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Hersha Hospitality Trust (NYSE:HT)
Q4 2020 Earnings Call
Feb 24, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Hersha Hospitality Trust Fourth Quarter 2020 earnings call and webcast. [Operator Instructions].

I would now like to turn the conference over to Greg Costa Investor Relations. Please go ahead.

Greg Costa -- Director of Investor Relations

Thank you, Grant and good morning to everyone joining us today. Welcome to the Hersha Hospitality Trust Full Year and fourth quarter 2020 conference call. Today's call will be based on the full year and fourth quarter 2020 earnings release, which was distributed yesterday afternoon.

Before proceeding, I'd like to remind everyone that today's conference call may contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and other factors that may cause the company's actual results, performance or financial positions to be considerably different from any future results, performance or financial positions. These factors are detailed within the company's press release as well as within the company's filings with the SEC.

With that, it is now my pleasure to turn the call over to Mr. Neil H. Shah, Hersha Hospitality Trust President and Chief Operating Officer. Neil, you may begin.

Neil H. Shah -- President and Chief Operating Officer

Thank you, Greg, and good morning everyone. Joining me this morning are Jay H. Shah, our Chief Executive Officer and Ashish Parikh, our Chief Financial Officer. We appreciate your joining us early this morning on such a busy day for earnings. I'm going to focus my comments this morning on recent performance and our announced asset sales. 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. Our operating teams remained on property throughout the pandemic, allowing us to welcome first responders and those that have begun to travel in these early days of the recovery. 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.

With that let me turn it over to Ash to discuss in more detail our balance sheet.

Ashish R. Parikh -- Chief Financial Officer

Great. Thanks, Neil. Good morning, everyone. 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.

As highlighted in our earnings release last night, and our capital allocation transformation released last week we have materially strengthened our balance sheet. 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. Operator.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions].

Our first question comes from Michael Bellisario of Baird. Please go ahead.

Michael Bellisario -- Baird -- Analyst

Good morning, everyone.

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

Good morning, Mark.

Michael Bellisario -- Baird -- Analyst

Neil, first question for you. As you think forward about the ramp up in fundamentals, what's your updated view on the portfolio's target leverage level and then what else do you think needs to be done between now and that on the balance sheet front to get there.

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

You know Mike, really follows kind of just the the broader recovery, which is just so uncertain still today. I think industry analysts couldn't look to a kind of recovery of EBITDA back to 2019 levels in 2023 or 2024. Until that time I think most hotel portfolios, most public hotel portfolio in the US are going to remain at leverage levels higher than they'd like to be at. And I think will likely, as the market recovers, we'll will continue to have leverage levels that are higher than pre-pandemic levels, just there is a recovery in cash flows, and that's going to be, according to the pace of this recovery, which were uncertain about, but we think we've taken the steps to make a meaningful reduction, reduced over 10% of the total debt load as of today, and as the year goes and cash flow begins to ramp up, will be to significantly improve those metrics. I think there are a lot of other public portfolios that will continue to burn significant amounts of cash through the end of this year. We don't expect that to be the case for our portfolio, which we think will show some differentiation over time. But again, on overall metrics until you get out to 23-24 it's unlikely for debt to EBITDA metrics to feel normalized because the world won't be normalized until then.

Michael Bellisario -- Baird -- Analyst

Got it. And then on the flip side there, you mentioned the Goldman investment and I think you said future partnership opportunities. What could that look like? And how are you thinking about that relationship longer term?

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

Yeah, the Merchant Bank and their various facilities and investment funds have a lot of, first off, have a lot of capital. They are looking to invest in sectors that are clearly facing a kind of cyclical recovery. And so, there is just a dedicated, may be hundreds of billions of dollars of access of capital, which is very attractive. Very affirmed that this entity as making this investment look very carefully at our portfolio, we even explored for some time having a larger facility in order to kind of address future maturities in 2022 and 2023. In the end, we determined that we could do so much more cost effectively in the future, and because we have this kind of relationship with the firm that can expand their facility, we can just time it for when we needed, if we need it. And so, on one hand, it's a capital source that I think could serve us well in during this recovery period. We also think that, we've really focused on the prepayment and the prepay ability of this unsecured notes. Another way to think of it, there were another positive part of it, could be depending on how the market recovers is its portability, and it's being a piece of capital that a potential buyer of the portfolio could keep in place or expand according to their plans. We don't know what's going to come in the coming years, but we are really pleased to have as Ash mentioned in his remarks, it's become kind of a trade term in the financial services world, but this is truly a bespoke solution, really fitting exactly what our cash flow profile, liquidity profile and business plan has in store for us. So it just provides a lot of flexibility and and potentially a strong partnership moving forward.

Michael Bellisario -- Baird -- Analyst

Very helpful, thank you.

Operator

Our next question will come from Aryeh Klein with BMO Capital Markets. Please go ahead.

Aryeh Klein -- BMO Capital Market -- Analyst

Thank you. Maybe a little bit of a follow-up on the balance sheet, you've done a lot of heavy lifting as far as asset sales are concerned. How are you thinking about that moving forward? Are there still assets that you're marketing or are you largely done for the time being.

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

Aryeh, yeah we are largely done for the time being. We will always remain opportunistic, but at this stage, we are not marketing any assets for sale. We've discussed our joint venture assets in South Boston, and those discussions continue with our joint venture partner, but we no longer have any assets for sale in the broader marketplace.

Aryeh Klein -- BMO Capital Market -- Analyst

Okay and then just as far as the improving trends that you're seeing, how broad based has that been, when you look at a market like New York? or are you seeing bookings pick up in markets like that? And then just on the resorts, they've obviously held up quite well throughout the pandemic. How sustainable do you think some of those trends are is part of it just a function of limited places for people to travel to, are these things that the trend that you would expect to continue moving forward?

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

Maybe I'll start with the second one. In terms of the resorts trend, we do believe that it's here to stay at least for the next several years. I think it will take some time for for everyone to want to travel overseas and and really take some of the additional risk of going into countries where you don't know the level of healthcare or what you would do in an emergency and the like. So, we think that there is some for our domestic market in the US, we think there will be more domestic travel in the coming years than we have seen pre-pandemic, and we think that will be a boon to our drive-to resort portfolio. I think that when international demand does rebound, that will be an additional kind of tailwind for some of these resorts markets, particularly our California coastal markets. Those are very attractive to European travelers and Australian travelers and Asian travelers coming to see the PCH and things. So, we think they performed very well to date. We think that this new stimulus will lead to a very robust year for resorts in 2021, and then in 2002 and 2023, we do expect that international demand and group and just the general recovery will continue to lead to very strong results on the resort side. I think that right now what we tried to avert stress, in our prepared remarks, was that there is just sentiment is just so negative toward urban markets, and we see that is perhaps something that's been under-appreciated is just the amount of recovery in the level of recovery that can come in markets like New York, Boston, Washington, Silicon Valley, Los Angeles and you're seeing it already. And, we don't have enough data to beat on the drum here, but we are seeing, if you just look at the TSA data for the country just every day there is more people traveling than there ever has been since the pandemic, and that's despite frigid conditions and an reacceleration of case counts and the like, and you're still seeing people moving around, and city is getting going and airports getting moving. And, so we do love the resort markets and we're glad that we have about a 20% position there, but the 75% of our portfolio that is, gateway, urban, innovation oriented, we're expecting really strong things from in the coming year

Aryeh Klein -- BMO Capital Market -- Analyst

Thanks.

Operator

Our next question will come from Dori Kesten with Wells Fargo. Please go ahead.

Dori Kesten -- Wells Fargo -- Analyst

Thanks, good morning. I believe initially your plan was to move on to luxury or the higher end sales after this current round of dispositions, but with the notes facility placement, you don't need to move forward with those. Did you ever test the market with these assets? I'm just wondering if you have a sense of pricing at this point?

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

On the luxury asset Dori?

Dori Kesten -- Wells Fargo -- Analyst

Yeah.

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

No, we didn't formally market any of our luxury hotels, and our reasoning there was that the market just hadn't developed yet for luxury assets and trophy sales. What we feel that we as well as kind of brokerage community and the investment community feel was that what was difficult to market luxury hotels and to get strong values was a function of a few things. One, just the significant amount of cash burn that exists in the luxury segment in a time like this. So it's very hard for investors to be able to underwrite when they didn't know when the bleeding would stop. So, that's a rational reason I think for investors to have been hesitant. Another second and maybe even more important reason was that the luxury markets have generally been dominated by international buyers that really do need to see a hotel before they buy it. And because there was no international travel there clearly wasn't any international investor travel to buy hotels, and so we think that that the luxury trades are something that will become potentially more attractive toward the end of this year as the vaccine is distributed and you just see more international travel begin, and you see cash burn moderate so that investors can think about growth rather than focus on on the bleed. So, we think probably if there was a good time to market luxury hotels we think it's later in 2021. But at this stage we are not anticipating any kind of further marketing of assets in the portfolio. We do think that the hotels that we have remaining in our portfolio are in particularly fine shape and are going to have great leverage to the recovery, which we do want to hold on to.

Dori Kesten -- Wells Fargo -- Analyst

Okay. And you just mentioned that the 75% of the portfolio that's more urban focused is expected to recover well in the next one to two years. Do you think New York City leads in that? lags on that? or kind of neutral to the, I guess, the rest of the top 25?

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

It would probably neutral. Yeah. Neutral for ours. So that's a good point, you know, at least for our locations and our kind of non-union newly built boxes we think it's going to be neutral to the the urban set. As a market, it is working through a lot of new supply and still a market that is dominated by large employers that aren't back to work and back to travel yet. So, we are sensitive to the pace of recovery in New York, but the positions we have there, the locations we're in, we're still very confident about. We put the early recovers, in the kind of, we've put Washington as an early recovery markets, Southern California then early recovery kind of urban market while New York and Boston are more kind of mid-term kind of recovery markets, it's our view.

Dori Kesten -- Wells Fargo -- Analyst

And just to finish that what would you consider to be late?

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

There is just some dynamics at play in Philadelphia with some new supply coming on the horizon and and some real uncertainty around when the convention center really gets going again, which do to make us a little bit more concerned about the pace of recovery in Philadelphia. Now that said, we have three exceptionally located assets here and we will capture more than our fair share. And the like, so we're not overly concerned, but there is some concern there. Silicon Valley and Seattle, we're just, it's just still question marks a little bit on just when things get back and when people start traveling, or when the remote workers come back for business meetings at corporate center in Silicon Valley and things. So, not laggards, but just questions still.

Dori Kesten -- Wells Fargo -- Analyst

Okay, thank you.

Operator

Our next question will come from Bryan Maher with B. Riley Securities, please go ahead.

Bryan Maher -- B. Riley Securities -- Analyst

Good morning, guys. Maybe taking a little bit different of attack and maybe there is nothing to talk about, but we'll see. You know with the new and other quiver is that you have, is there an ability at all, and what are your thoughts on going on the offensive in 2021 in looking at acquisitions, or is that just off the table? And for specifically when we look at the Waldorf trading at $55 million and other potential opportunities out there and with where stock valuations have moved, how are you thinking about growing the portfolio over the next year or two.

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

You know Brian, it's not off the table, but we're not seeing compelling enough opportunities to make it a common conversation in the office these days. We're just not seeing anything to really get excited about. There are discounts to pre-COVID for sure, but this recovery is still uncertain about the pace of it. And so the values, although perhaps attractive for absolutely new investor to the space, for a company that has 40 really exceptional hotels and some of the best markets in the country, our expected growth on our existing portfolio I think makes us less focused on the acquisition environment today. We, as you know, we're always in the marketplace, we're buying and selling and our manager is a very active buyer in the marketplace today, but we're just, we haven't been compelled to date by anything. Now that is some of the flexibility in the capital solution that we have. We can clearly sell more hotels and we think this is a very liquid portfolio and as New York starts to recover toward the end of the year and there could be some additional recycling to take advantage of acquisition opportunities or there could be a scale up of our financing, either with Goldman or with some of the other investors that we've met through this process. We're just not there right now. We're just not seeing opportunities to make us find a way to get deals done today.

Bryan Maher -- B. Riley Securities -- Analyst

Okay. And as a follow-up question. When we look at ADR, it seems like the industry has done a decent job of holding up ADRs during this morass for lack of a better term, much better than we saw happen during the Great Recession when it was just cut rate, cut rate, cut rate. Do you feel like the industry has lessons learned from 10 years ago and is acting more rational? And do you expect that to continue at least through the first half of 2021?

Ashish R. Parikh -- Chief Financial Officer

Yeah. Hey, Brian. I think that probably, there are some lessons learned, we always worry about our weakest competitor that could drop rate, but I think that when you look at these cash burn analysis we like every other owner and operator is running them, you discount rates enough and you driving occupancy, but you're not really moving the needle on cash burn by doing that. So, I think some of it is also a function of just the occupancy levels and the demand levels have been so low that people, you can't really induce demand by just lowering rate. And I think that the industry has become better at understanding that concept and maybe it's a little more sophisticated institutional investors that own these assets as well that has made a difference.

Bryan Maher -- B. Riley Securities -- Analyst

Okay, thank you.

Operator

Our next question will come from Dany Asad with Bank of America. Please go ahead.

Dany Asad -- Bank of America -- Analyst

Hey, good morning everybody. Ashish, you guys have in the past given us a bridge to getting to $200 million EBITDA target, look clearly a lot has happened since then, but we're just trying to think of in a normalized environment, can you maybe help us walk through like what an updated bridge could theoretically look like for Hersha?

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

I was thinking about your $2 target. It's no longer 2.

Ashish R. Parikh -- Chief Financial Officer

Dany, look, I think that we would look at this portfolio and say we have sold now roughly, give or take $18 million or so of EBITDA. So, that will reduce the overall target, but we've also consequently reduced our leverage from these sales. So, when we look at the bridge, it's probably, we went into 2020 with really high expectations on the ramp-up from assets like the Cadillac, Parrot Key, White Plain, Pan Pacific, Ritz Coconut Grove things that we've put a lot of money into, and unfortunately the pandemic really impacted the operating results. So, we do believe that there is significant ramp up in those assets that could help bridge that gap, but I think it's difficult for us to right now sit here and say, look we, we have a target for 2023 or 2024, we just know that at least 50% to 75% of what we've lost an EBITDA from asset sales we can make up through the ramp up of this portfolio.

Dany Asad -- Bank of America -- Analyst

Understood. And then just my follow up is just, again, thinking about like this coming cycle. So look, we know Hersha has this hybrid model of a high-margin limited service assets and higher-end lifestyle hotels, a little bit more to offer on the service side. So, just with that in mind can you help us think about the longer-term margin opportunity at the four-wall operating levels of the portfolio.

Ashish R. Parikh -- Chief Financial Officer

Yeah, absolutely. Look at, I think that basic operating premise whether it's a 3-star, 4 star, 5-star hotel in our portfolio is somewhat limited F&B or if it is F&B kind of focus on high-margin beverage business, and trying to run all of these assets as much as we can except for the luxury ones with really a select service model. And what we found through this pandemic by actually going to zero-based budgeting, because we had to close a lot of them, you're not going to bring back as many people, you're not going to bring back as many services until you are well into the recovery. And, I think even then it's hard for us to look at this and say, we'll bring the FTE count back to 2019 levels because we found more efficient ways to do things either through technology, mobile check-in, having virtual meeting for our salespeople going out to and less sales needed or less kind of contact points needed at this time. So, I think the margin opportunities for our portfolio are going to be really on the labor side on utilizing our EarthView platform to reduce utilities and operating costs, and we do get 150-200 basis points of margin improvement even in a stabilized level in a few years.

Dany Asad -- Bank of America -- Analyst

Got it. Thank you.

Operator

Our next question comes from Bill Crow with Raymond James. Please go ahead.

Bill Crow -- Raymond James -- Analyst

Good morning, guys. Just three quick, hopefully quick, balance sheet questions. How much pressure was exerted by the bank group in order to provide the covenant waiver extension and that pressure is what led to the Goldman Sachs financing?

Ashish R. Parikh -- Chief Financial Officer

Yeah, look, I think that we had good conversations with the bank group. They were very constructive and commercial, but at the same time, we knew that we had to raise some level of junior capital in conjunction with what we had already planned on asset sales to ensure that we had full commitment from the bank group on the waivers and the amendment. I think that it was expected from our standpoint. We knew that the markets were going to improve in 2021 and that's why we didn't undertake a debt offering or any kind of dilutive offering in 2020, and it really played out exactly have we anticipated. We started the amendment process right after the New Year, we started the capital raising process and we were able to get both of them done, but I think that was a clear expectation that we would raise some level of junior capital whether it was unsecured notes or convert or something else, and this is what we felt was the best option for us.

Bill Crow -- Raymond James -- Analyst

All right. I think it was a very first question about the goal on the balance sheet, looking ahead, you talked about EBITDA levels going back to 2019, pro forma 2019 levels by 2023 or 2024, which I think everybody uses, that is kind of a correct trajectory. But, I guess my question is simply getting back to the leverage levels you had pre-pandemic where It was, they were materially higher than the rest of the group and certainly weighed on your equity performance. Is that the goal or is the goal to get it three times or four times and get more kind of uniform with the rest of the industry?

Ashish R. Parikh -- Chief Financial Officer

I mean I think Bill, probably not for the early part of the recovery, I wouldn't hold your breath for three to four times, but by the middle end of the recovery, we think that that would be, that would be our goal. But in the early part of the recovery until existing EBITDA normalizes, the only way to get to meaningfully less leverage would be through acquisitions of unencumbered assets using equity buy hotels, and we just don't see opportunity for that to where we would be willing to dilute for those kinds of acquisition opportunities. Now that could very well change by early 2002 or 2023. We've gone through many cycles now together as a team and and we've always found that there was great acquisition opportunities for three to four years the early part of every cycle, and the your cost of capital was a lot better in year three than it was in year one. So, if you were really trying to be quantitative about it, there was really no reason to jump in very early on unless you were blessed with a lot of cash or a particularly attractive cost of capital. So. by end of cycle like we definitely would want to in the public markets run at a significantly lower leverage profile in mid to end of cycles, but we don't think that that will be the case in the early part of this recovery.

Bill Crow -- Raymond James -- Analyst

Right, right. One more from me real quick. We're relieved just getting this financing done, but as you look ahead to 2022, fairly sizable maturity, any strategies and how tp address that as you think ahead?

Ashish R. Parikh -- Chief Financial Officer

Yeah, Bill, as we did this year and will continue to monitor our cost of capital, we have the flex to raise additional junior capital, but we don't think that something that we would entertain in the next few quarters. I think that as the recovery progresses, and clearly, if you look where people were raising either equity or debt last summer or last fall, I mean the cost of the capital has gone down so significantly on every level, whether it is a high yield offering or bespoke offering like ours. So, we feel like we can be patient now, the next real maturities don't happen until August of 2022. We can be patient and monitor the markets and we have support from the bank where will find ways to extend out those maturities and to raise additional capital if needed.

Bill Crow -- Raymond James -- Analyst

Okay. I appreciate it. Thanks for the time.

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

Yeah. Thank you.

Operator

Our next question will come from Tyler Batory with Janney. Please go ahead.

Jonathan -- Janney Montgomery -- Analyst

Good morning, this is Jonathan on for Tyler. Thanks for taking our questions. First one from me, just wondering if you could provide some additional color on how the conversations with group business had been going? And there has been any notable changes in those discussions recently?

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

This is just anecdotal here, but we're seeing weddings again, which is great, This past weekend in Coconut Grove we had 172 person wedding. We're booking weddings now at most of our hotels that have that kind of meeting space, not only resorts, but even in our urban gateway markets. So, the wedding business is starting to pick up and there is clearly tons of pent-up demand for that business and and as anyone in the group business will tell you that's the best kind of group business you could have on the social side. On the corporate side, we're also seeing it actually where I mentioned in our prepared remarks about some some of our California resort property is actually getting some some corporate group business, some small retreat business, getting employees together brainstorming kinds of sections and the like. We've been having meetings at our Western Inn here in Philadelphia. Some of our hotels are blessed with really large ballrooms, now they only being filled with 100 people instead of 350 people, but they're paying, they are paying for the privilege and where we are starting to generate some income from it. So it's, it's still a very anecdotal. Our portfolio is highly transient. So the group part of our business is probably less than 15% of our business. But even that part of the business is starting to show signs of life.

Jonathan -- Janney Montgomery -- Analyst

Okay, great. I appreciate all that detail. And then and multipart question from me, strategic on your cluster strategy, you sold a couple of assets in your clusters. Are you still believer in that strategy? And as you look out at potential of opportunities in the future, would it be your preference, I guess to stay in those current markets or when you think about diverse signed the new markets?

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

First off, just on the clusters we absolutely continue to believe in the clusters and believing in the clusters for us just means that we believe that we get advantage from knowledge, from sales, from revenue management and from efficiencies and kind of economies of scale and so we can run hotel sales at a better margin and get higher market share and yield management results. Because we have 5 to 10 hotels in each market we can play in different submarkets, use different brand channel strategies. So, we absolutely believe in that and our sales here was was basically one hotel per cluster we sold. So, keeping intact the the strong clusters for the remainder of those portfolios, but selling our oldest hotel per cluster. As we look into the future I think buying in our existing clusters has a little lower risk in our mind, we can just plug in play. We know that going into a market we will have a cost advantage because we have multiple hotels there, we will have a sales because we have established centers, but each of our clusters was started with one hotel, and so we often will enter a market with a single asset and then build out the cluster. In 2011 we entered California with the Courtyard in Los Angeles and then soon followed it with Courtyard San Diego and the Ambrose and the rest of our California portfolio. We entered Miami in 2011 with the Cadillac Miami Beach and then added 5-6 hotels there across at the time. Late in the past cycle, we entered Seattle with an exceptional asset the Pan Pacific. It was a larger assets, so we felt like we could still get some efficiencies there, but our long-term intent was to kind of build out more of a presence in that market. So we'll see what the future holds, where there is good opportunities, where there is good pricing for assets, where there is good EBITDA growth, and we will look at add some new markets across the coming years, but, but we do believe in the advantage of our existing cluster strategy as well.

Jonathan -- Janney Montgomery -- Analyst

Okay, thank you for all the color. That's all from me.

Operator

Our next question will come from Chris Liu with Jefferies. Please go ahead.

Chris Liu -- Jefferies -- Analyst

This is Chris filling today [Indecipherable] time. I just wanted to ask a little bit about New York, just for one, how much of that recent quarter business was from first responders? And I guess a little longer term, how do you really think that reconciles with, I believe you mentioned reduction in supply, the potential for special permits and that innovation market coming on, and really any other points you salience that we might be missing for that market? Thanks.

Ashish R. Parikh -- Chief Financial Officer

Yeah, See Chris we did receive some first responder business primarily at new hotel in Brooklyn. We had the FTNY, we've had smatterings in the fourth quarter and in January, but not nearly similar to the levels we had last year in April, May, June. So that business is starting to really wean away and we're starting to get just more transient business as Neil described even over President Day we were surprised at sort of the bookings that came in on the leisure side. And we think as things open and now the theaters are open, the restaurants are open and hopefully Broadway is opening in the next few months, that should really pick up. So we're not anticipating too much more on the first responder business going forward. I think overall, as we look at New York the thing about these special permits, few years ago, New York instituted a special permit requirement for the M1 zones, which is the manufacturing zones and it's interesting to note that since that ordinance was passed there have been zero special permits filed, zero new hotels in those M1 markets because of how difficult it is to obtain the permit, how costly the construction would be. So if that was to occur for the entire 5 boroughs of New York we think the future level of supply would go down significantly. And, we do believe that there are a lot of hotels coming into COVID in New York, big kind of encumbered by land lease unions old that are looking at ways to open or something else, or not opened it all and we've already seen it with the hotel Roosevelt and number of at least 10 to 12 other assets. We do think that's going to stick. So we think the long-term supply picture gets markedly better in New York. We are big believers in the city we saw what happened after 9/11 when people wrote it off. It's been a 20-year run for New York and we think that it comes back strong, and it comes back, probably as Neil mentioned a little later in the year than other market, but we do think that it comes back very strong right.

Chris Liu -- Jefferies -- Analyst

Thank you. And I guess quick follow up, follow-up on capex. I know you guided toward about 35% below 2020. How are you thinking about 2022, is there anything that's really needs to be done going through those quarters?

Ashish R. Parikh -- Chief Financial Officer

No, no. At this time, we're not planning anything really different in 2021 or 2022. I think the first time we would take on and other projects pre 2023 or 2024, and we're fortunate and now we have the luxury with the amount of money we've put into the portfolio pre-pandemic.

Chris Liu -- Jefferies -- Analyst

Okay. That's a lot. That's all from me.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

Thank you. Thank you, everyone. With no more questions, we'll, we'll just be available here for any follow-up questions later today or throughout this week. Thank you for your time.

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Greg Costa -- Director of Investor Relations

Ashish R. Parikh -- Chief Financial Officer

Neil H. Shah -- Hersha Hospitality Trust -- President and Chief Operating Officer

Michael Bellisario -- Baird -- Analyst

Aryeh Klein -- BMO Capital Market -- Analyst

Dori Kesten -- Wells Fargo -- Analyst

Bryan Maher -- B. Riley Securities -- Analyst

Dany Asad -- Bank of America -- Analyst

Bill Crow -- Raymond James -- Analyst

Jonathan -- Janney Montgomery -- Analyst

Chris Liu -- Jefferies -- Analyst

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