form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
T
|
QUARTERLY
REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the
quarterly period ended September 30, 2007
OR
£
|
TRANSITION
REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the
transition period from ____ to ____
COMMISSION
FILE NUMBER: 001-14765
HERSHA
HOSPITALITY TRUST
(Exact
Name of Registrant as Specified in Its Charter)
Maryland
|
|
251811499
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
44
Hersha Drive
|
|
|
Harrisburg,
Pennsylvania
|
|
17102
|
(Address
of Registrant’s Principal Executive Offices)
|
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (717)
236-4400
Indicate
by check mark whether the registrant (i) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (ii) has been subject to such filing requirements
for
the past 90 days.
T
Yes ¨
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨
|
Accelerated
filer T
|
Non-accelerated
filer ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
¨
Yes T
No
As
of
September 30, 2007, the number of Class A common shares of beneficial interest
outstanding was 41,197,876.
Table
of Contents for Quarterly Report on Form 10-Q
CONSOLIDATED
BALANCE SHEETS AS OF
SEPTEMBER
30, 2007 [UNAUDITED] AND DECEMBER 31, 2006
[IN
THOUSANDS, EXCEPT SHARE AMOUNTS]
|
|
September 30,
2007
|
|
|
December 31,
2006
|
|
Assets:
|
|
|
|
|
|
|
Investment
in Hotel Properties, net of Accumulated Depreciation
|
|
$ |
894,185
|
|
|
$ |
807,784
|
|
Investment
in Joint Ventures
|
|
|
53,945
|
|
|
|
50,234
|
|
Development
Loans Receivable
|
|
|
70,042
|
|
|
|
47,016
|
|
Cash
and Cash Equivalents
|
|
|
10,280
|
|
|
|
10,316
|
|
Escrow
Deposits
|
|
|
15,178
|
|
|
|
14,927
|
|
Hotel
Accounts Receivable, net of allowance for doubtful accounts of $50
and
$30
|
|
|
11,877
|
|
|
|
4,608
|
|
Deferred
Costs, net of Accumulated Amortization of $2,760 and
$1,543
|
|
|
8,509
|
|
|
|
7,525
|
|
Due
from Related Parties
|
|
|
2,097
|
|
|
|
4,059
|
|
Intangible
Assets, net of Accumulated Amortization of $779 and $618
|
|
|
5,665
|
|
|
|
5,594
|
|
Other
Assets
|
|
|
17,566
|
|
|
|
16,145
|
|
Hotel
Assets Held for Sale
|
|
|
24,660
|
|
|
|
-
|
|
Total
Assets
|
|
$ |
1,114,004
|
|
|
$ |
968,208
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
Line
of Credit
|
|
$ |
72,100
|
|
|
$ |
24,000
|
|
Mortgages
and Notes Payable, net of unamortized discount of $74 and
$1,312
|
|
|
620,131
|
|
|
|
556,542
|
|
Accounts
Payable, Accrued Expenses and Other Liabilities
|
|
|
17,458
|
|
|
|
14,740
|
|
Dividends
and Distributions Payable
|
|
|
9,473
|
|
|
|
8,985
|
|
Due
to Related Parties
|
|
|
2,632
|
|
|
|
3,297
|
|
Liabilities
Related to Assets Held for Sale
|
|
|
17,082
|
|
|
|
-
|
|
Total
Liabilities
|
|
|
738,876
|
|
|
|
607,564
|
|
|
|
|
|
|
|
|
|
|
Minority
Interests:
|
|
|
|
|
|
|
|
|
Common
Units
|
|
$ |
40,393
|
|
|
$ |
25,933
|
|
Interest
in Consolidated Joint Ventures
|
|
|
2,797
|
|
|
|
3,092
|
|
|
|
|
|
|
|
|
|
|
Total
Minority Interests
|
|
|
43,190
|
|
|
|
29,025
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity:
|
|
|
|
|
|
|
|
|
Preferred
Shares - 8% Series A, $.01 Par Value, 29,000,000 Shares Authorized,
2,400,000 Shares Issued and Outstanding at September 30, 2007 and
December
31, 2006, respectively. (Aggregate Liquidation Preference
$60,000 at September 30, 2007 and December 31, 2006,
respectively)
|
|
|
24
|
|
|
|
24
|
|
Common
Shares - Class A, $.01 Par Value, 80,000,000 Shares Authorized, 41,197,876
and 40,671,950 Shares Issued and Outstanding at September 30, 2007
and
December 31, 2006, respectively.
|
|
|
412
|
|
|
|
405
|
|
Common
Shares - Class B, $.01 Par Value, 1,000,000 Shares Authorized, None
Issued
and Outstanding
|
|
|
-
|
|
|
|
-
|
|
Accumulated
Other Comprehensive Income
|
|
|
86
|
|
|
|
233
|
|
Additional
Paid-in Capital
|
|
|
395,730
|
|
|
|
381,592
|
|
Distributions
in Excess of Net Income
|
|
|
(64,314 |
) |
|
|
(50,635 |
) |
|
|
|
|
|
|
|
|
|
Total
Shareholders' Equity
|
|
|
331,938
|
|
|
|
331,619
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$ |
1,114,004
|
|
|
$ |
968,208
|
|
The
Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 30,
2007
|
|
|
September 30,
2006
|
|
|
September 30,
2007
|
|
|
September 30,
2006
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel
Operating Revenues
|
|
$ |
65,609
|
|
|
$ |
39,002
|
|
|
$ |
171,984
|
|
|
$ |
97,693
|
|
Interest
Income from Development Loans
|
|
|
1,379
|
|
|
|
839
|
|
|
|
4,013
|
|
|
|
1,562
|
|
Land
Lease Revenue
|
|
|
1,324
|
|
|
|
408
|
|
|
|
3,529
|
|
|
|
408
|
|
Hotel
Lease Revenue
|
|
|
254
|
|
|
|
137
|
|
|
|
586
|
|
|
|
137
|
|
Other
Revenues
|
|
|
265
|
|
|
|
202
|
|
|
|
592
|
|
|
|
555
|
|
Total
Revenues
|
|
|
68,831
|
|
|
|
40,588
|
|
|
|
180,704
|
|
|
|
100,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel
Operating Expenses
|
|
|
35,794
|
|
|
|
21,598
|
|
|
|
97,348
|
|
|
|
56,964
|
|
Hotel
Ground Rent
|
|
|
211
|
|
|
|
222
|
|
|
|
650
|
|
|
|
600
|
|
Land
Lease Expense
|
|
|
741
|
|
|
|
-
|
|
|
|
1,974
|
|
|
|
-
|
|
Real
Estate and Personal Property Taxes and Property Insurance
|
|
|
2,861
|
|
|
|
1,559
|
|
|
|
8,353
|
|
|
|
4,151
|
|
General
and Administrative
|
|
|
1,689
|
|
|
|
1,350
|
|
|
|
5,521
|
|
|
|
4,326
|
|
Depreciation
and Amortization
|
|
|
8,905
|
|
|
|
4,983
|
|
|
|
25,123
|
|
|
|
12,879
|
|
Total
Operating Expenses
|
|
|
50,201
|
|
|
|
29,712
|
|
|
|
138,969
|
|
|
|
78,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
18,630
|
|
|
|
10,876
|
|
|
|
41,735
|
|
|
|
21,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
136
|
|
|
|
443
|
|
|
|
590
|
|
|
|
923
|
|
Interest
Expense
|
|
|
10,677
|
|
|
|
6,693
|
|
|
|
31,414
|
|
|
|
17,694
|
|
Loss
on Debt Extinguishment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income from Unconsolidated Joint Venture Investments, Minority
Interests and Discontinued Operations
|
|
|
8,089
|
|
|
|
4,626
|
|
|
|
10,911
|
|
|
|
3,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Unconsolidated Joint Venture Investments
|
|
|
1,680
|
|
|
|
1,773
|
|
|
|
2,584
|
|
|
|
1,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before Minority Interests and Discontinued
Operations
|
|
|
9,769
|
|
|
|
6,399
|
|
|
|
13,495
|
|
|
|
4,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
allocated to Minority Interests in Continuing
Operations
|
|
|
1,379
|
|
|
|
859
|
|
|
|
1,554
|
|
|
|
525
|
|
Income
from Continuing Operations
|
|
|
8,390
|
|
|
|
5,540
|
|
|
|
11,941
|
|
|
|
4,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations, net of minority interests (Note 12):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on Disposition of Hotel Properties
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
436
|
|
Income
from Discontinued Operations
|
|
|
106
|
|
|
|
240
|
|
|
|
113
|
|
|
|
428
|
|
Income
from Discontinued Operations
|
|
|
106
|
|
|
|
240
|
|
|
|
113
|
|
|
|
864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
8,496
|
|
|
|
5,780
|
|
|
|
12,054
|
|
|
|
5,272
|
|
Preferred
Distributions
|
|
|
1,200
|
|
|
|
1,200
|
|
|
|
3,600
|
|
|
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income applicable to Common
Shareholders
|
|
$ |
7,296
|
|
|
$ |
4,580
|
|
|
$ |
8,454
|
|
|
$ |
1,672
|
|
The
Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 30,
2007
|
|
|
September 30,
2006
|
|
|
September 30,
2007
|
|
|
September 30,
2006
|
|
Earnings
Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations applicable to common
shareholders
|
|
$ |
0.18
|
|
|
$ |
0.15
|
|
|
$ |
0.20
|
|
|
$ |
0.03
|
|
Income
from Discontinued Operations
|
|
$ |
0.00
|
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
|
$ |
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income applicable to common shareholders
|
|
$ |
0.18
|
|
|
$ |
0.16
|
|
|
$ |
0.20
|
|
|
$ |
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations applicable to common
shareholders
|
|
$ |
0.18
|
|
|
$ |
0.15
|
|
|
$ |
0.20
|
|
|
$ |
0.03
|
|
Income
from Discontinued Operations
|
|
$ |
0.00
|
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
|
$ |
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income applicable to common shareholders
|
|
$ |
0.18
|
|
|
$ |
0.16
|
|
|
$ |
0.20
|
|
|
$ |
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
40,807,626
|
|
|
|
28,413,553
|
|
|
|
40,663,670
|
|
|
|
24,760,185
|
|
Diluted*
|
|
|
40,807,626
|
|
|
|
28,428,637
|
|
|
|
40,663,670
|
|
|
|
24,760,185
|
|
*
|
Income
allocated to minority
interest in the Partnership has been excluded from the numerator
and
Partnership units have been omitted from the denominator for the
purpose
of computing diluted earnings per share since the effect of including
these amounts in the numerator and denominator would have no
impact. Weighted
average Partnership
units outstanding for the three months ended September
30, 2007 and 2006
were 6,095,971 and
3,724,426, respectively. Weighted
average Partnership
units outstanding for the nine months ended September
30, 2007 and 2006
were 5,139,657 and
3,459,590, respectively.
|
The
Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS]
|
|
September 30,
2007
|
|
|
September 30,
2006
|
|
Operating
activities:
|
|
|
|
|
|
|
Net
Income
|
|
$ |
12,054
|
|
|
|
5,272
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Gain
on disposition of hotel assets held for sale
|
|
|
-
|
|
|
|
(497 |
) |
Depreciation
|
|
|
25,722
|
|
|
|
13,798
|
|
Amortization
|
|
|
1,475
|
|
|
|
719
|
|
Debt
extinguishment
|
|
|
-
|
|
|
|
1,163
|
|
Income
allocated to minority interests
|
|
|
1,568
|
|
|
|
643
|
|
Equity
in income of unconsolidated joint ventures
|
|
|
(2,584 |
) |
|
|
(1,432 |
) |
Distributions
from unconsolidated joint ventures
|
|
|
2,703
|
|
|
|
1,834
|
|
Gain
recognized on change in fair value of derivative
instrument
|
|
|
(57 |
) |
|
|
(68 |
) |
Stock
based compensation expense
|
|
|
554
|
|
|
|
198
|
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
Hotel
accounts receivable
|
|
|
(7,214 |
) |
|
|
(3,560 |
) |
Escrows
|
|
|
490
|
|
|
|
(757 |
) |
Other
assets
|
|
|
(1,764 |
) |
|
|
(3,235 |
) |
Due
from related party
|
|
|
2,850
|
|
|
|
(3,968 |
) |
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
Due
to related party
|
|
|
(665 |
) |
|
|
2,646
|
|
Accounts
payable and accrued expenses
|
|
|
2,590
|
|
|
|
5,263
|
|
Net
cash provided by operating activities
|
|
|
37,722
|
|
|
|
18,019
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
Purchase
of hotel property assets
|
|
|
(32,659 |
) |
|
|
(225,857 |
) |
Capital
expenditures
|
|
|
(11,874 |
) |
|
|
(8,029 |
) |
Proceeds
from disposition of hotel assets held for sale
|
|
|
-
|
|
|
|
3,665
|
|
Cash
paid for franchise fee intangible
|
|
|
(71 |
) |
|
|
(48 |
) |
Repayment
of notes receivable
|
|
|
34
|
|
|
|
1,843
|
|
Investment
in development loans receivable
|
|
|
(60,700 |
) |
|
|
(35,616 |
) |
Repayment
of development loans receivable
|
|
|
36,000
|
|
|
|
33,550
|
|
Distributions
from unconsolidated joint venture
|
|
|
4,686
|
|
|
|
3,227
|
|
Advances
and capital contributions to unconsolidated joint ventures
|
|
|
(1,699 |
) |
|
|
(4,042 |
) |
Net
used in investing activities
|
|
|
(66,283 |
) |
|
|
(231,307 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings under line of credit, net
|
|
|
48,100
|
|
|
|
37,768
|
|
Principal
repayment of mortgages and notes payable
|
|
|
(19,387 |
) |
|
|
(66,701 |
) |
Proceeds
from mortgages and notes payable
|
|
|
28,543
|
|
|
|
165,012
|
|
Settlement
of interest rate derivative
|
|
|
-
|
|
|
|
79
|
|
Cash
paid for deferred financing costs
|
|
|
(250 |
) |
|
|
(796 |
) |
Proceeds
from issuance of common stock
|
|
|
-
|
|
|
|
103,357
|
|
Distributions
to partners in consolidated joint ventures
|
|
|
(340 |
) |
|
|
(221 |
) |
Dividends
paid on common shares
|
|
|
(22,016 |
) |
|
|
(12,350 |
) |
Dividends
paid on preferred shares
|
|
|
(3,600 |
) |
|
|
(3,600 |
) |
Distributions
paid on common partnership units
|
|
|
(2,525 |
) |
|
|
(1,767 |
) |
Net
cash provided by financing activities
|
|
|
28,525
|
|
|
|
220,781
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(36 |
) |
|
|
7,493
|
|
Cash
and cash equivalents - beginning of year
|
|
|
10,316
|
|
|
|
8,780
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of quarter
|
|
$ |
10,280
|
|
|
$ |
16,273
|
|
The
Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
1 — BASIS OF PRESENTATION
The
accompanying unaudited consolidated financial statements of Hersha Hospitality
Trust (“we” or the “Company”) have been prepared in accordance with U.S.
generally accepted accounting principles for interim financial information
and
with the general instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and notes required
by
U.S. generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended September 30, 2007 are
not
necessarily indicative of the results that may be expected for the year ending
December 31, 2007.
Recent
Accounting Pronouncements
SFAS
No. 157
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157
establishes a new definition of fair value, provides guidance on how to measure
fair value and establishes new disclosure requirements of assets and liabilities
at their fair value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. The Company has not determined whether the
adoption of SFAS No. 157 will have a material effect on the Company’s financial
statements.
SFAS
No. 159
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No.
159, “The Fair Value Option for Financial Assets and Financial
Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS
159 permits entities to choose to measure many financial instruments and certain
other items at fair value and requires certain disclosures for amounts for
which
the fair value option is applied. This standard is effective as of
the beginning of an entity’s first fiscal year that begins after November 15,
2007. Early adoption is permitted as of the beginning of a fiscal year that
begins on or before November 15, 2007, provided the entity also elects to apply
the provisions of Statement 157. The Company has not determined whether the
adoption of SFAS No. 159 will have a material effect on the Company’s financial
statements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
2 — INVESTMENT IN HOTEL PROPERTIES
Investment
in Hotel Properties consists of the following at September 30, 2007 and December
31, 2006:
|
|
September 30,
2007
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
171,500
|
|
|
$ |
135,943
|
|
Buildings
and Improvements
|
|
|
700,741
|
|
|
|
640,666
|
|
Furniture,
Fixtures and Equipment
|
|
|
103,267
|
|
|
|
88,179
|
|
Construction
in Progress
|
|
|
2,541
|
|
|
|
4,359
|
|
|
|
|
978,049
|
|
|
|
869,147
|
|
|
|
|
|
|
|
|
|
|
Less
Accumulated Depreciation
|
|
|
(83,864 |
) |
|
|
(61,363 |
) |
|
|
|
|
|
|
|
|
|
Total
Investment in Hotel Properties
|
|
$ |
894,185
|
|
|
$ |
807,784
|
|
2007
Transactions
During
the nine months ended September 30, 2007 we acquired the following wholly owned
hotel properties:
2007
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel
|
|
|
Acquisition
Date
|
|
|
Land
|
|
|
Buildings
and Improvements
|
|
|
Furniture
Fixtures and Equipment
|
|
|
Franchise
Fees and Loan Costs
|
|
|
Total
Purchase Price
|
|
|
Fair
Value of Assumed Debt and Capital Lease
|
|
Residence
Inn, Langhorne, PA
|
|
|
1/8/2007
|
|
|
$ |
1,463
|
|
|
$ |
12,125
|
|
|
$ |
2,170
|
|
|
$ |
50
|
|
|
$ |
15,808
|
|
|
|
-
|
|
Residence
Inn, Carlisle, PA
|
|
|
1/10/2007
|
|
|
|
1,015
|
|
|
|
7,511
|
|
|
|
1,330
|
|
|
|
89
|
|
|
|
9,945
|
|
|
|
7,000
|
|
Holiday
Inn Express, Chester, NY
|
|
|
1/25/2007
|
|
|
|
1,500
|
|
|
|
6,701
|
|
|
|
1,031
|
|
|
|
126
|
|
|
|
9,358
|
|
|
|
6,700
|
|
Hampton
Inn - Seaport, New York, NY
|
|
|
2/1/2007
|
|
|
|
7,816
|
|
|
|
19,056
|
|
|
|
1,729
|
|
|
|
1,036
|
|
|
|
29,637
|
|
|
|
20,202
|
|
Hotel
373 and Starbucks Lease - 5th Avenue, New York,
NY
|
|
|
6/1/2007
|
|
|
|
14,239
|
|
|
|
16,801
|
|
|
|
3,294
|
|
|
|
11
|
|
|
|
34,345
|
|
|
|
22,000
|
|
Nevins
Street, Brooklyn, NY
|
|
|
6/11/2007
& 7/11/2007
|
|
|
|
10,650
|
|
|
|
-
|
|
|
|
-
|
|
|
|
269
|
|
|
|
10,919
|
|
|
|
6,500
|
|
Holiday
Inn, Norwich, CT
|
|
|
7/1/2007
|
|
|
|
1,984
|
|
|
|
12,037
|
|
|
|
2,041
|
|
|
|
67
|
|
|
|
16,129
|
|
|
|
8,162
|
|
Total
2007 Wholly Owned Acquisitions
|
|
|
|
|
|
$ |
38,667
|
|
|
$ |
74,231
|
|
|
$ |
11,595
|
|
|
$ |
1,648
|
|
|
$ |
126,141
|
|
|
$ |
70,564
|
|
In
connection with the 2007 acquisitions we acquired $798 in working capital.
In
addition to cash and assumed debt, consideration included $2,100 in deposits
made in 2006. Included in the purchase price of Residence Inn, Langhorne, PA
is
$226 that was reimbursed to entities that are owned in part by certain
executives and affiliated trustees of the Company.
Interest
rates on debt assumed in the acquisition of the Residence Inn, Carlisle, PA
and
the Holiday Inn Express & Suites, Chester, NY were at market
rates. We assumed $19,250 in debt with the acquisition of the Hampton
Inn-Seaport, New York, NY bearing interest at a fixed rate of 6.36% which was
determined to be above market rates. We recorded a premium of $952
related to the assumption of this debt. In the acquisition of Hotel 373 – 5th Avenue,
New York,
NY, we assumed $22,000 in variable rate debt bearing interest at LIBOR plus
2.00% and an interest rate cap which effectively caps interest on this debt
at
7.75%. The debt matures and the interest rate cap terminates on April
9, 2009. The interest rate cap had a fair value of $15 on the date of
acquisition. We assumed $6,500 in variable rate debt bearing interest
at LIBOR plus 2.70% with the acquisition of a parcel of land on Nevins Street
in
Brooklyn, NY. This parcel of land is being leased to a hotel
developer that is owned in part by certain executives and affiliated trustees
of
the Company. Lease income on the land includes payment of debt
service on the assumed debt. We assumed $8,162 in debt with the
acquisition of the Holiday Inn, Norwich, CT which was repaid on July 30,
2007.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
2 — INVESTMENT IN HOTEL PROPERTIES (CONTINUED)
The
Residence Inn, Carlisle, PA and the Hampton Inn-Seaport, New York, NY were
acquired from entities that are owned by certain of the Company’s executives and
affiliated trustees. Included in the consideration paid for the
Residence Inn, Carlisle, PA was 119,818 units in our operating partnership
subsidiary valued at $11.10 per unit that were issued to sellers that are not
affiliated with the Company. Consideration paid for the Hampton
Inn-Seaport, New York, NY, included 15,016 units of our operating partnership
subsidiary valued at $11.20 per unit and an $8,208 note payable. The
operating partnership units were issued to certain executives and affiliated
trustees of the Company and the note payable was with entities that are owned
in
part by certain executives and affiliated trustees of the Company. On
May 24, 2007 the note payable was fully repaid. Interest expense of
$203 was incurred on the notes payable during the nine months ended September
30, 2007, respectively. Included in the consideration paid for the
Hotel 373 – 5th
Avenue, New York, NY were 1,000,000 units in our operating partnership
subsidiary valued at $12.32 per unit that were issued to a seller that is not
affiliated with the Company. Consideration paid for the Holiday Inn,
Norwich, CT, included 659,312 units of our operating partnership subsidiary
valued at $11.83, which were issued to entities that are owned in part by
certain executives and affiliated trustees of the Company.
The
purchase agreement entered into for the 2006 acquisition of the Courtyard,
Langhorne, PA; the Fairfield Inn, Bethlehem, PA; and the Fairfield Inn, Mt.
Laurel, NJ contains certain provisions that entitled the seller to an earn-out
payment of up to $2,500 based on the collective Net Operating Income thresholds
of the three properties, as defined. The earn-out period expired on
September 30, 2007 and based on the operating results of these properties,
no
earn-out was paid by the Company to the seller. On December 28, 2006,
we closed on the acquisition of seven Summerfield Suites. The
purchase agreement for this acquisition contains certain provisions that entitle
the seller to an earn-out payment of up to $6,000 based on the Net Operating
Income of the properties, as defined. The earn-out period expires on
December 31, 2009. On January 8, 2007, we closed on the acquisition
of the Residence Inn, Langhorne, PA. The purchase agreement for this
acquisition contains certain provisions that entitle the seller to an earn-out
payment of up to $1,000 based on the Net Operating Income of the property,
as
defined. The earn-out period expires on August 31,
2008. We are currently unable to determine whether amounts will be
paid under these two earn-out provisions since significant time remains until
the expiration of the earn-out periods. Due to uncertainty of the
amounts that will ultimately be paid, if any, no accrual has been recorded
on
the consolidated balance sheet for amounts due under these earn-out
provisions. In the event amounts are payable under these provisions,
payments made will be recorded as additional consideration given for the
properties.
All
of
the newly acquired wholly owned hotels are leased to our wholly owned taxable
REIT subsidiary (TRS), 44 New England Management Company and all are managed
by
Hersha Hospitality Management, LP (“HHMLP”). HHMLP is owned by three
of the Company’s executives, two of its affiliated trustees and other investors
that are not affiliated with the Company.
The
following condensed pro forma financial information is presented as if we had
consummated the acquisition of the 6 properties in 2007 and the 16 properties
in
2006 on January 1, 2006. Properties acquired without any operating history
are
excluded from the condensed pro forma operating results. The condensed pro
forma
information is not necessarily indicative of what the actual results of
operations of the Company would have been assuming the acquisitions had been
consummated at the beginning of the years presented, nor does it purport to
represent the results of operations for future periods.
|
|
For the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
September 30,
2007
|
|
|
September 30,
2006
|
|
|
September 30,
2007
|
|
|
September 30,
2006
|
|
Pro
Forma Total Revenues
|
|
$ |
68,967
|
|
|
$ |
55,885
|
|
|
$ |
182,942
|
|
|
$ |
152,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
Forma Income from Continuing Operations applicable to Common
Shareholders
|
|
$ |
8,390
|
|
|
$ |
5,638
|
|
|
$ |
11,680
|
|
|
$ |
4,650
|
|
Income
from Discontinued Operations
|
|
|
106
|
|
|
|
240
|
|
|
|
113
|
|
|
|
864
|
|
Pro
Forma Net Income
|
|
|
8,496
|
|
|
|
5,878
|
|
|
|
11,793
|
|
|
|
5,514
|
|
Preferred
Distributions
|
|
|
1,200
|
|
|
|
1,200
|
|
|
|
3,600
|
|
|
|
3,600
|
|
Pro
Forma Net Income (Loss) applicable to Common Shareholders
|
|
$ |
7,296
|
|
|
$ |
4,678
|
|
|
$ |
8,193
|
|
|
$ |
1,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
Forma Income (Loss) applicable to Common Shareholders per Common
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.18
|
|
|
$ |
0.16
|
|
|
$ |
0.20
|
|
|
$ |
0.08
|
|
Diluted
|
|
$ |
0.18
|
|
|
$ |
0.16
|
|
|
$ |
0.20
|
|
|
$ |
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
40,807,626
|
|
|
|
28,413,553
|
|
|
|
40,663,670
|
|
|
|
24,760,185
|
|
Diluted
|
|
|
40,807,626
|
|
|
|
28,428,637
|
|
|
|
40,663,670
|
|
|
|
24,760,185
|
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
3 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
We
account for our investment in the following unconsolidated joint ventures using
the equity method of accounting. As of September 30, 2007 and
December 31, 2006 our investment in unconsolidated joint ventures consists
of
the following:
|
|
|
|
|
|
September 30,
2007
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
PRA
Glastonbury, LLC
|
|
|
48.0 |
% |
* |
|
|
984
|
|
|
|
463
|
|
Inn
American Hospitality at Ewing, LLC
|
|
|
50.0 |
% |
|
|
|
1,284
|
|
|
|
1,414
|
|
Hiren
Boston, LLC
|
|
|
50.0 |
% |
|
|
|
5,179
|
|
|
|
4,871
|
|
SB
Partners, LLC
|
|
|
50.0 |
% |
|
|
|
2,404
|
|
|
|
2,213
|
|
Mystic
Partners, LLC
|
|
|
8.8%-66.7 |
% |
|
|
|
33,917
|
|
|
|
39,180
|
|
PRA
Suites at Glastonbury, LLC
|
|
|
48.0 |
% |
* |
|
|
2,810
|
|
|
|
2,093
|
|
Metro
29th Street Associates, LLC
|
|
|
50.0 |
% |
|
|
|
7,367
|
|
|
|
-
|
|
|
|
|
|
|
|
|
$ |
53,945
|
|
|
$ |
50,234
|
|
* Percent
owned was 40.0% through March 31, 2007. On April 1, 2007 our percent
owned increased to 48.0%
Any
difference between the carrying amount of these investments and the underlying
equity in net assets is amortized over the expected useful lives of the
properties and other intangible assets.
On
April
1, 2007, we increased our investment in PRA Glastonbury, LLC, the owner of
the
Hilton Garden Inn, Glastonbury, CT, and PRA Suites at Glastonbury, LLC, the
owner of the Homewood Suites, Glastonbury, CT by acquiring an additional 8%
preferred interest from our partner in each venture. The purchase
prices for our additional equity interests were $780 and $716 for PRA
Glastonbury, LLC and PRA Suites at Glastonbury, LLC, respectively.
On
February 1, 2007 we acquired a 50.0% interest in Metro 29th Street
Associates,
LLC (“Metro 29th”), the lessee of the 228 room Holiday Inn Express-Manhattan,
New York, NY, for approximately $6,817. Metro 29th holds a
twenty
five year lease with certain renewal options at the end of the lease
term. We also acquired an option to acquire a 50% interest in the
entity that owns the Holiday Inn Express-Manhattan. The option is
exercisable after February 1, 2012 or upon termination of Metro 29th Street’s lease
of
the hotel and expires at the end of the lease term. The fair value of
the option was $933 at the time of acquisition and is recorded in other assets
on our consolidated balance sheet. We issued 694,766 units in our
operating partnership valued at $11.15 per unit for our interest in Metro
29th and the
option. Metro 29th Street
entered
into an agreement with Metro 29th Sublessee,
LLC, a
joint venture owned by 44 New England and our joint venture partner, to sublease
the hotel property. The hotel is managed by HHMLP.
The
following tables set forth the total assets, liabilities, equity and components
of net income, including the Company’s share, related to the unconsolidated
joint ventures discussed above as of September 30, 2007 and December 31, 2006
and for the three and nine months ended September 30, 2007 and
2006.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
3 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
(CONTINUED)
Balance
Sheets
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Investment
in hotel properties, net
|
|
$ |
233,384
|
|
|
$ |
244,113
|
|
Other
assets
|
|
|
32,412
|
|
|
|
24,496
|
|
Assets
|
|
$ |
265,796
|
|
|
$ |
268,609
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
Mortgages
and notes payable
|
|
$ |
221,583
|
|
|
$ |
211,576
|
|
Other
liabilities
|
|
|
13,848
|
|
|
|
11,687
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
30,365
|
|
|
|
45,346
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Equity
|
|
$ |
265,796
|
|
|
$ |
268,609
|
|
Statements
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 30,
2007
|
|
|
September 30,
2006
|
|
|
September 30,
2007
|
|
|
September 30,
2006
|
|
Room
Revenue
|
|
$ |
27,480
|
|
|
$ |
23,567
|
|
|
$ |
72,770
|
|
|
$ |
62,735
|
|
Other
Revenue
|
|
|
7,359
|
|
|
|
6,873
|
|
|
|
22,586
|
|
|
|
21,478
|
|
Operating
Expenses
|
|
|
(21,424 |
) |
|
|
(19,064 |
) |
|
|
(59,829 |
) |
|
|
(55,585 |
) |
Interest
Expense
|
|
|
(3,977 |
) |
|
|
(4,361 |
) |
|
|
(11,607 |
) |
|
|
(11,830 |
) |
Debt
Extinguishment
|
|
|
(2,858 |
) |
|
|
-
|
|
|
|
(2,858 |
) |
|
|
-
|
|
Lease
Expense
|
|
|
(1,314 |
) |
|
|
(64 |
) |
|
|
(3,927 |
) |
|
|
(276 |
) |
Property
Taxes and Insurance
|
|
|
(1,654 |
) |
|
|
(1,625 |
) |
|
|
(4,558 |
) |
|
|
(4,248 |
) |
Federal
and State Income Taxes
|
|
|
(53 |
) |
|
|
(134 |
) |
|
|
(161 |
) |
|
|
(276 |
) |
Depreciation,
Amortization, and Other
|
|
|
(6,004 |
) |
|
|
(7,577 |
) |
|
|
(17,731 |
) |
|
|
(18,749 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(2,445 |
) |
|
$ |
(2,385 |
) |
|
$ |
(5,315 |
) |
|
$ |
(6,751 |
) |
Equity
income recognized during the three and nine months ended September 30, 2007
and
2006 for our Investments in Unconsolidated Joint Ventures are as
follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 30,
2007
|
|
|
September 30,
2006
|
|
|
September 30,
2007
|
|
|
September 30,
2006
|
|
HT/CNL
Metro Hotels, LP
|
|
$ |
-
|
|
|
$ |
168
|
|
|
$ |
-
|
|
|
$ |
398
|
|
PRA
Glastonbury, LLC
|
|
|
26
|
|
|
|
(28 |
) |
|
|
87
|
|
|
|
(257 |
) |
Inn
American Hospitality at Ewing, LLC
|
|
|
20
|
|
|
|
42
|
|
|
|
91
|
|
|
|
124
|
|
Hiren
Boston, LLC
|
|
|
175
|
|
|
|
254
|
|
|
|
309
|
|
|
|
28
|
|
SB
Partners, LLC
|
|
|
183
|
|
|
|
106
|
|
|
|
192
|
|
|
|
51
|
|
Mystic
Partners, LLC
|
|
|
1,006
|
|
|
|
1,232
|
|
|
|
1,253
|
|
|
|
1,089
|
|
PRA
Suites at Glastonbury, LLC
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(5 |
) |
|
|
(1 |
) |
Metro
29th Street Associates, LLC
|
|
|
272
|
|
|
|
-
|
|
|
|
657
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
income from unconsolidated joint venture investments
|
|
$ |
1,680
|
|
|
$ |
1,773
|
|
|
$ |
2,584
|
|
|
$ |
1,432
|
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
4 — DEVELOPMENT LOANS RECEIVABLE AND LAND LEASES
We
have
approved mortgage lending to entities, including entities in which our executive
officers and affiliated trustees own an interest, to enable such entities to
construct hotels and conduct related improvements on specific hotel projects
at
interest rates ranging from 10.0% to 13.5% (“Development Line Funding”). As of
September 30, 2007 and December 31, 2006, we had Development Loans Receivable
of
$70,042 and $47,016, respectively. Interest income included in “Interest Income
— Development Loans,” was $1,379 and $839 for the three months ended September
30, 2007 and 2006, respectively and $4,013 and $1,562 for the nine months ended
September 30, 2007 and 2006, respectively. Accrued interest on our
development loans receivable was $1,014 as of September 30, 2007 and $883 as
of
December 31, 2006.
As
of
September 30, 2007, our development loans receivable balance consisted of the
following:
Hotel
Property
|
|
Borrower
|
|
Principal
Outstanding 9/30/2007
|
|
Interest
Rate
|
|
Maturity
Date
|
Sheraton
- JFK Airport, NY
|
|
Risingsam
Hospitality, LLC
|
|
$ |
10,016
|
|
|
10% |
|
September
30, 2008
|
Holiday
Inn Express - 29th Street, NY
|
|
Brisam
Management, LLC
|
|
|
15,000
|
|
|
10% |
|
May
30, 2008
|
Hampton
Inn & Suites - West Haven, CT
|
|
44
West Haven Hospitality, LLC
|
|
|
2,000
|
|
|
10% |
|
October
9, 2008
|
Hilton
Garden Inn - New York, NY
|
|
York
Street LLC
|
|
|
15,000
|
|
|
11% |
|
July
1, 2008
|
Hampton
Inn - Smithfield, RI
|
|
44
Hersha Smithfield, LLC
|
|
|
2,000
|
|
|
10% |
|
October
9, 2008
|
Homewood
Suites - Newtown Square, PA
|
|
Reese
Hotels, LLC
|
|
|
700
|
|
|
11% |
|
June
1, 2008
|
Boutique
Hotel - Union Square, NY
|
|
Risingsam
Union Square, LLC
|
|
|
5,000
|
|
|
10% |
|
May
31, 2008
|
Candlewood
Suites - Windsor Locks, CT
|
|
44 Windsor
Locks Hospitality, LLC
|
|
|
2,000
|
|
|
10% |
|
August
6, 2008
|
Hilton
Garden Inn/Homewood Suites - Brooklyn, NY
|
|
167
Johnson Street, LLC
|
|
|
|
|
|
|
|
|
Tranche
1
|
|
|
|
|
11,000
|
|
|
11% |
|
September
21, 2008
|
Tranche
2
|
|
|
|
|
9,000
|
|
|
13.5% |
|
September
24, 2008
|
Discount
|
|
|
|
|
(1,674 |
|
|
|
|
|
Total
Hilton Garden Inn/Homewood Suites - Brooklyn, NY
|
|
|
|
|
18,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Development Loans Receivable
|
|
|
|
$ |
70,042
|
|
|
|
|
|
In
connection with originating the $11,000 and $9,000 development loans for the
Hilton Garden Inn/Homewood Suites – Brooklyn, NY, we were granted an option to
acquire a 50% interest in the entity that owns the Hilton Garden Inn – Brooklyn,
NY. The option can be exercised any time during the three year period
beginning on the date the property receives its certificate of occupancy or
upon
the borrower’s default on the development loans. The fair value of
the option was $1,688 at the time of acquisition and is recorded in other assets
on our consolidated balance sheet. We recorded a discount on the development
loans receivable of $1,688 which is being amortized over life of the development
loan, including the two year renewal period. Amortization of this
discount is recorded as interest income from development loans on the Company’s
consolidated statement of operations and was $14 for the three and nine months
ended September 30, 2007.
As
of
December 31, 2006 our development loans receivable balance consisted of the
following:
Hotel
Property
|
|
Borrower
|
|
Principal
Outstanding 12/31/2006
|
|
Interest
Rate
|
|
Maturity
Date
|
|
Sheraton
- JFK Airport, NY
|
|
Risingsam
Hospitality, LLC
|
|
$ |
9,016
|
|
|
10% |
|
March
30, 2007
|
* |
Hilton
Garden Inn - Union Square, NY
|
|
Risingsam
Union Square, LLC
|
|
|
10,000
|
|
|
10% |
|
May
31, 2007
|
* |
Holiday
Inn Express - 29th Street, NY
|
|
Brisam
Management, LLC
|
|
|
15,000
|
|
|
10% |
|
May
31, 2007
|
* |
Boutique
Hotel - Manhattan, NY
|
|
Brisam
East 52, LLC
|
|
|
3,000
|
|
|
10% |
|
December
6, 2007
|
|
Boutique
Hotel - Manhattan, NY
|
|
Brisam
Greenwich, LLC
|
|
|
10,000
|
|
|
10% |
|
September
12, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Development Loans Receivable
|
|
|
|
$ |
47,016
|
|
|
|
|
|
|
*subsequent
to December 31, 2006, the maturity dates of these development loans were
extended.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
4 — DEVELOPMENT LOANS RECEIVABLE AND LAND LEASES
(CONTINUED)
We
acquire land and improvements and lease them to entities, including entities
in
which our executive officers and affiliated trustees own an interest, to enable
such entities to construct hotels and related improvements on the leased
land. The land is leased under fixed lease agreements which earn
rents at a minimum rental rate of 10% of our net investment in the leased
property. Additional rents are paid by the lessee for the interest on the
mortgage, real estate taxes and insurance. Revenues from our land leases are
recorded in land lease revenue on our consolidated statement of
operations. All expenses related to the land leases are recorded in
operating expenses as land lease expense. Leased land and
improvements are included in investment in hotel properties on our consolidated
balance sheet. As of September 30, 2007 our investment in leased land
and improvements consists of the following:
|
|
|
Investment
In Leased Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
|
Land
|
|
|
Improvements
|
|
|
Other
|
|
|
Total
Investment
|
|
|
Debt
|
|
|
Net
Investment
|
|
|
Acquisition/
Lease Date
|
|
|
Lessee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
440
West 41st Street, New York, NY
|
|
|
$ |
10,735
|
|
|
$ |
11,051
|
|
|
$ |
196
|
|
|
$ |
21,982
|
|
|
$ |
12,100
|
|
|
$ |
9,882
|
|
|
7/28/2006
|
|
|
Metro
Forty First Street, LLC
|
|
39th
Street and 8th Avenue, New York, NY
|
|
|
|
21,774
|
|
|
|
-
|
|
|
|
541
|
|
|
|
22,315
|
|
|
|
13,250
|
|
|
|
9,065
|
|
|
6/28/2006
|
|
|
Metro
39th Street Associates, LLC
|
|
Nevins
Street, Brooklyn, NY
|
|
|
|
10,650
|
|
|
|
-
|
|
|
|
269
|
|
|
|
10,919
|
|
|
|
6,500
|
|
|
|
4,419
|
|
|
6/11/2007
& 7/11/2007
|
|
|
H
Nevins Street Associates, LLC
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$ |
43,159
|
|
|
$ |
11,051
|
|
|
$ |
1,006
|
|
|
$ |
55,216
|
|
|
$ |
31,850
|
|
|
$ |
23,366
|
|
|
|
|
|
|
|
*
Indicates lessee is a related party.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
5 — OTHER ASSETS
Other
Assets consisted of the following at September 30, 2007 and December 31,
2006:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Deferred
Transaction Costs
|
|
$ |
528
|
|
|
$ |
252
|
|
Deposits
on Hotel Acquisitions
|
|
|
24
|
|
|
|
2,144
|
|
Investment
in Statutory Trusts
|
|
|
1,548
|
|
|
|
1,548
|
|
Notes
Receivable
|
|
|
2,540
|
|
|
|
2,438
|
|
Due
from Lessees
|
|
|
2,075
|
|
|
|
2,318
|
|
Prepaid
Expenses
|
|
|
4,216
|
|
|
|
3,533
|
|
Interest
due on Development Loans to Non-Related Parties
|
|
|
829
|
|
|
|
871
|
|
Deposits
on Property Improvement Plans
|
|
|
1,536
|
|
|
|
1,405
|
|
Hotel
Purchase Option
|
|
|
2,620
|
|
|
|
-
|
|
Other
|
|
|
1,650
|
|
|
|
1,636
|
|
|
|
$ |
17,566
|
|
|
$ |
16,145
|
|
Transaction
Costs - Transaction costs include legal fees and other third party
transaction costs incurred relative to entering into debt facilities, issuances
of equity securities or acquiring interests in hotel properties are recorded
in
other assets prior to the closing of the respective transactions.
Deposits
on Hotel Acquisitions - Refundable deposits paid in connection with the
acquisition of hotels, including accrued interest receivable, are recorded
in
other assets. As of September 30, 2007, we had $-0- in interest bearing and
non
interest bearing deposits. As of December 31, 2006, we had
$2,000 in interest bearing deposits and $100 in non-interest bearing deposits
related to the acquisition of hotel properties. The interest bearing deposit
as
of December 31, 2006 accrued interest at 10%.
Investment
in Statutory Trusts - We have an investment in the common stock of Hersha
Statutory Trust I and Hersha Statutory Trust II. Our investment is accounted
for
under the equity method.
Notes
Receivable - Notes receivable as of September 30, 2007 and December 31,
2006 include notes receivable of $1,350 extended in November and December 2006
to the purchaser of the Holiday Inn Express, Duluth, GA; Comfort Suites, Duluth,
GA; Hampton Inn, Newnan, GA; and the Hampton Inn Peachtree City, GA
(collectively the “Atlanta Portfolio”). Each of these notes bear interest
at 8% and have maturity dates of December 31, 2007 or January 1, 2008. Also
included in notes receivable is a loan made to one of our partners in an
unconsolidated joint venture in the amount of $1,000 bearing interest at 12%
with a maturity date of December 27, 2007.
Due
from Lessees - Due
from lessees represent rents due under our land lease and hotel lease
agreements.
Prepaid
Expense - Prepaid
expenses include amounts paid for property tax, insurance and other expenditures
that will be expensed in the next twelve months.
Interest
due on Development Loans– Interest due
on development
loans represents interest income due from loans extended to non-related parties
that are used to enable such entities to construct hotels and conduct
related improvements on specific hotel projects.
Deposits
on Property Improvement Plans– Deposits on
property
improvement plans consists of amounts advanced to HHMLP that is to be used to
fund capital expenditures as part of our property improvement programs at
certain properties.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
6 — DEBT
Mortgages
and Notes Payable
The
total
mortgages payable balance at September 30, 2007 and December 31, 2006, was
$585,415 and $504,523, respectively, and consisted of mortgages with fixed
and
variable interest rates ranging from 4.0% to 9.0%. The maturities for the
outstanding mortgages ranged from July 2008 to January 2032. Aggregate interest
expense incurred under the mortgages payable totaled $8,755 and $5,131 for
the
three months ended September 30, 2007 and 2006, respectively and $25,151 and
$14,215 for the nine months ended September 30, 2007 and 2006,
respectively. Based on our estimate of market interest rates, the fair value
of
the Company’s debt exceeded its carrying value by approximately $12,898 at
September 30, 2007.
We
have
two junior subordinated notes payable in the aggregate amount of $51,548 to
the
Hersha Statutory Trusts pursuant to indenture agreements. The $25,774 note
issued to Hersha Statutory Trust I will mature on June 30, 2035, but may be
redeemed at our option, in whole or in part, beginning on June 30, 2010 in
accordance with the provisions of the indenture agreement. The $25,774 note
issued to Hersha Statutory Trust II will mature on July 30, 2035, but may be
redeemed at our option, in whole or in part, beginning on July 30, 2010 in
accordance with the provisions of the indenture agreement. The note issued
to
Hersha Statutory Trust I bears interest at a fixed rate of 7.34% per annum
through June 30, 2010, and the note issued to Hersha Statutory Trust II bears
interest at a fixed rate of 7.173% per annum through July 30, 2010. Subsequent
to June 30, 2010 for notes issued to Hersha Statutory Trust I and July 30,
2010
for notes issued to Hersha Statutory Trust II, the notes bear interest at a
variable rate of LIBOR plus 3.0% per annum. Interest expense in amount of $921
and $940 was recorded for the three months ended September 30, 2007 and 2006,
respectively and $2,837 and $2,810 for the nine months ended September 30,
2007 and 2006, respectively.
Revolving
Line of Credit
We
have a
revolving credit loan and security agreement with Commerce Bank, N.A. with
a
maximum amount of $100,000 and interest rate terms of either the bank’s prime
rate of interest minus 0.75% or LIBOR available for the periods of 1, 2, 3,
or 6
months plus 2.00%, at our discretion. This revolving credit loan
replaced both the secured and unsecured lines of credit that we previously
maintained.
The
Company maintained a line of credit balance of $72,100 at September 30, 2007
and
$24,000 at December 31, 2006. The Company recorded interest expense of $1,125
and $861 related to the line of credit borrowings, for the three months
ended September 30, 2007 and 2006, respectively and $3,121 and $1,524 for the
nine months ended September 30, 2007 and 2006, respectively. The weighted
average interest rate on our Line of Credit for the three months ended September
30, 2007 and 2006 was 7.43% and 7.58%, respectively and 7.48% and 7.28% for
the
nine months ended September 30, 2007 and 2006, respectively.
Capitalized
Interest
The
Company utilizes its revolving line of credit to finance on-going capital
improvement projects at its properties. Interest incurred on the
revolving line of credit that relates to our capital improvement projects is
capitalized through the date when the assets are placed in
service. For the three and nine months ended September 30, 2007, we
capitalized $339 of interest expense related to these projects.
Deferred
Costs
Costs
associated with entering into mortgages and notes payable and our revolving
line
of credit are deferred and amortized over the life of the debt instruments.
Amortization of deferred costs is recorded in interest expense. As of September
30, 2007, deferred costs were $8,509, net of accumulated amortization of
$2,760. Deferred costs were $7,525, net of accumulated amortization of
$1,543, as of December 31, 2006. Amortization of deferred costs for the three
months ended September 30, 2007 and 2006 was $448 and $225 respectively and
$1,204 and $607 for the nine months ended September 30, 2007 and 2006,
respectively.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
6 — DEBT (CONTINUED)
Debt
Extinguishment
As
noted
above, the Sovereign Bank Line of Credit was replaced by the Commerce Line
of
Credit in January 2006. As a result of this termination, we expensed $255 in
unamortized deferred costs related to the origination of the Sovereign Bank
Line
of Credit, which are included in the Debt Extinguishment caption on the face
of
the consolidated statements of operations for the nine months ended September
30, 2006.
On
April
7, 2006, we repaid $21,900 on our mortgage with Merrill Lynch for the
Hampton Inn Herald Square property as a result of a debt refinancing. The new
debt of $26,500 has a fixed interest rate of 6.085% and a maturity date of
May
1, 2016. As a result of this extinguishment, we expensed $534 in unamortized
deferred costs and prepayment penalties, which are included in the Debt
Extinguishment caption on the face of the consolidated statements of operations
for the nine months ended September 30, 2006.
On
June
9, 2006, we repaid $34,200 on our mortgage with UBS for the McIntosh Portfolio,
as a result of a debt refinancing. The new debt of $36,300 has a fixed interest
rate of 6.33% and maturity date of June 11, 2016. As a result of this
extinguishment, we expensed $374 in unamortized deferred costs, which are
included in the Debt Extinguishment caption on the face of the consolidated
statements of operations for the nine months ended September 30,
2006.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
7 — COMMITMENTS AND CONTINGENCIES AND RELATED PARTY
TRANSACTIONS
We
are
the sole general partner in our operating partnership subsidiary, Hersha
Hospitality Limited Partnership (the “Partnership”) , which is indirectly the
sole general partner of the subsidiary partnerships. The Company does not
anticipate any losses as a result of our obligations as general partner in
the
Partnership.
Management
Agreements
Our
wholly owned TRS, 44 New England, engages eligible independent contractors,
including HHMLP, as the property managers for hotels it leases from us pursuant
to management agreements. Our management agreements with HHMLP provide for
five-year terms and are subject to early termination upon the occurrence of
defaults and certain other events described therein. As required under the
REIT
qualification rules, HHMLP must qualify as an “eligible independent contractor”
during the term of the management agreements. Under the management agreements,
HHMLP generally pays the operating expenses of our hotels. All operating
expenses or other expenses incurred by HHMLP in performing its authorized duties
are reimbursed or borne by our TRS to the extent the operating expenses or
other
expenses are incurred within the limits of the applicable approved hotel
operating budget. HHMLP is not obligated to advance any of its own funds for
operating expenses of a hotel or to incur any liability in connection with
operating a hotel. Management agreements with other unaffiliated
hotel management companies have similar terms.
As
of
September 30, 2007, HHMLP managed forty six of the properties leased to our
TRS. HHMLP also managed two consolidated joint venture hotel
properties and four unconsolidated joint venture hotel properties in which
we
maintain an investment. For its services, HHMLP receives a base management
fee,
and if a hotel exceeds certain thresholds, an incentive management fee. The
base
management fee for a hotel is due monthly and is equal to 3% of gross revenues
associated with each hotel managed for the related month. The incentive
management fee, if any, for a hotel is due annually in arrears on the ninetieth
day following the end of each fiscal year and is based upon the financial
performance of the hotel. There were no incentive management fees for the
three and nine months ended September 30, 2007 and 2006. For the three months
ended September 30, 2007 and 2006, management fees incurred totaled $1,636
and
$1,246, respectively, and $4,164 and $3,211 for the nine months ended September
30, 2007 and 2006, respectively and are recorded as Hotel Operating
Expenses. In addition, the Company incurred $30 related to the sale
of one hotel in the second quarter of 2006. These fees are included
in discontinued operations.
Accounting
and Information Technology Fees
Each
of
the wholly owned hotels and consolidated joint venture hotel properties managed
by HHMLP incurs a monthly accounting and information technology
fee. Monthly fees for accounting services are $2 per property
and monthly information technology fees are $0.5 per property. In addition,
each
of the wholly owned hotels not managed by HHMLP, but for which the accounting
is
provided by HHMLP incurs a monthly accounting fee of $3. For the
three months ended September 30, 2007 and 2006, the Company incurred accounting
fees of $345 and $281, respectively, and incurred information technology fees
of
$71 and $64, respectively. For the nine months ended September 30,
2007 and 2006, the Company incurred accounting fees of $1,012 and $768,
respectively, and incurred information technology fees of $207 and $184,
respectively. Accounting and information technology fees are included in
General and Administrative expenses.
Franchise
Agreements
The
hotel
properties are operated under franchise agreements assumed by the hotel property
lessee. The franchise agreements have 10 to 20 year terms but may be terminated
by either the franchisee or franchisor on certain anniversary dates specified
in
the agreements. The franchise agreements require annual payments for franchise
royalties, reservation, and advertising services, and such payments are based
upon percentages of gross room revenue. These payments are paid by the hotels
and charged to expense as incurred. Franchise fee expense for the three months
ended September 30, 2007 and 2006 was $4,550 and $2,871 respectively and $11,785
and $7,210 for the nine months ended September 30, 2007 and 2006,
respectively. The initial fees incurred to enter into the franchise
agreements are amortized over the life of the franchise agreements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
7 — COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(CONTINUED)
Acquisitions
from Affiliates
We
have
entered into an option agreement with each of our officers and affiliated
trustees such that we obtain a first right of refusal to purchase any hotel
owned or developed in the future by these individuals or entities controlled
by
them at fair market value. This right of first refusal would apply to each
party
until one year after such party ceases to be an officer or trustee of our
Company. Since our initial public offering in 1999, we have acquired, wholly
or
through joint ventures, a total of 78 hotels, including 23 hotels acquired
from
entities controlled by our officers or affiliated trustees. Of the 23
acquisitions from these entities, 20 were newly-constructed or newly-renovated
by these entities prior to our acquisition. Our Acquisition Committee of the
Board of Trustees is comprised solely of independent trustees, and the purchase
prices and all material terms of the purchase of hotels from related parties
are
approved by the Acquisition Committee.
Hotel
Supplies
For
the
three months ended September 30, 2007 and 2006, we incurred expenses of $456
and
$372, respectively, and for the nine months ended September 30, 2007 and 2006,
we incurred expenses of $1,901 and $1,247 respectively, for hotel supplies
from
Hersha Hotel Supply, an unconsolidated related party, which are expenses
included in Hotel Operating Expenses. Approximately $149 and $66 is included
in
accounts payable at September 30, 2007 and December 31, 2006,
respectively.
Capital
Expenditure Fees
Beginning
April 1, 2006, HHMLP began to charge a 5% fee on all capitalized expenditures
and pending renovation projects at the properties as compensation for
procurement services related to capital expenditures and for project management
of renovation projects. For the three months ended September 30, 2007
and 2006 we incurred fees of $74 and $59, respectively and for the nine months
ended September 30, 2007 and 2006 we incurred fees of $237 and $116,
respectively, which were capitalized in with the cost of fixed asset
additions.
Due
From Related Parties
The
Due
from Related Party balance as of September 30, 2007 and December 31, 2006 was
approximately $2,097 and $4,059 respectively. The majority of the balance
as of September 30, 2007 and December 31, 2006 were receivables owed from our
unconsolidated joint ventures.
Due
to
Related Parties
The
Due
to Related Parties balance as of September 30, 2007 and December 31, 2006 was
approximately $2,632 and $3,297, respectively. The balances as of September
30,
2007 and December 31, 2006 consisted of amounts payable to HHMLP for
administrative, management, and benefit related fees.
Hotel
Ground Rent
During
2003, in conjunction with the acquisition of the Hilton Garden Inn, Edison,
NJ,
we assumed a land lease from a third party with an original term of 75 years.
Monthly payments as determined by the lease agreement are due through the
expiration in August 2074. On February 16, 2006, in conjunction with the
acquisition of the Hilton Garden Inn, JFK Airport, we assumed a land lease
with an original term of 99 years. Monthly payments are determined by
the lease agreement and are due through the expiration in July
2100. Both land leases provide rent increases at scheduled intervals.
We record rent expense on a straight-line basis over the life of the lease
from
the beginning of the lease term. For the three months ended September 30, 2007
and 2006, we incurred $211 and $222, and for the nine months ended September
30,
2007 and 2006 we incurred $650 and $685, respectively, in hotel ground rent
expense under the agreement.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
8 — DERIVATIVE INSTRUMENTS
We
maintain an interest rate swap that fixes our interest rate on a variable rate
mortgage. Under the terms of this interest rate swap, we pay fixed
rate interest of 4.73% of the notional amount and we receive floating rate
interest equal to the one month U.S. dollar LIBOR. The notional
amount amortizes in tandem with the amortization of the underlying hedged debt
and is $7,825 as of September 30, 2007.
On
June
1, 2007, through the acquisition of Hotel 373, New York, NY, the Company assumed
a mortgage containing an interest rate cap with a notional amount of $22,000
to
hedge against the variability in cash flows on a variable interest rate debt
instrument. The principal of the variable interest rate debt being hedged equals
the notional amount of the interest rate cap. The interest rate cap effectively
fixes interest payments when LIBOR exceeds 5.75%. The interest rate cap
terminates on April 9, 2009, the maturity date of the hedged debt
instrument.
At
September 30, 2007, the fair value of the interest rate swap was $33 and is
included in Accounts Payable, Accrued Expenses and Other Liabilities and at
December 31, 2006, the fair value of the interest rate swap was $47 and is
included in Other Assets on the face of the consolidated balance
sheets. At September 30, 2007, the fair value of the interest
rate cap was $5 and is included in Other Assets on the face of the consolidated
balance sheets. The change in net unrealized gains/losses was a loss
of $136 and $122 for the three months ended September 30, 2007 and 2006,
respectively, and a loss of $147 and loss of $87 for the nine months ended
September 30, 2007 and 2006, respectively, for derivatives designated as cash
flow hedges which were reflected on our Balance Sheet in Accumulated Other
Comprehensive Income. Hedge ineffectiveness of $3 on cash flow hedges was
recognized in interest expense for each of the three months ended September
30,
2007 and 2006 and $12 and $10 for the nine months ended September 30, 2007
and
2006, respectively.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
9 — SHARE-BASED PAYMENTS
The
following table summarizes the stock awards issued to executives of the Company
pursuant to the 2004 Equity Incentive Plan:
|
|
|
|
|
|
Shares
Vested
|
|
|
Unearned
Compensation
|
|
|
|
Date
of Award Issuance
|
|
|
Shares
Issued
|
|
|
September 30,
2007
|
|
|
December 31,
2006
|
|
|
September 30,
2007
|
|
|
December 31,
2006
|
|
|
Period
until Full Vesting
|
June
1, 2005
|
|
|
|
71,000
|
|
|
|
35,500
|
|
|
|
17,750
|
|
|
$ |
284
|
|
|
$ |
412
|
|
|
1.75
years
|
June
1, 2006
|
|
|
|
89,500
|
|
|
|
22,375
|
|
|
|
-
|
|
|
|
561
|
|
|
|
719
|
|
|
2.75
years
|
June
1, 2007
|
|
|
|
214,582
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,423
|
|
|
|
-
|
|
|
3.75
years
|
|
|
|
|
375,082
|
|
|
|
57,875
|
|
|
|
17,750
|
|
|
$ |
3,268
|
|
|
$ |
1,131
|
|
|
|
On
June
1, 2007, the Compensation Committee of the Board of Trustees granted 214,582
restricted share awards to executives. The restricted share awards
vest 25% each year over four years and compensation expense is recognized
ratably over the four year vesting period based on the fair value of the shares
on the date of grant. The fair value of the restricted share awards
on the grant date was $12.32 per share. As of September 30, 2007,
none of these restricted share awards was vested.
Compensation
expense related to stock awards issued to executives of the Company of $260
and
$95 was incurred during the three months ended September 30, 2007 and 2006,
respectively, and $505 and $198 was incurred during the nine months ended
September 30, 2007 and 2006, respectively, related to the restricted share
awards.
On
January 3, 2006, we awarded 1,000 common shares to each of our five independent
trustees. The fair value of each of the shares on the grant date was
$9.12 per share. On January 2, 2007, we awarded 1,000 common shares to each
of
our four independent trustees. The fair value of each of the shares on the
grant
date was $11.44 per share. On July 2, 2007, we awarded 1,000 common shares
to
each of our four independent trustees. The fair value of each of the
shares on the grant date was $12.12. Compensation expense related to
stock awards issued to the Board of Trustees of $-0- and $13 was incurred during
the three months ended September 30, 2007 and 2006, respectively and $49 and
$38
was incurred during the nine months ended September 30, 2007 and 2006,
respectively.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
10 — EARNINGS PER SHARE
The
following table is a reconciliation of the income (numerator) and weighted
average shares (denominator) used in the calculation of basic earnings per
common share and diluted earnings per common share in accordance with SFAS
No.
128, Earnings Per Share. The computation of basic and diluted earnings per
share
is presented below.
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Continuing Operations
|
|
$ |
8,390
|
|
|
$ |
5,540
|
|
|
$ |
11,941
|
|
|
$ |
4,408
|
|
Dividends
paid on unvested restricted shares
|
|
|
(57 |
) |
|
|
(26 |
) |
|
|
(140 |
) |
|
|
(64 |
) |
Distributions
to 8.0% Series A Preferred Shareholders
|
|
|
(1,200 |
) |
|
|
(1,200 |
) |
|
|
(3,600 |
) |
|
|
(3,600 |
) |
Income
from continuing operations applicable to common
shareholders
|
|
|
7,133
|
|
|
|
4,314
|
|
|
|
8,201
|
|
|
|
744
|
|
Income
from Discontinued Operations
|
|
|
106
|
|
|
|
240
|
|
|
|
113
|
|
|
|
864
|
|
Net
Income applicable to common shareholders
|
|
$ |
7,239
|
|
|
$ |
4,554
|
|
|
$ |
8,314
|
|
|
$ |
1,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Continuing Operations
|
|
$ |
8,390
|
|
|
$ |
5,540
|
|
|
$ |
11,941
|
|
|
$ |
4,408
|
|
Dividends
paid on unvested restricted shares
|
|
|
(57 |
) |
|
|
(26 |
) |
|
|
(140 |
) |
|
|
(64 |
) |
Distributions
to 8.0% Series A Preferred Shareholders
|
|
|
(1,200 |
) |
|
|
(1,200 |
) |
|
|
(3,600 |
) |
|
|
(3,600 |
) |
Income
from continuing operations applicable to common
shareholders
|
|
|
7,133
|
|
|
|
4,314
|
|
|
|
8,201
|
|
|
|
744
|
|
Income
from Discontinued Operations
|
|
|
106
|
|
|
|
240
|
|
|
|
113
|
|
|
|
864
|
|
Net
Income applicable to common shareholders
|
|
$ |
7,239
|
|
|
$ |
4,554
|
|
|
$ |
8,314
|
|
|
$ |
1,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares – basic
|
|
|
40,807,626
|
|
|
|
28,413,553
|
|
|
|
40,663,670
|
|
|
|
24,760,185
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
stock awards
|
|
|
-
|
|
|
|
15,084
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares - diluted*
|
|
|
40,807,626
|
|
|
|
28,428,637
|
|
|
|
40,663,670
|
|
|
|
24,760,185
|
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
10 — EARNINGS PER SHARE (CONTINUED)
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Earnings
Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations applicable to common
shareholders
|
|
$ |
0.18
|
|
|
$ |
0.15
|
|
|
$ |
0.20
|
|
|
$ |
0.03
|
|
Income
from Discontinued Operations
|
|
$ |
0.00
|
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
|
$ |
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income applicable to common shareholders
|
|
$ |
0.18
|
|
|
$ |
0.16
|
|
|
$ |
0.20
|
|
|
$ |
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations applicable to common
shareholders
|
|
$ |
0.18
|
|
|
$ |
0.15
|
|
|
$ |
0.20
|
|
|
$ |
0.03
|
|
Income
from Discontinued Operations
|
|
$ |
0.00
|
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
|
$ |
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income applicable to common shareholders
|
|
$ |
0.18
|
|
|
$ |
0.16
|
|
|
$ |
0.20
|
|
|
$ |
0.06
|
|
*
|
Income
allocated to minority interest in the Partnership has been excluded
from
the numerator and Partnership units have been omitted from the denominator
for the purpose of computing diluted earnings per share since the
effect
of including these amounts in the numerator and denominator would
have no
impact. Weighted average Partnership units outstanding for the three
months ended September 30, 2007 and 2006 were 6,095,971 and 3,724,426,
respectively. Weighted average Partnership units outstanding for the
nine months ended September 30, 2007 and 2006 were 5,139,657 and
3,459,590, respectively.
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
11 — CASH FLOW DISCLOSURES AND NON-CASH ACTIVITIES
Interest
paid during the nine months ended September 30, 2007 and 2006 totaled $31,094
and $17,378, respectively.
The
following non-cash activities occurred during the nine months ended September
30, 2007 and 2006:
|
|
Nine
Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
Common
Shares issued as part of the Dividend Reinvestment Plan
|
|
$ |
22
|
|
|
$ |
19
|
|
Issuance
of Common Shares to the Board of Trustees
|
|
|
94
|
|
|
|
46
|
|
Issuance
of Stock Awards
|
|
|
2,644
|
|
|
|
841
|
|
Issuance
of Common LP Units for acquisitions of hotel properties
|
|
|
21,167
|
|
|
|
9,940
|
|
Debt
assumed in acquisition of hotel properties
|
|
|
70,564
|
|
|
|
102,301
|
|
Issuance
of Common LP Units for acquisition of unconsolidated joint
venture
|
|
|
6,817
|
|
|
|
-
|
|
Issuance
of Common LP Units for acquisition of option to acquire interest
in hotel
property
|
|
|
933
|
|
|
|
-
|
|
Conversion
of Common LP Units to Common Shares
|
|
|
2,333
|
|
|
|
651
|
|
Reallocation
to minority interest
|
|
|
11,180
|
|
|
|
6,578
|
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
12 — DISCONTINUED OPERATIONS
In
September of 2005, our Board of Trustees authorized management of the Company
to
sell the Holiday Inn Express, Hartford, CT. The Company acquired the
hotel in January 2004 and sold the hotel on April 12, 2006. Proceeds from the
sale were $3,600, and the gain on the sale was $497, of which $61 was allocated
to minority interest in HHLP. The operating results for this hotel
have been classified as discontinued operations in the statements of operations
for the nine months ended September 30, 2006.
In
March
of 2006, our Board of Trustees authorized management of the Company to sell
the
Holiday Inn Express, Duluth; Comfort Suites, Duluth; Hampton Inn, Newnan and
the
Hampton Inn, Peachtree City located in metropolitan Atlanta,
Georgia. These assets were classified as “held for sale” as of
September 30, 2006. The operating results for these hotels were classified
as
discontinued operations in the statements of operations for the three and nine
months ended September 30, 2006. These hotels were acquired by the Company
in
April and May 2000 and were sold during November and December
2006. Proceeds from the sales were $18,100, and the gain on the sale
was $290, of which $33 was allocated to minority interest in
HHLP. Notes receivable in the aggregate amount of $1,350 were
received as part of the proceeds of the sale of the Atlanta
Portfolio. Interest payments are due quarterly with repayment of the
principal due upon maturity on December 31, 2007 or January 1,
2008.
In
September of 2007, our Board of Trustees authorized management of the Company
to
sell the Hampton Inn, Linden, NJ (Hampton Inn) and Fairfield Inn, Mt. Laurel,
NJ
(Fairfield Inn). The Company acquired the Hampton Inn in October 2003
and the Fairfield Inn in January 2006. These assets are classified as
“held for sale” on the Company’s Consolidated Balance Sheet as of September 30,
2007. The operating results for these hotels have been reclassified to
discontinued operations in the statements of operations for the three and nine
months ended September 30, 2007 and 2006. The Company has signed
definitive agreements for the sale of the Hampton Inn and Fairfield Inn for
a
purchase price of $18 million and $11.5 million, respectively. The sale of
these
properties is expected to be completed by the end of the fourth quarter of
2007.
Assets
Held for Sale consisted of the following at September 30, 2007:
|
|
September 30,
2007
|
|
Land
|
|
$ |
2,955
|
|
Buildings
and Improvements
|
|
|
20,698
|
|
Furniture,
Fixtures and Equipment
|
|
|
4,073
|
|
Deferred
Costs
|
|
|
138
|
|
Intangible
Assets
|
|
|
107
|
|
|
|
$ |
27,971
|
|
|
|
|
|
|
Less
Accumulated Depreciation
|
|
|
(3,311 |
) |
|
|
|
|
|
Total
Assets Held for Sale
|
|
$ |
24,660
|
|
As
of
September 30, 2007, Liabilities Related to Assets Held for Sale was $17,082
and
consisted of mortgages on the Hampton Inn and Fairfield Inn.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
12 — DISCONTINUED OPERATIONS (CONTINUED)
The
following table sets forth the components of discontinued operations (excluding
the gains on sale) for the three and nine months ended September 30, 2007 and
2006, respectively:
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel
Operating Revenues
|
|
$ |
1,904
|
|
|
$ |
3,250
|
|
|
$ |
5,397
|
|
|
$ |
10,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and Capital Lease Expense
|
|
|
263
|
|
|
|
494
|
|
|
|
811
|
|
|
|
1,499
|
|
Hotel
Operating Expenses
|
|
|
1,140
|
|
|
|
2,028
|
|
|
|
3,199
|
|
|
|
6,439
|
|
Hotel
Ground Rent
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
85
|
|
Real
Estate and Personal Property Taxes and Property Insurance
|
|
|
171
|
|
|
|
181
|
|
|
|
466
|
|
|
|
711
|
|
Depreciation
and Amortization
|
|
|
211
|
|
|
|
274
|
|
|
|
794
|
|
|
|
1,041
|
|
Total
Expenses
|
|
|
1,785
|
|
|
|
2,977
|
|
|
|
5,270
|
|
|
|
9,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Discontinued Operations before Minority Interest
|
|
|
119
|
|
|
|
273
|
|
|
|
127
|
|
|
|
488
|
|
Allocation
to Minority Interest
|
|
|
13
|
|
|
|
33
|
|
|
|
14
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Discontinued Operations
|
|
$ |
106
|
|
|
$ |
240
|
|
|
$ |
113
|
|
|
$ |
428
|
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
13 — SUBSEQUENT EVENTS
On
October 1, 2007, HHLP acquired the remaining 20% of the limited partnership
interests in Affordable Hospitality Associates, LP, the owner of the Hampton
Inn, Philadelphia, PA for approximately $4,200. Consideration was
paid in the form of 406,877 units of limited partnership interest of HHLP at
a
per unit value of $10.23. The 20% interest was acquired from entities that
are
owned in part by certain executives and affiliated trustees of the
Company. Prior to September 30, 2007, the operating results and the
financial position of the Hampton Inn, Philadelphia, PA were included in our
consolidated statement of operations and our consolidated balance sheet as
a
consolidated joint venture with the sellers interest recorded as minority
interest.
All
statements contained in this section that are not historical facts are based
on
current expectations. Words such as “believes”, “expects”, “anticipates”,
“intends”, “plans” and “estimates” and variations of such words and similar
words also identify forward-looking statements. Our actual results may differ
materially, including the following: economic conditions generally and the
real
estate market specifically; the effect of threats of terrorism and increased
security precautions on travel patterns and demand for hotels; the threatened
or
actual outbreak of hostilities and international political instability;
governmental actions; legislative/regulatory changes, including changes to
laws
governing the taxation of REITs; level of proceeds from asset sales; cash
available for capital expenditures; availability of capital; ability to
refinance debt; rising interest rates; rising insurance premiums; competition;
supply and demand for hotel rooms in our current and proposed market areas,
including the existing and continuing weakness in business travel and lower-than
expected daily room rates; other factors that may influence the travel industry,
including health, safety and economic factors; and changes in generally accepted
accounting principles, policies and guidelines applicable to REITs. Additional
risks are discussed in the Company’s filings with the Securities and Exchange
Commission. We caution you not to place undue reliance on any such
forward-looking statements. We assume no obligation to update any
forward-looking statements as a result of new information, subsequent events
or
any other circumstances.
General
As
of
September 30, 2007, we owned interests in 73 hotels located primarily in the
eastern United States including 19 hotels owned through joint ventures. For
purposes of the REIT qualification rules, we cannot directly operate any of
our
hotels. Instead, we must lease our hotels. The REIT qualification rules allow
a
hotel REIT to lease its hotels to a taxable REIT subsidiary, or TRS, provided
that the TRS engages an eligible independent contractor to manage the hotels.
As
of September 30, 2007, we have leased all but one of our hotels to a
wholly-owned TRS, a joint venture owned TRS, or a corporate entity owned by
our
wholly-owned TRS. The hotel not leased to a TRS entity is leased to an unrelated
third party lessee. Each of these TRS entities pay qualifying rent, and the
TRS
entities have entered into management contracts with qualified independent
managers, including Hersha Hospitality Management, LP, or HHMLP, to operate
our
hotels. The TRS directly receives all revenue from, and funds all expenses
relating to hotel operations. The TRS is also subject to income tax on its
earnings. We intend to lease all newly acquired hotels to a TRS.
Operating
Results
The
following table outlines operating results for the Company’s portfolio of 54
wholly owned hotels and four hotels owned through joint venture interests that
are consolidated in our financial statements for the three and nine months
ended
September 30, 2007 and 2006.
CONSOLIDATED
HOTELS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
%
Variance
|
|
|
2007
|
|
|
2006
|
|
|
%
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
Available
|
|
|
576,381
|
|
|
|
383,359
|
|
|
|
50.4 |
% |
|
|
1,671,000
|
|
|
|
1,070,206
|
|
|
|
56.1 |
% |
Rooms
Occupied
|
|
|
462,994
|
|
|
|
303,466
|
|
|
|
52.6 |
% |
|
|
1,258,096
|
|
|
|
790,016
|
|
|
|
59.2 |
% |
Occupancy
|
|
|
80.33 |
% |
|
|
79.16 |
% |
|
|
1.5 |
% |
|
|
75.29 |
% |
|
|
73.82 |
% |
|
|
2.0 |
% |
Average
Daily Rate (ADR)
|
|
$ |
134.91
|
|
|
$ |
121.10
|
|
|
|
11.4 |
% |
|
$ |
129.47
|
|
|
$ |
114.26
|
|
|
|
13.3 |
% |
Revenue
Per Available Room (RevPAR)
|
|
$ |
108.37
|
|
|
$ |
95.86
|
|
|
|
13.1 |
% |
|
$ |
97.48
|
|
|
$ |
84.35
|
|
|
|
15.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
Revenues
|
|
$ |
62,463,746
|
|
|
$ |
36,748,585
|
|
|
|
70.0 |
% |
|
$ |
162,885,593
|
|
|
$ |
90,270,080
|
|
|
|
80.4 |
% |
Total
Revenues
|
|
$ |
65,608,796
|
|
|
$ |
39,002,366
|
|
|
|
68.2 |
% |
|
$ |
171,984,264
|
|
|
$ |
97,692,959
|
|
|
|
76.0 |
% |
Discontinued
Assets
|
|
$ |
1,904,492
|
|
|
$ |
3,250,073
|
|
|
|
-41.4 |
% |
|
$ |
5,396,551
|
|
|
$ |
10,262,728
|
|
|
|
-47.4 |
% |
The
following table outlines operating results for the three and nine months ended
September 30, 2007 and 2006 for the 15 hotels we own through unconsolidated
joint venture interests. These operating results reflect 100% of the operating
results of the property including our interest and the interests of our joint
venture partners and minority interests.
UNCONSOLIDATED
JOINT VENTURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
% Variance
|
|
|
2007
|
|
|
2006
|
|
|
% Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
Available
|
|
|
242,328
|
|
|
|
234,600
|
|
|
|
3.3 |
% |
|
|
712,014
|
|
|
|
657,919
|
|
|
|
8.2 |
% |
Rooms
Occupied
|
|
|
187,533
|
|
|
|
170,955
|
|
|
|
9.7 |
% |
|
|
510,990
|
|
|
|
470,426
|
|
|
|
8.6 |
% |
Occupancy
|
|
|
77.39 |
% |
|
|
72.87 |
% |
|
|
6.2 |
% |
|
|
71.77 |
% |
|
|
71.50 |
% |
|
|
0.4 |
% |
Average
Daily Rate (ADR)
|
|
$ |
146.53
|
|
|
$ |
137.85
|
|
|
|
6.3 |
% |
|
$ |
142.41
|
|
|
$ |
133.36
|
|
|
|
6.8 |
% |
Revenue
Per Available Room (RevPAR)
|
|
$ |
113.40
|
|
|
$ |
100.45
|
|
|
|
12.9 |
% |
|
$ |
102.20
|
|
|
$ |
95.35
|
|
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
Revenues
|
|
$ |
27,479,930
|
|
|
$ |
23,566,631
|
|
|
|
16.6 |
% |
|
$ |
72,769,965
|
|
|
$ |
62,735,207
|
|
|
|
16.0 |
% |
Total
Revenues
|
|
$ |
34,838,518
|
|
|
$ |
30,440,272
|
|
|
|
14.4 |
% |
|
$ |
95,355,765
|
|
|
$ |
84,212,917
|
|
|
|
13.2 |
% |
Comparison
of the three month period ended September 30, 2007 and
2006
(dollars
in thousands, except per share data).
Revenues
Our
total
revenues for the three months ended September 30, 2007 consisted of hotel
operating revenues, interest income from our development loan program, land
lease revenue, hotel lease revenue and other revenue. Hotel operating revenue
is
recorded for wholly owned hotels that are leased to our wholly owned TRS and
hotels owned through joint venture interests that are consolidated in our
financial statements. Hotel operating revenue increased $26,607, or 68.2%,
from
$39,002 for the three months ended September 30, 2006 to $65,609 for the same
period in 2007. The increase in revenues is primarily attributable to
the acquisitions consummated in 2006 and improved RevPAR at certain of our
hotels. We acquired interests in the following 13 consolidated hotels since
September 30, 2006:
Brand
|
|
Location
|
|
Acquisition
Date
|
|
Rooms
|
Holiday
Inn
|
|
Norwich,
CT
|
|
7/1/2007
|
|
134
|
Independent
|
|
373
Fifth Avenue, New York, NY
|
|
6/1/2007
|
|
70
|
Hampton
Inn
|
|
Seaport,
NY
|
|
2/1/2007
|
|
65
|
Holiday
Inn Express
|
|
Chester,
NY
|
|
1/25/2007
|
|
80
|
Residence
Inn
|
|
Carlisle,
PA
|
|
1/10/2007
|
|
78
|
Residence
Inn
|
|
Langhorne,
PA
|
|
1/8/2007
|
|
100
|
Summerfield
Suites
|
|
White
Plains, NY
|
|
12/28/2006
|
|
159
|
Summerfield
Suites
|
|
Bridgewater,
NJ
|
|
12/28/2006
|
|
128
|
Summerfield
Suites
|
|
Gaithersburg,
MD
|
|
12/28/2006
|
|
140
|
Summerfield
Suites
|
|
Pleasant
Hill, CA
|
|
12/28/2006
|
|
142
|
Summerfield
Suites
|
|
Pleasanton,
CA
|
|
12/28/2006
|
|
128
|
Summerfield
Suites
|
|
Scottsdale,
AZ
|
|
12/28/2006
|
|
164
|
Summerfield
Suites
|
|
Charlotte,
NC
|
|
12/28/2006
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,532
|
Revenues
for all 13 hotels were recorded from the date of acquisition as hotel operating
revenues. Further, hotel operating revenues for the three months ended September
30, 2007 included revenues for a full quarter related to the following 4 hotels
that were purchased during the three months ended September 30,
2006:
Brand
|
|
Location
|
|
Acquisition
Date
|
|
Rooms
|
Courtyard
|
|
Alexandria,
VA
|
|
9/29/2006
|
|
203
|
Hampton
Inn
|
|
Farmingville,
NY
|
|
9/6/2006
|
|
161
|
Holiday
Inn Express
|
|
Hauppauge,
NY
|
|
9/1/2006
|
|
133
|
Residence
Inn
|
|
Norwood,
MA
|
|
7/27/2006
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
593
|
We
invest
in hotel development projects by providing secured first mortgage or mezzanine
financing to hotel developers and through the acquisition of land that is then
leased to hotel developers. Interest income is earned on our development
loans at rates of 10.0% to 13.5%. Interest income from development loans
receivable was $1,379 the three months ended September 30, 2007 compared to
$839
for the same period in 2006. The average balance of development loans
receivable outstanding during the three months ended September 30, 2006 was
lower than the average balance outstanding during the same period in 2007
resulting in a $540 increase in interest income.
In
June
and July of 2006 we acquired two parcels of land which are being leased to
hotel
developers. On June 11, 2007 and July 11, 2007, we acquired two adjacent parcels
of land which are being leased to a hotel developer that is owned in part by
certain executives and affiliated trustees of the Company. Our net
investment in these parcels is approximately $23,366. The land is leased to
hotel developers at a minimum rental rate of 10% of our net investment in the
land. Additional rents are paid by the lessee for the principal and interest
on
the mortgage, real estate taxes and insurance. During the three months ended
September 30, 2007, we recorded $1,324 in land lease revenue from these
parcels. We incurred $741 in expense related to these land leases resulting
in a contribution of $583 to our operating income during the three months ended
September 30, 2007. Land leases contributed $408 to our operating
income during the three months ended September 30, 2006.
Total
revenues for the three months ended September 30, 2007 also included hotel
lease
revenue for the lease of the Holiday Inn Conference Center, New
Cumberland, PA which has a fixed rent over the five year term. Beginning on
July
1, 2006 this hotel was leased to an unrelated party. Prior to July 1, 2006,
this
hotel was leased to our wholly owned TRS and operating revenues and expenses
of
the hotel were recorded in hotel operating revenue and hotel operating
expenses. Hotel lease revenue of $254 and $137 was recorded related
to the lease of this property during the three months ended September 30, 2007
and September 30, 2006, respectively.
Other
revenue consists primarily of fees earned for asset management services provided
to certain properties owned by our unconsolidated joint ventures.
Expenses
Total
hotel operating expenses increased 65.7% to approximately $35,794 for the three
months ended September 30, 2007 from $21,598 for the three months ended
September 30, 2006. Consistent with the increase in hotel operating revenues,
hotel operating expenses increased primarily due to the acquisitions consummated
since the comparable period in 2006, as mentioned above. The acquisitions also
resulted in an increase in depreciation and amortization from $4,983 for the
three months ended September 30, 2006 to $8,905 for the three months ended
September 30, 2007. Similarly, real estate and personal property tax and
property insurance increased $1,302, or 83.5%, in the three months ended
September 30, 2007 when compared to the same period in 2006.
General
and administrative expense increased by approximately $339 from $1,350 for
the
nine months ended September 30, 2006 to $1,689 during the same period in 2007.
The increase in general and administrative expense is due primarily to an
increase in compensation costs related to increasing resources dedicated to
our
asset management, acquisition and finance functions.
Unconsolidated
Joint Venture Investments
Income
from unconsolidated joint venture investments decreased $93 from $1,773 for
the
three months ended September 30, 2006 to $1,680 for the three months ended
September 30, 2007. On September 28, 2006 we acquired the remaining
66.7% interest in the joint venture that owned the Hampton Inn-Chelsea, New
York, NY. Prior to acquiring the remaining interest in this hotel, we owned
a 33.3% interest and income was recorded in income from investments in
unconsolidated joint ventures. After this acquisition, results of
operations of this hotel property were included in our consolidated hotel
operating results. Offsetting the impact of acquiring the remaining
interest in the Hampton Inn Chelsea is the acquisition of an
unconsolidated joint venture interest in the 228 room Holiday Inn Express –
Madison Square Garden, New York, NY. Income from unconsolidated joint
venture investments during the three months ended September 30, 2007 was also
favorably impacted by the continued stabilization of these properties which
were
newly constructed when acquired.
Net
Income
Net
income applicable to common shareholders for the three months ended September
30, 2007 was approximately $7,296 compared to net income applicable to common
shareholders of $4,580 for the same period in 2006.
Operating
income for the three months ended September 30, 2007 was $18,630 compared to
operating income of $10,876 during the same period in 2006. The $7,754 increase
in operating income resulted from improved performance of our portfolio and
acquisitions that have increased the scale of our operations enabling us to
leverage the absorption of administrative costs.
The
increase in our operating income was partially offset by increases in interest
expense, which increased $3,984 from $6,693 for the three months ended September
30, 2006 to $10,677 for the three months ended September 30, 2007. The increase
in interest expense is the result of mortgages placed on newly acquired
properties and increased average balances on our line of credit.
Comparison
of the nine month period ended September 30, 2007 and 2006
(dollars
in thousands, except per share data).
Revenues
Our
total
revenues for the nine months ended September 30, 2007 consisted of hotel
operating revenues, interest income from our development loan program, land
lease revenue, hotel lease revenue and other revenue. Hotel operating revenue
is
recorded for wholly owned hotels that are leased to our wholly owned TRS and
hotels owned through joint venture interests that are consolidated in our
financial statements. Hotel operating revenue increased $74,291, or 76.0%,
from
$97,693 for the nine months ended September 30, 2006 to $171,984 for the same
period in 2007. The increase in revenues is primarily attributable to the
acquisitions consummated in 2006 and improved RevPAR at certain of our hotels.
As noted above, we acquired interests in 13 consolidated hotels since September
30, 2006. Revenues for all 13 hotels were recorded from the date of
acquisition as hotel operating revenues. Further, hotel operating revenues
for
the nine months ended September 30, 2007 included revenues for the full period
related to the following 15 hotels that were purchased during the nine months
ended September 30, 2006:
Brand
|
|
Location
|
|
Acquisition
Date
|
|
Rooms
|
Courtyard
|
|
Alexandria,
VA
|
|
9/29/2006
|
|
203
|
Hampton
Inn
|
|
Farmingville,
NY
|
|
9/6/2006
|
|
161
|
Holiday
Inn Express
|
|
Hauppauge,
NY
|
|
9/1/2006
|
|
133
|
Residence
Inn
|
|
Norwood,
MA
|
|
7/27/2006
|
|
96
|
Holiday
Inn Express
|
|
Cambridge,
MA
|
|
5/3/2006
|
|
112
|
Residence
Inn
|
|
North
Dartmouth, MA
|
|
5/1/2006
|
|
96
|
Comfort
Inn
|
|
North
Dartmouth, MA
|
|
5/1/2006
|
|
84
|
Hawthorne
Suites
|
|
Franklin,
MA
|
|
4/25/2006
|
|
100
|
Hilton
Garden Inn
|
|
JFK
Airport, NY
|
|
2/16/2006
|
|
188
|
Hampton
Inn
|
|
Philadelphia,
PA
|
|
2/15/2006
|
|
250
|
Residence
Inn
|
|
Tysons
Corner, VA
|
|
2/2/2006
|
|
96
|
Courtyard
|
|
Scranton,
PA
|
|
2/1/2006
|
|
120
|
Courtyard
|
|
Langhorne,
PA
|
|
1/3/2006
|
|
118
|
Fairfield
Inn
|
|
Mt.
Laurel, NJ
|
|
1/3/2006
|
|
118
|
Fairfield
Inn
|
|
Bethlehem,
PA
|
|
1/3/2006
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,978
|
We
invest
in hotel development projects by providing secured first mortgage or mezzanine
financing to hotel developers and through the acquisition of land that is then
leased to hotel developers. Interest income is earned on our development
loans at rates of 10.0% to 13.5%. Interest income from development loans
receivable was $4,013 for the nine months ended September 30, 2007 compared
to
$1,562 for the same period in 2006. The average balance of development
loans receivable outstanding during the nine months ended September 30, 2006
was
lower then the average balance outstanding during the same period in 2007
resulting in a $2,451 increase in interest income.
In
June
and July of 2006 we acquired two parcels of land which are being leased to
hotel
developers. On June 11, 2007 and July 11, 2007, we acquired two adjacent parcels
of land which are being leased to a hotel developer that is owned in part by
certain executives and affiliated trustees of the Company. Our net
investment in these parcels is approximately $23,366. The land is leased to
hotel developers at a minimum rental rate of 10% of our net investment in the
land. Additional rents are paid by the lessee for the principal and interest
on
the mortgage, real estate taxes and insurance. During the nine months ended
September 30, 2007, we recorded $3,529 in land lease revenue from these
parcels. We incurred $1,974 in expense related to these land leases
resulting in a contribution of $1,555 to our operating income during the nine
months ended September 30, 2007. Land leases contributed $408 to our
operating income during the nine months ended September 30, 2006.
Total
revenues for the nine months ended September 30, 2007 also included hotel lease
revenue for the lease of the Holiday Inn Conference Center, New
Cumberland, PA which has a fixed rent over the five year term. Beginning on
July
1, 2006 this hotel was leased to an unrelated party. Prior to July 1, 2006,
this
hotel was leased to our wholly owned TRS and operating revenues and expenses
of
the hotel were recorded in hotel operating revenue and hotel operating
expenses. Hotel lease revenue of $586 and $137 was recorded related
to the lease of this property during the nine months ended September 30, 2007
and September 30, 2006, respectively.
Other
revenue consists primarily of fees earned for asset management services provided
to certain properties owned by our unconsolidated joint ventures.
Expenses
Total
hotel operating expenses increased 70.9% to approximately $97,348 for the nine
months ended September 30, 2007 from $56,964 for the nine months ended September
30, 2006. Consistent with the increase in hotel operating revenues, hotel
operating expenses increased primarily due to the acquisitions consummated
since
the comparable period in 2006, as mentioned above. The acquisitions also
resulted in an increase in depreciation and amortization from $12,879 for the
nine months ended September 30, 2006 to $25,123 for the nine months ended
September 30, 2007. Similarly, real estate and personal property tax and
property insurance increased $4,202, or 101.2%, in the nine months ended
September 30, 2007 when compared to the same period in 2006.
General
and administrative expense increased by approximately $1,195 from $4,326 for
the
nine months ended September 30, 2006 to $5,521 during the same period in 2007.
General and administrative expenses increased primarily due to higher
compensation expense related to increasing resources dedicated to our asset
management, acquisition and finance functions. This increase in cost
has been partially offset by the reduction in costs related to enhancing our
process to evaluate internal controls that were incurred during the nine months
ended September 30, 2006.
Unconsolidated
Joint Venture Investments
Income
from unconsolidated joint venture investments increased $1,152 from $1,432
for
the nine months ended September 30, 2006 to $2,584 for the nine months ended
September 30, 2007. Income from unconsolidated joint venture investments
during the nine months ended September 30, 2007 was favorably impacted by the
continued stabilization of these properties which were newly constructed when
acquired. We have acquired interests in one unconsolidated joint
venture since September 30, 2006 and we acquired joint venture interests in
two
properties during the nine months ended September 30,
2006. Partially, offsetting the increase in income from
unconsolidated joint ventures caused by acquisition of joint venture interests,
was the impact of the acquisition of the remaining interest in Hampton
Inn-Chelsea, New York, NY. On September 28, 2006 we acquired the
remaining 66.7% interest in the joint venture that owned the Hampton
Inn-Chelsea, New York, NY. Prior to acquiring the remaining interest in
this hotel, we owned a 33.3% interest and income was recorded in income from
investments in unconsolidated joint ventures. After this acquisition,
results of operations of this hotel property were included in our consolidated
hotel operating results.
Net
Income
Net
income applicable to common shareholders for the nine months ended September
30,
2007 was approximately $8,454 compared to $1,672 for the same period in
2006.
Operating
income for the nine months ended September 30, 2007 was $41,735 compared to
operating income of $21,435 during the same period in 2006. The $20,300 increase
in operating income resulted from improved performance of our portfolio and
acquisitions that have increased the scale of our operations enabling us to
leverage the absorption of administrative costs.
The
increase in our operating income was partially offset by increases in interest
expense, which increased $13,720 from $17,694 for the nine months ended
September 30, 2006 to $31,414 for the nine months ended September 30, 2007.
As
noted above, the increase in interest expense is the result of mortgages placed
on newly acquired properties and increased average balances on our line of
credit. Also in the nine months ended September 30, 2006, we refinanced
$56,125 in variable rate debt, replacing it with $62,800 of fixed rate debt,
and
replaced our line of credit with a more flexible and expanded credit facility.
As a result of terminating the variable rate debt and line of credit, we
incurred $1,163 in debt extinguishment expense due to early termination fees
and
to write-off deferred loan costs associated with the retired debt and credit
facility.
Liquidity
and Capital Resources
We
expect
to meet our short-term liquidity requirements generally through net cash
provided by operations, existing cash balances and, if necessary, short-term
borrowings under our line of credit. We believe that the net cash provided
by
operations will be adequate to fund the Company’s operating requirements, debt
service and the payment of dividends in accordance with REIT requirements of
the
federal income tax laws. We expect to meet our long-term liquidity requirements,
such as scheduled debt maturities and property acquisitions, through long-term
secured and unsecured borrowings, the issuance of additional equity securities
or, in connection with acquisitions of hotel properties, the issuance of units
of operating partnership interest in our operating partnership
subsidiary.
We
maintain a revolving credit loan and security agreement with Commerce Bank,
N.A.
with a maximum amount of $100,000 and interest rate terms, at our discretion,
of
either the bank’s prime rate of interest minus 0.75% or LIBOR available for the
periods of 1, 2, 3, or 6 months plus 2.00%. The line of credit is collateralized
by a first lien-security interest in all existing and future assets of HHLP,
and
title-insured, first-lien mortgages on certain hotel properties and collateral
assignment of all hotel management contracts from which HHLP or its affiliates
derive revenue. The line of credit includes certain financial covenants and
requires that we maintain (1) a minimum tangible net worth of $110.0 million;
(2) a maximum accounts and other receivables from affiliates of $75.0 million;
and (3) certain financial ratios. The Company is in compliance with each of
these covenants as of September 30, 2007.
We
intend
to invest in additional hotels only as suitable opportunities arise and adequate
sources of financing are available. Our bylaws require the approval by a
majority of our Board of Trustees, including a majority of the independent
trustees, to acquire any additional hotel in which one of our affiliated
trustees or officers, or any of their affiliates, has an interest (other than
solely as a result of his status as our trustee, officer or shareholder). We
expect that future investments in hotels will depend on and will be financed
by,
in whole or in part, our existing cash, the proceeds from additional issuances
of common shares, issuances of operating partnership units or other securities
or borrowings. We make available to the TRS of our hotels 4% (6% for full
service properties) of gross revenues per quarter, on a cumulative basis, for
periodic replacement or refurbishment of furniture, fixtures and equipment
at
each of our hotels. We believe that a 4% (6% for full service hotels) reserve
is
a prudent estimate for future capital expenditure requirements. We intend to
spend amounts in excess of the obligated amounts if necessary to comply with
the
reasonable requirements of any franchise license under which any of our hotels
operate and otherwise to the extent we deem such expenditures to be in our
best
interests. We are also obligated to fund the cost of certain capital
improvements to our hotels. We will use undistributed cash or borrowings under
credit facilities to pay for the cost of capital improvements and any furniture,
fixture and equipment requirements in excess of the set aside referenced
above.
Cash
Flow Analysis
Net
cash
provided by operating activities for the nine months ended September 30, 2007
and 2006 was $37,722 and $18,019, respectively. The increase in net cash
provided by operating activities was primarily the result of an increase in
income before depreciation and amortization, a decrease in due from related
parties and an increase in accounts payable and accrued expenses. The increase
in net cash provided by income before depreciation and amortization was
partially offset by an increase in hotel accounts receivable and other
assets.
Net
cash
used in investing activities for the nine months ended September 30, 2007
decreased $165,024 from $231,307 in the nine months ended September 30, 2006
compared to $66,283 for the nine months ended September 30, 2007. Net cash
used
for the purchase of hotel properties decreased $193,198 in 2007 over 2006.
Offsetting this decrease in cash used to invest in hotel properties is an
increase in net cash used to invest in development loans receivables in 2007,
which increased by $22,634 over the same period in 2006. We also increased
our capital expenditures from $8,029 in 2006 to $11,874 in 2007 as a result
of
continuing property improvement plans at certain properties in 2007 that began
in the second half of 2006 in addition to capital expenditures in the ordinary
course of business. Cash provided by the repayment of notes receivable
decreased $1,809 from $1,843 during the nine months ended September 30, 2006
to
$34 for the nine months ended September 30, 2007. The sale of a hotel asset
held for sale during the nine months ended September 30, 2006 provided $3,665
in
proceeds. No hotel assets were sold during the same period in
2007.
Net
cash
provided by financing activities for the nine months ended September 30, 2007
was $28,525 compared to cash provided by financing activities of $220,781 for
the nine months ended September 30, 2006. This decrease was, in part, the result
of proceeds from mortgages and notes payable, net of repayments, of $9,156
in
2007 compared to net proceeds of $98,311 in 2006. Net cash provided by
borrowing under our line of credit facility was $37,768 in 2006 compared
to $48,100 in 2007. Net borrowings under the line of credit were used
in 2007 and 2006 to fund the acquisition of hotel properties. Also,
proceeds from common stock issuances during the nine months ended September
30,
2006 were $103,357. As a result of this issuance and other issuance during
the year ended December 31, 2006, our cash used to pay dividends to common
shareholders increased $10,424 during the nine months ended September 30,
2007. We did not have a common stock issuance during the first nine
months of 2007.
Funds
From Operations
The
National Association of Real Estate Investment Trusts (“NAREIT”) developed Funds
from Operations (“FFO”) as a non-GAAP financial measure of performance of an
equity REIT in order to recognize that income-producing real estate historically
has not depreciated on the basis determined under GAAP. We calculate FFO
applicable to common shares and Partnership units in accordance with the April
2002 National Policy Bulletin of NAREIT, which we refer to as the White Paper.
The White Paper defines FFO as net income (loss) (computed in accordance with
GAAP) excluding extraordinary items as defined under GAAP and gains or losses
from sales of previously depreciated assets, plus certain non-cash items, such
as depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Our interpretation of the NAREIT definition
is
that minority interest in net income (loss) should be added back to (deducted
from) net income (loss) as part of reconciling net income (loss) to FFO. Our
FFO
computation may not be comparable to FFO reported by other REITs that do not
compute FFO in accordance with the NAREIT definition, or that interpret the
NAREIT definition differently than we do.
The
GAAP
measure that we believe to be most directly comparable to FFO, net income (loss)
applicable to common shares, includes depreciation and amortization expenses,
gains or losses on property sales, minority interest and preferred dividends.
In
computing FFO, we eliminate these items because, in our view, they are not
indicative of the results from our property operations.
FFO
does
not represent cash flows from operating activities in accordance with GAAP
and
should not be considered an alternative to net income as an indication of
Hersha’s performance or to cash flow as a measure of liquidity or ability to
make distributions. We consider FFO to be a meaningful, additional measure
of
operating performance because it excludes the effects of the assumption that
the
value of real estate assets diminishes predictably over time, and because it
is
widely used by industry analysts as a performance measure. We show both FFO
from
consolidated hotel operations and FFO from unconsolidated joint ventures because
we believe it is meaningful for the investor to understand the relative
contributions from our consolidated and unconsolidated hotels. The display
of
both FFO from consolidated hotels and FFO from unconsolidated joint ventures
allows for a detailed analysis of the operating performance of our hotel
portfolio by management and investors. We present FFO applicable to common
shares and Partnership units because our Partnership units are redeemable for
common shares. We believe it is meaningful for the investor to understand FFO
applicable to all common shares and Partnership units.
The
following table reconciles FFO for the periods presented to the most directly
comparable GAAP measure, net income, for the same periods.
(dollars
in thousands)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 30,
2007
|
|
|
September 30,
2006
|
|
|
September 30,
2007
|
|
|
September 30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income applicable to common shares
|
|
$ |
7,296
|
|
|
$ |
4,580
|
|
|
$ |
8,454
|
|
|
$ |
1,672
|
|
Income
allocated to minority interest
|
|
|
1,379
|
|
|
|
859
|
|
|
|
1,554
|
|
|
|
525
|
|
Income
from discontinued operations allocated to minority
interest
|
|
|
13
|
|
|
|
33
|
|
|
|
14
|
|
|
|
60
|
|
Income
from unconsolidated joint ventures
|
|
|
(1,680 |
) |
|
|
(1,773 |
) |
|
|
(2,584 |
) |
|
|
(1,432 |
) |
Gain
on sale of assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(436 |
) |
Depreciation
and amortization
|
|
|
8,905
|
|
|
|
4,983
|
|
|
|
25,123
|
|
|
|
12,879
|
|
Depreciation
and amortization from discontinued operations
|
|
|
211
|
|
|
|
274
|
|
|
|
794
|
|
|
|
1,041
|
|
FFO
related to the minority interests in consolidated joint ventures
(1)
|
|
|
(450 |
) |
|
|
(121 |
) |
|
|
(562 |
) |
|
|
(292 |
) |
Funds
from consolidated hotel operations applicable to common shares and
Partnership units
|
|
|
15,674
|
|
|
|
8,835
|
|
|
|
32,793
|
|
|
|
14,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Unconsolidated Joint Ventures
|
|
|
1,680
|
|
|
|
1,773
|
|
|
|
2,584
|
|
|
|
1,432
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of purchase price in excess of historical cost (2)
|
|
|
588
|
|
|
|
447
|
|
|
|
1,532
|
|
|
|
1,368
|
|
Interest
in depreciation and amortization of unconsolidated joint venture
(3)
|
|
|
(1,245 |
) |
|
|
869
|
|
|
|
1,757
|
|
|
|
3,270
|
|
Funds
from unconsolidated joint ventures operations applicable to common
shares
and Partnership units
|
|
|
1,023
|
|
|
|
3,089
|
|
|
|
5,873
|
|
|
|
6,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
from Operations applicable to common shares and Partnership
units
|
|
$ |
16,697
|
|
|
$ |
11,924
|
|
|
$ |
38,666
|
|
|
$ |
20,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares and Units Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
46,903,597
|
|
|
|
32,137,978
|
|
|
|
45,803,327
|
|
|
|
28,219,775
|
|
Diluted
|
|
|
47,220,803
|
|
|
|
32,280,729
|
|
|
|
46,024,039
|
|
|
|
28,322,839
|
|
(1)
|
Adjustment
made to deduct FFO
related to the minority interest in our consolidated joint ventures.
Represents the portion of net income and depreciation allocated to
our
joint venture partners.
|
(2)
|
Adjustment
made to add
depreciation of purchase price in excess of historical cost of the
assets
in the unconsolidated joint venture at the time of our
investment.
|
(3)
|
Adjustment
made to add our
interest in real estate related depreciation and amortization of
our
unconsolidated joint ventures. Allocation of depreciation and amortization
is consistent with allocation of income and
loss.
|
FFO
was
$16,697 the three month period ended September 30, 2007, which was an increase
of $ 4,773 over FFO in the comparable period in 2006. FFO was $38,666 for
the nine month period ended September 30, 2007, which was an increase of $18,579
over FFO in the comparable period in 2006. The increase in FFO was
primarily a result of a strengthened economy; the benefits of acquiring assets
and interests in joint ventures; continued stabilization and maturation of
the
existing portfolio; and continued attention to the average daily
rate.
FFO
was
negatively impacted by increases in our interest expense during the three and
nine months ended September 30, 2007.
Critical
Accounting Policies
The
estimates and assumptions made by management in applying critical accounting
policies have not changed materially during 2007 and 2006, and none of the
estimates or assumptions have proven to be materially incorrect or resulted
in
our recording any significant adjustments relating to prior
periods. See our Annual Report on Form 10-K for the year ended
December 31, 2006 for a summary of the accounting policies that management
believes are critical to the preparation of the consolidated financial
statements.
Subsequent
Events
On
October 1, 2007, HHLP acquired the remaining 20% of the limited partnership
interests in Affordable Hospitality Associates, LP, the owner of the Hampton
Inn, Philadelphia, PA for approximately $4,200. Consideration was
paid in the form of 406,877 units of limited partnership interest of HHLP at
a
per unit value of $10.23. The 20% interest was acquired from entities that
are
owned in part by certain executives and affiliated trustees of the
Company. Prior to September 30, 2007, the operating results and the
financial position of the Hampton Inn, Philadelphia, PA was included in our
consolidated statement of operations and our consolidated balance sheet as
a
consolidated joint venture with the sellers interest record as minority
interest.
(dollars
in thousands, except per share data)
Our
primary market risk exposure is to changes in interest rates on our variable
rate Line of Credit and other floating rate debt. At September 30, 2007, we
maintained a balance of $72,100 under our Line of Credit. The total floating
rate mortgages payable of $60,397 had a current weighted average interest rate
of 7.87% as of September 30, 2007. The total fixed rate mortgages and notes
payable of $576,890 had a current weighted average interest rate of
6.20%.
Our
interest rate risk objectives are to limit the impact of interest rate
fluctuations on earnings and cash flows and to lower our overall borrowing
costs. To achieve these objectives, we manage our exposure to fluctuations
in
market interest rates for a portion of our borrowings through the use of fixed
rate debt instruments to the extent that reasonably favorable rates are
obtainable with such arrangements. We may enter into derivative financial
instruments such as interest rate swaps or caps and treasury options or locks
to
mitigate our interest rate risk on a related financial instrument or to
effectively lock the interest rate on a portion of our variable rate debt.
Currently, we have one interest rate swap related to debt on the Four Points
by
Sheraton, Revere, MA and one interest rate cap related to debt on the Hotel
373,
New York, New York. We do not intend to enter into derivative or interest rate
transactions for speculative purposes.
Approximately
90.5% of our outstanding mortgages payable are subject to fixed rates, including
the debt whose rate is fixed through a derivative instrument, while
approximately 9.5% of our outstanding mortgages payable are subject to floating
rates. The total weighted average interest rate on our debt and Line of Credit
as of September 30, 2007 was approximately 6.47%. If the interest rate for
our
Line of Credit and other variable rate debt was 100 basis points higher or
lower
during the period ended September 30, 2007, our interest expense for the three
and nine month period ended September 30, 2007 would have been increased or
decreased by approximately $294 and $910, respectively.
Changes
in market interest rates on our fixed-rate debt impact the fair value of the
debt, but it has no impact on interest incurred for cash flow. If interest
rates
raise 100 basis points and our fixed rate debt balance remains constant, we
expect the fair value of our debt to decrease, the same way the price of a
bond
declines as interest rates rise. The sensitivity analysis related to our
fixed-rate debt assumes an immediate 100 basis point move in interest rates
from
their September 30, 2007 levels, with all other variables held constant. A
100
basis point increase in market interest rates would result in the fair value
of
our fixed-rate debt approximating $513,500, and a 100 basis point decrease
in
market interest rates would result in the fair value of our fixed-rate debt
approximating $622,006.
We
regularly review interest rate exposure on our outstanding borrowings in an
effort to minimize the risk of interest rate fluctuations. For debt obligations
outstanding at September 30, 2007, the following table presents expected
principal repayments and related weighted average interest rates by expected
maturity dates (in thousands):
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages
& Notes Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate Debt
|
|
$ |
805
|
|
|
$ |
21,609
|
|
|
$ |
29,900
|
|
|
$ |
24,488
|
|
|
$ |
6,765
|
|
|
$ |
493,323
|
|
|
$ |
576,890
|
|
Average
Interest Rate
|
|
|
6.20 |
% |
|
|
6.20 |
% |
|
|
6.18 |
% |
|
|
6.07 |
% |
|
|
6.07 |
% |
|
|
6.07 |
% |
|
|
6.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
Rate Debt
|
|
|
107
|
|
|
|
489
|
|
|
|
50,157
|
|
|
|
7,031
|
|
|
|
182
|
|
|
|
2,431
|
|
|
|
60,397
|
|
Average
Interest Rate
|
|
|
7.55 |
% |
|
|
7.56 |
% |
|
|
7.23 |
% |
|
|
7.79 |
% |
|
|
7.79 |
% |
|
|
7.79 |
% |
|
|
7.62 |
% |
|
|
|
912
|
|
|
|
22,098
|
|
|
|
80,057
|
|
|
|
31,519
|
|
|
|
6,947
|
|
|
|
495,754
|
|
|
|
637,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Facility (1)
|
|
|
-
|
|
|
|
72,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,100
|
|
Average
Interest Rate
|
|
|
|
|
|
|
7.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
912
|
|
|
$ |
94,198
|
|
|
$ |
80,057
|
|
|
$ |
31,519
|
|
|
$ |
6,947
|
|
|
$ |
495,754
|
|
|
$ |
709,387
|
|
(1) Our
Credit Facility has a term that expires in December 2008.
The
table
incorporates only those exposures that existed as of September 30, 2007 and
does
not consider exposure or positions that could arise after that date. As a
result, our ultimate realized gain or loss with respect to interest rate
fluctuations will depend on the exposures that arise during the future period,
prevailing interest rates, and our hedging strategies at that time.
Based
on
the most recent evaluation, the Company’s Chief Executive Officer and Chief
Financial Officer believe the Company’s disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of
September 30, 2007. There were no changes to the Company’s internal controls
over financial reporting during the three and nine months ended September 30,
2007, that materially affected, or are reasonably likely to materially affect,
the Company’s internal controls over financial reporting.
None.
None.
None.
None.
None.
None.
(a) Exhibits
Required by Item 601 of Regulation S-K.
10.1
|
Contribution
Agreement, dated as of July 1, 2007, by and among Hersha Norwich
Associates, LLC; Kirit Patel; Ashwin Shah; K&D Investment Associates,
LLC and Hersha Hospitality Limited Partnership and 44 Norwich Manager,
LLC. (filed as Exhibit 10.1 to the Current Report on Form 8-K filed
July
3, 2007 (SEC File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
HERSHA
HOSPITALITY TRUST
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
November
9, 2007
|
/s/
Ashish R. Parikh
|
|
Ashish
R. Parikh
|
|
Chief
Financial Officer
|