ht-20170630 10-Q Q2

 



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 June 30, 2017



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, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):





 

 



Large accelerated filer 

Accelerated filer 



Non-accelerated filer 

Small reporting company 

Emerging growth company 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  Yes No



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes No

 

As of July 25, 2017, the number of Class A common shares of beneficial interest outstanding was  41,834,274  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 June 30, 2017 [Unaudited] and December 31, 2016.



Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 and 2016 [Unaudited]



Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2017 and 2016 [Unaudited].



Consolidated Statements of Equity for the Six Months Ended June  30, 2017 and 2016 [Unaudited].



Consolidated Statements of Cash Flows for Six Months Ended June 30, 2017 and 2016 [Unaudited].



Notes to the Consolidated Financial Statements [Unaudited].

11 

Item 2.

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

39 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

56 

Item 4.

Controls and Procedures.

57 



 

 

PART II.  OTHER INFORMATION

 

Item 1.

Legal Proceedings.

58 

Item 1A.

Risk Factors.

58 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

59 

Item 3.

Defaults Upon Senior Securities.

58 

Item 4.

Mine Safety Disclosures.

58 

Item 5.

Other Information.

58 

Item 6.

Exhibits.

59 



 

 



Signatures.

60 















 



 

2


 

Table of Contents

 

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2017 (UNAUDITED) AND DECEMBER 31, 2016

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

 

   





 

 

 

 

 

 



 

 

 

 

 

 



 

June 30, 2017

 

December 31, 2016

Assets:

 

 

 

 

 

 

Investment in Hotel Properties, Net of Accumulated Depreciation

 

$

2,051,750 

 

$

1,767,570 

Investment in Unconsolidated Joint Ventures

 

 

3,567 

 

 

11,441 

Cash and Cash Equivalents

 

 

59,600 

 

 

185,644 

Escrow Deposits

 

 

7,218 

 

 

8,993 

Hotel Accounts Receivable, Net of Allowance for Doubtful Accounts of $43 and $91

 

 

12,374 

 

 

8,769 

Due from Related Parties

 

 

6,330 

 

 

18,332 

Intangible Assets, Net of Accumulated Amortization of $5,488 and $4,532

 

 

17,105 

 

 

16,944 

Other Assets

 

 

38,224 

 

 

39,370 

Hotel Assets Held for Sale

 

 

 -

 

 

98,473 

Total Assets

 

$

2,196,168 

 

$

2,155,536 



 

 

 

 

 

 

Liabilities and Equity:

 

 

 

 

 

 

Line of Credit

 

$

 -

 

$

 -

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

 

 

707,740 

 

 

663,500 

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

 

 

50,604 

 

 

50,578 

Mortgages Payable, Net of Unamortized Premium and Unamortized Deferred Financing Costs

 

 

311,850 

 

 

337,821 

Accounts Payable, Accrued Expenses and Other Liabilities

 

 

71,108 

 

 

65,106 

Dividends and Distributions Payable

 

 

17,590 

 

 

26,050 

Liabilities Related to Hotel Assets Held for Sale

 

 

 -

 

 

51,428 

Deferred Gain on Disposition of Hotel Assets

 

 

81,269 

 

 

81,314 

Total Liabilities

 

$

1,240,161 

 

$

1,275,797 



 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Shareholders' Equity:

 

 

 

 

 

 

Preferred Shares:  $.01 Par Value, 29,000,000 Shares Authorized, 3,000,000 Series C, 7,700,000 Series D and 4,000,000 Series E Shares Issued and Outstanding at June 30, 2017 and December 31, 2016 , with Liquidation Preferences of $25 Per Share (Note 1)

 

$

147 

 

$

147 

Common Shares:  Class A, $.01 Par Value, 104,000,000 Shares Authorized at June 30, 2017 and 90,000,000 Shares Authorized at December 31, 2016; 41,827,466 and 41,770,514 Shares Issued and Outstanding at June 30, 2017 and December 31, 2016, respectively

 

 

418 

 

 

418 

Common Shares:  Class B, $.01 Par Value, 1,000,000 Shares Authorized, None Issued and Outstanding at June 30, 2017 and December 31, 2016

 

 

 -

 

 

 -

Accumulated Other Comprehensive Income

 

 

209 

 

 

1,373 

Additional Paid-in Capital

 

 

1,198,941 

 

 

1,198,311 

Distributions in Excess of Net Income

 

 

(295,523)

 

 

(364,831)

Total Shareholders' Equity

 

 

904,192 

 

 

835,418 



 

 

 

 

 

 

Noncontrolling Interests (Note 1):

 

 

51,815 

 

 

44,321 



 

 

 

 

 

 

Total Equity

 

 

956,007 

 

 

879,739 



 

 

 

 

 

 

Total Liabilities and Equity

 

$

2,196,168 

 

$

2,155,536 





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 SIX MONTHS ENDED JUNE 30, 2017 AND 2016 [UNAUDITED]

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

 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2017

 

2016

 

2017

 

2016

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Hotel Operating Revenues

 

$

137,016 

 

$

127,629 

 

$

244,968 

 

$

234,476 

Other Revenues

 

 

988 

 

 

94 

 

 

1,034 

 

 

100 

Total Revenues

 

 

138,004 

 

 

127,723 

 

 

246,002 

 

 

234,576 



 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Hotel Operating Expenses

 

 

76,522 

 

 

65,900 

 

 

143,789 

 

 

131,618 

Hotel Ground Rent

 

 

894 

 

 

892 

 

 

1,701 

 

 

1,785 

Real Estate and Personal Property Taxes and Property Insurance

 

 

8,068 

 

 

7,949 

 

 

15,694 

 

 

17,105 

General and Administrative (including Share Based Payments of $2,527 and $1,873, and $3,956 and $4,279 for the three and six months ended June 30, 2017 and 2016, respectively)

 

 

6,598 

 

 

6,455 

 

 

11,223 

 

 

11,855 

Acquisition and Terminated Transaction Costs

 

 

1,124 

 

 

55 

 

 

1,824 

 

 

1,563 

Depreciation and Amortization

 

 

20,114 

 

 

18,495 

 

 

39,576 

 

 

38,555 

Total Operating Expenses

 

 

113,320 

 

 

99,746 

 

 

213,807 

 

 

202,481 



 

 

 

 

 

 

 

 

 

 

 

 

Operating Income

 

 

24,684 

 

 

27,977 

 

 

32,195 

 

 

32,095 



 

 

 

 

 

 

 

 

 

 

 

 

Interest Income

 

 

72 

 

 

78 

 

 

197 

 

 

124 

Interest Expense

 

 

(10,590)

 

 

(11,281)

 

 

(20,439)

 

 

(23,502)

Other Expense

 

 

(279)

 

 

(633)

 

 

(678)

 

 

(739)

Gain on Disposition of Hotel Properties

 

 

70,852 

 

 

95,276 

 

 

89,583 

 

 

95,276 

Loss on Debt Extinguishment

 

 

 -

 

 

(1,049)

 

 

(274)

 

 

(1,091)

Income Before Results from Unconsolidated Joint Venture Investments and Income Taxes

 

 

84,739 

 

 

110,368 

 

 

100,584 

 

 

102,163 



 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) from Unconsolidated Joint Ventures

 

 

711 

 

 

1,521 

 

 

(3,175)

 

 

1,307 

Gain from Remeasurement of Investment in Unconsolidated Joint Venture

 

 

 -

 

 

 -

 

 

16,239 

 

 

 -

Income from Unconsolidated Joint Venture Investments

 

 

711 

 

 

1,521 

 

 

13,064 

 

 

1,307 



 

 

 

 

 

 

 

 

 

 

 

 

Income Before Income Taxes

 

 

85,450 

 

 

111,889 

 

 

113,648 

 

 

103,470 



 

 

 

 

 

 

 

 

 

 

 

 

Income Tax (Expense) Benefit

 

 

(662)

 

 

3,070 

 

 

(2,905)

 

 

3,070 



 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

84,788 

 

 

114,959 

 

 

110,743 

 

 

106,540 



 

 

 

 

 

 

 

 

 

 

 

 

Income Allocated to Noncontrolling Interests

 

 

(4,758)

 

 

(4,748)

 

 

(5,939)

 

 

(4,061)

Preferred Distributions

 

 

(6,042)

 

 

(4,000)

 

 

(12,084)

 

 

(7,589)

Extinguishment of Issuance Costs Upon Redemption of Series B Preferred Shares

 

 

 -

 

 

(4,021)

 

 

 -

 

 

(4,021)



 

 

 

 

 

 

 

 

 

 

 

 

Net Income Applicable to Common Shareholders

 

$

73,988 

 

$

102,190 

 

$

92,720 

 

$

90,869 



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 SIX MONTHS ENDED JUNE 30, 2017 AND 2016 [UNAUDITED]

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



 











 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2017

 

2016

 

2017

 

2016

Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations Applicable to Common Shareholders

 

$

1.77 

 

$

2.35 

 

$

2.22 

 

$

2.06 



 

 

 

 

 

 

 

 

 

 

 

 

DILUTED

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations Applicable to Common Shareholders

 

$

1.75 

 

$

2.33 

 

$

2.19 

 

$

2.04 



 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

41,737,044 

 

 

43,427,726 

 

 

41,727,056 

 

 

43,903,526 

Diluted*

 

 

42,207,841 

 

 

43,863,577 

 

 

42,201,126 

 

 

44,384,969 



*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 June 30,

 

Six Months Ended June 30,

   

 

2017

 

2016

 

2017

 

2016

Common Units and Vested LTIP Units

 

 

2,715,951 

 

 

2,184,008 

 

 

2,673,739 

 

 

2,120,260 



 

 

 

 

 

 

 

 

 

 

 

 



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 SIX MONTHS ENDED JUNE 30, 2017 AND 2016 [UNAUDITED]

[IN THOUSANDS]



 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended June 30,

 

Six Months Ended June 30,



2017

 

2016

 

2017

 

2016

Net Income

$

84,788 

 

$

114,959 

 

$

110,743 

 

$

106,540 

Other Comprehensive (Loss) Income

 

 

 

 

 

 

 

 

 

 

 

Change in Fair Value of Derivative Instruments

 

(1,179)

 

 

(124)

 

 

(959)

 

 

(540)

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

 

(130)

 

 

140 

 

 

(280)

 

 

319 

Total Other Comprehensive (Loss) Income

$

(1,309)

 

$

16 

 

$

(1,239)

 

$

(221)



 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

83,479 

 

 

114,975 

 

 

109,504 

 

 

106,319 

Less:  Comprehensive Income Attributable to Noncontrolling Interests

 

(1,117)

 

 

(4,748)

 

 

(5,865)

 

 

(4,061)

Less:  Preferred Distributions

 

(6,042)

 

 

(4,000)

 

 

(12,084)

 

 

(7,589)

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

 

 -

 

 

(4,021)

 

 

 -

 

 

(4,021)

Comprehensive Income Attributable to Common Shareholders

$

76,320 

 

$

102,206 

 

$

91,555 

 

$

90,648 



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 SIX MONTHS ENDED JUNE 30, 2017 AND 2016 [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 Income ($)

Distributions in Excess of Net Income ($)

Total Shareholders' Equity ($)

 

Common Units and LTIP Units

Common Units and LTIP Units ($)

Total Equity ($)

Balance at December 31, 2016

41,770,514  418 

 -

14,700,000  147  1,198,311  1,373  (364,831) 835,418 

 

2,838,546  44,321  879,739 

Unit Conversion

11,982 

 -

 -

 -

 -

187 

 -

 -

187 

 

(11,982) (187)

 -

Dividends and Distributions declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares ($0.56 per share)

 -

 -

 -

 -

 -

 -

 -

(23,412) (23,412)

 

 -

 -

(23,412)

Preferred Shares

 -

 -

 -

 -

 -

 -

 -

(12,084) (12,084)

 

 -

 -

(12,084)

Common Units ($0.56 per share)

 -

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

(1,077) (1,077)

LTIP Units ($0.56 per share)

 -

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

(840) (840)

Dividend Reinvestment Plan

2,410 

 -

 -

 -

 -

45 

 -

 -

45 

 

 -

 -

45 

Share Based Compensation:

 

 

 

 

 

 

 

 

 

 

 

 

 

Grants

42,560 

 -

 -

 -

 -

(295)

 -

 -

(295)

 

183,784  779  484 

Amortization

 -

 -

 -

 -

 -

693 

 -

 -

693 

 

 -

2,955  3,648 

Change in Fair Value of Derivative Instruments

 -

 -

 -

 -

 -

 -

(1,164)

 -

(1,164)

 

 -

(75) (1,239)

Net Income

 -

 -

 -

 -

 -

 -

 -

104,804  104,804 

 

 -

5,939  110,743 

Balance at June 30, 2017

41,827,466  418 

 -

14,700,000  147  1,198,941  209  (295,523) 904,192 

 

3,010,348  51,815  956,007 



 

 

 

 

 

 

 

 

 

 

 

 

 



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 SIX MONTHS ENDED JUNE 30, 2017 AND 2016 [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 Income ($)

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

(2,072,007) (20)

 -

 -

 -

(39,105)

 -

(2) (39,127)

 

 -

 -

 -

 -

(39,127)

Preferred Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Share Offering, Net of Costs

 -

 -

 -

7,700,000  77  185,933 

 -

 -

186,010 

 

 -

 -

 -

 -

186,010 

Preferred Share Redemption

 -

 -

 -

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

 -

 

(115,000)

 

 -

 -

 -

 -

(115,000)

Dividends and Distributions declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares ($0.56 per share)

 -

 -

 -

 -

 -

 -

 -

(24,357) (24,357)

 

 -

 -

 -

 -

(24,357)

Preferred Shares

 -

 -

 -

 -

 -

 -

 -

(7,589) (7,589)

 

 -

 -

 -

 -

(7,589)

Common Units ($0.56 per share)

 -

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

(954)

 -

(954) (954)

LTIP Units ($0.56 per share)

 -

 -

 -

 -

 -

 -

 -

 -

 -

 

 -

(882)

 -

(882) (882)

Dividend Reinvestment Plan

1,659 

 -

 -

 -

 -

31 

 -

 -

31 

 

 -

 -

 -

 -

31 

Share Based Compensation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grants

39,345 

 -

 -

 -

 -

(613)

 -

 -

(613)

 

294,245  1,060 

 -

1,060  447 

Amortization

 -

 -

 -

 -

 -

639 

 -

 -

639 

 

 -

4,192 

 -

4,192  4,831 

Change in Fair Value of Derivative Instruments

 -

 -

 -

 -

 -

 -

(221)

 -

(221)

 

 -

 -

 -

 -

(221)

Net Loss

 -

 -

 -

 -

 -

 -

 -

102,479  102,479 

 

 -

4,391  (330) 4,061  106,540 

Balance at June 30, 2016

42,426,365  424 

 -

10,700,000  107  1,118,190  (687) (337,743) 780,291 

 

2,613,546  39,683  (2,090) 37,593  817,884 



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

FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016 [UNAUDITED]

[IN THOUSANDS]





 

















 

 

 

 

 

 



 

Six Months Ended June 30,



 

2017

 

2016

Operating Activities:

 

 

 

 

 

 

Net Income

 

$

110,743 

 

$

106,540 

Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:

 

 

 

 

 

 

Gain on Disposition of Hotel Properties, Net

 

 

(89,583)

 

 

(95,276)

Gain from Remeasurement of Investment in Unconsolidated Joint Ventures

 

 

(16,239)

 

 

 -

Deferred Taxes

 

 

2,905 

 

 

(3,070)

Depreciation

 

 

38,754 

 

 

39,705 

Amortization

 

 

1,769 

 

 

670 

Loss on Debt Extinguishment

 

 

274 

 

 

1,091 

Equity in Loss (Income) of Unconsolidated Joint Ventures

 

 

3,175 

 

 

(1,307)

Distributions from Unconsolidated Joint Ventures

 

 

 -

 

 

429 

Loss Recognized on Change in Fair Value of Derivative Instrument

 

 

16 

 

 

43 

Share Based Compensation Expense

 

 

3,956 

 

 

4,279 

Change in Assets and Liabilities:

 

 

 

 

 

 

(Increase) Decrease in:

 

 

 

 

 

 

Hotel Accounts Receivable

 

 

(510)

 

 

1,076 

Escrows

 

 

816 

 

 

360 

Other Assets

 

 

(157)

 

 

3,412 

Due from Related Parties

 

 

12,002 

 

 

(7,818)

(Decrease) Increase in:

 

 

 

 

 

 

Due to Related Parties

 

 

 -

 

 

(8,771)

Accounts Payable, Accrued Expenses and Other Liabilities

 

 

(383)

 

 

1,334 

Net Cash Provided by Operating Activities

 

$

67,538 

 

$

42,697 



 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

Purchase of Hotel Property Assets

 

$

(249,291)

 

$

(126,245)

Capital Expenditures

 

 

(22,015)

 

 

(18,276)

Cash Paid for Hotel Development Projects

 

 

(1,005)

 

 

 -

Proceeds from Disposition of Hotel Properties

 

 

188,651 

 

 

12,446 

Net Changes in Capital Expenditure Escrows

 

 

959 

 

 

3,329 

Proceeds from the Sale of Joint Venture Interests

 

 

11,623 

 

 

 -

Proceeds from Contribution of Hotel Property Assets to Unconsolidated Joint Venture

 

 

 -

 

 

428,811 

Repayment of Notes Receivable

 

 

2,000 

 

 

 -

Distributions from Unconsolidated Joint Ventures

 

 

 -

 

 

1,421 

Net Cash (Used in) Provided by Investing Activities

 

$

(69,078)

 

$

301,486 



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



 

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016 [UNAUDITED]

[IN THOUSANDS]











 

 

 

 

 

 



 

Six Months Ended June 30,



 

2017

 

2016

Financing Activities:

 

 

 

 

 

 

Repayment of Borrowings Under Line of Credit, Net

 

$

 -

 

$

(27,000)

Proceeds of Unsecured Term Loan Borrowing

 

 

43,900 

 

 

 -

Repayment of Borrowings Under Unsecured Term Loan Borrowing

 

 

 -

 

 

(39,480)

Principal Repayment of Mortgages and Notes Payable

 

 

(121,852)

 

 

(64,710)

Cash Paid for Deferred Financing Costs

 

 

(426)

 

 

(363)

Cash Paid for Debt Extinguishment

 

 

(245)

 

 

(892)

Proceeds from Issuance of Preferred Shares, Net

 

 

 -

 

 

186,010 

Redemption of Series B Preferred Shares

 

 

 -

 

 

(115,000)

Repurchase of Common Shares

 

 

 -

 

 

(39,127)

Dividends Paid on Common Shares

 

 

(31,707)

 

 

(24,874)

Dividends Paid on Preferred Shares

 

 

(11,687)

 

 

(8,846)

Distributions Paid on Common Units and LTIP Units

 

 

(2,436)

 

 

(1,754)

Other Financing Activities

 

 

(51)

 

 

 -

Net Cash Used in Financing Activities

 

$

(124,504)

 

$

(136,036)



 

 

 

 

 

 

Net Decrease in Cash and Cash Equivalents

 

$

(126,044)

 

$

208,147 

Cash and Cash Equivalents - Beginning of Period

 

 

185,644 

 

 

27,955 



 

 

 

 

 

 

Cash and Cash Equivalents - End of Period

 

$

59,600 

 

$

236,102 



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 AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016 [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 six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 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, 2016, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, 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” or “the Partnership”), for which we serve as the sole general partner.  As of June 30, 2017, we owned an approximate 93.3%  partnership interest in HHLP, including a 1.0% general partnership interest.



Principles of Consolidation and Presentation



The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include all of our accounts as well as accounts of the Partnership, subsidiary partnerships and our wholly owned TRS Lessee. All significant inter-company amounts have been eliminated.



Consolidated properties are either wholly owned or owned less than 100% by the Partnership and are controlled by the Company as general partner of the Partnership. Properties owned in joint ventures are also consolidated if the determination is made that we are the primary beneficiary in a variable interest entity (“VIE”) or we maintain control of the asset through our voting interest in the entity. Control can be demonstrated when the general partner has the power to impact the economic performance of the partnership, which includes the ability of the general partner to manage day-to-day operations, refinance debt and sell the assets of the partnerships without the consent of the limited partners and the inability of the limited partners to replace the general partner. Control can be demonstrated by the limited partners if the limited partners have the right to dissolve or liquidate the partnership or otherwise remove the general partner without cause or have rights to participate in the significant decisions made in the ordinary course of the partnership’s business.

 

Variable Interest Entities



We evaluate each of our investments and contractual relationships to determine whether they meet the guidelines for consolidation. Entities are consolidated if the determination is made that we are the primary beneficiary in a VIE or we maintain control of the asset through our voting interest or other rights in the operation of the entity. To determine if we are the primary beneficiary of a VIE, we evaluate whether we have a controlling financial interest in that VIE. An enterprise is deemed to have a controlling financial interest if it has i) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and ii) the obligation to absorb losses of the VIE that could be significant to the VIE or the rights to receive benefits from the VIE that could be significant to the VIE. Control can also be demonstrated by the ability of a member to manage day-to-day operations, refinance debt and sell the assets of the partnerships without the consent of the other member and the inability of the members to replace the managing member. Based on our examination, the following entities were determined to be VIEs: HHLP, Cindat Hersha Owner JV, LLC; Cindat Hersha Lessee JV, LLC; South Bay Boston, LLC; Hersha Statutory Trust I; and Hersha Statutory Trust II. HHLP meets the criteria as a VIE.  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.    Cindat Hersha Owner JV, LLC and Cindat Hersha Lessee JV, LLC are both VIE entities, however because we are not the primary beneficiary in either entity, they are not consolidated by the Company. Our maximum exposure to losses from our investment in Cindat Hersha Owner JV, LLC is limited to our basis in the joint venture which is $0 as of June 30, 2017. Also, South Bay Boston, LLC leases hotel property and is a VIE. This entity is consolidated by the lessor, the primary beneficiary of the entity. Hersha Statutory Trust I and Hersha Statutory Trust II (collectively “Hersha Statutory Trusts”) are VIEs but HHLP is not

11


 

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016 [UNAUDITED]

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

 

NOTE 1 – BASIS OF PRESENTATION (CONTINUED)



the primary beneficiary in these entities.  Accordingly, the accounts of Hersha Statutory Trust I and Hersha Statutory Trust II are not consolidated. 



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 Units (“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 and LTIP Units totaled $51,815 as of June 30, 2017 and $44,321 as of December 31, 2016.  As of June 30, 2017, there were 3,010,348 Common Units outstanding with a fair market value of $55,722, 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 is included in net income or loss but excluded from net income or loss applicable to common shareholders in the consolidated statements of operations.



Shareholders’ Equity



Terms of the Series C, Series D, and Series E Preferred Shares outstanding at June 30, 2017 and December 31, 2016 are summarized as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Dividend Per Share  



 

Shares Outstanding

 

 

 

 

 

 

 

Six Months Ended June 30,

Series

 

June 30, 2017

 

December 31, 2016

 

 

Aggregate Liquidation Preference

 

Distribution Rate

 

 

2017

 

 

2016

Series C

 

3,000,000 

 

3,000,000 

 

$

75,000 

 

6.875% 

 

$

0.8594 

 

$

0.8594 

Series D

 

7,700,000 

 

7,700,000 

 

$

192,500 

 

6.500% 

 

$

0.8126 

 

 

0.2031 

Series E

 

4,000,000 

 

4,000,000 

 

$

100,000 

 

6.500% 

 

$

0.8126 

 

 

 -

Total

 

14,700,000 

 

14,700,000 

 

 

 

 

 

 

 

 

 

 

 





In October 2016, 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 existing repurchase program. The new repurchase program will expire on December 31, 2017, unless extended by our Board of Trustees.



On April 26, 2017, we entered into Equity Distribution Agreements with four investment banks whereby we agreed to sell up to 8,000,000 Class A common shares, up to 1,000,000 Series D Cumulative Redeemable Preferred Shares, and up to 1,000,000 Series E Cumulative Redeemable Preferred Shares from time to time in an “at the market” offering.  In conjunction with this transaction, the Company increased the number of authorized Class A common shares from 90,000,000 to 104,000,000.



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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016 [UNAUDITED]

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

 

NOTE 1 – BASIS OF PRESENTATION (CONTINUED)



New Accounting Pronouncements



In February 2017, the FASB issued ASU No. 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20).  The update defines the term “in substance nonfinancial asset” as it is presented in Subtopic 610-20 as a “financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets that are promised to the counterparty in the contract is concentrated in nonfinancial assets.” As it relates to the Company, real estate, such as land and building, would be considered an example of a nonfinancial asset.  Additionally, the update provides guidance over partial sale transactions, particularly, when an entity should derecognize a distinct nonfinancial asset or in substance nonfinancial asset in a partial sale transaction, and the extent of gain that should be recognized as a result of the partial sale transaction.  This standard is effective in conjunction with ASU No. 2014-09 (presented below), which is effective for periods beginning after December 15, 2017, however early adoption is permitted.  The provisions of this update must be applied at the same time as the adoption of ASU No. 2014-09.  The Company is currently evaluating how the provisions of this update affect our adoption of ASU No. 2014-09.  See below for our discussion of ASU No. 2014-09 and the effect it will have on our consolidated financial statements and related disclosures.  



In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business as it relates to acquisitions and business combinations. The update adds further guidance that assists preparers in evaluating whether a transaction will be accounted for as an acquisition of an asset or a business.  We expect most of our hotel property acquisitions to qualify as asset acquisitions under the standard which permits the capitalization of acquisition costs to the underlying assets.  For the six months ended June 30, 2017, the Company incurred $1,824 in acquisition costs that would have been subject to capitalization under this ASU.  This standard is effective for periods beginning after December 31, 2017, however early adoption is permitted.  The Company is evaluating the ultimate effect that ASU No. 2017-01 will have on our consolidated financial statements and related disclosures.



We adopted 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 Company has elected to expense forfeitures of share-based award as they occur as our accounting policy.  The adoption of ASU No. 2016-09 had no material impact on our consolidated financial statements and related disclosures.



In November 2016 the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), which provides guidance on the presentation of restricted cash or restricted cash equivalents within the statement of cash flows.  Accordingly, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.  This standard is effective for the Company for periods beginning after December 15, 2017.  The adoption of ASU No. 2016-18 will change the presentation of the statement of cash flows for the Company and we will utilize a retrospective transition method for each period presented within financial statements for periods subsequent to the date of adoption.



In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which provides the principles for the recognition, measurement, presentation and disclosure of leases.  The accounting for lessors will remain largely unchanged from current GAAP; however, the standard requires that certain initial direct costs be expensed rather than capitalized.  Under the standard, lessees apply a dual approach, classifying leases as either finance or operating leases. A lessee is required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months, regardless of their lease classification. Based on the review of our leases, we are a lessee on ground leases in certain markets, hotel equipment leases, and office space leases.  We are also a lessor in certain office space and retail lease agreements related to our hotels.  While we do not anticipate any material change to the accounting for leases under which we are a lessor, we are still evaluating the impact, if any, this ASU will have on the accounting for our leasing arrangements as well as our disclosures within the notes to our financial statements. 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.

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016 [UNAUDITED]

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

 

NOTE 1 – BASIS OF PRESENTATION (CONTINUED)



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.  We are evaluating each of our revenue streams and related accounting policy under the standard.  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.  Based on our analysis to date, we do not expect the new revenue recognition model to have a material impact on our hotel operating revenue, including room revenue, food and beverage, and other revenue, however, our final evaluation has not been concluded.  Our evaluation under the standard also includes sales to third parties, primarily a result of dispositions of real estate.  Our evaluation over sales of real estate is continuing and will be impacted by the FASB definition of a business and in substance nonfinancial assets, which have recently been addressed through the issuance of ASU No. 2017-01 and ASU No. 2017-05, respectively.  The Company continues to evaluate the ultimate effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures. 



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 AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016 [UNAUDITED]

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

 

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES



Investment in hotel properties consists of the following at June 30, 2017 and December 31, 2016:



 





 

 

 

 

 

 



 

 

 

 

 

 



 

 

June 30, 2017

 

 

December 31, 2016



 

 

 

 

 

 

Land

 

$

552,216 

 

$

499,484 

Buildings and Improvements

 

 

1,615,746 

 

 

1,383,266 

Furniture, Fixtures and Equipment

 

 

240,746 

 

 

204,212 

Construction in Progress

 

 

1,955 

 

 

950 



 

 

2,410,663 

 

 

2,087,912 



 

 

 

 

 

 

Less Accumulated Depreciation

 

 

(358,913)

 

 

(320,342)



 

 

 

 

 

 

Total Investment in Hotel Properties

 

$

2,051,750 

 

$

1,767,570 



Acquisitions



We acquired the following properties during the six months ended June 30, 2017:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotel

 

Acquisition Date

 

 

Land

 

 

Buildings and Improvements

 

 

Furniture, Fixtures and Equipment

 

 

Other Intangibles

 

 

Total Purchase Price

 

 

Assumption of Debt

 

Mystic Marriott Hotel & Spa, Groton, CT (1)

 

1/3/2017

 

$

1,420 

 

$

40,440 

 

$

7,240 

 

$

899 

*

$

49,999 

 

$

41,333 

 

The Ritz-Carlton, Coconut Grove, FL

 

2/1/2017

 

 

5,185 

 

 

30,742 

 

 

1,064 

 

 

(291)

**

 

36,700 

 

 

3,150 

 

The Pan Pacific Hotel, Seattle, WA

 

2/21/2017

 

 

13,079 

 

 

59,256 

 

 

6,665 

 

 

 -

 

 

79,000 

 

 

 -

 

The Westin, Philadelphia, PA

 

6/29/2017

 

 

33,048 

 

 

91,462 

 

 

10,490 

 

 

 -

 

 

135,000 

 

 

 -

 

TOTAL

 

 

 

$

52,732 

 

$

221,900 

 

$

25,459 

 

$

608 

 

$

300,699 

 

$

44,483 

 



(1) The Mystic Marriott Hotel & Spa was acquired as partial consideration within the transaction to redeem and transfer our joint venture interest in Mystic Partners, LLC.  See Note 3 for further description of the transaction.



* Consists entirely of $899 of advanced bookings.



** Includes an intangible asset for a lease-in-place of $229, and a below market lease liability of $520.



The Company is currently finalizing our analysis of the fair value of assets acquired and liabilities incurred in connection with the purchase of the Ritz-Carlton, Coconut Grove and the Westin, Philadelphia.  As such, the amounts reported in the table above are preliminary.  We expect the amounts will be finalized within the one year remeasurement period as defined within ASC 805.



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 and six months ended June 30, 2017,  we incurred $1,124 and $1,824 in costs related to acquired assets and terminated transactions.

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016 [UNAUDITED]

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

 

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)

The following table illustrates total revenues and total net income included in the consolidated statement of operations for the three and six months ended June 30, 2017 for the hotels we acquired or assumed ownership, including related acquisition costs, during the six months ended June 30, 2017 and consolidated since the date of acquisition of the hotels.