form10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2009

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, Pennsylvania
 
17102
(Address of Registrant’s Principal Executive Offices)
 
(Zip Code)

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

Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.
x Yes  ¨ 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 or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Small reporting company ¨

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

As of June 30, 2009, the number of Priority Class A Common Shares of Beneficial Interest outstanding was 49,129,932.
 


 
1

 

Hersha Hospitality Trust
Table of Contents for Quarterly Report on Form 10-Q

Item No.
 
Page
 
 
 
PART I.  FINANCIAL INFORMATION
 
Item 1.
3
 
3
 
4
 
6
 
7
 
8
Item 2.
32
Item 3.
41
Item 4.
43
PART II.  OTHER INFORMATION
 
Item 1.
44
Item 1A.
44
Item 2.
44
Item 3.
44
Item 4.
44
Item 5.
45
Item 6.
46

 
2


PART I.  FINANCIAL INFORMATION
Item 1. Financial Statements.

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2009 [UNAUDITED] AND DECEMBER 31, 2008
[IN THOUSANDS, EXCEPT SHARE AMOUNTS]

   
June 30, 2009
   
December 31, 2008
 
Assets:
           
Investment in Hotel Properties, net of Accumulated Depreciation
  $ 1,003,855     $ 982,082  
Investment in Unconsolidated Joint Ventures
    44,814       46,283  
Development Loans Receivable
    68,810       81,500  
Cash and Cash Equivalents
    12,691       15,697  
Escrow Deposits
    13,648       12,404  
Hotel Accounts Receivable, net of allowance for doubtful accounts of $58 and $120
    9,306       6,870  
Deferred Financing Costs, net of Accumulated Amortization of $4,673 and $3,606
    8,101       9,157  
Due from Related Parties
    3,171       3,595  
Intangible Assets, net of Accumulated Amortization of $709 and $595
    7,499       7,300  
Other Assets
    14,384       13,517  
Hotel Assets Held for Sale
    26,901       -  
                 
Total Assets
  $ 1,213,180     $ 1,178,405  
                 
Liabilities and Equity:
               
Line of Credit
  $ 113,521     $ 88,421  
Mortgages and Notes Payable, net of unamortized discount of $56 and $61
    663,351       655,360  
Accounts Payable, Accrued Expenses and Other Liabilities
    31,789       17,745  
Dividends and Distributions Payable
    3,867       11,240  
Due to Related Parties
    227       302  
Liabilities Related to Hotel Assets Held for Sale
    18,707       -  
                 
Total Liabilities
    831,462       773,068  
                 
Redeemable Noncontrolling Interests - Common Units (Note 1)
  $ 17,549     $ 18,739  
                 
Equity:
               
Shareholders' Equity:
               
Preferred Shares - 8% Series A, $.01 Par Value, 2,400,000 Shares Issued and Outstanding (Aggregate Liquidation Preference $60,000) at June 30, 2009 and December 31, 2008
    24       24  
Common Shares - Class A, $.01 Par Value, 150,000,000 and 80,000,000 Shares Authorized at June 30, 2009 and December 31, 2008, 49,129,932 and 48,276,222 Shares Issued and Outstanding at June 30, 2009 and December 31, 2008, respectively
    491       483  
Common Shares - Class B, $.01 Par Value, 1,000,000 Shares Authorized, None Issued and Outstanding
    -       -  
Accumulated Other Comprehensive Loss
    (74 )     (109 )
Additional Paid-in Capital
    464,870       463,772  
Distributions in Excess of Net Income
    (135,353 )     (114,207 )
Total Shareholders' Equity
    329,958       349,963  
                 
Noncontrolling Interests (Note 1):
               
Noncontrolling Interests - Common Units
    32,571       34,781  
Noncontrolling Interests - Consolidated Joint Ventures
    1,640       1,854  
Total Noncontrolling Interests
    34,211       36,635  
                 
Total Equity
    364,169       386,598  
                 
Total Liabilities and Equity
  $ 1,213,180     $ 1,178,405  

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

 
3


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

   
Three Months Ended
   
Six Months Ended
 
   
June 30, 2009
   
June 30, 2008
   
June 30, 2009
   
June 30, 2008
 
Revenue:
                       
Hotel Operating Revenues
  $ 57,973     $ 63,709     $ 100,544     $ 112,943  
Interest Income from Development Loans
    2,166       2,153       4,563       4,173  
Land Lease Revenue
    1,328       1,390       2,649       2,724  
Other Revenues
    149       342       365       594  
Total Revenues
    61,616       67,594       108,121       120,434  
                                 
Operating Expenses:
                               
Hotel Operating Expenses
    31,791       33,976       60,141       64,011  
Hotel Ground Rent
    291       216       583       442  
Land Lease Expense
    732       745       1,456       1,494  
Real Estate and Personal Property Taxes and Property Insurance
    3,394       2,820       6,609       5,858  
General and Administrative
    1,374       1,478       2,853       3,036  
Stock Based Compensation
    499       313       921       627  
Acquisition and Terminated Transaction Costs
    37       49       44       49  
Depreciation and Amortization
    10,900       9,505       21,478       18,596  
Total Operating Expenses
    49,018       49,102       94,085       94,113  
                                 
Operating Income
    12,598       18,492       14,036       26,321  
                                 
Interest Income
    50       101       110       183  
Interest Expense
    10,951       10,058       21,326       20,308  
Other Expense
    31       159       81       187  
Income (loss) before loss (income) from Unconsolidated Joint Venture Investments and Discontinued Operations
    1,666       8,376       (7,261 )     6,009  
                                 
(Loss) income from Unconsolidated Joint Venture Investments
    (395 )     1,360       (1,724 )     622  
                                 
Income (loss) from Continuing Operations
    1,271       9,736       (8,985 )     6,631  
                                 
Discontinued Operations  (Note 12):
                               
Income (loss) from Discontinued Operations
    213       226       (214 )     (554 )
                                 
Net Income (loss)
    1,484       9,962       (9,199 )     6,077  
                                 
(Income) loss allocated to Noncontrolling Interests
    (451 )     (1,737 )     1,602       (730 )
Preferred Distributions
    (1,200 )     (1,200 )     (2,400 )     (2,400 )
                                 
Net (Loss) income applicable to Common Shareholders
  $ (167 )   $ 7,025     $ (9,997 )   $ 2,947  

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

 
4


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

   
Three Months Ended
   
Six Months Ended
 
   
June 30, 2009
   
June 30, 2008
   
June 30, 2009
   
June 30, 2008
 
Earnings Per Share:
                       
BASIC
                       
(Loss) income from continuing operations applicable to common shareholders
  $ 0.00     $ 0.16     $ (0.21 )   $ 0.08  
Income (loss) from discontinued operations applicable to common shareholders
    0.00       0.00       0.00       (0.01 )
                                 
Net (loss) income applicable to common shareholders
  $ 0.00     $ 0.16     $ (0.21 )   $ 0.07  
                                 
DILUTED
                               
Income (loss) from continuing operations applicable to common shareholders
  $ 0.00 *   $ 0.16 *   $ (0.21 )*   $ 0.08 *
Income (loss) from discontinued operations applicable to common shareholders
    0.00 *     0.00 *     0.00 *     (0.01 ) *
                                 
Net (loss) income applicable to common shareholders
  $ 0.00 *   $ 0.16 *   $ (0.21 )*   $ 0.07 *
                                 
Weighted Average Common Shares Outstanding:
                               
Basic
    47,964,818       44,253,641       47,876,175       42,572,390  
Diluted
    47,964,818 *     44,253,641 *     47,876,175 *     42,572,390 *

*
Income allocated to noncontrolling interest in Hersha Hospitality Limited Partnership has been excluded from the numerator and units of limited partnership interest in Hersha Hospitality Limited Partnership have been omitted from the denominator for the purpose of computing diluted earnings per share since the effect of including these amounts in the numerator and denominator would have no impact. Weighted average units of limited partnership interest in Hersha Hospitality Limited Partnership outstanding for the three months ended June 30, 2009 and 2008 were 8,746,300 and 7,447,149, respectively.  Weighted average units of limited partnership interest in Hersha Hospitality Limited Partnership outstanding for the six months ended June 30, 2009 and 2008 were 8,746, 300 and 7,312,974, respectively. Unvested stock awards have been omitted from the denominator for the purpose of computing diluted earnings per share for the three months ended June 30, 2009 and 2008, and for the six months ended June 30, 2009 and 2008 since the effect of including these awards in the denominator would be anti-dilutive to income from continuing operations applicable to common shareholders.
 
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

 
5


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

   
Shareholders' Equity
   
Noncontrolling Interests
         
Redeemable Noncontrolling Interests
 
   
Series A
Preferred Shares
   
Class A
Common Shares
   
Class B
Common Shares
   
Additional
Paid-In
Capital
   
Other
Comprehensive
Income
   
Distributions
in Excess
of Net
Earnings
   
Total Shareholders' Equity
   
Common Units
   
Consolidated Joint Ventures
   
Total Noncontrolling Interests
   
Total
Equity
   
Common Units
 
Balance at December 31, 2008
  $ 24     $ 483     $ -     $ 463,772     $ (109 )   $ (114,207 )   $ 349,963     $ 34,781     $ 1,854     $ 36,635     $ 386,598     $ 18,739  
Common Share Issuance, net of costs
    -       1       -       129       -       -       130       -       -       -       130       -  
Dividends and Distribution declared:
                                                                                               
Preferred Shares ($1.00 per share)
    -       -       -       -       -       (2,400 )     (2,400 )     -       -       -       (2,400 )     -  
Common Shares ($0.23 per share)
    -       -       -       -       -       (11,149 )     (11,149 )     -       -       -       (11,149 )     -  
Common Units ($0.23 per share)
    -       -       -       -       -       -       -       (1,307 )     -       (1,307 )     (1,307 )     (705 )
Dividend Reinvestment Plan
    -       -       -       19       -       -       19       -       -       -       19       -  
Stock Based Compensation
                                                                                               
Restricted Share Award Grants
    -       7       -       (7 )     -       -       -       -       -       -       -       -  
Restricted Share Award Vesting
    -       -       -       873       -       -       873       -       -       -       873       -  
Share Grants to Trustees
    -       -       -       84       -       -       84       -       -       -       84       -  
Comprehensive Loss:
                                                                                               
Other Comprehensive Income
    -       -       -       -       35       -       35       -       -       -       35       -  
Net Loss
    -       -       -       -       -       (7,597 )     (7,597 )     (903 )     (214 )     (1,117 )     (8,714 )     (485 )
Total Comprehensive Loss
                                                    (7,562 )     (903 )     (214 )     (1,117 )     (8,679 )     (485 )
Balance at June 30, 2009
  $ 24     $ 491     $ -     $ 464,870     $ (74 )   $ (135,353 )   $ 329,958     $ 32,571     $ 1,640     $ 34,211     $ 364,169     $ 17,549  
                                                                                                 
                                                                                                 
Balance at December 31, 2007
  $ 24     $ 412     $ -     $ 397,127     $ (23 )   $ (67,135 )   $ 330,405     $ 42,845     $ 1,908     $ 44,753     $ 375,158     $ -  
Unit Conversion
    -       -       -       282       -       -       282       (282 )     -       (282 )     -       -  
Reallocation of Noncontrolling Interest
    -       -       -       1,772       -       -       1,772       (1,772 )     -       (1,772 )     -       -  
Common Units Issued for Acquisitions
    -       -       -       -       -       -       -       21,623       -       21,623       21,623       -  
Common Share Issuance, net of costs
    -       66       -       61,944       -       -       62,010       -       -       -       62,010       -  
Dividends and Distribution declared:
                                                                                               
Preferred Shares ($1.00 per share)
    -       -       -       -       -       (2,400 )     (2,400 )     -       -       -       (2,400 )     -  
Common Shares ($0.36 per share)
    -       -       -       -       -       (16,085 )     (16,085 )     -       -       -       (16,085 )     -  
Common Units ($0.36 per share)
    -       -       -       -       -       -       -       (2,895 )     -       (2,895 )     (2,895 )     -  
Dividend Reinvestment Plan
    -       -       -       15       -       -       15       -       -       -       15       -  
Stock Based Compensation
                                                                                               
Restricted Share Award Grant
    -       2       -       (2 )     -       -       -       -       -       -       -       -  
Restricted Share Award Vesting
    -       -       -       573       -       -       573       -       -       -       573       -  
Share Grants to Trustees
    -       1       -       91       -       -       92       -       -       -       92       -  
Comprehensive Income (Loss):
                                                                                               
Other Comprehensive Income
    -       -       -       -       2       -       2       -       -       -       2       -  
Net Income (Loss)
    -       -       -       -       -       5,347       5,347       918       (187 )     730       6,077       -  
Total Comprehensive Income (Loss)
                                                    5,349       918       (187 )     730       6,079       -  
Balance at June 30, 2008
  $ 24     $ 481     $ -     $ 461,802     $ (21 )   $ (80,273 )   $ 382,013     $ 60,437     $ 1,721     $ 62,157     $ 444,170     $ -  

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

 
6


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]
[IN THOUSANDS]

   
For the Six Months Ended
 
   
June 30, 2009
   
June 30, 2008
 
Operating activities:
           
Net (loss) income
  $ (9,199 )   $ 6,077  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
               
Depreciation
    22,084       19,536  
Amortization of intangible assets and deferred costs
    1,177       719  
Interest income from development loans paid in-kind
    (2,061 )     -  
Equity in loss (income) of unconsolidated joint venture investments
    1,724       (622 )
Distributions from unconsolidated joint venture investments
    400       1,415  
(Gain) loss recognized on change in fair value of derivative instrument
    (151 )     32  
Stock based compensation
    921       627  
Change in assets and liabilities:
               
(Increase) decrease in:
               
Hotel accounts receivable
    (2,230 )     (3,652 )
Escrow Deposits
    (1,244 )     36  
Other assets
    (3,290 )     216  
Due from related parties
    1,061       (1,087 )
Increase (decrease) in:
               
Due to related parties
    (1,125 )     410  
Accounts payable, accrued expenses and other liabilities
    1,233       (990 )
Net cash provided by operating activities
    9,300       22,717  
                 
Investing activities:
               
Purchase of hotel property assets
    (4,794 )     (57,312 )
Capital expenditures
    (4,033 )     (13,022 )
Cash paid for franchise fee intangible
    -       (12 )
Investment in development loans receivable
    (2,000 )     (29,700 )
Repayment of development loans receivable
    -       15,416  
Distributions from unconsolidated joint venture investments
    100       347  
Advances and capital contributions to unconsolidated joint venture investments
    (753 )     (96 )
Net cash used in investing activities
    (11,480 )     (84,379 )
                 
Financing activities:
               
Proceeds from (repayments of) borrowings under line of credit, net
    25,100       3,900  
Principal repayment of mortgages and notes payable
    (3,313 )     (2,297 )
Proceeds from mortgages and notes payable
    182       31,589  
Cash paid for mortgage defeasance deposit
    -       (9,000 )
Cash paid for deferred financing costs
    (11 )     (80 )
Proceeds from issuance of common shares, net of issuance costs
    131       62,009  
Dividends paid on common shares
    (17,366 )     (14,820 )
Dividends paid on preferred shares
    (2,400 )     (2,400 )
Distributions paid on common units
    (3,149 )     (2,594 )
Net cash (used in) provided by financing activities
    (826 )     66,307  
                 
Net (decrease) increase in cash and cash equivalents
    (3,006 )     4,645  
Cash and cash equivalents - beginning of period
    15,697       12,327  
                 
Cash and cash equivalents - end of period
  $ 12,691     $ 16,972  

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

 
7


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Hersha Hospitality Trust (“we,” “us,” “our” or the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information and with the general instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals), considered necessary for fair presentation, have been included. Operating results for the three and six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009 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 GAAP, and the related notes thereto, for the year ended December 31, 2008, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 as certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report pursuant to the rules of the SEC.

We are the sole general partner in our operating partnership subsidiary, Hersha Hospitality Limited Partnership (“HHLP”), which is indirectly the sole general partner of the subsidiary partnerships.

Application of New Accounting Standards

Effective January 1, 2009, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements (“SFAS No. 160”), which defines a noncontrolling interest as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent.  Under SFAS No. 160, such noncontrolling interests are reported on the consolidated balance sheets within equity, but separately from the Company’s equity.  Revenues, expenses and net income or loss attributable to both the Company and noncontrolling interests are reported on the consolidated statements of operations.

In accordance with FASB Emerging Issues Task Force (“EITF”) Topic No. D-98, “Classification and Measurement of Redeemable Securities” (“EITF D-98”), we classify securities that are redeemable for cash or other assets at the option of the holder, or not solely within the control of the issuer, outside of permanent equity in the consolidated balance sheet.  The Company makes this determination based on terms in applicable agreements, specifically in relation to redemption provisions.  Additionally, with respect to noncontrolling interests for which the Company has a choice to settle the contract by delivery of its own shares, the Company considers the guidance in EITF Topic No. 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock” to evaluate whether the Company controls the actions or events necessary to issue the maximum number of common shares that could be required to be delivered at the time of settlement of the contract.

As a result of the adoption of SFAS No. 160, we have reclassified the noncontrolling interests of our consolidated joint ventures from the mezzanine section of our consolidated balance sheets to equity.  These noncontrolling interests totaled $1,640 as of June 30, 2009 and $1,854 as of December 31, 2008.  In addition, certain common units of limited partnership interests in HHLP (“Nonredeemable Common Units”) were reclassified from the mezzanine section of our consolidated balance sheets to equity.  These noncontrolling interests of Nonredeemable Common Units totaled $32,571 as of June 30, 2009 and $34,781 as of December 31, 2008.  As of June 30, 2009, there were 5,682,048 Nonredeemable Common Units outstanding with a fair market value of $14,091, based on the price per share of our common shares on the New York Stock Exchange on such date.  These units are only redeemable by the unit holders for common shares on a one-for-one basis or, at our option, cash.

Certain common units of limited partnership interests in HHLP (“Redeemable Common Units”) have been pledged as collateral in connection with a pledge and security agreement entered into by the Company and the holders of the Redeemable Common Units.  The redemption feature contained in the pledge and security agreement where the Redeemable Common Units serve as collateral contains a provision that could result in a net cash settlement outside of the control of the Company.  As a result, the Redeemable Common Units will continue to be classified in the mezzanine section of the consolidated balance sheets as they do not meet the requirements for equity classification under EITF D-98.  As prescribed by EITF D-98, the carrying value of the Redeemable Common Units equals the greater of carrying value based on the accumulation of historical cost or the redemption value.  As of June 30, 2009, there were 3,064,252 Redeemable Common Units outstanding with a fair market value of $7,599, based on the price per share of our common shares on the New York Stock Exchange on such date.  As of June 30, 2009 and December 31, 2008, the Redeemable Common Units were valued on the consolidated balance sheets at carrying value based on historical cost of $17,549 and $18,739, respectively, since historical cost exceeded the Redeemable Common Units redemption value as of each date.

 
8


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 1 — BASIS OF PRESENTATION (CONTINUED)

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

Recent Accounting Pronouncements

FSP EITF 08-6

In November 2008, the FASB ratified EITF 08-6 “Equity Method Investment Accounting Considerations” which clarifies how to account for certain transactions involving equity method investments.  The initial measurement, decreases in value and changes in the level of ownership of the equity method investment are addressed.  EITF 08-6 is effective for the Company beginning on January 1, 2009, consistent with the effective dates of SFAS No. 141R and SFAS No. 160.  EITF 08-6 will be applied prospectively.  The adoption of EITF 08-6 did not have a material impact on the Company’s consolidated financial position and results of operations.

SFAS No. 141R

On January 1, 2009, we adopted SFAS No. 141R, “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at “full fair value.” The adoption of SFAS No.141R could have a material effect on the Company’s financial statements and the Company’s future financial results to the extent the Company acquires significant amounts of real estate assets.  Under SFAS No. 141R, costs related to future acquisitions will be expensed as incurred compared to the Company’s practice prior to the adoption of SFAS No. 141R of capitalizing such costs and amortizing them over the useful life of the acquired assets.  In addition, to the extent the Company enters into acquisition agreements after the adoption of SFAS No. 141R with earn-out provisions, a liability may be recorded at the time of acquisition based on an estimate of the earn-out to be paid compared to our current practice of recording a liability for the earn-out when amounts are probable and determinable.

SFAS No. 161

In March 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. The objective of the guidance is to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Our adoption of SFAS No. 161 on January 1, 2009 did not have a material effect on our financial statements.

FSP EITF 03-6-1

In June 2008, the FASB issued FASB Staff Position on Emerging Issues Task Force Issue 03-6, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share (“EPS”) pursuant to the two-class method. We adopted FSP EITF 03-6-1 on January 1, 2009 and as a result all prior-period EPS data presented has been adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of FSP EITF 03-6-1. Our adoption of this statement did not impact our financial position or net income.

 
9


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 1 — BASIS OF PRESENTATION (CONTINUED)

SFAS No. 165

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and disclosures that an entity should make about events or transactions that occurred after the balance sheet date.  We adopted the provisions of SFAS No. 165 in our Quarterly Report on Form 10-Q for the period ended June 30, 2009.  Adoption of this statement did not impact our financial position or net income.

SFAS No. 167

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”).  SFAS No. 167 amends FIN 46(R) as follows: (a) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity and to identify the primary beneficiary of a variable interest entity, (b) to require ongoing reassessment of whether an enterprise is the primary beneficiary of a variable interest entity, rather than only when specific events occur, (c) to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity, (d) to amend certain guidance for determining whether an entity is a variable interest entity, (e) to add an additional reconsideration event when changes in facts and circumstances pertinent to a variable interest entity occur, (f) to eliminate the exception for troubled debt restructuring regarding variable interest entity reconsideration, and (g) to require advanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity.  SFAS No. 167 is effective for the first annual reporting period that begins after November 15, 2009.  Earlier adoption is prohibited.  The Company will adopt SFAS 167 on January 1, 2010 and has not determined whether the adoption of SFAS No. 167 will have a material effect on the Company’s financial statements.
 
SFAS No. 168

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.”  SFAS No. 168 replaces FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” and establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP.  SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009.  The adoption of SFAS No. 168 will not have any impact on the Company’s consolidated financial position and results of operations.

 
10


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [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, 2009 and December 31, 2008:

 
   
June 30, 2009
   
December 31, 2008
 
             
Land
  $ 204,259     $ 184,879  
Buildings and Improvements
    818,140       802,760  
Furniture, Fixtures and Equipment
    120,321       121,991  
      1,142,720       1,109,630  
                 
Less Accumulated Depreciation
    (138,865 )     (127,548 )
                 
Total Investment in Hotel Properties
  $ 1,003,855     $ 982,082  


Acquisitions

On May 1, 2009, we acquired, from an unaffiliated seller, a 49% membership interest in York Street, LLC, the owner of the Hilton Garden Inn, TriBeCa, New York, NY.  In connection with the acquisition of our 49% interest in York Street, LLC, we also entered into an option agreement to acquire the seller’s remaining 51% interest in York Street, LLC.  On June 30, 2009, we exercised the option and acquired the remaining 51% interest in York Street, LLC making the Hilton Garden Inn, TriBeCa, New York, NY, wholly owned.  Consideration given to acquire our 100% interest in York Street, LLC included:

Cash paid to seller
  $ 4,794  
Amounts payable to seller
    1,387  
Settlement of development loans receivable and accrued interest income on development loans
    19,555 *
Net obligation to transfer land and mortgage to seller
    10,118 **
Assumption of York Street, LLC mortgage loan payable
    29,824  
Net hotel working capital liabilities assumed
    1,322  
         
Total consideration given
  $ 67,000  

*           “Settlement of development loans receivable and accrued interest income on development loans” consists of principal and accrued interest receivable reductions with respect to development loans made to York Street, LLC and Maiden Hotel, LLC, an entity controlled by the seller.  See “Note 4 – Development Loans Receivable and Land Leases” for more information related to the development loans made to York Street, LLC and Maiden Hotel, LLC.

**         “Net obligation to transfer land and mortgage to seller” consists of our investment in real property at 440 West 41st Street, New York, NY, and related land lease revenue receivable.  This parcel was acquired on July 28, 2006 and leased to Metro Forty First Street, LLC, an entity controlled by the seller. We are obligated to transfer this property to Metro Forty First Street, LLC, and that entity will assume our obligations under the $12,100 mortgage loan encumbering the property.  See Note 4 – Development Loans Receivable and Land Leases” for more information related to the real property leased to Metro Forty First Street, LLC.

Cash payable to the seller of $1,387 was held back at settlement pending the seller’s completion of certain capital expenditures and the delivery on the Company’s obligation to transfer land to the seller.  The mortgage loan assumed in connection with the acquisition of the equity interests in York Street, LLC is secured by the Hilton Garden Inn, TriBeCa, New York, NY, matures in July 2010 and bears interest at the Wall Street Journal variable prime rate plus 1.0% subject to a weighted average interest rate floor of 8.40%.

 
11


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 2 — INVESTMENT IN HOTEL PROPERTIES (CONTINUED)

York Street, LLC was acquired at fair value which was allocated as follows:

Land
  $ 21,077  
Building and Improvements
    42,955  
Furniture, Fixture and Equipment
    2,668  
Intangible Assets
    300  
         
Fair Value of Assets Acquired
  $ 67,000  


We recorded the intangible asset for the lease of restaurant space in the hotel that was in place at the time of acquisition.  The lease is with an unrelated third party and has 15 years remaining until expiration with one five year extension option.  Fixed rent under this lease is a minimum of $300 per annum for the first five years of the lease and a minimum of $336 and $376 per annum for the second and third five-year periods of the lease.

Included in the consolidated statements of operations for the three and six months ended June 30, 2009, are total revenues of approximately $1,402 and net loss of $94 from the operations of the Hilton Garden Inn, TriBeCa, New York, NY, since the date of the acquisition.

Earn-out Provisions

The purchase agreements for some of our previous acquisitions contain certain provisions that entitle the seller to an earn-out payment based on the Net Operating Income of the properties, as defined in each purchase agreement.  The following table summarizes our existing earn-out provisions:
 
Acquisition Date
 
Acquisition Name
 
Maximum Earn-Out Payment Amount
 
Earn-Out Period Expiration
12/28/2006
 
Summerfield Suites Portfolio
  $ 6,000,000  
December 31, 2009
6/26/2008
 
Holiday Inn Express, Camp Springs, MD
    1,905,000  
December 31, 2010
8/1/2008
 
Hampton Inn & Suites, Smithfield, RI
    1,515,000  
December 31, 2010

 
We are currently unable to determine whether amounts will be paid under these three earn-out provisions since significant time remains until the expiration of the earn-out periods.  Due to uncertainty of the amounts that will ultimately be paid, no accrual has been recorded on the consolidated balance sheet for amounts due under these earn-out provisions. In the event amounts are payable under these provisions, payments made will be recorded as additional consideration given for the properties.

 
12


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 2 — INVESTMENT IN HOTEL PROPERTIES (CONTINUED)

Pro forma Results (Unaudited)

The following condensed pro forma financial data is presented as if all 2009 and 2008 acquisitions had been consummated as of January 1, 2008.  Properties acquired without any operating history are excluded from the condensed pro forma operating results.  The condensed pro forma information is not necessarily indicative of what actual results of operations of the Company would have been assuming the acquisitions had been consummated at the beginning of the year presented, nor does it purport to represent the results of operations for future periods.

   
For the Three Months Ended
June 30,
   
For the Six Months Ended
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Pro Forma Total Revenues
  $ 62,331     $ 68,621     $ 109,857     $ 122,074  
                                 
Pro Forma Income (loss) from Continuing Operations applicable to Common Shareholders
  $ 1,592     $ 9,887     $ (9,300 )   $ 6,806  
Income (loss) from Discontinued Operations
    213       226       (214 )     (554 )
Pro Forma Net Income (loss)
    1,805       10,113       (9,514 )     6,252  
(Income) loss allocated to Noncontrolling Interest
    (500 )     (1,759 )     1,651       (756 )
Preferred Distributions
    (1,200 )     (1,200 )     (2,400 )     (2,400 )
Pro Forma Net (loss) income applicable to Common Shareholders
  $ 105     $ 7,154     $ (10,263 )   $ 3,096  
                                 
Pro Forma (loss) income applicable to Common Shareholders per Common Share
                               
Basic
  $ -     $ 0.16     $ (0.21 )   $ 0.07  
Diluted
  $ -     $ 0.16     $ (0.21 )   $ 0.07  
                                 
Weighted Average Common Shares Outstanding
                               
Basic
    47,964,818       44,253,641       47,876,175       42,572,390  
Diluted
    47,964,818       44,253,641       47,876,175       42,572,390  

 
13


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 3 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

We account for our investment in the following unconsolidated joint ventures using the equity method of accounting.  As of June 30, 2009 and December 31, 2008, our investment in unconsolidated joint ventures consists of the following:
 
       
Percent
   
Preferred
   
June 30,
   
December 31,
 
Joint Venture
 
Hotel Properties
 
Owned
   
Return
   
2009
   
2008
 
                             
PRA Glastonbury, LLC
 
Hilton Garden Inn,
  Glastonbury, CT
    48.0 %  
11.0% cumulative
    $ 551     $ 738  
Inn American Hospitality
  at Ewing, LLC
 
Courtyard by Marriott,
  Ewing, NJ
    50.0 %  
11.0% cumulative
      674       736  
Hiren Boston, LLC
 
Courtyard by Marriott,
  Boston, MA
    50.0 %   N/A       3,743       3,960  
SB Partners, LLC
 
Holiday Inn Express,
  Boston, MA
    50.0 %   N/A       1,950       2,091  
Mystic Partners, LLC
 
Hilton and Marriott branded
  hotels in CT and RI
    8.8%-66.7 %  
8.5%
non-cumulative
      27,874       27,977  
PRA Suites at
  Glastonbury, LLC
 
Homewood Suites,
  Glastonbury, CT
    48.0 %  
10.0%
non-cumulative
      2,798       2,800  
Metro 29th Street
  Associates, LLC
 
Holiday Inn Express,
  New York, NY
    50.0 %   N/A       7,224       7,981  
                        $ 44,814     $ 46,283  


Income or loss from our unconsolidated joint ventures is allocated to us and our joint venture partners consistent with the allocation of cash distributions in accordance with the joint venture agreements. Any difference between the carrying amount of these investments and the underlying equity in net assets is amortized over the expected useful lives of the properties and other intangible assets. Gains and losses recognized during the three and six months ended June 30, 2009 and 2008 for our investments in unconsolidated joint ventures is as follows:
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30, 2009
   
June 30, 2008
   
June 30, 2009
   
June 30, 2008
 
PRA Glastonbury, LLC
  $ (6 )   $ 60     $ (87 )   $ 65  
Inn American Hospitality at Ewing, LLC
    12       61       (63 )     2  
Hiren Boston, LLC
    15       111       (217 )     (169 )
SB Partners, LLC
    21       76       (141 )     (7 )
Mystic Partners, LLC
    (449 )     426       (857 )     21  
PRA Suites at Glastonbury, LLC
    (2 )     (2 )     (2 )     (4 )
Metro 29th Street Associates, LLC
    14       628       (357 )     714  
                                 
Net (loss) income from Investment in Unconsolidated Joint Ventures
  $ (395 )   $ 1,360     $ (1,724 )   $ 622  

 
14


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [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, and equity, including the Company’s share, related to the unconsolidated joint ventures discussed above as of June 30, 2009 and December 31, 2008.

Balance Sheets
           
   
June 30,
   
December 31,
 
   
2009
   
2008
 
Assets
           
Investment in hotel properties, net
  $ 203,349     $ 209,468  
Other Assets
    26,432       25,334  
Total Assets
  $ 229,781     $ 234,802  
                 
Liabilities and Equity
               
Mortgages and notes payable
  $ 219,093     $ 219,889  
Other liabilities
    14,741       11,636  
Equity:
               
Hersha Hospitality Trust
    44,197       44,938  
Joint Venture Partner(s)
    (48,250 )     (41,661 )
Total Equity
    (4,053 )     3,277  
                 
Total Liabilities and Equity
  $ 229,781     $ 234,802  


The following table is a reconciliation of the Company’s share in the unconsolidated joint ventures to the Company’s investment in the unconsolidated joint ventures as presented on the Company’s balance sheets as of June 30, 2009 and December 31, 2008.
 
   
June 30,
   
December 31,
 
   
2009
   
2008
 
Company's Share
  $ 44,197     $ 44,938  
Excess Investment (1)
    617       1,345  
Investment in Joint Venture
  $ 44,814     $ 46,283  
 
 
(1)
Excess investment represents the unamortized difference between the Company's investment and the Company's share of the equity in the underlying net investment in the unconsolidated joint ventures. The excess investment is amortized over the expected useful life of the properties, and the amortization is included in income or loss from investments in unconsolidated joint ventures.
 
 
The following table sets forth the components of net loss, including the Company’s share, related to the unconsolidated joint ventures discussed above for the three and six months ended June 30, 2009 and 2008.
 
Statements of Operations
   
Three Months Ended
   
Six Months Ended
 
   
June 30, 2009
   
June 30, 2008
   
June 30, 2009
   
June 30, 2008
 
Room Revenue
  $ 21,444     $ 27,355    
38,550
    $ 49,839  
Other Revenue
    6,082       8,162       11,395       15,485  
Operating Expenses
    (17,209 )     (21,351 )     (33,781 )     (41,512 )
Interest Expense
    (4,083 )     (3,319 )     (7,316 )     (6,808 )
Lease Expense
    (1,378 )     (1,379 )     (2,743 )     (2,753 )
Property Taxes and Insurance
    (1,630 )     (1,703 )     (3,271 )     (3,404 )
Federal & State Income Taxes
    (19 )     -       (19 )     -  
Depreciation and Amortization
    (3,625 )     (3,971 )     (7,213 )     (7,851 )
General and Administrative
    (1,796 )     (1,997 )     (3,629 )     (3,889 )
                                 
Net (loss) income
  $ (2,214 )   $ 1,797     $ (8,027 )   $ (893 )

 
15


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 4 — DEVELOPMENT LOANS RECEIVABLE AND LAND LEASES

Development Loans

We have approved first mortgage and mezzanine lending to hotel developers, including entities in which our executive officers and affiliated trustees own an interest, to enable such entities to construct hotels and conduct related improvements on specific hotel projects at interest rates ranging from 10% to 20%.  Interest income from development loans was $2,166 and $2,153 for the three months ended June 30, 2009 and 2008, respectively, and $4,563 and $4,173 for the six months ended June 30, 2009 and 2008, respectively. Accrued interest on our development loans receivable was $2,474 as of June 30, 2009 and $2,785 as of December 31, 2008.
 
 
Hotel Property
 
Borrower
 
Principal Outstanding 6/30/2009
   
Principal Outstanding 12/31/2008
   
Interest Rate
   
Maturity Date **
 
Hampton Inn & Suites - West Haven, CT
 
44 West Haven Hospitality, LLC
  2,000     $ 2,000       10 %   October 9, 2009 *  
Hilton Garden Inn - New York, NY
 
York Street, LLC
    -       15,000       11 %     N/A  
Homewood Suites - Newtown, PA
 
Reese Hotels, LLC
    500       500       11 %  
November 14, 2009
 
Union Square Hotel - Union Square, NY
 
Risingsam Union Square, LLC
    10,936       10,000       10 %  
December 31, 2010
 
Hyatt Place - Manhattan, NY
 
Brisam East 52, LLC
    10,672       10,000       10 %  
January 16, 2010
 
Lexington Avenue Hotel - Manhattan, NY
 
44 Lexington Holding, LLC
    10,966       10,000       11 %   December 31, 2010 *  
Renaissance by Marriott - Woodbridge, NJ
 
Hersha Woodbridge Associates, LLC
    5,000       5,000       11 %   April 1, 2010 *  
32 Pearl - Manhattan, NY
 
SC Waterview, LLC
    8,000       8,000       10 %  
January 10, 2010
 
Greenwich Street Courtyard - Manhattan, NY
 
Brisam Greenwich, LLC
    10,736       10,000       10 %  
December 31, 2010
 
Independent Hotel - New York, NY
 
Maiden Hotel, LLC
    7,000       10,000       20 %  
December 8, 2009
 
Hilton Garden Inn - Dover, DE
 
44 Aasha Hospitality Associates, LLC
    1,000       1,000       10 %   November 1, 2009 *  
Element Hotel - Ewing, New Jersey
 
American Properties @ Scotch Road LLC
    2,000       -       11 %   August 6, 2010 *  
                                     
Total Development Loans Receivable
      $ 68,810     $ 81,500                  

*      Indicates borrower is a related party.
**    Represents current maturity date in effect. Agreements for our development loans receivable typically allow for two one-year extensions which can be exercised by the borrower if the loan is not in default.  As these loans typically finance hotel development projects, it is common for the borrower to exercise their options to extend the loans, in whole or in part, until the project has been completed and the project provides cash flow to the developer or is refinanced by the developer.

We amended the following development loans to allow the borrower to elect, quarterly, to pay accrued interest in-kind by adding the accrued interest to the principal balance of the loan as of June 30, 2009:

   
Interest Income
   
Accrued Interest Paid In-Kind
 
Borrower
 
Three Months Ended
June 30, 2009
   
Six Months Ended
June 30, 2009
   
Three Months Ended
June 30, 2009
   
Six Months Ended
June 30, 2009
 
Risingsam Union Square, LLC
  $ 253     $ 503     $ 936     $ 936  
Brisam East 52, LLC
    253       503       672       672  
44 Lexington Holding, LLC*
    278       553       966       966  
Brisam Greenwich, LLC
    253       503       736       736  
                                 
Total
  $ 1,037     $ 2,062     $ 3,310     $ 3,310  

*      Indicates borrower is a related party.

 
16


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 4 — DEVELOPMENT LOANS RECEIVABLE AND LAND LEASES (CONTINUED)

Land Leases

We acquire land and improvements and lease them to entities, including entities in which our executive officers and affiliated trustees own an interest, to enable such entities to construct hotels and related improvements on the leased land.  The land is leased under fixed lease agreements which earn rents at a minimum rental rate of 10% of our net investment in the leased property. Additional rents are paid by the lessee for the interest on the mortgage, real estate taxes and insurance. Revenues from our land leases are recorded in land lease revenue on our consolidated statement of operations.  All expenses related to the land leases are recorded in operating expenses as land lease expense.  Leased land and improvements are included in investment in hotel properties on our consolidated balance sheet.  As of June 30, 2009 and December 31, 2008 our investment in leased land and improvements consists of the following:

 
   
Investment In Leased Properties
                   
Location
 
Land
   
Improvements
   
Other
   
Total Investment
   
Debt
   
Net Investment
 
Acquisition/ Lease Date
 
Lessee
                                           
440 West 41st Street,
New York, NY
  $ 10,735     $ 11,051     $ 196     $ 21,982     $ 12,100     $ 9,882  
7/28/2006
 
Metro Forty First Street, LLC
39th Street and 8th Avenue,
New York, NY
    21,774       -       541       22,315       13,250       9,065  
6/28/2006
 
Metro 39th Street Associates, LLC
Nevins Street,
Brooklyn, NY
    10,650       -       269       10,919       6,500       4,419  
6/11/2007 & 7/11/2007
  H Nevins Street Associates, LLC *
                                                       
Total
  $ 43,159     $ 11,051     $ 1,006     $ 55,216     $ 31,850     $ 23,366        

*Indicates lessee is a related party

The land parcel located at 440 West 41st Street, New York, NY, is to be transferred to the lessee, an entity controlled by the seller of York Street, LLC as consideration for our acquisition of York Street, LLC, the owner of the Hilton Garden Inn, TriBeCa, New York, NY, as noted in Note 2, “Investment in Hotel Properties.”

 
17


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 5 — OTHER ASSETS

Other Assets consisted of the following at June 30, 2009 and December 31, 2008:

 
   
June 30, 2009
   
December 31, 2008
 
             
Transaction Costs
  $ 340     $ 237  
Investment in Statutory Trusts
    1,548       1,548  
Notes Receivable
    1,340