form10.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

OR

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

For the transition period from ____ to ____

COMMISSION FILE NUMBER: 001-14765

HERSHA HOSPITALITY TRUST
(Exact Name of Registrant as Specified in Its Charter)

Maryland
 
251811499
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
44 Hersha Drive, Harrisburg, PA
 
17102
(Address of Registrant’s Principal Executive Offices)
 
(Zip Code)

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

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 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).
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,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
Large accelerated filer  o
Accelerated filer                 x
 
Non-accelerated filer    o
Small reporting company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
o Yes x No
 
As of November 2, 2011, the number of Class A common shares of beneficial interest outstanding was 169,939,126 and there were no Class B common shares outstanding.
 


 
1

 
 
Hersha Hospitality Trust
Table of Contents

 
 
 
Page
 
 
 
 
PART I.  FINANCIAL INFORMATION
 
Item 1.
 
3
 
 
3
 
 
  4
 
 
6
 
 
7
 
 
8
Item 2.
 
33
Item 3.
 
48
Item 4.
 
51
PART II.  OTHER INFORMATION
 
Item 1.
 
52
 Item 1A.
 
52
Item 2.
 
52
52Item 3.
 
52
Item 4.
 
52
Item 5.
 
52
Item 6.
 
52
 
 
 
53
 
 
54
 
 
2

 
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2011 [UNAUDITED] AND DECEMBER 31, 2010
[IN THOUSANDS, EXCEPT SHARE AMOUNTS]
 
   
September 30, 2011
   
December 31, 2010
 
Assets:
           
Investment in Hotel Properties, net of Accumulated Depreciation
  $ 1,250,665     $ 1,245,851  
Investment in Unconsolidated Joint Ventures
    37,601       35,561  
Development Loans Receivable
    35,352       41,653  
Cash and Cash Equivalents
    68,147       65,596  
Escrow Deposits
    26,701       17,384  
Hotel Accounts Receivable, net of allowance for doubtful accounts of $33 and $31
    15,219       9,611  
Deferred Financing Costs, net of Accumulated Amortization of $8,174 and $5,852
    9,287       10,204  
Due from Related Parties
    6,282       5,069  
Intangible Assets, net of Accumulated Amortization of $1,283 and $1,084
    7,870       7,934  
Deposits on Hotel Acquisitions
    30,000       5,500  
Other Assets
    13,690       12,914  
Hotel Assets Held for Sale
    93,830       -  
                 
Total Assets
  $ 1,594,644     $ 1,457,277  
                 
Liabilities and Equity:
               
Line of Credit
  $ 29,000     $ 46,000  
Mortgages and Notes Payable, net of unamortized discount of $784 and $983
    685,191       648,720  
Accounts Payable, Accrued Expenses and Other Liabilities
    29,792       28,601  
Dividends and Distributions Payable
    13,903       9,805  
Due to Related Parties
    105       939  
Liabilities Related to Assets Held for Sale
    62,160       -  
                 
Total Liabilities
    820,151       734,065  
                 
Redeemable Noncontrolling Interests - Common Units (Note 1)
  $ 12,638     $ 19,894  
                 
Equity:
               
Shareholders' Equity:
               
Preferred Shares:  8% Series A, $.01 Par Value, 29,000,000 shares authorized, 2,400,000 Shares Issued and Outstanding (Aggregate Liquidation Preference $60,000) at September 30, 2011 and December 31, 2010
    24       24  
Preferred Shares:  8% Series B, $.01 Par Value, 4,600,000 shares authorized, 4,600,000 Shares Issued and Outstanding (Aggregate Liquidation Preference $115,000) at September 30, 2011 and none issued and outstanding at December 31, 2010
    46       -  
Common Shares:  Class A, $.01 Par Value,  300,000,000 Shares Authorized at September 30, 2011 and December 31, 2010, 169,938,085 and 169,205,638 Shares Issued and Outstanding at September 30, 2011 and December 31, 2010, respectively
    1,699       1,692  
Common Shares:  Class B, $.01 Par Value, 1,000,000 Shares Authorized, None Issued and Outstanding
    -       -  
Accumulated Other Comprehensive Loss
    (1,247 )     (338 )
Additional Paid-in Capital
    1,042,048       918,215  
Distributions in Excess of Net Income
    (297,994 )     (236,159 )
Total Shareholders' Equity
    744,576       683,434  
                 
Noncontrolling Interests (Note 1):
               
Noncontrolling Interests - Common Units
    16,977       19,410  
Noncontrolling Interests - Consolidated Joint Ventures
    302       474  
Total Noncontrolling Interests
    17,279       19,884  
                 
Total Equity
    761,855       703,318  
                 
Total Liabilities and Equity
  $ 1,594,644     $ 1,457,277  

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
 
 
3

 
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30, 2011
   
September 30, 2010
   
September 30, 2011
   
September 30, 2010
 
Revenue:
                       
Hotel Operating Revenues
  $ 80,053     $ 67,992     $ 207,006     $ 172,631  
Interest Income from Development Loans
    656       1,049       2,810       3,599  
Other Revenues
    90       79       240       252  
Total Revenues
    80,799       69,120       210,056       176,482  
                                 
Operating Expenses:
                               
Hotel Operating Expenses
    41,653       36,150       112,605       94,872  
Hotel Ground Rent
    181       256       692       685  
Real Estate and Personal Property Taxes and Property Insurance
    4,861       4,713       14,422       12,435  
General and Administrative
    2,498       1,968       6,619       6,714  
Stock Based Compensation
    1,495       1,869       4,765       4,025  
Acquisition and Terminated Transaction Costs
    147       1,213       2,263       4,751  
Depreciation and Amortization
    12,796       11,381       37,628       32,155  
Total Operating Expenses
    63,631       57,550       178,994       155,637  
                                 
Operating Income
    17,168       11,570       31,062       20,845  
                                 
Interest Income
    144       12       363       69  
Interest Expense
    10,621       10,288       30,761       30,906  
Other Expense
    299       77       866       255  
Loss on Debt Extinguishment
    21       -       55       730  
Income (Loss) before (Loss) Income from Unconsolidated Joint Venture Investments and Discontinued Operations
    6,371       1,217       (257 )     (10,977 )
                                 
Income (Loss) from Unconsolidated Joint Ventures
    107       (243 )     (1,072 )     (1,414 )
Impairment of Investment in Unconsolidated Joint Venture
    (1,677 )     -       (1,677 )     -  
Gain from Remeasurement of Investment in Unconsolidated Joint Venture
    -       -       2,757       4,008  
                                 
(Loss) Income from Unconsolidated Joint Venture Investments
    (1,570 )     (243 )     8       2,594  
                                 
Income (Loss) from Continuing Operations
    4,801       974       (249 )     (8,383 )
                                 
Discontinued Operations  (Note 12):
                               
Gain on Disposition of Hotel Properties
    843       345       843       315  
Impairment of Assets Held for Sale
    (30,248 )     -       (30,248 )     -  
Income (Loss) from Discontinued Operations
    2,100       283       2,080       (960 )
(Loss) Income from Discontinued Operations
    (27,305 )     628       (27,325 )     (645 )
                                 
Net (Loss) Income
    (22,504 )     1,602       (27,574 )     (9,028 )
                                 
(Loss) Income Allocated to Noncontrolling Interests
    (1,001 )     263       (1,619 )     (302 )
Preferred Distributions
    3,500       1,200       6,999       3,600  
                                 
Net (Loss) Income applicable to Common Shareholders
  $ (25,003 )   $ 139     $ (32,954 )   $ (12,326 )

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
 
 
4

 
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30, 2011
   
September 30, 2010
   
September 30, 2011
   
September 30, 2010
 
Earnings Per Share:
                       
BASIC
                       
Income (Loss) from Continuing Operations applicable to Common Shareholders
  $ 0.01     $ (0.00 )   $ (0.04 )   $ (0.09 )
(Loss) Income from Discontinued Operations applicable to Common Shareholders
  $ (0.16 )     0.00     $ (0.16 )     (0.01 )
                                 
Net Loss applicable to Common Shareholders
  $ (0.15 )   $ 0.00     $ (0.20 )   $ (0.10 )
                                 
DILUTED
                               
Income (Loss) from Continuing Operations applicable to Common Shareholders
  $ 0.01 *   $ (0.00 )  *   $ (0.04 )  *   $ (0.09 )
(Loss) Income from Discontinued Operations applicable to Common Shareholders
    (0.16 )  *   $ 0.00 *   $ (0.16 )  *     (0.01 )
                                 
Net Loss applicable to Common Shareholders
  $ (0.15 ) *   $ 0.00 *   $ (0.20 )  *   $ (0.10 )
                                 
Weighted Average Common Shares Outstanding:
                               
Basic
    168,985,193       138,636,206       168,666,752       125,193,554  
Diluted
    172,266,298 *     138,636,206 *     168,666,752 *     125,193,554  
 
*
Income (loss) allocated to noncontrolling interest in Hersha Hospitality Limited Partnership has been excluded from the numerator and units of limited partnership interest in Hersha Hospitality Limited Partnership have been omitted from the denominator for the purpose of computing diluted earnings per share since the effect of including these amounts in the numerator and denominator would have no impact.  Unvested stock awards, contingently issuable share awards and options to acquire our common shares have been omitted from the denominator for the purpose of computing diluted earnings per share for the three months ended September 30, 2010 and the nine months ended September 30, 2011 and 2010, since the effect of including these awards in the denominator would be anti-dilutive to 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
   
Nine Months Ended
 
   
September 30, 2011
   
September 30, 2010
   
September 30, 2011
   
September 30, 2010
 
                         
Common Units of Limited Partnership Interest
    7,246,195       8,242,509       7,331,458       8,994,295  
Unvested Stock Awards Outstanding
    -       196,560       510,677       258,125  
Contingenty Issuable Share Awards
    -       988,428       1,754,130       455,283  
Options to Acquire Common Shares Outstanding
    -       2,245,455       2,503,738       2,006,695  
Total potentially dilutive securities excluded from the denominator
    7,246,195       11,672,952       12,100,003       11,714,398  

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
 
 
5


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 [UNAUDITED]
[IN THOUSANDS, EXCEPT PER SHARE AMOUNTS]
 
   
Shareholders' Equity
   
Noncontrolling Interests
         
Redeemable Noncontrolling Interests
 
   
Series A
Preferred Shares
   
Series B
Preferred Shares
   
Class A
Common Shares
   
Class B
Common Shares
   
Additional
Paid-In
Capital
   
Other
Comprehensive
Income
   
Distributions
in Excess
of Net
Earnings
   
Total
Shareholders'
Equity
   
Common Units
   
Consolidated
Joint Ventures
   
Total
Noncontrolling
Interests
   
Total
Equity
   
Common Units
 
Balance at December 31, 2010
  $ 24     $ -     $ 1,692     $ -     $ 918,215     $ (338 )   $ (236,159 )   $ 683,434     $ 19,410     $ 474     $ 19,884     $ 703,318     $ 19,894  
                                                                                                         
Unit Conversion
    -       -       2       -       637       -       -       639       (868 )     -       (868 )     (229 )     229  
Reallocation of Noncontrolling Interest
    -       -       -       -       6,387       -       -       6,387       (13 )     -       (13 )     6,374       (6,374 )
Preferred Stock Offering
                                                                                                       
Preferred Stock Offering, net of costs
    -       46       -       -       110,951       -       -       110,997       -       -       -       110,997       -  
Dividends and Distributions declared:
                                                                                                       
Common Stock ($0.17 per share)
    -       -       -       -       -       -       (28,881 )     (28,881 )     -       -       -       (28,881 )     -  
Preferred Stock ($1.50 per Series A share)
    -       -       -       -       -       -       (3,600 )     (3,600 )     -       -       -       (3,600 )     -  
Preferred Stock ($0.74 per Series B share)
    -       -       -       -       -       -       (3,399 )     (3,399 )     -       -       -       (3,399 )     -  
Common Units ($0.17 per share)
    -       -       -       -       -       -       -       -       (718 )     -       (718 )     (718 )     (518 )
Contribution by Noncontrolling Interests in     consolidated joint venture
    -       -       -       -       -       -       -       -       -       342       342       342       -  
Deconsolidation of consolidated joint venture
    -       -       -       -       -       -       -       -       -       (322 )     (322 )     (322 )     -  
Dividend Reinvestment Plan
    -       -       -       -       11       -       -       11       -       -       -       11       -  
Stock Based Compensation
                                                                                                       
Grants
    -       -       5       -       1,471       -       -       1,476       -       -       -       1,476       -  
Amortization
    -       -       -       -       4,376       -       -       4,376       -       -       -       4,376       -  
Comprehensive Income (Loss):
                                                                                                       
Other Comprehenive Loss
    -       -       -       -       -       (909 )     -       (909 )     -       -       -       (909 )     -  
Net Loss
    -       -       -       -       -       -       (25,955 )     (25,955 )     (834 )     (192 )     (1,026 )     (26,981 )     (593 )
Total Comprehensive Loss
                                                            (26,864 )     (834 )     (192 )     (1,026 )     (27,890 )     (593 )
                                                                                                         
Balance at September 30, 2011
  $ 24     $ 46     $ 1,699     $ -     $ 1,042,048     $ (1,247 )   $ (297,994 )   $ 744,576     $ 16,977     $ 302     $ 17,279     $ 761,855     $ 12,638  
                                                                                                         
                                                                                                         
Balance at December 31, 2009
  $ 24     $ -     $ 577     $ -     $ 487,481     $ (160 )   $ (185,725 )   $ 302,197     $ 27,126     $ 267     $ 27,393     $ 329,590     $ 14,733  
                                                                                                         
Unit Conversion
    -       -       23       -       10,203       -       -       10,226       (10,226 )     -       (10,226 )     -       -  
Reallocation of Noncontrolling Interest
    -       -       -       -       (1,813 )     -               (1,813 )                             (1,813 )     1,813  
Units Issued for Acquisitions
    -       -       -       -       -       -       -       -       6,256       -       6,256       6,256       -  
Common Share Issuance, net of costs
    -       -       794       -       259,970       -       -       260,764       -       -       -       260,764       -  
Dividends and Distribution declared:
                                                                                                       
Preferred Shares ($1.50 per share)
    -       -       -       -       -       -       (3,600 )     (3,600 )     -       -       -       (3,600 )     -  
Common Shares ($0.15 per share)
    -       -       -       -       -       -       (20,816 )     (20,816 )     -       -       -       (20,816 )     -  
Common Units ($0.15 per share)
    -       -       -       -       -       -       -       -       (869 )     -       (869 )     (869 )     (461 )
Dividend Reinvestment Plan
    -       -       -       -       9       -       -       9       -       -       -       9       -  
Stock Based Compensation
                                                                                                       
Grants
    -       -       4       -       566       -       -       570       -       -       -       570       -  
Amortization
    -       -       -       -       3,317       -       -       3,317       -       -       -       3,317       -  
Comprehensive Loss:
                                                                                                       
Other Comprehensive Income
    -       -       -       -       -       (264 )     -       (264 )     -       -       -       (264 )     -  
Net Loss
    -       -       -       -       -       -       (8,726 )     (8,726 )     (414 )     325       (89 )     (8,815 )     (213 )
Total Comprehensive Loss
                                                            (8,990 )     (414 )     325       (89 )     (9,079 )     (213 )
                                                                                                         
Balance at September 30, 2010
  $ 24     $ -     $ 1,398     $ -     $ 759,733     $ (424 )   $ (218,867 )   $ 541,864     $ 21,873     $ 592     $ 22,465     $ 564,329     $ 15,872  

 The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
 
 
6


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 [UNAUDITED]
[IN THOUSANDS]
 
   
For the Nine Months Ended
 
   
September 30, 2011
   
September 30, 2010
 
Operating activities:
           
Net loss
  $ (27,574 )   $ (9,028 )
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Gain on disposition of hotel properties
    (843 )     (315 )
Impairment of assets
    30,248       -  
Depreciation
    42,266       37,957  
Amortization
    2,853       2,069  
Debt extinguishment
    -       580  
Development loan interest added to principal
    (1,699 )     (1,888 )
Equity in income (loss) of unconsolidated joint ventures
    (8 )     (2,594 )
Loss recognized on change in fair value of derivative instrument
    55       9  
Stock based compensation expense
    4,765       4,025  
Change in assets and liabilities:
               
(Increase) decrease in:
               
Hotel accounts receivable
    (5,454 )     (5,071 )
Escrows
    (4,911 )     (221 )
Other assets
    489       (2,900 )
Due from related parties
    (1,213 )     (369 )
Increase (decrease) in:
               
Due to related parties
    (834 )     5  
Accounts Payable, Accrued Expenses and Other Liabilities
    766       5,192  
Net cash provided by operating activities
    38,906       27,451  
                 
Investing activities:
               
Purchase of hotel property assets
    (100,780 )     (260,755 )
Deposits on hotel acquisitions
    (28,500 )     (1,500 )
Capital expenditures
    (21,086 )     (5,227 )
Cash paid for hotel development project
    (26,667 )     (5,790 )
Proceeds from disposition of hotel properties
    3,643       2,876  
Net changes in capital expenditure escrows
    (840 )     47  
Repayments from and advances to unconsolidated joint ventures
    13,406       (13,650 )
Investment in notes receivable from unconsolidated joint venture
    (1,420 )     -  
Cash paid for franchise fee intangible
    (64 )     -  
Net cash used in investing activities
    (162,308 )     (283,999 )
                 
Financing activities:
               
(Repayments of) proceeds from borrowings under line of credit, net
    (17,000 )     36,500  
Principal repayment of mortgages and notes payable
    (5,827 )     (43,033 )
Proceeds from mortgages and notes payable
    71,353       31,510  
Cash paid for deferred financing costs
    (568 )     (85 )
Proceeds from issuance of preferred stock, net
    110,997       -  
Proceeds from issuance of common stock, net
    -       260,764  
Acquisition of interest rate cap
    -       (395 )
Dividends paid on common shares
    (27,130 )     (16,699 )
Dividends paid on preferred shares
    (4,699 )     (3,600 )
Distributions paid on common partnership units
    (1,173 )     (1,364 )
Net cash provided by financing activities
    125,953       263,598  
                 
Net increase in cash and cash equivalents
    2,551       7,050  
Cash and cash equivalents - beginning of period
    65,596       11,404  
                 
Cash and cash equivalents - end of period
  $ 68,147     $ 18,454  

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
 
 
7

 
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 [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 fair presentation, have been included. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011 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, 2010, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, 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 SEC.

We are a self-advised 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 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 September 30, 2011, we owned an approximate 95.9% partnership interest in our operating partnership, including a 1.0% general partnership interest.

Noncontrolling Interest

We classify the noncontrolling interests of our consolidated joint ventures and certain common units of limited partnership interests in HHLP (“Nonredeemable Common Units”) as equity.  The noncontrolling interests of Nonredeemable Common Units totaled $16,977 as of September 30, 2011 and $19,410 as of December 31, 2010.  As of September 30, 2011, there were 4,159,660 Nonredeemable Common Units outstanding with a fair market value of $14,392, based on the price per share of our common shares on the New York Stock Exchange on such date.  In accordance with HHLP's partnership agreement, 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.
 
Certain common units of limited partnership interests in HHLP (“Redeemable Common Units”) have been pledged as collateral in connection with a pledge and security agreement entered into by the Company and the holders of the Redeemable Common Units.  The redemption feature contained in the pledge and security agreement where the Redeemable Common Units serve as collateral contains a provision that could result in a net cash settlement outside the control of the Company.  As a result, the Redeemable Common Units are classified in the mezzanine section of the consolidated balance sheets as they do not meet the requirements for equity classification under US GAAP.  The carrying value of the Redeemable Common Units equals the greater of carrying value based on the accumulation of historical cost or the redemption value.

As of September 30, 2011, there were 3,064,252 Redeemable Common Units outstanding with a redemption value equal to the carrying value of the Redeemable Common Units, or $12,638.  The redemption value of the Redeemable Common Units is based on the historical value.  As of September 30, 2011, the Redeemable Common Units were valued on the consolidated balance sheets at redemption value since the Redeemable Common Units historical cost was greater than the fair value of $10,602.  As of December 31, 2010, the Redeemable Common Units were valued on the consolidated balance sheets at fair value since the Redeemable Common Units redemption value of $19,894 was greater than historical cost of $13,521.
 
 
8

 
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 1 – BASIS OF PRESENTATION
 
Net income or loss related to Nonredeemable Common Units and Redeemable Common Units (collectively, “Common Units”), as well as the net income or loss related to the noncontrolling interests of our consolidated joint ventures, is included in net income or loss in the consolidated statements of operations and is excluded from net income or loss applicable to common shareholders in the consolidated statements of operations.

Shareholders’ Equity

On May 18, 2011, we completed a public offering of 4,600,000 8.00% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest (“Series B Preferred Shares”), liquidation preference $25.00 per share, including 600,000 Series B Preferred Shares subject to an overallotment option exercised by the underwriters.  Net proceeds of the offering, less expenses and underwriters commissions, were approximately $110,997.  Net proceeds from the offering were used to reduce some of the indebtedness outstanding under our revolving line of credit facility and to fund a portion of the purchase price of Courtyard by Marriott, Westside, Los Angeles, CA, which was acquired on May 19, 2011.

Reclassification

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

Investment in Hotel Properties consists of the following at September 30, 2011 and December 31, 2010:
 
 
9

 
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES
 
Investment in Hotel Properties consists of the following at September 30, 2011 and December 31, 2010:
 
   
September 30, 2011
   
December 31, 2010
 
             
Land
  $ 245,382     $ 233,869  
Buildings and Improvements
    1,014,015       1,057,344  
Furniture, Fixtures and Equipment
    138,946       150,723  
Construction in Progress
    50,281       15,301  
      1,448,624       1,457,237  
                 
Less Accumulated Depreciation
    (197,959 )     (211,386 )
                 
Total Investment in Hotel Properties
  $ 1,250,665     $ 1,245,851  

Acquisitions

During the three months ended September 30, 2011, no additional operating hotel properties were acquired.  During the nine months ended September 30, 2011, we acquired the following wholly-owned hotel properties:

Hotel
 
Acquisition
Date
 
Land
   
Buildings and
Improvements
   
Furniture
Fixtures and
Equipment
   
Franchise
Fees, Loan
Costs, and
Leasehold
Intangible
   
Total Purchase
Price
   
Fair Value of
Assumed Debt
 
Holiday Inn Express, Water Street, New York, NY
 
3/25/2011
  $ 7,341     $ 28,591     $ 2,704     $ 28     $ 38,664     $ -  
Capitol Hill Suites, Washington, DC
 
4/15/2011
  $ 8,095     $ 35,141     $ 4,264     $ 254     $ 47,754     $ 32,500  
Courtyard by Marriott, Westside, Los Angeles, CA
 
5/19/2011
  $ 13,489     $ 27,025     $ 6,486     $ 148     $ 47,148     $ -  
                                                     
Total
      $ 28,925     $ 90,757     $ 13,454     $ 430     $ 133,566     $ 32,500  

Included in the consolidated statements of operations for the three and nine months ended September 30, 2011 are total revenues of $6,731 and $11,540, respectively, and total net income of $766 and net loss of $359, respectively, which represents the results of operations and acquisition costs of the hotels in the table above since the date of acquisition of each of these hotels.

   
Three Months Ended 
September 30, 2011
   
Nine Months Ended
September 30, 2011
 
Hotel
 
Revenue
   
Net Income
(Loss)
    Revenue    
Net Income
(Loss)
 
Holiday Inn Express, Water Street, New York, NY
  $ 1,835     $ 511     $ 3,606     $ 175  
Capitol Hill Suites,  Washington, DC
    1,825       (354 )     3,596       (1,325 )
Courtyard by Marriot, Westside, Los Angeles, CA
    3,071       609       4,338       791  
Total
  $ 6,731     $ 766     $ 11,540     $ (359 )
 
 
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 [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 is presented as if all acquisitions completed since January 1, 2010 had been completed on January 1, 2010.  Properties acquired without any operating history are excluded from the condensed pro forma operating results.  The condensed pro forma financial data is not necessarily indicative of what actual results of operations of the Company would have been assuming the acquisitions had been consummated on January 1, 2010 at the beginning of the year presented, nor does it purport to represent the results of operations for future periods.

   
For the Three Months Ended September 30,
   
For the Nine Months Ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Pro Forma Total Revenues
  $ 80,799     $ 77,268     $ 215,867     $ 203,426  
Pro Forma Income (Loss) from Continuing Operations
  $ 4,801     $ 5,219     $ 832     $ (692 )
Income (Loss) from Discontinued Operations
    (27,305 )     628       (27,325 )     (645 )
Pro Forma Net Income (Loss)
    (22,504 )     5,847       (26,493 )     (1,337 )
(Loss) Income allocated to Noncontrolling Interest
    1,001       (575 )     1,574       (213 )
Preferred Distributions
    (3,500 )     (1,200 )     (6,999 )     (3,600 )
Pro Forma Net Income (Loss) applicable to Common Shareholders
  $ (25,003 )   $ 4,072     $ (31,918 )   $ (5,150 )
                                 
Pro Forma Income (Loss) applicable to Common Shareholders per Common Share
                               
Basic
  $ (0.15 )   $ 0.03     $ (0.19 )   $ (0.04 )
Diluted
  $ (0.15 )   $ 0.03     $ (0.19 )   $ (0.04 )
                                 
Weighted Average Common Shares Outstanding
                               
Basic
    168,985,193       138,636,206       168,666,752       125,193,554  
Diluted
    172,266,298       138,636,206       168,666,752       125,193,554  

Asset Development

On July 22, 2011, the Company completed the acquisition of the real property and improvements located at 32 Pearl Street, New York, NY from an unaffiliated seller for a total purchase price of $28,300.  The property is a re-development project which was initiated in 2008. The Company acquired the real property and the improvements for cash and by cancelling an $8,000 development loan on the re-development project made to the seller and by cancelling $300 of accrued interest receivable from the seller.  We have begun the process of re-developing this building into a Hampton Inn.   As of September 30, 2011, we have spent $2,702 in development costs.

On December 28, 2010, we closed on the acquisition of a parcel of land, which includes a multi-story vacant building from an unrelated third party in New Castle, DE.  The total purchase price for the parcel of land and the improvements was $15,301, which was paid in cash.  We have begun the process of converting this building into a Sheraton branded hotel, which is expected to open during the fourth quarter of 2011.  As of September 30, 2011, we have spent $3,978 in development costs.

Purchase and Sale Agreements

On August 15, 2011, the Company entered into two purchase and sale agreements to dispose of a portfolio of 18 non-core hotel properties, four of which are owned in part by the Company through an unconsolidated joint venture.  See “Note 3 – Investment in Unconsolidated Joint Ventures” and “Note 12 – Discontinued Operations” for more information.
 
 
11

 
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (continued)

Hotel Closing

Effective March 31, 2011, we ceased operations at the Comfort Inn, located in North Dartmouth, MA and are in the process of conveying the asset to the lender.  The closure of the property coincided with the expiration of its franchise agreement.  The property has a carrying value of $1,964, as of September 30, 2011, which approximates its fair value.  See “Note 6 – Debt” for additional discussion regarding the closure of this property.

 
12

 
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 3 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
 
We account for our investment in the following unconsolidated joint ventures using the equity method of accounting.  As of September 30, 2011 and December 31, 2010, our investment in unconsolidated joint ventures consists of the following:

Joint Venture
 
Hotel Properties
 
Percent
Owned
   
Preferred
Return
   
September 30,
2011
   
December 31,
2010
 
                             
Inn American Hospitality at Ewing, LLC
 
Courtyard by Marriott, Ewing, NJ
    50.0 %  
11.0% cumulative
    $ -     $ 28  
SB Partners, LLC
 
Holiday Inn Express, South Boston, MA
    50.0 %     N/A       1,736       1,852  
Hiren Boston, LLC
 
Courtyard by Marriott, South Boston, MA
    50.0 %     N/A       5,017       -  
Mystic Partners, LLC
 
Hilton and Marriott branded  hotels in CT and RI
    8.8%-66.7 %  
8.5% non-cumulative
      22,905       25,935  
Metro 29th Street Associates, LLC
 
Holiday Inn Express, New York, NY
    50.0 %     N/A       7,943       7,746  
                        $ 37,601     $ 35,561  

On April 13, 2010, we purchased a mortgage loan secured by the Courtyard by Marriott, South Boston, MA from Hiren Boston, LLC’s lender for a purchase price of $13,750.  As a result of the purchase of this mortgage loan, we determined that we were the primary beneficiary of Hiren Boston, LLC and, as such, we ceased to account for our investment in Hiren Boston, LLC under the equity method of accounting and began accounting for Hiren Boston, LLC as a consolidated subsidiary.  Our interest in Hiren Boston, LLC was remeasured, and as a result, during the nine months ended September 30, 2010 we recorded a gain of approximately $2,190.

On June 20, 2011, Hiren Boston, LLC refinanced its debt with a third party institutional lender and, as a result, our mortgage interest in the property was terminated and the outstanding principal balance of $13,750 was repaid to us in full.  We have determined that we are no longer the primary beneficiary of Hiren Boston, LLC and it is no longer a consolidated subsidiary of the Company and we have begun to account for our investment in Hiren Boston, LLC under the equity method of accounting.  Our interest in Hiren Boston, LLC has been remeasured and, as a result, we have recorded a gain of approximately $2,757 for the nine months ended September 30, 2011.  The fair value of our interest in Hiren Boston, LLC was based on a third party appraisal, which utilized the market approach.

On August 15, 2011, the Company entered into two purchase and sale agreements to dispose of a portfolio of 18 non-core hotel properties, four of which are owned in part by the Company through an unconsolidated joint venture.  As a result of entering into these purchase and sale agreements, we have recorded an impairment loss of approximately $1,677 for those assets for which our investment in the unconsolidated joint venture did not exceed the net proceeds distributable to us based on the purchase price.  These purchase and sale agreements provide that sales of the individual properties may close at different times, and ultimately not all properties may transfer.  However, management believes all sales of all such properties will close and anticipate recording a gain of approximately $1,886 for those hotel properties in which the net proceeds distributable to us exceeds our investment in the joint venture.  Any recognized gain will be recorded upon the disposition. See “Note 12 – Discontinued Operations” for more information.

 
13

 
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 3 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (continued)
 
Income or loss from our unconsolidated joint ventures is allocated to us and our joint venture partners consistent with the allocation of cash distributions in accordance with the joint venture agreements. Any difference between the carrying amount of these investments and the underlying equity in net assets is amortized over the expected useful lives of the properties and other intangible assets. Income recognized during the three and nine months ended September 30, 2011 and 2010 for our investments in unconsolidated joint ventures is as follows:
             
   
Three Months Ended
   
Nine Months Ended
 
   
September 30, 2011
   
September 30, 2010
   
September 30, 2011
   
September 30, 2010
 
Inn American Hospitality at Ewing, LLC
    -       (81 )     (28 )     (177 )
SB Partners, LLC
    73       80       (116 )     15  
Hiren Boston, LLC
    145       -       140       -  
Mystic Partners, LLC
    (390 )     (413 )     (1,265 )     (1,243 )
Metro 29th Street Associates, LLC
    279       171       197       (9 )
      107       (243 )     (1,072 )     (1,414 )
Impairment from Unconsolidated Joint Ventures
    (1,677 )     -       (1,677 )     -  
Gain from Remeasurement of Investment in Unconsolidated Joint Venture
    -       -       2,757       4,008  
                                 
Income (Loss) from Unconsolidated Joint Venture Investments
  $ (1,570 )   $ (243 )   $ 8     $ 2,594  

On January 1, 2010, we acquired our joint venture partner’s 52.0% membership interest in PRA Glastonbury, LLC, the owner of the Hilton Garden Inn, Glastonbury, CT, and this hotel became one of our wholly-owned hotels. Due to the increase in our ownership interest in PRA Glastonbury, LLC, the value of our existing 48.0% interest was remeasured resulting in a $1,818 gain which was recorded upon our acquisition of the remaining interests in the Hilton Garden Inn, Glastonbury, CT.

The following tables set forth the total assets, liabilities, equity and components of net income (loss), including the Company’s share, related to the unconsolidated joint ventures discussed above as of September 30, 2011 and December 31, 2010 and for the three and nine months ended September 30, 2011 and 2010:

Balance Sheets
           
   
September 30,
2011
   
December 31,
2010
 
Assets
           
Investment in hotel properties, net
  $ 141,556     $ 144,675  
Other Assets
    33,282       27,970  
Assets Held For Sale
    19,147       -  
Total Assets
  $ 193,985     $ 172,645  
                 
Liabilities and Equity
               
Mortgages and notes payable
  $ 139,700     $ 156,976  
Other liabilities
    41,130       37,797  
Liabilities Related to Assets Held For Sale
    31,361       -  
Equity:
               
Hersha Hospitality Trust
    42,972       38,394  
Joint Venture Partner(s)
    (61,178 )     (60,522 )
Total Equity
    (18,206 )     (22,128 )
                 
Total Liabilities and Equity
  $ 193,985     $ 172,645  

 
14

 
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 3 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (continued)