Hersha Hospitality Says Supply Glut Weakens Growth in NYC Room Revenues
Hersha Hospitality Trust executives said that revenue per available room (RevPAR) at its Manhattan portfolio of hotels fell, despite strong occupancy figures, amid an increase in new hotel room supply in New York that the company termed a “the most significant headwind to growth,” during a quarterly conference call with securities analysts.
The Philadelphia-based hotel company, which owned 17 hotels in the five boroughs of New York City as of the end of 2015, reported occupancy growth of 17 basis points for an overall rate of 93.9 percent during the fourth quarter.
However, high room capacity in New York, which increased 2.5 percent in 2015, hurt the company’s room rate growth in New York, which fell 20 basis points to $242.15. Due to that overall increased room supply, Hersha said RevPAR at its New York City hotels was flat at $227.37.
Fourth-quarter occupancies at the company’s 14 Manhattan hotels was strong at 95.3 percent, measuring 880 basis points above the greater Manhattan market. However, Hersha officials said increased overall supply during the quarter drove the company’s 30 basis point average daily rate decline to $254.73. As a result, RevPAR fell 30 basis points during the quarter to $242.55
Hersha officials said the company outperformed the overall Manhattan market by 270 basis points, marking the eighth straight quarter of outperforming the market. Hersha officials said that lower average daily rates and property tax increases at newly opened Manhattan properties hurt hotel earnings, resulting in a 110 basis point decline to 44.2 percent.
Hersha, which owns hotels in major urban markets on both U.S. coasts, disclosed the New York revenue weakness at a time when local supply has become an ongoing concern.
Earlier this month, Hersha entered into an agreement with Cindat Capital Management to form a joint venture at seven of its limited service hotels in Manhattan for $571.4 million, or $526,000 per key, based on 1,087 rooms.
Cindat became the preferred joint venture partner, controlling 70 percent of the venture, with Hersha retaining 30 percent equity. The deal is expected to close no later than March 31.
Hersha owns a total of 55 hotels, totaling 8,654 rooms in New York, Boston, Philadelphia, Washington D.C., Miami and select markets on the West Coast.