SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): September 1, 1999
HERSHA HOSPITALITY TRUST
(Exact name of registrant as specified in its charter)
Maryland 005-55249 251811499
(State or other jurisdiction (Commission File No.) I.R.S. Employer
of incorporation) (Identification No.)
148 Sheraton Drive, Box A
New Cumberland, Pennsylvania 17070
(Address of principal executive offices)
(717) 770-2405
(Registrant's telephone number, including area code)
N/A
(former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On July 27, 1999, the Board of Trustees of Hersha Hospitality Trust (the
"Company") approved the acquisition of all the partnership interests in 2844
Associates, a Pennsylvania limited partnership and, through the ownership of
2844 Associates, a 77-room Clarion Inn & Suites hotel located in Harrisburg,
Pennsylvania. The Board of Trustees also approved the acquisition of a Hampton
Inn hotel located in Danville, Pennsylvania from 3544 Associates. Collectively,
the Clarion Inn & Suites and the Hampton Inn hotels are referred to as the
("Hersha Acquisition Hotels").
2844 and 3544 Associates were established as Pennsylvania limited
partnerships owned by Hasu P. Shah and certain executive members and affiliates
of the Company (the "Hersha Affiliates").
Shree Associates, JSK II Associates, Devi Associates, Shreeji Associates,
Kunj Associates and Shanti III Associates (all Pennsylvania limited partnerships
controlled by certain Hersha Affiliates); Neil H. Shah and David L. Desfor (both
Hersha Affiliates); and Shreenathji Enterprises, Ltd. (a Pennsylvania
corporation controlled by certain Hersha Affiliates) contributed their
partnership interests in the Clarion Inn & Suites to 2844 Associates.
All of the limited partnership interests in 2844 Associates were
contributed to Hersha Hospitality Limited Partnership ("HHLP" or the
"Partnership"). Further, the general partnership interest in 2844 Associates,
which was owned by Shreenathji Enterprises, Ltd., was contributed to Hersha
Hospitality, LLC, a Virginia limited liability company ("HHLLC"). HHLP is the
sole member of HHLLC. Upon the transfer of both limited partnership and general
partnership interests by the Hersha Affiliates, 2844 became a wholly-owned
subsidiary of HHLP. 2844 Associates does not own any assets other than this
recently-acquired Clarion Inn & Suites hotel.
144 Associates, 344 Associates, 544 Associates and 644 Associates, all
Pennsylvania limited partnerships controlled by certain Hersha Affiliates, sold
their interests in the Hampton Inn, Danville along with the land and
improvements to 3544 Associates, a wholly-owned subsidiary of the Partnership.
3544 Associates does not own any assets other than this recently-acquired
Hampton Inn hotel along with the land and improvements.
The purchase prices for the Hampton Inn and Clarion Inn & Suites are $3.6
million and $2.7 million, respectively. The purchase price valuations for the
properties acquired from the Hersha Affiliates were based upon the rent to be
paid by the Lessee under percentage leases. The purchase prices of these hotels
will be adjusted on December 31, 2001 by applying a pricing methodology to such
hotels' cash flows in a manner similar to that of the other hotels purchased by
HHLP from the Hersha Affiliates. The adjustments must be approved by a majority
of the Company's independent trustees.
The Partnership acquired the Hampton Inn in exchange for (i) subordinated
units of limited partnership interest in the Partnership that will be
redeemable, subject to certain limitations, for an aggregate of approximately
173,333 of the Company's Class B common shares of beneficial interest with a
value of approximately $1.0 million, and (ii) the assumption of approximately
$2.6 million of mortgage indebtedness. The Company's Priority Class A common
shares of beneficial interest are entitled to a priority over the subordinated
units and Class B common shares with respect to distributions and amounts
payable upon liquidation for a period of time based upon the trading price of
the Priority Class A common shares, but in no event ending later than January
26, 2004. The purchase price of the Clarion Inn & Suites was paid through the
assumption of mortgage indebtedness of approximately $2.1 million and borrowings
under the Company's line of credit. Both the Hampton Inn and the Clarion Inn &
Suites were purchased as of September 1, 1999 (the "Settlement Date").
2
<PAGE>
Following the acquisition of the hotel properties by the Partnership, both
properties will be leased by the Partnership to Hersha Hospitality Management,
L.P. (the "Lessee"), the lessee of the Partnership's other hotel properties. The
hotels will be leased pursuant to percentage leases that provide for rent based
in part on the room revenues from the hotels. The leases went into effect on the
Settlement Date.
The following table sets forth (i) the Initial Fixed Rent, (ii) Annual
Base Rent, and (iii) the annual Percentage Rent formula currently anticipated
for the Hampton Inn and the Clarion Inn & Suites, respectively.
Acquired Initial Base
Hotel Fixed Rent Rent Percentage Rent Formula
- ----- ---------- ---- -----------------------
Hampton Inn $504,116 $234,000 43.2% of room revenue up to
Danville, PA $916,749, plus 65% of room
revenue in excess of $916,749
but less than $1,078.528, plus
29.0% of room revenue in
excess of $1,078,528, plus
8.0% of all non-room revenue.
Clarion Inn & Suites $404,031 $175,500 35.3% of room revenue up to
Harrisburg, PA $855,611, plus 65% of room
revenue in excess of $855,611
but less than $1,006,601, plus
29.0% of room revenue in
excess of $1,006,601, plus
8.0% of all non-room revenue.
In connection with the sale of the Clarion Inn & Suites to the Company,
2844 Associates entered into an option agreement, dated September 1, 1999, with
2944 Associates, a Pennsylvania limited partnership owned by Hasu P. Shah and
certain executive members and affiliates of the Company. Under this option
agreement, 2844 Associates granted to 2944 Associates an option to purchase an
outparcel of land adjacent to the Clarion Inn & Suites. In consideration for the
grant of this option, 2944 Associates agreed to assume a debt of 2844 Associates
to Shreenathji Enterprises, Ltd. in the amount of $500,000. The purchase price
for this parcel shall be one dollar ($1.00), payable at the time of settlement.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements.
The combined balance sheets and statements of operations, partners'
equity and cash flows of the Hersha Acquisition Hotels as of
December 31, 1998 and June 30, 1999 are included as Exhibit 99.1 to
this Form 8-K/A.
(b) Pro Forma Financial Information.
The pro forma financial (unaudited) as of June 30, 1999 and for the
six months ended June 30, 1999 and the twelve months ended December
31, 1998 reflecting all of the acquisitions made by the Company
since its inception, including the acquisitions of the Hersha
Acquisition Hotels, is included as Exhibit 99.2 to this Form 8-K/A.
(c) Exhibits.
10.1 Option Agreement, dated September 1, 1999, between 2844
Associates and 2944 Associates
99.1 The combined balance sheets and statements of
operations, partners' equity and cash flows of the Hersha
Acquisition Hotels as of December 31, 1998 and June 30, 1999.
99.2 The pro forma financial (unaudited) as of June 30, 1999 and
for the six months ended June 30, 1999 and the twelve months
ended December 31, 1998.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Hersha Hospitality Trust
By: /s/ Hasu P. Shah
--------------------
Hasu P. Shah
Chief Executive Officer
Date: November 15, 1999
4
<PAGE>
EXHIBIT INDEX
10.1 Option Agreement, dated September 1, 1999, between 2844 Associates and
2944 Associates
99.1 The combined balance sheets and statements of operations, partners' equity
and cash flows of the Hersha Acquisition Hotels as of December 31, 1998
and June 30, 1999.
99.2 The pro forma financial (unaudited) as of June 30, 1999 and for the six
months ended June 30, 1999 and the twelve months ended December 31, 1998.
5
OPTION AGREEMENT
THIS OPTION AGREEMENT is made this 1st day of September, 1999. 2844
ASSOCIATES, a Pennsylvania limited partnership, ("Optionor") hereby agrees to
grant to 2944 ASSOCIATES, a Pennsylvania limited partnership, ("Optionee") or to
its assignee or nominee, an option (the "Option") to purchase all that certain
restaurant outparcel portion of the premises situate at 2680 Allentown
Boulevard, Harrisburg, Pennsylvania and commonly known as Clarion Inn and
Suites, Harrisburg, Pennsylvania. Such parcel of land shall be in form of a unit
of a condominium, which shall be created by a duly recorded Declaration of
Condominium and such parcel is more particularly described on Exhibit "A" as
attached to this Agreement (the "Restaurant Outparcel"). The Option shall
include the Restaurant Outparcel and an undivided interest in the common
element, if any, of the proposed condominium.
WITNESSETH:
WHEREAS, Optionor owes to Shreenathji Enterprises, Ltd., a Pennsylvania
corporation ("Third party") a debt in the amount of Five Hundred Thousand
Dollars ($500,000.00) (the "Obligations"); and
WHEREAS, in consideration for the Option under this Agreement, Optionee
hereby assumes the Obligations in their entirety notwithstanding the exercise of
the Option by Optionee or failure thereof.
NOW, THEREFORE, for assumption of the Obligations by Optionee and other
good and valuable consideration, receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound, the parties agree as follows:
1. Terms. Optionor hereby grants Optionee, or its assignee or nominee,
an option to purchase the Restaurant Outparcel on the terms set forth in this
Agreement. The purchase price for the Parcel shall be one Dollar ($1.00),
payable at the time of settlement.
2. Settlement. Settlement to be made within NINETY (90) DAYS of the
date of execution of this Agreement and all payments required in this Agreement
shall be made promptly in accordance with this Agreement.
3. Default by Optionee. Should the Optionee default in performing any
conditions of this Agreement, the sum or sums paid, if any, on account shall be
retained by the Optionor as compensation for the damage and expenses to which
Optionor has been put, as its sole remedy, and the transaction under this
Agreement shall be deemed to be terminated and this Agreement shall become null
and void. Notwithstanding the foregoing, Optionee shall still remain liable for
any damage that results from the activities by Optionee or Optionee's authorized
representatives upon the Restaurant Outparcel.
<PAGE>
4. Possession. Possession of the Restaurant Outparcel will be delivered
at the time of settlement by delivery to Optionee of general warranty deed for
the condominium fee interest.
5. Liens and Encumbrances. The Restaurant Outparcel shall be conveyed
clear of all liens and encumbrances except easements, rights, rights of way
(recorded and unrecorded), and matters which an accurate survey would disclose.
This conveyance is also subject to existing restrictions of record and/or
physically noticeable easements, governmental regulations regarding sale,
leasing, or possession, possible street improvements, if any, and provisions of
zoning ordinances and/or any other act or ordinance affecting the use of and
improvements to said Restaurant Outparcel (the "Exceptions"), provided that such
Exceptions do not affect Optionee's intended use of the Restaurant Outparcel.
6. Zoning. Zoning classification of the Restaurant Outparcel is general
commercial. The present use is in compliance with the zoning classification.
7. Causalty.
(a) Loss or damage by fire or other casualty shall render this
Agreement voidable at Optionee's option.
(b) The Optionee shall be liable to Optionor for any personal
injury or property damage resulting from tests and other activities on the
Restaurant Outparcel by the Optionee and Optionee's representatives prior to
settlement.
8. Title/Encumbrances. Optionor shall deliver good and marketable
title, clear of all monetary and other liens, and such as will be insured at
regular rates by any responsible title insurance company; otherwise, the
Optionor shall be in default of this Agreement. Optionee shall be entitled to
specific performance of Optionor's covenants in this Agreement respecting title.
9. Fixtures and Personal Property. Any and all fixtures, equipment,
and personal property shall be removed by Optionor prior to settlement.
10. Taxes. Taxes, water rent, sewer rent and interest on encumbrances,
if any, are to be apportioned to date of settlement. State and local transfer
taxes shall be paid in equal shares by Optionor and Optionee.
11. Option Periods.
(a) Optionee shall have an initial option of Ninety (90) days
from execution of this Agreement (the "First Option Period"). Upon payment from
Optionee to Optionor of an additional One Hundred Dollars ($100.00), Optionee
shall have an additional 90-day option period (the "Second Option Period"),
beginning immediately upon expiration of the First Option Period. Upon payment
2
<PAGE>
from Optionee to Optionor of an additional Two Hundred Dollars ($200.00),
Optionee shall have another additional 90-day option period (the "Third Option
Period"), beginning immediately upon expiration of the Second Option Period and
terminating 270 days from the execution of this Agreement.
(b) Optionee and its representatives and assignees may enter
upon the Restaurant Outparcel during the First Option Period, the Second Option
Period and Third Option Period, if any, to perform at Optionee's sole cost and
expense such inspections and investigations of the Restaurant Outparcel as
Optionee, in its sole discretion, determines are necessary to ascertain the
condition and suitability of the Restaurant Outparcel for Optionee's intended
use, including but not limited to environmental testing, title matters, zoning
approval analysis, matters contained in a current title report, etc., as often
as Optionor shall cooperate with Optionee during the First Option Period, the
Second Option Period and Third Option Period, if any.
(c) Optionee may cancel this Agreement, and decline to
exercise the Option, at any time within the First Option Period, the Second
Option Period and/or the Third Option Period. In the event of such cancellation,
this Agreement shall automatically become null and void, and all monies paid, if
any, on account of the First Option Period, the Second Option Period and/or the
Third Option Period on account of the First Option Period, the Second Option
Period and/or the Third Option Period shall be retained by Optionor together
with interest on them. In the event of such cancellation, Optionee shall be
under a duty of payment of the Obligations to the Third Party.
12. Recording. This Agreement shall not be lodged for record in any
public office.
13. Tender. Tender of an executed deed and purchase money is hereby
waived.
14. Governmental Notices. Optionor represents that, as of the date of
the approval of this Agreement, no notice of any municipal, county, or township
authority has been served upon Optionor or anyone on Optionor's behalf including
notices relating to violation of housing, building, safety or fire ordinances,
and the Optionee agrees to assume all responsibility and will pay for all costs
for any work required to be done by any such authority for which a notice may be
served between the date of approval of this Agreement and final settlement, or
when the work is done or ordered to be done without prior notice to the Optionor
during the same period. Optionor shall deliver to Optionee, at least fifteen
(15) days prior to the time of settlement, a certification from the appropriate
governmental department disclosing notice of any uncorrected violation of
housing, building, safety or fire ordinances.
15. Representations and Warranties. In addition to the other
representations and warranties set forth in this Agreement, Optionor makes the
following additional representations and warranties to Optionee, which shall
also be conditions of closing:
(a) Intentionally Omitted.
(b) Optionor is not in bankruptcy, nor has there been any
petition or insolvency proceedings filed for the reorganization of Optionor.
3
<PAGE>
(c) There are no rights, options, or other Agreements of any
kind to sell or transfer any interest in the Restaurant Outparcel
(d) Optionor has authority and power to execute and record a
declaration of condominium to create, out of the entire Premises it now owns, a
condominium, one of the units of which shall consist of the Restaurant
Outparcel.
(e) The representations and warranties stated in this
paragraph and in other paragraphs of this Agreement shall be true as of the date
hereof and as of settlement, and shall survive settlement under this Agreement.
16. Indemnity. The parties agree that upon exercise of the Option,
Optionee and Hersha Hospitality Management, LP, a Pennsylvania limited
partnership ("HHLP") shall jointly and severally defend, indemnify and hold the
Optionor and its successors, assigns or affiliates and their directors,
officers, agents, and employees harmless from and against all claims, demands,
causes of action, liabilities, losses, costs and expenses (including, without
limitation, costs of suit, reasonable attorneys' fees and fees of expert
witnesses) arising from or in connection with any use of the Restaurant Parcel
by the Optionee and/or any third party.
17. Entire Agreement of Parties. This Agreement contains the whole
Agreement between the parties and there are no other terms, obligations,
covenants, representations, statements, or conditions, oral or otherwise, of any
kind whatsoever.
18. Time of the Essence. It is understood and agreed that, with respect
to all dates set forth in this Agreement, time is of the essence.
19. Third Party Beneficiary. The parties hereby acknowledge that Third
Party is a third party beneficiary under this Agreement, upon execution of which
Third Party shall have a right to payment by Optionee of the Obligations
notwithstanding exercise of the Option by Optionee or failure thereof.
20. Notices. Notices under this Agreement shall be deemed received on
the date sent and shall be sent to the following addressees:
To Optionor:
Hasu P. Shah
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Fax: 717/774-7383
4
<PAGE>
With copy to:
Lok Mohapatra
The Shah Law Firm
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Fax: 215/238-0157
To Optionee:
Kiran P. Patel
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Fax: 717/774-7383
With copy to:
Lok Mohapatra
The Shah Law Firm
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Fax: 215/238-0157
IN WITNESS WHEREOF, the parties have set their hands and seals the day
and year first above written.
OPTIONEE:
2944 ASSOCIATES, a Pennsylvania
limited partnership
BY: SHREENATHJI ENTERPRISES,
LTD., a Pennsylvania corporation,
its sole general partner
By: /s/ Kiran P. Patel
Kiran P. Patel, Secretary
5
<PAGE>
OPTIONOR:
2844 ASSOCIATES, a Pennsylvania
limited partnership
BY: SHREENATHJI ENTERPRISES,
LTD., a Pennsylvania corporation,
its sole general partner
By: /s/ Hasu P. Shah
Hasu P. Shah, President
6
EXHIBIT 99.1
FINANICAL STATEMENTS
AND INDEPENDENT AUDITORS' REPORT
HERSHA ACQUISITION HOTELS
DECEMBER 31, 1998 AND JUNE 30, 1999
<PAGE>
Hersha Acquisition Hotels
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
COMBINED BALANCE SHEETS AS OF DECEMBER 31, 1998
AND JUNE 30, 1999 (UNAUDITED) 4
COMBINED STATEMENTS OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1998 AND THE SIX MONTHS
ENDED JUNE 30, 1999 (UNAUDITED) 5
COMBINED STATEMENTS OF PARTNERS' EQUITY FOR THE
YEAR ENDED DECEMBER 31, 1998 AND THE SIX MONTHS
ENDED JUNE 30, 1999 (UNAUDITED) 6
COMBINED STATEMENTS OF CASH FLOWS FOR THE YEAR
ENDED DECEMBER 31, 1998 AND THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED) 7
NOTES TO COMBINED FINANCIAL STATEMENTS 8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Hersha Hospitality Trust, Inc.
We have audited the accompanying combined balance sheet of the Hersha
Acquisition Hotels as of December 31, 1998, and the related combined statements
of operations, partners' equity and cash flows for the year then ended. These
financial statements are the responsibility of the management of the Hersha
Acquisition Hotels. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
presently fairly, in all material respects, the combined financial position of
the Hersha Acquisition Hotels as of December 31, 1998, the combined results of
their operations and their combined cash flows for the year then ended in
conformity with generally accepted accounting principles.
Baltimore, Maryland
August 18, 1999, except for the first paragraph
of Note A as to which the date is August 31, 1999
-3-
<PAGE>
Hersha Acquisition Hotels
COMBINED BALANCE SHEETS
December 31, 1998 and June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
----------------- -----------------
(Unaudited)
<S> <C>
ASSETS
INVESTMENT IN HOTEL PROPERTIES
Land $ 979,332 $ 979,332
Buildings and improvements 4,488,607 4,549,930
Furniture and equipment 1,322,727 1,342,774
----------------- -----------------
6,790,666 6,872,036
Less accumulated depreciation and amortization 74,669 232,852
----------------- -----------------
Net investment in hotel properties 6,715,997 6,639,184
OTHER
Cash 32,783 17,924
Accounts receivable 21,907 59,797
Due from affiliates 1,589 203,849
Prepaid expenses 20,275 62,313
Mortgage costs, net of accumulated amortization of $536 and $1,676 33,974 32,834
Franchise fees, net of accumulated amortization of $2,249 and $28,805 67,736 61,180
----------------- -----------------
$ 6,894,261 $ 7,077,081
================= =================
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Mortgages payable $ 4,664,346 $ 4,608,714
Loans payable - affiliate 1,283,607 1,736,806
Cash overdraft 114,239 10,388
Accounts payable and accrued expenses 50,682 129,200
Accrued interest payable 79,509 56,328
----------------- -----------------
6,192,383 6,541,436
PARTNERS' EQUITY 701,878 535,645
----------------- -----------------
$ 6,894,261 $ 7,077,081
================= =================
</TABLE>
See notes to combined financial statements
- 4 -
<PAGE>
Hersha Acquisition Hotels
COMBINED STATEMENTS OF OPERATIONS
Year ended December 31, 1998 and the six months ended
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
--------------- ---------------
(Unaudited)
<S> <C>
Revenue
Room revenue $ 415,852 $ 863,598
Telephone revenue 4,511 16,510
Other revenue 1,388 4,788
--------------- ---------------
Total revenue 421,751 884,896
--------------- ---------------
Expenses
Salaries and wages 144,387 184,362
Room expense 73,048 71,939
Management fee 19,568 35,508
General and administrative 35,898 45,336
Advertising 37,842 17,559
Utilities 93,408 114,116
Repairs and maintenance 16,776 17,245
Insurance 6,613 1,589
Real estate taxes 29,636 41,176
Franchise fees 27,866 59,956
Interest expense 198,608 276,464
Depreciation and amortization 77,454 185,879
--------------- ---------------
Total expenses 761,104 1,051,129
--------------- ---------------
NET LOSS $ (339,353) $ (166,233)
=============== ===============
</TABLE>
See notes to combined financial statements
-5-
<PAGE>
Hersha Acquisition Hotels
COMBINED STATEMENTS OF PARTNERS' EQUITY
Year ended December 31, 1998 and the six months ended
June 30, 1999 (Unaudited)
Balance, December 31, 1997 $ -
Contributions 1,041,231
Net loss (339,353)
---------------
Balance, December 31, 1998 701,878
Net loss (166,233)
---------------
Balance, June 30, 1999 (unaudited) $ 535,645
===============
See notes to combined financial statements
-6-
<PAGE>
Hersha Acquisition Hotels
COMBINED STATEMENTS OF CASH FLOWS
Year ended December 31, 1998 and the six months ended
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------- -----------
(Unaudited)
<S> <C>
Cash flows from operating activities
Net loss $ (339,353) $ (166,233)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 74,669 158,183
Amortization of mortgage costs and franchise fees 2,785 27,696
Changes in assets and liabilities
Increase in accounts receivable (21,907) (37,890)
Increase in prepaid expenses (20,275) (42,038)
Increase in payment of franchise fees (69,985) (20,000)
Increase in accounts payable and accrued expenses 50,682 78,518
Increase in due from affiliates (1,589) (202,260)
Increase (decrease) in accrued interest payable 79,509 (23,181)
-------------- -----------
Net cash used in operating activities (245,464) (227,205)
-------------- -----------
Cash flow from investing activities
Investment in hotel property (6,790,666) (81,370)
------------- -----------
Net cash used in investing activities (6,790,666) (81,370)
------------- -----------
Cash flow from financing activities
Contributions 1,041,231 -
Increase (decrease) in bank overdraft 114,239 (103,851)
Payment of mortgage costs (34,510) -
Proceeds from mortgage payable 4,700,000 -
Principal payments on mortgage payable (35,654) (55,632)
Proceeds from loans payable - affiliates 7,335,470 453,199
Principle payments on loans payable - affiliates (6,051,863) -
------------- -----------
Net cash provided by financing activities 7,068,913 293,716
------------- -----------
NET INCREASE (DECREASE) IN CASH 32,783 (14,859)
Cash, beginning - 32,783
------------- -----------
Cash, ending $ 32,783 $ 17,924
============= ===========
Supplemental disclosures of cash flow information
Cash paid during the year for interest, net of
amounts capitalized $ 119,099 $ 299,645
============= ===========
</TABLE>
See notes to combined financial statements.
-7-
<PAGE>
Hersha Acquisition Hotels
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1998 and June 30, 1999
(Amounts and disclosures as of June 30, 1999 and for the
six months then ended are unaudited)
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The Hersha Acquisition Hotels combined financial statements are a combination
of the balance sheets and statements of operations, partners' equity and cash
flows of two hotel properties owned and operated by various limited
partnerships under common control and management (collectively, the Owners).
On August 31, 1999, the Owners entered into agreements to sell the hotel
properties to Hersha Hospitality Limited Partnership. The sales agreements do
not extend to any other assets or liabilities of the Owners. The hotel
properties combined in these financial statements, which commenced operations
in 1998, consist of the following:
Hotel Date Opened Rooms Location
----- ----------- ----- --------
Hampton Inn September 1998 72 Danville, Pennsylvania
Clarion Inn August 1998 77 Harrisburg, Pennsylvania
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Investment in Hotel Properties
------------------------------
The hotel properties are stated at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations by
use of the straight-line method over estimated useful lives:
Building and improvements ................................. 15 - 40 years
Furniture and equipment ................................... 3 -7 years
-8-
<PAGE>
Hersha Acquisition Hotels
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and June 30, 1999
(Amounts and disclosures as of June 30, 1999 and for the
six months then ended are unaudited)
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Maintenance and repairs are charged to operations as incurred. Additions and
major improvements are capitalized. Upon sale or disposition, both the asset
and related accumulated depreciation are relieved and the related gain or
loss is included in operations.
The Owners evaluate long-lived assets for potential impairment by analyzing
the operating results, trends and prospects for the properties and
considering any other events and circumstances which might indicate potential
impairment.
Mortgage Costs
--------------
Mortgage costs are amortized over the term of the debt using the
straight-line method which approximates the effective interest method.
Franchise Fees
--------------
The Hampton Inn Hotel is operated under a franchise agreement with Promus
Hotels, Inc. The Clarion Inn Hotel was operated under a franchise agreement
with Choice Hotels International, Inc. through May, 1999. Beginning in June
1999, the Clarion Inn Hotel was re-flagged as a Comfort Inn under a franchise
agreement with Choice Hotels International, Inc. Franchise fees are amortized
over the term of the franchise agreement using the straight-line method.
During 1999, unamortized franchise fees of $24,062 associated with the
Clarion franchise agreement were written off and are included in amortization
expense.
Revenue Recognition
-------------------
Room and other revenue are recognized as earned. Ongoing credit evaluations
are performed and accounts deemed uncollectible are charged to operations.
Advertising Costs
-----------------
Advertising costs are expensed as incurred, including costs incurred under
the terms of the franchise agreements.
-9-
<PAGE>
HERSHA ACQUISITION HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and June 30, 1999
(Amounts and disclosures as of June 30, 1999 and for the
six months then ended are unaudited)
Income Taxes
------------
No provision or benefit for income taxes has been included in the combined
financial statements for the Owners since taxable income or loss passes
through to, and is reportable by, the partners individually.
-10-
<PAGE>
Hersha Acquisition Hotels
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and June 30, 1999
(Amounts and disclosures as of June 30, 1999 and for the
six months then ended are unaudited)
NOTE B - MORTGAGES PAYABLE
Mortgages payable at December 31, 1998 and June 1999, consisted of the
following:
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
Hampton Inn
Mortgage payable in equal monthly
installments of principal
and interest of $26,585
bearing interest at 8.375%
per annum. The mortgage
matures on April 18, 2012. $ 2,564,346 $ 2,512,466
Clarion Inn
Mortgage payable in equal monthly
installments of principal
and interest $18,382 bearing
interest at 8.36% per annum.
The mortgage matures on July 1,
2004. 2,100,000 2,096,248
----------- -----------
$ 4,664,346 $ 4,608,714
=========== ===========
The mortgages are secured by the hotel property and guaranteed by partners of
the Owners.
Annual principal payments on the mortgages for the five years following
December 31, 1998 and June 30, 1999, are as follows.
December 31, June 30,
------------ --------
(Unaudited)
1999 $217,786 $ -
2000 $336,789 $331,883
2001 $347,224 $341,900
2002 $358,551 $352,771
2003 $370,849 $364,574
2004 $ - $377,388
-11-
<PAGE>
Hersha Acquisition Hotels
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and June 30, 1999
(Amounts and disclosures as of June 30, 1999 and for the
six months then ended are unaudited)
NOTE C - INTEREST
Interest incurred during the period of construction of the hotels was
capitalized as part of the costs of the investment in hotel properties.
During the year ended December 31, 1998, interest costs incurred totaled
$330,446 of which $131,838 was capitalized. During 1999, no interest costs
were capitalized.
NOTE D - RELATED PARTY TRANSACTIONS
Due from Affiliates
-------------------
Due from affiliates consists of operating advances to related parties which
are unsecured, non-interest bearing and payable on demand.
Management Fees
---------------
During 1998, the hotel properties were managed by Shreenathji Enterprises,
Ltd., an affiliate, under agreements providing for monthly fees equal to the
greater of $1,500 or 4% of gross revenue. Beginning in 1999, the hotel
properties were managed by Hersha Hospitality Management Limited Partnership,
an affiliate, under agreements providing for monthly fees equal to 4% of
gross revenue. Management fees totaling $19,568 and $35,508 were charged to
operations during 1998 and 1999, respectively.
Loans Payable - Affiliate
-------------------------
During 1998 and 1999,an affiliate of the hotel properties, Shreenathji
Enterprise, Ltd, provided funds for the payment of development and operating
costs. The loans bear interest at the rate of 9.5% per annum payable
quarterly, the outstanding balance and accrued interest are due on demand. As
of December 31, 1998 and June 30, 1999, the following amounts were
outstanding:
1998 1999
---- ----
(Unaudited)
Hampton Inn $ 58,187 $ 308,187
Clarion Inn 1,225,420 1,428,619
---------- ----------
$ 1,283,607 $ 1,736,806
========== ==========
-12-
<PAGE>
Hersha Acquisition Hotels
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and June 30, 1999
(Amounts and disclosures as of June 30, 1999 and for the
six months then ended are unaudited)
NOTE E - COMMITMENTS
Franchise fees represent the annual expense for franchise royalties,
reservations and advertising services under the terms of the hotel franchise
agreements. The payments are based upon percentages of gross room revenue.
-13-
EXHIBIT 99.2
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
This unaudited Pro Forma Consolidated Balance Sheet of Hersha Hospitality Trust
(the "Company") is presented as if the acquisition of the Hersha Acquisition
Hotels had occurred on January 1, 1999. It should be read in conjunction with
the consolidated financial statements of Hersha Hospitality Trust for the six
months ended June 30, 1999 previously filed with the Securities and Exchange
Commission in Form 10-Q and the financial statements of the Hersha Acquisition
Hotels for the six months ended June 30, 1999, at pages X through X. In
management's opinion, all adjustments necessary to reflect the effects of the
above transactions have been made. This unaudited Pro Forma Balance Sheet is not
necessarily indicative of what actual results of the Company would have been
assuming such transactions had been completed as of January 1, 1999.
<PAGE>
HERSHA HOSPITALITY TRUST
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1999 [UNAUDITED], [IN THOUSANDS]
<TABLE>
<CAPTION>
Actual Pro Forma
June 30, Pro Forma Consolidated
1999 (1) Adjustments Total (a)
-------- ---------- ---------
<S> <C>
Assets:
Investment in Hotel Properties, Net of
Accumulated Depreciation $39,903 $ 6,639(b) $ 46,542
Cash and Cash Equivalents 1,593 7 1,600
Lease Payments Receivable 1,966 - 1,966
Accounts Receivable - 60 60
Due from Affiliates - 204 204
Intangibles, Net of Accumulated
Amortization 1,565 94 1,659
Other Assets 523 63 586
-------- ---------- ----------
Total Assets $45,550 $ 7,067 $ 52,617
======== ========== ==========
Liabilities and Shareholders' Equity:
Mortgages Payable $14,429 $ 4,609 $ 19,038
Dividends Payable 410 - 410
Loans Payable - Affiliate - 1,737 1,737
Accounts Payable and Accrued Expenses 468 185 653
--------- ---------- ----------
Total Liabilities $15,307 $ 6,531 $ 21,838
--------- ---------- ----------
Minority Interest 18,300 - 18,300
--------- ---------- ----------
Shareholders' Equity:
Preferred Shares, $.01 par value,
10,000,000 Shares authorized, None Issued
and Outstanding - - -
Common Shares - Priority Class A, $.01
Par Value, 50,000,000 Shares Authorized,
2,275,000 Shares Issued and Outstanding at
June 30, 1999 23 - 23
Common Shares - Priority Class B, $.01
Par Value, 50,000,000 Shares Authorized,
-0- Shares Issued and Outstanding at
June 30, 1999 - - -
Additional Paid-in-Capital 11,968 536(c) 12,504
Distributions in Excess of Net Earnings (48) - (48)
--------- ---------- ----------
Total Liabilities and Shareholders' Equity $45,550 $ 7,067 $ 52,617
</TABLE>
<PAGE>
HERSHA HOSPITALITY TRUST
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1999 [UNAUDITED], [IN THOUSANDS]
(CONTINUED)
(1) Operations commenced on January 26, 1999
(a) Represents the combined interests of the Company after the acquisition of
the Hersha Acquisition Hotels
(b) Represents, the purchase price of the Hersha Acquisition Hotels,
including related closing costs
(c) Represents the original partnership interests of the sellers which
were contributed into HHLP for cash and subordinated limited partnership
interests
This unaudited Pro Forma Statement of Operations of Hersha Hospitality
Trust (the "Company") is presented as if the acquisition of the Hersha
Acquisition Hotels had occurred on January 1, 1999. It should be read in
conjunction with the consolidated financial statements of Hersha Hospitality
Trust for the quarter ended June 30, 1999 previously filed with the Securities
and Exchange Commission in Form 10-Q and the financial statements of the Hersha
Acquisition Hotels for the six months ended June 30, 1999, at pages X through X.
In management's opinion, all adjustments necessary to reflect the effects of the
above transactions have been made. This unaudited Pro Forma Consolidated
Statement of Operations is not necessarily indicative of what actual results of
operations of the Company would have been assuming such transactions had been
completed as of January 1, 1999, nor does it purport to represent the results of
operations for future periods.
<PAGE>
HERSHA HOSPITALITY TRUST
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1999 [UNAUDITED], [IN THOUSANDS]
Actual Pro Forma
June 30, Pro Forma Consolidated
1999 (1) Adjustments Total (a)
--------- ----------- -----------
Revenue:
Percentage Lease Revenue $ 3,465 $ 454 (b) $ 3,919
Other Revenue 82 - 82
---------- ---------- -----------
Total Revenue $ 3,547 $ 454 $ 4,001
Expenses:
Interest 576 209 (c) 785
Property Tax & Insurance 249 25 (d) 274
General and Administrative 216 22 238
Depreciation and Amortization 1,006 125 (e) 1,131
---------- ---------- -----------
Total Expenses $ 2,047 $ 381 $ 2,428
Income Before Minority Interest 1,500 73 (f) 1,573
Income Allocated to Minority Interest 788 44 832
Net Income $ 712 $ 29 $ 741
========== ========== ===========
Basic Earning Per Common Share $ 0.31 $ 0.33
Diluted Earnings Per Common Share $ 0.24 $ 0.24
Weighted Average Share:
Basic 2,275,000 2,275,000
Diluted 6,307,431 173,333 (g) 6,480,764
(1) Operations commenced on January 26, 1999
(a) Represents results of operations for the Company and the Hersha Acquisition
Hotels on a pro forma basis as if the Company began operations on January
1, 1999 and the Hersha Acquisition Hotels were owned by the Company and
leased under the Percentage Leases as of January 1, 1999.
(b) Represents lease payments from the Lessee to the Partnership calculated on
a pro forma basis using the rent provisions in the Percentage Leases.
(c) Represents interest computed on approximately $4.6 million of debt
remaining outstanding during the period.
(d) Represents estimated real estate and personal property taxes and property
insurance for the Hersha Acquisition Hotels to be paid by the Partnership.
(e) Represents depreciation of the Hersha Acquisition Hotels. Depreciation is
computed using the straight-line method based upon estimated useful lives
of 30-40 years for building and 5 years for furniture and equipment and the
purchase prices of the Hersha Acquisition Hotels. The estimated useful
lives are based on management's knowledge of the properties and the hotel
industry in general.
<PAGE>
(f) Calculated based upon the minority interest formula per the Company's
Prospectus.
(g) Represents 4,032,431 subordinated units outstanding during the period
presented plus 173,333 subordinated units issued in connection with the
purchase of the Hersha Acquisition Hotels.
This unaudited Pro Forma Condensed Statement of Operations of Hersha Hospitality
Management, L.P. ("HHMLP") is presented as if the acquisition of the Hersha
Acquisition Hotels had occurred on January 1, 1998, and the percentage leases
for the Hersha Acquisition Hotels were effective January 1, 1998. Such estimated
information should be read in conjunction with the financial statements of
Hersha Hospitality Management, L.P., previously filed with the Securities and
Exchange Commission in Form 10-K of Hersha Hospitality Management, L.P., for the
year ended December 31, 1998, and the financial statements of the Hersha
Acquisition Hotels for the year ended December 31, 1998, at pages X through X.
In management's opinion, all adjustments necessary to reflect the effects of the
above transactions have been made. This unaudited Pro Forma Statement of
Operations is not necessarily indicative of what actual results of operations of
Hersha Hospitality Management, L.P. would have been assuming such transactions
had been completed as of January 1, 1998, nor does it purport to represent the
results of operations for future periods.
<PAGE>
HERSHA HOSPITALITY MANAGEMENT, LP
PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1998 [UNAUDITED]
[IN THOUSANDS]
==============================================================================
<TABLE>
<CAPTION>
Actual Pro Forma
12/31/98 Adjustments (1) 12/31/98
-------- --------------- --------
<S> <C>
Revenues from Hotel Operations:
Room Revenue $ 15,185 $ - $ 15,601
Restaurant Revenue 2,111 - 2,111
Other Revenue 790 155 796
------------ ------------- ----------
Total Revenues from Hotel
Operations $ 18,086 $ 155 $ 18,508
Expenses:
Hotel Operating Expenses 7,449 364 7,813
Restaurant Operating Expenses 1,469 - 1,469
Advertising and Marketing 918 38 956
Depreciation and Amortization 1,543 77 1,620
Interest Expense 1,605 92 1,697
Interest Expense-Related Parties 386 107 493
General and Administrative 2,065 64 2,129
General and Administrative-Related
Parties 608 20 628
Loss on Abandonments and Asset Disposal 95 - 95
------------ ------------- ----------
Total Expenses $ 16,138 $ 761 $ 16,899
Net Income (Loss) $ 1,948 $ (339) $ (1,609)
============ ============= ==========
</TABLE>
(1)Represents the operations of the Hersha Acquisition Hotels from their
respective date of openings. The Clarion Inn & Suites, Harrisburg commenced
operations in September 1998 and the Hampton Inn, Danville commenced
operations in August, 1998.
<PAGE>
This unaudited Pro Forma Condensed Statement of Operations of Hersha Hospitality
Management, L.P. ("HHMLP") is presented as if the acquisition of the Hersha
Acquisition Hotels had occurred on January 1, 1999, and the percentage leases
for the Hersha Acquisition Hotels were effective January 1, 1998. Such estimated
information should be read in conjunction with the financial statements of
Hersha Hospitality Management, L.P., previously filed with the Securities and
Exchange Commission in Form 10-Q of Hersha Hospitality Management, L.P., for the
six months ended June 30, 1999, and the financial statements of the Hersha
Acquisition Hotels for the six months ended June 30, 1999 at pages X through X.
In management's opinion, all adjustments necessary to reflect the effects of the
above transactions have been made. This unaudited Pro Forma Statement of
Operations is not necessarily indicative of what actual results of operations of
Hersha Hospitality Management, L.P. would have been assuming such transactions
had been completed as of June 30, 1999, nor does it purport to represent the
results of operations for future periods.
<PAGE>
HERSHA HOSPITALITY MANAGEMENT, LP
PRO FORMA STATEMENT OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1999 [UNAUDITED]
[IN THOUSANDS]
<TABLE>
<CAPTION>
Actual Pro Forma
6/30/99 (1) Adjustments 6/30/99
----------- ----------- -------
<S> <C>
Revenues from Hotel Operations:
Room Revenue $ 7,013 $ - $ 7,013
Restaurant Revenue 971 - 971
Other Revenue 365 10 (a) 375
------------ ----------- -----------
Total Revenues from Hotel $ 8,349 $ 10 $ 8,359
Operations
Expenses:
Hotel Operating Expenses 3,079 - 3,079
Restaurant Operating Expenses 819 - 819
Advertising and Marketing 387 - 387
General and Administrative 964 - 964
General and Administrative -
Related Parties 153 (126) (b) 27
Depreciation and Amortization - - -
Lease Payments 3,341, 454 (c) 3,795
------------ ----------- -----------
Total Expenses $ 8,743 $ 328 $ 9,071
Net Income (Loss) $ (394) $ (318) $ (712)
============ =========== ===========
</TABLE>
(1) Actual results for 6/30/99 reflect the operations of the Hersha Acquisition
hotels for the six months ending 6/30/99. HHMLP commenced operations on 1/1/99
and manages the ten initial hotels contributed into Hersha Hospitality Trust
(the "Initial Hotels"), the Hersha Acquisition Hotels and other properties owned
by Hasu P. Shah, CEO and Chairman, and certain affiliates, ("Hersha
Affiliates").
(a) Represents Administrative Service Fee Income
(b) Represents the elimination of rent paid to HHLP
(c) Represents the addition of lease payments for HHLP properties
