<PAGE>
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 March 31, 2000
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: 005-55249
HERSHA HOSPITALITY TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland 251811499
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
148 Sheraton Drive, Box A
New Cumberland, Pennsylvania 17070
(Address of Registrant's Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (717) 770-2405
Indicate by check mark whether the registrant (1) 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 (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
As of March 31, 2000, the number of outstanding Priority Class A Common
Shares of Beneficial Interest outstanding was 2,275,000.
<PAGE>
Hersha Hospitality Trust
Index
<TABLE>
<CAPTION>
Form 10-Q
Report
Item No. Page
- ------- ----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Hersha Hospitality Trust
Independent Accountant's Report............................................. 1
Consolidated Balance Sheets as of March 31, 2000 [Unaudited]
and December 31, 1999....................................................... 2
Consolidated Statement of Operations for the three months ended
March 31, 2000 and 1999 [Unaudited]......................................... 3
Consolidated Statement of Cash Flows for the three months ended
March 31, 2000 and 1999 [Unaudited]......................................... 4
Notes to Consolidated Financial Statements.................................. 6
Hersha Hospitality Management, L.P.
Independent Accountant's Report............................................. 12
Balance Sheets as of March 31, 2000 [Unaudited] and
December 31, 1999........................................................... 13
Statement of Operations for the three months ended
March 31, 2000 and 1999 [Unaudited]......................................... 14
Statement of Cash Flows for the three months ended
March 31, 2000 and 1999 [Unaudited]......................................... 15
Notes to Financial Statements............................................... 16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 18
Results of Operations, Three Months Ended March 31, 2000 and 1999........... 19
Liquidity and Capital Resources............................................. 19
Inflation................................................................... 20
Seasonality................................................................. 20
Subsequent Events........................................................... 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................. 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 21
Item 2. Changes in Securities and Use of Proceeds................................... 21
Item 3. Defaults Upon Senior Securities............................................. 21
Item 4. Submission of Matters to a Vote of Security Holders......................... 21
Item 5. Other Information........................................................... 22
Item 6. Exhibits and Reports on Form 8-K............................................ 22
(a) Exhibits............................................................ 22
(b) Reports on Form 8-K................................................. 22
</TABLE>
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Stockholders and Board of Trustees of
Hersha Hospitality Trust
New Cumberland, Pennsylvania
We have reviewed the accompanying consolidated balance sheet, consolidated
statement of operations and consolidated statement of cash flows of Hersha
Hospitality Trust and subsidiaries as of March 31, 2000, and for the three month
period then ended. These consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the consolidated financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended [not presented herein]; and in our report dated
February 16, 2000, except as to Note 13[B] as to which the date is February 25,
2000, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1999, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
May 5, 2000
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
[IN THOUSANDS, EXCEPT SHARE AMOUNTS]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
2000 1999 (1)
----- --------
[Unaudited]
Assets:
<S> <C> <C>
Investment in Hotel Properties, Net of Accumulated Depreciation $ 64,442 $ 51,908
Cash and Cash Equivalents -- 124
Escrow and Lease Deposits 891 --
Lease Payments Receivable - Related Party 2,352 2,116
Intangibles, Net of Accumulated Amortization 1,597 855
Due from Related Party 105 1,028
Other Assets 655 351
----------------- ------------------
Total Assets $ 70,042 $ 56,382
================= ==================
Liabilities and Shareholders' Equity:
Cash Overdraft $ 6 $ 84
Lines of Credit 4,513 6,096
Mortgages Payable 32,744 18,658
Dividends Payable 410 410
Due to Related Party 937 188
Accounts Payable and Accrued Expenses 519 161
----------------- ------------------
Total Liabilities 39,129 25,597
----------------- ------------------
Minority Interest 19,222 18,980
----------------- ------------------
Commitments and Contingencies -- --
----------------- ------------------
Shareholders' Equity:
Preferred Shares, $.01 par value, 10,000 Shares authorized, None Issued
and Outstanding -- --
Common Shares - Priority Class A, $.01 Par Value, 50,000,000 Shares 23 23
Authorized, 2,275,000 Shares Issued and Outstanding at March 31, 2000
and December 31, 1999
Common Shares - Class B, $.01 Par Value, 50,000,000 Shares Authorized,
2,275,000 and -0- Shares Issued and Outstanding at March 31, 2000 and
December 31, 1999, Respectively -- --
Additional Paid-in Capital 11,968 11,968
Distributions in Excess of Net Earnings (300) (186)
----------------- ------------------
Total Liabilities and Shareholders' Equity $ 70,042 $ 56,382
================= ==================
</TABLE>
(1) Operations commenced on January 26, 1999
The Accompanying Notes Are an Integral Part of This Consolidated Financial
Statement.
2
<PAGE>
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
---------------- ----------------
<S> <C> <C>
Revenue:
Percentage Lease Revenue $ 2,352 $ 1,145
Other Revenue 1 39
----------------- ----------------
Total Revenue 2,353 1,184
Expenses:
Interest expense 812 266
Land lease 4 4
Real Estate and Personal Property
Taxes and Property Insurance 145 91
General and Administrative 166 78
Early Payment Penalty 107 -
Depreciation and Amortization 797 336
---------------- ----------------
Total Expenses 2,031 775
Income Before Minority Interest 322 409
Income Allocated to Minority Interest 28 132
---------------- ----------------
Net income $ 294 $ 277
================ ================
Basic Earnings Per Common Share $ 0.13 $ 0.12
================ ================
Diluted Earnings Per Common Share $ 0.05 $ 0.06
================ ================
Weighted Average Shares:
Basic 2,275,000 2,275,000
Diluted 6,763,141 (2) 6,307,431 (2)
</TABLE>
(1) Operations commenced on January 26, 1999
(2) Includes 4,488,141 and 4,032,431 units at March 31, 2000 and 1999,
respectively, that are redeemable on a one-for- one basis for Class B common
shares
The Accompanying Notes Are an Integral Part of This Consolidated Financial
Statement.
3
<PAGE>
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE AMOUNTS]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999 (1)
--------------------- ------------------
<S> <C> <C>
Operating Activities:
Net Income $ 294 $ 277
--------------------- ------------------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 797 336
Income Allocated to Minority Interest 28 132
Change in Assets and Liabilities:
(Increase) Decrease in:
Lease Deposits Paid (250) -
Escrow Deposits (641) -
Lease Payments Receivable (236) (1,145)
Other Assets (304) (338)
Due from Related Party 923 -
Increase (Decrease):
Due to Related Party 1,039 -
Accounts Payable and Accrued Expenses 358 208
--------------------- ------------------
Total Adjustments 1,714 (807)
--------------------- ------------------
Net Cash provided by Operating Activities 2,008 (530)
Investing Activities
Purchase of Hotel Property Assets (2,848) (827)
--------------------- ------------------
Net Cash used in Investing Activities (2,848) (827)
Financing Activities
Cash Overdraft (78) -
Repayment of Line of Credit (1,583) -
Net Proceeds from Issuance of Stock - 11,991
Borrowings from Mortgages Payable 22,050 -
Principal Repayment of Mortgages Payable (15,616) (4,964)
Loan Fees (772) -
Dividends Paid (410) -
Limited Partnership Unit Distributions Paid (1,163) -
Borrowings from Related Party 5,123 -
Repayments of Related Party Loans (6,835) (3,735)
--------------------- ------------------
Net Cash provided by Financing Activities 716 3,292
Net Increase (Decrease) in Cash and Cash Equivalents (124) 1,935
Cash and Cash Equivalents - Beginning of Period 124 -
--------------------- ------------------
Cash and Cash Equivalents - End of Period $ - $ 1,935
===================== ==================
</TABLE>
(1) Operations commenced on January 26, 1999.
The Accompanying Notes Are an Integral Part of This Consolidated Financial
Statement.
4
<PAGE>
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE AMOUNTS]
- --------------------------------------------------------------------------------
March 31, March 31,
2000 1999
---- ----
Supplemental Disclosure of Cash Flow Information:
-------------------------------------------------
Cash Paid During the Period:
Interest $698 $241
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
We have acquired an Investment in Hotel Properties with an approximate value, at
the commencement of operations, of $40,307 in exchange for (i) 4,032,431
subordinated units of limited partnership interest in the partnership that are
redeemable for the same number of Class B Common Shares with a value of
approximately $24.2 million based on the initial offering price and (ii) the
assumption of approximately $23.3 million of indebtedness of which approximately
$6.1 million was repaid immediately after the acquisition of the hotels and
approximately $2.8 million was repaid prior to June 30, 1999.
On January 1, 2000, we have purchased three hotels from the Hersha Affiliates.
These hotels consist of the Hampton Inn, Hershey, the Best Western, Indiana and
the Comfort Inn, McHenry. The purchase prices paid for these hotels was $7.5
million, $2.2 million and $1.8 million, respectively. We have assumed mortgages
payable of $5.0 million, $1.4 million and $1.2 million, respectively in
connection with the acquisitions of these hotels. We have also assumed related
party debt of $1.0 million related to the purchase of the Hampton Inn, Hershey.
The Hersha Affiliates have received cash of approximately $1.5 million, $0.8
million and $0.6 million, respectively, for the remainder of the proceeds from
the sale of these hotels.
On March 29, 2000 we declared a $0.18 per Class A Common Share dividend of $410
that was paid on April 28, 2000 and a distribution of $0.18 to the holders of
limited partnership units. The holders of limited partnership units were also
paid a distribution of $704 on February 25, 2000. This distribution related to
a commitment that was outstanding as of December 31, 1999.
We have also issued an additional 282,171 units of limited partnership interest
in connection with the repricing of the Holiday Inn, Milesburg, the Comfort Inn,
Denver and the Holiday Inn Express, Riverfront. The total number of units
outstanding as of March 31, 2000 was 4,488,141.
The Accompanying Notes Are an Integral Part of This Consolidated Financial
Statement.
5
<PAGE>
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
- --------------------------------------------------------------------------------
[1] Organization and Basis of Financial Presentation
Hersha Hospitality Trust was formed in May 1998 to acquire equity interests in
ten existing hotel properties. We are a self-administered, Maryland real estate
investment trust for federal income tax purposes. On January 26, 1999, we
completed an initial public offering of 2,275,000 shares of $.01 par value
Priority Class A Common Shares. The offering price per share was $6 resulting
in gross proceeds of $13,650. Net of underwriters discount and offering
expenses, we received net proceeds of $11,991.
Upon completion of the initial public offering, we contributed substantially all
of the net proceeds to Hersha Hospitality Limited Partnership [the
"Partnership"] in exchange for a 36.1% general partnership interest in the
Partnership. The Partnership used these proceeds to acquire an equity interest
in ten hotels [the "Initial Hotels"] through subsidiary partnerships, and to
retire certain indebtedness relating to these hotels. The Partnership acquired
these hotels in exchange for (i) units of limited partnership interest in the
Partnership which are redeemable, subject to certain limitations, for an
aggregate of 4,032,431 Priority Class B Common Shares, with a value of
approximately $24.2 million based on the initial public offering, and (ii) the
assumption of approximately $23.3 million of indebtedness of which approximately
$6.1 million was repaid immediately after the acquisition of the hotels. Hasu
P. Shah and certain affiliates [the "Hersha Affiliates"] received units of
limited partnership interests in the Partnership aggregating a 63.9% equity
interest in the Partnership. The Partnership owns a 99% limited partnership
interest and Hersha Hospitality, LLC ["HHLLC"], a Virginia limited liability
company, owns a 1% general partnership interest in the subsidiary partnerships.
The Partnership is the sole member of HHLLC. We began operations on January 26,
1999, therefore, the financial results for the three months ended March 31, 1999
include activity from January 26, 1999 to March 31, 1999.
Since inception, we have leased all our hotel facilities to Hersha Hospitality
Management, LP, [the "Lessee" or "HHMLP"], a limited partnership owned by the
Hersha Affiliates. The Lessee operates and leases the hotel properties pursuant
to separate percentage lease agreements [the "Percentage Leases"] that provide
for initial fixed rents or percentage rents based on the revenues of the hotels.
The hotels are located principally in the eastern Pennsylvania area.
Since the completion of the initial public offering we have issued an additional
173,539 units of limited partnership interest in connection with the acquisition
of the Hampton Inn, Danville, PA. We have also issued an additional 282,171
units of limited partnership interest in connection with the repricing of the
Holiday Inn, Milesburg, the Comfort Inn, Denver and the Holiday Inn Express,
Riverfront. The total number of units of limited partnership interest
outstanding as of March 31, 2000 and 1999 was 4,488,141 and 4,032,431
respectively.
[2] Summary of Significant Accounting Policies
Revenue Recognition - Percentage lease income is recognized when earned from the
Lessee under the agreements from the date of acquisition of each hotel property.
Contingent rent is recognized when the contingency is met. Lease income is
recognized under fixed rent agreements ratably over the lease term.
Minority Interest - Minority interest in the Partnership represents the limited
partners proportionate share of the equity of the Partnership. Income is
allocated to minority interest based on weighted average percentage ownership
throughout the year.
Earnings Per Common Share - We compute earnings per share in accordance with
Statement of Financial Accounting Standards ["SFAS"] No. 128, "Earnings Per
Share."
SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15, "Earnings
Per Share," and replaces its primary earnings per share with new basic earnings
per share representing the amount of earnings for the period available to each
share of common stock outstanding during the reporting period. Diluted earnings
per share reflects the amount of earnings for the period available to each share
of common stock outstanding during the reporting period, while giving effect to
all dilutive potential common shares that were outstanding during the period,
such as common shares that could result from the potential exercise or
conversion of securities into common shares.
6
<PAGE>
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
- --------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
The computation of diluted earnings per share does not assume conversion,
exercise, or contingent issuance of securities that would have an antidilutive
effect on earnings per share. The dilutive effect of outstanding options and
warrants and their equivalents is reflected in diluted earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon exercise of options and warrants in computing
diluted earning per share. It assumes that any proceeds would be used to
purchase common shares at the average market price during the period. Options
and warrants will have a dilutive effect only when the average market price of
the common shares during the period exceeds the exercise price of the option or
warrants.
Potential future dilutive securities include 4,488,141 shares issuable under
limited partnership units and 534,000 shares issuable under outstanding options.
[3] Commitments and Contingencies and Related Party Transactions
The Priority Class A Common Shares have priority as to the payment of dividends
until dividends equal $.72 per share on a cumulative basis and shares equally in
additional dividends after the Class B Common Shares have received $.72 per
share in each annual period. The Priority Class A Common Shares carry a
liquidation preference of $6.00 per share plus unpaid dividends and votes with
the Class B Common Shares on a one vote per share basis. The Priority period of
the Class A Shares will commence on the date of the closing of the initial
public offering and end on the earlier of (i) five years after the initial
public offering of the Priority Common Shares, or (ii) the date that is 15
trading days after we send notice to the holders of the Priority Common Shares,
provided that the closing bid price of the Priority Common Shares is at least $7
on each trading day during such 15-day period.
In conjunction with the initial public offering, the Partnership acquired the
ten Initial Hotels entered into percentage lease agreements with Hersha
Hospitality Management L.P. Under the Percentage Leases, the Partnership is
obligated to pay the costs of certain capital improvements, real estate and
personal property taxes and property insurance, and to make available to the
Lessee an amount equal to 4% [6% for some hotels] of room revenues per quarter,
on a cumulative basis, for the periodic replacement or refurbishment of
furniture, fixtures and equipment at the Initial Hotels.
Pursuant to the Hersha Hospitality Limited Partnership agreement, the limited
partners have certain redemption rights that enable them to cause the
partnership to redeem their units of limited partnership interest in exchange
for Class B Common Shares or for cash at our election. In the event the Class B
Common Shares are converted into Priority Class a Common Shares prior to
redemption of the units, the units will be redeemable for Priority Class A
Common Shares. If we do not exercise our option to redeem the units for Class B
Common Shares, then the limited partner may make a written demand that we redeem
the units for Class B Common Shares. These redemption rights may be exercised
by the limited partners over time periods ranging form one to two years from
January 26, 1999. At March 31, 2000 and March 31, 1999, the aggregate number of
Class B Common Shares issuable to the limited partners upon exercise of the
redemption rights is 4,488,141 and 4,032,431, respectively. The number of
shares issuable upon exercise of the redemption rights will be adjusted upon the
occurrence of stock splits, mergers, consolidation or similar pro rata share
transactions, that otherwise would have the effect of diluting the ownership
interest of the limited partners or our shareholders.
We are the sole general partner in the Partnership, which is the sole general
partner in the Subsidiary Partnerships and, as such, are liable for all recourse
debt of the Partnership to the extent not paid by the subsidiary partnerships.
In the opinion of management, we do not anticipate any losses as a result of our
obligations as general partner.
We have entered into percentage leases relating to each of the hotels with the
lessee. Each percentage lease will have an initial non-cancelable term of five
years. All, but not less than all, of the Percentage Leases for these hotels
may be extended for an additional five-year term at the lessee's option. At the
end of the first extended term, the Lessee, at its option, any extend some or
all of the Percentage Leases for these hotels for an additional five-year term.
Pursuant to the terms of the Percentage Leases, the Lessee is required to pay
initial fixed rent, base rent or percentage rent and
7
<PAGE>
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
- --------------------------------------------------------------------------------
[3] Commitments and Contingencies and Related Party Transactions [Continued]
certain other additional charges and is entitled to all profits from the
operations of the hotels after the payment of certain specified operating
expenses.
We have future lease commitments from the Lessee through December 2004. Minimum
future rental income under these noncancellable operating leases at December 31,
1999, is as follows:
2000 $ 7,775
2001 6,420
2002 4,604
2003 4,604
2004 1,280
Thereafter 0
----------
Total $ 24,683
==========
For the period January 1, 2000 through March 31, 2000, we earned initial fixed
rents of $1,459 and earned percentage rents of $893. For the period January 26,
1999 through March 31, 1999, we earned initial fixed rents of $630 and earned
percentage rents of $515.
The hotel properties are operated under franchise agreements assumed by the
Lessee that have 10 to 20 year lives but may be terminated by either the
franchisee or franchisor on certain anniversary dates specified in the
agreements. The agreements require annual payments for franchise royalties,
reservation, and advertising services, which are based upon percentages of gross
room revenue. These fees are paid by the Lessee.
We have acquired seven of the Initial Hotels and three other hotels, since the
commencement of operations, for prices that will be adjusted at either December
31, 1999, 2000 or 2001. The purchase price adjustments are calculated by
applying the initial pricing methodology to such hotels' cash flows as shown on
our and the Lessee's audited financial statements. The adjustments must be
approved by a majority of our independent trustees. If the repricing produces a
higher aggregate value for such hotels, the Hersha Affiliates receive an
additional number of units of limited partnership interest that, when multiplied
by the offering price, equals the increase in value. If, however, the repricing
produces a lower aggregate value for such hotels, the Hersha Affiliates forfeit
to the Partnership that number of units that, when multiplied by the offering
price, equals the decrease in value. Any adjustments arising from the issuance
or forfeiture of shares will adjust the cost of the property acquired based on
the fair value of the shares on the date of the adjustment.
The Holiday Inn, Milesburg, Comfort Inn, Denver and the Holiday Inn Express,
Riverfront were repriced based upon the financial results of the hotels for the
prior twelve months ending December 31, 1999. Based upon the financial results
of these hotels and their respective cash flows the properties were repriced at
higher aggregate values of $735, $473 and $485, respectively. Based upon the
$6.00 offering price, the Hersha Affiliates received an additional 122,577,
78,774 and 80,820 units of limited partnership interest for the three hotels,
respectively. These hotels gave rise to an additional investment in hotel
properties of $606, $394 and $404, respectively. These amounts are subject to
adjustment based on the completion of ongoing audits.
On January 26, 1999, we executed an administrative services agreement with the
Lessee to provide accounting and securities reporting services for the Company.
The terms of the agreement provided for a fixed fee of $55 with an additional
$10 per property (prorated from the time of acquisition) for each hotel added to
the Company's portfolio. As of March 31, 2000 and 1999, $54 and $26 has been
charged to operations.
8
<PAGE>
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
- --------------------------------------------------------------------------------
[3] Commitments and Contingencies and Related Party Transactions [Continued]
We have approved the lending of up to $3.0 million to the Hersha Affiliates to
construct hotels and related improvements on specific hotel projects at an
interest rate of 12.0%. As of March 31, 2000 and March 31, 1999, the Hersha
Affiliates did not have any outstanding loans to us and we have not recorded any
interest income related to this agreement during the three months ended March
31, 2000 and March 31, 1999.
We have borrowed approximately $5,123 from Shreenathji Enterprises, Ltd. ("SEL")
during the three months ended March 31, 2000. Of these borrowings, $228 was
outstanding at March 31, 2000. We incurred interest expense of approximately
$90 related to these borrowings from SEL. We borrow from SEL at a fixed rate of
10% per annum.
[4] Debt
Debt is comprised of the following at March 31, 2000 and 1999:
2000 1999
------- -------
Mortgages Payable $32,744 14,582
Revolving Credit Facility 4,513 -0-
------- -------
Total Long Term Debt $37,257 $14,582
Substantially all of our long term debt is collateralized by property and
equipment and in certain situations is personally guaranteed by the Hersha
Affiliates. During March 2000, we completed a portfolio refinancing of $22,050
with Lehman Brothers Bank. We have repaid $15,450 of mortgages payable and
$2,000 of related party debt with proceeds from the refinancing. The remainder
of the funds will be utilized for acquisition of hotel properties and general
corporate purposes. These funds are collateralized by seven of our hotel
properties.
Outstanding borrowings under the refinancing bear interest at a annual interest
rate of 8.94% and have a total loan amortization period of 23.5 years. The
first eighteen months of the loan period is structured to be interest only
financing with no principal payoff during the period. We have incurred one-time
early prepayment penalties of $107 in connection with the portfolio refinancing.
[5] Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
March 31, March 31,
2000 1999
------------ -----------
<S> <C> <C>
Net Income for Basic Earnings Per Share $ 294 $ 277
Add: Income Attributable to Minority Interest 28 132
------------- -------------
Net Income for Diluted Earnings Per Share $ 322 $ 409
- -----------------------------------------
============ ============
b
Weighted Average Shares for Basic Earnings Per Share 2,275,000 2,275,000
Dilutive Effect of Limited Partnership Units 4,488,141 4,032,431
Weighted Average Shares for Diluted Earnings Per Share 6,763,141 6,307,431
- ------------------------------------------------------
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
- --------------------------------------------------------------------------------
[5] Earnings Per Share [Continued]
Options to purchase 534,000 and 533,975 shares of Class B common shares for the
three months ended March 31, 2000 and March 31, 1999, respectively, were
outstanding but were not included in the computation of diluted earnings per
share because the options' exercise prices were greater than the average market
price of the common shares and, therefore, the effect would be antidilutive.
[6] Pro Forma Information
The following pro forma information is presented for information purposes as if
the acquisition of all hotels by the Partnership and the commencement of the
Percentage Leases had occurred on January 1, 2000 and 1999, respectively. The
unaudited pro forma condensed statements of operations are not necessarily
indicative of what actual results of operations of the Company would have been
assuming such operations had commenced as of January 1, 2000 and 1999,
respectively, nor does it purport to represent the results of operations for
future periods.
Pro Forma Condensed Statement of Operations
-------------------------------------------
For the three months ended March 31, 2000 and 1999
--------------------------------------------------
[In Thousands, Except Share and Per Share Amounts]
--------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Revenue: 2000 1999
---------------- -----------------
<S> <C> <C>
Percentage Lease Revenue $ 2,352 $ 1,608
Other Revenue 1 58
---------------- -----------------
Total Revenue 2,353 1,666
---------------- -----------------
Expenses:
Interest 812 266
Real Estate and Personal Property Taxes and Insurance 145 137
General and Administrative 277 117
Depreciation and Amortization 797 504
---------------- -----------------
Total Expenses 2,031 1,024
---------------- -----------------
Income Before Allocation to Minority Interest 322 642
Income Allocated to Minority Interest 28 276
---------------- -----------------
Net Income $ 294 $ 366
================ =================
Basic Earning Per Common Share .13 .16
================ =================
Diluted Earning Per Common Share .05 .10
================ =================
Weighted Average for Basic Earnings Per Share 2,275,000 2,275,000
Weighted Average Shares for Diluted Earnings Per Share 6,763,141 6,307,431
</TABLE>
10
<PAGE>
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
- --------------------------------------------------------------------------------
[7] Unaudited Interim Information
The accompanying financial statements have been prepared in accordance with the
instructions to Form 10-Q and accordingly, do not include all of the disclosures
normally required by generally accepted accounting principles. The financial
information has been prepared in accordance with our customary accounting
practices. In the opinion of management, the information presented reflects all
adjustments [consisting of normal recurring accruals] considered necessary for a
fair presentation of our financial position as of March 31, 2000, and the
results of our operations for the three months ended March 31, 2000 and 1999.
The results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. The unaudited financial statements should be read in
conjunction with the financial statements and footnotes thereto included in
Hersha Hospitality Trust's Annual Report on Form 10-K for the year ended
December 31, 1999.
[8] Subsequent Events
The quarterly dividend pertaining to the first quarter of 2000 was paid on
April 28, 2000 at the rate of $.18 per share which represents an annualized rate
of $0.72 per annum.
We have entered into sale-leaseback agreements for four hotel properties
located in the metropolitan Atlanta market with Noble Investment Group, Ltd.
("Noble") for an aggregate purchase price of $20.0 million.
The acquisitions include two Hampton Inn hotels in Peachtree City and
Newnan, and a Holiday Inn Express and Comfort Suites in Duluth, GA. The four
hotels comprise 305 rooms and all of the hotels have been in operation for
approximately five years.
. . . . . . . .
11
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Partners of
Hersha Hospitality Management L.P.
New Cumberland, Pennsylvania
We have reviewed the accompanying balance sheet, statement of operations
and statement of cash flows of Hersha Hospitality Management L.P. as of March
31, 2000, and for the three month period then ended. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of December 31, 1999, and the related statements
of operations, partners' capital, and cash flows for the year then ended [not
presented herein]; and in our report dated March 9, 2000, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying balance sheet as of December 31, 1999,
is fairly stated, in all material respects, in relation to the balance sheet
from which it has been derived.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
May 5, 2000
12
<PAGE>
- -------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
BALANCE SHEETS
[IN THOUSANDS]
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
2000 1999
---- -----
Current Assets: [Unaudited]
<S> <C> <C>
Cash and Cash Equivalents $ 217 $ 778
Accounts Receivable, less allowance for doubtful accounts of
$135 and $135 at March 31, 2000 and December 31, 1999, respectively 755 817
Prepaid Expenses 8 60
Due from Related Party - HHLP 607 188
Due from Related Parties 72 796
Other Assets 234 184
----------------------- ----------------------
Total Current Assets 1,893 2,823
Franchise Licenses [Net of accumulated amortization of $107 and
$97 at March 31, 2000 and December 31, 1999, respectively] 332 287
Property and Equipment 952 894
----------------------- ----------------------
Total Assets $ 3,177 $4,004
======================= ======================
Liabilities and Partners' Capital:
Current Liabilities:
Cash Overdraft $ 218 $ 694
Accounts Payable 726 660
Accounts Payable Related Party 283 30
Accrued Expenses 589 432
Other Liabilities 7 -
Due to Related Party - HHLP 81 -
Lease Payments Payable - Related Party - HHLP 2,711 2,116
----------------------- ----------------------
Total Current Liabilities 4,615 3,932
Commitments - -
Partners' Capital (1,438) 72
----------------------- ----------------------
Total Liabilities and Partners' Capital $ 3,177 $4,004
======================= ======================
</TABLE>
The Accompanying Notes Are an Integral Part of This Financial Statement.
13
<PAGE>
- -------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 [UNAUDITED]
[IN THOUSANDS]
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Revenues from Hotel Operations
Room Revenue $ 4,767 $3,550
Restaurant Revenue 478 494
Other revenue 303 250
--------- ---------
Total Revenues from Hotel Operations $ 5,548 $4,294
Expenses:
Hotel Operating Expenses 2,434 1,845
Restaurant Operating Expenses 407 352
Advertising and Marketing 464 178
Bad Debts 15 -
Depreciation and Amortization 41 -
General and Administrative 970 588
General and Administrative - Related Parties 16 449
Lease Expense - HHLP 2,711 1,145
Lease Expense - Other Related Parties - -
--------- ---------
Total Expenses $ 7,058 $4,557
--------- ---------
Net Loss $(1,510) $ (263)
========= =========
</TABLE>
The Accompanying Notes Are an Integral Part of This Financial Statement.
14
<PAGE>
- -------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 [UNAUDITED]
[IN THOUSANDS]
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
--------------- ---------------
<S> <C> <C>
Operating Activities:
Net Loss $ (1,510) $ (263)
--------------- ---------------
Adjustments to Reconcile Net Income to
Net Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization 41 -
Allowance for Doubtful Accounts - -
Change in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable 62 (684)
Prepaid Expenses 52 (117)
Other Assets (50) (52)
Due from Related Parties 305 -
Increase (Decrease):
Accounts Payable 66 412
Accounts Payable - Related Party 253 -
Lease Payments Payable 595 1,145
Accrued Expenses 157 330
Due To Related Parties 81 (583)
Other Liabilities 7 301
---------------- ---------------
Total Adjustments 1,569 752
---------------- ---------------
Net Cash Provided by (Used in) Operating Activities 59 489
Investing Activities
Property and Equipment (89) (456)
Franchise Licenses (55) -
---------------- ---------------
Net Cash Used in Investing Activities (144) (456)
Financing Activities
Cash Overdraft (476) -
---------------- ---------------
Net Cash Used in Financing Activities (476) -
Net Increase (Decrease) in Cash and Cash Equivalents (561) 33
Cash and Cash Equivalents - Beginning of Period 778 -
--------------- ---------------
Cash and Cash Equivalents - End of Period $ 217 $ 33
=============== ===============
</TABLE>
The Accompanying Notes Are an Integral Part of This Financial Statement.
15
<PAGE>
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
NOTES TO FINANCIAL STATEMENTS [UNAUDITED]
[IN THOUSANDS]
- --------------------------------------------------------------------------------
[1] Organization
Hersha Hospitality Management, L.P., [the "Lessee"], was organized under the
laws of the State of Pennsylvania in May, 1998 to lease and operate ten existing
hotel properties, principally in the Harrisburg and Central Pennsylvania area,
from Hersha Hospitality Limited Partnership ["HHLP" or the "Partnership"]. The
Lessee is owned by Mr. Hasu P. Shah and certain affiliates, [the "Hersha
Affiliates"], some of whom have ownership interests in the Partnership. We also
manage certain other properties owned by the Hersha Affiliates that are not
owned by the Partnership. We commenced operations on January 1, 1999 and as of
March 31, 2000 leased 16 hotel properties from the Partnership.
[2] Commitments and Contingencies
We have assumed the rights and obligations under the terms of existing franchise
licenses relating to the hotels upon acquisition of the hotels by the
partnership. The franchise licenses generally specify certain management,
operational, accounting, reporting and marketing standards and procedures with
which the franchisee must comply and provide for annual franchise fees based
upon percentages of gross room revenue.
We have entered into Percentage Leases with HHLP. Each Percentage Lease will
have an initial non-cancelable term of five years and may be extended for an
additional five-year term at our option. Pursuant to the terms of the Percentage
Leases, we are required to pay the greater of the base rent or the percentage
rent for hotels with established operating histories. The base rent is 6.5
percent of the purchase price assigned to each hotel. The percentage rent for
each hotel is comprised of (i) a percentage of room revenues up to a certain
threshold amount for each hotel up to which we receive a certain percentage of
room revenues as a component of percentage rent, (ii) a percentage of room
revenues in excess of the threshold amount, but not more than a certain
incentive threshold amount for each hotel in excess of the threshold amount up
to which we receive a certain percentage of the room revenues in excess of the
threshold amount as a component of percentage rent (iii) a percentage for room
revenues in excess of the incentive threshold amount and (iv) a percentage of
revenues other than room revenues. For hotels with limited operating histories,
the leases provide for the payment of an initial fixed rent for certain periods
as specified in the leases and the greater of base rent or percentage rent
thereafter. The leases commenced on January 26, 1999.
Minimum future lease payments due during the noncancellable portion of the
leases as of December 31, 1999 is as follows:
<TABLE>
<S> <C>
2000 $ 7,775
2001 6,420
2002 4,604
2003 4,604
2004 1,280
Thereafter 0
----------------
Total $ 24,683
================
</TABLE>
On January 26, 1999, we executed an agreement with HHLP to provide accounting
and securities reporting services. The terms of the agreement provided for a
fixed fee of $55 with an additional $10 per property (prorated from the time of
acquisition) for each hotel added to the Company's portfolio.
For the three months ended March 31, 2000 and 1999 we incurred lease expense of
$2,711 and $1,145, respectively. As of March 31, 2000 and 1999 the amount due to
the Partnership for lease payments was $2,352 and 2,116, respectively.
16
<PAGE>
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
NOTES TO FINANCIAL STATEMENTS [UNAUDITED]
[IN THOUSANDS]
- --------------------------------------------------------------------------------
[3] Pro Forma Financial Information [Unaudited]
The following pro forma information is presented for information purposes as if
the acquisition of all hotels by the Partnership and the commencement of the
Percentage Leases had occurred on January 1, 2000 and 1999, respectively. The
unaudited pro forma condensed statements of operations is not necessarily
indicative of what actual results of operations of the Lessee would have been
assuming such operations had commenced as of January 1, 2000 and 1999,
respectively, nor does it purport to represent the results of operations for
future periods.
Pro Forma Condensed Statements of Operations
--------------------------------------------
For the three months ended March 31, 2000 and 1999
--------------------------------------------------
[In Thousands]
------------
[Unaudited]
---------
<TABLE>
<S> <C> <C>
2000 1999 (1)
---------------------- ----------------------
Revenue from Hotel Operations:
Room Revenue $ 4,767 $ 3,550
Food & Beverage 478 494
Telephone and Other 303 250
---------------------- ----------------------
Total Revenue from Hotel Operations 5,548 4,294
Expenses:
Hotel Operations Expenses 2,434 1,845
Restaurant Operating Expenses 407 352
Advertising and Marketing 464 178
General and Administrative 1,026 588
General and Administrative - Related Parties 16 151
Lease Payments 2,711 1,765
---------------------- ----------------------
Total Expenses 7,058 4,879
---------------------- ----------------------
Net Loss $ (1,510) $ (585)
====================== ======================
</TABLE>
(1) The 1999 Pro Forma results vary from the historical results due to the
assumption that Lease Payments expense was incurred for the entire three
month period per the pro forma results instead of from January 26, 1999 per
the historical results. Pro forma Related Party Management Fees have been
reduced as these fees would not have been applicable for the entire pro
forma period.
[4] Unaudited Interim Information
The accompanying financial statements have been prepared in accordance with the
instructions to Form 10-Q and accordingly, do not include all of the disclosures
normally required by generally accepted accounting principles. The financial
information has been prepared in accordance with the Lessee's customary
accounting practices. In the opinion of management, the information presented
reflects all adjustments [consisting of normal recurring accruals] considered
necessary for a fair presentation of our financial position as of March 31, 2000
and the results of our operations for the three months ended March 31, 2000 and
1999. The results of operations for the three months ended March 31, 2000, are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. The unaudited financial statements should be read in
conjunction with the financial statements and footnotes thereto included in
Hersha Hospitality Trust's Annual Report on Form 10-K for the year ended
December 31, 1999.
17
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
All statements contained in this section that are not historical facts are
based on current expectations. This includes statements regarding our 2000
anticipated revenues, expenses and returns, and future capital requirements.
Words such as "believes", "expects", "anticipates", "intends", "plans" and
"estimates" and variations of such words and similar words also identify
forward-looking statements. Such statements are forward-looking in nature and
involve a number of risks and uncertainties, including the risks described under
the caption "Risk Factors" in our registration statement on Form S-11 (File No.
333-56087). Our actual results may differ materially. We caution you not to
place undue reliance on any such forward-looking statements. We assume no
obligation to update any forward-looking statements as a result of new
information, subsequent events or any other circumstances.
Hersha Hospitality Trust was formed in May 1998 to own initially ten hotels
in Pennsylvania and to continue the hotel acquisition and development strategies
of Hasu P. Shah, Chairman of the board of trustees and Chief Executive Officer
of our Company. We are a self-advised Maryland real estate investment trust for
federal income tax purposes.
We completed an initial public offering of two million of our Class A
Priority Common Shares at $6.00 per share and commenced operations on January
26, 1999. On February 5, 1999, we sold an additional 275,000 Class A Priority
Common Shares pursuant to an over allotment option granted to the underwriter in
our initial public offering. Our Priority Class A Common Shares are traded on
the American Stock Exchange under the symbol "HT."
We contributed substantially all of the net proceeds from our initial
public offering to our operating partnership subsidiary, Hersha Hospitality
Limited Partnership, of which we are the sole general partner. We currently own
a 33.6% partnership interest in that partnership. With the proceeds of our
initial public offering, we caused the partnership to acquire ten hotels in
exchange for (1) 4,032,431 subordinated units of limited partnership interest in
the partnership that are redeemable for the same number of Class B Common Shares
with a value of approximately $24.2 million based on the initial public offering
price, and (2) the assumption of approximately $23.3 million of indebtedness of
which approximately $6.1 million was repaid immediately after the acquisition of
the hotels.
Since the completion of the initial public offering we have issued an
additional 173,539 units in connection with the acquisition of the Hampton Inn,
Danville, PA. We have also issued an addition 282,171 units in connection with
the repricing of the Holiday Inn, Milesburg, the Comfort Inn, Denver and the
Holiday Inn Express, Riverfront. The total number of units outstanding as of
March 31, 2000 and 1999 was 4,488,141 and 4,205,970, respectively.
We have acquired seven of the Initial Hotels and three other hotels, since
the commencement of operations, for prices that will be adjusted at either
December 31, 1999, 2000 or 2001. The purchase price adjustments are calculated
by applying the initial pricing methodology to such hotels' cash flows as shown
on our and the Lessee's audited financial statements. The adjustments must be
approved by a majority of our independent trustees. If the repricing produces a
higher aggregate value for such hotels, the Hersha Affiliates receive an
additional number of units of limited partnership interest that, when multiplied
by the offering price, equals the increase in value. If, however, the repricing
produces a lower aggregate value for such hotels, the Hersha Affiliates forfeit
to the Partnership that number of units that, when multiplied by the offering
price, equals the decrease in value. Any adjustments arising from the issuance
or forfeiture of shares will adjust the cost of the property acquired based on
the fair value of the shares on the date of the adjustment.
As of May 1, 2000, we owned four Holiday Inn Express(R) hotels, six Hampton
Inn(R) hotels, two Holiday Inn(R) hotels, four Comfort Inn(R) hotels, one Best
Western and one Clarion Suites(R) hotel, which contain an aggregate of 1,750
rooms.
18
<PAGE>
Results of Operations, Three Months Ended March 31, 2000 Compared to March 31,
1999
($'s in thousands)
Our revenues for the three months ended March 31, 2000 and 1999,
substantially consisted of percentage lease revenues recognized pursuant to the
Percentage Leases. Percentage lease revenues during the three month period ended
March 31, 2000 were $2,352 an increase of $1,207, or 105.4%, as compared to
percentage lease revenues of $1,145 for the same period during 1999. The
improvement in lease revenues is primarily attributable to an additional month
of operations in the current quarter as well as additional percentage lease
revenues derived from the increase in the number of hotels owned from 10
properties to 16. Lease revenues were slightly offset by decreases in percentage
lease revenues at certain properties.
Net income increased by $17 or 6.1% to $294, for the three months ended
March 31, 2000 as compared to net income of $277 for the same period during
1999. The increase in net income is primarily attributable to the increase in
the number of hotels mentioned above. Increases in net income were partially
offset by one-time early payment charges of $107 related to a portfolio
refinancing of $22,050 completed in March 2000 and due to additional interest
expense incurred during the period.
Real estate and personal property taxes and depreciation and amortization
increased over the comparable period in 1999 primarily due to the increase in
the number of hotel properties owned by us, as mentioned above.
The Lessee's room revenues from the hotels increased by $1,217, or 34.3%,
to $4,767 for the three months ended March 31, 2000, as compared to $3,550 for
the same period in 1999. This increase in revenues is primarily attributable to
the increase in the number of hotels from 15 properties to 18 properties. The
increase in room revenues is also due to additional occupancy at the properties,
a higher average daily rate (ADR) and increases in the revenue per available
room (REVPAR). The Lessee maintains the ability to borrow funds from related
entities, partners and stockholders. The Lessee's borrowing costs range from
8.5% on short-term loans to 10.5% on longer term loans.
The following table shows certain other information for the periods indicated.
Three Months Ended
March 31,
2000 1999
---------- -----------
Occupancy rate 50% 44%
ADR $65 $62
REVPAR $32 $27
Room revenue 4,766,528 3,550,000
Room nights available 148,523 131,000
Room nights occupied 73,826 57,000
Rooms available 1,598 1,459
Liquidity and Capital Resources
Our principal source of cash to meet its cash requirements, including
distributions to shareholders, is our share of the Partnership's cash flow. The
Partnership's principal source of revenue is rent payments under the Leases. The
Lessee's obligations under the Leases are unsecured. The Lessee's ability to
make rent payments, and the Company's liquidity, including its ability to make
distributions to common shareholders, is dependent on the Lessee's ability to
generate sufficient cash flow from the operation of the Hotels.
19
<PAGE>
We note that industry analysts and investors use Funds From Operations
("FFO") as a tool to compare equity REIT performance. In accordance with the
resolution adopted by the Board of Governors of the National Association of Real
Estate Investments Trusts ("NAREIT"), FFO represents net income (loss) (computed
in accordance with generally accepted accounting principles), excluding gains
(or losses) from debt restructuring or sales of property, plus depreciation, and
after adjustments for unconsolidated partnerships and joint ventures. FFO was
$1,119 in the three months ended March 31, 2000, which is an increase of $374,
or 50.2% over FFO in the comparable period in 1999, which was $745. The increase
in FFO can be attributed to the increase in hotel properties owned.
FFO presented herein is not necessarily comparable to FFO presented by
other real estate companies due to the fact that not all real estate companies
use the same definition. However, the Company's FFO is comparable to the FFO of
the real estate companies that use the current definition of the NAREIT.
We expect to meet our short-term liquidity requirements generally through
net cash provided by operations, existing cash balances and, if necessary,
short-term borrowings under an unsecured line of credit. We believe that our net
cash provided by operations will be adequate to fund both operating requirements
and payment of dividends by us in accordance with REIT requirements.
We expect to meet our long-term liquidity requirements, such as scheduled
debt maturities and property acquisitions, through long-term secured and
unsecured borrowing, the issuance of additional equity securities of the
Company, or, in connection with acquisitions of hotel properties, issuance of
Units in the Partnership.
We intend to make additional investments in hotel properties and may incur,
or cause the Partnership to incur, indebtedness to make such investments or to
meet distribution requirements imposed on a REIT under the Code to the extent
that working capital and cash flow from the Company's investments are
insufficient to make such distributions. Our policy is to limit consolidated
indebtedness to less than 67% of the total purchase prices paid by us for the
hotels in which we have invested. However, our organizational documents do not
limit the amount of indebtedness that the we may incur and our board of trustees
may modify the debt policy at any time without shareholder approval.
The hotel business is seasonal, with hotel revenue generally greater in the
second and third quarters than in the first and fourth quarters. To the extent
that cash flow from operating activities is insufficient to provide all of the
estimated quarterly distributions, we anticipate that we will be able to fund
any such deficit from future working capital. As of March 31, 2000, our accounts
receivable and due from related parties balances exceed our current obligations
and related party payables by $1,001.
Inflation
Operators of Hotels in general possess the ability to adjust room rates
quickly. However, competitive pressures may limit the lessee's ability to raise
room rates in the face of inflation, and annual increases in average daily rates
have failed to keep pace with inflations.
Seasonality
Our hotels' operations historically have been seasonal in nature, relecting
higher occupancy rates during the second and third quarters. This seasonality
can be expected to cause fluctuations in our quarterly lease revenue to the
extent that we receive percentage rent.
20
<PAGE>
Subsequent Events
The quarterly dividend pertaining to the first quarter of 2000 was paid on
4/28/00 at the rate of $.18 per share which represents an annualized rate of
$0.72 per annum.
Hersha Hospitality Trust has acquired four hotel properties located in the
metropolitan Atlanta market from Noble Investment Group, Ltd. ("Noble") for an
aggregate purchase price of $20.0 million. HT has simultaneously entered into
sale-leaseback agreements with Noble for the four properties.
The acquisitions include two Hampton Inn hotels in Peachtree City and
Newnan, and a Holiday Inn Express and Comfort Suites in Duluth, GA. The four
hotels comprise 305 rooms and all of the hotels have been in operation for
approximately five years.
Item 3. Quantitative and Qualitative Disclosures about Market risk
Pursuant to the general instructions to Item 305 of Regulation S-K, the
quantitative and qualitative disclosures called for by this Item 3 and by Rule
305 of Regulation S-K are inapplicable to our Company at this time.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
On January 20, 1999, the Securities and Exchange Commission declared
effective our Company's registration statement on Form S-11 (File No. 333-56087)
relating to the initial public offering of two million Priority Class A Common
Shares of Beneficial interest of the Company at an initial public offering price
of $6.00 per share. As part of our Company's initial public offering, 166,666 of
the Priority Common Shares were sold to affiliates of the Company. The remaining
1,833,334 shares were sold to the public through their underwriter, Anderson &
Strudwick, Incorporated. On February 5, 1999, the Company closed the sale of an
additional 275,000 Priority Common Shares to the underwriter pursuant to the
over-allotment option granted to the underwriter in our initial public offering.
The gross proceeds from these sales was approximately $13.7 million. The
aggregate net proceeds received by our Company in connection with these sales
was approximately $12.0 million. The aggregate underwriting discount of
approximately $1 million was paid to the underwriter and an aggregate of
approximately $0.7 million was for other expenses. Our Company has used the net
proceeds as follows: (i) approximately $8.7 million to repay certain of the
outstanding indebtedness related to the ten hotels owned by Hersha Hospitality
Limited Partnership, including approximately $3.7 million in debt owed to
certain affiliates of our Company and related principally to the hotel
development expenses in connection with the ten hotels; (ii) approximately $2.8
million to purchase certain hotel property assets and intangible assets; and
(iii) approximately $0.5 million to fund the ongoing operations of our Company.
Item 3. Default Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
21
<PAGE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed by the Company
during the first quarter:
(i) a Current Report on Form 8-K was filed on March 23, 2000 as a
result of an event specified in Item 2 of Form 8-K; and
(ii) a Current R Report on Form 8-K was filed on March 30, 2000 as a
result of an event specified in Item 5 of Form 8-K.
SIGNATURES
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 thereunto duly authorized.
HERSHA HOSPITALITY TRUST
May 15, 2000 /s/ Ashish R. Parikh
----------------------------------------
Ashish R. Parikh
Chief Financial Officer
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN PART I. ITEM 1 OF THEIR FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 0 1,935
<SECURITIES> 0 0
<RECEIVABLES> 2,352 1,145
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,003 3,418
<PP&E> 64,442 39,991
<DEPRECIATION> 760 316
<TOTAL-ASSETS> 70,042 45,002
<CURRENT-LIABILITIES> 1,866 504
<BONDS> 37,257 14,582
0 0
0 0
<COMMON> 23 23
<OTHER-SE> 11,668 11,949
<TOTAL-LIABILITY-AND-EQUITY> 70,042 45,002
<SALES> 2,352 1,145
<TOTAL-REVENUES> 2,353 1,184
<CGS> 0 0
<TOTAL-COSTS> 1,219 509
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 812 266
<INCOME-PRETAX> 294 277
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 294 277
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 294 277
<EPS-BASIC> 0.13 0.12
<EPS-DILUTED> 0.05 0.07
</TABLE>
