Document
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, 2018

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
 
251,811,499
(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. xYes oNo
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). xYes oNo
 
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 x
 
Accelerated filer o
Non-accelerated filer o
 
Small reporting company o
 
 
Emerging growth company o
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. oYes oNo

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

As of October 24, 2018, the number of Class A common shares of beneficial interest outstanding was 39,423,763  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.
 






Item 2.
Item 3.
Item 4.

 
 
PART II.  OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

 
 


2

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]




 
September 30, 2018
 
December 31, 2017
Assets:
 
 
 
 
Investment in Hotel Properties, Net of Accumulated Depreciation
 
$
2,025,534

 
$
2,009,572

Investment in Unconsolidated Joint Ventures
 
4,487

 
3,569

Cash and Cash Equivalents
 
37,727

 
17,945

Escrow Deposits
 
9,285

 
7,641

Hotel Accounts Receivable, Net of Allowance for Doubtful Accounts of $225 and $49
 
9,425

 
11,999

Due from Related Parties
 
5,131

 
5,322

Intangible Assets, Net of Accumulated Amortization of $7,604 and $6,598
 
15,672

 
16,388

Other Assets
 
44,533

 
49,913

Hotel Assets Held for Sale
 
14,499

 
15,987

Total Assets
 
$
2,166,293

 
$
2,138,336


 
 

 
 

Liabilities and Equity:
 
 

 
 

Line of Credit
 
$
26,000

 
$
16,100

Unsecured Term Loans, Net of Unamortized Deferred Financing Costs (Note 5)
 
698,014

 
715,449

Unsecured Notes Payable, Net of Unamortized Deferred Financing Costs (Note 5)
 
50,670

 
53,781

Mortgages Payable, Net of Unamortized Premium and Unamortized Deferred Financing Costs
 
334,399

 
307,683

Accounts Payable, Accrued Expenses and Other Liabilities
 
65,051

 
58,770

Dividends and Distributions Payable
 
17,125

 
17,115

Deferred Gain on Disposition of Hotel Assets
 

 
81,284

Total Liabilities
 
$
1,191,259

 
$
1,250,182

 
 
 
 
 
Redeemable Noncontrolling Interests - Consolidated Joint Venture (Note 1)
 
$
2,452

 
$


 
 
 
 
Equity:
 
 

 
 

Shareholders' Equity:
 
 

 
 

Preferred Shares:  $.01 Par Value, 29,000,000 Shares Authorized, 3,000,000 Series C, 7,701,700 Series D and 4,001,514 Series E Shares Issued and Outstanding at September 30, 2018 and 3,000,000 Series C, 7,701,700 Series D and 4,000,000 Series E Shares Issued and Outstanding at December 31, 2017, with Liquidation Preferences of $25 Per Share (Note 1)
 
$
147

 
$
147

Common Shares:  Class A, $.01 Par Value, 104,000,000 Shares Authorized at September 30, 2018 and December 31, 2017; 39,422,736 and 39,916,661 Shares Issued and Outstanding at September 30, 2018 and December 31, 2017, respectively
 
395

 
399

Common Shares:  Class B, $.01 Par Value, 1,000,000 Shares Authorized, None Issued and Outstanding at September 30, 2018 and December 31, 2017
 

 

Accumulated Other Comprehensive Income
 
7,862

 
3,749

Additional Paid-in Capital
 
1,155,273

 
1,164,946

Distributions in Excess of Net Income
 
(253,692
)
 
(335,373
)
Total Shareholders' Equity
 
909,985

 
833,868


 
 
 
 
Noncontrolling Interests (Note 1)
 
62,597

 
54,286


 
 

 
 

Total Equity
 
972,582

 
888,154


 
 

 
 

Total Liabilities and Equity
 
$
2,166,293

 
$
2,138,336

 
 
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, 2018 AND 2017 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]


 
Three Months Ended September 30,
 
Nine Months Ended September 30,

 
2018
 
2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
 
Hotel Operating Revenues:
 

 

 
 
 
 
Room
 
$
103,958

 
$
107,695

 
$
292,498

 
$
312,925

Food & Beverage
 
15,628

 
14,775

 
46,167

 
40,521

Other Operating Revenues
 
8,143

 
7,040

 
22,341

 
21,032

Other Revenues
 
147

 
79

 
321

 
1,113

Total Revenues
 
127,876

 
129,589

 
361,327

 
375,591

Operating Expenses:
 
 
 
 
 
 
 
 
Hotel Operating Expenses:
 

 

 
 
 
 
Room
 
23,615

 
23,823

 
65,916

 
68,876

Food & Beverage
 
12,475

 
12,509

 
37,657

 
33,922

Other Operating Expenses
 
40,205

 
40,585

 
116,163

 
117,908

Hotel Ground Rent
 
1,328

 
892

 
3,605

 
2,593

Real Estate and Personal Property Taxes and Property Insurance
 
8,932

 
8,419

 
25,353

 
24,113

General and Administrative (including Share Based Payments of $2,068 and $1,512, and $6,797 and $5,468 for the three and nine months ended September 30, 2018 and 2017, respectively)
 
5,841

 
4,919

 
18,515

 
16,142

Acquisition and Terminated Transaction Costs
 
8

 
297

 
10

 
2,121

Depreciation and Amortization
 
22,764

 
21,658

 
66,364

 
61,234

(Gains from) Property Losses in Excess of Insurance Recoveries
 
(4,778
)
 
3,812

 
(11,141
)
 
3,812

Total Operating Expenses
 
110,390

 
116,914

 
322,442

 
330,721


 
 
 
 
 
 
 
 
Operating Income
 
17,486

 
12,675

 
38,885

 
44,870

Interest Income
 
23

 
40

 
68

 
237

Interest Expense
 
(12,407
)
 
(11,141
)
 
(35,658
)
 
(31,580
)
Other Expense
 
(12
)
 
(118
)
 
(718
)
 
(796
)
(Loss) Gain on Disposition of Hotel Properties
 

 
(39
)
 
3,403

 
89,544

Lease Buyout
 

 
294

 


294

Loss on Debt Extinguishment
 

 
(312
)
 
(22
)
 
(586
)
Income Before Results from Unconsolidated Joint Venture Investments and Income Taxes
 
5,090

 
1,399

 
5,958

 
101,983

Income (Loss) from Unconsolidated Joint Ventures
 
582

 
539

 
918

 
(2,636
)
Gain from Remeasurement of Investment in Unconsolidated Joint Venture
 

 

 

 
16,239

Income from Unconsolidated Joint Venture Investments
 
582

 
539

 
918

 
13,603

Income Before Income Taxes
 
5,672

 
1,938

 
6,876

 
115,586


 
 
 
 
 
 
 
 
Income Tax (Expense) Benefit
 
(2,685
)
 
1,325

 
(1,200
)
 
(1,580
)

 
 
 
 
 
 
 
 
Net Income
 
2,987

 
3,263

 
5,676

 
114,006

Loss (Income) Allocated to Noncontrolling Interests - Common Units
 
72

 
90

 
676

 
(5,849
)
(Income) Loss Allocated to Noncontrolling Interests - Consolidated Joint Venture
 
(250
)
 

 
950

 

Preferred Distributions
 
(6,044
)
 
(6,040
)
 
(18,131
)
 
(18,124
)
Net (Loss) Income Applicable to Common Shareholders
 
$
(3,235
)
 
$
(2,687
)
 
$
(10,829
)
 
$
90,033

 
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
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]


 
Three Months Ended September 30,
 
Nine Months Ended September 30,

 
2018
 
2017
 
2018
 
2017
Earnings Per Share:
 
 
 
 
 
 
 
 
BASIC
 
 
 
 
 
 
 
 
(Loss) Income from Continuing Operations Applicable to Common Shareholders
 
$
(0.09
)
 
$
(0.07
)
 
$
(0.29
)
 
$
2.15


 
 
 
 
 
 
 
 
DILUTED
 
 
 
 
 
 
 
 
(Loss) Income from Continuing Operations Applicable to Common Shareholders
 
$
(0.09
)
 
$
(0.07
)
 
$
(0.29
)
 
$
2.13


 
 
 
 
 
 
 
 
Weighted Average Common Shares Outstanding:
 
 
 
 
 
 
 
 
Basic
 
39,321,062

 
41,721,425

 
39,400,237

 
41,725,159

Diluted*
 
39,321,062

 
41,721,425

 
39,400,237

 
42,225,238

 
*
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,
 
2018
 
2017
 
2018
 
2017
Common Units and Vested LTIP Units
3,150,256

 
2,783,895

 
3,142,806

 
2,710,861

Unvested Stock Awards and LTIP Units Outstanding
453,008

 
180,465

 
272,333

 

Contingently Issuable Share Awards
312,941

 
272,110

 
458,966

 

Total Potentially Dilutive Securities Excluded from the Denominator
3,916,205

 
3,236,470

 
3,874,105

 
2,710,861

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

5

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [UNAUDITED]
[IN THOUSANDS]


Three Months Ended September 30,
 
Nine Months Ended September 30,

2018
 
2017
 
2018
 
2017
Net Income
$
2,987

 
$
3,263

 
$
5,676

 
$
114,006

Other Comprehensive Income
 

 
 

 
 

 
 

Change in Fair Value of Derivative Instruments
914

 
611

 
6,273

 
(348
)
Less:  Reclassification Adjustment for Change in Fair Value of Derivative Instruments Included in Net Income
(813
)
 
(144
)
 
(1,832
)
 
(424
)
Total Other Comprehensive Income (Loss)
$
101

 
$
467

 
$
4,441

 
$
(772
)

 

 
 

 
 

 
 

Comprehensive Income
3,088

 
3,730

 
10,117

 
113,234

Less:  Comprehensive Loss (Income) Attributable to Noncontrolling Interests - Common Units
65

 
63

 
348

 
(5,802
)
Less:  Comprehensive (Income) Loss Attributable to Noncontrolling Interests - Consolidated Joint Venture
(250
)
 

 
950

 

Less:  Preferred Distributions
(6,044
)
 
(6,040
)
 
(18,131
)
 
(18,124
)
Comprehensive (Loss) Income Attributable to Common Shareholders
$
(3,141
)
 
$
(2,247
)
 
$
(6,716
)
 
$
89,308

 
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, 2018 AND 2017 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARES]


 
Shareholders' Equity
 
Noncontrolling Interests
 
 
 
Redeemable 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 ($)
 
Consolidated Joint Venture ($)
Balance at December 31, 2017
 
39,916,661

 
399

 

 
14,701,700

 
147

 
1,164,946

 
3,749

 
(335,373
)
 
833,868

 
3,223,366

 
54,286

 
888,154

 

Cumulative Effect of Adoption of ASC 610-20















123,228


123,228




5,793

 
129,021

 

Adjusted balance at January 1, 2018
 
39,916,661

 
399

 

 
14,701,700

 
147

 
1,164,946

 
3,749

 
(212,145
)
 
957,096

 
3,223,366

 
60,079

 
1,017,175

 

Unit Conversion
 
62,807

 
1

 

 

 

 
1,172

 

 

 
1,173

 
(62,807
)
 
(1,173
)
 

 

Repurchase of Common Shares
 
(635,590
)
 
(6
)
 

 

 

 
(10,827
)
 

 

 
(10,833
)
 

 

 
(10,833
)
 

Preferred Shares ATM Issuance, Net of Costs
 

 

 

 
1,514

 

 
(115
)
 

 

 
(115
)
 

 

 
(115
)
 

Dividends and Distributions declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Common Shares ($0.84 per share)
 

 

 

 

 

 

 

 
(33,076
)
 
(33,076
)
 

 

 
(33,076
)
 

Preferred Shares
 

 

 

 

 

 

 

 
(18,131
)
 
(18,131
)
 

 

 
(18,131
)
 

Common Units ($0.84 per share)
 

 

 

 

 

 

 

 

 

 

 
(1,752
)
 
(1,752
)
 

LTIP Units ($0.84 per share)
 

 

 

 

 

 

 

 

 

 

 
(1,508
)
 
(1,508
)
 

Dividend Reinvestment Plan
 
3,105

 

 

 

 

 
57

 

 

 
57

 

 

 
57

 

Share Based Compensation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Grants
 
75,753

 
1

 

 

 

 
733

 

 

 
734

 
589,106

 

 
734

 

Amortization
 

 

 

 

 

 
1,665

 

 

 
1,665

 

 
7,299

 
8,964

 

Equity Contribution to Consolidated Joint Venture






















 

 
3,402

Change in Fair Value of Derivative Instruments
 

 

 

 

 

 

 
4,113

 

 
4,113

 

 
328

 
4,441

 

Adjustment to Record Noncontrolling Interest at Redemption Value
 

 

 

 

 

 
(2,358
)
 

 

 
(2,358
)
 

 

 
(2,358
)
 
2,358

Net Income (Loss)
 

 

 

 

 

 

 

 
9,660

 
9,660

 


 
(676
)
 
8,984

 
(3,308
)
Balance at September 30, 2018
 
39,422,736

 
395

 

 
14,703,214

 
147

 
1,155,273

 
7,862

 
(253,692
)
 
909,985

 
3,749,665

 
62,597

 
972,582

 
2,452

 
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
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [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
 
23,964

 

 

 

 

 
392

 

 

 
392

 
(23,964
)
 
(392
)
 

Repurchase of Common Shares
 
(264,805
)
 
(3
)
 

 

 

 
(4,746
)
 

 

 
(4,749
)
 

 

 
(4,749
)
Common Units Issued
 

 

 

 

 

 

 

 

 

 
225,000

 
4,133

 
4,133

Dividends and Distributions declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
Common Shares ($0.84 per share)
 

 

 

 

 

 

 

 
(35,066
)
 
(35,066
)
 

 

 
(35,066
)
Preferred Shares
 

 

 

 

 

 

 

 
(18,124
)
 
(18,124
)
 

 

 
(18,124
)
Common Units ($0.84 per share)
 

 

 

 

 

 

 

 

 

 

 
(1,673
)
 
(1,673
)
LTIP Units ($0.84 per share)
 

 

 

 

 

 

 

 

 

 

 
(1,146
)
 
(1,146
)
Dividend Reinvestment Plan
 
3,427

 

 

 

 

 
63

 

 

 
63

 

 

 
63

Share Based Compensation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
Grants
 
75,876

 
1

 

 

 

 
(506
)
 

 

 
(505
)
 
183,784

 
779

 
274

Amortization
 

 

 

 

 

 
1,123

 

 

 
1,123

 


 
3,445

 
4,568

Change in Fair Value of Derivative Instruments
 

 

 

 

 

 

 
(725
)
 

 
(725
)
 

 
(47
)
 
(772
)
Net Income
 

 

 

 

 

 

 

 
108,157

 
108,157

 

 
5,849

 
114,006

Balance at September 30, 2017
 
41,608,976

 
416

 

 
14,700,000

 
147

 
1,194,637

 
648

 
(309,864
)
 
885,984

 
3,223,366

 
55,269

 
941,253

 
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, 2018 AND 2017 [UNAUDITED]
[IN THOUSANDS]


 
Nine Months Ended September 30,

 
2018
 
2017
Operating Activities:
 
 
 
 
Net Income
 
$
5,676

 
$
114,006

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

 
 

Gain on Disposition of Hotel Properties, Net
 
(3,403
)
 
(89,544
)
Gain from Remeasurement of Investment in Unconsolidated Joint Ventures
 

 
(16,239
)
(Gains from) Property Losses in Excess of Insurance Recoveries
 
(11,141
)
 
3,812

Lease Buyout
 

 
(294
)
Deferred Taxes
 
1,200

 
1,580

Depreciation
 
65,656

 
59,953

Amortization
 
2,118

 
2,592

Loss on Debt Extinguishment
 
22

 
586

Equity in (Income) Loss of Unconsolidated Joint Ventures
 
(918
)
 
2,636

Distributions from Unconsolidated Joint Ventures
 
1,000

 
400

Loss Recognized on Change in Fair Value of Derivative Instrument
 
147

 
33

Share Based Compensation Expense
 
6,797

 
5,468

Proceeds received for business interruption insurance claims
 
8,614

 

Change in Assets and Liabilities:
 
 

 
 

(Increase) Decrease in:
 
 

 
 

Hotel Accounts Receivable
 
2,576

 
(1,480
)
Other Assets
 
(3,091
)
 
1,577

Due from Related Parties
 
191

 
13,624

Increase (Decrease) in:
 
 

 
 

Accounts Payable, Accrued Expenses and Other Liabilities
 
7,623

 
(8,711
)
Net Cash Provided by Operating Activities
 
$
83,067

 
$
89,999


 
 
 
 
Investing Activities:
 
 
 
 
Purchase of Hotel Property Assets
 
$
(41,230
)
 
$
(249,291
)
Capital Expenditures
 
(53,573
)
 
(32,982
)
Cash Paid for Hotel Development Projects
 
(29,606
)
 
(1,500
)
Proceeds from Disposition of Hotel Properties
 
49,580

 
188,612

Contributions to Unconsolidated Joint Ventures
 
(1,000
)
 

Proceeds from the Sale of Joint Venture Interests
 

 
11,623

Repayment of Notes Receivable
 

 
2,000

Proceeds from Insurance Claims
 
13,624

 

Distributions from Unconsolidated Joint Ventures
 
47,738

 

Net Cash Used in Investing Activities
 
$
(14,467
)
 
$
(81,538
)
 
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
 
 
 
 

9

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [UNAUDITED]
[IN THOUSANDS]


 
Nine Months Ended September 30,

 
2018
 
2017
Financing Activities:
 
 
 
 
Borrowings Under Line of Credit, Net
 
$
9,900

 
$

Proceeds of Unsecured Term Loan Borrowing
 

 
58,380

Repayment of Borrowings Under Unsecured Term Loan
 
(18,000
)
 

Proceeds of Mortgages and Notes Payable
 
28,000

 

Principal Repayment of Mortgages and Notes Payable
 
(1,237
)
 
(122,312
)
Cash Paid for Deferred Financing Costs
 
(409
)
 
(3,344
)
Cash Paid for Debt Extinguishment
 

 
(370
)
Repurchase of Common Shares
 
(10,833
)
 
(4,749
)
Dividends Paid on Common Shares
 
(33,158
)
 
(43,401
)
Dividends Paid on Preferred Shares
 
(18,130
)
 
(17,729
)
Distributions Paid on Common Units and LTIP Units
 
(3,114
)
 
(3,279
)
Other Financing Activities
 
(193
)
 
(261
)
Net Cash Used in Financing Activities
 
$
(47,174
)
 
$
(137,065
)

 
 

 
 

Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
 
$
21,426

 
$
(128,604
)
Cash, Cash Equivalents, and Restricted Cash - Beginning of Period
 
25,586

 
194,637


 
 

 
 

Cash, Cash Equivalents, and Restricted Cash - End of Period
 
$
47,012

 
$
66,033

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

10

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [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, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 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, 2017, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, 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 September 30, 2018, we owned an approximate 91.3%  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 US GAAP and include all of our accounts as well as accounts of the Partnership, subsidiary partnerships and our wholly owned Taxable REIT Subsidiary Lessee (“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.
 
Variable Interest Entities

We evaluate each of our investments and contractual relationships to determine whether they meet the guidelines for consolidation. 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 Lessee JV, LLC; South Bay Boston, LLC; Hersha Holding RC Owner, LLC; Hersha Statutory Trust I; and Hersha Statutory Trust II. As noted, 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 Lessee JV, LLC is a VIE that leases hotel property. The entity is consolidated by the lessor, the primary beneficiary. Our maximum exposure to losses from our investment in Cindat Hersha Lessee JV, LLC is limited to our basis in the joint venture which is $0 as of September 30, 2018. 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 Holding RC Owner, LLC is the owner entity of the Ritz-Carlton Coconut Grove and is a VIE. HHLP is considered the primary beneficiary of the VIE and consolidates the joint venture with the minority owner interest presented as part of noncontrolling interest within the Consolidated Balance Sheets as of September 30, 2018. Hersha Statutory Trust I and Hersha Statutory Trust II (collectively “Hersha Statutory Trusts”) are VIEs but the Company is not

11

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [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 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 $62,597 as of September 30, 2018 and $54,286 as of December 31, 2017. As of September 30, 2018, there were 3,749,665 Common Units outstanding with a fair market value of $85,005, 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.

On April 2, 2018, we entered into a joint venture with the party from which we acquired the Ritz-Carlton Coconut Grove, FL. By exercising an option provided to the seller in connection with our purchase of the property in 2017, our joint venture partner will have a noncontrolling equity interest of 15% in the property. Hersha Holding RC Owner, LLC, the owner entity of the Ritz-Carlton Coconut Grove joint venture ("Ritz Coconut Grove"), will distribute income based on cash available for distribution which will be distributed as follows: (1) us until we receive a cumulative return on our contributed senior common equity interest, currently at 8%, and (2) then to the owner of the noncontrolling interest until they receive a cumulative return on their contributed junior common equity interest, currently at 8%, and (3) then 75% to us and 25% to the owner of the noncontrolling interest until we both receive a cumulative return on our contributed senior common equity interest, currently at 12%, and (4) finally, any remaining operating profit shall be distributed 70% to us and 30% to the owner of the noncontrolling interest. Additionally, the noncontrolling interest in the Ritz Coconut Grove has the right to put their ownership interest to us for cash consideration at any time during the life of the venture. The balance sheet and financial results of the Ritz Coconut Grove are included in our consolidated financial statements and book value of the noncontrolling interest in the Ritz Coconut Grove is classified as temporary equity within our Consolidated Balance Sheet. The noncontrolling interest in the Ritz Coconut Grove was initially measured at fair value upon formation of the joint venture and will be subsequently measured at the greater of historical cost or the put option redemption value. For the three and nine months ended September 30, 2018, based on the income allocation methodology described above, the noncontrolling interest in this joint venture was allocated losses of $2,108 and $3,308, respectively, and is recorded as part of the (Income) Loss Allocated to Noncontrolling Interests line item within the Consolidated Statements of Operations. On September 30, 2018, we reclassed $2,358 from Additional Paid in Capital to Noncontrolling Joint Venture Interest to recognize interest at the put option redemption value of $2,452.
 
Shareholders’ Equity
 
Terms of the Series C, Series D, and Series E Preferred Shares outstanding at September 30, 2018 and December 31, 2017 are summarized as follows:
 

12

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 1 – BASIS OF PRESENTATION (CONTINUED)


 
 
 
 
 
 
 
 
 
Dividend Per Share  

 
Shares Outstanding
 
 
 
 
 
Nine Months Ended September 30,
Series
 
September 30, 2018
 
December 31, 2017
 
Aggregate Liquidation Preference
 
Distribution Rate
 
2018
 
2017
Series C
 
3,000,000

 
3,000,000

 
$
75,000

 
6.875
%
 
$
1.2891

 
$
1.2891

Series D
 
7,701,700

 
7,701,700

 
$
192,500

 
6.500
%
 
$
1.2187

 
1.2189

Series E
 
4,001,514

 
4,000,000

 
$
100,038

 
6.500
%
 
$
1.2187

 
1.2189

Total
 
14,703,214

 
14,701,700

 
 

 
 

 
 

 
 


In December 2017, our Board of Trustees authorized us to repurchase from time to time up to an aggregate of $100,000 of our outstanding common shares. For the nine months ended September, 2018, the Company repurchased 635,590 common shares for an aggregate purchase price of $10,833. Upon repurchase by the Company, these common shares ceased to be outstanding and became authorized but unissued common shares. There is no guarantee that the Company will repurchase the entire aggregate value of shares authorized for repurchase prior to the program's expiration. The repurchase program will expire on December 31, 2018, unless extended by our Board of Trustees, at their discretion.
 
Revenue Recognition

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which is codified as ASC 606 and 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 replaced most existing revenue recognition guidance in U.S. GAAP. The Company has adopted the provisions of ASC 606 effective January 1, 2018, electing to utilize the modified retrospective transition method. The modified retrospective method allows for, among other things, a cumulative adjustment to opening equity upon adoption of the standard. The adoption of the provisions of ASC 606 was applied to contracts with customers using available practical expedients only for contracts with customers. The Company evaluated only those contracts with customers that did not meet the definition of a closed contract under the guidance of ASC 606 at the time of adoption. This approach resulted in no cumulative adjustment to opening equity for the Company as it relates to contracts with customers. The new revenue recognition model will not have a material impact on our hotel operating revenue, including room revenue, food and beverage, and other operating revenue. Our hotel operating revenue streams contain contracts with customers that, generally, are short-term by nature and the prior revenue recognition policies and procedures used by the Company do not initially result in different balances, allowing for comparability to historical financial data without adjustment.

We recognize revenue for all consolidated hotels as hotel operating revenue when earned. Revenues are recorded net of any sales or occupancy tax collected from our guests. We participate in frequent guest programs sponsored by the brand owners of our hotels and we expense the charges associated with those programs, as incurred. Hotel operating revenues are disaggregated on the face of the consolidated statement of operations into the categories of rooms revenue, food and beverage revenue, and other to demonstrate how economic factors affect the nature, amount, timing, and uncertainty of revenue and cash flows.

Room revenue is generated through contracts with customers whereby the customers agree to pay a daily rate for right to use a hotel room. The Company's contract performance obligations are fulfilled at the end of the day that the customer is provided the room and revenue is recognized daily at the contract rate. Payment from the customer is secured at the end of the contract upon check-out by the customer from our hotel. The Company records contract liabilities in the form of advanced deposits when a customer or group of customers provides a deposit for a future stay at our hotels. Advanced deposits for room revenue are included in the balance of Accounts Payable, Accrued Expenses and Other Liabilities on the consolidated balance sheet. Advanced deposits are recognized as revenue at the time of the guest's stay. The Company notes no significant judgements regarding the recognition of room revenue.


13

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 1 – BASIS OF PRESENTATION (CONTINUED)


Food and beverage revenue is generated through contracts with customers whereby the customer agrees to pay a contract rate for restaurant dining services or banquet services. The Company's contract performance obligations are fulfilled at the time that the meal is provided to the customer or when the banquet facilities and related dining amenities are provided to the customer. The Company recognizes food and beverage revenue upon the fulfillment of the contract with the customer. The Company records contract liabilities in the form of advanced deposits when a customer or group of customers provides a deposit for a future banquet event at our hotels. Advanced deposits for food and beverage revenue are included in the balance of Accounts Payable, Accrued Expenses and Other Liabilities on the consolidated balance sheet. Advanced deposits for banquet services are recognized as revenue following the completion of the banquet services. The Company notes no significant judgements regarding the recognition of food and beverage revenue.

Gains from the sales of ownership interests in real estate are accounted for in accordance with the provisions of Subtopic 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets, which the Company adopted effective January 1, 2018.  Our evaluation over sales of real estate is impacted by the FASB definition of a business and in substance nonfinancial assets, which have been addressed through the issuance of ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, and ASU No. 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20), respectively. Based on the provisions of ASU No. 2017-01 and ASU No. 2017-05, the Company expects any future sales of interests in hotel properties to likely meet the criteria for full gain recognition on sale. This treatment is not different from our historical position when selling our entire interest in hotel properties, however, this is different than the historical treatment in certain instances where the Company sold partial interests in hotel properties. 

In particular, during 2016 the Company sold partial interests in seven hotel properties to a third party (“Cindat Sale”) resulting in an approximate $81 million deferred gain based on prevailing GAAP at the time of the transaction. The Company chose to adopt the provisions of ASC 610-20 for contracts with noncustomers for all contracts and chose not to utilize any available practical expedients as it pertains to contracts with noncustomers.  Accordingly, the Company's analysis included all contracts with noncustomers related to the sales, either full or partial, of our interest in hotel properties. The Company noted no changes to the recognition of gains on sales in instances whereby the Company sold 100% of our interest. The Company noted, however, that the Cindat Sale, under the provisions of ASC 610-20, would have resulted in full gain recognition at the time of the partial sale of our interest in the seven hotel properties. The impact of our adoption of the new standard resulted in a cumulative adjustment to decrease the opening balance to distributions in excess of net income, thereby increasing total shareholders' equity by $123,228 and increase the opening balance of noncontrolling interests of $5,793.

The table below shows the cumulative effect our adoption of ASC 610-20 had on the opening balances of on our balance sheet on Janauary 1, 2018.

 
Balance as Reported at December 31, 2017
 
Cumulative Effect of the Adoption of ASC 610-20
 
Balance at January 1, 2018, as Adjusted
Investment in Unconsolidated Joint Ventures
$
3,569

 
$
47,738

 
$
51,307

Deferred Gain on Disposition of Hotel Assets
81,284

 
(81,284
)
 

Distributions in Excess of Net Income
(335,373
)
 
123,228

 
(212,145
)
Noncontrolling Interests
54,286

 
5,793

 
60,079


The quantitative impact of applying the prior accounting policies would have resulted in an increase of $129,021 in the deferred gain on disposition of hotel assets, an increase of $123,228 in distributions in excess of net income thereby decreasing shareholders' equity, and a decrease of $5,793 in noncontrolling interests at September 30, 2018. The adoption of ASC 610-20 did not materially impact the balances in the Company's consolidated statement of operations or its consolidated statement of cash flows.

14

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 1 – BASIS OF PRESENTATION (CONTINUED)


New Accounting Pronouncements
 
In June 2018, the FASB issued ASU No. 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The update will simplify several aspects of the accounting for nonemployee share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this update affects all entities that enter into share-based payment transactions for acquiring goods and services from nonemployees. The provisions of the update will be effective for the Company starting January 1, 2019 with the early adoption available as early as the quarter ended June 30, 2018. We do not anticipate this update to have a material effect on our consolidated financial statements and related disclosures based on the historic volatility of our stock price and the relative number of nonemployee share-based payments awards outstanding, however, we are currently assessing the ultimate impact of this update.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The update will make more financial and nonfinancial hedging strategies eligible for hedge accounting, changes how companies assess hedge effectiveness, and amends the presentation and disclosure requirements for hedging transactions. The provisions of the update will be effective for the Company starting January 1, 2019 with the early adoption available as early as the quarter ended September 30, 2018. The Company will adopt the provisions of this update effective January 1, 2019.  Based on the type of derivative instruments within the Company’s portfolio (See Note 7), we do not anticipate this update to have a material effect 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 requires the capitalization of acquisition costs to the underlying assets. The Company expects the standard to have an impact on our financial statements in periods during which we complete significant hotel acquisitions.  The Company has adopted ASU No. 2017-01 effective, January 1, 2018. The Company applied the provisions of this standard to record our purchase of the Annapolis Waterfront Hotel as discussed in further detail within Note 2.
 
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. The Company adopted this standard effective January 1, 2018. The adoption of ASU No. 2016-18 changed the presentation of the statement of cash flows for the Company and we utilized a retrospective transition method for each period presented within financial statements for periods subsequent to the date of adoption. Additionally, the Company provides a reconciliation within Note 10 of cash, cash equivalents, and restricted cash to their relative balance sheet captions.

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 anticipate that our interests as a lessee in ground leases will have a more than inconsequential impact to our balance sheet as we have five ground leases under which we are the lessee. As of September 30, 2018, these ground leases, collectively, have remaining lease payments due in total of $330,142 with a weighted average life of approximately 71 years. We are currently determining the appropriate discount rate to utilize within our calculations of the right-of-use asset and lease liability, and, as such, we have not finalized our calculations as of September 30, 2018. 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 this ASU will have on the accounting for our leasing arrangements as well as our disclosures within the notes to our financial statements. The provisions of the standard will be effective for the Company on January 1, 2019.

15

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 1 – BASIS OF PRESENTATION (CONTINUED)

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

16

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [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, 2018 and December 31, 2017:
 
 

 
 
 
 

 
September 30, 2018
 
December 31, 2017

 
 
 
 
Land
 
$
518,243

 
$
532,549

Buildings and Improvements
 
1,658,600

 
1,603,655

Furniture, Fixtures and Equipment
 
269,393

 
250,922

Construction in Progress
 
18,078

 
9,503


 
2,464,314

 
2,396,629


 
 

 
 

Less Accumulated Depreciation
 
(438,780
)
 
(387,057
)

 
 

 
 

Total Investment in Hotel Properties *
 
$
2,025,534

 
$
2,009,572

* The net book value of investment in hotel property at Ritz Coconut Grove, which is a variable interest entity, is $42,410 at September 30, 2018. This entity was not a variable interest entity at December 31, 2017.

Acquisitions
 
We acquired the following property during the nine months ended September 30, 2018:
 
 
Hotel
 
Acquisition Date
 
Land
 
Buildings and Improvements
 
Furniture, Fixtures and Equipment
 
Other Intangibles
 
Total Purchase Price
 
Assumption of Debt
Annapolis Waterfront Hotel, Annapolis, MD
 
3/28/2018
 
$

 
$
43,251

 
$
1,802

 
$
(3,199
)
*
$
41,854

 
$

TOTAL
 
 
 
$

 
$
43,251

 
$
1,802

 
$
(3,199
)
 
$
41,854

 
$

 
* Consists entirely of $3,199 of above market ground lease liability, which is recorded in Other Liabilities on the consolidated balance sheet.
 
The above acquisition is considered an asset acquisition under US GAAP. As such acquisition-related costs, such as due diligence, legal fees and other costs, have been capitalized and allocated to the assets acquired based on their relative fair values.

The following table illustrates total revenues and total net income included in the consolidated statements of operations for the three and nine months ended September 30, 2018 for the hotel we acquired or assumed ownership during the nine months ended September 30, 2018 and consolidated since the date of acquisition of the hotel.
 
 
 

 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
Hotel
 
Revenue
 
Net Income
 
Revenue
 
Net Income
Annapolis Waterfront Hotel, Annapolis, MD
 
$
3,344

 
$
452

 
$
6,866

 
$
1,070


 
 
 
 
 
 

 
 

Total
 
$
3,344

 
$
452

 
$
6,866

 
$
1,070

 
 


17

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)


Hotel Dispositions
On February 16, 2018, the Company closed on the sale of Hyatt House Gaithersburg, MD to an unaffiliated buyer for a sales price of $19,000 resulting in a gain on sale of approximately $2,400. This hotel was acquired by the Company in December 2006. The operating results for this hotel are included in operating income as shown in the consolidated statements of operations for the nine months ended September 30, 2018 and 2017 as disposition of this hotel does not represent a strategic shift in our business.

On March 6, 2018, the Company closed on the sale of Hampton Inn Pearl Street, NY to an unaffiliated buyer for a sales price of $32,400 resulting in a gain on sale of approximately $1,000. This hotel was opened by the Company in June 2014. The operating results for this hotel are included in operating income as shown in the consolidated statements of operations for the period owned during the nine months ended September 30, 2018 and 2017 as disposition of this hotel does not represent a strategic shift in our business.
 
Assets Held For Sale

We have classified one asset as held for sale as of September 30, 2018. The sale of Residence Inn Tysons Corner is expected to close during the fourth quarter of 2018 and is included as a held for sale asset as of September 30, 2018. Included as a held for sale asset as of December 31, 2017 is the Hyatt House, Gaithersburg, MD, which was sold on February 16, 2018. The table below shows the balances for the properties that were classified as assets held for sale as of September 30, 2018 and December 31, 2017:
 

September 30, 2018
December 31, 2017

 
 
Land
$
4,283

$
2,911

Buildings and Improvements
16,465

20,168

Furniture, Fixtures and Equipment
2,754

4,340


23,502

27,419


 
 

Less: Accumulated Depreciation & Amortization
(9,003
)
(11,432
)

 
 

Assets Held for Sale
$
14,499

$
15,987


 
 


18

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)

Pro Forma Results (Unaudited)

The following condensed pro forma financial data for the three and nine months ended September 30, 2018 and 2017 are presented as if the hotels acquired by the Company in 2018 and 2017 had been acquired as of January 1, 2018 and 2017, respectively. The condensed pro forma financial data are not necessarily indicative of what actual results of operations of the Company would have been for the periods presented assuming the acquisitions had been consummated on January 1, 2018 and 2017, nor do they purport to represent the results of operations for future periods.
 

 
Three Months Ended September 30,
 
Nine Months Ended September 30,

 
2018
 
2017
 
2018
 
2017
Pro Forma Total Revenues
 
$
127,876

 
132,176

 
$
363,950

 
$
401,536


 
 

 
 

 
 

 
 

Pro Forma Net Income
 
2,987

 
3,665

 
6,023

 
120,366

(Income) Loss Allocated to Noncontrolling Interest
 
(178
)
 
65

 
1,600

 
(6,237
)
Preferred Distributions
 
(6,044
)
 
(6,040
)
 
(18,131
)
 
(18,124
)
Pro Forma Income (Loss) Applicable to Common Shareholders
 
$
(3,235
)
 
$
(2,310
)
 
$
(10,508
)
 
$
96,005


 
 
 
 
 
 
 
 
Pro Forma Income (Loss) Applicable to Common Shareholders per Common Share
 
 
 
 
 
 
 
 
Basic
 
$
(0.09
)
 
$
(0.06
)
 
$
(0.28
)
 
$
2.30

Diluted
 
$
(0.09
)
 
$
(0.06
)
 
$
(0.28
)
 
$
2.27


 
 
 
 
 
 
 
 
Weighted Average Common Shares Outstanding
 
 
 
 
 
 
 
 
Basic
 
39,321,062

 
41,721,425

 
39,400,237

 
41,725,159

Diluted
 
39,321,062

 
41,721,425

 
39,400,237

 
42,225,238

 

19

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 3 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES


As of September 30, 2018 and December 31, 2017, our investment in unconsolidated joint ventures consisted of the following:
 
 
 

 
 
 
Percent
 
 
 
 
Joint Venture
 
Hotel Properties
 
Owned
 
September 30, 2018
 
December 31, 2017

 
 
 
 
 
 
 
 
SB Partners, LLC
 
Holiday Inn Express, South Boston, MA
 
50.0
%
 
$
1,156

 
$
1,407

Hiren Boston, LLC
 
Courtyard by Marriott, South Boston, MA
 
50.0
%
 
2,331

 
2,162

Cindat Hersha Owner JV, LLC
 
Hilton and IHG branded hotels in NYC
 
31.2
%
 

 

SB Partners Three, LLC
 
Home2 Suites, South Boston, MA
 
50.0
%
 
1,000

 


 
 
 
 
 
$
4,487

 
$
3,569

 
On January 3, 2017, we redeemed our joint venture interest in Mystic Partners, LLC by acquiring a 100% ownership interest in the Mystic Marriott Hotel & Spa and transferring our minority ownership interests in the Hartford Marriott and Hartford Hilton to our joint venture partner. We received $11,623 in cash and assumed a mortgage on the Mystic Marriott Hotel & Spa of $41,333 as consideration for this redemption and transfer of our minority interest. Subsequent to the assumption of the mortgage, the Company fully paid off the outstanding balance of the debt and added the property to the borrowing base of our Credit Facility. As a result of the remeasurement of the consideration received to fair value, the Company recognized a gain of $16,239 in conjunction with this transaction.

On February 6, 2018, Cindat Hersha Owner JV, LLC repaid in full outstanding mortgage debt from an existing senior loan and mezzanine loan, and simultaneously entered into a new senior loan agreement with new lenders. A portion of the net cash proceeds from the refinance was used to distribute $47,738 to the Company to fully redeem our recorded preferred equity interest in the venture. While this transaction fully redeemed our preferred equity interest in the venture, the Company continues to hold a common equity investment in this joint venture which has a balance of $0 at September 30, 2018.
As a result of net distributions of Cindat Hersha Owner JV, LLC to Cindat and the Company during the three months ended March 31, 2018, the common interests of each member and common membership interests effective retroactively to January 1, 2018 is 31.2% to HHLP and 68.8% to Cindat. There are no remaining preferred equity interests.

Effective January 1, 2018, the member allocations for distributions of net cash flow from operations, distributions from capital transactions and allocation of income and loss are based on these new common contributions and percentage interests.
On September 27, 2018, we entered into a joint venture agreement with JHM SB Three Member, LLC which will own a Home2 Suites located in South Boston, MA. Each partner will have a 50% interest of this asset, which is currently under development and is expected to open in 2020. At the onset of the agreement, each partner contributed $1,000 and any additional contributions will be made equally by each party until construction financing is secured.



 


20

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 3 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)

Income/Loss Allocation

Effective January 1, 2018, the Cindat Hersha Owner JV, LLC cash available for distribution will be distributed to (1) Cindat until they receive a return on their contributed $142,000 senior common equity interest, currently at 9.5%, and (2) then to us until we receive an 8% return on our contributed $64,357 junior common equity interest. Any cash available for distribution remaining will be split 31.2% to us and 68.8% to Cindat. Cindat’s senior common equity return is reduced by 0.5% annually for 4 years following the closing until it is set at a rate of 8% for the remainder of the life of the joint venture.  As of September 30, 2018, based on the income allocation methodology described above, the Company has absorbed cumulative losses equal to our accounting basis in the joint venture resulting in a $0 investment balance in the table above, however, we currently maintain a positive equity balance within the venture. This difference is due to difference in our basis inside the venture versus our basis outside of the venture, which is explained later in this note.
 
For SB Partners, LLC, Hiren Boston, LLC, and SB Partners Three, LLC, income or loss is allocated to us and our joint venture partners consistent with the allocation of cash distributions in accordance with the joint venture agreements. This results in an income allocation consistent with our percentage of ownership interests.
 
Any difference between the carrying amount of any of our investments noted above and the underlying equity in net assets is amortized over the expected useful lives of the properties and other intangible assets. 

Income (loss) recognized during the three and nine months ended September 30, 2018 and 2017, for our investments in unconsolidated joint ventures is as follows:
 

 
Three Months Ended September 30,
 
Nine Months Ended September 30,

 
2018
 
2017
 
2018
 
2017
SB Partners, LLC
 
$
163

 
$
216

 
$
250

 
$
451

Hiren Boston, LLC
 
419

 
323

 
668

 
630

Cindat Hersha Owner JV, LLC
 

 

 

 
(3,717
)
SB Partners Three, LLC
 

 

 

 

Income (Loss) from Unconsolidated Joint Venture Investments
 
$
582

 
$
539

 
$
918

 
$
(2,636
)
 

21

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 3 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)

The following tables set forth the total assets, liabilities, equity and components of net income or loss, including the Company’s share, related to the unconsolidated joint ventures discussed above as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017.

Balance Sheets
 
 

 
September 30, 2018
 
December 31, 2017
Assets
 
 
 
 
Investment in Hotel Properties, Net
 
$
570,210

 
$