form10-k.htm
UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark One)
x
|
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
fiscal year ended December 31, 2007
OR
o
|
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, PA
|
|
17102
|
(Address
of Registrant’s Principal Executive Offices)
|
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (717) 236-4400
Securities
registered pursuant to Section 12(b) of the Act:
Title of each
class
|
|
Name of each exchange
on which registered
|
Class
A Common Shares of Beneficial Interest, par value $.01 per
share
|
|
American
Stock Exchange
|
Series
A Cumulative Redeemable Preferred Shares, par value $.01 per
share
|
|
|
Securities
registered pursuant to Section 12(g) of the Act:
None
(Title of
class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
o Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
o Yes x No
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. x
Yes o
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
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 o
|
|
Accelerated
filer x
|
Non-accelerated
filer o
|
|
Small
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). oYes x No
The
aggregate market value of the voting and non-voting common equity held by
nonaffiliates of the registrant, as of June 30, 2007, was approximately $484.5
million.
As of
March 12, 2008, the number of Class A common shares of beneficial interest
outstanding was 41,208,543.
Documents
Incorporated By Reference: Portions of the proxy statement for the registrant’s
2008 Annual Meeting of Shareholders are incorporated by reference into Part III
of this Form 10-K.
INDEX
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Form
10-K
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Report
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Item
No.
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Page
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PART
I
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4
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12
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20
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21 |
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23 |
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23 |
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24
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27
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29 |
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43 |
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45 |
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91 |
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91 |
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93 |
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94 |
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94 |
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94 |
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94 |
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94 |
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95
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CAUTIONARY
FACTORS THAT MAY AFFECT FUTURE RESULTS
This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including, without limitation, statements
containing the words, “believes,” “anticipates,” “expects” and words of similar
import. Such forward-looking statements relate to future events, our future
financial performance, and involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Readers
should specifically consider the various factors identified in this report
including, but not limited to those discussed in the sections entitled “Risk
Factors,” “Growth Strategy” and “Management’s Discussion and Analysis of
Financial Conditions and Results of Operations” that could cause actual results
to differ. We disclaim any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments, except as required by
law.
OVERVIEW
Hersha
Hospitality Trust is a self-advised Maryland real estate investment trust, REIT,
that was organized in 1998 and completed its initial public offering in January
of 1999. Our common shares are traded on the American Stock Exchange under the
symbol “HT”. We invest primarily in institutional grade hotels in central
business districts, primary suburban office markets and stable destination and
secondary markets in the Northeastern United States and select markets on the
West Coast. Our primary strategy is to continue to acquire high quality,
upscale, mid-scale and extended-stay hotels in metropolitan markets with high
barriers to entry in the Northeastern United States and other markets with
similar characteristics.
As of
December 31, 2007, our portfolio consisted of 53 wholly owned limited and full
service properties and 18 limited and full service properties owned through
joint venture investments. Of the 18 limited and full service
properties owned through our investment in joint ventures investments, three are
consolidated. These 71 properties, with a total of 9,129 rooms, are located in
Arizona, California, Connecticut, Delaware, Maryland, Massachusetts, New Jersey,
New York, North Carolina, Pennsylvania, Rhode Island and Virginia and operate
under leading brands, such as Marriott ®, Courtyard by Marriott ® , Residence Inn ®, Fairfield Inn ®, Hilton ®, Hilton Garden Inn ®, Springhill Suites ®, Hampton Inn ® , Holiday Inn ® , Holiday Inn Express ® , Comfort Inn ® , Mainstay Suites
® , Sleep Inn ®, Hawthorne Suites ®, Homewood Suites ®, Four Points by Sheraton
® and Hyatt Summerfield
Suites®.
We are
structured as an umbrella partnership REIT, or UPREIT, and we own our hotels and
our investments in joint ventures through our operating partnership, Hersha
Hospitality Limited Partnership, or HHLP, for which we serve as general partner.
Our hotels are managed by qualified independent management companies, including
Hersha Hospitality Management, L.P., or HHMLP. HHMLP is a private
management company owned by certain of our trustees, officers and other third
party investors. We have leased all but one of our wholly owned hotels to 44 New
England Management Company, or 44 New England, our wholly-owned taxable REIT
subsidiary, or TRS. The hotel not leased to 44 New England is leased to an
unrelated third party lessee. In addition, all of the hotels we own through
investments in joint ventures are leased to TRSs owned by the respective venture
or to corporations owned in part by our wholly owned TRS.
AVAILABLE
INFORMATION
Our
address is 44 Hersha Drive, Harrisburg, PA 17102. Our telephone number is
(717) 236-4400. Our Internet website address is: www.hersha.com. We make
available free of charge through our website our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, as soon as reasonably practicable
after such documents are electronically filed with, or furnished to, the SEC.
The information available on our website is not, and shall not be deemed to be,
a part of this report or incorporated into any other filings we make with the
SEC.
INVESTMENT
IN HOTEL PROPERTIES
Our
operating strategy focuses on increasing hotel performance for our portfolio.
The key elements of this strategy are:
|
·
|
working
together with our hotel management companies to increase occupancy levels
and revenue per available room, or "RevPAR", through active property-level
management, including intensive marketing efforts to tour groups,
corporate and government extended stay customers and other wholesale
customers and expanded yield management programs, which are calculated to
better match room rates to room demand;
and
|
|
·
|
positioning
our hotels to capitalize on increased demand in the high quality,
upper-upscale, upscale, mid-scale and extended-stay lodging segment, which
we believe can be expected to follow from improving economic conditions,
by managing costs and thereby maximizing
earnings.
|
As of
December 31, 2007, we owned interests in the following 71 hotels:
Name
|
|
Rooms
|
|
|
Ownership
%
|
|
Consolidated/
Unconsolidated
|
Marriott
|
|
|
|
|
|
|
|
Mystic,
CT
|
|
|
285
|
|
|
|
66.7 |
% |
Unconsolidated
JV
|
Hartford,
CT
|
|
|
409 |
|
|
|
15.0 |
% |
Unconsolidated
JV
|
Hilton
|
|
|
|
|
|
|
|
|
|
Hartford,
CT
|
|
|
393 |
|
|
|
8.8 |
% |
Unconsolidated
JV
|
Courtyard
|
|
|
|
|
|
|
|
|
|
Alexandria,
VA
|
|
|
203 |
|
|
|
100.0 |
% |
Consolidated
|
Scranton,
PA
|
|
|
120 |
|
|
|
100.0 |
% |
Consolidated
|
Langhorne,
PA
|
|
|
118 |
|
|
|
100.0 |
% |
Consolidated
|
Brookline/Boston,
MA
|
|
|
188 |
|
|
|
100.0 |
% |
Consolidated
|
Norwich,
CT
|
|
|
144 |
|
|
|
66.7 |
% |
Unconsolidated
JV
|
South
Boston, MA
|
|
|
164 |
|
|
|
50.0 |
% |
Unconsolidated
JV
|
Wilmington,
DE
|
|
|
78 |
|
|
|
100.0 |
% |
Consolidated
|
Warwick,
RI
|
|
|
92 |
|
|
|
66.7 |
% |
Unconsolidated
JV
|
Ewing/Princeton,
NJ
|
|
|
130 |
|
|
|
50.0 |
% |
Unconsolidated
JV
|
Hampton
Inn
|
|
|
|
|
|
|
|
|
|
Brookhaven,
NY
|
|
|
161 |
|
|
|
100.0 |
% |
Consolidated
|
Philadelphia,
PA
|
|
|
250 |
|
|
|
100.0 |
% |
Consolidated
|
Chelsea/Manhattan,
NY
|
|
|
144 |
|
|
|
100.0 |
% |
Consolidated
|
Hershey,
PA
|
|
|
110 |
|
|
|
100.0 |
% |
Consolidated
|
Carlisle,PA
|
|
|
95 |
|
|
|
100.0 |
% |
Consolidated
|
Danville,
PA
|
|
|
72 |
|
|
|
100.0 |
% |
Consolidated
|
Selinsgrove,
PA
|
|
|
75 |
|
|
|
100.0 |
% |
Consolidated
|
Herald
Square, Manhattan, NY
|
|
|
136 |
|
|
|
100.0 |
% |
Consolidated
|
Seaport,
NY
|
|
|
65 |
|
|
|
100.0 |
% |
Consolidated
|
Residence
Inn
|
|
|
|
|
|
|
|
|
|
North
Dartmouth, MA
|
|
|
96 |
|
|
|
100.0 |
% |
Consolidated
|
Tysons
Corner, VA
|
|
|
96 |
|
|
|
100.0 |
% |
Consolidated
|
Danbury,
CT
|
|
|
78 |
|
|
|
66.7 |
% |
Unconsolidated
JV
|
Framingham,
MA
|
|
|
125 |
|
|
|
100.0 |
% |
Consolidated
|
Greenbelt,
MD
|
|
|
120 |
|
|
|
100.0 |
% |
Consolidated
|
Mystic,
CT
|
|
|
133 |
|
|
|
66.7 |
% |
Unconsolidated
JV
|
Southington,
CT
|
|
|
94 |
|
|
|
44.7 |
% |
Unconsolidated
JV
|
Williamsburg,
VA
|
|
|
108 |
|
|
|
75.0 |
% |
Consolidated
JV
|
Norwood,
MA
|
|
|
96 |
|
|
|
100.0 |
% |
Consolidated
|
Langhorne,
PA
|
|
|
100 |
|
|
|
100.0 |
% |
Consolidated
|
Carlisle,PA
|
|
|
78 |
|
|
|
100.0 |
% |
Consolidated
|
Name
|
|
Rooms
|
|
|
Ownership
%
|
|
Consolidated/
Unconsolidated
|
Summerfield
Suites
|
|
|
|
|
|
|
|
White
Plains, NY
|
|
|
159 |
|
|
|
100.0 |
% |
Consolidated
|
Bridgewater,
NJ
|
|
|
128 |
|
|
|
100.0 |
% |
Consolidated
|
Gaithersburg,
MD
|
|
|
140 |
|
|
|
100.0 |
% |
Consolidated
|
Pleasant
Hill, CA
|
|
|
142 |
|
|
|
100.0 |
% |
Consolidated
|
Pleasanton,
CA
|
|
|
128 |
|
|
|
100.0 |
% |
Consolidated
|
Scottsdale,
AZ
|
|
|
164 |
|
|
|
100.0 |
% |
Consolidated
|
Charlotte,
NC
|
|
|
144 |
|
|
|
100.0 |
% |
Consolidated
|
Homewood
Suites
|
|
|
|
|
|
|
|
|
|
Glastonbury,
CT
|
|
|
136 |
|
|
|
48.0 |
% |
Unconsolidated
JV
|
Holiday
Inn Express
|
|
|
|
|
|
|
|
|
|
Hauppauge,
NY
|
|
|
133 |
|
|
|
100.0 |
% |
Consolidated
|
Cambridge,
MA
|
|
|
112 |
|
|
|
100.0 |
% |
Consolidated
|
Hershey,
PA
|
|
|
85 |
|
|
|
100.0 |
% |
Consolidated
|
New
Columbia, PA
|
|
|
81 |
|
|
|
100.0 |
% |
Consolidated
|
Malvern,
PA
|
|
|
88 |
|
|
|
100.0 |
% |
Consolidated
|
Oxford
Valley, PA
|
|
|
88 |
|
|
|
100.0 |
% |
Consolidated
|
South
Boston, MA
|
|
|
118 |
|
|
|
50.0 |
% |
Unconsolidated
JV
|
Chester,
PA
|
|
|
80 |
|
|
|
100.0 |
% |
Consolidated
|
Manhattan,
NY
|
|
|
228 |
|
|
|
50.0 |
% |
Unconsolidated
JV
|
Hilton
Garden Inn
|
|
|
|
|
|
|
|
|
|
JFK
Airport, NY
|
|
|
188 |
|
|
|
100.0 |
% |
Consolidated
|
Edison,
NJ
|
|
|
132 |
|
|
|
100.0 |
% |
Consolidated
|
Glastonbury,
CT
|
|
|
150 |
|
|
|
48.0 |
% |
Unconsolidated
JV
|
Gettysburg,
PA
|
|
|
88 |
|
|
|
100.0 |
% |
Consolidated
|
Springhill
Suites
|
|
|
|
|
|
|
|
|
|
Waterford,
CT
|
|
|
80 |
|
|
|
66.7 |
% |
Unconsolidated
JV
|
Williamsburg,
VA
|
|
|
120 |
|
|
|
75.0 |
% |
Consolidated
JV
|
Holiday
Inn Express & Suites
|
|
|
|
|
|
|
|
|
|
Harrisburg,
PA
|
|
|
77 |
|
|
|
100.0 |
% |
Consolidated
|
King
of Prussia, PA
|
|
|
155 |
|
|
|
100.0 |
% |
Consolidated
|
Four
Points - Sheraton
|
|
|
|
|
|
|
|
|
|
Revere/Boston,
MA
|
|
|
180 |
|
|
|
55.0 |
% |
Consolidated
JV
|
Mainstay
|
|
|
|
|
|
|
|
|
|
Valley
Forge, PA
|
|
|
69 |
|
|
|
100.0 |
% |
Consolidated
|
Frederick,
MD
|
|
|
72 |
|
|
|
100.0 |
% |
Consolidated
|
Holiday
Inn
|
|
|
|
|
|
|
|
|
|
Harrisburg,
PA
|
|
|
196 |
|
|
|
100.0 |
% |
Leased(1)
|
Norwich,
CT
|
|
|
134 |
|
|
|
100.0 |
% |
Consolidated
|
Comfort
Inn
|
|
|
|
|
|
|
|
|
|
North
Dartmouth, MA
|
|
|
84 |
|
|
|
100.0 |
% |
Consolidated
|
Harrisburg,
PA
|
|
|
81 |
|
|
|
100.0 |
% |
Consolidated
|
Frederick,
MD
|
|
|
73 |
|
|
|
100.0 |
% |
Consolidated
|
Fairfield
Inn
|
|
|
|
|
|
|
|
|
|
Bethlehem,
PA
|
|
|
103 |
|
|
|
100.0 |
% |
Consolidated
|
Laurel,
MD
|
|
|
109 |
|
|
|
100.0 |
% |
Consolidated
|
Hawthorne
Suites
|
|
|
|
|
|
|
|
|
|
Franklin,
MA
|
|
|
100 |
|
|
|
100.0 |
% |
Consolidated
|
Independent
|
|
|
|
|
|
|
|
|
|
Wilmington,
DE
|
|
|
71 |
|
|
|
100.0 |
% |
Consolidated
|
Fifth
Avenue, NY
|
|
|
70 |
|
|
|
100.0 |
% |
Consolidated
|
Sleep
Inn
|
|
|
|
|
|
|
|
|
|
Valley Forge, PA
|
|
|
87
|
|
|
|
100.0
|
% |
Consolidated
|
TOTAL |
|
|
9,129
|
|
|
|
|
|
|
|
(1)
|
As
of July 1, 2006, the Holiday Inn, Harrisburg, PA was leased to an
unrelated party under a fixed lease agreement. Prior to July 1,
2006, operating results were included in our consolidated hotel operating
results.
|
INVESTMENT
IN JOINT VENTURES
In
addition to the direct acquisition of hotels, we may make investments in hotels
through joint ventures with strategic partners. We seek to identify acquisition
candidates located in markets with economic, demographic and supply dynamics
favorable to hotel owners and operators. Through our extensive due diligence
process, we select those acquisition targets where we believe selective capital
improvements and intensive management will increase the hotel’s ability to
attract key demand segments, enhance hotel operations and increase long-term
value.
As of
December 31, 2007, we maintain ownership interest in the following 18 hotels
through joint ventures with third parties:
Joint
Venture
|
|
Assets
Owned by Joint Venture
|
|
HHLP
Ownership
in
Asset
|
|
|
HHLP
Preferred
Return
|
|
Consolidated/
Unconsolidated
|
Mystic
Partners, LLC
|
|
Hartford
Marriott Downtown, Hartford, CT
|
|
|
15.0 |
% |
|
|
8.5 |
% |
Unconsolidated
|
|
|
Mystic
Marriott Hotel & Spa, Mystic, CT
|
|
|
66.7 |
% |
|
|
8.5 |
% |
Unconsolidated
|
|
|
Danbury
Residence Inn, Danbury, CT
|
|
|
66.7 |
% |
|
|
8.5 |
% |
Unconsolidated
|
|
|
Southington
Residence Inn, Southington, CT
|
|
|
44.7 |
% |
|
|
8.5 |
% |
Unconsolidated
|
|
|
Norwich
Courtyard by Marriott and Rosemont Suites, Norwich,
CT
|
|
|
66.7 |
% |
|
|
8.5 |
% |
Unconsolidated
|
|
|
Warwick
Courtyard by Marriott, Warwick, RI
|
|
|
66.7 |
% |
|
|
8.5 |
% |
Unconsolidated
|
|
|
Waterford
SpringHill Suites, Waterford, CT
|
|
|
66.7 |
% |
|
|
8.5 |
% |
Unconsolidated
|
|
|
Residence
Inn by Marriott Hotel and Whitehall Mansion, Stonington,
CT
|
|
|
66.7 |
% |
|
|
8.5 |
% |
Unconsolidated
|
|
|
Hilton
Hartford - Downtown, Hartford, CT
|
|
|
8.8 |
% |
|
|
8.5 |
% |
Unconsolidated
|
HT/PRA
Glastonbury, LLC
|
|
Hilton
Garden Inn, Glastonbury, CT
|
|
|
48.0 |
% |
|
|
11.0 |
% |
Unconsolidated
|
PRA
Suites at Glastonbury, LLC
|
|
Homewood
Suites, Glastonbury, CT
|
|
|
48.0 |
% |
|
|
10.0 |
% |
Unconsolidated
|
Hiren
Boston, LLC
|
|
Courtyard
by Marriott, South Boston, MA
|
|
|
50.0 |
% |
|
|
10.0 |
%
(1) |
Unconsolidated
|
SB
Partners, LLC
|
|
Holiday
Inn Express, South Boston, MA
|
|
|
50.0 |
% |
|
|
10.0 |
%
(1) |
Unconsolidated
|
Inn
America Hospitality at Ewing, LLC
|
|
Courtyard
by Marriott, Ewing, NJ
|
|
|
50.0 |
% |
|
|
11.0 |
% |
Unconsolidated
|
Metro
29th Street Associates, LLC
|
|
Holiday
Inn Express, Manhattan, NY
|
|
|
50.0 |
% |
|
|
N/A |
|
Unconsolidated
|
Logan
Hospitality Associates, LLC
|
|
Four
Points by Sheraton, Revere, MA
|
|
|
55.0 |
% |
|
|
12.0 |
% |
Consolidated
|
LTD
Associates One, LLC
|
|
SpringHill
Suites, Williamsburg, VA
|
|
|
75.0 |
% |
|
|
12.0 |
%
(2) |
Consolidated
|
LTD
Associates Two, LLC
|
|
Residence
Inn, Williamsburg, VA
|
|
|
75.0 |
% |
|
|
12.0 |
% |
Consolidated
|
|
(1)
|
Preferred
return accrued for first two years of the venture and results thereafter
are shared pro rata. Preferred return period ended on June 30,
2007 for Hiren Boston, LLC and September 30, 2007 for SB Partners,
LLC.
|
|
(2)
|
Beginning
on December 1, 2007 and continuing thereafter, the preferred return is
12%. From December 1, 2006 through November 30, 2007 the preferred return
was 10.0% and prior to December 1, 2006 the preferred return was
8.0%.
|
DEVELOPMENT
LOANS
We do not
develop properties, but we take advantage of our relationships with hotel
developers, including entities controlled by our officers or trustees, to
identify development and renovation projects that may be attractive to us. While
these developers bear the construction risks, we often provide secured
development loans and bear economic risks through these development loans. In
many instances, we maintain a first right of refusal or first right of offer to
purchase the hotel for which we have provided development loan financing at fair
market value.
ACQUISITIONS
Our
primary growth strategy is to selectively acquire high quality, upper- upscale,
upscale, mid-scale and extended-stay hotels in metropolitan markets with high
barriers-to-entry. We believe that current market conditions are creating
opportunities to acquire hotels at attractive prices. In executing our
disciplined acquisition program, we will consider acquiring hotels that meet the
following additional criteria:
|
·
|
nationally-franchised
hotels operating under popular brands, such as Marriott Hotels &
Resorts, Hilton Hotels, Courtyard by Marriott, Residence Inn by Marriott,
Spring Hill Suites by Marriott, Hilton Garden Inn, Homewood Suites by
Hilton, Hampton Inn, Sheraton Hotels & Resorts, DoubleTree, Embassy
Suites, Hyatt Summerfield Suites and Holiday Inn
Express;
|
|
·
|
hotels
in locations with significant barriers-to-entry, such as high development
costs, limited availability of land and lengthy entitlement processes;
and
|
|
·
|
hotels
in our target markets where we can realize operating efficiencies and
economies of scale.
|
In the
ordinary course of our business, we are actively considering hotel acquisition
opportunities. 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 trustees. Of the 23
acquisitions from these entities, 20 were newly-constructed or newly-renovated
by these entities prior to our acquisition. Subsequent to December, 31, 2007, we
have acquired interests in the following hotels:
Brand
|
|
Location
|
|
Ownership
Interest
|
|
Acquisition
Date
|
|
Purchase
Price
|
|
Duane
Street Hotel
|
|
New
York, NY
|
|
|
100% |
|
1/4/2007
|
|
$ |
24,750 |
|
Nu
Hotel
|
|
New
York, NY
|
|
|
100% |
|
1/14/2008
|
|
$ |
17,240 |
|
DISPOSITIONS
We will
evaluate our hotels on a periodic basis to determine if these hotels continue to
satisfy our investment criteria. We may sell hotels opportunistically based upon
management’s forecast and review of the cash flow potential for the hotel and
re-deploy the proceeds into debt reduction, development loans or acquisitions of
hotels. We utilize several criteria to determine the long-term potential of our
hotels. Hotels are identified for sale based upon management’s forecast of the
strength of the hotel’s cash flows and its ability to remain accretive to our
portfolio. Our decision to sell an asset is often predicated upon the size of
the hotel, strength of the franchise, property condition and related costs to
renovate the property, strength of market demand generators, projected supply of
hotel rooms in the market, probability of increased valuation and geographic
profile of the hotel. All asset sales are comprehensively reviewed by our Board
of Trustees, including our independent trustees. A majority of the independent
trustees must approve the terms of all asset sales. Since our initial public
offering in 1999, we have sold a total of 17 hotels.
FINANCING
The
relative stability of the mid-scale and upscale segment of the limited service
lodging industry allows us to increase returns to our shareholders through the
prudent application of leverage. Our debt policy is to limit consolidated
indebtedness to less than 67% of the fair market values for the hotels in which
we invest. We may employ a higher amount of leverage at a specific hotel to
achieve a desired return when warranted by that hotel's historical operating
performance and may use modestly greater leverage across our portfolio if and
when warranted by prevailing market conditions.
PROPERTY
MANAGEMENT
We work
closely with our hotel management companies to operate our hotels and increase
same hotel performance for our portfolio. Through our TRS and our investment in
joint ventures, we have retained the following management companies to operate
our hotels, as of December 31, 2007:
|
|
Wholly
Owned
|
|
|
Joint
Ventures
|
|
|
Total
|
|
Manager
|
|
Hotels
(1)
|
|
|
Rooms
|
|
|
Hotels
|
|
|
Rooms
|
|
|
Hotels
|
|
|
Rooms
|
|
HHMLP
|
|
|
44 |
|
|
|
4,683 |
|
|
|
7 |
|
|
|
1,052 |
|
|
|
51 |
|
|
|
5,735 |
|
Waterford
Hotel Group
|
|
|
- |
|
|
|
- |
|
|
|
9 |
|
|
|
1,708 |
|
|
|
9 |
|
|
|
1,708 |
|
LodgeWorks
|
|
|
7 |
|
|
|
1,005 |
|
|
|
- |
|
|
|
- |
|
|
|
7 |
|
|
|
1,005 |
|
Jiten
Management
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
282 |
|
|
|
2 |
|
|
|
282 |
|
Marriott
|
|
|
1 |
|
|
|
203 |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
52 |
|
|
|
5,891 |
|
|
|
18 |
|
|
|
3,042 |
|
|
|
70 |
|
|
|
8,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) As
of July 1, 2006, the Holiday Inn, Harrisburg, PA was leased to an
unrelated party under a fixed lease agreement and is not operated by our
TRS. Prior to July 1, 2006, the Holiday Inn, Harrisburg, PA was
leased to our TRS and managed by HHMLP.
|
|
Each
management agreement provides for a set term and is subject to early termination
upon the occurrence of defaults and certain other events described therein. As
required under the REIT qualification rules, all managers, including HHMLP, must
qualify as an “eligible independent contractor” during the term of the
management agreements.
Under the
management agreements, the manager generally pays the operating expenses of our
hotels. All operating expenses or other expenses incurred by the manager 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. Our managers are not
obligated to advance any of their own funds for operating expenses of a hotel or
to incur any liability in connection with operating a hotel.
For their
services, the managers receive a base management fee, and if a hotel meets and
exceeds certain thresholds, an additional incentive management fee. The base
management fee for a hotel is due monthly and is generally equal to 3% of the
gross revenues associated with that hotel for the related month.
CAPITAL
IMPROVEMENTS, RENOVATION AND REFURBISHMENT
We have
established capital reserves for our hotels to maintain the hotels in a
condition that complies with their respective franchise licenses among other
requirements. In addition, we may upgrade the hotels in order to capitalize on
opportunities to increase revenue, and, as deemed necessary by our management,
to seek to meet competitive conditions and preserve asset quality. We will also
renovate hotels when we believe the investment in renovations will provide an
attractive return to us through increased revenues and profitability and is in
the best interests of our shareholders. We maintain a capital expenditures
policy by which replacements and renovations are monitored to determine whether
they qualify as capital improvements. All items that are deemed to be repairs
and maintenance costs are expensed and recorded in Hotel Operating
Expenses.
OPERATING
PRACTICES
Our
managers utilize centralized accounting and data processing systems, which
facilitate financial statement and budget preparation, payroll management,
quality control and other support functions for the on-site hotel management
team. Our managers also provide centralized control over purchasing and project
management (which can create economies of scale in purchasing) while emphasizing
local discretion within specific guidelines.
DISTRIBUTIONS
We have
made thirty six consecutive quarterly distributions to the holders of our common
shares since our initial public offering in January 1999 and intend to continue
to make regular quarterly distributions to our shareholders.
Quarter
to which
Distribution
Relates
|
|
Class
A
Common
and
Limited
Partnership
Unit
Per
Share
Distribution
Amount
|
|
Record
Date
|
|
Payment
Date
|
|
Series
A
Preferred
Per
Share
Distribution
Amount
|
|
Record
Date
|
|
Payment
Date
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
0.18 |
|
3/30/2007
|
|
4/17/2007
|
|
$ |
0.50 |
|
4/1/2007
|
|
4/16/2007
|
Second
Quarter
|
|
$ |
0.18 |
|
6/29/2007
|
|
7/17/2007
|
|
$ |
0.50 |
|
7/1/2007
|
|
7/16/2007
|
Third
Quarter
|
|
$ |
0.18 |
|
9/28/2007
|
|
10/16/2007
|
|
$ |
0.50 |
|
10/1/2007
|
|
10/15/2007
|
Fourth
Quarter
|
|
$ |
0.18 |
|
1/5/2008
|
|
1/16/2008
|
|
$ |
0.50 |
|
1/1/2008
|
|
1/15/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
0.18 |
|
03/31/2006
|
|
04/21/2006
|
|
$ |
0.50 |
|
04/01/2006
|
|
04/17/2006
|
Second
Quarter
|
|
$ |
0.18 |
|
06/30/2006
|
|
07/17/2006
|
|
$ |
0.50 |
|
07/01/2006
|
|
07/17/2006
|
Third
Quarter
|
|
$ |
0.18 |
|
09/29/2006
|
|
10/17/2006
|
|
$ |
0.50 |
|
10/01/2006
|
|
10/16/2006
|
Fourth
Quarter
|
|
$ |
0.18 |
|
12/29/2006
|
|
1/16/2007
|
|
$ |
0.50 |
|
01/01/2007
|
|
1/16/2007
|
Our Board
of Trustees will determine the amount of our future distributions and its
decision will depend on a number of factors, including the amount of funds
from operations, our partnership’s financial condition, debt service
requirements, capital expenditure requirements for our hotels, the annual
distribution requirements under the REIT provisions of the Code and such other
factors as the trustees deem relevant. Our ability to make distributions will
depend on the profitability and cash flow available from our hotels. There can
be no assurance we will continue to pay distributions at the rates above or any
other rate.
SEASONALITY
Our hotels’ operations historically
have been seasonal in nature, reflecting higher occupancy rates during the
second and third quarters. This seasonality can be expected to cause
fluctuations in our quarterly operating revenues and profitability. Hotel revenue is generally greater in the
second and third quarters than in the first and fourth quarters. To the extent
that cash flow from operating activities is insufficient to provide all of the
estimated quarterly distributions, we anticipate that we will be able to fund
any such deficit from future working capital. We expect to use excess cash flow from
the second and third quarters to fund distribution shortfalls in the first and
fourth quarters. There are no assurances we will be able to continue to make
quarterly distributions at the current rate.
COMPETITION
The
upscale and mid-scale, limited service segment of the hotel business is highly
competitive. Among many other factors, our hotels compete on the basis of
location, room rates, quality, service levels, reputation, and reservation
systems. There are many competitors in our market segments and new hotels are
always being constructed. Additions to supply create new competitors,
in some cases without corresponding increases in demand for hotel
rooms.
We also
compete for hotel acquisitions with entities that have investment objectives
similar to ours. This competition could limit the number of suitable investment
opportunities offered to us. It may also increase the bargaining power of
property owners seeking to sell to us, making it more difficult for us to
acquire new properties on attractive terms.
EMPLOYEES
As of
December 31, 2007, we had 20 employees who were principally engaged in managing
the affairs of the company unrelated to property management. Our relations with
our employees are satisfactory.
FRANCHISE
AGREEMENTS
We
believe that the public’s perception of quality associated with a franchisor is
an important feature in the operation of a hotel. Franchisors provide a variety
of benefits for franchisees, which include national advertising, publicity and
other marketing programs designed to increase brand awareness, training of
personnel, continuous review of quality standards and centralized reservation
systems. Our hotels operate under franchise licenses from national hotel
franchisors, including:
Franchisor
|
|
Franchise
|
Marriott
International
|
|
Marriott,
Residence Inn, Springhill Suites, Courtyard by Marriott, Fairfield
Inn
|
Hilton
Hotels Corporation
|
|
Hilton,
Hilton Garden Inn, Hampton Inn, Homewood Suites
|
Intercontinental
Hotel Group
|
|
Holiday
Inn, Holiday Inn Express, Holiday Inn Express &
Suites
|
Global
Hyatt Corporation
|
|
Hyatt
Summerfield Suites, Hawthorn Suites
|
Starwood
Hotels
|
|
Four
Points by Sheraton
|
Choice
Hotels International
|
|
Comfort
Inn, Comfort Suites, Sleep Inn, Mainstay
Suites
|
We
anticipate that most of the hotels in which we invest will be operated pursuant
to franchise licenses.
The
franchise licenses generally specify certain management, operational,
record-keeping, accounting, reporting and marketing standards and procedures
with which the franchisee must comply. The franchise licenses obligate our
lessees to comply with the franchisors’ standards and requirements with respect
to training of operational personnel, safety, maintaining specified insurance,
the types of services and products ancillary to guest room services that may be
provided by our lessees, display of signage, and the type, quality and age of
furniture, fixtures and equipment included in guest rooms, lobbies and other
common areas.
TAX
STATUS
We have
elected to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code, commencing with our taxable year ended December 31, 1999. As long
as we qualify for taxation as a REIT, we generally will not be subject to
Federal income tax on the portion of our income that is distributed to
shareholders. If we fail to qualify as a REIT in any taxable year and do not
qualify for certain statutory relief provisions, we will be subject to Federal
income tax (including any applicable alternative minimum tax) on our taxable
income at regular corporate tax rates. Even if we qualify for taxation as a
REIT, we may be subject to certain state and local taxes on our income and
property and to Federal income and excise taxes on our undistributed
income.
We may
own up to 100% of one or more taxable REIT subsidiaries (“TRS”). A TRS is a
taxable corporation that may lease hotels under certain circumstances, provide
services to us, and perform activities such as third party management,
development, and other independent business activities. Overall, no more than
20% of the value of our assets may consist of securities of one or more TRS. In
addition, no more than 25% of our revenue for any year, excluding all TRS
revenues, but including any dividends received from TRSs, may consist of
dividends from one or more TRSs.
A TRS is
permitted to lease hotels from us as long as the hotels are operated on behalf
of the TRS by a third party manager who satisfies the following
requirements:
1.
such manager is, or is
related to a person who is, actively engaged in the trade or business of
operating “qualified lodging facilities” for any person unrelated to us and the
TRS;
2.
such manager does not
own, directly or indirectly, more than 35% of our shares;
3.
no more than 35% of such
manager is owned, directly or indirectly, by one or more persons owning 35% or
more of our shares; and
4.
we do not directly or
indirectly derive any income from such manager.
The
deductibility of interest paid or accrued by a TRS to us is limited to assure
that the TRS is subject to an appropriate level of corporate taxation. A 100%
excise tax is imposed on transactions between a TRS and us or our tenants that
are not on an arm’s-length basis.
FINANCIAL
INFORMATION ABOUT SEGMENTS
We are in
the business of acquiring equity interests in hotels, and we manage our business
in one reportable segment. See Item 8 of this Annual Report on Form 10-K for
segment financial information.
You
should carefully consider the following risks, together with the other
information included in this Annual Report on Form 10-K. If any of the following
risks actually occur, our business, financial condition or results of operations
may suffer. As a result, the trading price of our securities could decline, and
you may lose all or part of any investment you have in our
securities.
RISKS
RELATED TO THE HOTEL INDUSTRY
The
value of our hotels depends on conditions beyond our control.
Our
hotels are subject to varying degrees of risk generally incident to the
ownership of hotels. The underlying value of our hotels, our income and ability
to make distributions to our shareholders are dependent upon the operation of
the hotels in a manner sufficient to maintain or increase revenues in excess of
operating expenses. Hotel revenues may be adversely affected by adverse changes
in national economic conditions, adverse changes in local market conditions due
to changes in general or local economic conditions and neighborhood
characteristics, competition from other hotels, changes in interest rates and in
the availability, cost and terms of mortgage funds, the impact of present or
future environmental legislation and compliance with environmental laws, the
ongoing need for capital improvements, particularly in older structures, changes
in real estate tax rates and other operating expenses, adverse changes in
governmental rules and fiscal policies, civil unrest, acts of terrorism, acts of
God, including earthquakes, hurricanes and other natural disasters, acts of war,
adverse changes in zoning laws, and other factors that are beyond our control.
In particular, general and local economic conditions may be adversely affected
by the previous terrorist incidents in New York and Washington, D.C. Our
management is unable to determine the long-term impact, if any, of these
incidents or of any acts of war or terrorism in the United States or worldwide,
on the U.S. economy, on us or our hotels or on the market price of our common
shares.
Our
hotels are subject to general hotel industry operating risks, which may impact
our ability to make distributions to shareholders.
Our
hotels are subject to all operating risks common to the hotel industry. The
hotel industry has experienced volatility in the past, as have our hotels, and
there can be no assurance that such volatility will not occur in the future.
These risks include, among other things, competition from other hotels;
over-building in the hotel industry that could adversely affect hotel revenues;
increases in operating costs due to inflation and other factors, which may not
be offset by increased room rates; reduction in business and commercial travel
and tourism; strikes and other labor disturbances of hotel employees; increases
in energy costs and other expenses of travel; adverse effects of general and
local economic conditions; and adverse political conditions. These factors could
reduce revenues of the hotels and adversely affect our ability to make
distributions to our shareholders.
Our
investments are concentrated in a single segment of the hotel
industry.
Our
current business strategy is to own and acquire hotels primarily in the high
quality, upscale and mid-scale limited service and extended-stay segment of the
hotel industry. We are subject to risks inherent in concentrating investments in
a single industry and in a specific market segment within that industry. The
adverse effect on amounts available for distribution to shareholders resulting
from a downturn in the hotel industry in general or the mid-scale segment in
particular could be more pronounced than if we had diversified our investments
outside of the hotel industry or in additional hotel market
segments.
Operating
costs and capital expenditures for hotel renovation may be greater than
anticipated and may adversely impact distributions to shareholders.
Hotels
generally have an ongoing need for renovations and other capital improvements,
particularly in older structures, including periodic replacement of furniture,
fixtures and equipment. Under the terms of our management agreements with HHMLP,
we are obligated to pay the cost of expenditures for items that are classified
as capital items under GAAP that are necessary for the continued operation of
our hotels. If these expenses exceed our estimate, the additional cost could
have an adverse effect on amounts available for distribution to shareholders. In
addition, we may acquire hotels in the future that require significant
renovation. Renovation of hotels involves certain risks, including the
possibility of environmental problems, construction cost overruns and delays,
uncertainties as to market demand or deterioration in market demand after
commencement of renovation and the emergence of unanticipated competition from
hotels.
Competition
for guests is highly competitive.
The hotel
industry is highly competitive. Our hotels compete with other existing and new
hotels in their geographic markets. Many of our competitors have substantially
greater marketing and financial resources than we do. If their marketing
strategies are effective, we may be unable to make distributions to our
shareholders.
Risks
of operating hotels under franchise licenses, which may be terminated or not
renewed, may impact our ability to make distributions to
shareholders.
The
continuation of the franchise licenses is subject to specified operating
standards and other terms and conditions. All of the franchisors of our hotels
periodically inspect our hotels to confirm adherence to their operating
standards. The failure of our partnership or HHMLP to maintain such standards or
to adhere to such other terms and conditions could result in the loss or
cancellation of the applicable franchise license. It is possible that a
franchisor could condition the continuation of a franchise license on the
completion of capital improvements that the trustees determine are too expensive
or otherwise not economically feasible in light of general economic conditions,
the operating results or prospects of the affected hotel. In that event, the
trustees may elect to allow the franchise license to lapse or be
terminated.
There can
be no assurance that a franchisor will renew a franchise license at each option
period. If a franchisor terminates a franchise license, we, our partnership, and
HHMLP may be unable to obtain a suitable replacement franchise, or to
successfully operate the hotel independent of a franchise license. The loss of a
franchise license could have a material adverse effect upon the operations or
the underlying value of the related hotel because of the loss of associated name
recognition, marketing support and centralized reservation systems provided by
the franchisor. Our loss of a franchise license for one or more of the hotels
could have a material adverse effect on our partnership’s revenues and our
amounts available for distribution to shareholders.
The
hotel industry is seasonal in nature.
The hotel
industry is seasonal in nature. Generally, hotel revenues are greater in the
second and third quarters than in the first and fourth quarters. Our hotels’
operations historically reflect this trend. We believe that we will be able to
make distributions necessary to maintain REIT status through cash flow from
operations; but if we are unable to do so, we may not be able to make the
necessary distributions or we may have to generate cash by a sale of assets,
increasing indebtedness or sales of securities to make the distributions. Risks
of operating hotels under franchise licenses, which may be terminated or not
renewed, may impact our ability to make distributions to
shareholders.
RISKS
RELATING TO OUR BUSINESS AND OPERATIONS
We
face risks associated with the use of debt, including refinancing
risk.
At
December 31, 2007, we had long-term debt, excluding capital leases, outstanding
of $619.3 million. We may borrow additional amounts from the same or other
lenders in the future. Some of these additional borrowings may be secured by our
hotels. Our strategy is to maintain target debt levels of approximately 60% of
the total purchase price of our hotels both on an individual and aggregate
basis, and our Board of Trustees’ policy is to limit indebtedness to no more
than 67% of the fair market value of the hotels in which we have invested.
However, our declaration of trust (as amended and restated, our “Declaration of
Trust”) does not limit the amount of indebtedness we may incur. We cannot assure
you that we will be able to meet our debt service obligations and, to the extent
that we cannot, we risk the loss of some or all of our hotels to foreclosure.
There is also a risk that we may not be able to refinance existing debt or that
the terms of any refinancing will not be as favorable as the terms of the
existing debt. If principal payments due at maturity cannot be refinanced,
extended or repaid with proceeds from other sources, such as new equity capital
or sales of properties, our cash flow may not be sufficient to repay all
maturing debt in years when significant “balloon” payments come
due.
If
we cannot access the capital markets, we may not be able to grow the Company at
our historical growth rates.
We may
not be able to access the capital markets to obtain capital to fund future
acquisitions and investments. The market for real estate related debt and equity
capital could endure a prolonged period of volatility which may limit our
ability to access new capital for acquisitions, investments and joint ventures.
If we lack the capital to make future acquisitions or investments, we may not be
able to continue to grow at historical rates.
We
face high levels of competition for the acquisition of hotel properties and
other assets, which may impede our ability to make future acquisitions or may
increase the cost of these acquisitions.
We face
competition for investment opportunities in high quality, upscale and mid-scale
limited service and extended-stay hotels from entities organized for purposes
substantially similar to our objectives, as well as other purchasers of hotels.
We compete for such investment opportunities with entities that have
substantially greater financial resources than we do, including access to
capital or better relationships with franchisors, sellers or lenders. Our
competitors may generally be able to accept more risk than we can manage
prudently and may be able to borrow the funds needed to acquire hotels.
Competition may generally reduce the number of suitable investment opportunities
offered to us and increase the bargaining power of property owners seeking to
sell.
We
do not operate our hotels and, as a result, we do not have complete control over
implementation of our strategic decisions.
In order
for us to satisfy certain REIT qualification rules, we cannot directly operate
any of our hotels. Instead, we must engage an independent management
company to operate our hotels. As of December 31, 2007, our TRSs and
our joint venture partnerships have engaged independent management companies as
the property managers for all of our wholly owned hotels leased to our TRSs and
the respective hotels for the joint ventures, as required by the REIT
qualification rules. The management companies operating the hotels
make and implement strategic business decisions with respect to these hotels,
such as decisions with respect to the repositioning of a franchise or food and
beverage operations and other similar decisions. Decisions made by
the management companies operating the hotels may not be in the best interests
of a particular hotel or of our company. Accordingly, we cannot
assure you that the management companies will operate our hotels in a manner
that is in our best interests.
Our
acquisitions may not achieve expected performance, which may harm our financial
condition and operating results.
We
anticipate that acquisitions will largely be financed with the net proceeds of
securities offerings and through externally generated funds such as borrowings
under credit facilities and other secured and unsecured debt financing.
Acquisitions entail risks that investments will fail to perform in accordance
with expectations and that estimates of the cost of improvements necessary to
acquire and market properties will prove inaccurate, as well as general
investment risks associated with any new real estate investment. Because we must
distribute annually at least 90% of our taxable income to maintain our
qualification as a REIT, our ability to rely upon income or cash flow from
operations to finance our growth and acquisition activities will be limited.
Accordingly, were we unable to obtain funds from borrowings or the capital
markets to finance our growth and acquisition activities, our ability to grow
could be curtailed, amounts available for distribution to shareholders could be
adversely affected and we could be required to reduce
distributions.
We
depend on key personnel.
We depend
on the services of our existing senior management team, including
Jay H. Shah, Neil H. Shah, Ashish R. Parikh and
Michael R. Gillespie, to carry out our business and investment
strategies. As we expand, we will continue to need to attract and retain
qualified additional senior management. We have employment contracts with
certain of our senior management; however, the employment agreements may be
terminated under certain circumstances. The termination of an employment
agreement and the loss of the services of any of our key management personnel,
or our inability to recruit and retain qualified personnel in the future, could
have an adverse effect on our business and financial results.
Acquisition
of hotels with limited operating history may not achieve desired
results.
Many of
our recent acquisitions are newly-developed hotels. Newly-developed or
newly-renovated hotels do not have the operating history that would allow our
management to make pricing decisions in acquiring these hotels based on
historical performance. The purchase prices of these hotels are based upon
management’s expectations as to the operating results of such hotels, subjecting
us to risks that such hotels may not achieve anticipated operating results or
may not achieve these results within anticipated time frames. As a result, we
may not be able to generate enough cash flow from these hotels to make debt
payments or pay operating expenses. In addition, room revenues may be less than
that required to provide us with our anticipated return on investment. In either
case, the amounts available for distribution to our shareholders could be
reduced.
We
may be unable to integrate acquired hotels into our operations or otherwise
manage our planned growth, which may adversely affect our operating
results.
We have
recently acquired a substantial number of hotels. We cannot assure you that we
or HHMLP will be able to adapt our management, administrative, accounting and
operational systems and arrangements, or hire and retain sufficient operational
staff to successfully integrate these investments into our portfolio and manage
any future acquisitions of additional assets without operational disruptions or
unanticipated costs. Acquisition of hotels generates additional operating
expenses that we will be required to pay. As we acquire additional hotels, we
will be subject to the operational risks associated with owning new lodging
properties. Our failure to integrate successfully any future acquisitions into
our portfolio could have a material adverse effect on our results of operations
and financial condition and our ability to pay dividends to shareholders or make
other payments in respect of securities issued by us.
Most
of our hotels are located in the Eastern United States and many are located in
the area from Pennsylvania to Connecticut, which may increase the effect of any
regional or local economic conditions.
Most of
our hotels are located in the Eastern United States. Thirty-two of our wholly
owned hotels and twelve of our joint venture hotels are located in the states of
Pennsylvania, New Jersey, New York and Connecticut. As a result, regional or
localized adverse events or conditions, such as an economic recession around
these hotels, could have a significant adverse effect on our operations, and
ultimately on the amounts available for distribution to
shareholders.
Downward
adjustments, or “mark-to-market losses,” would reduce our shareholders’
equity.
Hedging
involves risk and typically involves costs, including transaction costs, which
may reduce returns on our investments. These costs increase as the period
covered by the hedging increases and during periods of rising and volatile
interest rates. These costs will also limit the amount of cash available for
distribution to shareholders. The REIT qualification rules may also limit our
ability to enter into hedging transactions. We generally intend to hedge as much
of our interest rate risk as our management determines is in our best interests
given the cost of such hedging transactions and the requirements applicable to
REITs. If we are unable to hedge effectively because of the cost of such hedging
transactions or the limitations imposed by the REIT rules, we will face greater
interest risk exposure than may be commercially prudent.
We
own a limited number of hotels and significant adverse changes at one hotel may
impact our ability to make distributions to shareholders.
As of
December 31, 2007, our portfolio consisted of 53 wholly-owned limited and full
service properties and joint venture investments in 18 hotels with a total of
9,129 rooms. Significant adverse changes in the operations of any one hotel
could have a material adverse effect on our financial performance and,
accordingly, on our ability to make expected distributions to our
shareholders.
We
focus on acquiring hotels operating under a limited number of franchise brands,
which creates greater risk as the investments are more
concentrated.
We place
particular emphasis in our acquisition strategy on hotels similar to our current
hotels. We invest in hotels operating under a few select franchises and
therefore will be subject to risks inherent in concentrating investments in a
particular franchise brand, which could have an adverse effect on amounts
available for distribution to shareholders. These risks include, among others,
the risk of a reduction in hotel revenues following any adverse publicity
related to a specific franchise brand.
We
may engage in hedging transactions, which can limit our gains and increase
exposure to losses.
We may
enter into hedging transactions to protect us from the effects of interest rate
fluctuations on floating rate debt and also to protect our portfolio of mortgage
assets from interest rate and prepayment rate fluctuations. Our hedging
transactions may include entering into interest rate swaps, caps, and floors,
options to purchase such items, and futures and forward contracts. Hedging
activities may not have the desired beneficial impact on our results of
operations or financial condition. No hedging activity can completely insulate
us from the risks associated with changes in interest rates and prepayment
rates. Moreover, interest rate hedging could fail to protect us or could
adversely affect us because, among other things:
|
·
|
Available
interest rate hedging may not correspond directly with the interest rate
risk for which protection is
sought.
|
|
·
|
The
duration of the hedge may not match the duration of the related
liability.
|
|
·
|
The
party at risk in the hedging transaction may default on its obligation to
pay.
|
|
·
|
The
credit quality of the party owing money on the hedge may be downgraded to
such an extent that it impairs our ability to sell or assign our side of
the hedging transaction.
|
|
·
|
The
value of derivatives used for hedging may be adjusted from time to time in
accordance with accounting rules to reflect changes in fair
value.
|
RISKS
RELATING TO CONFLICTS OF INTEREST
Due
to conflicts of interest, many of our existing agreements may not have been
negotiated on an arm’s-length basis and may not be in our best
interest.
Some of
our officers and trustees have ownership interests in HHMLP and in entities with
which we have entered into transactions, including hotel acquisitions and
dispositions and certain financings. Consequently, the terms of our agreements
with those entities, including hotel contribution or purchase agreements, the
Option Agreement between the operating partnership and some of the trustees and
officers and our property management agreements with HHMLP may not have been
negotiated on an arm’s-length basis and may not be in the best interest of all
our shareholders.
Conflicts
of interest with other entities may result in decisions that do not reflect our
best interests.
The
following officers and trustees own collectively approximately 70% of HHMLP:
Hasu P. Shah, Jay H. Shah, Neil H. Shah,
David L. Desfor and Kiran P. Patel. Conflicts of
interest may arise in respect to the ongoing acquisition, disposition and
operation of our hotels including, but not limited to, the enforcement of the
contribution and purchase agreements, the Option Agreement and our property
management agreements with HHMLP. Consequently, the interests of
shareholders may not be fully represented in all decisions made or actions taken
by our officers and trustees.
Conflicts
of interest relating to sales or refinancing of hotels acquired from some of our
trustees and officers may lead to decisions that are not in our best
interest.
Some of
our trustees and officers have unrealized gains associated with their interests
in the hotels we have acquired from them and, as a result, any sale of these
hotels or refinancing or prepayment of principal on the indebtedness assumed by
us in purchasing these hotels may cause adverse tax consequences to such of our
trustees and officers. Therefore, our interests and the interests of these
individuals may be different in connection with the disposition or refinancing
of these hotels.
Agreements
to provide financing of hotel development projects owned by some of our trustees
and officers may not have been negotiated on an arm’s-length basis and may not
be in our best interest.
Some of
our officers and trustees have ownership interests in projects to develop hotel
properties with which we have entered into agreements to provide financing.
Consequently, the terms of our agreements with those entities, including
interest rates and other key terms, may not have been negotiated on an
arm’s-length basis and may not be in the best interest of all our
shareholders.
Competing
hotels owned or acquired by some of our trustees and officers may hinder these
individuals from spending adequate time on our business.
Some of
our trustees and officers own hotels and may develop or acquire new hotels,
subject to certain limitations. Such ownership, development or acquisition
activities may materially affect the amount of time these officers and trustees
devote to our affairs. Some of our trustees and officers operate hotels that are
not owned by us, which may materially affect the amount of time that they devote
to managing our hotels. Pursuant to the Option Agreement, as amended, we have an
option to acquire any hotels developed by our officers and
trustees.
Need
for certain consents from the limited partners may not result in decisions
advantageous to shareholders.
Under our
operating partnership’s amended and restated partnership agreement, the holders
of at least two-thirds of the interests in the partnership must approve a sale
of all or substantially all of the assets of the partnership or a merger or
consolidation of the partnership. Some of our officers and trustees will own an
approximately 6.8% interest in the operating partnership on a fully-diluted
basis. Their large ownership percentage may make it less likely that a merger or
sale of our company that would be in the best interests of our shareholders will
be approved.
RISKS
RELATING TO OUR CORPORATE STRUCTURE
There
are no assurances of our ability to make distributions in the
future.
We intend
to pay quarterly dividends and to make distributions to our shareholders in
amounts such that all or substantially all of our taxable income in each year,
subject to certain adjustments, is distributed. However, our ability to pay
dividends may be adversely affected by the risk factors described in this annual
report. All distributions will be made at the discretion of our Board of
Trustees and will depend upon our earnings, our financial condition, maintenance
of our REIT status and such other factors as our board may deem relevant from
time to time. There are no assurances of our ability to pay dividends in the
future. In addition, some of our distributions may include a return of
capital.
An
increase in market interest rates may have an adverse effect on the market price
of our securities.
One of
the factors that investors may consider in deciding whether to buy or sell our
securities is our dividend rate as a percentage of our share or unit price,
relative to market interest rates. If market interest rates increase,
prospective investors may desire a higher dividend or interest rate on our
securities or seek securities paying higher dividends or interest. The market
price of our common shares likely will be based primarily on the earnings and
return that we derive from our investments and income with respect to our
properties and our related distributions to shareholders, and not from the
market value or underlying appraised value of the properties or investments
themselves. As a result, interest rate fluctuations and capital market
conditions can affect the market price of our common shares. For instance, if
interest rates rise without an increase in our dividend rate, the market price
of our common shares could decrease because potential investors may require a
higher dividend yield on our common shares as market rates on interest-bearing
securities, such as bonds, rise. In addition, rising interest rates would result
in increased interest expense on our variable rate debt, thereby adversely
affecting cash flow and our ability to service our indebtedness and pay
dividends.
Holders
of our outstanding Series A preferred shares have dividend, liquidation and
other rights that are senior to the rights of the holders of our common
shares.
Our Board
of Trustees has the authority to designate and issue preferred shares with
liquidation, dividend and other rights that are senior to those of our common
shares. As of December 31, 2007, 2,400,000 shares of our Series A preferred
shares were issued and outstanding. The aggregate liquidation preference with
respect to the outstanding preferred shares is approximately $60.0 million, and
annual dividends on our outstanding preferred shares are approximately $4.8
million. Holders of our Series A preferred shares are entitled to cumulative
dividends before any dividends may be declared or set aside on our common
shares. Upon our voluntary or involuntary liquidation, dissolution or winding
up, before any payment is made to holders of our common shares, holders of our
Series A preferred shares are entitled to receive a liquidation preference of
$25.00 per share plus any accrued and unpaid distributions. This will reduce the
remaining amount of our assets, if any, available to distribute to holders of
our common shares. In addition, holders of our Series A preferred shares have
the right to elect two additional trustees to our Board of Trustees whenever
dividends are in arrears in an aggregate amount equivalent to six or more
quarterly dividends, whether or not consecutive.
Future
offerings of equity securities, which would dilute our existing shareholders and
may be senior to our common shares for the purposes of dividend distributions,
may adversely affect the market price of our common shares.
In the
future, we may attempt to increase our capital resources by making additional
offerings of equity securities, including classes of preferred or common shares.
Upon liquidation, holders of our preferred shares and lenders with respect to
other borrowings will receive a distribution of our available assets prior to
the holders of our common shares. Additional equity offerings may dilute the
holdings of our existing shareholders or reduce the market price of our common
shares, or both. Our preferred shares, if issued, could have a preference on
liquidating distributions or a preference on dividend payments that could limit
our ability to make a dividend distribution to the holders of our common shares.
Because our decision to issue securities in any future offering will depend on
market conditions and other factors beyond our control, we cannot predict or
estimate the amount, timing or nature of our future offerings. Thus, our
shareholders bear the risk of our future offerings reducing the market price of
our common shares and diluting their share holdings in us.
Our
Board of Trustees may issue additional shares that may cause dilution or prevent
a transaction that is in the best interests of our shareholders.
Our
Declaration of Trust authorizes the Board of Trustees, without shareholder
approval, to:
|
·
|
amend
the Declaration of Trust to increase or decrease the aggregate number of
shares of beneficial interest or the number of shares of beneficial
interest of any class or series that we have the authority to
issue;
|
|
·
|
cause
us to issue additional authorized but unissued common shares or preferred
shares; and
|
|
·
|
classify
or reclassify any unissued common or preferred shares and to set the
preferences, rights and other terms of such classified or reclassified
shares, including the issuance of additional common shares or preferred
shares that have preference rights over the common shares with respect to
dividends, liquidation, voting and other
matters.
|
Any one
of these events could cause dilution to our common shareholders, delay, deter or
prevent a transaction or a change in control that might involve a premium price
for the common shares or otherwise not be in the best interest of holders of
common shares.
Our
ownership limitation may restrict business combination
opportunities.
To
qualify as a REIT under the Code, no more than 50% of the value of our
outstanding shares of beneficial interest may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Internal Revenue Code to include
certain entities) during the last half of each taxable year. To preserve our
REIT qualification, our Declaration of Trust generally prohibits direct or
indirect ownership of more than 9.9% of (i) the number of outstanding common
shares of any class or series of common shares or (ii) the number of outstanding
preferred shares of any class or series of preferred shares. Generally, shares
owned by affiliated owners will be aggregated for purposes of the ownership
limitation. The ownership limitation could have the effect of delaying,
deterring or preventing a change in control or other transaction in which
holders of shares might receive a premium for their shares over the then
prevailing market price or which such holders might believe to be otherwise in
their best interests.
The
Declaration of Trust contains a provision that creates staggered terms for our
Board of Trustees.
Our Board
of Trustees is divided into two classes. The terms of the first and second
classes expire in 2008 and 2009, respectively. Trustees of each class are
elected for two-year terms upon the expiration of their current terms and each
year one class of trustees will be elected by the shareholders. The staggered
terms of trustees may delay, deter or prevent a tender offer, a change in
control of us or other transaction, even though such a transaction might be in
the best interest of the shareholders.
Maryland
Business Combination Law may discourage a third party from acquiring
us.
Under the
Maryland General Corporation Law, as amended (MGCL), as applicable to REITs,
certain “business combinations” (including certain issuances of equity
securities) between a Maryland REIT and any person who beneficially owns ten
percent or more of the voting power of the trust’s shares, or an affiliate
thereof, are prohibited for five years after the most recent date on which this
shareholder acquired at least ten percent of the voting power of the trust’s
shares. Thereafter, any such business combination must be approved by two
super-majority shareholder votes unless, among other conditions, the trust’s
common shareholders receive a minimum price (as defined in the MGCL) for their
shares and the consideration is received in cash or in the same form as
previously paid by the interested shareholder for its common shares. These
provisions could delay, deter or prevent a change of control or other
transaction in which holders of our equity securities might receive a premium
for their shares above then-current market prices or which such shareholders
otherwise might believe to be in their best interests.
Our
Board of Trustees may change our investment and operational policies without a
vote of the common shareholders.
Our major
policies, including our policies with respect to acquisitions, financing,
growth, operations, debt limitation and distributions, are determined by our
Board of Trustees. The Trustees may amend or revise these and other policies
from time to time without a vote of the holders of the common
shares.
Our
Board of Trustees and management make decisions on our behalf, and shareholders
have limited management rights.
Our
shareholders have no right or power to take part in our management except
through the exercise of voting rights on certain specified matters. The board of
trustees is responsible for our management and strategic business direction, and
our management is responsible for our day-to-day operations. Certain policies of
our board of trustees may not be consistent with the immediate best interests of
our securityholders.
RISKS
RELATED TO OUR TAX STATUS
If
we fail to qualify as a REIT, our dividends will not be deductible to us, and
our income will be subject to taxation.
We have
operated and intend to continue to operate so as to qualify as a REIT for
federal income tax purposes. Our continued qualification as a REIT will depend
on our continuing ability to meet various requirements concerning, among other
things, the ownership of our outstanding shares of beneficial interest, the
nature of our assets, the sources of our income, and the amount of our
distributions to our shareholders. If we were to fail to qualify as a REIT in
any taxable year and do not qualify for certain statutory relief provisions, we
would not be allowed a deduction for distributions to our shareholders in
computing our taxable income and would be subject to federal income tax
(including any applicable alternative minimum tax) on our taxable income at
regular corporate rates. Unless entitled to relief under certain Internal
Revenue Code provisions, we also would be disqualified from treatment as a REIT
for the four taxable years following the year during which qualification was
lost. As a result, amounts available for distribution to shareholders would be
reduced for each of the years involved. Although we currently intend to operate
in a manner designed to qualify as a REIT, it is possible that future economic,
market, legal, tax or other considerations may cause the trustees, with the
consent of holders of two-thirds of the outstanding shares, to revoke the REIT
election.
Failure
to make required distributions would subject us to tax.
In order
to qualify as a REIT, each year we must distribute to our shareholders at least
90% of our REIT taxable income, other than any net capital gain. To the extent
that we satisfy the distribution requirement, but distribute less than 100% of
our taxable income, we will be subject to federal corporate income tax on our
undistributed income. In addition, we will incur a 4% nondeductible excise tax
on the amount, if any, by which our distributions in any year are less than the
sum of:
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·
|
85%
of our net ordinary income for that
year;
|
|
·
|
95%
of our net capital gain net income for that year;
and
|
|
·
|
100%
of our undistributed taxable income from prior
years.
|
We have
paid out, and intend to continue to pay out, our income to our shareholders in a
manner intended to satisfy the distribution requirement and to avoid corporate
income tax and the 4% nondeductible excise tax. Differences in timing between
the recognition of income and the related cash receipts or the effect of
required debt amortization payments could require us to borrow money or sell
assets to pay out enough of our taxable income to satisfy the distribution
requirement and to avoid corporate income tax and the 4% nondeductible excise
tax in a particular year. In the past we have borrowed, and in the future we may
borrow, to pay distributions to our shareholders and the limited partners of our
operating partnership. Such borrowings subject us to risks from borrowing as
described herein.
The
taxation of corporate dividends may adversely affect the value of our common
shares.
Legislation
enacted in 2003 and 2006, among other things, generally reduced to 15% the
maximum marginal rate of tax payable by domestic noncorporate taxpayers on
dividends received from a regular C corporation through 2010. This reduced tax
rate, however, does not apply to dividends paid by a REIT to domestic
noncorporate taxpayers, except for certain limited amounts. Although the
earnings of a REIT that are distributed to its shareholders are still generally
subject to less federal income taxation than earnings of a non-REIT C
corporation that are distributed to its shareholders net of corporate-level
income tax, this legislation could cause domestic noncorporate investors to view
the shares of regular C corporations as more attractive relative to the shares
of a REIT than was the case prior to the enactment of the legislation, because
the dividends from regular C corporations are generally taxed at a lower rate
while dividends from REITs are generally taxed at the same rate as the
individual’s other ordinary income. We cannot predict what effect, if any, the
enactment of this legislation may have on the value of the shares of REITs in
general or on our shares in particular, either in terms of price or relative to
other investments.
The
U.S. federal income tax laws governing REITs are complex.
We intend
to continue to operate in a manner that will qualify us as a real estate
investment trust, or REIT, under the U.S. federal income tax laws. The REIT
qualification requirements are extremely complex, however, and interpretations
of the U.S. federal income tax laws governing qualification as a REIT are
limited. Accordingly, we cannot be certain that we will be successful in
operating so we can continue to qualify as a REIT. At any time, new laws,
interpretations, or court decisions may change the federal tax laws or the U.S.
federal income tax consequences of our qualification as a REIT.
RISKS
RELATED TO REAL ESTATE INVESTMENT GENERALLY
Illiquidity
of real estate investments could significantly impede our ability to respond to
adverse changes in the performance of our properties and harm our financial
condition.
Real
estate investments are relatively illiquid. Our ability to vary our portfolio in
response to changes in operating, economic and other conditions will be limited.
No assurances can be given that the fair market value of any of our hotels will
not decrease in the future.
If
we suffer losses that are not covered by insurance or that are in excess of our
insurance coverage limits, we could lose investment capital and anticipated
profits.
We
require comprehensive insurance to be maintained on each of the our hotels,
including liability and fire and extended coverage in amounts sufficient to
permit the replacement of the hotel in the event of a total loss, subject to
applicable deductibles. However, there are certain types of losses, generally of
a catastrophic nature, such as earthquakes, floods, hurricanes and acts of
terrorism, that may be uninsurable or not economically insurable. Inflation,
changes in building codes and ordinances, environmental considerations and other
factors also might make it impracticable to use insurance proceeds to replace
the applicable hotel after such applicable hotel has been damaged or destroyed.
Under such circumstances, the insurance proceeds received by us might not be
adequate to restore our economic position with respect to the applicable hotel.
If any of these or similar events occur, it may reduce the return from the
attached property and the value of our investment.
REITs
are subject to property taxes.
Each
hotel is subject to real and personal property taxes. The real and personal
property taxes on hotel properties in which we invest may increase as property
tax rates change and as the properties are assessed or reassessed by taxing
authorities. Many state and local governments are facing budget deficits which
has led many of them, and may in the future lead others to, increase assessments
and/or taxes. If property taxes increase, our ability to make expected
distributions to our shareholders could be adversely affected.
Environmental
matters could adversely affect our results.
Operating
costs may be affected by the obligation to pay for the cost of complying with
existing environmental laws, ordinances and regulations, as well as the cost of
future legislation. Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under or in such property. Such laws often impose liability
whether or not the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. The cost of complying with
environmental laws could materially adversely affect amounts available for
distribution to shareholders. Phase I environmental assessments have been
obtained on all of our hotels. Nevertheless, it is possible that these reports
do not reveal all environmental liabilities or that there are material
environmental liabilities of which we are unaware.
Costs
associated with complying with the Americans with Disabilities Act may adversely
affect our financial condition and operating results.
Under the
Americans with Disabilities Act of 1993 (ADA), all public accommodations are
required to meet certain federal requirements related to access and use by
disabled persons. While we believe that our hotels are substantially in
compliance with these requirements, a determination that we are not in
compliance with the ADA could result in imposition of fines or an award of
damages to private litigants. In addition, changes in governmental rules and
regulations or enforcement policies affecting the use and operation of the
hotels, including changes to building codes and fire and life-safety codes, may
occur. If we were required to make substantial modifications at the hotels to
comply with the ADA or other changes in governmental rules and regulations, our
ability to make expected distributions to our shareholders could be adversely
affected.
Item 1B. Unresolved Staff
Comments
None.
The
following table sets forth certain information with respect to the hotels we
wholly owned as of December 31, 2007.
|
Twelve
Months Ended December 31, 2007
|
|
Name
|
Year
Opened
|
|
Number
of
Rooms
|
|
|
Room
Revenue
|
|
|
Other
Revenue
(1)
|
|
|
Occupancy
|
|
|
Average
Daily
Rate
|
|
|
RevPAR
(2)
|
|
Comfort
Inn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
Dartmouth, MA
|
1986
|
|
|
84 |
|
|
$ |
1,391,704 |
|
|
$ |
10,960 |
|
|
|
53.96 |
% |
|
$ |
84.13 |
|
|
$ |
45.39 |
|
Harrisburg,
PA
|
1998
|
|
|
81 |
|
|
$ |
1,753,576 |
|
|
$ |
48,685 |
|
|
|
66.38 |
% |
|
$ |
90.47 |
|
|
$ |
60.05 |
|
Frederick,
MD
|
2004
|
|
|
73 |
|
|
$ |
1,347,638 |
|
|
$ |
19,673 |
|
|
|
62.31 |
% |
|
$ |
81.17 |
|
|
$ |
50.58 |
|
Courtyard
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alexandria,
VA
|
2006
|
|
|
203 |
|
|
$ |
6,130,351 |
|
|
$ |
884,115 |
|
|
|
66.79 |
% |
|
$ |
123.87 |
|
|
$ |
82.74 |
|
Scranton,
PA
|
1996
|
|
|
120 |
|
|
$ |
2,980,369 |
|
|
$ |
248,268 |
|
|
|
70.58 |
% |
|
$ |
96.41 |
|
|
$ |
68.04 |
|
Langhorne,
PA
|
2002
|
|
|
118 |
|
|
$ |
3,695,323 |
|
|
$ |
392,934 |
|
|
|
69.84 |
% |
|
$ |
122.84 |
|
|
$ |
85.80 |
|
Brookline/Boston,
MA
|
2003
|
|
|
188 |
|
|
$ |
9,855,988 |
|
|
$ |
811,959 |
|
|
|
82.22 |
% |
|
$ |
174.69 |
|
|
$ |
143.63 |
|
Wilmington,
DE
|
1999
|
|
|
78 |
|
|
$ |
2,749,980 |
|
|
$ |
137,876 |
|
|
|
73.21 |
% |
|
$ |
131.94 |
|
|
$ |
96.59 |
|
Fairfield
Inn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bethlehem,
PA
|
1997
|
|
|
103 |
|
|
$ |
2,391,133 |
|
|
$ |
35,875 |
|
|
|
63.69 |
% |
|
$ |
99.86 |
|
|
$ |
63.60 |
|
Laurel,
MD
|
1999
|
|
|
109 |
|
|
$ |
2,954,035 |
|
|
$ |
37,839 |
|
|
|
69.51 |
% |
|
$ |
106.82 |
|
|
$ |
74.25 |
|
Hampton
Inn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brookhaven,
NY
|
2002
|
|
|
161 |
|
|
$ |
5,239,471 |
|
|
$ |
296,111 |
|
|
|
72.48 |
% |
|
$ |
123.02 |
|
|
$ |
89.16 |
|
Chelsea/Manhattan,
NY
|
2003
|
|
|
144 |
|
|
$ |
10,893,829 |
|
|
$ |
31,059 |
|
|
|
88.68 |
% |
|
$ |
235.66 |
|
|
$ |
208.98 |
|
Hershey,
PA
|
1999
|
|
|
110 |
|
|
$ |
3,901,574 |
|
|
$ |
100,257 |
|
|
|
68.37 |
% |
|
$ |
142.13 |
|
|
$ |
97.17 |
|
Carlisle,PA
|
1997
|
|
|
95 |
|
|
$ |
2,626,935 |
|
|
$ |
15,222 |
|
|
|
72.46 |
% |
|
$ |
102.40 |
|
|
$ |
74.20 |
|
Danville,
PA
|
1998
|
|
|
72 |
|
|
$ |
2,003,670 |
|
|
$ |
13,628 |
|
|
|
75.59 |
% |
|
$ |
102.29 |
|
|
$ |
77.32 |
|
Selinsgrove,
PA (3)
|
1996
|
|
|
75 |
|
|
$ |
2,003,942 |
|
|
$ |
23,453 |
|
|
|
64.84 |
% |
|
$ |
112.89 |
|
|
$ |
73.20 |
|
Herald
Square, Manhattan, NY
|
2005
|
|
|
136 |
|
|
$ |
10,512,543 |
|
|
$ |
21,857 |
|
|
|
88.66 |
% |
|
$ |
239.51 |
|
|
$ |
212.36 |
|
Philadelphia,
PA (4)
|
2001
|
|
|
250 |
|
|
$ |
9,349,384 |
|
|
$ |
747,064 |
|
|
|
78.35 |
% |
|
$ |
130.78 |
|
|
$ |
102.46 |
|
Seaport,
NY (5)
|
2006
|
|
|
65 |
|
|
$ |
5,175,599 |
|
|
$ |
24,691 |
|
|
|
85.92 |
% |
|
$ |
277.47 |
|
|
$ |
238.40 |
|
Hawthorne
Suites
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin,
MA
|
1999
|
|
|
100 |
|
|
$ |
2,486,733 |
|
|
$ |
155,692 |
|
|
|
72.35 |
% |
|
$ |
94.16 |
|
|
$ |
68.13 |
|
Hilton
Garden Inn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JFK
Airport, NY
|
2005
|
|
|
188 |
|
|
$ |
8,738,877 |
|
|
$ |
1,006,210 |
|
|
|
90.70 |
% |
|
$ |
140.41 |
|
|
$ |
127.35 |
|
Edison,
NJ
|
2003
|
|
|
132 |
|
|
$ |
3,751,718 |
|
|
$ |
939,242 |
|
|
|
73.64 |
% |
|
$ |
106.33 |
|
|
$ |
78.30 |
|
Gettysburg,
PA
|
2004
|
|
|
88 |
|
|
$ |
2,017,153 |
|
|
$ |
268,526 |
|
|
|
65.33 |
% |
|
$ |
96.13 |
|
|
$ |
62.80 |
|
Holiday
Inn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norwich,
CT (6)
|
2006
|
|
|
134 |
|
|
$ |
1,618,128 |
|
|
$ |
70,651 |
|
|
|
56.89 |
% |
|
$ |
115.36 |
|
|
$ |
65.63 |
|
Holiday
Inn Express
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hauppauge,
NY
|
2001
|
|
|
133 |
|
|
$ |
4,701,844 |
|
|
$ |
336,362 |
|
|
|
73.10 |
% |
|
$ |
132.50 |
|
|
$ |
96.86 |
|
Cambridge,
MA
|
1997
|
|
|
112 |
|
|
$ |
4,290,745 |
|
|
$ |
79,053 |
|
|
|
73.31 |
% |
|
$ |
143.18 |
|
|
$ |
104.96 |
|
Hershey,
PA
|
1997
|
|
|
85 |
|
|
$ |
2,156,255 |
|
|
$ |
22,082 |
|
|
|
65.59 |
% |
|
$ |
115.47 |
|
|
$ |
75.74 |
|
New
Columbia, PA
|
1997
|
|
|
81 |
|
|
$ |
1,343,821 |
|
|
$ |
12,273 |
|
|
|
49.21 |
% |
|
$ |
93.52 |
|
|
$ |
46.02 |
|
Malvern,
PA
|
2004
|
|
|
88 |
|
|
$ |
2,054,481 |
|
|
$ |
10,540 |
|
|
|
65.03 |
% |
|
$ |
98.35 |
|
|
$ |
63.96 |
|
Oxford
Valley, PA
|
2004
|
|
|
88 |
|
|
$ |
2,122,654 |
|
|
$ |
65,254 |
|
|
|
62.83 |
% |
|
$ |
105.18 |
|
|
$ |
66.09 |
|
Chester,
NY (7)
|
2006
|
|
|
80 |
|
|
$ |
2,299,968 |
|
|
$ |
66,948 |
|
|
|
70.58 |
% |
|
$ |
119.45 |
|
|
$ |
84.31 |
|
Holiday
Inn Express & Suites
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harrisburg,
PA
|
1997
|
|
|
77 |
|
|
$ |
2,216,076 |
|
|
$ |
24,965 |
|
|
|
79.20 |
% |
|
$ |
100.86 |
|
|
$ |
79.89 |
|
King
of Prussia, PA
|
2004
|
|
|
155 |
|
|
$ |
4,728,516 |
|
|
$ |
105,758 |
|
|
|
75.35 |
% |
|
$ |
110.93 |
|
|
$ |
83.58 |
|
Independent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wilmington,
DE
|
1999
|
|
|
71 |
|
|
$ |
1,641,999 |
|
|
$ |
16,203 |
|
|
|
64.96 |
% |
|
$ |
97.53 |
|
|
$ |
63.36 |
|
Fifth
Ave, NY (8)
|
2007
|
|
|
70 |
|
|
$ |
3,037,532 |
|
|
$ |
13,184 |
|
|
|
80.36 |
% |
|
$ |
250.00 |
|
|
$ |
200.89 |
|
Mainstay
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valley
Forge, PA
|
2000
|
|
|
69 |
|
|
$ |
1,846,037 |
|
|
$ |
105,498 |
|
|
|
78.21 |
% |
|
$ |
93.72 |
|
|
$ |
73.30 |
|
Frederick,
MD
|
2001
|
|
|
72 |
|
|
$ |
1,374,961 |
|
|
$ |
12,686 |
|
|
|
66.66 |
% |
|
$ |
77.53 |
|
|
$ |
51.68 |
|
Residence
Inn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
Dartmouth, MA
|
2002
|
|
|
96 |
|
|
$ |
2,932,018 |
|
|
$ |
82,860 |
|
|
|
70.60 |
% |
|
$ |
118.52 |
|
|
$ |
83.68 |
|
Tysons
Corner, VA
|
1984
|
|
|
96 |
|
|
$ |
4,509,861 |
|
|
$ |
44,107 |
|
|
|
76.17 |
% |
|
$ |
168.97 |
|
|
$ |
128.71 |
|
Framingham,
MA
|
2000
|
|
|
125 |
|
|
$ |
4,481,539 |
|
|
$ |
152,841 |
|
|
|
76.95 |
% |
|
$ |
127.65 |
|
|
$ |
98.23 |
|
Greenbelt,
MD
|
2002
|
|
|
120 |
|
|
$ |
5,231,853 |
|
|
$ |
96,784 |
|
|
|
74.81 |
% |
|
$ |
159.67 |
|
|
$ |
119.45 |
|
Norwood,
MA
|
2006
|
|
|
96 |
|
|
$ |
3,029,251 |
|
|
$ |
66,509 |
|
|
|
70.51 |
% |
|
$ |
122.62 |
|
|
$ |
86.45 |
|
Langhorne,
PA (7)
|
2007
|
|
|
100 |
|
|
$ |
3,246,331 |
|
|
$ |
105,688 |
|
|
|
76.03 |
% |
|
$ |
119.60 |
|
|
$ |
90.93 |
|
Carlisle,PA
(7)
|
2007
|
|
|
78 |
|
|
$ |
2,036,985 |
|
|
$ |
53,744 |
|
|
|
70.04 |
% |
|
$ |
104.74 |
|
|
$ |
73.36 |
|
Sleep
Inn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valley
Forge, PA
|
2000
|
|
|
87 |
|
|
$ |
1,934,392 |
|
|
$ |
26,956 |
|
|
|
75.88 |
% |
|
$ |
89.55 |
|
|
$ |
67.94 |
|
|
Twelve
Months Ended December 31, 2007
|
|
Name
|
Year
Opened
|
|
Number
of Rooms
|
|
|
Room
Revenue
|
|
|
Other
Revenue (1)
|
|
|
Occupancy
|
|
|
Average
Daily Rate
|
|
|
RevPAR
(2)
|
|
Summerfield
Suites
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
White
Plains, NY
|
2000
|
|
|
159 |
|
|
$ |
9,479,871 |
|
|
$ |
340,715 |
|
|
|
87.81 |
% |
|
$ |
186.01 |
|
|
$ |
163.34 |
|
Bridgewater,
NJ
|
1998
|
|
|
128 |
|
|
$ |
5,281,368 |
|
|
$ |
368,495 |
|
|
|
76.95 |
% |
|
$ |
146.91 |
|
|
$ |
113.04 |
|
Gaithersburg,
MD
|
1998
|
|
|
140 |
|
|
$ |
4,763,186 |
|
|
$ |
100,148 |
|
|
|
69.40 |
% |
|
$ |
134.31 |
|
|
$ |
93.21 |
|
Pleasant
Hill, CA
|
2003
|
|
|
142 |
|
|
$ |
5,794,588 |
|
|
$ |
296,426 |
|
|
|
81.30 |
% |
|
$ |
137.56 |
|
|
$ |
111.83 |
|
Pleasanton,
CA
|
1998
|
|
|
128 |
|
|
$ |
4,716,773 |
|
|
$ |
124,317 |
|
|
|
83.45 |
% |
|
$ |
121.98 |
|
|
$ |
101.79 |
|
Scottsdale,
AZ
|
1999
|
|
|
164 |
|
|
$ |
6,165,039 |
|
|
$ |
184,554 |
|
|
|
75.13 |
% |
|
$ |
137.09 |
|
|
$ |
102.99 |
|
Charlotte,
NC
|
1989
|
|
|
144 |
|
|
$ |
3,029,730 |
|
|
$ |
66,963 |
|
|
|
69.65 |
% |
|
$ |
88.28 |
|
|
$ |
61.49 |
|
TOTAL
|
|
|
|
5,891 |
|
|
$ |
206,017,327 |
|
|
$ |
9,323,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73.77 |
% |
|
$ |
133.03 |
|
|
$ |
98.13 |
|
(1)
|
Represents
restaurant revenue, telephone revenue and other
revenue
|
(2)
|
Revenue
per Available Room, or RevPAR, is determined by dividing room revenue by
available rooms for the applicable
period
|
(3)
|
A
portion of the land adjacent to this hotel, which is not currently used
for hotel operations, is leased to an affiliate for $1 per year for 99
years
|
(4)
|
We
acquired the remaining 20% of the limited partnership interests in
Affordable Hospitality Associates, LP, the owner of the Hampton Inn,
Philadelphia, PA on October 1, 2007. This hotel was a
consolidated joint venture prior to this; therefore, this table represents
the twelve months of operations for this property which are fully included
in the statements of operations for the year ended December 31,
2007.
|
(5)
|
We
assumed operations of this hotel in February
2007
|
(6)
|
We
assumed operations of this hotel in July
2007
|
(7)
|
We
assumed operations of this hotel in January
2007
|
(8)
|
We
assumed operations of this hotel in June
2007
|
The
following table sets forth certain information with respect to the hotels we
owned through joint ventures with third parties as of December 31,
2007.
|
Twelve
Months Ended December 31, 2007
|
|
Name
|
Year
Opened
|
|
Number
of Rooms
|
|
|
Room
Revenue
|
|
|
Other
Revenue (1)
|
|
|
Occupancy
|
|
|
Average
Daily Rate
|
|
|
RevPAR
(2)
|
|
Courtyard
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norwich,
CT
|
1997
|
|
|
144 |
|
|
$ |
4,034,924 |
|
|
$ |
395,480 |
|
|
|
71.06 |
% |
|
$ |
108.03 |
|
|
$ |
76.77 |
|
South
Boston, MA
|
2005
|
|
|
164 |
|
|
$ |
6,647,227 |
|
|
$ |
467,302 |
|
|
|
75.94 |
% |
|
$ |
146.23 |
|
|
$ |
111.05 |
|
Warwick,
RI
|
2003
|
|
|
92 |
|
|
$ |
3,040,648 |
|
|
$ |
259,589 |
|
|
|
77.52 |
% |
|
$ |
116.80 |
|
|
$ |
90.55 |
|
Ewing/Princeton,
NJ
|
2004
|
|
|
130 |
|
|
$ |
4,786,160 |
|
|
$ |
552,085 |
|
|
|
73.30 |
% |
|
$ |
137.61 |
|
|
$ |
100.87 |
|
Four
Points - Sheraton
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revere/Boston,
MA
|
2001
|
|
|
180 |
|
|
$ |
5,576,146 |
|
|
$ |
2,558,034 |
|
|
|
84.87 |
% |
|
$ |
100.01 |
|
|
$ |
84.87 |
|
Hilton
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hartford,
CT
|
2005
|
|
|
393 |
|
|
$ |
11,764,920 |
|
|
$ |
5,208,310 |
|
|
|
58.11 |
% |
|
$ |
141.14 |
|
|
$ |
82.02 |
|
Homewood
Suites
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glastonbury,
CT
|
2006
|
|
|
136 |
|
|
$ |
3,552,370 |
|
|
$ |
138,435 |
|
|
|
60.99 |
% |
|
$ |
117.33 |
|
|
$ |
71.56 |
|
Marriott
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mystic,
CT
|
2001
|
|
|
285 |
|
|
$ |
12,143,575 |
|
|
$ |
12,829,088 |
|
|
|
74.36 |
% |
|
$ |
156.99 |
|
|
$ |
116.74 |
|
Hartford,
CT
|
2005
|
|
|
409 |
|
|
$ |
15,741,688 |
|
|
$ |
9,790,740 |
|
|
|
62.41 |
% |
|
$ |
168.97 |
|
|
$ |
105.45 |
|
Residence
Inn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Danbury,
CT
|
1999
|
|
|
78 |
|
|
$ |
2,868,013 |
|
|
$ |
89,780 |
|
|
|
82.72 |
% |
|
$ |
121.79 |
|
|
$ |
100.74 |
|
Mystic,
CT
|
1996
|
|
|
133 |
|
|
$ |
4,368,523 |
|
|
$ |
147,974 |
|
|
|
75.62 |
% |
|
$ |
119.01 |
|
|
$ |
89.99 |
|
Southington,
CT
|
2002
|
|
|
94 |
|
|
$ |
3,310,668 |
|
|
$ |
294,222 |
|
|
|
87.81 |
% |
|
$ |
109.89 |
|
|
$ |
96.49 |
|
Williamsburg,
VA
|
2002
|
|
|
108 |
|
|
$ |
3,024,376 |
|
|
$ |
43,218 |
|
|
|
62.98 |
% |
|
$ |
121.83 |
|
|
$ |
76.72 |
|
Holiday
Inn Express
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
Boston, MA
|
1998
|
|
|
118 |
|
|
$ |
4,311,826 |
|
|
$ |
88,845 |
|
|
|
79.36 |
% |
|
$ |
126.14 |
|
|
$ |
100.11 |
|
Manhattan,
NY (3)
|
2006
|
|
|
228 |
|
|
$ |
15,101,859 |
|
|
$ |
71,096 |
|
|
|
93.13 |
% |
|
$ |
213.57 |
|
|
$ |
198.91 |
|
Hilton
Garden Inn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glastonbury,
CT
|
2003
|
|
|
150 |
|
|
$ |
4,421,016 |
|
|
$ |
1,200,428 |
|
|
|
66.05 |
% |
|
$ |
122.26 |
|
|
$ |
80.75 |
|
Springhill
Suites
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waterford,
CT
|
1998
|
|
|
80 |
|
|
$ |
2,487,212 |
|
|
$ |
53,449 |
|
|
|
78.62 |
% |
|
$ |
108.34 |
|
|
$ |
85.18 |
|
Williamsburg,
VA
|
2002
|
|
|
120 |
|
|
$ |
2,775,969 |
|
|
$ |
59,360 |
|
|
|
61.55 |
% |
|
$ |
102.97 |
|
|
$ |
63.38 |
|
TOTAL
|
|
|
|
3,042 |
|
|
$ |
109,957,120 |
|
|
$ |
34,247,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71.59 |
% |
|
$ |
139.24 |
|
|
$ |
99.69 |
|
(1)
|
Represents
restaurant revenue, telephone revenue and other
revenue
|
(2)
|
Revenue
per Available Room, or RevPAR, is determined by dividing room revenue by
available rooms for the applicable
period
|
(3)
|
We
assumed operations of this hotel in February
2007
|
Item
3. Legal
Proceedings
We are
not presently subject to any material litigation nor, to our knowledge, is any
other litigation threatened against us, other than routine actions for
negligence or other claims and administrative proceedings arising in the
ordinary course of business, some of which are expected to be covered by
liability insurance and all of which collectively are not expected to have a
material adverse effect on our liquidity, results of operations or business or
financial condition.
Item
4.
Submission of Matters to
a Vote of Security Holders
No matter
was submitted to a vote of our security holders during the fourth quarter of
2007, through the solicitation of proxies or otherwise.
PART
II
Item
5. Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
MARKET
INFORMATION
Our
common shares began trading on the American Stock Exchange on January 20, 1999
under the symbol “HT.” As of March 12, 2008, the last reported closing price per
common share on the American Stock Exchange was $8.87. The following table sets forth the high
and low sales price per common share reported on the American Stock Exchange as
traded and the dividends paid on the common shares for each of the quarters
indicated.
Year
Ended December 31, 2007
|
|
High
|
|
|
Low
|
|
|
Cash
Dividend
Per
Share
|
|
Fourth
Quarter
|
|
$ |
11.11 |
|
|
$ |
9.22 |
|
|
$ |
0.18 |
|
Third
Quarter
|
|
$ |
14.20 |
|
|
$ |
9.75 |
|
|
$ |
0.18 |
|
Second
Quarter
|
|
$ |
12.38 |
|
|
$ |
11.19 |
|
|
$ |
0.18 |
|
First
Quarter
|
|
$ |
12.06 |
|
|
$ |
9.73 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2006
|
|
High
|
|
|
Low
|
|
|
Cash
Dividend
Per
Share
|
|
Fourth
Quarter
|
|
$ |
11.99 |
|
|
$ |
9.47 |
|
|
$ |
0.18 |
|
Third
Quarter
|
|
$ |
10.17 |
|
|
$ |
8.83 |
|
|
$ |
0.18 |
|
Second
Quarter
|
|
$ |
9.80 |
|
|
$ |
8.76 |
|
|
$ |
0.18 |
|
First
Quarter
|
|
$ |
10.00 |
|
|
$ |
8.89 |
|
|
$ |
0.18 |
|
SHAREHOLDER
INFORMATION
At March
12, 2008 we had approximately 120 holders of record and 5,543 beneficial
owners of our common shares. Units of limited partnership interest in our
operating partnership (which are redeemable for common shares subject to certain
limitations) were held by approximately 43 entities and persons.
Our
organizational documents limit the number of equity securities of any series
that may be owned by any single person or affiliated group to 9.9% of the
outstanding shares. We granted limited waivers of these ownership limitations as
follows:
·
a limited waiver to RREEF America
L.L.C., Deutche Asset Management, Inc., and their related mutual funds and
accounts, specifically including Scudder RREEF Real Estate Fund Inc., Scudder
RREEF Real Estate Fund II Inc. and Scudder RREEF Securities Trust (collectively,
the “Scudder RREEF Group”) to own up to 16% of the outstanding common shares,
subject to their compliance with certain representations and warranties,
including that no single person will own more than 9.9% of the outstanding
common shares;
·
a limited waiver to K.G. Redding &
Associates, and its managed accounts to own up to 15% of the outstanding common
shares, subject to their compliance with certain representations and warranties
including that no single person will own more than 9.9% of the outstanding
common shares;
·
a limited waiver to Kensington Investment
Group, Inc., together with its related mutual funds and accounts, to own up to
14% of
the outstanding common shares, subject to their compliance with certain
representations and warranties including that no single person will own more
than 9.9% of the outstanding common shares; and
·
a limited waiver to Morgan Stanley
Investment Management, Inc., together with its affiliates and its managed
accounts, to own up to 15% of the outstanding common shares, subject to their
compliance with certain representations and warranties including that no single
person will own more than 9.9% of the outstanding common shares.
DISTRIBUTION
INFORMATION
While it
is the current policy of our Board to maintain our dividends at least at
historical levels, future distributions, if any, will be at the discretion of
our Board of Trustees and will depend on our actual cash flow, financial
condition, capital requirements, the annual distribution requirements under the
REIT provisions of the Internal Revenue Code and such other factors as we may
deem relevant. Our ability to make distributions will depend on our receipt of
distributions from our operating partnership and lease payments from our lessees
with respect to the hotels. We rely on the profitability and cashflows of our
hotels to generate sufficient cash flow for distributions.
SHARE
PERFORMANCE GRAPH
The
following graph compares the yearly change in our cumulative total
shareholder return on our common shares for the period
beginning January 1, 2002 and ending December 31, 2007, with the
yearly changes in the Standard & Poor’s 500 Stock Index (the S&P
500 Index), the Russell 2000 Index, and the SNL Hotel REITs Index (“Hotel REIT
Index”) for the same period, assuming a base share price of $100.00 for our
common shares, the S&P 500 Index, the Russell 2000 Index and the Hotel
REIT Index for comparative purposes. The Hotel REIT Index is comprised of
nineteen publicly traded REITs which focus on investments in hotel properties.
Total shareholder return equals appreciation in stock price plus dividends paid
and assumes that all dividends are reinvested. The performance graph is
not indicative of future investment performance. We do not make or endorse
any predictions as to future share price performance:
|
|
Period
Ending December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
Hersha
Hospitality Trust
|
|
$ |
100.00 |
|
|
$ |
172.48 |
|
|
$ |
210.86 |
|
|
$ |
178.75 |
|
|
$ |
241.83 |
|
|
$ |
212.51 |
|
Russell
2000
|
|
|
100.00 |
|
|
|
147.25 |
|
|
|
174.24 |
|
|
|
182.18 |
|
|
|
215.64 |
|
|
|
212.26 |
|
SNL
Hotel REITs Index
|
|
|
100.00 |
|
|
|
130.49 |
|
|
|
173.10 |
|
|
|
190.07 |
|
|
|
244.45 |
|
|
|
190.25 |
|
S&P
500
|
|
|
100.00 |
|
|
|
128.68 |
|
|
|
142.69 |
|
|
|
149.68 |
|
|
|
173.32 |
|
|
|
182.84 |
|
COMMON SHARES ISSUABLE PURSUANT TO
OPTIONS
As of
December 31, 2007, no options or warrants to acquire our securities were
outstanding. The following table sets forth the number of securities to be
issued upon exercise of outstanding options, warrants and rights; weighted
average exercise price of outstanding options, warrants and rights; and the
number of securities remaining available for future issuance as of December 31,
2007:
Plan Category
|
|
Number of securities
to
be issued upon
exercise of
outstanding options,
warrants
and rights
|
|
|
Weighted average
exercise price of
outstanding options,
warrants
and rights
|
|
|
Number
of securities
remaining available
for future issuance
under equity
compensation
plans
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
1,109,823
|
|
Equity
compensation plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
1,109,823
|
|
Item 6. Selected Financial
Data
The
following sets forth selected financial and operating data on a historical
consolidated basis. The following data should be read in conjunction with the
financial statements and notes thereto and Management’s Discussion and Analysis
of Financial Condition and Results of Operations included elsewhere in this Form
10-K.
HERSHA
HOSPITALITY TRUST
SELECTED
FINANCIAL DATA
(In
thousands, except per share data)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel
Operating Revenues
|
|
$ |
229,462 |
|
|
$ |
135,274 |
|
|
$ |
71,280 |
|
|
$ |
39,001 |
|
|
$ |
920 |
|
Interest
Income From Development Loans
|
|
|
6,046 |
|
|
|
2,487 |
|
|
|
3,940 |
|
|
|
2,191 |
|
|
|
715 |
|
Land
Lease Revenue
|
|
|
4,860 |
|
|
|
2,071 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Hotel
Lease Revenue
|
|
|
781 |
|
|
|
391 |
|
|
|
- |
|
|
|
1,192 |
|
|
|
10,144 |
|
Other
Revenues
|
|
|
980 |
|
|
|
737 |
|
|
|
529 |
|
|
|
176 |
|
|
|
8 |
|
Total
Revenue
|
|
|
242,129 |
|
|
|
140,960 |
|
|
|
75,749 |
|
|
|
42,560 |
|
|
|
11,787 |
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel
Operating Expenses
|
|
|
130,925 |
|
|
|
79,430 |
|
|
|
43,700 |
|
|
|
24,848 |
|
|
|
836 |
|
Hotel
Ground Rent
|
|
|
856 |
|
|
|
804 |
|
|
|
433 |
|
|
|
504 |
|
|
|
50 |
|
Land
Lease Expense
|
|
|
2,721 |
|
|
|
1,189 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Real
Estate and Personal Property Taxes and Property Insurance
|
|
|
11,426 |
|
|
|
6,089 |
|
|
|
3,517 |
|
|
|
2,286 |
|
|
|
905 |
|
General
and Administrative
|
|
|
8,185 |
|
|
|
6,238 |
|
|
|
4,967 |
|
|
|
3,140 |
|
|
|
628 |
|
Compensation
Expense related to Option Redemption
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,307 |
|
Depreciation
and Amortization
|
|
|
34,336 |
|
|
|
18,954 |
|
|
|
8,919 |
|
|
|
5,344 |
|
|
|
3,174 |
|
Total
Operating Expenses
|
|
|
188,449 |
|
|
|
112,704 |
|
|
|
61,536 |
|
|
|
36,122 |
|
|
|
6,900 |
|
Operating
Income
|
|
|
53,680 |
|
|
|
28,256 |
|
|
|
14,213 |
|
|
|
6,438 |
|
|
|
4,887 |
|
Interest
Income
|
|
|
686 |
|
|
|
1,182 |
|
|
|
602 |
|
|
|
241 |
|
|
|
86 |
|
Interest
expense
|
|
|
42,402 |
|
|
|
25,423 |
|
|
|
12,471 |
|
|
|
4,471 |
|
|
|
3,159 |
|
Loss
on Debt Extinguishment
|
|
|
- |
|
|
|
1,485 |
|
|
|
- |
|
|
|
- |
|
|
|
116 |
|
Income
before income (loss) from Unconsolidated Joint Venture Investments,
Distributions to Preferred Unitholders, Minority Interests and
Discontinued Operations
|
|
|
11,964 |
|
|
|
2,530 |
|
|
|
2,344 |
|
|
|
2,208 |
|
|
|
1,698 |
|
Income
(Loss) from Unconsolidated Joint Venture Investments
|
|
|
3,476 |
|
|
|
1,799 |
|
|
|
457 |
|
|
|
481 |
|
|
|
(24 |
) |
Income
Before Distribution to Preferred Unitholders, Minority Interest and
Discontinued Operations
|
|
|
15,440 |
|
|
|
4,329 |
|
|
|
2,801 |
|
|
|
2,689 |
|
|
|
1,674 |
|
Distributions
to Preferred Unitholders
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
499 |
|
|
|
1,195 |
|
Income
Allocated to Minority Interest in Continuing
Operations
|
|
|
1,765 |
|
|
|
536 |
|
|
|
76 |
|
|
|
273 |
|
|
|
200 |
|
Income
from Continuing Operations
|
|
|
13,675 |
|
|
|
3,793 |
|
|
|
2,725 |
|
|
|
1,917 |
|
|
|
279 |
|
Discontinued
Operations, net of minority interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on Disposition of Hotel Properties
|
|
|
3,745 |
|
|
|
693 |
|
|
|
1,161 |
|
|
|
- |
|
|
|
- |
|
Income
(Loss) from Discontinued Operations
|
|
|
427 |
|
|
|
612 |
|
|
|
(589 |
) |
|
|
132 |
|
|
|
506 |
|
Net
Income
|
|
|
17,847 |
|
|
|
5,098 |
|
|
|
3,297 |
|
|
|
2,049 |
|
|
|
785 |
|
Preferred
Distributions
|
|
|
4,800 |
|
|
|
4,800 |
|
|
|
1,920 |
|
|
|
- |
|
|
|
- |
|
Net
Income applicable to Common Shareholders
|
|
$ |
13,047 |
|
|
$ |
298 |
|
|
$ |
1,377 |
|
|
$ |
2,049 |
|
|
$ |
785 |
|
Basic
Income (Loss) from Continuing Operations applicable to Common
Shareholders
|
|
$ |
0.22 |
|
|
$ |
(0.04 |
) |
|
$ |
0.04 |
|
|
$ |
0.12 |
|
|
$ |
0.06 |
|
Diluted
Income (Loss) from Continuing Operations applicable to Common Shareholder
(1)
|
|
$ |
0.22 |
|
|
$ |
(0.04 |
) |
|
$ |
0.04 |
|
|
$ |
0.12 |
|
|
$ |
0.06 |
|
Dividends
declared per Common Share
|
|
$ |
0.72 |
|
|
$ |
0.72 |
|
|
$ |
0.72 |
|
|
$ |
0.72 |
|
|
$ |
0.72 |
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Balance
Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment in hotel properties
|
|
$ |
893,297 |
|
|
$ |
807,784 |
|
|
$ |
317,980 |
|
|
$ |
163,923 |
|
|
$ |
121,076 |
|
Assets
Held for Sale
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,407 |
|
|
$ |
18,758 |
|
|
$ |
- |
|
Minority
interest in Partnership
|
|
$ |
42,845 |
|
|
$ |
25,933 |
|
|
$ |
15,147 |
|
|
$ |
16,779 |
|
|
$ |
38,971 |
|
Shareholder's
equity
|
|
$ |
330,405 |
|
|
$ |
331,619 |
|
|
$ |
164,703 |
|
|
$ |
119,792 |
|
|
$ |
71,460 |
|
Total
assets
|
|
$ |
1,067,607 |
|
|
$ |
968,208 |
|
|
$ |
455,355 |
|
|
$ |
261,021 |
|
|
$ |
196,568 |
|
Total
debt
|
|
$ |
663,008 |
|
|
$ |
580,542 |
|
|
$ |
256,146 |
|
|
$ |
98,788 |
|
|
$ |
71,837 |
|
Debt
related to Assets Held for Sale
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
375 |
|
|
$ |
13,058 |
|
|
$ |
- |
|
Other
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
from Operations (2)
|
|
$ |
49,821 |
|
|
$ |
25,936 |
|
|
$ |
14,495 |
|
|
$ |
10,539 |
|
|
$ |
6,533 |
|
Net
cash provided by operating activities
|
|
$ |
59,300 |
|
|
$ |
27,217 |
|
|
$ |
15,002 |
|
|
$ |
12,148 |
|
|
$ |
5,193 |
|
Net
cash used in investing activities
|
|
$ |
(46,027 |
) |
|
$ |
(413,881 |
) |
|
$ |
(190,825 |
) |
|
$ |
(78,378 |
) |
|
$ |
(58,370 |
) |
Net
cash (used in) provided by financing activities
|
|
$ |
(11,262 |
) |
|
$ |
388,200 |
|
|
$ |
163,989 |
|
|
$ |
46,137 |
|
|
$ |
93,744 |
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
40,718,724 |
|
|
|
27,118,264 |
|
|
|
20,293,554 |
|
|
|
16,391,805 |
|
|
|
4,614,316 |
|
Diluted
(1)
|
|
|
40,718,724 |
|
|
|
27,118,264 |
|
|
|
20,299,937 |
|
|
|
16,391,805 |
|
|
|
4,614,316 |
|
(1) 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.
(2) See
Item 7. “Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Funds From Operations” for an explanation of FFO, why we believe
FFO is a meaningful measure of our operating performance and a reconciliation of
FFO to net income calculated in accordance with GAAP.
Item
7. Management’s Discussion
and Analysis of Financial Condition and Results of
Operations
All
statements contained in this section that are not historical facts are based on
current expectations. Words such as “believes”, “expects”, “anticipate”,
“intends”, “plans” and “estimates” and variations of such words and similar
words also identify forward-looking statements. Our actual results may differ
materially. 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
December 31, 2007, we owned interests in 71 hotels in the eastern United States
including 18 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 to a third party lessee or to a taxable REIT subsidiary,
or TRS, provided that the TRS engages an eligible independent contractor to
manage the hotels. With the exception of one hotel which is leased to an
unrelated party under a fixed lease, as of December 31, 2007, we have leased all
of our hotels to a wholly-owned TRS, a joint venture owned TRS, or an entity
owned by our wholly-owned TRS. Each of these TRS entities will pay qualifying
rent, and the TRS entities have entered into management contracts with qualified
independent managers, including HHMLP, with respect to our hotels. We intend to
lease all newly acquired hotels to a TRS. As of December 31, 2007, all of our
hotels owned through interests in joint ventures are leased to TRSs that are
wholly owned by those joint ventures or entities that are owned in part by our
wholly owned TRS. The hotels owned by the joint ventures are managed by various
management companies pursuant to the terms of certain management
agreements.
The TRS
structure enables us to participate more directly in the operating performance
of 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.
The
following table outlines operating results for the Company’s portfolio of wholly
owned hotels and those owned through joint venture interests that are
consolidated in our financial statements for the three years ended December 31,
2007, 2006 and 2005:
CONSOLIDATED
HOTELS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
2007
|
|
|
Year
Ended
2006
|
|
|
2007
vs.
2006
%
Variance
|
|
|
Year
Ended
2005
|
|
|
2006
vs.
2005
%
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
Available
|
|
|
2,248,253 |
|
|
|
1,507,003 |
|
|
|
49.2% |
|
|
|
880,314 |
|
|
|
71.2% |
|
Rooms
Occupied
|
|
|
1,656,158 |
|
|
|
1,086,478 |
|
|
|
52.4% |
|
|
|
615,888 |
|
|
|
76.4% |
|
Occupancy
|
|
|
73.66% |
|
|
|
72.10% |
|
|
|
2.2% |
|
|
|
69.96% |
|
|
|
3.1% |
|
Average
Daily Rate (ADR)
|
|
$ |
131.26 |
|
|
$ |
115.49 |
|
|
|
13.7% |
|
|
$ |
103.82 |
|
|
|
11.2% |
|
Revenue
Per Available Room (RevPAR)
|
|
$ |
96.69 |
|
|
$ |
83.26 |
|
|
|
16.1% |
|
|
$ |
72.63 |
|
|
|
14.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
Revenues
|
|
$ |
217,393,817 |
|
|
$ |
125,475,166 |
|
|
|
73.3% |
|
|
$ |
63,940,185 |
|
|
|
96.2% |
|
Total
Revenues
|
|
$ |
229,462,240 |
|
|
$ |
135,273,785 |
|
|
|
69.6% |
|
|
$ |
71,280,027 |
|
|
|
89.8% |
|
Hotel
Operating Revenues from Discontinued Operations
|
|
$ |
6,683,896 |
|
|
$ |
12,926,991 |
|
|
|
(48.3%) |
|
|
$ |
13,718,121 |
|
|
|
(5.8%) |
|
The
following table outlines operating results for the three years ended December
31, 2007, 2006 and 2005 for hotels we own through an unconsolidated joint
venture interest. These operating results reflect 100% of the operating results
of the property including our interest and the interests of our joint venture
partners and other minority interest holders.
UNCONSOLIDATED
JOINT VENTURES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
2007
|
|
|
Year
Ended
2006
|
|
|
2007
vs.
2006
%
Variance
|
|
|
Year
Ended
2005
|
|
|
2006
vs.
2005
%
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
Available
|
|
|
954,114 |
|
|
|
879,384 |
|
|
|
8.5% |
|
|
|
355,551 |
|
|
|
147.3% |
|
Rooms
Occupied
|
|
|
682,169 |
|
|
|
613,272 |
|
|
|
11.2% |
|
|
|
263,030 |
|
|
|
133.2% |
|
Occupancy
|
|
|
71.50% |
|
|
|
69.74% |
|
|
|
2.5% |
|
|
|
73.98% |
|
|
|
(5.7%) |
|
Average
Daily Rate (ADR)
|
|
$ |
144.51 |
|
|
$ |
132.54 |
|
|
|
9.0% |
|
|
$ |
127.34 |
|
|
|
4.1% |
|
Revenue
Per Available Room (RevPAR)
|
|
$ |
103.32 |
|
|
$ |
92.43 |
|
|
|
11.8% |
|
|
$ |
94.20 |
|
|
|
(1.9%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
Revenues
|
|
$ |
98,580,629 |
|
|
$ |
81,285,744 |
|
|
|
21.3% |
|
|
$ |
33,492,953 |
|
|
|
142.7% |
|
Total
Revenues
|
|
$ |
130,167,451 |
|
|
$ |
111,301,348 |
|
|
|
17.0% |
|
|
$ |
42,171,809 |
|
|
|
163.9% |
|
The
increase in revenue per available room (“RevPAR”) during the years ended
December 31, 2007 and 2006, was due primarily to the Company’s broadened
strategic portfolio focus on stronger central business districts and primary
suburban office parks; the size of the recent acquisitions as a percentage of
the portfolio; franchise affiliations with stronger brands, such as Hyatt
Summerfield Suite, Hilton Garden Inn, Residence Inn and Courtyard by Marriott;
and a focus on improving the average daily rate (“ADR”). The increase in both
rooms and total revenue can be attributed primarily to the hotels acquired
during the respective periods.
COMPARISON
OF THE YEAR ENDED DECEMBER 31, 2007 TO DECEMBER 31, 2006
(dollars
in thousands, except per share data)
Our total
revenues for the year ended December 31, 2007 consisted of hotel operating
revenues, interest income from our development loan program, land lease revenue,
hotel lease revenue and other revenue. Hotel operating revenues are 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 revenues increased $94,188, or 69.6%, from $135,274
for the twelve months ended December 31, 2006 to $229,462 for the same period in
2007. The increase in revenues is primarily attributable to the
acquisitions consummated in 2007 and improved RevPAR and occupancy at certain of
our hotels. We acquired interests in the following six consolidated hotels since
December 31, 2006:
Brand
|
|
Location
|
|
Acquisition
Date
|
|
Rooms
|
|
|
2007
Total
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Residence
Inn
|
|
Langhorne,
PA
|
|
1/8/2007
|
|
|
100 |
|
|
$ |
3,352 |
|
Residence
Inn
|
|
Carlisle,
PA
|
|
1/10/2007
|
|
|
78 |
|
|
|
2,091 |
|
Holiday
Inn Express
|
|
Chester,
NY
|
|
1/25/2007
|
|
|
80 |
|
|
|
2,367 |
|
Hampton
Inn
|
|
Seaport,
NY
|
|
2/1/2007
|
|
|
65 |
|
|
|
5,200 |
|
Independent
|
|
373
Fifth Avenue
|
|
6/1/2007
|
|
|
70 |
|
|
|
3,051 |
|
Holiday
Inn
|
|
Norwich,
CT
|
|
7/1/2007
|
|
|
100 |
|
|
|
1,689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
493 |
|
|
$ |
17,750 |
|
Revenues
for all six hotels were recorded from the date of acquisition as hotel operating
revenues. Further, hotel operating revenues for the year ended December 31, 2007
included revenues for a full year related to the following 22 hotels that were
purchased during the twelve months ended December 31, 2006:
Brand
|
|
Location
|
|
Acquisition
Date
|
|
Rooms
|
|
|
2007
Total
Revenue
|
|
|
2006
Total
Revenue
|
|
Courtyard
|
|
Langhorne,
PA
|
|
1/3/2006
|
|
|
118 |
|
|
$ |
4,088 |
|
|
$ |
4,312 |
|
Fairfield
Inn
|
|
Mt.
Laurel, NJ
|
|
1/3/2006
|
|
|
118 |
|
|
|
2,697 |
|
|
|
2,760 |
|
Fairfield
Inn
|
|
Bethlehem,
PA
|
|
1/3/2006
|
|
|
103 |
|
|
|
2,427 |
|
|
|
2,489 |
|
Courtyard
|
|
Scranton,
PA
|
|
2/1/2006
|
|
|
120 |
|
|
|
3,229 |
|
|
|
2,543 |
|
Residence
Inn
|
|
Tysons
Corner, VA
|
|
2/2/2006
|
|
|
96 |
|
|
|
4,554 |
|
|
|
4,092 |
|
Hampton
Inn
|
|
Philadelphia,
PA
|
|
2/15/2006
|
|
|
250 |
|
|
|
10,096 |
|
|
|
7,799 |
|
Hilton
Garden Inn
|
|
JFK
Airport, NY
|
|
2/16/2006
|
|
|
188 |
|
|
|
9,745 |
|
|
|
7,883 |
|
Hawthorne
Suites
|
|
Franklin,
MA
|
|
4/25/2006
|
|
|
100 |
|
|
|
2,642 |
|
|
|
1,877 |
|
Residence
Inn
|
|
North
Dartmouth, MA
|
|
5/1/2006
|
|
|
96 |
|
|
|
3,015 |
|
|
|
2,386 |
|
Comfort
Inn
|
|
North
Dartmouth, MA
|
|
5/1/2006
|
|
|
84 |
|
|
|
1,403 |
|
|
|
1,213 |
|
Holiday
Inn Express
|
|
Cambridge,
MA
|
|
5/3/2006
|
|
|
112 |
|
|
|
4,370 |
|
|
|
2,950 |
|
Residence
Inn
|
|
Norwood,
MA
|
|
7/27/2006
|
|
|
96 |
|
|
|
3,096 |
|
|
|
1,088 |
|
Holiday
Inn Express
|
|
Hauppauge,
NY
|
|
9/1/2006
|
|
|
133 |
|
|
|
5,038 |
|
|
|
1,580 |
|
Hampton
Inn
|
|
Brookhaven,
NY
|
|
9/6/2006
|
|
|
161 |
|
|
|
5,536 |
|
|
|
1,658 |
|
Courtyard
|
|
Alexandria,
VA
|
|
9/29/2006
|
|
|
203 |
|
|
|
7,014 |
|
|
|
1,301 |
|
Summerfield
Suites
|
|
White
Plains, NY
|
|
12/27/2006
|
|
|
159 |
|
|
|
9,821 |
|
|
|
* |
|
Summerfield
Suites
|
|
Bridgewater,
NJ
|
|
12/27/2006
|
|
|
128 |
|
|
|
5,650 |
|
|
|
* |
|
Summerfield
Suites
|
|
Gaithersburg,
MD
|
|
12/27/2006
|
|
|
140 |
|
|
|
4,863 |
|
|
|
* |
|
Summerfield
Suites
|
|
Pleasant
Hill, CA
|
|
12/27/2006
|
|
|
142 |
|
|
|
6,091 |
|
|
|
* |
|
Summerfield
Suites
|
|
Pleasanton,
CA
|
|
12/27/2006
|
|
|
128 |
|
|
|
4,841 |
|
|
|
* |
|
Summerfield
Suites
|
|
Scottsdale,
AZ
|
|
12/27/2006
|
|
|
164 |
|
|
|
6,350 |
|
|
|
* |
|
Summerfield
Suites
|
|
Charlotte,
NC
|
|
12/27/2006
|
|
|
144 |
|
|
|
3,096 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,983 |
|
|
$ |
109,662 |
|
|
$ |
45,931 |
|
* Total
Revenues for 2006 insignificant
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 ranging between 10% and 13.5%. Interest
income from development loans receivable was $6,046 for the twelve months ended
December 31, 2007 compared to $2,487 for the same period in 2006. The
average balance of development loans receivable outstanding in 2007 was higher
than the average balance outstanding in 2006. This resulted in a
$3,559, or 143.1%, increase in interest income.
In June
and July of 2006 we acquired two parcels of land which are being leased to hotel
developers. Our net investment in these parcels is approximately
$18,946. The land is leased to hotel developers at a minimum rental rate of 10%
of our net investment in the land. 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 year ended December 31, 2007, we recorded
$4,860 in land lease revenue from these parcels. We incurred $2,721
in expense related to these land leases resulting in a contribution of $2,139 to
our operating income during the twelve months ended December 31,
2007.
Total
revenues for the year ended December 31, 2007 also included hotel lease revenue
for the lease of the Holiday Inn Conference Center, New
Cumberland, Pennsylvania 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 $781 was recorded in
the twelve months ended December 31, 2007 related to the lease of this property,
compared to $391 in 2006.
Other
revenue consists primarily of fees earned for asset management services provided
to properties owned by two of our unconsolidated joint
ventures. Other revenues increased $243, or 32.3%, from $737 during
the twelve months ended December 31, 2006 to $980 during the twelve months ended
December 31, 2007.
Income
from unconsolidated joint venture investments increased $1,677 from $1,799 for
the year ended December 31, 2006 to $3,476 for the year ended December 31,
2007. During 2007, we acquired unconsolidated joint venture interests in the
following property:
Joint
Venture
|
|
Brand
|
|
Name
|
|
Acquisition
Date
|
|
Rooms
|
|
|
Ownership
%
|
|
|
Hersha
Preferred
Equity
Return
|
|
Metro
29th Street Associates, LLC
|
|
Holiday
Inn Express
|
|
Manhattan-New
York, NY
|
|
2/1/2007
|
|
|
228 |
|
|
50.0%
|
|
|
|
N/A |
|
In
addition, we acquired joint venture interests in the following two properties
during 2006:
Joint
Venture
|
|
Brand
|
|
Name
|
|
Acquisition
Date
|
|
Rooms
|
|
|
Ownership
%
|
|
|
Hersha
Preferred
Equity
Return
|
|
PRA
Suites at Glastonbury, LLC
|
|
Homewood
Suites
|
|
Glastonbury,
CT
|
|
6/15/2006
|
|
|
136 |
|
|
40.0%
|
* |
|
10.0%
|
|
Mystic
Partners, LLC
|
|
Marriott
|
|
Hartford,
CT
|
|
2/8/2006
|
|
|
409 |
|
|
15.0%
|
|
|
8.5%
|
|
*Percent
owned was 40% through March 31, 2007. On April 1, 2007 our percent
owned increased to 48.0%.
Income
from unconsolidated joint venture investments was favorably impacted by the
inclusion of these investments for a full twelve months in 2007.
For the
year ended December 31, 2007, interest income decreased $496 compared to the
same period in 2006. Increased levels of interest income in 2006 resulted from
higher levels of interest bearing deposits related to the acquisition of hotel
properties and interest earned on proceeds from the offering of our common stock
during 2006.
Total
hotel operating expenses increased 64.8% to approximately $130,925 for the year
ended December 31, 2007 from $79,430 for the year ended December 31, 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 $18,954 for the year ended
December 31, 2006 to $34,336 for the year ended December 31, 2007. Similarly,
real estate and personal property tax and property insurance increased $5,337,
or 87.7%, in the year ended December 31, 2007 when compared to the same period
in 2006.
General
and administrative expense increased by approximately $1,947 from $6,238 in 2006
to $8,185 in 2007. General and administrative expenses increased primarily due
to higher compensation expense related to an increase in staffing in our asset
management and accounting teams and an increase in incentive
compensation.
Net
income applicable to common shareholders for year ended December 31, 2007 was
approximately $13,047 compared to net income applicable to common shareholders
of $298 for the same period in 2006.
Operating
income for the year ended December 31, 2007 was $53,680 compared to operating
income of $28,256 during the same period in 2006. The $25,424, or 90.0%,
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 $16,979 from $25,423 for the year ended December 31,
2006 to $42,402 for the year ended December 31, 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.
Included
in net income applicable to common shareholders for the year ended December 31,
2007 is $427 in income from discontinued operations compared to $612 in income
during the same period in 2006. Discontinued operations results from the
operations of one property sold in April 2006, two properties sold in November
2006, two properties sold in December 2006, and two properties sold in November
2007. Also included in net income applicable to common shareholders for the year
ended December 31, 2007 is a gain of $3,745 resulting from the sale of the
Hilton Garden Inn in Edison, NJ and Fairfield Inn in Mt. Laurel, NJ which had
been held for sale. Included in net income applicable to common shareholders for
the year ended December 31, 2006 is a gain of $693 resulting from the sale of
the Holiday Inn Express in Hartford, CT, the Hampton Inn in Peachtree, GA, the
Hampton Inn in Newnan, GA, the Comfort Suites in Duluth, GA, and the Holiday Inn
Express in Duluth, GA.
COMPARISON
OF YEAR ENDED DECEMBER 31, 2006 TO YEAR ENDED DECEMBER 31, 2005
(dollars
in thousands, except per share data)
Revenue
Our total
revenues for the year ended December 31, 2006 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 $63,994, or 89.8%, from $71,280
for the twelve months ended December 31, 2005 to $135,274 for the same period in
2006. The increase in revenues is primarily attributable to the
acquisitions consummated in 2006 and improved RevPAR and occupancy at certain of
our hotels. We acquired interests in 22 consolidated hotels during the twelve
months ended December 31, 2006, as noted above.
Revenues
for all 22 hotels were recorded from the date of acquisition as hotel operating
revenues. Further, hotel operating revenues for the year ended December 31, 2006
included revenues for a full year related to the following 10 hotels that were
purchased during the twelve months ended December 31, 2005:
Brand
|
|
Name
|
|
Acquisition
Date
|
|
Rooms
|
|
|
2006
Total
Revenue
|
|
|
2005
Total
Revenue
|
|
Residence
Inn
|
|
Williamsburg,
VA
|
|
11/22/2005
|
|
|
108 |
|
|
$ |
3,143 |
|
|
$ |
231 |
|
Springhill
Suites
|
|
Williamsburg,
VA
|
|
11/22/2005
|
|
|
120 |
|
|
|
2,331 |
|
|
|
141 |
|
Courtyard
|
|
Wilmington,
DE
|
|
6/17/2005
|
|
|
78 |
|
|
|
2,609 |
|
|
|
1,357 |
|
Independent
|
|
Wilmington,
DE
|
|
6/17/2005
|
|
|
71 |
|
|
|
1,604 |
|
|
|
833 |
|
Courtyard
|
|
Brookline/Boston,
MA
|
|
6/16/2005
|
|
|
188 |
|
|
|
9,665 |
|
|
|
5,086 |
|
Holiday
Inn Express
|
|
Oxford
Valley, PA
|
|
5/26/2005
|
|
|
88 |
|
|
|
2,300 |
|
|
|
1,280 |
|
Holiday
Inn Express
|
|
Malvern,
PA
|
|
5/24/2005
|
|
|
88 |
|
|
|
1,905 |
|
|
|
1,036 |
|
Holiday
Inn Express & Suites
|
|
King
of Prussia, PA
|
|
5/23/2005
|
|
|
155 |
|
|
|
3,939 |
|
|
|
2,206 |
|
Hampton
Inn
|
|
Herald
Square, Manhattan, NY
|
|
4/1/2005
|
|
|
136 |
|
|
|
8,315 |
|
|
|
6,019 |
|
Fairfield
Inn
|
|
Laurel,
MD
|
|
1/31/2005
|
|
|
109 |
|
|
|
2,543 |
|
|
|
2,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,141 |
|
|
$ |
38,354 |
|
|
$ |
20,373 |
|
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 ranging between 8% and 12%. Interest
income from development loans receivable was $2,487 for the twelve months ended
December 31, 2006 compared to $3,940 for the same period in 2005. The
average balance of development loans receivable outstanding in 2006 was lower
then the average balance outstanding in 2005 resulting in a $1,453, or 36.9%,
decrease in interest income. The lower average balance outstanding in
2006 was partially due to an increase in our investment in land leased to
developers for the construction of hotel properties. In June and July
of 2006 we acquired two parcels of land which are being leased to hotel
developers. Our net investment in these parcels is approximately $18,946. 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 year ended December 31, 2006, we recorded $2,071 in land lease revenue from
these parcels. We incurred $1,189 in expense related to these land
leases resulting in a contribution of $882 to our operating income during the
twelve months ended December 31, 2006.
Total
revenues for the year ended December 31, 2006 also included hotel lease revenue
for the lease of the Holiday Inn Conference Center, New
Cumberland, Pennsylvania 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 $391 was recorded in
the twelve months ended December 31, 2006 related to the lease of this
property.
Other
revenue consists primarily of fees earned for asset management services provided
to properties owned by two of our unconsolidated joint
ventures. Other revenues increased $208, or 39.3%, from $529 during
the twelve months ended December 31, 2005 to $737 during the twelve months ended
December 31, 2006. We provided asset management services for the
hotels owned by the Mystic Partners joint venture for the entire year in
2006. In 2005 we provided asset management services for this
portfolio for a partial year.
Income
from unconsolidated joint venture investments increased $1,342 from $457 for the
year ended December 31, 2005 to $1,799 for the year ended December 31, 2006. In
addition to the two joint venture interest acquired in 2006 noted above, we
acquired joint venture interests in the following 10 properties during the
twelve months ended December 31, 2005:
Joint
Venture
|
|
Brand
|
|
Name
|
|
Acquisition
Date
|
|
Rooms
|
|
|
Ownership
%
|
|
|
Hersha
Preferred
Equity
Return
|
|
SB
Partners, LLC
|
|
Holiday
Inn Express
|
|
South
Boston, MA
|
|
10/7/2005
|
|
|
118 |
|
|
|
50.0% |
|
|
|
10.0% |
|
Mystic
Partners, LLC
|
|
Hilton
|
|
Hartford,
CT
|
|
10/6/2005
|
|
|
393 |
|
|
|
8.8% |
|
|
|
8.5% |
|
Mystic
Partners, LLC
|
|
Residence
Inn
|
|
Mystic,
CT
|
|
9/15/2005
|
|
|
133 |
|
|
|
66.7% |
|
|
|
8.5% |
|
Mystic
Partners, LLC
|
|
Marriott
|
|
Mystic,
CT
|
|
8/9/2005
|
|
|
285 |
|
|
|
66.7% |
|
|
|
8.5% |
|
Mystic
Partners, LLC
|
|
Courtyard
|
|
Norwich,
CT
|
|
8/9/2005
|
|
|
144 |
|
|
|
66.7% |
|
|
|
8.5% |
|
Mystic
Partners, LLC
|
|
Courtyard
|
|
Warwick,
RI
|
|
8/9/2005
|
|
|
92 |
|
|
|
66.7% |
|
|
|
8.5% |
|
Mystic
Partners, LLC
|
|
Residence
Inn
|
|
Danbury,
CT
|
|
8/9/2005
|
|
|
78 |
|
|
|
66.7% |
|
|
|
8.5% |
|
Mystic
Partners, LLC
|
|
Residence
Inn
|
|
Southington,
CT
|
|
8/9/2005
|
|
|
94 |
|
|
|
44.7% |
|
|
|
8.5% |
|
Mystic
Partners, LLC
|
|
Springhill
Suites
|
|
Waterford,
CT
|
|
8/9/2005
|
|
|
80 |
|
|
|
66.7% |
|
|
|
8.5% |
|
Hiren
Boston, LLC
|
|
Courtyard
|
|
South
Boston, MA
|
|
7/1/2005
|
|
|
164 |
|
|
|
50.0% |
|
|
|
10.0% |
|
Income
from unconsolidated joint venture investments was favorably impacted by the
inclusion of these investments for a full twelve months in 2006.
For the
year ended December 31, 2006, interest income increased $580 compared to the
same period in 2005. This increase was the result of an increase in interest
bearing deposits related to the acquisition of hotel properties, interest earned
on proceeds from the offering of our common stock during 2006, and an increase
in interest income on our escrow deposits.
Expenses
Total
hotel operating expenses increased 81.8% to approximately $79,430 for the year
ended December 31, 2006 from $43,700 for the year ended December 31, 2005.
Consistent with the increase in hotel operating revenues, hotel operating
expenses increased primarily due to the acquisitions consummated since the
comparable period in 2005, as mentioned above. The acquisitions also resulted in
an increase in depreciation and amortization from $8,919 for the year ended
December 31, 2005 to $18,954 for the year ended December 31, 2006. Similarly,
real estate and personal property tax and property insurance increased $2,572,
or 73.1%, in the year ended December 31, 2006 when compared to the same period
in 2005.
General
and administrative expense increased by approximately $1,271 from $4,967 in 2005
to $6,238 in 2006. General and administrative expenses increased primarily due
to higher compensation expense related to an increase in staffing in our asset
management and accounting teams and an increase in incentive compensation. Also
included in general administrative costs are approximately $316 of terminated
deal costs written off in 2006 compared to $41 in 2005. 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 year ended
December 31, 2005.
Net
Income
Net
income applicable to common shareholders for year ended December 31, 2006 was
approximately $298 compared to net income applicable to common shareholders of
$1,377 for the same period in 2005.
Operating
income for the year ended December 31, 2006 was $28,256 compared to operating
income of $14,213 during the same period in 2005. The $14,043, or 98.8%,
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 $12,952 from $12,471 for the year ended December 31,
2005 to $25,423 for the year ended December 31, 2006. The increase in interest
expense is the result of our issuance of $51,548 of notes payable in the second
quarter of 2005 and mortgages placed on newly acquired properties. Also in the
year ended December 31, 2006, we refinanced $56,125 in variable rate debt,
replacing it with $62,800 fixed rate debt, and paid down $12,907 on another
mortgage. We also replaced our line of credit with an increased
credit facility. As a result of terminating the variable rate debt and line of
credit, we incurred $1,485 in debt extinguishment expense due to early
termination fees and to write-off deferred loan costs associated with the
retired debt and credit facility.
Included
in net income applicable to common shareholders for the year ended December 31,
2006 is $612 in income from discontinued operations compared to a $589 loss
during the same period in 2005. Discontinued operations results from the
operations of two properties that were sold in June of 2005, one property sold
in April 2006, two properties sold in November 2006, two properties sold in
December 2006, and two properties sold in November 2007. Also included in net
income applicable to common shareholders for the year ended December 31, 2006 is
a gain of $693 resulting from the sale of the Holiday Inn Express in Hartford,
CT, the Hampton Inn in Peachtree, GA, the Hampton Inn in Newnan, GA, the Comfort
Suites in Duluth, GA, and the Holiday Inn Express, Duluth, GA which had been
held for sale. Included in net income applicable to common shareholders for the
year ended December 31, 2005 is a gain of $1,161 resulting from the sale of
Doubletree Club, Jamaica, NY and the Holiday Inn Express, Hunters Point,
NY.
Net
income applicable to common shareholders was also negatively impacted by $4,800
in preferred dividends declared in 2006, compared to $1,920 in preferred
dividends declared during 2005 on our outstanding 2,400,000 shares of 8.0%
Series A cumulative redeemable preferred stock issued in August of
2005.
LIQUIDITY,
CAPITAL RESOURCES, AND EQUITY OFFERINGS
(dollars
in thousands, except per share data)
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 lines 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 have a
debt policy that limits our consolidated indebtedness to less than 67% of the
fair market value for the hotels in which we have invested. However, our
organizational documents do not limit the amount of indebtedness that we may
incur and our Board of Trustees may modify our debt policy at any time without
shareholder approval. We intend to repay indebtedness incurred under the line of
credit from time to time, for acquisitions or otherwise, out of cash flow and
from the proceeds of issuances of additional common shares and other
securities.
We intend
to invest in additional hotels only as suitable opportunities arise and adequate
sources of financing are available. 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 may
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
and Cash Equivalents
The cash
and cash equivalents balance of $12,327 at December 31, 2007 was primarily
the result of cash provided by operations. Cash and cash equivalents
are generally used to reduce obligations under our line of credit, pay dividends
and distributions or invest in hotel properties or loans to hotel
development projects.
Line
of Credit Facility
We
maintain a revolving credit loan and security agreement with Commerce Bank, N.A.
with a maximum amount of $100,000. Borrowings under this facility bear interest
at 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. The
line of credit is collateralized by title-insured, first-lien mortgages on the
Holiday Inn Express, Harrisburg, PA, the Mainstay Suites and Sleep Inn, King of
Prussia, PA, the Fairfield Inn, Laurel, MD, the Hampton Inn, Philadelphia, PA,
the Residence Inn, Norwood, MA, and the Residence Inn, Langhorne, PA.
Additionally, the line of credit is collateralized by a first lien-security
interest in all existing and future assets of HHLP, and collateral assignment of
all hotel management contracts of the management companies in the event of
default. The line of credit includes financial covenants and requires us to
maintain minimum tangible net worth of $110.0 million; maximum accounts and
other receivables from affiliates of $75.0 million; and certain financial
ratios. The Company is in compliance with each of these covenants as of December
31, 2007. The line of credit expires on December 31, 2008. We intend
to refinance remaining balances at the end of the line of credit facilities’
term.
Mortgages
and Notes Payable
During
2007, in connection with the acquisition of hotel properties and refinancing of
existing mortgage debt, we entered into or assumed $70,564 in mortgages and
notes payable. We recorded premiums of $952 on fixed rate mortgages
and notes payable assumed in the acquisition of hotel properties.
The
Company has two junior subordinated notes payable in the aggregate amount of
$51,548 to statutory trusts entities 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% pre annum.
Equity
Offerings
On
December 11, 2006, we completed a public offering of 7,200,000 common shares at
$11.20 per share. On December 13, 2006, the underwriter exercised its
over-allotment option with respect to that offering, and we issued an additional
1,080,000 common shares at $11.20 per share. Proceeds to us, net of underwriting
discounts and commissions and expenses, were approximately $87,658. Immediately
upon closing the offering, we contributed all of the net proceeds of the
offering to the Partnership in exchange for additional Partnership interests.
The net offering proceeds were used to repay indebtedness and to lend additional
development financing to third parties.
On
September 19, 2006, we completed a public offering of 3,775,000 common shares at
$9.75 per share. On September 28, 2006, the underwriter exercised its
over-allotment option with respect to that offering, and we issued an additional
566,250 common shares at $9.75 per share. Proceeds to us, net of underwriting
discounts and commissions and expenses, were approximately $40,004. Immediately
upon closing the offering, we contributed all of the net proceeds of the
offering to the Partnership in exchange for additional Partnership interests.
The net offering proceeds were used to repay indebtedness.
On April
28, 2006, we completed a public offering of 6,520,000 common shares at $9.00 per
share. On May 9, 2006, the underwriter exercised its over-allotment option with
respect to that offering, and we issued an additional 977,500 common shares at
$9.00 per share. Proceeds to us, net of underwriting discounts and commissions
and expenses, were approximately $63,353. Immediately upon closing the offering,
we contributed all of the net proceeds of the offering to the Partnership in
exchange for additional Partnership interests. Of the net offering proceeds,
approximately $30,000 was used to repay indebtedness and approximately $19,500
was used to fund property acquisitions.
On August
5, 2005, the Company completed a public offering of 2,400,000 of its 8.00%
Series A Cumulative Redeemable Preferred Shares of Beneficial Interest,
liquidation preference $25.00 per share. Net proceeds of the offering, less
expenses and underwriters commissions, were approximately $57,720. Proceeds from
the offering were used to finance the acquisition of the Company’s interests in
Mystic Partners, LLC and SB Partners, LLC. The remaining net proceeds have been
principally allocated to fund secured development loans and for general
corporate purposes.
CASH FLOW
ANALYSIS
(dollars
in thousands, except per share data)
Comparison
of year ended December 31, 2007 to year ended December 31, 2006
Net cash
provided by operating activities for the year ended December 31, 2007, and 2006,
was $59,300 and $27,217, respectively. The increase in net cash provided by
operating activities was primarily the result of an increase in income before
depreciation and amortization expense and accounts payable and accrued expenses
and decreases in escrows and due from related party. This was
partially offset by an increase in hotel accounts receivable and a decrease in
due to related party.
Net cash
used in investing activities for the year ended December 31, 2007 and
2006 decreased $367,854, from $413,881 in the year ended December 31, 2006
compared to $46,027 for the year ended December 31, 2007. Net cash used for
the purchase of hotel properties decreased $362,701 in 2007 over 2006 as the
number of hotels acquired decreased and units of our operating partnership were
issued in place of cash for acquisitions in 2007. Also, cash provided
by the disposition of hotel assets held for sale was $11,905 in 2007 compared to
$9,800 in 2006. Cash provided by distributions from unconsolidated joint
ventures increased $3,718 while advances and capital contributions for
unconsolidated joint ventures decreased from $4,209 in 2006 to $2,309 in 2007.
The increase in distributions from unconsolidated joint ventures in 2007 was
primarily the result of proceeds of debt refinancing and improved cash flow in
certain joint venture interests. We increased our capital expenditures from
$11,020 in 2006 to $16,773 in 2007 as a result of continuing property
improvement plans at certain properties in 2007 in addition to capital
expenditures in the ordinary course of business.
Net cash
used in financing activities for the year ended December 31, 2007 was $11,262
compared to cash provided by financing activities of $388,200 for the year ended
December 31, 2006. This change was, in part, the result of proceeds from
mortgages and notes payable, net of repayments, of $7,826 in 2007 compared to
net proceeds of $199,983 in 2006. The decrease in net proceeds from
mortgages and notes payable was due to a decrease in our acquisition activity in
2007. Also included in cash provided by financing activities in 2006
were net proceeds from the issuance of common stock of
$191,015. Dividends paid on common shares increased $11,250 in 2007,
from $18,174 during the year ended December 31, 2006 to $29,424 during the same
period in 2007.
Comparison
of year ended December 31, 2006 to year ended December 31, 2005
Net cash
provided by operating activities for the year ended December 31, 2006, and 2005,
was $27,217 and $15,002, respectively. The increase in net cash provided by
operating activities was primarily the result of an increase in income before
depreciation and amortization and debt extinguishment expense, distributions
from unconsolidated joint ventures, and increases in accounts payable and
accrued expenses. This was offset by an increase in hotel accounts receivable,
other assets, and due from related party and a decrease in due to related
party.
Net cash
used in investing activities for the year ended December 31, 2006 and 2005
increased $223,056, from $190,825 in the year ended December 31, 2005 compared
to $413,881 for the year ended December 31, 2006. Net cash used for the purchase
of hotel properties increased $260,300 in 2006 over 2005. We increased our
capital expenditures from $2,958 in 2005 to $11,020 in 2006 as a result of
undertaking property improvement plans at certain properties in 2006 in addition
to capital expenditures in the ordinary course of business. We also increased
cash used to invest in development loans receivable, net of repayments, by
$13,946 in 2006 compared to 2005, as the originations of new development loans
exceeded repayments. The increases in these expenditures in 2006 were offset by
a decrease in advances and capital contributions for unconsolidated joint
ventures from $47,704 in 2005 to $4,209 in 2006. The capital contributions for
unconsolidated joint ventures in 2005 was primarily due to our investment in the
Mystic Partners joint venture. The uses of cash in 2006 were also offset by cash
provided by the disposition of hotel assets held for sale of $9,800 received in
2006 compared to $6,288 in 2005. Also in 2005, $8,250 was on deposit
for hotel properties that were acquired in the first quarter of 2006
compared to $2,100 on deposit as of December 31, 2006.
Net cash
provided by financing activities for the year ended December 31, 2006 was
$388,200 compared to cash provided by financing activities of $163,989 for the
year ended December 31, 2005. This increase was, in part, the result of proceeds
from mortgages and notes payable, net of repayments, of $199,983 in 2006
compared to net proceeds of $127,503 in 2005. The increase in net
proceeds from mortgages and notes payable was due to an increase in our
acquisition activity in 2006. Cash proceeds of $191,015 resulted from
three separate offerings of common stock in 2006. As a result of the
issuance of common shares, dividends paid on common shares increased $3,575 in
2006, from $14,599 during the year ended December 31, 2005 to $18,174 during the
same period in 2006. We received $57,720 from the issuance of 8.0% Series A
Preferred Shares were received during the year ended December 31, 2005.
Dividends of $947 were paid on the preferred shares during the year ended
December 31, 2005. During the same period in 2006, we paid $4,800 in dividends
on preferred shares. Net cash provided by borrowing under our line of
credit facility was $24,000 in 2006 compared to net repayments of $1,027 in
2005. Net borrowings under the line of credit were used primarily in
2006 to fund the acquisition of hotel properties.
FUNDS
FROM OPERATIONS
(in
thousands, except share data)
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.
|
|
Twelve
Months Ending
|
|
|
|
December
31, 2007
|
|
|
December
31, 2006
|
|
|
December
31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
income applicable to common shares
|
|
$ |
13,047 |
|
|
$ |
298 |
|
|
$ |
1,377 |
|
Income
allocated to minority interest
|
|
|
1,765 |
|
|
|
536 |
|
|
|
76 |
|
Income
(loss) of discontinued operations allocated to minority
interest
|
|
|
57 |
|
|
|
80 |
|
|
|
(83 |
) |
Income
from unconsolidated joint ventures
|
|
|
(3,476 |
) |
|
|
(1,799 |
) |
|
|
(457 |
) |
Gain
on sale of assets
|
|
|
(3,745 |
) |
|
|
(693 |
) |
|
|
(1,161 |
) |
Depreciation
and amortization
|
|
|
34,336 |
|
|
|
18,954 |
|
|
|
8,919 |
|
Depreciation
and amortization from discontinued operations
|
|
|
794 |
|
|
|
1,316 |
|
|
|
1,835 |
|
FFO
related to the minority interests in consolidated joint ventures (1)
|
|
|
(652 |
) |
|
|
(714 |
) |
|
|
(147 |
) |
Funds
from consolidated hotel operations applicable to common shares and
Partnership units
|
|
|
42,126 |
|
|
|
17,978 |
|
|
|
10,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Unconsolidated Joint Ventures
|
|
|
3,476 |
|
|
|
1,799 |
|
|
|
457 |
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of purchase price in excess of historical cost (2)
|
|
|
2,055 |
|
|
|
1,817 |
|
|
|
653 |
|
Interest
in deferred financing costs written off in unconsolidated joint venture
debt extinguishment
|
|
|
(2,858 |
) |
|
|
(207 |
) |
|
|
- |
|
Interest
in depreciation and amortization of unconsolidated joint venture (3)
|
|
|
5,022 |
|
|
|
4,549 |
|
|
|
3,026 |
|
Funds
from unconsolidated joint ventures operations applicable to common shares
and Partnership units
|
|
|
7,695 |
|
|
|
7,958 |
|
|
|
4,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
from Operations applicable to common shares and Partnership
units
|
|
$ |
49,821 |
|
|
$ |
25,936 |
|
|
$ |
14,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares and Units Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
40,718,724 |
|
|
|
27,118,264 |
|
|
|
20,293,554 |
|
Diluted
|
|
|
46,183,394 |
|
|
|
30,672,625 |
|
|
|
23,141,994 |
|
|
(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.
|
FFO was
$49,821 for the year ended December 31, 2007, which was an increase of $23,885,
or 92.1%, over FFO in the comparable period in 2006, which was $25,936. The
increase in FFO was primarily a result of continued strength in the lodging
industry and the markets where our properties are located; the benefits of
acquiring assets and interests in joint ventures since December 31, 2006 and
continued stabilization and maturation of the existing portfolio.
FFO was
negatively impacted by increases in our interest expense and dividends paid to
our preferred shareholders during the year ended December 31, 2007.
For the
year ended December 31, 2006, FFO increased $11,441, or 78.9% over the same
period in 2005. The increase in FFO was primarily a result of growth in the
lodging industry and the markets where our properties are located, the benefits
of acquiring assets and interests in joint ventures since December 31, 2005 and
continued stabilization and maturation of the existing portfolio.
FFO was
negatively impacted by increases in our interest expense and dividends paid to
our preferred shareholders during the year ended December 31, 2006.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities.
On an
on-going basis, estimates are evaluated by us, including those related to
carrying value of investments in hotel properties. Our estimates are based upon
historical experience and on various other assumptions we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements:
Approximately
95% of our revenues are derived from hotel room revenues and revenue from other
hotel operating departments. We directly recognize revenue and expense for all
consolidated hotels as hotel operating revenue and hotel operating expense
when earned and incurred. These revenues are recorded net of any sales or
occupancy taxes collected from our guests. All revenues are recorded on an
accrual basis, as earned. We participate in frequent guest programs sponsored by
the brand owners of our hotels and we expense the charges associated with those
programs, as incurred.
Revenue
for interest on development loan financing is recorded in the period earned
based on the interest rate of the loan and outstanding balance during the
period. Development loans receivable and accrued interest on the development
loans receivable are evaluated to determine if outstanding balances are
collectible. Interest is recorded only if it is determined the
outstanding loan balance and accrued interest balance are
collectible.
We lease
land to hotel developers under fixed lease agreements. In addition to base
rents, these lease agreements contain provisions that require the lessee to
reimburse real estate taxes, debt service and other impositions. Base rents and
reimbursements for real estate taxes, debt service and other impositions are
recorded in land lease revenue on an accrual basis. Expenses for real
estate taxes, interest expense, and other impositions that are reimbursed under
the land leases are recorded in land lease expense when they are
incurred.
We lease
a hotel to a third party under a fixed lease agreement. In addition to base
rents, the lease agreement contains provisions that require the lessee to
reimburse us for real estate taxes, capital expenditures and other impositions.
Base rents and reimbursements for real estate taxes, capital expenditures and
other impositions are recorded in hotel lease revenue on an accrual
basis. Expenses for real estate taxes and other impositions that are
reimbursed under the leases are recorded in operating expenses when
incurred.
Other
revenues consist primarily of fees earned for asset management services provided
to hotels we own through unconsolidated joint ventures. Fees are earned as a
percentage of the hotels revenue and are recorded in the period
earned.
Investment
in Hotel Properties
Investments
in hotel properties are recorded at cost. Improvements and replacements are
capitalized when they extend the useful life of the asset. Costs of repairs and
maintenance are expensed as incurred. Depreciation is computed using the
straight-line method over the estimated useful life of up to 40 years for
buildings and improvements, five to seven years for furniture, fixtures and
equipment. We are required to make subjective assessments as to the useful lives
of our properties for purposes of determining the amount of depreciation to
record on an annual basis with respect to our investments in hotel properties.
These assessments have a direct impact on our net income because if we were to
shorten the expected useful lives of our investments in hotel properties we
would depreciate these investments over fewer years, resulting in more
depreciation expense and lower net income on an annual basis.
We follow Statement of
Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” to
account for our acquisition of hotel properties. Under SFAS No. 141 the purchase
price of an acquisition is allocated based on the fair value of identifiable
tangible and intangible assets acquired and liabilities assumed.
Estimating techniques and assumptions used in determining fair values involve
significant estimates and judgments. These estimates and judgments
have a direct impact on the carrying value of our assets and liabilities which
can directly impact the amount of depreciation expense recorded on an annual
basis and could have an impact on our assessment of potential impairment of our
investment in hotel properties.
We follow
Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets,” which established a single
accounting model for the impairment or disposal of long-lived assets including
discontinued operations. SFAS No. 144 requires that the operations related to
properties that have been sold or properties that are intended to be sold be
presented as discontinued operations in the statement of operations for all
periods presented, and properties intended to be sold to be designated as “held
for sale” on the balance sheet.
Based on
the occurrence of certain events or changes in circumstances, we review the
recoverability of the property’s carrying value. Such events or changes in
circumstances include the following:
|
·
|
a
significant decrease in the market price of a long-lived
asset;
|
|
·
|
a
significant adverse change in the extent or manner in which a long-lived
asset is being used or in its physical
condition;
|
|
·
|
a
significant adverse change in legal factors or in the business climate
that could affect the value of a long-lived asset, including an adverse
action or assessment by a
regulator;
|
|
·
|
an
accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of a long-lived
asset;
|
|
·
|
a
current-period operating or cash flow loss combined with a history of
operating or cash flow losses or a projection or forecast that
demonstrates continuing losses associated with the use of a long-lived
asset; and
|
|
·
|
a
current expectation that, it is more likely than not
that, a long-lived asset will be sold or otherwise disposed of
significantly before the end of its previously estimated useful
life.
|
We review
our portfolio on an on-going basis to evaluate the existence of any of the
aforementioned events or changes in circumstances that would require us to test
for recoverability. In general, our review of recoverability is based on an
estimate of the future undiscounted cash flows, excluding interest charges,
expected to result from the property’s use and eventual disposition. These
estimates consider factors such as expected future operating income, market and
other applicable trends and residual value expected, as well as the effects of
hotel demand, competition and other factors. If impairment exists due to the
inability to recover the carrying value of a property, an impairment loss is
recorded to the extent that the carrying value exceeds the estimated fair value
of the property. We are required to make subjective assessments as to whether
there are impairments in the values of our investments in hotel properties.
These assessments have a direct impact on our net income because recording an
impairment loss results in an immediate negative adjustment to net
income.
Investment
in Joint Ventures
Properties
owned in joint ventures are consolidated if the determination is made that we
are the primary beneficiary in a variable interest entity (VIE) or we maintain
control of the asset through our voting interest or other rights in the
operation of the entity. We evaluate whether we have a controlling financial
interest in a VIE through means other than voting rights and determine whether
we should include the VIE in our consolidated financial statements. Our
examination of each joint venture consists of reviewing the sufficiency of
equity at risk, controlling financial interests, voting rights, and the
obligation to absorb expected losses and expected gains, including residual
returns. Control can also be demonstrated by the ability of the general partner
to manage day-to-day operations, refinance debt and sell the assets of the
partnerships without the consent of the limited partners and the inability of
the limited partners to replace the general partner. This evaluation requires
significant judgment.
If it is
determined that we do not have a controlling interest in a joint venture, either
through our financial interest in a VIE or our voting interest in a voting
interest entity, the equity method of accounting is used. Under this method, the
investment, originally recorded at cost, is adjusted to recognize our share of
net earnings or losses of the affiliates as they occur rather than as dividends
or other distributions are received, limited to the extent of our investment in,
advances to and commitments for the investee. Pursuant to our joint venture
agreements, allocations of profits and losses of some of our investments in
unconsolidated joint ventures may be allocated disproportionately as compared to
nominal ownership percentages due to specified preferred return rate
thresholds.
Accounting
for Derivative Financial Investments and Hedging Activities
We use
derivatives to hedge, fix and cap interest rate risk and we account for our
derivative and hedging activities using SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended, which requires all derivative
instruments to be carried at fair value on the balance sheet. Derivative
instruments designated in a hedge relationship to mitigate exposure to
variability in expected future cash flows, or other types of forecasted
transactions, are considered cash flow hedges. We formally document all
relationships between hedging instruments and hedged items, as well as our
risk-management objective and strategy for undertaking each hedge transaction.
Cash flow hedges that are considered highly effective are accounted for by
recording the fair value of the derivative instrument on the balance sheet as
either an asset or liability, with a corresponding amount recorded in other
comprehensive income within shareholders’ equity. Amounts are reclassified from
other comprehensive income to the income statements in the period or periods the
hedged forecasted transaction affects earnings.
Under
cash flow hedges, derivative gains and losses not considered highly effective in
hedging the change in expected cash flows of the hedged item are recognized
immediately in the income statement. For hedge transactions that do not qualify
for the short-cut method, at the hedge’s inception and on a regular basis
thereafter, a formal assessment is performed to determine whether changes in the
cash flows of the derivative instruments have been highly effective in
offsetting changes in cash flows of the hedged items and whether they are
expected to be highly effective in the future.
RECENTLY
ISSUED ACCOUNTING STANDARDS
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 adoption of SFAS No. 157
is not expected to 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 adoption of SFAS No. 159 is not
expected to have a material effect on the Company’s financial
statements.
SFAS
No. 141R
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141R, “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R
requires most identifiable assets, liabilities, noncontrolling interests,
and goodwill acquired in a business combination to be recorded at “full fair
value.” SFAS No. 141R is effective for fiscal years beginning after December 15,
2008. The Company has not determined whether the adoption of SFAS No. 141R will
have a material effect on the Company’s financial statements.
SFAS
No. 160
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No.
160”). SFAS No. 160 requires noncontrolling interests (previously
referred to as minority interests) to be reported as a component of equity,
which changes the accounting for transactions with noncontrolling interest
holders. SFAS No. 160 is effective for fiscal years beginning after December 15,
2008. The Company has not determined whether the adoption of SFAS No. 160 will
have a material effect on the Company’s financial statements.
RELATED
PARTY TRANSACTIONS
We have
entered into a number of transactions and arrangements that involve related
parties. For a description of the transactions and arrangements, please see the
Notes to the consolidated financial statements.
CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS
The
following table summarizes our contractual obligations and commitments to make
future payments under contracts, such as debt and lease agreements, as of
December 31, 2007.
Contractual
Obligations
(in
thousands)
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
Long
Term Debt
|
|
$ |
25,670 |
|
|
$ |
66,687 |
|
|
$ |
31,669 |
|
|
$ |
6,802 |
|
|
$ |
12,144 |
|
|
$ |
476,409 |
|
Interest
Expense on Long Term Debt
|
|
|
37,055 |
|
|
|
32,572 |
|
|
|
30,073 |
|
|
|
29,655 |
|
|
|
28,887 |
|
|
|
87,586 |
|
Credit
Facility
|
|
|
43,700 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
Expense on Credit Facility
|
|
|
2,841 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Hotel
Ground Rent
|
|
|
606 |
|
|
|
615 |
|
|
|
622 |
|
|
|
648 |
|
|
|
681 |
|
|
|
66,496 |
|
Total
|
|
$ |
109,872 |
|
|
$ |
99,874 |
|
|
$ |
62,364 |
|
|
$ |
37,105 |
|
|
$ |
41,712 |
|
|
$ |
630,491 |
|
The
carrying value of the mortgages and notes payable and the line of credit
exceeded the fair value by approximately $52 million at December 31,
2007.
Item
7A. Quantitative and
Qualitative Disclosures About Market Risk (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 December 31, 2007, we
maintained a balance of $43,700 under our Line of Credit. The total fixed rate
mortgages payable of $553,039 had a current weighted average interest rate of
6.19%. The total floating rate mortgages payable of $66,341 had a current
weighted average interest rate of 7.43%.
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 an interest rate swap related to debt on the Four Points by
Sheraton, Revere and an interest rate cap related to debt on Hotel 373, New
York, NY. We do not intend to enter into derivative or interest rate
transactions for speculative purposes.
As of
December 31, 2007, approximately 89.3% of our outstanding mortgages payable are
subject to fixed rates, including the debt whose rate is fixed through a
derivative instrument, while approximately 10.7% of our outstanding mortgages
payable are subject to floating rates. As of December 31, 2006, approximately
95.5% of our outstanding mortgages payable were subject to fixed rates,
including the debt whose rate is fixed through a derivative instrument, while
approximately 4.5% of our outstanding mortgages payable were subject to floating
rates. The total weighted average interest rate on our debt and Line of Credit
as of December 31, 2007 was approximately 6.35%, compared to 6.37% as of
December 31, 2006. 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
December 31, 2007, our interest expense for the year ended December 31, 2007
would have been increased or decreased by approximately $1,003.
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
rise 100 basis points and our fixed rate debt balance remains constant, we
expect the fair value of our debt to decrease. The sensitivity analysis related
to our fixed-rate debt assumes an immediate 100 basis point move in interest
rates from their December 31, 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 $569 million, and a 100
basis point decrease in market interest rates would result in the fair value of
our fixed-rate debt approximating $659 million.
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 December 31, 2007, the following table presents expected
principal repayments and related weighted average interest rates by expected
maturity dates (in thousands):
Mortgages
& Notes Payable
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate Debt
|
|
|
$ |
11,744 |
|
|
$ |
29,568 |
|
|
$ |
24,420 |
|
|
$ |
6,384 |
|
|
$ |
6,779 |
|
|
$ |
474,145 |
|
|
$ |
553,039 |
|
Average
Interest Rate
|
|
|
|
6.19% |
|
|
|
6.16% |
|
|
|
6.06% |
|
|
|
6.06% |
|
|
|
6.06% |
|
|
|
6.06% |
|
|
|
6.10% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
Rate Debt
|
|
|
$ |
13,926 |
|
|
$ |
37,118 |
|
|
$ |
7,249 |
|
|
$ |
418 |
|
|
$ |
5,366 |
|
|
$ |
2,264 |
|
|
$ |
66,341 |
|
Average
Interest Rate
|
|
|
|
6.80% |
|
|
|
6.69% |
|
|
|
6.85% |
|
|
|
6.84% |
|
|
|
7.35% |
|
|
|
7.35% |
|
|
|
6.97% |
|
|
subtotal
|
|
$ |
25,670 |
|
|
$ |
66,687 |
|
|
$ |
31,669 |
|
|
$ |
6,802 |
|
|
$ |
12,144 |
|
|
$ |
476,409 |
|
|
$ |
619,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Facility (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
43,700 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
43,700 |
|
Average
Interest Rate
|
|
|
|
6.50% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$ |
69,370 |
|
|
$ |
66,687 |
|
|
$ |
31,669 |
|
|
$ |
6,802 |
|
|
$ |
12,144 |
|
|
$ |
476,409 |
|
|
$ |
663,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Our
Credit Facility has a term that expires in December 2008.
|
|
|
|
|
|
|
|
|
|
The table
incorporates only those exposures that existed as of December 31, 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. The carrying
value of the mortgages and notes payable and the line of credit exceeded the
fair value by approximately $52,093 at December 31, 2007.
At
December 31, 2007, the fair value of the interest rate swap was $120 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 December 31, 2007, the fair value of the interest
rate cap was $1 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 $257, a loss of $94, and a gain of $294 for the years ended December 31,
2007, 2006 and 2005, respectively, for derivatives designated as cash flow
hedges which were reflected on our Balance Sheet in Accumulated Other
Comprehensive Income. Hedge ineffectiveness of $15, $14 and $13 on cash flow
hedges was recognized in unrealized gain/loss on derivatives during 2007, 2006
and 2005, respectively.
Item
8. Financial Statements and
Supplementary Data
Hersha
Hospitality Trust
|
|
Page
|
Hersha
Hospitality Trust
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
46
|
Consolidated
Balance Sheets as of December 31, 2007 and 2006
|
|
47
|
Consolidated
Statements of Operations for the years ended December 31, 2007, 2006 and
2005
|
|
48
|
Consolidated
Statements of Shareholders’ Equity and Comprehensive Income for the years
ended December 31, 2007, 2006 and 2005
|
|
50
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2007, 2006 and
2005
|
|
51
|
Notes
to Consolidated Financial Statements
|
|
52
|
Schedule
III - Real Estate and Accumulated Depreciation for the year ended December
31, 2007
|
|
87
|
Report of Independent
Registered Public Accounting Firm
The Board
of Trustees and Stockholders of
Hersha
Hospitality Trust:
We have
audited the accompanying consolidated balance sheets of Hersha Hospitality Trust
and subsidiaries as of December 31, 2007 and 2006, and the related consolidated
statements of operations, shareholders' equity and comprehensive income, and
cash flows for each of the years in the three-year period ended December 31,
2007. In connection with our audits of the consolidated financial statements, we
have also audited the financial statement schedule as listed in the accompanying
index. Hersha Hospitality Trust's management is responsible for these
consolidated financial statements and financial statement
schedule. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits. We did not audit the financial statements of Mystic Partners,
LLC an equity method investee company (See note 3) as of and for the year ended
December 31, 2006. The Company's investment in Mystic Partners, LLC as of
December 31, 2006, was $39,180,000, and its equity in earnings of Mystic
Partners, LLC was $1,691,000 for the year ended December 31, 2006. The
2006 financial statements of Mystic Partners, LLC were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for Mystic Partners as of and for the year ended December
31, 2006, is based on the report of the other auditors.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinions.
In our
opinion, based on our audits and the report of other auditors related to 2006,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Hersha Hospitality Trust and
subsidiaries as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2007, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Hersha Hospitality Trust
and subsidiaries’ internal control over financial reporting as of December 31,
2007, based on criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated March 11, 2008, expressed an unqualified opinion on
the effectiveness of the Company’s internal control over financial
reporting.
/s/ KPMG
LLP
Philadelphia,
Pennsylvania
March 11,
2008
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
AS
OF DECEMBER 31, 2007 AND 2006
[IN
THOUSANDS, EXCEPT SHARE AMOUNTS]
|
|
December
31, 2007
|
|
|
December
31, 2006
|
|
Assets:
|
|
|
|
|
|
|
Investment
in Hotel Properties, net of Accumulated Depreciation
|
|
$ |
893,297 |
|
|
$ |
807,784 |
|
Investment
in Joint Ventures
|
|
|
51,851 |
|
|
|
50,234 |
|
Development
Loans Receivable
|
|
|
58,183 |
|
|
|
47,016 |
|
Cash
and Cash Equivalents
|
|
|
12,327 |
|
|
|
10,316 |
|
Escrow
Deposits
|
|
|
13,706 |
|
|
|
14,927 |
|
Hotel
Accounts Receivable, net of allowance for doubtful accounts of $47 and
$30
|
|
|
7,165 |
|
|
|
4,608 |
|
Deferred
Costs, net of Accumulated Amortization of $3,252 and
$1,543
|
|
|
8,048 |
|
|
|
7,525 |
|
Due
from Related Parties
|
|
|
1,256 |
|
|
|
4,930 |
|
Intangible
Assets, net of Accumulated Amortization of $764 and $618
|
|
|
5,619 |
|
|
|
5,594 |
|
Other
Assets
|
|
|
16,155 |
|
|
|
15,274 |
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
1,067,607 |
|
|
$ |
968,208 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
Line
of Credit
|
|
$ |
43,700 |
|
|
$ |
24,000 |
|
Mortgages
and Notes Payable, net of unamortized discount of $72 and
$1,312
|
|
|
619,308 |
|
|
|
556,542 |
|
Accounts
Payable, Accrued Expenses and Other Liabilities
|
|
|
17,728 |
|
|
|
14,740 |
|
Dividends
and Distributions Payable
|
|
|
9,688 |
|
|
|
8,985 |
|
Due
to Related Parties
|
|
|
2,025 |
|
|
|
3,297 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
692,449 |
|
|
|
607,564 |
|
|
|
|
|
|
|
|
|
|
Minority
Interests:
|
|
|
|
|
|
|
|
|
Common
Units
|
|
$ |
42,845 |
|
|
$ |
25,933 |
|
Interest
in Consolidated Joint Ventures
|
|
|
1,908 |
|
|
|
3,092 |
|
|
|
|
|
|
|
|
|
|
Total
Minority Interests
|
|
|
44,753 |
|
|
|
29,025 |
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity:
|
|
|
|
|
|
|
|
|
Preferred
Shares - 8% Series A, $.01 Par Value, 29,000,000 and 10,000,000 Shares
Authorized at December 31, 2007 and 2006, 2,400,000 Shares Issued and
Outstanding at December 31, 2007 and 2006 (Aggregate
Liquidation Preference $60,000 at December 30, 2007 and
2006)
|
|
|
24 |
|
|
|
24 |
|
Common
Shares - Class A, $.01 Par Value, 80,000,000 and 50,000,000 Shares
Authorized at December 2007 and 2006, 41,203,612 and 40,671,950 Shares
Issued and Outstanding at December 31, 2007 and 2006
|
|
|
412 |
|
|
|
405 |
|
Common
Shares - Class B, $.01 Par Value, 1,000,000 and 50,000,000 Shares
Authorized at December 31, 2007 and 2006 None Issued and
Outstanding
|
|
|
- |
|
|
|
- |
|
Accumulated
Other Comprehensive Income
|
|
|
(23 |
) |
|
|
233 |
|
Additional
Paid-in Capital
|
|
|
397,127 |
|
|
|
381,592 |
|
Distributions
in Excess of Net Income
|
|
|
(67,135 |
) |
|
|
(50,635 |
) |
|
|
|
|
|
|
|
|
|
Total
Shareholders' Equity
|
|
|
330,405 |
|
|
|
331,619 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$ |
1,067,607 |
|
|
$ |
968,208 |
|
The
Accompanying Notes Are an Integral Part of These Consolidated Financial
Statements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS]
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Hotel
Operating Revenues
|
|
$ |
229,462 |
|
|
$ |
135,274 |
|
|
$ |
71,280 |
|
Interest
Income from Development Loans
|
|
|
6,046 |
|
|
|
2,487 |
|
|
|
3,940 |
|
Land
Lease Revenue
|
|
|
4,860 |
|
|
|
2,071 |
|
|
|
- |
|
Hotel
Lease Revenue
|
|
|
781 |
|
|
|
391 |
|
|
|
- |
|
Other
Revenues
|
|
|
980 |
|
|
|
737 |
|
|
|
529 |
|
Total
Revenues
|
|
|
242,129 |
|
|
|
140,960 |
|
|
|
75,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel
Operating Expenses
|
|
|
130,925 |
|
|
|
79,430 |
|
|
|
43,700 |
|
Hotel
Ground Rent
|
|
|
856 |
|
|
|
804 |
|
|
|
433 |
|
Land
Lease Expense
|
|
|
2,721 |
|
|
|
1,189 |
|
|
|
- |
|
Real
Estate and Personal Property Taxes and Property Insurance
|
|
|
11,426 |
|
|
|
6,089 |
|
|
|
3,517 |
|
General
and Administrative
|
|
|
8,185 |
|
|
|
6,238 |
|
|
|
4,967 |
|
Depreciation
and Amortization
|
|
|
34,336 |
|
|
|
18,954 |
|
|
|
8,919 |
|
Total
Operating Expenses
|
|
|
188,449 |
|
|
|
112,704 |
|
|
|
61,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
53,680 |
|
|
|
28,256 |
|
|
|
14,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
686 |
|
|
|
1,182 |
|
|
|
602 |
|
Interest
Expense
|
|
|
42,402 |
|
|
|
25,423 |
|
|
|
12,471 |
|
Loss
on Debt Extinguishment
|
|
|
- |
|
|
|
1,485 |
|
|
|
- |
|
Income
before income from Unconsolidated Joint Venture Investments, Minority
Interests and Discontinued Operations
|
|
|
11,964 |
|
|
|
2,530 |
|
|
|
2,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Unconsolidated Joint Venture Investments
|
|
|
3,476 |
|
|
|
1,799 |
|
|
|
457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before Minority Interests and Discontinued Operations
|
|
|
15,440 |
|
|
|
4,329 |
|
|
|
2,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
allocated to Minority Interests in Continuing Operations
|
|
|
1,765 |
|
|
|
536 |
|
|
|
76 |
|
Income
from Continuing Operations
|
|
|
13,675 |
|
|
|
3,793 |
|
|
|
2,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations, net of minority interests (Note 12):
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on Disposition of Hotel Properties
|
|
|
3,745 |
|
|
|
693 |
|
|
|
1,161 |
|
Income
(Loss) from Discontinued Operations
|
|
|
427 |
|
|
|
612 |
|
|
|
(589 |
) |
Income
from Discontinued Operations
|
|
|
4,172 |
|
|
|
1,305 |
|
|
|
572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
17,847 |
|
|
|
5,098 |
|
|
|
3,297 |
|
Preferred
Distributions
|
|
|
4,800 |
|
|
|
4,800 |
|
|
|
1,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income applicable to Common Shareholders
|
|
$ |
13,047 |
|
|
$ |
298 |
|
|
$ |
1,377 |
|
The
Accompanying Notes Are an Integral Part of These Consolidated Financial
Statements.
HERSHA HOSPITALITY TRUST AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS]
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Earnings Per
Share:
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations applicable to common
shareholders
|
|
$ |
0.22 |
|
|
$ |
(0.04 |
) |
|
$ |
0.04 |
|
Income
from Discontinued Operations
|
|
$ |
0.10 |
|
|
$ |
0.05 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income applicable to common shareholders
|
|
$ |
0.32 |
|
|
$ |
0.01 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations applicable to common
shareholders
|
|
$ |
0.22
|
* |
|
$ |
(0.04 |
)* |
|
$ |
0.04 |
|
Income
from Discontinued Operations
|
|
$ |
0.10
|
* |
|
$ |
0.05
|
* |
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income applicable to common shareholders
|
|
$ |
0.32
|
* |
|
$ |
0.01
|
* |
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
40,718,724 |
|
|
|
27,118,264 |
|
|
|
20,293,554 |
|
Diluted
|
|
|
40,718,724
|
* |
|
|
27,118,264
|
* |
|
|
20,299,937 |
|
*
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 year
ended December 31, 2007, 2006 and 2005 were 5,464,670, 3,554,361 and 2,842,057,
respectively. Unvested stock awards have been omitted from the
denominator for the purpose of computing diluted earnings per share for the
years ended December 31, 2007 and 2006 since the effect of including these
amounts in the denominator would be anti-dilutive to income (loss) from
continuing operations applicable to common shareholders.
The
Accompanying Notes Are an Integral Part of These Consolidated Financial
Statements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
[IN
THOUSANDS, EXCEPT SHARES]
|
|
Class
A
Common
Shares
|
|
|
Class
B
Common
Shares
|
|
|
Class
A
Preferred
Shares
|
|
|
Additional
Paid-In
|
|
|
Other
Comprehensive
|
|
|
Distributions
in
Excess
of
Net
|
|
|
|
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
Shares
|
|
|
Dollars
|
|
|
Capital
|
|
|
Income
|
|
|
Earnings
|
|
|
Total
|
|
Balance
at December 31, 2004
|
|
|
20,289,983 |
|
|
|
203 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
135,363 |
|
|
|
33 |
|
|
|
(15,807 |
) |
|
|
119,792 |
|
Preferred
Stock Issuance
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,400,000 |
|
|
|
24 |
|
|
|
58,086 |
|
|
|
- |
|
|
|
- |
|
|
|
58,110 |
|
Issuance
Costs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(390 |
) |
|
|
- |
|
|
|
- |
|
|
|
(390 |
) |
Unit
Conversion
|
|
|
8,155 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
46 |
|
|
|
- |
|
|
|
- |
|
|
|
46 |
|
Dividends
declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock ($0.72 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(14,649 |
) |
|
|
(14,649 |
) |
Preferred
Stock ($0.89 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,920 |
) |
|
|
(1,920 |
) |
Dividend
Reinvestment Plan
|
|
|
2,519 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
24 |
|
|
|
- |
|
|
|
- |
|
|
|
24 |
|
Stock
Based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Share Award Grants
|
|
|
71,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Restricted
Share Award Vesting
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
99 |
|
|
|
- |
|
|
|
- |
|
|
|
99 |
|
Share
Grants to Trustees
|
|
|
2,095 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Comprehensive
Income :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
294 |
|
|
|
- |
|
|
|
294 |
|
Net
Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,297 |
|
|
|
3,297 |
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,591 |
|
Balance
at December 31, 2005
|
|
|
20,373,752 |
|
|
|
203 |
|
|
|
- |
|
|
|
- |
|
|
|
2,400,000 |
|
|
|
24 |
|
|
|
193,228 |
|
|
|
327 |
|
|
|
(29,079 |
) |
|
|
164,703 |
|
Common
Stock Issuance
|
|
|
20,118,750 |
|
|
|
201 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
191,875 |
|
|
|
- |
|
|
|
- |
|
|
|
192,076 |
|
Issuance
Costs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,061 |
) |
|
|
|
|
|
|
|
|
|
|
(1,061 |
) |
Unit
Conversion
|
|
|
82,077 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
649 |
|
|
|
- |
|
|
|
- |
|
|
|
650 |
|
Reallocation
of Minority Interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,467 |
) |
|
|
- |
|
|
|
- |
|
|
|
(3,467 |
) |
Dividends
declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock ($0.72 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(21,854 |
) |
|
|
(21,854 |
) |
Preferred
Stock ($2.00 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,800 |
) |
|
|
(4,800 |
) |
Dividend
Reinvestment Plan
|
|
|
2,871 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
29 |
|
|
|
- |
|
|
|
- |
|
|
|
29 |
|
Stock
Based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Share Award Grants
|
|
|
89,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Restricted
Share Award Vesting
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
293 |
|
|
|
|
|
|
|
|
|
|
|
293 |
|
Share
Grants to Trustees
|
|
|
5,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
46 |
|
|
|
- |
|
|
|
- |
|
|
|
46 |
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(94 |
) |
|
|
- |
|
|
|
(94 |
) |
Net
Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,098 |
|
|
|
5,098 |
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,004 |
|
Balance
at December 31, 2006
|
|
|
40,671,950 |
|
|
$ |
405 |
|
|
|
- |
|
|
$ |
- |
|
|
|
2,400,000 |
|
|
$ |
24 |
|
|
$ |
381,592 |
|
|
$ |
233 |
|
|
$ |
(50,635 |
) |
|
$ |
331,619 |
|
Unit
Conversion
|
|
|
306,460 |
|
|
|
3 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,366 |
|
|
|
- |
|
|
|
- |
|
|
|
2,369 |
|
Unit
Conversion Costs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(142 |
) |
|
|
- |
|
|
|
- |
|
|
|
(142 |
) |
Reallocation
of Minority Interest
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
12,422 |
|
|
|
- |
|
|
|
- |
|
|
|
12,422 |
|
Dividends
declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock ($0.72 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(29,547 |
) |
|
|
(29,547 |
) |
Preferred
Stock ($2.00 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,800 |
) |
|
|
(4,800 |
) |
Dividend
Reinvestment Plan
|
|
|
2,620 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
29 |
|
|
|
- |
|
|
|
- |
|
|
|
30 |
|
Stock
Based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Share Award Grants
|
|
|
214,582 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Restricted
Share Award Vesting
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
766 |
|
|
|
- |
|
|
|
- |
|
|
|
768 |
|
Share
Grants to Trustees
|
|
|
8,000 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
94 |
|
|
|
- |
|
|
|
- |
|
|
|
95 |
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(256 |
) |
|
|
- |
|
|
|
(256 |
) |
Net
Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17,847 |
|
|
|
17,847 |
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,591 |
|
Balance
at December 31, 2007
|
|
|
41,203,612 |
|
|
$ |
412 |
|
|
|
- |
|
|
$ |
- |
|
|
|
2,400,000 |
|
|
$ |
24 |
|
|
$ |
397,127 |
|
|
$ |
(23 |
) |
|
$ |
(67,135 |
) |
|
$ |
330,405 |
|
The
Accompanying Notes Are an Integral Part of These Consolidated Financial
Statements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
17,847 |
|
|
$ |
5,098 |
|
|
$ |
3,297 |
|
Adjustments
to reconcile net incometo net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposition of hotel assets held for sale
|
|
|
(4,248 |
) |
|
|
(784 |
) |
|
|
(1,323 |
) |
Depreciation
|
|
|
34,963 |
|
|
|
20,131 |
|
|
|
10,696 |
|
Amortization
|
|
|
1,812 |
|
|
|
1,118 |
|
|
|
672 |
|
Debt
extinguishment
|
|
|
- |
|
|
|
1,485 |
|
|
|
- |
|
Income
allocated to minority interests
|
|
|
2,323 |
|
|
|
706 |
|
|
|
154 |
|
Equity
in income of unconsolidated joint ventures
|
|
|
(3,476 |
) |
|
|
(1,799 |
) |
|
|
(457 |
) |
Distributions
from unconsolidated joint ventures
|
|
|
4,501 |
|
|
|
4,578 |
|
|
|
838 |
|
Gain
recognized on change in fair value of derivative
instrument
|
|
|
(89 |
) |
|
|
(197 |
) |
|
|
(13 |
) |
Stock
based compensation expense
|
|
|
852 |
|
|
|
339 |
|
|
|
99 |
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel
accounts receivable
|
|
|
(2,500 |
) |
|
|
(1,731 |
) |
|
|
(435 |
) |
Escrows
|
|
|
1,845 |
|
|
|
(87 |
) |
|
|
(1,074 |
) |
Other
assets
|
|
|
(261 |
) |
|
|
(2,781 |
) |
|
|
(1,923 |
) |
Due
from related party
|
|
|
3,691 |
|
|
|
(2,131 |
) |
|
|
(1,431 |
) |
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
to related party
|
|
|
(1,291 |
) |
|
|
(1,448 |
) |
|
|
4,419 |
|
Accounts
payable and accrued expenses
|
|
|
3,331 |
|
|
|
4,720 |
|
|
|
1,483 |
|
Net
cash provided by operating activities
|
|
|
59,300 |
|
|
|
27,217 |
|
|
|
15,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of hotel property assets
|
|
|
(32,658 |
) |
|
|
(395,359 |
) |
|
|
(135,059 |
) |
Capital
expenditures
|
|
|
(16,773 |
) |
|
|
(11,020 |
) |
|
|
(2,958 |
) |
Proceeds
from disposition of hotel assets held for sale
|
|
|
11,905 |
|
|
|
9,800 |
|
|
|
6,288 |
|
Deposits
on hotel acquisitions
|
|
|
- |
|
|
|
(2,100 |
) |
|
|
(8,250 |
) |
Cash
paid for franchise fee intangible
|
|
|
(11 |
) |
|
|
(46 |
) |
|
|
(302 |
) |
Investment
in common stock of Trust entities
|
|
|
- |
|
|
|
- |
|
|
|
(1,548 |
) |
Investment
in notes receivable
|
|
|
- |
|
|
|
(1,057 |
) |
|
|
(1,166 |
) |
Repayment
of notes receivable
|
|
|
34 |
|
|
|
1,909 |
|
|
|
83 |
|
Investment
in development loans receivable
|
|
|
(65,700 |
) |
|
|
(51,616 |
) |
|
|
(31,345 |
) |
Repayment
of development loans receivable
|
|
|
53,000 |
|
|
|
37,050 |
|
|
|
30,725 |
|
Distributions
from unconsolidated joint venture
|
|
|
6,485 |
|
|
|
2,767 |
|
|
|
411 |
|
Advances
and capital contributions to unconsolidated joint ventures
|
|
|
(2,309 |
) |
|
|
(4,209 |
) |
|
|
(47,704 |
) |
Net
used in investing activities
|
|
|
(46,027 |
) |
|
|
(413,881 |
) |
|
|
(190,825 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from (repayments of) borrowings under line of credit, net
|
|
|
19,700 |
|
|
|
24,000 |
|
|
|
(1,027 |
) |
Principal
repayment of mortgages and notes payable
|
|
|
(20,717 |
) |
|
|
(80,222 |
) |
|
|
(6,189 |
) |
Proceeds
from mortgages and notes payable
|
|
|
28,543 |
|
|
|
280,205 |
|
|
|
133,692 |
|
Settlement
(acquistion) of interest rate derivative
|
|
|
- |
|
|
|
79 |
|
|
|
(23 |
) |
Cash
paid for deferred financing costs
|
|
|
(286 |
) |
|
|
(1,224 |
) |
|
|
(2,460 |
) |
Proceeds
from issuance of common stock, net
|
|
|
- |
|
|
|
191,015 |
|
|
|
- |
|
Proceeds
from issuance of preferred stock, net
|
|
|
- |
|
|
|
- |
|
|
|
57,720 |
|
Stock
issuance costs related to conversion of partnership units
|
|
|
(143 |
) |
|
|
- |
|
|
|
- |
|
Contributions
from partners in consolidated joint ventures
|
|
|
- |
|
|
|
- |
|
|
|
198 |
|
Distributions
to partners in consolidated joint ventures
|
|
|
(526 |
) |
|
|
(221 |
) |
|
|
(317 |
) |
Dividends
paid on common shares
|
|
|
(29,424 |
) |
|
|
(18,174 |
) |
|
|
(14,599 |
) |
Dividends
paid on preferred shares
|
|
|
(4,800 |
) |
|
|
(4,800 |
) |
|
|
(947 |
) |
Distributions
paid on common partnership units
|
|
|
(3,609 |
) |
|
|
(2,458 |
) |
|
|
(2,059 |
) |
Net
cash (used in) provided by financing activities
|
|
|
(11,262 |
) |
|
|
388,200 |
|
|
|
163,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
2,011 |
|
|
|
1,536 |
|
|
|
(11,834 |
) |
Cash
and cash equivalents - beginning of year
|
|
|
10,316 |
|
|
|
8,780 |
|
|
|
20,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of year
|
|
$ |
12,327 |
|
|
$ |
10,316 |
|
|
$ |
8,780 |
|
The
Accompanying Notes Are an Integral Part of These Consolidated Financial
Statements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN THOUSANDS,
EXCEPT SHARE AND PER SHARE
AMOUNTS]
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hersha
Hospitality Trust (“we” or the “Company”) was formed in May 1998 as a
self-administered, Maryland real estate investment trust (“REIT”) for federal
income tax purposes.
The
Company owns a controlling general partnership interest in Hersha Hospitality
Limited Partnership (“HHLP” or the “Partnership”), which owns a 99%
limited partnership interest in various subsidiary partnerships. Hersha
Hospitality, LLC (“HHLLC”), a Virginia limited liability company, owns a 1%
general partnership interest in the subsidiary partnerships and the Partnership
is the sole member of HHLLC.
The
Partnership formed a wholly owned taxable REIT subsidiary, 44 New England
Management Company (“44 New England” or “TRS Lessee”), to lease certain of the
Company’s hotels.
As of
December 31, 2007, the Company, through the Partnership and subsidiary
partnerships, wholly owned fifty-three limited and full service hotels.
Fifty-two of the wholly owned hotel facilities are leased to the Company’s
taxable REIT subsidiary (“TRS”), 44 New England. One wholly owned hotel facility
is leased to an unrelated party under a fixed lease agreement.
In
addition to the wholly owned hotel properties, as of December 31, 2007, the
Company owned joint venture interests in another eighteen properties. The
properties owned by the joint ventures are leased to a TRS owned by the joint
venture or to an entity owned by the joint venture partners and 44 New England.
The following table lists the properties owned by these joint
ventures:
Joint
Venture
|
|
Ownership
|
|
Property
|
|
Location
|
|
Lessee/Sublessee
|
|
|
|
|
|
|
|
|
|
Unconsolidated
Joint Ventures
|
|
|
|
|
|
|
|
|
Inn
America Hospitality at Ewing, LLC
|
|
50.0%
|
|
Courtyard
|
|
Ewing/Princeton,
NJ
|
|
Hersha
Inn America TRS Inc.
|
PRA
Glastonbury, LLC
|
|
48.0%
|
|
Hilton
Garden Inn
|
|
Glastonbury,
CT
|
|
Hersha
PRA TRS, Inc
|
PRA
Suites at Glastonbury, LLC
|
|
48.0%
|
|
Homewood
Suites
|
|
Glastonbury,
CT
|
|
Hersha
PRA LLC
|
Mystic
Partners, LLC
|
|
66.7%
|
|
Marriott
|
|
Mystic,
CT
|
|
Mystic
Partners Leaseco, LLC
|
|
|
8.8%
|
|
Hilton
|
|
Hartford,
CT
|
|
Mystic
Partners Leaseco, LLC
|
|
|
66.7%
|
|
Courtyard
|
|
Norwich,
CT
|
|
Mystic
Partners Leaseco, LLC
|
|
|
66.7%
|
|
Courtyard
|
|
Warwick,
RI
|
|
Mystic
Partners Leaseco, LLC
|
|
|
66.7%
|
|
Residence
Inn
|
|
Danbury,
CT
|
|
Mystic
Partners Leaseco, LLC
|
|
|
66.7%
|
|
Residence
Inn
|
|
Mystic,
CT
|
|
Mystic
Partners Leaseco, LLC
|
|
|
44.7%
|
|
Residence
Inn
|
|
Southington,
CT
|
|
Mystic
Partners Leaseco, LLC
|
|
|
66.7%
|
|
Springhill
Suites
|
|
Waterford,
CT
|
|
Mystic
Partners Leaseco, LLC
|
|
|
15.0%
|
|
Marriott
|
|
Hartford,
CT
|
|
Mystic
Partners Leaseco, LLC
|
Hiren
Boston, LLC
|
|
50.0%
|
|
Courtyard
|
|
South
Boston, MA
|
|
South
Bay Boston, LLC
|
SB
Partners, LLC
|
|
50.0%
|
|
Holiday
Inn Express
|
|
South
Boston, MA
|
|
South
Bay Sandeep, LLC
|
Metro
29th Street Associates, LLC.
|
|
50.0%
|
|
Holiday
Inn Express
|
|
New
York, NY
|
|
Metro
29th Sublessee, LLC
|
Consolidated
Joint Ventures
|
|
|
|
|
|
|
|
|
Logan
Hospitality Associates, LLC
|
|
55.0%
|
|
Four
Points – Sheraton
|
|
Revere/Boston,
MA
|
|
Revere
Hotel Group, LLC
|
LTD
Associates One, LLC
|
|
75.0%
|
|
Springhill
Suites
|
|
Williamsburg,
VA
|
|
HT
LTD Williamsburg One LLC
|
LTD
Associates Two, LLC
|
|
75.0%
|
|
Residence
Inn
|
|
Williamsburg,
VA
|
|
HT
LTD Williamsburg Two LLC
|
Mystic
Partners, LLC owns an interest in nine hotel properties. Our interest in Mystic
Partners, LLC is relative to our interest in each of the nine properties owned
by the joint venture as defined in the joint venture’s governing documents. Each
of the nine properties owned by Mystic Partners, LLC is leased to a separate
entity that is consolidated in Mystic Partners Leaseco, LLC which is owned by 44
New England and our joint venture partner in Mystic Partners,
LLC.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN THOUSANDS,
EXCEPT SHARE AND PER SHARE
AMOUNTS]
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
The
properties are managed by eligible independent management companies, including
Hersha Hospitality Management, LP (“HHMLP”), HHMLP is owned in part by four of
the Company’s executive officers, two of its trustees and other third party
investors.
Principles of Consolidation
and Presentation
The
accompanying consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles and include all of our
accounts as well as accounts of the Partnership, subsidiary partnerships and our
wholly owned TRS Lessee. All significant inter-company amounts have been
eliminated.
Consolidated
properties are either wholly owned or owned less than 100% by the Partnership
and are controlled by the Company as general partner of the Partnership.
Properties owned in joint ventures are also consolidated if the determination is
made that we are the primary beneficiary in a variable interest entity (VIE) or
we maintain control of the asset through our voting interest in the entity.
Control can be demonstrated by the ability of the general partner to manage
day-to-day operations, refinance debt and sell the assets of the
partnerships without the consent of the limited partners and the inability of
the limited partners to replace the general partner. Control can be demonstrated
by the limited partners if the limited partners have the right to dissolve or
liquidate the partnership or otherwise remove the general partner without cause
or have rights to participate in the significant decisions made in the ordinary
course of the partnership’s business.
We
evaluate each of our investments and contractual relationships to determine
whether they meet the guidelines of consolidation. Our examination consists of
reviewing the sufficiency of equity at risk, controlling financial interests,
voting rights, and the obligation to absorb expected losses and expected gains,
including residual returns. Based on our examination, the following entities
were determined to be VIE’s: Mystic Partners, LLC; Mystic Partners Leaseco, LLC;
Hersha PRA LLC; South Bay Boston, LLC; HT LTD Williamsburg One LLC; HT LTD
Williamsburg Two LLC; Metro 29th
Sublessee, LLC; Hersha Statutory Trust I; and Hersha Statutory Trust II. Mystic
Partners, LLC is a VIE entity, however because we are not the primary
beneficiary it is not consolidated by the Company. Our maximum exposure to
losses due to our investment in Mystic Partners, LLC is limited to our
investment in the joint venture which is $32,928 as of December 31,
2007. Also, Mystic Partners Leaseco, LLC; Hersha PRA LLC; South Bay
Boston, LLC; HT LTD Williamsburg One LLC; HT LTD Williamsburg Two LLC, and
Metro 29th Sublessee,
LLC lease hotel properties from our joint venture interests and are variable
interest entities. These entities are consolidated by the lessors, the primary
beneficiaries of each entity. Hersha Statutory Trust I and Hersha Statutory
Trust II are VIEs but HHLP is not the primary beneficiary in these entities. The
accounts of Hersha Statutory Trust I and Hersha Statutory Trust II are not
consolidated with and into HHLP.
We have
consolidated the operations of the Logan Hospitality Associates, LLC; LTD
Associates One, LLC; and LTD Associates Two, LLC joint ventures because each
entity is a voting interest entity and the Company owns a majority voting
interest in the venture.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States (GAAP) requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN THOUSANDS,
EXCEPT SHARE AND PER SHARE
AMOUNTS]
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Investment in Hotel
Properties
The
Company allocates the purchase price of hotel properties acquired based on the
fair value of the acquired real estate, furniture, fixtures and equipment, and
intangible assets and the fair value of liabilities assumed, including debt. The
Company’s investments in hotel properties are carried at cost and are
depreciated using the straight-line method over the following estimated useful
lives:
Building
and Improvements
|
|
7
to 40 Years
|
Furniture,
Fixtures and Equipment
|
|
5
to 7 Years
|
The
Company periodically reviews the carrying value of each hotel to determine if
circumstances exist indicating impairment to the carrying value of the
investment in the hotel or that depreciation periods should be modified. If
facts or circumstances support the possibility of impairment, the Company will
prepare an estimate of the undiscounted future cash flows, without interest
charges, of the specific hotel and determine if the investment in such hotel is
recoverable based on the undiscounted future cash flows. If impairment is
indicated, an adjustment will be made to the carrying value of the hotel to
reflect the hotel at fair value. The Company does not believe that there are any
facts or circumstances indicating impairment in the carrying value of any of its
hotels.
In
accordance with the provisions of Financial Accounting Standards Board Statement
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,”
a hotel is considered held for sale when management and our independent trustees
commit to a plan to sell the property, the property is available for sale,
management engages in active program to locate a buyer for the property and it
is probable the sale will be completed within a year of the initiation of the
plan to sell.
Investment in Unconsolidated
Joint Ventures
If it is
determined that we do not have a controlling interest in a joint venture, either
through our financial interest in a VIE or our voting interest in a voting
interest entity, the equity method of accounting is used. Under this method, the
investment, originally recorded at cost, is adjusted to recognize our share of
net earnings or losses of the affiliates as they occur rather than as dividends
or other distributions are received, limited to the extent of our investment in,
advances to and commitments for the investee. Pursuant to our joint venture
agreements, allocations of profits and losses of some of our investments in
unconsolidated joint ventures may be allocated disproportionately as compared to
the ownership percentages due to specified preferred return rate
thresholds.
The
Company periodically reviews the carrying value of its investment in
unconsolidated joint ventures to determine if circumstances exist indicating
impairment to the carrying value of the investment. If impairment is indicated,
an adjustment will be made to the carrying value of or investment in the
unconsolidated joint venture. The Company does not believe that there are any
facts or circumstances indicating impairment in the carrying value of any of its
investments in unconsolidated joint ventures.
Development Loans
Receivable
The
Company provides secured first-mortgage and mezzanine financing to hotel
developers. Development loans receivable are recorded at cost and are reviewed
for potential impairment at each balance sheet date. The Company’s development
loans receivable are each secured by various hotel or hotel development
properties or partnership interests in hotel or hotel development properties. We
have determined that development loans receivable do not constitute a financial
interest in a VIE and do not consolidate the operating results of the borrower
in our consolidated financial statements. Our evaluation consists of
reviewing the sufficiency of the borrower’s equity at risk, controlling
financial interests in the borrower, voting rights of the borrower, and the
borrower’s obligation to absorb expected losses and expected gains, including
residual returns. The analysis utilized by the Company in evaluating the
development loans receivable involves considerable management judgment and
assumptions.
A
development loan receivable is considered impaired when it becomes probable,
based on current information, that the Company will be unable to collect all
amounts due according to the loan’s contractual terms. The amount of impairment,
if any, is measured by comparing the recorded amount of the loan to the present
value of the expected cash flows or the fair value of the collateral. If a loan
was deemed to be impaired, the Company would record a reserve for loan losses
through a charge to income for any shortfall. To date, no such impairment
charges have been recognized.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS]
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Cash and Cash
Equivalents
Cash and
cash equivalents represent cash on hand and in banks plus short-term investments
with an initial maturity of three months or less when
purchased.
Escrow
Deposits
Escrow
deposits include reserves for debt service, real estate taxes, and insurance and
reserves for furniture, fixtures, and equipment replacements, as required by
certain mortgage debt agreement restrictions and provisions.
Hotel Accounts
Receivable
Hotel
accounts receivable consists primarily of meeting and banquet room rental and
hotel guest receivables. The Company generally does not require collateral.
Ongoing credit evaluations are performed and an allowance for potential losses
from uncollectible accounts is provided against the portion of accounts
receivable that is estimated to be uncollectible.
Deferred
loan costs are recorded at cost and amortized over the terms of the related
indebtedness using the effective interest method.
Due from/to Related
Parties
Due
from/to Related Parties represents current receivables and payables resulting
from transactions related to hotel management and project management with
affiliated entities. Due from related parties results primarily from advances of
shared costs incurred. Due to affiliates results primarily from hotel management
and project management fees incurred. Both due to and due from related parties
are generally settled within a period not to exceed one year.
Intangible
Assets
Intangible
assets consist of goodwill, leasehold intangibles for above-market and
below-market value of in-place leases, and deferred franchise fees. Goodwill is
evaluated annually for impairment in accordance with Statement of Financial
Accounting Standards No. 142, “Goodwill and Other Intangibles.” The leasehold
intangibles are amortized over the remaining lease term. Deferred franchise fees
are amortized using the straight-line method over the life of the franchise
agreement.
Minority
Interest
Minority
Interest in the Partnership represents the limited partner’s proportionate share
of the equity of the Partnership. Income (Loss) is allocated to minority
interest in accordance with the weighted average percentage ownership of the
Partnership during the period. At the end of each reporting period the
appropriate adjustments to the income (loss) are made based upon the weighted
average percentage ownership of the Partnership during the period. Our ownership
interest in the Partnership as of December 31, 2007, 2006 and 2005 was 86.4%,
91.4% and 87.8%, respectively. At December 31, 2007, there were 6,424,915 units
outstanding with a fair market value of $61,037.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN THOUSANDS,
EXCEPT SHARE AND PER SHARE
AMOUNTS]
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
The Company revalues the minority
interest associated with the Partnership units each quarter to maintain a
proportional relationship between the book value of equity associated with
common shareholders relative to that of the Unit holders since both have
equivalent rights and Units are convertible into shares of common stock on a
one-for-one basis.
We also
maintain minority interests for the equity interest owned by third parties in
Logan Hospitality Associates, LLC; LTD Associates One, LLC; and LTD Associates
Two, LLC. Third parties own a 45% interest in Logan Hospitality Associates, LLC
and a 25% interest in each of LTD Associates One LLC and LTD Associates Two,
LLC. We allocate the income (loss) of these joint ventures to the minority
interest in consolidated joint ventures based upon the ownership of the
entities, preferences in distributions of cash available and the terms of each
venture agreement.
Shareholders’
Equity
On
December 11, 2006, we completed a public offering of 7,200,000 common shares at
$11.20 per share. On December 13, 2006, the underwriter exercised its
over-allotment option with respect to that offering, and we issued an additional
1,080,000 common shares at $11.20 per share. Proceeds to us, net of underwriting
discounts and commissions and expenses, were approximately $87,658. Immediately
upon closing the offering, we contributed all of the net proceeds of the
offering to the Partnership in exchange for additional Partnership interests.
The net offering proceeds were used to repay indebtedness and to lend additional
development financing to third parties.
On
September 19, 2006, we completed a public offering of 3,775,000 common shares at
$9.75 per share. On September 28, 2006, the underwriter exercised its
over-allotment option with respect to that offering, and we issued an additional
566,250 common shares at $9.75 per share. Proceeds to us, net of underwriting
discounts and commissions and expenses, were approximately $40,004. Immediately
upon closing the offering, we contributed all of the net proceeds of the
offering to the Partnership in exchange for additional Partnership interests.
The net offering proceeds were used to repay indebtedness.
On April
28, 2006, we completed a public offering of 6,520,000 common shares at $9.00 per
share. On May 9, 2006, the underwriter exercised its over-allotment option with
respect to that offering, and we issued an additional 977,500 common shares at
$9.00 per share. Proceeds to us, net of underwriting discounts and commissions
and expenses, were approximately $63,353. Immediately upon closing the offering,
we contributed all of the net proceeds of the offering to the Partnership in
exchange for additional Partnership interests. Of the net offering proceeds,
approximately $30,000 was used to repay indebtedness and approximately $19,500
was used to fund property acquisitions.
Stock Based
Compensation
We apply
Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment”
(SFAS 123R) whereby we measure the cost of employee service received in exchange
for an award of equity instruments based on the grant-date fair value of the
award. The cost is recognized over the period during which an employee is
required to provide service in exchange for the award.
Derivatives and
Hedging
The
Company’s objective in using derivatives is to add stability to interest expense
and to manage its exposure to interest rate movements or other identified risks.
To accomplish this objective, the Company primarily uses interest rate swaps and
interest rate caps as part of its cash flow hedging strategy. Interest rate
swaps designated as cash flow hedges involve the receipt of variable-rate
amounts in exchange for fixed-rate payments over the life of the agreements
without exchange of the underlying principal amount. Interest rate caps
designated as cash flow hedges limit the Company’s exposure to increased cash
payments due to increases in variable interest rates.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN THOUSANDS,
EXCEPT SHARE AND PER SHARE
AMOUNTS]
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
We
directly recognize revenue and expense for all consolidated hotels as hotel
operating revenue and hotel operating expense when earned and
incurred. These revenues are recorded net of any sales or occupancy taxes
collected from our guests. All revenues are recorded on an accrual basis, as
earned. We participate in frequent guest programs sponsored by the brand owners
of our hotels and we expense the charges associated with those programs, as
incurred.
Revenue
for interest on development loan financing is recorded in the period earned
based on the interest rate of the loan and outstanding balance during the
period. Development loans receivable and accrued interest on the development
loans receivable are evaluated to determine if outstanding balances are
collectible. Interest is recorded only if it is determined the
outstanding loan balance and accrued interest balance are
collectible.
We lease
land to hotel developers under fixed lease agreements. In addition to base
rents, these lease agreements contain provisions that require the lessee to
reimburse real estate taxes, debt service and other impositions. Base rents and
reimbursements for real estate taxes, debt service and other impositions are
recorded in land lease revenue on an accrual basis. Expenses for real
estate taxes, interest expense, and other impositions that are reimbursed under
the land leases are recorded in land lease expense when they are
incurred.
We lease
a hotel to a third party under a fixed lease agreement. In addition
to base rents, the lease agreement contains provisions that require the lessee
to reimburse us for real estate taxes, capital expenditures and other
impositions. Base rents and reimbursements for real estate taxes, capital
expenditures and other impositions are recorded in hotel lease revenue on an
accrual basis. Expenses for real estate taxes and other impositions
that are reimbursed under the leases are recorded in operating expenses when
incurred.
Other
revenues consist primarily of fees earned for asset management services provided
to hotels we own through unconsolidated joint ventures. Fees are earned as a
percentage of the hotels revenue and are recorded in the period
earned.
Income
Taxes
The
Company qualifies as a REIT under applicable provisions of the Internal Revenue
Code, as amended, and intends to continue to qualify as a REIT. In general,
under such provisions, a trust which has made the required election and, in the
taxable year, meets certain requirements and distributes to its shareholders at
least 90% of its REIT taxable income will not be subject to Federal income tax
to the extent of the income which it distributes. Earnings and profits, which
determine the taxability of dividends to shareholders, differ from net income
reported for financial reporting purposes due primarily to differences in
depreciation of hotel properties for Federal income tax purposes.
Deferred
income taxes relate primarily to the TRS Lessee and are accounted for using the
asset and liability method. Under this method, deferred income taxes are
recognized for temporary differences between the financial reporting bases of
assets and liabilities of the TRS Lessee and their respective tax bases and for
their operating loss and tax credit carry forwards based on enacted tax rates
expected to be in effect when such amounts are realized or settled. However,
deferred tax assets are recognized only to the extent that it is more likely
than not that they will be realized based on consideration of available
evidence, including tax planning strategies and other factors.
Although
the TRS Lessee is expected to operate at a profit for Federal income tax
purposes in future periods, the utilization of the deferred tax asset is not
determinable. Therefore, any deferred tax assets have been reserved as we have
not concluded that it is more likely than not that these deferred tax assets
will be realizable.
Reclassification
Certain
amounts in the prior year financial statements have been reclassified to conform
to the current year presentation.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN THOUSANDS,
EXCEPT SHARE AND PER SHARE
AMOUNTS]
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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 adoption of SFAS No. 157 is not expected to
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 adoption of SFAS No. 159 is not
expected to have a material effect on the Company’s financial
statements.
SFAS
No. 141R
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141R, “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R
requires most identifiable assets, liabilities, noncontrolling interests,
and goodwill acquired in a business combination to be recorded at “full fair
value.” SFAS No. 141R is effective for fiscal years beginning after December 15,
2008. The Company has not determined whether the adoption of SFAS No. 141R will
have a material effect on the Company’s financial statements.
SFAS
No. 160
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No.
160”). SFAS No. 160 requires noncontrolling interests (previously
referred to as minority interests) to be reported as a component of equity,
which changes the accounting for transactions with noncontrolling interest
holders. No. 160 is effective for fiscal years beginning after December 15,
2008.The Company has not determined whether the adoption of SFAS No. 160 will
have a material effect on the Company’s financial statements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
2 - INVESTMENT IN HOTEL PROPERTIES
Investment
in hotel properties consist of the following at December 31, 2007 and
2006:
|
|
December
31, 2007
|
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
172,061 |
|
|
$ |
135,943 |
|
Buildings
and Improvements
|
|
|
706,038 |
|
|
|
640,666 |
|
Furniture,
Fixtures and Equipment
|
|
|
105,979 |
|
|
|
88,179 |
|
Construction
in Progress
|
|
|
1,541 |
|
|
|
4,359 |
|
|
|
|
985,619 |
|
|
|
869,147 |
|
|
|
|
|
|
|
|
|
|
Less
Accumulated Depreciation
|
|
|
(92,322 |
) |
|
|
(61,363 |
) |
|
|
|
|
|
|
|
|
|
Total
Investment in Hotel Properties
|
|
$ |
893,297 |
|
|
$ |
807,784 |
|
Depreciation
expense was $34,895, $20,120 and $10,693 for the years ended December 31, 2007,
2006 and 2005, respectively.
During
the year ended December 31, 2007 we acquired the following wholly owned hotel
properties:
Hotel
|
|
Acquisition
Date
|
|
Land
|
|
|
Buildings
and
Improvements
|
|
|
Furniture
Fixtures
and
Equipment
|
|
|
Franchise
Fees
and
Loan
Costs
|
|
|
Total
Purchase
Price
|
|
|
Fair
Value of
Assumed
Debt
|
|
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 – 5
th
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
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
2 - INVESTMENT IN HOTEL PROPERTIES (continued)
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.
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 year ended December 31,
2007. Included in the consideration paid for the Hotel 373 – 5 th 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.
During
the year ended December 31, 2006 we acquired the following wholly owned hotel
properties:
2006
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel
|
|
Acquisition
Date
|
|
Land
|
|
|
Buildings
and
Improvements
|
|
|
Furniture
Fixtures
and
Equipment
|
|
|
Franchise
Fees
and
Loan
Costs
|
|
|
Leasehold
Intangible
|
|
|
Total
Purchase
Price
|
|
|
Fair
Value of
Assumed
Debt
and
Capital
Lease
|
|
NJ
and PA Portfolio
|
|
1/3/2006
|
|
$ |
6,207 |
|
|
$ |
30,988 |
|
|
$ |
3,978 |
|
|
$ |
125 |
|
|
|
- |
|
|
$ |
41,298 |
|
|
$ |
- |
|
Courtyard
by Marriott, Scranton, PA
|
|
2/1/2006
|
|
|
761 |
|
|
|
7,192 |
|
|
|
831 |
|
|
|
57 |
|
|
|
- |
|
|
|
8,841 |
|
|
|
- |
|
Residence
Inn, Tyson's Corner, VA
|
|
2/2/2006
|
|
|
4,283 |
|
|
|
14,476 |
|
|
|
1,240 |
|
|
|
201 |
|
|
|
- |
|
|
|
20,200 |
|
|
|
9,596 |
|
Hilton
Garden Inn, JFK Airport, NY
|
|
2/16/2006
|
|
|
N/A |
|
|
|
25,019 |
|
|
|
3,621 |
|
|
|
317 |
|
|
|
226 |
|
|
|
29,183 |
|
|
|
13,000 |
|
KW
Portfolio, MA
|
|
April
and May 2006
|
|
|
4,708 |
|
|
|
22,926 |
|
|
|
3,918 |
|
|
|
198 |
|
|
|
- |
|
|
|
31,750 |
|
|
|
9,023 |
|
Holiday
Inn Express, Cambridge, MA
|
|
5/3/2006
|
|
|
1,956 |
|
|
|
9,793 |
|
|
|
444 |
|
|
|
- |
|
|
|
- |
|
|
|
12,193 |
|
|
|
- |
|
Land,
39th and 8th Avenue, New York, NY
|
|
6/28/2006
|
|
|
21,774 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
21,774 |
|
|
|
|
|
Residence
Inn, Norwood, MA
|
|
7/27/2006
|
|
|
1,970 |
|
|
|
11,760 |
|
|
|
1,403 |
|
|
|
53 |
|
|
|
- |
|
|
|
15,186 |
|
|
|
8,000 |
|
Land
and Building, 41st Street, New York, NY
|
|
7/28/2006
|
|
|
10,735 |
|
|
|
11,051 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
21,786 |
|
|
|
|
|
Hampton
Inn, Brookhaven, NY
|
|
9/6/2006
|
|
|
3,131 |
|
|
|
17,343 |
|
|
|
980 |
|
|
|
242 |
|
|
|
- |
|
|
|
21,696 |
|
|
|
15,455 |
|
Holiday
Inn Express, Hauppauge, NY
|
|
9/1/2006
|
|
|
2,737 |
|
|
|
14,080 |
|
|
|
658 |
|
|
|
173 |
|
|
|
- |
|
|
|
17,648 |
|
|
|
10,152 |
|
Courtyard
by Marriott, Alexandria, VA
|
|
9/29/2006
|
|
|
6,376 |
|
|
|
26,089 |
|
|
|
2,578 |
|
|
|
- |
|
|
|
- |
|
|
|
35,043 |
|
|
|
|
|
Hampton
Inn - Chelsea, New York, NY
|
|
9/29/2006
|
|
|
8,905 |
|
|
|
33,499 |
|
|
|
2,930 |
|
|
|
843 |
|
|
|
- |
|
|
|
46,177 |
|
|
|
36,202 |
|
Hyatt
Summerfield Suites Portfolio
|
|
12/27/2006
|
|
|
29,053 |
|
|
|
123,030 |
|
|
|
16,576 |
|
|
|
- |
|
|
|
- |
|
|
|
168,659 |
|
|
|
472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
2006 Wholly Owned Acquisitions
|
|
|
|
$ |
102,596 |
|
|
$ |
347,246 |
|
|
$ |
39,157 |
|
|
$ |
2,209 |
|
|
$ |
226 |
|
|
$ |
491,434 |
|
|
$ |
101,900 |
|
*The
$8,000 assumed mortgage for Residence Inn, Norwood was repaid in full in
September 2006.
On August
29, 2003, HT/CNL Metro Hotels, LP purchased the Hampton Inn, (Manhattan)
Chelsea, NY. We owned a one-third equity interest in this joint venture
partnership while CNL Hospitality Partners LP (“CNL”) owned the remaining equity
interests. On September 29, 2006 we acquired CNL’s remaining equity interest in
the venture. Prior to the acquisition of the CNL’s remaining interest
our investment in joint venture was $4,409 and was recorded in investments in
joint ventures. Our share of the operating results of the venture through
September 29, 2006 is included in Income from Unconsolidated Joint Ventures on
the statement of operations.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
2 - INVESTMENT IN HOTEL PROPERTIES (continued)
Included
in the acquisition of the Hilton Garden Inn at the JFK Airport, New York, was a
land lease for the underlying land with a remaining term of approximately 93
years. The remaining lease payments were determined to be below market value and
as a result, $226 of the purchase price was allocated to an intangible
asset. Included in
the acquisition of the Courtyard by Marriott in Brookline, Massachusetts in
2005, was a prepaid land lease for the underlying land with a remaining term of
approximately 90 years. This prepaid land lease is classified as an intangible
asset with a value of $3,570. Both lease intangibles are recorded in intangible
assets on the consolidated balance sheet and are being amortized over the
remaining lives of the leases.
The
interest rate on the fixed rate debt assumed in the acquisitions of the KW
Portfolio is 5.67% and was below the market rate of interest on the date of the
acquisition. The interest rate on the fixed rate debt assumed in the acquisition
of the Holiday Inn Express, Hauppauge, New York is 5.701% and was below the
market rate of interest on the date of the acquisition. As a result, a discount
of $354 was recorded for the mortgage assumed in the acquisition of the KW
Portfolio and a discount of $472 was recorded on the debt assumed in the
acquisition of the Holiday Inn Express in Hauppauge, New York. The discounts
reduce the principal balances recorded in mortgages and notes payable. The
discount is being amortized over the remaining life of the debt and is recorded
as interest expense. Interest rates on debt assumed in the acquisition of the
Residence Inn, Tyson’s Corner, Virginia; the Hilton Garden Inn, JFK Airport, New
York and the Hampton Inn, Brookhaven, New York were at market
rates.
As part
of the acquisition of the Hyatt Summerfield Suites Portfolio, HHLP entered into
a management agreement with Lodgeworks, L.P. (Lodgeworks) to manage all seven
properties in the portfolio. Lodgeworks extended a $996 interest-free
loan to HHLP for working capital contributions that is due at either the
termination or expiration of the agreement. Since the interest rate
on the note payable is below the market rate of interest at the date of the
acquisition, a discount of $524 was recorded on the note payable. The
discount reduces the principal balances recorded in the mortgages and notes
payable and is being amortized over the remaining life of the management
agreement and is recorded as interest expense.
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.
On
February 15, 2006, we acquired an 80% joint venture interest in an entity that
owns the Hampton Inn, Philadelphia, PA. The entity that sold the 80% interest
was owned, in part, by certain executives and affiliated trustees of the
Company. On October 1, 2007, we acquired the remaining 20% interest from our
joint venture partners. The following is the allocation of purchase price for
each step of the acquisition:
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
2 - INVESTMENT IN HOTEL PROPERTIES (continued)
|
Acquisition
Date
|
|
Land
|
|
|
Buildings
and
Improvements
|
|
|
Furniture
Fixtures
and
Equipment
|
|
|
Franchise
Fees
and
Loan
Costs
|
|
|
Total
|
|
Acquisition
of 80% Interest
|
2/15/2006
|
|
$ |
2,928 |
|
|
$ |
21,062 |
|
|
$ |
3,029 |
|
|
$ |
117 |
|
|
$ |
27,136 |
|
Acquisition
of Remaining 20% Interest
|
10/1/2007
|
|
|
744 |
|
|
|
4,850 |
|
|
|
790 |
|
|
|
- |
|
|
|
6,384 |
|
Consideration
paid for the remaining 20% interest in the Hampton Inn, Philadelphia, PA
consisted of 406,877 units of our operating partnership subsidiary valued at
$10.23, which were issued to entities that are owned in part by certain
executives and affiliated trustees of the Company. Prior to the acquisition of
the remaining 20% interest, the Hampton Inn, Philadelphia, PA was reported as a
consolidated joint venture and its assets and liabilities were included in the
Company’s consolidated balance sheet and non-controlling interest of $588 was
reported as Minority Interests. As a result of acquiring the
remaining 20% interest in the venture, our investment in hotel properties was
increased as follows:
|
|
Land
|
|
|
Buildings
and Improvements
|
|
|
Furniture
Fixtures and Equipment
|
|
|
Total
|
|
Purchase
Price
|
|
$ |
744 |
|
|
$ |
4,850 |
|
|
$ |
790 |
|
|
$ |
6,384 |
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value included in consolidated financial statements prior to
acquisition
|
|
|
(193 |
) |
|
|
(2,396 |
) |
|
|
(220 |
) |
|
|
(2,809 |
) |
Step-up
in value included in consolidated financial statements after
acquisition
|
|
$ |
551 |
|
|
$ |
2,454 |
|
|
$ |
570 |
|
|
$ |
3,575 |
|
All of
the newly acquired wholly owned hotels are leased to the TRS Lessee, and all are
managed by HHMLP, except for the Courtyard by Marriott, Alexandria and the Hyatt
Summerfield Suites Portfolio which are managed by unrelated third
parties.
Beginning
on July 1, 2006, the Holiday Inn Conference Center, New
Cumberland, Pennsylvania was leased to an unrelated party under a five-year
fixed rent lease agreement. 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
$781 and $391 was recorded in the twelve months ended December 31, 2007 and
2006, respectively, related to the lease of this property.
Pro
Forma Operating Results (Unaudited)
The
following condensed pro forma financial data is presented as if all 2007 and
2006 acquisitions had been consummated as of 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 actual results of operations of the Company would have been
assuming the acquisitions had been consummated at the beginning of the year
presented, nor does it purport to represent the results of operations for future
periods.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
2 - INVESTMENT IN HOTEL PROPERTIES (continued)
|
|
For
the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Pro
Forma Total Revenues
|
|
$ |
244,463 |
|
|
$ |
205,289 |
|
|
|
|
|
|
|
|
|
|
Pro
Forma Income from Continuing Operations applicable to Common
Shareholders
|
|
$ |
13,343 |
|
|
$ |
4,894 |
|
Income
from Discontinued Operations
|
|
|
4,172 |
|
|
|
1,305 |
|
Pro
Forma Net Income
|
|
|
17,515 |
|
|
|
6,199 |
|
Preferred
Distributions
|
|
|
4,800 |
|
|
|
4,800 |
|
Pro
Forma Net Income applicable to Common Shareholders
|
|
$ |
12,715 |
|
|
$ |
1,399 |
|
|
|
|
|
|
|
|
|
|
Pro
Forma Income applicable to Common Shareholders per Common
Share
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.31 |
|
|
$ |
0.05 |
|
Diluted
|
|
$ |
0.31 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
40,718,724 |
|
|
|
27,118,264 |
|
Diluted
|
|
|
40,718,724 |
|
|
|
27,118,264 |
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
3 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
As of
December 31, 2007 and December 31, 2006 our investment in unconsolidated joint
ventures consisted of the following:
|
|
|
|
Percent
|
|
|
Preferred
|
|
|
December
31,
|
|
Joint
Venture
|
|
Hotel
Properties
|
|
Owned
|
|
|
Return
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRA
Glastonbury, LLC
|
|
Hilton
Garden Inn, Glastonbury, CT
|
|
|
48% |
* |
|
11.0%
cumulative
|
|
|
$ |
945 |
|
|
$ |
463 |
|
Inn
American Hospitality at Ewing, LLC
|
|
Courtyard
by Marriott, Ewing, NJ
|
|
|
50.0% |
|
|
11.0%
cumulative
|
|
|
|
1,016 |
|
|
|
1,414 |
|
Hiren
Boston, LLC
|
|
Courtyard
by Marriott, Boston, MA
|
|
|
50.0% |
|
|
N/A
|
|
|
|
4,148 |
|
|
|
4,871 |
|
SB
Partners, LLC
|
|
Holiday
Inn Express, Boston, MA
|
|
|
50.0% |
|
|
N/A
|
|
|
|
2,010 |
|
|
|
2,213 |
|
Mystic
Partners, LLC
|
|
Hilton
and Marriott branded hotels in CT and RI
|
|
|
8.8%-66.7% |
|
|
8.5%
non-cumulative
|
|
|
|
32,928 |
|
|
|
39,180 |
|
PRA
Suites at Glastonbury, LLC
|
|
Homewood
Suites, Glastonbury, CT
|
|
|
48% |
* |
|
10.0%
non-cumulative
|
|
|
|
2,808 |
|
|
|
2,093 |
|
Metro
29th Street Associates, LLC
|
|
Holiday
Inn Express, New York, NY
|
|
|
50.0% |
|
|
N/A
|
|
|
|
7,996 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
51,851 |
|
|
$ |
50,234 |
|
* Percent
owned was 40.0% through March 31, 2007. On April 1, 2007 our percent
owned increased to 48.0%.
During
the years ended December 31, 2007 and 2006 we acquired interests in the
following unconsolidated joint ventures:
Joint
Venture
|
|
Assets
Owned by Joint Venture
|
|
Date
Acquired
|
|
The
Partnership's
Ownership
in
Asset
|
|
|
The
Partnership's
Preferred
Return
|
|
Metro
29th Street Associates, LLC
|
|
Holiday
Inn Express, New York, NY
|
|
2/1/2007
|
|
|
50.0% |
|
|
|
N/A |
|
PRA
Suites at Glastonbury, LLC
|
|
Homewood
Suites, Glastonbury, CT
|
|
6/15/2006
|
|
|
40.0% |
|
|
|
10.0% |
|
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 29 th 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 29 th
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 29 th and the
option. Metro 29 th Street
entered into an agreement with Metro 29 th
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 PRA
Suites at Glastonbury, LLC (“PRA Suites”) joint venture agreement provides for a
10% preferred return based on our contributed equity interest in PRA Suites.
Cash distributions will be made from cash available for distribution, first, to
us to provide a 10% annual non-compounded return on our capital contributions
and then to our joint venture partner to provide a 10% annual non-compounded
return of their contributions. The 10% returns are not cumulative. Any remaining
cash available for distribution will be distributed 40% to us. PRA Suites
allocates income to us and our joint venture partner consistent with the
allocation of cash distributions and liquidating distributions.
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.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
3 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (continued)
Income
from our unconsolidated joint ventures is allocated to us and our joint venture
partners consistent with the allocation of cash distributions in accordance with
the joint venture agreements. 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. Income
(loss) recognized during the years ended December 31, 2007, 2006, and 2005 for
our Investments in Unconsolidated Joint Ventures is as follows:
|
|
Twelve
Months Ended
|
|
|
|
12/31/2007
|
|
|
12/31/2006
|
|
|
12/31/2005
|
|
PRA
Glastonbury, LLC
|
|
$ |
47 |
|
|
$ |
(257 |
) |
|
$ |
75 |
|
Inn
American Hospitality at Ewing, LLC
|
|
|
73 |
|
|
|
160 |
|
|
|
(79 |
) |
Hiren
Boston, LLC
|
|
|
304 |
|
|
|
(167 |
) |
|
|
(80 |
) |
SB
Partners, LLC
|
|
|
191 |
|
|
|
(24 |
) |
|
|
(26 |
) |
Mystic
Partners, LLC
|
|
|
1,612 |
|
|
|
1,691 |
|
|
|
61 |
|
PRA
Suites at Glastonbury, LLC
|
|
|
(7 |
) |
|
|
(2 |
) |
|
|
- |
|
Metro
29th Street Associates, LLC
|
|
|
1,256 |
|
|
|
- |
|
|
|
- |
|
HT/CNL
Metro Hotels, LP
|
|
|
- |
|
|
|
398 |
|
|
|
506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity in income
|
|
$ |
3,476 |
|
|
$ |
1,799 |
|
|
$ |
457 |
|
The SB
Partners and Hiren Boston joint venture agreements provided for a 10% preferred
return during the first two years of the ventures based on our equity interest
in the ventures. The preferred return period expired on July 1, 2007
for Hiren and October 1, 2007 for SB Partners. Subsequent to this
initial two year period, cash distributions are made 50% to us and 50% to our
joint venture partners in the ventures.
The
Mystic Partners joint venture agreement provides for an 8.5% non-cumulative
preferred return based on our contributed equity interest in the venture. Cash
distributions will be made from cash available for distribution, first, to us to
provide an 8.5% annual non-compounded return on our unreturned capital
contributions and then to our joint venture partner to provide an 8.5% annual
non-compounded return of their unreturned contributions. Any remaining cash
available for distribution will be distributed to us 10.5% with respect to the
net cash flow from the Hartford Marriott, 7.0% with respect to the Hartford
Hilton and 56.7%, with respect to the remaining seven properties. Mystic
Partners allocates income to us and our joint venture partner consistent with
the allocation of cash distributions in accordance with the joint venture
agreements.
Each of
the Mystic Partners hotel properties, except the Hartford Hilton, is under an
Asset Management Agreement with 44 New England to provide asset management
services. Fees for these services are paid monthly to 44 New England and
recognized as income in the amount of 1% of operating revenues, except for the
Hartford Marriott which is 0.25% of operating revenues.
The
Company and our joint venture partner in Mystic Partners jointly and severally
guarantee the performance of the terms of a loan to Adriaen’s Landing Hotel,
LLC, owner of the Hartford Marriott, in the amount of $50,000, and 315 Trumbull
Street Associates, LLC, in the amount of $27,000, if at any time during the term
of the note and during such time as the net worth of Mystic Partners falls below
the amount of the guarantee. We have determined that the probability
of incurring loss under this guarantee is remote and the value attributed to the
guarantee is de minimis.
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 December 31, 2007 and December 31, 2006 and
for the years ended December 31, 2007, 2006, and 2005.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
3 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (continued)
Balance
Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Investment
in hotel properties, net
|
|
$ |
229,829 |
|
|
$ |
244,113 |
|
Other
Assets
|
|
|
30,000 |
|
|
|
24,496 |
|
Assets
|
|
$ |
259,829 |
|
|
$ |
268,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages
and notes payable
|
|
$ |
221,398 |
|
|
$ |
211,576 |
|
Other
liabilities
|
|
|
12,305 |
|
|
|
11,687 |
|
Equity:
|
|
|
|
|
|
|
|
|
Hersha
Hospitality Trust
|
|
|
51,851 |
|
|
|
50,234 |
|
Other
|
|
|
(25,725 |
) |
|
|
(4,888 |
) |
|
|
|
|
|
|
|
|
|
Total
Liabilities and Equity
|
|
$ |
259,829 |
|
|
$ |
268,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
Months Ended
|
|
|
|
12/31/2007
|
|
|
12/31/2006
|
|
|
12/31/2005
|
|
Room
Revenue
|
|
$ |
98,581 |
|
|
$ |
81,285 |
|
|
$ |
33,493 |
|
Other
Revenue
|
|
|
31,586 |
|
|
|
30,016 |
|
|
|
8,679 |
|
Operating
Expenses
|
|
|
(81,873 |
) |
|
|
(74,370 |
) |
|
|
(26,261 |
) |
Interest
Expense
|
|
|
(15,421 |
) |
|
|
(15,687 |
) |
|
|
(5,521 |
) |
Debt
Extinguishment
|
|
|
(2,858 |
) |
|
|
- |
|
|
|
- |
|
Lease
Expense
|
|
|
(5,332 |
) |
|
|
(393 |
) |
|
|
(159 |
) |
Property
Taxes and Insurance
|
|
|
(6,159 |
) |
|
|
(5,537 |
) |
|
|
(2,781 |
) |
Federal
and State Income Taxes
|
|
|
(141 |
) |
|
|
(224 |
) |
|
|
71 |
|
General
and Administrative
|
|
|
(7,446 |
) |
|
|
(7,781 |
) |
|
|
(1,595 |
) |
Depreciation,
Amortization, and Other
|
|
|
(16,680 |
) |
|
|
(16,993 |
) |
|
|
(6,318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(5,743 |
) |
|
$ |
(9,684 |
) |
|
$ |
(392 |
) |
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
4 - DEVELOPMENT LOANS RECEIVABLE AND LAND LEASES
We have
approved first mortgage and mezzanine lending to hotel developers, 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% to
13.5% (“Development Line Funding”). As of December 31, 2007 and December 31,
2006, we had Development Loans Receivable of $58,183 and $47,016, respectively.
Interest income included in interest income from development loans was $6,046,
$2,487, and $3,940 for the years ended December 31, 2007, 2006, and 2005,
respectively. Accrued interest on our development loans receivable
was $1,591 as of December 31, 2007 and $883 as of December 31,
2006.
As of
December 31, 2007, our development loans receivable consisted of the
following:
Hotel
Property
|
|
Borrower
|
|
Principal
Outstanding
12/31/2007
|
|
|
Interest
Rate
|
|
Maturity
Date
|
|
Sheraton
- JFK Airport, NY
|
|
Risingsam
Hospitality, LLC
|
|
$ |
10,016 |
|
|
|
10% |
|
September
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, PA
|
|
Reese
Hotels, LLC
|
|
|
700 |
|
|
|
11% |
|
June
1, 2008
|
|
Boutique
Hotel - Union Square, NY
|
|
Risingsam
Union Square, LLC
|
|
|
10,000 |
|
|
|
10% |
|
May
31, 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
|
|
|
|
|
(1,533 |
) |
|
|
|
|
|
|
Total
Hilton Garden Inn/Homewood Suites - Brooklyn, NY
|
|
|
|
18,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Development Loans Receivable
|
|
|
|
$ |
58,183 |
|
|
|
|
|
|
|
*
Indicates borrower is a related party
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 $155 for year ended December 31,
2007.
As of
December 31, 2006 our development loans receivable 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
|
|
|
|
|
$ |
47,016 |
|
|
|
|
|
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
4 - DEVELOPMENT LOANS RECEIVABLE AND LAND LEASES (continued)
Advances
and repayments on our development loans receivable consisted of the following
for the years ended December 31, 2007, 2006, and 2005:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Balance
at January 1,
|
|
$ |
47,016 |
|
|
$ |
32,450 |
|
|
$ |
36,550 |
|
New
Advances
|
|
|
65,700 |
|
|
|
51,616 |
|
|
|
31,325 |
|
Repayments
|
|
|
(53,000 |
) |
|
|
(37,050 |
) |
|
|
(30,725 |
) |
Discount
recorded, net of amortization
|
|
|
(1,533 |
) |
|
|
- |
|
|
|
- |
|
Applied
to Acquistion of Hotel Property
|
|
|
- |
|
|
|
- |
|
|
|
(4,700 |
) |
Balance
at December 31,
|
|
$ |
58,183 |
|
|
$ |
47,016 |
|
|
$ |
32,450 |
|
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 December 31, 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 YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
5 — OTHER ASSETS
Other
Assets consisted of the following at December 31, 2007 and 2006:
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Transaction
Costs
|
|
$ |
209 |
|
|
$ |
252 |
|
Deposits
on Hotel Acquisitions
|
|
|
16 |
|
|
|
2,144 |
|
Investment
in Statutory Trusts
|
|
|
1,548 |
|
|
|
1,548 |
|
Notes
Receivable
|
|
|
2,581 |
|
|
|
2,438 |
|
Due
from Lessees
|
|
|
1,986 |
|
|
|
2,318 |
|
Prepaid
Expenses
|
|
|
3,402 |
|
|
|
3,533 |
|
Interest
due on Development Loans to Non-Related Parties
|
|
|
1,456 |
|
|
|
12 |
|
Deposits
on Property Improvement Plans
|
|
|
640 |
|
|
|
1,405 |
|
Hotel
Purchase Option
|
|
|
2,620 |
|
|
|
- |
|
Other
|
|
|
1,697 |
|
|
|
1,624 |
|
|
|
$ |
16,155 |
|
|
$ |
15,274 |
|
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 - Deposits paid
in connection with the acquisition of hotels, including accrued interest, are
recorded in other assets. As of December 31, 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 December 31, 2007 and 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 bears interest at 8% and have maturity dates of December 31,
2008, amended from December 31, 2007. Also included in notes
receivable is a loan made to one of our unconsolidated joint venture partners in
the amount of $1,120 bearing interest at 12% with a maturity date of December
27, 2008. This loan was amended on December 31, 2007 to
increase the note amount from $1,000 to $1,120, increase the interest rate from
12% to 13.5%, and extend the maturity date to December 27, 2008 from 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. This excludes interest due on development loans from loans
extended to related parties in the amounts of $135 and $871, as of December 31,
2007 and 2006, respectively, which is included in the Due from Related Parties
caption on the face of the consolidated balance sheets.
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 YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
6 - DEBT
Mortgages and Notes
Payable
The total
mortgages payable balance at December 31, 2007, and December 31, 2006, was
$567,507 and $504,523, respectively, and consisted of mortgages with fixed and
variable interest rates ranging from 4.0% to 8.94%. The maturities for the
outstanding mortgages ranged from August 2008 to January 2032. Aggregate
interest expense incurred under the mortgages payable totaled
$33,767, $20,579 and $11,251 during 2007, 2006 and 2005, respectively. The
mortgages are secured by first deeds of trust on various hotel properties with a
combined net book value of $829,008 and $743,236 as of December 31, 2007, and
2006, respectively.
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 $3,793, $3,766, and $2,313 was recorded during the years ended
December 31, 2007, 2006, and 2005, respectively.
Aggregate
annual principal payments for the Company’s mortgages and notes payable for the
five years following December 31, 2007 and thereafter are as
follows:
2008
|
|
$ |
25,670 |
|
2009
|
|
|
66,687 |
|
2010
|
|
|
31,669 |
|
2011
|
|
|
6,802 |
|
2012
|
|
|
12,144 |
|
Thereafter
|
|
|
476,408 |
|
Unamortized
Discount
|
|
|
(72 |
) |
|
|
$ |
619,308 |
|
The carrying value of the
mortgages and notes payable and the line of credit exceeded the fair value by
approximately $52,093 at December 31, 2007.
Revolving Line of
Credit
We
maintain a revolving credit facility with Commerce Bank, N.A. The credit
facility bears interest at 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 the
Company’s option. Provisions of the credit facility allow for an increase of the
principal amount of borrowings made available under the line of credit to a
maximum aggregate amount of $100,000, depending upon certain conditions
described in the agreement.
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 the
Holiday Inn Express, Harrisburg, PA, the Mainstay Suites and Sleep Inn, King of
Prussia, PA, the Fairfield Inn, Laurel, MD, the Hampton Inn, Philadelphia, PA,
the Residence Inn, Norwood, MA, the Residence Inn, Langhorne, PA and
collateral assignment of all hotel management contracts of the management
companies in the event of default. The line of credit includes certain financial
covenants and requires that we maintain (1) a minimum tangible net worth of
$110,000; (2) a maximum accounts and other receivables from affiliates of
$75,000 million; and (3) certain financial ratios. The Company is in compliance
with each of these covenants as of December 31, 2007. The line of credit expires
on December 31, 2008. We intend to refinance remaining balances at the end of
the line of credit facilities’ term.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
6 – DEBT (continued)
The
Company maintained a line of credit balance of $43,700 at December 31, 2007 and
$24,000 at December 31, 2006. The Company recorded interest expense of $4,239,
$2,134 and $186 related to the line of credit borrowings, for the years ended
December 31, 2007, 2006, and
2005, respectively. The weighted average interest rate on our Line of Credit
during the years ended December 31, 2007, 2006, and 2005 was 7.30%, 7.33%, and
6.10%, respectively.
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 December
31, 2007, deferred costs were $8,048, net of accumulated amortization of $3,252.
Deferred costs were $7,525, net of accumulated amortization of $1,543, as
of December 31, 2006. Amortization of deferred costs for the years ended
December 31, 2007, 2006, and 2005 was $1,724, $944 and $558,
respectively.
Debt
Extinguishment
The
Sovereign Bank Line of Credit was replaced by the Commerce Line of Credit, noted
above, 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 Loss on Debt Extinguishment caption on the
face of the consolidated statement of operations for the year ended December 31,
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 Loss on Debt
Extinguishment caption on the face of the consolidated statement of operations
for the year ended December 31, 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 for each of the loans
associated with the McIntosh Portfolio. As a result of this extinguishment, we
expensed $374 in unamortized deferred costs, which are included in the Loss on
Debt Extinguishment caption on the face of the consolidated statement of
operations for the year ended December 31, 2006.
On
September 9, 2006, we repaid $8,287 on our mortgage with South New Hampshire
Bank for the Residence Inn, Norwood, using proceeds from a draw on our line of
credit with Commerce Bank. In connection with the mortgage assumption, the
seller agreed to reimburse all pre-payment related fees associated with this
payoff,
On December 27, 2006, we repaid $12,907 on our
mortgage with GE Capital for the Hilton Garden Inn, JFK, NY property as a result of a
debt payoff. The new debt of $21,000 was acquired on March 7, 2007 and has a fixed interest
rate of 5.82% and a maturity date of March 1, 2017. As a result of
this extinguishment, we expensed $322 in prepayment penalties, which are
included in the Loss on Debt Extinguishment caption on the face of the
consolidated statements of operations for the year ended December 31, 2006.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
7 - COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
We are
the sole general partner in 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.
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 provides for a
five-year term and is 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 December 31, 2007, HHMLP managed 44 of the properties leased to our
TRS. HHMLP also managed three 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
years ended December 31, 2007, 2006 and 2005. For the years ended December
31, 2007, 2006 and 2005, management fees incurred totaled $5,571, $4,361, and
$2,887, respectively, and are recorded as Hotel Operating Expenses. In addition,
the Company incurred $104 for the early termination of management contracts
related to the sale of two hotels in the second quarter in 2005, $30 related to
the sale of one hotel in the second quarter of 2006, $89 related to the sale of
four hotels in the fourth quarter of 2006, and $107 related to the sale of the two hotels in
the fourth quarter of 2007. These fees are included in
discontinued operations.
Administrative Services
Agreement
Prior to
July 1, 2005, under the terms of an administrative service agreement, HHMLP
provided accounting and securities reporting services for the Company. The terms
of the agreement provided for us to pay HHMLP an annual fee of $10 per property
(prorated from the time of acquisition) for each hotel in our portfolio. On July
1, 2005, the administrative service fee was replaced by monthly accounting and
information technology fees for each of our wholly owned hotels. Monthly fees
for accounting services are $2 per property and monthly information technology
fees are $0.5 per property. For the years ended December 31, 2007, 2006 and
2005, the Company incurred administrative services fees of $0, $0, and $140,
respectively. For the years ended December 31, 2007, 2006 and 2005, the
Company incurred accounting fees of $1,408, 1,053 and $386. For the
years ended December 31, 2007, 2006 and 2005, the Company incurred information
technology fees of $276, $251 and $95. Administrative services fees, accounting
fees, 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 years ended
December 31, 2007, 2006, and 2005 was $16,333, $9,773 and $5,818
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 YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE 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 some 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 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 negotiated
with the Acquisition Committee.
Hotel
Supplies
For the
years ended December 31, 2007, 2006 and 2005, we incurred expenses of
$2,113, 1,686 and $969, 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 December 31, 2007 and 2006.
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 years ended December 31, 2007 and
2006, we incurred fees of $292 and $155, respectively, which were capitalized in
with the cost of fixed asset additions.
Due From Related
Parties
The Due
from Related Party balance as of December 31, 2007 and December 31, 2006 was
approximately $1,256 and $4,930, respectively. The majority of the balance as of
December 31, 2007 and 2006 was accrued interest due on our development loans,
and the remaining due from related party balance are receivables owed from our
unconsolidated joint ventures.
Due to Related
Parties
The Due
to Related Parties balance as of December 31, 2007 and December 31, 2006 was
approximately $2,025 and $3,297, respectively. The balances as of December 31,
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 years ended December 31, 2007, 2006 and
2005, we incurred $856, $804, and $433 respectively, in hotel ground rent from
continuing operations under the agreements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
7 - COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(continued)
Future
minimum lease payments (without reflecting future applicable Consumer Price
Index increases) under these agreements are as follows:
2008
|
|
$ |
606 |
|
2009
|
|
|
615 |
|
2010
|
|
|
622 |
|
2011
|
|
|
648 |
|
2012
|
|
|
681 |
|
Thereafter
|
|
|
66,496 |
|
|
|
$ |
69,668 |
|
Litigation
We are
not presently subject to any material litigation nor, to our knowledge, is any
other litigation threatened against us, other than routine actions for
negligence or other claims and administrative proceedings arising in the
ordinary course of business, some of which are expected to be covered by
liability insurance and all of which collectively are not expected to have a
material adverse effect on our liquidity, results of operations or business or
financial condition.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE 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 $7,785 as of December 31, 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
December 31, 2007, the fair value of the interest rate swap was $120 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 December 31, 2007, the fair value of the interest
rate cap was $1 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 $257, a loss of $94, and a gain of $294 for the years ended December 31,
2007, 2006 and 2005, respectively, for derivatives designated as cash flow
hedges which were reflected on our Balance Sheet in Accumulated Other
Comprehensive Income. Hedge ineffectiveness of $15, $14 and $13 on cash flow
hedges was recognized in unrealized gain/loss on derivatives during 2007, 2006
and 2005, respectively.
On June
12, 2006, we terminated an interest rate cap with a notional amount of $34,230
that served as a hedge against the variability in cash flows on a variable
interest rate debt instrument due to the refinancing of the debt instrument to a
fixed rate. We received $79 in cash and reclassified $58 in reduction to
interest expense as a result of the termination of this cap.
Amounts
reported in accumulated other comprehensive income related to derivatives will
be reclassified to interest expense as interest payments are made on the
Company’s variable-rate debt. The change in net unrealized
gains/losses on cash flow hedges reflects a reclassification of $41 of net
unrealized gains/losses from accumulated other comprehensive income as a
reduction to interest expense during 2007. During 2008, the Company estimates
that an additional $61 will be reclassified as a reduction to interest
expense.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
9 - SHARE-BASED PAYMENTS
In 2004,
we established the Hersha Hospitality Trust 2004 Equity Incentive Plan which
provides for the grant of stock options, stock appreciation rights, stock
awards, performance shares and incentive awards. The maximum number of shares of
common stock that can be issued under this plan is 1.5 million shares. No
share-based payments were granted under this plan during the year ended December
31, 2004.
On June
1, 2005, the Compensation Committee of the Board of Trustees granted 71,000
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 $9.60
per share. As of December 31, 2007, 50% of these restricted share awards were
vested.
On June
1, 2006, the Compensation Committee of the Board of Trustees granted 89,500
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 $9.40
per share. As of December 31, 2007, 25% of these restricted share awards were
vested.
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 December 31, 2007, none
of these restricted share awards were vested.
A summary
of the stock awards issued to executives of the Company under the 2004 Equity
Incentive Plan are as follows:
|
|
|
|
|
Shares
Vested
|
|
|
Unearned
Compensation
|
|
|
Date
of Award
Issuance
|
|
Shares
Issued
|
|
|
12/31/2007
|
|
|
12/31/2006
|
|
|
12/31/2007
|
|
|
12/31/2006
|
|
Period
until
Full
Vesting
|
June
1, 2005
|
|
|
71,000 |
|
|
|
35,500 |
|
|
|
17,750 |
|
|
$ |
242 |
|
|
$ |
412 |
|
1.50
years
|
June
1, 2006
|
|
|
89,500 |
|
|
|
22,375 |
|
|
|
- |
|
|
|
508 |
|
|
|
719 |
|
2.50
years
|
June
1, 2007
|
|
|
214,582 |
|
|
|
- |
|
|
|
- |
|
|
|
2,258 |
|
|
|
- |
|
3.50
years
|
|
|
|
375,082 |
|
|
|
57,875 |
|
|
|
17,750 |
|
|
$ |
3,008 |
|
|
$ |
1,131 |
|
|
Compensation
expense related to stock awards issued to executives of the Company of $766,
$293 and $99 was incurred during the years ended December 31, 2007, 2006 and
2005, respectively, related to the restricted share awards and is recorded in
general and administrative expense on the statement of operations. Unearned
compensation as of December 31, 2007 and 2006 was $3,008 and $1,131,
respectively.
On
January 3, 2006, 5,000 restricted shares were awarded to the Board of
Trustees. The fair value of the restricted shares on the grant date
was $9.12 per share and immediately vested. On January 2, 2007, 4,000
restricted shares were awarded to the Board of Trustees. The fair
value of the restricted shares on the grant date was $11.44 per share and
immediately vested. On July 2, 2007, 4,000 restricted shares were awarded to the
Board of Trustees. The fair value of the restricted shares on the
grant date was $12.12 per share and immediately vested. On January 2, 2008,
4,000 restricted shares were awarded to the Board of Trustees. The
fair value of the restricted shares on the grant date was $9.33 per share and
immediately vested. Compensation expense related to stock awards
issued to the Board of Trustees of $86, $45, and $46 was incurred during the
years ended December 31, 2007, 2006 and 2005.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE 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.
|
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
|
|
|
|
|
|
|
Income
from Continuing Operations
|
|
$ |
13,675 |
|
|
$ |
3,793 |
|
|
$ |
2,725 |
|
Dividends
paid on unvested restricted shares
|
|
|
(197 |
) |
|
|
(95 |
) |
|
|
(38 |
) |
Distributions
to 8.0% Series A Preferred Shareholders
|
|
|
(4,800 |
) |
|
|
(4,800 |
) |
|
|
(1,920 |
) |
Income
(loss) from continuing operations applicable to common
shareholders
|
|
|
8,678 |
|
|
|
(1,102 |
) |
|
|
767 |
|
Income
from Discontinued Operations
|
|
|
4,172 |
|
|
|
1,305 |
|
|
|
572 |
|
Net
Income applicable to common shareholders
|
|
$ |
12,850 |
|
|
$ |
203 |
|
|
$ |
1,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED*
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Continuing Operations
|
|
$ |
13,675 |
|
|
$ |
3,793 |
|
|
$ |
2,725 |
|
Dividends
paid on unvested restricted shares
|
|
|
(197 |
) |
|
|
(95 |
) |
|
|
(38 |
) |
Distributions
to 8.0% Series A Preferred Shareholders
|
|
|
(4,800 |
) |
|
|
(4,800 |
) |
|
|
(1,920 |
) |
Income
(loss) from continuing operations applicable to common
shareholders
|
|
|
8,678 |
|
|
|
(1,102 |
) |
|
|
767 |
|
Income
from Discontinued Operations
|
|
|
4,172 |
|
|
|
1,305 |
|
|
|
572 |
|
Net
Income applicable to common shareholders
|
|
$ |
12,850 |
|
|
$ |
203 |
|
|
$ |
1,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares - basic
|
|
|
40,718,724 |
|
|
|
27,118,264 |
|
|
|
20,293,554 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
stock awards
|
|
|
- |
|
|
|
- |
|
|
|
6,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common
shares - diluted*
|
|
|
40,718,724 |
|
|
|
27,118,264 |
|
|
|
20,299,937 |
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE 10 - EARNINGS PER
SHARE (continued)
|
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Earnings Per
Share:
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations applicable to common
shareholders
|
|
$ |
0.22 |
|
|
$ |
(0.04 |
) |
|
$ |
0.04 |
|
Income
from Discontinued Operations
|
|
$ |
0.10 |
|
|
$ |
0.05 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income applicable to common shareholders
|
|
$ |
0.32 |
|
|
$ |
0.01 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED*
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations applicable to common
shareholders
|
|
$ |
0.22 |
|
|
$ |
(0.04 |
) |
|
$ |
0.04 |
|
Income
from Discontinued Operations
|
|
$ |
0.10 |
|
|
$ |
0.05 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income applicable to common shareholders
|
|
$ |
0.32 |
|
|
$ |
0.01 |
|
|
$ |
0.07 |
|
*
|
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
year ended December 31, 2007, 2006 and 2005 were 5,464,670, 3,554,361 and
2,842,057, respectively. Unvested stock awards have been
omitted from the denominator for the purpose of computing diluted earnings
per share for the years ended December 31, 2007 and 2006 since the effect
of including these amounts in the denominator would be anti-dilutive to
income (loss) from continuing operations applicable to common
shareholders. Unvested stock awards included in the denominator
for the year ended December 31, 2005 have been calculated using the
treasury stock method.
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
11 - CASH FLOW DISCLOSURES AND NON-CASH INVESTING AND FINANCING
ACTIVITIES
Interest
paid in 2007, 2006 and 2005 totaled $40,594, $25,349, and $10,550, respectively.
The following non-cash investing and financing activities occurred during 2007,
2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Common
Shares issued as part of the Dividend Reinvestment Plan
|
|
$ |
30 |
|
|
$ |
29 |
|
|
$ |
24 |
|
Issuance
of Common Shares to the Board of Trustees
|
|
|
95 |
|
|
|
46 |
|
|
|
- |
|
Issuance
of Stock Awards
|
|
|
2,644 |
|
|
|
841 |
|
|
|
682 |
|
Issuance
of notes receivable in disposition of hotel properties held for
sale
|
|
|
- |
|
|
|
1,350 |
|
|
|
1,700 |
|
Issuance
of Common LP Units for acquisitions of hotel properties
|
|
|
25,781 |
|
|
|
9,940 |
|
|
|
- |
|
Debt
assumed in acquisition of hotel properties
|
|
|
70,564 |
|
|
|
101,900 |
|
|
|
30,811 |
|
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
|
|
|
2,369 |
|
|
|
650 |
|
|
|
46 |
|
Reallocation
to minority interest
|
|
|
12,422 |
|
|
|
3,467 |
|
|
|
- |
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
12 - DISCONTINUED OPERATIONS
We follow
the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” which requires, among other things, that the operating
results of certain real estate assets which have been sold, or otherwise qualify
as held for disposition (as defined by SFAS No. 144), be included in
discontinued operations in the statements of operations for all periods
presented.
In
September of 2005, our Board of Trustees authorized management of the Company to
sell the Holiday Inn Express, Hartford, CT. The operating results for this hotel
were reclassified to discontinued operations in the statements of operations in
the statements of operations for the years ended December 31, 2006 and 2005. The
hotel was acquired by the Company in January 2004 and was sold 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. During 2004, in
conjunction with the acquisition of the Holiday Inn Express, Hartford, CT, we
assumed a land lease from a third party with an original term of 99 years.
Monthly payments as determined by the lease agreement were due through the
expiration in September 2101. Subsequent to the sale of this property in the
second quarter of 2006, we did not incur further lease expense. For
the years ended December 31, 2006 and 2005, we incurred $85 and $300 in hotel
ground rent under this agreement, which have been reclassified to discontinued
operations in the statement of operations. The lease was assumed by
the purchaser of this property.
In March
of 2006, our Board of Trustees authorized management of the Company to sell four
properties located in metropolitan Atlanta, Georgia. These four properties are
the Holiday Inn Express, Duluth, Comfort Suites, Duluth, Hampton Inn, Newnan and
the Hampton Inn Peachtree City. The operating results for these
hotels were reclassified to discontinued operations in the statements of
operations for the years ended December 31, 2006 and 2005. 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, 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. The operating results for
these hotels have been reclassified to discontinued operations in the statements
of operations for the years ended December 31, 2007, 2006 and
2005. Proceeds from the sales were $29,500, and the gain on the sale
was $4,248, of which $503 was allocated to minority interest in
HHLP.
We
allocate interest and capital lease expense to discontinued operations for debt
that is to be assumed or that is required to be repaid as a result of the
disposal transaction. We allocated $989, $1,915 and $1,933 of interest and
capital lease expense to discontinued operations for the years ended December
31, 2007, 2006, and 2005, respectively.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE 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 years ended December 31, 2007, 2006 and
2005:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Hotel
Operating Revenues
|
|
$ |
6,684 |
|
|
$ |
12,927 |
|
|
$ |
13,718 |
|
Total
Revenue
|
|
|
6,684 |
|
|
|
12,927 |
|
|
|
13,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and Capital Lease Expense
|
|
|
989 |
|
|
|
1,915 |
|
|
|
1,933 |
|
Hotel
Operating Expenses
|
|
|
3,984 |
|
|
|
8,063 |
|
|
|
9,177 |
|
Hotel
Ground Rent
|
|
|
- |
|
|
|
85 |
|
|
|
300 |
|
Real
Estate and Personal Property Taxes and Property Insurance
|
|
|
433 |
|
|
|
856 |
|
|
|
1,105 |
|
General
and Administrative
|
|
|
- |
|
|
|
- |
|
|
|
40 |
|
Depreciation
and Amortization
|
|
|
794 |
|
|
|
1,316 |
|
|
|
1,835 |
|
|
|
|
6,200 |
|
|
|
12,235 |
|
|
|
14,390 |
|
Total
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Discontinued Operations before Minority
Interest
|
|
|
484 |
|
|
|
692 |
|
|
|
(672 |
) |
Allocation
to Minority Interest
|
|
|
57 |
|
|
|
80 |
|
|
|
(83 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Discontinued Operations
|
|
$ |
427 |
|
|
$ |
612 |
|
|
$ |
(589 |
) |
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
13 - SHAREHOLDERS’ EQUITY AND MINORITY INTEREST IN PARTNERSHIP
Common
Shares
The
Company’s common shares are duly authorized, fully paid and non-assessable.
Common shareholders are entitled to receive dividends if and when authorized and
declared by the Board of Trustees of the Company out of assets legally available
and to share ratably in the assets of the Company legally available for
distribution to its shareholders in the event of its liquidation, dissolution or
winding up after payment of, or adequate provision for, all known debts and
liabilities of the Company.
Preferred
Shares
The
Declaration of Trust authorizes our Board of Trustees to classify any unissued
preferred shares and to reclassify any previously classified but unissued
preferred shares of any series from time to time in one or more series, as
authorized by the Board of Trustees. Prior to issuance of shares of each series,
the Board of Trustees is required by Maryland REIT Law and our Declaration of
Trust to set for each such series, subject to the provisions of our Declaration
of Trust regarding the restriction on transfer of shares of beneficial interest,
the terms, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption for each such series. Thus, our Board of
Trustees could authorize the issuance of additional preferred shares with terms
and conditions which could have the effect of delaying, deferring or preventing
a transaction or a change in control in us that might involve a premium price
for holders of common shares or otherwise be in their best
interest.
Common Partnership
Units
Units of
interest in our limited partnership are issued in connection with the
acquisition of wholly owned hotels and joint venture interests in hotel
properties. The total number of units of limited partnership interest
outstanding as of December 31, 2007, 2006 and 2005 was 6,424,915; 3,835,586; and
2,834,282, respectively. These units can be converted to common shares which are
issuable to the limited partners upon exercise of their redemption rights. The
number of shares issuable upon exercise of the redemption rights will be
adjusted upon the occurrence of stock splits, mergers, consolidation or similar
pro rata share transactions, that otherwise would have the effect of diluting
the ownership interest of the limited partners or our shareholders. During
2007 and 2006, 306,460 and 82,077 common units were converted to Class A Common
Shares, respectively.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
14 - INCOME TAXES
The
Company has elected to be taxed as a REIT under Sections 856 through 860 of the
Code commencing with its taxable year ended December 31, 1999. To qualify as a
REIT, the Company must meet a number of organizational and operational
requirements, including a requirement that it currently distribute at least 90%
of its adjusted taxable income to its shareholders. It is the Company’s current
intention to adhere to these requirements and maintain the Company’s
qualification for taxation as a REIT. As a REIT, the Company generally will not
be subject to federal corporate income tax on that portion of its net income
that is currently distributed to shareholders. If the Company fails to qualify
for taxation as a REIT in any taxable year, it will be subject to federal income
taxes at regular corporate rates (including any applicable alternative minimum
tax) and may not be able to qualify as a REIT for four subsequent taxable years.
Even if the Company qualifies for taxation as a REIT, the Company may be subject
to certain state and local taxes on its income and property, and to federal
income and excise taxes on its undistributed taxable income.
Taxable
income from non-REIT activities managed through taxable REIT subsidiaries is
subject to federal, state and local income taxes. 44 New England Company, a 100%
owned taxable REIT subsidiary, and Revere Hotel Group LLC, a 55% owned taxable
REIT subsidiary, (collectively “Consolidated TRS”) are both entities subject to
income taxes at the applicable federal, state and local tax rates.
In
2007, 2006 and 2005, 44 New England Management Company generated net
operating losses (income) of $707, ($420) and $20, respectively. In 2007,
2006 and 2005, Revere Hotel Group LLC generated net operating losses of
$313, $521, $670, respectively. The Company did not record an income tax
expense (benefit) for the net operating losses generated in 2007, 2006 or
2005.
There was
no income tax expense (benefit) recognized by the Consolidated TRS for
2007, 2006 and 2005.
The
provision for income taxes differs from the amount of income tax determined by
applying the applicable U.S. statutory federal income tax rate to pretax income
as a result of the following differences:
|
|
For
the year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Computed
"Expected" federal tax expense (benefit) of TRS, at 35%
|
|
$ |
(270 |
) |
|
$ |
(451 |
) |
|
$ |
(242 |
) |
State
income taxes, net of federal income tax effect
|
|
|
(66 |
) |
|
|
(6 |
) |
|
|
(44 |
) |
Changes
in valuation allowance
|
|
|
336 |
|
|
|
457 |
|
|
|
286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
income tax expense
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
The
components of consolidated TRS’s deferred tax assets as of December 31, 2007
were as follows:
|
|
as
of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$ |
1,743 |
|
|
$ |
1,476 |
|
Depreciation
|
|
|
(19 |
) |
|
|
- |
|
Net
deferred tax assets
|
|
|
1,724 |
|
|
|
1,476 |
|
Valuation
allowance
|
|
|
(1,724 |
) |
|
|
(1,476 |
) |
Deferred
tax assets
|
|
$ |
- |
|
|
$ |
- |
|
In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Based on the level of historical taxable income and
projections for future taxable income
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
14 - INCOME TAXES (continued)
over the
periods in which the deferred tax assets are deductible, management believes it
is more likely than not that the Consolidated TRS will not realize the benefits
of these deferred tax assets at December 31, 2007.
Earnings
and profits, which will determine the taxability of dividends to shareholders,
will differ from net income reported for financial reporting purposes due to the
differences for federal tax purposes in the estimated useful lives and methods
used to compute depreciation. The following table sets forth certain per share
information regarding the Company’s common and preferred share distributions for
the years ended December 31, 2007, 2006 and 2005.
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Preferred
Shares - 8% Series A
|
|
|
|
|
|
|
|
|
|
Ordinary
income
|
|
|
81.98% |
|
|
|
83.05% |
|
|
|
85.96% |
|
Capital
Gain Distribution
|
|
|
18.02% |
|
|
|
16.95% |
|
|
|
14.04% |
|
Common
Shares - Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
income
|
|
|
48.25% |
|
|
|
28.27% |
|
|
|
60.83% |
|
Return
of Capital
|
|
|
41.14% |
|
|
|
65.85% |
|
|
|
29.24% |
|
Capital
Gain Distribution
|
|
|
10.61% |
|
|
|
5.88% |
|
|
|
9.93% |
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
15 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
Year
Ended December 31, 2007
|
|
|
|
First Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
Revenues
|
|
$ |
47,606 |
|
|
$ |
64,722 |
|
|
$ |
68,967 |
|
|
$ |
61,520 |
|
Expenses
|
|
|
51,929 |
|
|
|
57,576 |
|
|
|
60,878 |
|
|
|
60,468 |
|
Loss
(Income) from Unconsolidated Joint Ventures
|
|
|
(838 |
) |
|
|
1,741 |
|
|
|
1,680 |
|
|
|
893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
(Income) before Minority Interests and Discontinued
Operations
|
|
|
(5,161 |
) |
|
|
8,887 |
|
|
|
9,769 |
|
|
|
1,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
(Income) Allocated to Minority Holders in Continuing
Operations
|
|
|
(992 |
) |
|
|
1,168 |
|
|
|
1,379 |
|
|
|
210 |
|
Loss
(Income) from Continuing Operations
|
|
|
(4,169 |
) |
|
|
7,719 |
|
|
|
8,390 |
|
|
|
1,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
(Income) from Discontinued Operations (including Gain on Disposition of
Hotel Properties)
|
|
|
(69 |
) |
|
|
76 |
|
|
|
106 |
|
|
|
4,059 |
|
Net
Loss (Income)
|
|
|
(4,238 |
) |
|
|
7,795 |
|
|
|
8,496 |
|
|
|
5,794 |
|
Preferred
Distributions
|
|
|
1,200 |
|
|
|
1,200 |
|
|
|
1,200 |
|
|
|
1,200 |
|
Net
Loss (Income) applicable to Common Shareholders
|
|
$ |
(5,438 |
) |
|
$ |
6,595 |
|
|
$ |
7,296 |
|
|
$ |
4,594 |
|
Basic
and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
(Income) from continuing operations applicable to common
shareholders
|
|
$ |
(0.13 |
) |
|
$ |
0.16 |
|
|
$ |
0.18 |
|
|
$ |
0.01 |
|
Discontinued
Operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.10 |
|
Net
Loss (Income) applicable to Common Shareholders
|
|
$ |
(0.13 |
) |
|
$ |
0.16 |
|
|
$ |
0.18 |
|
|
$ |
0.11 |
|
Weighted
Average Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
40,537,851 |
|
|
|
40,642,569 |
|
|
|
40,807,626 |
|
|
|
40,882,090 |
|
Diluted
|
|
|
40,537,851 |
|
|
|
40,842,382 |
|
|
|
40,807,626 |
|
|
|
40,882,685 |
|
|
|
Year
Ended December 31, 2006
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
Revenues
|
|
$ |
23,098 |
|
|
$ |
37,149 |
|
|
$ |
41,031 |
|
|
$ |
40,864 |
|
Expenses
|
|
|
26,766 |
|
|
|
34,604 |
|
|
|
36,405 |
|
|
|
41,837 |
|
Loss
(Income) from Unconsolidated Joint Ventures
|
|
|
(1,110 |
) |
|
|
769 |
|
|
|
1,773 |
|
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
(Income) before Minority Interests and Discontinued
Operations
|
|
|
(4,778 |
) |
|
|
3,314 |
|
|
|
6,399 |
|
|
|
(606 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
(Income) Allocated to Minority Holders in Continuing
Operations
|
|
|
(1,003 |
) |
|
|
669 |
|
|
|
859 |
|
|
|
11 |
|
Loss
(Income) from Continuing Operations
|
|
|
(3,775 |
) |
|
|
2,645 |
|
|
|
5,540 |
|
|
|
(617 |
) |
Loss
(Income) from Discontinued Operations (including Gain on Disposition of
Hotel Properties)
|
|
|
(109 |
) |
|
|
731 |
|
|
|
240 |
|
|
|
443 |
|
Net
Loss (Income)
|
|
|
(3,884 |
) |
|
|
3,376 |
|
|
|
5,780 |
|
|
|
(174 |
) |
Preferred
Distributions
|
|
|
1,200 |
|
|
|
1,200 |
|
|
|
1,200 |
|
|
|
1,200 |
|
Net
Loss (Income) applicable to Common Shareholders
|
|
$ |
(5,084 |
) |
|
$ |
2,176 |
|
|
$ |
4,580 |
|
|
$ |
(1,374 |
) |
Basic
and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
(Income) from continuing operations applicable to common
shareholders
|
|
$ |
(0.24 |
) |
|
$ |
0.06 |
|
|
$ |
0.15 |
|
|
$ |
(0.05 |
) |
Discontinued
Operations
|
|
|
(0.01 |
) |
|
|
0.03 |
|
|
|
0.01 |
|
|
|
0.01 |
|
Net
Loss (Income) applicable to Common Shareholders
|
|
$ |
(0.25 |
) |
|
$ |
0.09 |
|
|
$ |
0.16 |
|
|
$ |
(0.04 |
) |
Weighted
Average Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
20,308,225 |
|
|
|
25,469,708 |
|
|
|
28,413,553 |
|
|
|
34,115,606 |
|
Diluted
|
|
|
20,308,225 |
|
|
|
25,564,362 |
|
|
|
28,428,637 |
|
|
|
34,115,606 |
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
16 - SUBSEQUENT EVENTS
Subsequent
to December 31, 2007, we acquired interests in the following hotel
properties:
Brand
|
|
Location
|
|
Ownership
Interest
|
|
Acquisition
Date
|
|
Purchase
Price
|
|
|
Limited
Partnership
Units
Issued
|
|
Duane
Street Hotel
|
|
New
York, NY
|
|
|
100% |
|
1/4/2007
|
|
$ |
24,750 |
|
|
|
779,585 |
|
Nu
Hotel
|
|
New
York, NY
|
|
|
100% |
|
1/14/2008
|
|
$ |
17,240 |
|
|
|
- |
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
SCHEDULE
III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31,
2007
[IN
THOUSANDS]
|
|
|
|
|
Initial
Costs
|
|
|
Costs
Capitalized
Subsequent
to
Acquisition
|
|
|
Gross
Amounts at
which
Carrried
at
Close
of
Period
|
|
|
|
|
|
Accumulated
|
|
|
Net
Book
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
Land
|
|
|
Description
|
|
Encumbr-
ances
|
|
|
Land
|
|
|
Buildings
&
Improve-
ments
|
|
|
Land
|
|
|
Buildings
&
Improve-
ments
|
|
|
Land
|
|
|
Buildings
&
Improve-
ments
|
|
|
Total
|
|
|
Buildings &
Improve-
ments*
|
|
|
Buildings &
Improve-
ments
|
|
Date
of
Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hampton
Inn, Carlisle, PA
|
|
$ |
(3,562 |
) |
|
$ |
300 |
|
|
$ |
3,109 |
|
|
$ |
200 |
|
|
$ |
2,153 |
|
|
$ |
500 |
|
|
$ |
5,262 |
|
|
$ |
5,762 |
|
|
$ |
(1,363 |
) |
|
$ |
4,399 |
|
06/01/97
|
Holiday
Inn, New Cumberland, PA
|
|
|
(3,066 |
) |
|
|
412 |
|
|
|
1,234 |
|
|
|
- |
|
|
|
3,242 |
|
|
|
412 |
|
|
|
4,476 |
|
|
|
4,888 |
|
|
|
(2,032 |
) |
|
|
2,856 |
|
12/15/94
|
Holiday
Inn Exp, Hershey, PA
|
|
|
(4,238 |
) |
|
|
426 |
|
|
|
2,645 |
|
|
|
410 |
|
|
|
3,394 |
|
|
|
836 |
|
|
|
6,039 |
|
|
|
6,875 |
|
|
|
(1,479 |
) |
|
|
5,396 |
|
10/01/97
|
Holiday
Inn Exp, New Columbia, PA
|
|
|
(1,623 |
) |
|
|
94 |
|
|
|
2,510 |
|
|
|
66 |
|
|
|
774 |
|
|
|
160 |
|
|
|
3,284 |
|
|
|
3,444 |
|
|
|
(802 |
) |
|
|
2,642 |
|
12/01/97
|
Comfort
Inn, Harrisburg, PA
|
|
|
(2,164 |
) |
|
|
- |
|
|
|
2,720 |
|
|
|
214 |
|
|
|
1,145 |
|
|
|
214 |
|
|
|
3,865 |
|
|
|
4,079 |
|
|
|
(936 |
) |
|
|
3,143 |
|
05/15/98
|
Hampton
Inn, Selinsgrove, PA
|
|
|
(2,976 |
) |
|
|
157 |
|
|
|
2,511 |
|
|
|
93 |
|
|
|
2,346 |
|
|
|
250 |
|
|
|
4,857 |
|
|
|
5,107 |
|
|
|
(1,431 |
) |
|
|
3,676 |
|
09/12/96
|
Hampton
Inn, Danville, PA
|
|
|
(2,255 |
) |
|
|
300 |
|
|
|
2,787 |
|
|
|
99 |
|
|
|
1,167 |
|
|
|
399 |
|
|
|
3,954 |
|
|
|
4,353 |
|
|
|
(938 |
) |
|
|
3,415 |
|
08/28/97
|
HIE
& Suites, Harrisburg, PA
|
|
|
- |
|
|
|
213 |
|
|
|
1,934 |
|
|
|
81 |
|
|
|
1,030 |
|
|
|
294 |
|
|
|
2,964 |
|
|
|
3,258 |
|
|
|
(695 |
) |
|
|
2,563 |
|
03/06/98
|
Hampton
Inn, Hershey, PA
|
|
|
(3,177 |
) |
|
|
807 |
|
|
|
5,714 |
|
|
|
4 |
|
|
|
1,213 |
|
|
|
811 |
|
|
|
6,927 |
|
|
|
7,738 |
|
|
|
(1,317 |
) |
|
|
6,421 |
|
01/01/00
|
Mainstay
Suites, Frederick, MD
|
|
|
(2,638 |
) |
|
|
262 |
|
|
|
1,049 |
|
|
|
171 |
|
|
|
2,936 |
|
|
|
433 |
|
|
|
3,985 |
|
|
|
4,418 |
|
|
|
(600 |
) |
|
|
3,818 |
|
01/01/02
|
Sleep
Inn,
KOP,
PA
|
|
|
- |
|
|
|
1,133 |
|
|
|
7,294 |
|
|
|
- |
|
|
|
117 |
|
|
|
1,133 |
|
|
|
7,411 |
|
|
|
8,544 |
|
|
|
(1,223 |
) |
|
|
7,321 |
|
06/01/01
|
Hilton
Garden Inn, Edison, NJ
|
|
|
(7,709 |
) |
|
|
- |
|
|
|
12,159 |
|
|
|
- |
|
|
|
110 |
|
|
|
- |
|
|
|
12,269 |
|
|
|
12,269 |
|
|
|
(1,303 |
) |
|
|
10,966 |
|
10/01/04
|
Sheraton
Four Points, Revere, MA
|
|
|
(7,785 |
) |
|
|
70 |
|
|
|
14,996 |
|
|
|
- |
|
|
|
206 |
|
|
|
70 |
|
|
|
15,202 |
|
|
|
15,272 |
|
|
|
(3,272 |
) |
|
|
12,000 |
|
02/23/04
|
Residence
Inn, Framingham, MA
|
|
|
(9,036 |
) |
|
|
1,325 |
|
|
|
12,737 |
|
|
|
- |
|
|
|
317 |
|
|
|
1,325 |
|
|
|
13,054 |
|
|
|
14,379 |
|
|
|
(1,242 |
) |
|
|
13,137 |
|
03/26/04
|
Comfort
Inn, Frederick, MD
|
|
|
(3,387 |
) |
|
|
450 |
|
|
|
4,342 |
|
|
|
- |
|
|
|
44 |
|
|
|
450 |
|
|
|
4,386 |
|
|
|
4,836 |
|
|
|
(405 |
) |
|
|
4,431 |
|
05/27/04
|
Hilton
Garden Inn, Gettysburg, PA
|
|
|
(5,140 |
) |
|
|
745 |
|
|
|
6,116 |
|
|
|
- |
|
|
|
19 |
|
|
|
745 |
|
|
|
6,135 |
|
|
|
6,880 |
|
|
|
(535 |
) |
|
|
6,345 |
|
07/23/04
|
Hampton
Inn, NYC, NY
|
|
|
(26,500 |
) |
|
|
5,472 |
|
|
|
23,280 |
|
|
|
- |
|
|
|
65 |
|
|
|
5,472 |
|
|
|
23,345 |
|
|
|
28,817 |
|
|
|
(1,679 |
) |
|
|
27,138 |
|
04/01/05
|
Residence
Inn, Greenbelt, MD
|
|
|
(12,302 |
) |
|
|
2,615 |
|
|
|
14,815 |
|
|
|
- |
|
|
|
145 |
|
|
|
2,615 |
|
|
|
14,960 |
|
|
|
17,575 |
|
|
|
(1,302 |
) |
|
|
16,273 |
|
07/16/04
|
Fairfield
Inn, Laurel, MD
|
|
|
|
|
|
|
927 |
|
|
|
6,120 |
|
|
|
- |
|
|
|
996 |
|
|
|
927 |
|
|
|
7,116 |
|
|
|
8,043 |
|
|
|
(500 |
) |
|
|
7,543 |
|
01/31/05
|
Holiday
Inn Exp, Langhorne, PA
|
|
|
(6,550 |
) |
|
|
1,088 |
|
|
|
6,573 |
|
|
|
- |
|
|
|
52 |
|
|
|
1,088 |
|
|
|
6,625 |
|
|
|
7,713 |
|
|
|
(437 |
) |
|
|
7,276 |
|
05/26/05
|
Holiday
Inn Exp, Malvern, PA
|
|
|
(4,070 |
) |
|
|
2,639 |
|
|
|
5,324 |
|
|
|
654 |
|
|
|
31 |
|
|
|
3,293 |
|
|
|
5,355 |
|
|
|
8,648 |
|
|
|
(351 |
) |
|
|
8,297 |
|
05/24/05
|
Holiday
Inn Exp, KOP, PA
|
|
|
(12,950 |
) |
|
|
2,557 |
|
|
|
13,339 |
|
|
|
- |
|
|
|
215 |
|
|
|
2,557 |
|
|
|
13,554 |
|
|
|
16,111 |
|
|
|
(890 |
) |
|
|
15,221 |
|
05/23/05
|
Courtyard
Inn, Wilmington, DE
|
|
|
- |
|
|
|
988 |
|
|
|
10,295 |
|
|
|
- |
|
|
|
748 |
|
|
|
988 |
|
|
|
11,043 |
|
|
|
12,031 |
|
|
|
(691 |
) |
|
|
11,340 |
|
06/17/05
|
McIntosh
Inn, Wilmington, DE
|
|
|
(12,730 |
) |
|
|
898 |
|
|
|
4,515 |
|
|
|
- |
|
|
|
478 |
|
|
|
898 |
|
|
|
4,993 |
|
|
|
5,891 |
|
|
|
(322 |
) |
|
|
5,569 |
|
06/17/05
|
Residence
Inn, Williamsburg, VA
|
|
|
(7,921 |
) |
|
|
1,911 |
|
|
|
11,625 |
|
|
|
13 |
|
|
|
625 |
|
|
|
1,924 |
|
|
|
12,250 |
|
|
|
14,174 |
|
|
|
(1,910 |
) |
|
|
12,264 |
|
11/22/05
|
Springhill
Suites, Williamsburg, VA
|
|
|
(5,394 |
) |
|
|
1,430 |
|
|
|
10,293 |
|
|
|
(13 |
) |
|
|
40 |
|
|
|
1,417 |
|
|
|
10,333 |
|
|
|
11,750 |
|
|
|
(1,529 |
) |
|
|
10,221 |
|
11/22/05
|
Courtyard
Inn, Brookline, MA
|
|
|
(38,913 |
) |
|
|
- |
|
|
|
47,414 |
|
|
|
- |
|
|
|
47 |
|
|
|
- |
|
|
|
47,461 |
|
|
|
47,461 |
|
|
|
(3,020 |
) |
|
|
44,441 |
|
06/15/05
|
Courtyard
Inn, Scranton, PA
|
|
|
(6,300 |
) |
|
|
761 |
|
|
|
7,193 |
|
|
|
- |
|
|
|
329 |
|
|
|
761 |
|
|
|
7,522 |
|
|
|
8,283 |
|
|
|
(366 |
) |
|
|
7,917 |
|
02/01/06
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
SCHEDULE
III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2007
(continued)
[IN
THOUSANDS]
|
|
|
|
|
Initial
Costs
|
|
|
Costs
Capitalized
Subsequent
to
Acquisition
|
|
|
Gross
Amounts
at
which
Carrried
at
Close
of
Period
|
|
|
|
|
|
Accumulated
|
|
|
Net
Book
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
Land
|
|
|
Description
|
|
Encumbr-
ances
|
|
|
Land
|
|
|
Buildings
&
Improve-
ments
|
|
|
Land
|
|
|
Buildings
&
Improve-
ments
|
|
|
Land
|
|
|
Buildings
&
Improve-
ments
|
|
|
Total
|
|
|
Buildings &
Improve-
ments*
|
|
|
Buildings &
Improve-
ments
|
|
Date
of
Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Courtyard
Inn, Langhorne, PA
|
|
|
(15,575 |
) |
|
|
3,064 |
|
|
|
16,068 |
|
|
|
- |
|
|
|
12 |
|
|
|
3,064 |
|
|
|
16,080 |
|
|
|
19,144 |
|
|
|
(787 |
) |
|
|
18,357 |
|
01/03/06
|
Fairfield
Inn, Bethlehem, PA
|
|
|
(6,225 |
) |
|
|
1,399 |
|
|
|
6,778 |
|
|
|
- |
|
|
|
316 |
|
|
|
1,399 |
|
|
|
7,094 |
|
|
|
8,493 |
|
|
|
(364 |
) |
|
|
8,129 |
|
01/03/06
|
Residence
Inn, Tyson's Corner, VA
|
|
|
(9,249 |
) |
|
|
4,283 |
|
|
|
14,475 |
|
|
|
- |
|
|
|
257 |
|
|
|
4,283 |
|
|
|
14,732 |
|
|
|
19,015 |
|
|
|
(690 |
) |
|
|
18,325 |
|
02/02/06
|
Hilton
Garden Inn, JFK Airport, NY
|
|
|
(21,000 |
) |
|
|
- |
|
|
|
25,018 |
|
|
|
- |
|
|
|
282 |
|
|
|
- |
|
|
|
25,300 |
|
|
|
25,300 |
|
|
|
(1,200 |
) |
|
|
24,100 |
|
02/16/06
|
Hawthorne
Suites, Franklin, MA
|
|
|
(8,500 |
) |
|
|
1,872 |
|
|
|
8,968 |
|
|
|
- |
|
|
|
11 |
|
|
|
1,872 |
|
|
|
8,979 |
|
|
|
10,851 |
|
|
|
(384 |
) |
|
|
10,467 |
|
04/25/06
|
Comfort
Inn, Dartmouth, MA
|
|
|
(3,145 |
) |
|
|
902 |
|
|
|
3,525 |
|
|
|
- |
|
|
|
437 |
|
|
|
902 |
|
|
|
3,962 |
|
|
|
4,864 |
|
|
|
(166 |
) |
|
|
4,698 |
|
05/01/06
|
Residence
Inn, Dartmouth, MA
|
|
|
(9,073 |
) |
|
|
1,933 |
|
|
|
10,434 |
|
|
|
- |
|
|
|
80 |
|
|
|
1,933 |
|
|
|
10,514 |
|
|
|
12,447 |
|
|
|
(428 |
) |
|
|
12,019 |
|
05/01/06
|
Holiday
Inn Exp, Cambridge, MA
|
|
|
(8,389 |
) |
|
|
1,956 |
|
|
|
9,793 |
|
|
|
- |
|
|
|
281 |
|
|
|
1,956 |
|
|
|
10,074 |
|
|
|
12,030 |
|
|
|
(414 |
) |
|
|
11,616 |
|
05/03/06
|
Residence
Inn, Norwood, MA
|
|
|
- |
|
|
|
1,970 |
|
|
|
11,761 |
|
|
|
- |
|
|
|
9 |
|
|
|
1,970 |
|
|
|
11,770 |
|
|
|
13,740 |
|
|
|
(429 |
) |
|
|
13,311 |
|
07/27/06
|
Hampton
Inn, Brookhaven, NY
|
|
|
(15,089 |
) |
|
|
3,130 |
|
|
|
17,345 |
|
|
|
- |
|
|
|
140 |
|
|
|
3,130 |
|
|
|
17,485 |
|
|
|
20,615 |
|
|
|
(565 |
) |
|
|
20,050 |
|
09/06/06
|
Holiday
Inn Exp, Hauppage, NY
|
|
|
(10,358 |
) |
|
|
2,737 |
|
|
|
14,080 |
|
|
|
- |
|
|
|
166 |
|
|
|
2,737 |
|
|
|
14,246 |
|
|
|
16,983 |
|
|
|
(461 |
) |
|
|
16,522 |
|
09/01/06
|
Residence
Inn, Langhorne, PA
|
|
|
- |
|
|
|
1,463 |
|
|
|
12,094 |
|
|
|
- |
|
|
|
106 |
|
|
|
1,463 |
|
|
|
12,200 |
|
|
|
13,663 |
|
|
|
(306 |
) |
|
|
13,357 |
|
01/08/07
|
Hampton
Inn, Chelsea, NY
|
|
|
(36,000 |
) |
|
|
8,905 |
|
|
|
33,500 |
|
|
|
- |
|
|
|
303 |
|
|
|
8,905 |
|
|
|
33,803 |
|
|
|
42,708 |
|
|
|
(1,102 |
) |
|
|
41,606 |
|
09/29/06
|
Hyatt
Summerfield Suites, Bridgewater, NJ
|
|
|
(14,492 |
) |
|
|
3,373 |
|
|
|
19,685 |
|
|
|
- |
|
|
|
131 |
|
|
|
3,373 |
|
|
|
19,816 |
|
|
|
23,189 |
|
|
|
(496 |
) |
|
|
22,693 |
|
12/28/06
|
Hyatt
Summerfield Suites, Charlotte, NC
|
|
|
(7,330 |
) |
|
|
770 |
|
|
|
7,315 |
|
|
|
- |
|
|
|
495 |
|
|
|
770 |
|
|
|
7,810 |
|
|
|
8,580 |
|
|
|
(196 |
) |
|
|
8,384 |
|
12/28/06
|
Hyatt
Summerfield Suites, Gaithersburg, MD
|
|
|
(13,720 |
) |
|
|
2,912 |
|
|
|
16,001 |
|
|
|
- |
|
|
|
290 |
|
|
|
2,912 |
|
|
|
16,291 |
|
|
|
19,203 |
|
|
|
(428 |
) |
|
|
18,775 |
|
12/28/06
|
Hyatt
Summerfield Suites, Pleasant Hills, CA
|
|
|
(20,160 |
) |
|
|
6,216 |
|
|
|
17,229 |
|
|
|
- |
|
|
|
101 |
|
|
|
6,216 |
|
|
|
17,330 |
|
|
|
23,546 |
|
|
|
(434 |
) |
|
|
23,112 |
|
12/28/06
|
Hyatt
Summerfield Suites, Pleasanton, CA
|
|
|
(14,490 |
) |
|
|
3,941 |
|
|
|
12,560 |
|
|
|
- |
|
|
|
107 |
|
|
|
3,941 |
|
|
|
12,667 |
|
|
|
16,608 |
|
|
|
(317 |
) |
|
|
16,291 |
|
12/28/06
|
Hyatt
Summerfield Suites, Scottsdale, AZ
|
|
|
(16,778 |
) |
|
|
3,060 |
|
|
|
19,968 |
|
|
|
- |
|
|
|
126 |
|
|
|
3,060 |
|
|
|
20,094 |
|
|
|
23,154 |
|
|
|
(503 |
) |
|
|
22,651 |
|
12/28/06
|
Hyatt
Summerfield Suites, White Plains, NY
|
|
|
(33,030 |
) |
|
|
8,823 |
|
|
|
30,273 |
|
|
|
- |
|
|
|
108 |
|
|
|
8,823 |
|
|
|
30,381 |
|
|
|
39,204 |
|
|
|
(761 |
) |
|
|
38,443 |
|
12/28/06
|
HIE
& Suites, Chester, NY
|
|
|
(6,700 |
) |
|
|
1,500 |
|
|
|
6,671 |
|
|
|
- |
|
|
|
34 |
|
|
|
1,500 |
|
|
|
6,705 |
|
|
|
8,205 |
|
|
|
(154 |
) |
|
|
8,051 |
|
01/25/07
|
Residence
Inn, Carlisle, PA
|
|
|
(7,000 |
) |
|
|
1,015 |
|
|
|
7,511 |
|
|
|
- |
|
|
|
20 |
|
|
|
1,015 |
|
|
|
7,531 |
|
|
|
8,546 |
|
|
|
(185 |
) |
|
|
8,361 |
|
01/10/07
|
Hampton
Inn, Seaport, NY
|
|
|
(19,250 |
) |
|
|
7,816 |
|
|
|
19,040 |
|
|
|
- |
|
|
|
63 |
|
|
|
7,816 |
|
|
|
19,103 |
|
|
|
26,919 |
|
|
|
(441 |
) |
|
|
26,478 |
|
02/01/07
|
Hotel
373-5th Ave, NYC, NY
|
|
|
(22,000 |
) |
|
|
14,239 |
|
|
|
16,778 |
|
|
|
- |
|
|
|
56 |
|
|
|
14,239 |
|
|
|
16,834 |
|
|
|
31,073 |
|
|
|
(246 |
) |
|
|
30,827 |
|
06/01/07
|
Holiday
Inn, Norwich, CT
|
|
|
- |
|
|
|
1,984 |
|
|
|
12,037 |
|
|
|
- |
|
|
|
20 |
|
|
|
1,984 |
|
|
|
12,057 |
|
|
|
14,041 |
|
|
|
(151 |
) |
|
|
13,890 |
|
07/01/07
|
Hampton
Inn, Philadelphia, PA
|
|
|
- |
|
|
|
3,490 |
|
|
|
24,382 |
|
|
|
- |
|
|
|
2,809 |
|
|
|
3,490 |
|
|
|
27,191 |
|
|
|
30,681 |
|
|
|
(3,660 |
) |
|
|
27,021 |
|
02/15/06
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
SCHEDULE
III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2007
(continued)
[IN
THOUSANDS]
|
|
|
|
|
Initial
Costs
|
|
|
Costs
Capitalized
Subsequent
to
Acquisition
|
|
|
Gross
Amounts
at
which
Carrried
at
Close
of
Period
|
|
|
|
|
|
Accumulated
|
|
|
Net
Book
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
Land
|
|
|
Description
|
|
Encumbr-
ances
|
|
|
Land
|
|
|
Buildings
&
Improve-
ments
|
|
|
Land
|
|
|
Buildings
&
Improve-
ments
|
|
|
Land
|
|
|
Buildings
&
Improve-
ments
|
|
|
Total
|
|
|
Buildings &
Improve-
ments*
|
|
|
Buildings &
Improve-
ments
|
|
Date
of
Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Courtyard
Inn, Alexandria, VA
|
|
|
(25,000 |
) |
|
|
6,376 |
|
|
|
26,089 |
|
|
|
- |
|
|
|
24 |
|
|
|
6,376 |
|
|
|
26,113 |
|
|
|
32,489 |
|
|
|
(843 |
) |
|
|
31,646 |
|
09/29/06
|
8th
Ave Land, NYC, NY
|
|
|
(13,250 |
) |
|
|
21,575 |
|
|
|
- |
|
|
|
- |
|
|
|
198 |
|
|
|
21,575 |
|
|
|
198 |
|
|
|
21,773 |
|
|
|
(7 |
) |
|
|
21,766 |
|
06/28/06
|
41st
Street Facility, NYC, NY
|
|
|
(12,100 |
) |
|
|
10,735 |
|
|
|
11,051 |
|
|
|
- |
|
|
|
- |
|
|
|
10,735 |
|
|
|
11,051 |
|
|
|
21,786 |
|
|
|
(403 |
) |
|
|
21,383 |
|
07/28/06
|
Nevins
Street Land, Brooklyn, NY
|
|
|
(6,500 |
) |
|
|
10,650 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,650 |
|
|
|
- |
|
|
|
10,650 |
|
|
|
- |
|
|
|
10,650 |
|
06/11/07
& 07/11/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Investment in Real Estate
|
|
$ |
(566,789 |
) |
|
$ |
170,069 |
|
|
$ |
675,072 |
|
|
$ |
1,992 |
|
|
$ |
30,966 |
|
|
$ |
172,061 |
|
|
$ |
706,038 |
|
|
$ |
878,099 |
|
|
$ |
(49,091 |
) |
|
$ |
829,008 |
|
|
* Assets
are depreciated over a 7 to 40 year life, upon which the latest income statement
is computed
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
SCHEDULE
III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2007
(continued)
[IN
THOUSANDS]
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Reconciliation
of Real Estate
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
776,609 |
|
|
$ |
318,865 |
|
|
$ |
178,935 |
|
Additions
during the year
|
|
|
125,175 |
|
|
|
479,028 |
|
|
|
158,095 |
|
Dispositions
During the year
|
|
|
(23,685 |
) |
|
|
(21,284 |
) |
|
|
(20,809 |
) |
Investments
in real estate
|
|
|
878,099 |
|
|
|
776,609 |
|
|
|
316,221 |
|
Assets
held for sale
|
|
|
- |
|
|
|
- |
|
|
|
2,644 |
|
Total
Real Estate
|
|
$ |
878,099 |
|
|
$ |
776,609 |
|
|
$ |
318,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
33,373 |
|
|
$ |
21,727 |
|
|
$ |
14,418 |
|
Depreciation
for year
|
|
|
17,252 |
|
|
|
14,390 |
|
|
|
8,152 |
|
Accumulated
Depreciation on Assets Sold
|
|
|
(1,534 |
) |
|
|
(2,744 |
) |
|
|
(843 |
) |
Balance
at the end of year
|
|
$ |
49,091 |
|
|
$ |
33,373 |
|
|
$ |
21,727 |
|
The
aggregate cost of land, buildings and improvements for Federal income tax
purposes for the years ended December 31, 2007, 2006 and 2005 is approximately
$817,805, 676,415, and 252,444, respectively.
Depreciation
is computed based upon the following useful lives:
Buildings
and Improvements
|
7
to 40 years
|
Item
9.
Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item
9A. Controls and
Procedures
(a) Evaluation of Disclosure Controls and
Procedures
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of our
disclosure controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
Act), as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures as of the end of the period covered
by this report are functioning effectively to provide reasonable assurance that
the information required to be disclosed by us in reports filed under the
Securities Exchange Act of 1934 is (i) recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms and (ii)
accumulated and communicated to our management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding disclosure. A control system cannot provide absolute assurance,
however, that the objectives of the controls system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.
(b) Management’s Report on Internal Control
Over Financial Reporting
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined within Exchange Act Rules
13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the
processes designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles, and
includes policies and procedures that:
·
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the Company; and
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
A
material weakness in internal control over financial reporting is a significant
deficiency, or a combination of significant deficiencies, that results in more
than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected.
Management
conducted an evaluation of the effectiveness of the Company’s internal control
over financial reporting based on the criteria contained in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission as of December 31, 2007. Based
on that evaluation, management has concluded that, as of December 31, 2007, the
Company’s internal control over financial reporting was effective based on those
criteria. The
effectiveness of our internal control over financial reporting as of December
31, 2007 has been audited by KPMG LLP, an independent registered public
accounting firm, as stated in their report which is included
herein.
(c) Audit
Report of Independent Registered Public Accounting Firm
Report of Independent
Registered Public Accounting Firm
The Board
of Trustees and Shareholders of
Hersha
Hospitality Trust:
We have
audited Hersha Hospitality Trust and subsidiaries’ internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Hersha Hospitality Trust's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, Hersha Hospitality Trust maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Hersha
Hospitality Trust and subsidiaries as of December 31, 2007 and 2006, and the
related consolidated statements of operations, shareholders’ equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2007, and our report dated March 11, 2008 expressed an
unqualified opinion on those consolidated financial statements.
/s/ KPMG
LLP
Philadelphia,
Pennsylvania
March 11,
2008
(d) Changes in Internal Control Over
Financial Reporting
There
were no changes in our internal control over financial reporting during the
quarter ended December 31, 2007, that have materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
Item
9B. Other
Information
None.
PART
III
Item
10. Trustees, Executive Officers and Corporate Governance
Incorporated
herein by reference from our definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days after the year covered by
this Form 10-K with respect to our 2008 Annual Meeting of
Shareholders.
Item
11. Executive
Compensation
Incorporated
herein by reference from our definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days after the year covered by
this Form 10-K with respect to our 2008 Annual Meeting of
Shareholders.
Item
12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters
Incorporated
herein by reference from our definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days after the year covered by
this Form 10-K with respect to our 2008 Annual Meeting of
Shareholders.
Item
13. Certain Relationships
and Related Transactions,
and Trustee Independence
Incorporated
herein by reference from our definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days after the year covered by
this Form 10-K with respect to our 2008 Annual Meeting of
Shareholders.
Item
14. Principal Accountant
Fees and Services
Incorporated
herein by reference from our definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days after the year covered by
this Form 10-K with respect to our 2008 Annual Meeting of
Shareholders.
PART
IV
Item
15. Exhibits and Financial
Statement Schedules
(a) Documents filed as part of this
report.
1. Financial Reports:
Report of
Independent Registered Public Accounting Firm
Consolidated
Balance Sheets as of December 31, 2007 and 2006
Consolidated
Statements of Operations for the years ended December 31, 2007, 2006 and
2005
Consolidated
Statements of Shareholders’ Equity for the years ended December 31, 2007, 2006
and 2005
Consolidated
Statements of Cash Flows for the years ended December 31, 2007, 2006 and
2005
Notes to
Consolidated Financial Statements
2. Financial Statement
Schedules:
Schedule
III - Real Estate and Accumulated Depreciation for the year ended December 31,
2007
(b) Exhibits
The Exhibits listed in the accompanying “Index of Exhibits” on pages 98
through 104 hereof are filed and incorporated by reference as a part of
this report.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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
|
|
|
|
|
March
13, 2008
|
/s/
Jay H. Shah
|
|
|
Jay H. Shah
|
|
|
Chief
Executive Officer
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURE
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
/s/
Hasu P. Shah
|
|
Chairman
of the Board
|
|
March
13, 2008
|
Hasu
P. Shah
|
|
|
|
|
|
|
|
|
|
/s/
Jay H. Shah
|
|
Trustee
and Chief Executive Officer
(Principal
Executive Officer)
|
|
March
13, 2008
|
Jay H. Shah
|
|
|
|
|
|
|
|
|
|
/s/ Thomas S. Capello
|
|
Trustee
|
|
March
13, 2008
|
Thomas S. Capello
|
|
|
|
|
|
|
|
|
|
/s/ John M. Sabin
|
|
Trustee
|
|
March
13, 2008
|
John M. Sabin
|
|
|
|
|
|
|
|
|
|
/s/ Donald J. Landry
|
|
Trustee
|
|
March
13, 2008
|
Donald J. Landry
|
|
|
|
|
|
|
|
|
|
/s/
Michael A. Leven
|
|
Trustee
|
|
March
13, 2008
|
Michael A. Leven
|
|
|
|
|
|
|
|
|
|
/s/
Kiran P. Patel
|
|
Trustee
|
|
March
13, 2008
|
Kiran P. Patel
|
|
|
|
|
|
|
|
|
|
/s/
Ashish R. Parikh
|
|
Chief
Financial Officer (Principal Financial Officer)
|
|
March
13, 2008
|
Ashish
R. Parikh
|
|
|
|
|
|
|
|
|
|
/s/
Michael R. Gillespie
|
|
Chief
Accounting Officer (Principal Accounting Officer)
|
|
March
13, 2008
|
Michael R. Gillespie
|
|
|
|
|
INDEX
OF EXHIBITS
|
|
|
|
3.1
|
|
Amended
and Restated Declaration of Trust, as amended. (filed with the SEC as
Exhibit 3.1 to the Quarterly Report on Form 10-Q filed April 6, 2007 (SEC
File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
3.2
|
|
Articles
Supplementary to the Amended and Restated Declaration of Trust of the
Registrant Designating the Terms of the 8.00% Series A Cumulative
Redeemable Preferred Shares of Beneficial Interest, $0.01 par value per
share (filed with the SEC as Exhibit 3.2 to the Form 8-A filed
on August 3, 2005 (SEC File No. 001-14765) and incorporated by
reference herein).
|
|
|
|
3.3
|
|
Bylaws
of the Registrant.*
|
|
|
|
4.1
|
|
Form
of Common Share Certificate.*
|
|
|
|
4.2
|
|
Excepted
Holder Agreement, dated April 21, 2003, by and among CNL Hospitality
Properties, Inc., CNL Hospitality Partners, L.P., Hersha Hospitality Trust
and Hersha Hospitality Limited Partnership (filed as Exhibit 4.1 to the
Form 8-K filed on April 23, 2003 (SEC File No. 001-14765) and
incorportated by reference herein).
|
|
|
|
4.3
|
|
Junior
Subordinated Indenture, dated as of May 13, 2005, between the Company
and JPMorgan Chase Bank, National Association, as trustee (filed as
Exhibit 4.1 to the Current Report on Form 8-K filed on May 17,
2005 (SEC File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
4.4
|
|
Amended
and Restated Trust Agreement, dated as of May 13, 2005, among the
Company, as depositor, JPMorgan Chase Bank, National Association, as
property trustee, Chase Bank USA, National Association, as Delaware
trustee, the Administrative Trustees named therein and the holders of
undivided beneficial interests in the assets of the Trust. (filed as
Exhibit 4.2 to the Current Report on Form 8-K filed on
May 17, 2005 (SEC File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
4.5
|
|
Form
of Junior Subordinated Note (included in Exhibit 4.3
hereto).
|
|
|
|
4.6
|
|
Form
of Trust Preferred Security Certificate (included in Exhibit 4.4
hereto).
|
|
|
|
4.7
|
|
Junior
Subordinated Indenture, dated as of May 31, 2005, between the Company
and Wilmington Trust Company, as trustee (filed as Exhibit 4.1 to the
Current Report on Form 8-K filed on June 6, 2005 (SEC File No.
001-14765) and incorporated by reference herein).
|
|
|
|
4.8
|
|
Amended
and Restated Trust Agreement, dated as of May 31, 2005, among the
Company, as depositor, Wilmington Trust Company, as property trustee and
Delaware trustee, the Administrative Trustees named therein and the
holders of undivided beneficial interests in the assets of the Trust
(filed as Exhibit 4.2 to the Current Report on Form 8-K filed on
June 6, 2005 (SEC File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
4.9
|
|
Form
of Junior Subordinated Note (included in Exhibit 4.7
hereto).
|
|
|
|
4.10
|
|
Form
of Trust Preferred Security Certificate (included in Exhibit 4.8
hereto).
|
|
|
|
4.11
|
|
Form
of 8.00% Series A Cumulative Redeemable Preferred Share certificate
(filed as Exhibit 3.4 to the Form 8-A filed on August 3, 2005
(SEC File No. 001-14765) and incorporated by reference
herein).
|
INDEX
OF EXHIBITS (continued)
|
|
|
|
10.1
|
|
Amended
and Restated Agreement of Limited Partnership of Hersha Hospitality
Limited Partnership.*
|
|
|
|
10.2
|
|
Option
Agreement dated as of June 3, 1998, among Hasu P. Shah, Jay H. Shah, Neil
H, Shah, Bharat C. Mehta, K.D. Patel, Rajendra O. Gandhi, Kiran P. Patel,
David L. Desfor, Madhusudan I. Patni and Manhar Gandhi, and the
Partnership.*
|
|
|
|
10.3
|
|
Amendment
to Option Agreement dated December 4, 1998.*
|
|
|
|
10.4
|
|
Form
of Percentage Lease.*
|
|
|
|
10.5
|
|
Administrative
Services Agreement, dated January 26, 1999, between Hersha Hospitality
Trust and Hersha Hospitality Management, L.P.*
|
|
|
|
10.6
|
|
Securities
Purchase Agreement, dated as of April 21, 2003, among CNL Hospitality
Partners, L.P., Hersha Hospitality Trust and Hersha Hospitality Limited
Partners (filed as Exhibit 10.1 to the Form 8-K filed on April 23, 2003
(SEC File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
10.7
|
|
Second
Amendment to the Amended and Restated Agreement of Limited Partnership of
Hersha Hospitality Limited Partnership, dated as of April 21, 2003 (filed
as Exhibit 10.2 to the Form 8-K filed on April 23, 2003 (SEC File No.
001-14765) and incorporated by reference herein).
|
|
|
|
10.8
|
|
Standstill
Agreement, dated as of April 21, 2003, by and among Hersha Hospitality
Trust, Hersha Hospitality Limited Partnership, CNL Hospitality Partners,
L.P. and CNL Financial Group, Inc. (filed as Exhibit 10.3 to the Form 8-K
filed on April 23, 2003 (SEC File No. 001-14765) and incorporated by
reference herein).
|
|
|
|
10.9
|
|
Limited
Partnership Agreement of HT/CNL Metro Hotels, LP, dated as of April 21,
2003 (filed as Exhibit 10.5 to the Form 8-K filed on April 23, 2003 (SEC
File No. 001-1476) and incorporated by reference
herein).
|
|
|
|
10.10
|
|
Second
Amendment to Option Agreement (filed as Exhibit 10.15 to the Registration
Statement on Form S-3 filed on February 24, 2004 (File No. 333-113061) and
incorporated by reference herein).
|
|
|
|
10.11
|
|
Purchase
and Sale Agreement, dated April 28, 2005, by and between McIntosh Inn of
Wilmington, Inc., a Delaware corporation, and Hersha Hospitality Limited
Partnership, a Virginia limited partnership (filed as Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q filed on May 10, 2005 (SEC File
No. 001-14765) and incorporated by reference herein).
|
|
|
|
10.12
|
|
Purchase
and Sale Agreement, dated April 28, 2005, by and between McIntosh Inn of
King of Prussia, Inc., a Pennsylvania corporation, and Hersha Hospitality
Limited Partnership, a Virginia limited partnership (filed as Exhibit 10.2
to the Company’s Quarterly Report on Form 10-Q filed on May 10, 2005 (SEC
File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
10.13
|
|
Purchase
and Sale Agreement, dated April 28, 2005, by and between McIntosh Inn of
Malvern, Inc., a Pennsylvania corporation, and Hersha Hospitality Limited
Partnership, a Virginia limited partnership (filed as Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q filed on May 10, 2005 (SEC File
No. 001-14765) and incorporated by reference
herein).
|
INDEX
OF EXHIBITS (continued)
|
|
|
|
10.14
|
|
Purchase
and Sale Agreement, dated April 28, 2005, by and between McIntosh Inn of
Oxford Valley, Inc., a Pennsylvania corporation, and Hersha Hospitality
Limited Partnership, a Virginia limited partnership (filed as Exhibit 10.4
to the Company’s Quarterly Report on Form 10-Q filed on May 10, 2005 (SEC
File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
10.15
|
|
Agreement
for Sale and Purchase of a Hotel, dated as of May 4, 2005 by and among
Webster Street Hotel, LLC, a Delaware limited liability company, and
Hersha Hospitality Limited Partnership, a Virginia limited partnership
(filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q
filed on May 10, 2005 (SEC File No. 001-14765) and incorporated by
reference herein).
|
|
|
|
10.16
|
|
Purchase
Agreement, dated as of May 11, 2005, among the Company, the Trust and
Merrill Lynch International (previously filed with the SEC as Exhibit 10.1
to the Current Report on Form 8-K filed on May 17, 2005 (SEC
File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
10.17
|
|
Agreement
of Purchase and Sale, dated as of May 13, 2005, by and between Metro
Two Hotel, LLC and CNR Queens Hospitality, LLC (filed as
Exhibit 10.1 to the Current Report on Form 8-K filed on
May 19, 2005 (SEC File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
10.18
|
|
Purchase
and Sale Agreement, dated as of May 13, 2005, by and between 5544 JFK
III Associates and Metro Sai Hospitality L.L.C (filed as
Exhibit 10.2 to the Current Report on Form 8-K filed on
May 19, 2005 (SEC File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
10.19
|
|
Placement
Agreement, dated as of May 31, 2005, among the Company, the Trust and
Credit Suisse First Boston LLC (filed as Exhibit 10.1 to the Current
Report on Form 8-K filed on June 6, 2005 (SEC File No.
001-14765) and incorporated by reference herein).
|
|
|
|
10.20
|
|
Membership
Interests Contribution Agreement, dated June 15, 2005, by and among
Waterford Hospitality Group, LLC, Mystic Hotel Investors, LLC and Hersha
Hospitality Group Limited Partnership (filed as Exhibit 10.1 to
the Current Report on Form 8-K filed on June 21, 2005 (SEC File
No. 001-14765) and incorporated by reference
herein).
|
|
|
|
10.21
|
|
Form
of Limited Liability Company Agreement of Mystic Partners, LLC
(filed as Exhibit 10.2 to the Current Report on Form 8-K filed
on June 21, 2005 (SEC File No. 001-14765) and incorporated by
reference herein).
|
|
|
|
10.22
|
|
Form
of Management Agreement between Lessee and Waterford Hotel Group, Inc.
(filed as Exhibit 10.3 to the Current Report on Form 8-K filed
on June 21, 2005 (SEC File No. 001-14765) and incorporated by
reference herein).
|
|
|
|
10.23
|
|
Form
of Limited Liability Company Agreement of Leaseco, LLC (filed as
Exhibit 10.4 to the Current Report on Form 8-K filed on
June 21, 2005 (SEC File No. 001-14765) and incorporated by
reference herein).
|
INDEX
OF EXHIBITS (continued)
|
|
|
|
10.24
|
|
Third
Amendment to Agreement of Limited Partnership of Hersha Hospitality
Limited Partnership, by and between Hersha Hospitality Trust and Hersha
Hospitality Limited Partnership, dated August 5, 2005 (filed as
Exhibit 10.1 to the Current Report on Form 8-K filed on
August 8, 2005 (SEC File No. 001-14765) and incorporated by
reference herein).
|
|
|
|
10.25
|
|
Agreement
of Sale, dated October 24, 2005, by and between Charlene Schwartz, a
resident of Pennsylvania; Langhorne Courtyard, Inc., a Pennsylvania
corporation; Mt. Laurel FFI, Inc., a New Jersey corporation; Bethlehem
FFI, Inc., a Pennsylvania corporation and Hersha Hospitality Trust
(filed as Exhibit 10.1 to the Current Report on Form 8-K filed
October 28, 2005 (SEC File No. 001-14765) and incorporated by
reference herein).
|
|
|
|
10.26
|
|
Revolving
Credit Loan and Security Agreement, dated January 17, 2006, by and between
Hersha Hospitality Limited Partnership, Hersha Hospitality Trust and
Commerce Bank N.A (filed as Exhibit 10.1 to the Current Report on
Form 8-K filed January 23, 2006, (SEC File No. 001-14765) and incorporated
by reference herein).
|
|
|
|
10.27
|
|
Contribution
Agreement, dated as of January 19, 2006, by and among Shanti III
Associates, Kunj Associates, Devi Associates, Shree Associates, David L.
Desfor, Ashish R. Parikh, Sal Shahriar, The Hasu and Hersha Shah 2004
Trust FBO Neil H. Shah, The Hasu and Hersha Shah 2004 Trust FBO Jay H.
Shah, Metro JFK Associates LLC, and Hersha Hospitality Limited Partnership
(filed as Exhibit 10.1 to the Current Report on Form 8-K filed
January 25, 2006 (SEC File No. 001-14765) and incorporated by
reference herein).
|
|
|
|
10.28
|
|
Limited
Partnership Interests Purchase Agreement, dated as of the 19th day of
January, 2006, by and among Affordable Hospitality, Inc.; 3344 Associates;
Hersha Capital, Inc.; Affordable Hospitality Associates, LP; Hersha
Hospitality Limited Partnership and Race Street, LLC (filed as
Exhibit 10.2 to the Current Report on Form 8-K filed January 25, 2006 (SEC
File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
10.29
|
|
Sixth
Amendment to Membership Interests Contribution Agreement, dated February
8, 2006, by and among Hersha Hospitality Limited Partnership, Mystic Hotel
Investors, LLC; Waterford Hospitality Group, LLC and First American Title
Insurance Company (filed as Exhibit 10.5 to the Current Report on
Form 8-K filed February 14, 2006 (SEC File No. 001-14765) and
incorporated by reference herein).
|
|
|
|
10.30
|
|
Second
Amendment to Limited Liability Company Operating Agreement of Mystic
Partners, LLC, dated February 8, 2006 (filed as Exhibit 10.6 to the
Current Report on Form 8-K filed February 14, 2006 (SEC File No.
001-14765) and incorporated by reference herein).
|
|
|
|
10.31
|
|
First
Amendment to Limited Liability Company Operating Agreement of Mystic
Partners Leaseco, LLC, dated February 8, 2006 (filed as Exhibit 10.7 to
the Current Report on Form 8-K filed February 14, 2006 (SEC File No.
001-14765) and incorporated by reference herein).
|
|
|
|
10.32
|
|
Conditional
Payment Guaranty, dated February 8, 2006, made by Hersha Hospitality
Limited Partnership and Mystic Hotel Investors, LLC to and for the benefit
or Merrill Lynch Capital (filed as Exhibit 10.8 to the Current Report
on Form 8-K filed February 14, 2006 (SEC File No. 001-14765) and
incorporated by reference herein).
|
INDEX
OF EXHIBITS (continued)
|
|
|
|
10.33
|
|
Conditional
Payment Guaranty, dated February 8, 2006, made by Hersha Hospitality
Limited Partnership and Mystic Hotel Investors, LLC to and for the benefit
or Merrill Lynch Capital (filed as Exhibit 10.9 to the Current Report
on Form 8-K filed February 14, 2006 (SEC File No. 001-14765) and
incorporated by reference herein).
|
|
|
|
10.34
|
|
Supplemental
Limited Joinder, dated February 8, 2006, made by Hersha Hospitality
Limited Partnership and Mystic Hotel Investors LLC (filed as Exhibit
10.10 to the Current Report on Form 8-K filed February 14, 2006 (SEC File
No. 001-14765) and incorporated by reference herein).
|
|
|
|
10.35
|
|
Hersha
Hospitality Trust 2004 Equity Incentive Plan (filed as Appendix A to the
Proxy Statement on Schedule 14A filed April 22, 2004 ( SEC File
No. 001-14765) and incorporated by reference herein).
†
|
|
|
|
10.36
|
|
Contribution
Agreement, dated as of May 3, 2006, by and among Kiran P. Patel,
Hasu P. Shah, Bharat C. Mehta, Kanti D. Patel, 44 Cambridge
Associates LLC and Hersha Hospitality Limited Partnership (filed as
Exhibit 10.1 to the Current Report on Form 8-K filed May 3, 2006 (SEC File
No. 001-14765) and incorporated by reference
herein).
|
|
|
|
10.37
|
|
Purchase
and Sale Agreement, dated July 11, 2006, by and between CNL Hospitality
Partners, LP and Hersha Hospitality Limited Partnership (filed as Exhibit
10.1 to the Current Report on Form 8-K filed July 11, 2006 (SEC File No.
001-14765) and incorporated by reference herein).
|
|
|
|
10.38
|
|
Purchase
and Sale Agreement, dated as of the 18th day of December, 2006, between
Bridgeworks Hotelworks Associates, L.P., Charlotte Hotelworks Associates,
L.P., Gaithersburg Hotelworks Associates, L.P., Pleasant Hill Lodging
Partners, L.P., Pleasanton Hotelworks Associates, L.P., Scottsdale
Hotelworks Associates, L.P., and Harrison Hotelworks Associates, L.P., and
Hersha Hospitality Limited Partnership (filed as Exhibit 10.1 to the
Current Report on Form 8-K filed December 18, 2006 (SEC File No.
001-14765) and incorporated by reference herein).
|
|
|
|
10.39
|
|
Contribution
Agreement, dated as of January 10, 2007, by and among Shree Associates,
Kunj Associates, Shanti III Associates, Trust FBO Neil H. Shah under The
Hasu and Hersha Shah 2004 Trust, Trust FBO Jay H. Shah under The Hasu and
Hersha Shah 2004 Trust, Shreenathji Enterprises, LTD and David L. Desfor
(filed as Exhibit 10.1 to the Current Report on Form 8-K filed
January 10, 2007 (SEC File No. 001-14765) and incorporated by
reference herein).
|
|
|
|
10.40
|
|
Purchase
and Sale Agreement, dated as of January 17, 2007, between BCM,
LLC, HPS Seaport LLC and Hersha Hospitality Limited Partnership (filed as
Exhibit 10.1 to the Current Report on Form 8-K filed January 17, 2007 (SEC
File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
10.41
|
|
Contribution
Agreement, dated as of January 17, 2007, between Shree Associates, Kunj
Associates, Devi Associates, Shanti II Associates, Trust FBO Jay H. Shah
under The Hasu and Hersha Shah 2004 Trust, Trust FBO Neil H. Shah under
The Hasu and Hersha Shah 2004 Trust , David L. Desfor and Hersha
Hospitality Limited Partnership (filed as Exhibit 10.2 to the Current
Report on Form 8-K filed January 17, 2007 (SEC File No.
001-14765) and incorporated by reference herein).
|
|
|
|
10.42
|
|
Amended
and Restated Purchase and Sale Agreement, dated as of February
1, 2007, between BCM, LLC, HPS Seaport LLC and SEAPORT HOSPITALITY, LLC
(filed as Exhibit 10.1 to the Current Report on Form 8-K filed February 7,
2007 (SEC File No. 001-14765) and incorporated by reference
herein).
|
INDEX
OF EXHIBITS (continued)
|
|
|
|
10.43
|
|
Sales
Agreement by and between Hersha Hospitality Trust and Cantor Fitzgerald
& Co., dated April 5, 2007 (filed as Exhibit 10.1 to the Current
Report on Form 8-K filed April 6, 2007 (SEC File No. 001-14765) and
incorporated by reference herein).
|
|
|
|
10.44
|
|
Contribution
Agreement, dated as of June 11, 2007, by and among Hersha Hospitality
Limited Partnership,Hasu P. Shah and Bharat C. Mehta (filed as Exhibit
10.1 to the Current Report on Form 8-K filed June 15, 2007 (SEC File No.
001-14765) and incorporated by reference herein).
|
|
|
|
10.45
|
|
Contribution
Agreement, dated as of July 1, 2007, by and among Hersha Norwich
Associates, LLC; Kirit Patel; Ashwin Shah; K&D Investment Associates,
L.L.C. 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).
|
|
|
|
10.46
|
|
Amended
and Restated Employment Agreement, dated June 28, 2007, by and between the
Company and Hasu P. Shah (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).†
|
|
|
|
10.47
|
|
Amended
and Restated Employment Agreement, dated June 28, 2007, by and between the
Company and Jay H. Shah (filed as Exhibit 10.2 to the Current Report on
Form 8-K filed July 3, 2007 (SEC File No. 001-14765) and incorporated
by reference herein).†
|
|
|
|
10.48
|
|
Amended
and Restated Employment Agreement, dated June 28, 2007, by and between the
Company and Neil H. Shah (filed as Exhibit 10.3 to the Current Report on
Form 8-K filed July 3, 2007 (SEC File No. 001-14765) and incorporated
by reference herein).†
|
|
|
|
10.49
|
|
Amended
and Restated Employment Agreement, dated June 28, 2007 by and between the
Company and Ashish R. Parikh (filed as Exhibit 10.4 to the Current Report
on Form 8-K filed July 3, 2007 (SEC File No. 001-14765) and
incorporated by reference herein).†
|
|
|
|
10.50
|
|
Amended
and Restated Employment Agreement, dated June 28, 2007 by and between the
Company and Michael R. Gillespie (filed as Exhibit 10.5 to the Current
Report on Form 8-K filed July 3, 2007 (SEC File No. 001-14765) and
incorporated by reference herein).†
|
|
|
|
10.51
|
|
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).
|
|
|
|
10.52
|
|
Contribution
Agreement, dated as of October 1, 2007, by and among 3344 Associates and
Hersha Hospitality Limited Partnership (filed as Exhibit 99.1 to the
Current Report on Form 8-K filed October 9, 2007 (SEC File No. 001-14765)
and incorporated by reference herein).
|
|
|
|
10.53
|
|
Contribution
Agreement, dated as of January 8, 2008, by and among Shree Associates,
Kunj Associates, Shanti III Associates, Trust FBO Sajni Mehta Browne under
the Bharat and Devyani Mehta 2005 Trust dated January 13, 2006, Trust FBO
Neelay Mehta under the Bharat and Devyani Mehta 2005 Trust dated January
13, 2006, Trust FBO Jay H Shah under the Hasu and Hersha Shah 2004 Trust
dated August 18, 2004, Trust FBO Neil H Shah under the Hasu and Hersha
Shah 2004 Trust dated August 18, 2004, PLM Associates LLC, David L. Desfor
and Ashish R. Parikh and Hersha Hospitality Limited Partnership (filed as
Exhibit 10.1 to the Current Report on form 8-K filed January 10, 2008 (SEC
File No. 001-14765) and incorporated by reference
herein).
|
INDEX
OF EXHIBITS (continued)
|
|
|
|
|
|
List
of Subsidiaries of the Registrant.**
|
|
|
|
|
|
Consent
of KPMG LLP.**
|
|
|
|
|
|
Consent
of Pricewaterhouse Coopers LLP.**
|
|
|
|
|
|
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.**
|
|
|
|
|
|
Consolidated
Financial Statements of Mystic Partners, LLC and
Subsidiaries.**
|
|
|
|
|
|
|
*
|
|
Filed as
an exhibit to Hersha Hospitality Trust’s Registration Statement on Form
S-11, as amended, filed June 5, 1998 (SEC File No. 333-56087) and
incorporated by reference herein.
|
**
|
|
Filed
herewith.
|
†
|
|
Indicates
management contract or compensatory plan or
arrangement.
|
103