The increase came primarily from acquisitions and increased room revenues. RevPAR for its 52 consolidated hotels rose 18.3% for the quarter to $79.98, driven by a 12.8% rise in average daily rates to $116.70. Occupancy rose 4.9% to 68.53% for the quarter. Operating margins also rose from 38.8% at the end of 2005 to 41.8% by Dec. 31, 2006, and adjusted funds from operations were up 45%.
The results reflect the company's strategy "of increasing our presence in high barrier to entry metro markets with a specific focus on New York City, adding newer hotels to our portfolio and increasing our already strong concentration of extended-stay hotel properties," said Jay Shah, CEO, during a conference call. He said 75% of EBITDA comes from four metro markets: Philadelphia, Washington, DC and Boston in addition to New York.
While the company will continue to seek selective potential acquisitions in DC and Boston, Shah said, "we continue to see value in New York." Five New York properties, for which Hersha has supplied development loans, are under way and expected to reach completion within approximately two years, taking its total number of New York assets to 13.
Although the acquisition of seven properties from LodgeWorks this January included an agreement for first right of refusal on new LodgeWorks' developments, Shah said there are no specific plans to exercise that option. This buy took Hersha to California and Arizona, and was "terrific by itself," he said.
Regarding discussions of the potential sale of its Central Pennsylvania properties, he acknowledged, "they are less strategic than urban properties." Of any potential sale, he said, "we have to be sure the cash flow can be created elsewhere. It's not so much, can they be sold at a gain, but can we replace the cash flow?"
Citing properties under development, Shah added that 27% of the company's current EBITDA comes from hotels that are less than three years old. All represent internal growth opportunities. It typically takes a property from 18 months to 24 months to stabilize, he said. Going forward, the company projects RevPAR growth of between 12% and 14% this year over 2006.
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