65101 cover_2013 Annual Report 4/1/14 12:52 PM Page 1
HERSHA
hersha hospitality trust
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65101 cover_2013 Annual Report 4/8/14 10:13 AM Page 2
2013 financial highlights
(In thousands, except per share data)
consolidated hotel
operating results
Year Ended December 31,
2013
2012
2011
2010
2009
hotel operating revenues
$
338,064
299,005
229,156
184,998
128,461
average daily rate
occupancy
revenue per available room
$
$
179.70
79.7%
143.30
175.23
78.6%
137.78
166.58
76.6%
127.64
157.11
76.7%
120.52
142.51
72.7%
103.60
(In thousands, except per share data)
hersha hospitality trust
operating data: (Excluding Impairment Charges) (1)
Year Ended December 31,
2013
2012
2011
2010
2009
396,458
Total Revenues (Including Discontinued Operations)
44,467
Net Income applicable to Common Shareholders
145,064
Adjusted EBITDA(2)
86,487
Adjusted Funds from Operations (3)
$
364,690
8,376
143,291
76,046
329,868
)
(5,133
132,969
68,710
283,597
)
(18,871
108,329
52,067
230,930
)
(17,382
97,350
33,956
per share data: (Excluding Impairment Charges) (1)
Basic/Diluted Earnings Per Common Share
AFFO
$
Distributions to Common Shareholders
0.22
0.41
0.24
0.04
0.38
0.24
)
(0.03
0.38
0.23
)
(0.14
0.36
0.20
)
(0.35
0.57
0.33
balance sheet data: (as of December 31st)
Total Assets
Total Debt
Noncontrolling Interest in Partnership
Total Shareholder’s Equity
$
1,748,097
819,336
29,523
837,958
1,707,679
792,708
30,805
829,828
1,630,909
820,132
31,819
730,671
1,457,277
694,720
39,304
683,434
1,111,044
745,443
41,859
302,197
(1) Operating and Per Share Data exclude charges recorded during 2009-2013 relating to impairment losses on development loans, land parcels, investment in unconsolidated joint ventures, several wholly
owned hotel properties, and assets held for sale.
(2) Adjusted Earnings Before Interest, Taxes, and Depreciation and Amortization (EBITDA) is a non-GAAP financial measure within the meaning of the Securities and Exchange Commission rules. Our Adjusted
EBITDA computation may not be comparable to EBITDA or Adjusted EBITDA reported by other companies that interpret the definition of EBITDA differently than we do. Management believes Adjusted EBITDA
to be a meaningful measure of a REIT's performance because it is widely followed by industry analysts, lenders and investors and that it should be considered along with, but not as an alternative to, net income,
cash flow, FFO and AFFO as a measure of the company's operating performance.
(3) Funds from Operations (FFO) as defined by NAREIT represents net income (loss) (computed in accordance with generally accepted accounting principles), excluding extraordinary items as defined under
GAAP and gains or losses from sales of previously depreciated assets, gains on hotel acquisitions plus certain non-cash items, such as loss from impairment of assets and depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. We present Adjusted Funds From Operations (AFFO), which reflects FFO in accordance with the NAREIT definition plus the following
additional adjustments: adding back write-offs of deferred financing costs on debt extinguishment, both for consolidated and unconsolidated properties, adding back amortization of deferred financing costs,
adding back non-cash stock expense, adding back acquisition and terminated transaction expenses, adding back FFO attributed to our partners in consolidated joint ventures, and making adjustments to ground
lease payments, which are required by GAAP to be amortized on a straight-line basis over the term of the lease, to reflect the actual lease payment.
HERSHA
hersha hospitality trust
board of trustees
management team
Hasu P. Shah
Chairman,
Hersha Hospitality Trust
Jay H. Shah
Chief Executive Officer,
Hersha Hospitality Trust
Donald J. Landry
Lead Director, Hersha Hospitality Trust
Former President & CEO, Sunburst Hospitality Inc.
Jay H. Shah
Chief Executive Officer
Neil H. Shah
President and Chief Operating Officer
Ashish R. Parikh
Chief Financial Officer
Michael R. Gillespie
Chief Accounting Officer
Michael A. Leven
President and Chief Operating Officer,
Las Vegas Sands Corp.
Thomas J. Hutchison III
Former CEO,
CNL Hotels & Resorts
and CNL Retirement Properties, Inc.
Dianna F. Morgan
Former Senior Vice President,
Walt Disney World Co.
Kiran P. Patel
John M. Sabin
Executive Vice President and CFO,
Revolution LLC. and Case Foundation
David L. Desfor
Treasurer and Corporate Secretary
William J. Walsh
Senior Vice President of Asset Management
Robert C. Hazard III
Senior Vice President of Acquisitions and Development
Bennett Thomas
Vice President of Finance and Sustainability
corporate headquarters
44 Hersha Drive
Harrisburg, PA 17102
Telephone: (717) 236-4400
Facsimile: (717) 774-7383
executive offices
Penn Mutual Towers
510 Walnut Street, 9th Floor
Philadelphia, PA 19106
Telephone: (215) 238-1046
Facsimile: (215) 238-0157
independent auditors
KPMG LLP
Certified Public Accountants
1601 Market Street
Philadelphia, PA 19103
Telephone: (267) 256-7000
registrar & stock
transfer agent
American Stock Transfer & Trust Company
10150 Mallard Creek Drive, Suite 307
Charlotte, NC 28262
Telephone: (800) 829-8432
legal counsel
Hunton & Williams
Riverfront Plaza
951 East Byrd Street
Richmond, Virginia 23219
Telephone: (804) 788-8200
common stock information
The Common Stock of
Hersha Hospitality Trust is traded on
the New York Stock Exchange-Euronext
under the Symbol “HT”
65101 TxtAA5_A-B_2013 Annual Report 4/8/14 10:52 AM Page 1
HERSHA
hersha hospitality trust
hersha hospitality trust (ht) is a self-advised real estate investment trust in the hospitality
sector, which owns and operates high quality upscale hotels in urban gateway markets. the
company's 51 hotels totaling 8,120 rooms are located in new york, boston, philadelphia, washington,
dc, miami and select markets on the west coast. hersha hospitality trust shares are traded on the
new york stock exchange-euronext under the ticker 'HT'.
(1)
hersha total returns since ipo in 1999
233.4%
A
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H
168.5%
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164.7% 152.1% 146.9%
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134.5% 132.3% 94.5% 26.9%
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-39.1%
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f
hersha portfolio by location
(2)
new york city 38%
west coast 16%
washington, dc 14%
miami 10%
boston 9%
philadelphia 7%
other 6%
hersha portfolio by market segment
(3)
upper midscale 50%
upscale 45%
upper upscale 5%
hersha portfolio by hotel brand
(3)
hilton 27%
intercontinental 24%
marriott 22%
hyatt 12%
independent collection 9%
other 5%
(1) Source: Bloomberg and SNL Financial. Total Returns from January 26, 1999 through December 31, 2013. Assumes dividends are reinvested.
(2) Reflects portfolio concentration by room count for continuing consolidated operations, and the acquisition of Hotel Oceana.
(3) Reflects portfolio EBITDA concentration for continuing consolidated operations.
in 2013 and unemployment continued a downward trajectory,
finishing the year at 6.7% led in part by the robust healthcare
and information technology sectors along with strength in the
housing market. In 2013, consumer sentiment rose to levels
not seen since April 2008 with the U.S. consumer, the historical
driver of U.S. economic performance, finding economic and
labor market conditions more favorable than in recent years.
These factors provided fuel to transient business travel, the
primary segment of traveler to which our urban hotels cater.
65101 TxtAA5_A-B_2013 Annual Report 4/8/14 10:52 AM Page 2
annual report 2013
Fellow Shareholders
When we wrote to you last year, we committed to
leverage the macroeconomic trends of urbanization and
globalization to create value. Our strategy was to guide Hersha
Hospitality Trust to a unique and market leading position with
a portfolio of hotels that are the most profitable and drive the
highest inherent real estate value. Against a backdrop of
sluggish, but improving macroeconomic market conditions, in
2013 we completed the portfolio transformation begun two
years ago and have created a pure play urban hotel company
that derives strength from ownership concentration in the six
major urban gateways in the United States. The portfolio’s
embedded growth from new developments, hotels acquired during
the last two years and the sale of lower growth assets from our
portfolio, has Hersha poised to deliver strong shareholder returns
in 2014 and well into the future.
In the face of a protracted national debt debate and
the ensuing government shutdown, the U.S. economy
remained resilient as evidenced by the most relevant and
correlative economic metrics that we utilize. GDP grew 1.9%
65101 TxtAA5_A-B_2013 Annual Report 4/8/14 10:52 AM Page 3
hersha hospitality trust
In 2013, our portfolio delivered Revenue per Available
increasing approximately 6.7% to $124.5 million and EBITDA
Room (RevPAR) of $143, a new record high for the Company.
margins reached an impressive 36.9%.
The Company’s Average Daily Rate (ADR) increased 2.6% to
$180, while average hotel Occupancy increased 112 basis
While
the Company’s portfolio returned solid
points to 79.7%. These numbers however, do not articulate the
performance across a number of operating metrics, we were
entire story. When adjusting for hotels sold in 2013, the
negatively impacted by government sequestration, which took
portfolio’s RevPAR quality increased from $123 in 2012 to $143
effect in the second quarter, the federal government shutdown
in 2013, resulting in a dramatic 16% RevPAR improvement.
in the first half of October and difficult year-over-year
During the year, profitability improved with hotel EBITDA
comparisons to the fourth quarter 2012 during which our hotels
nu hotel, brooklyn-ny
65101 TxtAA5_A-B_2013 Annual Report 4/8/14 10:52 AM Page 4
annual report 2013
significantly benefitted from business related to the Hurricane
embedded growth
Sandy relief effort. Despite these headwinds, we delivered a
16.2% return to shareholders. With these challenges behind
A difficult aspect of progress is that great results take
us, the addition of strategic new hotels in the portfolio and the
time. Often however, this is the only way to produce game
sale of slower growth hotels, a clear line of sight has now
changing outcomes. During 2013, we completed multiple
emerged
towards
the portfolio’s
future growth and
significant capital
investment projects and new hotel
inherent value.
developments. Some of these projects commenced two to
three years ago with the understanding that we were making
courtyard san diego-downtown
65101 TxtAA5_A-B_2013 Annual Report 4/8/14 10:52 AM Page 5
hersha hospitality trust
investments that would take time to generate returns, but when
business amenities. We targeted the hotel based on its high
they did, they would serve as an inflection point in our growth.
growth location, as well as the fact that it was unencumbered
In 2014, we will begin to reap the returns on these investments.
by a brand affiliation or a management contract. The hotel
At The Boxer
in Boston, we purchased an
a relatively modest investment to enhance its return profile.
provided us an attractive opportunity to improve the asset with
unrenovated, undermanaged property in the burgeoning West
End/North Station district and invested approximately $2.5
Within our Philadelphia market, progress at The
million to reposition the asset, including upgrades to guest
Rittenhouse has been notable. The hotel, which went through
rooms, enhancements to the café and bar, and the fitness and
significant renovations last year, has benefitted from the
the boxer, boston
65101 TxtAA5_A-B_2013 Annual Report 4/8/14 10:53 AM Page 6
annual report 2013
addition of 5 new luxury suites, a significant value creation
in this iconic property.
project. We also renovated the hotel’s public spaces and
conference rooms, renovated the spa and fitness center and
In Miami, a market in which we have tremendous
added the new Library Bar creating additional offerings, which
conviction, we recently opened a new tower at our Cadillac
enable incremental revenue generation and an improved guest
Courtyard Miami Beach Oceanfront. The addition of 93 ocean
experience. Through these value-added initiatives, the Five
view balcony rooms will generate essentially as much new
Diamond rated hotel is driving a stronger ADR and continues
revenue as a new hotel. The tower is expected to drive a
to boast
the market
leading position
in Philadelphia.
significant rate premium and will compete with more upscale
Aggressive asset management, combined with the upgrades
competitors in the Miami Beach market. We also included
and expansion are significantly improving operating margins
additional meeting space, a brand new fitness center,
and generating attractive returns from our 2012 investment
structured parking and a second swimming pool with rentable
hyatt union square, nyc
65101 TxtAA5_A-B_2013 Annual Report 4/8/14 10:53 AM Page 7
cabanas and function space. We look forward to a full year of
Our 2014 EBITDA will reflect operations and
strong returns from the new development.
stabilization at these newly acquired and renovated hotels,
generating
incremental profits relative to 2013, further
And finally, in the dynamic New York City market, we
enhancing our growth trajectory. We have made bold
opened the brand new 178-room Hyatt Union Square in late
commitments and investments in this embedded pipeline, and
spring 2013. The hotel is strategically positioned to take
are positioned to begin enjoying strong returns.
advantage of the multiple demand generators in the Union
Square market. It is the closest major hotel to New York
capital recycling
University and is in the heart of Manhattan’s entertainment,
fashion and design districts. In October, the newly opened hotel
Since 2008,
the Company has disposed of
was included in Fodor’s 100 Hotel Awards in the ‘Sleek Urban
approximately $440 million in assets, while strategically
Address’ category, supporting our team’s vision and the daily
acquiring approximately $1.2 billion of hotels in well-defined
execution that makes the Hyatt Union Square a unique, modern
target markets. In 2012, we finalized the sale of 18 properties
urban hotel experience.
to Starwood Capital Group that we believed had earnings
growth rates below our portfolio average. In 2013, we
In the second quarter of 2014, we will further add to
completed our transformation to a pure play high growth urban
our New York portfolio with two brand new hotels: the Hilton
portfolio with the sale of an additional 16 hotels to Blackstone
Garden Inn Midtown East and the Hampton Inn Financial
Real Estate Advisors at attractive pricing. The average
District. Both of these hotels have strong current and long-term
RevPAR of these hotels was approximately $50 less than
growth prospects in the heart of Manhattan’s two strongest
Hersha’s core portfolio, reflecting the high quality of our core
business districts.
portfolio and the strength of our gateway markets. Equally
important, the non-core sale demonstrated our capability to
quickly respond to opportunities and changes in the market.
65101 TxtAA5_A-B_2013 Annual Report 4/8/14 10:53 AM Page 8
annual report 2013
In addition to the portfolio transaction, we also
mix and enhancing the quality of our consolidated portfolio.
of recycling capital, further refining the Company’s geographic
embarked on individual property dispositions during 2013. In
February, we sold the Company’s 66.7% interest in a 92-room
targeted acquisitions
Courtyard by Marriott located in Warwick, Rhode Island to the
Company’s joint-venture partner, simplifying the Company’s
We viewed our transformation as a two-step process,
capital structure. And in September, we completed the sale of
with the sale of non-core assets as the first step, and the
the 127-room Holiday Inn Express, Camp Springs, Maryland.
reinvestment of proceeds generated from the sale into targeted
The sale of these assets is consistent with our strategy
assets as the second-step. As a result of this commitment to
the rittenhouse, philadelphia
65101 TxtAA5_A-B_2013 Annual Report 4/8/14 10:53 AM Page 9
hersha hospitality trust
recycle capital, we exited secondary markets and focused on
the 75-room Blue Moon hotel and the 70-room Winter Haven
the Northeast, Miami and select cities in Northern and Southern
Hotel. Both hotels underwent a comprehensive renovation,
California, all coastal gateway markets that enable us to
completed in mid-2013, and are located in the heart of the
leverage secular urbanization trends.
highly desirable South Beach Art Deco District. The hotels are
well positioned to leverage the strength of the domestic and
To that end, in 2013 we further built out our West
international demand growth in Miami.
Coast and Miami strategies. In December, we purchased two
Autograph Collection hotels in Miami’s South Beach, totaling
In November, we agreed to purchase the 122-room
145 rooms for $50.95 million. This two-hotel portfolio included
Hotel Oceana in Santa Barbara, California for $41.7 million.
courtyard cadillac oceanfront, miami beach
65101 TxtAA5_A-B_2013 Annual Report 4/8/14 10:53 AM Page 10
The Hotel Oceana, which will become part of the Company’s
strength and flexibility
Independent Collection, is located on two oceanfront acres of
Santa Barbara’s main thoroughfare, and within walking
distance to downtown Santa Barbara.
The strength of the Company’s balance sheet and our
access to capital continue to provide us a strategic advantage
and allow us to capitalize on opportunities in the marketplace.
In May, we acquired another Miami hotel, the
At year-end, the Company maintained significant financial
Residence Inn Coconut Grove for $21.8 million. The hotel is
flexibility with ample cash on the balance sheet. In February
located centrally
in
the commercial and
residential
2013, we issued 3,000,000 shares of 6.875% Series C
neighborhood, and is proximate to the Downtown Brickell office
Cumulative Redeemable Preferred Shares for gross proceeds
market. The hotel is one of the few extended stay hotels in the
of $75,000,000, which at the time, was a record low coupon rate
Miami market, and stands to benefit from an increased
in the lodging sector, representing investor confidence in our
presence of luxury residential and other lifestyle amenities
strategy and outlook. Proceeds from this offering were utilized
currently under development in the area.
to simultaneously redeem the more expensive 8.00% Series A
Also in May, we purchased the Courtyard San Diego
Cumulative Redeemable Preferred Stock.
Downtown for $71.1 million. We expect the hotel to capture
We continue to make significant strides in reducing
strong market share and rate growth due to a $6.4 million
our leverage and in maintaining a conservative capital structure
renovation of all guest rooms and public areas completed just
that will protect against the risk of economic cycles and global
prior to our acquisition. Furthermore, a strong convention
shocks. This balance sheet management approach has broad
center calendar in 2014 and 2015 will help drive hotel
appeal within the institutional lending community. As a result,
performance.
in early 2014 we were able to close on a new $500 million
senior unsecured credit facility that is expandable to $850
million. Our access to this type of institutional capital allows us
65101 TxtAA5_A-B_2013 Annual Report 4/8/14 10:53 AM Page 11
hersha hospitality trust
assets, invested in higher growth assets on the West Coast and
in Miami, and delivered a brand new property in Manhattan’s
Union Square.
With consolidated portfolio RevPAR approaching
$150, and
industry
leading operating margins, our
accomplishments form a sound platform for embedded growth
moving forward not only for the near term, but for years to
come. A favorable economic environment and positive lodging
dynamics will lead to strong returns for the sector generally, but
we believe these factors will have greater impact for Hersha
given our strategic portfolio transformation and market focus.
In 2014, we expect
to benefit
from
full-year
contributions derived
from
the acquisitions and major
renovations undertaken in 2013. With a clear sightline towards
future growth, our conviction
in the asset value and
performance of our young, high quality and well-located assets
is strong. As a management team with a significant investment
in the Company, we are proud to be fellow shareholders.
Together, we have experienced multiple lodging cycles,
financial crises, natural disasters, and challenging political
leadership. Through it all, we have created a great company
with a compelling thesis that the ownership of high quality real
estate generating robust cash flow will outpace the market. We
are committed to creating value for you, our partners and fellow
shareholders, in 2014 and beyond.
to quickly adapt to changes in financial markets and provides
us with considerable capital to opportunistically pursue
accretive transactions.
In 2013, we implemented a share buyback plan with
an authorization to repurchase up to $75.0 million of the
Company’s common stock to use opportunistically when stock
market values are dislocated or when our stock price does not
otherwise reflect the Company’s value. We feel that
opportunistically buying back stock is an attractive strategy to
drive earnings per share and reinvest in the Company, while
displaying a conviction in our strategic vision and inherent value
during periods of market and stock price volatility.
line of sight
Examining our achievements in 2013, our actions
were propelled by a focused strategic vision of assembling an
jay h. shah
chief executive officer
urban, bi-coastal portfolio consisting of the most profitable
neil h. shah
hotels with sustainable and growing inherent real estate value.
president and chief operating officer
During the year, we refined and transformed our portfolio into
a pure play, superior quality collection of hotels with exposure
to some of the highest demand gateway markets in the United
States. We successfully concluded the sale of 16 non-core
65101 TxtAA5_A-B_2013 Annual Report 4/8/14 10:53 AM Page 12
annual report 2013
Hersha continues
to make positive strides
in
Hersha participated in the Global Real Estate Sustainability
advancing its commitment to sustainable hospitality through its
Benchmark (GRESB), which is a data driven platform that is
proprietary EarthView® program. EarthView is our triple
endorsed by many of the world’s largest institutional investors.
bottom line approach to sustainability that drives significant,
measurable environmental, social and economic results across
Participating in GRESB for the second year furthered
our portfolio of properties. In two years, EarthView achieved
our goal of increasing transparency, as did our participation in
nearly $2.0 million in savings while also realizing a 10%
the pilot and launch of the TripAdvisor GreenLeaders program.
reduction in our carbon emissions.
Through this partnership, our properties are better able to share
For the second consecutive year, Hersha received
This not only enables our guests to use sustainability in their
NAREIT’s 2013 Lodging & Resorts Leader in the Light award
decision-making process, but also holds us accountable for
in recognition of its leadership in sustainability. This national
properly implementing our initiatives.
their sustainability initiatives with current and potential guests.
award placed Hersha and its EarthView program above our
peers in the area of portfolio-wide energy use practices and
Another way EarthView looks to innovate is by
sustainability initiatives. As part of the application process,
incorporating sustainability strategies into its development and
65101 Txt A-B_2013 Annual Report 4/7/14 4:14 PM Page 13
Ranked No. 1
EarthView is a two time winner of NAREIT’s
Lodging & Resorts Leader in the Light award for
superior and sustained energy use practices and
sustainability initiatives
capital planning processes.
Over the past year, our
development team successfully completed the 93-room Tower
addition to our Cadillac Courtyard Miami Beach Oceanfront.
Financial Performance
This development is a LEED registered project, and is currently
$2.0 MILLION
being evaluated for LEED certification. Sustainable design
EarthView’s recorded savings since inception
aspects such as high efficiency building systems, reduced solar
from energy initiatives implemented across our
load, and use of regional materials were incorporated into the
portfolio of properties
building, which will ultimately reduce the property’s operating
costs while also improving the guest’s experience. As
$850 THOUSAND
designed, the building will realize nearly a 15% annual energy
Additional savings projected from portfolio-wide
reduction and a 30% reduction in water flow.
installation of guest room energy management
systems on an annual basis
We also expect to begin to see the results of the guest
room energy management systems rolled out in the prior and
current year. These systems will curb energy waste in
unoccupied rooms, and are projected to achieve savings
greater than $850 thousand
in
just the first year of
implementation.
As a triple bottom line program, EarthView also
focuses on strengthening Hersha’s commitment to social
growth and development by engaging in the communities our
properties operate in and fostering business practices that
promote the public good. Over the past year, Hersha created
a formalized corporate giving strategy and committee to
evaluate the numerous opportunities for engagement that we
receive each year. As part of this strategy Hersha has identified
key areas of philanthropic interest including education, the arts,
community stewardship, and industry philanthropy. Through
our committee we have embraced partnerships with
organizations such as Cornell University, The Barnes
Foundation, and the AH&LA Educational Foundation. We also
expanded our long-standing corporate relationship with the
United Way by launching our annual giving campaign across
our portfolio of properties.
Environmental Performance
10% carbon emissions reduction
Reduced energy consumption across our portfolio
resulted in a 10% decrease in carbon emissions
versus our baseline year
176.7
2010 Baseline kBtu
per occupied room
159.4
2013 kBtu per
occupied room
Community Engagement
5,000 plus
Hours volunteered by all of our associates
40,000 pounds
Food donated to local pantries and food banks on
Founder’s Day, our company-wide day of service
15,000 pounds
Soap donated through Clean the World to
developing nations
65101 TxtAA5_A-B_2013 Annual Report 4/8/14 10:59 AM Page 14
annual report 2013
hersha hospitality trust properties
new york city
philadelphia
Hyatt, Union Square
Hotel 373 Fifth Avenue, Midtown
Duane Street Hotel, Tribeca
NU Hotel, Brooklyn
Hilton Garden Inn, Tribeca
Hampton Inn, Times Square South
Hampton Inn, Herald Square
Hampton Inn, Chelsea
Hampton Inn, Seaport
Hampton Inn, World Trade Center/Lower
Manhattan-Financial District
Holiday Inn, Wall Street
Holiday Inn Express, Wall Street
Holiday Inn Express, Times Square
Holiday Inn Express, Madison Square Garden
Candlewood Suites, Times Square
Sheraton Hotel, JFK International Airport
Hilton Garden Inn, JFK International Airport
Hyatt House, White Plains
boston
The Boxer, Boston
Courtyard by Marriott, Boston/Brookline
Courtyard by Marriott, South Boston
Holiday Inn Express, Cambridge
Holiday Inn Express, South Boston
Residence Inn by Marriott, Framingham
Residence Inn by Marriott, Norwood
The Rittenhouse, Center City Philadelphia
Hampton Inn, Center City Philadelphia
Hyatt Place, King of Prussia/Valley Forge
Sheraton Wilmington South, Wilmington, DE
washington, d.c.
Hampton Inn, Washington, D.C.
Capitol Hill Hotel, Washington, D.C.
Residence Inn by Marriott, Tyson’s Corner, VA
Courtyard by Marriott, Alexandria, VA
Residence Inn by Marriott, Greenbelt, MD
Hyatt House, Gaithersburg, MD
miami
Cadillac Courtyard Oceanfront, Miami Beach
Blue Moon Hotel, Miami Beach
Winter Haven, Miami Beach
Residence Inn Coconut Grove, Miami
west coast
(1)
Hotel Oceana, Santa Barbara
Courtyard by Marriott, Los Angeles
Courtyard by Marriott, Downtown San Diego
Hyatt House, Pleasant Hill/Walnut Creek
Hyatt House, Pleasanton/Dublin
Hyatt House, Scottsdale, AZ
connecticut & rhode island
Marriott Downtown, Hartford
Hilton Hotel, Hartford
Mystic Marriott Hotel and Spa, Mystic/Groton
Courtyard by Marriott, Norwich
other properties
Holiday Inn Express, Chester, NY
Hawthorn Suites, Franklin, MA
(1) Acquired the Hotel Oceana on February 28th, 2014.
65101 Txt A-B_2013 Annual Report 4/7/14 4:14 PM Page 15
hersha hospitality trust
HERSHA
hersha hospitality trust
65101 Txt A-B_2013 Annual Report 4/7/14 4:14 PM Page 16
HERSHA
hersha hospitality trust
HERSHA HOSPITALITY TRUST
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Section
PART
I
ITEM
1.
Business
ITEM
2.
Properties
PART
II
ITEM
5.
Market
for
Registrant's
Common
Equity,
Related
Stockholder
Matters
and
Issuer
Purchases
of
Equity
Securities
ITEM
6.
Selected
Financial
Data
ITEM
7.
Management's
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations
ITEM
7A
Quantitative
and
Qualitative
Disclosures
About
Market
Risk
ITEM
8.
Financial
Statements
and
Supplementary
Data
ITEM
9.
Changes
in
and
Disagreements
with
Accountants
on
Accounting
and
Financial
Disclosure
ITEM
9A.
Controls
and
Procedures
Page
2
7
9
11
13
34
36
95
96
The
Annual
Report
contains
excerpts
from
our
Annual
Report
on
Form
10-‐K
for
the
fiscal
year
ended
December
31,
2013,
and
substantially
conforms
with
the
version
filed
with
the
Securities
and
Exchange
Commission
(“SEC”).
However,
the
Form
10-‐K
also
contains
additional
information.
For
a
free
copy
of
our
Form
10-‐K,
please
contact:
Investor
Relations
Hersha
Hospitality
Trust
44
Hersha
Drive
Harrisburg,
PA
17102
Our
Form
10-‐K
and
other
filings
with
the
SEC
are
also
available
on
our
website,
www.hersha.com.
The
most
recent
certifications
by
our
chief
executive
officer
and
chief
financial
officer
pursuant
to
the
Sarbanes-‐Oxley
Act
of
2002
are
filed
as
exhibits
to
our
Form
10-‐K.
1
annual report 2013
Item
1.
Business
OVERVIEW
PART I
Hersha
Hospitality
Trust
is
a
self-‐advised
Maryland
real
estate
investment
trust
that
was
organized
in
1998
and
completed
its
initial
public
offering
in
January
of
1999.
Our
common
shares
are
traded
on
the
New
York
Stock
Exchange
under
the
symbol
“HT.”
We
invest
primarily
in
institutional
grade
hotels
in
major
urban
gateway
markets
including
New
York,
Washington
DC,
Boston,
Philadelphia,
San
Diego,
Los
Angeles
and
Miami.
Our
primary
strategy
is
to
continue
to
acquire
high
quality,
upscale,
mid-‐scale
and
extended-‐stay
hotels
in
metropolitan
markets
with
high
barriers
to
entry
in
the
markets
with
similar
characteristics.
We
have
operated
and
intend
to
continue
to
operate
so
as
to
qualify
as
a
REIT
for
federal
income
tax
purposes.
In
addition
to
the
direct
acquisition
of
hotels,
historically
we
have
made
investments
in
hotels
through
joint
ventures
with
strategic
partners
or
through
equity
contributions,
secured
mezzanine
loans
and
land
leases.
Although
we
may
invest
in
hotels
through
joint
ventures,
secured
development
loans
and
land
leases,
we
are
not
actively
pursuing
additional
joint
venture
investments
and
do
not
expect
to
originate
any
new
secured
mezzanine
loans
or
enter
into
any
new
land
leases
as
part
of
our
hotel
investment
strategy
in
the
near
term.
We
seek
to
identify
acquisition
candidates
located
in
markets
with
economic,
demographic
and
supply
dynamics
favorable
to
hotel
owners
and
operators.
Through
our
due
diligence
process,
we
select
those
acquisition
targets
where
we
believe
selective
capital
improvements
and
intensive
management
will
increase
the
hotel’s
ability
to
attract
key
demand
segments,
enhance
hotel
operations
and
increase
long-‐term
value.
As
of
December
31,
2013,
our
portfolio
consisted
of
48
wholly
owned
limited
and
full
service
properties
with
a
total
of
6,876
rooms
and
interests
in
six
limited
and
full
service
properties
owned
through
joint
venture
investments
with
a
total
of
1,513
rooms.
These
54
properties,
with
a
total
of
8,389
rooms,
are
located
in
Arizona,
California,
Connecticut,
Delaware,
District
of
Columbia,
Florida,
Maryland,
Massachusetts,
New
Jersey,
New
York,
Pennsylvania,
and
Virginia
and
operate
under
leading
brands,
owned
by
Marriott
International,
Inc.
(“Marriott”),
Hilton
Worldwide,
Inc.
(“Hilton”),
InterContinental
Hotels
Group
(“IHG”),
Hyatt
Corporation
(“Hyatt”),
or
Starwood
Hotels
and
Resorts
Worldwide,
Inc.
(“Starwood”).
In
addition,
some
of
our
hotels
operate
as
independent
boutique
hotels.
We
are
structured
as
an
umbrella
partnership
REIT,
or
UPREIT,
and
we
own
our
hotels
and
our
investments
in
joint
ventures
through
our
operating
partnership,
Hersha
Hospitality
Limited
Partnership,
for
which
we
serve
as
general
partner.
As
of
December
31,
2013,
we
owned
an
approximate
96.7%
partnership
interest
in
our
operating
partnership.
Our
wholly-‐owned
hotels
are
managed
by
Hersha
Hospitality
Management,
L.P.
(“HHMLP”),
a
privately
held,
qualified
management
company
owned
by
certain
of
our
trustees
and
executive
officers
and
other
unaffiliated
third
party
investors.
Third
party
qualified
management
companies
manage
the
hotels
that
we
own
through
joint
venture
interests.
We
lease
our
wholly-‐owned
hotels
to
44
New
England
Management
Company
(“44
New
England”),
our
wholly-‐owned
taxable
REIT
subsidiary
(“TRS”).
Each
of
the
hotels
that
we
own
through
a
joint
venture
investment
is
leased
to
another
TRS
that
is
owned
by
the
respective
joint
venture
or
an
entity
owned
in
part
by
44
New
England.
Our
principal
executive
office
is
located
at
44
Hersha
Drive,
Harrisburg,
Pennsylvania
17102.
Our
telephone
number
is
(717)
236-‐4400.
Our
website
address
is
www.hersha.com.
The
information
found
on,
or
otherwise
accessible
through,
our
website
is
not
incorporated
into,
and
does
not
form
a
part
of,
this
report.
2
hersha hospitality trust
AVAILABLE
INFORMATION
We
make
available
free
of
charge
through
our
website
(www.hersha.com)
our
code
of
ethics,
corporate
governance
guidelines
and
the
charters
of
the
committees
of
our
Board
of
Trustees
(Acquisition
Committee,
Audit
Committee,
Compensation
Committee,
Nominating
and
Corporate
Governance
Committee
and
Risk
Sub-‐Committee
of
the
Audit
Committee).
We
also
make
available
through
our
website
our
annual
reports
on
Form
10-‐K,
quarterly
reports
on
Form
10-‐Q,
current
reports
on
Form
8-‐K
and
amendments
to
those
reports
filed
or
furnished
pursuant
to
Section
13(a)
or
15(d)
of
the
Exchange
Act
as
soon
as
reasonably
practicable
after
such
documents
are
electronically
filed
with,
or
furnished
to,
the
SEC.
The
information
available
on
our
website
is
not,
and
shall
not
be
deemed
to
be,
a
part
of
this
report
or
incorporated
into
any
other
filings
we
make
with
the
SEC.
INVESTMENT
IN
HOTEL
PROPERTIES
Our
operating
strategy
focuses
on
increasing
hotel
performance
for
our
portfolio.
The
key
elements
of
this
strategy
are:
•
•
working
together
with
our
hotel
management
companies
to
increase
occupancy
levels
and
revenue
per
available
room,
or
"RevPAR",
through
active
property-‐level
management,
including
intensive
marketing
efforts
to
tour
groups,
corporate
and
government
extended
stay
customers
and
other
wholesale
customers
and
expanded
yield
management
programs,
which
are
calculated
to
better
match
room
rates
to
room
demand;
and
maximizing
our
earnings
by
managing
costs
and
positioning
our
hotels
to
capitalize
on
increased
demand
in
the
high
quality,
upper-‐upscale,
upscale,
mid-‐scale
and
extended-‐stay
lodging
segments,
which
we
believe
can
be
expected
to
follow
from
improving
economic
conditions.
ACQUISITIONS
We
selectively
acquire
high
quality
branded
upper-‐upscale,
upscale,
mid-‐scale
and
extended-‐stay
hotels
in
metropolitan
markets
with
high
barriers-‐to-‐entry
and
independent
boutique
hotels
in
similar
markets.
Through
our
due
diligence
process,
we
select
those
acquisition
targets
where
we
believe
selective
capital
improvements
and
intensive
management
will
increase
the
hotel’s
ability
to
attract
key
demand
segments,
enhance
hotel
operations
and
increase
long-‐term
value.
We
believe
that
current
market
conditions
are
creating
opportunities
to
acquire
hotels
at
attractive
prices.
In
executing
our
disciplined
acquisition
program,
we
will
consider
acquiring
hotels
that
meet
the
following
additional
criteria:
•
•
•
•
nationally-‐franchised
hotels
operating
under
popular
brands,
such
as
Marriott
Hotels
&
Resorts,
Hilton
Hotels,
Courtyard
by
Marriott,
Residence
Inn
by
Marriott,
Hilton
Garden
Inn,
Hampton
Inn,
Sheraton
Hotels
&
Resorts,
DoubleTree,
Embassy
Suites,
Hyatt
House,
Hyatt
Place,
TownePlace
Suites
and
Holiday
Inn
Express;
hotels
in
locations
with
significant
barriers-‐to-‐entry,
such
as
high
development
costs,
limited
availability
of
land
and
lengthy
entitlement
processes;
hotels
in
our
target
markets
where
we
can
realize
operating
efficiencies
and
economies
of
scale;
and
independent
boutique
hotels
in
similar
markets
Since
our
initial
public
offering
in
January
1999
and
through
December
31,
2013,
we
have
acquired,
wholly
or
through
joint
ventures,
a
total
of
104
hotels,
including
28
hotels
acquired
from
entities
controlled
by
certain
of
our
trustees
and
executive
officers.
Of
the
28
acquisitions
from
entities
controlled
by
certain
of
our
trustees
and
executive
officers,
25
were
newly
constructed
or
substantially
renovated
by
these
entities
prior
to
our
acquisition.
We
take
advantage
of
our
relationships
with
entities
that
are
developing
or
substantially
renovating
hotels,
including
entities
controlled
by
certain
of
our
trustees
and
executive
officers,
to
identify
future
hotel
acquisitions
that
we
believe
may
be
attractive
to
us.
We
intend
to
continue
to
acquire
hotels
from
entities
controlled
by
certain
3
annual report 2013
of
our
trustees
and
executive
officers
if
approved
by
a
majority
of
our
independent
trustees
in
accordance
with
our
related
party
transaction
policy.
DISPOSITIONS
We
evaluate
our
hotels
on
a
periodic
basis
to
determine
if
these
hotels
continue
to
satisfy
our
investment
criteria.
We
may
sell
hotels
opportunistically
based
upon
management’s
forecast
and
review
of
the
cash
flow
potential
of
each
hotel
and
re-‐deploy
the
proceeds
into
debt
reduction
or
acquisitions
of
hotels.
We
utilize
several
criteria
to
determine
the
long-‐term
potential
of
our
hotels.
Hotels
are
identified
for
sale
based
upon
management’s
forecast
of
the
strength
of
each
hotel’s
cash
flows
and
its
ability
to
remain
accretive
to
our
portfolio.
Our
decision
to
sell
a
hotel
is
often
predicated
upon
the
size
of
the
hotel,
strength
of
the
franchise,
property
condition
and
related
costs
to
renovate
the
property,
strength
of
market
demand
generators,
projected
supply
of
hotel
rooms
in
the
market,
probability
of
increased
valuation
and
geographic
profile
of
the
hotel.
All
asset
sales
are
comprehensively
reviewed
by
the
Acquisition
Committee
of
our
Board
of
Trustees,
which
committee
consists
solely
of
independent
trustees.
During
the
time
since
our
initial
public
offering
in
1999
through
December
31,
2013,
we
have
sold
a
total
of
57
hotels.
FINANCING
We
intend
to
finance
our
long-‐term
growth
with
common
and
preferred
equity
issuances
and
debt
financing
having
staggered
maturities.
Our
debt
includes
unsecured
debt
provided
primarily
under
our
$400
million
unsecured
credit
facility
which
provides
for
a
$150
million
unsecured
term
loan
and
a
$250
million
unsecured
revolving
credit
facility
and
secured
mortgage
debt
in
our
hotel
properties.
We
anticipate
refinancing
this
facility
to
expand
the
unsecured
term
loan
from
$150
million
to
$250
million.
We
intend
to
use
the
expanded
term
loan
capacity
and
the
undrawn
portion
of
our
$400
million
senior
unsecured
credit
facility
to
pay
down
mortgage
debt
and
fund
future
acquisitions,
as
well
as
for
capital
improvements
and
working
capital
requirements.
Subject
to
market
conditions,
we
intend
to
repay
amounts
outstanding
under
the
revolving
line
of
credit
portion
of
our
credit
facility
from
time
to
time
with
proceeds
from
periodic
common
and
preferred
equity
issuances,
long-‐term
debt
financings
and
cash
flows
from
operations.
When
purchasing
hotel
properties,
we
may
issue
common
and
preferred
limited
partnership
interests
in
our
operating
partnership
as
full
or
partial
consideration
to
sellers.
FRANCHISE
AGREEMENTS
We
believe
that
the
public’s
perception
of
quality
associated
with
a
franchisor
is
an
important
feature
in
the
operation
of
a
hotel.
Franchisors
provide
a
variety
of
benefits
for
franchisees,
which
include
national
advertising,
publicity
and
other
marketing
programs
designed
to
increase
brand
awareness,
training
of
personnel,
continuous
review
of
quality
standards
and
centralized
reservation
systems.
Most
of
our
hotels
operate
under
franchise
licenses
from
national
hotel
franchisors,
including:
Franchisor
Marriott
International
Hilton
Hotels
Corporation
IHG
Hyatt
Hotels
Corporation
Starwood
Hotels
Franchises
Marriott,
Residence
Inn,
Courtyard
by
Marriott
Hilton,
Hilton
Garden
Inn,
Hampton
Inn
Holiday
Inn,
Holiday
Inn
Express,
Holiday
Inn
Express
&
Suites,
Candlewood
Suites
Hyatt
House,
Hyatt
Place,
Hyatt
Sheraton
Hotels
We
anticipate
that
most
of
the
hotels
in
which
we
invest
will
be
operated
pursuant
to
franchise
licenses.
The
franchise
licenses
generally
specify
certain
management,
operational,
record-‐keeping,
accounting,
reporting
and
marketing
standards
and
procedures
with
which
the
franchisee
must
comply.
The
franchise
licenses
generally
obligate
our
lessees
to
comply
with
the
franchisors’
standards
and
requirements
with
respect
to
training
of
operational
personnel,
safety,
maintaining
specified
insurance,
the
types
of
services
and
products
ancillary
to
4
hersha hospitality trust
guest
room
services
that
may
be
provided
by
our
lessees,
display
of
signage,
and
the
type,
quality
and
age
of
furniture,
fixtures
and
equipment
included
in
guest
rooms,
lobbies
and
other
common
areas.
In
general,
the
franchise
licenses
require
us
to
pay
the
franchisor
a
fee
typically
ranging
between
6.0%
and
9.3%
of
such
hotel’s
revenues.
PROPERTY
MANAGEMENT
We
work
closely
with
our
hotel
management
companies
to
operate
our
hotels
and
increase
same
hotel
performance
for
our
portfolio.
Through
our
TRS
and
our
investment
in
joint
ventures,
we
have
retained
the
following
management
companies
to
operate
our
hotels,
as
of
December
31,
2013:
Wholly
Owned
Joint
Ventures
Total
Rooms
Hotels
Rooms
Hotels
Rooms
Manager
Hersha
Hospitality
Management,
L.P.
Waterford
Hotel
Group,
Inc.
South
Bay
Boston
Management,
Inc.
Hotels
48
-‐
-‐
6,876
-‐
-‐
Total
48
6,876
-‐
4
2
6
-‐
1,231
282
48
4
2
6,876
1,231
282
1,513
54
8,389
Each
management
agreement
provides
for
a
set
term
and
is
subject
to
early
termination
upon
the
occurrence
of
defaults
and
certain
other
events
described
therein.
As
required
under
the
REIT
qualification
rules,
all
managers,
including
HHMLP,
must
qualify
as
an
“eligible
independent
contractor”
during
the
term
of
the
management
agreements.
Under
the
management
agreements,
the
manager
generally
pays
the
operating
expenses
of
our
hotels.
All
operating
expenses
or
other
expenses
incurred
by
the
manager
in
performing
its
authorized
duties
are
reimbursed
or
borne
by
our
applicable
TRS
to
the
extent
the
operating
expenses
or
other
expenses
are
incurred
within
the
limits
of
the
applicable
approved
hotel
operating
budget.
Our
managers
are
not
obligated
to
advance
any
of
their
own
funds
for
operating
expenses
of
a
hotel
or
to
incur
any
liability
in
connection
with
operating
a
hotel.
For
their
services,
the
managers
receive
a
base
management
fee,
and
if
a
hotel
meets
and
exceeds
certain
thresholds,
an
additional
incentive
management
fee.
For
the
year
ended
December
31,
2013,
these
thresholds
were
not
met
and
incentive
management
fees
were
not
earned.
The
base
management
fee
for
a
hotel
is
due
monthly
and
is
generally
equal
to
3%
of
the
gross
revenues
associated
with
that
hotel
for
the
related
month.
EMPLOYEES
As
of
December
31,
2013,
we
had
49
employees
who
were
principally
engaged
in
managing
the
affairs
of
the
Company
unrelated
to
property
operations.
We
believe
that
our
relations
with
our
employees
are
satisfactory.
TAX
STATUS
We
elected
to
be
taxed
as
a
REIT
under
Sections
856
through
860
of
the
Code,
commencing
with
our
taxable
year
ended
December
31,
1999.
As
long
as
we
qualify
for
taxation
as
a
REIT,
we
generally
will
not
be
subject
to
federal
income
tax
on
the
portion
of
our
income
that
is
currently
distributed
to
our
shareholders.
If
we
fail
to
qualify
as
a
REIT
in
any
taxable
year
and
do
not
qualify
for
certain
statutory
relief
provisions,
we
will
be
subject
to
federal
income
tax
(including
any
applicable
alternative
minimum
tax)
on
our
taxable
income
at
regular
corporate
tax
rates.
Additionally,
we
will
generally
be
unable
to
qualify
as
a
REIT
for
four
years
following
the
year
in
which
qualification
is
lost.
Even
if
we
qualify
for
taxation
as
a
REIT,
we
will
be
subject
to
certain
state
and
local
taxes
on
5
annual report 2013
our
income
and
property
and
to
federal
income
and
excise
taxes
on
our
undistributed
income.
We
own
interests
in
several
TRSs.
We
may
own
up
to
100%
of
the
stock
of
a
TRS.
A
TRS
is
a
taxable
corporation
that
may
lease
hotels
from
our
operating
partnership
and
its
subsidiaries
under
certain
circumstances.
Overall,
no
more
than
25%
of
the
value
of
our
assets
may
consist
of
securities
of
one
or
more
TRSs.
In
addition,
no
more
than
25%
of
our
gross
income
for
any
year
may
consist
of
dividends
from
one
or
more
TRSs
and
income
from
certain
non-‐real
estate
related
sources.
A
TRS
is
permitted
to
lease
hotels
from
us
as
long
as
the
hotels
are
operated
on
behalf
of
the
TRS
by
a
third
party
manager
that
qualifies
as
an
"eligible
independent
contractor."
To
qualify
for
that
treatment,
the
manager
must
satisfy
the
following
requirements:
1.
2.
3.
4.
such
manager
is,
or
is
related
to
a
person
who
is,
actively
engaged
in
the
trade
or
business
of
operating
“qualified
lodging
facilities”
for
any
person
unrelated
to
us
and
the
TRS;
such
manager
does
not
own,
directly
or
indirectly,
more
than
35%
of
our
shares;
no
more
than
35%
of
such
manager
is
owned,
directly
or
indirectly,
by
one
or
more
persons
owning
35%
or
more
of
our
shares;
and
we
do
not,
directly
or
indirectly,
derive
any
income
from
such
manager.
The
deductibility
of
interest
paid
or
accrued
by
a
TRS
to
us
is
limited
to
assure
that
the
TRS
is
subject
to
an
appropriate
level
of
corporate
taxation.
A
100%
excise
tax
is
imposed
on
transactions
between
a
TRS
and
us
that
are
not
on
an
arm’s-‐length
basis.
FINANCIAL
INFORMATION
ABOUT
SEGMENTS
We
are
in
the
business
of
acquiring
equity
interests
in
hotels,
and
we
manage
our
hotels
as
individual
operating
segments
that
meet
the
aggregation
criteria
and
are
therefore
disclosed
as
one
reportable
segment.
See
“Note
1
-‐
Organization
and
Summary
of
Significant
Accounting
Policies”
in
Item
8
of
this
Annual
Report
on
Form
10-‐K
for
segment
financial
information.
6
hersha hospitality trust
Item
2.
Properties
The
following
table
sets
forth
certain
information
with
respect
to
the
48
hotels
we
wholly
owned
as
of
December
31,
2013,
all
of
which
are
consolidated
on
the
Company’s
financial
statements.
Market
Name
Location
Year
Opened
Number
of
Rooms
Boston
Urban
and
Metro
Courtyard
Brookline/Boston,
MA*
Hawthorn
Suites
by
Wyndham
Franklin,
MA
Holiday
Inn
Express
Residence
Inn
Residence
Inn
The
Boxer
California
-‐
Arizona
Courtyard
Miami
Courtyard
Hyatt
House
Hyatt
House
Hyatt
House
Blue
Moon
Courtyard
Residence
Inn
Winter
Haven
Cambridge,
MA
Framingham,
MA
Norwood,
MA
Boston,
MA
San
Diego,
CA
Los
Angeles,
CA
Pleasant
Hill,
CA
Pleasanton,
CA
Scottsdale,
AZ
Miami,
FL
Miami,
FL
Coconut
Grove,
FL
Miami,
FL
NYC
Urban
Candlewood
Suites
Times
Square,
NY
Duane
Street
Hampton
Inn
Hampton
Inn
Hampton
Inn
Hampton
Inn
Hampton
Inn
TriBeCa,
NY
Chelsea/Manhattan,
NY
Herald
Square,
Manhattan,
NY
Seaport,
NY
Times
Square,
NY
Pearl
Street,
Manhattan,
NY
Hilton
Garden
Inn
Hilton
Garden
Inn
Holiday
Inn
JFK
Airport,
NY*
TriBeCa,
NY
Wall
Street,
NY
Holiday
Inn
Express
Times
Square,
NY
Holiday
Inn
Express
Water
Street,
Manhattan,
NY
Holiday
Inn
Express
Madison
Square
Garden,
Manhattan,
NY
Hotel
373
Hyatt
Nu
Hotel
Sheraton
Hotel
Fifth
Ave,
NY
Union
Square,
NY
Brooklyn,
NY
JFK
Airport,
NY*
NY-‐NJ
Metro
Holiday
Inn
Express
Chester,
NY
Hyatt
House
Hyatt
House
White
Plains,
NY
Bridgewater,
NJ**
2003
1999
1997
2000
2006
2004
1999
2008
2003
1998
1999
2013
2004
2000
2013
2009
2008
2003
2005
2006
2009
2012
2005
2009
2010
2009
2010
2006
2007
2013
2008
2008
2006
2000
1998
188
100
112
125
96
80
245
260
142
128
164
75
259
140
70
188
43
144
136
65
184
81
192
151
113
210
112
228
70
178
93
150
80
159
128
7
annual report 2013
Market
Name
Property
Name
Year
Opened
Number
of
Rooms
Philadelphia
Courtyard
Hampton
Inn
Langhorne,
PA**
Philadelphia,
PA
Holiday
Inn
Express
Oxford
Valley,
PA**
Holiday
Inn
Express
&
Suites
King
of
Prussia,
PA**
Hyatt
Place
King
of
Prussia,
PA
Sheraton
Hotel
New
Castle,
DE
The
Rittenhouse
Hotel
Philadelphia,
PA
Washington
D.C.
Courtyard
Hampton
Inn
Hyatt
House
Residence
Inn
Residence
Inn
Alexandria,
VA
Washington,
DC
Gaithersburg,
MD
Tysons
Corner,
VA
Greenbelt,
MD
The
Capitol
Hill
Hotel
Washington,
DC
2002
2001
2004
2004
2010
2011
2004
2006
2005
1998
1984
2002
2007
118
250
88
155
129
192
116
203
228
140
96
120
152
TOTAL
ROOMS
6,876
*
**
Our
interests
in
these
hotels
are
subject
to
ground
leases,
which,
in
most
cases,
require
monthly
rental
payment
as
determined
by
the
applicable
ground
lease
agreement.
These
ground
lease
agreements
typically
have
terms
of
between
75
and
99
years.
These
four
properties
are
part
of
a
non-‐core
portfolio
for
which
a
purchase
and
sale
agreement
was
entered
into
by
the
Company
in
September
2013,
and
closed
in
the
first
quarter
of
2014.
The
sale
of
the
other
12
properties
subject
to
this
purchase
and
sale
agreement
closed
in
December
2013.
The
following
table
sets
forth
certain
information
with
respect
to
the
six
hotels
we
owned
through
unconsolidated
joint
ventures
with
third
parties
as
of
December
31,
2013.
Market
Name
Location
Boston
Courtyard
South
Boston,
MA***
Holiday
Inn
Express
South
Boston,
MA***
Connecticut
Courtyard
Hilton
Marriott
Marriott
Norwich,
CT
Hartford,
CT
Mystic,
CT
Hartford,
CT
Year
Opened
Number
of
Rooms
HHLP
Ownership
in
Asset
HHLP
Preferred
Return
2005
1998
1997
2005
2001
2005
164
118
144
393
285
409
50.0%
50.0%
66.7%
8.8%
66.7%
15.0%
N/A
N/A
8.5%
8.5%
8.5%
8.5%
TOTAL
ROOMS
1,513
***
The
joint
ventures
interests
in
these
hotels
are
subject
to
ground
leases,
which,
in
most
cases,
require
monthly
rental
payment
as
determined
by
the
applicable
ground
lease
agreements.
These
ground
lease
agreements
typically
have
terms
of
between
75
and
99
years.
8
hersha hospitality trust
PART II
Item
5.
Market
for
Registrant’s
Common
Equity,
Related
Stockholder
Matters
and
Issuer
Purchases
of
Equity
Securities
MARKET
INFORMATION
Our
common
shares
trade
on
the
New
York
Stock
Exchange
under
the
symbol
“HT.”
As
of
February
25,
2014,
the
last
reported
closing
price
per
common
share
on
the
New
York
Stock
Exchange
was
$5.39.
The
following
table
sets
forth
the
high
and
low
sales
price
per
common
share
reported
on
the
New
York
Stock
Exchange
as
traded
and
the
dividends
paid
on
the
common
shares
for
each
of
the
quarters
indicated.
Year
Ended
December
31,
2013
High
Low
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Year
Ended
December
31,
2012
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
SHAREHOLDER
INFORMATION
$
$
$
$
$
$
$
$
5.94
6.21
6.24
6.30
High
5.11
5.71
5.91
5.64
$
$
$
$
$
$
$
$
5.33
5.18
5.27
5.07
Low
4.19
4.66
4.74
4.76
$
$
$
$
$
$
$
$
Dividend
Per
Common
Share
0.06
0.06
0.06
0.06
Dividend
Per
Common
Share
0.06
0.06
0.06
0.06
At
December
31,
2013
we
had
approximately
118
shareholders
of
record
of
our
common
shares.
Common
Units
(which
are
redeemable
by
holders
for
cash
or,
at
our
option,
for
common
shares
on
a
one
for
one
basis,
subject
to
certain
limitations)
were
held
by
approximately
38
entities
and
persons,
including
our
company.
9
annual report 2013
SHARE
PERFORMANCE
GRAPH
The
following
graph
compares
the
yearly
change
in
our
cumulative
total
shareholder
return
on
our
common
shares
for
the
period
beginning
December
31,
2008
and
ending
December
31,
2013,
with
the
yearly
changes
in
the
Standard
&
Poor’s
500
Stock
Index
(the
S&P
500
Index),
the
Russell
2000
Index,
and
the
SNL
Hotel
REIT
Index
(“Hotel
REIT
Index”)
for
the
same
period,
assuming
a
base
share
price
of
$100.00
for
our
common
shares,
the
S&P
500
Index,
the
Russell
2000
Index
and
the
Hotel
REIT
Index
for
comparative
purposes.
The
Hotel
REIT
Index
is
comprised
of
publicly
traded
REITs
which
focus
on
investments
in
hotel
properties.
Total
shareholder
return
equals
appreciation
in
stock
price
plus
dividends
paid
and
assumes
that
all
dividends
are
reinvested.
The
performance
graph
is
not
indicative
of
future
investment
performance.
We
do
not
make
or
endorse
any
predictions
as
to
future
share
price
performance.
Hersha
Hospitality
Trust
Russell
2000
Hotel
REIT
Index
S&P
500
2008
2009
2010
2011
2012
2013
$
100.00
$
100.00
100.00
100.00
104.67
$
125.22
163.13
123.45
220.00
$
156.90
225.86
139.23
162.67
$
148.35
191.77
139.23
166.67
$
170.06
210.14
157.90
185.67
232.98
257.04
204.63
Total
Return
Performance
300
250
200
150
l
e
u
a
V
x
e
d
n
I
100
50
0
12/31/2008
12/31/2009
12/31/2010
12/31/2011
12/30/2012
12/30/2013
HT
S&P
500
Russell
2000
Hotel
REIT
Index
10
hersha hospitality trust
Item
6.
Selected
Financial
Data
The
following
sets
forth
selected
financial
and
operating
data
on
a
historical
consolidated
basis.
The
following
data
should
be
read
in
conjunction
with
the
financial
statements
and
notes
thereto
and
Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations
included
elsewhere
in
this
Form
10-‐K.
Where
applicable,
the
operating
results
of
certain
real
estate
assets
which
have
been
sold
or
otherwise
qualify
as
held
for
disposition
are
included
in
discontinued
operations
for
all
periods
presented.
HERSHA
HOSPITALITY
TRUST
SELECTED
FINANCIAL
DATA
(In
thousands,
except
per
share
data)
Revenue:
Hotel
Operating
Revenues
Interest
Income
From
Development
Loans
Other
Revenues
Total
Revenue
Operating
Expenses:
Hotel
Operating
Expenses
Gain
on
Insurance
Settlements
Hotel
Ground
Rent
2013
2012
2011
2010
2009
$
338,064
$
299,005
$
229,156
$
184,998
$
128,461
158
191
1,998
212
3,427
330
4,686
324
7,411
702
338,413
301,215
232,913
190,008
136,574
188,431
161,982
121,402
98,930
71,735
(403)
985
-‐
835
-‐
877
-‐
941
-‐
733
Real
Estate
and
Personal
Property
Taxes
and
Property
Insurance
24,083
19,341
15,936
13,738
9,313
General
and
Administrative
(including
Share
Based
Payments
of
$9,746,
$9,678,
$7,590,
$6,649,
$2,143)
24,025
23,455
18,488
16,853
7,485
Acquisition
and
Terminated
Transaction
Costs
974
1,179
2,734
4,785
331
Loss
from
Impairment
of
Assets
Depreciation
and
Amortization
Gain
on
Acquistions,
Net
Total
Operating
Expenses
Operating
Income
(Loss)
Interest
Income
Interest
Expense
Other
Expense
Loss
on
Debt
Extinguishment
Income
(Loss)
before
(Loss)
Income
from
Unconsolidated
Joint
Venture
Investments
and
Discontinued
Operations
(Loss)
Income
from
Unconsolidated
Joint
Ventures
-‐
-‐
-‐
-‐
21,407
55,784
48,243
40,562
34,060
26,284
(12,096)
-‐
-‐
-‐
-‐
281,783
255,035
199,999
169,307
137,288
56,630
46,180
32,914
20,701
1,784
1,311
456
168
(714)
207
39,984
37,295
33,447
32,167
32,403
897
545
16,988
(22)
740
3,189
6,267
(232)
1,011
102
462
852
164
-‐
(1,190)
(12,612)
(33,074)
210
(1,751)
(2,649)
Impairment
of
Investment
in
Unconsolidated
Joint
Venture
(1,813)
-‐
(1,677)
-‐
(4,541)
(Loss)
Gain
from
Remeasurement
of
Investment
in
Unconsolidated
Joint
Ventures
-‐
(1,892)
(Loss)
Income
from
Unconsolidated
Joint
Venture
Investments
(1,835)
(2,124)
Income
(Loss)
Before
Income
Taxes
Income
Tax
Benefit
Income
(Loss)
from
Continuing
Operations
Discontinued
Operations:
Gain
on
Disposition
of
Hotel
Properties
Impairment
of
Assets
Held
for
Sale
Income
(Loss)
from
Discontinued
Operations
Income
(Loss)
from
Discontinued
Operations
Net
Income
(Loss)
(Income)
Loss
Allocated
to
Noncontrolling
Interests
Issuance
Costs
of
Redeemed
Preferred
Stock
15,153
5,600
20,753
4,143
3,355
7,498
2,757
1,290
4,008
2,257
1,868
(5,322)
100
(10,355)
(38,396)
-‐
-‐
-‐
100
(10,355)
(38,396)
32,121
11,231
991
347
-‐
(10,314)
-‐
(30,248)
(2,433)
(17,703)
7,388
3,489
2,189
(4,761)
(2,358)
29,195
14,720
(27,068)
(6,847)
(20,061)
49,948
22,218
(26,968)
(17,202)
(58,457)
(335)
(2,250)
158
-‐
1,734
-‐
845
-‐
8,596
-‐
Preferred
Distributions
(14,611)
(14,000)
(10,499)
(4,800)
(4,800)
Net
Income
(Loss)
applicable
to
Common
Shareholders
$
32,752
$
8,376
$
(35,733)
$
(21,157)
$
(54,661)
11
annual report 2013
HERSHA
HOSPITALITY
TRUST
SELECTED
FINANCIAL
DATA
(In
thousands,
except
per
share
data)
Basic
Income
(Loss)
from
Continuing
Operations
applicable
to
Common
Shareholders
Diluted
Income
(Loss)
from
Continuing
Operations
applicable
to
Common
Shareholders
(1)
Dividends
declared
per
Common
Share
$
0.02
$
(0.03)
$
(0.06)
$
(0.11)
$
(0.99)
0.02
0.24
(0.03)
0.24
(0.06)
0.23
(0.11)
0.20
(0.99)
0.33
2013
2012
2011
2010
2009
Balance
Sheet
Data
Net
investment
in
hotel
properties
$
1,535,835
$
1,466,713
$
1,341,536
$
1,245,851
$
938,954
Assets
Held
for
Sale
Noncontrolling
Interests
Common
Units
Redeemable
Noncontrolling
Interest
Noncontrolling
Interests
Consolidated
Joint
Ventures
Noncontrolling
Interests
Consolidated
Variable
Interest
Entity
Shareholder's
equity
Total
assets
Total
debt
56,583
-‐
93,829
-‐
21,073
29,523
15,484
16,862
19,410
27,126
-‐
-‐
(342)
15,321
14,955
19,894
14,733
-‐
476
307
-‐
474
-‐
267
-‐
837,958
829,828
730,673
683,434
302,197
1,748,097
1,707,679
1,630,909
1,457,277
1,111,044
773,501
792,708
758,374
694,720
724,551
Liabilities
related
to
Assets
Held
for
Sale
45,835
-‐
61,758
-‐
20,892
Other
Data
Net
cash
provided
by
operating
activities
Net
cash
used
in
investing
activities
Net
cash
provided
by
(used
in)
financing
activities
Weighted
average
shares
outstanding
$
$
$
90,261
$
71,756
$
58,668
$
42,486
$
21,532
(125,474)
$
(55,817)
$
(230,758)
$
(310,567)
$
(8,921)
2,367
$
28,552
$
131,062
$
322,273
$
(16,904)
Basic
Diluted
(1)
198,390,450
187,415,270
168,753,382
134,370,172
51,027,742
201,918,177
187,415,270
168,753,382
134,370,172
51,027,742
(1)
Income
allocated
to
noncontrolling
interest
in
HHLP
has
been
excluded
from
the
numerator
and
Common
Units
have
been
omitted
from
the
denominator
for
the
purpose
of
computing
diluted
earnings
per
share
since
the
effect
of
including
these
amounts
in
the
numerator
and
denominator
would
have
no
impact.
12
hersha hospitality trust
Item
7.
Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations
Certain
statements
appearing
in
this
Item
7
are
forward-‐looking
statements
within
the
meaning
of
the
federal
securities
laws.
Our
actual
results
may
differ
materially.
We
caution
you
not
to
place
undue
reliance
on
any
such
forward-‐looking
statements.
See
“CAUTIONARY
FACTORS
THAT
MAY
AFFECT
FUTURE
RESULTS”
for
additional
information
regarding
our
forward-‐looking
statements.
BACKGROUND
As
of
December
31,
2013,
we
owned
interests
in
54
hotels
in
major
urban
gateway
markets
including
New
York,
Washington
DC,
Boston,
Philadelphia,
San
Diego,
Los
Angeles
and
Miami,
including
48
wholly-‐owned
hotels
and
interests
in
six
hotels
owned
through
unconsolidated
joint
ventures.
Our
"Summary
of
Operating
Results"
section
below
contains
operating
results
for
43
consolidated
hotel
assets
and
six
hotel
assets
owned
through
an
unconsolidated
joint
venture.
These
results
exclude
the
Hampton
Inn
Pearl
Street,
New
York,
NY,
which
is
currently
under
redevelopment
and
is
expected
to
open
during
the
first
quarter
of
2014.
The
results
below
also
exclude
a
portfolio
of
four
non-‐core
hotels,
for
which
a
purchase
and
sale
agreement
has
been
entered
into
and
the
sale
of
which
is
expected
to
close
in
the
first
quarter
of
2014.
As
a
result,
results
for
these
four
non-‐core
hotels
are
included
in
discontinued
operations.
We
have
elected
to
be
taxed
as
a
REIT
for
federal
income
tax
purposes,
beginning
with
the
taxable
year
ended
December
31,
1999.
For
purposes
of
the
REIT
qualification
rules,
we
cannot
directly
operate
any
of
our
hotels.
Instead,
we
must
lease
our
hotels
to
a
third
party
lessee
or
to
a
TRS,
provided
that
the
TRS
engages
an
eligible
independent
contractor
to
manage
the
hotels.
As
of
December
31,
2013,
we
have
leased
all
of
our
hotels
to
a
wholly-‐owned
TRS,
a
joint
venture
owned
TRS,
or
an
entity
owned
by
our
wholly-‐owned
TRS.
Each
of
these
TRS
entities
will
pay
qualifying
rent,
and
the
TRS
entities
have
entered
into
management
contracts
with
qualified
independent
managers,
including
HHMLP,
with
respect
to
our
hotels.
We
intend
to
lease
all
newly
acquired
hotels
to
a
TRS.
The
TRS
structure
enables
us
to
participate
more
directly
in
the
operating
performance
of
our
hotels.
The
TRS
directly
receives
all
revenue
from,
and
funds
all
expenses
relating
to,
hotel
operations.
The
TRS
is
also
subject
to
income
tax
on
its
earnings.
OVERVIEW
In
2013,
lodging
fundamentals
for
those
markets
in
which
we
focus,
and
for
our
Company
in
particular,
continued
to
stabilize
following
the
economic
recession
that
began
in
2008
and
2009.
As
we
conclude
2013,
we
believe
the
improvements
in
our
equity
and
debt
capitalization
and
repositioning
of
our
portfolio
enables
us
to
capitalize
on
further
improvements
in
lodging
fundamentals.
We
continue
to
expect
improvements
in
ADR,
RevPAR
and
operating
margins,
led
by
hotels
in
our
core
urban
markets
of
New
York,
Boston,
Philadelphia,
Los
Angeles,
San
Diego
and
Miami.
We
also
continue
to
seek
acquisition
opportunities
in
urban
centers
and
central
business
districts.
In
addition,
we
will
continue
to
look
for
attractive
opportunities
to
dispose
of
properties
in
secondary
and
tertiary
markets
at
favorable
prices,
potentially
redeploying
that
capital
in
our
focus
markets.
We
do
not
expect
to
actively
pursue
acquisitions
made
through
joint
ventures
in
the
near
term;
however,
we
may
seek
to
buy
out,
or
sell
our
joint
venture
interests
to,
select
existing
joint
venture
partners.
We
do
not
expect
to
actively
pursue
development
loans
or
land
leases
in
the
near
term.
While
property
joint
ventures
and
development
loans
played
an
important
role
in
our
growth
in
the
past,
we
do
not
expect
them
to
play
the
same
role
in
our
near-‐term
future.
The
repositioning
of
our
portfolio,
to
focus
more
on
high
barrier
to
entry
and
major
urban
markets,
continued
in
2012
and
2013.
We
acquired
seven
hotels,
including
three
in
Miami,
one
in
San
Diego,
one
in
Philadelphia,
one
in
Boston,
and
one
in
New
York
City.
During
2012
and
2013,
we
closed
on
the
sale
of
33
wholly
owned
and
5
joint
venture
hotels
in
secondary
and
tertiary
markets
that
we
determined
to
be
non-‐core.
We
believe
these
efforts
to
reposition
our
portfolio
have
yielded
positive
results
in
both
2013
and
2012.
As
shown
in
the
tables
below
under
“Summary
of
Operating
Results,”
in
2013,
we
grew
occupancy
by
approximately
110
basis
points,
ADR
by
2.6%
and
RevPAR
by
4.0%
across
our
portfolio
of
consolidated
hotels.
Likewise,
2012
resulted
in
increases
in
occupancy
by
200
basis
points,
ADR
by
5.2%
and
RevPAR
by
7.9%
across
our
portfolio
of
consolidated
hotels.
13
annual report 2013
Although
we
are
planning
for
continued
stabilization
and
improvement
in
consumer
and
commercial
spending
and
lodging
demand
as
we
enter
2014,
the
manner
in
which
the
economy
will
continue
to
grow,
if
at
all,
is
not
predictable,
and
certain
core
economic
metrics,
including
unemployment,
are
not
rebounding
as
quickly
as
many
had
hoped.
In
addition,
the
availability
for
hotel-‐level
financing
for
the
acquisition
of
new
hotels
is
not
recovering
as
quickly
as
the
economy
or
broader
financial
markets.
As
a
result,
there
can
be
no
assurances
that
we
will
be
able
to
grow
hotel
revenues,
occupancy,
ADR
or
RevPAR
at
our
properties
as
we
hope.
Factors
that
might
contribute
to
less
than
anticipated
performance
include
those
described
under
the
heading
“Item
1A.
Risk
Factors”
and
other
documents
that
we
may
file
with
the
SEC
in
the
future.
We
will
continue
to
cautiously
monitor
recovery
in
lodging
demand
and
rates,
our
third
party
hotel
managers
and
our
performance
generally.
In
October
of
2012,
our
hotels
across
the
eastern
seaboard
experienced
the
effects
of
Hurricane
Sandy.
Most
of
our
hotels
in
these
markets
were
able
to
remain
open
and
continued
to
serve
our
guests
through
the
duration
of
the
storm.
However,
our
Holiday
Inn
Express
on
Water
Street
in
lower
Manhattan
experienced
flooding
and
was
forced
to
close.
In
April
2013,
repairs
were
completed
and
this
hotel
was
re-‐opened.
Additionally,
our
hotel
re-‐development
project
at
32
Pearl
Street
in
lower
Manhattan
experienced
some
flooding
at
the
job
site
and
portions
of
the
project
suffered
damage.
The
continued
strength
in
business
transient
and
leisure
transient
customer
demand
in
Manhattan
partially
offset
the
losses
from
the
storm.
SUMMARY
OF
OPERATING
RESULTS
The
following
table
outlines
operating
results
for
the
Company’s
portfolio
of
wholly
owned
hotels
and
those
owned
through
joint
venture
interests
(excluding
hotel
assets
classified
as
discontinued
operations
and
the
Hampton
Inn
Pearl
Street,
which
is
a
hotel
undergoing
a
re-‐development
project)
that
are
consolidated
in
our
financial
statements
for
the
three
years
ended
December
31,
2013,
2012
and
2011.
CONSOLIDATED
HOTELS:
Year
Ended
2013
Year
Ended
2012
2013
vs.
2012
%
Variance
Year
Ended
2011
2012
vs.
2011
%
Variance
Occupancy
Average
Daily
Rate
(ADR)
$
Revenue
Per
Available
Room
(RevPAR)
$
79.7%
179.70
$
143.30
$
78.6%
175.23
137.78
1.1%
2.6%
4.0%
76.6%
166.58
127.64
$
$
2.0%
5.2%
7.9%
Room
Revenues
Hotel
Operating
Revenues
$
$
309,452
$
338,064
$
273,410
299,005
13.2%
13.1%
$
$
218,314
229,156
25.2%
30.5%
RevPAR
for
the
year
ended
December
31,
2013
increased
4.0%
for
our
consolidated
hotels
when
compared
to
the
same
period
in
2012.
This
increase
represents
a
continued
growth
trend
in
RevPAR,
which
is
primarily
due
to
the
improving
economic
conditions
in
2013
and
the
acquisition
of
hotel
properties
consummated
in
2013
that
are
accretive
to
RevPAR.
The
following
table
outlines
operating
results
for
the
three
years
ended
December
31,
2013,
2012
and
2011
for
hotels
we
own
through
an
unconsolidated
joint
venture
interest
(excluding
those
hotel
assets
have
been
sold
to
an
independent
third
party
during
the
period
presented).
These
operating
results
reflect
100%
of
the
operating
results
of
the
property
including
our
interest
and
the
interests
of
our
joint
venture
partners
and
other
noncontrolling
interest
holders.
14
hersha hospitality trust
UNCONSOLIDATED
JOINT
VENTURES:
Year
Ended
2013
Year
Ended
2012
2013
vs.
2012
%
Variance
Year
Ended
2011
2012
vs.
2011
%
Variance
Occupancy
Average
Daily
Rate
(ADR)
$
Revenue
Per
Available
Room
(RevPAR)
$
68.3%
154.57
$
105.52
$
68.6%
152.51
104.66
Room
Revenues
Total
Revenues
$
$
58,273
$
80,879
$
62,058
84,364
-‐0.3%
1.4%
0.8%
-‐6.1%
-‐4.1%
$
$
$
$
68.3%
154.44
105.48
63,896
85,841
0.3%
-‐1.2%
-‐0.8%
-‐2.9%
-‐1.7%
For
our
unconsolidated
hotels,
RevPAR
for
the
year
ended
December
31,
2013
was
consistent
with
RevPAR
achieved
during
the
year
ended
December
31,
2012.
The
relatively
stable
results
in
RevPAR
during
the
year
of
2013
when
compared
to
the
year
of
2012
is
primarily
the
result
of
joint
venture
assets
that
are
now
consolidated
for
financial
reporting
purposes
and
therefore
no
longer
contribute
to
the
operating
results
of
our
portfolio
of
unconsolidated
hotels.
Properties
such
as
the
Holiday
Inn
Express
29th
Street,
New
York,
NY,
which,
as
of
June
18,
2012,
is
no
longer
included
in
our
unconsolidated
joint
ventures,
tended
to
have
higher
occupancy
and
ADR
than
the
remaining
hotels
in
our
unconsolidated
joint
venture
hotel
portfolio,
resulting
in
the
lower
room
revenues
and
total
revenues
in
the
above
table.
When
compared
to
the
same
period
in
2012,
the
remaining
unconsolidated
joint
venture
hotels
follow
the
same
growth
trend
for
RevPAR
as
experienced
in
our
same
store
consolidated
hotels
reported
below
during
the
year
ended
December
31,
2013.
We
define
a
same
store
consolidated
hotel
as
one
that
is
currently
consolidated,
that
we
have
owned
in
whole
or
in
part
for
the
entire
period
being
reported
and
the
comparable
period
in
each
of
the
periods
being
presented,
and
is
deemed
fully
operational.
Based
on
this
definition,
for
the
years
ended
December
31,
2013
and
2012,
there
are
34
same
store
consolidated
hotels
and
31
same
store
consolidated
hotels
for
the
years
ended
December
31,
2012
and
2011.
The
following
table
outlines
operating
results
for
the
years
ended
December
31,
2012,
2011,
and
2010,
for
our
same
store
consolidated
hotels:
SAME
STORE
CONSOLIDATED
HOTELS:
(includes
34
hotels
in
both
years)
2013
vs.
2012
%
Variance
Year
Ended
2012
Year
Ended
2013
(includes
31
hotels
in
both
years)
Year
Ended
2012
Year
Ended
2011
2012
vs.
2011
%
Variance
Occupancy
Average
Daily
Rate
(ADR)
Revenue
Per
Available
Room
(RevPAR)
Room
Revenues
Total
Revenues
80.5%
174.65
$
140.55
$
78.6%
172.67
135.69
$
$
1.9%
1.1%
3.6%
80.0%
175.61
$
140.45
$
$
$
77.2%
169.58
130.99
$
258,047
$
249,848
$
272,780
$
263,893
3.3%
3.4%
$
227,589
$
$
237,608
$
211,776
220,670
2.8%
3.6%
7.2%
7.5%
7.7%
RevPAR
for
our
same
store
consolidated
hotels
increased
3.6%
for
the
year
ended
December
31,
2013
when
compared
to
the
same
period
in
2012.
As
noted
above,
this
increase
represents
a
continued
growth
trend
in
RevPAR,
which
is
primarily
due
to
the
improving
economic
conditions
of
the
markets
in
which
we
operated
during
2013.
15
annual report 2013
COMPARISON
OF
THE
YEAR
ENDED
DECEMBER
31,
2013
TO
DECEMBER
31,
2012
(dollars
in
thousands,
except
ADR
and
per
share
data)
Revenue
Our
total
revenues
for
the
years
ended
December
31,
2013
and
2012
consisted
of
hotel
operating
revenues,
interest
income
from
our
development
loan
program
and
other
revenue.
Hotel
operating
revenues
were
approximately
99.9%
and
99.3%
of
total
revenues
for
the
years
ended
December
31,
2013
and
2012,
respectively.
Hotel
operating
revenues
are
recorded
for
wholly
owned
hotels
that
are
leased
to
our
wholly
owned
TRS
and
hotels
owned
through
joint
venture
interests
that
were
consolidated
in
our
financial
statements
during
the
period.
Hotel
operating
revenues
increased
$39,059,
or
13.1%,
from
$299,005
for
the
year
ended
December
31,
2012
to
$338,064
for
the
same
period
in
2013.
This
increase
in
hotel
operating
revenues
was
primarily
attributable
to
the
acquisitions
consummated
in
2013
and
2012
as
well
as
increases
in
hotel
operating
revenues
for
our
same
store
consolidated
hotels.
We
acquired
interests
in
the
following
consolidated
hotels
that
contributed
the
following
operating
revenues
for
the
year
ended
December
31,
2013.
Brand
Hyatt
Union
Square
Courtyard
by
Marriott
Residence
Inn
Winter
Haven
Blue
Moon
Location
New
York,
NY
San
Diego,
CA
Coconut
Grove,
FL
Miami,
FL
Miami,
FL
Acquisition
Date
April
9,
2013
May
30,
2013
June
12,
2013
December
20,
2013
December
20,
2013
2013
Hotel
Operating
Revenues
11,272
8,350
2,889
203
175
22,889
Rooms
178
$
245
140
70
75
708
$
Revenues
for
all
hotels
were
recorded
from
the
date
of
acquisition
as
hotel
operating
revenues.
Further,
hotel
operating
revenues
for
the
year
ended
December
31,
2013
included
revenues
for
the
following
hotels
that
were
purchased
during
the
year
ended
December
31,
2012.
Hotels
acquired
during
the
year
ended
December
31,
2012
would
have
a
full
year
of
results
included
in
the
year
ended
December
31,
2013
but
not
necessarily
a
full
year
of
results
during
the
same
period
in
2012.
We
acquired
interests
in
the
following
consolidated
hotels
during
the
year
ended
December
31,
2012:
Brand
Location
Acquisition
Date
Rooms
2013
Hotel
Operating
Revenues
2012
Hotel
Operating
Revenues
The
Rittenhouse
Hotel
The
Boxer
Holiday
Inn
Express
Philadelphia,
PA
March
1,
2012
Boston,
MA
New
York,
NY
May
7,
2012
June
18,
2012
111
$
80
228
419
$
16,969
$
3,799
16,746
37,515
$
16,809
2,791
10,170
29,770
In
addition,
our
same
store
consolidated
portfolio
experienced
improvements
in
ADR
and
occupancy
during
the
year
ended
December
31,
2013
when
compared
to
the
same
period
in
2012.
Occupancy
in
our
same
store
consolidated
hotels
increased
190
basis
points
from
78.6%
during
the
year
ended
December
31,
2012
to
80.5%
for
the
same
period
in
2013.
ADR
improved
1.1%,
increasing
from
$172.67
for
the
year
ended
December
31,
2012
to
$174.65
during
the
same
period
in
2013.
These
improvements
were
due
to
improvements
in
lodging
trends
in
the
markets
in
which
our
hotels
are
located.
16
hersha hospitality trust
We
had
previously
invested
in
hotel
development
projects
by
providing
mortgage
or
mezzanine
financing
to
hotel
developers
and
through
the
acquisition
of
land
that
is
then
leased
to
hotel
developers.
Interest
income
from
development
loans
receivable
was
$158
for
the
year
ended
December
31,
2013
compared
to
$1,998
for
the
same
period
in
2012.
In
April
2013,
we
acquired
the
Hyatt
Union
Square
and
as
part
of
the
consideration
we
agreed
to
cancel
the
$13,303
development
loan
receivable
in
its
entirety.
Furthermore,
the
only
remaining
development
loan,
related
to
the
Hyatt
48Lex,
was
paid
off
in
full
during
April
2013.
As
of
December
31,
2013,
we
had
no
outstanding
development
loans
receivable.
Other
revenue
consists
primarily
of
fees
earned
for
asset
management
services
provided
to
properties
owned
by
certain
of
our
unconsolidated
joint
ventures.
These
fees
are
earned
as
a
percentage
of
the
revenues
of
the
unconsolidated
joint
ventures’
hotels.
Other
revenues
were
$191
and
$212
for
the
years
ended
December
31,
2013
and
2012.
Expenses
Total
hotel
operating
expenses
increased
16.3%
to
approximately
$188,431
for
the
year
ended
December
31,
2013
from
$161,982
for
the
year
ended
December
31,
2012.
Consistent
with
the
increase
in
hotel
operating
revenues,
hotel
operating
expenses
increased
primarily
due
to
the
acquisitions
consummated
since
the
comparable
period
in
2012,
as
mentioned
above.
The
acquisitions
also
resulted
in
an
increase
in
depreciation
and
amortization
of
15.6%,
or
$7,541,
to
$55,784
for
the
year
ended
December
31,
2013
from
$48,243
for
the
year
ended
December
31,
2012.
Real
estate
and
personal
property
tax
and
property
insurance
increased
$4,742,
or
24.5%,
for
the
year
ended
December
31,
2013
when
compared
to
the
same
period
in
2012
due
to
our
acquisitions
along
with
a
general
overall
increase
in
tax
assessments
and
tax
rates
as
the
economy
improves.
General
and
administrative
expense
increased
by
approximately
$570
from
$23,455
in
2012
to
$24,025
in
2013.
Increases
in
other
general
and
administrative
expenses
were
primarily
from
increases
in
employee
headcount
and
resulting
base
compensation
and
payroll
taxes
increases.
General
and
administrative
expense
includes
expense
related
to
non-‐cash
share
based
payments
issued
as
incentive
compensation
to
the
Company’s
trustees,
executives,
and
employees.
Expense
related
to
share
based
compensation
increased
$68
during
the
year
ended
December
31,
2013
when
compared
to
the
same
period
of
2012.
Please
refer
to
“Note
9
–
Share
Based
Payments”
of
the
notes
to
the
consolidated
financial
statements
for
more
information
about
our
stock
based
compensation.
Amounts
recorded
on
our
consolidated
statement
of
operations
for
acquisition
and
terminated
transactions
costs
will
fluctuate
from
period
to
period
based
on
our
acquisition
activities.
Acquisition
costs
typically
consist
of
transfer
taxes,
legal
fees
and
other
costs
associated
with
acquiring
a
hotel
property
and
transactions
that
were
terminated
during
the
year.
Acquisition
and
terminated
transaction
costs
decreased
$205
from
$1,179
for
the
year
ended
December
31,
2012
to
$974
for
the
year
ended
December
31,
2013.
While
we
acquired
more
properties
during
the
year
ended
December
31,
2013
when
compared
to
the
same
period
in
2012,
the
manner
in
which
acquisition
targets
are
found
can
and
do
dictate
the
costs
necessary
to
complete
the
acquisition.
The
costs
incurred
in
2013
were
related
to
the
following
hotels:
$500
related
to
our
Hyatt
Union
Square
acquisition;
$152
related
to
our
Residence
Inn
Coconut
Grove
acquisition;
$65
related
to
our
Courtyard
San
Diego
acquisition;
and
$138
for
our
Winter
Haven
and
Blue
Moon
Hotel
acquisitions.
The
costs
incurred
in
2012
were
related
to
following
hotels:
$963
related
to
our
acquisition
of
The
Rittenhouse
Hotel;
$61
related
to
acquisition
of
The
Boxer;
$67
related
to
our
acquisition
of
Holiday
Inn
Express
Manhattan.
The
remaining
costs
were
primarily
related
to
transactions
that
were
terminated
during
the
year.
17
annual report 2013
Operating
Income
Operating
income
for
the
year
ended
December
31,
2013
was
$56,630
compared
to
operating
income
of
$46,180
during
the
same
period
in
2012.
As
noted
above,
the
increase
in
operating
income
resulted
partially
from
improved
performance
of
our
portfolio
and
acquisitions
that
have
occurred
since
the
beginning
of
2012,
but
is
offset
by
increases
in
real
estate
taxes.
In
addition,
we
recognized
a
net
gain
of
approximately
$12,096
on
the
purchase
of
the
Hyatt
Union
Square,
New
York,
NY,
as
the
fair
value
of
the
assets
acquired
less
any
liabilities
assumed
exceeded
the
consideration
transferred.
Excluding
the
gain
on
our
purchase
of
the
Hyatt
Union
Square,
operating
income
would
have
decreased
$1,646.
Interest
Expense
Interest
expense
increased
$2,689
from
$37,295
for
the
year
ended
December
31,
2012
to
$39,984
for
the
year
ended
December
31,
2013.
The
increase
in
interest
expense
is
due
primarily
to
an
increase
in
borrowings
drawn
on
our
senior
unsecured
term
loan
and
our
line
of
credit
throughout
the
year.
A
portion
of
these
borrowings
were
used
to
repay
various
mortgage
loans,
which
lowered
our
overall
consolidated
secured
mortgage
indebtedness
outstanding.
Additionally,
we
used
proceeds
from
the
line
of
credit
to
fund
the
purchase
of
our
Residence
Inn
Coconut
Grove
and
Courtyard
San
Diego
acquisitions.
Finally,
we
financed
a
portion
of
our
Hyatt
Union
Square
acquisition
with
variable
rate
mortgage
debt
and
borrowed
an
additional
$10,000
to
fund
construction
of
the
tower
at
our
Courtyard
Miami
Beach
hotel.
Unconsolidated
Joint
Venture
Investments
The
loss
from
unconsolidated
joint
ventures
consists
of
our
interest
in
the
operating
results
of
the
properties
we
own
in
joint
ventures.
The
operating
results
of
the
unconsolidated
joint
ventures
improved
by
$210
for
the
year
ended
December
31,
2013.
Since
the
beginning
of
2012,
we
have
made
efforts
to
decrease
our
investment
in
unconsolidated
joint
ventures
resulting
in
the
sale
of
5
of
these
assets
to
third
parties
and
the
purchase
of
the
remaining
50%
interest
in
our
Holiday
Inn
Express,
New
York,
NY
hotel
on
June
18,
2012.
Accordingly,
the
results
of
this
hotel
are
now
included
in
our
consolidated
results
and
our
interest
in
Metro
29th
was
remeasured.
As
a
result,
during
the
year
ended
December
31,
2012,
we
recorded
a
loss
from
the
remeasurement
of
our
investments
in
the
unconsolidated
joint
venture
of
approximately
$224.
On
August
13,
2012,
the
Company
purchased
the
remaining
50%
ownership
interest
in
Inn
America
Hospitality
at
Ewing,
the
lessee
of
the
Courtyard
by
Marriot,
Ewing,
NJ.
As
such,
we
ceased
to
account
for
our
investment
in
Inn
America
Hospitality
at
Ewing
under
the
equity
method
of
accounting
as
of
August
10,
2012
because
it
became
a
consolidated
subsidiary.
Our
interest
in
Inn
America
Hospitality
at
Ewing,
which
consisted
of
our
investment
in
Inn
America
Hospitality
at
Ewing
and
a
receivable,
was
remeasured
and
as
a
result
based
on
the
appraised
value
of
the
hotel,
we
recorded
a
loss
from
the
remeasurement
of
our
investments
in
the
unconsolidated
joint
venture
of
approximately
$1,668
during
the
twelve
months
ended
December
31,
2012.
We
recorded
an
impairment
loss
of
$1,813
related
to
the
Courtyard,
Norwich,
CT,
one
of
the
properties
owned
by
Mystic
Partners,
LLC.
Mystic
Partners,
LLC
is
currently
in
discussions
to
transfer
title
to
the
property
to
the
lender.
As
we
do
not
anticipate
recovering
our
investment
balance
in
this
asset,
we
have
reduced
our
investment
attributed
to
this
property
to
$0
as
of
December
31,
2013.
Income
Tax
Benefit
During
the
year
ended
December
31,
2013,
the
Company
recorded
an
income
tax
benefit
of
$5,600
compared
an
income
tax
benefit
of
$3,355
in
2012.
Excluded
from
the
income
tax
benefit
for
2013
is
$190
of
income
tax
expense
related
to
discontinued
operations.
Approximately
$2,866
of
the
income
tax
benefit
relates
to
deferred
tax
assets
that
the
Company
now
believes
are
realizable
and
variances
between
the
tax
return
and
year
18
hersha hospitality trust
end
provision
for
the
year
ended
December
31,
2012.
The
remaining
income
tax
benefit
is
a
result
of
the
operations
of
the
Company’s
taxable
REIT
subsidiary,
44
New
England.
Discontinued
Operations
On
September
20,
2013,
the
Company
entered
into
a
purchase
and
sale
agreement
to
sell
a
portfolio
of
16
non-‐core
hotels
for
an
aggregate
purchase
price
of
approximately
$217,000.
During
the
third
quarter
of
2013,
the
Company
had
recorded
an
impairment
of
$6,591
in
connection
with
the
anticipated
disposition.
As
of
December
31,
2013,
the
Company
had
closed
on
the
sale
of
12
of
the
hotels.
Accordingly,
a
gain
of
$31,559
was
recognized
during
the
fourth
quarter
of
2013
as
the
proceeds
from
the
sale
exceeded
the
carrying
value.
The
Company
expects
to
close
on
the
remaining
four
non-‐core
hotels
during
the
first
quarter
of
2014.
On
June
12,
2013,
we
closed
on
the
sale
of
our
Comfort
Inn,
Harrisburg,
PA.
The
Company
sold
the
hotel
for
$3,700
and
recorded
a
gain
on
sale
of
$442.
Additionally,
on
September
17,
2013,
we
closed
on
the
sale
of
Holiday
Inn
Express
Camp
Springs,
MD
property.
The
Company
sold
the
hotel
for
$8,500
and
recorded
a
gain
on
the
sale
of
$120
and
an
impairment
charge
of
$3,723
during
the
second
quarter
of
2013
as
the
anticipated
net
proceeds
did
not
exceed
the
carrying
value.
During
the
year
ended
December
31,
2012,
the
Company
closed
on
the
sale
of
18
non-‐core
hotel
properties,
transferred
the
title
of
the
Comfort
Inn
North
Dartmouth,
MA
to
the
lender
and
closed
on
the
sale
of
the
land
parcel
and
improvements
located
at
585
Eighth
Avenue,
New
York,
NY.
As
a
result
of
these
transactions,
we
recognized
a
gain
of
approximately
$11,231
for
the
year
ended
December
31,
2012.
The
operating
results
for
all
37
of
the
above
described
hotel
properties
and
one
land
parcel
have
been
reclassified
to
discontinued
operations
in
the
statement
of
operations
for
the
years
end
December
31,
2013
and
2012,
respectively.
We
recorded
income
from
discontinued
operations
of
approximately
$7,388
during
the
twelve
months
ended
December
31,
2013,
compared
to
income
of
approximately
$3,489
during
the
twelve
months
ended
December
31,
2012.
See
“Note
12
–
Discontinued
Operations”
for
more
information.
Net
Income/Loss
Net
income
applicable
to
common
shareholders
for
the
year
ended
December
31,
2013
was
$32,752
compared
to
net
income
applicable
to
common
shareholders
of
$8,376
for
the
same
period
in
2012.
As
previously
discussed,
net
income
applicable
to
common
shareholders
for
the
year
ended
December
31,
2013
was
positively
impacted
by
a
net
gain
of
approximately
$12,096
on
the
purchase
of
the
Hyatt
Union
Square,
New
York,
NY,
as
the
fair
value
of
the
assets
acquired
less
any
liabilities
assumed
exceeded
the
consideration
transferred.
Additionally,
the
$31,559
gain
on
the
sale
of
12
of
the
16
non-‐core
hotels
that
closed
during
the
year
ended
December
31,
2013
positively
impacted
net
income
applicable
to
common
shareholders.
Comprehensive
Income
Comprehensive
income
applicable
to
common
shareholders
for
the
year
ended
December
31,
2013
was
$34,162
compared
to
$7,741
for
the
same
period
in
2012.
This
amount
was
primarily
attributable
to
net
income/loss
as
more
fully
described
above.
Further
change
in
other
comprehensive
income
was
primarily
the
result
of
the
positive
shift
in
the
position
of
the
fair
value
of
our
derivative
instruments.
For
the
year
ended
December
31,
2013,
we
recorded
other
comprehensive
income
of
$1,410
when
compared
to
$635
of
other
comprehensive
loss
for
the
year
ended
December
31,
2012.
The
expected
rise
in
the
interest
rate
yield
curve
in
the
next
few
years
has
favorably
shifted
many
of
our
interest
rate
swaps
from
a
liability
to
an
asset
position.
19
annual report 2013
COMPARISON
OF
THE
YEAR
ENDED
DECEMBER
31,
2012
TO
DECEMBER
31,
2011
(dollars
in
thousands,
except
per
share
data)
Revenue
Our
total
revenues
for
the
year
ended
December
31,
2012
consisted
of
hotel
operating
revenues,
interest
income
from
our
development
loan
program
and
other
revenue.
Hotel
operating
revenues
were
approximately
99.3%
and
98.4%
of
total
revenues
for
the
years
ended
December
31,
2012
and
2011,
respectively.
Hotel
operating
revenues
are
recorded
for
wholly
owned
hotels
that
are
leased
to
our
wholly
owned
TRS
and
hotels
owned
through
joint
venture
interests
that
were
consolidated
in
our
financial
statements
during
the
period.
Hotel
operating
revenues
increased
$69,849,
or
30.5%,
from
$229,156
for
the
year
ended
December
31,
2011
to
$299,005
for
the
same
period
in
2012.
This
increase
in
hotel
operating
revenues
was
primarily
attributable
to
the
acquisitions
consummated
in
2012
and
2011
as
well
as
increases
in
hotel
operating
revenues
for
our
same
store
consolidated
hotels.
We
acquired
interests
in
the
following
consolidated
hotels
that
contributed
the
following
operating
revenues
for
the
year
ended
December
31,
2012.
Brand
Rittenhouse
Hotel
The
Boxer
Holiday
Inn
Express
Location
Acquisition
Date
Rooms
Philadelphia,
PA
Boston,
MA
New
York,
NY
March
1,
2012
May
7,
2012
June
18,
2012
116
$
80
228
424
$
2012
Hotel
Operating
Revenues
16,809
2,791
10,170
29,770
Revenues
for
all
hotels
were
recorded
from
the
date
of
acquisition
as
hotel
operating
revenues.
Further,
hotel
operating
revenues
for
the
year
ended
December
31,
2012
included
revenues
for
the
following
hotels
that
were
purchased
during
the
year
ended
December
31,
2011.
Hotels
acquired
during
the
year
ended
December
31,
2011
would
have
a
full
year
of
results
included
in
the
year
ended
December
31,
2012
but
not
necessarily
a
full
year
of
results
during
the
same
period
in
2011.
We
acquired
interests
in
the
following
consolidated
hotels
during
the
year
ended
December
31,
2011:
Brand
Holiday
Inn
Express
Capitol
Hill
Hotel
Courtyard
by
Marriott
Courtyard
by
Marriott
Sheraton
Location
Water
Street,
NY
Washington,
DC
Westside,
Los
Angeles,
Miami,
FL
New
Castle,
DE
CA
Acquisition
Date
March
25,
2011
April
15,
2011
May
19,
2011
November
16,
2011
December
28,
2010
2012
Hotel
Operating
Revenues
2011
Hotel
Operating
Revenues
5,847
$
7,570
11,871
15,952
6,844
48,084
$
5,580
5,319
6,760
1,694
68
19,421
Rooms
112
$
152
260
263
192
979
$
In
addition,
our
same
store
consolidated
portfolio
experienced
improvements
in
ADR
and
occupancy
during
the
year
ended
December
31,
2012
when
compared
to
the
same
period
in
2011.
Occupancy
in
our
same
store
consolidated
hotels
increased
280
basis
points
from
approximately
77.2%
during
the
year
ended
December
31,
2011
to
approximately
80.0%
for
the
same
period
in
2012.
ADR
improved
3.6%,
increasing
from
$169.58
for
the
year
ended
December
31,
2011
to
$175.61
during
the
same
period
in
2012.
These
improvements
were
due
to
improvements
in
lodging
trends
in
the
markets
in
which
our
hotels
are
located.
We
had
previously
invested
in
hotel
development
projects
by
providing
mortgage
or
mezzanine
financing
to
hotel
developers
and
through
the
acquisition
of
land
that
is
then
leased
to
hotel
developers.
Interest
income
20
hersha hospitality trust
from
development
loans
receivable
was
$1,998
for
the
year
ended
December
31,
2012
compared
to
$3,427
for
the
same
period
in
2011.
As
of
December
31,
2012,
the
only
loans
that
remained
outstanding
related
to
the
Hyatt
Union
Square
and
Hyatt
48Lex
development
projects.
Other
revenue
consists
primarily
of
fees
earned
for
asset
management
services
provided
to
properties
owned
by
certain
of
our
unconsolidated
joint
ventures.
These
fees
are
earned
as
a
percentage
of
the
revenues
of
the
unconsolidated
joint
ventures’
hotels.
Other
revenues
were
$212
and
$330
for
the
years
ended
December
31,
2012
and
2011.
Expenses
Total
hotel
operating
expenses
increased
33.4%
to
approximately
$161,982
for
the
year
ended
December
31,
2012
from
$121,402
for
the
year
ended
December
31,
2011.
Consistent
with
the
increase
in
hotel
operating
revenues,
increases
in
hotel
operating
expenses
were
primarily
due
to
the
acquisitions
consummated
since
the
comparable
period
in
2011,
as
mentioned
above.
The
acquisitions
also
resulted
in
an
increase
in
depreciation
and
amortization
of
18.9%,
or
$7,681,
to
$48,243
for
the
year
ended
December
31,
2012
from
$40,562
for
the
year
ended
December
31,
2011.
Real
estate
and
personal
property
tax
and
property
insurance
increased
$3,405,
or
21.4%,
for
the
year
ended
December
31,
2012
when
compared
to
the
same
period
in
2011
due
to
our
acquisitions.
General
and
administrative
expense
increased
by
approximately
$4,967
from
$18,488
in
2011
to
$23,455
in
2012.
General
and
administrative
expense
includes
expense
related
to
non-‐cash
share
based
payments
issued
as
incentive
compensation
to
the
Company’s
trustees,
executives,
and
employees.
Expense
related
to
share
based
compensation
increased
$2,088
during
the
year
ended
December
31,
2012
when
compared
to
the
same
period
of
2011.
This
increase
in
share
based
compensation
expense
is
due
primarily
from
the
vesting
of
shares
and
restricted
share
issuances.
The
Compensation
Committee
adopted
the
2012
Annual
LTIP
which
included
$1,785
of
stock
based
compensation
expense
for
the
year
ended
December
31,
2012.
In
addition,
on
April
18,
2012,
the
Compensation
Committee
entered
into
amended
and
restated
employment
agreements
with
the
Company’s
executive
officers,
adding
$822
of
stock
based
compensation
for
the
year
ended
December
31,
2012.
Please
refer
to
“Note
9
–
Share
Based
Payments”
of
the
notes
to
the
consolidated
financial
statements
for
more
information
about
our
stock
based
compensation.
Increases
in
other
general
and
administrative
expenses
resulted
primarily
from
increases
in
employee
headcount
and
base
or
incentive
compensation.
Amounts
recorded
on
our
consolidated
statement
of
operations
for
acquisition
and
terminated
costs
will
fluctuate
from
period
to
period
based
on
our
acquisition
activities.
Acquisition
costs
typically
consist
of
transfer
taxes,
legal
fees
and
other
costs
associated
with
acquiring
a
hotel
property
and
transactions
that
were
terminated
during
the
year.
Acquisition
and
terminated
transaction
costs
decreased
$1,555
from
$2,734
for
the
year
ended
December
31,
2011
to
$1,179
for
the
year
ended
December
31,
2012
due
to
fewer
acquisitions
consummated
during
the
year
ended
December
31,
2012.
The
costs
incurred
in
2012
were
related
to
the
following
hotels:
$963
related
to
our
acquisition
of
The
Rittenhouse
Hotel,
Philadelphia,
PA;
$61
related
to
acquisition
of
The
Boxer,
Boston,
MA;
$67
related
to
our
acquisition
of
Holiday
Inn
Express
Manhattan,
NY.
The
costs
incurred
in
2011
were
related
to
following
hotels:
Holiday
Inn
Express,
Water
Street,
NY;
Capitol
Hill
Hotel
Washington,
DC;
Courtyard
Westside
LA,
CA;
Courtyard
Miami,
FL.
The
remaining
costs
primarily
related
to
transactions
that
were
terminated
during
the
year.
Operating
Income
Operating
income
for
the
year
ended
December
31,
2012
was
$46,180
compared
to
operating
income
of
$32,914
during
the
same
period
in
2011.
As
noted
above,
the
increase
in
operating
income
resulted
partially
from
improved
performance
of
our
portfolio
and
acquisitions
that
have
occurred
since
the
beginning
of
2011.
Interest
Expense
Interest
expense
increased
$3,848
from
$33,447
for
the
year
ended
December
31,
2011
to
$37,295
for
the
21
annual report 2013
year
ended
December
31,
2012.
The
increase
in
interest
expense
is
due
primarily
to
the
new
debt
and
associated
interest
expense
for
the
acquired
properties
during
2012
offset
partially
by
lower
borrowing
costs
on
our
outstanding
debt.
Unconsolidated
Joint
Venture
Investments
We
incurred
a
loss
from
the
operations
of
our
unconsolidated
joint
ventures
of
$232
for
the
year
ended
December
31,
2012
compared
to
income
of
$210
for
2011.
In
addition,
during
the
year
ended
December
31,
2012,
we
recorded
a
loss
of
$1,668
as
a
result
of
the
remeasurement
of
our
interest
in
the
Inn
America
Hospitality
at
Ewing,
LLC
joint
venture,
the
owner
of
the
Courtyard
by
Marriott,
in
Ewing,
NJ,
and
a
loss
of
$224
recorded
as
a
result
of
the
remeasurement
of
our
interest
in
the
Metro
29th
Street
Associates,
LLC
joint
venture,
the
owner
of
the
Holiday
Inn
Express,
in
New
York,
NY.
During
the
year
ended
December
31,
2011,
as
a
result
of
the
remeasurement
of
our
interest
in
the
Hiren
Boston,
LLC
joint
venture,
the
owner
of
the
Courtyard
by
Marriott,
in
South
Boston,
MA,
we
recorded
a
gain
of
$2,757.
The
Company
also
entered
into
two
purchase
and
sale
agreements
to
dispose
of
18
non-‐core
hotel
properties,
four
of
which
were
owned
in
part
by
the
Company
through
an
unconsolidated
joint
venture.
As
a
result
of
entering
into
these
purchase
and
sale
agreements,
during
the
year
ended
December
31,
2011,
we
recorded
an
impairment
loss
of
approximately
$1,677
for
those
assets
where
our
investment
in
the
joint
venture
exceeds
the
anticipated
net
proceeds
distributable
to
us
based
on
the
purchase
price.
Income
Tax
Benefit
During
the
year
ended
December
31,
2012,
the
Company
evaluated
the
recoverability
of
its
deferred
tax
assets,
and
accordingly
reversed
its
valuation
allowance
against
a
portion
of
its
deferred
tax
asset,
resulting
in
an
income
tax
benefit
of
$3,355.
There
was
no
comparable
income
tax
expense
or
benefit
recorded
in
the
prior
year
as
the
Company
recorded
a
full
valuation
allowance
against
the
net
operating
loss.
Discontinued
Operations
During
the
years
ended
December
31,
2012
and
2011,
the
Company
closed
on
the
sale
of
a
portfolio
of
18
hotel
properties
and
the
Comfort
Inn
West
Hanover,
PA,
all
of
which
were
deemed
to
be
non-‐core
properties.
In
addition,
we
transferred
the
title
of
the
Comfort
Inn
North
Dartmouth,
MA
to
the
lender
and
closed
on
the
sale
of
two
land
parcels
and
improvements
located
at
585
Eighth
Avenue,
New
York,
NY
and
Nevins
Street,
Brooklyn,
NY.
As
a
result
of
these
transactions,
we
recognized
gains
on
disposition
of
approximately
$11,231
and
$991
for
the
years
ended
December
31,
2012
and
2011,
respectively.
The
Company
recorded
an
impairment
loss
of
approximately
$30,248
during
the
year
ended
December
31,
2011
for
certain
of
the
18
non-‐core
assets
where
the
anticipated
net
proceeds
would
not
exceed
the
carrying
values.
The
operating
results
for
all
20
of
the
above
described
hotel
properties
and
two
land
parcels
have
been
reclassified
to
discontinued
operations
in
the
statement
of
operations
for
the
years
end
December
31,
2012
and
2011,
respectively.
We
recorded
income
from
discontinued
operations
of
approximately
$3,489
during
the
twelve
months
ended
December
31,
2012,
compared
to
income
of
approximately
$2,189
during
the
twelve
months
ended
December
31,
2011.
See
“Note
12
–
Discontinued
Operations”
for
more
information.
22
hersha hospitality trust
Net
Income/Loss
Net
income
applicable
to
common
shareholders
for
the
year
ended
December
31,
2012
was
$8,376
compared
to
net
loss
applicable
to
common
shareholders
of
$35,733
for
the
same
period
in
2011.
Net
income
applicable
to
common
shareholders
for
the
year
ended
December
31,
2011
was
negatively
impacted
by
an
impairment
charge
of
approximately
$30,248
related
to
the
sale
of
the
18
non-‐core
hotels
discussed
above.
During
the
year
ended
December
31,
2011,
we
issued
4,600,000
preferred
shares
which
increased
our
preferred
dividend
$3,501
for
the
year
ended
December
31,
2012.
See
“Note
1
–
Organization
And
Summary
Of
Significant
Accounting
Policies”
of
the
notes
to
the
consolidated
financial
statements
for
the
years
ended
December
31,
2012
and
2011
for
more
information.
Comprehensive
Income
Comprehensive
income
applicable
to
common
shareholders
for
the
year
ended
December
31,
2012
was
$7,741
compared
to
a
loss
of
$36,546
for
the
same
period
in
2011.
This
amount
was
primarily
attributable
to
net
income/loss
as
more
full
described
above.
Further
change
in
other
comprehensive
income
was
primarily
the
result
of
the
positive
shift
in
the
position
of
the
fair
value
of
our
derivative
instruments.
For
the
year
ended
December
31,
2012,
we
recorded
other
comprehensive
loss
of
$635
compared
to
$813
of
other
comprehensive
loss
for
the
year
ended
December
31,
2011.
LIQUIDITY,
CAPITAL
RESOURCES,
AND
EQUITY
OFFERINGS
(dollars
in
thousands,
except
per
share
data)
Potential
Sources
of
Capital
Our
organizational
documents
do
not
limit
the
amount
of
indebtedness
that
we
may
incur.
Our
ability
to
incur
additional
debt
is
dependent
upon
a
number
of
factors,
including
the
current
state
of
the
overall
credit
markets,
our
degree
of
leverage
and
borrowing
restrictions
imposed
by
existing
lenders.
Our
ability
to
raise
funds
through
the
issuance
of
debt
and
equity
securities
is
dependent
upon,
among
other
things,
capital
market
volatility,
risk
tolerance
of
investors,
general
market
conditions
for
REITs
and
market
perceptions
related
to
the
Company’s
ability
to
generate
cash
flow
and
positive
returns
on
its
investments.
In
addition,
our
mortgage
indebtedness
contains
various
financial
and
non-‐financial
covenants
customarily
found
in
secured,
nonrecourse
financing
arrangements.
If
the
specified
criteria
are
not
satisfied,
the
lender
may
be
able
to
escrow
cash
flow
generated
by
the
property
securing
the
applicable
mortgage
loan.
We
have
determined
that
certain
debt
service
coverage
ratio
covenants
contained
in
the
loan
agreements
securing
a
number
of
our
hotel
properties
were
not
met
as
of
December
31,
2013.
Pursuant
to
the
loan
agreements,
certain
lenders
have
elected
to
escrow
the
operating
cash
flow
for
these
properties.
However,
these
covenants
do
not
constitute
an
event
of
default
for
these
loans.
Future
deterioration
in
market
conditions
could
cause
restrictions
in
our
access
to
the
cash
flow
of
additional
properties.
On
November
5,
2012,
we
entered
into
a
new
$400,000
senior
unsecured
credit
facility.
The
$400,000
credit
facility
provides
for
a
$250,000
senior
unsecured
revolving
line
of
credit
and
a
$150,000
senior
unsecured
term
loan.
Our
previous
$250,000
secured
credit
facility
was
terminated
and
replaced
by
the
new
credit
facility,
and,
as
a
result,
all
amounts
outstanding
under
our
previous
credit
facility
were
repaid
with
borrowings
from
our
new
credit
facility.
The
$400,000
credit
facility
expires
on
November
5,
2015,
and,
provided
no
event
of
default
has
occurred
and
remains
uncured,
we
may
request
that
the
lenders
renew
the
credit
facility
for
two
additional
one-‐year
periods.
The
credit
facility
is
also
expandable
to
$550,000
at
our
request,
subject
to
the
satisfaction
of
certain
conditions.
23
annual report 2013
As
of
December
31,
2013,
the
outstanding
unsecured
term
loan
balance
under
the
$400,000
credit
facility
was
$150,000
and
the
revolving
line
of
credit
was
undrawn.
As
of
December
31,
2013,
our
remaining
borrowing
capacity
under
the
$400,000
credit
facility
was
$244,175,
which
is
based
on
certain
operating
metrics
of
unencumbered
hotel
properties
designated
as
borrowing
base
assets.
We
intend
to
repay
indebtedness
incurred
under
the
$400,000
credit
facility
from
time
to
time,
for
acquisitions
or
otherwise,
out
of
cash
flow
and
from
the
proceeds
of
issuances
of
additional
common
and
preferred
shares
and
potentially
other
securities.
Subsequent
to
December
31,
2013,
the
Company
has
received
a
commitment
from
its
existing
bank
group
and
is
in
the
process
of
amending
the
current
$400,000
credit
facility
which
would
allow
the
Company
to
increase
the
size
of
the
facility
while
simultaneously
extending
the
tenor
and
reducing
the
pricing.
The
revised
credit
facility
is
expected
to
close
by
the
end
of
the
first
quarter
of
2014,
subject
to
lender
approval.
We
will
continue
to
monitor
our
debt
maturities
to
manage
our
liquidity
needs.
However,
no
assurances
can
be
given
that
we
will
be
successful
in
refinancing
all
or
a
portion
of
our
future
debt
obligations
due
to
factors
beyond
our
control
or
that,
if
refinanced,
the
terms
of
such
debt
will
not
vary
from
the
existing
terms.
As
of
December
31,
2013,
we
have
$17,500
indebtedness
payable
on
or
before
December
31,
2014.
During
2012,
we
used
borrowings
provided
under
the
unsecured
term
loan
portion
of
the
$400,000
credit
facility
to
repay
mortgages
on
seven
hotel
properties.
We
currently
expect
that
cash
requirements
for
all
debt
that
is
not
refinanced
by
our
existing
lenders
for
which
the
maturity
date
is
not
extended
will
be
met
through
a
combination
of
cash
on
hand,
refinancing
the
existing
debt
with
new
lenders,
draws
on
the
$250,000
revolving
line
of
credit
portion
of
our
$400,000
credit
facility
and
the
issuance
of
our
securities.
On
May
8,
2012,
we
closed
on
a
public
offering
in
which
we
issued
and
sold
24,000,000
common
shares
through
several
underwriters
for
net
proceeds
to
us
of
approximately
$128,558.
Immediately
upon
the
closing,
we
contributed
all
of
the
net
proceeds
of
the
offering
to
HHLP
in
exchange
for
additional
Common
Units
in
HHLP.
HHLP
used
the
net
proceeds
of
this
offering
to
reduce
some
of
the
indebtedness
outstanding
under
our
revolving
line
of
credit
facility
and
for
general
corporate
purposes,
including
the
funding
of
future
acquisitions.
On
February
25,
2013,
we
completed
a
public
offering
of
3,000,000
6.875%
Series
C
Cumulative
Redeemable
Preferred
Shares.
These
shares
have
a
par
value
of
$0.01
per
share
with
a
$25.00
liquidation
preference
per
share.
Net
proceeds
of
the
offering,
after
deducting
underwriting
discounts
and
offering
expenses,
were
approximately
$72,370.
We
utilized
the
net
proceeds
of
the
offering
to
redeem
all
outstanding
8.00%
Series
A
Cumulative
Redeemable
Preferred
Shares
on
March
28,
2013,
and
for
general
corporate
purposes.
The
Series
A
Preferred
shares
were
redeemed
at
a
per
share
redemption
price
of
$25.00
together
with
accrued
and
unpaid
dividends
to
the
redemption
date
for
an
aggregate
per
share
redemption
price
of
$25.4056.
Dividends
ceased
accruing
on
the
Series
A
Preferred
Shares
on
March
28,
2013.
Common
Share
Repurchase
Plan
In
December
2012,
our
Board
of
Trustees
authorized
us
to
repurchase
from
time
to
time
up
to
an
aggregate
of
$75,000
of
our
outstanding
common
shares
through
December
31,
2013.
We
did
not
repurchase
any
common
shares
prior
to
the
expiration
of
the
share
repurchase
program.
In
January
2014,
our
Board
of
Trustees
again
authorized
us
to
repurchase
from
time
to
time
up
to
an
aggregate
of
$75,000
of
our
outstanding
common
shares.
The
current
share
repurchase
program
will
expire
on
December
31,
2014.
As
of
February
26,
2014,
we
have
not
repurchased
any
common
shares
pursuant
to
the
share
repurchase
program.
We
may
begin
to
repurchase
common
shares
in
the
first
quarter
of
2014.
However,
we
are
under
no
obligation
to
do
so
and
we
cannot
assure
you
that
we
will
begin
repurchasing
our
common
shares
at
such
time
or
at
all.
24
hersha hospitality trust
Development
Loans
Receivable
During
April
2013,
we
acquired
the
Hyatt
Union
Square,
and
as
part
of
the
consideration
we
agreed
to
cancel
the
$13,303
development
loan
receivable
in
its
entirety.
Furthermore,
the
development
loan
related
to
the
Hyatt
48Lex
was
paid
in
full
during
the
year
ended
December
31,
2013.
As
of
December
31,
2013,
we
had
no
outstanding
development
loans
receivable.
Acquisitions
During
the
year
ended
December
31,
2013,
we
acquired
the
following
wholly-‐owned
hotel
properties:
Hotel
Hyatt
Union
Square,
New
York,
NY*
Courtyard
by
Marriott,
San
Diego,
CA
Residence
Inn,
Coconut
Grove,
FL
Blue
Moon,
Miami
Beach,
FL
Winter
Haven,
Miami
Beach,
FL
Acquisition
Date
Land
Buildings
and
Improvements
Furniture
Fixtures
and
Equipment
Franchise
Fees
and
Loan
Costs
Total
Purchase
Price
4/9/2013
$
32,940
$
79,300
$
9,760
$
1,945
$
5/30/2013
15,656
51,674
3,671
183
123,945
71,184
6/12/2013
4,146
17,456
218
75
21,895
12/20/2013
4,874
20,354
1,125
12/20/2013
5,400
18,147
1,050
-‐
-‐
26,353
24,597
Total
$
63,016
$
186,931
$
15,824
$
2,203
$
267,974
We
recognized
a
net
gain
of
approximately
$12,096
on
the
purchase
of
the
Hyatt
Union
Square
hotel
as
the
fair
value
of
the
assets
acquired
less
any
liabilities
assumed
exceeded
the
consideration
transferred.
We
intend
to
invest
in
additional
hotels
only
as
suitable
opportunities
arise
and
adequate
sources
of
financing
are
available.
We
expect
that
future
investments
in
hotels
will
depend
on
and
will
be
financed
by,
in
whole
or
in
part,
our
existing
cash,
the
proceeds
from
additional
issuances
of
common
or
preferred
shares,
proceeds
from
the
sale
of
assets,
issuances
of
Common
Units,
issuances
of
preferred
units
or
other
securities
or
borrowings.
On
October
16,
2013,
the
Company
entered
into
a
purchase
and
sale
agreement
to
acquire
the
Hotel
Oceana,
located
in
Santa
Barbara,
CA,
from
an
unaffiliated
seller
for
approximately
$42,000,
including
the
assumption
of
$25,250
in
mortgage
debt.
This
transaction
is
expected
to
close
by
the
end
of
the
first
quarter
of
2014.
Operating
Liquidity
and
Capital
Expenditures
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
the
$250,000
unsecured
revolving
line
of
credit
portion
of
our
$400,000
credit
facility.
We
believe
that
the
net
cash
provided
by
operations
in
the
coming
year
and
borrowings
drawn
on
the
$250,000
revolving
line
of
credit
portion
of
our
$400,000
credit
facility
will
be
adequate
to
fund
the
Company’s
operating
requirements,
monthly
recurring
debt
service
and
the
payment
of
dividends
in
accordance
with
REIT
requirements
of
the
internal
revenue
code
of
1986,
as
amended.
25
annual report 2013
To
qualify
as
a
REIT,
we
must
distribute
annually
at
least
90%
of
our
taxable
income.
This
distribution
requirement
limits
our
ability
to
retain
earnings
and
requires
us
to
raise
additional
capital
in
order
to
grow
our
business
and
acquire
additional
hotel
properties.
However,
there
is
no
assurance
that
we
will
be
able
to
borrow
funds
or
raise
additional
equity
capital
on
terms
acceptable
to
us,
if
at
all.
In
addition,
we
cannot
guarantee
that
we
will
continue
to
make
distributions
to
our
shareholders
at
the
current
rate
or
at
all.
Due
to
the
seasonality
of
our
business,
cash
provided
by
operating
activities
fluctuates
significantly
from
quarter
to
quarter.
However,
we
believe
that,
based
on
our
current
estimates,
which
include
the
addition
of
cash
provided
by
hotels
acquired
during
2013,
our
cash
provided
by
operating
activities
will
be
sufficient
over
the
next
12
months
to
fund
the
payment
of
our
dividend
at
its
current
level.
However,
our
Board
of
Trustees
continues
to
evaluate
the
dividend
policy
in
the
context
of
our
overall
liquidity
and
market
conditions
and
may
elect
to
reduce
or
suspend
these
distributions.
Cash
provided
by
operating
activities
for
the
year
ended
December
31,
2013
was
$90,261
and
cash
used
for
the
payment
of
distributions
and
dividends
for
the
year
ended
December
31,
2013
was
$66,757.
Our
long-‐term
liquidity
requirements
consist
primarily
of
the
costs
of
acquiring
additional
hotel
properties,
renovation
and
other
non-‐recurring
capital
expenditures
that
need
to
be
made
periodically
with
respect
to
hotel
properties
and
scheduled
debt
repayments.
We
will
seek
to
satisfy
these
long-‐term
liquidity
requirements
through
various
sources
of
capital,
including
borrowings
under
the
$250,000
revolving
line
of
credit
portion
of
our
$400,000
credit
facility
and
through
secured,
non-‐recourse
mortgage
financings
with
respect
to
our
unencumbered
hotel
properties.
In
addition,
we
may
seek
to
raise
capital
through
public
or
private
offerings
of
our
securities.
Certain
factors
may
have
a
material
adverse
effect
on
our
ability
to
access
these
capital
sources,
including
our
degree
of
leverage,
the
value
of
our
unencumbered
hotel
properties
and
borrowing
restrictions
imposed
by
lenders
or
franchisors.
We
will
continue
to
analyze
which
source
of
capital
is
most
advantageous
to
us
at
any
particular
point
in
time,
but
financing
may
not
be
consistently
available
to
us
on
terms
that
are
attractive,
or
at
all.
Spending
on
capital
improvements
during
the
year
ended
December
31,
2013
increased
when
compared
to
the
same
period
in
2012.
During
the
year
ended
December
31,
2013
we
spent
$42,854
on
capital
expenditures
to
renovate,
improve
or
replace
assets
at
our
hotels.
This
compares
to
$28,443
during
the
same
period
in
2012.
These
capital
expenditures
were
undertaken
to
comply
with
brand
mandated
improvements
and
to
initiate
projects
that
we
believe
will
generate
a
return
on
investment
as
we
enter
a
period
of
recovery
in
the
lodging
sector.
In
addition
to
capital
reserves
required
under
certain
loan
agreements
and
capital
expenditures
to
renovate,
improve
or
replace
assets
at
our
hotels,
we
have
two
ongoing
hotel
development
projects.
We
are
re-‐developing
a
Hampton
Inn
in
lower
Manhattan,
New
York,
NY
and
tentatively
project
the
hotel
to
open
in
the
second
quarter
of
2014.
In
addition,
we
have
entered
into
a
purchase
and
sale
agreement
to
acquire
the
Hilton
Garden
Inn,
located
on
52nd
Street
in
New
York,
NY
upon
completion
of
construction
for
an
approximate
purchase
price
of
$74,000.
While
this
purchase
and
sale
agreement
secures
the
Company’s
right
to
acquire
the
completed
hotel,
the
Company
is
not
assuming
any
significant
construction
risk,
including
the
risk
of
schedule
and
cost
overruns.
These
projects
will
require
significant
capital
which
we
expect
to
fund
with
various
sources
of
capital,
including
available
borrowings
under
the
$250,000
revolving
line
of
credit
portion
of
our
credit
facility
and
through
secured,
non-‐recourse
mortgage
financings.
In
addition,
we
may
seek
to
raise
capital
through
public
or
private
offerings
of
our
securities
to
fund
these
capital
improvements.
During
the
year
ended
December
31,
2013
we
spent
$20,054
on
hotel
development
projects.
This
compares
to
$10,171
during
the
same
period
in
2012.
We
may
spend
additional
amounts,
if
necessary,
to
comply
with
the
reasonable
requirements
of
any
franchise
license
under
which
any
of
our
hotels
operate
and
otherwise
to
the
extent
we
deem
such
expenditures
to
be
in
our
best
interests.
We
are
also
obligated
to
fund
the
cost
of
certain
capital
improvements
to
our
hotels.
We
expect
to
use
operating
cash
flow,
borrowings
under
the
$250,000
revolving
line
of
credit
portion
of
our
$400,000
credit
facility,
and
proceeds
from
issuances
of
our
securities
to
pay
for
the
cost
of
capital
improvements
and
any
furniture,
fixture
and
equipment
requirements
in
excess
of
the
reserves
referenced
above.
26
hersha hospitality trust
CASH
FLOW
ANALYSIS
(dollars
in
thousands,
except
per
share
data)
Comparison
of
the
Years
Ended
December
31,
2013
and
December
31,
2012
Net
cash
provided
by
operating
activities
increased
$18,505,
from
$71,756
for
the
year
ended
December
31,
2012
to
$90,261
for
2013.
Net
income,
adjusted
for
non-‐cash
items
such
as
gain
on
acquisition
of
hotel
assets,
gain
on
disposition
of
hotel
properties,
impairment
of
assets,
benefit
for
income
taxes,
depreciation
and
amortization,
non-‐cash
debt
extinguishment,
development
loan
interest
income
added
to
principal,
interest
in
income/loss
from
and
distributions
from
unconsolidated
joint
ventures,
loss
recognized
on
change
in
fair
value
of
derivative
instruments
and
stock
based
compensation
increased
$4,720
for
the
year
ended
December
31,
2013
when
compared
to
2012.
This
is
primarily
due
to
cash
provided
by
properties
acquired
over
the
past
twelve
months
and
improving
operating
results
within
our
existing
portfolio.
In
addition
to
these
increases
in
cash
provided
by
these
operating
activities
was
an
increase
in
net
cash
used
in
funding
working
capital
assets,
such
as
payments
into
escrows,
and
repaying
working
capital
liabilities,
such
as
accounts
payable
and
accrued
expenses.
Net
cash
used
in
investing
activities
increased
$69,657,
from
$55,817
for
year
ended
December
31,
2012
to
$125,474
for
2013.
Spending
on
the
purchase
of
hotel
properties,
deposits
on
hotel
acquisitions
and
development
projects
was
$142,474
higher
during
2013
compared
to
2012.
Offsetting
this
increase
in
spending
on
the
purchase
of
new
hotels
was
in
increase
in
proceeds
from
the
disposition
of
hotel
properties,
which
during
the
year
ended
December
31,
2013
was
$72,293
higher
than
during
the
year
ended
December
31,
2012.
Net
cash
provided
by
financing
activities
for
year
ended
December
31,
2013
was
$2,367
compared
to
$28,552
during
the
same
period
in
2012.
During
the
year
ended
December
31,
2013,
we
received
proceeds
of
$72,370
from
the
issuance
of
our
series
C
preferred
shares
and
used
$60,000
of
these
proceeds
to
redeem
our
series
A
preferred
shares,
resulting
in
net
proceeds
of
$12,370.
During
the
same
period
in
2012
we
received
net
proceeds
of
$128,558
from
the
issuance
of
common
shares.
Dividends
and
distributions
payable
increased
$6,630
during
the
year
ended
December
31,
2013,
compared
to
2012,
due
to
an
increase
in
the
number
of
outstanding
common
shares
as
a
result
of
a
common
stock
offering
completed
in
May
2012,
and
the
additional
preferred
share
dividends
we
paid
due
to
the
timing
of
the
preferred
stock
offering
and
subsequent
redemption
which
occurred
in
March
2013.
For
the
year
ended
December
31,
2013,
borrowings
under
our
unsecured
term
loan
and
mortgages
and
notes
payable,
net
of
repayments
provided
cash
of
$60,602,
compared
to
net
repayments
of
$39,783
for
the
same
period
in
2012.
Comparison
of
the
Years
Ended
December
31,
2012
and
December
31,
2011
Net
cash
provided
by
operating
activities
increased
$13,088,
from
$58,668
for
the
year
ended
December
31,
2011
to
$71,756
for
2012.
Net
income,
adjusted
for
non-‐cash
items
such
as
gain
on
disposition
of
hotel
properties,
impairment
of
assets,
benefit
for
income
taxes,
depreciation
and
amortization,
non-‐cash
debt
extinguishment,
development
loan
interest
income
added
to
principal,
interest
in
income/loss
from
and
distributions
from
unconsolidated
joint
ventures,
loss
recognized
on
change
in
fair
value
of
derivative
instruments
and
stock
based
compensation
increased
$16,556
for
the
year
ended
December
31,
2012
when
compared
to
2011.
This
is
primarily
due
to
cash
provided
by
properties
acquired
over
the
past
eighteen
months
and
improving
operating
results
within
our
existing
portfolio.
Offsetting
the
increases
in
cash
provided
by
these
operating
activities
was
an
increase
in
net
cash
used
in
funding
working
capital
assets,
such
as
accounts
payable
and
accrued
expenses.
Net
cash
used
in
investing
activities
decreased
$174,941,
from
$230,758
for
year
ended
December
31,
2011
compared
to
$55,817
for
the
same
period
during
2012.
During
the
year
ended
December
31,
2011,
purchases
of
hotel
property
assets
were
$98,762
higher
than
during
the
same
period
in
2012.
Additionally,
proceeds
from
the
disposition
of
hotel
properties
during
the
year
ended
December
31,
2012
increased
$61,361
when
compared
to
the
same
period
in
2011
as
a
result
of
our
sale
of
non-‐core
assets
during
2012.
27
annual report 2013
Net
cash
provided
by
financing
activities
for
year
ended
December
31,
2012
was
$28,552
compared
to
$131,062
during
the
same
period
in
2011.
The
decrease
in
cash
provided
by
financing
activities
during
the
year
ended
December
31,
2012
was
primarily
the
result
of
an
increase
in
the
repayment
of
mortgages
and
notes
payable.
Repayments,
funded
in
part
by
borrowings
under
the
$100,000
unsecured
term
loan
portion
of
our
$400,000
credit
facility,
were
$179,285
higher
during
the
year
ended
December
31,
2012
compared
to
the
same
period
in
2011.
Net
repayments
on
our
revolving
credit
facility
were
$56,000
higher
during
the
year
ended
December
31,
2012
than
in
the
same
period
during
2011.
Offsetting
this
increase
in
cash
used
to
repay
the
line
of
credit
and
mortgagees
and
notes
payable
were
proceeds
from
our
common
stock
offering.
During
the
second
quarter
of
2012,
we
completed
an
offering
of
common
shares
with
net
proceeds
of
$128,558.
During
the
second
quarter
of
2011,
we
completed
an
offering
of
Series
B
preferred
shares
with
net
proceeds
of
$110,977.
These
offerings
have
increased
our
preferred
dividend
obligations
and
common
dividend
payments
resulting
in
a
net
increase
in
total
dividends
and
distributions
paid
of
$12,995
when
comparing
the
years
ended
December
31,
2012
and
2011.
OFF
BALANCE
SHEET
ARRANGEMENTS
The
Company
does
not
have
off
balance
sheet
arrangements
that
have
or
are
reasonably
likely
to
have
a
current
or
future
effect
on
our
financial
condition,
revenues
or
expenses,
results
of
operations,
liquidity,
capital
expenditures
or
capital
resources.
FUNDS
FROM
OPERATIONS
(in
thousands,
except
share
data)
The
National
Association
of
Real
Estate
Investment
Trusts
(“NAREIT”)
developed
Funds
from
Operations
(“FFO”)
as
a
non-‐GAAP
financial
measure
of
performance
of
an
equity
REIT
in
order
to
recognize
that
income-‐producing
real
estate
historically
has
not
depreciated
on
the
basis
determined
under
GAAP.
We
calculate
FFO
applicable
to
common
shares
and
Common
Units
in
accordance
with
the
April
2002
National
Policy
Bulletin
of
NAREIT,
which
we
refer
to
as
the
White
Paper.
The
White
Paper
defines
FFO
as
net
income
(loss)
(computed
in
accordance
with
GAAP)
excluding
extraordinary
items
as
defined
under
GAAP
and
gains
or
losses
from
sales
of
previously
depreciated
assets,
gains
on
hotel
acquisitions,
plus
certain
non-‐cash
items,
such
as
loss
from
impairment
of
assets
and
depreciation
and
amortization,
and
after
adjustments
for
unconsolidated
partnerships
and
joint
ventures.
Our
interpretation
of
the
NAREIT
definition
is
that
noncontrolling
interest
in
net
income
(loss)
should
be
added
back
to
(deducted
from)
net
income
(loss)
as
part
of
reconciling
net
income
(loss)
to
FFO.
Our
FFO
computation
may
not
be
comparable
to
FFO
reported
by
other
REITs
that
do
not
compute
FFO
in
accordance
with
the
NAREIT
definition,
or
that
interpret
the
NAREIT
definition
differently
than
we
do.
The
GAAP
measure
that
we
believe
to
be
most
directly
comparable
to
FFO,
net
income
(loss)
applicable
to
common
shareholders,
includes
loss
from
the
impairment
of
certain
depreciable
assets,
our
investment
in
unconsolidated
joint
ventures
and
land,
depreciation
and
amortization
expenses,
gains
or
losses
on
property
sales,
gains
on
hotel
acquisitions,
noncontrolling
interest
and
preferred
dividends.
In
computing
FFO,
we
eliminate
these
items
because,
in
our
view,
they
are
not
indicative
of
the
results
from
our
property
operations.
We
determined
that
the
loss
from
the
impairment
of
certain
depreciable
assets
including
investments
in
unconsolidated
joint
ventures
and
land,
was
driven
by
a
measurable
decrease
in
the
fair
value
of
certain
hotel
properties
and
other
assets
as
determined
by
our
analysis
of
those
assets
in
accordance
with
applicable
GAAP.
As
such,
these
impairments
have
been
eliminated
from
net
loss
to
determine
FFO.
FFO
does
not
represent
cash
flows
from
operating
activities
in
accordance
with
GAAP
and
should
not
be
considered
an
alternative
to
net
income
as
an
indication
of
the
Company’s
performance
or
to
cash
flow
as
a
measure
of
liquidity
or
ability
to
make
distributions.
We
consider
FFO
to
be
a
meaningful,
additional
measure
of
operating
performance
because
it
excludes
the
effects
of
the
assumption
that
the
value
of
real
estate
assets
diminishes
predictably
over
time,
and
because
it
is
widely
used
by
industry
analysts
as
a
performance
measure.
We
show
both
FFO
from
consolidated
hotel
operations
and
FFO
from
unconsolidated
joint
ventures
because
we
believe
it
is
meaningful
for
the
investor
to
understand
the
relative
contributions
from
our
consolidated
and
28
hersha hospitality trust
unconsolidated
hotels.
The
display
of
both
FFO
from
consolidated
hotels
and
FFO
from
unconsolidated
joint
ventures
allows
for
a
detailed
analysis
of
the
operating
performance
of
our
hotel
portfolio
by
management
and
investors.
We
present
FFO
applicable
to
common
shares
and
Common
Units
because
our
Common
Units
are
redeemable
for
common
shares.
We
believe
it
is
meaningful
for
the
investor
to
understand
FFO
applicable
to
all
common
shares
and
Common
Units.
The
following
table
reconciles
FFO
for
the
periods
presented
to
the
most
directly
comparable
GAAP
measure,
net
income,
for
the
same
periods
(dollars
in
thousands):
December
31,
2013
December
31,
2012
December
31,
2011
Year
Ended
Net
income
(loss)
applicable
to
common
shareholders
Income
allocated
to
noncontrolling
interests
Income
(loss)
from
unconsolidated
joint
ventures
Gain
on
hotel
acquisition
Gain
on
disposition
of
hotel
properties
Loss
from
impairment
of
depreciable
assets
$
Depreciation
and
amortization
Depreciation
and
amortization
from
discontinued
operations
FFO
allocated
to
noncontrolling
interests
in
consolidated
joint
ventures
(1)
Funds
from
consolidated
hotel
operations
applicable
to
common
shareholders
and
Partnership
units
32,752
$
335
1,835
(12,096)
(32,121)
10,314
55,784
7,050
8,376
$
(158)
2,124
-‐
(11,231)
-‐
48,243
9,148
(35,733)
(1,734)
(1,290)
-‐
(991)
30,248
40,562
15,142
-‐
-‐
147
63,853
56,502
46,351
(Loss)
income
from
Unconsolidated
Joint
Ventures
(1,835)
(2,124)
1,290
Loss
(gain)
from
remeasurement
of
investment
in
unconsolidated
joint
ventures
Impairment
of
investment
in
unconsolidated
joint
ventures
Depreciation
and
amortization
of
purchase
price
in
excess
of
historical
cost
(2)
Interest
in
depreciation
and
amortization
of
unconsolidated
joint
ventures
(3)
Funds
from
unconsolidated
joint
ventures
operations
applicable
to
common
shareholders
and
Partnership
units
Funds
from
Operations
applicable
to
common
shareholders
and
Partnership
units
Weighted
Average
Common
Shares
and
Units
Outstanding
-‐
1,813
596
6,068
6,642
1,892
-‐
902
5,441
6,111
(2,757)
1,677
1,965
5,906
8,081
$
70,495
$
62,613
$
54,432
198,390,450
208,886,212
187,415,270
198,110,615
168,753,382
181,090,322
Adjustment
made
to
deduct
FFO
related
to
the
noncontrolling
interest
in
our
consolidated
joint
ventures.
Represents
the
portion
of
net
income
and
depreciation
allocated
to
our
joint
venture
partners.
Adjustment
made
to
add
depreciation
of
purchase
price
in
excess
of
historical
cost
of
the
assets
in
the
unconsolidated
joint
venture
at
the
time
of
our
investment.
Adjustment
made
to
add
our
interest
in
real
estate
related
depreciation
and
amortization
of
our
unconsolidated
joint
ventures.
Allocation
of
depreciation
and
amortization
is
consistent
with
allocation
of
income
and
loss.
29
Basic
Diluted
(1)
(2)
(3)
annual report 2013
Certain
amounts
related
to
depreciation
and
amortization
and
depreciation
and
amortization
from
discontinued
operations
in
the
prior
year
FFO
reconciliation
have
been
recast
to
conform
to
the
current
year
presentation.
In
addition,
based
on
guidance
provided
by
NAREIT,
we
have
eliminated
loss
from
the
impairment
of
certain
depreciable
assets,
including
investments
in
unconsolidated
joint
ventures
and
land,
from
net
income
(loss)
to
arrive
at
FFO
in
each
year
presented.
INFLATION
Operators
of
hotel
properties,
in
general,
possess
the
ability
to
adjust
room
rates
daily
to
reflect
the
effects
of
inflation.
However,
competitive
pressures
may
limit
the
ability
of
our
management
companies
to
raise
room
rates.
CRITICAL
ACCOUNTING
POLICIES
AND
ESTIMATES
Our
discussion
and
analysis
of
our
financial
condition
and
results
of
operations
are
based
upon
our
consolidated
financial
statements,
which
have
been
prepared
in
accordance
with
accounting
principles
generally
accepted
in
the
United
States.
The
preparation
of
these
financial
statements
requires
us
to
make
estimates
and
judgments
that
affect
the
reported
amounts
of
assets,
liabilities,
revenues
and
expenses,
and
related
disclosure
of
contingent
assets
and
liabilities.
On
an
on-‐going
basis,
estimates
are
evaluated
by
us,
including
those
related
to
carrying
value
of
investments
in
hotel
properties.
Our
estimates
are
based
upon
historical
experience
and
on
various
other
assumptions
we
believe
to
be
reasonable
under
the
circumstances,
the
results
of
which
form
the
basis
for
making
judgments
about
the
carrying
values
of
assets
and
liabilities
that
are
not
readily
apparent
from
other
sources.
Actual
results
may
differ
from
these
estimates
under
different
assumptions
or
conditions.
We
believe
the
following
critical
accounting
policies
affect
our
more
significant
judgments
and
estimates
used
in
the
preparation
of
our
consolidated
financial
statements:
Revenue
Recognition
Approximately
95%
of
our
revenues
are
derived
from
hotel
room
revenues
and
revenue
from
other
hotel
operating
departments.
We
directly
recognize
revenue
and
expense
for
all
consolidated
hotels
as
hotel
operating
revenue
and
hotel
operating
expense
when
earned
and
incurred.
These
revenues
are
recorded
net
of
any
sales
or
occupancy
taxes
collected
from
our
guests.
All
revenues
are
recorded
on
an
accrual
basis,
as
earned.
We
participate
in
frequent
guest
programs
sponsored
by
the
brand
owners
of
our
hotels
and
we
expense
the
charges
associated
with
those
programs,
as
incurred.
Revenue
for
interest
on
development
loan
financing
is
recorded
in
the
period
earned
based
on
the
interest
rate
of
the
loan
and
outstanding
balance
during
the
period.
Development
loans
receivable
and
accrued
interest
on
the
development
loans
receivable
are
evaluated
to
determine
if
outstanding
balances
are
collectible.
Interest
is
recorded
only
if
it
is
determined
the
outstanding
loan
balance
and
accrued
interest
balance
are
collectible.
Other
revenues
consist
primarily
of
fees
earned
for
asset
management
services
provided
to
hotels
we
own
through
unconsolidated
joint
ventures.
Fees
are
earned
as
a
percentage
of
hotel
revenue
and
are
recorded
in
the
period
earned.
Investment
in
Hotel
Properties
Investments
in
hotel
properties
are
recorded
at
cost.
Improvements
and
replacements
are
capitalized
when
they
extend
the
useful
life
of
the
asset.
Costs
of
repairs
and
maintenance
are
expensed
as
incurred.
30
hersha hospitality trust
Depreciation
is
computed
using
the
straight-‐line
method
over
the
estimated
useful
life
of
up
to
40
years
for
buildings
and
improvements,
two
to
seven
years
for
furniture,
fixtures
and
equipment.
We
are
required
to
make
subjective
assessments
as
to
the
useful
lives
of
our
properties
for
purposes
of
determining
the
amount
of
depreciation
to
record
on
an
annual
basis
with
respect
to
our
investments
in
hotel
properties.
These
assessments
have
a
direct
impact
on
our
net
income
because
if
we
were
to
shorten
the
expected
useful
lives
of
our
investments
in
hotel
properties
we
would
depreciate
these
investments
over
fewer
years,
resulting
in
more
depreciation
expense
and
lower
net
income
on
an
annual
basis.
Most
identifiable
assets,
liabilities,
noncontrolling
interests,
and
goodwill
related
to
hotel
properties
acquired
in
a
business
combination
are
recorded
at
full
fair
value.
Estimating
techniques
and
assumptions
used
in
determining
fair
values
involve
significant
estimates
and
judgments.
These
estimates
and
judgments
have
a
direct
impact
on
the
carrying
value
of
our
assets
and
liabilities
which
can
directly
impact
the
amount
of
depreciation
expense
recorded
on
an
annual
basis
and
could
have
an
impact
on
our
assessment
of
potential
impairment
of
our
investment
in
hotel
properties.
The
operations
related
to
properties
that
have
been
sold
or
properties
that
are
intended
to
be
sold
are
presented
as
discontinued
operations
in
the
statement
of
operations
for
all
periods
presented,
and
properties
intended
to
be
sold
are
designated
as
“held
for
sale”
on
the
balance
sheet.
Based
on
the
occurrence
of
certain
events
or
changes
in
circumstances,
we
review
the
recoverability
of
the
property’s
carrying
value.
Such
events
or
changes
in
circumstances
include
the
following:
•
•
•
•
•
•
a
significant
decrease
in
the
market
price
of
a
long-‐lived
asset;
a
significant
adverse
change
in
the
extent
or
manner
in
which
a
long-‐lived
asset
is
being
used
or
in
its
physical
condition;
a
significant
adverse
change
in
legal
factors
or
in
the
business
climate
that
could
affect
the
value
of
a
long-‐lived
asset,
including
an
adverse
action
or
assessment
by
a
regulator;
an
accumulation
of
costs
significantly
in
excess
of
the
amount
originally
expected
for
the
acquisition
or
construction
of
a
long-‐lived
asset;
a
current-‐period
operating
or
cash
flow
loss
combined
with
a
history
of
operating
or
cash
flow
losses
or
a
projection
or
forecast
that
demonstrates
continuing
losses
associated
with
the
use
of
a
long-‐lived
asset;
and
a
current
expectation
that,
it
is
more
likely
than
not
that,
a
long-‐lived
asset
will
be
sold
or
otherwise
disposed
of
significantly
before
the
end
of
its
previously
estimated
useful
life.
We
review
our
portfolio
on
an
on-‐going
basis
to
evaluate
the
existence
of
any
of
the
aforementioned
events
or
changes
in
circumstances
that
would
require
us
to
test
for
recoverability.
In
general,
our
review
of
recoverability
is
based
on
an
estimate
of
the
future
undiscounted
cash
flows,
excluding
interest
charges,
expected
to
result
from
the
property’s
use
and
eventual
disposition.
These
estimates
consider
factors
such
as
expected
future
operating
income,
market
and
other
applicable
trends
and
residual
value
expected,
as
well
as
the
effects
of
hotel
demand,
competition
and
other
factors.
If
impairment
exists
due
to
the
inability
to
recover
the
carrying
value
of
a
property,
an
impairment
loss
is
recorded
to
the
extent
that
the
carrying
value
exceeds
the
estimated
fair
value
of
the
property.
We
are
required
to
make
subjective
assessments
as
to
whether
there
are
impairments
in
the
values
of
our
investments
in
hotel
properties.
As
of
December
31,
2013,
based
on
our
analysis,
we
have
determined
that
the
future
cash
flow
of
each
of
the
properties
in
our
portfolio
is
sufficient
to
recover
its
carrying
value.
Investment
in
Joint
Ventures
Properties
owned
in
joint
ventures
are
consolidated
if
the
determination
is
made
that
we
are
the
primary
beneficiary
in
a
variable
interest
entity
(VIE)
or
we
maintain
control
of
the
asset
through
our
voting
interest
or
31
annual report 2013
other
rights
in
the
operation
of
the
entity.
To
determine
if
we
are
the
primary
beneficiary
of
a
VIE,
we
evaluate
whether
we
have
a
controlling
financial
interest
in
that
VIE.
An
enterprise
is
deemed
to
have
a
controlling
financial
interest
if
it
has
i)
the
power
to
direct
the
activities
of
a
variable
interest
entity
that
most
significantly
impact
the
entity’s
economic
performance,
and
ii)
the
obligation
to
absorb
losses
of
the
VIE
that
could
be
significant
to
the
VIE
or
the
rights
to
receive
benefits
from
the
VIE
that
could
be
significant
to
the
VIE.
Control
can
also
be
demonstrated
by
the
ability
of
a
member
to
manage
day-‐to-‐day
operations,
refinance
debt
and
sell
the
assets
of
the
partnerships
without
the
consent
of
the
other
member
and
the
inability
of
the
members
to
replace
the
managing
member.
This
evaluation
requires
significant
judgment.
If
it
is
determined
that
we
do
not
have
a
controlling
interest
in
a
joint
venture,
either
through
our
financial
interest
in
a
VIE
or
our
voting
interest
in
a
voting
interest
entity,
the
equity
method
of
accounting
is
used.
Under
this
method,
the
investment,
originally
recorded
at
cost,
is
adjusted
to
recognize
our
share
of
net
earnings
or
losses
of
the
affiliates
as
they
occur
rather
than
as
dividends
or
other
distributions
are
received,
limited
to
the
extent
of
our
investment
in,
advances
to
and
commitments
for
the
investee.
Pursuant
to
our
joint
venture
agreements,
allocations
of
profits
and
losses
of
some
of
our
investments
in
unconsolidated
joint
ventures
may
be
allocated
disproportionately
as
compared
to
nominal
ownership
percentages
due
to
specified
preferred
return
rate
thresholds.
The
Company
periodically
reviews
the
carrying
value
of
its
investment
in
unconsolidated
joint
ventures
to
determine
if
circumstances
exist
indicating
impairment
to
the
carrying
value
of
the
investment
that
is
other
than
temporary.
When
an
impairment
indicator
is
present,
we
will
estimate
the
fair
value
of
the
investment.
Our
estimate
of
fair
value
takes
into
consideration
factors
such
as
expected
future
operating
income,
trends
and
prospects,
as
well
as
the
effects
of
demand,
competition
and
other
factors.
This
determination
requires
significant
estimates
by
management,
including
the
expected
cash
flows
to
be
generated
by
the
assets
owned
and
operated
by
the
joint
venture.
Subsequent
changes
in
estimates
could
impact
the
determination
of
whether
impairment
exists.
To
the
extent
impairment
has
occurred,
the
loss
will
be
measured
as
the
excess
of
the
carrying
amount
over
the
fair
value
of
our
investment
in
the
unconsolidated
joint
venture.
Development
Loans
Receivable
The
Company
accounts
for
the
credit
risk
associated
with
its
development
loans
receivable
by
monitoring
the
portfolio
for
indications
of
impairment.
Our
methodology
consists
of
the
following:
•
•
Identifying
loans
for
individual
review.
In
general,
these
consist
of
development
loans
that
are
not
performing
in
accordance
with
the
contractual
terms
of
the
loan.
Assessing
whether
the
loans
identified
for
review
are
impaired.
That
is,
whether
it
is
probable
that
all
amounts
will
not
be
collected
according
to
the
contractual
terms
of
the
loan
agreement.
We
determine
the
amount
of
impairment
by
calculating
the
estimated
fair
value,
discounted
cash
flows
or
the
value
of
the
underlying
collateral.
Any
charge
to
earnings
necessary
based
on
our
review
is
recorded
on
our
income
statement
as
an
impairment
of
a
development
loan
receivable.
Our
assessment
of
impairment
is
based
on
information
known
at
the
time
of
the
review.
Changes
in
factors
underlying
the
assessment
could
have
a
material
impact
on
the
amount
of
impairment
to
be
charged
against
earnings.
Such
changes
could
impact
future
results.
Based
on
our
reviews,
we
determined
that
it
is
probable
that
all
amounts
will
be
collected
according
to
the
contractual
terms
of
each
of
our
development
loan
agreements.
Accounting
for
Derivative
Financial
Investments
and
Hedging
Activities
We
use
derivatives
to
hedge,
fix
and
cap
interest
rate
risk
and
we
account
for
our
derivative
and
hedging
activities
by
recording
all
derivative
instruments
at
fair
value
on
the
balance
sheet.
Derivative
instruments
designated
32
hersha hospitality trust
in
a
hedge
relationship
to
mitigate
exposure
to
variability
in
expected
future
cash
flows,
or
other
types
of
forecasted
transactions,
are
considered
cash
flow
hedges.
We
formally
document
all
relationships
between
hedging
instruments
and
hedged
items,
as
well
as
our
risk-‐management
objective
and
strategy
for
undertaking
each
hedge
transaction.
Cash
flow
hedges
that
are
considered
highly
effective
are
accounted
for
by
recording
the
fair
value
of
the
derivative
instrument
on
the
balance
sheet
as
either
an
asset
or
liability,
with
a
corresponding
amount
recorded
in
other
comprehensive
income
within
shareholders’
equity.
Amounts
are
reclassified
from
other
comprehensive
income
to
the
income
statements
in
the
period
or
periods
the
hedged
forecasted
transaction
affects
earnings.
Under
cash
flow
hedges,
derivative
gains
and
losses
not
considered
highly
effective
in
hedging
the
change
in
expected
cash
flows
of
the
hedged
item
are
recognized
immediately
in
the
income
statement.
For
hedge
transactions
that
do
not
qualify
for
the
short-‐cut
method,
at
the
hedge’s
inception
and
on
a
regular
basis
thereafter,
a
formal
assessment
is
performed
to
determine
whether
changes
in
the
cash
flows
of
the
derivative
instruments
have
been
highly
effective
in
offsetting
changes
in
cash
flows
of
the
hedged
items
and
whether
they
are
expected
to
be
highly
effective
in
the
future.
RELATED
PARTY
TRANSACTIONS
We
have
entered
into
a
number
of
transactions
and
arrangements
that
involve
related
parties.
For
a
description
of
the
transactions
and
arrangements,
please
see
Note
7,
“Commitments
and
Contingencies
and
Related
Party
Transactions,”
to
the
consolidated
financial
statements.
CONTRACTUAL
OBLIGATIONS
AND
COMMERCIAL
COMMITMENTS
The
following
table
summarizes
our
contractual
obligations
and
commitments
to
make
future
payments
under
contracts,
such
as
debt
and
lease
agreements,
as
of
December
31,
2013.
Contractual
Obligations
Long
Term
Debt
Interest
Expense
on
Long
Term
Debt
Unsecured
Term
Loan
Unsecured
Line
of
Credit
Interest
Expense
on
Unsecured
Term
Loan
Hotel
Ground
Rent
Total
$
$
2016
2017
2015
2014
17,500
$
100,188
$
302,648
$
181,184
$
35,229
-‐
-‐
4,815
735
30,161
150,000
-‐
4,414
735
21,417
-‐
-‐
-‐
735
3,984
-‐
-‐
-‐
735
58,279
$
285,498
$
324,800
$
185,903
$
2018
13,802
$
1,717
-‐
-‐
-‐
735
Thereafter
51,548
30,067
-‐
-‐
-‐
60,930
16,254
$
142,545
33
annual report 2013
Item
7A
.
Quantitative
and
Qualitative
Disclosures
About
Market
Risk
(in
thousands,
except
per
share
data)
Our
primary
market
risk
exposure
is
to
changes
in
interest
rates
on
our
variable
rate
debt
which
has
not
been
effectively
hedged
with
interest
swaps
or
interest
rate
caps.
As
of
December
31,
2013,
we
are
exposed
to
interest
rate
risk
with
respect
to
variable
rate
borrowings
under
our
$400,000
credit
facility
and
certain
variable
rate
mortgages
and
notes
payable.
As
of
December
31,
2013,
we
had
total
variable
rate
debt
outstanding
of
$125,025
with
a
weighted
average
interest
rate
of
3.82%.
The
effect
of
a
100
basis
point
increase
or
decrease
in
the
interest
rate
on
our
variable
rate
debt
outstanding
as
of
December
31,
2013
would
be
an
increase
or
decrease
in
our
interest
expense
for
the
twelve
months
ended
December
31,
2013
of
$1,627.
Our
interest
rate
risk
objectives
are
to
limit
the
impact
of
interest
rate
fluctuations
on
earnings
and
cash
flows
and
to
lower
our
overall
borrowing
costs.
To
achieve
these
objectives,
we
manage
our
exposure
to
fluctuations
in
market
interest
rates
for
a
portion
of
our
borrowings
through
the
use
of
fixed
rate
debt
instruments
to
the
extent
that
reasonably
favorable
rates
are
obtainable
with
such
arrangements.
We
have
also
entered
into
derivative
financial
instruments
such
as
interest
rate
swaps
or
caps,
and
in
the
future
may
enter
into
treasury
options
or
locks,
to
mitigate
our
interest
rate
risk
on
a
related
financial
instrument
or
to
effectively
lock
the
interest
rate
on
a
portion
of
our
variable
rate
debt.
As
of
December
31,
2013,
we
have
an
interest
rate
cap
related
to
debt
on
the
Hotel
373,
New
York,
NY,
Hyatt
Union
Square,
New
York,
NY
and
our
two
subordinated
notes
payable,
and
we
have
four
interest
rate
swaps
related
to
debt
on
the
Courtyard
by
Marriott,
Westside,
Los
Angeles,
CA,
Capitol
Hill
Hotel,
Washington
DC,
Courtyard
by
Marriott,
Miami
Beach,
FL,
and
our
corporate
credit
facility.
We
do
not
intend
to
enter
into
derivative
or
interest
rate
transactions
for
speculative
purposes.
As
of
December
31,
2013
all
of
our
outstanding
consolidated
long-‐term
indebtedness
(excluding
$45,835
in
outstanding
mortgage
indebtedness
related
to
assets
held
for
sale)
is
subject
to
fixed
rates
or
effectively
capped,
including
borrowings
under
our
$400,000
revolving
credit
facility.
Changes
in
market
interest
rates
on
our
fixed-‐rate
debt
impact
the
fair
value
of
the
debt,
but
such
changes
have
no
impact
on
interest
expense
incurred.
If
interest
rates
rise
100
basis
points
and
our
fixed
rate
debt
balance
remains
constant,
we
expect
the
fair
value
of
our
debt
to
decrease.
The
sensitivity
analysis
related
to
our
fixed-‐rate
debt
assumes
an
immediate
100
basis
point
move
in
interest
rates
from
their
December
31,
2013
levels,
with
all
other
variables
held
constant.
A
100
basis
point
increase
in
market
interest
rates
would
cause
the
fair
value
of
our
fixed-‐rate
debt
outstanding
at
December
31,
2013
to
be
approximately
$811,850
and
a
100
basis
point
decrease
in
market
interest
rates
would
cause
the
fair
value
of
our
fixed-‐rate
debt
outstanding
at
December
31,
2013
to
be
approximately
$846,579.
2014
2015
2016
2017
2018
Thereafter
Total
Fixed
Rate
Debt
$
16,298
$
248,910
$
217,597
$
149,403
$
13,802
$
-
5.10%
5.65%
5.52%
7.15%
7.15%
0.00%
$
646,010
6.11%
Weighted
Average
Interest
Rate
Floating
Rate
Debt
Weighted
Average
Interest
Rate
Discontinued
Operations
Weighted
Average
Interest
Rate
$
372
$
3.81%
396
$
3.81%
55,420
$
3.37%
17,289
$
-
$
3.16%
3.16%
51,548
$
125,025
3.41%
3.16%
$
830
$
882
$
29,631
$
14,492
$
5.92%
5.92%
5.59%
5.59%
$
-
-
-
-
$
45,835
5.75%
$
17,500
$
250,188
$
302,648
$
181,184
$
13,802
$
51,548
$
816,870
The
table
incorporates
only
those
exposures
that
existed
as
of
December
31,
2013,
and
does
not
consider
34
hersha hospitality trust
exposure
or
positions
that
could
arise
after
that
date.
As
a
result,
our
ultimate
realized
gain
or
loss
with
respect
to
interest
rate
fluctuations
will
depend
on
the
exposures
that
arise
during
the
future
period,
prevailing
interest
rates,
and
our
hedging
strategies
at
that
time.
The
following
table
illustrates
expected
principal
repayments
and
certain
adjustments
to
reflect:
•
•
the
Company’s
exercise
of
each
of
the
extension
options
within
its
discretion
or
upon
lender
approval,
and
the
lender’s
extension
of
the
maturity
of
the
revolving
line
of
credit
extension
option.
2014
2015
2016
2017
2018
Thereafter
Total
Principal
repayments
due
as
of
December
31,
2013,
as
noted
above
$
17,500
$
250,188
$
302,648
$
181,184
$
13,802
$
51,548
$
816,870
Less:
Discontinued
Operations
(1)
($830)
($882)
($29,631)
($14,492)
-
-
($45,835)
Adjustments:
Extension
Options
(2)
Courtyard
-‐
Miami
Beach
Oceanfront
(3)
Courtyard
-‐
Los
Angeles,
CA
(4)
-‐
-‐
-‐
(60,000)
60,000
-‐
-‐
-‐
(24,000)
24,000
Capitol
Hill
Hotel
-‐
Washington
DC
(5)
-‐
(23,635)
1,467
22,168
Hyatt
Union
Square
-‐
New
York,
NY
(6)
-‐
-‐
(55,000)
55,000
Unsecured
Term
Loan
(7)
-‐
(150,000)
-‐
150,000
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
As
Adjusted
Principal
Repayments
$
16,670
$
75,671
$
159,484
$
429,860
$
37,802
$
51,548
$
771,035
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Represents
the
remaining
4
properties
with
mortgage
debt
under
definitive
agreement
to
be
sold
to
Blackstone.
Adjustments
include
amortization
of
principal
scheduled
to
occur
subsequent
to
December
31,
2013
through
maturity
date
and
extended
maturity
date
if
options
are
exercised.
Represents
mortgage
debt
on
the
Courtyard
Miami
Beach
Oceanfront.
The
loan
is
schedule
to
mature
in
July
2016
and
maintains
a
one-‐year
extension
option.
Represents
the
mortgage
debt
on
the
Courtyard,
Los
Angeles,
CA,
which
contains
a
one-‐year
extension
option,
which
is
subject
to
the
lender's
approval
in
its
discretion,
effectively
extending
the
maturity
from
September
2017
to
September
2018.
Represents
mortgage
debt
on
the
Capitol
Hill
Hotel,
Washington
DC,
which
contains
a
two-‐year
extension
option,
which
is
subject
to
the
lender's
approval
in
its
discretion,
effectively
extending
the
maturity
from
February
2015
to
February
2017.
Represents
the
mortgage
debt
on
the
Hyatt
Union
Square
New
York,
which
contains
a
one-‐year
extension
option,
subject
to
the
lender's
approval
at
its
discretion,
effectively
extending
the
maturity
from
April
of
2016
to
April
2017.
Represents
the
Unsecured
Term
loan,
which
contains
two
one-‐year
extension
options,
which
are
subject
to
the
lenders'
approval
in
its
discretion,
effectively
extending
the
maturity
from
November
2015
to
November
2017.
35
annual report 2013
Item
8.
Financial
Statements
and
Supplementary
Data
Hersha
Hospitality
Trust
Report
of
Independent
Registered
Public
Accounting
Firm
Consolidated
Balance
Sheets
as
of
December
31,
2013
and
2012
Consolidated
Statement
of
Operations
for
the
years
ended
December
31,
2013,
2012,
and
2011
Consolidated
Statements
of
Comprehensive
Income
(Loss)
for
the
years
ended
December
31,
2013,
2012,
and
2011
Consolidated
Statements
of
Equity
for
the
years
ended
December
31,
2013,
2012
and
2011
Consolidated
Statements
of
Cash
Flows
for
the
years
ended
December
31,
2013,
2012
and
2011
Notes
to
Consolidated
Financial
Statements
Schedule
III
-‐
Real
Estate
and
Accumulated
Depreciation
for
the
year
ended
December
31,
2013
Page
37
38
39
41
42
44
46
92
36
hersha hospitality trust
Report
of
Independent
Registered
Public
Accounting
Firm
The
Board
of
Trustees
and
Shareholders
of
Hersha
Hospitality
Trust:
We
have
audited
the
accompanying
consolidated
balance
sheets
of
Hersha
Hospitality
Trust
and
subsidiaries
as
of
December
31,
2013
and
2012,
and
the
related
consolidated
statements
of
operations,
comprehensive
(loss)
income,
equity,
and
cash
flows
for
each
of
the
years
in
the
three-‐year
period
ended
December
31,
2013.
In
connection
with
our
audits
of
the
consolidated
financial
statements,
we
have
also
audited
the
financial
statement
schedule
as
listed
in
the
accompanying
index.
These
consolidated
financial
statements
and
financial
statement
schedule
are
the
responsibility
of
Hersha
Hospitality
Trust’s
management.
Our
responsibility
is
to
express
an
opinion
on
these
consolidated
financial
statements
and
financial
statement
schedule
based
on
our
audits.
We
conducted
our
audits
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States).
Those
standards
require
that
we
plan
and
perform
the
audits
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
audits
provide
a
reasonable
basis
for
our
opinion.
In
our
opinion,
the
consolidated
financial
statements
referred
to
above
present
fairly,
in
all
material
respects,
the
financial
position
of
Hersha
Hospitality
Trust
and
subsidiaries
as
of
December
31,
2013
and
2012,
and
the
results
of
their
operations
and
their
cash
flows
for
each
of
the
years
in
the
three-‐year
period
ended
December
31,
2013,
in
conformity
with
U.S.
generally
accepted
accounting
principles.
Also
in
our
opinion,
the
related
financial
statement
schedule,
when
considered
in
relation
to
the
basic
consolidated
financial
statements
taken
as
a
whole,
presents
fairly,
in
all
material
respects,
the
information
set
forth
therein.
We
have
also
audited,
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States),
Hersha
Hospitality
Trust
and
subsidiaries’
internal
control
over
financial
reporting
as
of
December
31,
2013,
based
on
criteria
established
in
Internal
Control
-‐
Integrated
Framework
(1992)
issued
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission
(COSO),
and
our
report
dated
February
26,
2014,
expressed
an
unqualified
opinion
on
the
effectiveness
of
the
Company’s
internal
control
over
financial
reporting.
/s/
KPMG
LLP
Philadelphia,
Pennsylvania
February
26,
2014
37
hersha hospitality trust and subsidiaries
consolidated balance sheets
as of december 31, 2013 and 2012
[in thousands, except share/unit and per share amounts]
Assets:
Investment
in
Hotel
Properties,
Net
of
Accumulated
Depreciation,
Including
Consolidation
of
Variable
Interest
Entity
Assets
of
$85,759
and
$86,657
$
1,535,835
$
1,466,713
December
31,
2013
December
31,
2012
Investment
in
Unconsolidated
Joint
Ventures
Development
Loans
Receivable
Cash
and
Cash
Equivalents
Escrow
Deposits
Hotel
Accounts
Receivable,
Net
of
Allowance
for
Doubtful
Accounts
of
$43
and
$365
Deferred
Financing
Costs,
Net
of
Accumulated
Amortization
of
$7,070
and
$4,841
Due
from
Related
Parties
Intangible
Assets,
Net
of
Accumulated
Amortization
of
$3,227
and
$2,413
Deposits
on
Hotel
Acquisitions
Other
Assets
Hotel
Assets
Held
for
Sale
Total
Assets
Liabilities
and
Equity:
Line
of
Credit
Unsecured
Term
Loan
Unsecured
Notes
Payable
Mortgages
Payable,
including
Net
Unamortized
Premium
and
Consolidation
of
Variable
Interest
Entity
Debt
of
$55,714
and
$57,256
Accounts
Payable,
Accrued
Expenses
and
Other
Liabilities
Dividends
and
Distributions
Payable
Due
to
Related
Parties
Liabilities
Related
to
Hotel
Assets
Held
for
Sale
Total
Liabilities
12,044
-‐
36,213
25,938
9,141
7,570
11,124
7,603
18,586
27,460
56,583
16,007
28,425
69,059
26,792
11,538
8,695
8,488
8,698
37,750
25,514
-‐
$
1,748,097
$
1,707,679
$
-‐
$
-‐
150,000
51,548
100,000
51,548
571,953
641,160
40,852
15,955
4,815
45,835
33,838
15,621
4,403
-‐
880,958
846,570
Redeemable
Noncontrolling
Interests
-‐
Common
Units
(Note
1)
$
-‐
$
15,321
Equity:
Shareholders'
Equity:
Preferred
Shares:
$.01
Par
Value,
29,000,000
shares
Authorized,
7,600,000
Series
B
and
C
Shares
Issued
and
Outstanding
at
December
31,
2013
and
7,000,000
Series
A
and
B
Preferred
Shares
Issued
and
Outstanding
at
December
31,
2012,
with
Liquidation
Preferences
of
$25
Per
Share
(Note
1)
Common
Shares:
Class
A,
$.01
Par
Value,
300,000,000
Shares
Authorized
at
December
31,
2013
and
December
31,
2012,
202,759,419
and
198,672,356
Shares
Issued
and
Outstanding
at
December
31,
2013
and
December
31,
2012,
respectively
Common
Shares:
Class
B,
$.01
Par
Value,
1,000,000
Shares
Authorized,
None
Issued
and
Outstanding
Accumulated
Other
Comprehensive
Loss
Additional
Paid-‐in
Capital
Distributions
in
Excess
of
Net
Income
Total
Shareholders'
Equity
Noncontrolling
Interests
(Note
1):
Noncontrolling
Interests
-‐
Common
Units
Noncontrolling
Interests
-‐
Consolidated
Variable
Interest
Entity
Total
Noncontrolling
Interests
Total
Equity
Total
Liabilities
and
Equity
76
70
2,028
-‐
(376)
1,200,798
(364,568)
837,958
1,986
-‐
(1,786)
1,178,292
(348,734)
829,828
29,523
(342)
29,181
15,484
476
15,960
867,139
845,788
$
1,748,097
$
1,707,679
The
Accompanying
Notes
Are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
38
hersha hospitality trust and subsidiaries
consolidated statements of operations
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
Revenue:
Hotel
Operating
Revenues
Interest
Income
from
Development
Loans
Other
Revenues
Total
Revenues
Operating
Expenses:
Hotel
Operating
Expenses
Gain
on
Insurance
Settlements
Hotel
Ground
Rent
Real
Estate
and
Personal
Property
Taxes
and
Property
Insurance
General
and
Administrative
(including
Share
Based
Payments
of
$9,746,
$9,678
and
$7,590
for
the
years
ended
December
31,
2013,
2012,
and
2011,
respectively)
Acquisition
and
Terminated
Transaction
Costs
Depreciation
and
Amortization
Gain
on
Hotel
Acquisitions,
Net
Total
Operating
Expenses
Operating
Income
Interest
Income
Interest
Expense
Other
Expense
Loss
on
Debt
Extinguishment
Income
(Loss)
Before
(Loss)
Income
from
Unconsolidated
Joint
Venture
Investments,
Income
Taxes
and
Discontinued
Operations
Year
Ended
December
31,
2013
2012
2011
$
$
338,064
158
191
338,413
$
299,005
1,998
212
301,215
229,156
3,427
330
232,913
188,431
(403)
985
24,083
24,025
974
55,784
(12,096)
281,783
161,982
-‐
835
19,341
23,455
1,179
48,243
-‐
255,035
121,402
-‐
877
15,936
18,488
2,734
40,562
-‐
199,999
56,630
46,180
32,914
1,784
39,984
897
545
1,311
37,295
740
3,189
456
33,447
1,011
102
16,988
6,267
(1,190)
(Loss)
Income
from
Unconsolidated
Joint
Ventures
Impairment
of
Investment
in
Unconsolidated
Joint
Venture
(Loss)
Gain
from
Remeasurement
of
Investment
in
Unconsolidated
Joint
Venture
(Loss)
Income
from
Unconsolidated
Joint
Venture
Investments
(22)
(1,813)
-‐
(1,835)
(232)
-‐
(1,892)
(2,124)
210
(1,677)
2,757
1,290
Income
Before
Income
Taxes
Income
Tax
Benefit
15,153
4,143
100
5,600
3,355
-‐
Income
from
Continuing
Operations
20,753
7,498
100
Discontinued
Operations
(Note
12):
Gain
on
Disposition
of
Hotel
Properties
Impairment
of
Discontinued
Assets
Income
from
Discontinued
Operations,
Net
of
Income
Taxes
Income
(Loss)
from
Discontinued
Operations
32,121
(10,314)
7,388
29,195
11,231
-‐
3,489
14,720
991
(30,248)
2,189
(27,068)
Net
Income
(Loss)
49,948
22,218
(26,968)
(Income)
Loss
Allocated
to
Noncontrolling
Interests
Preferred
Distributions
Extinguishment
of
Issuance
Costs
Upon
Redemption
of
Series
A
Preferred
Shares
(335)
(14,611)
(2,250)
158
(14,000)
-‐
1,734
(10,499)
-‐
Net
Income
(Loss)
Applicable
to
Common
Shareholders
$
32,752
$
8,376
$
(35,733)
The
Accompanying
Notes
Are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
39
hersha hospitality trust and subsidiaries
consolidated statement of operations
for the year ended december 31, 2013, 2012, 2011
[in thousands, except share/unit and per share amounts]
Year
Ended
December
31,
2013
2012
2011
Earnings
Per
Share:
BASIC
Income
(Loss)
from
Continuing
Operations
Applicable
to
Common
Shareholders
(Loss)
Income
from
Discontinued
Operations
Applicable
to
Common
Shareholders
$
0.02
$
(0.03)
$
(0.06)
0.14
0.08
(0.15)
Net
(Loss)
Income
Applicable
to
Common
Shareholders
$
0.16
$
0.04
$
(0.21)
DILUTED
Income
(Loss)
from
Continuing
Operations
Applicable
to
Common
Shareholders
(Loss)
Income
from
Discontinued
Operations
Applicable
to
Common
Shareholders
$
0.02
$
(0.03)
$
(0.06)
0.14
0.08
(0.15)
Net
(Loss)
Income
Applicable
to
Common
Shareholders
$
0.16
$
0.04
$
(0.21)
Weighted
Average
Common
Shares
Outstanding:
Basic
Diluted
∗
198,390,450
201,918,177
*
187,415,270
187,415,270
*
168,753,382
168,753,382
*
Income
(loss)
allocated
to
noncontrolling
interest
in
Hersha
Hospitality
Limited
Partnership
(the
“Operating
Partnership”
or
“HHLP”)
has
been
excluded
from
the
numerator
and
common
units
of
limited
partnership
interest
(“Common
Units”)
in
the
Operating
Partnership
have
been
omitted
from
the
denominator
for
the
purpose
of
computing
diluted
earnings
per
share
since
the
effect
of
including
these
shares
and
units
in
the
numerator
and
denominator
would
have
no
impact.
In
addition,
potentially
dilutive
common
shares,
if
any,
have
been
excluded
from
the
denominator
if
they
are
anti-‐dilutive
to
income
(loss)
from
continuing
operations
applicable
to
common
shareholders.
The
following
table
summarizes
potentially
dilutive
securities
that
have
been
excluded
from
the
denominator
for
the
purpose
of
computing
diluted
earnings
per
share:
Year
Ended
December
31,
2013
2012
2011
Common
Units
of
Limited
Partnership
Interest
6,968,035
7,208,123
7,295,112
Unvested
Stock
Awards
Outstanding
Contingently
Issuable
Share
Awards
Options
to
Acquire
Common
Shares
Outstanding
-‐
-‐
-‐
Total
Potentially
Dilutive
Securities
Excluded
from
the
Denominator
6,968,035
433,097
2,778,545
275,580
10,695,345
584,216
2,097,456
2,360,156
12,336,940
The
Accompanying
Notes
Are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
40
hersha hospitality trust and subsidiaries
consolidated statements of comprehensive income (loss)
for the years ended december 31, 2013, 2012, and 2011
[in thousands]
Net
Income
(Loss)
Other
Comprehensive
Income
(Loss)
Change
in
Fair
Value
of
Derivative
Instruments
Less:
Reclassification
Adjustment
for
Change
in
Fair
Value
of
Derivative
Instruments
Included
in
Net
Income
Comprehensive
Income
(Loss)
Less:
Comprehensive
(Income)
Loss
Attributable
to
Noncontrolling
Interests
Less:
Preferred
Distributions
2013
$
49,948
$
2012
22,218
$
2011
(26,968)
2,694
1,073
(1,284)
(1,708)
51,358
(335)
(14,611)
21,583
158
(14,000)
(367)
(446)
(27,781)
1,734
(10,499)
Less:
Extinguishment
of
Issuance
Costs
Upon
Redemption
of
Series
A
Preferred
Shares
(2,250)
Comprehensive
Income
(Loss)
Attributable
to
Common
Shareholders
$
34,162
$
-‐
7,741
$
-‐
(36,546)
The
Accompanying
Notes
are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
41
hersha hospitality trust and subsidiaries
consolidated statements of equity
for the year ended december 31, 2013, 2012, 2011
[in thousands]
Shareholders'
Equity
Common
Shares
Class
A
Common
Shares
($)
Class
B
Common
Shares
($)
Preferred
Shares
Preferred
Shares
($)
Additional
Paid-‐In
Capital
($)
Balance
at
December
31,
2010
169,205,638
1,692
Unit
Conversion
Reallocation
of
Noncontrolling
Interest
195,000
-‐
Preferred
Stock
Issuance
Preferred
Stock
Offering,
Net
of
Costs
Common
Units
Issued
for
Acquisitions
Dividends
and
Distributions
declared:
Common
Stock
($0.23
per
share)
Preferred
Stock
Common
Units
($0.23
per
share)
Dividend
Reinvestment
Plan
Stock
Based
Compensation
Grants
Amortization
Contribution
by
Noncontrolling
Interests
in
Consolidated
Joint
Venture
Deconsolidation
of
Consolidated
Joint
Ventures
Change
in
Fair
Value
of
Derivative
Instruments
Net
Income
(Loss)
-‐
-‐
-‐
-‐
-‐
2,933
566,402
-‐
-‐
-‐
-‐
-‐
2
-‐
-‐
-‐
-‐
-‐
-‐
-‐
5
-‐
-‐
-‐
-‐
-‐
Balance
at
December
31,
2011
Unit
Conversion
Reallocation
of
Noncontrolling
Interest
Common
Stock
Issuance
Common
Stock
Offering,
Net
of
Costs
Common
Stock
Option
Cancellation
Dividends
and
Distributions
declared:
Common
Stock
($0.24
per
share)
Preferred
Stock
Common
Units
($0.24
per
share)
Dividend
Reinvestment
Plan
Stock
Based
Compensation
Grants
Amortization
Consolidation
of
Variable
Interest
Entity
Deconsolidation
of
Consolidated
Joint
Ventures
Change
in
Fair
Value
of
Derivative
Instruments
Net
Income
(Loss)
Balance
at
December
31,
2012
Unit
Conversion/Redemption
Reclassification
of
Noncontrolling
Interest
Preferred
Stock
Preferred
Stock
Offering,
Net
of
Costs
Preferred
Stock
Redemption
Dividends
and
Distributions
declared:
Common
Stock
($0.24
per
share)
Preferred
Stock
Common
Units
($0.24
per
share)
Dividend
Reinvestment
Plan
Stock
Based
Compensation
Grants
Amortization
Change
in
Fair
Value
of
Derivative
Instruments
Net
Income
(Loss)
169,969,973
157,810
-‐
24,000,000
2,521,561
1,699
1
-‐
240
25
-‐
-‐
-‐
5,117
2,017,895
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
21
-‐
-‐
-‐
-‐
-‐
198,672,356
27,790
-‐
1,986
1
-‐
-‐
-‐
-‐
-‐
-‐
7,206
4,052,067
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
41
-‐
-‐
-‐
Balance
at
December
31,
2013
202,759,419
2,028
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
2,400,000
-‐
-‐
4,600,000
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
7,000,000
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
7,000,000
-‐
-‐
-‐
-‐
3,000,000
(2,400,000)
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
Accumulated
Other
Comprehensive
Loss
($)
Distributions
in
Excess
of
Net
Earnings
($)
Total
Shareholders'
Equity
($)
(338)
(236,159)
683,434
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
(813)
-‐
-‐
-‐
-‐
639
3,835
110,977
-‐
(39,080)
(10,499)
(39,080)
(10,499)
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
14
1,635
5,765
-‐
-‐
(813)
-‐
(25,234)
(25,234)
(1,151)
-‐
(310,972)
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
(46,138)
(14,000)
-‐
-‐
-‐
-‐
-‐
-‐
(635)
-‐
(1,786)
-‐
-‐
-‐
22,376
(348,734)
-‐
-‐
730,673
572
(966)
128,558
-
(46,138)
(14,000)
-
24
2,637
6,727
-
-
(635)
22,376
829,828
(233)
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
1,410
-‐
-‐
-‐
72,370
(60,000)
(50,836)
(14,611)
-‐
-‐
-‐
-‐
-‐
49,613
(50,836)
(14,611)
-‐
38
508
9,871
1,410
49,613
24
-‐
-‐
46
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
70
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
70
-‐
-‐
30
(24)
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
918,215
637
3,835
110,931
-‐
-‐
-‐
-‐
14
1,630
5,765
-‐
-‐
-‐
-‐
1,041,027
571
(966)
128,318
(25)
-‐
-‐
-‐
24
2,616
6,727
-‐
-‐
-‐
-‐
1,178,292
(234)
-‐
72,340
(59,976)
-‐
-‐
-‐
38
467
9,871
-‐
-‐
7,600,000
76
1,200,798
(376)
(364,568)
837,958
The
Accompanying
Notes
are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
42
hersha hospitality trust and subsidiaries
consolidated statements of equity
for the years ended december 31, 2013, 2012 and 2011
[in thousands]
Noncontrolling
Interests
Redeemable
Noncontrolling
Interests
Total
Shareholders'
Equity
($)
Shares
Common
Units
($)
Consolidated
Joint
Ventures
($)
Consolidated
Variable
Interest
Entity
($)
Total
Noncontrolling
Interests
($)
Total
Equity
($)
Shares
Common
Units
($)
(1,089)
(26,323)
17,169
(572)
747,842
-‐
3,064,252
-‐
703,318
(229)
3,014,252
50,000
3,822
110,977
204
(39,080)
(10,499)
(969)
14
1,635
5,765
342
(322)
(813)
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
(966)
128,558
-‐
(46,138)
(14,000)
(991)
24
2,637
6,727
956
(307)
(635)
22,081
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
19,894
230
(3,822)
-‐
-‐
-‐
-‐
(702)
-‐
-‐
-‐
-‐
-‐
-‐
(645)
14,955
-‐
966
-‐
-‐
-‐
-‐
(736)
-‐
-‐
-‐
-‐
-‐
-‐
136
845,788
3,064,252
(999)
-‐
15,365
(3,064,252)
15,321
-‐
(15,365)
Balance
at
December
31,
2010
Unit
Conversion
Reallocation
of
Noncontrolling
Interest
Preferred
Stock
Issuance
Preferred
Stock
Offering,
Net
of
Costs
Common
Units
Issued
for
Acquisitions
Dividends
and
Distributions
declared:
Common
Stock
($0.23
per
share)
Preferred
Stock
Common
Units
($0.23
per
share)
Dividend
Reinvestment
Plan
Stock
Based
Compensation
Grants
Amortization
Contribution
by
Noncontrolling
Interests
in
Consolidated
Joint
Venture
Deconsolidation
of
Consolidated
Joint
Ventures
Change
in
Fair
Value
of
Derivative
Instruments
Net
Income
(Loss)
Balance
at
December
31,
2011
Unit
Conversion
Reallocation
of
Noncontrolling
Interest
Common
Stock
Issuance
Common
Stock
Offering,
Net
of
Costs
Common
Stock
Option
Cancellation
Dividends
and
Distributions
declared:
Common
Stock
($0.24
per
share)
Preferred
Stock
Common
Units
($0.24
per
share)
Dividend
Reinvestment
Plan
Stock
Based
Compensation
Grants
Amortization
Consolidation
of
Variable
Interest
Entity
Deconsolidation
of
Consolidated
Joint
Ventures
Change
in
Fair
Value
of
Derivative
Instruments
Net
Income
(Loss)
Balance
at
December
31,
2012
Unit
Conversion/Redemption
Reclassification
of
Noncontrolling
Interest
Preferred
Stock
Preferred
Stock
Offering,
Net
of
Costs
Preferred
Stock
Redemption
Dividends
and
Distributions
declared:
Common
Stock
($0.24
per
share)
Preferred
Stock
Common
Units
($0.24
per
share)
Dividend
Reinvestment
Plan
Stock
Based
Compensation
Grants
Amortization
Change
in
Fair
Value
of
Derivative
Instruments
Net
Income
(Loss)
683,434
639
4,404,660
(245,000)
3,835
-‐
19,410
(868)
(13)
110,977
-‐
-‐
46,404
(39,080)
(10,499)
-‐
14
1,635
5,765
-‐
-‐
(813)
(25,234)
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
730,673
572
4,206,064
(157,810)
(966)
128,558
-‐
(46,138)
(14,000)
-‐
24
2,637
6,727
-‐
-‐
(635)
22,376
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
829,828
4,048,254
(233)
-‐
(197,790)
3,064,252
72,370
(60,000)
(50,836)
(14,611)
-‐
38
508
9,871
1,410
49,613
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
204
-‐
-‐
(969)
-‐
-‐
-‐
-‐
-‐
-‐
(902)
16,862
(572)
-‐
-‐
-‐
-‐
-‐
(991)
-‐
-‐
-‐
-‐
-‐
-‐
185
15,484
(766)
15,365
-‐
-‐
-‐
-‐
(1,669)
-‐
-‐
-‐
-‐
1,109
Balance
at
December
31,
2013
837,958
6,914,716
29,523
474
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
342
(322)
-‐
(187)
307
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
(307)
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
956
-‐
-‐
(480)
476
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
(818)
(342)
19,884
(868)
(13)
-‐
204
-‐
-‐
(969)
-‐
-‐
-‐
342
(322)
-‐
-‐
-‐
-‐
-‐
-‐
(991)
-‐
-‐
-‐
956
(307)
-‐
(295)
15,960
(766)
15,365
-‐
-‐
-‐
-‐
(1,669)
-‐
-‐
-‐
-‐
291
72,370
(60,000)
(50,836)
(14,611)
(1,669)
38
508
9,871
1,410
49,904
29,181
867,139
The
Accompanying
Notes
are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
44
-‐
43
hersha hospitality trust and subsidiaries
consolidated statements of cash flows
for the year ended december 31, 2013, 2012, 2011
[in thousands]
Operating
Activities:
Net
Income
Adjustments
to
Reconcile
Net
Loss
to
Net
Cash
Provided
by
Operating
Activities:
Gain
on
Acquisition
of
Hotel
Assets,
Net
Gain
on
Disposition
of
Hotel
Assets
Impairment
of
Assets
Deferred
Taxes
Depreciation
Amortization
Debt
Extinguishment
Development
Loan
Interest
Added
to
Principal
Equity
in
Loss
(Income)
of
Unconsolidated
Joint
Ventures
Distributions
from
Unconsolidated
Joint
Ventures
Loss
Recognized
on
Change
in
Fair
Value
of
Derivative
Instrument
Stock
Based
Compensation
Expense
Change
in
Assets
and
Liabilities:
(Increase)
Decrease
in:
Hotel
Accounts
Receivable
Escrows
Other
Assets
Due
from
Related
Parties
Increase
(Decrease)
in:
Due
to
Related
Parties
Accounts
Payable,
Accrued
Expenses
and
Other
Liabilities
Net
Cash
Provided
by
Operating
Activities
Investing
Activities:
Purchase
of
Hotel
Property
Assets
Deposits
on
Hotel
Acquisitions,
Net
Capital
Expenditures
Cash
Paid
for
Hotel
Development
Projects
Proceeds
from
Disposition
of
Hotel
Properties
and
Investment
in
Unconsolidated
Joint
Venture
Net
Changes
in
Capital
Expenditure
Escrows
Investment
in
Notes
Receivable
Repayment
of
Notes
Receivable
Proceeds
from
Insurance
Claims
Repayment
of
Development
Loans
Receivable
Distributions
from
Unconsolidated
Joint
Venture
Cash
paid
for
franchise
fee
intangible
Advances
and
Capital
Contributions
to
Unconsolidated
Joint
Ventures
Net
Cash
Used
in
Investing
Activities
$
$
$
2013
2012
2011
$
49,948
$
22,218
$
(26,968)
(12,096)
(32,121)
10,314
(5,500)
61,801
2,545
471
-‐
1,835
568
22
9,746
2,419
476
(4,269)
(2,636)
-‐
(11,231)
-‐
(3,355)
56,071
3,680
2,261
(678)
2,124
1,387
658
9,678
(235)
(1,944)
(2,683)
(5,500)
412
1,541
6,326
90,261
$
(2,236)
71,756
$
-‐
(991)
30,165
-‐
55,704
3,739
145
(2,094)
(1,290)
132
125
7,590
(1,358)
(4,378)
(914)
(1,120)
1,993
(1,812)
58,668
(217,142)
(1,836)
(42,854)
(20,054)
136,015
(1,287)
-‐
-‐
5,001
15,122
1,711
-‐
(150)
(125,474)
$
$
(67,637)
(18,750)
(28,443)
(10,171)
63,722
(4,454)
(150)
1,720
-‐
8,000
476
-‐
(130)
(55,817)
$
$
(167,149)
(18,000)
(26,201)
(32,120)
2,361
(1,299)
-‐
(1,570)
-‐
-‐
-‐
(65)
13,285
(230,758)
The
Accompanying
Notes
are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
44
hersha hospitality trust and subsidiaries
consolidated statements of cash flows
for the years ended december 31, 2013, 2012, and 2011
[in thousands]
Financing
Activities:
Proceeds
from
(Repayments
of)
Borrowings
Under
Line
of
Credit,
Net
Proceeds
from
Unsecured
Term
Loan
Borrowing
Principal
Repayment
of
Mortgages
and
Notes
Payable
Proceeds
from
Mortgages
and
Notes
Payable
Cash
Paid
for
Deferred
Financing
Costs
Proceeds
from
Issuance
of
Preferred
Stock,
Net
Proceeds
from
Issuance
of
Common
Stock,
Net
Redemption
of
Preferred
Stock
Redemption
of
Common
Partnership
Units
Settlement
of
Interest
Rate
Cap
Dividends
Paid
on
Common
Shares
Dividends
Paid
on
Preferred
Shares
Distributions
Paid
on
Common
Partnership
Units
Net
Cash
Provided
by
Financing
Activities
Net
(Decrease)
Increase
in
Cash
and
Cash
Equivalents
Cash
and
Cash
Equivalents
-‐
Beginning
of
Period
2013
2012
2011
$
$
$
-‐
50,000
(54,398)
65,000
(2,283)
72,370
-‐
(60,000)
(1,000)
(565)
(50,553)
(14,522)
(1,682)
2,367
(32,846)
69,059
$
$
$
$
(51,000)
100,000
(187,478)
98,695
(96)
-‐
128,558
-‐
-‐
-‐
(44,391)
(14,000)
(1,736)
28,552
5,000
-‐
(8,193)
71,278
(868)
110,977
-‐
-‐
-‐
-‐
(37,323)
(8,199)
(1,610)
131,062
44,491
24,568
$
(41,028)
65,596
Cash
and
Cash
Equivalents
-‐
End
of
Period
$
36,213
$
69,059
$
24,568
The
Accompanying
Notes
are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
45
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
Hersha
Hospitality
Trust
(“we”
or
the
“Company”)
was
formed
in
May
1998
as
a
self-‐administered,
Maryland
real
estate
investment
trust.
We
have
elected
to
be
taxed
and
expect
to
continue
to
elect
to
be
taxed
as
a
real
estate
investment
trust,
or
REIT,
for
federal
income
tax
purposes.
The
Company
owns
a
controlling
general
partnership
interest
in
Hersha
Hospitality
Limited
Partnership
(“HHLP”
or
the
“Partnership”),
which
owns
a
99%
limited
partnership
interest
in
various
subsidiary
partnerships.
Hersha
Hospitality,
LLC
(“HHLLC”),
a
Virginia
limited
liability
company,
owns
a
1%
general
partnership
interest
in
the
subsidiary
partnerships
and
the
Partnership
is
the
sole
member
of
HHLLC.
The
Partnership
owns
a
taxable
REIT
subsidiary
(“TRS”),
44
New
England
Management
Company
(“44
New
England”
or
“TRS
Lessee”),
which
leases
certain
of
the
Company’s
hotels.
Hersha’s
common
shares
of
beneficial
interest
trade
on
the
New
York
Stock
Exchange
(“the
NYSE”)
under
the
ticker
symbol
"HT",
its
8.0%
Series
B
preferred
shares
of
beneficial
interest
trade
on
the
NYSE
under
the
ticker
symbol
“HT
PR
B”
and
its
6.875%
Series
C
preferred
shares
of
beneficial
interest
trade
on
the
NYSE
under
the
ticker
symbol
“HT
PR
C.”
As
of
December
31,
2013,
the
Company,
through
the
Partnership
and
subsidiary
partnerships,
wholly
owned
48
limited
and
full
service
hotels.
All
of
the
wholly
owned
hotel
facilities
are
leased
to
the
Company’s
TRS,
44
New
England.
In
addition
to
the
wholly
owned
hotel
properties,
as
of
December
31,
2013,
the
Company
owned
joint
venture
interests
in
another
six
properties.
The
properties
owned
by
the
joint
ventures
are
leased
to
a
TRS
owned
by
the
joint
venture
or
to
an
entity
owned
by
the
joint
venture
partners
and
44
New
England.
The
following
table
lists
the
properties
owned
by
these
joint
ventures:
Joint
Venture
Ownership
Property
Location
Lessee/Sublessee
Unconsolidated
Joint
Ventures
Mystic
Partners,
LLC
SB
Partners,
LLC
Hiren
Boston,
LLC
66.7%
8.8%
66.7%
15.0%
50.0%
50.0%
Marriott
Hilton
Courtyard
Marriott
Holiday
Inn
Express
Courtyard
Mystic
Partners
Leaseco,
Mystic,
CT
Mystic
Partners
Leaseco,
Hartford,
CT
Mystic
Partners
Leaseco,
Norwich,
CT
Hartford,
CT
Mystic
Partners
Leaseco,
South
Boston,
MA
South
Bay
Sandeep,
LLC
South
Boston,
MA
South
Bay
Boston,
LLC
LLC
LLC
LLC
LLC
Mystic
Partners,
LLC
owns
an
interest
in
four
hotel
properties.
Our
interest
in
Mystic
Partners,
LLC
is
relative
to
our
interest
in
each
of
the
four
properties
owned
by
the
joint
venture
as
defined
in
the
joint
venture’s
governing
documents.
Each
of
the
four
properties
owned
by
Mystic
Partners,
LLC
is
leased
to
a
separate
entity
that
is
consolidated
in
Mystic
Partners
Leaseco,
LLC,
which
is
owned
by
44
New
England
and
our
joint
venture
partner
in
Mystic
Partners,
LLC.
The
properties
are
managed
by
eligible
independent
management
companies,
including
Hersha
Hospitality
Management,
LP
(“HHMLP”).
HHMLP
is
owned
in
part
by
certain
of
our
trustees
and
executive
officers
and
other
unaffiliated
third
party
investors.
46
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED)
Principles
of
Consolidation
and
Presentation
The
accompanying
consolidated
financial
statements
have
been
prepared
in
accordance
with
U.S.
generally
accepted
accounting
principles
and
include
all
of
our
accounts
as
well
as
accounts
of
the
Partnership,
subsidiary
partnerships
and
our
wholly
owned
TRS
Lessee.
All
significant
inter-‐company
amounts
have
been
eliminated.
Consolidated
properties
are
either
wholly
owned
or
owned
less
than
100%
by
the
Partnership
and
are
controlled
by
the
Company
as
general
partner
of
the
Partnership.
Properties
owned
in
joint
ventures
are
also
consolidated
if
the
determination
is
made
that
we
are
the
primary
beneficiary
in
a
variable
interest
entity
(VIE)
or
we
maintain
control
of
the
asset
through
our
voting
interest
in
the
entity.
Control
can
be
demonstrated
when
the
general
partner
has
the
power
to
impact
the
economic
performance
of
the
partnership,
which
includes
the
ability
of
the
general
partner
to
manage
day-‐to-‐day
operations,
refinance
debt
and
sell
the
assets
of
the
partnerships
without
the
consent
of
the
limited
partners
and
the
inability
of
the
limited
partners
to
replace
the
general
partner.
Control
can
be
demonstrated
by
the
limited
partners
if
the
limited
partners
have
the
right
to
dissolve
or
liquidate
the
partnership
or
otherwise
remove
the
general
partner
without
cause
or
have
rights
to
participate
in
the
significant
decisions
made
in
the
ordinary
course
of
the
partnership’s
business.
We
evaluate
each
of
our
investments
and
contractual
relationships
to
determine
whether
they
meet
the
guidelines
of
consolidation.
Entities
are
consolidated
if
the
determination
is
made
that
we
are
the
primary
beneficiary
in
a
VIE
or
we
maintain
control
of
the
asset
through
our
voting
interest
or
other
rights
in
the
operation
of
the
entity.
To
determine
if
we
are
the
primary
beneficiary
of
a
VIE,
we
evaluate
whether
we
have
a
controlling
financial
interest
in
that
VIE.
An
enterprise
is
deemed
to
have
a
controlling
financial
interest
if
it
has
i)
the
power
to
direct
the
activities
of
a
variable
interest
entity
that
most
significantly
impact
the
entity’s
economic
performance,
and
ii)
the
obligation
to
absorb
losses
of
the
VIE
that
could
be
significant
to
the
VIE
or
the
rights
to
receive
benefits
from
the
VIE
that
could
be
significant
to
the
VIE.
Control
can
also
be
demonstrated
by
the
ability
of
a
member
to
manage
day-‐to-‐day
operations,
refinance
debt
and
sell
the
assets
of
the
partnerships
without
the
consent
of
the
other
member
and
the
inability
of
the
members
to
replace
the
managing
member.
Based
on
our
examination,
the
following
entities
were
determined
to
be
VIE’s:
Mystic
Partners,
LLC;
Mystic
Partners
Leaseco,
LLC;
South
Bay
Boston,
LLC;
Brisam
Management
DE,
LLC;
Hersha
Statutory
Trust
I;
and
Hersha
Statutory
Trust
II.
Mystic
Partners,
LLC
is
a
VIE
entity,
however
because
we
are
not
the
primary
beneficiary
it
is
not
consolidated
by
the
Company.
Our
maximum
exposure
to
losses
due
to
our
investment
in
Mystic
Partners,
LLC
is
limited
to
our
investment
in
the
joint
venture
which
is
$6,210
as
of
December
31,
2013.
Also,
Mystic
Partners
Leaseco,
LLC;
and
South
Bay
Boston,
LLC
lease
hotel
properties
from
our
joint
venture
interests
and
are
VIEs.
These
entities
are
consolidated
by
the
lessors,
the
primary
beneficiaries
of
each
entity.
Brisam
Management
DE,
LLC
is
consolidated
in
our
financial
statements,
as
we
are
considered
to
be
the
primary
beneficiary.
Hersha
Statutory
Trust
I
and
Hersha
Statutory
Trust
II
are
VIEs
but
HHLP
is
not
the
primary
beneficiary
in
these
entities.
Accordingly,
the
accounts
of
Hersha
Statutory
Trust
I
and
Hersha
Statutory
Trust
II
are
not
consolidated
with
and
into
HHLP.
We
allocate
resources
and
assess
operating
performance
based
on
individual
hotels
and
consider
each
one
of
our
hotels
to
be
an
operating
segment.
All
of
our
individual
operating
segments
meet
the
aggregation
criteria.
All
of
our
other
real
estate
investment
activities
are
immaterial
and
meet
the
aggregation
criteria,
and
thus,
we
report
one
segment:
investment
in
hotel
properties.
Use
of
Estimates
The
preparation
of
financial
statements
in
conformity
with
accounting
principles
generally
accepted
in
the
United
States
(US
GAAP)
requires
management
to
make
estimates
and
assumptions
that
affect
the
reported
amount
of
assets
and
liabilities
and
disclosure
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.
47
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED)
Although
we
believe
the
assumptions
and
estimates
we
made
are
reasonable
and
appropriate,
as
discussed
in
the
applicable
sections
throughout
these
Consolidated
Financial
Statements,
different
assumptions
and
estimates
could
materially
impact
our
reported
results.
The
current
economic
environment
has
increased
the
degree
of
uncertainty
inherent
in
these
estimates
and
assumptions
and
changes
in
market
conditions
could
impact
our
future
operating
results.
Investment
in
Hotel
Properties
The
Company
allocates
the
purchase
price
of
hotel
properties
acquired
based
on
the
fair
value
of
the
acquired
real
estate,
furniture,
fixtures
and
equipment,
and
intangible
assets
and
the
fair
value
of
liabilities
assumed,
including
debt.
The
fair
value
allocations
were
determined
using
Level
3
inputs,
which
are
typically
unobservable
and
are
based
on
our
own
assumptions,
as
there
is
little,
if
any,
related
market
activity.
The
Company’s
investments
in
hotel
properties
are
carried
at
cost
and
are
depreciated
using
the
straight-‐line
method
over
the
following
estimated
useful
lives:
Building
and
Improvements
Furniture,
Fixtures
and
Equipment
7
to
40
Years
2
to
7
Years
The
Company
periodically
reviews
the
carrying
value
of
each
hotel
to
determine
if
circumstances
indicate
impairment
to
the
carrying
value
of
the
investment
in
the
hotel
or
that
depreciation
periods
should
be
modified.
If
facts
or
circumstances
support
the
possibility
of
impairment,
the
Company
will
prepare
an
estimate
of
the
undiscounted
future
cash
flows,
without
interest
charges,
of
the
specific
hotel.
Based
on
the
properties
undiscounted
future
cash
flows,
the
Company
will
determine
if
the
investment
in
such
hotel
is
recoverable.
If
impairment
is
indicated,
an
adjustment
will
be
made
to
reduce
the
carrying
value
of
the
hotel
to
reflect
the
hotel
at
fair
value.
We
consider
a
hotel
to
be
held
for
sale
when
management
and
our
independent
trustees
commit
to
a
plan
to
sell
the
property,
the
property
is
available
for
sale,
management
engages
in
an
active
program
to
locate
a
buyer
for
the
property
and
it
is
probable
the
sale
will
be
completed
within
a
year
of
the
initiation
of
the
plan
to
sell.
Acquisition-‐related
cost,
such
as
due
diligence,
legal
and
accounting
fees,
are
not
capitalized
or
applied
in
determining
the
fair
value
of
the
above
acquired
assets.
Investment
in
Unconsolidated
Joint
Ventures
If
it
is
determined
that
we
do
not
have
a
controlling
interest
in
a
joint
venture,
either
through
our
financial
interest
in
a
VIE
or
our
voting
interest
in
a
voting
interest
entity,
the
equity
method
of
accounting
is
used.
Under
this
method,
the
investment,
originally
recorded
at
cost,
is
adjusted
to
recognize
our
share
of
net
earnings
or
losses
of
the
affiliates
as
they
occur
rather
than
as
dividends
or
other
distributions
are
received,
limited
to
the
extent
of
our
investment
in,
advances
to
and
commitments
for
the
investee.
Pursuant
to
our
joint
venture
agreements,
allocations
of
profits
and
losses
of
some
of
our
investments
in
unconsolidated
joint
ventures
may
be
allocated
disproportionately
as
compared
to
nominal
ownership
percentages
due
to
specified
preferred
return
rate
thresholds.
The
Company
periodically
reviews
the
carrying
value
of
its
investment
in
unconsolidated
joint
ventures
to
determine
if
circumstances
indicate
impairment
to
the
carrying
value
of
the
investment
that
is
other
than
temporary.
When
an
impairment
indicator
is
present,
we
will
estimate
the
fair
value
of
the
investment.
Our
estimate
of
fair
value
takes
into
consideration
factors
such
as
expected
future
operating
income,
trends
and
prospects,
as
well
as
the
effects
of
demand,
competition
and
other
factors.
This
determination
requires
significant
48
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED)
estimates
by
management,
including
the
expected
cash
flows
to
be
generated
by
the
assets
owned
and
operated
by
the
joint
venture.
To
the
extent
impairment
has
occurred
and
the
impairment
is
considered
other
than
temporary,
the
loss
will
be
measured
as
the
excess
of
the
carrying
amount
over
the
fair
value
of
our
investment
in
the
unconsolidated
joint
venture.
Development
Loans
Receivable
Historically,
the
Company
provided
secured
first-‐mortgage
and
mezzanine
financing
to
hotel
developers.
Development
loans
receivable
have
been
recorded
at
cost
and
reviewed
for
potential
impairment
on
an
on-‐going
basis.
The
Company’s
development
loans
receivable
were
each
secured
by
various
hotel
or
hotel
development
properties
or
partnership
interests
in
hotel
or
hotel
development
properties.
Historically,
we
have
determined
that
the
borrowers
generally
were
not
VIEs,
or
in
the
limited
instances
where
we
had
determine
that
the
borrower
was
a
VIE,
our
interest
did
not
represent
a
controlling
financial
interest.
Accordingly,
we
did
not
consolidate
the
operating
results
of
the
borrower
in
our
consolidated
financial
statements.
Our
evaluation
of
this
determination
was
made
by
reviewing
the
sufficiency
of
the
borrower’s
equity
at
risk,
the
rights
of
the
borrower,
and
which
party
has
i)
the
power
to
direct
the
activities
of
a
variable
interest
entity
that
most
significantly
impact
the
entity’s
economic
performance,
and
ii)
the
obligation
to
absorb
losses
of
the
VIE
that
could
be
significant
to
the
VIE
or
the
rights
to
receive
benefits
from
the
VIE
that
could
be
significant
to
the
VIE.
The
analysis
utilized
by
the
Company
in
evaluating
the
development
loans
receivable
involved
considerable
management
judgment
and
assumptions.
A
development
loan
receivable
was
considered
impaired
when
it
was
probable,
based
on
then
current
information,
that
the
Company
would
be
unable
to
collect
all
amounts
due
according
to
the
loan’s
contractual
terms.
The
amount
of
impairment,
if
any,
was
measured
by
comparing
the
recorded
amount
of
the
loan
to
the
present
value
of
the
expected
cash
flows
or
the
fair
value.
Cash
and
Cash
Equivalents
Cash
and
cash
equivalents
represent
cash
on
hand
and
in
banks
plus
short-‐term
investments
with
an
initial
maturity
of
three
months
or
less
when
purchased.
Escrow
Deposits
Escrow
deposits
include
reserves
for
debt
service,
real
estate
taxes,
and
insurance
and
reserves
for
furniture,
fixtures,
and
equipment
replacements,
as
required
by
certain
mortgage
debt
agreement
restrictions
and
provisions.
Hotel
Accounts
Receivable
Hotel
accounts
receivable
consists
primarily
of
meeting
and
banquet
room
rental
and
hotel
guest
receivables.
The
Company
generally
does
not
require
collateral.
Ongoing
credit
evaluations
are
performed
and
an
allowance
for
potential
losses
from
uncollectible
accounts
is
provided
against
the
portion
of
accounts
receivable
that
is
estimated
to
be
uncollectible.
Deferred
Financing
Costs
Deferred
financing
costs
are
recorded
at
cost
and
amortized
over
the
terms
of
the
related
indebtedness
using
the
effective
interest
method.
49
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED)
Due
from/to
Related
Parties
Due
from/to
Related
Parties
represents
current
receivables
and
payables
resulting
from
transactions
related
to
hotel
management
and
project
management
with
affiliated
entities.
Due
from
related
parties
results
primarily
from
advances
of
shared
costs
incurred
and
interest
receivable
on
development
loans
made
to
related
parties.
Due
to
affiliates
results
primarily
from
hotel
management
and
project
management
fees
incurred.
Both
due
to
and
due
from
related
parties
are
generally
settled
within
a
period
not
to
exceed
one
year.
Intangible
Assets
and
Liabilities
Intangible
assets
consist
of
leasehold
intangibles
for
above-‐market
value
of
in-‐place
leases
and
deferred
franchise
fees.
The
leasehold
intangibles
are
amortized
over
the
remaining
lease
term.
Deferred
franchise
fees
are
amortized
using
the
straight-‐line
method
over
the
life
of
the
franchise
agreement.
Intangible
liabilities
consist
of
leasehold
intangibles
for
below-‐market
value
of
in-‐place
leases.
The
leasehold
intangibles
are
amortized
over
the
remaining
lease
term.
Intangible
liabilities
are
included
in
the
accounts
payable,
accrued
expenses
and
other
liabilities
on
the
Company’s
consolidated
balance
sheets.
Development
Project
Capitalization
We
have
opportunistically
engaged
in
the
development
and
re-‐development
of
hotel
assets.
We
capitalize
expenditures
related
to
hotel
development
projects
and
renovations,
including
indirect
costs
such
as
interest
expense,
real
estate
taxes
and
utilities
related
to
hotel
development
projects
and
renovations.
Noncontrolling
Interest
Noncontrolling
interest
in
the
Partnership
represents
the
limited
partner’s
proportionate
share
of
the
equity
of
the
Partnership.
Income
(loss)
is
allocated
to
noncontrolling
interest
in
accordance
with
the
weighted
average
percentage
ownership
of
the
Partnership
during
the
period.
At
the
end
of
each
reporting
period
the
appropriate
adjustments
to
the
income
(loss)
are
made
based
upon
the
weighted
average
percentage
ownership
of
the
Partnership
during
the
period.
Our
ownership
interest
in
the
Partnership
as
of
December
31,
2013,
2012
and
2011
was
96.7%,
96.5%,
and
95.9%,
respectively.
We
define
a
noncontrolling
interest
as
the
portion
of
equity
in
a
subsidiary
not
attributable,
directly
or
indirectly,
to
a
parent.
Such
noncontrolling
interests
are
reported
on
the
consolidated
balance
sheets
within
equity,
but
separately
from
the
shareholders’
equity.
Revenues,
expenses
and
net
income
or
loss
attributable
to
both
the
Company
and
noncontrolling
interests
are
reported
on
the
consolidated
statements
of
operations.
In
accordance
with
US
GAAP,
we
classify
securities
that
are
redeemable
for
cash
or
other
assets
at
the
option
of
the
holder,
or
not
solely
within
the
control
of
the
issuer,
outside
of
permanent
equity
in
the
consolidated
balance
sheet.
The
Company
makes
this
determination
based
on
terms
in
applicable
agreements,
specifically
in
relation
to
redemption
provisions.
Additionally,
with
respect
to
noncontrolling
interests
for
which
the
Company
has
a
choice
to
settle
the
contract
by
delivery
of
its
own
shares,
the
Company
considers
the
guidance
in
US
GAAP
to
evaluate
whether
the
Company
controls
the
actions
or
events
necessary
to
issue
the
maximum
number
of
common
shares
that
could
be
required
to
be
delivered
at
the
time
of
settlement
of
the
contract.
50
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED)
We
classify
the
noncontrolling
interests
of
our
consolidated
joint
ventures,
consolidated
variable
interest
entity,
and
certain
Common
Units
(“Nonredeemable
Common
Units”)
as
equity.
The
noncontrolling
interests
of
Nonredeemable
Common
Units
totaled
$29,523
as
of
December
31,
2013
and
$15,484
as
of
December
31,
2012.
As
of
December
31,
2013,
there
were
6,914,716
Nonredeemable
Common
Units
outstanding
with
a
fair
market
value
of
$38,515,
based
on
the
price
per
share
of
our
common
shares
on
the
NYSE
on
such
date.
In
accordance
with
the
partnership
agreement
of
the
Partnership,
holders
of
these
units
may
redeem
them
for
cash
unless
we,
in
our
sole
and
absolute
discretion,
elect
to
issue
common
shares
on
a
one-‐for-‐one
basis
in
lieu
of
paying
cash.
Prior
to
February
1,
2013,
certain
Common
Units
(“Redeemable
Common
Units”)
had
been
pledged
as
collateral
in
connection
with
a
pledge
and
security
agreement
entered
into
by
the
Company
and
the
holders
of
the
Redeemable
Common
Units.
The
redemption
feature
contained
in
the
pledge
and
security
agreement
where
the
Redeemable
Common
Units
served
as
collateral
contains
a
provision
that
could
result
in
a
net
cash
settlement
outside
of
the
control
of
the
Company.
As
a
result,
prior
to
February
1,
2013,
the
Redeemable
Common
Units
were
classified
in
the
mezzanine
section
of
the
consolidated
balance
sheets
as
they
do
not
meet
the
requirements
for
equity
classification
under
US
GAAP.
Effective
February
1,
2013,
the
aforementioned
pledge
and
security
agreement
is
no
longer
in
place
and
therefore
these
Common
Units
will
be
treated
as
Nonredeemable
Common
Units
in
future
filings.
The
carrying
value
of
the
Redeemable
Common
Units
equals
the
greater
of
carrying
value
based
on
the
accumulation
of
historical
cost
or
the
redemption
value.
As
of
December
31,
2013,
there
were
no
outstanding
Common
Units
designated
as
Redeemable
Common
Units.
As
of
December
31,
2012,
the
Redeemable
Common
Units
were
valued
on
the
consolidated
balance
sheets
at
redemption
value
since
the
Redeemable
Common
Units
redemption
value
was
greater
than
historical
cost
of
$11,753.
Net
income
or
loss
attributed
to
Nonredeemable
Common
Units
and
Redeemable
Common
Units
(collectively,
“Common
Units”),
as
well
as
the
net
income
or
loss
related
to
the
noncontrolling
interests
of
our
consolidated
joint
ventures
and
consolidated
variable
interest
entity,
is
included
in
net
income
or
loss
in
the
consolidated
statements
of
operations.
Net
income
or
loss
attributed
to
the
Common
Units
and
the
noncontrolling
interests
of
our
consolidated
joint
ventures
and
consolidated
variable
interest
entity
is
excluded
from
net
income
or
loss
applicable
to
common
shareholders
in
the
consolidated
statements
of
operations.
Shareholders’
Equity
On
February
25,
2013,
we
completed
a
public
offering
of
3,000,000
6.875%
Series
C
Cumulative
Redeemable
Preferred
Shares.
These
shares
have
a
par
value
of
$0.01
per
share
with
a
$25.00
liquidation
preference
per
share.
Net
proceeds
of
the
offering,
after
deducting
the
underwriting
discount
and
the
offering
expenses
payable
by
us,
were
approximately
$72,370.
We
utilized
the
net
proceeds
of
the
offering
to
redeem
all
outstanding
8.00%
Series
A
Cumulative
Redeemable
Preferred
Shares
on
March
28,
2013,
and
for
general
corporate
purposes.
The
Series
A
Preferred
Shares
were
redeemed
at
a
per
share
redemption
price
of
$25.00
together
with
accrued
and
unpaid
dividends
to
the
redemption
date
for
an
aggregate
per
share
redemption
price
of
$25.4056.
Dividends
ceased
accruing
on
the
Series
A
Preferred
Shares
on
March
28,
2013.
51
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED)
Terms
of
the
Series
B
and
Series
C
Preferred
Shares
outstanding
at
December
31,
2013
and
the
Series
A
and
Series
B
Preferred
Shares
outstanding
at
December
31,
2012
are
summarized
as
follows:
Shares
Outstanding
December
31,
2013
December
31,
2012
Aggregate
Liquidation
Preference
Distribution
Rate
Dividend
Per
Share
Year
Ended
December
31,
2013
2012
2011
-‐
4,600,000
3,000,000
7,600,000
2,400,000
$
4,600,000
$
-‐
$
60,000
115,000
75,000
8.000%
$
8.000%
$
6.875%
$
0.5000
$
2.0000
$
1.4753
$
2.0000
$
2.0000
$
-‐
$
2.0000
1.2400
-‐
7,000,000
Series
Series
A
Series
B
Series
C
On
December
20,
2012,
our
Board
of
Trustees
approved
the
repurchase
of
up
to
an
aggregate
of
$75,000,000
of
common
stock.
The
program
was
extended
through
December
31,
2014.
As
of
December
31,
2013,
we
did
not
repurchase
any
shares
pursuant
to
the
share
repurchase
program.
On
May
8,
2012,
we
closed
on
a
public
offering
in
which
we
issued
and
sold
24,000,000
common
shares
through
several
underwriters
for
net
proceeds
to
us
of
approximately
$128,558.
Immediately
upon
the
closing
the
offering,
we
contributed
all
of
the
net
proceeds
of
the
offering
to
HHLP
in
exchange
for
additional
Common
Units.
HHLP
used
the
net
proceeds
of
this
offering
to
reduce
some
of
the
indebtedness
outstanding
under
our
revolving
line
of
credit
facility
and
for
general
corporate
purposes,
including
the
funding
of
future
acquisitions.
On
August
4,
2009,
we
entered
into
a
purchase
agreement
with
Real
Estate
Investment
Group
L.P.
(“REIG”),
pursuant
to
which
we
sold
5,700,000
common
shares
at
a
price
of
$2.50
per
share
to
REIG
for
gross
proceeds
of
$14,250.
We
also
granted
REIG
the
option
to
buy
up
to
an
additional
5,700,000
common
shares
at
a
price
of
$3.00
per
share,
which
was
exercisable
through
August
4,
2014.
On
February
13,
2012,
pursuant
to
the
terms
of
the
original
option,
we
called
in
and
canceled
the
option
granted
to
REIG
in
exchange
for
the
issuance
of
2,521,561
common
shares
with
an
aggregate
value
equal
to
$13,566.
This
amount
equals
the
volume
weighted
average
price
per
common
share
for
the
20
trading
days
prior
to
the
exercise
of
the
option,
less
the
$3.00
option
price,
multiplied
by
the
5,700,000
common
shares
remaining
under
the
option.
On
May
18,
2011,
we
completed
a
public
offering
of
4,600,000
8.00%
Series
B
Cumulative
Redeemable
Preferred
Shares
(“Series
B
Preferred
Shares”),
liquidation
preference
$25.00
per
share,
including
600,000
Series
B
Preferred
Shares
subject
to
an
overallotment
option
exercised
by
the
underwriters.
Net
proceeds
of
the
offering,
less
expenses
and
underwriters
commissions,
were
approximately
$110,977.
Net
proceeds
from
the
offering
were
used
to
reduce
some
of
the
indebtedness
outstanding
under
our
revolving
line
of
credit
facility
and
to
fund
a
portion
of
the
purchase
price
of
Courtyard
by
Marriott,
Westside,
Los
Angeles,
CA,
which
was
acquired
on
May
19,
2011.
Stock
Based
Compensation
We
measure
the
cost
of
employee
service
received
in
exchange
for
an
award
of
equity
instruments
based
on
the
grant-‐date
fair
value
of
the
award.
The
compensation
cost
is
amortized
on
a
straight
line
basis
over
the
period
during
which
an
employee
is
required
to
provide
service
in
exchange
for
the
award.
The
compensation
cost
related
to
performance
awards
that
are
contingent
upon
market
based
criteria
being
met
is
recorded
at
the
fair
value
of
the
award
on
the
date
of
the
grant
and
amortized
over
the
performance
period.
52
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED)
Derivatives
and
Hedging
The
Company’s
objective
in
using
derivatives
is
to
add
stability
to
interest
expense
and
to
manage
its
exposure
to
interest
rate
movements.
To
accomplish
this
objective,
the
Company
primarily
uses
interest
rate
swaps
and
interest
rate
caps
as
part
of
its
cash
flow
hedging
strategy.
Interest
rate
swaps
designated
as
cash
flow
hedges
involve
the
receipt
of
variable-‐rate
amounts
in
exchange
for
fixed-‐rate
payments
over
the
life
of
the
agreements
without
exchange
of
the
underlying
principal
amount.
Interest
rate
caps
designated
as
cash
flow
hedges
limit
the
Company’s
exposure
to
increased
cash
payments
due
to
increases
in
variable
interest
rates.
Revenue
Recognition
We
recognize
revenue
and
expense
for
all
consolidated
hotels
as
hotel
operating
revenue
and
hotel
operating
expense
when
earned
and
incurred.
These
revenues
are
recorded
net
of
any
sales
or
occupancy
taxes
collected
from
our
guests.
We
participate
in
frequent
guest
programs
sponsored
by
the
brand
owners
of
our
hotels
and
we
expense
the
charges
associated
with
those
programs,
as
incurred.
Interest
income
on
development
loan
financing
is
recorded
in
the
period
earned
based
on
the
interest
rate
of
the
loan
and
outstanding
balance
during
the
period.
Development
loans
receivable
and
accrued
interest
on
the
development
loans
receivable
are
evaluated
to
determine
if
outstanding
balances
are
collectible.
Interest
is
recorded
only
if
it
is
determined
the
outstanding
loan
balance
and
accrued
interest
balance
are
collectible.
Other
revenues
consist
primarily
of
fees
earned
for
asset
management
services
provided
to
hotels
we
own
through
unconsolidated
joint
ventures.
Fees
are
earned
as
a
percentage
of
hotel
revenue
and
are
recorded
in
the
period
earned
to
the
extent
of
the
noncontrolling
interest
ownership.
Income
Taxes
The
Company
qualifies
as
a
REIT
under
applicable
provisions
of
the
Internal
Revenue
Code,
as
amended,
and
intends
to
continue
to
qualify
as
a
REIT.
In
general,
under
such
provisions,
a
trust
which
has
made
the
required
election
and,
in
the
taxable
year,
meets
certain
requirements
and
distributes
to
its
shareholders
at
least
90%
of
its
REIT
taxable
income
will
not
be
subject
to
Federal
income
tax
to
the
extent
of
the
income
which
it
distributes.
Earnings
and
profits,
which
determine
the
taxability
of
dividends
to
shareholders,
differ
from
net
income
reported
for
financial
reporting
purposes
due
primarily
to
differences
in
depreciation
of
hotel
properties
for
Federal
income
tax
purposes.
Deferred
income
taxes
relate
primarily
to
the
TRS
Lessee
and
are
accounted
for
using
the
asset
and
liability
method.
Under
this
method,
deferred
income
taxes
are
recognized
for
temporary
differences
between
the
financial
reporting
bases
of
assets
and
liabilities
of
the
TRS
Lessee
and
their
respective
tax
bases
and
for
their
operating
loss
and
tax
credit
carry
forwards
based
on
enacted
tax
rates
expected
to
be
in
effect
when
such
amounts
are
realized
or
settled.
However,
deferred
tax
assets
are
recognized
only
to
the
extent
that
it
is
more
likely
than
not
that
they
will
be
realized
based
on
consideration
of
available
evidence,
including
tax
planning
strategies
and
other
factors.
The
Company
may
recognize
a
tax
benefit
from
an
uncertain
tax
position
when
it
is
more-‐likely-‐than-‐not
(defined
as
a
likelihood
of
more
than
50%)
that
the
position
will
be
sustained
upon
examination,
including
resolutions
of
any
related
appeals
or
litigation
processes,
based
on
the
technical
merits.
If
a
tax
position
does
not
meet
the
more-‐likely-‐than-‐not
recognition
threshold,
despite
the
Company’s
belief
that
its
filing
position
is
supportable,
the
benefit
of
that
tax
position
is
not
recognized
in
the
statements
of
operations.
The
Company
recognizes
interest
and
penalties,
as
applicable,
related
to
unrecognized
tax
benefits
as
a
component
of
income
tax
expense.
The
Company
recognizes
unrecognized
tax
benefits
in
the
period
that
the
uncertainty
is
eliminated
by
either
affirmative
53
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED)
agreement
of
the
uncertain
tax
position
by
the
applicable
taxing
authority,
or
by
expiration
of
the
applicable
statute
of
limitation.
For
the
years
ended
December
31,
2012,
2011
and
2010,
the
Company
did
not
record
any
uncertain
tax
positions.
As
of
December
31,
2013,
with
few
exceptions,
the
Company
is
subject
to
tax
examinations
by
U.S.
federal,
state,
and
local
income
tax
authorities
for
years
2003
through
2013.
Reclassification
Certain
amounts
in
the
prior
year
financial
statements
have
been
reclassified
to
conform
to
the
current
year
presentation.
54
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
2
–
INVESTMENT
IN
HOTEL
PROPERTIES
Investment
in
hotel
properties
consists
of
the
following
at
December
31,
2013
and
December
31,
2012:
December
31,
2013
December
31,
2012
Land
Buildings
and
Improvements
Furniture,
Fixtures
and
Equipment
Construction
in
Progress
$
Less
Accumulated
Depreciation
$
339,027
1,222,639
171,116
63,168
1,795,950
(260,115)
305,286
1,214,865
171,892
40,572
1,732,615
(265,902)
Total
Investment
in
Hotel
Properties
$
1,535,835
$
1,466,713
Depreciation
expense
was
$61,500,
$55,956
and
$55,336
(including
depreciation
on
assets
held
for
sale)
for
the
years
ended
December
31,
2013,
2012,
and
2011,
respectively.
During
the
year
ended
December
31,
2013,
we
acquired
the
following
wholly-‐owned
hotel
properties:
Acquisition
Date
Land
Buildings
and
Improvements
Furniture
Fixtures
and
Equipment
Franchise
Fees
and
Loan
Costs
Total
Purchase
Price
4/9/2013
$
32,940
$
79,300
$
9,760
$
1,945
$
5/30/2013
15,656
51,674
3,671
183
123,945
71,184
6/12/2013
4,146
17,456
218
75
21,895
12/20/2013
4,874
20,354
1,125
12/20/2013
5,400
18,147
1,050
-‐
-‐
$
63,016
$
186,931
$
15,824
$
2,203
$
26,353
24,597
267,974
Hotel
Hyatt
Union
Square,
New
York,
NY*
Courtyard
by
Marriott,
San
Diego,
CA
Residence
Inn,
Coconut
Grove,
FL
Blue
Moon,
Miami
Beach,
FL
Winter
Haven,
Miami
Beach,
FL
Total
*
On
April
9,
2013,
we
completed
the
acquisition
of
the
Hyatt
Union
Square
hotel
in
New
York,
NY
from
Risingsam
Union
Square
LLC.
Consideration
given
in
exchange
for
the
property
included
$36,000
paid
in
cash
to
the
seller
and
our
cancellation
of
a
development
loan
receivable
in
the
original
principal
amount
of
$10,000
and
$3,303
of
accrued
interest
on
the
loan.
In
addition,
we
paid
off
the
existing
construction
financing
and
entered
into
a
new
mortgage
loan
of
$55,000.
We
recognized
a
net
gain
of
approximately
$12,108
on
the
purchase
of
the
Hyatt
Union
Square
hotel
as
the
fair
value
of
the
assets
acquired
less
any
liabilities
assumed
exceeded
the
consideration
transferred.
During
the
year
ended
December
31,
2013,
we
paid
$855
in
acquisition
costs
related
to
the
above
acquired
assets.
55
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
2
–
INVESTMENT
IN
HOTEL
PROPERTIES
(CONTINUED)
As
shown
in
the
table
below,
included
in
the
consolidated
statements
of
operations
for
the
year
ended
December
31,
2013
are
total
revenues
of
$22,889
and
a
total
net
income
of
$1,412
for
hotels
we
have
acquired
and
consolidated
since
the
date
of
acquisition.
These
amounts
represent
the
results
of
operations
for
these
hotels
since
the
date
of
acquisition:
Hotel
Hyatt
Union
Square,
New
York,
NY
Courtyard
by
Marriott,
San
Diego,
CA
Residence
Inn,
Coconut
Grove,
FL
Blue
Moon,
Miami
Beach,
FL
Winter
Haven,
Miami
Beach,
FL
$
Year
Ended
December
31,
2013
Revenue
Net
(Loss)
Income
$
11,272
8,350
2,889
175
203
(1,466)
1,914
713
111
140
Total
$
22,889
$
1,412
During
the
year
ended
December
31,
2012,
we
acquired
the
following
wholly-‐owned
hotel
and
hotel
development
properties:
Hotel
The
Rittenhouse
Hotel,
Philadelphia,
PA
The
Boxer,
Boston,
MA
Acquisition
Date
Land
Buildings
and
Improvements
Furniture
Fixtures
and
Equipment
Franchise
Fees
and
Loan
Costs
Leasehold
Liability
Total
Purchase
Price
3/1/2012
$
7,119
$
29,605
$
3,580
$
2,156
$
(827)
$
42,460
Holiday
Inn
Express,
New
York,
NY
Courtyard
by
Marriot,
Ewing,
NJ
6/18/2012
30,329
8/13/2012
950
5/7/2012
1,456
14,954
57,016
9,835
1,790
2,856
1,415
-‐
98
30
-‐
-‐
-‐
18,200
90,299
12,230
Total
$
39,854
$
111,410
$
9,641
$
2,284
$
(827)
$
163,189
On
August
13,
2012,
the
Company
purchased,
from
an
unaffiliated
seller,
the
remaining
50%
ownership
in
Inn
America
Hospitality
at
Ewing,
LLC
(“Inn
at
Ewing”),
the
owner
of
the
Courtyard
by
Marriot,
Ewing,
NJ.
Consideration
given
for
this
interest
in
Inn
at
Ewing
included
the
assumption
of
the
property’s
mortgage
debt
of
$12,875.
On
June
18,
2012,
the
Company
purchased,
from
an
unaffiliated
seller,
the
remaining
50%
ownership
interest
in
Metro
29th
Street
Associates,
LLC
(“Metro
29th”),
the
lessee
of
the
Holiday
Inn
Express,
New
York,
NY.
Consideration
given
for
this
interest
in
Metro
29th
included
$10,000
cash
and
the
forgiveness
of
approximately
$800
of
accrued
interest
payable
under
a
mezzanine
loan
made
by
the
Company
to
an
affiliate
of
the
seller.
Brisam
Management
DE,
LLC
(“Brisam”),
as
the
owner
of
the
land,
building
and
improvements
leased
by
Metro
29th,
is
considered
a
variable
interest
entity
and,
based
on
our
evaluation,
we
determined
that
we
are
the
primary
beneficiary
of
this
variable
interest
entity
and
therefore
Brisam
is
consolidated
in
our
financial
statements.
As
a
result,
we
included
in
our
consolidated
financial
statements
approximately
$90,201
in
investment
in
hotel
properties
and
an
aggregate
of
$73,038
in
first
mortgage
and
mezzanine
debt
at
acquisition.
On
the
date
we
acquired
the
remaining
interest
in
Metro
29th,
we
determined
that
the
stated
rate
of
interest
on
the
first
mortgage
debt
was
above
market
and,
accordingly,
recorded
a
$3,436
premium.
Also
included
in
this
transaction
was
an
option
to
acquire
the
equity
interests
in
the
entity
owning
the
real
estate
assets
or
the
real
estate
assets
from
Brisam
for
nominal
consideration.
The
option
is
exercisable
by
the
Company
after
September
1,
2016
or
before
that
date
in
the
event
of
certain
specified
events.
The
equity
interest
may
be
put
to
the
Company
by
the
Seller
at
any
time.
On
June
29,
2012,
the
Company
repaid
the
$15,000
mezzanine
debt.
56
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
2
–
INVESTMENT
IN
HOTEL
PROPERTIES
(CONTINUED)
As
shown
in
the
table
below,
included
in
the
consolidated
statements
of
operations
for
the
year
ended
December
31,
2012
are
total
revenues
of
$31,393
and
total
net
income
of
$1,085
for
hotels
we
have
acquired
and
consolidated
since
the
date
of
acquisition.
These
amounts
represent
the
results
of
operations
for
these
hotels
since
the
date
of
acquisition:
Year
Ended
December
31,
2012
2013
Hotel
The
Rittenhouse
Hotel,
Philadelphia,
PA
The
Boxer,
Boston,
MA
Holiday
Inn
Express,
New
York,
NY
Courtyard
by
Marriot,
Ewing,
NJ
Net
(Loss)
Net
(Loss)
Income
Income
Revenue
Revenue
$
17,395
$
(2,827)
$
16,812
$
(1,834)
574
2,142
203
2,791
10,170
1,620
3,799
16,746
4,210
(241)
1,541
875
Total
$
42,150
$
(652)
$
31,393
$
1,085
Pro
Forma
Results
(Unaudited)
The
following
condensed
pro
forma
financial
data
are
presented
as
if
all
acquisitions
completed
since
January
1,
2013
and
2012
had
been
completed
on
January
1,
2012
and
2011.
Properties
acquired
without
any
operating
history
are
excluded
from
the
condensed
pro
forma
operating
results.
The
condensed
pro
forma
financial
data
is
not
necessarily
indicative
of
what
actual
results
of
operations
of
the
Company
would
have
been
assuming
the
acquisitions
had
been
consummated
on
January
1,
2013
and
2012
at
the
beginning
of
the
year
presented,
nor
do
they
purport
to
represent
the
results
of
operations
for
future
periods.
Pro
Forma
Total
Revenues
Pro
Forma
Income
from
Continuing
Operations
(Loss)
Income
from
Discontinued
Operations
Pro
Forma
Net
Income
Loss
Allocated
to
Noncontrolling
Interest
Preferred
Distributions
Extinguishment
of
Issuance
Costs
Upon
Redemption
of
Series
A
Preferred
Shares
Pro
Forma
Net
(Loss)
Income
Applicable
to
Common
Shareholders
Pro
Forma
Income
Applicable
to
Common
Shareholders
per
Common
Share
Basic
Diluted
Weighted
Average
Common
Shares
Outstanding
Basic
Diluted
$
$
$
$
$
Year
Ended
December
31,
2013
2012
353,407
$
331,587
$
22,651
29,195
51,846
271
(14,611)
(2,250)
7,408
14,720
22,128
(154)
(14,000)
-‐
35,256
$
7,974
0.18
0.18
$
$
0.04
0.04
198,390,450
201,918,177
187,415,270
187,415,270
57
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
2
–
INVESTMENT
IN
HOTEL
PROPERTIES
(CONTINUED)
Asset
Development
and
Renovation
The
Company
has
opportunistically
engaged
in
development
of
hotel
assets.
On
July
22,
2011,
the
Company
completed
the
acquisition
of
the
real
property
and
improvements
located
at
32
Pearl
Street,
New
York,
NY,
anticipated
to
become
a
Hampton
Inn,
from
an
unaffiliated
seller
for
a
total
purchase
price
of
$28,300.
The
property
is
a
re-‐development
project
which
was
initiated
in
2008.
In
January
2014,
the
Company
completed
construction
of
an
additional
oceanfront
tower,
additional
meeting
space
and
structured
parking
on
a
land
parcel
adjacent
to
the
Courtyard
by
Marriott,
Miami,
Florida,
a
hotel
acquired
on
November
16,
2011.
This
land
parcel
was
included
in
the
acquisition
of
the
hotel.
We
capitalize
expenditures
related
to
hotel
development
projects
and
renovations,
including
indirect
costs
such
as
interest
expense,
real
estate
taxes
and
utilities
related
to
hotel
development
projects
and
renovations.
We
have
capitalized
the
following
indirect
development
costs
for
the
years
ended
December
31,
2013,
2012
and
2011:
2013
Year
Ended
December
31,
2012
2011
Property
Tax
Interest
Expense
Utility
Total
$
$
388
1,318
3
1,709
$
$
296
1,542
9
1,847
$
$
218
1,372
201
1,791
In
October
2012,
Hurricane
Sandy
affected
numerous
hotels
within
our
portfolio.
Two
hotels
within
our
portfolio
were
significantly
impacted
by
this
natural
disaster;
one
hotel
was
inoperable
(Holiday
Inn
Express
Water
Street,
New
York,
NY)
and
one
hotel
development
project
has
incurred
delays
in
construction
(Hampton
Inn,
Pearl
Street,
New
York,
NY).
We
have
recorded
estimated
property
losses
of
$1,586
on
the
Holiday
Inn
Express
Water
Street
and
a
corresponding
insurance
claim
receivable
of
$1,486.
This
hotel
re-‐opened
in
April
2013.
We
have
recorded
estimated
property
losses
of
$1,997
on
the
Hampton
Inn
Pearl
Street
and
a
corresponding
insurance
claim
receivable
of
$1,897,
and
we
expect
this
hotel
to
open
in
the
first
quarter
of
2014.
Of
the
$6,546
in
aggregate
insurance
claims
that
we
estimate
to
receive,
$4,840
was
received
as
of
December
31,
2013.
These
aggregate
claims
include
property
losses
and
remediation
costs.
Purchase
and
Sale
Agreements
On
September
20,
2013,
the
Company
entered
into
a
purchase
and
sale
agreement
to
dispose
of
a
portfolio
of
16
non-‐core
hotel
properties.
On
December
18,
2013,
we
completed
the
sale
of
12
of
the
16
properties. See
“Note
12
–
Discontinued
Operations”
for
more
information.
On
October
16,
2013,
the
Company
entered
into
a
purchase
and
sale
agreement
to
acquire
the
Hotel
Oceana,
located
in
Santa
Barbara,
California,
from
an
unaffiliated
seller
for
approximately
$42,000,
including
the
assumption
of
$25,250
in
mortgage
debt.
This
transaction
is
expected
to
close
by
the
end
of
first
quarter
2014.
In
February
2014,
the
Company
entered
into
a
purchase
and
sale
agreement
to
sell
the
Hotel
373,
New
York,
NY
to
an
unaffiliated
buyer
for
a
total
purchase
price
of
$37,000.
This
property
was
acquired
by
the
Company
in
June
2007.
Due
to
the
events
of
this
transaction
occurring
after
December
31,
2013,
the
Company
did
not
classify
this
property
as
a
discontinued
asset
as
of
December
31,
2013,
and
accordingly
the
operating
results
have
not
been
reclassified
for
periods
presented.
58
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
3
–
INVESTMENT
IN
UNCONSOLIDATED
JOINT
VENTURES
As
of
December
31,
2013
and
December
31,
2012
our
investment
in
unconsolidated
joint
ventures
consisted
of
the
following:
Joint
Venture
Hotel
Properties
Owned
Percent
Preferred
Return
December
December
31,
2013
31,
2012
SB
Partners,
LLC
Hiren
Boston,
LLC
Mystic
Partners,
LLC
Holiday
Inn
Express,
South
Boston,
MA
Courtyard
by
Marriott,
South
Boston,
Hilton
and
Marriott
branded
hotels
in
MA
CT
50.0%
50.0%
N/A
N/A
$
8.8%-‐66.7%
8.5%
non-‐cumulative
$
1,057
4,777
6,210
12,044
$
1,292
4,964
9,751
16,007
$
In
2013,
we
recorded
an
impairment
loss
of
$1,813
related
to
the
Courtyard,
Norwich,
CT,
one
of
the
properties
owned
by
Mystic
Partners,
LLC.
Mystic
Partners,
LLC
is
currently
in
discussions
to
transfer
title
to
the
property
to
the
lender.
As
we
do
not
anticipate
recovering
our
investment
balance
in
this
asset,
we
have
reduced
the
portion
of
our
Mystic
Partners,
LLC
investment
related
to
this
property
to
$0
as
of
December
31,
2013.
On
February
1,
2013,
the
Company
closed
on
the
sale
of
its
interest
in
one
of
the
unconsolidated
joint
venture
properties
owned
in
part
by
Mystic
Partners,
LLC
to
its
joint
venture
partner.
As
our
investment
in
this
unconsolidated
joint
venture
equated
the
net
proceeds
distributed
to
us,
we
did
not
record
a
gain
or
loss
in
connection
with
the
sale
of
this
hotel.
As
noted
in
“Note
2
–
Investment
in
Hotel
Properties,”
on
August
13,
2012,
the
Company
purchased
the
remaining
50%
ownership
interest
in
Inn
America
Hospitality
at
Ewing,
the
lessee
of
the
Courtyard
by
Marriot,
Ewing,
NJ.
As
such,
we
ceased
to
account
for
our
investment
in
Inn
America
Hospitality
at
Ewing
under
the
equity
method
of
accounting
as
of
August
13,
2012
because
it
became
a
consolidated
subsidiary.
Our
interest
in
Inn
America
Hospitality
at
Ewing,
which
consisted
of
our
investment
in
Inn
America
Hospitality
at
Ewing
and
a
receivable,
was
remeasured
and
as
a
result
based
on
the
appraised
value
of
the
hotel,
we
recorded
a
loss
of
approximately
$1,668
during
the
twelve
months
ended
December
31,
2012.
As
noted
in
“Note
2
–
Investment
in
Hotel
Properties,”
on
June
18,
2012,
the
Company
purchased
the
remaining
50%
ownership
interest
in
Metro
29th,
the
lessee
of
the
Holiday
Inn
Express,
Manhattan,
New
York,
NY.
As
such,
we
ceased
to
account
for
our
investment
in
Metro
29th
under
the
equity
method
of
accounting
as
of
June
18,
2012
because
it
became
a
consolidated
subsidiary.
Our
interest
in
Metro
29th
was
remeasured,
and
as
a
result,
we
recorded
a
loss
of
approximately
$224.
Fair
value
for
our
previously
held
investments
in
Inn
America
Hospitality
at
Ewing
and
Metro
29th
was
determined
through
the
use
of
an
income
approach
and
was
measured
using
Level
3
inputs.
The
income
approach
estimates
an
income
stream
for
a
hotel
property
(typically
5
years)
and
discounts
this
income
plus
a
reversion
(presumed
sale)
into
a
present
value
at
a
risk
adjusted
rate.
RevPAR
growth
assumptions
utilized
in
this
approach
are
derived
from
market
transactions
as
well
as
other
financial
and
industry
data.
The
terminal
cap
rate
and
discount
rate
are
significant
inputs
to
this
valuation.
The
fair
value
measurements
determined
during
the
year
included
RevPAR
growth
assumptions
ranging
between
3%
and
8%,
terminal
cap
rates
ranging
between
8.5%
and
9.5%,
and
discount
rates
of
10.5%.
Changes
in
these
inputs
could
result
in
a
significant
change
in
the
valuation
of
our
original
joint
venture
investments
and
a
change
in
the
loss
from
remeasurement
of
investment
in
unconsolidated
joint
venture
recognized
during
the
period.
59
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
3
–
INVESTMENT
IN
UNCONSOLIDATED
JOINT
VENTURES
(CONTINUED)
On
August
15,
2011,
the
Company
entered
into
two
purchase
and
sale
agreements
to
dispose
of
a
portfolio
of
18
non-‐core
hotel
properties,
four
of
which
are
owned
in
part
by
the
Company
through
an
unconsolidated
joint
venture.
As
a
result
of
entering
into
these
purchase
and
sale
agreements,
during
the
twelve
months
ended
December
31,
2011,
we
recorded
an
impairment
loss
of
approximately
$1,677
for
those
hotel
properties
for
which
our
investment
in
the
unconsolidated
joint
venture
did
not
exceed
the
net
proceeds
distributable
to
us
on
the
sale
of
the
hotel
properties
held
by
the
joint
venture
based
on
the
purchase
price.
On
February
23,
2012,
the
Company
closed
on
the
sale
of
14
of
these
non-‐core
hotel
properties,
including
three
of
the
unconsolidated
joint
venture
hotel
properties.
On
May
8,
2012,
the
Company
closed
on
the
remaining
four
non-‐core
hotel
properties,
including
one
of
the
unconsolidated
joint
venture
hotel
properties.
As
our
investment
in
these
unconsolidated
joint
ventures
equated
the
net
proceeds
distributed
to
us,
we
did
not
record
a
gain
or
loss
in
connection
with
the
sale
of
these
hotel
properties.
See
“Note
12
–
Discontinued
Operations”
for
more
information.
Income
or
loss
from
our
unconsolidated
joint
ventures
is
allocated
to
us
and
our
joint
venture
partners
consistent
with
the
allocation
of
cash
distributions
in
accordance
with
the
joint
venture
agreements.
Any
difference
between
the
carrying
amount
of
these
investments
and
the
underlying
equity
in
net
assets
is
amortized
over
the
expected
useful
lives
of
the
properties
and
other
intangible
assets.
Income
(loss)
recognized
during
the
years
ended
December
31,
2013,
2012,
and
2011,
for
our
investments
in
unconsolidated
joint
ventures
is
as
follows:
SB
Partners,
LLC
Hiren
Boston,
LLC
Mystic
Partners,
LLC
Inn
American
Hospitality
at
Ewing
LLC
Metro
29th
Street
Associates,
LLC
(Loss)
Income
from
Unconsolidated
Joint
Venture
Investments
Impairment
from
Unconsolidated
Joint
Ventures
(Loss)
Gain
from
Remeasurement
of
Investment
in
Unconsolidated
Joint
Ventures
(Loss)
Income
from
Unconsolidated
Joint
Venture
Investments
Year
Ended
December
31,
2013
2012
2011
$
264
113
(399)
-‐
-‐
(22)
(1,813)
$
85
$
230
(433)
-‐
(114)
(232)
-‐
-‐
(1,835)
$
(1,892)
(2,124)
$
$
(171)
158
(364)
(28)
615
210
(1,677)
2,757
1,290
On
June
20,
2011,
Hiren
Boston,
LLC
refinanced
its
debt
with
a
third
party
institutional
lender
and,
as
a
result,
our
mortgage
interest
in
the
property
was
terminated
and
the
outstanding
principal
balance
of
$13,750
was
repaid
to
us
in
full.
We
have
determined
that
we
were
no
longer
the
primary
beneficiary
of
Hiren
Boston,
LLC
and
it
is
no
longer
a
consolidated
subsidiary
of
the
Company
and
we
have
begun
to
account
for
our
investment
in
Hiren
Boston,
LLC
under
the
equity
method
of
accounting.
Our
interest
in
Hiren
Boston,
LLC
has
been
remeasured
and,
as
a
result,
we
have
recorded
a
gain
of
approximately
$2,757
for
the
twelve
months
ended
December
31,
2011.
The
fair
value
of
our
interest
in
Hiren
Boston,
LLC
was
based
on
a
third
party
appraisal,
which
utilized
the
market
approach.
The
Mystic
Partners,
LLC
joint
venture
agreement
provides
for
an
8.5%
non-‐cumulative
preferred
return
based
on
our
contributed
equity
interest
in
the
venture.
Cash
distributions
will
be
made
from
cash
available
for
distribution,
first,
to
us
to
provide
an
8.5%
annual
non-‐compounded
return
on
our
unreturned
capital
contributions
and
then
to
our
joint
venture
partner
to
provide
an
8.5%
annual
non-‐compounded
return
of
their
unreturned
contributions.
Any
remaining
cash
available
for
distribution
will
be
distributed
to
us
10.5%
with
respect
to
the
net
cash
flow
from
60
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
3
–
INVESTMENT
IN
UNCONSOLIDATED
JOINT
VENTURES
(CONTINUED)
the
Hartford
Marriott,
7.0%
with
respect
to
the
Hartford
Hilton
and
56.7%,
with
respect
to
the
remaining
two
properties.
Mystic
Partners,
LLC
allocates
income
to
us
and
our
joint
venture
partner
consistent
with
the
allocation
of
cash
distributions
in
accordance
with
the
joint
venture
agreements.
Each
of
the
Mystic
Partners,
LLC
hotel
properties,
except
the
Hartford
Hilton,
is
under
an
Asset
Management
Agreement
with
44
New
England
to
provide
asset
management
services.
Fees
for
these
services
are
paid
monthly
to
44
New
England
and
recognized
as
income
in
the
amount
of
1%
of
operating
revenues,
except
for
the
Hartford
Marriott
which
is
0.25%
of
operating
revenues.
The
Company
and
our
joint
venture
partner
in
Mystic
Partners,
LLC
jointly
and
severally
guarantee
the
performance
of
the
terms
of
a
loan
to
Adriaen’s
Landing
Hotel,
LLC,
owner
of
the
Hartford
Marriott,
in
the
amount
of
$50,000,
and
315
Trumbull
Street
Associates,
LLC,
owner
of
the
Hartford
Hilton,
in
the
amount
of
$27,000,
if
at
any
time
during
the
term
of
the
note
and
during
such
time
as
the
net
worth
of
Mystic
Partners
falls
below
the
amount
of
the
guarantee.
We
have
determined
that
the
probability
of
incurring
loss
under
this
guarantee
is
remote
and
the
value
attributed
to
the
guarantee
is
de
minimis.
The
following
tables
set
forth
the
total
assets,
liabilities,
equity
and
components
of
net
income
or
loss,
including
the
Company’s
share,
related
to
the
unconsolidated
joint
ventures
discussed
above
as
of
December
31,
2013
and
December
31,
2012
and
for
the
years
ended
December
31,
2013,
2012,
and
2011.
Balance
Sheets
Assets
Investment
in
Hotel
Properties,
Net
Other
Assets
Assets
Held
For
Sale
Total
Assets
Liabilities
and
Equity
Mortgages
and
Notes
Payable
Other
Liabilities
Liabilities
Related
to
Assets
Held
For
Sale
Equity:
Hersha
Hospitality
Trust
Joint
Venture
Partner(s)
Total
Equity
December
31,
2013
December
31,
2012
$
$
$
114,221
19,146
-‐
133,367
$
$
$
112,654
37,464
-‐
26,230
(42,981)
(16,751)
118,506
20,709
5,875
145,090
119,236
36,292
6,071
28,581
(45,090)
(16,509)
Total
Liabilities
and
Equity
$
133,367
$
145,090
61
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
3
–
INVESTMENT
IN
UNCONSOLIDATED
JOINT
VENTURES
(CONTINUED)
Statements
of
Operations
Room
Revenue
Other
Revenue
Operating
Expenses
Interest
Expense
Lease
Expense
Property
Taxes
and
Insurance
General
and
Administrative
Depreciation
and
Amortization
Loss
Allocated
to
Noncontrolling
Interests
Net
Income
from
Continuing
Operations
(Loss)
Income
from
Discontinued
Operations
Gain
on
Disposition
of
Hotel
Properties
$
Year
Ended
December
31,
2012
2013
2011
58,273
$
22,606
(55,179)
(7,526)
(996)
(3,034)
(5,794)
(6,697)
(179)
62,058
$
22,306
(57,131)
(7,650)
(3,729)
(3,438)
(5,904)
(6,533)
(2,614)
1,474
(55)
1,161
(2,635)
121
25,131
63,896
21,945
(56,607)
(7,272)
(5,505)
(4,280)
(5,680)
(6,034)
(44)
419
1,503
-‐
Net
Income
$
2,580
$
22,617
$
1,922
The
following
table
is
a
reconciliation
of
the
Company’s
share
in
the
unconsolidated
joint
ventures’
equity
to
the
Company’s
investment
in
the
unconsolidated
joint
ventures
as
presented
on
the
Company’s
balance
sheets
as
of
December
31,
2013
and
December
31,
2012.
Company's
share
of
equity
recorded
on
the
joint
ventures'
financial
statements
Adjustment
to
reconcile
the
Company's
share
of
equity
recorded
on
the
joint
ventures'
financial
statements
to
our
investment
in
unconsolidated
joint
ventures(1)
Investment
in
Unconsolidated
Joint
Ventures
December
31,
2013
December
31,
2012
$
26,230
$
28,581
$
(14,186)
12,044
$
(12,574)
16,007
(1)
Adjustment
to
reconcile
the
Company's
share
of
equity
recorded
on
the
joint
ventures'
financial
statements
to
our
investment
in
unconsolidated
joint
ventures
consists
of
the
following:
cumulative
impairment
of
the
Company’s
investment
in
joint
ventures
not
reflected
on
the
joint
ventures'
financial
statements;
the
Company’s
basis
in
the
investment
in
joint
ventures
not
recorded
on
the
joint
ventures'
financial
statements;
and
accumulated
amortization
of
the
Company’s
equity
in
joint
ventures
that
reflects
the
Company’s
portion
of
the
excess
of
the
fair
value
of
joint
ventures'
assets
on
the
date
of
our
investment
over
the
carrying
value
of
the
assets
recorded
on
the
joint
ventures
financial
statements
(this
excess
investment
is
amortized
over
the
life
of
the
properties,
and
the
amortization
is
included
in
Income
(Loss)
from
Unconsolidated
Joint
Venture
Investments
on
the
Company’s
consolidated
statement
of
operations).
•
•
•
62
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
4
–
DEVELOPMENT
LOANS
RECEIVABLE
Development
Loans
Historically,
we
provided
first
mortgage
and
mezzanine
loans
to
hotel
developers.
These
loans
were
initially
originated
as
part
of
our
acquisition
strategy.
During
the
years
ended
December
31,
2013
and
2012,
no
such
loans
were
originated
by
us.
Interest
income
from
development
loans
was
$158,
$1,998,
and
$3,427
for
the
years
ended
December
31,
2013,
2012,
and
2011,
respectively.
No
interest
accrued
on
development
loans
in
2013.
Accrued
interest
on
our
development
loans
receivable
was
$348
as
of
December
31,
2012.
As
of
December
31,
2013
we
had
no
development
loans
outstanding
and
as
of
December
31,
2012,
our
development
loans
receivable
consisted
of
the
following:
Hotel
Property
Borrower
Operational
Hotels
Principal
Outstanding
December
31,
2013
Principal
Outstanding
December
31,
2012
Interest
Rate
Maturity
Date
Hyatt
48Lex
-‐
New
York,
NY*
44
Lexington
Holding,
LLC
$
-‐
$
15,122
9%
(1)
N/A
Construction
Hotels
Hyatt
Union
Square
-‐
New
York,
NY
(2)
Risingsam
Union
Square,
LLC
-‐
13,303
10%
N/A
Total
Development
Loans
Receivable
*
Indicates
borrower
is
a
related
party
$
-‐
$
28,425
(1)
(2)
Prior
to
June
1,
2012,
the
development
loan
to
44
Lexington
Holding
LLC
allowed
the
borrower
to
elect,
quarterly,
to
pay
accrued
interest
in-‐kind
by
adding
the
accrued
interest
to
the
principal
balance
of
the
loan.
Effective
June
1,
2012,
we
amended
the
development
loan
with
44
Lexington
Holding
LLC
to
cease
the
buyer’s
election
to
pay
accrued
interest
in-‐kind.
Interest
of
$678
was
added
to
principal
during
the
year
ended
December
31,
2012.
On
April
9,
2013,
we
completed
the
acquisition
of
the
real
property
and
improvements
for
the
Hyatt
Union
Square
hotel
in
New
York,
NY
from
Risingsam
Union
Square,
LLC.
Consideration
given
in
exchange
for
the
property
including
$36,000
paid
in
cash
to
the
seller
and
our
cancellation
of
a
development
loan
receivable
in
the
original
principal
amount
of
$10,000
and
$3,303
of
accrued
interest
on
the
loan.
In
addition,
we
paid
off
the
existing
construction
financing
and
entered
into
a
new
mortgage
loan.
See
“Note
2
–Investment
In
Hotel
Properties”
for
additional
discussion
of
this
transaction.
Advances
and
repayments
on
our
development
loans
receivable
consisted
of
the
following
for
the
years
ended
December
31,
2013,
2012,
and
2011:
Balance
at
January
1,
Interest
added
to
principal
Repayments
Principal
exchanged
for
interest
in
hotel
properties
Balance
at
December
31,
2013
$
28,425
-‐
(15,122)
(13,303)
$
-‐
2012
2011
$
35,747
$
41,653
2,094
-‐
(8,000)
$
28,425
$
35,747
678
(8,000)
-‐
63
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
5
–
OTHER
ASSETS
AND
DEPOSITS
ON
HOTEL
ACQUISITIONS
Other
Assets
Other
Assets
consisted
of
the
following
at
December
31,
2013
and
December
31,
2012:
Transaction
Costs
Acquisition
of
Hyatt
Union
Square
Investment
in
Statutory
Trusts
Prepaid
Expenses
Insurance
Claims
Receivable
Deferred
Tax
Asset,
Net
of
Valuation
Allowance
of
$804
Other
December
31,
2013
December
31,
2012
$
$
115
-‐
1,548
9,256
1,706
8,766
6,069
27,460
$
$
339
3,120
1,548
8,654
3,883
3,355
4,615
25,514
Transaction
Costs
-‐
Transaction
costs
include
legal
fees
and
other
third
party
transaction
costs
incurred
relative
to
entering
into
debt
facilities,
issuances
of
equity
securities,
and
other
costs
which
are
recorded
in
other
assets
prior
to
the
closing
of
the
respective
transactions.
Acquisition
of
Hyatt
Union
Square
-‐
On
April
9,
2013,
we
completed
the
acquisition
of
the
real
property
and
improvements
for
the
Hyatt
Union
Square
hotel
in
New
York,
NY.
Included
in
the
acquisition
of
Hyatt
Union
Square
above
are
costs
we
incurred
for
preliminary
development
of
the
hotel.
Investment
in
Statutory
Trusts
-‐
We
have
an
investment
in
the
common
stock
of
Hersha
Statutory
Trust
I
and
Hersha
Statutory
Trust
II.
Our
investment
is
accounted
for
under
the
equity
method.
Prepaid
Expenses
-‐
Prepaid
expenses
include
amounts
paid
for
property
tax,
insurance
and
other
expenditures
that
will
be
expensed
in
the
next
twelve
months.
Insurance
Claims
Receivable
–
As
noted
in
“Note
2
–
Investment
in
Hotel
Properties,”
we
recorded
an
insurance
claim
receivable
due
to
the
property
damage
that
occurred
at
several
of
our
hotel
properties
as
a
result
of
Hurricane
Sandy
in
October
2012.
Deferred
Tax
Asset
-‐
We
have
approximately
$8,766
of
net
deferred
tax
assets
as
of
December
31,
2013.
We
have
considered
various
factors,
including
future
reversals
of
existing
taxable
temporary
differences,
future
projected
taxable
income
and
tax
planning
strategies
in
determining
a
valuation
allowance
for
our
deferred
tax
assets,
and
we
believe
that
it
is
more
likely
than
not
that
we
will
be
able
to
realize
the
$8,766
of
net
deferred
tax
assets
in
the
future.
Deposits
on
Hotel
Acquisitions
As
of
December
31,
2013,
we
had
$15,486
in
interest
bearing
deposits
related
to
the
future
acquisition
of
the
Hilton
Garden
Inn
-‐52nd
Street,
New
York,
NY.
On
October
24,
2012,
we
entered
into
a
purchase
and
sale
agreement
to
acquire
the
Hilton
Garden
Inn
–
52nd
Street
in
New
York,
NY
for
total
consideration
of
$74,000.
As
of
December
31,
2013,
we
had
provided
$15,486
to
the
seller
as
a
deposit
earning
10%
per
annum
and
we
may
fund
an
additional
$1,514
deposit
earning
10%
per
annum.
The
total
consideration
to
the
seller
will
consist
of
this
64
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
5
–
OTHER
ASSETS
AND
DEPOSITS
ON
HOTEL
ACQUISITIONS
(CONTINUED)
$17,000
interest
bearing
deposit,
an
additional
$15,000
cash
to
be
paid
to
the
seller
upon
closing
and
the
assumption
or
extinguishment
of
a
mortgage
loan
secured
by
the
hotel
in
the
original
aggregate
principal
amount
of
$42,000.
This
transaction
is
expected
to
close
shortly
after
the
developer
completes
the
hotel’s
construction,
which
is
anticipated
for
the
first
quarter
of
2014.
While
this
purchase
and
sale
agreement
secures
the
Company’s
right
to
acquire
the
completed
hotel,
the
Company
is
not
assuming
any
significant
construction
risk,
including
the
risk
of
schedule
and
cost
overruns.
As
of
December
31,
2013,
we
had
$3,100
in
interest
bearing
deposits
related
to
the
future
acquisition
of
the
Hotel
Oceana,
located
in
Santa
Barbara,
California
(See
“Note
2
–
Investment
in
Hotel
Properties”
for
more
information).
As
of
December
31,
2012,
our
Deposits
on
Hotel
Acquisitions
consisted
of
$21,000
in
non-‐interest
bearing
deposits
related
to
the
acquisition
of
the
Hyatt
Union
Square,
New
York,
NY,
$15,000
in
interest
bearing
deposits
related
to
the
future
acquisition
of
Hilton
Garden
Inn
-‐52nd
Street,
New
York,
NY
and
$1,750
in
interest
bearing
deposits
related
to
the
potential
acquisition
of
another
hotel
property.
65
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
6
–
DEBT
Mortgages
We
had
total
mortgages
payable
at
December
31,
2013
and
December
31,
2012
of
$617,788
(including
$45,835
in
outstanding
mortgage
indebtedness
related
to
assets
held
for
sale)
and
$641,160,
respectively.
These
balances
consisted
of
mortgages
with
fixed
and
variable
interest
rates,
which
ranged
from
3.79%
to
8.25%
as
of
December
31,
2013.
Included
in
these
balances
are
net
premiums
of
$2,466
and
$3,245
as
of
December
31,
2013
and
December
31,
2012,
respectively,
which
are
amortized
over
the
remaining
life
of
the
loans.
Aggregate
interest
expense
incurred
under
the
mortgage
loans
payable
totaled
$34,854,
$38,343,
and
$39,786
during
the
years
ended
December
31,
2013,
2012,
and
2011,
respectively.
Our
mortgage
indebtedness
contains
various
financial
and
non-‐financial
covenants
customarily
found
in
secured,
non-‐recourse
financing
arrangements.
Our
mortgage
loans
payable
typically
require
that
specified
debt
service
coverage
ratios
be
maintained
with
respect
to
the
financed
properties
before
we
can
exercise
certain
rights
under
the
loan
agreements
relating
to
such
properties.
If
the
specified
criteria
are
not
satisfied,
the
lender
may
be
able
to
escrow
cash
flow
generated
by
the
property
securing
the
applicable
mortgage
loan.
We
have
determined
that
certain
debt
service
coverage
ratio
covenants
contained
in
the
loan
agreements
securing
seven
of
our
hotel
properties
were
not
met
as
of
December
31,
2013.
Pursuant
to
these
loan
agreements,
the
lender
has
elected
to
escrow
the
operating
cash
flow
for
a
number
of
these
properties.
However,
these
covenants
do
not
constitute
an
event
of
default
for
these
loans.
As
of
December
31,
2013,
the
maturity
dates
for
the
outstanding
mortgage
loans
ranged
from
October
2014
to
February
2018.
Subordinated
Notes
Payable
We
have
two
junior
subordinated
notes
payable
in
the
aggregate
amount
of
$51,548
to
the
Hersha
Statutory
Trusts
pursuant
to
indenture
agreements
which
will
mature
on
July
30,
2035,
but
may
be
redeemed
at
our
option,
in
whole
or
in
part,
prior
to
maturity
in
accordance
with
the
provisions
of
the
indenture
agreements.
The
$25,774
notes
issued
to
Hersha
Statutory
Trust
I
and
Hersha
Statutory
Trust
II,
bear
interest
at
a
variable
rate
of
LIBOR
plus
3%
per
annum.
This
rate
resets
two
business
days
prior
to
each
quarterly
payment.
The
weighted
average
interest
rate
on
our
two
junior
subordinated
notes
payable
during
the
years
ended
December
31,
2013,
2012,
and
2011
was
3.32%,
3.51%,
and
3.35%,
respectively.
Interest
expense
in
the
amount
of
$1,712,
$1,810,
and
$1,727
was
recorded
for
the
years
ended
December
31,
2013,
2012,
and
2011,
respectively.
Credit
Facilities
On
November
5,
2012,
we
entered
into
a
senior
unsecured
credit
agreement
with
Citigroup
Global
Markets
Inc.
and
various
other
lenders.
The
credit
agreement
provides
for
a
$400,000
senior
unsecured
credit
facility
consisting
of
a
$250,000
senior
unsecured
revolving
line
of
credit,
and
a
$150,000
senior
unsecured
term
loan.
Our
previous
$250,000
senior
secured
credit
facility
was
terminated
and
replaced
by
the
$400,000
unsecured
credit
facility,
and,
as
a
result,
all
amounts
outstanding
under
our
$250,000
secured
credit
facility
were
repaid
with
borrowings
from
our
$400,000
unsecured
credit
facility.
The
$400,000
unsecured
credit
facility
expires
on
November
5,
2015,
and,
provided
no
event
of
default
has
occurred
and
remains
uncured,
we
may
request
that
the
lenders
renew
the
credit
facility
for
two
additional
one-‐year
periods.
The
credit
facility
is
also
expandable
to
$550,000
at
our
request,
subject
to
the
satisfaction
of
certain
conditions.
The
amount
that
we
can
borrow
at
any
given
time
on
our
credit
facility
is
governed
by
certain
operating
metrics
of
designated
unencumbered
hotel
properties
known
as
borrowing
base
assets.
As
of
December
31,
2013,
the
following
hotel
properties
were
borrowing
base
assets:
66
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
6
–
DEBT
(CONTINUED)
-‐
Holiday
Inn
Express,
Cambridge,
MA
-‐
Holiday
Inn,
Wall
Street,
NY
-‐
Holiday
Inn
Express,
Times
Square,
NY
-‐
Residence
Inn,
Norwood,
MA
-‐
Residence
Inn,
Framingham,
MA
-‐
Sheraton,
Wilmington
South,
DE
-‐
Sheraton
Hotel,
JFK
Airport,
New
York,
NY
-‐
Candlewood
Suites,
Times
Square,
NY
-‐
Hampton
Inn,
Times
Square,
NY
-‐
Hampton
Inn,
Philadelphia,
PA
-‐
Hampton
Inn,
Washington,
DC
-‐
Hyatt
Place,
King
of
Prussia,
PA
-‐
Nu
Hotel,
Brooklyn,
NY
-‐
The
Rittenhouse
Hotel,
Philadelphia,
PA
-‐
The
Boxer,
Boston,
MA
-‐
Holiday
Inn
Express
(Water
Street),
New
York,
NY
-‐
Courtyard,
San
Diego,
CA
-‐
Residence
Inn,
Coconut
Grove,
FL
The
interest
rate
for
the
$400,000
unsecured
credit
facility
is
based
on
a
pricing
grid
with
a
range
of
one
month
U.S.
LIBOR
plus
1.75%
to
2.65%.
As
of
December
31,
2013,
we
had
borrowed
$150,000
in
unsecured
term
loans
under
the
unsecured
credit
facility,
and
had
entered
into
interest
rate
swaps
which
effectively
fix
the
interest
rate
on
these
term
loans
at
a
blended
rate
of
3.217%.
See
“Note
8
–
Fair
Value
Measurements
and
Derivative
Instruments”
for
more
information.
The
credit
agreement
providing
for
the
$400,000
unsecured
credit
facility
includes
certain
financial
covenants
and
requires
that
we
maintain:
(1)
a
minimum
tangible
net
worth
of
$1,000,000,
which
is
calculated
by
adding
back
accumulated
depreciation
to
the
recorded
value
of
our
investment
in
hotel
properties
and
subtracting
certain
intangible
assets
and
debt
and
is
subject
to
increases
under
certain
circumstances;
(2)
annual
distributions
not
to
exceed
95%
of
adjusted
funds
from
operations;
and
(3)
certain
financial
ratios,
including
the
following:
·∙
·∙
·∙
a
fixed
charge
coverage
ratio
of
not
less
than
1.45
to
1.00,
which
increases
to
1.50
to
1.00
as
of
January
1,
2014;
a
maximum
leverage
ratio
of
not
more
than
60%;
and
a
maximum
secured
debt
leverage
ratio
of
55%,
which
decreased
to
50%
as
of
October
1,
2013
and
further
decreases
to
45%
as
of
October
1,
2014.
The
Company
is
in
compliance
with
each
of
the
covenants
listed
above
as
of
December
31,
2013.
As
of
December
31,
2013,
our
remaining
borrowing
capacity
under
the
new
credit
facility
was
$244,175,
based
on
our
current
borrowing
base
assets.
As
of
December
31,
2013,
the
outstanding
unsecured
term
loan
balance
under
the
$400,000
credit
facility
was
$150,000
and
we
had
outstanding
borrowings
of
$0
on
the
revolving
line
of
credit.
As
of
December
31,
2012,
the
outstanding
unsecured
term
loan
was
$100,000
and
the
revolving
line
of
credit
had
no
balance
outstanding.
The
Company
recorded
interest
expense
of
$5,413,
$2,405,
and
$2,103
related
to
borrowings
drawn
on
each
of
the
aforementioned
credit
facilities,
for
the
years
ended
December
31,
2013,
2012,
and
2011,
respectively.
The
weighted
average
interest
rate
on
our
credit
facilities
was
3.08%,
4.57%,
and
4.43%
for
the
years
ended
December
31,
2013,
2012,
and
2011,
respectively.
Subsequent
to
December
31,
2013,
the
Company
has
received
a
commitment
from
its
existing
bank
group
and
is
in
the
process
of
amending
the
current
$400,000
credit
facility
which
would
allow
the
Company
to
increase
the
size
of
the
facility
while
simultaneously
extending
the
tenor
and
reducing
the
pricing.
The
revised
credit
facility
is
expected
to
close
by
the
end
of
the
first
quarter
of
2014,
subject
to
lender
approval.
On
November
5,
2010,
we
entered
into
a
Revolving
Credit
Loan
and
Security
Agreement
with
T.D.
Bank,
NA
and
various
other
lenders,
which
provided
for
a
senior
secured
revolving
credit
facility
in
the
principal
amount
of
up
to
$250,000,
including
a
sub-‐limit
of
$25,000
for
irrevocable
stand-‐by
letters
of
credit
and
a
$10,000
sub-‐limit
for
the
swing
line
loans.
The
$250,000
revolving
credit
facility
was
collateralized
by
a
first
lien-‐security
interest
in
all
67
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
6
–
DEBT
(CONTINUED)
existing
and
future
unencumbered
assets
of
HHLP,
a
collateral
assignment
of
all
hotel
management
contracts
of
the
management
companies
in
the
event
of
default,
and
title-‐insured,
first-‐lien
mortgages
on
several
hotel
properties.
Aggregate
annual
principal
payments
for
the
Company’s
credit
facility
and
mortgages
and
subordinated
notes
payable
for
the
five
years
following
December
31,
2013
and
thereafter
are
as
follows:
Year
Ending
December
31,
Amount
2014
2015
2016
2017
2018
Thereafter
Net
Unamortized
Premium
Capitalized
Interest
$
$
17,500
250,188
302,648
181,184
13,802
51,548
2,466
819,336
We
utilize
mortgage
debt
and
our
$400,000
revolving
credit
facility
to
finance
on-‐going
capital
improvement
projects
at
our
hotels.
Interest
incurred
on
mortgages
and
the
revolving
credit
facility
that
relates
to
our
capital
improvement
projects
is
capitalized
through
the
date
when
the
assets
are
placed
in
service.
For
the
years
ended
December
31,
2013,
2012,
and
2011,
we
capitalized
$1,320,
$1,542,
and
$1,372
respectively,
of
interest
expense
related
to
these
projects.
Deferred
Financing
Costs
Costs
associated
with
entering
into
mortgages
and
notes
payable
and
our
revolving
line
of
credit
are
deferred
and
amortized
over
the
life
of
the
debt
instruments.
Amortization
of
deferred
financing
costs
is
recorded
in
interest
expense.
As
of
December
31,
2013,
deferred
costs
were
$7,570,
net
of
accumulated
amortization
of
$7,070.
Amortization
of
deferred
costs
for
the
years
ended
December
31,
2013,
2012,
and
2011
was
$2,886,
$2,991,
and
$3,535
respectively.
Debt
Payoff
On
January
3,
2013,
we
funded
an
additional
$50,000
in
unsecured
term
loan
borrowings
under
our
$400,000
unsecured
credit
facility
which
was
used
to
pay
off
the
balance
of
the
mortgage
loan
secured
by
the
Holiday
Inn
Express,
Times
Square,
New
York,
NY.
This
mortgage
was
also
subject
to
an
interest
rate
swap,
which
was
terminated
as
a
cash
flow
hedge
as
of
December
31,
2012
due
to
this
payoff.
As
a
result
of
this
payoff,
we
expensed
$261
in
unamortized
deferred
financing
costs
and
fees,
which
are
included
in
the
Loss
on
Debt
Extinguishment
caption
of
the
consolidated
statements
of
operations
for
the
year
ended
December
31,
2013.
On
June
30,
2013,
we
repaid
$7,928
on
our
mortgage
with
Berkadia
Commercial
Mortgage,
LLC
for
the
Residence
Inn,
Tysons
Corner,
VA
property.
The
loan
was
due
to
mature
in
July
2013,
and
we
incurred
no
loss
on
debt
extinguishment
in
paying
off
the
loan.
On
January
7,
2013,
the
Company
repaid
the
mortgage
secured
by
the
Holiday
Inn
Express
Times
Square
in
New
York,
NY.
Due
to
the
timing
of
this
transaction,
the
hedge
relationship
on
our
interest
rate
swap
was
derecognized
68
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
6
–
DEBT
(CONTINUED)
as
of
December
31,
2012.
Therefore,
the
accumulated
other
comprehensive
loss
on
this
swap
as
of
December
31,
2012,
was
reclassified
to
income
and
we
recorded
$530
in
the
Loss
on
Debt
Extinguishment
on
the
statement
of
operations
for
the
year
ended
December
31,
2012.
As
previously
mentioned,
we
replaced
our
previous
$250,000
secured
credit
facility
with
a
new
$400,000
unsecured
credit
facility
with
Citigroup
Global
Markets
Inc.
and
various
other
lenders
on
November
5,
2012.
Concurrently
with
this
closing,
we
funded
$100,000
in
unsecured
term
loan
borrowings.
These
borrowings
were
used
to
pay
off
in
full
the
balance
on
seven
mortgage
loans
on
hotel
properties.
As
a
result
of
terminating
our
previous
$250,000
secured
credit
facility
and
extinguishing
the
debt
on
these
seven
properties,
we
expensed
$2,410
in
unamortized
deferred
financing
costs
and
fees,
which
are
included
in
the
Loss
of
Debt
Extinguishment
caption
on
the
consolidated
statements
of
operations
for
the
year
ended
December
31,
2012.
On
January
3,
2013,
we
funded
an
additional
$50,000
in
unsecured
term
loan
borrowings
under
our
$400,000
unsecured
credit
facility
which
were
used
to
payoff
the
balance
of
the
mortgage
loan
secured
by
the
Holiday
Inn
Express,
Times
Square,
New
York,
NY.
This
mortgage
was
also
subject
to
an
interest
rate
swap,
which
was
derecognized
as
a
cash
flow
hedge
as
of
December
31,
2012
due
to
this
payoff.
See
“Footnote
8
–
Fair
Value
Measurements
and
Derivative
Instruments”
for
more
information.
New
Debt/Refinance
On
January,
31,
2014,
we
paid
down
$5,175
of
the
outstanding
debt
and
modified
the
mortgage
loan
on
the
Duane
Street
Hotel,
New
York,
NY.
As
a
result,
we
entered
into
a
$9,500
loan
with
a
maturity
date
of
February
1,
2017.
The
modified
loan
bears
interest
at
a
variable
rate
of
one
month
U.S.
dollar
LIBOR
plus
4.50%.
The
modification
also
includes
an
interest
rate
swap,
which
effectively
fixes
the
interest
rate
at
5.433%.
As
a
result
of
this
modification,
we
anticipate
expensing
$65
in
unamortized
deferred
financial
costs
and
fees
during
the
first
quarter
of
2014.
On
April
24,
2013,
we
modified
the
$30,000
mortgage
loan
on
the
Courtyard
by
Marriott,
Westside,
Los
Angeles,
CA.
The
modified
loan
bears
interest
at
a
variable
rate
of
one
month
U.S.
dollar
LIBOR
plus
3.00%,
and
matures
on
September
29,
2017.
The
modification
also
contains
an
option
for
the
Company
to
advance
$5,000
in
principal
subject
to
certain
conditions,
including
there
being
no
event
of
default
and
compliance
with
debt
service
coverage
ratio
requirements.
As
a
result
of
this
modification,
we
incurred
a
loss
on
debt
extinguishment
of
$284.
This
modification
did
not
change
the
terms
of
the
interest
rate
swap
that
we
entered
into
in
2011,
which
had
effectively
fixed
the
interest
at
4.947%,
and
now
effectively
fixes
the
interest
at
4.10%
through
September
29,
2015.
After
the
maturity
date
of
the
swap,
the
loan
will
bear
interest
at
the
stated
variable
rate
of
one-‐month
U.S.
dollar
LIBOR
plus
3.00,
with
a
LIBOR
floor
of
0.75%.
See
“Note
8
–
Fair
Value
Measurements
and
Derivative
Instruments”
for
more
information.
On
January
31,
2012,
we
repaid
outstanding
mortgage
debt
with
an
original
principal
balance
of
$32,500
secured
by
the
Capitol
Hill
Suites,
Washington,
D.C.,
incurring
a
loss
on
debt
extinguishment
of
approximately
$7
and
simultaneously
entered
into
a
new
mortgage
obligation
of
$27,500.
The
new
mortgage
debt
bears
interest
at
a
variable
rate
of
one
month
U.S.
dollar
LIBOR
plus
3.25%
and
matures
on
February
1,
2015.
On
the
same
date,
we
entered
into
an
interest
rate
swap
that
effectively
fixes
the
interest
at
3.79%
per
annum.
On
May
9,
2012,
we
repaid
outstanding
mortgage
debt
with
a
principal
balance
of
$29,730
secured
by
the
Courtyard
by
Marriott,
Miami,
FL.
On
July
2,
2012,
we
entered
into
a
new
mortgage
with
an
initial
obligation
of
$45,000,
with
three
additional
draws
of
$5,000
every
90
days
to
fund
the
construction
of
the
new
oceanfront
tower
as
described
in
“Note
2
–
Investment
in
Hotel
Properties”.
The
new
mortgage
debt
bears
interest
at
a
variable
rate
of
one
month
U.S.
LIBOR
plus
3.50%
and
matures
on
July
1,
2016.
Also
on
July
2,
2012,
we
entered
into
an
interest
rate
cap
that
effectively
limits
interest
to
4.32%
per
annum.
69
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
6
–
DEBT
(CONTINUED)
On
May
23,
2012,
we
repaid
outstanding
mortgage
debt
with
an
original
principal
balance
of
$22,000
secured
by
the
Hotel
373,
Fifth
Avenue,
NY,
and
on
May
24,
2012
entered
into
a
new
mortgage
obligation
of
$19,000,
incurring
a
loss
on
debt
extinguishment
of
approximately
$66.
The
new
mortgage
debt
bears
interest
at
a
variable
rate
of
one
month
U.S.
dollar
LIBOR
plus
3.85%
and
matures
on
June
1,
2017.
In
conjunction
with
this
refinance,
we
entered
into
an
interest
rate
cap
that
matures
on
June
1,
2015
that
effectively
limits
interest
to
5.85%
per
annum.
As
a
result
of
our
acquisition
of
Metro
29th,
first
mortgage
debt
with
a
principal
balance
of
$54,602
secured
by
the
Holiday
Inn
Express,
New
York,
NY
is
included
on
our
consolidated
balance
sheet.
This
debt
bears
interest
at
a
fixed
rate
of
6.50%
and
matures
on
November
5,
2016.
In
addition,
we
consolidated
mezzanine
debt
with
a
principal
balance
of
$15,000.
We
repaid
this
mezzanine
debt
on
June
29,
2012
and
incurred
a
loss
on
debt
extinguishment
of
approximately
$176.
70
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
7
–
COMMITMENTS
AND
CONTINGENCIES
AND
RELATED
PARTY
TRANSACTIONS
Management
Agreements
Our
wholly-‐owned
taxable
REIT
subsidiary
("TRS"),
44
New
England,
engages
eligible
independent
contractors
in
accordance
with
the
requirements
for
qualification
as
a
REIT
under
the
internal
revenue
code
of
1986,
as
amended,
including
HHMLP,
as
the
property
managers
for
hotels
it
leases
from
us
pursuant
to
management
agreements.
HHMLP
is
owned,
in
part,
by
certain
executives
and
trustees
of
the
Company.
Our
management
agreements
with
HHMLP
provide
for
five-‐year
terms
and
are
subject
to
early
termination
upon
the
occurrence
of
defaults
and
certain
other
events
described
therein.
As
required
under
the
REIT
qualification
rules,
HHMLP
must
qualify
as
an
“eligible
independent
contractor”
during
the
term
of
the
management
agreements.
Under
the
management
agreements,
HHMLP
generally
pays
the
operating
expenses
of
our
hotels.
All
operating
expenses
or
other
expenses
incurred
by
HHMLP
in
performing
its
authorized
duties
are
reimbursed
or
borne
by
our
TRS
to
the
extent
the
operating
expenses
or
other
expenses
are
incurred
within
the
limits
of
the
applicable
approved
hotel
operating
budget.
HHMLP
is
not
obligated
to
advance
any
of
its
own
funds
for
operating
expenses
of
a
hotel
or
to
incur
any
liability
in
connection
with
operating
a
hotel.
Management
agreements
with
other
unaffiliated
hotel
management
companies
have
similar
terms.
For
its
services,
HHMLP
receives
a
base
management
fee
and,
if
a
hotel
exceeds
certain
thresholds,
an
incentive
management
fee.
The
base
management
fee
for
a
hotel
is
due
monthly
and
is
equal
to
3%
of
gross
revenues
associated
with
each
hotel
managed
for
the
related
month.
The
incentive
management
fee,
if
any,
for
a
hotel
is
due
annually
in
arrears
on
the
ninetieth
day
following
the
end
of
each
fiscal
year
and
is
based
upon
the
financial
performance
of
the
hotels.
For
the
years
ended
December
31,
2013,
2012,
and
2011,
base
management
fees
incurred
totaled
$11,713,
$10,781,
and
$9,190
respectively,
and
are
recorded
as
Hotel
Operating
Expenses.
For
the
years
ended
December
31,
2013,
2012,
and
2011,
we
did
not
incur
incentive
management
fees.
Franchise
Agreements
Our
branded
hotel
properties
are
operated
under
franchise
agreements
assumed
by
the
hotel
property
lessee.
The
franchise
agreements
have
10
to
20
year
terms,
but
may
be
terminated
by
either
the
franchisee
or
franchisor
on
certain
anniversary
dates
specified
in
the
agreements.
The
franchise
agreements
require
annual
payments
for
franchise
royalties,
reservation,
and
advertising
services,
and
such
payments
are
based
upon
percentages
of
gross
room
revenue.
These
payments
are
paid
by
the
hotels
and
charged
to
expense
as
incurred.
Franchise
fee
expense
for
the
years
ended
December
31,
2013,
2012,
and
2011
were
$26,247,
$24,278,
and
$22,729
respectively,
and
are
recorded
in
Hotel
Operating
Expenses.
The
initial
fees
incurred
to
enter
into
the
franchise
agreements
are
amortized
over
the
life
of
the
franchise
agreements.
Accounting
and
Information
Technology
Fees
Each
of
the
wholly-‐owned
hotels
and
consolidated
joint
venture
hotel
properties
managed
by
HHMLP
incurs
a
monthly
accounting
and
information
technology
fee.
Monthly
fees
for
accounting
services
are
between
$2
and
$3
per
property
and
monthly
information
technology
fees
range
from
$1
to
$2
per
property.
For
the
years
ended
December
31,
2013,
2012,
and
2011,
the
Company
incurred
accounting
fees
of
$1,739,
$1,741,
and
$1,822
respectively.
For
the
years
ended
December
31,
2013,
2012,
and
2011,
the
Company
incurred
information
technology
fees
of
$510,
$509,
and
$460
respectively.
Accounting
fees
and
information
technology
fees
are
included
in
Hotel
Operating
Expenses.
71
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
7
–
COMMITMENTS
AND
CONTINGENCIES
AND
RELATED
PARTY
TRANSACTIONS
(CONTINUED)
Capital
Expenditure
Fees
HHMLP
charges
a
5%
fee
on
all
capital
expenditures
and
pending
renovation
projects
at
the
properties
as
compensation
for
procurement
services
related
to
capital
expenditures
and
for
project
management
of
renovation
projects.
For
the
years
ended
December
31,
2013,
2012,
and
2011,
we
incurred
fees
of
$1,459,
$1,076,
and
$1,208
respectively,
which
were
capitalized
with
the
cost
of
fixed
asset
additions.
Acquisitions
from
Affiliates
We
have
entered
into
an
option
agreement
with
each
of
our
officers
and
certain
trustees
such
that
we
obtain
a
right
of
first
refusal
to
purchase
any
hotel
owned
or
developed
in
the
future
by
these
individuals
or
entities
controlled
by
them
at
fair
market
value.
This
right
of
first
refusal
would
apply
to
each
party
until
one
year
after
such
party
ceases
to
be
an
officer
or
trustee
of
the
Company.
Our
Acquisition
Committee
of
the
Board
of
Trustees
is
comprised
solely
of
independent
trustees,
and
the
purchase
prices
and
all
material
terms
of
the
purchase
of
hotels
from
related
parties
are
approved
by
the
Acquisition
Committee.
Hotel
Supplies
For
the
years
ended
December
31,
2013,
2012,
and
2011,
we
incurred
charges
for
hotel
supplies
of
$222,
$149,
and
$143
respectively.
For
the
years
ended
December
31,
2013,
2012,
and
2011,
we
incurred
charges
for
capital
expenditure
purchases
of
$19,783,
$11,809,
and
$18,404
respectively.
These
purchases
were
made
from
Hersha
Purchasing
and
Design,
a
hotel
supply
company
owned,
in
part,
by
certain
executives
and
trustees
of
the
Company.
Hotel
supplies
are
expensed
and
included
in
Hotel
Operating
Expenses
on
our
consolidated
statements
of
operations,
and
capital
expenditure
purchases
are
included
in
investment
in
hotel
properties
on
our
consolidated
balance
sheets.
Approximately
$2
and
$5
is
included
in
accounts
payable
at
December
31,
2013
and
December
31,
2012,
respectively.
Due
From
Related
Parties
The
due
from
related
parties
balance
as
of
December
31,
2013
and
December
31,
2012
was
approximately
$11,124
and
$8,488,
respectively.
The
balances
primarily
consisted
of
working
capital
deposits
made
to
Hersha
affiliates.
Due
to
Related
Parties
The
balance
due
to
related
parties
as
of
December
31,
2013
and
December
31,
2012
was
approximately
$4,815
and
$4,403,
respectively.
The
balances
consisted
of
amounts
payable
to
HHMLP
for
administrative,
management,
and
benefit
related
fees.
72
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
7
–
COMMITMENTS
AND
CONTINGENCIES
AND
RELATED
PARTY
TRANSACTIONS
(CONTINUED)
Hotel
Ground
Rent
For
the
years
ended
December
31,
2013,
2012,
and
2011
we
incurred
$985,
$835,
and
$877
respectively,
of
rent
expense
payable
pursuant
to
ground
leases
related
to
certain
hotel
properties.
Future
minimum
lease
payments
(without
reflecting
future
applicable
Consumer
Price
Index
increases)
under
these
agreements
are
as
follows:
Year
Ending
December
31,
Amount
2014
2015
2016
2017
2018
Thereafter
Litigation
$
$
735
735
735
735
735
60,930
64,605
We
are
not
presently
subject
to
any
material
litigation
nor,
to
our
knowledge,
is
any
other
litigation
threatened
against
us,
other
than
routine
actions
for
negligence
or
other
claims
and
administrative
proceedings
arising
in
the
ordinary
course
of
business,
some
of
which
are
expected
to
be
covered
by
liability
insurance
and
all
of
which
collectively
are
not
expected
to
have
a
material
adverse
effect
on
our
liquidity,
results
of
operations
or
business
or
financial
condition.
73
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
8
–
FAIR
VALUE
MEASUREMENTS
AND
DERIVATIVE
INSTRUMENTS
Fair
Value
Measurements
Our
determination
of
fair
value
measurements
are
based
on
the
assumptions
that
market
participants
would
use
in
pricing
the
asset
or
liability.
As
a
basis
for
considering
market
participant
assumptions
in
fair
value
measurements,
we
utilize
a
fair
value
hierarchy
that
distinguishes
between
market
participant
assumptions
based
on
market
data
obtained
from
sources
independent
of
the
reporting
entity
(observable
inputs
that
are
classified
within
Levels
1
and
2
of
the
hierarchy)
and
the
reporting
entity’s
own
assumptions
about
market
participant
assumptions
(unobservable
inputs
classified
within
Level
3
of
the
hierarchy).
Level
1
inputs
utilize
quoted
prices
(unadjusted)
in
active
markets
for
identical
assets
or
liabilities
that
the
Company
has
the
ability
to
access.
Level
2
inputs
are
inputs
other
than
quoted
prices
included
in
Level
1
that
are
observable
for
the
asset
or
liability,
either
directly
or
indirectly.
Level
2
inputs
may
include
quoted
prices
for
similar
assets
and
liabilities
in
active
markets,
as
well
as
inputs
that
are
observable
for
the
asset
or
liability
(other
than
quoted
prices),
such
as
interest
rates,
foreign
exchange
rates
and
yield
curves
that
are
observable
at
commonly
quoted
intervals.
Level
3
inputs
are
unobservable
inputs
for
the
asset
or
liabilities,
which
are
typically
based
on
an
entity’s
own
assumptions,
as
there
is
little,
if
any,
related
market
activity.
In
instances
where
the
determination
of
the
fair
value
measurement
is
based
on
inputs
from
different
levels
of
the
fair
value
hierarchy,
the
level
in
the
fair
value
hierarchy
within
which
the
entire
fair
value
measurement
falls
is
based
on
the
lowest
level
input
that
is
significant
to
the
fair
value
measurement
in
its
entirety.
The
Company’s
assessment
of
the
significance
of
a
particular
input
to
the
fair
value
measurement
in
its
entirety
requires
judgment,
and
considers
factors
specific
to
the
asset
or
liability.
As
of
December
31,
2013,
the
Company’s
derivative
instruments
represented
the
only
financial
instruments
measured
at
fair
value.
Currently,
the
Company
uses
derivative
instruments,
such
as
interest
rate
swaps
and
caps,
to
manage
its
interest
rate
risk.
The
valuation
of
these
instruments
is
determined
using
widely
accepted
valuation
techniques,
including
discounted
cash
flow
analysis
on
the
expected
cash
flows
of
each
derivative.
This
analysis
reflects
the
contractual
terms
of
the
derivatives,
including
the
period
to
maturity,
and
uses
observable
market-‐based
inputs.
We
incorporate
credit
valuation
adjustments
to
appropriately
reflect
both
our
own
nonperformance
risk
and
the
respective
counterparty’s
nonperformance
risk
in
the
fair
value
measurements.
In
adjusting
the
fair
value
of
its
derivative
contracts
for
the
effect
of
nonperformance
risk,
we
have
considered
the
impact
of
netting
and
any
applicable
credit
enhancements,
such
as
collateral
postings,
thresholds,
mutual
puts
and
guarantees.
Although
we
have
determined
that
the
majority
of
the
inputs
used
to
value
our
derivatives
fall
within
Level
2
of
the
fair
value
hierarchy,
the
credit
valuation
adjustments
associated
with
our
derivatives
utilize
Level
3
inputs,
such
as
estimates
of
current
credit
spreads,
to
evaluate
the
likelihood
of
default
by
us
and
the
counterparties.
However,
as
of
December
31,
2013
we
have
assessed
the
significance
of
the
effect
of
the
credit
valuation
adjustments
on
the
overall
valuation
of
our
derivative
positions
and
have
determined
that
the
credit
valuation
adjustments
are
not
significant
to
the
overall
valuation
of
our
derivatives.
As
a
result,
we
have
determined
that
our
derivative
valuations
in
their
entirety
are
classified
in
Level
2
of
the
fair
value
hierarchy.
74
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
8
–
FAIR
VALUE
MEASUREMENTS
AND
DERIVATIVE
INSTRUMENTS
(CONTINUED)
Derivative
Instruments
Hedged
Debt
Type
Strike
Rate
Index
Effective
Date
Maturity
Date
Estimated
Fair
Value
Notional
Amount
December
31,
2013
December
31,
2012
Swap
1.240%
Holiday
Inn
Express
Times
Square,
New
York,
NY*
Courtyard,
LA
Westside,
Culver
City,
LA
Capitol
Hill
Hotel,
Washington,
DC
Swap
Swap
Hotel
373,
New
York,
NY
Cap
Courtyard,
Miami,
FL
Swap
Subordinated
Notes
Payable
Cap
Unsecured
Term
Loan
Unsecured
Term
Loan
Hyatt,
Union
Square,
New
York,
NY
Swap
Swap
Cap
1-‐Month
LIBOR
+
4.00%
1-‐Month
LIBOR
+
3.85%
1-‐Month
LIBOR
+
3.25%
1-‐Month
LIBOR
+
3.85%
1-‐Month
LIBOR
+
3.50%
1-‐Month
LIBOR
+
3.00%
1-‐Month
LIBOR
+
2.40%
1-‐Month
LIBOR
+
2.40%
1-‐Month
LIBOR
+
4.19%
1.097%
0.540%
2.000%
0.820%
2.000%
0.545%
0.600%
2.000%
May
31,
2011
September
29,
2011
February
1,
2012
June
1,
2014
September
29,
2015
February
1,
2015
$
-‐
$
-‐
$
(530)
30,000
(374)
(559)
27,119
(88)
(143)
May
24,
2012
June
1,
2015
18,477
1
6
July
2,
2012
July
1,
2016
60,000
(354)
(658)
July
30,
2012
November
5,
2012
December
18,
2012
July
30,
2014
November
5,
2016
November
5,
2016
April
9,
2013
April
9,
2016
51,548
-‐
-‐
100,000
430
(135)
50,000
137
(167)
55,000
$
76
(172)
$
-‐
(2,186)
On
January
3,
2013,
the
Company
repaid
the
mortgage
secured
by
the
Holiday
Inn
Express
Times
Square
in
New
York,
NY
and
paid
$565
to
settle
its
obligation
under
the
swap.
Due
to
the
timing
of
this
transaction,
the
hedge
relationship
on
our
interest
rate
swap
was
derecognized
as
of
December
31,
2012.
On
April
9,
2013,
we
entered
into
an
interest
rate
cap
that
effectively
fixes
interest
payment
when
1
month-‐U.S.
dollar
LIBOR
exceeds
2.00%
on
a
variable
rate
mortgage
on
Hyatt
Union
Square,
New
York,
NY.
The
notional
amount
of
the
interest
rate
cap
is
$55,000
and
equals
the
principal
of
the
variable
rate
mortgage
being
hedged.
This
interest
rate
cap
matures
on
April
9,
2016.
Please
see
“Note
2-‐Investments
in
Hotel
Properties”
for
more
information.
The
fair
value
of
certain
swaps
and
our
interest
rate
caps
is
included
in
other
assets
at
December
31,
2013
and
December
31,
2012
and
the
fair
value
of
certain
of
our
interest
rate
swaps
is
included
in
accounts
payable,
accrued
expenses
and
other
liabilities
at
December
31,
2013
and
December
31,
2012.
The
net
change
in
fair
value
of
derivative
instruments
designated
as
cash
flow
hedges
was
a
gain
of
$1,410
and
a
loss
of
$635,
and
a
loss
of
$813
for
the
years
ended
December
31,
2013,
2012,
and
2011,
respectively.
These
unrealized
gains
and
losses
were
reflected
on
our
consolidated
balance
sheet
in
accumulated
other
comprehensive
income.
Amounts
reported
in
accumulated
other
comprehensive
income
related
to
derivatives
will
be
reclassified
to
interest
expense
as
interest
payments
are
made
on
the
Company’s
variable-‐rate
derivative.
The
change
in
net
unrealized
gains/losses
on
cash
flow
hedges
reflects
a
reclassification
of
$1,284
of
net
unrealized
gains/losses
from
accumulated
other
comprehensive
income
as
an
increase
to
interest
expense
during
2013.
During
2014,
the
Company
estimates
that
an
additional
$1,227
will
be
reclassified
as
an
increase
to
interest
expense.
75
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
8
–
FAIR
VALUE
MEASUREMENTS
AND
DERIVATIVE
INSTRUMENTS
(CONTINUED)
Fair
Value
of
Debt
The
Company
estimates
the
fair
value
of
its
fixed
rate
debt
and
the
credit
spreads
over
variable
market
rates
on
its
variable
rate
debt
by
discounting
the
future
cash
flows
of
each
instrument
at
estimated
market
rates
or
credit
spreads
consistent
with
the
maturity
of
the
debt
obligation
with
similar
credit
policies.
Credit
spreads
take
into
consideration
general
market
conditions
and
maturity.
The
inputs
utilized
in
estimating
the
fair
value
of
debt
are
classified
in
Level
2
of
the
fair
value
hierarchy.
As
of
December
31,
2013,
the
carrying
value
and
estimated
fair
value
of
the
Company’s
debt
were
$819,336
and
$828,974,
respectively.
As
of
December
31,
2012,
the
carrying
value
and
estimated
fair
value
of
the
Company’s
debt
were
$792,708
and
$814,451,
respectively.
Impaired
Hotel
Property
As
discussed
in
“Note
12-‐Discontinued
Operations,”
the
Company
recorded
an
impairment
loss
for
the
year
ended
December
31,
2013
of
approximately
$3,723
for
the
Holiday
Inn
Express
Camp
Springs,
MD
for
which
the
anticipated
net
proceeds
from
the
sale
of
the
hotel
did
not
exceed
the
carrying
value.
The
fair
value
of
the
hotel
was
estimated
using
level
2
inputs.
As
discussed
in
“Note
12-‐Discontinued
Operations,”
the
Company
recorded
an
impairment
loss
for
the
year
ended
December
31,
2013
of
approximately
$6,591
for
the
non-‐core
hotel
portfolio
the
Company
is
under
contract
to
sell
for
which
the
anticipated
net
proceeds
did
not
exceed
the
carrying
value.
The
fair
value
of
the
non-‐core
hotel
portfolio
was
estimated
using
level
2
inputs.
76
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
9
–
SHARE
BASED
PAYMENTS
In
May
2011,
the
Company
established
and
our
shareholders
approved
the
Hersha
Hospitality
Trust
2012
Equity
Incentive
Plan
(the
“2012
Plan”)
for
the
purpose
of
attracting
and
retaining
executive
officers,
employees,
trustees
and
other
persons
and
entities
that
provide
services
to
the
Company.
Executives
&
Employees
Annual
Long
Term
Equity
Incentive
Programs
To
further
align
the
interests
of
the
Company’s
executives
with
those
of
shareholders,
the
Compensation
Committee
grants
annual
long
term
equity
incentive
awards
that
are
both
“performance
based”
and
“time
based.”
On
April
15,
2013,
the
Compensation
Committee
adopted
the
2013
Annual
LTIP
for
the
executive
officers,
pursuant
to
which
the
executive
officers
are
eligible
to
earn
equity
awards
in
the
form
of
stock
awards
or
performance
share
awards
issuable
pursuant
to
the
2012
Plan.
Shares
are
earned
under
the
2013
Annual
LTIP
based
on
achieving
a
threshold,
target
or
maximum
level
of
performance
and
market
based
defined
areas.
The
Company
accounts
for
these
grants
as
performance
awards
for
which
the
Company
assesses
the
probable
achievement
of
the
performance
conditions
at
the
end
of
the
period.
Stock
based
compensation
of
$1,144,
was
recorded
for
the
year
ended
December
31,
2013
for
the
2013
Annual
LTIP
and
is
included
in
general
and
administrative
expense
in
the
consolidated
statements
of
operations.
As
of
December
31,
2013,
no
common
shares
have
been
issued
pursuant
to
the
2012
Plan
to
the
executive
officers
in
settlement
of
2013
Annual
LTIP
awards.
Stock
based
compensation
expense
related
to
the
2012
Annual
LTIP,
2011
Annual
LTIP,
and
2010
Annual
LTIP
of
$2,618,
$3,925,
and
$2,179
was
incurred
during
the
years
ended
December
31,
2013,
2012,
and
2011,
respectively.
Unearned
compensation
related
to
the
2012
Annual
LTIP,
2011
Annual
LTIP,
and
2010
Annual
LTIP
as
of
December
31,
2013
and
December
31,
2012
was
$1,305
and
$1,072,
respectively.
The
following
table
is
a
summary
of
all
unvested
share
awards
issued
to
executives
under
the
2012
Annual
LTIP,
2011
Annual
LTIP,
and
2010
Annual
LTIP:
Original
Issuance
Date
Shares
Issued
Share
Price
on
date
of
grant
Vesting
Period
Vesting
Schedule
December
31,
2013
December
31,
2012
December
31,
2013
December
31,
2012
Shares
Vested
Unearned
Compensation
March
20,
2013
(2012
Annual
LTIP)
March
26,
2012
(2011
Annual
LTIP)
March
30,
2011
(2010
Annual
LTIP)
779,045
$
5.95
3
years
25%/year
(1)
389,520
-‐
$
1,039
$
-‐
748,927
$
5.45
3
years
25%/year
(1)
561,694
374,462
266
892
440,669
$
5.98
3
years
25%/year
(1)
440,669
1,391,883
330,500
704,962
$
-‐
1,305
$
180
1,072
(1)
25%
of
the
issued
shares
vested
immediately
upon
issuance.
In
general,
the
remaining
shares
vest
25%
on
the
first
through
third
anniversaries
of
the
date
of
issuance
(subject
to
continuous
employment
through
the
applicable
vesting
date).
77
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
9
–
SHARE
BASED
PAYMENTS
(CONTINUED)
Multi-‐Year
LTIP
On
May
7,
2010,
the
Compensation
Committee
adopted
the
2010
Multi-‐Year
LTIP.
This
program
had
a
three-‐year
performance
period,
which
commenced
on
January
1,
2010
and
ended
on
December
31,
2012.
The
common
shares
issuable
under
this
program
were
based
upon
the
Company’s
achievement
of
a
certain
level
of
(1)
absolute
total
shareholder
return
(75%
of
the
award),
and
(2)
relative
total
shareholder
return
as
compared
to
the
Company’s
peer
group
(25%
of
the
award).
The
Compensation
Committee
of
the
Board
of
Trustees
concluded
that
the
performance
criteria
for
this
program
had
been
met
and
3,051,862
common
shares
were
issued
under
this
program
during
the
year
ended
December
31,
2013,
of
which
1,525,931
vested
immediately,
and
the
remaining
vested
on
December
31,
2013.
On
April
15,
2013,
the
Compensation
Committee
approved
the
2013
Multi-‐Year
LTIP.
The
common
shares
issuable
under
this
program
are
based
on
the
Company’s
achievement
of
a
certain
level
of
(1)
absolute
total
shareholder
return
(50%
of
the
award),
(2)
relative
total
shareholder
return
as
compared
to
the
Company’s
peer
group
(25%
of
the
award),
and
(3)
relative
growth
in
revenue
per
available
room
compared
to
the
Company’s
peer
group
(25%
of
the
award).
This
program
has
a
three-‐year
performance
period
which
commenced
on
January
1,
2013
and
ends
December
31,
2015.
As
of
December
31,
2013,
no
common
shares
have
been
issued
pursuant
to
the
2013
Plan
to
the
executive
officers
in
settlement
of
the
2013
Multi-‐Year
LTIP
awards.
The
Company
accounts
for
the
total
shareholder
return
components
of
these
grants
as
market
based
awards
where
the
Company
estimates
unearned
compensation
at
the
grant
date
fair
value
which
is
then
amortized
into
compensation
cost
over
the
vesting
period
of
each
individual
plan.
The
Company
accounts
for
the
RevPAR
component
of
the
grants
as
performance-‐based
awards
for
which
the
Company
assesses
the
probability
of
achievement
of
the
performance
condition
at
the
end
of
each
period.
Stock
based
compensation
expense
of
$3,481,
$3,192
and
$3,192
was
recorded
for
the
years
ended
December
31,
2013,
2012,
and
2011,
respectively,
for
the
Multi-‐Year
LTIPs.
Unearned
compensation
related
to
the
multi-‐year
program
as
of
December
31,
2013
and
December
31,
2012,
respectively,
was
$1,157
and
$3,192.
Restricted
Share
Awards
In
addition
to
stock
based
compensation
expense
related
to
awards
under
the
Multi-‐Year
LTIPs
and
Annual
LTIPs,
stock
based
compensation
expense
related
to
restricted
common
shares
issued
to
executives
and
employees
of
the
Company
of
$1,618,
$1,911,
and
$1,662
was
incurred
during
the
years
ended
December
31,
2013,
2012,
and
2011
respectively.
Unearned
compensation
related
to
the
restricted
share
awards
as
of
December
31,
2013
and
December
31,
2012
was
$4,102
and
$5,420,
respectively.
The
following
table
is
a
summary
of
all
unvested
share
awards
issued
to
executives
under
the
2012
Plan
and
prior
to
equity
incentive
plans:
Shares
Vested
Unearned
Compensation
Original
Issuance
Date
June
1,
2009
June
1,
2010
June
30,
2011
Shares
Issued
744,128
$
182,308
17,692
Share
Price
on
Vesting
date
of
Period
grant
2.80
4
years
4.63
2-‐3
years
5.57
2-‐4
years
Vesting
Schedule
25%/year
25-‐50%/year
25-‐50%/year
5
years
33%
Year
3,
4,
5
(1)
5.47
5.28
2-‐4
years
5.64
2-‐4
years
5.52
2-‐4
years
25-‐50%/year
25-‐50%/year
25-‐50%/year
April
18,
2012
June
29,
2012
June
28,
2013
September
20,
2013
Total
1,035,595
52,703
48,600
4,605
2,085,631
78
December
31,
2013
December
31,
2012
December
31,
2013
December
31,
2012
744,128
182,308
9,919
-‐
22,480
-‐
-‐
958,835
558,305
$
139,522
4,958
-‐
-‐
-‐
-‐
702,785
$
-‐
$
-‐
28
3,746
110
199
19
4,102
$
217
82
51
4,842
228
-‐
-‐
5,420
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
9
–
SHARE
BASED
PAYMENTS
(CONTINUED)
(1)
On
April
18,
2012,
the
Company
entered
into
amended
and
restated
employment
agreements
with
the
Company’s
executive
officers.
To
induce
the
executives
to
agree
to
the
substantial
reduction
in
benefits
upon
certain
terminations
following
a
change
of
control
as
described
in
the
agreements,
the
Company
awarded
an
aggregate
of
1,035,595
restricted
common
shares
to
the
executives
pursuant
to
the
2012
Plan.
None
of
these
restricted
common
shares
will
vest
prior
to
the
third
anniversary
of
the
date
of
issuance.
Thereafter,
33.3%
of
each
award
of
restricted
common
shares
will
vest
on
each
of
the
third,
fourth
and
fifth
anniversaries
of
the
date
of
issuance.
Vesting
will
accelerate
upon
a
change
of
control
or
if
the
relevant
executive’s
employment
with
the
Company
were
to
terminate
for
any
reason
other
than
for
cause
(as
defined
in
the
agreements).
Trustees
Annual
Retainer
The
Compensation
Committee
approved
a
program
that
allows
the
Company’s
trustees
to
make
a
voluntary
election
to
receive
any
portion
of
the
annual
cash
retainer
in
the
form
of
common
equity
valued
at
a
25%
premium
to
the
cash
that
would
have
been
received.
On
December
27,
2013,
we
issued
39,133
shares
which
do
not
fully
vest
until
December
31,
2014.
Compensation
expense
incurred
for
the
years
ended
December
31,
2013,
2012,
and
2011,
respectively,
was
$160,
$66,
and
$111,
which
was
offset
by
forfeitures
as
of
December
31,
2012
and
2011,
respectively,
of
$40
and
$33.
The
following
table
is
a
summary
of
all
unvested
share
awards
issued
to
trustees
in
lieu
of
annual
cash
retainer:
Original
Issuance
Date
Shares
Issued
Share
Price
on
date
of
grant
December
27,
2013
December
28,
2012
Total
39,133
$
32,417
71,550
5.63
4.93
Vesting
Period
1
year
1
year
Vesting
Schedule
100%
100%
Unearned
Compensation
December
31,
2013
December
31,
2012
$
$
220
$
-‐
220
$
-‐
160
160
Multi-‐Year
Long-‐Term
Equity
Incentives
Compensation
expense
for
the
multi-‐year
long
term
incentive
plans
for
the
Company’s
trustees
incurred
for
the
years
ended
December
31,
2013,
2012,
and
2011,
respectively,
was
$55,
$43,
and
$21.
Unearned
compensation
related
to
the
multi-‐year
long
term
equity
incentives
was
$124
and
$113
as
of
December
31,
2013
and
December
31,
2012,
respectively.
79
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
9
–
SHARE
BASED
PAYMENTS
(CONTINUED)
The
following
table
is
a
summary
of
all
unvested
share
awards
issued
to
trustees
under
the
2012
Plan
and
prior
to
equity
incentive
plans:
Original
Issuance
Date
December
27,
2013
December
28,
2012
June
5,
2012
March
30,
2011
Shares
Issued
12,000
12,000
10,800
10,800
Vesting
Period
3
years
3
years
3
years
3
years
Vesting
Schedule
33%/year
33%/year
33%/year
33%/year
Shares
Vested
Unearned
Compensation
December
31,
2013
December
31,
2012
December
31,
2013
December
31,
2012
-‐
4,002
7,200
10,800
22,002
-‐
$
-‐
3,600
7,800
11,400
$
67
$
39
18
-‐
124
$
-‐
59
36
18
113
Share
Awards
Compensation
expense
related
to
share
awards
issued
to
the
Board
of
Trustees
of
$496,
$402
and
$322
was
incurred
during
the
years
ended
December
31,
2013,
2012,
and
2011,
respectively
and
is
recorded
in
general
and
administrative
expense
on
the
statement
of
operations.
Share
awards
issued
to
the
Board
of
Trustees
are
immediately
vested.
On
June
3,
2013
an
aggregate
54,422
shares
were
issued
to
the
Board
of
Trustees
at
a
price
per
share
on
the
date
of
grant
of
$5.78.
On
December
27,
2013,
an
aggregate
32,400
shares
were
issued
to
the
Board
of
Trustees
at
a
price
per
share
on
the
date
of
grant
of
$5.63.
Non-‐employees
The
Company
issues
share
based
awards
as
compensation
to
non-‐employees
for
services
provided
to
the
Company
consisting
primarily
of
restricted
common
shares.
The
Company
recorded
stock
based
compensation
expense
of
$174,
$139,
and
$103
for
the
years
ended
December
31,
2013,
2012,
and
2011,
respectively.
Unearned
compensation
related
to
the
restricted
share
awards
as
of
December
31,
2013
and
December
31,
2012
was
$81
and
$74,
respectively.
The
following
table
is
a
summary
of
all
unvested
share
awards
issued
to
non-‐employees
under
the
Company’s
2008
Equity
Incentive
Plan
and
the
2012
Plan:
Shares
Vested
Unearned
Compensation
Vesting
Schedule
50%/year
50%/year
December
31,
December
31,
December
31,
2012
2013
2013
December
31,
2012
14,999
28,500
43,499
-‐
$
15,000
15,000
$
81
$
-‐
81
$
-‐
74
74
Share
Price
on
Vesting
date
of
grant
Period
5.41
2
years
5.45
2
years
Shares
Issued
30,000
$
28,500
$
58,500
Original
Issuance
Date
February
1,
2013
March
26,
2012
Total
80
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
10
–
EARNINGS
PER
SHARE
The
following
table
is
a
reconciliation
of
the
income
or
loss
(numerator)
and
the
weighted
average
shares
(denominator)
used
in
the
calculation
of
basic
and
diluted
earnings
per
common
share.
The
computation
of
basic
and
diluted
earnings
per
share
is
presented
below.
Year
Ended
December
31,
2013
2012
2011
NUMERATOR:
Basic
and
Diluted*
Income
from
Continuing
Operations
$
20,753
$
7,498
$
Income
from
Continuing
Operations
allocated
to
Noncontrolling
Interests
Distributions
to
Preferred
Shareholders
Dividends
Paid
on
Unvested
Restricted
Shares
Extinguishment
of
Issuance
Costs
Upon
Redemption
of
Series
A
Preferred
Stock
Income
(Loss)
from
Continuing
Operations
attributable
to
Common
Shareholders
Discontinued
Operations
658
(14,611)
(804)
(2,250)
3,746
703
(14,000)
(459)
100
658
(10,499)
(229)
-‐
-‐
(6,258)
(9,970)
Income
(Loss)
from
Discontinued
Operations
(Income)
Loss
from
Discontinued
Operations
allocated
to
Noncontrolling
Interests
Income
(Loss)
from
Discontinued
Operations
attributable
to
Common
Shareholders
29,195
14,720
(27,068)
(993)
(545)
1,076
28,202
14,175
(25,992)
Net
Income
(Loss)
attributable
to
Common
Shareholders
$
31,948
$
7,917
$
(35,962)
DENOMINATOR:
Weighted
average
number
of
common
shares
-‐
basic
198,390,450
187,415,270
168,753,382
Effect
of
dilutive
securities:
Restricted
Stock
Awards
Contingently
Issued
Shares
2,384,165
1,143,562
-‐
*
-‐
*
-‐
-‐
Weighted
average
number
of
common
shares
-‐
diluted
201,918,177
187,415,270
168,753,382
∗
Income
(loss)
allocated
to
noncontrolling
interest
in
Hersha
Hospitality
Limited
Partnership
has
been
excluded
from
the
numerator
and
units
of
limited
partnership
interest
in
Hersha
Hospitality
Limited
Partnership
have
been
omitted
from
the
denominator
for
the
purpose
of
computing
diluted
earnings
per
share
since
the
effect
of
including
these
amounts
in
the
numerator
and
denominator
would
have
no
impact.
In
addition,
potentially
dilutive
common
shares,
if
any,
have
been
excluded
from
the
denominator
if
they
are
anti-‐dilutive
to
income
(loss)
from
continuing
operations
applicable
to
common
shareholders.
81
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
10
–
EARNINGS
PER
SHARE
(CONTINUED)
The
following
table
summarizes
potentially
dilutive
securities
that
have
been
excluded
from
the
denominator
for
the
purpose
of
computing
diluted
earnings
per
share:
Common
Units
of
Limited
Partnership
Interest
Unvested
Stock
Awards
Outstanding
Contingently
Issuable
Share
Awards
Options
to
Acquire
Common
Shares
Outstanding
Total
potentially
dilutive
securities
excluded
from
the
denominator
Year
Ended
December
31,
2013
2012
2011
6,968,035
-‐
-‐
-‐
7,208,123
433,097
2,778,545
275,580
7,295,112
584,216
2,097,456
2,360,156
6,968,035
10,695,345
12,336,940
82
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
11
–
CASH
FLOW
DISCLOSURES
AND
NON
CASH
INVESTING
AND
FINANCING
ACTIVITIES
Interest
paid
during
2013,
2012,
and
2011
totaled
$42,984,
$41,744,
and
$42,726
respectively.
The
following
non-‐cash
investing
and
financing
activities
occurred
during
2013,
2012
and
2011:
Common
Shares
issued
as
part
of
the
Dividend
Reinvestment
Plan
Acquisition
of
hotel
properties
and
consolidation
of
variable
interest
entities:
Issuance
of
Common
Units
Debt
assumed,
net
of
discount
Development
loan
accrued
interest
revenue
receivable
paid
in-‐kind
by
adding
balance
to
development
loan
principal
Settlement
of
development
loan
receivable
principal
and
accrued
interest
revenue
receivable
Disposition
of
hotel
properties
Investment
in
hotel
properties,
net,
conveyed
to
mortgage
lender
Debt
conveyed
to
mortgage
lender
Debt
assumed
by
purchaser
Conversion
of
Common
Units
to
Common
Shares
Reallocation
of
noncontrolling
interest
2013
2012
2011
$
38
$
24
$
14
-‐
-‐
-‐
85,913
-‐
13,303
678
-‐
-‐
-‐
-‐
106
-‐
1,938
2,940
54,217
572
(966)
204
62,552
2,094
8,300
-‐
-‐
-‐
639
3,835
83
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
12
–
DISCONTINUED
OPERATIONS
The
operating
results
of
certain
real
estate
assets
which
have
been
sold
or
otherwise
qualify
as
held
for
sale
are
included
in
discontinued
operations
in
the
statements
of
operations
for
all
periods
presented.
Assets
Held
for
Sale
Assets
held
for
sale
or
liabilities
related
to
assets
held
for
sale
consisted
of
the
following
as
of
December
31,
2013:
Land
Buildings
and
Improvements
Furniture,
Fixtures
and
Equipment
Less
Accumulated
Depreciation
&
Amortization
Assets
Held
for
Sale
Liabilities
Related
to
Assets
Held
for
Sale
December
31,
2013
$
$
$
9,517
58,129
9,198
76,844
(20,261)
56,583
45,835
The
following
table
sets
forth
the
components
of
discontinued
operations
for
the
years
ended
December
31,
2013,
2012,
and
2011:
Year
Ended
December
31,
2012
2013
2011
Revenue:
Hotel
Operating
Revenues
Other
Revenue
Total
Revenues
Expenses:
Hotel
Operating
Expenses
Hotel
Ground
Rent
Real
Estate
and
Personal
Property
Taxes
and
Property
Insurance
General
and
Administrative
Acquisition
and
Termination
Transaction
Costs
Depreciation
and
Amortization
Interest
Expense
Other
Expense
Loss
on
Debt
Extinguishment
Income
Tax
Expense
Total
Expenses
$
58,045
$
-‐
58,045
35,158
-‐
3,316
36
-‐
7,050
4,863
44
-‐
190
50,657
63,465
$
11
63,476
39,046
72
3,636
27
8
9,148
7,872
10
168
-‐
59,987
96,901
55
96,956
60,288
433
5,460
597
(17)
15,142
12,817
4
43
-‐
94,767
Income
from
Discontinued
Operations
$
7,388
$
3,489
$
2,189
We
allocate
to
income
or
loss
from
discontinued
operations
interest
expense
related
to
debt
that
is
to
be
assumed
or
that
is
required
to
be
repaid
as
a
result
of
the
disposal
transaction.
84
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
12
–
DISCONTINUED
OPERATIONS
(CONTINUED)
Disposed
Assets
Hotel
Acquisition
Date
Disposition
Date
Consideration
Gain
on
Disposition
Non-‐Core
Portfolio
II
(12)
Holiday
Inn
Express,
Camp
Springs,
MD
Comfort
Inn,
Harrisburg,
PA
2013
Total
Non-‐Core
Hotel
Portfolio
(18)
Land
Parcel,
Eighth
Ave,
Manhattan,
NY
Comfort
Inn,
North
Dartmouth,
MA
2012
Total
January
1999
–
July
2010
December
2013
$
158,600
$
31,559
(1)
June
2008
January
1999
September
2013
June
2013
8,500
3,700
January
1999
–
July
2007
June
2006
February
2012
&
May
2012
April
2012
$
155,000
19,250
$
May
2006
March
2012
-‐
$
120
442
32,121
4,978
(2)
5,037
1,216
(3)
11,231
Comfort
Inn,
West
Hanover,
PA
May
1998
July
2011
$
5,250
$
949
Land
Parcel,
Nevins
Street,
Brooklyn,
NY
2011
Total
June
2007
December
2011
4,500
$
42
991
(1)
(2)
In
September
2013,
our
Board
of
Trustees
authorized
management
of
the
Company
to
sell
this
portfolio.
On
September
20,
2013,
the
Company
entered
into
a
purchase
and
sale
agreement
to
dispose
of
a
portfolio
of
16
non-‐core
hotel
properties,
for
an
aggregate
purchase
price
of
approximately
$217,000.
The
16
non-‐core
hotel
properties
in
the
portfolio
were
acquired
by
the
Company
between
1999
and
2010.
We
recorded
an
impairment
loss
of
approximately
$6,591
for
those
assets
for
which
the
anticipated
net
proceeds
do
not
exceed
the
carrying
value.
On
December
20,
2013,
the
Company
closed
on
the
sale
of
12
of
these
non-‐core
hotel
properties.
As
a
result
of
entering
into
these
purchase
and
sale
agreements
for
the
16
non-‐core
assets
mentioned
above,
the
operating
results
for
the
consolidated
assets
were
reclassified
to
discontinued
operations
in
the
statement
of
operations
for
the
years
ended
December
31,
2013,
2012,
and
2011.
The
12
assets
were
sold
for
a
total
sales
price
of
$158,600,
reduced
the
Company’s
consolidated
mortgage
debt
by
$33,044
and
generated
a
gain
on
sale
of
approximately
$31,559.
In
February
2014,
the
remaining
4
assets
were
sold
for
a
total
sales
price
of
$58,400
and
reduced
the
Company’s
consolidated
mortgage
debt
by
$45,710.
In
May
2011,
our
Board
of
Trustees
authorized
management
of
the
Company
to
sell
this
portfolio.
On
August
15,
2011,
the
Company
entered
into
two
purchase
and
sale
agreements
to
dispose
of
a
portfolio
of
18
non-‐core
hotel
properties,
four
of
which
are
owned
in
part
by
the
Company
through
an
unconsolidated
joint
venture,
for
an
aggregate
purchase
price
of
approximately
$155,000.
The
18
non-‐core
hotel
properties
in
the
portfolio
were
acquired
by
the
Company
between
1998
and
2006.
As
a
result
of
entering
into
these
purchase
and
sale
agreements
for
the
18
non-‐core
assets
mentioned
above,
we
recorded
an
impairment
loss
in
2011
of
approximately
$30,248
for
those
consolidated
assets
for
which
the
anticipated
net
proceeds
did
not
exceed
the
carrying
value.
85
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
12
–
DISCONTINUED
OPERATIONS
(CONTINUED)
On
February
23,
2012,
the
Company
closed
on
the
sale
of
14
of
these
non-‐core
hotel
properties,
including
three
hotel
properties
owned
in
part
by
the
Company
through
an
unconsolidated
joint
venture,
and
closed
on
the
remaining
4
properties,
on
May
8,
2012,
including
one
hotel
property
owned
in
part
by
the
Company
through
an
unconsolidated
joint
venture.
The
operating
results
for
the
consolidated
assets
were
reclassified
to
discontinued
operations
in
the
statement
of
operations
for
the
years
ended
December
31,
2012
and
2011.
The
18
assets
were
sold
for
a
total
sales
price
of
$155,000,
reduced
the
Company’s
consolidated
mortgage
debt
by
$61,298
and
generated
a
gain
on
sale
of
approximately
$4,910.
(3)
On
March
30,
2012,
we
transferred
the
title
to
the
Comfort
Inn,
located
in
North
Dartmouth,
to
the
lender.
Previously,
we
had
ceased
operations
at
this
property
on
March
31,
2011.
The
operating
results
were
reclassified
to
discontinued
operations
in
the
statements
of
operations
for
the
years
ended
December
31,
2012
and
2011.
The
transfer
of
the
title
resulted
in
a
gain
of
approximately
$1,216,
since
the
outstanding
mortgage
loan
payable
exceeded
the
net
book
value
of
the
property
86
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
13
–
SHAREHOLDERS’
EQUITY
AND
NONCONTROLLING
INTERESTS
IN
PARTNERSHIP
Common
Shares
The
Company’s
outstanding
common
shares
have
been
duly
authorized,
and
are
fully
paid
and
non-‐assessable.
Common
shareholders
are
entitled
to
receive
dividends
if
and
when
authorized
and
declared
by
the
Board
of
Trustees
of
the
Company
out
of
assets
legally
available
and
to
share
ratably
in
the
assets
of
the
Company
legally
available
for
distribution
to
its
shareholders
in
the
event
of
its
liquidation,
dissolution
or
winding
up
after
payment
of,
or
adequate
provision
for,
all
known
debts
and
liabilities
of
the
Company.
Preferred
Shares
The
Declaration
of
Trust
authorizes
our
Board
of
Trustees
to
classify
any
unissued
preferred
shares
and
to
reclassify
any
previously
classified
but
unissued
preferred
shares
of
any
series
from
time
to
time
in
one
or
more
series,
as
authorized
by
the
Board
of
Trustees.
Prior
to
issuance
of
shares
of
each
series,
the
Board
of
Trustees
is
required
by
Maryland
REIT
Law
and
our
Declaration
of
Trust
to
set
for
each
such
series,
subject
to
the
provisions
of
our
Declaration
of
Trust
regarding
the
restriction
on
transfer
of
shares
of
beneficial
interest,
the
terms,
the
preferences,
conversion
or
other
rights,
voting
powers,
restrictions,
limitations
as
to
dividends
or
other
distributions,
qualifications
and
terms
or
conditions
of
redemption
for
each
such
series.
Thus,
our
Board
of
Trustees
could
authorize
the
issuance
of
additional
preferred
shares
with
terms
and
conditions
which
could
have
the
effect
of
delaying,
deferring
or
preventing
a
transaction
or
a
change
in
control
in
us
that
might
involve
a
premium
price
for
holders
of
common
shares
or
otherwise
be
in
their
best
interest.
Common
Units
Common
Units
are
issued
in
connection
with
the
acquisition
of
wholly
owned
hotels
and
joint
venture
interests
in
hotel
properties.
The
total
number
of
Common
Units
outstanding
as
of
December
31,
2013,
2012
and
2011
was
6,914,716,
7,112,506
and
7,270,316,
respectively.
These
units
can
be
redeemed
for
cash
or
converted
to
common
shares,
at
the
Company’s
option,
on
a
one-‐for-‐one
basis.
The
number
of
common
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.
During
2013,
2012
and
2011,
27,790,
157,810
and
195,000
Common
Units
were
converted
to
common
shares,
respectively.
The
Company
redeemed
170,000
Common
Units
as
part
of
the
acquisition
of
the
Hyatt
Union
Square,
New
York,
NY
during
2013.
87
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
14
–
INCOME
TAXES
The
Company
elected
to
be
taxed
as
a
REIT
under
Sections
856
through
860
of
the
Internal
Revenue
Code
commencing
with
its
taxable
year
ended
December
31,
1999.
To
qualify
as
a
REIT,
the
Company
must
meet
a
number
of
organizational
and
operational
requirements,
including
a
requirement
that
it
currently
distribute
at
least
90%
of
its
REIT
taxable
income
to
its
shareholders.
It
is
the
Company’s
current
intention
to
adhere
to
these
requirements
and
maintain
the
Company’s
qualification
for
taxation
as
a
REIT.
As
a
REIT,
the
Company
generally
will
not
be
subject
to
federal
corporate
income
tax
on
that
portion
of
its
net
income
that
is
currently
distributed
to
shareholders.
If
the
Company
fails
to
qualify
for
taxation
as
a
REIT
in
any
taxable
year,
it
will
be
subject
to
federal
income
taxes
at
regular
corporate
rates
(including
any
applicable
alternative
minimum
tax)
and
may
not
be
able
to
qualify
as
a
REIT
for
four
subsequent
taxable
years.
Even
if
the
Company
qualifies
for
taxation
as
a
REIT,
the
Company
may
be
subject
to
certain
state
and
local
taxes
on
its
income
and
property,
and
to
federal
income
and
excise
taxes
on
its
undistributed
taxable
income.
Taxable
income
from
non-‐REIT
activities
managed
through
taxable
REIT
subsidiaries
is
subject
to
federal,
state
and
local
income
taxes.
44
New
England
is
subject
to
income
taxes
at
the
applicable
federal,
state
and
local
tax
rates.
The
provision
for
income
taxes
differs
from
the
amount
of
income
tax
determined
by
applying
the
applicable
U.S.
statutory
federal
income
tax
rate
to
pretax
income
from
continuing
operations
as
a
result
of
the
following
differences:
For
the
year
ended
December
31,
2012
2013
2011
Statutory
federal
income
tax
provision
Adjustment
for
nontaxable
loss
State
income
taxes,
net
of
federal
income
tax
effect
Recognition
of
deferred
tax
assets
Changes
in
valuation
allowance
$
5,152
$
(7,472)
(1,317)
(1,963)
-‐
1,409
$
(623)
151
-‐
(4,292)
34
(6,170)
(1,146)
-‐
7,282
Total
income
tax
benefit
$
(5,600)
$
(3,355)
$
-‐
The
components
of
the
Company’s
income
tax
expense
(benefit)
from
continuing
operations
for
the
years
ended
December
31,
2013,
2012
and
2011
were
as
follows:
For
the
year
ended
December
31,
2012
2013
2011
Income
tax
expense
(benefit):
Current:
Federal
State
Deferred:
Federal
State
Total
Income
tax
expense
(benefit):
From
continuing
operations
From
discontinued
operations
Total
88
$
-‐
$
-‐
-‐
$
229
(3,604)
(1,996)
(5,600)
$
(3,584)
-‐
(3,355)
$
$
(5,600)
190
(5,410)
$
(3,355)
-‐
(3,355)
$
$
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
14
–
INCOME
TAXES
(CONTINUED)
The
components
of
consolidated
TRS’s
net
deferred
tax
asset
as
of
December
31,
2013
and
2012
were
as
follows:
Deferred
tax
assets:
Net
operating
loss
carryforwards
Accrued
expenses
and
other
Tax
credit
carryforwards
Net
deferred
tax
assets
Valuation
allowance
Deferred
tax
assets
As
of
December
31,
2013
2012
$
$
8,605
685
280
9,570
(804)
8,766
$
$
4,234
(75)
-‐
4,159
(804)
3,355
In
assessing
the
realizability
of
deferred
tax
assets,
management
considers
whether
it
is
more
likely
than
not
that
some
portion
or
all
of
the
deferred
tax
assets
will
not
be
realized.
Based
on
limitations
related
to
the
utilization
of
certain
tax
attribute
carryforwards,
Management
recorded
a
valuation
allowance
of
approximately
$804
as
these
attributes
are
not
more
likely
than
not
to
be
realized
prior
to
their
expiration.
Based
on
the
level
of
historical
taxable
income,
tax
planning
strategies
and
projections
for
future
taxable
income
over
the
periods
in
which
the
remaining
deferred
tax
assets
are
deductible,
Management
believes
it
is
more
likely
than
not
that
the
remaining
deferred
tax
assets
will
be
realized.
As
of
December
31,
2013,
we
have
gross
federal
net
operating
loss
carryforwards
of
$21,798
which
expire
over
various
periods
from
2023
through
2033.
As
of
December
31,
2013,
we
have
gross
state
net
operating
loss
carryforwards
of
$22,210
which
expire
over
various
periods
from
2014
to
2033.
The
Company
has
tax
credits
of
$280
available
which
begin
to
expire
in
2028.
Earnings
and
profits,
which
will
determine
the
taxability
of
distributions
to
shareholders,
will
differ
from
net
income
reported
for
financial
reporting
purposes
due
to
the
differences
for
federal
tax
purposes
in
the
estimated
useful
lives
and
methods
used
to
compute
depreciation.
The
following
table
sets
forth
certain
per
share
information
regarding
the
Company’s
common
and
preferred
share
distributions
for
the
years
ended
December
31,
2013,
2012
and
2011.
2013
2012
2011
Preferred
Shares
-‐
8%
Series
A
Ordinary
income
Return
of
Capital
Capital
Gain
Distribution
Preferred
Shares
-‐
8%
Series
B
Ordinary
income
Return
of
Capital
Capital
Gain
Distribution
Preferred
Shares
-‐
6.875%
Series
C
Ordinary
income
Return
of
Capital
Capital
Gain
Distribution
Common
Shares
-‐
Class
A
Ordinary
income
Return
of
Capital
Capital
Gain
Distribution
100.00%
0.00%
0.00%
100.00%
0.00%
0.00%
100.00%
0.00%
0.00%
45.15%
54.85%
0.00%
100.00%
0.00%
0.00%
100.00%
0.00%
0.00%
N/A
N/A
N/A
1.28%
98.72%
0.00%
100.00%
0.00%
0.00%
100.00%
0.00%
0.00%
N/A
N/A
N/A
73.30%
26.70%
0.00%
89
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
15
–
SELECTED
QUARTERLY
FINANCIAL
DATA
(UNAUDITED)
Total
Revenues
Total
Expenses
(Loss)
Income
from
Unconsolidated
Joint
Ventures
(Loss)
Income
from
Continuing
Operations
Year
Ended
December
31,
2013
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
65,878
$
91,068
$
90,741
$
92,510
73,174
71,703
87,512
90,820
(396)
148
227
(1,814)
(7,692)
19,513
3,456
(124)
Income
Tax
Benefit
1,129
(1,222)
2,375
3,318
Income
(Loss)
from
Discontinued
Operations
(including
Gain
on
Disposition
of
Hotel
Properties)
Net
(Loss)
Income
(1,113)
(206)
(3,532)
34,046
(7,676)
18,085
2,299
37,240
(Loss)
Income
Allocated
to
Noncontrolling
Interests
in
Continuing
Operations
Issuance
Costs
of
Redeemed
Preferred
Stock
Preferred
Distributions
(673)
2,250
210
(164)
962
-‐
-‐
-‐
3,844
3,589
3,589
3,589
Net
(Loss)
Income
applicable
to
Common
Shareholders
$
(13,097)
$
14,286
$
(1,126)
$
32,689
Basic
and
diluted
earnings
per
share:
(Loss)
Income
from
continuing
operations
applicable
to
common
shareholders
Discontinued
Operations
Net
(Loss)
Income
applicable
to
Common
Shareholders
Weighted
Average
Common
Shares
Outstanding
$
$
(0.07)
$
0.08
$
-‐
(0.01)
(0.07)
$
0.07
$
0.01
$
(0.02)
(0.01)
$
0.00
0.16
0.16
197,029,017
198,633,051
198,878,496
198,994,277
197,029,017
201,201,337
201,644,633
198,994,277
Basic
Diluted
90
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2013, 2012, and 2011
[in thousands, except share/unit and per share amounts]
NOTE
15
–
SELECTED
QUARTERLY
FINANCIAL
DATA
(UNAUDITED)
Total
Revenues
Total
Expenses
(Loss)
Income
from
Unconsolidated
Joint
Ventures
(Loss)
Income
from
Continuing
Operations
Year
Ended
December
31,
2012
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
56,069
$
81,361
$
82,355
$
82,741
65,623
73,097
77,480
80,059
(730)
190
(1,431)
(153)
(10,284)
8,454
3,444
2,529
Income
Tax
Benefit
-‐
-‐
-‐
3,355
(Loss)
Income
from
Discontinued
Operations
(including
Gain
on
Disposition
of
Hotel
Properties)
Net
(Loss)
Income
2,370
8,935
2,450
965
(7,914)
17,389
5,894
6,849
(Loss)
Income
Allocated
to
Noncontrolling
Interests
in
Continuing
Operations
(741)
796
(279)
Preferred
Distributions
3,500
3,500
3,500
Net
(Loss)
Income
applicable
to
Common
Shareholders
$
(10,673)
$
13,093
$
2,673
$
66
3,500
3,283
Basic
and
diluted
earnings
per
share:
(Loss)
Income
from
continuing
operations
applicable
to
common
shareholders
Discontinued
Operations
Net
Loss
(Income)
applicable
to
Common
Shareholders
Weighted
Average
Common
Shares
Outstanding
$
$
(0.09)
$
0.03
(0.06)
$
0.03
$
0.04
0.07
$
0.00
$
0.01
0.01
$
0.01
0.01
0.02
Basic
Diluted
170,427,428
186,264,437
196,360,325
196,411,729
170,427,428
189,011,990
196,360,325
199,593,648
In
the
second
quarter
of
2012,
we
recorded
an
adjustment
impacting
gain
on
disposition
of
hotel
properties
that
increased
net
income
by
$1,950.
This
adjustment
was
made
after
completing
an
analysis
that
determined
a
liability
for
deferred
land
rent
payable
was
not
properly
written
off
when
a
hotel
property
was
sold
during
the
first
quarter
of
2012.
After
evaluating
the
quantitative
and
qualitative
effects
of
this
adjustment,
we
have
concluded
that
the
impact
on
the
Company’s
first
quarter
and
second
quarter
consolidated
financial
statements
was
not
material.
91
hersha hospitality trust and subsidiaries
schedule iii – real estate and accumulated depreciation as of december 31, 2013
[in thousands]
Initial
Costs
Costs
Capitalized
Subsequent
to
Acquisition
Gross
Amounts
at
which
Carrried
at
Close
of
Period
Accumulated
Depreciation
Net
Book
Value
Description
Encumbrances
Land
Improvements
Land
Buildings
&
Buildings
&
Improvements
Land
Buildings
&
Improvements
Total
Buildings
&
Improvements*
Land,
Buildings
&
Improvements
Date
of
Acquisition
-‐
1,325
12,737
(23,650)
5,472
23,280
(10,491)
2,615
14,815
(37,065)
-‐
47,414
-‐
4,283
14,475
(20,016)
-‐
25,018
(7,697)
1,872
8,968
-‐
1,956
9,793
-‐
1,970
11,761
(34,204)
8,905
33,500
(13,720)
2,912
16,001
(20,160)
6,216
17,229
(14,490)
3,941
12,560
(16,778)
3,060
19,968
(33,030)
8,823
30,273
(6,366)
1,500
6,671
(18,047)
7,816
19,040
(18,477)
14,239
16,778
-‐
-‐
27,315
-‐
3,490
24,382
(14,597)
8,213
12,869
-‐
-‐
22,042
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
1,924
1,325
14,661
15,986
($3,923)
12,063
03/26/04
1,440
5,472
24,720
30,192
(5,927)
24,265
04/01/05
2,233
2,615
17,048
19,663
(4,351)
15,312
07/16/04
1,435
-‐
48,849
48,849
(11,045)
37,804
06/16/05
1,860
4,283
16,335
20,618
(3,498)
17,120
02/02/06
2,466
-‐
27,484
27,484
(5,801)
21,683
02/16/06
364
1,872
9,332
11,204
(1,922)
9,282
04/25/06
2,338
1,956
12,131
14,087
(2,926)
11,161
05/03/06
1,470
1,970
13,231
15,201
(2,418)
12,783
07/27/06
1,856
8,905
35,356
44,261
(7,131)
37,130
09/29/06
3,372
2,912
19,373
22,285
(3,742)
18,543
12/28/06
2,953
6,216
20,182
26,398
(3,356)
23,042
12/28/06
3,441
3,941
16,001
19,942
(3,024)
16,918
12/28/06
3,350
3,060
23,318
26,378
(4,610)
21,768
12/28/06
2,537
8,823
32,810
41,633
(6,383)
35,250
12/28/06
219
1,500
6,890
8,390
(1,208)
7,182
01/25/07
692
7,816
19,732
27,548
(3,472)
24,076
02/01/07
129
14,239
16,907
31,146
(2,816)
28,330
06/01/07
969
-‐
28,284
28,284
(4,048)
24,236
06/13/08
5,901
3,490
30,283
33,773
(9,468)
24,305
02/15/06
1,238
8,213
14,107
22,320
(2,411)
19,909
01/04/08
638
-‐
22,680
22,680
(3,212)
19,468
01/14/08
Residence
Inn,
Framingham,
MA
Hampton
Inn,
New
York,
NY
Residence
Inn,
Greenbelt,
MD
Courtyard,
Brookline,
MA
Residence
Inn,
Tyson's
Corner,
VA
Hilton
Garden
Inn,
JFK
Airport,
NY
Hawthorne
Suites,
Franklin,
MA
Holiday
Inn
Exp,
Cambridge,
MA
Residence
Inn,
Norwood,
MA
Hampton
Inn,
Chelsea,
NY
Hyatt
House,
Gaithersburg,
MD
Hyatt
House,
Pleasant
Hills,
CA
Hyatt
House,
Pleasanton,
CA
Hyatt
House,
Scottsdale,
AZ
Hyatt
House,
White
Plains,
NY
Holiday
Inn
Exp
&
Suites,
Chester,
NY
Hampton
Inn,
Seaport,
NY
Hotel
373-‐5th
Ave,
New
York,
NY
Sheraton
Hotel,
JFK
Airport,
NY
Hampton
Inn,
Philadelphia,
PA
Duane
Street,
Tribeca,
NY
NU
Hotel,
Brooklyn,
NY
92
hersha hospitality trust and subsidiaries
schedule iii – real estate and accumulated depreciation as of december 31, 2013
[in thousands]
Initial
Costs
Costs
Capitalized
Subsequent
to
Acquisition
Gross
Amounts
at
which
Carrried
at
Close
of
Period
Accumulated
Depreciation
Net
Book
Value
Description
Encumbrances
Land
Improvements
Land
Buildings
&
Buildings
&
Improvements
Land
Buildings
&
Improvements
Total
Buildings
&
Improvements*
Land,
Buildings
&
Improvements
Date
of
Acquisition
Hilton
Garden
Inn,
Tribeca,
NY
Hampton
Inn,
Times
Square,
NY
Holiday
Inn
Express,
Times
Square,
NY
Candlewood
Suites,
Times
Square,
NY
Hyatt
Place,
KOP,
PA
Holiday
Inn
Express,
Wall
Street,
NY
Hampton
Inn,
Washington,
DC
Courtyard,
Alexandria,
VA
Sheraton,
Wilmington
South,
DE
Holiday
Inn,
Water
Street,
NY
Capital
Hill
Suites
Washington,
DC
Courtyard,
LA
Westside,
CA
Courtyard,
Miami,
FL
The
Rittenhouse
Hotel,
PA
The
Boxer,
Boston,
MA
Holiday
Inn
Express,
Manhattan,
NY
Hyatt,
Union
Square,
NY
Courtyard,
San
Diego,
CA
Residence
Inn,
Coconut
Grove,
FL
Winter
Haven
Hotel,
Miami
Beach,
FL
Blue
Moon
Hotel,
Miami
Beach,
FL
Total
Investment
in
Real
Estate
(31,317)
21,077
42,955
-‐
10,691
41,637
-‐
11,075
43,113
-‐
10,281
36,687
-‐
1,133
7,267
-‐
12,152
21,100
-‐
9,335
58,048
(23,755)
6,376
26,089
-‐
1,765
16,929
-‐
7,341
28,591
(27,119)
8,095
35,141
(30,000)
13,489
27,025
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
278
21,077
43,233
64,310
(5,091)
59,219
05/01/09
275
10,691
41,912
52,603
(4,079)
48,524
02/09/10
46
11,075
43,159
54,234
(4,204)
50,030
02/09/10
41
10,281
36,728
47,009
(3,569)
43,440
02/09/10
3,908
1,133
11,175
12,308
(3,791)
8,517
08/17/10
186
12,152
21,286
33,438
(1,959)
31,479
05/07/10
1,102
9,335
59,150
68,485
(5,031)
63,454
09/01/10
2,465
6,376
28,554
34,930
(5,700)
29,230
09/29/06
1,068
1,765
17,997
19,762
(1,932)
17,830
12/21/10
217
7,341
28,808
36,149
(1,814)
34,335
03/25/11
2,801
8,095
37,942
46,037
(2,955)
43,082
04/15/11
1,795
13,489
28,820
42,309
(1,884)
40,425
05/19/11
(60,000)
35,699
55,805
1
51
35,700
55,856
91,556
(2,971)
88,585
11/16/11
-‐
7,108
29,556
-‐
1,456
14,954
-‐
30,329
57,016
(55,000)
32,940
79,300
-‐
15,656
51,674
-‐
4,146
17,456
-‐
5,400
18,147
-‐
4,874
20,354
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
7,486
7,108
37,042
44,150
(2,513)
41,637
03/01/12
1,419
1,456
16,373
17,829
(759)
17,070
05/07/12
713
30,329
57,729
88,058
(2,276)
85,782
06/18/12
177
32,940
79,477
112,417
(1,445)
110,972
04/09/13
40
15,656
51,715
67,371
(754)
66,617
05/30/13
9
4,146
17,466
21,612
(245)
21,367
06/12/13
-‐
5,400
18,148
23,548
15
23,563
12/20/13
-‐
4,874
20,355
25,229
17
25,246
12/20/13
$
($515,979)
339,026
1,155,733
$
1
66,902
339,027
1,222,639
1,561,666
$
(149,632)
1,412,034
93
hersha hospitality trust and subsidiaries
schedule iii – real estate and accumulated depreciation as of december 31, 2013
[in thousands]
Assets
Held
For
Sale
Initial
Costs
Costs
Capitalized
Subsequent
to
Acquisition
Gross
Amounts
at
which
Carrried
at
Close
of
Period
Accumulated
Depreciation
Net
Book
Value
Encumbrances
Land
Improvements
Land
Buildings
&
Buildings
&
Improvements
Land
Buildings
&
Improvements
Total
Buildings
&
Improvements*
Land,
Buildings
&
Improvements
Date
of
Acquisition
Holiday
Inn
Exp,
Langhorne,
PA
Holiday
Inn
Exp,
King
of
Prussia,
PA
Courtyard,
Langhorne,
PA
Hyatt
House,
Bridgewater,
NJ
Total
Assets
Held
For
Sale
(5,881)
1,088
6,573
(111)
(353)
977
6,220
7,197
(1,519)
5,678
05/26/05
(11,628)
2,557
13,339
(13,834)
3,064
16,068
-‐
-‐
1,738
2,557
15,077
17,634
(3,441)
14,193
05/23/05
986
3,064
17,054
20,118
(3,632)
16,486
01/03/06
(14,492)
3,373
19,685
(454)
92
2,919
19,778
22,697
(3,965)
18,732
12/28/06
$
(45,835)
10,082
55,665
$
(565)
2,463
9,517
58,129
67,646
$
(12,557)
55,089
Total
Real
Estate
$
(561,814)
349,108
1,211,398
$
(564)
69,365
348,544
1,280,768
1,629,312
$
(162,189)
1,467,123
∗
Assets
are
depreciated
over
a
7
to
40
year
life,
upon
which
the
latest
income
statement
is
computed.
The
aggregate
cost
of
land,
buildings
and
improvements
for
Federal
income
tax
purposes
for
the
years
ended
December
31,
2013,
2012
and
2011
is
approximately
$1,575,555,
$1,278,318,
and
$1,362,064
respectively.
Depreciation
is
computed
for
buildings
and
improvements
using
a
useful
life
for
these
assets
of
7
to
40
years.
See
Accompanying
Report
of
Independent
Registered
Public
Accounting
Firm
Reconciliation
of
Real
Estate
Balance
at
beginning
of
year
2013
2012
2011
$
1,520,151
$
1,481,433
$
1,291,213
Additions
during
the
year
Dispositions/Deconsolidation
of
consolidated
joint
venture
during
the
year
Changes/Impairments
in
Assets
Held
for
Sale
Investment
in
Real
Estate
275,032
167,916
(156,504)
(127,992)
248,358
(29,216)
(9,367)
1,629,312
(1,206)
1,520,151
(141,633)
1,368,722
Assets
Held
for
Sale,
net
of
impairment
Total
Real
Estate
Reconciliation
of
Accumulated
Depreciation
Balance
at
beginning
of
year
Depreciation
for
year
Changes/Impairments
in
Assets
Held
for
Sale
Accumulated
depreciation
on
assets
sold
112,711
$
1,629,312
$
1,520,151
$
1,481,433
-‐
-‐
$
150,353
$
139,057
$
112,161
39,771
35,597
28,229
51
-‐
-‐
(27,986)
(24,301)
(1,333)
Balance
at
the
end
of
year
$
162,189
$
150,353
$
139,057
94
hersha hospitality trust
Item
9.
Changes
in
and
Disagreements
with
Accountants
on
Accounting
and
Financial
Disclosure
None.
95
annual report 2013
Item
9A.
Controls
and
Procedures
EVALUATION
OF
DISCLOSURE
CONTROLS
AND
PROCEDURES
Under
the
supervision
and
with
the
participation
of
our
management,
including
our
Chief
Executive
Officer
and
Chief
Financial
Officer,
we
conducted
an
evaluation
of
our
disclosure
controls
and
procedures,
as
such
term
is
defined
under
Rule
13a-‐15(e)
promulgated
under
the
Securities
Exchange
Act
of
1934,
as
amended
(the
Exchange
Act),
as
of
the
end
of
the
period
covered
by
this
report.
Based
on
that
evaluation,
the
Chief
Executive
Officer
and
Chief
Financial
Officer
concluded
that
our
disclosure
controls
and
procedures
as
of
the
end
of
the
period
covered
by
this
report
are
functioning
effectively
to
provide
reasonable
assurance
that
the
information
required
to
be
disclosed
by
us
in
reports
filed
under
the
Securities
Exchange
Act
of
1934
is
(i)
recorded,
processed,
summarized
and
reported
within
the
time
periods
specified
in
the
SEC’s
rules
and
forms
and
(ii)
accumulated
and
communicated
to
our
management,
including
the
Chief
Executive
Officer
and
Chief
Financial
Officer,
as
appropriate
to
allow
timely
decisions
regarding
disclosure.
A
control
system
cannot
provide
absolute
assurance,
however,
that
the
objectives
of
the
controls
system
are
met,
and
no
evaluation
of
controls
can
provide
absolute
assurance
that
all
control
issues
and
instances
of
fraud,
if
any,
within
a
company
have
been
detected.
MANAGEMENT’S
ANNUAL
REPORT
ON
INTERNAL
CONTROL
OVER
FINANCIAL
REPORTING
The
Company’s
management
is
responsible
for
establishing
and
maintaining
adequate
internal
control
over
financial
reporting,
as
defined
within
Exchange
Act
Rules
13a-‐15(f)
and
15d-‐15(f).
Internal
control
over
financial
reporting
refers
to
the
processes
designed
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
in
accordance
with
generally
accepted
accounting
principles,
and
includes
policies
and
procedures
that:
•
•
•
pertain
to
the
maintenance
of
records
that,
in
reasonable
detail,
accurately
and
fairly
reflect
the
transactions
and
dispositions
of
the
assets
of
the
Company;
provide
reasonable
assurance
that
transactions
are
recorded
as
necessary
to
permit
preparation
of
financial
statements
in
accordance
with
generally
accepted
accounting
principles,
and
that
receipts
and
expenditures
of
the
Company
are
being
made
only
in
accordance
with
authorizations
of
management
and
directors
of
the
Company;
and
provide
reasonable
assurance
regarding
prevention
or
timely
detection
of
unauthorized
acquisition,
use,
or
disposition
of
the
Company’s
assets
that
could
have
a
material
effect
on
the
financial
statements.
Because
of
its
inherent
limitations,
internal
control
over
financial
reporting
may
not
prevent
or
detect
misstatements.
Also,
projections
of
any
evaluation
of
effectiveness
to
future
periods
are
subject
to
the
risk
that
controls
may
become
inadequate
because
of
changes
in
conditions,
or
that
the
degree
of
compliance
with
the
policies
or
procedures
may
deteriorate.
Management
conducted
an
evaluation
of
the
effectiveness
of
the
Company’s
internal
control
over
financial
reporting
based
on
the
criteria
contained
in
Internal
Control
—
Integrated
Framework
(1992)
issued
by
the
Committee
of
Sponsoring
Organizations
(COSO)
of
the
Treadway
Commission
as
of
December
31,
2013.
Based
on
that
evaluation,
management
has
concluded
that,
as
of
December
31,
2013,
the
Company’s
internal
control
over
financial
reporting
was
effective
based
on
those
criteria.
The
effectiveness
of
our
internal
control
over
financial
reporting
as
of
December
31,
2013
has
been
audited
by
KPMG
LLP,
an
independent
registered
public
accounting
firm,
as
stated
in
their
attestation
report
which
is
included
herein.
96
hersha hospitality trust
Report
of
Independent
Registered
Public
Accounting
Firm
The
Board
of
Trustees
and
Shareholders
of
Hersha
Hospitality
Trust:
We
have
audited
Hersha
Hospitality
Trust
and
subsidiaries’
internal
control
over
financial
reporting
as
of
December
31,
2013,
based
on
criteria
established
in
Internal
Control
-‐
Integrated
Framework
(1992)
issued
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission
(COSO).
Hersha
Hospitality
Trust's
management
is
responsible
for
maintaining
effective
internal
control
over
financial
reporting
and
for
its
assessment
of
the
effectiveness
of
internal
control
over
financial
reporting,
included
in
the
accompanying
Management’s
Annual
Report
on
Internal
Control
Over
Financial
Reporting.
Our
responsibility
is
to
express
an
opinion
on
the
Company’s
internal
control
over
financial
reporting
based
on
our
audit.
We
conducted
our
audit
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States).
Those
standards
require
that
we
plan
and
perform
the
audit
to
obtain
reasonable
assurance
about
whether
effective
internal
control
over
financial
reporting
was
maintained
in
all
material
respects.
Our
audit
included
obtaining
an
understanding
of
internal
control
over
financial
reporting,
assessing
the
risk
that
a
material
weakness
exists,
and
testing
and
evaluating
the
design
and
operating
effectiveness
of
internal
control
based
on
the
assessed
risk.
Our
audit
also
included
performing
such
other
procedures
as
we
considered
necessary
in
the
circumstances.
We
believe
that
our
audit
provides
a
reasonable
basis
for
our
opinion.
A
company's
internal
control
over
financial
reporting
is
a
process
designed
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
in
accordance
with
generally
accepted
accounting
principles.
A
company's
internal
control
over
financial
reporting
includes
those
policies
and
procedures
that
(1)
pertain
to
the
maintenance
of
records
that,
in
reasonable
detail,
accurately
and
fairly
reflect
the
transactions
and
dispositions
of
the
assets
of
the
company;
(2)
provide
reasonable
assurance
that
transactions
are
recorded
as
necessary
to
permit
preparation
of
financial
statements
in
accordance
with
generally
accepted
accounting
principles,
and
that
receipts
and
expenditures
of
the
company
are
being
made
only
in
accordance
with
authorizations
of
management
and
directors
of
the
company;
and
(3)
provide
reasonable
assurance
regarding
prevention
or
timely
detection
of
unauthorized
acquisition,
use,
or
disposition
of
the
company’s
assets
that
could
have
a
material
effect
on
the
financial
statements.
Because
of
its
inherent
limitations,
internal
control
over
financial
reporting
may
not
prevent
or
detect
misstatements.
Also,
projections
of
any
evaluation
of
effectiveness
to
future
periods
are
subject
to
the
risk
that
controls
may
become
inadequate
because
of
changes
in
conditions,
or
that
the
degree
of
compliance
with
the
policies
or
procedures
may
deteriorate.
In
our
opinion,
Hersha
Hospitality
Trust
maintained,
in
all
material
respects,
effective
internal
control
over
financial
reporting
as
of
December
31,
2013,
based
on
criteria
established
in
Internal
Control
-‐
Integrated
Framework
(1992)
issued
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission.
We
also
have
audited,
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States),
the
consolidated
balance
sheets
of
Hersha
Hospitality
Trust
and
subsidiaries
as
of
December
31,
2013
and
2012,
and
the
related
consolidated
statements
of
operations,
comprehensive
(loss)
income,
equity,
and
cash
flows
for
each
of
the
years
in
the
three-‐year
period
ended
December
31,
2013,
and
our
report
dated
February
26,
2014
expressed
an
unqualified
opinion
on
those
consolidated
financial
statements.
/s/
KPMG
LLP
Philadelphia,
Pennsylvania
February
26,
2014
97
annual report 2013
CHANGES
IN
INTERNAL
CONTROL
OVER
FINANCIAL
REPORTING
There
were
no
changes
in
our
internal
control
over
financial
reporting
during
the
quarter
ended
December
31,
2013,
that
have
materially
affected,
or
are
reasonably
likely
to
materially
affect,
our
internal
control
over
financial
reporting.
98
65101 Txt A-B_2013 Annual Report 4/7/14 4:14 PM Page 17
HERSHA
hersha hospitality trust
65101 Txt A-B_2013 Annual Report 4/7/14 4:14 PM Page 18
HERSHA
hersha hospitality trust
65101 cover_2013 Annual Report 4/8/14 10:13 AM Page 2
2013 financial highlights
(In thousands, except per share data)
consolidated hotel
operating results
Year Ended December 31,
2013
2012
2011
2010
2009
hotel operating revenues
$
338,064
299,005
229,156
184,998
128,461
average daily rate
occupancy
revenue per available room
$
$
179.70
79.7%
143.30
175.23
78.6%
137.78
166.58
76.6%
127.64
157.11
76.7%
120.52
142.51
72.7%
103.60
(In thousands, except per share data)
hersha hospitality trust
operating data: (Excluding Impairment Charges) (1)
Year Ended December 31,
2013
2012
2011
2010
2009
396,458
Total Revenues (Including Discontinued Operations)
44,467
Net Income applicable to Common Shareholders
145,064
Adjusted EBITDA(2)
86,487
Adjusted Funds from Operations (3)
$
364,690
8,376
143,291
76,046
329,868
)
(5,133
132,969
68,710
283,597
)
(18,871
108,329
52,067
230,930
)
(17,382
97,350
33,956
per share data: (Excluding Impairment Charges) (1)
Basic/Diluted Earnings Per Common Share
AFFO
$
Distributions to Common Shareholders
0.22
0.41
0.24
0.04
0.38
0.24
)
(0.03
0.38
0.23
)
(0.14
0.36
0.20
)
(0.35
0.57
0.33
balance sheet data: (as of December 31st)
Total Assets
Total Debt
Noncontrolling Interest in Partnership
Total Shareholder’s Equity
$
1,748,097
819,336
29,523
837,958
1,707,679
792,708
30,805
829,828
1,630,909
820,132
31,819
730,671
1,457,277
694,720
39,304
683,434
1,111,044
745,443
41,859
302,197
(1) Operating and Per Share Data exclude charges recorded during 2009-2013 relating to impairment losses on development loans, land parcels, investment in unconsolidated joint ventures, several wholly
owned hotel properties, and assets held for sale.
(2) Adjusted Earnings Before Interest, Taxes, and Depreciation and Amortization (EBITDA) is a non-GAAP financial measure within the meaning of the Securities and Exchange Commission rules. Our Adjusted
EBITDA computation may not be comparable to EBITDA or Adjusted EBITDA reported by other companies that interpret the definition of EBITDA differently than we do. Management believes Adjusted EBITDA
to be a meaningful measure of a REIT's performance because it is widely followed by industry analysts, lenders and investors and that it should be considered along with, but not as an alternative to, net income,
cash flow, FFO and AFFO as a measure of the company's operating performance.
(3) Funds from Operations (FFO) as defined by NAREIT represents net income (loss) (computed in accordance with generally accepted accounting principles), excluding extraordinary items as defined under
GAAP and gains or losses from sales of previously depreciated assets, gains on hotel acquisitions plus certain non-cash items, such as loss from impairment of assets and depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. We present Adjusted Funds From Operations (AFFO), which reflects FFO in accordance with the NAREIT definition plus the following
additional adjustments: adding back write-offs of deferred financing costs on debt extinguishment, both for consolidated and unconsolidated properties, adding back amortization of deferred financing costs,
adding back non-cash stock expense, adding back acquisition and terminated transaction expenses, adding back FFO attributed to our partners in consolidated joint ventures, and making adjustments to ground
lease payments, which are required by GAAP to be amortized on a straight-line basis over the term of the lease, to reflect the actual lease payment.
HERSHA
hersha hospitality trust
board of trustees
management team
Hasu P. Shah
Chairman,
Hersha Hospitality Trust
Jay H. Shah
Chief Executive Officer,
Hersha Hospitality Trust
Donald J. Landry
Lead Director, Hersha Hospitality Trust
Former President & CEO, Sunburst Hospitality Inc.
Jay H. Shah
Chief Executive Officer
Neil H. Shah
President and Chief Operating Officer
Ashish R. Parikh
Chief Financial Officer
Michael R. Gillespie
Chief Accounting Officer
Michael A. Leven
President and Chief Operating Officer,
Las Vegas Sands Corp.
Thomas J. Hutchison III
Former CEO,
CNL Hotels & Resorts
and CNL Retirement Properties, Inc.
Dianna F. Morgan
Former Senior Vice President,
Walt Disney World Co.
Kiran P. Patel
John M. Sabin
Executive Vice President and CFO,
Revolution LLC. and Case Foundation
David L. Desfor
Treasurer and Corporate Secretary
William J. Walsh
Senior Vice President of Asset Management
Robert C. Hazard III
Senior Vice President of Acquisitions and Development
Bennett Thomas
Vice President of Finance and Sustainability
corporate headquarters
44 Hersha Drive
Harrisburg, PA 17102
Telephone: (717) 236-4400
Facsimile: (717) 774-7383
executive offices
Penn Mutual Towers
510 Walnut Street, 9th Floor
Philadelphia, PA 19106
Telephone: (215) 238-1046
Facsimile: (215) 238-0157
independent auditors
KPMG LLP
Certified Public Accountants
1601 Market Street
Philadelphia, PA 19103
Telephone: (267) 256-7000
registrar & stock
transfer agent
American Stock Transfer & Trust Company
10150 Mallard Creek Drive, Suite 307
Charlotte, NC 28262
Telephone: (800) 829-8432
legal counsel
Hunton & Williams
Riverfront Plaza
951 East Byrd Street
Richmond, Virginia 23219
Telephone: (804) 788-8200
common stock information
The Common Stock of
Hersha Hospitality Trust is traded on
the New York Stock Exchange-Euronext
under the Symbol “HT”
65101 cover_2013 Annual Report 4/1/14 12:52 PM Page 1
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hersha hospitality trust
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2013