ht-20160930 10-Q Q3

 



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 September 30, 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 October 25, 2016, the number of Class A common shares of beneficial interest outstanding was 41,840,047  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 September 30, 2016 [Unaudited] and December 31, 2015.

3



Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015 [Unaudited].

4



Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2016 and 2015 [Unaudited].

6



Consolidated Statements of Equity for the Nine Months Ended September 30, 2016 and 2015 [Unaudited].

7



Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 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.

36

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

52

Item 4.

Controls and Procedures.

53



 

 

PART II.  OTHER INFORMATION

 

Item 1.

Legal Proceedings.

54

Item 1A.

Risk Factors.

54

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

54

Item 3.

Defaults Upon Senior Securities.

54

Item 4.

Mine Safety Disclosures.

55

Item 5.

Other Information.

55

Item 6.

Exhibits.

56



 

 



Signatures.

57















 



 

2


 

Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2016 (UNAUDITED) AND DECEMBER 31, 2015

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

 

  





 

 

 

 

 

 



 

 

 

 

 

 



 

September 30, 2016

 

December 31, 2015

Assets:

 

 

 

 

 

 

Investment in Hotel Properties, Net of Accumulated Depreciation, Including Consolidation of Variable Interest Entity Assets of $0 and $82,787 (Note 1)

 

$

1,651,437 

 

$

1,831,119 

Investment in Unconsolidated Joint Ventures

 

 

11,958 

 

 

10,316 

Cash and Cash Equivalents

 

 

135,960 

 

 

27,955 

Escrow Deposits

 

 

14,397 

 

 

19,204 

Hotel Accounts Receivable, Net of Allowance for Doubtful Accounts of $95 and $12

 

 

8,585 

 

 

9,465 

Due from Related Parties

 

 

12,040 

 

 

6,243 

Intangible Assets, Net of Accumulated Amortization of $4,211 and $3,951

 

 

16,646 

 

 

13,389 

Deposits on Hotel Acquisitions

 

 

4,000 

 

 

5,000 

Other Assets

 

 

37,992 

 

 

39,958 

Hotel Assets Held for Sale

 

 

123,353 

 

 

 -

Total Assets

 

$

2,016,368 

 

$

1,962,649 



 

 

 

 

 

 

Liabilities and Equity:

 

 

 

 

 

 

Line of Credit

 

$

 -

 

$

27,000 

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

 

 

609,274 

 

 

547,780 

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

 

 

50,565 

 

 

50,525 

Mortgages Payable, including Net Unamortized Premium and Unamortized Deferred Financing Costs, and Consolidation of Variable Interest Entity Debt of $0 and $52,509 (Note 1, Note 5)

 

 

350,933 

 

 

544,659 

Accounts Payable, Accrued Expenses and Other Liabilities

 

 

58,278 

 

 

59,226 

Dividends and Distributions Payable

 

 

16,150 

 

 

16,515 

Due to Related Parties

 

 

 -

 

 

8,789 

Liabilities Related to Hotel Assets Held for Sale

 

 

51,428 

 

 

 -

Deferred Gain on Disposition of Hotel Assets

 

 

81,334 

 

 

 -

Total Liabilities

 

$

1,217,962 

 

$

1,254,494 



 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Shareholders' Equity:

 

 

 

 

 

 

Preferred Shares:  $.01 Par Value, 29,000,000 Shares Authorized, 3,000,000 Series C and 7,700,000 Series D Shares Issued and Outstanding at September 30, 2016 and 4,600,000 Series B and 3,000,000 Series C Shares Issued and Outstanding at December 31, 2015, with Liquidation Preferences of $25 Per Share (Note 1)

 

$

107 

 

$

76 

Common Shares:  Class A, $.01 Par Value, 75,000,000 and 300,000,000 Shares Authorized at September 30, 2016 and December 31, 2015 respectively; 41,917,238 and 44,457,368 Shares Issued and Outstanding at September 30, 2016 and December 31, 2015, respectively

 

 

419 

 

 

444 

Common Shares:  Class B, $.01 Par Value, 1,000,000 Shares Authorized, None Issued and Outstanding at September 30, 2016 and December 31, 2015

 

 

 -

 

 

 -

Accumulated Other Comprehensive Loss

 

 

(534)

 

 

(466)

Additional Paid-in Capital

 

 

1,104,159 

 

 

1,086,259 

Distributions in Excess of Net Income

 

 

(345,905)

 

 

(408,274)

Total Shareholders' Equity

 

 

758,246 

 

 

678,039 



 

 

 

 

 

 

Noncontrolling Interests (Note 1):

 

 

 

 

 

 

Noncontrolling Interests - Common Units and LTIP Units

 

 

40,160 

 

 

31,876 

Noncontrolling Interests - Consolidated Variable Interest Entity

 

 

 -

 

 

(1,760)

Total Noncontrolling Interests

 

 

40,160 

 

 

30,116 



 

 

 

 

 

 

Total Equity

 

 

798,406 

 

 

708,155 



 

 

 

 

 

 

Total Liabilities and Equity

 

$

2,016,368 

 

$

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 AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 [UNAUDITED]

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

 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended September 30,

 

Nine Months Ended September 30,



 

2016

 

2015

 

2016

 

2015

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Hotel Operating Revenues

 

$

120,515 

 

$

124,488 

 

$

354,991 

 

$

347,176 

Other Revenues

 

 

92 

 

 

27 

 

 

192 

 

 

81 

Total Revenues

 

 

120,607 

 

 

124,515 

 

 

355,183 

 

 

347,257 



 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Hotel Operating Expenses

 

 

66,779 

 

 

66,373 

 

 

198,397 

 

 

187,862 

Hotel Ground Rent

 

 

891 

 

 

768 

 

 

2,676 

 

 

2,223 

Real Estate and Personal Property Taxes and Property Insurance

 

 

7,307 

 

 

9,099 

 

 

24,412 

 

 

25,591 

General and Administrative (including Share Based Payments of $1,514 and $1,411 and $5,793 and $4,605 for the three and nine months ended September 30, 2016 and 2015, respectively)

 

 

5,400 

 

 

4,796 

 

 

17,255 

 

 

14,566 

Acquisition and Terminated Transaction Costs

 

 

170 

 

 

146 

 

 

1,733 

 

 

454 

Depreciation and Amortization

 

 

18,704 

 

 

18,814 

 

 

57,259 

 

 

55,395 

Total Operating Expenses

 

 

99,251 

 

 

99,996 

 

 

301,732 

 

 

286,091 



 

 

 

 

 

 

 

 

 

 

 

 

Operating Income

 

 

21,356 

 

 

24,519 

 

 

53,451 

 

 

61,166 

Interest Income

 

 

95 

 

 

45 

 

 

219 

 

 

144 

Interest Expense

 

 

(10,425)

 

 

(11,067)

 

 

(33,927)

 

 

(32,390)

Other Expense

 

 

(125)

 

 

(9)

 

 

(864)

 

 

(334)

(Loss) Gain on Disposition of Hotel Properties

 

 

(437)

 

 

 -

 

 

94,839 

 

 

 -

Gain (Loss) on Debt Extinguishment

 

 

15 

 

 

(324)

 

 

(1,076)

 

 

(546)

Income Before (Loss) Income from Unconsolidated Joint Venture Investments and Income Taxes

 

 

10,479 

 

 

13,164 

 

 

112,642 

 

 

28,040 



 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Income from Unconsolidated Joint Venture Investments

 

 

(3,717)

 

 

608 

 

 

(2,410)

 

 

860 



 

 

 

 

 

 

 

 

 

 

 

 

Income Before Income Taxes

 

 

6,762 

 

 

13,772 

 

 

110,232 

 

 

28,900 



 

 

 

 

 

 

 

 

 

 

 

 

Income Tax Benefit

 

 

1,443 

 

 

631 

 

 

4,513 

 

 

740 



 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

8,205 

 

 

14,403 

 

 

114,745 

 

 

29,640 

Income Allocated to Noncontrolling Interests

 

 

(211)

 

 

(244)

 

 

(4,273)

 

 

(206)

Preferred Distributions

 

 

(4,417)

 

 

(3,589)

 

 

(12,006)

 

 

(10,767)

Extinguishment of Issuance Costs Upon Redemption of Series B Preferred Shares

 

 

 -

 

 

 -

 

 

(4,021)

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

Net Income Applicable to Common Shareholders

 

$

3,577 

 

$

10,570 

 

$

94,445 

 

$

18,667 



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 AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 [UNAUDITED]

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



 











 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 



 

2016

 

2015

 

2016

 

2015

 

Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Applicable to Common Shareholders

 

$

0.08 

 

$

0.22 

 

$

2.17 

 

$

0.38 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

DILUTED

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Applicable to Common Shareholders

 

$

0.08 

 

$

0.22 

 

$

2.14 

 

$

0.37 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

42,309,044 

 

 

47,417,452 

 

 

43,368,153 

 

 

48,502,387 

 

Diluted*

 

 

42,745,864 

 

 

47,909,549 

 

 

43,869,293 

 

 

49,035,700 

 



*Income allocated to noncontrolling interest in Hersha Hospitality Limited Partnership (the “Operating Partnership” or “HHLP”) has been excluded from the numerator and the Class A common shares issuable upon any redemption of 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 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 September 30,

 

Nine Months Ended September 30,

   

 

2016

 

2015

 

2016

 

2015

Common Units and Vested LTIP Units

 

 

2,241,857 

 

 

1,947,536 

 

 

2,161,088 

 

 

1,893,943 



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 INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 [UNAUDITED]

[IN THOUSANDS]



 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended September 30,

 

Nine Months Ended September 30,



2016

 

 

2015

 

2016

 

2015

Net Income

$

8,205 

 

$

14,403 

 

$

114,745 

 

$

29,640 

Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

Change in Fair Value of Derivative Instruments

 

43 

 

 

506 

 

 

(496)

 

 

596 

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

 

110 

 

 

(575)

 

 

428 

 

 

(1,286)



$

153 

 

$

(69)

 

$

(68)

 

$

(690)



 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

8,358 

 

 

14,334 

 

 

114,677 

 

 

28,950 

Less:  Comprehensive Income Attributable to Noncontrolling Interests

 

(211)

 

 

(244)

 

 

(4,273)

 

 

(206)

Less:  Preferred Distributions

 

(4,417)

 

 

(3,589)

 

 

(12,006)

 

 

(10,767)

Less:  Extinguishment of Issuance Costs Upon Redemption of Series B Preferred Shares

 

 -

 

 

-  

 

 

(4,021)

 

 

-  

Comprehensive Income Attributable to Common Shareholders

$

3,730 

 

$

10,501 

 

$

94,377 

 

$

17,977 



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 NINE MONTHS ENDED SEPTEMBER 30, 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 

Repurchase of Common Shares

(2,605,649) (26)

 -

 -

 -

(49,023)

 -

(2) (49,051)

 

 -

 -

 -

 -

(49,051)

Preferred Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Shares Offering, Net of Costs

 -

 -

 -

7,700,000  77  185,922 

 -

 -

185,999 

 

 -

 -

 -

 -

185,999 

Preferred Shares Redemption

 -

 -

 -

(4,600,000) (46) (114,954)

 -

 -

(115,000)

 

 -

 -

 -

 -

(115,000)

Dividends and Distributions declared:

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares ($0.84 per share)

 -

 -

 -

 -

 -

 -

 -

(36,095) (36,095)

 

 -

 -

 -

 -

(36,095)

Preferred Shares

 -

 -

 -

 -

 -

 -

 -

(12,006) (12,006)

 

 -

 -

 -

 -

(12,006)

Common Units ($0.84 per share)

 -

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

(1,431)

 -

(1,431) (1,431)

LTIP Units ($0.84 per share)

 -

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

(1,137)

 -

(1,137) (1,137)

Dividend Reinvestment Plan

2,576 

 -

 -

 -

 -

47 

 -

 -

47 

 

 -

 -

 -

 -

47 

Share Based Compensation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grants

62,943 

 -

 -

 -

(613)

 -

 -

(612)

 

294,245  1,060 

 -

1,060  448 

Amortization

 -

 -

 -

 -

 -

1,036 

 -

 -

1,036 

 

 -

5,082 

 -

5,082  6,118 

Change in Fair Value of Derivative Instruments

 -

 -

 -

 -

 -

 -

(68)

 -

(68)

 

 -

 -

 -

 -

(68)

Exercise of Option to Acquire Noncontrolling Interest

 -

 -

 -

 -

 -

(4,515)

 -

 -

(4,515)

 

 -

 -

2,197  2,197  (2,318)

Net Income (Loss)

 -

 -

 -

 -

 -

 -

 -

110,472  110,472 

 

 -

4,710  (437) 4,273  114,745 

Balance at September 30, 2016

41,917,238  419 

 -

10,700,000  107  1,104,159  (534) (345,905) 758,246 

 

2,613,546  40,160 

 -

40,160  798,406 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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 NINE MONTHS ENDED SEPTEMBER 30, 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  497 

 -

7,600,000  76  1,194,547  (358) (365,381) 829,381 

 

2,199,434  29,082  (1,075) 28,007  857,388 

Unit Conversion/Redemption

8,975 

 -

 -

 -

 -

132 

 -

 -

132 

 

(8,975) (132)

 -

(132)

 -

Repurchase of Common Shares

(3,420,938) (34)

 -

 -

 -

(71,223)

 -

(14,060) (85,317)

 

 -

 -

 -

 -

(85,317)

Dividends and Distributions declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares ($0.84 per share)

 -

 -

 -

 -

 -

 -

 -

(40,173) (40,173)

 

 -

 -

 -

 -

(40,173)

Preferred Shares

 -

 -

 -

 -

 -

 -

 -

(10,767) (10,767)

 

 -

 -

 -

 -

(10,767)

Common Units ($0.84 per share)

 -

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

(1,436)

 -

(1,436) (1,436)

LTIP Units ($0.84 per share)

 -

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

(522)

 -

(522) (522)

Dividend Reinvestment Plan

1,370 

 -

 -

 -

 -

35 

 -

 -

35 

 

 -

 -

 -

 -

35 

Share Based Compensation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grants

39,868 

 -

 -

 -

 -

457 

 -

 -

457 

 

128,842 

 -

 -

 -

457 

Amortization

 -

 -

 -

 -

 -

1,047 

 -

 -

1,047 

 

 -

3,730 

 -

3,730  4,777 

Change in Fair Value of Derivative Instruments

 -

 -

 -

 -

 -

 -

(690)

 -

(690)

 

 -

 -

 -

 -

(690)

Net Income (Loss)

 -

 -

 -

 -

 -

 -

 -

29,434  29,434 

 

 -

727  (521) 206  29,640 

Balance at September 30, 2015

46,338,046  463 

 -

7,600,000  76  1,124,995  (1,048) (400,947) 723,539 

 

2,319,301  31,449  (1,596) 29,853  753,392 



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 NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 [UNAUDITED]

[IN THOUSANDS]





 

















 

 

 

 

 

 

 



 

Nine Months Ended September 30,



 

2016

 

2015

 

Operating Activities:

 

 

 

 

 

 

 

Net Income

 

$

114,745 

 

$

29,640 

 

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

 

 

 

 

 

 

 

Gain on Disposition of Hotel Properties, Net

 

 

(94,839)

 

 

 -

 

Deferred Taxes

 

 

(4,513)

 

 

(740)

 

Depreciation

 

 

56,808 

 

 

55,087 

 

Amortization

 

 

1,204 

 

 

1,175 

 

Loss on Debt Extinguishment

 

 

1,076 

 

 

324 

 

Equity in Loss (Income) of Unconsolidated Joint Ventures

 

 

2,410 

 

 

(860)

 

Distributions from Unconsolidated Joint Ventures

 

 

1,237 

 

 

958 

 

Loss Recognized on Change in Fair Value of Derivative Instrument

 

 

47 

 

 

83 

 

Share Based Compensation Expense

 

 

5,793 

 

 

4,605 

 

Change in Assets and Liabilities:

 

 

 

 

 

 

 

(Increase) Decrease in:

 

 

 

 

 

 

 

Hotel Accounts Receivable

 

 

1,018 

 

 

(2,034)

 

Escrows

 

 

2,608 

 

 

(950)

 

Other Assets

 

 

4,333 

 

 

(2,156)

 

Due from Related Parties

 

 

(5,797)

 

 

124 

 

(Decrease) Increase in:

 

 

 

 

 

 

 

Due to Related Parties

 

 

(8,789)

 

 

(609)

 

Accounts Payable, Accrued Expenses and Other Liabilities

 

 

904 

 

 

2,740 

 

Net Cash Provided by Operating Activities

 

$

78,245 

 

$

87,387 

 



 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

Purchase of Hotel Property Assets

 

$

(238,848)

 

$

(61,415)

 

Deposits on Hotel Acquisitions

 

 

(4,000)

 

 

(1,000)

 

Capital Expenditures

 

 

(26,866)

 

 

(18,841)

 

Cash Paid for Hotel Development Projects

 

 

 -

 

 

(420)

 

Proceeds from Disposition of Hotel Properties

 

 

21,093 

 

 

 -

 

Net Changes in Capital Expenditure Escrows

 

 

2,559 

 

 

549 

 

Proceeds from Contribution of Hotel Property Assets to Unconsolidated Joint Venture

 

 

429,250 

 

 

 -

 

Distributions from Unconsolidated Joint Ventures

 

 

2,184 

 

 

127 

 

Net Cash Provided by (Used in) Investing Activities

 

$

185,372 

 

$

(81,000)

 



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



 

9


 

Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 [UNAUDITED]

[IN THOUSANDS]











 

 

 

 

 

 

 



 

Nine Months Ended September 30,



 

2016

 

2015

 

Financing Activities:

 

 

 

 

 

 

 

Repayment of Borrowings Under Line of Credit, Net

 

$

(27,000)

 

$

 -

 

Proceeds of Unsecured Term Loan Borrowing

 

 

62,520 

 

 

245,000 

 

Principal Repayment of Mortgages and Notes Payable

 

 

(156,921)

 

 

(182,684)

 

Proceeds from Mortgages and Notes Payable

 

 

 -

 

 

80,750 

 

Cash Paid for Deferred Financing Costs

 

 

(1,828)

 

 

(2,344)

 

Cash Paid for Debt Extinguishment

 

 

(1,026)

 

 

 -

 

Proceeds from Issuance of Preferred Shares, Net

 

 

185,999 

 

 

 -

 

Redemption of Series B Preferred Shares

 

 

(115,000)

 

 

 -

 

Repurchase of Common Shares

 

 

(49,051)

 

 

(85,317)

 

Settlement of Interest Rate Cap

 

 

 -

 

 

(430)

 

Exercise of Option to Acquire Noncontrolling Interest

 

 

(2,318)

 

 

 -

 

Dividends Paid on Common Shares

 

 

(36,803)

 

 

(41,042)

 

Dividends Paid on Preferred Shares

 

 

(11,699)

 

 

(10,767)

 

Distributions Paid on Common Units and LTIP Units

 

 

(2,485)

 

 

(1,924)

 

Net Cash (Used in) Provided by Financing Activities

 

$

(155,612)

 

$

1,242 

 



 

 

 

 

 

 

 

Net Increase in Cash and Cash Equivalents

 

$

108,005 

 

$

7,629 

 

Cash and Cash Equivalents - Beginning of Period

 

 

27,955 

 

 

21,675 

 



 

 

 

 

 

 

 

Cash and Cash Equivalents - End of Period

 

$

135,960 

 

$

29,304 

 



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





 

 

10


 

Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 and nine months ended September 30, 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 September 30, 2016, we owned an approximate 94.1% 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 Long Term Incentive Plan (“LTIP”) Units as equity. LTIP Units are a separate 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 $40,160 as of September 30, 2016 and $31,876 as of December 31, 2015.  As of September 30, 2016, there were 2,613,546 Common Units outstanding with a fair market value of $47,096, 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 Common 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 and LTIP 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.



On September 2, 2016, we exercised our option to acquire the non-controlling equity interests in Brisam Management DE, LLC (“Brisam”), the entity which owns the real estate assets of the Holiday Inn Express, New York, NY.  We paid approximately $2,318 to exercise this option.  Prior to the exercise of this option, we had consolidated Brisam, a variable interest entity, in our financial statements as we determined we were the primary beneficiary.



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 for the 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 AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 [UNAUDITED]

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

 

NOTE 1 – BASIS OF PRESENTATION (CONTINUED)



Shareholders’ Equity



On May 31, 2016, we completed a public offering of 7,700,000 (including 700,000 overallotment shares sold on June 14, 2016) 6.50% Series D Cumulative Redeemable Preferred Shares. These shares have a par value of $0.01 per share with a $25.00 liquidation preference per share. Net proceeds of the offering, after deducting the underwriting discount and the offering expenses payable by us, were approximately $185,999. We utilized the net proceeds of the offering to redeem all outstanding 8.00% Series B Cumulative Redeemable Preferred Shares on June 8, 2016, and for general corporate purposes.



Shares of our 8.00% Series B Cumulative Redeemable Preferred Shares were redeemed at a per share redemption price of $25.00 together with accrued and unpaid dividends to the redemption date for an aggregate per share redemption price of $25.3722. Dividends ceased accruing on the Series B Preferred Shares on June 8, 2016.



Terms of the Series B, Series C, and Series D Preferred Shares outstanding at September 30, 2016 and December 31, 2015 are summarized as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Dividend Per Share  



 

Shares Outstanding

 

 

 

 

 

 

 

Nine Months Ended September 30,

Series

 

September 30, 2016

 

December 31, 2015

 

 

Aggregate Liquidation Preference

 

Distribution Rate

 

 

2016

 

 

2015



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series B

 

 -

 

4,600,000 

 

$

115,000 

 

8.000% 

 

$

0.8722 

 

$

1.5000 

Series C

 

3,000,000 

 

3,000,000 

 

$

75,000 

 

6.875% 

 

$

1.2891 

 

$

1.2891 

Series D

 

7,700,000 

 

 -

 

$

192,500 

 

6.500% 

 

$

0.6094 

 

 

 -

Total

 

10,700,000 

 

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 October 2015, our Board of Trustees authorized a share repurchase program for up to $100,000 of common shares which commenced upon the completion of the previous program. For the nine months ended September 30, 2016, the Company repurchased 2,605,649 common shares for an aggregate purchase price of $49,051. Upon repurchase by the Company, these common shares ceased to be outstanding and became authorized but unissued common shares.



In October 2016, our Board of Trustees authorized a new share repurchase program for up to $100,000 of common shares which will commence upon the completion of the existing repurchase program. The new repurchase program will expire on December 31, 2017, unless extended by our Board of Trustees.



New Accounting Pronouncements



In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Award Payment Accounting, which simplifies various aspects of how share-based payments are accounted for and presented in the financial statements. This standard requires companies to record all of the tax effects related to share-based payments through the income statement, allows companies to elect an accounting policy to either estimate the share based award forfeitures (and expense) or account for forfeitures (and expense) as they occur, and allows companies to withhold a percentage of the shares issuable upon settlement of an award up to the maximum individual statutory tax rate without causing the award to be classified as a liability. The new standard is effective for the Company on January 1, 2017. Early adoption is permitted. The Company is evaluating the effect that ASU No. 2016-09 will have on its consolidated financial statements and related disclosures.





12


 

Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 [UNAUDITED]

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

 

NOTE 1 – BASIS OF PRESENTATION (CONTINUED)



In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to record operating and financing leases as assets and liabilities on the balance sheet and lessors to expense costs that are not initial direct leasing costs. This standard will be effective for the first annual reporting period beginning after December 15, 2018. The Company is evaluating the effect that ASU No. 2016-02 will have on its consolidated financial statements and related disclosures.



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 loans 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.  The Company continues to evaluate this standard and the impact it will have, if any, on our ongoing financial reporting.



Reclassification



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



 

13


 

Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 September 30, 2016 and December 31, 2015:



 





 

 

 

 

 

 



 

 

 

 

 

 



 

 

September 30, 2016

 

 

December 31, 2015



 

 

 

 

 

 

Land

 

$

461,858 

 

$

480,874 

Buildings and Improvements

 

 

1,296,581 

 

 

1,518,565 

Furniture, Fixtures and Equipment

 

 

195,595 

 

 

227,527 



 

 

1,954,034 

 

 

2,226,966 



 

 

 

 

 

 

Less Accumulated Depreciation

 

 

(302,597)

 

 

(395,847)



 

 

 

 

 

 

Total Investment in Hotel Properties

 

$

1,651,437 

 

$

1,831,119 



Acquisitions



We acquired the following properties during the nine months ended September 30, 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 

**