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PHILADELPHIA-Hersha Hospitality Trust reported significant growth in nearly all financial measures for this year's second quarter. Net income rose to $6.6 million, up from $2.2 million in the same quarter a year ago. Operating income nearly doubled to $17.9 million versus $9.2 million in the second quarter of 2006, and operating revenues spiked 66% to $63.5 million, compared with $38.2 million in the prior-year quarter.
The upward trajectory is attributed primarily to the addition of 13 hotels to the portfolio over the past year, but also to double-digit RevPAR growth during the quarter ended June 30 and increases in occupancy and average daily rates. RevPAR for the locally-based hotel REIT's 57 consolidated hotels rose 16.7% year-over-year to $104.04, driven by a 14% increase in ADR to $130.21 and occupancy of 79.9% for the quarter.
During the quarter, Hersha acquired the newly opened Hotel 373 at that address on Fifth Ave. and 35th St. in Manhattan, which is its 13th property in the New York metro market. It also acquired a parcel in Brooklyn and followed that with the addition of an adjacent parcel in third quarter, with plans for development of an all-suite hotel. It also provided a $15-million development loan for a new hotel in lower Manhattan. These development loans provide Hersha with a first right of opportunity to buy the asset.
During a conference call, Jay Shah, CEO, said the company's New York assets are ramping up quicker than expected. They now represent the largest proportion of the company's portfolio and account for 40% of consolidated EBITDA, he said. He called both the New York and Philadelphia markets "bright spots," with RevPAR increases of 12% and 11.3%, respectively.
On a same-store basis, RevPAR at the 35 Hersha properties that have been in the portfolio for a year or more increased 8.8% to $102.12, driven by a 6.8% increase in ADR to $127.50 and occupancy of 80.9%. Same-store adjusted EBITDA margin, however, declined 81 basis points to 40%. Ashish Parikh, CFO, attributed the drop primarily to renovations and delays in construction at some assets. The renovations were completed in May, and he does not anticipate any such disruptions in the current quarter.
Asked about potential dispositions, Shah said that while the company had contemplated shedding some Central Pennsylvania properties, "we started noticing that in the last quarter they delivered slightly above the industry growth rate." He said Hersha will look for opportunities to sell them. "We're not opposed to liquidating those assets to tighten the balance sheet, but they are still contributing."
As for the balance sheet, Parikh said $51 million is available on the company's line of credit. It has approximately $680.4 million of outstanding debt, with 91% of it at an average fixed rate of 6.2%.
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