ht-20160331 10-Q Q1

 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-Q



(Mark One)



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended March 31, 2016



OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from ____ to ____



COMMISSION FILE NUMBER: 001-14765



HERSHA HOSPITALITY TRUST

(Exact Name of Registrant as Specified in Its Charter)



Maryland

 

251811499

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)



 

44 Hersha Drive, Harrisburg, PA

 

17102

(Address of Registrant’s Principal Executive Offices)

 

(Zip Code)



Registrant’s telephone number, including area code: (717) 236-4400



Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.

Yes No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





 

 



Large accelerated filer 

Accelerated filer 



Non-accelerated filer 

Small reporting company 



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes No

 

As of April 28, 2016, the number of Class A common shares of beneficial interest outstanding was  44,034,660  and there were no Class B common shares of beneficial interest outstanding.

 

 


 

 

 Hersha Hospitality Trust

Table of Contents







 

 



 

 

PART I.  FINANCIAL INFORMATION

Page

Item 1.

Financial Statements.

 



Consolidated Balance Sheets as of March 31, 2016 [Unaudited] and December 31, 2015

3



Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015 [Unaudited]

4



Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and 2015 [Unaudited]

6



Consolidated Statements of Equity for the Three Months Ended March 31, 2016 and 2015 [Unaudited]

7



Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 [Unaudited]

9



Notes to the Consolidated Financial Statements

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

33

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

46

Item 4.

Controls and Procedures.

47



 

 

PART II.  OTHER INFORMATION

 

Item 1.

Legal Proceedings.

48

Item 1A.

Risk Factors.

48

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

48

Item 3.

Defaults Upon Senior Securities.

48

Item 4.

Mine Safety Disclosures.

48

Item 5.

Other Information.

48

Item 6.

Exhibits.

49



 

 



Signatures

50















 



 

2


 

Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2016 (UNAUDITED) AND DECEMBER 31, 2015

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

 

  





 

 

 

 

 

 



 

 

 

 

 

 



 

March 31, 2016

 

December 31, 2015

Assets:

 

 

 

 

 

 

Investment in Hotel Properties, Net of Accumulated Depreciation, Including Consolidation of Variable Interest Entity Assets of $82,412 and $82,787

 

$

1,702,891 

 

$

1,831,119 

Investment in Unconsolidated Joint Ventures

 

 

9,853 

 

 

10,316 

Cash and Cash Equivalents

 

 

23,677 

 

 

27,955 

Escrow Deposits

 

 

20,798 

 

 

19,204 

Hotel Accounts Receivable, Net of Allowance for Doubtful Accounts of $2 and $12

 

 

10,263 

 

 

9,465 

Due from Related Parties

 

 

6,286 

 

 

6,243 

Intangible Assets, Net of Accumulated Amortization of $4,065 and $3,951

 

 

14,150 

 

 

13,389 

Deposits on Hotel Acquisitions

 

 

 -

 

 

5,000 

Other Assets

 

 

36,129 

 

 

39,958 

Hotel Assets Held for Sale

 

 

264,784 

 

 

 -

Total Assets

 

$

2,088,831 

 

$

1,962,649 



 

 

 

 

 

 

Liabilities and Equity:

 

 

 

 

 

 

Line of Credit

 

$

178,550 

 

$

27,000 

Unsecured Term Loan, Net of Unamortized Deferred Financing Costs (Note 5)

 

 

547,829 

 

 

547,780 

Unsecured Notes Payable, Net of Unamortized Deferred Financing Costs (Note 5)

 

 

50,538 

 

 

50,525 

Mortgages Payable, including Net Unamortized Premium and Unamortized Deferred Financing Costs, and Consolidation of Variable Interest Entity Debt of $52,095 and $52,509 (Note 5)

 

 

495,604 

 

 

544,659 

Accounts Payable, Accrued Expenses and Other Liabilities

 

 

56,720 

 

 

59,226 

Dividends and Distributions Payable

 

 

16,900 

 

 

16,515 

Due to Related Parties

 

 

3,844 

 

 

8,789 

Liabilities Related to Hotel Assets Held for Sale

 

 

55,203 

 

 

 -

Total Liabilities

 

$

1,405,188 

 

$

1,254,494 



 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Shareholders' Equity:

 

 

 

 

 

 

Preferred Shares:  $.01 Par Value, 29,000,000 Shares Authorized, 4,600,000 Series B and 3,000,000 Series C Shares Issued and Outstanding at March 31, 2016 and December 31, 2015, with Liquidation Preferences of $25 Per Share (Note 1)

 

$

76 

 

$

76 

Common Shares:  Class A, $.01 Par Value, 300,000,000 Shares Authorized at March 31, 2016 and December 31, 2015, 44,363,524 and 44,457,368 Shares Issued and Outstanding at March 31,2016 and December 31, 2015, respectively

 

 

443 

 

 

444 

Common Shares:  Class B, $.01 Par Value, 1,000,000 Shares Authorized, None Issued and Outstanding at March 31, 2016 and December 31, 2015

 

 

 -

 

 

 -

Accumulated Other Comprehensive Loss

 

 

(703)

 

 

(466)

Additional Paid-in Capital

 

 

1,083,158 

 

 

1,086,259 

Distributions in Excess of Net Income

 

 

(432,017)

 

 

(408,274)

Total Shareholders' Equity

 

 

650,957 

 

 

678,039 



 

 

 

 

 

 

Noncontrolling Interests (Note 1):

 

 

 

 

 

 

Noncontrolling Interests - Common Units and LTIP Units

 

 

34,608 

 

 

31,876 

Noncontrolling Interests - Consolidated Variable Interest Entity

 

 

(1,922)

 

 

(1,760)

Total Noncontrolling Interests

 

 

32,686 

 

 

30,116 



 

 

 

 

 

 

Total Equity

 

 

683,643 

 

 

708,155 



 

 

 

 

 

 

Total Liabilities and Equity

 

$

2,088,831 

 

$

1,962,649 





The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

3

 


 

Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

 









 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

Three Months Ended March 31,



 

2016

 

2015

 

Revenue:

 

 

 

 

 

 

 

Hotel Operating Revenues

 

$

106,847 

 

$

95,688 

 

Other Revenues

 

 

23 

 

 

24 

 

Total Revenues

 

 

106,870 

 

 

95,712 

 



 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

Hotel Operating Expenses

 

 

65,718 

 

 

57,355 

 

Hotel Ground Rent

 

 

893 

 

 

728 

 

Real Estate and Personal Property Taxes and Property Insurance

 

 

9,156 

 

 

8,270 

 

General and Administrative (including Share Based Payments of $2,406 and $1,539 for the three months ended March 31, 2016 and 2015, respectively)

 

 

5,400 

 

 

4,347 

 

Acquisition and Terminated Transaction Costs

 

 

1,508 

 

 

118 

 

Depreciation and Amortization

 

 

20,060 

 

 

18,253 

 

Total Operating Expenses

 

 

102,735 

 

 

89,071 

 



 

 

 

 

 

 

 

Operating Income

 

 

4,135 

 

 

6,641 

 



 

 

 

 

 

 

 

Interest Income

 

 

46 

 

 

48 

 

Interest Expense

 

 

(12,221)

 

 

(10,635)

 

Other Expense

 

 

(123)

 

 

(169)

 

Loss on Debt Extinguishment

 

 

(42)

 

 

 -

 

Loss Before Loss from Unconsolidated Joint Venture Investments and Income Taxes

 

 

(8,205)

 

 

(4,115)

 



 

 

 

 

 

 

 

Loss from Unconsolidated Joint Ventures

 

 

(214)

 

 

(274)

 

Loss from Unconsolidated Joint Venture Investments

 

 

(214)

 

 

(274)

 



 

 

 

 

 

 

 

Loss from Continuing Operations

 

 

(8,419)

 

 

(4,389)

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Net Loss

 

 

(8,419)

 

 

(4,389)

 



 

 

 

 

 

 

 

Loss Allocated to Noncontrolling Interests

 

 

687 

 

 

443 

 

Preferred Distributions

 

 

(3,589)

 

 

(3,589)

 



 

 

 

 

 

 

 

Net Loss Applicable to Common Shareholders

 

$

(11,321)

 

$

(7,535)

 



The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

 

4


 

Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]



 











 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

Three Months Ended March 31,



 

2016

 

2015

 

Earnings Per Share:

 

 

 

 

 

 

 

BASIC

 

 

 

 

 

 

 

Net Loss Applicable to Common Shareholders

 

$

(0.26)

 

$

(0.15)

 



 

 

 

 

 

 

 

DILUTED

 

 

 

 

 

 

 

Net Loss Applicable to Common Shareholders

 

$

(0.26)

 

$

(0.15)

 



 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

Basic

 

 

44,379,327 

 

 

49,582,790 

 

Diluted*

 

 

44,379,327 

 

 

49,582,790 

 



*Income (loss) allocated to noncontrolling interest in Hersha Hospitality Limited Partnership (the “Operating Partnership” or “HHLP”) has been excluded from the numerator and the Operating Partnership’s common units of limited partnership interest (“Common Units”) and the Operating Partnership’s vested LTIP units (“Vested LTIP Units”) have been omitted from the denominator for the purpose of computing diluted earnings per share because the effect of including these shares and units in the numerator and denominator would have no impact.  In addition, potentially dilutive common shares, if any, have been excluded from the denominator if they are anti-dilutive to income (loss) from continuing operations applicable to common shareholders.



The following table summarizes potentially dilutive securities that have been excluded from the denominator for the purpose of computing diluted earnings per share:











 

 

 

 

 

 

 



 

 

 

 

 

 

 

   

 

Three Months Ended March 31,

   

 

2016

 

2015

 

Common Units and Vested LTIP Units

 

 

2,056,512 

 

 

1,836,565 

 

Unvested Stock Awards and LTIP Units Outstanding

 

 

51,878 

 

 

202,129 

 

Contingently Issuable Share Awards

 

 

407,732 

 

 

280,727 

 

Total Potentially Dilutive Securities Excluded from the Denominator

 

 

2,516,122 

 

 

2,319,421 

 



The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.



 

 

5


 

Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 [UNAUDITED]

[IN THOUSANDS]





 



 

 

 

 

 



 

 

 

 

 



Three Months Ended March 31,



2016

 

2015

Net Loss

$

(8,419)

 

$

(4,389)

Other Comprehensive Loss

 

 

 

 

 

Change in Fair Value of Derivative Instruments

 

(416)

 

 

(217)

Less:  Reclassification Adjustment for Change in Fair Value of Derivative Instruments Included in Net Income

 

179 

 

 

(339)



$

(237)

 

$

(556)



 

 

 

 

 

Comprehensive Loss

 

(8,656)

 

 

(4,945)

Less:  Comprehensive Loss Attributable to Noncontrolling Interests

 

687 

 

 

443 

Less:  Preferred Distributions

 

(3,589)

 

 

(3,589)

Comprehensive Loss Attributable to Common Shareholders

$

(11,558)

 

$

(8,091)



The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

 

 

6


 

Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARES]

















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Shareholders' Equity

 

Noncontrolling Interests

 



Common Shares

Class A Common Shares ($)

Class B Common Shares ($)

Preferred Shares

Preferred Shares ($)

Additional Paid-In Capital ($)

Accumulated Other Comprehensive Loss ($)

Distributions in Excess of Net Earnings ($)

Total Shareholders' Equity ($)

 

Common Units and LTIP Units

Common Units and LTIP Units ($)

Consolidated Variable Interest Entity ($)

Total Noncontrolling Interests ($)

Total Equity ($)

Balance at December 31, 2015

44,457,368  444 

 -

7,600,000  76  1,086,259  (466) (408,274) 678,039 

 

2,319,301  31,876  (1,760) 30,116  708,155 

Unit Conversion

 -

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

 -

 -

 -

 -

Repurchase of Common Shares

(116,257) (1)

 -

 -

 -

(2,313)

 -

 -

(2,314)

 

 -

 -

 -

 -

(2,314)

Dividends and Distributions declared:

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares

 -

 -

 -

 -

 -

 -

 -

(12,422) (12,422)

 

 -

 -

 -

 -

(12,422)

Preferred Shares

 -

 -

 -

 -

 -

 -

 -

(3,589) (3,589)

 

 -

 -

 -

 -

(3,589)

Common Units

 -

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

(477)

 -

(477) (477)

LTIP Units

 -

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

(628)

 -

(628) (628)

Dividend Reinvestment Plan

863 

 -

 -

 -

 -

15 

 -

 -

15 

 

 -

 -

 -

 -

15 

Share Based Compensation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grants

21,550 

 -

 -

 -

 -

(1,060)

 -

 -

(1,060)

 

294,245  1,060 

 -

1,060 

 -

Amortization

 -

 -

 -

 -

 -

257 

 -

 -

257 

 

 -

3,302 

 -

3,302  3,559 

Change in Fair Value of Derivative Instruments

 -

 -

 -

 -

 -

 -

(237)

 -

(237)

 

 -

 -

 -

 -

(237)

Net Income (Loss)

 -

 -

 -

 -

 -

 -

 -

(7,732) (7,732)

 

 -

(525) (162) (687) (8,419)

Balance at March 31, 2016

44,363,524  443 

 -

7,600,000  76  1,083,158  (703) (432,017) 650,957 

 

2,613,546  34,608  (1,922) 32,686  683,643 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.



 

7


 

Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARES]











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Shareholders' Equity

 

Noncontrolling Interests

 



Common Shares

Class A Common Shares ($)

Class B Common Shares ($)

Preferred Shares

Preferred Shares ($)

Additional Paid-In Capital ($)

Accumulated Other Comprehensive Loss ($)

Distributions in Excess of Net Earnings ($)

Total Shareholders' Equity ($)

 

Common Units and LTIP Units

Common Units and LTIP Units ($)

Consolidated Variable Interest Entity ($)

Total Noncontrolling Interests ($)

Total Equity ($)

Balance at December 31, 2014

49,708,771  1,989 

 -

7,600,000  76  1,193,056  (358) (365,381) 829,382 

 

2,199,434  29,082  (1,075) 28,007  857,389 

Unit Conversion/Redemption

 -

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

 -

 -

 -

 -

Restricted Shares Forfeiture/LTIP Unit Issuance

 -

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

 -

 -

 -

 -

Repurchase of Common Shares

(494,441) (20)

 -

 -

 -

(10,267)

 -

(2,340) (12,627)

 

 -

 -

 -

 -

(12,627)

Dividends and Distributions declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares ($0.26 per share)

 -

 -

 -

 -

 -

 -

 -

(13,784) (13,784)

 

 -

 -

 -

 -

(13,784)

Preferred Shares

 -

 -

 -

 -

 -

 -

 -

(3,589) (3,589)

 

 -

 -

 -

 -

(3,589)

Common Units ($0.26 per share)

 -

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

(480)

 -

(480) (480)

LTIP Units ($0.07 per share)

 -

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

(172)

 -

(172) (172)

Dividend Reinvestment Plan

593 

 -

 -

 -

 -

15 

 -

 -

15 

 

 -

 -

 -

 -

15 

Share Based Compensation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grants

12,031 

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

 -

 -

 -

 -

Amortization

 -

 -

 -

 -

 -

294 

 -

 -

294 

 

 -

2,314 

 -

2,314  2,608 

Change in Fair Value of Derivative Instruments

 -

 -

 -

 -

 -

 -

(556)

 -

(556)

 

 -

 -

 -

 -

(556)

Net Income (Loss)

 -

 -

 -

 -

 -

 -

 -

(3,946) (3,946)

 

 -

(279) (164) (443) (4,389)

Balance at March 31, 2015

49,226,954  1,969 

 -

7,600,000  76  1,183,098  (914) (389,040) 795,189 

 

2,199,434  30,465  (1,239) 29,226  824,415 



The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

 



 

8


 

Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015[UNAUDITED]

[IN THOUSANDS]





 

















 

 

 

 

 

 

 



 

Three Months Ended March 31,



 

2016

 

2015

 

Operating Activities:

 

 

 

 

 

 

 

Net Loss

 

$

(8,419)

 

$

(4,389)

 

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

 

 

 

 

 

 

 

Depreciation

 

 

19,981 

 

 

18,147 

 

Amortization

 

 

315 

 

 

494 

 

Unamortized Deferred Fees Expensed in Debt Extinguishment

 

 

42 

 

 

 -

 

Equity in (Income) Loss of Unconsolidated Joint Ventures

 

 

214 

 

 

274 

 

Distributions from Unconsolidated Joint Ventures

 

 

 -

 

 

 

Loss Recognized on Change in Fair Value of Derivative Instrument

 

 

37 

 

 

54 

 

Share Based Compensation Expense

 

 

2,406 

 

 

1,539 

 

Change in Assets and Liabilities:

 

 

 

 

 

 

 

(Increase) Decrease in:

 

 

 

 

 

 

 

Hotel Accounts Receivable

 

 

(698)

 

 

(766)

 

Escrows

 

 

(1,046)

 

 

(2,701)

 

Other Assets

 

 

2,895 

 

 

(1,221)

 

Due from Related Parties

 

 

(43)

 

 

165 

 

(Decrease) Increase in:

 

 

 

 

 

 

 

Due to Related Parties

 

 

(4,945)

 

 

2,672 

 

Accounts Payable, Accrued Expenses and Other Liabilities

 

 

(1,640)

 

 

149 

 

Net Cash Provided by Operating Activities

 

$

9,099 

 

$

14,422 

 



 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

Purchase of Hotel Property Assets

 

$

(126,284)

 

$

 -

 

Deposits on Hotel Acquisitions

 

 

 -

 

 

(500)

 

Capital Expenditures

 

 

(11,090)

 

 

(5,383)

 

Cash Paid for Hotel Development Projects

 

 

 -

 

 

(992)

 

Net Changes in Capital Expenditure Escrows

 

 

(188)

 

 

1,730 

 

Distributions from Unconsolidated Joint Ventures

 

 

250 

 

 

130 

 

Net Cash Used in Investing Activities

 

$

(137,312)

 

$

(5,015)

 



The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.



 

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Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 [UNAUDITED]

[IN THOUSANDS]













 

 

 

 

 

 

 



 

Three Months Ended March 31,



 

2016

 

2015

 

Financing Activities:

 

 

 

 

 

 

 

Proceeds from Borrowings Under Line of Credit, Net

 

$

151,550 

 

$

34,500 

 

Principal Repayment of Mortgages and Notes Payable

 

 

(8,470)

 

 

(28,319)

 

Proceeds from Mortgages and Notes Payable

 

 

 -

 

 

25,000 

 

Cash Paid for Deferred Financing Costs

 

 

(117)

 

 

(95)

 

Repurchase of Common Shares

 

 

(2,314)

 

 

(12,627)

 

Dividends Paid on Common Shares

 

 

(12,476)

 

 

(13,903)

 

Dividends Paid on Preferred Shares

 

 

(3,589)

 

 

(3,589)

 

Distributions Paid on Common Units and LTIP Units

 

 

(649)

 

 

(621)

 

Net Cash Provided by Financing Activities

 

$

123,935 

 

$

346 

 



 

 

 

 

 

 

 

Net (Decrease) Increase in Cash and Cash Equivalents

 

$

(4,278)

 

$

9,753 

 

Cash and Cash Equivalents - Beginning of Period

 

 

27,955 

 

 

21,675 

 



 

 

 

 

 

 

 

Cash and Cash Equivalents - End of Period

 

$

23,677 

 

$

31,428 

 



The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.





 

 

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Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

 

NOTE 1 – BASIS OF PRESENTATION



The accompanying unaudited consolidated financial statements of Hersha Hospitality Trust (“we,” “us,” “our” or the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information and with the general instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals), considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or any future period.  Accordingly, readers of these consolidated interim financial statements should refer to the Company’s audited financial statements prepared in accordance with US GAAP, and the related notes thereto, for the year ended December 31, 2015, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as certain footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted from this report pursuant to the rules of the Securities and Exchange Commission.



We are a self-administered Maryland real estate investment trust that was organized in May 1998 and completed our initial public offering in January 1999. Our common shares are traded on the New York Stock Exchange (the “NYSE”) under the symbol “HT.” We own our hotels and our investments in joint ventures through our operating partnership, Hersha Hospitality Limited Partnership (“HHLP”), for which we serve as the sole general partner.  As of March 31, 2016, we owned an approximate 94.4% partnership interest in HHLP, including a 1.0% general partnership interest.



Noncontrolling Interest



We classify the noncontrolling interests of our consolidated variable interest entity, common units of limited partnership interest in HHLP (“Common Units”), and LTIP Units as equity. LTIP Units are a special class of limited partnership interest in the Operating Partnership that are convertible into Common Units under certain circumstances.  The noncontrolling interest of Common Units totaled $34,608 as of March 31, 2016 and $31,876 as of December 31, 2015.  As of March 31, 2016, there were 2,613,546 Common Units outstanding with a fair market value of $55,773, based on the price per share of our common shares on the NYSE on such date. In accordance with the partnership agreement of HHLP, holders of these units may redeem them for cash unless we, in our sole and absolute discretion, elect to issue common shares on a one-for-one basis in lieu of paying cash.

 

Net income or loss attributed to Common Units, as well as the net income or loss related to the noncontrolling interests of our consolidated variable interest entity, is included in net income or loss but excluded from net income or loss applicable to common shareholders in the consolidated statements of operations.



Variable Interest Entities



On January 1, 2016, we adopted ASU No. 2015-02, Consolidation – Amendments to the Consolidation Analysis.  We evaluated the application of ASU No. 2015-02 and concluded that no change was required to our accounting of our interests in less than wholly owned joint ventures. However, HHLP, our operating partnership, now meets the criteria as a variable interest entity.  The Company’s most significant asset is its investment in HHLP, and consequently, substantially all of the Company’s assets and liabilities represent those assets and liabilities of HHLP.



11


 

Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

 

NOTE 1 – BASIS OF PRESENTATION (CONTINUED)



Shareholders’ Equity



Terms of the Series B and Series C Preferred Shares outstanding at March 31, 2016 and December 31, 2015 are summarized as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Dividend Per Share  



 

Shares Outstanding

 

 

 

 

 

 

 

Three Months Ended March 31,

Series

 

March 31, 2016

 

December 31, 2015

 

 

Aggregate Liquidation Preference

 

Distribution Rate

 

 

2016

 

 

2015



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series B

 

4,600,000 

 

4,600,000 

 

$

115,000 

 

8.000% 

 

$

0.5000 

 

$

0.5000 

Series C

 

3,000,000 

 

3,000,000 

 

 

75,000 

 

6.875% 

 

 

0.4297 

 

 

0.4297 

Total

 

7,600,000 

 

7,600,000 

 

 

 

 

 

 

 

 

 

 

 



In May 2015, our Board of Trustees approved a reverse share split of our issued and outstanding common shares and Common Units and LTIP Units at a ratio of 1-for-4. This reverse share split converted every four issued and outstanding common shares into one common share.  The reverse share split was effective as of 5:00 PM Eastern time on June 22, 2015.  As a result of the reverse share split, the number of outstanding common shares was reduced from 191,079,951 to 47,769,961 shares and the number of outstanding Common Units and LTIP Units was reduced from 9,313,063 to 2,328,276 units.  In addition, the second quarter 2015 dividend was adjusted to $0.28 per common share from the previously announced $0.07 per common share.  All common share, Common Unit and LTIP Units and per share data related to these classes of equity have been updated in this Quarterly Report on Form 10-Q to reflect this share split for all periods presented.



In October 2015, our Board of Trustees authorized a new share repurchase program for up to $100,000 of common shares which commenced upon the completion of the previous program. The new program will expire on December 31, 2016 unless extended by the Board of Trustees. We may seek Board of Trustee approval to increase the 2016 authorization. For the three months ended March 31, 2016, the Company repurchased 116,257 common shares for an aggregate purchase price of $2,314. Upon repurchase by the Company, these common shares ceased to be outstanding and became authorized but unissued common shares.



New Accounting Pronouncements



We adopted ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, on January 1, 2016.  This standard requires debt issuance costs to be presented on the balance sheet as a direct deduction from the associated debt liability.  Previously, debt issuance costs were recorded as an asset.  The issuance costs will continue to be amortized over the life of the debt instrument and recorded in interest expense, as they were prior to the new standard.  As part of this adoption, debt issuance costs are now included as an offset to the mortgages, unsecured term loan and unsecured notes payable line items on the consolidated balance sheets for all periods presented. For full reclassification amounts, see “Note 5 – Debt”.



On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.  The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective.  The new standard is effective for the Company on January 1, 2018.  Early adoption is permitted, but not prior to the original effective date of January 1, 2017.  The standard permits the use of either the retrospective or cumulative effect transition method.  The Company is evaluating the effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures.  We do not believe it will have a material impact on the Company’s financial statements.



Reclassification



Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.



 

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

 

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES



Investment in hotel properties consists of the following at March 31, 2016 and December 31, 2015:



 





 

 

 

 

 

 



 

 

 

 

 

 



 

 

March 31, 2016

 

 

December 31, 2015



 

 

 

 

 

 

Land

 

$

465,102 

 

$

480,874 

Buildings and Improvements

 

 

1,371,230 

 

 

1,518,565 

Furniture, Fixtures and Equipment

 

 

214,744 

 

 

227,527 



 

 

2,051,076 

 

 

2,226,966 



 

 

 

 

 

 

Less Accumulated Depreciation

 

 

(348,185)

 

 

(395,847)



 

 

 

 

 

 

Total Investment in Hotel Properties

 

$

1,702,891 

 

$

1,831,119 



Acquisitions



We have acquired the following properties during the three months ended March 31, 2016:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotel

 

Acquisition Date

 

 

Land

 

 

Buildings and Improvements

 

 

Furniture Fixtures and Equipment

 

 

Other Intangibles

 

 

Loan Costs

 

 

Total Purchase Price

 

 

Assumption of Debt

 

Sanctuary Beach Resort, Marina, CA

 

1/28/2016

 

$

20,014 

 

$

17,093 

 

$

2,369 

 

$

 -

 

$

198 

 

$

39,674 

 

$

14,750 

*

Hilton Garden Inn M Street, Washington, DC

 

3/9/2016

 

 

30,131 

 

 

65,971 

 

 

9,621 

 

 

874 

**

 

 -

 

 

106,597 

 

 

 -

 

TOTAL

 

 

 

$

50,145 

 

$

83,064 

 

$

11,990 

 

$

874 

 

$

198 

 

$

146,271 

 

$

14,750 

 



*Assumption of debt includes a $50 premium resulting from the determination that the stated rate of interest is above market rates on the date of acquisition



**Includes an intangible asset for a lease-in-place of $648,  advance bookings of $76  and franchise fees of $150.



Acquisition-related costs, such as due diligence, legal and accounting fees, are not capitalized or applied in determining the fair value of the above acquired assets. During the three months ended March 31, 2016, we paid $1,410 in acquisition costs related to the above acquired assets.



Included in the consolidated statement of operations for the three months ended March 31, 2016 are total revenues of $2,132, and total net income of $754 for the hotels we acquired during the three months ended March 31, 2016 and consolidated since the date of acquisition of the hotels.









 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended March 31,



 

2016

Hotel

 

 

Revenue

 

 

Net
 Income

Sanctuary Beach Resort, Marina, CA

 

$

902 

 

$

263 

Hilton Garden Inn  M Street, Washington, DC

 

 

1,230 

 

 

491 

Total

 

$

2,132 

 

$

754 











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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

 

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)

Purchase and Sale Agreement

On February 4, 2016, we announced the signing of asset purchase and contribution agreements (the “Contribution Agreements”) with Cindat Manhattan Hotel Portfolio (US) LLC (“Cindat”) to form a joint venture that initially invests in seven of our limited service hotels in Manhattan (The “JV Properties”) totaling 1,087 rooms.  The joint venture’s purchase price for the JV Properties is $543,500, or $500 per key.  This transaction closed on April 29, 2016. The proposed joint venture is structured with Cindat as a senior common equity member holding a 70.0% ownership interest, while we retain a 30% common equity interest.  Under the terms of the Contribution Agreements, we contributed the JV Properties and Cindat will contribute cash equal to 70% of the remaining purchase price. In addition, we had a $37,000 preferred equity interest in the joint ventures that provides for a 9% non-cumulative return. Upon closing, we received a distribution from the joint venture in the amount of Cindat’s contributed cash and our 30% interest in the net proceeds from joint venture borrowings.    We have classified the assets and mortgage indebtedness related to these seven hotels as held for sale as of March 31, 2016.





 

 

 



 

 

 



 

March 31, 2016



 

 

 

Land

 

$

65,916 

Buildings and Improvements

 

 

236,830 

Furniture, Fixtures and Equipment

 

 

29,596 



 

 

332,342 



 

 

 

Less: Accumulated Depreciation & Amortization

 

 

(67,558)



 

 

 

Assets Held for Sale

 

$

264,784 



 

 

 

Liabilities Related to Assets Held for Sale

 

$

55,203 



We did not have any assets or liabilities related to assets held for sale as of December 31, 2015

14


 

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

 

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)

Pro Forma Results (Unaudited)

The following condensed pro forma financial data for the three months ended March 31, 2016 and 2015 are presented as if the hotels acquired by the Company in 2016 and 2015 had been acquired as of January 1, 2015 and 2014, respectively. The condensed pro forma financial data are not necessarily indicative of what actual results of operations of the Company would have been for the periods presented assuming the acquisitions had been consummated on January 1, 2015 and 2014, nor do they purport to represent the results of operations for future periods.





 

 

 

 

 

 



 

 

 

 

 

 



 

 

Three Months Ended March 31,



 

2016

 

2015

Pro Forma Total Revenues

 

$

110,325 

 

$

100,833 



 

 

 

 

 

 

Pro Forma Net Loss

 

 

(6,192)

 

 

(3,948)

Loss Allocated to Noncontrolling Interest

 

 

588 

 

 

427 

Preferred Distributions

 

 

(3,589)

 

 

(3,589)

Pro Forma Loss Applicable to Common Shareholders

 

$

(9,193)

 

$

(7,110)



 

 

 

 

 

 

Pro Forma Loss Applicable to Common Shareholders per Common Share

 

 

 

 

 

 

Basic

 

$

(0.21)

 

$

(0.14)

Diluted

 

$

(0.21)

 

$

(0.14)



 

 

 

 

 

 

Weighted Average Common Shares Outstanding

 

 

 

 

 

 

Basic

 

 

44,379,327 

 

 

49,582,790 

Diluted

 

 

44,379,327 

 

 

49,582,790 

   



















 

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Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

 

NOTE 3 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES



As of March 31, 2016 and December 31, 2015, our investment in unconsolidated joint ventures consisted of the following:









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Percent

 

Preferred

 

 

March 31,

 

 

December 31,

Joint Venture

 

Hotel Properties

 

Owned

 

Return

 

 

2016

 

 

2015



 

 

 

 

 

 

 

 

 

 

 

 

SB Partners, LLC

 

Holiday Inn Express, South Boston, MA

 

50.0% 

 

N/A

 

$

656 

 

$