2009? Is it -- is it a --?

B.G., around $4 million.

Okay, thank you.

And we'll take a follow-up question from Andrew Wittmann, with Robert W. Baird.

Hi, guys. When you announced the new credit line, I guess, late last year, you announced that it was $135 million principal balance, with $40 million later on a kind of a best-efforts basis, from the bank group. I was just wondering if you could give us an update on the size of that line, and where that stands today.

Sure. The line is -- it's still at [$135 million], Andy. And we, just with the market conditions being what they are -- we haven't gone out to try to secure the other $40 million. As we see credit markets -- if they are to stabilize more, we will go out and try to secure the additional $40 million.

Okay.

And, Andy, there -- well, I'll just add another -- there's an additional difficulty. And one of the reasons why we're not more diligently going out and pounding the pavement, and trying to up the line -- the terms on the line are very attractive. And, in current markets, to -- and under current conditions, to bring somebody into it -- they might not find that the terms justify their participation in this market.

So, as Ashish mentioned, we'll continue to watch for credit markets to stabilize a little bit, and then decide what makes sense at that time.

But to be clear, if somebody else does come in, they have to take the agreed-upon terms. So any bank that would do it, it would be an off-market -- clearly, an off-market deal for them.

I think it would be, unless there were -- unless we wanted to restructure the line at this time.

Yes. Okay. That makes sense. Thanks.

That concludes the question-and-answer session today. At this time, I'd like to turn the conference back over to Mr. Shah for any additional or closing remarks.

Thank you.

That's all that we had. Let me thank everyone for joining us this morning, and for your continued support. Thank you.

That does conclude today's conference. We thank you for your participation.