form10-q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended June 30, 2008
OR
¨
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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
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251811499
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(State
or Other Jurisdiction of Incorporation or Organization)
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(I.R.S.
Employer Identification No.)
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44
Hersha Drive
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Harrisburg,
Pennsylvania
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17102
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(Address
of Registrant’s Principal Executive Offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (717) 236-4400
Indicate
by check mark whether the registrant (i) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (ii) has been subject to such filing requirements for
the past 90 days.
x Yes ¨ No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “ accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ¨
|
Accelerated
filer x
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Non-accelerated
filer ¨
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Small
reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
¨ Yes x No
As of
June 30, 2008, the number of Priority Class A Common Shares of Beneficial
Interest outstanding was 48,137,348.
Table
of Contents for Quarterly Report on Form 10-Q
Item
No.
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Page
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PART
I. FINANCIAL INFORMATION
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PART
II. OTHER INFORMATION
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PART I. FINANCIAL
INFORMATION
Item
1. Financial Statements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS AS OF
JUNE
30, 2008 [UNAUDITED] AND DECEMBER 31, 2007
[IN
THOUSANDS, EXCEPT SHARE AMOUNTS]
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June 30,
2008
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December 31,
2007
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Assets:
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Investment
in Hotel Properties, net of Accumulated Depreciation
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$ |
987,235 |
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$ |
893,297 |
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Investment
in Joint Ventures
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50,808 |
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51,851 |
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Development
Loans Receivable
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72,748 |
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58,183 |
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Cash
and Cash Equivalents
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16,972 |
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12,327 |
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Escrow
Deposits
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13,670 |
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13,706 |
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Hotel
Accounts Receivable, net of allowance for doubtful accounts of $125 and
$47
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10,820 |
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7,287 |
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Deferred
Costs, net of Accumulated Amortization of $4,150 and
$3,252
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8,096 |
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8,048 |
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Due
from Related Parties
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2,481 |
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1,256 |
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Intangible
Assets, net of Accumulated Amortization of $862 and $764
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8,032 |
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5,619 |
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Other
Assets
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25,112 |
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16,033 |
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Total
Assets
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$ |
1,195,974 |
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$ |
1,067,607 |
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Liabilities
and Shareholders’ Equity:
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Line
of Credit
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$ |
47,600 |
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$ |
43,700 |
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Mortgages
and Notes Payable, net of unamortized discount of $67 and
$72
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673,447 |
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619,308 |
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Accounts
Payable, Accrued Expenses and Other Liabilities
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16,659 |
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17,728 |
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Dividends
and Distributions Payable
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11,236 |
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9,688 |
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Due
to Related Parties
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2,861 |
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2,025 |
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Total
Liabilities
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751,803 |
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692,449 |
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Minority
Interests:
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Common
Units
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$ |
60,437 |
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$ |
42,845 |
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Interest
in Consolidated Joint Ventures
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1,721 |
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1,908 |
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Total
Minority Interests
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62,158 |
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44,753 |
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Shareholders'
Equity:
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Preferred
Shares - 8% Series A, $.01 Par Value, 29,000,000 Shares Authorized,
2,400,000
Shares Issued and Outstanding (Aggregate Liquidation Preference
$60,000)
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24 |
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24 |
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Common
Shares - Class A, $.01 Par Value, 80,000,000 Shares Authorized, 48,137,348
and 41,203,612 Shares Issued and Outstanding at June 30, 2008 and December
31, 2007, respectively
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481 |
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412 |
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Common
Shares - Class B, $.01 Par Value, 1,000,000 Shares Authorized, None Issued
and Outstanding
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- |
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- |
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Accumulated
Other Comprehensive Income
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(21 |
) |
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(23 |
) |
Additional
Paid-in Capital
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461,802 |
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397,127 |
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Distributions
in Excess of Net Income
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(80,273 |
) |
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(67,135 |
) |
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Total
Shareholders' Equity
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382,013 |
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330,405 |
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Total
Liabilities and Shareholders’ Equity
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$ |
1,195,974 |
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$ |
1,067,607 |
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The
Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
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Three
Months Ended
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Six
Months Ended
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June
30, 2008
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June
30, 2007
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June
30, 2008
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June
30, 2007
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Revenue:
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Hotel
Operating Revenues
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$ |
67,377 |
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$ |
61,569 |
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$ |
119,296 |
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$ |
106,372 |
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Interest
Income from Development Loans
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2,153 |
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1,331 |
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4,173 |
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2,634 |
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Land
Lease Revenue
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1,390 |
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1,117 |
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2,724 |
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2,205 |
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Hotel
Lease Revenue
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211 |
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195 |
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348 |
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332 |
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Other
Revenues
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342 |
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185 |
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594 |
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327 |
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Total
Revenues
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71,473 |
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64,397 |
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127,135 |
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111,870 |
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Operating
Expenses:
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Hotel
Operating Expenses
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36,686 |
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33,437 |
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69,118 |
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61,513 |
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Hotel
Ground Rent
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216 |
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190 |
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442 |
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439 |
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Land
Lease Expense
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745 |
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619 |
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1,494 |
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1,233 |
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Real
Estate and Personal Property Taxes and Property Insurance
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2,964 |
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2,753 |
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6,146 |
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5,500 |
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General
and Administrative
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2,003 |
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1,621 |
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3,906 |
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3,832 |
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Depreciation
and Amortization
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10,012 |
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8,260 |
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19,634 |
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16,217 |
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Total
Operating Expenses
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52,626 |
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46,880 |
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100,740 |
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88,734 |
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Operating
Income
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18,847 |
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17,517 |
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26,395 |
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23,136 |
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Interest
Income
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101 |
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324 |
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183 |
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454 |
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Interest
Expense
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10,346 |
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10,701 |
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21,123 |
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20,738 |
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Income
before income from Unconsolidated Joint Venture Investments, Minority
Interests and Discontinued Operations
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8,602 |
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7,140 |
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5,455 |
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2,852 |
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Income
from Unconsolidated Joint Venture Investments
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1,360 |
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1,741 |
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622 |
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903 |
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Income
before Minority Interests and Discontinued Operations
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9,962 |
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8,881 |
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6,077 |
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3,755 |
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Income
allocated to Minority Interests in Continuing Operations
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1,737 |
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1,167 |
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|
730 |
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|
178 |
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Income
from Continuing Operations
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8,225 |
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|
7,714 |
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5,347 |
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3,577 |
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Discontinued
Operations, net of minority interests (Note 12):
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Income
(Loss) from Discontinued Operations
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|
- |
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81 |
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- |
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(19 |
) |
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Net
Income
|
|
|
8,225 |
|
|
|
7,795 |
|
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|
5,347 |
|
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|
3,558 |
|
Preferred
Distributions
|
|
|
1,200 |
|
|
|
1,200 |
|
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|
2,400 |
|
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|
2,400 |
|
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|
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|
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Net
Income applicable to Common Shareholders
|
|
$ |
7,025 |
|
|
$ |
6,595 |
|
|
$ |
2,947 |
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|
$ |
1,158 |
|
The
Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2008
|
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|
June
30, 2007
|
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|
June
30, 2008
|
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June
30, 2007
|
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Earnings Per
Share:
|
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BASIC
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Income
from continuing operations applicable to common
shareholders
|
|
$ |
0.16 |
|
|
$ |
0.16 |
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|
$ |
0.07 |
|
|
$ |
0.03 |
|
Income
(Loss) from Discontinued Operations
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
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|
0.00 |
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Net
Income applicable to common shareholders
|
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$ |
0.16 |
|
|
$ |
0.16 |
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|
$ |
0.07 |
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|
$ |
0.03 |
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DILUTED*
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Income
from continuing operations applicable to common
shareholders
|
|
$ |
0.16 |
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|
$ |
0.16 |
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|
$ |
0.07 |
|
|
$ |
0.03 |
|
Income
(Loss) from Discontinued Operations
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net
Income applicable to common shareholders
|
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
0.07 |
|
|
$ |
0.03 |
|
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|
|
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|
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Weighted Average
Common Shares Outstanding:
|
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|
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Basic
|
|
|
44,253,641 |
|
|
|
40,642,569 |
|
|
|
42,572,390 |
|
|
|
40,590,499 |
|
Diluted*
|
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|
44,253,641 |
|
|
|
40,642,569 |
|
|
|
42,572,390 |
|
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|
40,590,499 |
|
*
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Income
allocated to minority interest in the Partnership has been excluded from
the numerator and Partnership units have been omitted from the denominator
for the purpose of computing diluted earnings per share since the effect
of including these amounts in the numerator and denominator would have no
impact. Weighted average Partnership units outstanding for the three
months ended June 30, 2008 and 2007 were 7,447,149 and 4,899,856,
respectively and for the six months ended June 30, 2008 and 2007 were
7,312,974 and 4,653,575, respectively. Unvested stock
awards have been omitted from the denominator for the purpose of computing
diluted earnings per share for the three and six months ended June 30,
2008 and 2007 since the effect of including these amounts in the
denominator would be anti-dilutive to income 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 CASH FLOWS
FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 [UNAUDITED]
[IN
THOUSANDS]
|
|
Six
Months Ended
|
|
|
|
June
30, 2008
|
|
|
June
30, 2007
|
|
Operating
activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
5,347 |
|
|
$ |
3,558 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
19,536 |
|
|
|
16,619 |
|
Amortization
|
|
|
719 |
|
|
|
911 |
|
Income
allocated to minority interests
|
|
|
730 |
|
|
|
176 |
|
Equity
in income of unconsolidated joint ventures
|
|
|
(622 |
) |
|
|
(904 |
) |
Distributions
from unconsolidated joint ventures
|
|
|
1,415 |
|
|
|
1,083 |
|
Loss
(gain) recognized on change in fair value of derivative
instrument
|
|
|
32 |
|
|
|
(36 |
) |
Stock
based compensation expense
|
|
|
627 |
|
|
|
293 |
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
Hotel
accounts receivable
|
|
|
(3,652 |
) |
|
|
(5,556 |
) |
Escrows
|
|
|
36 |
|
|
|
(912 |
) |
Other
assets
|
|
|
216 |
|
|
|
(525 |
) |
Due
from related party
|
|
|
(1,087 |
) |
|
|
2,710 |
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
Due
to related party
|
|
|
410 |
|
|
|
258 |
|
Accounts
payable and accrued expenses
|
|
|
(990 |
) |
|
|
1,271 |
|
Net
cash provided by operating activities
|
|
|
22,717 |
|
|
|
18,946 |
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
Purchase
of hotel property assets
|
|
|
(57,312 |
) |
|
|
(32,393 |
) |
Capital
expenditures
|
|
|
(13,022 |
) |
|
|
(8,370 |
) |
Deposits
on hotel acquisitions
|
|
|
- |
|
|
|
(4,000 |
) |
Cash
paid for franchise fee intangible
|
|
|
(12 |
) |
|
|
(66 |
) |
Investment
in development loans receivable
|
|
|
(29,700 |
) |
|
|
(30,700 |
) |
Repayment
of development loans receivable
|
|
|
15,416 |
|
|
|
33,000 |
|
Distributions
from unconsolidated joint venture
|
|
|
347 |
|
|
|
300 |
|
Advances
and capital contributions to unconsolidated joint ventures
|
|
|
(96 |
) |
|
|
(1,602 |
) |
Repayment
of notes receivable
|
|
|
- |
|
|
|
30 |
|
Net
used in investing activities
|
|
|
(84,379 |
) |
|
|
(43,801 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings under line of credit, net
|
|
|
3,900 |
|
|
|
24,800 |
|
Principal
repayment of mortgages and notes payable
|
|
|
(2,297 |
) |
|
|
(10,369 |
) |
Proceeds
from mortgages and notes payable
|
|
|
31,589 |
|
|
|
28,543 |
|
Cash
paid for mortgage defeasance deposit
|
|
|
(9,000 |
) |
|
|
- |
|
Cash
paid for deferred financing costs
|
|
|
(80 |
) |
|
|
(106 |
) |
Proceeds
from issuance of common stock, net of issuance costs
|
|
|
62,009 |
|
|
|
- |
|
Distribution
to partners in consolidated joint ventures
|
|
|
- |
|
|
|
(190 |
) |
Dividends
paid on common shares
|
|
|
(14,820 |
) |
|
|
(14,646 |
) |
Dividends
paid on preferred shares
|
|
|
(2,400 |
) |
|
|
(2,400 |
) |
Distributions
paid on common partnership units
|
|
|
(2,594 |
) |
|
|
(1,522 |
) |
Net
cash provided by financing activities
|
|
|
66,307 |
|
|
|
24,110 |
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
4,645 |
|
|
|
(745 |
) |
Cash
and cash equivalents - beginning of period
|
|
|
12,327 |
|
|
|
10,316 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of period
|
|
$ |
16,972 |
|
|
$ |
9,571 |
|
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
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
1 — BASIS OF PRESENTATION
The
accompanying unaudited consolidated financial statements of Hersha Hospitality
Trust (“we,” ”us,” “our” or the “Company”) have been prepared in accordance with
U.S. generally accepted accounting principles for interim financial information
and with the general instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
U.S. generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals), considered necessary for fair presentation, have been included.
Operating results for the three and six months ended June 30, 2008 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2008.
On May 5,
2008, we transferred the listing of our common shares of beneficial interest and
8.0% Series A Preferred Shares of Beneficial Interest from the American Stock
Exchange to the New York Stock Exchange (the “NYSE”). Hersha’s common
shares now trade on the NYSE under the ticker symbol "HT" and its Series A
Preferred Shares now trade on the NYSE under the ticker symbol "HT PR
A."
On May
16, 2008, we completed a public offering of 6,000,000 common shares at $9.90 per
share. On May 20, 2008, the underwriters exercised their
over-allotment option with respect to that offering, and we issued an additional
600,000 common shares at $9.90 per share. Proceeds to us, net of
underwriting discounts and commissions and expenses, were approximately
$62,009. 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.
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. Adoption of SFAS No. 157 on January 1, 2008 did not have a
material effect on the Company. The Company has deferred the application of SFAS
No. 157 related to non-financial assets and liabilities.
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 No. 159”).
SFAS No. 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. Adoption of SFAS No. 159 on January 1, 2008 did not have a
material effect on the Company since the Company did not elect to measure any
financial assets or liabilities at fair value.
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.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
1 — BASIS OF PRESENTATION (CONTINUED)
SFAS
No. 161
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
“Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 requires enhanced
disclosures about an entity’s derivative and hedging activities and thereby
improves the transparency of financial reporting. The objective of the guidance
is to provide users of financial statements with an enhanced understanding of
how and why an entity uses derivative instruments; how derivative instruments
and related hedged items are accounted for; and how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows. SFAS No. 161 is effective for fiscal years
beginning after November 15, 2008. Management is currently evaluating the impact
SFAS No. 161 will have on the Company’s consolidated financial
statements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
2 — INVESTMENT IN HOTEL PROPERTIES
Investment
in Hotel Properties consists of the following at June 30, 2008 and December 31,
2007:
|
|
June
30,
2008
|
|
|
December
31,
2007
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
183,142 |
|
|
$ |
172,061 |
|
Buildings
and Improvements
|
|
|
772,288 |
|
|
|
706,038 |
|
Furniture,
Fixtures and Equipment
|
|
|
120,629 |
|
|
|
105,979 |
|
Construction
in Progress
|
|
|
23,001 |
|
|
|
1,541 |
|
|
|
|
1,099,060 |
|
|
|
985,619 |
|
|
|
|
|
|
|
|
|
|
Less
Accumulated Depreciation
|
|
|
(111,825 |
) |
|
|
(92,322 |
) |
|
|
|
|
|
|
|
|
|
Total
Investment in Hotel Properties
|
|
$ |
987,235 |
|
|
$ |
893,297 |
|
2008
Transactions
During
the six months ended June 30, 2008, we acquired the following wholly owned hotel
properties:
2008
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
Hotel
|
|
Acquisition
Date
|
|
Land
|
|
Buildings
and Improvements
|
|
Furniture
Fixtures and Equipment
|
|
Franchise
Fees, Loan Costs, and Leasehold Intangible
|
|
Construction
in Progress
|
|
Total
Purchase Price
|
|
Fair
Value of Assumed Debt
|
|
Duane
Street Hotel, TriBeCa, New York, NY
|
|
1/4/2008
|
|
$ |
8,213 |
|
$ |
12,869 |
|
$ |
2,793 |
|
$ |
- |
|
$ |
- |
|
$ |
23,875 |
|
$ |
- |
|
nu
Hotel, Brooklyn, NY
|
|
1/14/2008
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
17,343 |
|
|
17,343 |
|
|
- |
|
TownePlace
Suites, Harrisburg, PA
|
|
5/8/2008
|
|
|
1,238 |
|
|
10,182 |
|
|
1,792 |
|
|
42 |
|
|
- |
|
|
13,254 |
|
|
- |
|
Sheraton
Hotel, JFK Airport, Jamaica, NY
|
|
6/13/2008
|
|
|
- |
|
|
27,342 |
|
|
4,374 |
|
|
3,157 |
|
|
- |
|
|
34,873 |
|
|
23,800 |
|
Holiday
Inn Express, Camp Springs, MD
|
|
6/26/2008
|
|
|
1,629 |
|
|
11,115 |
|
|
931 |
|
|
5 |
|
|
- |
|
|
13,680 |
|
|
- |
|
Total
2008 Wholly Owned Acquisitions
|
|
|
|
$ |
11,080 |
|
$ |
61,508 |
|
$ |
9,890 |
|
$ |
3,204 |
|
$ |
17,343 |
|
$ |
103,025 |
|
$ |
23,800 |
|
In
connection with the 2008 acquisitions we acquired $291 in working
capital.
The Duane
Street Hotel, TriBeCa, New York, NY, was acquired from entities that are owned
by certain of the Company’s executives and affiliated
trustees. Included in the consideration paid for the Duane Street
Hotel were 779,585 limited partnership units in Hersha Hospitality Limited
Partnership ("HHLP"), our operating partnership subsidiary, valued at $6,862.
The limited partnership units were issued to certain executives and affiliated
trustees of the Company. In connection with the acquisition of the
Duane Street Hotel, the Company entered into a $15,000 fixed rate mortgage with
interest at 7.15%. The mortgage matures in February of 2018 and is
interest only for the first three years.
Upon
acquisition of the nu Hotel, located in Brooklyn, NY, we commenced renovations
of the hotel and have classified the acquisition and renovations costs as
construction in progress in investments in hotel properties on the consolidated
balance sheet. Costs associated with the building while it is being
renovated, including interest, are being capitalized. On July 7,
2008, the property opened and as of this date, all costs were reclassified to
building and improvements and furniture, fixtures and equipment and will be
depreciated over their respective useful lives. In connection with
the acquisition of the nu Hotel the Company entered into an $18,000 variable
rate mortgage debt facility with interest at LIBOR plus
2.00%. Principal of $13,240 was drawn on the date of acquisition,
with the remainder of the balance to be drawn as renovations
progress. The mortgage requires the payment of interest only and
matures in January of 2011.
The
Sheraton Hotel, JFK Airport, Jamaica, NY, was acquired from entities that are
owned by certain of the Company’s executives and affiliated trustees and an
unrelated third party. Included in the consideration paid for the
Sheraton Hotel were 1,177,306 limited partnership units in HHLP, our operating
partnership subsidiary, valued at $10,596. The limited partnership
units were issued to certain executives and affiliated trustees of the Company
and an unrelated third party. In connection with the acquisition of
the Sheraton Hotel, the Company assumed a $23,800 variable rate mortgage which
accrues interest at LIBOR plus 2.00% per annum. The mortgage matures
in April 28, 2010. In connection with the acquisition of the Sheraton
Hotel, we assumed a lease for the underlying land with a remaining term of
approximately 94 years. The remaining lease payments were determined
to be below market value and, as a result, $2,442 of the purchase price was
allocated to a leasehold intangible asset. This asset is recorded in
intangible assets on the consolidated balance sheet and is being amortized over
the remaining life of the lease.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
2 — INVESTMENT IN HOTEL PROPERTIES (CONTINUED)
The
Holiday Inn Express, Camp Springs, MD was acquired from entities that are owned
by certain of the Company’s executives and affiliated trustees and an unrelated
third party. Included in the consideration paid for the Holiday Inn
Express were 540,337 limited partnership units in HHLP, our operating
partnership subsidiary, valued at $4,166. The limited partnership
units were issued to certain executives and affiliated trustees of the
Company.
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 in the purchase agreement. The earn-out
period expires on December 31, 2009. On June 26, 2008, we closed on the
acquisition of the Holiday Inn Express, Camp Springs, MD. The
purchase agreement for this acquisition contains certain provisions that entitle
the seller to an earn-out payment of up to $1,905 based on Net Operating Income
of the properties, as defined in the purchase agreement. The earn-out
period expires on December 31, 2010. 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. 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 in the purchase agreement. The
earn-out period expires on July 31, 2008. Based on
reported results for this property through June 30, 2008, we believe an earn-out
of approximately $1,000 will be payable. Due to uncertainty of the
amounts that will ultimately be paid, 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.
The newly
acquired hotels are leased to our wholly owned taxable REIT subsidiary (“TRS”),
44 New England Management Company and all are managed by Hersha Hospitality
Management, LP (“HHMLP”). HHMLP is owned by three of the Company’s
executives, two of its affiliated trustees and other investors that are not
affiliated with the Company.
The
following condensed pro forma financial data is presented as if all 2008 and
2007 acquisitions had been consummated as of January 1, 2007. 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.
|
|
For
the Three Months Ended June 30,
|
|
|
For
the Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Pro
Forma Total Revenues
|
|
$ |
72,500 |
|
|
$ |
65,368 |
|
|
$ |
128,775 |
|
|
$ |
113,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
Forma Loss from Continuing Operations applicable to Common
Shareholders
|
|
$ |
8,354 |
|
|
$ |
7,464 |
|
|
$ |
5,496 |
|
|
$ |
3,040 |
|
Loss
from Discontinued Operations
|
|
|
- |
|
|
|
81 |
|
|
|
- |
|
|
|
(19 |
) |
Pro
Forma Net Loss
|
|
|
8,354 |
|
|
|
7,545 |
|
|
|
5,496 |
|
|
|
3,021 |
|
Preferred
Distributions
|
|
|
1,200 |
|
|
|
1,200 |
|
|
|
2,400 |
|
|
|
2,400 |
|
Pro
Forma Net Loss applicable to Common Shareholders
|
|
$ |
7,154 |
|
|
$ |
6,345 |
|
|
$ |
3,096 |
|
|
$ |
621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
Forma Loss applicable to Common Shareholders per Common
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
0.07 |
|
|
$ |
0.02 |
|
Diluted
|
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
0.07 |
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
44,253,641 |
|
|
|
40,642,569 |
|
|
|
42,572,390 |
|
|
|
40,590,499 |
|
Diluted
|
|
|
44,253,641 |
|
|
|
40,642,569 |
|
|
|
42,572,390 |
|
|
|
40,590,499 |
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
3 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
We
account for our investment in the following unconsolidated joint ventures using
the equity method of accounting. As of June 30, 2008 and December 31,
2007, our investment in unconsolidated joint ventures consists of the
following:
Joint
Venture
|
|
Hotel
Properties
|
|
Percent
Owned
|
|
|
Preferred
Return
|
|
|
June
30,
2008
|
|
|
December
31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRA
Glastonbury, LLC
|
|
Hilton
Garden Inn, Glastonbury, CT
|
|
|
48.0 |
% |
|
11.0%
cumulative
|
|
|
$ |
810 |
|
|
$ |
945 |
|
Inn
American Hospitality at Ewing, LLC
|
|
Courtyard
by Marriott, Ewing, NJ
|
|
|
50.0 |
% |
|
11.0%
cumulative
|
|
|
|
868 |
|
|
|
1,016 |
|
Hiren
Boston, LLC
|
|
Courtyard
by Marriott, Boston, MA
|
|
|
50.0 |
% |
|
N/A
|
|
|
|
3,980 |
|
|
|
4,148 |
|
SB
Partners, LLC
|
|
Holiday
Inn Express, Boston, MA
|
|
|
50.0 |
% |
|
N/A
|
|
|
|
2,003 |
|
|
|
2,010 |
|
Mystic
Partners, LLC
|
|
Hilton
and Marriott branded hotels in CT and RI
|
|
|
8.8%-66.7 |
% |
|
8.5%
non-cumulative
|
|
|
|
32,269 |
|
|
|
32,928 |
|
PRA
Suites at Glastonbury, LLC
|
|
Homewood
Suites, Glastonbury, CT
|
|
|
48.0 |
% |
|
10.0%
non-cumulative
|
|
|
|
2,804 |
|
|
|
2,808 |
|
Metro
29th Street Associates, LLC
|
|
Holiday
Inn Express, New York, NY
|
|
|
50.0 |
% |
|
N/A
|
|
|
|
8,074 |
|
|
|
7,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
50,808 |
|
|
$ |
51,851 |
|
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 three and six months ended June 30, 2008 and 2007
for our Investments in Unconsolidated Joint Ventures is as follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRA
Glastonbury, LLC
|
|
$ |
60 |
|
|
$ |
53 |
|
|
$ |
65 |
|
|
$ |
61 |
|
Inn
American Hospitality at Ewing, LLC
|
|
|
61 |
|
|
|
83 |
|
|
|
2 |
|
|
|
71 |
|
Hiren
Boston, LLC
|
|
|
111 |
|
|
|
380 |
|
|
|
(169 |
) |
|
|
134 |
|
SB
Partners, LLC
|
|
|
76 |
|
|
|
138 |
|
|
|
(7 |
) |
|
|
9 |
|
Mystic
Partners, LLC
|
|
|
426 |
|
|
|
655 |
|
|
|
21 |
|
|
|
247 |
|
PRA
Suites at Glastonbury, LLC
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(4 |
) |
|
|
(3 |
) |
Metro
29th Street Associates, LLC
|
|
|
628 |
|
|
|
434 |
|
|
|
714 |
|
|
|
384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity in income
|
|
$ |
1,360 |
|
|
$ |
1,741 |
|
|
$ |
622 |
|
|
$ |
903 |
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
3 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)
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 June 30, 2008 and December 31, 2007 and for
the three and six months ended June 30, 2008 and 2007.
Balance
Sheets
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
Investment
in hotel properties, net
|
|
$ |
223,933 |
|
|
$ |
229,829 |
|
Other
Assets
|
|
|
32,041 |
|
|
|
30,000 |
|
Total
Assets
|
|
$ |
255,974 |
|
|
$ |
259,829 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
Mortgages
and notes payable
|
|
$ |
221,136 |
|
|
$ |
221,398 |
|
Other
liabilities
|
|
|
13,511 |
|
|
|
12,305 |
|
Equity:
|
|
|
|
|
|
|
|
|
Hersha
Hospitality Trust
|
|
|
50,808 |
|
|
|
51,851 |
|
Other
|
|
|
(29,481 |
) |
|
|
(25,725 |
) |
|
|
|
|
|
|
|
|
|
Total
Liabilities and Equity
|
|
$ |
255,974 |
|
|
$ |
259,829 |
|
Statements
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
Revenue
|
|
$ |
27,355 |
|
|
$ |
26,368 |
|
|
$ |
49,839 |
|
|
$ |
45,290 |
|
Other
Revenue
|
|
|
8,162 |
|
|
|
8,196 |
|
|
|
15,485 |
|
|
|
15,227 |
|
Operating
Expenses
|
|
|
(21,351 |
) |
|
|
(20,390 |
) |
|
|
(41,512 |
) |
|
|
(38,405 |
) |
Interest
Expense
|
|
|
(3,319 |
) |
|
|
(3,881 |
) |
|
|
(6,808 |
) |
|
|
(7,630 |
) |
Lease
Expense
|
|
|
(1,379 |
) |
|
|
(1,694 |
) |
|
|
(2,753 |
) |
|
|
(2,613 |
) |
Property
Taxes and Insurance
|
|
|
(1,703 |
) |
|
|
(1,490 |
) |
|
|
(3,404 |
) |
|
|
(2,905 |
) |
Federal
and State Income Taxes
|
|
|
- |
|
|
|
(108 |
) |
|
|
- |
|
|
|
(108 |
) |
Depreciation
and Amortization
|
|
|
(3,971 |
) |
|
|
(4,531 |
) |
|
|
(7,851 |
) |
|
|
(8,339 |
) |
General
and Administrative
|
|
|
(1,997 |
) |
|
|
(1,726 |
) |
|
|
(3,889 |
) |
|
|
(3,388 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
1,797 |
|
|
$ |
744 |
|
|
$ |
(893 |
) |
|
$ |
(2,871 |
) |
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
4 — DEVELOPMENT LOANS RECEIVABLE AND LAND LEASES
We have
approved mortgage lending to entities, including entities in which our executive
officers and affiliated trustees own an interest, to enable such entities to
construct hotels and conduct related improvements on specific hotel projects at
fixed interest rates ranging from 10.0% to 15.0% (“Development Line Funding”).
As of June 30, 2008 and December 31, 2007, we had Development Loans Receivable
of $72,748 and $58,183, respectively. Interest income included in “Interest
Income from Development Loans,” was $2,153 and $1,331 for the three months
ended June 30, 2008 and 2007, respectively, and $4,173 and $2,634 for the
six months ended June 30, 2008, respectively. Accrued interest on our
development loans receivable was $2,437 as of June 30, 2008 and $1,591 as of
December 31, 2007.
As of
June 30, 2008 and December 31, 2007, our development loans receivable balance
consisted of the following:
Hotel
Property
|
|
Borrower
|
|
Principal
Outstanding 6/30/2008
|
|
|
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 |
|
|
|
2,000 |
|
|
|
10 |
% |
October
9, 2008 |
*
|
Hilton
Garden Inn - New York, NY
|
|
York
Street LLC
|
|
|
15,000 |
|
|
|
15,000 |
|
|
|
11 |
% |
May
31, 2009
|
|
Hampton
Inn - Smithfield, RI
|
|
44
Hersha Smithfield, LLC
|
|
|
- |
|
|
|
2,000 |
|
|
|
10 |
% |
October
9, 2008 |
*
|
Homewood
Suites - Newtown, PA
|
|
Reese
Hotels, LLC
|
|
|
1,000 |
|
|
|
700 |
|
|
|
11 |
% |
April
22, 2009
|
|
Boutique
Hotel - Union Square, NY
|
|
Risingsam
Union Square, LLC
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
10 |
% |
May
31, 2009
|
|
Hyatt
Place - Manhattan, NY
|
|
Brisam
East 52, LLC
|
|
|
10,000 |
|
|
|
- |
|
|
|
10 |
% |
January
16, 2009
|
|
Hampton
Inn - Brattleboro, VT
|
|
Maple
Lodging Inc.
|
|
|
5,000 |
|
|
|
- |
|
|
|
15 |
% |
November
29, 2008 |
*
|
Boutique
Hotel - Manhattan, NY
|
|
44
Lexington Holding, LLC
|
|
|
7,000 |
|
|
|
- |
|
|
|
11 |
% |
May
30, 2009 |
*
|
Renaissance by
Marriott - Woodbridge, NJ
|
|
Hersha
Woodbridge Associates, LLC
|
|
|
4,000 |
|
|
|
- |
|
|
|
11 |
% |
April
1, 2009 |
*
|
Hilton
Garden Inn/Homewood Suites - Brooklyn, NY
|
|
167
Johnson Street, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tranche
1
|
|
|
|
|
11,000 |
|
|
|
11,000 |
|
|
|
11 |
% |
September
21, 2008
|
|
Tranche
2
|
|
|
|
|
9,000 |
|
|
|
9,000 |
|
|
|
13.5 |
% |
September
24, 2008
|
|
Discount
|
|
|
|
|
(1,252 |
) |
|
|
(1,533 |
) |
|
|
|
|
|
|
Total
Hilton Garden Inn/Homewood Suites - Brooklyn, NY
|
|
|
18,748 |
|
|
|
18,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Development Loans Receivable
|
|
|
|
$ |
72,748 |
|
|
$ |
58,183 |
|
|
|
|
|
|
|
*
Indicates borrower is a related party
In
connection with originating the $11,000 and $9,000 development loans in
September 2007 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 the 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 $141 and $281 for the three and six months ended June 30,
2008, respectively.
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.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
4 — DEVELOPMENT LOANS RECEIVABLE AND LAND LEASES (CONTINUED)
Leased
land and improvements are included in investment in hotel properties on our
consolidated balance sheets as of June 30, 2008 and December 31,
2007:
|
|
Investment
In Leased Properties
|
|
|
|
|
|
|
|
|
Location
|
|
Land
|
|
Improvements
|
|
Other
|
|
Total
Investment
|
|
Debt
|
|
Net
Investment
|
|
Acquisition/
Lease Date
|
|
Lessee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
440
West 41st Street, New York, NY
|
|
$ |
10,735 |
|
$ |
11,051 |
|
$ |
196 |
|
$ |
21,982 |
|
$ |
12,100 |
|
$ |
9,882 |
|
7/28/2006
|
|
Metro
Forty First Street, LLC
|
39th
Street and 8th Avenue, New York, NY
|
|
|
21,774 |
|
|
- |
|
|
541 |
|
|
22,315 |
|
|
13,250 |
|
|
9,065 |
|
6/28/2006
|
|
Metro
39th Street Associates, LLC
|
Nevins
Street, Brooklyn, NY
|
|
|
10,650 |
|
|
- |
|
|
269 |
|
|
10,919 |
|
|
6,500 |
|
|
4,419 |
|
6/11/2007
& 7/11/2007
|
|
H
Nevins Street Associates, LLC * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
43,159 |
|
$ |
11,051 |
|
$ |
1,006 |
|
$ |
55,216 |
|
$ |
31,850 |
|
$ |
23,366 |
|
|
|
|
*
Indicates lessee is a related party
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
5 — OTHER ASSETS
Other
Assets consisted of the following at June 30, 2008 and December 31,
2007:
|
|
June
30,
2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
Transaction
Costs
|
|
$ |
274 |
|
|
$ |
209 |
|
Investment
in Statutory Trusts
|
|
|
1,548 |
|
|
|
1,548 |
|
Notes
Receivable
|
|
|
2,579 |
|
|
|
2,581 |
|
Due
from Lessees
|
|
|
1,459 |
|
|
|
1,986 |
|
Prepaid
Expenses
|
|
|
2,913 |
|
|
|
3,402 |
|
Interest
due on Development Loans to Non-Related Parties
|
|
|
2,126 |
|
|
|
1,456 |
|
Deposits
on Property Improvement Plans
|
|
|
317 |
|
|
|
640 |
|
Hotel
Purchase Option
|
|
|
2,620 |
|
|
|
2,620 |
|
Deposit
for Debt Defeasance
|
|
|
9,000 |
|
|
|
- |
|
Other
|
|
|
2,276 |
|
|
|
1,591 |
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
$ |
25,112 |
|
|
$ |
16,033 |
|
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.
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 June 30, 2008 and December 31, 2007 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. 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 13.5% with a maturity date of December
27, 2008.
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 $310 and $135, as of June 30, 2008
and December 31, 2007, 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 to be capitalized as part of
our property improvement programs at certain properties, including capitalized
interest and advances to HHMLP and other affiliated entities we contract with to
perform construction services.
Hotel Purchase Option – We have options to acquire
interests in two hotel properties at fixed purchase prices.
Deposit
for Debt
Defeasance – On
July 1, 2008, we
settled on the defeasance of loans associated with four of our
properties. These mortgage loans had an approximate outstanding
principal balance of $11,028 as of June 30, 2008. Prior to June 30,
2008, we deposited $9,000 towards the acquisition of assets to be used to
defease the debt. We expect to incur a $1,217 prepayment premium
related to the defeasance of these loans.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
6 — DEBT
Mortgages and Notes
Payable
The total
mortgages payable balance at June 30, 2008, and December 31, 2007, was $621,635
and $567,507, 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 October 2008 to January 2032. Aggregate interest expense
incurred under the mortgages payable totaled $8,640 and $8,436 and for the three
months ended June 30, 2008 and 2007, respectively, and $17,250 and $16,370 for
the six months ended June 30, 2008 and 2007, 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 $940 and $959 was recorded for the three months ended June 30, 2008
and 2007, respectively, and $1,839 and $1,915 for the six months ended June 30,
2008 and 2007, respectively.
The
carrying value of the mortgages and notes payable exceeded the fair value by
approximately $50,470 at June 30, 2008.
Revolving Line of
Credit
We
maintain a revolving credit facility with Commerce Bank, N.A. The credit
facility bears interest at either the Wall Street Journal'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, the Holiday
Inn, Norwich, CT 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; and (3) certain financial ratios. The Company is in
compliance with each of these covenants as of June 30, 2008. The line of credit
expires on December 31, 2008. We intend to refinance the line of credit prior to
December 31, 2008.
The
Company maintained a line of credit balance of $47,600 at June 30, 2008 and
$43,700 at December 31, 2007. The Company recorded interest expense of $707 and
$1,046 related to the line of credit borrowings, for the three months ended
June 30, 2008 and 2007, respectively, and $1,614 and $1,996 for the six months
ended June 30, 2008 and 2007, respectively. The weighted average interest
rate on our line of credit for the three months ended June 30, 2008 and 2007 was
5.08% and 7.50%, respectively, and 5.61% and 7.50% for the six months ended June
30, 2008 and 2007, respectively.
Capitalized
Interest
We
utilize mortgage debt and our revolving line of credit to finance on-going
capital improvement projects at our properties. Interest incurred on
mortgages and the revolving line of credit that relate to our capital
improvement projects is capitalized through the date when the assets are placed
in service. For the three months ended June 30, 2008 and 2007, we
capitalized $264 and $-0-, respectively, of interest expense and for the six
months ended June 30, 2008 and 2007, we capitalized $506 and $-0-, respectively,
of interest expense related to these projects.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
6 — DEBT (CONTINUED)
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 June 30,
2008, deferred costs were $8,096, net of accumulated amortization of
$4,150. Deferred costs were $8,048 net of accumulated amortization of
$3,252, as of December 31, 2007. Amortization of deferred costs for the three
months ended June 30, 2008 and 2007 was $465 and $410 respectively and $897 and
$756 for the six months ended June 30, 2008 and 2007, respectively.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
7 — COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
We are
the sole general partner in our operating partnership subsidiary, Hersha
Hospitality Limited Partnership (the “Partnership” or “HHLP”), which is
indirectly the sole general partner of the subsidiary partnerships. At June 30,
2008, there were 8,878,243 non-controlling units outstanding with a fair market
value of $67,031, based on the price per share of our common shares on the New
York Stock Exchange on such date. These units are redeemable by the
unitholders for cash or, at our option, our common shares on a one-for-one
basis. The Company does not anticipate any losses as a result of our obligations
as general partner in the Partnership.
Management
Agreements
Our
wholly owned TRS, 44 New England, engages eligible independent contractors,
including HHMLP, as the property managers for hotels it leases from us pursuant
to management agreements. Our management agreements with HHMLP provide for
five-year terms and are subject to early termination upon the occurrence of
defaults and certain other events described therein. As required under the REIT
qualification rules, HHMLP must qualify as an “eligible independent contractor”
during the term of the management agreements. Under the management agreements,
HHMLP generally pays the operating expenses of our hotels. All operating
expenses or other expenses incurred by HHMLP in performing its authorized duties
are reimbursed or borne by our TRS to the extent the operating expenses or other
expenses are incurred within the limits of the applicable approved hotel
operating budget. HHMLP is not obligated to advance any of its own funds for
operating expenses of a hotel or to incur any liability in connection with
operating a hotel. Management agreements with other unaffiliated
hotel management companies have similar terms.
For its
services, HHMLP receives a base management fee, and if a hotel exceeds certain
thresholds, an incentive management fee. The base management fee for a hotel is
due monthly and is equal to 3% of gross revenues associated with each hotel
managed for the related month. The incentive management fee, if any, for a hotel
is due annually in arrears on the ninetieth day following the end of each fiscal
year and is based upon the financial performance of the hotel. There were no
incentive management fees for the three and six months ended June 30, 2008 and
2007. For the three months ended June 30, 2008 and 2007, management fees
incurred totaled $1,645 and $1,489, respectively, and $2,839 and $2,528 for the
six months ended June 30, 2008 and 2007, respectively and are recorded as Hotel
Operating Expenses.
Franchise
Agreements
Our
branded hotel properties are operated under franchise agreements assumed by the
hotel property lessee. The franchise agreements have 10 to 20 year terms but may
be terminated by either the franchisee or franchisor on certain anniversary
dates specified in the agreements. The franchise agreements require annual
payments for franchise royalties, reservation, and advertising services, and
such payments are based upon percentages of gross room revenue. These payments
are paid by the hotels and charged to expense as incurred. Franchise fee expense
for the three months ended June 30, 2008 and 2007 was $4,585 and $3,961,
respectively and for the six months ended June 30, 2008 and 2007 was $8,138 and
$7,235, respectively. The initial fees incurred to enter into the
franchise agreements are amortized over the life of the franchise
agreements.
Accounting and Information
Technology Fees
Each of
the wholly owned hotels and consolidated joint venture hotel properties managed
by HHMLP incurs a monthly accounting and information technology
fee. Monthly fees for accounting services are $2 per property
and monthly information technology fees are $0.5 per property. In addition, each
of the wholly owned hotels not managed by HHMLP, but for which the accounting is
provided by HHMLP incurs a monthly accounting fee of $3. For the three
months ended June 30, 2008 and 2007, the Company incurred accounting fees of
$346 and $337, respectively, and incurred information technology fees of $77 and
$68, respectively. For the six months ended June 30, 2008 and 2007, the
Company incurred accounting fees of $687 and $668, respectively, and incurred
information technology fees of $152 and $134, respectively. Accounting and
information technology fees are included in Hotel Operating
Expenses.
Capital Expenditure
Fees
HHMLP
charges a 5% fee on all capital expenditures and pending renovation projects at
the properties as compensation for procurement services related to capital
expenditures and for project management of renovation projects. For the
three months ended June 30, 2008 and 2007, we incurred fees of $75 and $124,
respectively, and for the six months ended June 30, 2008 and 2007, we incurred
fees of $141 and $163, respectively, which were capitalized in with the cost of
fixed asset additions.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
7 — COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(CONTINUED)
Acquisitions from
Affiliates
We have
entered into an option agreement with each of our officers and affiliated
trustees such that we obtain a right of first 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. Our Acquisition Committee of the Board of Trustees is comprised solely
of independent trustees, and the purchase prices and all material terms of the
purchase of hotels from related parties are approved by the Acquisition
Committee.
Hotel
Supplies
For the
three months ended June 30, 2008 and 2007, we incurred expenses of $367 and
$1,099, respectively, and for the six months ended June 30, 2008 and 2007, we
incurred expenses of $822 and $1,445 for hotel supplies from Hersha Hotel
Supply, an unconsolidated related party, which are expenses included in Hotel
Operating Expenses. Approximately $5 and $149 is included in accounts payable at
June 30, 2008 and December 31, 2007, respectively.
Due From Related
Parties
The Due
from Related Party balance as of June 30, 2008 and December 31, 2007 was
approximately $2,481 and $1,256 respectively. The majority of the balance
as of June 30, 2008 and December 31, 2007 were receivables owed from our
unconsolidated joint ventures.
Due to Related
Parties
The Due
to Related Parties balance as of June 30, 2008 and December 31, 2007 was
approximately $2,861 and $2,025, respectively. The balances as of June 30, 2008
and December 31, 2007 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. On June 13, 2008, in conjunction with the acquisition of the
Sheraton Hotel, 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 June 2102. Each land leases provide
rent increases at scheduled intervals. We record rent expense on a straight-line
basis over the life of the lease from the beginning of the lease term. For the
three months ended June 30, 2008 and 2007, we incurred $216 and $190,
respectively, and for the six months ended June 30, 2008 and 2007, we incurred
$442 and $439, respectively, in hotel ground rent expense under these
agreements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
8 — DERIVATIVE INSTRUMENTS
On
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,”
(“SFAS No. 157”) which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value
measurements. SFAS No. 157 applies to reported balances that are
required or permitted to be measured at fair value under existing accounting
pronouncements; the standard does not require any new fair value measurements of
reported balances.
SFAS No.
157 emphasizes that fair value is a market-based measurement, not an
entity-specific measurement. Therefore, a fair value measurement
should be determined based on the assumptions that market participants would use
in pricing the asset or liability. As a basis for considering market
participant assumptions in fair value measurements, SFAS No. 157 establishes a
fair value hierarchy that distinguishes between market participant assumptions
based on market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entity’s own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the hierarchy).
Level 1
inputs utilize quoted prices (unadjusted) in active markets for identical assets
or liabilities that the Company has the ability to access. Level 2 inputs are
inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. Level 2 inputs may include
quoted prices for similar assets and liabilities in active markets, as well as
inputs that are observable for the asset or liability (other than quoted
prices), such as interest rates, foreign exchange rates, and yield curves that
are observable at commonly quoted intervals. Level 3 inputs are unobservable
inputs for the asset or liability, which are typically based on an entity’s own
assumptions, as there is little, if any, related market activity. In instances
where the determination of the fair value measurement is based on inputs from
different levels of the fair value hierarchy, the level in the fair value
hierarchy within which the entire fair value measurement falls is based on the
lowest level input that is significant to the fair value measurement in its
entirety. The Company’s assessment of the significance of a particular input to
the fair value measurement in its entirety requires judgment, and considers
factors specific to the asset or liability.
Currently,
the Company uses derivative instruments, such as interest rate swaps and caps, to manage its interest
rate risk. The
valuation of these instruments is determined using widely accepted valuation
techniques, including discounted cash flow analysis on the expected cash flows
of each derivative. This analysis reflects the contractual terms of the
derivatives, including the period to maturity, and uses observable market-based
inputs.
To comply
with the provisions of SFAS No. 157, the Company incorporates credit valuation
adjustments to appropriately reflect both its own nonperformance risk and the
respective counterparty’s nonperformance risk in the fair value
measurements. In adjusting the fair value of its derivative contracts
for the effect of nonperformance risk, the Company has considered the impact of
netting and any applicable credit enhancements, such as collateral postings,
thresholds, mutual puts, and guarantees.
Although
the Company has determined that the majority of the inputs used to value its
derivatives fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with its derivatives utilize Level 3 inputs,
such as estimates of current credit spreads, to evaluate the likelihood of
default by itself and its counterparties. However, as of June 30,
2008, the Company has assessed the significance of the effect of the credit
valuation adjustments on the overall valuation of its derivative positions and
has determined that the credit valuation adjustments are not significant to the
overall valuation of its derivatives. As a result, the Company has determined
that its derivative valuations in their entirety are classified in Level 2 of
the fair value hierarchy.
On
January 15, 2008, we entered into an interest rate swap agreement that fixes the
interest rate on the variable rate mortgage, bearing interest at one month U.S.
dollar LIBOR plus 2.0%, originated to finance the acquisition of the nu Hotel,
Brooklyn, NY. Under the terms of this interest rate swap, we pay
fixed rate interest of 3.245% on the $13,240 notional amount and we receive
floating rate interest equal to the one month U.S. dollar LIBOR, effectively
fixing our interest at a rate of 5.245%.
On
February 1, 2008, we entered into an interest rate swap agreement that fixes the
interest rate on a $40,000 portion of our floating revolving credit facility
with Commerce Bank, which bears interest at one month U.S. dollar LIBOR plus
2.0%. Under the terms of this interest rate swap, we pay fixed rate
interest of 2.6275% on the $40,000 notional amount and we receive floating rate
interest equal to the one month U.S. dollar LIBOR, effectively fixing our
interest on this portion of the line of credit at a rate of
4.6275%.
We
maintain an interest rate cap that effectively fixes interest payments when
LIBOR exceeds 5.75% on our debt financing Hotel 373, New York,
NY. The notional amount of the interest rate cap is $22,000 and
equals the principal of the variable interest rate debt being
hedged.
We
maintain an interest rate swap that fixes our interest rate on a variable rate
mortgage on the Sheraton Four Points, Revere, MA. 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 $7,704 as of June 30, 2008. We
entered into this interest rate swap in July of 2004 and designated it as a cash
flow hedge in November of 2004 when the fair value of the swap was a liability
of $342, causing ineffectiveness in the hedge relationship. Prior to
January 1, 2008, the hedge relationship was deemed to be effective and the
change in fair value related to the effective portion of the interest rate swap
was recorded in Accumulated Other Comprehensive Income on the Balance
Sheet. Subsequent to January 1, 2008, the hedge relationship was no
longer deemed to be effective. The change in fair value of the
interest rate swap for the three and six months ended June 30, 2008 was a gain
of $113 and a loss of $23, respectively, and was recorded in Interest Expense on
the Statement of Operations.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
8 — DERIVATIVE INSTRUMENTS (CONTINUED)
At June
30, 2008 and December 31, 2007, the fair value of the interest rate swaps and
cap were:
|
|
|
|
|
|
|
|
|
Value
|
|
Date
of Transaction
|
|
Hedged
Debt
|
|
Type
|
|
Maturity
Date
|
|
|
June
30,
2008
|
|
|
December
31,
2007
|
|
July
2, 2004
|
|
Variable
Rate Mortgage - Sheraton Four Points, Revere, MA
|
|
Swap
|
|
July
23, 2009
|
|
|
$ |
(144 |
) |
|
$ |
(120 |
) |
July
1, 2007
|
|
Variable
Rate Mortgage - Hotel 373, New York, NY
|
|
Cap
|
|
April
9, 2009
|
|
|
|
- |
|
|
|
1 |
|
January
15, 2008
|
|
Variable
Rate Mortgage - Nu Hotel, Brooklyn, NY
|
|
Swap
|
|
|
January
12, 2009 |
|
|
|
(37 |
) |
|
|
- |
|
February
1, 2008
|
|
Revolving
Variable Rate Credit Facility
|
|
Swap
|
|
|
February
1, 2009 |
|
|
|
31 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
$ |
(150 |
) |
|
$ |
(119 |
) |
The fair
value of the derivative instrument assets is included in Other Assets and the
fair value of the derivative instrument liabilities is included in Accounts
Payable, Accrued Expenses and Other Liabilities at June 30, 2008 and December
31, 2007.
The
change in fair value of derivative instruments designated as cash flow hedges
was a gain of $239 and $32 for the three months ended June 30, 2008 and 2007,
respectively, and a gain of $2 and $210 for the six months ended June
30, 2008 and 2007, respectively. These unrealized gains and losses
were reflected on our Balance Sheet in Accumulated Other Comprehensive Income.
Hedge ineffectiveness of $7 and $5 on cash flow hedges was recognized in
interest expense for the three months ended June 30, 2008 and 2007, respectively
and $0 and $9 for the six months end June 30, 2008 and 2007,
respectively.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
9 — SHARE-BASED PAYMENTS
In May
2008, the Company established the Hersha Hospitality Trust 2008 Equity Incentive
Plan for the purpose of attracting and retaining executive officers, employees,
trustees and other persons and entities that provide services to the Company.
Prior to the 2008 Equity Incentive Plan, the Company made awards pursuant to the
2004 Equity Incentive Plan. Upon approval of the 2008 Equity
Incentive Plan by the Company’s shareholders on May 22, 2008, the Company
terminated the 2004 Equity Incentive Plan. Termination of the 2004
Equity Incentive Plan did not have any effect on equity awards and grants
previously made under that plan.
The
following table summarizes the stock awards issued to executives of the Company
pursuant to the 2004 Equity Incentive Plan and the 2008 Equity Incentive Plan as
of June 30, 2008:
|
|
|
|
|
Shares
Vested
|
|
|
Unearned
Compensation
|
|
|
Date
of Award Issuance
|
|
Shares
Issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
until Full Vesting
|
June
1, 2005
|
|
|
71,000 |
|
|
|
53,250 |
|
|
|
35,500 |
|
|
$ |
157 |
|
|
$ |
242 |
|
0.9
years
|
June
1, 2006
|
|
|
89,500 |
|
|
|
44,750 |
|
|
|
22,375 |
|
|
|
403 |
|
|
|
508 |
|
1.9
years
|
June
1, 2007
|
|
|
214,582 |
|
|
|
53,645 |
|
|
|
- |
|
|
|
1,928 |
|
|
|
2,258 |
|
2.9
years
|
June
2, 2008
|
|
|
278,059 |
|
|
|
- |
|
|
|
- |
|
|
|
2,441 |
|
|
|
- |
|
3.9
years
|
|
|
|
653,141 |
|
|
|
151,645 |
|
|
|
57,875 |
|
|
|
4,929 |
|
|
|
3,008 |
|
|
On June
2, 2008, the Compensation Committee of the Board of Trustees granted 278,059
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 $8.97
per share. As of June 30, 2008, none of these restricted share awards was
vested.
Compensation
expense related to stock awards issued to executives of the Company of $312 and
$150 was incurred during the three months ended June 30, 2008 and 2007,
respectively, and $573 and $245 for the six months ended June 30, 2008 and 2007,
respectively. Compensation expense related to the restricted share
awards is recorded in general and administrative expense on the statement of
operations.
On
January 2, 2008, we awarded 1,000 common shares to each of our four independent
trustees. The fair value of each of the shares on the grant date was
$9.33. On June 2, 2008, we awarded 1,500 common shares to each of our four
independent trustees. The fair value of each of the shares on the grant date was
$8.97. Compensation
expense related to stock awards issued to the Board of Trustees of $0 and $36
was incurred during the three months ended June 30, 2008 and 2007, respectively,
and $54 and $49 was incurred during the six months ended June 30, 2008 and 2007,
respectively.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
10 — EARNINGS PER SHARE
The
following table is a reconciliation of the income (numerator) and weighted
average shares (denominator) used in the calculation of basic earnings per
common share and diluted earnings per common share in accordance with SFAS No.
128, Earnings Per Share. The computation of basic and diluted earnings per share
is presented below.
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Continuing Operations
|
|
$ |
8,225 |
|
|
$ |
7,714 |
|
|
$ |
5,347 |
|
|
$ |
3,577 |
|
Dividends
paid on unvested restricted shares
|
|
|
(90 |
) |
|
|
(57 |
) |
|
|
(147 |
) |
|
|
(83 |
) |
Distributions
to 8.0% Series A Preferred Shareholders
|
|
|
(1,200 |
) |
|
|
(1,200 |
) |
|
|
(2,400 |
) |
|
|
(2,400 |
) |
Income
from continuing operations applicable to common
shareholders
|
|
|
6,935 |
|
|
|
6,457 |
|
|
|
2,800 |
|
|
|
1,094 |
|
Income
(Loss) from Discontinued Operations
|
|
|
- |
|
|
|
81 |
|
|
|
- |
|
|
|
(19 |
) |
Net
Income applicable to common shareholders
|
|
$ |
6,935 |
|
|
$ |
6,538 |
|
|
$ |
2,800 |
|
|
$ |
1,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Continuing Operations
|
|
$ |
8,225 |
|
|
$ |
7,714 |
|
|
$ |
5,347 |
|
|
$ |
3,577 |
|
Dividends
paid on unvested restricted shares
|
|
|
(90 |
) |
|
|
(57 |
) |
|
|
(147 |
) |
|
|
(83 |
) |
Distributions
to 8.0% Series A Preferred Shareholders
|
|
|
(1,200 |
) |
|
|
(1,200 |
) |
|
|
(2,400 |
) |
|
|
(2,400 |
) |
Income
from continuing operations applicable to common
shareholders
|
|
|
6,935 |
|
|
|
6,457 |
|
|
|
2,800 |
|
|
|
1,094 |
|
Income
(Loss) from Discontinued Operations
|
|
|
- |
|
|
|
81 |
|
|
|
- |
|
|
|
(19 |
) |
Net
Income applicable to common shareholders
|
|
$ |
6,935 |
|
|
$ |
6,538 |
|
|
$ |
2,800 |
|
|
$ |
1,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares - basic
|
|
|
44,253,641 |
|
|
|
40,642,569 |
|
|
|
42,572,390 |
|
|
|
40,590,499 |
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
stock awards
|
|
|
-
|
** |
|
|
-
|
** |
|
|
-
|
** |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares - diluted*
|
|
|
44,253,641 |
|
|
|
40,642,569 |
|
|
|
42,572,390 |
|
|
|
40,590,499 |
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
10 — EARNINGS PER SHARE (CONTINUED)
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Earnings Per
Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations applicable to common
shareholders
|
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
0.07 |
|
|
$ |
0.03 |
|
Income
from Discontinued Operations
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income applicable to common shareholders
|
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
0.07 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations applicable to common
shareholders
|
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
0.07 |
|
|
$ |
0.03 |
|
Income
from Discontinued Operations
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income applicable to common shareholders
|
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
0.07 |
|
|
$ |
0.03 |
|
*
|
Income
allocated to minority interest in the Partnership has been excluded from
the numerator and Partnership units have been omitted from the denominator
for the purpose of computing diluted earnings per share since the effect
of including these amounts in the numerator and denominator would have no
impact. Weighted average Partnership units outstanding for the three
months ended June 30, 2008 and 2007 were 7,447,149 and 4,899,856,
respectively and for the six months ended June 30, 2008 and 2007 were
7,312,974 and 4,653,575,
respectively.
|
**
|
Unvested
stock awards have been omitted from the denominator for the purpose of
computing diluted earnings per share for the three and six months ended
June 30, 2008 and 2007 since the effect of including these amounts in the
denominator would be anti-dilutive to income from continuing operations
applicable to common shareholders.
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
11 — CASH FLOW DISCLOSURES AND NON-CASH ACTIVITIES
Interest
paid during the six months ended June 30, 2008 and 2007 totaled $20,920
and $19,386, respectively.
The
following non-cash activities occurred during the six months ended June 30, 2008
and 2007:
|
|
2008
|
|
|
2007
|
|
Common
Shares issued as part of the Dividend Reinvestment Plan
|
|
$ |
14 |
|
|
$ |
14 |
|
Issuance
of Common Shares to the Board of Trustees
|
|
|
91 |
|
|
|
46 |
|
Issuance
of Common LP Units for acquisitions of hotel properties
|
|
|
21,624 |
|
|
|
13,818 |
|
Debt
assumed in acquisition of hotel properties
|
|
|
23,800 |
|
|
|
55,902 |
|
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
|
|
|
283 |
|
|
|
694 |
|
Reallocation
to minority interest
|
|
|
1,772 |
|
|
|
8,428 |
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT 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 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 three and six months ended June 30,
2007. The sale of these properties occurred during the fourth quarter
of 2007. 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 $274 and $547 of interest and capital lease
expense to discontinued operations for the three months and six months ended
June 30, 2007, respectively.
The
following table sets forth the components of discontinued operations (excluding
the gains on sale) for the three and six months ended June 30,
2007:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
Hotel
Operating Revenues
|
|
$ |
1,909 |
|
|
$ |
3,496 |
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Interest
and Capital Lease Expense
|
|
|
274 |
|
|
|
547 |
|
Hotel
Operating Expenses
|
|
|
1,107 |
|
|
|
2,100 |
|
Real
Estate and Personal Property Taxes and Property Insurance
|
|
|
138 |
|
|
|
287 |
|
Depreciation
and Amortization
|
|
|
300 |
|
|
|
583 |
|
Total
Expenses
|
|
|
1,819 |
|
|
|
3,517 |
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Discontinued Operations before Minority
Interest
|
|
|
90 |
|
|
|
(21 |
) |
Allocation
to Minority Interest
|
|
|
9 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
Income
(Loss) from Discontinued Operations
|
|
$ |
81 |
|
|
$ |
(19 |
) |
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007[UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE
13 – SUBSEQUENT EVENTS
On August
1, 2008, we acquired the Hampton Inn & Suites, Smithfield, RI from entities
that were owned in part by certain of the Company’s executives and affiliated
trustees for approximately $12,625. In connection with this
acquisition, the Company assumed a $6,713 fixed rate mortgage which accrues
interest at 6.98%. The mortgage matures in December
2016.
Item 2. 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”, “anticipates”,
“intends”, “plans” and “estimates” and variations of such words and similar
words also identify forward-looking statements. Our actual results may differ
materially, including the following: economic conditions generally and the real
estate market specifically; the effect of threats of terrorism and increased
security precautions on travel patterns and demand for hotels; the threatened or
actual outbreak of hostilities and international political instability;
governmental actions; legislative/regulatory changes, including changes to laws
governing the taxation of REITs; level of proceeds from asset sales; cash
available for capital expenditures; availability of capital; ability to
refinance debt; rising interest rates; rising insurance premiums; competition;
supply and demand for hotel rooms in our current and proposed market areas,
including the existing and continuing weakness in business travel and lower-than
expected daily room rates; other factors that may influence the travel industry,
including health, safety and economic factors; and changes in generally accepted
accounting principles, policies and guidelines applicable to REITs. Additional
risks are discussed in the Company’s filings with the Securities and Exchange
Commission. We caution you not to place undue reliance on any such
forward-looking statements. We assume no obligation to update any
forward-looking statements as a result of new information, subsequent events or
any other circumstances.
General
As of
June 30, 2008 we owned interests in 76 hotels located primarily 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. The REIT qualification rules allow a hotel
REIT to lease its hotels to a taxable REIT subsidiary, or TRS, provided that the
TRS engages an eligible independent contractor to manage the TRS. As of June 30,
2008, we own one hotel that is leased to an unrelated third party lessee. Each
of these TRS entities pays qualifying rent, and the TRS entities have entered
into management contracts with qualified independent managers, including Hersha
Hospitality Management, LP, or HHMLP, to operate our hotels. The TRS directly
receives all revenue from, and funds all expenses relating to hotel operations.
The TRS is also subject to income tax on its earnings. We intend to lease all
newly acquired hotels to a TRS.
During
the six months ended June 30, 2008, the U.S. economy has been influenced by
financial market turmoil, growing unemployment and declining consumer sentiment.
As a result, the lodging industry is experiencing slowing growth which could
have a negative impact on our future results of operations and financial
condition. While leisure demand was generally soft, urban markets
fared better due to the larger amount of utilization by business travelers, the
benefit from a weak dollar that improved international travel to the U.S., and
the long term nature of convention business which is generally located in urban
markets. For the quarter and six months ended June 30, 2008, we have continued
to see increases in Average Daily Rate (ADR) and Revenue Per Available Room, in
part, as a result of our strategy of investing in high quality upscale hotels in
high barrier to entry markets, including gateway markets such as the New York
City metro market.
Operating
Results
The
following table outlines operating results for the Company’s portfolio of 56
wholly owned hotels and three hotels owned through joint venture interests that
are consolidated in our financial statements for the three and six months ended
June 30, 2008 and 2007. These results exclude one hotel leased to a
third party and one hotel under construction as of June 30, 2008.
CONSOLIDATED
HOTELS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
Six
Months Ended
|
|
|
|
|
|
|
June
30,
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
%
Variance
|
|
|
2008
|
|
|
2007
|
|
|
%
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
Available
|
|
|
583,570 |
|
|
|
554,571 |
|
|
|
5.2 |
% |
|
|
1,158,373 |
|
|
|
1,095,001 |
|
|
|
5.8 |
% |
Rooms
Occupied
|
|
|
458,837 |
|
|
|
443,580 |
|
|
|
3.4 |
% |
|
|
836,440 |
|
|
|
794,277 |
|
|
|
5.3 |
% |
Occupancy
|
|
|
78.63 |
% |
|
|
79.99 |
% |
|
|
-1.7 |
% |
|
|
72.21 |
% |
|
|
72.54 |
% |
|
|
-0.5 |
% |
Average
Daily Rate (ADR)
|
|
$ |
139.56 |
|
|
$ |
131.54 |
|
|
|
6.1 |
% |
|
$ |
135.30 |
|
|
$ |
126.43 |
|
|
|
7.0 |
% |
Revenue
Per Available Room (RevPAR)
|
|
$ |
109.73 |
|
|
$ |
105.21 |
|
|
|
4.3 |
% |
|
$ |
97.70 |
|
|
$ |
91.71 |
|
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
Revenues
|
|
$ |
64,037,467 |
|
|
$ |
58,346,956 |
|
|
|
9.8 |
% |
|
$ |
113,171,938 |
|
|
$ |
100,422,315 |
|
|
|
12.7 |
% |
Total
Revenues
|
|
$ |
67,377,356 |
|
|
$ |
61,569,309 |
|
|
|
9.4 |
% |
|
$ |
119,296,178 |
|
|
$ |
106,371,592 |
|
|
|
12.2 |
% |
Discontinued
Assets
|
|
$ |
- |
|
|
$ |
1,908,705 |
|
|
|
-100.0 |
% |
|
$ |
- |
|
|
$ |
3,496,059 |
|
|
|
-100.0 |
% |
The
following table outlines operating results for the three and six months ended
June 30, 2008 and 2007 for the 15 hotels we own through unconsolidated
joint venture interests. These operating results reflect 100% of the operating
results of the property including our interest and the interests of our joint
venture partners and minority interests.
UNCONSOLIDATED
JOINT VENTURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
|
|
|
June
30,
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
%
Variance
|
|
|
2008
|
|
|
2007
|
|
|
%
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
Available
|
|
|
239,694 |
|
|
|
239,694 |
|
|
|
0.0 |
% |
|
|
479,388 |
|
|
|
469,686 |
|
|
|
2.1 |
% |
Rooms
Occupied
|
|
|
181,654 |
|
|
|
179,947 |
|
|
|
0.9 |
% |
|
|
344,900 |
|
|
|
323,457 |
|
|
|
6.6 |
% |
Occupancy
|
|
|
75.79 |
% |
|
|
75.07 |
% |
|
|
0.9 |
% |
|
|
71.95 |
% |
|
|
68.87 |
% |
|
|
4.5 |
% |
Average
Daily Rate (ADR)
|
|
$ |
150.59 |
|
|
$ |
146.53 |
|
|
|
2.8 |
% |
|
$ |
144.50 |
|
|
$ |
140.02 |
|
|
|
3.2 |
% |
Revenue
Per Available Room (RevPAR)
|
|
$ |
114.12 |
|
|
$ |
110.01 |
|
|
|
3.7 |
% |
|
$ |
103.96 |
|
|
$ |
96.43 |
|
|
|
7.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
Revenues
|
|
$ |
27,354,813 |
|
|
$ |
26,367,809 |
|
|
|
3.7 |
% |
|
$ |
49,839,014 |
|
|
$ |
45,290,035 |
|
|
|
10.0 |
% |
Total
Revenues
|
|
$ |
35,516,710 |
|
|
$ |
34,564,205 |
|
|
|
2.8 |
% |
|
$ |
65,324,156 |
|
|
$ |
60,517,247 |
|
|
|
7.9 |
% |
Comparison
of the three month period ended June 30, 2008 and 2007
(dollars
in thousands, except per share data).
Revenues
Our total
revenues for the three months ended June 30, 2008 consisted of hotel operating
revenues, interest income from our development loan program, land lease revenue,
hotel lease revenue and other revenues. 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 revenues increased $5,808 or 9.4%, to $67,377 for
the three months ended June 30, 2008 from $61,569 for the same period in
2007. The increase in revenues is primarily attributable to the
acquisitions consummated in 2007 and improved RevPAR at certain of our hotels.
We acquired interests in the following five consolidated hotels since June 30,
2007 that contributed to hotel operating revenues:
Brand
|
|
Location
|
|
Acquisition
Date
|
|
Rooms
|
|
|
|
|
|
|
|
|
|
Holiday
Inn
|
|
Norwich,
CT
|
|
7/1/2007
|
|
|
134 |
|
Duane
Street Hotel (TriBeCa)
|
|
New
York, NY
|
|
1/4/2008
|
|
|
45 |
|
TownePlace
Suites
|
|
Harrisburg,
PA
|
|
5/8/2008
|
|
|
107 |
|
Sheraton
Hotel
|
|
JFK
Airport, Jamaica, NY
|
|
6/13/2008
|
|
|
150 |
|
Holiday
Inn Express
|
|
Camp
Springs, MD
|
|
6/26/2008
|
|
|
127 |
|
|
|
|
|
|
|
|
563 |
|
Revenues
for all five hotels were recorded from the date of acquisition as hotel
operating revenues. Further, hotel operating revenues for the three months ended
June 30, 2008 included revenues for a full quarter related to the following one
hotel that was purchased during the three months ended June 30,
2007:
Brand
|
|
Location
|
|
Acquisition
Date
|
|
Rooms
|
Hotel
373 (Fifth Avenue)
|
|
New
York, NY
|
|
6/1/2007
|
|
70
|
We invest
in hotel development projects by providing secured first mortgage or mezzanine
financing to hotel developers and through the acquisition of land that is then
leased to hotel developers. Interest income is earned on our development
loans at rates of 10.0% to 15.0%. Interest income from development loans
receivable was $2,153 for the three months ended June 30, 2008 compared to
$1,331 for the same period in 2007. The average balance of development loans
receivable outstanding during the three months ended June 30, 2008 was greater
than the average balance outstanding during the same period in 2007 resulting in
an $822 increase in interest income.
In June
and July of 2006 we acquired two parcels of land in Manhattan, NY which are
being leased to hotel developers. In June and July of 2007, we acquired two
adjacent parcels of land in Brooklyn, NY 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
10.0% of our net investment in the land. Additional rents are paid by the lessee
for the principal and interest on the mortgage, real estate taxes and insurance.
During the three months ended June 30, 2008, we recorded $1,390 in land lease
revenue from these parcels. We incurred $745 in expense related to these
land leases resulting in a contribution of $645 to our operating income during
the three months ended June 30, 2008. Land leases contributed $498 to our
operating income during the three months ended June 30, 2007.
Total
revenues for the three months ended June 30, 2008 also included hotel lease
revenue for the lease of the Holiday Inn Conference Center, New
Cumberland, PA which has a fixed rent over the five year term. Hotel lease
revenue of $211 was recorded related to the lease of this property during the
three months ended June 30, 2008 and 2007.
Other
revenues consist primarily of fees earned for asset management services provided
to certain properties owned by our unconsolidated joint ventures.
Expenses
Total
hotel operating expenses increased 9.7% to approximately $36,686 for the three
months ended June 30, 2008 from $33,437 for the three months ended June 30,
2007. Consistent with the increase in hotel operating revenues, hotel operating
expenses increased primarily due to the acquisitions consummated since the
comparable period in 2007, as mentioned above. The acquisitions also resulted in
an increase in depreciation and amortization from $8,260 for the three months
ended June 30, 2007 to $10,012 for the three months ended June 30, 2008.
Similarly, real estate and personal property tax and property insurance
increased $211, or 7.7%, in the three months ended June 30, 2008 when compared
to the same period in 2007.
General
and administrative expense increased by approximately $382 from $1,621 for the
three months ended June 30, 2007 to $2,003 during the same period in 2008 due to
increased stock based compensation costs associated with the issuance of
additional stock awards in June 2008.
Unconsolidated
Joint Venture Investments
Income
from unconsolidated joint venture investments decreased $381 from $1,741 for the
three months ended June 30, 2007 to $1,360, for the three months ended June 30,
2008. This was primarily caused by a decline in the operating
results of certain unconsolidated joint venture assets in Connecticut and
Massachusetts. This decline was partially offset by continued
improvement in the operating results in our unconsolidated joint venture
interest in the 228 room Holiday Inn Express – Madison Square Garden, New York,
NY which continues to ramp up.
Net
Income
Net
income applicable to common shareholders for the three months ended June 30,
2008 was approximately $7,052 compared to net income applicable to common
shareholders of $6,595 for the same period in 2007.
Operating
income for the three months ended June 30, 2008 was $18,847 compared to
operating income of $17,517 during the same period in 2007. The $1,330 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 income
allocated to minority interests in our operating partnership. The
weighted average minority interest ownership in our operating partnership
increased from 10.8% for the three months ended June 30, 2007 to 14.4% for the
three months ended June 30, 2008. This change is a result of the
issuance of units in our operating partnership as consideration for the
acquisition of hotel properties and is partially offset by the issuance of
6,600,000 shares of our common shares in May of 2008. Interest
expense decreased $355 from $10,701 for the three months ended June 30, 2007 to
$10,346 for the same period in 2008. The decrease in interest expense is the
result of a decline in interest rates on our variable rate debt.
Comparison
of the six month period ended June 30, 2008 and 2007
(dollars
in thousands, except per share data).
Revenues
Our total
revenues for the six months ended June 30, 2008 consisted of hotel operating
revenues, interest income from our development loan program, land lease revenue,
hotel lease revenue and other revenues. 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 $12,924 or 12.2%, to $119,296 for
the six months ended June 30, 2008 from $106,372 for the same period in
2007. The increase in revenues is primarily attributable to the
acquisitions consummated in 2007 and improved RevPAR at certain of our hotels.
As noted above, we acquired interests in five consolidated hotels since June 30,
2007. Revenues for all five hotels were recorded from the date of
acquisition as hotel operating revenues. Further, hotel operating
revenues for the six months ended June 30, 2008 included revenues for a full six
months related to the following five hotels that were purchased during the six
months ended June 30, 2007:
Brand
|
|
Location
|
|
Acquisition
Date
|
|
Rooms
|
Residence
Inn
|
|
Langhorne,
PA
|
|
1/8/2007
|
|
100
|
Residence
Inn
|
|
Carlisle,
PA
|
|
1/10/2007
|
|
78
|
Holiday
Inn Express
|
|
Chester,
NY
|
|
1/25/2007
|
|
80
|
Hampton
Inn (Seaport)
|
|
New
York, NY
|
|
2/1/2007
|
|
65
|
Hotel
373 (Fifth Avenue)
|
|
New
York, NY
|
|
6/1/2007
|
|
70
|
|
|
|
|
|
|
393
|
We invest
in hotel development projects by providing secured first mortgage or mezzanine
financing to hotel developers and through the acquisition of land that is then
leased to hotel developers. Interest income is earned on our development loans
at rates of 10.0% to 15.0%. Interest income from development loans
receivable was $4,173 for the six months ended June 30, 2008 compared to $2,364
for the same period in 2007. The average balance of development loans
receivable outstanding during the six months ended June 30, 2008 was greater
than the average balance outstanding during the same period in 2007 resulting in
a $1,539 increase in interest income.
In June
and July of 2006 we acquired two parcels of land in Manhattan, NY which are
being leased to hotel developers. In June and July of 2007, we acquired two
adjacent parcels of land in Brooklyn, NY 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 six months ended June 30, 2008, we recorded $2,724 in land lease
revenue from these parcels. We incurred $1,494 in expense related to these
land leases resulting in a contribution of $1,230 to our operating income during
the six months ended June 30, 2008. Land leases contributed $972 to our
operating income during the six months ended June 30, 2007.
Total
revenues for the six months ended June 30, 2008 also included hotel lease
revenue for the lease of the Holiday Inn Conference Center, New
Cumberland, PA which has a fixed rent over the five year term. Hotel lease
revenue of $348 was recorded related to the lease of this property during the
six months ended June 30, 2008 and $332 during the six months ended June 30,
2007.
Other
revenues consist primarily of fees earned for asset management services provided
to certain properties owned by our unconsolidated joint ventures.
Expenses
Total
hotel operating expenses increased 12.3% to approximately $69,118 for the six
months ended June 30, 2008 from $61,513 for the six months ended June 30, 2007.
Consistent with the increase in hotel operating revenues, hotel operating
expenses increased primarily due to the acquisitions consummated since the
comparable period in 2007, as mentioned above. The acquisitions also resulted in
an increase in depreciation and amortization from $16,217 for the six months
ended June 30, 2007 to $19,634 for the six months ended June 30, 2008.
Similarly, real estate and personal property tax and property insurance
increased $646, or 11.8%, in the six months ended June 30, 2008 when compared to
the same period in 2007.
General
and administrative expense decreased by approximately $114 from $3,832 for the
six months ended June 30, 2007 to $3,718 during the same period in 2008. The
2007 executive bonuses were approved and recorded during the fourth quarter of
2007, while the 2006 year end bonuses were not approved and recorded until the
first quarter of 2007. This decrease was offset by increased stock
based compensation costs associated with the issuance of additional stock awards
in June 2008.
Unconsolidated
Joint Venture Investments
Income
from unconsolidated joint venture investments decreased $281 from $903 for the
six months ended June 30, 2007 to $622 during the same period in 2008.
This was primarily caused by a decline in the operating results of certain
unconsolidated joint venture assets in Connecticut and
Massachusetts. This decline was partially offset by continued
improvement in the operating results in our unconsolidated joint venture
interest in the 228 room Holiday Inn Express – Madison Square Garden, New York,
NY which continues to ramp up.
Net
Income
Net
income applicable to common shareholders for the six months ended June 30, 2008
was approximately $2,947 compared to net income applicable to common
shareholders of $1,158 for the same period in 2007.
Operating
income for the six months ended June 30, 2008 was $26,395 compared to operating
income of $23,136 during the same period in 2007. The $3,259 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 $385 from $20,738 for the six months ended June 30,
2007 to $21,123 for the six months ended June 30, 2008. The increase in interest
expense is the result of mortgages placed on newly acquired properties and
increased average balances on our line of credit. Also included in interest
expense in 2008 is a charge of $23 related to the ineffective portion of an
interest rate derivative which was designated as a hedge of interest rate risk
prior to the first quarter of 2008.
Liquidity
and Capital Resources
We expect
to meet our short-term liquidity requirements generally through net cash
provided by operations, existing cash balances and, if necessary, short-term
borrowings under our line of credit. We believe that the net cash provided by
operations will be adequate to fund the Company’s operating requirements, debt
service and the payment of dividends in accordance with REIT requirements of the
federal income tax laws. We expect to meet our long-term liquidity requirements,
such as scheduled debt maturities and property acquisitions, through long-term
secured and unsecured borrowings, the issuance of additional equity securities
or, in connection with acquisitions of hotel properties, the issuance of units
of operating partnership interest in our operating partnership
subsidiary.
We
maintain a revolving credit loan and security agreement with Commerce Bank, N.A.
with a maximum amount of $100,000 and interest rate terms, at our discretion, of
either the Wall Street Journal's prime rate of interest minus 0.75% or LIBOR
available for the periods of 1, 2, 3, or 6 months plus 2.00%. The line of credit
is collateralized by a first lien-security interest in all existing and future
assets of HHLP, and title-insured, first-lien mortgages on certain hotel
properties and collateral assignment of all hotel management contracts from
which HHLP or its affiliates derive revenue. The line of credit includes certain
financial covenants and requires that we maintain (1) a minimum tangible net
worth of $110,000; (2) a maximum accounts and other receivables from affiliates
of $75,000; and (3) certain financial ratios. The Company is in compliance with
each of these covenants as of June 30, 2008. The line of credit expires on
December 31, 2008. We intend to refinance the line of credit prior to December
31, 2008.
We intend
to invest in additional hotels only as suitable opportunities arise and adequate
sources of financing are available. Our bylaws require the approval by a
majority of our Board of Trustees, including a majority of the independent
trustees, to acquire any additional hotel in which one of our affiliated
trustees or officers, or any of their affiliates, has an interest (other than
solely as a result of his status as our trustee, officer or shareholder). We
expect that future investments in hotels will depend on and will be financed by,
in whole or in part, our existing cash, the proceeds from additional issuances
of common shares, issuances of operating partnership units or other securities
or borrowings. We make available to the TRS of our hotels 4% (6% for full
service properties) of gross revenues per quarter, on a cumulative basis, for
periodic replacement or refurbishment of furniture, fixtures and equipment at
each of our hotels. We believe that a 4% (6% for full service hotels) reserve is
a prudent estimate for future capital expenditure requirements. We intend to
spend amounts in excess of the obligated amounts if necessary to comply with the
reasonable requirements of any franchise license under which any of our hotels
operate and otherwise to the extent we deem such expenditures to be in our best
interests. We are also obligated to fund the cost of certain capital
improvements to our hotels. We will use undistributed cash or borrowings under
credit facilities to pay for the cost of capital improvements and any furniture,
fixture and equipment requirements in excess of the set aside referenced
above.
Cash
Flow Analysis
Net cash
provided by operating activities for the six months ended June 30, 2008 and 2007
was $22,717 and $18,946, respectively. Income before depreciation, amortization
and minority interests increased $5,068 during the six months ended June 30,
2008 when compared to the same period in 2007. However this increase
was partially offset by increases in cash used to fund working capital
balances.
Net cash
used in investing activities for the six months ended June 30, 2008 increased
$40,578 from $43,801 in the six months ended June 30, 2007 to $84,379 for the
six months ended June 30, 2008. Net cash used for the purchase of hotel
properties increased $24,919 in 2008 over 2007. During the six months ended June
30, 2007, we acquired six properties for a total purchase price of $104,213,
including the assumption of $55,902 in mortgage debt, the conversion of a $2,100
deposit made in 2006 and the issuance of unit in our operating partnership
valued at $13,818 resulting in net cash paid for acquisitions of
$32,393. During the same period in 2008, we acquired five properties
for a total purchase price of $103,025, including the assumption of $23,800 in
mortgage debt, the assumption of $290 of operating liabilities and the issuance
of units in our operating partnership valued at $21,623 resulting in net cash
paid for acquisitions of $57,312. Cash used for capital expenditures
increased $4,652, from $8,370 for the six months ended June 30, 2007 to $13,022
for the same period in 2008. This increase was primarily related to
$5,027 in renovations to a building in Brooklyn, New York, NY we acquired in the
first quarter of 2008. Subsequent to June 30, 2008, the renovations
were completed, and we opened the property as the nu Hotel. We also
increased net cash used to invest in development loans receivables in 2008 by
$16,584 over the same period in 2007. Partially offsetting the increase in
cash used in investing activities in 2007 was a decrease in cash used for
deposits on hotel acquisitions of $4,000.
Net cash
provided by financing activities for the six months ended June 30, 2008 was
$62,227 compared to cash provided by financing activities of $24,110 for the six
months ended June 30, 2007. This increase was primarily the result of $62,009 in
cash provided by the issuance of 6,600,000 common shares in May of
2008. Partially offsetting the increase in cash provided by financing the
offering was a decrease in net proceeds from borrowings under our line of credit
from $24,800 in 2007 to $3,900 in 2008.
Funds
From Operations
The
National Association of Real Estate Investment Trusts (“NAREIT”) developed Funds
from Operations (“FFO”) as a non-GAAP financial measure of performance of an
equity REIT in order to recognize that income-producing real estate historically
has not depreciated on the basis determined under GAAP. We calculate FFO
applicable to common shares and Partnership units in accordance with the April
2002 National Policy Bulletin of NAREIT, which we refer to as the White Paper.
The White Paper defines FFO as net income (loss) (computed in accordance with
GAAP) excluding extraordinary items as defined under GAAP and gains or losses
from sales of previously depreciated assets, plus certain non-cash items, such
as depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Our interpretation of the NAREIT definition is
that minority interest in net income (loss) should be added back to (deducted
from) net income (loss) as part of reconciling net income (loss) to FFO. Our FFO
computation may not be comparable to FFO reported by other REITs that do not
compute FFO in accordance with the NAREIT definition, or that interpret the
NAREIT definition differently than we do.
The GAAP
measure that we believe to be most directly comparable to FFO, net income (loss)
applicable to common shares, includes depreciation and amortization expenses,
gains or losses on property sales, minority interest and preferred dividends. In
computing FFO, we eliminate these items because, in our view, they are not
indicative of the results from our property operations.
FFO does
not represent cash flows from operating activities in accordance with GAAP and
should not be considered an alternative to net income as an indication of
Hersha’s performance or to cash flow as a measure of liquidity or ability to
make distributions. We consider FFO to be a meaningful, additional measure of
operating performance because it excludes the effects of the assumption that the
value of real estate assets diminishes predictably over time, and because it is
widely used by industry analysts as a performance measure. We show both FFO from
consolidated hotel operations and FFO from unconsolidated joint ventures because
we believe it is meaningful for the investor to understand the relative
contributions from our consolidated and unconsolidated hotels. The display of
both FFO from consolidated hotels and FFO from unconsolidated joint ventures
allows for a detailed analysis of the operating performance of our hotel
portfolio by management and investors. We present FFO applicable to common
shares and Partnership units because our Partnership units are redeemable for
common shares. We believe it is meaningful for the investor to understand FFO
applicable to all common shares and Partnership units.
The
following table reconciles FFO for the periods presented to the most directly
comparable GAAP measure, net income, for the same periods.
(dollars
in thousands)
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
income applicable to common shares
|
|
$ |
7,025 |
|
|
$ |
6,595 |
|
|
$ |
2,947 |
|
|
$ |
1,158 |
|
Income
allocated to minority interest
|
|
|
1,737 |
|
|
|
1,167 |
|
|
|
730 |
|
|
|
178 |
|
Income
(loss) from discontinued operations allocated to minority
interest
|
|
|
- |
|
|
|
9 |
|
|
|
- |
|
|
|
(2 |
) |
Loss
from unconsolidated joint ventures
|
|
|
(1,360 |
) |
|
|
(1,741 |
) |
|
|
(622 |
) |
|
|
(903 |
) |
Depreciation
and amortization
|
|
|
10,012 |
|
|
|
8,260 |
|
|
|
19,634 |
|
|
|
16,217 |
|
Depreciation
and amortization from discontinued operations
|
|
|
- |
|
|
|
300 |
|
|
|
- |
|
|
|
583 |
|
FFO
related to the minority interests in consolidated joint ventures
(1)
|
|
|
(302 |
) |
|
|
(310 |
) |
|
|
(62 |
) |
|
|
(112 |
) |
Funds
from consolidated hotel operations applicable to common shares and
Partnership units
|
|
|
17,112 |
|
|
|
14,280 |
|
|
|
22,627 |
|
|
|
17,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Unconsolidated Joint Ventures
|
|
|
1,360 |
|
|
|
1,741 |
|
|
|
622 |
|
|
|
903 |
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of purchase price in excess of historical cost
(2)
|
|
|
523 |
|
|
|
451 |
|
|
|
1,046 |
|
|
|
945 |
|
Interest
in depreciation and amortization of unconsolidated joint ventures
(3)
|
|
|
2,175 |
|
|
|
1,809 |
|
|
|
3,628 |
|
|
|
3,002 |
|
Funds
from unconsolidated joint ventures operations applicable to common shares
and Partnership units
|
|
|
4,058 |
|
|
|
4,001 |
|
|
|
5,296 |
|
|
|
4,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
from Operations applicable to common shares and Partnership
units
|
|
$ |
21,170 |
|
|
$ |
18,282 |
|
|
$ |
27,924 |
|
|
$ |
21,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares and Units Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
44,253,641 |
|
|
|
40,642,569 |
|
|
|
42,572,390 |
|
|
|
40,590,499 |
|
Diluted
|
|
|
51,700,790 |
|
|
|
45,542,425 |
|
|
|
49,885,364 |
|
|
|
45,244,074 |
|
(1)
|
Adjustment
made to deduct FFO related to the minority interest in our consolidated
joint ventures. Represents the portion of net income and depreciation
allocated to our joint venture
partners.
|
(2)
|
Adjustment
made to add depreciation of purchase price in excess of historical cost of
the assets in the unconsolidated joint venture at the time of our
investment.
|
(3)
|
Adjustment
made to add our interest in real estate related depreciation and
amortization of our unconsolidated joint ventures. Allocation of
depreciation and amortization is consistent with allocation of income and
loss.
|
FFO was
$21,170 for the three month period ended June 30, 2008, which was an increase of
$2,888 over FFO in the comparable period in 2007. FFO was $27,924 for the
six month period ended June 30, 2008, which was an increase of $5,955 over FFO
in the comparable period in 2007. The increase in FFO was primarily a
result of the benefits of acquiring assets and interests in joint ventures;
continued stabilization and maturation of the existing portfolio; and continued
growth in our revenue per available rooms.
Critical
Accounting Policies
The
estimates and assumptions made by management in applying critical accounting
policies have not changed materially during 2008 and 2007 and none of the
estimates or assumptions have proven to be materially incorrect or resulted in
our recording any significant adjustments relating to prior
periods. See our Annual Report on Form 10-K for the year ended
December 31, 2007 for a summary of the accounting policies that management
believes are critical to the preparation of the consolidated financial
statements.
Subsequent
Events
On July 1, 2008, we settled on the
defeasance of loans associated with four of our properties. These
mortgage loans had an outstanding principal balance of $11,028 as of June 30,
2008. Prior to June 30, 2008, we deposited $9,000 towards the
acquisition of assets to be used to defease the debt. We expect to
incur a $1,217 prepayment premium related to the defeasance of these
loans.
On August
1, 2008, we acquired the Hampton Inn & Suites, Smithfield, RI from entities
that were owned in part by certain of the Company’s executives and affiliated
trustees for approximately $12,625. In connection with this
acquisition, the Company assumed a $6,713 fixed rate mortgage which accrues
interest at 6.98%. The mortgage matures in December
2016.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.
(dollars
in thousands, except per share data)
Our
primary market risk exposure is to changes in interest rates on our variable
rate Line of Credit and other floating rate debt. At June 30, 2008, we
maintained a balance of $47,600 under our Line of Credit. The total floating
rate mortgages payable of $93,888 had a current weighted average interest rate
of 4.85% as of June 30, 2008. The total fixed rate mortgages and notes payable
of $579,626 had a current weighted average interest rate of 6.23%.
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 have also entered into derivative
financial instruments such as interest rate swaps or caps, and in the future may
enter into 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 three interest rate swaps
related to debt on the Four Points by Sheraton, Revere, MA, nu Hotel, Brooklyn,
NY and our revolving credit facility and one interest rate cap related to debt
on the Hotel 373, New York, New York. We do not intend to enter into derivative
or interest rate transactions for speculative purposes.
Approximately
88.0% of our outstanding mortgages and notes payable are subject to fixed rates,
including the debt whose rate is fixed through a derivative instrument, while
approximately 12% of our outstanding mortgages payable are subject to floating
rates. The total weighted average interest rate on our debt and Line of Credit
as of June 30, 2008 was approximately 5.98%. If the interest rate for our Line
of Credit and other variable rate debt was 100 basis points higher or lower
during the three months ended June 30, 2008, our interest expense would have
been increased or decreased by approximately $229. If the interest rate
for our Line of Credit and other variable rate debt was 100 basis points higher
or lower during the six months ended June 30, 3008, our interest expense would
have been increased or decreased by approximately $507.
Changes
in market interest rates on our fixed-rate debt impact the fair value of the
debt, but it has no impact on interest incurred for cash flow. If interest rates
raise 100 basis points and our fixed rate debt balance remains constant, we
expect the fair value of our debt to decrease. The sensitivity analysis related
to our fixed-rate debt assumes an immediate 100 basis point move in interest
rates from their June 30, 2008 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 outstanding at June 30, 2008 approximating $628,326, and
a 100 basis point decrease in market interest rates would result in the fair
value of our fixed-rate debt outstanding at June 30, 2008 approximating
$718,418.
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 June 30, 2008, 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
|
|
|
$ |
9,960 |
|
|
$ |
42,818 |
|
|
$ |
24,412 |
|
|
$ |
6,519 |
|
|
$ |
6,937 |
|
|
$ |
488,980 |
|
|
$ |
579,626 |
|
Average
Interest Rate
|
|
|
|
6.25 |
% |
|
|
6.19 |
% |
|
|
6.09 |
% |
|
|
6.09 |
% |
|
|
6.09 |
% |
|
|
6.09 |
% |
|
|
6.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
Rate Debt
|
|
|
$ |
539 |
|
|
$ |
37,121 |
|
|
$ |
31,173 |
|
|
$ |
17,879 |
|
|
$ |
4,911 |
|
|
$ |
2,265 |
|
|
$ |
93,888 |
|
Average
Interest Rate
|
|
|
|
4.70 |
% |
|
|
4.47 |
% |
|
|
4.54 |
% |
|
|
4.72 |
% |
|
|
5.21 |
% |
|
|
5.21 |
% |
|
|
4.81 |
% |
|
subtotal
|
|
$ |
10,499 |
|
|
$ |
79,939 |
|
|
$ |
55,585 |
|
|
$ |
24,398 |
|
|
$ |
11,848 |
|
|
$ |
491,245 |
|
|
$ |
673,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
47,600 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
47,600 |
|
Average
Interest Rate
|
|
|
|
4.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.57 |
% |
|
TOTAL
|
|
$ |
58,099 |
|
|
$ |
79,939 |
|
|
$ |
55,585 |
|
|
$ |
24,398 |
|
|
$ |
11,848 |
|
|
$ |
491,245 |
|
|
$ |
721,114 |
|
(1) Our
Credit Facility has a term that expires in December 2008.
The
table incorporates only those exposures that existed as of June 30, 2008 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. Fixed rate debt of $7,637 matures in the fourth quarter of
2008. In addition, our credit facility also expires in the fourth
quarter of 2008. We intend to refinance each of these debt
instruments upon maturity or expiration.
Item 4. Controls and Procedures.
Based on
the most recent evaluation, the Company’s Chief Executive Officer and Chief
Financial Officer believe the Company’s disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of June
30, 2008. There were no changes to the Company’s internal controls over
financial reporting during the six months ended June 30, 2008, that materially
affected, or are reasonably likely to materially affect, the Company’s internal
controls over financial reporting.
PART
II.OTHER INFORMATION
Item 1. Legal Proceedings.
None.
None.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security
Holders.
(a) The
annual meeting of the shareholders (the “Annual Meeting”) of the Company was
held on Thursday, May 22, 2008.
(b) The
following Class II Trustees continued their respective terms as a trustee after
the annual meeting:
(c)
|
At
the Annual Meeting, the shareholders of the Company voted as
follows:
|
1) The
election of the following Class I trustees to serve until the annual meeting of
shareholders in 2010:
TRUSTEE
|
|
FOR
|
|
AGAINST
|
|
WITHHOLD
|
|
BROKER
NON-VOTES
|
Donald
J. Landry
|
|
36,194,261
|
|
N/A
|
|
1,826,833
|
|
N/A
|
Thomas
S. Capello
|
|
36,217,526
|
|
N/A
|
|
1,803,568
|
|
N/A
|
Jay
H. Shah
|
|
33,461,694
|
|
N/A
|
|
4,559,401
|
|
N/A
|
2) The
approval of the Hersha 2008 Equity Incentive Plan:
FOR
|
|
AGAINST
|
|
ABSTAIN
|
|
BROKER
NON-VOTES
|
27,519,090
|
|
2,463,483
|
|
1,093,114
|
|
6,945,407
|
3) The
ratification of the appointment of KPMG LLP to serve as independent auditors of
the Company for 2008:
FOR
|
|
AGAINST
|
|
ABSTAIN
|
|
BROKER
NON-VOTES
|
36,300,178
|
|
660,584
|
|
1,060,331
|
|
N/A
|
Item 5. Other Information.
None.
(a) Exhibits
Required by Item 601 of Regulation S-K.
|
Hersha
Hospitality Trust 2008 Equity Incentive Plan (filed as Appendix B to the
Company’s Definitive Proxy Statement on Schedule 14A, filed on
April 18, 2008 (SEC File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
Form
of Stock Award Agreement under the Hersha Hospitality Trust 2008 Equity
Incentive Plan (filed as Exhibit 10.2 to the Company’s Current
Report on Form 8-K, filed on May 29, 2008 (SEC File No. 001-14765) and
incorporated by reference herein).
|
|
|
|
Contribution
Agreement, dated as of June 13, 2008, by and among Shree Associates, Kunj
Associates, Devi Associates, Shanti III Associates, 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
Company’s Current Report on Form 8-K, filed on June 19, 2008
(SEC File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
Contribution
Agreement, dated as of June 26, 2008, by and among Akshar Limited
Liability Company and Hersha Hospitality Limited Partnership (filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K ,
filed on July 2, 2008 (SEC File No. 001-14765) and incorporated by
reference herein).
|
|
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
HERSHA
HOSPITALITY TRUST
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
August
7, 2008
|
/s/
Ashish R. Parikh
|
|
Ashish
R. Parikh
|
|
Chief
Financial Officer
|