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, 2006
OR
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
transition period from ____ to ____
COMMISSION
FILE NUMBER: 001-14765
HERSHA
HOSPITALITY TRUST
(Exact
Name of Registrant as Specified in Its Charter)
|
Maryland
|
|
251811499
|
|
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
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(I.R.S.
Employer Identification No.)
|
|
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148
Sheraton Drive, Box A
|
|
|
|
|
New
Cumberland, Pennsylvania
|
|
17070
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(Address
of Registrant’s Principal Executive Offices)
|
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(Zip
Code)
|
|
Registrant’s
telephone number, including area code: (717)
770-2405
Indicate
by check mark whether the registrant (i) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (ii) has been subject to such filing requirements
for
the past 90 days.
x Yes o No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o
|
Accelerated
filer x
|
Non-accelerated
filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
o Yes
x No
As
of
June 30, 2006, the number of Class A common shares of beneficial interest
outstanding was 27,967,214.
Table
of Contents for Form 10-Q Report
Item
No.
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Page
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PART
I.
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2
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Item
1.
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2
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2
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4
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6
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8
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Item
2.
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36
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Item
3.
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46
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Item
4.
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48
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PART
II.
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49
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Item
1.
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49
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Item
1A.
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50
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Item
2.
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49
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Item
3.
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49
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Item
4.
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49
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Item
5.
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49
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Item
6.
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49
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PART
I. FINANCIAL INFORMATION
Item
1. Financial
Statements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS AS OF
JUNE
30, 2006 [UNAUDITED] AND DECEMBER 31, 2005
[IN
THOUSANDS, EXCEPT SHARE AMOUNTS]
|
|
(UNAUDITED)
|
|
|
|
|
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June
30,
2006
|
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December
31, 2005
|
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Assets:
|
|
|
|
|
|
Investment
in Hotel Properties, net of Accumulated Depreciation
|
|
$
|
488,195
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$
|
317,980
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Investment
in Joint Ventures
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55,370
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55,981
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Development
Loan Receivables from Related Parties
|
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32,016
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32,450
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Cash
and Cash Equivalents
|
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4,846
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8,780
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Escrow
Deposits
|
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10,345
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7,329
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Hotel
Accounts Receivable
|
|
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5,512
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|
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2,211
|
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Deferred
Costs, net of Accumulated Amortization of $1,169 and
$1,437
|
|
|
5,256
|
|
|
4,131
|
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Due
from Related Parties
|
|
|
3,785
|
|
|
2,799
|
|
Intangible
Assets, net of Accumulated Amortization of $536 and $478
|
|
|
5,415
|
|
|
4,681
|
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Other
Assets
|
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20,273
|
|
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15,606
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Hotel
Assets Held for Sale
|
|
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17,140
|
|
|
3,407
|
|
|
|
|
|
|
|
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Total
Assets
|
|
$
|
648,153
|
|
$
|
455,355
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity:
|
|
|
|
|
|
|
|
Line
of Credit
|
|
$
|
32,034
|
|
$
|
-
|
|
Mortgages
and Notes Payable
|
|
|
343,109
|
|
|
256,146
|
|
Capital
Lease Payable
|
|
|
739
|
|
|
-
|
|
Accounts
Payable and Accrued Expenses
|
|
|
10,559
|
|
|
6,969
|
|
Advance
Deposits
|
|
|
389
|
|
|
130
|
|
Dividends
and Distributions Payable
|
|
|
6,623
|
|
|
5,151
|
|
Due
to Related Parties
|
|
|
4,881
|
|
|
4,655
|
|
Liabilities
Related to Hotel Assets Held for Sale
|
|
|
10,289
|
|
|
375
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
$
|
408,623
|
|
|
273,426
|
|
The
Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS AS OF
JUNE
30, 2006 [UNAUDITED] AND DECEMBER 31, 2005
[IN
THOUSANDS, EXCEPT SHARE AMOUNTS]
|
|
(UNAUDITED)
|
|
|
|
|
|
June
30, 2006
|
|
December
31, 2005
|
|
Minority
Interests:
|
|
|
|
|
|
Common
Units
|
|
$
|
26,379
|
|
$
|
15,147
|
|
Interest
in Consolidated Joint Ventures
|
|
|
2,955
|
|
|
2,079
|
|
|
|
|
|
|
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Total
Minority Interests
|
|
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29,334
|
|
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17,226
|
|
|
|
|
|
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Shareholder's
Equity:
|
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Preferred
Shares - 8% Series A, $.01 Par Value, 10,000,000 Shares Authorized,
2,400,000 Shares Issued and Outstanding at June 30, 2006 and December
31,
2005 (Aggregate Liquidation Preference $60,000 at June 30, 2006
and
December 31, 2005, Respectively)
|
|
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24
|
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24
|
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Common
Shares - Class A, $.01 Par Value, 50,000,000 Shares Authorized,
27,824,464
and 20,302,752 Shares Issued and Outstanding at June 30, 2006 and
December
31, 2005, Respectively
|
|
|
278
|
|
|
203
|
|
|
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Common
Shares - Class B, $.01 Par Value, 50,000,000 Shares Authorized,
None
Issued and Outstanding
|
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-
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-
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Accumulated
Other Comprehensive Income
|
|
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478
|
|
|
327
|
|
Additional
Paid-in Capital
|
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250,047
|
|
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193,228
|
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Distributions
in Excess of Net Income
|
|
|
(40,631
|
)
|
|
(29,079
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)
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|
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|
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Total
Shareholder's Equity
|
|
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210,196
|
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164,703
|
|
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Total
Liabilities and Shareholders’ Equity
|
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$
|
648,153
|
|
$
|
455,355
|
|
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, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
|
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Three
Months Ended
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Six
Months Ended
|
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June
30, 2006
|
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June
30, 2005
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June
30, 2006
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June
30, 2005
|
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Revenue:
|
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Hotel
Operating Revenues
|
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$
|
38,183
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$
|
19,122
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$
|
62,084
|
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$
|
30,126
|
|
|
|
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|
|
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|
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|
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Expenses:
|
|
|
|
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|
|
|
|
|
|
|
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Hotel
Operating Expenses
|
|
|
21,392
|
|
|
10,857
|
|
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37,350
|
|
|
18,952
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|
Land
Lease
|
|
|
216
|
|
|
109
|
|
|
378
|
|
|
217
|
|
Real
Estate and Personal Property Taxes and Property Insurance
|
|
|
1,460
|
|
|
837
|
|
|
2,947
|
|
|
1,611
|
|
General
and Administrative
|
|
|
1,812
|
|
|
1,135
|
|
|
2,976
|
|
|
2,113
|
|
Depreciation
and Amortization
|
|
|
4,609
|
|
|
2,096
|
|
|
8,405
|
|
|
3,751
|
|
Total
Operating Expenses
|
|
|
29,489
|
|
|
15,034
|
|
|
52,056
|
|
|
26,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating
Income
|
|
|
8,694
|
|
|
4,088
|
|
|
10,028
|
|
|
3,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
322
|
|
|
64
|
|
|
480
|
|
|
101
|
|
Interest
Income - Secured Loans Related Party
|
|
|
295
|
|
|
911
|
|
|
723
|
|
|
1,911
|
|
Other
Revenue
|
|
|
230
|
|
|
159
|
|
|
424
|
|
|
203
|
|
Interest
Expense
|
|
|
5,923
|
|
|
2,633
|
|
|
11,541
|
|
|
4,259
|
|
Debt
Extinguishment
|
|
|
908
|
|
|
-
|
|
|
1,163
|
|
|
-
|
|
Income
(loss) before income (loss) from Unconsolidated Joint Venture Investments,
Minority Interests and Discontinued Operations
|
|
|
2,710
|
|
|
2,589
|
|
|
(1,049
|
)
|
|
1,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from Unconsolidated Joint Venture
Investments
|
|
|
769
|
|
|
279
|
|
|
(341
|
)
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) before Minority Interests and Discontinued
Operations
|
|
|
3,479
|
|
|
2,868
|
|
|
(1,390
|
)
|
|
1,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) allocated to Minority Interests in Continuing
Operations
|
|
|
690
|
|
|
399
|
|
|
(325
|
)
|
|
157
|
|
Income
(Loss) from Continuing Operations
|
|
|
2,789
|
|
|
2,469
|
|
|
(1,065
|
)
|
|
1,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations (Note 12):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on Disposition of Hotel Properties
|
|
|
434
|
|
|
1,161
|
|
|
434
|
|
|
1,161
|
|
Income
(Loss) from Discontinued Operations
|
|
|
153
|
|
|
125
|
|
|
123
|
|
|
9
|
|
Income
from Discontinued Operations
|
|
|
587
|
|
|
1,286
|
|
|
557
|
|
|
1,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
|
3,376
|
|
|
3,755
|
|
|
(508
|
)
|
|
2,779
|
|
Preferred
Distributions
|
|
|
1,200
|
|
|
-
|
|
|
2,400
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) applicable to Common Shareholders
|
|
$
|
2,176
|
|
$
|
3,755
|
|
$
|
(2,908
|
)
|
$
|
2,779
|
|
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, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
June
30, 2006
|
|
June
30, 2005
|
|
Earnings
Per Share:
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations applicable to common
shareholders
|
|
$
|
0.06
|
|
$
|
0.12
|
|
$
|
(0.15
|
)
|
$
|
0.08
|
|
Income
from Discontinued Operations
|
|
$
|
0.03
|
|
$
|
0.07
|
|
$
|
0.02
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) applicable to common shareholders
|
|
$
|
0.09
|
|
$
|
0.19
|
|
$
|
(0.13
|
)
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations applicable to common
shareholders
|
|
$
|
0.06
|
|
$
|
0.12
|
|
$
|
(0.15
|
)
*
|
$
|
0.08
|
|
Income
from Discontinued Operations
|
|
$
|
0.03
|
|
$
|
0.06
|
|
$
|
0.02
|
* |
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) applicable to common shareholders
|
|
$
|
0.09
|
|
$
|
0.18
|
|
$
|
(0.13
|
)
*
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,469,708
|
|
|
20,293,169
|
|
|
22,903,225
|
|
|
20,292,167
|
|
Diluted
|
|
|
29,056,539
|
|
|
23,159,013
|
|
|
22,903,225
|
* |
|
23,146,372
|
|
*
|
Partnership
units and stock awards have been omitted from the denominator for
the
purpose of computing diluted earnings per share for the six months
ended
June 30, 2006 since the effect of including these amounts in the
denominator would be anti
-dilutive.
|
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, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
|
|
June
30, 2006
|
|
June
30, 2005
|
|
Operating
activities:
|
|
|
|
|
|
Net
(Loss) Income
|
|
$
|
(508
|
)
|
$
|
2,779
|
|
Adjustments
to reconcile net (loss) income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Gain
on disposition of hotel assets held for sale
|
|
|
(497
|
)
|
|
(1,323
|
)
|
Depreciation
|
|
|
8,591
|
|
|
4,370
|
|
Amortization
|
|
|
563
|
|
|
184
|
|
Debt
Extinguishment
|
|
|
1,163
|
|
|
-
|
|
(Loss)
income allocated to minority interests
|
|
|
(238
|
)
|
|
320
|
|
Equity
in loss (income) of unconsolidated joint ventures
|
|
|
341
|
|
|
(328
|
)
|
Distributions
from unconsolidated joint ventures
|
|
|
1,135
|
|
|
-
|
|
Gain
recognized on change in fair value of derivative
instrument
|
|
|
(65
|
)
|
|
(7
|
)
|
Stock
based compensation expense
|
|
|
103
|
|
|
-
|
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
Hotel
accounts receivable
|
|
|
(3,217
|
)
|
|
(1,971
|
)
|
Escrow
deposits
|
|
|
(1,326
|
)
|
|
(3,190
|
)
|
Other
assets
|
|
|
870
|
|
|
(2,019
|
)
|
Due
from related party
|
|
|
(986
|
)
|
|
(455
|
)
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
Advance
deposits
|
|
|
259
|
|
|
164
|
|
Due
to related party
|
|
|
178
|
|
|
688
|
|
Accounts
payable and accrued expenses
|
|
|
3,695
|
|
|
6,290
|
|
Net
cash provided by operating activities
|
|
|
10,061
|
|
|
5,502
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
Purchase
of hotel property assets
|
|
|
(144,816
|
)
|
|
(135,448
|
)
|
Capital
expenditures
|
|
|
(5,124
|
)
|
|
(1,222
|
)
|
Proceeds
from disposition of hotel assets held for sale
|
|
|
3,665
|
|
|
5,570
|
|
Deposits
on hotel acquisitions
|
|
|
(15,207
|
)
|
|
(6,700
|
)
|
Purchase
of franchise fees
|
|
|
(48
|
)
|
|
(347
|
)
|
Investment
in common stock of Trust entities
|
|
|
-
|
|
|
(1,548
|
)
|
Investments
in notes receivable
|
|
|
-
|
|
|
(442
|
)
|
Repayment
of notes receivable
|
|
|
1,843
|
|
|
-
|
|
Investment
in development loans to related parties
|
|
|
(33,116
|
)
|
|
(17,032
|
)
|
Repayment
of development loans to related parties
|
|
|
33,550
|
|
|
-
|
|
Distributions
from unconsolidated joint venture
|
|
|
3,153
|
|
|
392
|
|
Investments
in and advances to unconsolidated joint ventures
|
|
|
(4,018
|
)
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(160,118
|
)
|
|
(156,777
|
)
|
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, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
|
|
June
30, 2006
|
|
June
30, 2005
|
|
Financing
activities:
|
|
|
|
|
|
Proceeds
from borrowings under line of credit
|
|
|
115,702
|
|
|
97,825
|
|
Repayment
of borrowings under line of credit
|
|
|
(83,668
|
)
|
|
(96,907
|
)
|
Principal
repayment of mortgages and notes payable
|
|
|
(57,796
|
)
|
|
(1,881
|
)
|
Proceeds
from mortgages and notes payable
|
|
|
119,933
|
|
|
150,191
|
|
Proceeds
from settlement of interest rate derivative
|
|
|
79
|
|
|
-
|
|
Cash
paid for deferred financing costs
|
|
|
(455
|
)
|
|
(2,292
|
)
|
Proceeds
from issuance of common stock
|
|
|
63,766
|
|
|
-
|
|
Stock
issuance costs
|
|
|
(413
|
)
|
|
-
|
|
Distributions
to consolidated joint venture minority interest
|
|
|
(150
|
)
|
|
(73
|
)
|
Contributions
from consolidated joint venture minority interest
|
|
|
-
|
|
|
198
|
|
Dividends
paid on common shares
|
|
|
(7,336
|
)
|
|
(7,319
|
)
|
Dividends
paid on preferred shares
|
|
|
(2,400
|
)
|
|
-
|
|
Distributions
paid on common partnership units
|
|
|
(1,139
|
)
|
|
(1,023
|
)
|
Net
cash provided by financing activities
|
|
|
146,123
|
|
|
138,719
|
|
|
|
|
|
|
|
|
|
Net
decrease in Cash and Cash Equivalents
|
|
|
(3,934
|
)
|
|
(12,556
|
)
|
Cash
and Cash Equivalents - beginning of period
|
|
|
8,780
|
|
|
20,614
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - end of period
|
|
$
|
4,846
|
|
$
|
8,058
|
|
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, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hersha
Hospitality Trust (“we” or the “Company”) was formed in May 1998 as a
self-administered, Maryland real estate investment trust (“REIT”) for Federal
income tax purposes.
The
Company owns a controlling general partnership interest in Hersha Hospitality
Limited Partnership (the “Partnership”), which owns a 99% limited partnership
interest in various subsidiary partnerships. Hersha Hospitality, LLC (“HHLLC”),
a Virginia limited liability company, owns a 1% general partnership interest
in
the subsidiary partnerships and the Partnership is the sole member of
HHLLC.
The
Partnership formed a wholly owned taxable REIT subsidiary, 44 New England
Management Company (“44 New England” or “TRS Lessee”), to lease certain of the
Company’s hotels.
As
of
June 30, 2006, the Company, through the Partnership and subsidiary partnerships,
owned forty limited and full service hotels. All of the owned hotel facilities
are leased to the Company’s taxable REIT subsidiary (“TRS”), 44 New
England.
In
addition to the wholly owned hotel properties, as of June 30, 2006, the Company
owned joint venture interests in nineteen properties. The properties owned
by
the joint ventures are leased to a TRS owned by the joint venture or to an
entity owned by the joint venture partners and 44 New England. The following
table lists the properties owned by these joint ventures:
Joint
Venture
|
|
Ownership
|
|
Property
|
|
Location
|
|
Lessee
|
|
|
|
|
|
|
|
|
|
Unconsolidated
Joint Ventures
|
|
|
|
|
|
|
|
|
Inn
America Hospitality at Ewing, LLC
|
|
50.0%
|
|
Courtyard
|
|
Ewing/Princeton,
NJ
|
|
Hersha
Inn America TRS Inc.
|
HT
CNL Metro Hotels, LP
|
|
33.3%
|
|
Hampton
Inn
|
|
Chelsea/Manhattan,
NY
|
|
Hersha/CNL
TRS Inc
|
PRA
Glastonbury, LLC
|
|
40.0%
|
|
Hilton
Garden Inn
|
|
Glastonbury,
CT
|
|
Hersha
PRA TRS, Inc
|
PRA
Suites at Glastonbury, LLC
|
|
40.0%
|
|
Homewood
Suites
|
|
Glastonbury,
CT
|
|
Hersha
PRA LLC
|
Mystic
Partners, LLC
|
|
66.7%
|
|
Marriott
|
|
Mystic,
CT
|
|
Mystic
Partners Leaseco, LLC
|
|
|
8.8%
|
|
Hilton
|
|
Hartford,
CT
|
|
Mystic
Partners Leaseco, LLC
|
|
|
66.7%
|
|
Courtyard
|
|
Norwich,
CT
|
|
Mystic
Partners Leaseco, LLC
|
|
|
66.7%
|
|
Courtyard
|
|
Warwick,
RI
|
|
Mystic
Partners Leaseco, LLC
|
|
|
66.7%
|
|
Residence
Inn
|
|
Danbury,
CT
|
|
Mystic
Partners Leaseco, LLC
|
|
|
66.7%
|
|
Residence
Inn
|
|
Mystic,
CT
|
|
Mystic
Partners Leaseco, LLC
|
|
|
44.7%
|
|
Residence
Inn
|
|
Southington,
CT
|
|
Mystic
Partners Leaseco, LLC
|
|
|
66.7%
|
|
Springhill
Suites
|
|
Waterford,
CT
|
|
Mystic
Partners Leaseco, LLC
|
|
|
15.0%
|
|
Marriott
|
|
Hartford,
CT
|
|
Mystic
Partners Leaseco, LLC
|
Hiren
Boston, LLC
|
|
50.0%
|
|
Courtyard
|
|
South
Boston, MA
|
|
South
Bay Boston, LLC
|
SB
Partners, LLC
|
|
50.0%
|
|
Holiday
Inn Express
|
|
South
Boston, MA
|
|
South
Bay Sandeep, LLC
|
|
|
|
|
|
|
|
|
|
Consolidated
Joint Ventures
|
|
|
|
|
|
|
|
|
Logan
Hospitality Associates, LLC
|
|
55.0%
|
|
Four
Points - Sheraton
|
|
Revere/Boston,
MA
|
|
Revere
Hotel Group, LLC
|
LTD
Associates One, LLC
|
|
75.0%
|
|
Springhill
Suites
|
|
Williamsburg,
VA
|
|
HT
LTD Williamsburg One LLC
|
LTD
Associates Two, LLC
|
|
75.0%
|
|
Residence
Inn
|
|
Williamsburg,
VA
|
|
HT
LTD Williamsburg Two LLC
|
Affordable
Hospitality Associates, LP
|
|
80.0%
|
|
Hampton
Inn
|
|
Philadelphia,
PA
|
|
Philly
One TRS, LLC
|
Hersha
Inn America TRS Inc; Hersha/CNL TRS Inc.; Hersha PRA TRS, Inc; South Bay
Sandeep, LLC; and Revere Hotel Group, LLC, are each a TRS wholly-owned by
their
respective joint ventures. Mystic Partners, LLC owns an interest in nine
hotel
properties. Our interest in Mystic Partners, LLC is relative to our interest
in
each of the nine properties owned by the joint venture as defined in the
joint
venture’s governing documents. Each of the nine properties owned by Mystic
Partners, LLC is leased to a separate entity that is consolidated in Mystic
Partners Leaseco, LLC which is owned by 44 New England and our joint venture
partner in Mystic Partners, LLC. Hersha PRA LLC, South Bay Boston, LLC; HT
LTD
Williamsburg LLC; HT LTD Williamsburg Two LTD LLC, Philly One TRS, LLC, lease
properties from each respective joint venture and are owned by 44 New England
and our joint venture partner in each venture.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
1
- ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
44
New
England and the joint venture TRS lessees lease the hotel properties pursuant
to
separate percentage lease agreements (the “Percentage Leases”) that provide for
percentage rents based on the revenues of the hotels. Hersha Hospitality
Management, LP (“HHMLP”) serves as the manager for all of the wholly owned
assets and joint venture assets, except for the properties owned by Mystic
Partners, LLC; Hiren Boston, LLC; SB Partners, LLC; LTD Associates One, LLC;
and
LTD Associates Two, LLC. These properties are managed by parties related
to our
partners in those joint ventures. HHMLP is owned in part by four of the
Company’s executive officers, two of its trustees and other third party
investors.
Principles
of Consolidation and Presentation
The
accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and include all of our accounts
as
well as accounts of the Partnership, subsidiary partnerships and our wholly
owned TRS Lessee. All significant inter-company amounts have been eliminated.
Certain information and footnote disclosures included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or consolidated pursuant to
the
rules and regulations of the Securities and Exchange Commission. The unaudited
interim consolidated financial statements should be read in conjunction with
the
audited financial statements and the notes thereto included in the Company’s
annual report on Form 10-K for the year ended December 31, 2005. In management’s
opinion, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the consolidated financial position of the Company
and the consolidated results of its operations and its cash flows, are included.
The results of operations for such interim periods are not necessarily
indicative of the results for the full year.
Consolidated
properties are either wholly owned or owned less than 100% by the Partnership
and are controlled by the Company as general partner of the Partnership.
Properties owned in joint ventures are also consolidated if the determination
is
made that we are the primary beneficiary in a variable interest entity or
we
maintain control of the asset through our voting interest in the entity.
Control
could also be demonstrated by the ability of the general partner to manage
day-to-day operations, refinance debt and sell the assets of the partnerships
without the consent of the limited partners and the inability of the limited
partners to replace the general partner.
We
follow
the provisions of Financial Accounting Standards Board FASB Interpretation
No.
46, “Consolidation of Variable Interest Entities (VIE’s), an interpretation of
Accounting Research Bulletin No. 51 (ARB No. 51),” as revised.(“FIN 46R”). FIN
46R addresses how a business enterprise should evaluate whether it has a
controlling financial interest in any variable interest entity (“VIE”) through
means other than voting rights, and accordingly, should include the VIE in
its
consolidated financial statements.
In
July
of 2005, the Emerging Issues Task Force (EITF) agreed on a framework for
evaluating whether a general partner or a group of general partners controls
a
limited partnership and therefore should consolidate it. EITF Issue 04-5,
“Investor’s Accounting for an Investment in a Limited Partnership When the
Investor Is the Sole General Partner and the Limited Partners Have Certain
Rights” (EITF 04-5), amends the guidance in AICPA Statement of Position No.
78-9, “Accounting for Investments in Real Estate Ventures” (SOP 78-9) and states
that the presumption of general-partner control would be overcome only when
the
limited partners have either of two types of rights. The first type—referred to
as “kick-out rights”—is the right to dissolve or liquidate the partnership or
otherwise remove the general partner “without cause.” The second type—referred
to as “participating rights”—is the right to effectively participate in
significant decisions made in the ordinary course of the partnership’s business.
The kick-out rights and the participating rights must be substantive in order
to
overcome the presumption of general-partner control. EITF 04-5’s guidance is
effective immediately for all newly formed limited partnerships and for existing
limited partnership agreements that are modified. The guidance will be effective
for existing limited-partnership agreements no later than the beginning of
the
first reporting period in fiscal years beginning after December 15, 2005.
As of
January 1, 2006, the Company has adopted EITF 04-5 for all partnerships.
The
adoption of EITF 04-5 did not have a material effect on its consolidated
financial statements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
Our
investments and contractual relationships with the following entities have
been
evaluated to determine whether they meet the guidelines of consolidation
in
accordance with FIN 46: HHMLP; Logan Hospitality Associates, LLC; HT CNL
Metro
Hotels, LP; PRA Glastonbury, LLC; PRA Suites at Glastonbury, LLC; Hersha
PRA
LLC; Inn America Hospitality at Ewing, LLC; Mystic Partners, LLC; Mystic
Partners Leaseco, LLC; Hiren Boston, LLC; South Bay Boston, LLC, SB Partners,
LLC; LTD Associates One, LLC; HT LTD Williamsburg LLC; LTD Associates Two,
LLC;
HT LTD Williamsburg Two LLC; Hersha Statutory Trust I; Hersha Statutory Trust
II; Affordable Hospitality Associates, LP; Philly One TRS, LLC; and Risingsam
Hospitality, LLC, Risingsam Union Square, LLC, and Brisam Management, LLC.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
1
- ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Our
examination consisted of reviewing the sufficiency of equity at risk,
controlling financial interests, voting rights, and the obligation to absorb
expected losses and expected gains, including residual returns. Based on
our
examination, each of the following entities were determined to be VIE’s: Mystic
Partners, LLC; Mystic Partners Leaseco, LLC; Hersha PRA LLC; South Bay Boston,
LLC; HT LTD Williamsburg LLC; HT LTD Williamsburg Two LTD LLC; Philly One
TRS,
LLC; Hersha Statutory Trust I; and Hersha Statutory Trust II. Mystic Partners,
LLC is a VIE entity, however because we are not the primary beneficiary it
is
not consolidated by the Company. Also, Mystic Partners Leaseco, LLC; Hersha
PRA
LLC; South Bay Boston, LLC; HT LTD Williamsburg LLC; HT LTD Williamsburg
Two LTD
LLC; and Philly One TRS, LLC lease hotel properties from our joint venture
interests and are variable interest entities. These entities are consolidated
by
the lessors, the primary beneficiaries of each entity. Hersha Statutory Trust
I
and Hersha Statutory Trust II are VIEs but HHLP is not the primary beneficiary
in these entities. The accounts of Hersha Statutory Trust I and Hersha Statutory
Trust II are not consolidated with and into HHLP.
We
have
consolidated the operations of the Logan Hospitality Associates, LLC; LTD
Associates One, LLC; LTD Associates Two, LLC; and Affordable Hospitality
Associates, LP joint ventures because each entity is a voting interest entity
and the Company owns a majority voting interest in the venture.
Our
investments in HT/CNL Metro Hotels, LP; PRA Glastonbury, LLC; PRA Suites
at
Glastonbury, LLC; Inn America Hospitality at Ewing, LLC; Hiren Boston, LLC;
and
SB Partners, LLC represent non-controlling ownership interests in the ventures.
All of these entities are voting interest entities. These investments are
accounted for using the equity method of accounting. These investments are
recorded initially at cost and subsequently adjusted for our share of equity
in
income (loss), which is allocated in accordance with the provisions of the
applicable partnership or joint venture agreements, and subsequent contributions
or distributions in these entities.
We
hold
an investment in development loan receivables with Risingsam Union Square,
LLC,
Risingsam Hospitality, LLC, and Brisam Management, LLC. We have determined
that
each borrower has sufficient equity at risk, a controlling financial interest
and an obligation to absorb expected losses and expected gains, including
residual returns of the entity. These entities are voting interest entities
and
because we have no voting interest they are not consolidated.
We
will
continue to evaluate each of our investments and contractual relationships
to
determine if consolidation is required based upon the provisions of FIN
46.
Use
of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States (GAAP) requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenue and expenses
during
the reporting period. Actual results could differ from those
estimates.
Investment
in Hotel Properties
Investment
in hotel properties is stated at cost. Depreciation for financial reporting
purposes is principally based upon the straight-line method.
The
estimated lives used to depreciate the hotel properties are as
follows:
Building
and Improvements
|
15
to 40 Years
|
|
|
Furniture,
Fixtures and Equipment
|
5
to 7 Years
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
1
- ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue
Recognition
We
directly recognize revenue and expense for all consolidated hotels as “Hotel
Operating Revenue” and “Hotel Operating Expense” when earned and incurred.
Included in hotel operating revenues is primarily room revenues and revenue
from
other hotel operating departments. These revenues are recorded net of any
sales
or occupancy taxes collected from our guests. All revenues are recorded on
an
accrual basis, as earned. We participate in frequent guest programs sponsored
by
the brand owners of our hotels and we expense the charges associated with
those
programs, as incurred.
Stock
Compensation
We
apply
Statement of Financial Accounting Standards No. 123R, “Share-Based Payments”
(SFAS 123R) where by we measure the cost of employee service received in
exchange for an award of equity instruments based on the grant-date fair
value
of the award. The cost is recognized over the period during which an employee
is
required to provide service in exchange for the award.
Minority
Interest
Minority
Interest in the Partnership represents the limited partner’s proportionate share
of the equity of the Partnership. Income (Loss) is allocated to minority
interest in accordance with the weighted average percentage ownership of
the
Partnership during the period. At the end of each reporting period the
appropriate adjustments to the income (loss) are made based upon the weighted
average percentage ownership of the Partnership during the period. Our ownership
interest in the Partnership as of June 30, 2006 and 2005 was 88.9% and 87.7%,
respectively.
We
also
maintain minority interests for the equity interest owned by third parties
in
Logan Hospitality Associates, LLC; LTD Associates One, LLC; LTD Associates
Two,
LLC; and Affordable Hospitality, LP. Third parties own a 45% interest in
Logan
Hospitality Associates, LLC; a 25% interest in each of LTD Associates One
LLC
and LTD Associates Two, LLC; and a 20% interest in Affordable Hospitality
Associates, LP. We allocate the income (loss) of these joint ventures to
the
minority interest in consolidated joint venture account based upon the ownership
of the entities, preferences in distributions of cash available and the terms
of
each ventures liquidation.
Shareholder’s
Equity
On
August
5, 2005, we completed a public offering of 2,400,000 of 8.00% Series A
Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation
preference $25.00 per share. Net proceeds of the offering, less expenses
and
underwriters commissions, were approximately $57,750. Proceeds from the offering
were used to finance the acquisition of the Company’s interests in Mystic
Partners, LLC and SB Partners, LLC. The remaining net proceeds have been
principally allocated to fund secured development loans and for general
corporate purposes.
On
April
28, 2006, we completed a public offering of 6,520,000 common shares at $9.00
per
share. On May 9, 2006, the underwriter exercised its over-allotment option
with
respect to that offering, and we issued an additional 977,500 common shares
at
$9.00 per share. Proceeds to us, net of underwriting discounts and commissions
and expenses, were approximately $63,400. Immediately upon closing the offering,
we contributed all of the net proceeds of the offering to the Partnership
in
exchange for additional Partnership interests. Of the net offering proceeds,
approximately $30,000 was used to repay indebtedness and approximately $19,500
was used to fund property acquisitions.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
1
- ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment
of Long-Lived Assets
We
review
the carrying value of each hotel property in accordance with SFAS No. 144
to
determine if circumstances exist indicating an impairment in the carrying
value
of the investment in the hotel property. Long-lived assets are reviewed for
impairment whenever events or changes in business circumstances indicate
that
the carrying amount of the assets may not be fully recoverable. We perform
undiscounted cash flow analyses to determine if impairment exists. If impairment
is determined to exist, any related impairment loss is calculated based on
fair
value. Hotel properties held for sale are presented at the lower of carrying
amount or fair value less cost to sell.
Income
Taxes
The
Company qualifies as a REIT under applicable provisions of the Internal Revenue
Code, as amended, and intends to continue to qualify as a REIT. In general,
under such provisions, a trust which has made the required election and,
in the
taxable year, meets certain requirements and distributes to its shareholders
at
least 90% of its REIT taxable income will not be subject to Federal income
tax
to the extent of the income which it distributes. Earnings and profits, which
determine the taxability of dividends to shareholders, differ from net income
reported for financial reporting purposes due primarily to differences in
depreciation of hotel properties for Federal income tax purposes.
Deferred
income taxes relate primarily to the TRS Lessee and are accounted for using
the
asset and liability method. Under this method, deferred income taxes are
recognized for temporary differences between the financial reporting bases
of
assets and liabilities of the TRS Lessee and their respective tax bases and
for
their operating loss and tax credit carry forwards based on enacted tax rates
expected to be in effect when such amounts are realized or settled. However,
deferred tax assets are recognized only to the extent that it is more likely
than not that they will be realized based on consideration of available
evidence, including tax planning strategies and other factors.
Under
the
REIT Modernization Act (“RMA”), which became effective January 1, 2001, the
Company is permitted to lease hotels to a wholly owned taxable REIT subsidiary
(“TRS”) and may continue to qualify as a REIT provided the TRS enters into
management agreements with an “eligible independent contractor” who will manage
the hotels leased by the TRS. The Company formed the TRS Lessee in 2003.
The TRS
Lessee currently leases 40 properties from the Partnership. The TRS Lessee
is
subject to taxation as a C-Corporation. The TRS Lessee had operating income
for
financial reporting purposes for the period ended June 30, 2006, however
no
income taxes are recorded in the Consolidated Statement of Operations because
net operating loss carryforwards are sufficient to offset tax liabilities
incurred as a result of this operating income.
Although
the TRS Lessee is expected to operate at a profit for Federal income tax
purposes in future periods, the value of the deferred tax asset is not able
to
be quantified with certainty. Therefore, no deferred tax assets have been
recorded as we have not concluded that it is more likely than not that these
deferred tax assets will be realizable.
Reclassification
Certain
amounts in the prior year financial statements have been reclassified to
conform
to the current year presentation.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
2 - INVESTMENT IN HOTEL PROPERTIES
Investment
in Hotel Properties consist of the following at June 30, 2006 and December
31,
2005:
|
|
June
30, 2006
|
|
December
31, 2005
|
|
|
|
|
|
|
|
Land
|
|
$
|
79,990
|
|
$
|
32,430
|
|
Buildings
and Improvements
|
|
|
395,356
|
|
|
283,791
|
|
Furniture,
Fixtures and Equipment
|
|
|
61,111
|
|
|
43,528
|
|
Construction
in Progress
|
|
|
1,553
|
|
|
-
|
|
|
|
|
538,010
|
|
|
359,749
|
|
|
|
|
|
|
|
|
|
Less
Accumulated Depreciation
|
|
|
(49,815
|
)
|
|
(41,769
|
)
|
|
|
|
|
|
|
|
|
Total
Investment in Hotel Properties
|
|
$
|
488,195
|
|
$
|
317,980
|
|
2006
Transactions
The
following acquisitions were made by HHLP, our operating
partnership.
New
Jersey and Pennsylvania Portfolio.
On
January 3, 2006, we acquired the 118-room Fairfield Inn & Suites in Mt.
Laurel, New Jersey, the 103-room Fairfield Inn & Suites in Bethlehem, New
Jersey, and the 118-room Langhorne Courtyard in Langhorne, Pennsylvania in
one
transaction, for a total purchase price of approximately $41,261 which included
$250 in deposits included in the balance sheet on December 31, 2005. The
total
purchase price is subject to a post closing adjustment on June 30, 2007,
which
may increase the purchase price by an amount of up to $2,500.
Courtyard,
Scranton, Pennsylvania.
On
February 1, 2006, we acquired the 120-room Courtyard in Scranton, Pennsylvania
for approximately $8,817 in cash.
Residence
Inn, Tyson’s Corner, Virginia.
On
February 2, 2006, we acquired the 96-room Residence Inn in Tyson’s Corner,
Virginia for approximately $20,130 which included the assumption of $9,596
in
debt.
Hampton
Inn, Philadelphia, Pennsylvania.
On
February 15, 2006, we acquired an 80% interest in Affordable Hospitality
Associates, LP, the owner of the land, improvements and certain personal
property of the 250-room Hampton Inn (Center City) in Philadelphia for
approximately $25,067 which included $3,000 in deposits included in the balance
sheet on December 31, 2005. Our ownership interest entitles us to a 9.0%
participating preferred return on our capital contribution.
Hilton
Garden Inn, JFK Airport, New York.
On
February 16, 2006, we acquired 100% of the outstanding ownership interests
in
Metro JFK Associates, LLC, the owner of a leasehold interest in the land,
improvements and certain personal property of the Hilton Garden Inn - JFK
Airport, located in Jamaica, New York, for approximately $29,165. The purchase
price includes the assumption of $13,000 in debt, $6,000 in newly issued
units
of our operating partnership, $5,000 in deposits that were on the balance
sheet
as of December 31, 2005, and cash.
KW
Portfolio.
On
April 25, 2006 we acquired the 100-room Hawthorn Inn & Suites in Franklin,
Massachusetts for $12,034. On May 1, 2006, we acquired the 96-room Residence
Inn
and the 84-room Comfort Inn for $14,811 and $4,838, respectively.
Holiday
Inn Express, Cambridge, Massachusetts.
On May
3, 2006, we acquired the 112-room Holiday Inn Express, Cambridge, Massachusetts
for approximately $12,227.
Land-
39th
and
8th
Avenue.
On June
28, 2006, we purchased land at 39th
and
8th
Avenue,
New York City, for $21,774 plus closing costs and leased the land to Metro
39th
Street
Associates, LLC, a related party.
In
addition, in June, the Company signed definitive agreements to purchase the
161-room Hampton Inn in Farmingville, New York and the seven story 133-room
Holiday Inn Express in Hauppauge, New York for a total of $39.5
million.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
2 - INVESTMENT IN HOTEL PROPERTIES (Continued)
The
purchase price, including transaction costs, and the allocation of purchase
price to land; building and improvements; furniture, fixtures and equipment;
and
franchise fees and loan costs is as follows:
Hotel
|
|
Location
|
|
Acquisition
Date
|
|
Land
|
|
Buildings
and Improvements
|
|
Furniture
Fixtures and Equipment
|
|
Franchise
Fees and Loan Costs
|
|
Leasehold
Intangible
|
|
Total
Purchase Price
|
|
Assumed
Debt
|
|
NJ
and PA Portfolio
|
|
|
|
|
|
1/3/2006
|
|
$
|
6,207
|
|
$
|
30,951
|
|
$
|
3,978
|
|
$
|
125
|
|
|
-
|
|
$
|
41,261
|
|
|
-
|
|
Courtyard
by Marriott
|
|
|
Scranton,
PA
|
|
|
2/1/2006
|
|
|
761
|
|
|
7,168
|
|
|
831
|
|
|
57
|
|
|
-
|
|
$
|
8,817
|
|
|
-
|
|
Residence
Inn
|
|
|
Tyson’s
Corner, VA
|
|
|
2/2/2006
|
|
|
11,233
|
|
|
7,306
|
|
|
1,390
|
|
|
201
|
|
|
-
|
|
$
|
20,130
|
|
|
9,596
|
|
Hilton
Garden Inn
|
|
|
JFK
Airport, NY
|
|
|
2/16/2006
|
|
|
N/A
|
|
|
25,001
|
|
|
3,621
|
|
|
317
|
|
|
226
|
|
$
|
29,165
|
|
|
13,000
|
|
KW
Portfolio
|
|
|
Massachusetts
|
|
|
4/25/2006,
5/1/2006
|
|
|
4,708
|
|
|
22,863
|
|
|
3,919
|
|
|
193
|
|
|
-
|
|
$
|
31,683
|
|
|
9,020
|
|
Holiday
Inn Express
|
|
|
Cambridge,
Massachusetts
|
|
|
5/3/2006
|
|
|
1,956
|
|
|
9,827
|
|
|
444
|
|
|
-
|
|
|
-
|
|
$
|
12,227
|
|
|
-
|
|
8th
Avenue
|
|
|
New
York
|
|
|
6/28/2006
|
|
|
21,774
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
$
|
21,774
|
|
|
-
|
|
Total
Wholly Owned Acquisitions
|
|
|
|
$
|
46,639
|
|
$
|
103,116
|
|
$
|
14,184
|
|
$
|
893
|
|
$
|
226
|
|
$
|
165,057
|
|
$
|
31,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hampton
Inn (Affordable Hospitality)
|
|
|
Philadelphia,
PA
|
|
|
2/15/2006
|
|
$
|
2,928
|
|
$
|
21,062
|
|
$
|
3,029
|
|
$
|
117
|
|
$
|
-
|
|
$
|
27,136
|
|
$
|
873
|
|
Total
Consolidated Joint Venture Acquisitions
|
$
|
2,928
|
|
$
|
21,062
|
|
$
|
3,029
|
|
$
|
117
|
|
$
|
-
|
|
$
|
27,136
|
|
$
|
873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
2006 Acquisitions
|
|
|
|
$
|
49,567
|
|
$
|
124,178
|
|
$
|
17,213
|
|
$
|
1,010
|
|
$
|
226
|
|
$
|
192,193
|
|
$
|
32,489
|
|
All
of
the newly acquired wholly owned hotels are leased to the TRS Lessee and managed
by HHMLP. The Hampton Inn, Philadelphia, Pennsylvania is leased to an entity
that is owned by the TRS Lessee and our joint venture partner.
Included
in the acquisition of the Hilton Garden Inn at the JFK Airport, New York,
was a
land lease for the underlying land with a remaining term of approximately
93
years. The remaining lease payments were determined to be below market value
and
as a result purchase price was allocated to an intangible asset with a value
of
$226. Included in the acquisition of the Courtyard by Marriott in Brookline,
Massachusettes in 2005, was a prepaid land lease for the underlying land
with a
remaining term of approximately 90 years. This prepaid land lease is classified
as an intangible asset with a value of $3,570. Both lease intangibles are
recorded in other assets on the consolidated balance sheet and are being
amortized over the remaining life of the leases.
The
interest rate on the fixed rate debt assumed in the acquisitions of the KW
Portfolio is 5.67% and was below the market rate of interest on the date
of the
acquisition. As a result, a discount of $354 was recorded and reduces the
principal balance recorded in mortgages and notes payable. The discount is
being
amortized over the remaining life of the debt and is recorded as interest
expense. Interest rates on debt assumed in the acquisition of Residence Inn,
Tyson’s Corner, Virginia and Hilton Garden Inn, JFK Airport, New York were at
market rates.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
2 - INVESTMENT IN HOTEL PROPERTIES (Continued)
Subsequent
to June 30, 2006, we closed on the acquisition of the following property
or
entered into a contract for the following transaction:
Residence
Inn, Norwood, Massachusetts. On
July
27, 2006, we purchased the newly constructed 96-room Residence Inn in Norwood,
Massachusetts for approximately $14,925. The purchase price includes the
assumption of $8,000 in debt, $3,940 in newly issued units of our operating
partnership, and $2,985 in cash.
Holiday
Inn Conference Center, New Cumberland, Pennsylvania.
We
terminated our lease with 44 New England for the Holiday Inn Conference Center
in New Cumberland, Pennyslvania. Effective July 1, 2006, we now lease the
hotel
to a third party, who has committed to purchase the property at the end of
the
five-year lease term.
Land
- 41st
Street, New York.
On July
28, 2006, we
purchased land at 440 West 41st
Street,
New York City, for $21,500 plus closing costs and leased the land to Metro
Forty
First Street, LLC, a related party.
The
following condensed pro forma financial is presented as if the acquisitions
of
the KW Portfolio; Holiday Inn Express, Cambridge; NY and PA Portfolio; Courtyard
by Marriott, Scranton, Pennsylvania; Residence Inn, Tyson’s Corner, Virginia;
Hampton Inn, Philadelphia, Pennsylvania; Fairfield Inn, Laurel, Maryland;
McIntosh Portfolio; Courtyard by Marriott, Brookline, Massachussettes;
Springhill Suites, Williamsburg, Virginia; and Residence Inn, Williamsburg,
Virginia had been consummated as of January 1, 2005. All of the other
acquisitions listed above were either purchased without any operating history
or
did not have a full year's operating history in 2005. 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 respective periods presented, nor does it purport to
represent the results of operations for future periods.
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
June
30, 2006
|
|
June
30, 2005
|
|
Pro
Forma Total Revenues
|
|
$
|
39,215
|
|
$
|
34,903
|
|
$
|
68,013
|
|
$
|
59,184
|
|
Pro
Forma Income (Loss) from Continuing Operations
|
|
$
|
2,824
|
|
$
|
4,628
|
|
$
|
(311
|
)
|
$
|
2,989
|
|
Pro
Forma Income (Loss) from Continuing Operations per Common
Share-Basic
|
|
$
|
0.11
|
|
$
|
0.23
|
|
$
|
(0.01
|
)
|
$
|
0.15
|
|
Pro
Forma Income (Loss) from Continuing Operations per Common
Share-Diluted
|
|
$
|
0.11
|
|
$
|
0.23
|
|
$
|
(0.01
|
)
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,469,708
|
|
|
20,293,169
|
|
|
22,903,225
|
|
|
20,292,167
|
|
Diluted
|
|
|
29,056,539
|
|
|
23,159,013
|
|
|
22,903,225
|
|
|
23,146,372
|
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
3 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
On
August
29, 2003, HT/CNL Metro Hotels, LP purchased the Hampton Inn, (Manhattan)
Chelsea, NY. We own a one-third equity interest in this joint venture
partnership while CNL Hospitality Partners LP owns the remaining equity
interests.
On
November 13, 2003, we purchased a 40% joint venture interest in PRA Glastonbury,
LLC. The only asset owned by PRA Glastonbury, LLC is the Hilton Garden Inn,
Glastonbury, CT.
On
July
1, 2004, we purchased a 50% joint venture interest in Inn America Hospitality
at
Ewing, LLC. The only asset owned by this entity is the Courtyard by Marriott,
Ewing-Hopewell, NJ.
On
July
1, 2005, we acquired a 49.9% interest in Hiren Boston. LLC (“Hiren”), the owner
of a 164 room Courtyard by Marriott in South Boston, Massachusetts, for
approximately $5,031, including settlement costs of approximately $331. This
hotel is leased to South Bay Boston, LLC, a joint venture owned by 44 New
England and our joint venture partner, and managed by an affiliate of our
joint
venture partner. Our joint venture partner and the manager of the property
are
unaffiliated with the Company. The Hiren joint venture agreement provides
for a
10% preferred return during the first two years of the venture based on our
equity interest in Hiren. Cash distributions will be made from cash available
for distribution, first, to us to provide a 10% annual non-compounded return
on
our capital contributions and then to our joint venture partner to provide
a 10%
annual non-compounded return of their contributions. The 10% returns are
not
cumulative. Any remaining cash available for distribution will be distributed
50% to us. Subsequent to this initial two year period, cash distributions
will
be made 50% to us and 50% to our joint venture partners in Hiren. In accordance
with AICPA Statement of Position 78-9 “Accounting for Investments in Real Estate
Ventures” (SOP 78-9), Hiren will allocate income to HHLP and our joint venture
partner consistent with the allocation of cash distributions and liquidating
distributions.
On
October 7, 2005, we acquired a 49.9% interest in SB Partners, LLC (“SB
Partners”), the owner of a 118 room Holiday Inn Express in South Boston,
Massachusetts, for approximately $2,250. This hotel will be leased to South
Bay
Sandeep, LLC, a TRS wholly owned by SB Partners, and managed by an affiliate
of
our joint venture partner. Our joint venture partner and the manager of the
property are owned by certain members that have an interest in Hiren and
are
unaffiliated with the Company. The SB Partners joint venture agreement provides
for a 10% preferred return during the first two years of the venture based
on our equity interest in SB Partners. Cash distributions will be made from
cash available for distribution, first, to us to provide a 10% annual
non-compounded return on our capital contributions and then to our joint
venture
partner to provide a 10% annual non-compounded return of their contributions.
The 10% returns are not cumulative. Any remaining cash available for
distribution will be distributed 50% to us. Subsequent to this initial two
year
period, cash distributions will be made 50% to us and 50% to our joint venture
partners in SB Partners. In accordance with SOP 78-9, SB Partners allocates
income to us and our joint venture partner consistent with the allocation
of
cash distributions and liquidating distributions.
In
June
2005, we entered into a joint venture with Waterford Hospitality and Mystic
Hotel Investors, LLC (“MHI,” and together with Waterford, the “MHI Parties”),
pursuant to which the parties agreed to establish Mystic Partners, LLC
(“Mystic”). The MHI Parties contributed to Mystic Partners its membership
interests in a portfolio of nine entities that own nine Marriott- or
Hilton-branded hotels in Connecticut and Rhode Island. Aggregate fair value
of
the contributed properties was approximately $250,000. We contributed
approximately $40,000 in cash to Mystic Partners in exchange for a 66.7%
preferred equity interest in the seven stabilized hotel properties in the
portfolio and a 50% preferred equity interest in the two newly-developed
hotel
properties in the portfolio, subject to minority interest participations
in
certain hotels.
On
February 8, 2006, Mystic Partners closed on the acquisition of the 409 room
Hartford Marriott in Hartford, Connecticut, the final hotel in the portfolio
to
be acquired by Mystic. The acquisition included the hotel, improvements,
certain
personal property and a pre-paid airspace sublease relating to airspace
comprising a portion of the Hartford Convention Center. We contributed
approximately $6,700 to Mystic Partners, and the Waterford Parties contributed
its Membership Interests in the Owner of the Hartford Marriott. In conjunction
with this closing, the Mystic Partners agreed to adjust each party’s equity
ownership interest in the two development properties, the Hartford Hilton
and
the Hartford Marriott, as follows:
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
3 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
(Continued)
|
|
Hersha
|
|
MHI
Parties
|
|
Hartford
Hilton
|
|
|
8.8
|
%
|
|
79.2
|
%
|
Hartford
Marriott
|
|
|
15.0
|
%
|
|
81.0
|
%
|
Both
the
Hartford Hilton and the Hartford Marriott properties maintain minority interest
ownership from unrelated third party investors for approximately 12.0% and
4.0%,
respectively.
Additionally,
the amendment provides us with the option to purchase up to a 50.0% equity
ownership interest in Mystic Partners’ equity interest in the Hartford Hilton
and the Hartford Marriott, respectively, at a price determined in accordance
with the Amendment. Also, the Company entered into an agreement whereby we
and
MHI jointly and severally guarantee the performance of the terms of a loan
to
Adriaen’s Landing Hotel, LLC, owner of the Hartford Marriott, in the amount of
$50,000, and 315 Trumbull Street Associates, LLC, in the amount of $27,000
if at
any time during the term of the note and during such time as the net worth
of
Mystic falls below the amount of the guarantee.
The
Mystic Partners joint venture agreement provides for an 8.5% preferred return
based on our preferred equity interest in the stabilized and newly-developed
hotel properties. Cash distributions will be made from cash available for
distribution, first, to us to provide an 8.5% annual non-compounded return
on
our unreturned capital contributions and then to the Waterford Parties to
provide an 8.5% annual non-compounded return of their unreturned contributions.
The 8.5% returns are not cumulative. Any remaining cash available for
distribution will be distributed to us 56.7%, with respect to the net cash
flow
from the stabilized properties, 10.5% with respect to the net cash flow from
the
Hartford Marriott, and 7.0% with respect to the Hartford Hilton. In accordance
with SOP 78-9, Mystic Partners will allocate income to us and the Waterford
Parties consistent with the allocation of cash distributions and liquidating
distributions.
The
nine
hotels acquired by Mystic through June 30, 2006 are:
Hotel
Name
|
|
Location
|
|
Date
Acquired
|
|
Owner
|
|
Hersha
Ownership
|
|
Number
of Rooms
|
Mystic
Marriott Hotel & Spa
|
|
Mystic,
CT
|
|
August
9, 2005
|
|
Exit
88 Hotel, LLC
|
|
66.7%
|
|
285
|
Danbury
Residence Inn
|
|
Danbury,
CT
|
|
August
9, 2005
|
|
Danbury
Suites, LLC
|
|
66.7%
|
|
78
|
Southington
Residence Inn
|
|
Southington,
CT
|
|
August
9, 2005
|
|
Southington
Suites, LLC and 790 West Street, LLC
|
|
44.7%
|
|
94
|
Norwich
Courtyard by Marriott and Rosemont Suites
|
|
Norwich,
CT
|
|
August
9, 2005
|
|
Norwich
Hotel, LLC
|
|
66.7%
|
|
144
|
Warwick
Courtyard by Marriott
|
|
Warwick,
RI
|
|
August
9, 2005
|
|
Warwick
Lodgings, LLC
|
|
66.7%
|
|
92
|
Waterford
SpringHill Suites
|
|
Waterford,
CT
|
|
August
9, 2005
|
|
Waterford
Suites, LLC
|
|
66.7%
|
|
80
|
Mystic
Residence Inn
|
|
Mystic,
CT
|
|
September
15, 2005
|
|
Whitehall
Mansion Partners, LLC
|
|
66.7%
|
|
133
|
Hartford
Hilton
|
|
Hartford,
CT
|
|
October
6, 2005
|
|
315
Trumbull Street, LLC
|
|
8.8%
|
|
393
|
Marriott
Downtown
|
|
Hartford,
CT
|
|
February
8, 2006
|
|
Adriaen’s
Landing Hotel, LLC
|
|
15.0%
|
|
409
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
3 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
Each
of
the Mystic Partners hotel properties, except the Hartford Hilton, is under
an
Asset Management Agreement with 44 New England to provide asset management
services. Fees for these services are paid monthly to 44 New England and
recognized as income in the amount 1% of operating revenues, except for the
Hartford Marriott which is 0.25% of operating revenues. Each property owned
by
the joint venture is managed by Waterford Hotel Group, Inc., an affiliate
of MHI
Parties. The property manager will receive a base fee of 3% or 4% of gross
revenues of the property, depending on the property, and an incentive fee
of 10%
of net operating income less debt service after each of HHLP and the MHI
Parties
receive a 12.0% annual non-compounded return on its unreturned capital
contributions.
On
June
15, 2006, we acquired a 40.0% interest in PRA Suites at Glastonbury, LLC
(“PRA
Suites”), the owner of a 136 room Homewood Suites in Glastonbury, Connecticut,
for approximately $2,480. This hotel will be leased to Hersha PRA LLC, an
entity
owned by 44 New England and our joint venture partner. The hotel will be
managed
HHMLP. Our joint venture partner include members that have an interest in
PRA
Glastonbury, LLC and are unaffiliated with the Company. The PRA Suites joint
venture agreement provides for a 10% preferred return based on the equity
interest in PRA Suites. Cash distributions will be made from cash available
for
distribution, first, to us to provide a 10% annual non-compounded return
on our
capital contributions and then to our joint venture partner to provide a
10%
annual non-compounded return of their contributions. The 10% returns are
not
cumulative. Any remaining cash available for distribution will be distributed
40% to us. In accordance with SOP 78-9, SB Partners allocates income to us
and
our joint venture partner consistent with the allocation of cash distributions
and liquidating distributions.
We
account for our investment in the above mentioned unconsolidated joint ventures
using the equity method of accounting.
As
of
June 30, 2006 and December 31, 2005 our investment in unconsolidated joint
ventures consists of the following:
|
|
Percent
Owned
|
|
June
30, 2006
|
|
December
31, 2005
|
|
|
|
|
|
|
|
|
|
HT/CNL
Metro Hotels, LP
|
|
|
33.3
|
%
|
$
|
4,242
|
|
$
|
4,487
|
|
HT/PRA
Glastonbury, LLC
|
|
|
40.0
|
%
|
|
565
|
|
|
2,379
|
|
Inn
American Hospitality at Ewing, LLC
|
|
|
50.0
|
%
|
|
1,537
|
|
|
1,456
|
|
Hiren
Boston, LLC
|
|
|
50.0
|
%
|
|
4,808
|
|
|
5,034
|
|
SB
Partners, LLC
|
|
|
50.0
|
%
|
|
2,177
|
|
|
2,232
|
|
Mystic
Partners, LLC
|
|
|
8.8%-66.7
|
%
|
|
39,529
|
|
|
40,393
|
|
PRA
Suites at Glastonbury, LLC
|
|
|
40.0
|
%
|
|
2,512
|
|
|
-
|
|
|
|
|
|
|
$
|
55,370
|
|
$
|
55,981
|
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
3 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
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, 2006 and December 31, 2005
and for
the three and six months ended June 30, 2006 and 2005.
|
|
June
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
Balance
Sheets
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Investment
in hotel property, net
|
|
$
|
276,973
|
|
$
|
182,708
|
|
Other
assets
|
|
|
27,807
|
|
|
22,708
|
|
Total
Assets
|
|
$
|
304,780
|
|
$
|
205,416
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
Mortgages
and notes payable
|
|
$
|
226,938
|
|
$
|
166,564
|
|
Capital
Leases
|
|
|
794
|
|
|
357
|
|
Other
liabilities
|
|
|
13,730
|
|
|
8,021
|
|
Equity:
|
|
|
|
|
|
|
|
Hersha
Hospitality Trust
|
|
|
55,370
|
|
|
55,981
|
|
Other
|
|
|
7,948
|
|
|
(25,507
|
)
|
|
|
|
|
|
|
|
|
Total
Liabilities and Equity
|
|
$
|
304,780
|
|
$
|
205,416
|
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
June
30, 2006
|
|
June
30, 2005
|
|
Statements
of Operations
|
|
|
|
|
|
|
|
|
|
Room
revenue
|
|
$
|
22,695
|
|
$
|
4,471
|
|
$
|
39,074
|
|
$
|
8,088
|
|
Other
revenue
|
|
|
8,411
|
|
|
403
|
|
|
14,605
|
|
|
760
|
|
Operating
expenses
|
|
|
(21,394
|
)
|
|
(2,477
|
)
|
|
(39,516
|
)
|
|
(4,799
|
)
|
Interest
expense
|
|
|
(3,909
|
)
|
|
(620
|
)
|
|
(7,368
|
)
|
|
(1,207
|
)
|
Land
Lease Expense
|
|
|
(96
|
)
|
|
-
|
|
|
(213
|
)
|
|
-
|
|
Property
taxes
|
|
|
(1,335
|
)
|
|
(294
|
)
|
|
(2,624
|
)
|
|
(558
|
)
|
State
& Federal Income Taxes
|
|
|
(142
|
)
|
|
(128
|
)
|
|
(142
|
)
|
|
(154
|
)
|
Depreciation,
amortization and other
|
|
|
(4,471
|
)
|
|
(643
|
)
|
|
(8,255
|
)
|
|
(1,283
|
)
|
Minority
interest in earnings of consolidated subsidiaries
|
|
|
55
|
|
|
-
|
|
|
223
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(186
|
)
|
$
|
712
|
|
$
|
(4,216
|
)
|
$
|
847
|
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
3 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
Equity
income (loss) recognized during the three and six months ended June 30, 2006
and
2005 for our Equity Investments in Unconsolidated Joint Ventures:
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
June
30, 2006
|
|
June
30, 2005
|
|
HT/CNL
|
|
$
|
193
|
|
$
|
115
|
|
$
|
231
|
|
$
|
153
|
|
HT/PRA
Glastonbury
|
|
|
30
|
|
|
72
|
|
|
(229
|
)
|
|
73
|
|
Inn
American Hospitality at Ewing, LLC
|
|
|
71
|
|
|
92
|
|
|
81
|
|
|
102
|
|
Hiren
Boston, LLC
|
|
|
108
|
|
|
-
|
|
|
(226
|
)
|
|
-
|
|
S
B
Partners, LLC
|
|
|
76
|
|
|
-
|
|
|
(55
|
)
|
|
-
|
|
Mystic
Partners, LLC
|
|
|
291
|
|
|
-
|
|
|
(143
|
)
|
|
-
|
|
PRA
Suites at Glastonbury
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity in income (loss)
|
|
$
|
769
|
|
$
|
279
|
|
$
|
(341
|
)
|
$
|
328
|
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
4 - DEVELOPMENT LOANS RECEIVABLE
We
have
approved mortgage lending to entities in which our executive officers and
affiliated trustees own an interest to enable such entities to construct
hotels
and conduct related improvements on specific hotel projects at interest rates
ranging from 8.0% to 10.0% (“Development Line Funding”). As of June 30, 2006 and
December 31, 2005, we had Development Loans Receivable from Related Parties
of
$32,016 and $32,450, respectively. Interest income from these advances included
in “Interest - Secured Loans Related Party,” was $295 and $743 for the three
months ended June 30, 2006 and 2005, respectively, and $716 and $1,743 for
the
six months ended June 30, 2006 and 2005, respectively.
As
of
June 30, 2006, our development loans to related parties consist of the
following:
Hotel
Property
|
|
Borrower
|
|
Principal
Outstanding 6/30/2006
|
|
Interest
Rate
|
|
Interest
Income Earned for the six months ended 6/30/2006
|
|
Interest
Due and Accrued as of 6/30/2006
|
|
Maturity
Date
|
|
Sheraton
- JFK Airport, NY
|
|
Risingsam
Hospitality, LLC |
|
$
|
7,016
|
|
|
10
|
%
|
$
|
170
|
|
$
|
170
|
|
|
March
30, 2007
|
|
Hilton
Garden Inn - Union Square, NY
|
|
Risingsam
Union Square, LLC |
|
|
10,000
|
|
|
10
|
%
|
|
54
|
|
|
54
|
|
|
May
31, 2007
|
|
Holiday
Inn Express -
29th Street, NY
|
|
Brisam
Management, LLC |
|
|
15,000
|
|
|
10
|
%
|
|
56
|
|
|
56
|
|
|
May
31, 2007
|
|
|
|
|
|
|
$
|
32,016
|
|
|
|
|
$
|
280
|
|
$
|
280
|
|
|
|
|
As
of
December 31, 2005 our development loans to related parties consisted of the
following:
Hotel
Property
|
|
Borrower
|
|
Principal
Outstanding 12/31/2005
|
|
Interest
Rate
|
|
Interest
Income Earned for the year ended 12/31/2005
|
|
Interest
Due and Accrued as of 12/31/2005
|
|
Maturity
Date
|
|
Boutique
Hotel - 35th Street, New York, NY
|
|
44
Fifth Avenue, LLC |
|
$
|
9,100
|
|
|
9
|
%
|
$
|
599
|
|
$
|
181
|
|
|
August
31, 2006
|
|
Hampton
Inn - Seaport, New York, NY
|
|
HPS
Seaport, LLC and BCM, LLC |
|
|
13,000
|
|
|
10
|
%
|
|
908
|
|
|
734
|
|
|
March
31, 2006
|
|
Boutique
Hotel - Tribeca, New York, NY
|
|
5444
Associates, LP |
|
|
9,500
|
|
|
10
|
%
|
|
570
|
|
|
381
|
|
|
August
31, 2006
|
|
Hilton
Garden Inn - JFK Airport, NY
|
|
Metro
Ten Hotels, LLC |
|
|
850
|
|
|
10
|
%
|
|
1,258
|
|
|
239
|
|
|
December
31, 2005
|
|
|
|
|
|
|
$
|
32,450
|
|
|
|
|
$
|
3,335
|
|
$
|
1,535
|
|
|
|
|
All
outstanding loans as of December 31, 2005 were repaid during the first and
second quarters of 2006.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
5 — OTHER ASSETS
Transaction
Costs
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. Transaction costs included in other assets were $381 and
$1,863 as of June 30, 2006 and December 31, 2005.
Deposits
Deposits
paid in connection with the acquisition of hotels are recorded in other assets.
As of June 30, 2006, we had $13,308 in interest bearing deposits and $1,898
in
non-interest bearing deposits related to the acquisition of hotel properties.
Interest bearing deposits as of June 30, 2006 consisted of a deposit of $7,328
bearing interest at a rate of 15.4% and a deposit of $5,980 bearing interest
at
a rate of 18.8%. As of December 31, 2005, we had $8,000 in interest bearing
deposits and $250 in non-interest bearing deposits. The interest bearing
deposits as of December 31, 2005 accrued interest at 8.0%.
Investment
in Statutory Trusts
We
had
investments in the common stock of Hersha Statutory Trust I and Hersha Statutory
Trust II of $1,548 as of June 30, 2006 and December 31, 2005. Our investment
in
the common stock of the statutory trust entities is accounted for under the
equity method.
Notes
Receivable
Notes
receivable included in other assets were $43 as of June 30, 2006 and $1,886
as
of December 31, 2005.
Other
Assets
The
remaining balance of other assets consists of accrued interest receivable,
prepaid property taxes, prepaid insurance and other miscellaneous prepaid
expenses.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
6 — DEBT
Mortgages
and Notes Payable
The
total
mortgages payable balances at June 30, 2006, and December 31, 2005, were
$291,561 and $204,598, respectively, and consisted of mortgages with fixed
and
variable interest rates ranging from 4.0% to 9.43%. In addition, we had
mortgages on our held for sale properties of $ 10,289 and $-0- as of June
30,
2006 and December 31, 2005, respectively, which is classified in Liabilities
Related to Hotel Assets Held for Sale on the consolidated balance sheets.
The
maturities for the outstanding mortgages ranged from August 2007 to January
2032. Aggregate interest expense incurred under the mortgages payable totaled
$4,531 and $2,071 for the three months ended June 30, 2006 and 2005,
respectively and $8,611 and $3,603 during the six months ended June 30, 2006
and
2005, respectively.
In
the
second quarter of 2005, HHLP issued 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 HHLP’s 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, holders
the
notes bear interest at a variable rate of LIBOR plus 3.0% pre annum. Interest
expense in the amount of $946 and $401 was recorded during the three months
ended June 30, 2006 and 2005, respectively, and $1,870 and $401 for the six
months ended June 30, 2006 and 2005, respectively.
Revolving
Line of Credit
On
January 17, 2006, we entered into a revolving credit loan and security agreement
with Commerce Bank, N.A. with a maximum amount of $60,000. Outstanding
borrowings under the line of credit bear interest at the Company’s option of
either the bank’s prime rate of interest minus .50% or LIBOR available for the
periods of 1, 2, 3, or 6 months plus 2.25%. 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, and collateral assignment
of all
hotel management contracts from which HHLP or its affiliates derive revenue.
The
line of credit includes certain financial covenants and requires that we
maintain (1) a minimum tangible net worth of $110.0 million; (2) a maximum
accounts and other receivables from affiliates of $75.0 million; and (3)
certain
financial ratios. The line of credit expires on December 31, 2008 and replaced
the Sovereign Bank Line of Credit. This revolving credit loan replaced both
the
secured and unsecured lines of credit that we previously maintained. As a
result
of the termination of the Sovereign Bank Line of Credit , we expensed $255
in
unamortized deferred costs related to the origination of the Sovereign Bank
Line
of Credit.
The
Company maintained a Line of Credit balance of $32,034 at June 30, 2006 and
$-0-
at December 31, 2005. The Company recorded interest expense of $264 and $63,
for
the three months ended June 30, 2006 and 2005, respectively, and $664 and
$81,
for the six months ended June 30, 2006 and 2005, respectively. The weighted
average interest rate on our Line of Credit during the three months ended
June
30, 2006 and 2005 was 7.33% and 5.83%, respectively, and was 7.13% and 5.58%
for
the six months ended June 30, 2006 and 2005, respectively.
On
July
28, 2006, we amended our Commerce Line of Credit to increase the maximum
borrowing amount from $60,000 to $85,000 and modified the interest rate terms
to
the option of either the bank’s prime rate of interest minus 0.75% or LIBOR
available for the periods of 1,2,3, or 6 months plus 2.00%. Provisions of
the
amended line of credit 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. Certain hotel acquisitions occurring subsequent to June
30,
2006 will be added as supplemental collateral for the increase in the
line of credit.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE 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 cost is recorded in interest expense. As of June
30,
2006 deferred cost was $5,256, net of accumulated amortization of $1,169.
Deferred cost was $4,131, net of accumulated amortization of $1,437, as of
December 31, 2005. Amortization of deferred costs for the three and six months
ended June 30, 2006 was $163 and $375, respectively. Amortization of deferred
costs for the three and six months ended June 30, 2005 was $105 and $171,
respectively.
Debt
Extinguishment
As
noted
above, the Sovereign Bank Line of Credit was replaced by the Commerce Line
of
Credit in January 2006. As a result of this termination, we expensed $255
in
unamortized deferred costs related to the origination of the Sovereign Bank
Line
of Credit, which are included in the Debt Extinguishment caption on the face
of
the consolidated statements of operations for the six months ended June 30,
2006.
On
April
7, 2006, we repaid $21,900 on our mortgage with Merrill Lynch for the Hampton
Inn Herald Square property as a result of a debt refinancing. The new debt
of
$26,500 has a fixed interest rate of 6.085% and a maturity date of May 1,
2016.
As a result of this extinguishment, we expensed $534 in unamortized deferred
costs and prepayment penalties, which are included in the Debt Extinguishment
caption on the face of the consolidated statements of operations for the
three
and six months ended June 30, 2006.
On
June
9, 2006, we repaid $34,200 on our mortgage with UBS for the McIntosh Portfolio,
as a result of a debt refinancing. The new debt of $36,300 has a fixed interest
rate of 6.33% and maturity date of June 11, 2016 for each of the loans
associated with the McIntosh Portfolio. As a result of this extinguishment,
we
expensed $374 in unamortized deferred costs, which are included in the Debt
Extinguishment caption on the face of the consolidated statements of operations
for the three and six months ended June 30, 2006.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
7 — COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
We
are
the sole general partner in the Partnership, which is indirectly the sole
general partner of the subsidiary partnerships. The Company does not anticipate
any losses as a result of our obligations as general partner in the
Partnership.
Management
Agreements
44
New
England engages HHMLP as the property manager for hotels it leases from us
pursuant to management agreements. Each management agreement provides for
a
five-year term and is subject to early termination upon the occurrence of
defaults and certain other events described therein. As required under the
REIT
qualification rules, HHMLP must qualify as an “eligible independent contractor”
during the term of the management agreements. Under the management agreements,
HHMLP generally pays the operating expenses of our hotels. All operating
expenses or other expenses incurred by HHMLP in performing its authorized
duties
are reimbursed or borne by the TRS Lessee 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.
As
of
June 30, 2006, HHMLP managed all 40 hotels leased to the TRS Lessee, and
we
consolidated the financial statements of these 40 hotels in these financial
statements. HHMLP also manages two consolidated joint venture hotel properties
and four unconsolidated joint venture hotel properties in which we maintain
an
investment. For its services, HHMLP receives a base management fee, and if
a
hotel meets and exceeds certain thresholds, an additional 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.
In
addition, two of our consolidated joint venture hotel properties which are
not
managed by HHMLP pay an asset management fee to HHMLP each month equivalent
to
1% of gross revenues. 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. For the three months
ended June 30, 2006 and 2005, management fees incurred totaled $1,170 and
$880,
respectively, and for the six months ended June 20, 2006 and 2005, management
fees incurred totaled $1,965 and $1,424, respectively. These fees are recorded
as Hotel Operating Expenses.
Administrative
Services Agreement
Prior
to
July 1, 2005, under the terms of an administrative service agreement, HHMLP
provided accounting and reporting services for the Company. The terms of
the
agreement provided for us to pay HHMLP an annual fee of $10 per property
(prorated from the time of acquisition) for each hotel in our portfolio.
On July
1, 2005, the administrative service fee was replaced by monthly accounting
and
information technology fees for each of our wholly owned hotels. Monthly
fees
for accounting services are $2 per property and monthly information technology
fees are $0.5 per property. For the three months ended June 30, 2006 and
2005,
the Company incurred administrative services fees of $0 and $65, respectively,
and for the six months ended June 30, 2006 and 2005, the Company incurred
administrative fees of $0 and $130, respectively. For the three and six months
ended June 30, 2006, the Company incurred accounting fees of $260 and $487
and
information technology fees of $63 and $120. Administrative services fees,
accounting fees, and information technology fees are included in General
and
Administrative expenses.
Franchise
Agreements
The
hotel
properties are operated under franchise agreements assumed by the hotel property
lessee. The franchise agreements have 10 to 20 year terms but may be terminated
by either the franchisee or franchisor on certain anniversary dates specified
in
the agreements. The franchise agreements require annual payments for franchise
royalties, reservation, and advertising services, and such payments are based
upon percentages of gross room revenue. These payments are paid by the lessees
and charged to expenses as incurred. Franchise fee expense for the three
months
ended June 30, 2006 and 2005, was $2,580 and $1,435, respectively, and for
the six months ended June 30, 2006 and 2005, was $4,340 and $2,365,
respectively. The initial fees incurred to enter into the franchise agreements
are amortized over the life of the franchise agreements.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
7 — COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
Acquisitions
from Affiliates
We
have
acquired from entities owned or controlled by certain of our executive officers
and our related party trustees, newly-developed or newly-renovated hotels
that
do not have an operating history that would allow us to make purchase price
decisions based on historical performance. In buying these hotels, we previously
utilized, a “re-pricing” methodology that, in effect, adjusted the initial
purchase price for the hotel, one or two years after we initially purchased
the
hotel, based on the actual operating performance of the hotel during the
twelve
months prior to the repricing. As part of our lease termination agreement
with
HHMLP, the original sellers of all of these properties, HHMLP and the Company
have waived their respective rights to any and all purchase price adjustments
for all properties. In the future, we do not intend to use any re-pricing
methodology in acquisitions from entities controlled by our officers and
trustees.
We
have
entered into an option agreement with each of our officers and related party
trustees such that we obtain a first right of refusal to purchase any hotel
owned or developed in the future by these individuals or entities controlled
by
them. This right of first refusal would apply to each party until one year
after
such party ceases to be an officer or related party trustee of our Company.
Since our initial public offering in 1999, we have acquired, wholly or through
joint ventures, a total of 60 hotels, including 19 hotels acquired from entities
controlled by our officers or trustees. Of the 19 acquisitions from these
entities, 16 were newly-constructed or newly-renovated by these entities
prior
to our acquisition. Our Acquisition Committee of the Board of Trustees is
comprised solely of independent trustees, and the purchase prices and all
material terms of the purchase of hotels from related parties are negotiated
with the Acquisition Committee. At
the
discretion of the independent trustees, the Board of Trustees has
hired an independent accounting firm to provide our Board of
Trustees with an “Agreed Upon Procedures” report for certain acquisitions
and dispositions to related parties.
Hotel
Supplies
For
the
three months ended June 30, 2006 and 2005, we incurred expenses of $434 and
$478, respectively, and for the six months ended June 30, 2006 and 2005,
we
incurred expenses of $685 and $718, respectively, for hotel supplies from
Hersha
Hotel Supply, an unconsolidated related party, which are expenses included
in
Hotel Operating Expenses. Approximately $0 and $52 is included in accounts
payable at June 30, 2006 and December 31, 2005.
Capital
Expenditure Fees
Beginning
April 1, 2006, HHMLP began to charge 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 and six months ended June 30, 2006, we
incurred fees of $57 which were capitalized in with the cost of fixed asset
additions.
Due
From Related Parties
The
Due
from Related Party balance as of June 30, 2006 and December 31, 2005 was
approximately $3,785 and $2,799, respectively. The balance as of June 30,
2006
and December 31, 2005 consisted of accrued interest due on our development
loans
and receivables owed from our unconsolidated joint ventures.
Due
to
Related Parties
The
due
to related party balance as of June 30, 2006 and December 31, 2005, totaled
$4,881 and $4,655, respectively. The due to related party balances at June
30,
2006 and December 31, 2005 consisted of monies payable to HHMLP for
administrative, management, and benefit related fees.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
7 — COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(Continued)
Land
Leases
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, NY, we assumed a land
lease
with an original term of 99 years. Monthly payments as determined by the
lease
agreement are due through the expiration in July of 2100. Both land leases
provide rent increases at scheduled intervals. We record rent expense on
a
straight-line basis over the life of the lease from the beginning of the
lease
term. For the three months ended June 30, 2006 and 2005, we incurred $216
and
$109, respectively, and for the six months ended June 30, 2006 and 2005,we
incurred $378 and $217, respectively, in lease expense under the
agreements.
On
January 6, 2005, we purchased land in Carlisle, PA for $700 plus closing
costs
from a related party entity and leased the land to 44 Carlisle Associates,
L.P.,
a related party. In July 2005, 44 Carlisle Associates, L.P. exercised their
option to purchase the land from us. The purchase price consisted of $700
for
the land plus all fees and expenses.
On
February 18, 2005, we purchased land at the Bradley International Airport,
Windsor Locks, CT for $1,000 plus closing costs and leased the land to 44
Windsor Locks Associates, LLC, a related party. In addition to the purchase
price, the terms of the lease required 44 Windsor Locks Associates, LLC to
post
a $350 deposit. In July 2005, 44 Windsor Locks Associates, LLC exercised
their
option to purchase the land from us. The purchase price consisted of $1,000
for
the land plus all fees and expenses, and the $350 deposit was
returned.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
8 - DERIVATIVE INSTRUMENTS
The
Company’s objective in using derivatives is to add stability to interest expense
and to manage its exposure to interest rate movements or other identified
risks.
To accomplish this objective, the Company primarily uses interest rate swaps
and
interest rate caps as part of its cash flow hedging strategy. Interest rate
swaps designated as cash flow hedges involve the receipt of variable-rate
amounts in exchange for fixed-rate payments over the life of the agreements
without exchange of the underlying principal amount. Interest rate caps
designated as cash flow hedges limit the Company’s exposure to increased cash
payments due to increases in variable interest rates.
On
July
1, 2005, the Company acquired an interest rate cap with a notional amount
of
$34,230 to hedge against the variability in cash flows on a variable interest
rate debt instrument. The principal of the variable interest rate debt being
hedged equals the notional amount of the interest rate cap. The interest
rate
cap effectively fixes interest payments when LIBOR exceeds 5.0%. On June
12,
2006, we terminated this interest rate cap due to the refinancing of the
associated interest rate debt instrument to a fixed rate. We received $79
in
cash and reclassified $58 in reduction to interest expense as a result of
the
termination of this cap.
At
June
30, 2006, the fair value of the interest rate swap was $160 and is included
in
other assets on the face of the consolidated balance sheets. At December
31,
2005, the fair value of the interest rate cap was $23 and is included in
other
assets and the fair value of the interest rate swap was $0. The change in
net
unrealized gains/losses of $92 and $130 for the three months ended June 30,
2006
and 2005, respectively, for derivatives designated as cash flow hedges. The
change in net unrealized gains/losses of $209 and $100 for the six months
ended
June 30, 2006 and 2005, respectively, for derivatives designed as cash flow
hedges. Hedge ineffectiveness of $3 and $3 on cash flow hedges was recognized
in
unrealized gain/loss on derivatives during the three months ended June 30,
2006
and 2005, respectively. Hedge ineffectiveness of $7 and $7 on cash flow hedges
was recognized in unrealized gain/loss on derivatives during the six months
ended June 30, 2006 and 2005, respectively. Hedge ineffectiveness is included
in
interest expense on the face of the consolidated statements of
operations.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
9 - SHARE-BASED PAYMENTS
In
December 2004, the FASB issued Statement of Financial Accounting Standards
No.
123 (revised 2004), “Share-Based Payment,” (“SFAS 123R”) which is a revision of
Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based
Compensation,” (“SFAS 123”). SFAS No. 123R supersedes Accounting Principles
Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB Opinion
No. 25”) and its related implementation guidance. SFAS No. 123R requires
companies to record compensation expense for share-based payments to employees,
including grants of employee stock options and stock awards, at fair value.
Effective April 1, 2005, the Company has adopted SFAS 123R. No stock-based
payments were outstanding at the time SFAS 123R was adopted. In 2004, the
Company established the Hersha Hospitality Trust 2004 Equity Incentive Plan
which provides for the grant of stock options, stock appreciation rights,
stock
awards, performance shares and incentive awards. The maximum number of shares
of
common stock that can be issued under this plan is 1.5 million shares. No
share-based payments were granted under this plan during the year ended December
31, 2004.
On
June
1, 2005, the Compensation Committee of the Board of Trustees granted 71,000
restricted share awards to executives. The restricted share awards vest 25%
each
year over four years and compensation expense is recognized ratably over
the
four year vesting period based on the fair value of the shares on the date
of
grant. The fair value of the restricted share awards on the grant date was
$9.60
per share. For the quarter ended June 30, 2006, 25% of these restricted share
awards became vested.
On
June
1, 2006, the Compensation Committee of the Board of Trustees granted 89,500
restricted share awards to executives. The restricted share awards vest 25%
each
year over four years and compensation expense is recognized ratably over
the
four year vesting period based on the fair value of the shares on the date
of
grant. The fair value of the restricted share awards on the grant date was
$9.40
per share. For the quarter ended June 30, 2006, none of these restricted
share
awards became vested.
A
summary
of the stock awards issued under the 2004 Equity Incentive Plan are as
follows:
Date
of Award Issuance
|
|
Shares
Issued
|
|
Shares
Vested at 6/30/2006
|
|
Unearned
Compensation at 6/30/2006
|
|
Period
until Full Vesting
|
|
June
1, 2005
|
|
|
71,000
|
|
|
17,750
|
|
$
|
497
|
|
|
3
years
|
|
June
1, 2006
|
|
|
89,500
|
|
|
-
|
|
|
824
|
|
|
4
years
|
|
|
|
|
160,500
|
|
|
17,750
|
|
$
|
1,321
|
|
|
|
|
Compensation
expense of $60 and $14 was incurred during the three months ended June 30,
2006
and 2005, respectively, and $103 and $14 for the six months ended June 30,
2006
and 2005, respectively, related to the restricted share awards and is recorded
in general and administrative expense on the statement of operations. Unearned
compensation as of June 30, 2006 and December 31, 2005 was $1,321 and $582,
respectively.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
10 — EARNINGS PER SHARE
The
following table is a reconciliation of the income (numerator) and weighted
average shares (denominator) used in the calculation of basic earnings per
common share and diluted earnings per common share in accordance with SFAS
No.
128, Earnings Per Share.The computation of basic and diluted earnings per
share
is presented below.
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
June
30, 2006
|
|
June
30, 2005
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Continuing Operations
|
|
$
|
2,789
|
|
$
|
2,469
|
|
$
|
(1,065
|
)
|
$
|
1,609
|
|
Distributions
to 8.0% Series A Preferred Shareholders
|
|
|
(1,200
|
)
|
|
-
|
|
|
(2,400
|
)
|
|
-
|
|
Income
(loss) from continuing operations applicable to common
shareholders
|
|
|
1,589
|
|
|
2,469
|
|
|
(3,465
|
)
|
|
1,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Discontinued Operations
|
|
|
587
|
|
|
1,286
|
|
|
557
|
|
|
1,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) applicable to common shareholders
|
|
$
|
2,176
|
|
$
|
3,755
|
|
$
|
(2,908
|
)
|
$
|
2,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Continuing Operations
|
|
$
|
2,789
|
|
$
|
2,469
|
|
$
|
(1,065
|
)
|
$
|
1,609
|
|
Allocation
of income (loss) to minority interest in continuing
operations
|
|
|
390
|
|
|
346
|
|
|
-
|
*
|
|
225
|
|
Distributions
to 8.0% Series A Preferred Shareholders
|
|
|
(1,200
|
)
|
|
-
|
|
|
(2,400
|
)
|
|
-
|
|
Income
(loss) from continuing operations applicable to common
shareholders
|
|
|
1,979
|
|
|
2,815
|
|
|
(3,465
|
)
|
|
1,834
|
|
Income
from Discontinued Operations
|
|
|
587
|
|
|
1,286
|
|
|
557
|
|
|
1,170
|
|
Allocation
of income (loss) to minority interest in discontinued
operations
|
|
|
81
|
|
|
180
|
|
|
-
|
* |
|
163
|
|
Income
from Discontinured Operations
|
|
|
668
|
|
|
1,466
|
|
|
557
|
|
|
1,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) applicable to common shareholders
|
|
$
|
2,647
|
|
$
|
4,281
|
|
$
|
(2,908
|
)
|
$
|
3,167
|
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
10 — EARNINGS PER SHARE (Continued)
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
June
30, 2006
|
|
June
30, 2005
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares - basic
|
|
|
25,469,708
|
|
|
20,293,169
|
|
|
22,903,225
|
|
|
20,292,167
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
awards
|
|
|
94,654
|
|
|
23,407
|
|
|
-
|
* |
|
11,768
|
|
Partnership
units
|
|
|
3,492,177
|
|
|
2,842,437
|
|
|
-
|
* |
|
2,842,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares - diluted
|
|
|
29,056,539
|
|
|
23,159,013
|
|
|
22,903,225
|
|
|
23,146,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations applicable to common
shareholders
|
|
$
|
0.06
|
|
$
|
0.12
|
|
$
|
(0.15
|
)
|
$
|
0.08
|
|
Income
from Discontinued Operations
|
|
|
0.03
|
|
|
0.07
|
|
|
0.02
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) applicable to common shareholders
|
|
$
|
0.09
|
|
$
|
0.19
|
|
$
|
(0.13
|
)
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations applicable to common
shareholders
|
|
$
|
0.06
|
|
$
|
0.12
|
|
$
|
(0.15
|
)*
|
$
|
0.08
|
|
Income
from Discontinued Operations
|
|
|
0.03
|
|
|
0.06
|
|
|
0.02
|
* |
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) applicable to common shareholders
|
|
$
|
0.09
|
|
$
|
0.18
|
|
$
|
(0.13
|
)*
|
$
|
0.14
|
|
*
|
Partnership
units and stock awards have been omitted from the denominator for
the
purpose of computing diluted earnings per share for the six months
ended
June 30, 2006 since the effect of including these amounts in the
denominator would be anti
-dilutive.
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
11 - CASH FLOW DISCLOSURES AND NON-CASH INVESTING AND FINANCING
ACTIVITIES
Interest
paid during the six months ended June 30, 2006 and 2005 totaled $11,320 and
$4,403, respectively.
The
following additional non-cash investing and financing activities occurred
during
the six months ended June 30, 2006 and 2005:
|
|
Six
Months Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
Common
shares issued as part of the Dividend Reinvestment Plan
|
|
$
|
13
|
|
$
|
12
|
|
Issuance
of Stock to the Board of Trustees
|
|
|
46
|
|
|
-
|
|
Issuance
of Stock Awards
|
|
|
841
|
|
|
682
|
|
Compensation
Expense from vesting of Stock Awards
|
|
|
103
|
|
|
14
|
|
Issuance
of Common LP Units
|
|
|
6,000
|
|
|
-
|
|
Relocation
to minority interest as a result of issuance of Common LP
Units
|
|
|
6,621
|
|
|
-
|
|
Debt
assumed in hotel property acquisition
|
|
|
31,616
|
|
|
-
|
|
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
12 — DISCONTINUED OPERATIONS
We
follow
the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” which requires, among other things, that the operating
results of certain real estate assets which have been sold, or otherwise
qualify
as held for disposition (as defined by SFAS No. 144), be included in
discontinued operations in the statements of operations for all periods
presented.
On
May
13, 2005, we completed the disposition of the Doubletree Club, Jamaica, NY
and
the Holiday Inn Express, Long Island City, NY in a sale of the land,
improvements and certain personal property to unaffiliated buyers for $20,500,
plus transaction costs. Assets sold had a net book value of $18,806 and were
classified as assets held for sale on the balance sheet. Debt related to
assets
held for sale of $12,952 was assumed by the buyers. A note receivable for
$1,700
was received as part of the proceeds from the sale of the Doubletree Club
and
was repaid as of June 30, 2006. Interest payments were due quarterly with
repayment of the principal due upon maturity. Gain on the sale of the two
properties was $1,323, of which $162 was allocated to minority interest in
HHLP.
In
September of 2005, our Board of Trustees authorized management of the Company
to
sell the Holiday Inn Express, Hartford, CT and this asset is classified as
“held
for sale” on the Company’s Consolidated Balance Sheet as of December 31, 2005.
The operating results for this hotel have been reclassified to discontinued
operations in the statements of operations for the three and six months ended
June 30, 2006 and June 30, 2005. The hotel was acquired by the Company in
January 2004 and was sold on April 12, 2006. Proceeds from the sale were
$3,600,
and the gain on the sale was $497, of which $63 was allocated to minority
interest in HHLP.
In
March
of 2006, our Board of Trustees authorized management of the Company to sell
four
properties located in metropolitan Atlanta, Georgia. These four properties
are
the Holiday Inn Express, Duluth, Comfort Suites, Duluth, Hampton Inn, Newnan
and
the Hampton Inn Peachtree City. These assets are classified as “held for sale”
on the Company’s Consolidated Balance Sheet as of June 30, 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,
2006
and 2005. These hotels were acquired by the Company in April and May
2000.
As
of
June 30, 2006, Debt and Capital Lease Payable related to the assets Held
for
Sale was $10,289 and consisted of mortgages on the four properties in Georgia.
As of December 31, 2005, liabilities held for sale as of the date was $375
and related to the Holiday Inn Express, Hartford, CT, capital lease which
was
extinguished with the sale of the property in April 2006.
In
addition, during 2004, in conjunction with the acquisition of the Holiday
Inn
Express, Hartford, CT, we assumed a land lease from a third party with an
original term of 99 years. Monthly payments as determined by the lease agreement
are due through the expiration in September 2101. For the three months ended
June 30, 2006 and 2005, we incurred $10 and $75 in lease expense under this
agreement, and for the six months ended June 30, 2006 and 2005, we incurred
$85
and $150 in lease expense under this agreement, which have been reclassified
to
discontinued operations in the statement of operations.
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 $228 and $340 of interest and capital
lease
expense to discontinued operations for the three months ended June 30, 2006
and
2005, respectively. For the six months ended June 30, 2006 and 2005, we
allocated $465 and $780, respectively, of interest and capital lease expenses
to
discontinued operations.
HERSHA
HOSPITALITY TRUST AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE
AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 [UNAUDITED]
[IN
THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
NOTE
12 — DISCONTINUED OPERATIONS
Assets
Held for Sale consisted of the following at June 30, 2006 and December 31,
2005:
|
|
June
30, 2006
|
|
December
31, 2005
|
|
|
|
|
|
|
|
Land
|
|
$
|
2,008
|
|
$
|
-
|
|
Buildings
and Improvements
|
|
|
16,593
|
|
|
2,644
|
|
Furniture,
Fixtures and Equipment
|
|
|
3,457
|
|
|
1,119
|
|
Deferred
Costs
|
|
|
235
|
|
|
-
|
|
|
|
|
22,293
|
|
|
3,763
|
|
|
|
|
|
|
|
|
|
Less
Accumulated Depreciation
|
|
|
(5,153
|
)
|
|
(356
|
)
|
|
|
|
|
|
|
|
|
Total
Investment in Hotel Properties
|
|
$
|
17,140
|
|
$
|
3,407
|
|
|
|
|
|
|
|
|
|
The
following table sets forth the components of discontinued operations for
the
three and six months ended June 30, 2006 and 2005:
|
|
Three
Months Ended June 30,
|
|
Six
Months Ended June 30,
|
|
Revenue:
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Hotel
Operating Revenues
|
|
$
|
1,596
|
|
$
|
2,588
|
|
$
|
3,549
|
|
$
|
5,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and Capital Lease Expense
|
|
|
228
|
|
|
340
|
|
|
465
|
|
|
780
|
|
Hotel
Operating Expenses
|
|
|
1,120
|
|
|
1,573
|
|
|
2,426
|
|
|
3,780
|
|
Land
Lease
|
|
|
10
|
|
|
75
|
|
|
85
|
|
|
150
|
|
Real
Estate and Personal Property Taxes and Property Insurance
|
|
|
64
|
|
|
125
|
|
|
174
|
|
|
263
|
|
General
and Administrative
|
|
|
-
|
|
|
18
|
|
|
-
|
|
|
36
|
|
Depreciation
and Amortization
|
|
|
-
|
|
|
315
|
|
|
258
|
|
|
622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Expenses
|
|
$
|
1,422
|
|
$
|
2,446
|
|
$
|
3,408
|
|
$
|
5,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Discontinued Operations before Minority
Interest
|
|
|
174
|
|
|
142
|
|
|
141
|
|
|
10
|
|
Allocation
to Minority Interest
|
|
|
21
|
|
|
17
|
|
|
18
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Discontinued Operations
|
|
$
|
153
|
|
$
|
125
|
|
$
|
123
|
|
$
|
9
|
|
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, 2006, we owned interests in 59 hotels in the eastern United States
including 19 hotels owned through joint ventures. For purposes of the REIT
qualification rules, we cannot directly operate any of our hotels. Instead,
we
must lease our hotels. In 2001, the REIT rules were modified, allowing a
hotel
REIT to lease its hotels to a taxable REIT subsidiary, or TRS, provided that
the
TRS engages an eligible independent contractor to manage the hotels.
Accordingly, as of June 30, 2006, we have leased 40 of our hotels to a
wholly-owned TRS, which pays qualifying rent, and the TRS has entered into
management contracts with HHMLP with respect to those hotels. We intend to
lease
all newly acquired hotels to a TRS. As of June 30, 2006, we also owned interests
in 19 hotels through joint ventures and those hotels are leased to TRSs that
are
wholly owned by those joint ventures or to entities that are owned jointly
by
our TRS Lessee and our partners in the joint venture. The hotels owned by
the
joint ventures are managed, pursuant to the terms of certain management
agreements, by HHMLP or management companies affiliated with our joint venture
partners. As all of our hotels have been leased to the TRS Lessee or a joint
venture TRS, we are participating more directly in the operating performance
of
our hotels. The TRSs directly receive all revenue from, and are required
to fund
all expenses relating to, hotel operations. The TRSs are also subject to
income
tax on their earnings.
Operating
Results
The
following table outlines operating results for the Company’s portfolio of wholly
owned hotels and those owned through joint venture interests that are
consolidated in our financial statements for the three and six months ended
June
30, 2006 and 2005.
CONSOLIDATED
HOTELS
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
%
Variance
|
|
2006
|
|
2005
|
|
%
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
Available
|
|
|
395,501
|
|
|
217,289
|
|
|
|
|
|
734,858
|
|
|
399,419
|
|
|
|
|
Rooms
Occupied
|
|
|
312,111
|
|
|
168,805
|
|
|
|
|
|
528,860
|
|
|
274,576
|
|
|
|
|
Occupancy
|
|
|
78.92
|
%
|
|
77.69
|
%
|
|
1.6
|
%
|
|
71.97
|
%
|
|
68.74
|
%
|
|
4.7
|
%
|
Average
Daily Rate (ADR)
|
|
$
|
112.97
|
|
$
|
102.62
|
|
|
10.1
|
%
|
$
|
107.58
|
|
$
|
97.71
|
|
|
10.1
|
%
|
Revenue
Per Available Room (RevPAR)
|
|
$
|
89.15
|
|
$
|
79.72
|
|
|
11.8
|
%
|
$
|
77.42
|
|
$
|
67.17
|
|
|
15.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
Revenues
|
|
$
|
35,260,531
|
|
$
|
17,323,236
|
|
|
|
|
$
|
56,896,337
|
|
$
|
26,829,077
|
|
|
|
|
Food
& Beverage
|
|
$
|
2,133,964
|
|
$
|
1,466,021
|
|
|
|
|
$
|
3,874,111
|
|
$
|
2,694,772
|
|
|
|
|
Other
Revenues
|
|
$
|
788,472
|
|
$
|
333,180
|
|
|
|
|
$
|
1,313,926
|
|
$
|
602,151
|
|
|
|
|
Total
Revenues
|
|
$
|
38,182,967
|
|
$
|
19,122,437
|
|
|
|
|
$
|
62,084,374
|
|
$
|
30,126,000
|
|
|
|
|
Discontinued
Assets
|
|
$
|
1,596,257
|
|
$
|
2,588,163
|
|
|
|
|
$
|
3,548,930
|
|
$
|
5,640,977
|
|
|
|
|
The
following table outlines operating results for the three and six months ended
June 30, 2006 and 2005 for hotels we own through an unconsolidated joint
venture
interest. These
operating results reflect 100% of the operating results of the property
including our interest and the interests of our joint venture partners and
minority interests.
UNCONSOLIDATED
JOINT VENTURES:
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
%
Variance
|
|
2006
|
|
2005
|
|
%
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
Available
|
|
|
221,599
|
|
|
38,584
|
|
|
|
|
|
423,227
|
|
|
76,744
|
|
|
|
|
Rooms
Occupied
|
|
|
166,101
|
|
|
32,681
|
|
|
|
|
|
300,048
|
|
|
61,241
|
|
|
|
|
Occupancy
|
|
|
74.96
|
%
|
|
84.70
|
%
|
|
-11.5
|
%
|
|
70.90
|
%
|
|
79.80
|
%
|
|
-11.2
|
%
|
Average
Daily Rate (ADR)
|
|
$
|
136.52
|
|
$
|
136.81
|
|
|
-.2
|
%
|
$
|
130.54
|
|
$
|
132.07
|
|
|
-1.2
|
%
|
Revenue
Per Available Room (RevPAR)
|
|
$
|
102.33
|
|
$
|
115.88
|
|
|
-11.7
|
%
|
$
|
92.55
|
|
$
|
105.39
|
|
|
-12.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
Revenues
|
|
$
|
22,676,247
|
|
$
|
4,471,000
|
|
|
|
|
$
|
39,168,576
|
|
$
|
8,088,000
|
|
|
|
|
Food
& Beverage
|
|
$
|
6,474,281
|
|
$
|
340,484
|
|
|
|
|
$
|
10,884,401
|
|
$
|
606,308
|
|
|
|
|
Other
Revenues
|
|
$
|
1,955,957
|
|
$
|
62,671
|
|
|
|
|
$
|
3,625,723
|
|
$
|
153,885
|
|
|
|
|
Total
Revenues
|
|
$
|
31,106,485
|
|
$
|
4,874,155
|
|
|
|
|
$
|
53,678,700
|
|
$
|
8,848,193
|
|
|
|
|
The
following table outlines operating results for the three and six months ended
June 30, 2006 and 2005 for our entire portfolio of hotels, which includes
wholly
owned hotels, hotels we own through joint venture interests that are
consolidated in our financial statements, and hotels we own through an
unconsolidated joint venture interest. These
operating results reflect 100% of the operating results of the property
including our interest and the interests of our joint venture partners and
minority interests.
ALL
HOTELS (INCLUDES CONSOLIDATED HOTELS AND UNCONSOLIDATED JOINT VENTURE
ASSETS):
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
%
Variance
|
|
2006
|
|
2005
|
|
%
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms
Available
|
|
|
617,100
|
|
|
255,873
|
|
|
|
|
|
1,158,085
|
|
|
476,163
|
|
|
|
|
Rooms
Occupied
|
|
|
478,212
|
|
|
201,486
|
|
|
|
|
|
828,908
|
|
|
335,817
|
|
|
|
|
Occupancy
|
|
|
77.49
|
%
|
|
78.74
|
%
|
|
-1.6
|
%
|
|
71.58
|
%
|
|
70.53
|
%
|
|
1.5
|
%
|
Average
Daily Rate (ADR)
|
|
$
|
121.15
|
|
$
|
108.17
|
|
|
12.0
|
%
|
$
|
115.89
|
|
$
|
103.98
|
|
|
11.5
|
%
|
Revenue
Per Available Room (RevPAR)
|
|
$
|
93.89
|
|
$
|
85.18
|
|
|
10.2
|
%
|
$
|
82.95
|
|
$
|
73.33
|
|
|
13.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room
Revenues
|
|
$
|
57,936,778
|
|
$
|
21,794,236
|
|
|
|
|
$
|
96,064,913
|
|
$
|
34,917,077
|
|
|
|
|
Food
& Beverage
|
|
$
|
8,608,245
|
|
$
|
1,806,505
|
|
|
|
|
$
|
14,758,512
|
|
$
|
3,301,080
|
|
|
|
|
Other
Revenues
|
|
$
|
2,744,429
|
|
$
|
395,851
|
|
|
|
|
$
|
4,939,649
|
|
$
|
756,036
|
|
|
|
|
Total
Revenues
|
|
$
|
69,289,452
|
|
$
|
23,996,592
|
|
|
|
|
$
|
115,763,074
|
|
$
|
38,974,193
|
|
|
|
|
Discontinued
Assets
|
|
$
|
1,596,257
|
|
$
|
2,588,163
|
|
|
|
|
$
|
3,548,930
|
|
$
|
5,640,977
|
|
|
|
|
Comparison
of the three month period ended June 30, 2006 to June 30, 2005 (in thousands,
except per share data).
Revenue
Our
total
revenues for the three month period ended June 30, 2006 consisted of hotel
operating revenues for hotels leased to our wholly owned TRS, 44 New England,
and hotels owned through joint venture interests which are consolidated in
our
financial statements. Our total revenues were approximately $38,183 representing
an increase of $19,061 or 99.7% compared to total revenues of $19,122 for
the
three month period ended June 30, 2005. The increase in revenues is primarily
attributable to the acquisitions consummated since the comparable period
in 2005
and improved performance at certain of our hotels. Since June 30, 2005, the
Company has acquired interests in the following thirteen hotels:
Brand
|
|
Location
|
|
Rooms
|
|
Acquisition
Date
|
Holiday
Inn Express
|
|
Cambridge,
MA
|
|
112
|
|
May
3, 2006
|
Residence
Inn
|
|
North
Dartmouth, MA
|
|
96
|
|
May
1, 2006
|
Comfort
Inn
|
|
North
Dartmouth, MA
|
|
84
|
|
May
1, 2006
|
Hawthorne
Suites
|
|
Franklin,
MA
|
|
100
|
|
April
25, 2006
|
Hilton
Garden Inn
|
|
JFK
Airport, NY
|
|
188
|
|
February
16, 2006
|
Hampton
Inn
|
|
Philadelphia,
PA
|
|
250
|
|
February
15, 2006
|
Residence
Inn
|
|
Tysons
Corner, VA
|
|
96
|
|
February
2, 2006
|
Courtyard
|
|
Scranton,
PA
|
|
120
|
|
February
1, 2006
|
Courtyard
|
|
Langhorne,
PA
|
|
118
|
|
January
3, 2006
|
Fairfield
Inn
|
|
Mt.
Laurel, NJ
|
|
118
|
|
January
3, 2006
|
Fairfield
Inn
|
|
Bethlehem,
PA
|
|
103
|
|
January
3, 2006
|
Residence
Inn
|
|
Williamsburg,
VA
|
|
108
|
|
November
22, 2005
|
Springhill
Suites
|
|
Williamsburg,
VA
|
|
120
|
|
November
22, 2005
|
Revenues
for all thirteen hotels were recorded from the date of acquisition as Hotel
Operating Revenues. Further, the second quarter of 2006 included revenues
for a
full quarter related to the following six hotels that were purchased in May
and
June of 2005.
Brand
|
|
Location
|
|
Rooms
|
|
Acquisition
Date
|
Courtyard
|
|
Wilmington,
DE
|
|
78
|
|
June
17, 2005
|
Independent
|
|
Wilmington,
DE
|
|
71
|
|
June
17, 2005
|
Courtyard
|
|
Brookline/Boston,
MA
|
188
|
|
June
16, 2005
|
Holiday
Inn Express
|
|
Oxford
Valley, PA
|
|
88
|
|
May
26, 2005
|
Holiday
Inn Express
|
|
Malvern,
PA
|
|
88
|
|
May
24, 2005
|
Holiday
Inn Express & Suites
|
|
King
of Prussia, PA
|
|
155
|
|
May
23, 2005
|
The
income from our unconsolidated joint ventures is accounted for utilizing
the
equity method of accounting, and our portion of the net income from the 15
hotels in these joint ventures is recorded as “Income from Unconsolidated Joint
Venture Investments” in our Statement of Operations. Our joint venture
agreements contain provisions that define the cash distributions and liquidating
distributions and income is allocated to us consistent with those provisions.
Income from unconsolidated joint venture investments increased $490 from
$279
for the three months ended June 30, 2005 to $769 for the three months ended
June
30, 2006. Since June 30, 2005, we have acquired unconsolidated joint venture
interests in the following properties:
Joint
Venture
|
|
Brand
|
|
Name
|
|
Rooms
|
|
Ownership
%
|
|
Hersha
Preferred Equity Return
|
|
Acquisition
Date
|
PRA
Suites at Glastonbury, LLC
|
|
Homewood
Suites
|
|
Glastonbury,
CT
|
|
136
|
|
40.0%
|
|
10.00%
|
|
June
15, 2006
|
Mystic
Partners, LLC
|
|
Marriott
|
|
Mystic,
CT
|
|
285
|
|
66.7%
|
|
8.50%
|
|
August
9, 2005
|
Mystic
Partners, LLC
|
|
Courtyard
|
|
Norwich,
CT
|
|
144
|
|
66.7%
|
|
8.50%
|
|
August
9, 2005
|
Mystic
Partners, LLC
|
|
Courtyard
|
|
Warwick,
RI
|
|
92
|
|
66.7%
|
|
8.50%
|
|
August
9, 2005
|
Mystic
Partners, LLC
|
|
Residence
Inn
|
|
Danbury,
CT
|
|
78
|
|
66.7%
|
|
8.50%
|
|
August
9, 2005
|
Mystic
Partners, LLC
|
|
Residence
Inn
|
|
Southington,
CT
|
|
94
|
|
44.7%
|
|
8.50%
|
|
August
9, 2005
|
Mystic
Partners, LLC
|
|
Springhill
Suites
|
|
Waterford,
CT
|
|
80
|
|
66.7%
|
|
8.50%
|
|
August
9, 2005
|
Mystic
Partners, LLC
|
|
Residence
Inn
|
|
Mystic,
CT
|
|
133
|
|
66.7%
|
|
8.50%
|
|
September
15, 2005
|
Mystic
Partners, LLC
|
|
Hilton
|
|
Hartford,
CT
|
|
393
|
|
8.8%
|
|
8.50%
|
|
October
6, 2005
|
Mystic
Partners, LLC
|
|
Marriott
|
|
Hartford,
CT
|
|
409
|
|
15.0%
|
|
8.50%
|
|
February
8, 2006
|
SB
Partners, LLC
|
|
Holiday
Inn Express
|
|
South
Boston, MA
|
|
118
|
|
50.0%
|
|
10.00%
|
|
October
7, 2005
|
Hiren
Boston, LLC
|
|
Courtyard
|
|
South
Boston, MA
|
|
164
|
|
50.0%
|
|
10.00%
|
|
July
1, 2005
|
For
the
three months ended June 30, 2006, interest income increased $258 compared
to the
same period in 2005. This increase was the result of interest earned on proceeds
from the offering of our common stock, which was completed in the second
quarter
of 2006, and an increase in escrow deposits. Proceeds were invested in short
term accounts until utilized for the acquisition of hotel properties and
the
funding of development loans. Interest income -secured loans related party
for
the three months ended June 30, 2006 decreased $616 from $911 for the three
months ended June 30, 2005 to $295 during the same period in 2006, due primarily
to a decrease in the average balance development loans receivable during
the
period. Other revenue increased approximately $71 for the three months ended
June 30, 2006 compared to the same period in 2005 as a result of fees earned
for
asset management services provided to properties owned by some of our
unconsolidated joint ventures.
Expenses
Total
hotel operating expenses increased 97.0% to approximately $21,392 for the
three
month period ended June 30, 2006 from $10,857 for the three month period
ended
June 30, 2005. Consistent with the increase in hotel operating revenues,
hotel
operating expenses increased primarily due to the acquisitions consummated
since
the comparable period in 2005 as mentioned above. The acquisitions also resulted
in an increase in depreciation and amortization from $2,096 for the three
months
ended June 30, 2005 to $4,609 for the three months ended June 30, 2006.
Similarly, real estate and personal property tax and property insurance
increased $623, or 74.4%, in the three months ended June 30, 2006 when compared
to the same period in 2005.
General
and administrative expense increased by approximately $677 from $1,135 in
2005
to $1,812 in 2006. General and administrative expenses increased primarily
due
to higher compensation expense related to our increase in asset management
and
accounting staff.
Net
Income
Net
income applicable to common shareholders for the three month period ended
June
30, 2006 was approximately $2,176 compared to net income applicable to common
shareholders of $3,755 for the same period in 2005.
Operating
income for the three months ended June 30, 2006 was $8,694 compared to operating
income of $4,088 during the same period in 2005. The $4,606, or 112.7%, 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 offset by increases in interest expense,
which increased $3,290
from $2,633 for
the
three months ended June 30, 2005 to $5,923
for
the
three months ended June 30, 2006. The increase in interest expense is the
result
of our issuance of $51,548 of notes payable in the second quarter of 2005
and
mortgages placed on newly acquired properties. Also in the second quarter
of
2006, we
refinanced $56,125 in variable rate debt, replacing it with $62,800 fixed
rate
debt. As a result of terminating the variable rate debt we incurred $908
in
costs due to early termination fees and to write-off deferred loan costs
associated with the retired debt.
Net
income applicable to common shareholders was also negatively impacted by
$1,200
in preferred dividends resulting from our issuance of 8.0% Series A cumulative
redeemable preferred shares in the third quarter of 2005.
Included
in net income applicable to common shareholders for the three months ended
June
30, 2006 is $153 income from discontinued operations compared to $125 income
during the same period in 2005. Discontinued operations results from the
operations of hotel properties that we have sold and the hotel properties
we
have committed to sell. Also included in net income applicable to common
shareholders for the three months ended June 30, 2006 is a gain of $434
resulting from the sale of the Holiday Inn Express in Hartford, CT which
had
been held for sale. Included in net income applicable to common shareholders
for
the three months ended June 30, 2005 is a gain of $1,161 resulting from the
sale
of Doubletree Club, Jamaica, NY and the Holiday Inn Express, Hunters Point,
NY.
Comparison
of the six month period ended June 30, 2006 to June 30,
2005.
Revenue
Our
total
revenues for the six month period ended June 30, 2006 consisted of hotel
operating revenues for hotels leased to our wholly owned TRS, 44 New England,
and hotels owned through joint venture interests which are consolidated in
our
financial statements. Our total revenues were approximately $62,084 representing
an increase of $31,958 or 106.1% compared to total revenues of $30,126 for
the
six month period ended June 30, 2005. The increase in revenues is primarily
attributable to the acquisitions consummated since the comparable period
in 2005
and improved performance at certain of our hotels. As noted above, we have
acquired interests in thirteen hotels since June 30, 2005. Revenues for all
thirteen hotels were recorded from the date of acquisition as Hotel Operating
Revenues. Further, hotel operating revenue for the six months ended June
30,
2006 included revenues for a full six months related to three hotels that
were
purchased in June 2005, three hotels that were purchased in May 2005, one
hotel
that was purchased in April 2005 and one hotel that was purchased in January
of
2005.
Income
from unconsolidated joint venture investments decreased $669 from income
of $328
for the six months ended June 30, 2005 to a loss of $341 for the six months
ended June 30, 2006. Since June 30, 2005, we have acquired unconsolidated
joint
venture interests in twelve properties. The loss for the six months ended
June
30, 2006 is primarily driven by newly constructed and newly renovated properties
owned by our joint ventures that are still in the ramp up phase of their
life
cycle.
For
the
six months ended June 30, 2006, interest income increased $379 compared to
the
same period in 2005. This increase was the result of interest earned on proceeds
from the offering of our common stock, which was completed in the second
quarter
of 2006, and an increase in interest income on our escrow deposits. Interest
income -secured loans related party for the six months ended June 30, 2006
decreased $1,188 from $1,911 for the six months ended June 30, 2005 to $723
during the same period in 2006, due primarily to a decrease in the average
balance of development loans receivable during the period. Other revenue
increased approximately $221 for the six months ended June 30, 2006 compared
to
the same period in 2005 as a result of fees earned for asset management services
provided to hotels owned by some of our unconsolidated joint
ventures.
Expenses
Total
hotel operating expenses increased 97.1% to approximately $37,350 for the
six
months ended June 30, 2006 from $18,952 for the six month period ended June
30,
2005. Consistent with the increase in hotel operating revenues, hotel operating
expenses increased primarily due to the acquisitions consummated since the
comparable period in 2005 as mentioned above. The acquisitions also resulted
in
an increase in depreciation and amortization from $3,751 for the six months
ended June 30, 2005 to $8,405 for the six months ended June 30, 2006. Similarly,
real estate and personal property tax and property insurance increased $1,336,
or 82.9%, in the six months ended June 30, 2006 when compared to the same
period
in 2005.
General
and administrative expense increased by approximately $863 from $2,113 in
2005
to $2,976 in 2006. General and administrative expenses increased primarily
due
to higher compensation expense related to our increase in asset management
and
accounting staff.
Net
Income
Net
loss
applicable to common shareholders for the six months ended June 30, 2006
was
approximately $2,908 compared to net income applicable to common shareholders
of
$2,779 for the same period in 2005.
Operating
income for the six months ended June 30, 2006 was $10,028 compared to operating
income of $3,482 during the same period in 2005. The $6,546, or 188.0%, increase
in operating income resulted from improved performance of our portfolio and
acquisitions
that have increased the scale of our operations enabling
us to leverage the absorption of administrative costs.
The
increase in our operating income was offset by increases in interest expense,
which increased $7,282
from $4,259 for
the
three months ended June 30, 2005 to $11,541
for
the
six months ended June 30, 2006. The increase in interest expense is the result
of our issuance of $51,548 of notes payable in the second quarter of 2005
and
mortgages placed on newly acquired properties. Also in the six months ended
June
30, 2006, we
refinanced $56,125 in variable rate debt, replacing it with $62,800 fixed
rate
debt, and replaced our line of credit with an increased credit facility.
As a
result of terminating the variable rate debt and line of credit, we incurred
$1,163 in debt extinguishment expense due to early termination fees and to
write-off deferred loan costs associated with the retired debt and credit
facility.
Net
income applicable to common shareholders was also negatively impacted by
$2,400
in preferred dividends resulting from our issuance of 8.0% Series A cumulative
redeemable preferred shares in the third quarter of 2005.
Included
in net income applicable to common shareholders for the six months ended
June
30, 2006 is $123 income from discontinued operations compared to $9 income
during the same period in 2005. Discontinued operations results from the
operations of two properties that were sold in June of 2005 and April 2006
and
the hotel properties we have committed to sell. Also included in net income
applicable to common shareholders for the six months ended June 30, 2006
is a
gain of $434 resulting from the sale of the Holiday Inn Express in Hartford,
CT
which had been held for sale. Included in net income applicable to common
shareholders for the three months ended June 30, 2005 is a gain of $1,161
resulting from the sale of Doubletree Club, Jamaica, NY and the Holiday Inn
Express, Hunters Point, NY.
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.
In
the
second quarter of 2005, HHLP issued 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 HHLP’s 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,
holders
the notes bear interest at a variable rate of LIBOR plus 3.0% pre annum.
Interest
expense in the amount of $946 and $401 was recorded during the three months
ended June 30, 2006 and 2005, respectively, and $1,870 and $401 for the six
months ended June 30, 2006 and 2005, respectively.
On
August
5, 2005, we completed a public offering of 2.4 million of 8.00% Series A
Cumulative Redeemable Preferred Shares of Beneficial Interest, liquidation
preference $25.00 per share. Net proceeds of the offering, less expenses
and
underwriters commissions, were approximately $57,750. Proceeds from the offering
were used to finance the acquisition of the Company’s interests in Mystic
Partners, LLC (“Mystic”) and SB Partners, LLC (“SB Partners”). The remaining net
proceeds have been principally allocated to fund secured development loans
and
for general corporate purposes.
On
April
28, 2006, we completed a public offering of 6,520,000 common shares at $9.00
per
share. On May 9, 2006, the underwriter exercised its over-allotment option
with
respect to this offering, and we issued an additional 977,500 common shares
at
$9.00 per share. Proceeds to the Company, net of underwriting discounts and
commissions and expenses, were approximately $63,400. Immediately upon closing
the offering, the Company contributed all of the net proceeds of the offering
to
the Partnership in exchange for additional Partnership interests. Of the
net
offering proceeds, approximately $30,000 was used to repay indebtedness and
approximately $19,500 was used to fund property acquisitions.
On
January 17, 2006, we entered into a revolving credit loan and security agreement
with Commerce Bank, N.A. with a maximum amount of $60,000. Outstanding
borrowings under the line of credit bear interest at the Company’s option of
either the bank’s prime rate of interest minus .50% or LIBOR available for the
periods of 1, 2, 3, or 6 months plus 2.25%. 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, and collateral assignment
of all
hotel management contracts from which HHLP or its affiliates derive revenues.
The line of credit expires on December 31, 2008 and replaced the Sovereign
Bank
Line of Credit. On
July
28, 2006, we amended our Commerce Line of Credit to increase the maximum
borrowing amount from $60,000 to $85,000 and modified the interest rate
terms to the option of either the bank’s prime rate of interest minus 0.75% or
LIBOR available for the periods of 1,2,3, or 6 months plus 2.00%. Provisions
of
the amended line of credit 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. Certain hotel acquisitions occurring subsequent to June
30,
2006 will be added as supplemental collateral for the increase in the
line of credit.
In
the
second quarter of 2006, we
refinanced $56,125 in variable rate debt, replacing it with $62,800 fixed
rate
debt.
We
intend
to invest in additional hotels only as suitable opportunities arise and adequate
sources of financing are available. Our bylaws require the approval of a
majority of our Board of Trustees, including a majority of the independent
trustees, to acquire any additional hotel in which one of our 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, 2006 and
2005
was $10,061 and $5,502 respectively. The increase in net cash provided by
operating activities was primarily the result of an increase in the number
of
hotels owned and operated over the same period in 2005. Also, operating cash
distributions from unconsolidated joint ventures of $1,135 were received
during
the three months ended June 30, 2006. A net increase in working capital assets
resulted in increased cash provided by operating activities over the same
period
in 2005.
Net
cash
used in investing activities for the six months ended June 30, 2006 and 2005
increased $3,341, from $156,777 in the six months ended June 30, 2005 compared
to $160,118 for the six months ended June 30, 2006. Net cash used for the
purchase of hotel properties and advances and capital contributions for
unconsolidated joint ventures increased $13,386 in the six months ended June
30,
2006 over the same period in 2005. In addition, cash used for deposits on
hotel
acquisitions that closed subsequent quarter end increased $8,507 and capital
expenditures increased $3,902 as part of our on going acquisition and renovation
programs. These uses of cash were partially offset by an increase in the
repayments of development loans to related parties, net of additional
investments, of $17,466. Cash provided by return of investment distributions
from unconsolidated joint ventures during the six months ended June 30, 2006
increased $2,761 over the same period in 2005.
Net
cash
provided by financing activities for the six months ended June 30, 2006 was
$146,123 compared to cash provided by financing activities of $138,719 for
the
six month period ended June 30, 2005. This was, in part the result of $63,353
in
net proceeds from our offering of common stock in the second quarter of 2006.
Also, net borrowings under our line of credit were $32,034 during the six
months
ended June 30, 2006, compared to net of borrowings under our line of credit
of
$918 during the same period in 2005. The increase in net cash provided by
financing activities for the six months ended June 30, 2006 was partially
offset
by a decrease in net proceeds from mortgages and notes payable of $86,173
in
2006 when compared to net proceeds from mortgages and notes payable in 2005.
In
the second quarter of 2005, the company entered into $51,548 of notes payable
with Hersha Statutory Trust I and Hersha Statutory Trust II. Also, dividends
paid of $2,400 were paid in the six months ended June 30, 2006 due to the
issuance of preferred shares in the third quarter of 2005.
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.
(in
thousands, except share data)
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
June
30, 2006
|
|
June
30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) applicable to common shares
|
|
$
|
2,176
|
|
$
|
3,755
|
|
$
|
(2,908
|
)
|
$
|
2,779
|
|
Income
(loss) allocated to minority interest (1)
|
|
|
690
|
|
|
399
|
|
|
(325
|
)
|
|
157
|
|
Income
(loss) of discontinued operations allocated
to minority interest
|
|
|
21
|
|
|
17
|
|
|
18
|
|
|
1
|
|
(Income)
loss from unconsolidated joint ventures
|
|
|
(769
|
)
|
|
(279
|
)
|
|
341
|
|
|
(328
|
)
|
Gain
on sale of assets
|
|
|
(434
|
)
|
|
(1,161
|
)
|
|
(434
|
)
|
|
(1,161
|
)
|
Depreciation
and amortization
|
|
|
4,609
|
|
|
2,096
|
|
|
8,405
|
|
|
3,751
|
|
FFO
related to the minority interests in consolidated joint ventures
(2)
|
|
|
(454
|
)
|
|
(257
|
)
|
|
(313
|
)
|
|
(216
|
)
|
Funds
from consolidated hotel operations applicable
to common shares and Partnership units
|
|
|
5,839
|
|
|
4,570
|
|
|
4,784
|
|
|
4,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Unconsolidated Joint Ventures
|
|
|
769
|
|
|
279
|
|
|
(341
|
)
|
|
328
|
|
Depreciation
and amortization of purchase price in excess of historical cost
(3)
|
|
|
446
|
|
|
-
|
|
|
921
|
|
|
-
|
|
Interest
in depreciation and amortization of unconsolidated joint ventures
(4)
|
|
|
1,553
|
|
|
259
|
|
|
2,573
|
|
|
516
|
|
Funds
from unconsolidated joint ventures operations applicable to common
shares
and Partnership units
|
|
|
2,768
|
|
|
538
|
|
|
3,153
|
|
|
844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
from operations applicable to common shares and Partnership
units
|
|
$
|
8,607
|
|
$
|
5,108
|
|
$
|
7,937
|
|
$
|
5,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,469,708
|
|
|
20,293,169
|
|
|
22,903,225
|
|
|
20,292,167
|
|
Diluted
|
|
|
29,056,539
|
|
|
23,159,013
|
|
|
22,903,225
|
|
|
23,146,372
|
|
(1)
|
Income
(loss) allocated to minority interest includes both income (loss)
allocated to minority interests in our consolidated joint ventures
and
income (loss) allocated to minority interests in the Partnership.
FFO
related to the minority interests in consolidated joint ventures
is
deducted below.
|
(2)
|
Adjustment
made to deduct FFO related to the minority interest in our consolidated
joint ventures which represents the portion of net income and depreciation
allocated to our joint venture
partners.
|
(3)
|
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.
|
(4)
|
Adjustment
made to add our interest in real estate related depreciation and
amortization of our unconsolidated joint ventures. The allocation
of
depreciation and amoritzation is consistent with the allocation
of income
and loss.
|
FFO
was
$8,607 for the three month period ended June 30, 2006, which was an increase
of
$3,499, over FFO in the comparable period in 2005, which was $5,108. FFO
was
$7,937 for the six month period ended June 30, 2006, which was an increase
of
$2,110, over FFO in the comparable period in 2005, which was $5,827. The
increase in FFO was primarily a result of a strengthened economy; the benefits
of acquiring
assets and interests in joint ventures since June 30, 2005; continued
stabilization and maturation of the existing portfolio; an increase in business
travel and continued attention to the average daily rate.
FFO
was
negatively impacted by increases in our interest expense and dividends paid
to
our preferred shareholders and debt extinguishment charges incurred during
the
period ended June 30, 2006.
Critical
Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of operations
are
based upon our consolidated financial statements, which have been prepared
in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates
and
judgments that affect the reported amounts of assets, liabilities, revenues
and
expenses, and related disclosure of contingent assets and liabilities.
On
an
on-going basis, all estimates are evaluated by us, including those related
to
carrying value of investments in hotel properties. All estimates are based
upon
historical experience and on various other assumptions we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that
are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements:
Revenue
Recognition
We
directly recognize revenue and expense for all consolidated hotels as
“Hotel Operating Revenue” and “Hotel Operating Expense” when earned and
incurred. Included in hotel operating revenues is primarily room revenues
and
revenue from other hotel operating departments. These revenues are recorded
net
of any sales or occupancy taxes collected from our guests. All revenues are
recorded on an accrual basis, as earned. We participate in frequent guest
programs sponsored by the brand owners of our hotels and we expense the charges
associated with those programs, as incurred.
Stock
Compensation
We
apply
Statement of Financial Accounting Standards No. 123R, “Share-Based Payments”
(SFAS 123R) whereby we measure the cost of employee service received in exchange
for an award of equity instruments based on the grant -date fair value of
the
award. The cost is recognized over the period during which an employee is
required to provide service in exchange for the award. We granted 71,000
shares
of Stock Awards in the second quarter of 2005, at a fair value of $9.60 per
share vesting over four years, and an additional 89,500 shares of Stock Awards
in the second quarter of 2006 at a fair value of $9.40 per share vesting
over
four years. This resulted in $60 and $14 in compensation expense for the
three
months ended June 30, 2006 and June 30, 2005, respectively, and $103 and
$14 for
the six months ended June 30, 2006 and 2005. One-fourth of the 71,000 shares
issued in the second quarter of 2005 became vested on June 1, 2006, and none
of
the restricted shares issued in the second quarter of 2006 were vested as
of
June 30, 2006.
Allowance
for Doubtful Accounts
Accounts
receivable are charged to bad debt expense when they are determined to be
uncollectible based upon a periodic review of the accounts by management.
Accounting principles generally accepted in the United States of America
require
that the allowance method be used to recognize bad debts. Our evaluation
of the adequacy of the allowance for doubtful accounts is based on known
or
inherent credit risks, economic conditions in the markets our hotels operate,
past experience, and other factors. This evaluation requires judgment and
is
inherently subjective. Deterioration in the quality of our hotel accounts
receivable or other receivables could require us to record additional allowance.
Derivatives
The
Company’s objective in using derivatives is to add stability to interest expense
and to manage its exposure to interest rate movements or other identified
risks.
To accomplish this objective, the Company primarily uses interest rate swaps
as
part of its cash flow hedging strategy. Interest rate swaps designated as
cash
flow hedges involve the receipt of variable-rate amounts in exchange for
fixed-rate payments over the life of the agreements without exchange of the
underlying principal amount. Interest rate caps designated as cash flow hedges
limit the Company's exposure to increased cash payments due to increases
in
variable interest rates. During the three and six months ended June 30, 2006,
these derivatives were used to hedge the variable cash flows associated with
existing variable-rate debt.
As
of
June 30, 2006, no derivatives were designated as fair value hedges or hedges
of
net investments in foreign operations. Additionally, the Company does not
use
derivatives for trading or speculative purposes and currently does not have
any
derivatives that are not designated as hedges.
Investment
in Unconsolidated Joint Ventures
The
equity method of accounting is used for joint ventures in which we have the
ability to exercise significant influence. Under this method, the investment,
originally recorded at cost, is adjusted to recognize our share of net earnings
or losses of the affiliates as they occur rather then as dividends or other
distributions are received, limited to the extent of our investment in, advances
to and commitments for the investee.
Evaluation
of Consolidation Criteria for Investments in Joint Ventures and Other
Contractual Relationaships
We
evaluate our investments and contractual relationships to determine (a) if
the
investment or relationship is with a Variable Interest Entitie (VIE) and
(b) if
the entity is required to be consolidated with us in accordance withthe
Financial Accounting Standards Board issued FASB Interpretation No. 46, (“FIN
46R”) “Consolidation of Variable Interest Entities (VIE’s), an interpretation of
Accounting Research Bulletin No. 51 (ARB No. 51),” as amended. FIN 46R addresses
how a business enterprise should evaluate whether it has a controlling financial
interest in any VIE through means other than voting rights, and accordingly,
should include the VIE in its consolidated financial statements.
In
addition to other contractual relationships, our investments in development
loans receivable and joint ventures are evaluated to determine whether they
meet
the guidelines of consolidation in accordance with FIN 46R: Our examination
consists of reviewing the sufficiency of equity at risk, controlling financial
interests, voting rights, and the obligation to absorb expected losses and
expected gains, including residual returns. The estimation of an entities
expected future losses, expected gains, and residual returns requires
significant judgment. We will continue to evaluate each of our investments
and
contractual relationships to determine if consolidation is required based
upon
the provisions of FIN 46R.
Impairment
of Long-Lived Assets.
We
review
the carrying value of each hotel property in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 144 to determine if circumstances
exist indicating an impairment in the carrying value of the investment in
the
hotel property or if depreciation periods should be modified. Long-lived
assets
are reviewed for impairment whenever events or changes in business circumstances
indicate that the carrying amount of the assets may not be fully recoverable.
We
perform undiscounted cash flow analyses to determine if an impairment exists.
If
an impairment is determined to exist, any related impairment loss is calculated
based on fair value. Hotel properties held for sale are presented at the
lower
of carrying amount or fair value less cost to sell.
We
would
record an impairment charge if we believe an investment in hotel property
has
been impaired such that future undiscounted cash flows would not recover
the
book basis of the investment in the hotel property. Future adverse changes
in
market conditions or poor operating results of underlying investments could
result in losses or an inability to recover the carrying value of the
investments that may not be reflected in an investment’s carrying value, thereby
possibly requiring an impairment charge in the future. We have reviewed each
of
our hotel properties at June 30, 2006 for impairment and, based on our estimate
of each hotel’s future undiscounted cash flows, determined that no impairment
existed at any of our hotels.
Inflation
Operators
of hotels in general possess the ability to adjust room rates. However,
competitive pressures may limit the hotel operator’s ability to raise room rates
in the face of inflation.
Seasonality
Our
hotels’ operations historically have been seasonal in nature, reflecting higher
occupancy rates during the second and third quarters. This seasonality can
be
expected to cause fluctuations in our quarterly lease revenue to the extent
that
we receive percentage rent.
Subsequent
Events
On
May
25, 2006, our Board of Trustees declared quarterly cash dividends of $0.18
per
common share and unit of limited partnership interest in our operating
partnership for the quarter ending June 30, 2006. The common share dividend
and
limited partnership unit distribution were paid on July 17, 2006 to shareholders
and unitholders of record on June 30, 2006. The quarterly dividend pertaining
to
the Series A Preferred Shares for the first quarter of 2006 was declared
on May
25, 2006 to shareholders of record on July 1, 2006 at a rate of $0.50 per
share.
The dividend was paid on July 17, 2006.
In
July,
we signed an agreement to purchase the remaining two-thirds interest in
the
joint venture that owns the 144-room Hampton Inn Manhattan-Chelsea from
our
joint-venture partner, CNL Hotels & Resorts, Inc for $25.4 million.
In
July,
we exercised our right of first refusal to purchase the 96-room Residence
Inn in
Norwood, Massachusetts for $14.9 million. The brand new hotel opened on
July 27,
2006.
Item
3.
Quantitative
and Qualitative Disclosures About Market
Risk.
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, 2006, we
maintained a balance of $32,034 under our Line of Credit. The total floating
rate mortgages payable of $29,622 had a current weighted average interest
rate
of 8.31%. The total fixed rate mortgages payable of $323,776 had a current
weighted average interest rate of 6.55%. The carrying value of all of our
fixed
rate debt approximates fair value.
Our
interest rate risk objectives are to limit the impact of interest rate
fluctuations on earnings and cash flows and to lower our overall borrowing
costs. To achieve these objectives, we manage our exposure to fluctuations
in
market interest rates for a portion of our borrowings through the use of
fixed
rate debt instruments to the extent that reasonably favorable rates are
obtainable with such arrangements. We may enter into derivative financial
instruments such as interest rate swaps or caps and treasury options or locks
to
mitigate our interest rate risk on a related financial instrument or to
effectively lock the interest rate on a portion of our variable rate debt.
Currently, we have one interest rate swap related to debt on the Four Points
by
Sheraton, Revere. We do not intend to enter into derivative or interest rate
transactions for speculative purposes.
Approximately
91.6% of our outstanding mortgages payable are subject to fixed rates, including
the debt whose rate is fixed through a derivative instrument, while
approximately 8.4% 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, 2006 was approximately 6.81%. If the interest rate for our
Line
of Credit and other variable rate debt was 100 basis points higher or lower
during the period ended June 30, 2005, our interest expense for the three
month
and six month period ended June 30, 2006 would have been increased or decreased
by approximately $144 and $163, respectively.
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, 2006, the following table presents expected principal
repayments and related weighted average interest rates by expected maturity
dates (in thousands):
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Thereafter
|
|
Total
|
|
Fixed
Rate Debt
|
|
$
|
2,069
|
|
$
|
5,603
|
|
$
|
21,201
|
|
$
|
17,109
|
|
$
|
28,015
|
|
$
|
249,779
|
|
$
|
323,776
|
|
Average
Interest Rate
|
|
|
6.54
|
%
|
|
6.52
|
%
|
|
6.53
|
%
|
|
6.52
|
%
|
|
6.30
|
%
|
|
6.30
|
%
|
|
6.45
|
%
|
Floating
Rate Debt
|
|
$
|
287
|
|
$
|
395
|
|
$
|
13,661
|
|
$
|
427
|
|
$
|
12,280
|
|
$
|
2,572
|
|
$
|
29,622
|
|
Average
Interest Rate
|
|
|
8.31
|
%
|
|
8.32
|
%
|
|
7.75
|
%
|
|
7.75
|
%
|
|
7.75
|
%
|
|
7.75
|
%
|
|
7.94
|
%
|
The
table
incorporates only those exposures that existed as of June 30, 2006 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.
At
June
30, 2006, the fair value of the interest rate swap was $160 and is included
in
other assets on the consolidated balance sheets. At December 31, 2005, the
fair
value of the interest rate cap was $23 and is included in other assets and
the
fair value of the interest rate swap was $0. The change in net unrealized
gains/losses of $92 and $130 for the three months ended June 30, 2006 and
2005,
respectively, for derivatives designated as cash flow hedges. The change
in net
unrealized gains/losses of $209 and $100 for the six months ended June 30,
2006
and 2005, respectively, for derivatives designed as cash flow hedges. Hedge
ineffectiveness of $3 and $3 on cash flow hedges was recognized in unrealized
gain/loss on derivatives during the three months ended June 30, 2006 and
2005,
respectively, and is included in interest expense on the consolidated statements
of operations. Hedge ineffectiveness of $7 and $7 on cash flow hedges was
recognized in unrealized gain/loss on derivatives during the six months ended
June 30, 2006 and 2005, respectively, and is included in interest expense
on the
consolidated statements of operations. On June 12, 2006, we terminated the
interest rate cap due to the refinancing of the associated interest rate
debt
instrument to a fixed rate. We received $79 in cash and reclassified $58
in
reduction to interest expense as a result of the termination of this
cap.
Item
4. Controls
and Procedures.
Disclosure
Controls and Procedures
The
Company’s management, under the supervision of and with the participation of the
Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the Company’s disclosure controls and procedures, as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of
1934, as amended (the “Exchange Act”), as of the end of the period covered by
this report. Based on such evaluation, the Company’s Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of such period,
the
Company’s disclosure controls and procedures are effective and reasonably
designed to ensure that all material information relating to the Company
required to be included in the Company’s reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission.
Changes
in Internal Control Over Financial Reporting
In
connection with our annual assessment of internal control over financial
reporting, management identified certain material weaknesses in internal
control, which are described in our Annual Report on Form 10-K for the year
ended December 31, 2005. In response to the material weaknesses identified
by
the Company, the Company and HHMLP have taken certain remedial measures in
response to identified material weaknesses. To date, the remedial measures
occurring during the quarter ended June 30, 2006 include the following:
·
|
HHMLP
is seeking to hire additional senior accounting professionals.
The Company
intends to continue its oversight of the internal control improvements
being implemented by HHMLP and other third party service providers.
|
·
|
The
Company is working with HHMLP to establish additional and more
rigorous
procedures to be performed by HHMLP to prepare and review financial
information prior to release to the Company for inclusion in the
consolidated financial statements.
|
·
|
HHMLP,
in cooperation with the Company, is taking steps to better inform
and
train hotel level accounting employees regarding controls over
revenue
accounting, account reconciliations and account analysis.
|
Except
as
described above, there was no change in our internal control over financial
reporting during the quarter ended June 30, 2006, that has materially affected,
or is reasonably likely to materially affect, our internal control 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. Default Upon Senior Securities.
None.
Item
4. Submission of Matters to a Vote of Security
Holders.
The
annual meeting of the shareholders (the “Annual Meeting”) of the Company was
held on Thursday, May 25, 2006. At the Annual Meeting, the shareholders of
the
Company voted as follows:
1)
The
election of the following Class II trustees to serve until the annual meeting
of
shareholders in 2007:
TRUSTEE
|
|
FOR
|
|
AGAINST
|
|
WITHHOLD
|
|
BROKER
NON-VOTES
|
|
Donald
J. Landry
|
|
|
18,506,123
|
|
|
0
|
|
|
282,039
|
|
|
0
|
|
Thomas
S. Capello
|
|
|
18,509,554
|
|
|
0
|
|
|
278,608
|
|
|
0
|
|
Jay
H. Shah
|
|
|
18,484,126
|
|
|
0
|
|
|
304,036
|
|
|
0
|
|
2)
The
ratification of the appointment of KPMG LLP to serve as independent auditors
of
the Company to serve for 2006:
FOR
|
|
AGAINST
|
|
WITHHOLD
|
|
BROKER
NON-VOTES
|
18,724,132
|
|
53,276
|
|
10,754
|
|
0
|
Item
5. Other Information.
None.
(a)
Exhibits Required by Item 601 of Regulation S-K.
10.1 |
Contribution
Agreement, dated as of May 3, 2006, by and among Kiran P. Patel,
Hasu P.
Shah,
Bharat C. Mehta, Kanti D. Patel, 44 Cambridge Associates LLC and
Hersha
Hospitality Limited Partnership (filed as Exhibit 10.1 to the Current
Report on Form 8-K filed May 8, 2006 (SEC File No. 001-14765) and
incorporated by reference herein.
|
10.2
|
Purchase
and Sale Agreement, dated July 11, 2006, by and between CNL Hospitality
Partners, LP and Hersha Hospitality Limited Partnership (filed
as Exhibit
10.1 to the Current Report on Form 8-K filed July 17, 2006 (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.
|
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Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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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.
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HERSHA
HOSPITALITY TRUST
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(Registrant)
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August
9, 2006
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/s/
Ashish R. Parikh
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Ashish
R. Parikh
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Chief
Financial Officer
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