HERSHA
h e r s h a h o s p i t a l i t y t r u s t
HT2015
HERSHA
hersha hospitality trust
www.hersha.com
2015 Financial Highlights
(In thousands, except per share data)
Consolidated Hotel
Operating Results
Hotel Operating Revenues
Average Daily Rate
Occupancy
Revenue per Available Room
(In thousands, except per share data)
Hersha Hospitality Trust
Operating Data: (Excluding Impairment Charges) (1)
Total Revenues (Including Discontinued Operations)
Net Income applicable to Common Shareholders
Adjusted EBITDA(2) (4)
Adjusted Funds from Operations (3) (4)
Per Share Data: (Excluding Impairment Charges) (1)
Basic/Diluted Earnings Per Common Share
AFFO
Distributions to Common Shareholders
Year Ended December 31,
2015
2014
2013
2012
2011
470,272
417,226
338,064
299,005
229,156
197.34
84.1%
165.88
187.82
82.6%
155.19
179.70
79.7%
143.30
175.23
78.6%
137.78
166.58
76.6%
127.64
Year Ended December 31,
2015
2014
2013
2012
2011
470,385
27,440
177,289
118,093
419,346
54,638
162,506
102,832
396,458
44,467
145,064
86,487
364,690
8,376
143,291
76,046
329,868
(5,133
)
132,969
68,710
0.56
2.35
1.12
1.08
1.96
1.04
0.88
1.64
0.96
0.16
1.52
0.96
(0.12
)
1.52
0.92
$
$
$
$
$
Balance Sheet Data: (as of December 31st)
Total Assets
Total Debt
Noncontrolling Interest in Partnership
Total Liabilities and Equity
$
1,969,772
1,177,087
30,116
1,855,539
1,748,097
1,707,679
1,630,909
918,923
28,007
819,336
29,181
792,708
31,281
820,132
32,124
1,969,772
1,855,539
1,748,097
1,707,679
1,630,909
(1) Operating and Per Share Data exclude charges recorded during 2011-2014 relating to impairment losses on investment in unconsolidated joint ventures and 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 interpretation of Adjusted EBITDA is that EBITDA derived from our investment in unconsolidated joint ventures should be added back to net income
(loss) as part of reconciling net income (loss) to Adjusted EBITDA. 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, 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 preferred share extinguishment costs, adding back prior period tax assessment 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.
(4) In these financial highlights and in the Letter to our Shareholders from our Chief Executive Officer and our President and Chief Operating Officer that follows, we present
non-GAAP financial measures, including EBITDA, Adjusted EBITDA, hotel EBITDA, FFO and AFFO. We have provided reconciliations of these non-GAAP financial measures to the
applicable GAAP measures in the appendix section that follows the letter to our shareholders, in portions of our Annual Report on Form 10-K for the year ended December 31,
2015, which accompanies this letter or can be viewed at www.hersha.com, under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of
Operations.” Because hotel EBITDA is specific to individual hotels or groups of hotels and not to our Company as a whole, it is not directly comparable to any GAAP measure and
should not be relied on as a measure of performance for our portfolio of hotels taken as a whole.
HERSHA
h e r s h a h o s p i ta l i t y t r u st
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 56
hotels totaling 8,892 rooms are located in New York, Boston, Philadelphia, Washington, DC, Miami and
select markets on the West Coast. The Company's shares are traded on The New York Stock Exchange
under the ticker 'HT'.
hersha total returns since ipo in 1999
(1)
230%
207%
186%
255%
266%
A
H
S
R
E
H
124%
124%
94%
91%
56%
D o w J o n e s
S N L U S H o t e l I n d e x
S & P 5 0 0
W a l m a r
t
N A R E I T I n d e x
G E
-38%
F o r d
R M Z I n d e x
R u s
s e ll 2 0 0 0 I n d e x
s h i r e H a t h a w a y
k
B e r
hersha portfolio by location
(2)
hersha portfolio by market segment
(3)
New York City 38%
Washington, DC 16%
California 16%
Miami 11%
Boston 10%
Philadelphia 9%
Upscale 47%
Upper Midscale 34%
Luxury/Upper Upscale 19%
hersha portfolio by hotel brand
(3)
Marriott 25%
Hilton 25%
Intercontinental 17%
Independent 16%
Hyatt 14%
Other 3%
(1) Source: Bloomberg and SNL Financial. Total Returns from January 20, 1999 through December 31, 2015. Assumes dividends are reinvested.
(2) Reflects portfolio concentration by room count for consolidated operations.
(3) Reflects portfolio EBITDA concentration for consolidated operations.
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hersha hospitality trust
Fellow Shareholders
Last year, we wrote that a clear path to earnings
Even though stock multiples were dislocated last
growth in 2015 was more apparent than at any
year, we continued to deliver value to our
other time in the Company’s past, and despite
shareholders. Our execution and results
the cautious investment sentiment in the broader
distinguished us as an endgame winner, and firmly
markets and the REIT sector last year, our
established our best-in-class leadership position in
financial results reflected robust underlying
the sector. Performance last year highlighted
performance across the portfolio. Our results
the competitive advantage of our well developed,
confirm the enterprise is strong and healthy.
pure play portfolio strategy and the strength of
Investors lacked the confidence and conviction
our financial management and capital recycling
needed to fuel investment and pursued
discipline. Operations at our young, high quality
conservative strategies across the past year,
hotels outperformed in each of our 6 key
resulting in one of the best hotel operating
gateway markets, and delivered 13.5% EBITDA
environments of the last 3 decades going
growth for portfolio-wide EBITDA of $178.6
unnoticed by the equity capital markets. Hotel
million, and a margin increase of 30 basis points
REIT stocks did not perform well, posting a 26%
to 38.1%.
price decline for the year. We performed
relatively well versus other hotel REIT stocks,
We have carefully crafted a differentiated
beating the average by 3 percentage points.
portfolio of high quality hotels in key urban
gateway and destination markets that meet the
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hersha hospitality trust
20 1 5
tastes and preferences of today’s traveler and
produce a unique combination of high absolute
RevPAR and sector-leading profit margins. Often,
REIT hotel portfolios are baskets of similar hotels
that offer only varying geographic market
exposure. There is nothing wrong with the
typical hotel REIT, but we are decidedly not that.
We study our customers, innovate and build new
capabilities in markets where we have true
conviction. We manage our business as
operators, providing hospitality to our corporate
and individual customers at the level of service
and experience that they seek; in the cities and
destinations that they travel to the most.
Clustering hotels in our focus markets - Boston,
New York City, Philadelphia, Washington, DC,
Miami and California - provides us with useful
customer insights and local market knowledge
that inform our pricing and sales strategies and
create valuable economies of scope and scale.
The mix of hotels in the portfolio, across the
upscale, upper upscale and luxury segments, both
branded and independent, leads to effective
cross-selling opportunities and substantial
competitive advantage driving better overall
RevPAR share. Our hotels continued to win
share in 2015, which happens when you deliver to
your guests what they want, where they want it
and charge fairly for anticipating their need for it.
We believe this is a truly differentiated value
proposition for our customers – brand prolifera-
tion and broad electronic distribution platforms
commoditize everything else.
Leading Operating Fundamentals
Hersha delivered strong results across the past
several years and 2015 was no exception. Our
consolidated portfolio reported 6.9% RevPAR
growth to $166 as ADR increased 5.1% to $197,
and occupancy increased 143 basis points to a
robust 84.1%. We are particularly proud that
much of this growth was organic, driven by
greater RevPAR share. We outperformed the
market in RevPAR growth in each of our 6 key
gateway markets, reporting double-digit RevPAR
growth in Boston, Philadelphia, Miami and
California.
Our strong top-line performance efficiently
flowed-through to earnings generating another
year of best-in-class operating margins. Our
Adjusted Funds from Operations (“AFFO”)
increased by a significant 14.8%, or $15.3 million
to $118.1 million. The growth is more impressive
considering it follows AFFO growth of 18.9% in
2014. A good company generates competitive
margins regardless of economic conditions
through a combination of internal and external
growth. We have tailored our strategy and
operating model to that end. We also do not
underestimate the advantage of alignment that
we have with our operators who are cycle-tested
and best-in-class in their discipline. Our strong,
seasoned relationship is unique in the sector,
designed and incentivized to encourage early
response to micro-trends in our submarkets and
results-driven operations.
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hersha hospitality trust
Strategic Acquisitions
Our disciplined investments have created great
value for the Company and continue to strengthen
the moat around our business. We found as
We are already seeing improvements in sales,
distribution and operating efficiency. The hotels
require little to no disruptive renovations and will
contribute meaningful incremental EBITDA in
volatility in the capital markets continued to build
2016.
across 2015 and most buyers pulled back, strategic
acquisition opportunities became available at
attractive yields where we could bring operating
advantage to drive strong growth. We take a
long-term view on investing and do not manage
to volatile metrics such as EBITDA multiple or
stock price, focusing instead on economic value
and concrete metrics. Some of our most
productive assets were acquired during periods
of dislocation and have proven to be strong
additions for the enterprise. Our decisions to
purchase have stood the test of time.
We acquired 3 impressive hotel properties last
year for $135 million. We purchased the Ritz-
Carlton Georgetown, the St. Gregory in
Washington, DC and the Marriott TownePlace
Suites in Sunnyvale, CA. In addition, prior to
April 2016, we closed on 2 more hotels totaling
$146 million, the Sanctuary Beach Resort on
Monterey Bay, CA and the Hilton Garden Inn M
Street in Washington, DC. These hotels add
scale to our existing hotel clusters in Northern
California and Washington, DC.
The business plan for each hotel is thoughtfully
and aggressively managed by our asset
management and revenue management teams.
Portfolio Balance and Capital Recycling
We continuously look for opportunities to
recycle capital through the sale of mature hotels
with lower growth expectations than the
remainder of our portfolio. In February 2016, we
announced a transformative portfolio sale in
Manhattan to Cindat Capital Management Ltd. In
that transaction we will sell 7 of the Company’s
limited service hotels in Manhattan for a total
purchase price of $571.4 million to a newly
formed joint venture with Cindat, in which
Hersha will retain a minority promoted interest.
The sale to a sophisticated Chinese investor
demonstrates the strong demand from offshore
institutional capital sources seeking exposure to
global gateway markets in the United States
where Hersha is well-positioned. The Cindat
transaction in Manhattan, combined with our
acquisitions in Washington, DC and in Northern
California, highlight our capital recycling discipline
and capability to monetize high yielding,
stabilized assets and reinvest the capital into high
growth hotels in high growth strategic markets.
Since 2012, we have recycled more than $500
million of capital from mature hotels into higher
growth, higher quality acquisitions.
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hersha hospitality trust
20 1 5
Financial Flexibility for Value Creation
Since becoming a publicly traded enterprise in
1999, all of our significant capital decisions have
been focused on long
term and sustainable value
-
creation consistent with our absolute return
philosophy and commitment to total shareholder
returns. At different times during 2015, we took
advantage of the irrational variance between the
trading price of our stock and the Company’s
net asset value, purchasing 10.7% of our
outstanding common shares in the open market
under the Company’s stock buyback program,
and returning $127.9 million of value to
shareholders. We continue to believe that
opportunistic share buybacks are an attractive
use of capital and an effective way to drive
shareholder returns when the stock price is
temporarily dislocated and at a material discount
to the Company’s net asset value.
The ability to simultaneously execute accretive
acquisitions and repurchase shares is testament
to a solid, yet flexible balance sheet. In August,
we announced a new $300 million senior unse-
cured term loan, which together with the
Company’s $500 million senior unsecured credit
facility, expanded our borrowing capacity from
$500 million to $800 million. Throughout 2015,
we accessed attractive secured and unsecured
debt to refinance, or repay, existing debt at 5
properties. We finished 2015 with the lowest
weighted average cost of debt in the Company’s
history at 3.68%. We continue to see good
opportunities to refinance 2006 and 2007
vintage ten-year CMBS loans, which will allow us
to further reduce our weighted average cost of
debt and remove burdensome encumbrances
allowing for more effective and efficient capital
allocation.
Build for the Endgame
While there will always be volatility to manage
through, we need to keep our eye on other
important factors as well - the outlook for
growth in our industry is excellent. In the
near-term, the underlying drivers for sustained,
domestic economic growth remain in place.
GDP growth is anticipated to increase this year
and next year at rates slightly below the 2015
GDP increase of 2.4%. Forecasts continue to
show healthy decreases in unemployment through
2017, with inflation expected to remain below the
long-term average into 2017. These indicators
combined with lower fuel prices, a strengthening
housing market and higher consumer and
government spending, provide a favorable
environment for lodging to thrive, and our
young, geographically diverse, and differentiated
hotel portfolio to outperform and generate
sustained cash flow growth.
The critical drivers of a lodging microeconomic
cycle are simply supply and demand. The
expansion of a cycle typically comes to an end
when supply growth accelerates, which tends to
occur as demand growth approaches its peak.
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hersha hospitality trust
At 70 months into the current lodging expansion,
balance sheet and the cash we will generate from
demand is higher and supply growth is lower
asset sales and operations, we are confident we
than the peak of the two previous cycles.
are positioned to benefit from the continuing
Although supply growth is accelerating, it is
economic expansion in 2016. We are aware that
expected to remain below the long-term average
we have to keep an eye on potentially
for the next two years. Occupancy at hotels is
decelerating RevPAR growth, as well as domestic
also at record levels, driving strong pricing
and international economic concerns, but we are
power and increased profitability from efficient
prepared for the tough times, and will manage
flow-through of incremental rate growth.
through them. Should the current cycle falter,
there is a lot we can do - we will continue to
We are even more optimistic regarding the
relentlessly serve our customers, modify
long-term outlook for the industry. Last year,
operations at our hotels to maintain margins,
the International Monetary Fund and the World
reconsider capital allocation and further control
Bank estimated that across the coming decade,
costs. The talented and hard working teams that
global GDP would grow at a 5.5% compounded
we are privileged to lead, do outstanding work
annual growth rate; world exports would
everyday and have the tested know-how to
increase by 70%; global investable capital would
outperform in varying economic conditions.
grow at a 6% compounded annual growth rate
and the number of companies around the world
We think like long-term investors and manage
with $1 billion or more in revenue would increase
like operators. Our goal is to continue to build
by 90%. These macro themes point to
this industry leading enterprise, hone our
significant growth in global commerce and
competitive advantage and deliver market leading
wealth creation, and the continuing growth of
financial results. We are proud to be fellow
international travel. Here at home, technology is
shareholders and a part of Hersha’s exceptional
democratizing travel by providing greater
journey across the last three cycles.
transparency, less friction and broad access,
fueling a lifestyle preference that is driving
We move forward feeling confident that our
demand for travel to new levels. We believe
work through the years positions us to continue
lodging to be one of the greatest growth
the remarkable legacy that we have built together.
industries today, and Hersha is well-positioned to
take advantage of the secular changes afoot.
When we look at the enhancements made to our
portfolio, the strength and security of our
jay h. shah
chief executive officer
neil h. shah
president and
chief operating officer
Annual Report
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hersha hospitality trust
®
EarthView®, Hersha’s award winning sustainability
program, was created internally in 2010 as a
strategic initiative to create value through a
comprehensive and analytically-based program
focused on investments that reduce our
environmental impact, enhance our community
stewardship, and positively impact a hotel’s
financial performance.
In 2015, Hersha continued to make strides in its
commitment to sustainable hospitality. Starting in
Q2 2015, each hotel across the portfolio
underwent a lighting audit to determine
opportunities for LED (light emitting diode)
replacements. LEDs are two to three times more
efficient than florescent and incandescent lighting
and also have a much longer lifespan. With a
capital cost of $1.1 million and an annual savings
of roughly $800K, the payback period is under
1.5 years.
LED Lighting is being installed
across the portfolio.
Once installed, this energy
efficient lighting will save over
4 million kWh of electricity
and $800,000 annually.
In April 2015, Hersha partnered
with Autism Speaks to host over 30
families of children with Autism at
the Philadelphia Zoo. This day
featured a scavenger hunt and
celebrated the conclusion of
Hersha’s month-long fundraising
campaign for Autism Awareness,
which raised a total of $90,000.
In 2015, Hersha was awarded
Marriott’s Spirit to Serve Award.
This award honors Marriott
partners who go above
and beyond to ensure their
communities are healthier, more
vibrant, and more prosperous as a
direct result of their properties’
presence and engagement.
In November 2015, Hersha was
recognized for its sustainability
efforts by the Hotel Association of
New York City. The Hyatt Union
Square was awarded the 2015
Environmental Protection Award,
while the Holiday Inn Express Times
Square was awarded the
2015 Sustainability Innovation
and Leadership Award.
The Ecolab Aquanomic laundry
program has been implemented
across all hotels with in-house
laundry. This system has helped our
properties reduce natural gas and
water costs associated with
laundry cycles by utilizing cold
water and shorter washing times.
Initiatives such as LED Lighting and the
implementation of Guestroom Energy
Management Systems have led the way for
energy savings across the portfolio. Since 2010,
initiatives rolled out as part of the EarthView
program have achieved $4.8 million in savings for
the Company.
In 2015, Hersha was pleased to be awarded
NAREIT’s 2015 Lodging & Resorts Leader in the
Light award for superior portfolio-wide energy
use practices and sustainability initiatives. Hersha
has won this award in three of the past four
years and is this year’s co-winner, sharing the
top spot with Host Hotels & Resorts.
Additionally, eight of Hersha’s hotels received the
EPA’s Energy Star Certification in 2015. Buildings
that earn EPA’s Energy Star Certification use 35
percent less energy and generate 35 percent
fewer greenhouse gas emissions than similar
buildings across the nation.
Hersha also has a long tradition of social
responsibility and community engagement. This
tradition began with Hersha's founders, and con-
tinues today with the EarthView program. We
believe this focus on community stewardship is
important to our guests, investors, and business
partners who would like to ensure they engage
with corporate citizens that uphold ethical
standards and values, and operate in a way that is
beneficial to the communities in which they
operate. We continue to embrace our ongoing
partnerships with organizations such as United
Way, Cornell University and the AH&LA
Education Foundation, as well as fostering
business practices that promote the public good.
Sustainability Brief
FINANCIAL IMPACT
$4.8 million
EarthView’s recorded savings since inception from
energy initiatives implemented across our portfolio.
ENVIRONMENTAL PERFORMANCE
16% carbon reduction
Reduced energy consumption across our portfolio
resulted in a decrease in carbon emissions per
occupied room versus our baseline year of 2010.
8% water reduction
Reduced water consumption per occupied
room versus our baseline year of 2010.
45% waste reduction
Reduced waste sent to landfills per occupied
room versus our baseline year of 2010.
COMMUNITY ENGAGEMENT
21,000 pounds of soap
Donated to Clean the World, creating
58,000 new bars sent to developing nations.
$90,000 for autism speaks
Donated for research and awareness of Autism
through Hersha’s 2015 Autism Speaks Campaign.
51,000 clothing items
Donated by clothing drives in 2015.
920 people
Provided clean water for 920 people
for 21 years through funding from
EarthView water sales.
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hersha hospitality trust
Property Portfolio
New York City
The Hyatt Union Square
Duane Street Hotel, Tribeca
NU Hotel, Brooklyn
Hilton Garden Inn, Midtown East
Hilton Garden Inn, Tribeca
Hampton Inn, Times Square South
Hampton Inn, Madison Square Garden
Hampton Inn, Chelsea
Hampton Inn, Seaport
Hampton Inn, Downtown Financial District
Holiday Inn, Wall Street
Holiday Inn Express, Water Street
Holiday Inn Express, Times Square South
Holiday Inn Express, Madison Square Garden
Candlewood Suites, Times Square South
Sheraton Hotel, JFK International Airport
Hilton Garden Inn, JFK International Airport
Hyatt House, White Plains
Holiday Inn Express, Chester
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
Hawthorn Suites, Franklin
Connecticut
Marriott Downtown, Hartford
Hilton Hotel, Hartford
Mystic Marriott Hotel and Spa, Mystic/Groton
Philaldelphia
The Rittenhouse
Hampton Inn, Center City/Convention Center
Hyatt Place, King of Prussia/Valley Forge
Sheraton Wilmington South, Wilmington, DE
Washington, D.C.
The Ritz-Carlton Georgetown
The St. Gregory Hotel
Hilton Garden Inn-M Street
Hampton Inn, Convention Center
The Capitol Hill Hotel
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 Miami Beach Oceanfront
Blue Moon Hotel, Miami Beach
Winter Haven, Miami Beach
Residence Inn by Marriott, Coconut Grove
Parrot Key Hotel & Resort, Key West
California
Courtyard by Marriott Westside, Los Angeles
Courtyard by Marriott, Downtown San Diego
Hotel Milo, Santa Barbara
The Sanctuary Beach Resort, Monterey Bay
TownePlace Suites Sunnyvale
Hyatt House, Pleasant Hill/Walnut Creek
Hyatt House, Pleasanton/Dublin
Hyatt House, Scottsdale, AZ
Information contained in this Annual Report supercedes the information filed in Hersha Hospitality Trust’s 10-K filed on February 17, 2016.
Please see our website for the definition and reconciliation of our historical non-GAAP financial measures.
2015 Consolidated Financial Statements
INDEX
section
part i
item
1.
item 2.
part ii
item 5.
item 6.
item 7.
item 7a.
item 8.
item 9.
item 9a.
Business
Properties
Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Quantitative and Qualitative Disclosures About Mark Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
page
2
7
9
12
14
33
34
86
86
hersha hospitality trust
The Annual Report contains excerpts from our Annual Report on Form 10-K for the fiscal year ended December
31, 2015, 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.
Annual Report
2015
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,
South
Florida
and
select
markets
on
the
West
Coast.
Our
primary
strategy
is
to
continue
to
own
and
acquire
high
quality,
upscale,
mid-‐scale
and
extended-‐stay
hotels
in
metropolitan
markets
with
high
barriers
to
entry
and
independent
boutique
hotels
in
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.
We
aim
to
create
value
through
our
ability
to
source
capital
and
identify
high
growth
acquisition
targets.
We
seek
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.
To
drive
sustainable
shareholder
value,
we
also
seek
to
recycle
capital
from
stabilized
assets,
as
evidenced
by
our
recently
announced
joint
venture
for
seven
hotel
assets
(see
“Dispositions”
below
for
more
information)
and
our
sales
of
non-‐core
hotels
in
secondary
and
tertiary
markets.
Capital
from
these
types
of
transactions
is
intended
to
be
redeployed
into
high
growth
acquisitions
and
share
buybacks.
As
of
December
31,
2015,
our
portfolio
consisted
of
49
wholly
owned
limited
and
full
service
properties
with
a
total
of
7,225
rooms
and
interests
in
five
limited
and
full
service
properties
owned
through
joint
venture
investments
with
a
total
of
1,369
rooms.
These
54
properties,
with
a
total
of
8,594
rooms,
are
located
in
Arizona,
California,
Connecticut,
Delaware,
District
of
Columbia,
Florida,
Maryland,
Massachusetts,
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
or
with
other
brands.
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
the
sole
general
partner.
As
of
December
31,
2015,
we
owned
an
approximate
95.0%
partnership
interest
in
our
operating
partnership
including
all
general
partnership
interest.
The
majority
of
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.
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
2
hersha hospitality trust
practicable
after
such
documents
are
electronically
filed
with,
or
furnished
to,
the
SEC.
All
reports
that
we
have
filed
with
the
SEC
including
this
annual
report
on
Form
10-‐K,
our
quarterly
reports
on
Form
10-‐Q
and
our
current
reports
on
Form
8-‐K,
can
also
be
obtained
free
of
charge
from
the
SEC’s
website
at
www.sec.gov.
In
addition,
all
reports
filed
with
the
SEC
may
be
read
and
copied
at
the
SEC’s
Public
Reference
Room
at
100
F
Street,
NE,
Washington,
D.C.
20549-‐1090.
Further
information
regarding
the
operation
of
the
public
reference
room
may
be
obtained
by
calling
the
SEC
at
1-‐800-‐SEC-‐0330.
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
revenue
per
available
room,
or
RevPAR,
and
to
maximize
the
average
daily
rate,
or
ADR,
and
occupancy
levels
at
each
of
our
hotels
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
hotel-‐level
earnings
by
managing
hotel-‐level
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,
and
maximizing
our
operating
margins.
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.
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
Ritz-‐Carlton,
Marriott,
Residence
Inn
by
Marriott,
Courtyard
by
Marriott,
Hilton
Hotels,
Hilton
Garden
Inn,
Hampton
Inn,
Holiday
Inn,
Holiday
Inn
Express,
Holiday
Inn
Express
and
Suites,
Candlewood
Suites,
Hyatt
House,
Hyatt
Place,
Hyatt
and
Sheraton
Hotels;
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,
2015,
we
have
acquired,
wholly
or
through
joint
ventures,
a
total
of
110
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
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
and
the
markets
in
which
they
operate
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,
acquisitions
of
hotels
and
share
buybacks.
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,
its
ability
to
remain
accretive
to
our
portfolio,
and
the
expectations
for
the
market
in
which
the
hotel
operates.
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
3
Annual Report
2015
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,
2015,
we
have
sold
a
total
of
62
hotels.
In
accordance
with
our
strategy,
on
February
2,
2016,
we
entered
into
asset
purchase
and
contribution
agreements
(collectively,
the
“Contribution
Agreements”)
to
make
an
equity
investment
in
a
joint
venture
(the
“Owner
JV”)
with
Cindat
Manhattan
Hotel
Portfolio
(US)
LLC
(“Cindat”).
The
Owner
JV,
through
its
direct
subsidiaries,
will
own
seven
hotels
currently
in
the
Company’s
NYC
Urban
portfolio
(collectively,
the
“Cindat
JV
Properties”).
The
Contribution
Agreements
value
the
Cindat
JV
Properties
at
approximately
$543.5
million
in
the
aggregate
(subject
to
working
capital
and
similar
adjustments).
The
total
purchase
price,
including
closing
costs,
is
expected
to
be
approximately
$574.1
million.
The
Company
intends
to
hold
the
proceeds
of
sale
in
escrow
pending
reinvestment
in
replacement
properties
to
be
identified
and
acquired
in
2016
in
transactions
qualifying
for
deferral
of
federal
income
taxes
as
permitted
by
the
Code.
For
additional
information,
see
“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operation”
and
Note
2,
“Investment
in
Hotel
Properties”.
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
$500
million
unsecured
credit
facility
which
provides
for
a
$250
million
unsecured
term
loan
and
a
$250
million
unsecured
revolving
credit
facility
and
secured
mortgage
debt
in
our
hotel
properties.
In
August
2015,
we
entered
into
a
senior
unsecured
term
loan
for
$300
million.
This
expands
our
senior
unsecured
borrowing
capacity
from
$500
million
to
$800
million.
We
intend
to
use
our
loan
capacity
and
the
undrawn
portion
of
our
$500
million
senior
unsecured
credit
facility
to
pay
down
mortgage
debt,
repurchase
common
shares,
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
Ritz-‐Carlton,
Marriott,
Residence
Inn
by
Marriott,
Courtyard
by
Marriott,
TownePlace
Suites
Hilton
Hotels,
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
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
annually.
4
hersha hospitality trust
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,
2015:
Manager
Hotels
Rooms
Hotels
Rooms
Hotels
Rooms
Wholly
Owned
Joint
Ventures
Total
Hersha
Hospitality
Management,
L.P.
Waterford
Hotel
Group,
Inc.
South
Bay
Boston
Management,
Inc.
Marriott
Management
Total
48
-‐
-‐
1
49
7,139
-‐
-‐
86
7,225
1
2
2
-
5
285
802
282
-
1,369
49
2
2
1
54
7,424
802
282
86
8,594
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,
2015,
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,
2015,
we
had
51
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
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%
(or
20%
for
taxable
years
beginning
after
December
31,
2017)
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.
5
Annual Report
2015
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
Item
2.
Properties
The
following
table
sets
forth
certain
information
with
respect
to
the
49
hotels
we
wholly
owned
as
of
December
31,
2015,
all
of
which
are
consolidated
on
the
Company’s
financial
statements.
Market
Name
Location
Year
Opened
Number
of
Rooms
hersha hospitality trust
Boston
Urban
and
Metro
Courtyard
Brookline/Boston,
MA*
The
Boxer
Holiday
Inn
Express
Residence
Inn
Residence
Inn
Boston,
MA
Cambridge,
MA
Framingham,
MA
Norwood,
MA
Hawthorn
Suites
by
Wyndham
Franklin,
MA
California
-‐
Arizona
Courtyard
Courtyard
Hyatt
House
Hyatt
House
Hyatt
House
Hotel
Milo
San
Diego,
CA
Los
Angeles,
CA
Pleasant
Hill,
CA
Pleasanton,
CA
Scottsdale,
AZ
Santa
Barbara,
CA*
South
Florida
TownePlace
Suites
Sunnyvale,
CA*
Blue
Moon
Courtyard
Residence
Inn
Winter
Haven
Miami,
FL
Miami,
FL
Coconut
Grove,
FL
Miami,
FL
Parrot
Key
Hotel
&
Resort
Key
West,
FL
NYC
Urban
Candlewood
Suites
Times
Square,
NY
Duane
Street
Hampton
Inn
Hampton
Inn
Hampton
Inn
Hampton
Inn
Hampton
Inn
Hilton
Garden
Inn
Hilton
Garden
Inn
Holiday
Inn
TriBeCa,
NY
Chelsea/Manhattan,
NY
Herald
Square,
Manhattan,
NY
Seaport,
NY
Times
Square,
NY
Pearl
Street,
Manhattan,
NY
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
Hyatt
Nu
Hotel
Sheraton
Hotel
Union
Square,
NY
Brooklyn,
NY
JFK
Airport,
NY*
Hilton
Garden
Inn
Midtown
East,
Manhattan,
NY
NY-‐NJ
Metro
Holiday
Inn
Express
Chester,
NY
Hyatt
House
White
Plains,
NY
2003
2004
1997
2000
2006
1999
1999
2008
2003
1998
1999
2001
2003
2013
2004
2000
2013
2013
2009
2008
2003
2005
2006
2009
2012
2005
2009
2010
2009
2010
2006
2013
2008
2008
2014
2006
2000
188
80
112
125
96
100
245
260
142
128
164
122
94
75
357
140
70
148
188
43
144
136
65
184
81
192
151
113
210
112
228
178
93
150
205
80
159
7
Annual Report
2015
Market
Name
Location
Year
Opened
Number
of
Rooms
Philadelphia
Washington
D.C.
Hampton
Inn
Hyatt
Place
Sheraton
Hotel
Philadelphia,
PA
King
of
Prussia,
PA
New
Castle,
DE
The
Rittenhouse
Hotel
Philadelphia,
PA
Ritz
Carlton
Courtyard
Hampton
Inn
Hyatt
House
Residence
Inn
Residence
Inn
Georgetown,
DC
Alexandria,
VA
Washington,
DC
Gaithersburg,
MD
Tysons
Corner,
VA
Greenbelt,
MD
The
Capitol
Hill
Hotel
Washington,
DC
St.
Gregory
Hotel
Washington,
DC
2001
2010
2011
2004
2014
2006
2005
1998
1984
2002
2007
2014
250
129
192
116
86
203
228
140
96
120
152
155
*
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
initial
terms
of
99
years
and
all
have
a
remaining
term
of
at
least
85
years.
The
following
table
sets
forth
certain
information
with
respect
to
the
five
hotels
we
owned
through
unconsolidated
joint
ventures
with
third
parties
as
of
December
31,
2015.
TOTAL
ROOMS
7,225
Market
Name
Location
Boston
Connecticut
Courtyard
Holiday
Inn
Express
South
Boston,
MA**
South
Boston,
MA**
Hilton
Marriott
Marriott
Hartford,
CT
Mystic,
CT
Hartford,
CT
Year
Opened
Number
of
Rooms
HHLP
Ownership
in
Asset
HHLP
Preferred
Return
2005
1998
2005
2001
2005
164
118
393
285
409
50.0%
50.0%
8.8%
66.7%
15.0%
N/A
N/A
8.5%
8.5%
8.5%
**
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
60
years
and
all
have
a
remaining
term
of
at
least
47
years.
TOTAL
ROOMS
1,369
8
PART
II
hersha hospitality trust
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
16,
2016,
the
last
reported
closing
price
per
common
share
on
the
New
York
Stock
Exchange
was
$18.92.
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,
2015
High
Low
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Year
Ended
December
31,
2014
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
$
$
$
$
$
$
$
$
25.63
28.60
26.92
28.84
$
$
$
$
21.47
22.20
25.04
25.12
High
Low
29.96
$
27.80
$
26.96
$
24.20
$
24.60
25.41
22.08
20.72
$
$
$
$
$
$
$
$
Dividend
Per
Common
Share
0.28
0.28
0.28
0.28
*
Dividend
Per
Common
Share
0.28
*
0.28
*
0.24
*
0.24
*
*Adjusted
for
4-‐for-‐1
reverse
share
split
effective
as
of
June
22,
2015.
SHAREHOLDER
INFORMATION
At
December
31,
2015
we
had
approximately
123
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
32
entities
and
persons,
including
our
company.
DISTRIBUTION
INFORMATION
Future
distributions,
if
any,
will
be
at
the
discretion
of
our
Board
of
Trustees
and
will
depend
on
our
actual
cash
flow,
financial
condition,
capital
requirements,
the
annual
distribution
requirements
under
the
REIT
provisions
of
the
Internal
Revenue
Code
and
such
other
factors
as
we
may
deem
relevant.
Our
ability
to
make
distributions
will
depend
on
our
receipt
of
distributions
from
our
operating
partnership
and
lease
payments
from
our
lessees
with
respect
to
the
hotels.
We
rely
on
the
profitability
and
cash
flows
of
our
hotels
to
generate
sufficient
cash
flow
for
distributions.
Additionally,
we
may,
if
necessary
and
allowable,
pay
taxable
dividends
of
our
shares
or
debt
securities
to
meet
the
distribution
requirements.
9
Annual Report
2015
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,
2015,
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
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
S&P
500
Russell
2000
SNL
Hotel
REIT
Index
$
2010
100.00
$
100.00
100.00
100.00
2011
73.94
$
2012
75.76
$
2013
84.39
$
100.00
94.55
84.91
113.40
108.38
93.04
146.97
148.49
113.81
2014
110.45
$
166.84
155.66
150.22
2015
89.53
169.14
148.80
116.21
10
hersha hospitality trust
UNREGISTERED
SALES
OF
EQUITY
SECURITIES
AND
USE
OF
PROCEEDS
A
summary
of
our
common
share
repurchases
(in
millions,
except
average
price
per
share)
during
the
year
ended
December
31,
2015
under
the
$100
million
repurchase
program
authorized
by
our
Board
of
Trustees
in
December
2012
and
reauthorized
in
February
2015
is
set
forth
in
the
table
below.
All
such
common
shares
were
repurchased
pursuant
to
open
market
transactions.
In
October
2015,
our
Board
of
Trustees
authorized
us
to
repurchase
from
time
to
time
up
to
an
aggregate
of
$100,000
of
our
outstanding
common
shares.
This
new
program
is
in
addition
to
the
existing
$100,000
program
authorized
in
February
2015
and
will
commence
upon
completion
of
the
existing
$100,000
common
share
repurchase
program,
and
will
expire
on
December
31,
2016.
We
may
seek
Board
of
Trustee
approval
to
increase
the
2016
authorization.
In
May
2015,
our
Board
of
Trustees
approved
a
reverse
share
split
of
our
issued
and
outstanding
common
shares
at
a
ratio
of
1-‐for-‐4.
This
reverse
share
split
converted
every
four
issued
and
outstanding
common
shares
into
one
common
share.
The
reverse
share
split
was
effective
as
of
5:00
PM
Eastern
time
on
June
22,
2015.
All
common
share
and
per
share
data
shown
below
have
been
updated
to
reflect
this
share
split
as
if
it
occurred
on
January
1,
2015.
Issuer
Purchases
of
Common
Stock
Total
Number
of
Shares
Purchased
Average
Price
Paid
Per
Share
Total
Number
of
Shares
Purchased
As
Part
of
Publicly
Announced
Plans
or
Programs
Maximum
Number
(or
Approximate
Dollar
Value)
of
Shares
That
May
Yet
Be
Purchased
Under
the
Plans
or
Programs
(in
thousands)
-‐
-‐
N/A
N/A
N/A
N/A
494,441
$
160,167
1,002,970
306,573
-‐
643,334
813,453
297,600
516,128
1,075,705
25.44
25.56
25.68
25.36
N/A
24.38
23.57
22.56
23.31
22.45
494,441
$
654,608
1,657,578
1,964,151
1,964,151
2,607,485
3,420,938
3,718,538
4,234,666
5,310,371
-‐
-‐
87,413
83,317
57,568
49,791
49,791
34,109
17,174
108,227
96,197
72,053
Period
January
1
to
January
31,
2015
February
1
to
February
28,
2015
March
1
to
March
31,
2015
April
1
to
April
30,
2015
May
1
to
May
31,
2015
June
1
to
June
30,
2015
July
1
to
July
31,
2015
August
1
to
August
31,
2015
September
1
to
September
30,
2015
October
1
to
October
31,
2015
November
1
to
November
30,
2015
December
1
to
December
31,
2015
11
Annual Report
2015
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.
As
a
result
of
the
early
adoption
on
January
1,
2014
of
ASU
Update
No.
2014-‐08,
we
do
not
expect
to
classify
most
of
our
hotel
dispositions
as
discontinued
operations.
For
purposes
of
this
table
below,
the
operating
results
of
certain
real
estate
assets
which
have
been
sold
prior
to
the
adoption
of
ASU
Update
No.
2014-‐08
are
included
in
discontinued
operations
for
all
periods
presented.
HERSHA
HOSPITALITY
TRUST
SELECTED
FINANCIAL
DATA
(In
thousands,
except
per
share
data)
2015
2014
2013
2012
2011
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
Real
Estate
and
Personal
Property
Taxes
and
Property
Insurance
General
and
Administrative
(including
Share
Based
Payments
of
$6,523,
$6,028,
$9,746,
$9,678,
$7,590)
Acquisition
and
Terminated
Transaction
Costs
Depreciation
and
Amortization
Contingent
Consideration
Total
Operating
Expenses
Operating
Income
Interest
Income
Interest
Expense
Other
Expense
Gain
on
Disposition
of
Hotel
Properties
Gain
on
Hotel
Acquisitions,
net
Development
Loan
Recovery
Loss
on
Debt
Extinguishment
Income
(Loss)
before
(Loss)
Income
from
Unconsolidated
Joint
Venture
Investments
and
Discontinued
Operations
Income
(Loss)
from
Unconsolidated
Joint
Ventures
Impairment
of
Investment
in
Unconsolidated
Joint
Ventures
(Loss)
Gain
from
Remeasurement
of
Investment
in
Unconsolidated
Joint
Ventures
Income
(Loss)
from
Unconsolidated
Joint
Venture
Investments
Income
Before
Income
Taxes
Income
Tax
Benefit
Income
from
Continuing
Operations
Discontinued
Operations:
(Loss)
Gain
on
Disposition
of
Hotel
Properties
Impairment
of
Assets
Held
for
Sale
Income
from
Discontinued
Operations
(Loss)
Income
from
Discontinued
Operations
Net
Income
(Loss)
(Income)
Loss
Allocated
to
Noncontrolling
Interests
Issuance
Costs
of
Redeemed
Preferred
Shares
Preferred
Distributions
$
470,272
$
417,226
$
-‐
113
470,385
254,313
-‐
3,137
34,518
20,515
1,119
74,390
-‐
387,992
82,393
193
(43,557)
(367)
-‐
-‐
-‐
(561)
38,101
965
-‐
-‐
965
39,066
3,141
42,207
-‐
-‐
-‐
-‐
42,207
(411)
-‐
-‐
180
417,406
227,324
(4,604)
2,433
30,342
20,363
2,472
69,167
2,000
349,497
67,909
805
(43,357)
(485)
7,195
12,667
22,494
(670)
66,558
693
-‐
-‐
693
67,251
2,685
69,936
(128)
(1,800)
263
(1,665)
68,271
(1,016)
-‐
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
23,869
974
55,784
-‐
293,723
44,690
1,784
(40,935)
(102)
-‐
12,096
-‐
(545)
16,988
(22)
(1,813)
-‐
(1,835)
15,153
5,600
20,753
32,121
(10,314)
7,388
29,195
49,948
(335)
(2,250)
161,982
-‐
835
19,341
23,377
1,179
48,243
-‐
254,957
46,258
1,311
(38,070)
(43)
-‐
-‐
-‐
(3,189)
6,267
(232)
-‐
(1,892)
(2,124)
4,143
3,355
7,498
121,402
-‐
877
15,936
18,449
2,734
40,562
-‐
199,960
32,953
456
(34,266)
(231)
-‐
-‐
-‐
(102)
(1,190)
210
(1,677)
2,757
1,290
100
-‐
100
11,231
991
-‐
(30,248)
3,489
14,720
22,218
158
-‐
2,189
(27,068)
(26,968)
1,734
-‐
(14,356)
(14,356)
(14,611)
(14,000)
(10,499)
Net
Income
(Loss)
applicable
to
Common
Shareholders
$
27,440
$
52,899
$
32,752
$
8,376
$
(35,733)
12
hersha hospitality trust
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
$
0.56
$
1.08
$
0.07
$
(0.12)
$
(0.24)
0.56
1.12
1.07
1.04
0.07
0.96
(0.12)
0.96
(0.24)
0.92
2015
2014
2013
2012
2011
Balance
Sheet
Data
Net
investment
in
hotel
properties
Assets
Held
for
Sale
Noncontrolling
Interests
Common
Units
Redeemable
Noncontrolling
Interest
Noncontrolling
Interests
Consolidated
Joint
Ventures
$
1,831,119
$
1,745,483
$
1,535,835
$
1,466,713
$
1,341,536
-‐
-‐
31,876
29,082
-‐
-‐
-‐
-‐
56,583
29,523
-‐
-‐
-‐
15,484
15,321
-‐
476
93,829
16,862
14,955
307
-‐
Noncontrolling
Interests
Consolidated
Variable
Interest
Entity
(1,760)
(1,075)
(342)
Shareholder's
equity
Total
assets
Total
debt
678,039
829,381
837,958
829,828
730,673
1,969,772
1,855,539
1,748,097
1,707,679
1,630,909
1,177,087
918,923
773,501
792,708
758,374
Liabilities
related
to
Assets
Held
for
Sale
-‐
-‐
45,835
-‐
61,758
Other
Data
Net
cash
provided
by
operating
activities
Net
cash
used
in
investing
activities
Net
cash
provided
by
financing
activities
Weighted
average
shares
outstanding
Basic
Diluted
(1)
$
$
$
121,817
$
112,894
$
90,261
$
71,756
$
58,668
(143,909)
$
(180,504)
$
(125,474)
$
(55,817)
$
(230,758)
28,372
$
53,072
$
2,367
$
28,552
$
131,062
47,786,811
49,777,302
49,597,613
46,853,818
42,188,346
48,369,658
50,307,506
50,479,545
46,853,818
42,188,346
(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
because
the
effect
of
including
these
amounts
in
the
numerator
and
denominator
would
have
no
impact.
13
Annual Report
2015
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,
2015,
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
49
wholly-‐owned
hotels
and
interests
in
five
hotels
owned
through
unconsolidated
joint
ventures.
Our
"Summary
of
Operating
Results"
section
below
contains
operating
results
for
49
consolidated
hotel
assets
and
five
hotel
assets
owned
through
unconsolidated
joint
ventures.
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,
2015,
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
We
believe
the
improvements
in
our
equity
and
debt
capitalization
and
repositioning
of
our
portfolio
better
enables
us
to
capitalize
on
further
improvement
in
lodging
fundamentals.
During
2015,
we
continued
to
see
improvements
in
ADR,
RevPAR
and
operating
margins,
led
by
hotels
in
most
of
our
major
locations.
We
continue
to
seek
acquisition
opportunities
in
urban
centers
and
central
business
districts.
In
addition,
we
will
continue
to
look
for
attractive
opportunities
to
divest
of
properties
at
favorable
prices,
potentially
redeploying
that
capital
in
our
focus
markets
or
opportunistically
repurchasing
our
common
shares.
We
do
not
expect
to
actively
pursue
acquisitions
of
new
hotels
in
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.
Since
2010,
the
lodging
cycle
has
been
characterized
by
limited
new
supply
and
muted
GDP
growth.
Favorable
supply
and
demand
fundamentals
are
expected
for
the
next
2-‐to-‐3
years
and
increasing
domestic
and
leisure
transient
business,
combined
with
the
resurgence
of
group
travelers,
is
expected
to
offset
global
macroeconomic
uncertainty
and
drive
lodging
demand
moving
forward.
Limited
new
supply
and
strong
demand
has
resulted
in
historically
high
occupancies
across
the
United
States
(“U.S.”),
with
RevPAR
growth
forecast
to
be
rate-‐driven
for
the
remainder
of
the
cycle.
We
expect
moderate
improvement
in
consumer
and
commercial
spending
and
lodging
demand
during
2016.
However,
the
manner
in
which
the
economy
will
continue
to
grow,
if
at
all,
is
not
predictable.
In
addition,
the
availability
of
hotel-‐level
financing
for
the
acquisition
of
new
hotels
is
not
within
our
control.
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.
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)
that
are
consolidated
in
our
financial
statements
for
the
three
years
ended
December
31,
2015,
2014
and
2013.
14
hersha hospitality trust
CONSOLIDATED
HOTELS:
Year
Ended
2015
Year
Ended
2014
2015
vs.
2014
%
Variance
Year
Ended
2013
2014
vs.
2013
%
Variance
Occupancy
Average
Daily
Rate
(ADR)
Revenue
Per
Available
Room
(RevPAR)
Room
Revenues
Hotel
Operating
Revenues
84.1%
197.34
$
165.88
$
82.6%
187.82
155.19
1.5%
5.1%
6.9%
424,383
$
470,272
$
380,461
417,226
11.5%
12.7%
$
$
$
$
79.7%
179.70
143.30
309,452
338,064
$
$
$
$
2.9%
4.5%
8.3%
22.9%
23.4%
RevPAR
for
the
year
ended
December
31,
2015
increased
6.9%
for
our
consolidated
hotels
when
compared
to
the
same
period
in
2014.
This
increase
represents
a
continued
growth
trend
in
RevPAR,
which
is
primarily
due
to
the
improving
economic
conditions
in
2015
and
the
acquisition
of
hotel
properties
consummated
in
2015
and
2014
that
are
accretive
to
RevPAR.
The
increase,
as
noted
in
the
table
above,
was
the
result
of
increases
in
both
occupancy
and
ADR.
Performing
particularly
well
in
2015
were
hotels
in
our
Boston,
West
Coast,
and
South
Florida
markets,
each
of
which
posted
RevPAR
growth
in
excess
of
11.0%
versus
the
same
period
in
2014.
The
following
table
outlines
operating
results
for
the
three
years
ended
December
31,
2015,
2014
and
2013
for
hotels
we
own
through
unconsolidated
joint
venture
interests
(excluding
those
hotel
assets
that
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.
UNCONSOLIDATED
JOINT
VENTURES:
Year
Ended
2015
Year
Ended
2014
2015
vs.
2014
%
Variance
Year
Ended
2013
2014
vs.
2013
%
Variance
Occupancy
Average
Daily
Rate
(ADR)
Revenue
Per
Available
Room
(RevPAR)
Room
Revenues
Total
Revenues
68.1%
170.20
$
115.93
$
67.2%
164.10
110.33
57,927
$
80,703
$
59,135
80,860
$
$
$
$
0.9%
3.7%
5.1%
-‐2.0%
-‐0.2%
68.3%
154.57
105.52
58,273
80,879
$
$
$
$
-‐1.1%
6.2%
4.6%
1.5%
0.0%
For
our
unconsolidated
hotels,
RevPAR
for
the
year
ended
December
31,
2015
increased
5.1%
compared
to
RevPAR
achieved
during
the
year
ended
December
31,
2014.
The
2015
results
reflect
the
overall
condition
of
the
market
in
which
our
unconsolidated
joint
venture
hotels
operate,
particularly
Boston,
where
our
2
hotels
posted
RevPAR
growth
of
8.1%.
In
addition,
the
Courtyard
Norwich,
CT
is
included
in
the
results
for
the
year
ended
2014,
but
is
not
included
in
the
results
for
the
year
ended
2015.
The
owner
of
the
property,
Mystic
Partners,
LLC,
transferred
the
title
of
the
property,
of
which
we
held
a
66.7%
interest,
to
the
lender
during
the
fourth
quarter
of
2014.
This
property
had
occupancy
of
56.6%,
ADR
of
$115.52
and
RevPAR
of
$65.42
for
the
year
ended
2014,
which
was
the
lowest
operating
statistics
for
the
Mystic
Partners,
LLC
portfolio.
As
noted
in
“Item
1
–
Business,”
we
entered
into
Contribution
Agreements
to
make
an
equity
investment
in
a
joint
venture,
which
will
own
seven
hotels
currently
included
in
the
Company’s
consolidated
hotels
noted
above.
Upon
contribution
of
the
Cindat
JV
Properties
into
the
joint
venture,
we
believe
the
properties
will
be
accounted
for
as
an
unconsolidated
joint
venture.
The
impact
of
this
transaction
on
future
occupancy,
ADR
and
RevPAR
reported
for
our
consolidated
hotels
and
unconsolidated
joint
ventures
will
depend
upon
the
timing
of
contribution
and
the
future
results
of
the
Cindat
JV
Properties.
15
Annual Report
2015
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,
2015
and
2014,
there
are
41
same
store
consolidated
hotels
and
34
same
store
consolidated
hotels
for
the
years
ended
December
31,
2014
and
2013.
The
following
table
outlines
operating
results
for
the
years
ended
December
31,
2015,
2014,
and
2013,
for
our
same
store
consolidated
hotels:
SAME
STORE
CONSOLIDATED
HOTELS:
(includes
41
hotels
in
both
years)
Year
Ended
2014
2015
vs.
2014
%
Variance
Year
Ended
2015
(includes
34
hotels
in
both
years)
Year
Ended
2013
2014
vs.
2013
%
Variance
Year
Ended
2014
Occupancy
$
Average
Daily
Rate
(ADR)
Revenue
Per
Available
Room
(RevPAR)
$
83.7%
193.62
$
162.06
$
82.1%
185.13
152.03
Room
Revenues
Total
Revenues
$
$
374,679
$
415,395
$
351,248
385,065
1.6%
4.6%
6.6%
6.7%
7.9%
82.9%
179.76
$
148.97
$
$
$
79.7%
176.85
140.95
$
280,421
$
$
305,961
$
265,142
288,635
3.2%
1.6%
5.7%
5.8%
6.0%
Driven
by
strong
performance
in
our
Boston,
West
Coast,
and
Washington
DC
markets,
RevPAR
for
our
same
store
consolidated
hotels
increased
6.6%
during
the
year
ended
December
31,
2015,
when
compared
to
the
same
period
in
2014.
COMPARISON
OF
THE
YEAR
ENDED
DECEMBER
31,
2015
TO
DECEMBER
31,
2014
(dollars
in
thousands,
except
ADR
and
per
share
data)
Revenue
Our
total
revenues
for
the
years
ended
December
31,
2015
and
2014
consisted
entirely
of
hotel
operating
revenues
and
other
revenue.
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
$53,046,
or
12.7%,
from
$417,226
for
the
year
ended
December
31,
2014
to
$470,272
for
the
same
period
in
2015.
This
increase
in
hotel
operating
revenues
was
primarily
attributable
to
the
acquisition
of
hotel
properties
consummated
in
2015
and
2014
as
well
as
the
continued
growth
and
stabilization
of
our
existing
assets.
Since
December
31,
2014,
we
have
acquired
interests
in
three
consolidated
hotels.
These
three
hotels
contributed
the
following
operating
revenues
for
the
twelve
months
ended
December
31,
2015.
Brand
St.
Gregory
Hotel
TownePlace
Suites
Ritz
Carlton
Georgetown
Location
Washington,
DC
Sunnyvale,
CA
Washington,
DC
Acquisition
Date
Rooms
2015
Hotel
Operating
Revenues
June
16,
2015
August
25,
2015
December
29,
2015
155
$
94
86
335
$
5,257
1,744
149
7,150
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,
2015
included
revenues
for
the
following
hotels
that
were
purchased
during
the
year
ended
December
31,
2014.
Hotels
acquired
during
the
year
ended
December
31,
2014
would
have
a
full
year
of
results
included
in
the
year
ended
December
31,
2015
but
not
necessarily
a
full
year
of
results
during
the
same
period
in
2014.
16
hersha hospitality trust
We
acquired
interests
in
the
following
consolidated
hotels
during
the
year
ended
December
31,
2014:
Brand
Location
Santa
Barbara,
CA
Hotel
Milo
Parrot
Key
Resort
Key
West,
FL
Hilton
Garden
Inn
52nd
New
York,
NY
Street
Hampton
Inn
Pearl
Street
New
York,
NY
*Date
the
hotel
began
operations.
Acquisition
Date
February
28,
2014
May
7,
2014
May
30,
2014*
June
23,
2014*
Rooms
122
$
148
205
81
556
$
2015
Hotel
Operating
Revenues
9,141
$
15,089
17,935
5,563
47,728
$
2014
Hotel
Operating
Revenues
8,655
9,145
10,439
2,867
31,106
In
addition,
our
same
store
consolidated
portfolio
experienced
improvements
in
ADR
and
occupancy
during
the
year
ended
December
31,
2015
when
compared
to
the
same
period
in
2014.
Occupancy
in
our
same
store
consolidated
hotels
increased
158
basis
points
from
82.1%
during
the
year
ended
December
31,
2014
to
83.7%
for
the
same
period
in
2015.
ADR
improved
4.6%,
increasing
from
$185.13
for
the
year
ended
December
31,
2014
to
$193.62
during
the
same
period
in
2015.
These
improvements
were
due
to
improvements
in
lodging
trends
in
the
markets
in
which
our
hotels
are
located.
Expenses
Total
hotel
operating
expenses
increased
11.9%
to
approximately
$254,313
for
the
year
ended
December
31,
2015
from
$227,324
for
the
year
ended
December
31,
2014.
Consistent
with
the
increase
in
hotel
operating
revenues,
hotel
operating
expenses
increased
primarily
due
to
the
acquisitions
consummated
since
the
comparable
period
in
2014,
as
mentioned
above.
The
acquisitions
also
resulted
in
an
increase
in
depreciation
and
amortization
of
7.6%,
or
$5,223,
to
$74,390
for
the
year
ended
December
31,
2015
from
$69,167
for
the
year
ended
December
31,
2014.
Real
estate
and
personal
property
tax
and
property
insurance
increased
$4,176,
or
13.8%,
for
the
year
ended
December
31,
2015
when
compared
to
the
same
period
in
2014.
This
increase
is
due
to
our
acquisitions
along
with
a
general
overall
increase
in
tax
assessments
and
tax
rates
as
the
economy
improves,
but
was
partially
offset
by
reductions
resulting
from
our
rigorous
management
of
this
expense.
General
and
administrative
expense
increased
by
approximately
$152
to
$20,515
for
the
year
ended
December
31,
2015
from
$20,363
for
the
year
ended
December
31,
2014.
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
$495
when
comparing
the
year
ended
December
31,
2015
to
the
same
period
in
2014.
The
increase
in
share
based
compensation
expense
is
due
primarily
to
the
issuance
of
the
shares
attributable
to
the
2014
ALTIP
Plan
during
the
first
quarter
of
2015.
Please
refer
to
“Note
8
–
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
$1,353
from
$2,472
for
the
year
ended
December
31,
2014
to
$1,119
for
the
year
ended
December
31,
2015.
While
we
acquired
more
properties
in
2014,
the
manners
in
which
acquisition
targets
are
found
can
and
do
dictate
the
costs
necessary
to
complete
the
acquisition.
The
costs
incurred
in
2015
were
related
to
the
following
hotels:
$76
related
to
our
St.
Gregory
acquisition,
$84
related
to
our
TownePlace
Suites
acquisition,
and
$548
related
to
our
Ritz
Carlton
Georgetown
acquisition.
The
costs
incurred
in
2014
were
related
to
the
following
hotels:
$1,836
related
to
our
Hilton
Garden
Inn
52nd
Street
acquisition;
$173
related
to
our
Hotel
Milo
acquisition;
and
$169
related
to
our
Parrot
Key
Resort
acquisition.
Also
included
in
these
costs
are
charges
related
to
transactions
that
were
terminated
during
the
year.
17
Annual Report
2015
Operating
Income
Operating
income
for
the
year
ended
December
31,
2015
was
$82,393
compared
to
operating
income
of
$67,909
during
the
same
period
in
2014.
Operating
income
was
positively
impacted
by
the
improved
operating
results
of
our
hotels
discussed
above.
Offsetting
this
increase
was
insurance
recoveries
of
approximately
$4,604
recognized
during
the
year
ended
December
31,
2014
related
to
the
settlement
of
insurance
claims
from
Hurricane
Sandy.
A
similar
event
did
not
occur
during
the
year
ended
December
31,
2015.
Interest
Expense
Interest
expense
increased
$200
from
$43,357
for
the
year
ended
December
31,
2014
to
$43,557
for
the
year
ended
December
31,
2015.
Our
borrowings
have
increased
in
total
since
December
31,
2014,
largely
in
part
because
of
increased
borrowings
drawn
on
our
unsecured
credit
facility
and
unsecured
term
loan.
However,
these
borrowings
were
used
to
repay
several
secured
mortgage
indebtedness
during
the
year
ended
December
31,
2015.
The
borrowings
on
our
unsecured
credit
facility
and
unsecured
term
loan
bear
interest
at
a
lower
interest
rate
than
the
mortgage
loans
in
which
the
proceeds
were
used
to
repay,
thereby
compressing
the
increase
in
interest
expense
for
the
year
ended
December
31,
2015
as
compared
to
the
same
period
in
2014.
During
2014,
we
entered
into
a
new
credit
facility
which
allowed
for
an
additional
$100,000
unsecured
term
loan,
which
we
drew
during
the
second
quarter
of
2014.
On
August
10,
2015,
we
entered
into
a
$300,000
senior
unsecured
term
loan
with
Citigroup
Global
Markets
Inc.
and
various
other
lenders,
which
was
fully
drawn
down
by
December
31,
2015.
Gain
on
Disposition
of
Hotel
Properties
During
the
year
ended
December
31,
2014,
the
Company
recorded
a
gain
of
$7,195
related
to
its
sale
of
Hotel
373
in
Manhattan.
Gain
on
Hotel
Acquisitions,
net
During
the
year
ended
December
31,
2014,
the
Company
recorded
a
gain
of
$12,667
related
primarily
to
its
purchase
of
the
Hilton
Garden
Inn
on
52nd
Street
in
Manhattan
as
the
purchase
price
of
the
asset
was
less
than
the
appraised
fair
value
as
of
the
closing
date.
A
similar
event
did
not
occur
during
the
year
ended
December
31,
2015.
Development
Loan
Recovery
Consideration
given
in
exchange
for
the
Hilton
Garden
Inn
52nd
Street
included
cash
to
the
seller
and
our
reinstatement
and
cancellation
of
a
development
loan
receivable
in
the
original
principal
amount
of
$10,000
and
$12,494
of
accrued
interest
and
late
fees.
This
development
loan
receivable
had
previously
been
fully
impaired
in
2009,
but
was
recovered
as
part
of
this
acquisition.
As
a
result,
we
recognized
a
gain
of
$22,494
on
the
recovery
of
the
previously
impaired
development
loan
during
the
year
ended
December
31,
2014.
A
similar
event
did
not
occur
during
the
year
ended
December
31,
2015.
Unconsolidated
Joint
Venture
Investments
The
income
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
$272
for
the
year
ended
December
31,
2015.
This
is
primarily
because
of
the
improved
performance
in
our
Boston
market,
where
two
of
our
five
properties
owned
in
joint
ventures
are
located.
Income
Tax
Benefit
During
the
year
ended
December
31,
2015,
the
Company
recorded
an
income
tax
benefit
of
$3,141
compared
to
an
income
tax
benefit
of
$2,685
in
2014.
18
hersha hospitality trust
Net
Income
Applicable
to
Common
Shareholders
Net
income
applicable
to
common
shareholders
for
the
year
ended
December
31,
2015
was
$27,440
compared
to
net
income
applicable
to
common
shareholders
of
$52,899
for
the
same
period
in
2014.
Net
income
applicable
to
common
shareholders
for
the
year
ended
December
31,
2014
was
positively
impacted
by
the
improved
operating
results
of
our
hotels
and
one-‐time
gains
discussed
above
which
occurred
for
the
year
ended
December
31,
2014
only.
Comprehensive
Income
Attributable
to
Common
Shareholders
Comprehensive
income
applicable
to
common
shareholders
for
the
year
ended
December
31,
2015
was
$27,332
compared
to
$52,917
for
the
same
period
in
2014.
This
amount
was
primarily
attributable
to
net
income
as
more
fully
described
above.
Further
change
in
other
comprehensive
income
was
primarily
the
result
of
the
decrease
in
fair
value
of
our
interest
rate
swaps
and
caps
used
as
cash
flow
hedges.
The
decrease
in
fair
value
of
these
instruments
is
attributed
to
changes
in
the
forecasted
LIBOR
rates
from
period
to
period,
as
interest
rates
continue
to
be
forecasted
at
historic
lows.
For
the
year
ended
December
31,
2015,
we
recorded
other
comprehensive
loss
of
$108
when
compared
to
$18
of
other
comprehensive
income
for
the
year
ended
December
31,
2014.
The
decrease
in
other
comprehensive
income
was
primarily
due
to
the
decrease
in
fair
value
of
our
interest
rate
swaps
and
caps
used
as
cash
flow
hedges.
The
decrease
in
fair
value
of
these
instruments
is
attributed
to
changes
in
the
forecasted
LIBOR
rates
from
period
to
period,
as
interest
rates
continue
to
be
forecasted
at
historic
lows.
COMPARISON
OF
THE
YEAR
ENDED
DECEMBER
31,
2014
TO
DECEMBER
31,
2013
(dollars
in
thousands,
except
per
share
data)
Revenue
Our
total
revenues
for
the
years
ended
December
31,
2014
and
2013
consisted
of
hotel
operating
revenues
and
other
revenue.
Hotel
operating
revenues
were
approximately
99.9%
of
total
revenues
for
the
years
ended
December
31,
2014
and
2013,
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
$79,162,
or
23.4%,
from
$338,064
for
the
year
ended
December
31,
2013
to
$417,226
for
the
same
period
in
2014.
This
increase
in
hotel
operating
revenues
was
primarily
attributable
to
the
acquisitions
consummated
in
2014
and
2013
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,
2014:
Brand
Hotel
Milo
Parrot
Key
Resort
Hilton
Garden
Inn
52nd
Street
Hampton
Inn
Pearl
Street
Location
Santa
Barbara,
CA
Key
West,
FL
New
York,
NY
New
York,
NY
*
Date
the
hotel
began
operations.
Acquisition
Date
Rooms
2014
Hotel
Operating
Revenues
February
28,
2014
May
7,
2014
May
30,
2014*
June
23,
2014*
122
$
148
205
81
556
$
8,655
9,145
10,439
2,867
31,106
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,
2014
included
revenues
for
the
following
hotels
that
were
purchased
during
the
year
ended
December
31,
2013.
Hotels
acquired
during
the
year
ended
December
31,
2013
would
have
a
full
year
of
results
included
in
the
year
ended
December
31,
2014
but
not
necessarily
a
full
year
of
results
during
the
same
period
in
2013.
19
Annual Report
2015
We
acquired
interests
in
the
following
consolidated
hotels
during
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
Rooms
178
$
245
140
70
75
708
$
2014
Hotel
Operating
Revenues
19,066
$
16,205
4,424
4,185
4,446
48,326
$
2013
Hotel
Operating
Revenues
11,272
8,350
2,889
203
175
22,889
In
addition,
our
same
store
consolidated
portfolio
experienced
improvements
in
ADR
and
occupancy
during
the
year
ended
December
31,
2014
when
compared
to
the
same
period
in
2013.
Occupancy
in
our
same
store
consolidated
hotels
increased
320
basis
points
from
79.7%
during
the
year
ended
December
31,
2013
to
82.9%
for
the
same
period
in
2014.
ADR
improved
1.6%,
increasing
from
$176.85
for
the
year
ended
December
31,
2013
to
$179.76
during
the
same
period
in
2014.
These
improvements
were
due
to
improvements
in
lodging
trends
in
the
markets
in
which
our
hotels
are
located.
Expenses
Total
hotel
operating
expenses
increased
20.6%
to
approximately
$227,324
for
the
year
ended
December
31,
2014
from
$188,431
for
the
year
ended
December
31,
2013.
Consistent
with
the
increase
in
hotel
operating
revenues,
hotel
operating
expenses
increased
primarily
due
to
the
acquisitions
consummated
since
the
comparable
period
in
2013,
as
mentioned
above.
The
acquisitions
also
resulted
in
an
increase
in
depreciation
and
amortization
of
24.0%,
or
$13,383,
to
$69,167
for
the
year
ended
December
31,
2014
from
$55,784
for
the
year
ended
December
31,
2013.
Real
estate
and
personal
property
tax
and
property
insurance
increased
$6,259,
or
26.0%,
for
the
year
ended
December
31,
2014
when
compared
to
the
same
period
in
2013
due
to
our
acquisitions
along
with
a
general
overall
increase
in
tax
assessments
and
tax
rates
as
the
economy
improves,
but
was
partially
offset
by
reductions
resulting
from
our
rigorous
management
of
this
expense.
General
and
administrative
expense
decreased
by
approximately
$3,506
from
$23,869
in
2013
to
$20,363
in
2014.
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
decreased
$3,718
when
comparing
the
year
ended
December
31,
2014
to
the
same
period
in
2013.
This
decrease
in
share
based
compensation
expense
is
due
primarily
to
the
vesting
of
the
2010
Multi-‐Year
LTIP
Plan
as
of
December
31,
2016
as
well
as
a
lesser
amount
of
restricted
shares
issued
since
December
31,
2013.
Please
refer
to
“Note
8
–
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
increased
$1,498
from
$974
for
the
year
ended
December
31,
2013
to
$2,472
for
the
year
ended
December
31,
2014.
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
2014
were
related
to
the
following
hotels:
$1,836
related
to
our
Hilton
Garden
Inn
52nd
Street
acquisition;
$173
related
to
our
Hotel
Milo
acquisition;
and
$169
related
to
our
Parrot
Key
Resort
acquisition.
The
costs
incurred
in
2013
were
related
to
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
remaining
costs
were
primarily
related
to
transactions
that
were
terminated
during
the
year.
20
hersha hospitality trust
Operating
Income
Operating
income
for
the
year
ended
December
31,
2014
was
$67,909
compared
to
operating
income
of
$44,690
during
the
same
period
in
2013.
Operating
income
was
positively
impacted
by
the
improved
operating
results
of
our
hotels
discussed
above
as
well
as
insurance
recoveries
of
$4,604,
much
of
which
represents
settlement
of
business
interruption
insurance
claims
that
arose
from
the
Hurricane
Sandy
natural
disaster
in
2012.
Interest
Expense
Interest
expense
increased
$2,422
from
$40,935
for
the
year
ended
December
31,
2013
to
$43,357
for
the
year
ended
December
31,
2014.
The
increase
in
interest
expense
is
due
primarily
to
increased
borrowings
drawn
on
our
unsecured
credit
facilities.
During
2014,
we
entered
into
a
new
credit
facility
which
allowed
for
an
additional
$100,000
in
unsecured
term
loan,
which
we
drew
during
the
second
quarter
of
2014.
Gain
on
Disposition
of
Hotel
Properties
During
the
year
ended
December
31,
2014,
the
Company
recorded
a
gain
of
$7,195
related
to
its
sale
of
Hotel
373
in
Manhattan.
Gain
on
Hotel
Acquisitions,
net
During
the
year
ended
December
31,
2014,
the
Company
recorded
a
net
gain
of
$12,667
related
primarily
to
its
purchase
of
the
Hilton
Garden
Inn
on
52nd
Street
in
Manhattan
as
the
purchase
price
of
the
asset
was
less
than
the
appraised
fair
value
as
of
the
closing
date.
During
the
year
ended
December
31,
2013,
the
Company
had
recorded
a
similar
net
gain
of
$12,096
related
to
its
purchase
of
Hyatt
Union
Square.
Development
Loan
Recovery
Consideration
given
in
exchange
for
the
Hilton
Garden
Inn
52nd
Street
included
cash
to
the
seller
and
our
reinstatement
and
cancellation
of
a
development
loan
receivable
in
the
original
principal
amount
of
$10,000
and
$12,494
of
accrued
interest
and
late
fees.
This
development
loan
receivable
had
previously
been
fully
impaired
in
2009,
but
was
recovered
as
part
of
this
acquisition.
As
a
result,
we
recognized
a
gain
of
$22,494
on
the
recovery
of
the
previously
impaired
development
laon.
Unconsolidated
Joint
Venture
Investments
The
income
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
$715
for
the
year
ended
December
31,
2014.
This
is
primarily
because
of
the
improved
performance
in
our
Boston
market,
where
two
of
our
five
properties
owned
in
joint
ventures
are
located.
We
recorded
an
impairment
loss
of
$1,813
related
to
the
Courtyard,
Norwich,
CT,
one
of
the
properties
owned
by
Mystic
Partners,
LLC
during
the
year
ended
December
31,
2013.
At
that
time,
we
did
not
anticipate
recovering
our
investment
balance
in
this
asset,
and
as
such
we
reduced
our
investment
attributed
to
this
property
to
$0
as
of
December
31,
2013.
During
the
third
quarter
of
2014,
the
title
on
this
property
was
transferred
to
the
lender.
Income
Tax
Benefit
During
the
year
ended
December
31,
2014,
the
Company
recorded
an
income
tax
benefit
of
$2,685
compared
an
income
tax
benefit
of
$5,600
in
2013.
Prior
year
income
tax
benefit
included
the
reversal
of
allowances
against
state
deferred
tax
assets
resulting
from
cumulative
net
operating
losses
that
were
deemed
to
be
realizable
based
on
projections
of
future
performance
of
the
hotels
generating
these
net
operating
losses.
21
Annual Report
2015
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,
with
the
remaining
four
hotels
closing
during
the
first
quarter
of
2014.
Accordingly,
a
gain
of
$31,559
was
recognized
during
the
fourth
quarter
of
2013
as
the
proceeds
from
the
sale
exceeded
the
carrying
value.
For
the
year
ended
December
31,
2014,
the
Company
recorded
a
loss
of
$128
in
connection
with
the
closing
of
the
remaining
four
properties.
In
addition,
we
recorded
an
impairment
loss
of
$1,800
in
the
first
quarter
of
2014,
as
the
proceeds
did
not
exceed
the
carrying
value
for
certain
of
these
properties.
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.
The
operating
results
for
all
18
of
the
above
described
hotel
properties
and
one
land
parcel
have
been
reclassified
to
discontinued
operations
in
the
statement
of
operations
for
the
years
ended
December
31,
2014
and
2013,
respectively.
We
recorded
income
from
discontinued
operations
of
approximately
$263
during
the
twelve
months
ended
December
31,
2014,
compared
to
income
of
approximately
$7,388
during
the
twelve
months
ended
December
31,
2013.
See
“Note
11
–
Hotel
Dispositions”
for
more
information.
Effective
January
1,
2014,
we
early
adopted
ASU
Update
No.
2014-‐08
concerning
the
classification
and
reporting
of
discontinued
operations.
This
amendment
defines
discontinued
operations
as
a
component
of
an
entity
that
represents
a
strategic
shift
that
has
(or
will
have)
a
major
effect
on
an
entity’s
operations
and
financial
results.
As
a
result
of
the
early
adoption
of
ASU
Update
No.
2014-‐08,
we
anticipate
that
most
of
our
hotel
dispositions
will
not
be
classified
as
discontinued
operations
as
most
will
not
fit
this
definition.
Net
Income
Applicable
to
Common
Shareholders
Net
income
applicable
to
common
shareholders
for
the
year
ended
December
31,
2014
was
$52,899
compared
to
net
income
applicable
to
common
shareholders
of
$32,752
for
the
same
period
in
2013.
Net
income
applicable
to
common
shareholders
for
the
year
ended
December
31,
2014
was
positively
impacted
by
the
improved
operating
results
of
our
hotels
and
one-‐time
gains
discussed
above.
Net
income
applicable
to
common
shareholders
for
the
year
ended
December
31,
2013
was
negatively
impacted
by
the
extinguishment
of
$2,250
of
issuance
costs
associated
with
the
redemption
of
all
of
our
outstanding
Series
A
Preferred
Shares.
Comprehensive
Income
Applicable
to
Common
Shareholders
Comprehensive
income
applicable
to
common
shareholders
for
the
year
ended
December
31,
2014
was
$52,917
compared
to
$34,162
for
the
same
period
in
2013.
This
amount
was
primarily
attributable
to
net
income
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,
2014,
we
recorded
other
comprehensive
income
of
$18
when
compared
to
$1,410
of
other
comprehensive
income
for
the
year
ended
December
31,
2013.
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
22
hersha hospitality trust
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,
2015.
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.
We
maintain
a
senior
unsecured
credit
agreement
with
Citigroup
Global
Markets
Inc.
and
various
other
lenders.
The
credit
agreement
provides
for
a
$500,000
senior
unsecured
credit
facility
consisting
of
a
$250,000
senior
unsecured
revolving
line
of
credit
and
a
$250,000
senior
unsecured
term
loan.
This
new
facility
amended
and
restated
the
existing
$400,000
senior
secured
credit
facility.
The
$500,000
unsecured
credit
facility
expires
on
February
28,
2018
and,
provided
no
event
of
default
has
occurred,
we
may
request
that
the
lenders
renew
the
credit
facility
for
an
additional
one-‐year
period.
The
credit
facility
is
also
expandable
to
$850,000
at
our
request,
subject
to
the
satisfaction
of
certain
conditions.
On
August
10,
2015,
we
entered
into
a
$300,000
senior
unsecured
term
loan
agreement
with
Citigroup
Global
Markets
Inc.
and
various
other
lenders.
As
of
December
31,
2015,
we
had
fully
drawn
this
term
loan.
This
new
term
loan
expands
our
senior
unsecured
borrowing
capacity
from
$500,000
to
$800,000.
As
of
December
31,
2015,
the
outstanding
unsecured
term
loan
balance
under
the
$500,000
senior
unsecured
credit
facility
and
unsecured
term
loan
agreement
was
$550,000
and
we
had
$27,000
outstanding
borrowings
under
the
$250,000
revolving
line
of
credit.
As
of
December
31,
2015,
our
remaining
borrowing
capacity
under
the
$500,000
unsecured
credit
facility’s
revolving
line
of
credit
was
$218,745,
which
is
based
on
certain
operating
metrics
of
unencumbered
hotel
properties
designated
as
borrowing
base
assets.
We
intend
to
repay
indebtedness
incurred
under
the
$500,000
unsecured
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.
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,
2015,
we
have
$158,167
of
indebtedness
maturing
on
or
before
December
31,
2016.
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
$500,000
credit
facility
and
the
issuance
of
our
securities.
On
February
25,
2013,
we
completed
a
public
offering
of
3,000,000
6.875%
Series
C
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
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.
In
addition
to
the
incurrence
of
debt
and
the
offering
of
equity
securities,
disposition
of
property
or
investment
from
a
joint
venture
partner
serve
as
additional
capital
resources
and
sources
of
liquidity.
We
may
recycle
capital
from
stabilized
assets,
as
evidenced
by
our
recently
announced
transaction
involving
the
Cindat
JV
Properties
or
from
sales
of
non-‐core
hotels
in
secondary
and
tertiary
markets.
Capital
from
these
types
of
transactions
is
intended
to
be
redeployed
into
high
growth
acquisitions,
share
buybacks,
or
to
pay
down
existing
debt.
Common
Share
Repurchase
Plan
In
February
2015,
our
Board
of
Trustees
authorized
us
to
repurchase
from
time
to
time
up
to
an
aggregate
of
$100,000
of
our
outstanding
shares.
In
October
2015,
our
Board
of
Trustees
authorized
a
new
$100,000
share
repurchase
program
which
would
23
Annual Report
2015
commence
up
on
the
completion
of
the
existing
program.
The
new
program
will
expire
on
December
31,
2016
unless
extended
by
the
Board
of
Trustees.
We
may
seek
Board
of
Trustee
approval
to
increase
the
2016
authorization.
For
the
year
ended
December
31,
2015,
the
Company
repurchased
5,310,371
common
shares
for
an
aggregate
purchase
price
of
$128,239
under
the
February
2015
and
October
2015
repurchase
programs.
Upon
repurchase
by
the
Company,
these
common
shares
ceased
to
be
outstanding
and
became
authorized
but
unissued
common
shares.
Acquisitions
During
the
year
ended
December
31,
2015,
we
acquired
the
following
wholly-‐owned
hotel
properties:
Hotel
Acquisition
Date
Land
Buildings
and
Improvements
Furniture
Fixtures
and
Equipment
Other
Intangibles
Loan
Costs
Total
Purchase
Price
Assumption
of
Debt
St.
Gregory
Hotel,
Washington,
DC
6/16/2015
$
23,764
$
33,005
$
3,240
$
45
$
978
$
61,032
$
28,902
*
TownePlace
Suites,
Sunnyvale,
CA
8/25/2015
-‐
18,999
2,348
6,453
**
-‐
27,800
Ritz-‐Carlton
Georgetown,
DC
12/29/2015
17,570
29,160
3,270
-‐
-‐
50,000
-
-
TOTAL
*
**
$
41,334
$
81,164
$
8,858
$
6,498
$
978
$
138,832
$
28,902
Includes
a
$3,050
premium
as
we
determined
that
the
stated
rate
of
interest
on
the
assumed
mortgage
debt
was
above
market.
Acquired
ground
lease
asset
of
$6,353
and
intangible
asset
related
to
the
franchise
agreement
of
$100
with
purchase
of
the
property.
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.
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
$500,000
unsecured
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
$500,000
unsecured
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.
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
2015,
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.
Net
cash
provided
by
operating
activities
for
the
year
ended
December
31,
2015
was
$121,817
and
cash
used
for
the
payment
of
distributions
and
dividends
for
the
year
ended
December
31,
2015
was
$70,971.
24
hersha hospitality trust
We
also
project
that
our
operating
cash
flow
and
available
borrowings
under
the
$250,000
revolving
line
of
credit
portion
of
our
$800,000
unsecured
credit
facility
will
be
sufficient
to
satisfy
our
liquidity
and
other
capital
needs
over
the
next
twelve
to
eighteen
months.
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
$800,000
unsecured
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,
2015
decreased
when
compared
to
spending
on
capital
improvements
during
the
year
ended
December
31,
2014.
During
the
year
ended
December
31,
2015,
we
spent
$27,366
on
capital
expenditures
to
renovate,
improve
or
replace
assets
at
our
hotels.
This
compares
to
$38,342
during
the
same
period
in
2014.
These
capital
expenditures
were
undertaken
to
comply
with
brand
mandated
improvements
and
to
initiate
projects
that
we
believe
will
generate
a
return
on
investment
to
take
advantage
of
the
continuing
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
opportunistically
engaged
in
hotel
development
projects.
During
the
twelve
months
ended
December
31,
2015,
we
spent
$2,814
less
on
hotel
development
projects
than
during
the
same
period
of
2014
as
both
the
new
tower
construction
at
Courtyard
Miami
Beach
and
re-‐development
project
at
Hampton
Inn
Pearl
Street
hotels
neared
completion.
Projects
such
as
these
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.
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
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
set
aside
referenced
above.
CASH
FLOW
ANALYSIS
(dollars
in
thousands,
except
per
share
data)
Comparison
of
the
Years
Ended
December
31,
2015
and
December
31,
2014
Net
cash
provided
by
operating
activities
increased
$8,923
from
$112,894
for
the
year
ended
December
31,
2014
to
$121,817
for
the
comparable
period
in
2015.
Net
income,
adjusted
for
non-‐cash
items
reflected
in
the
statement
of
cash
flows
for
the
years
ended
December
31,
2015
and
2014,
increased
$16,769
for
the
year
ended
December
31,
2015
when
compared
to
2014.
This
is
primarily
due
to
cash
provided
by
properties
acquired
over
the
past
twelve
months
and
improving
operating
results
within
our
existing
portfolio.
Further,
a
net
decrease
in
working
capital
assets
provided
additional
cash
from
operating
activities.
Net
cash
used
in
investing
activities
for
the
year
ended
December
31,
2015
decreased
$36,595
from
$180,504
for
the
year
ended
December
31,
2014
compared
to
$143,909
for
2015.
While
spending
on
the
purchase
of
hotel
properties
and
deposits
on
hotel
acquisitions
was
$60,060
higher
during
the
year
ended
December
31,
2014,
compared
to
same
period
in
2015,
proceeds
from
the
disposition
of
hotel
properties
was
$30,056
less
during
the
year
ended
December
31,
2015
when
compared
to
the
year
ended
December
31,
2014.
Offsetting
this
was
spending
on
hotel
development
projects
which
were
$2,814
less
during
the
year
ended
December
31,
2015
when
compared
to
the
year
ended
December
31,
2014.
During
the
year
ended
December
31,
2014
we
received
$30,056
in
proceeds
from
the
disposition
of
Hotel
373
in
the
second
quarter
and
the
remaining
4
non-‐core
properties
during
the
first
quarter.
25
Annual Report
2015
Net
cash
provided
by
financing
activities
for
the
year
ended
December
31,
2015
was
$28,372
compared
to
net
cash
provided
by
financing
activities
for
the
year
ended
December
31,
2014
of
$53,072.
Net
proceeds
received
during
the
year
ended
December
31,
2015
under
our
unsecured
credit
facility
were
$227,000
higher
than
during
the
same
period
in
2014.
Net
proceeds
from
mortgages
and
notes
payable
were
$136,258
lower
during
the
year
ended
December
31,
2015,
when
compared
to
the
same
period
in
2014.
During
the
year
ended
December
31,
2015,
we
used
$128,239
for
the
repurchase
of
common
shares.
Dividends
and
distributions
payable
increased
$4,605
during
the
year
ended
December
31,
2015,
compared
to
2014,
due
to
the
increase
in
our
dividend
paid
on
common
shares
from
$1.04
to
$1.12
per
share.
This
was
partially
offset
by
the
reduction
of
dividends
paid
on
common
shares
due
to
our
common
share
repurchases.
Comparison
of
the
Years
Ended
December
31,
2014
and
December
31,
2013
Net
cash
provided
by
operating
activities
increased
$22,633,
from
$90,261
for
the
year
ended
December
31,
2013
to
$112,894
for
the
same
period
2014.
Net
income,
adjusted
for
non-‐cash
items
reflected
in
the
statement
of
cash
flows
for
the
years
ended
December
31,
2014
and
2013,
increased
$17,698
for
the
year
ended
December
31,
2014
when
compared
to
2013.
This
is
primarily
due
to
cash
provided
by
properties
acquired
over
the
past
twelve
months
and
improving
operating
results
within
our
existing
portfolio.
The
offsetting
decrease
in
cash
provided
by
operating
activities
was
attributable
to
an
increase
in
working
capital
assets.
Net
cash
used
in
investing
activities
increased
$55,030,
from
$125,474
for
year
ended
December
31,
2013
to
$180,504
for
2014.
Spending
on
the
purchase
of
hotel
properties
and
deposits
on
hotel
acquisitions
was
$43,742
less
during
2014
compared
to
2013,
proceeds
from
the
disposition
of
hotel
properties
was
$105,959
less
during
the
year
ended
December
31,
2014
when
compared
to
the
year
ended
December
31,
2013.
Offsetting
this
was
spending
on
hotel
development
projects
which
was
$16,290
less
during
the
year
ended
December
31,
2014
when
compared
to
the
year
ended
December
31,
2013
and
a
repayment
of
note
receivable
of
$15,122
which
occurred
during
the
year
ended
December
31,
2013.
During
the
year
ended
December
31,
2014
we
received
$30,056
in
proceeds
from
the
disposition
of
Hotel
373
in
the
second
quarter
and
the
remaining
four
non-‐core
properties
during
the
first
quarter.
Net
cash
provided
by
financing
activities
for
year
ended
December
31,
2014
was
$53,072
compared
to
$2,367
during
the
same
period
in
2013.
Net
proceeds
received
during
the
year
ended
December
31,
2014
under
our
unsecured
credit
facility
were
$50,000
higher
than
during
the
same
period
in
2013.
Net
proceeds
from
mortgages
and
notes
payable
were
$29,050
higher
during
the
year
ended
December
31,
2014,
when
compared
to
the
same
period
in
2013.
During
the
first
quarter
of
2013,
we
completed
an
offering
of
Series
C
Preferred
Shares
with
net
proceeds
of
$72,370,
after
deducting
underwriting
discounts
and
offering
expenses,
which
was
primarily
used
to
redeem
all
of
the
issued
and
outstanding
Series
A
Preferred
Shares
with
a
redemption
value
of
$60,000.
During
the
year
ended
December
31,
2014,
we
used
$15,418
for
the
repurchase
of
common
shares.
Dividends
and
distributions
payable
decreased
$391
during
the
year
ended
December
31,
2014,
compared
to
2013,
due
to
a
decrease
in
the
number
of
outstanding
common
shares.
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
26
hersha hospitality trust
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
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.
27
Annual Report
2015
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,
2015
December
31,
2014
December
31,
2013
Year
Ended
Net
income
applicable
to
common
shareholders
Income
allocated
to
noncontrolling
interests
(Income)
loss
from
unconsolidated
joint
ventures
Gain
on
hotel
acquisition
Development
Loan
Recovery
Gain
on
disposition
of
hotel
properties
Loss
from
impairment
of
depreciable
assets
Depreciation
and
amortization
Depreciation
and
amortization
from
discontinued
operations
Funds
from
consolidated
hotel
operations
applicable
to
common
shareholders
and
Partnership
units
Income
(loss)
from
Unconsolidated
Joint
Ventures
Impairment
of
investment
in
unconsolidated
joint
ventures
Depreciation
and
amortization
of
purchase
price
in
excess
of
historical
cost
(1)
Interest
in
depreciation
and
amortization
of
unconsolidated
joint
ventures
(2)
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
Basic
Diluted
(1)
(2)
$
27,440
$
411
(965)
-‐
-‐
-‐
-‐
74,390
-‐
101,276
965
-‐
481
5,027
6,473
52,899
$
1,016
(693)
(12,667)
(22,494)
(7,067)
1,800
69,167
-‐
81,961
693
-‐
570
5,915
7,178
32,752
335
1,835
(12,096)
-‐
(32,121)
10,314
55,784
7,050
63,853
(1,835)
1,813
596
6,502
7,076
$
107,749
$
89,139
$
70,929
47,786,811
50,276,867
49,777,302
52,035,256
49,597,613
52,221,554
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.
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.
28
hersha hospitality trust
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.
New
Accounting
Pronouncements
On
May
28,
2014,
the
FASB
issued
ASU
No.
2014-‐09,
Revenue
from
Contracts
with
Customers,
which
requires
an
entity
to
recognize
the
amount
of
revenue
to
which
it
expects
to
be
entitled
for
the
transfer
of
promised
goods
or
services
to
customers.
The
ASU
will
replace
most
existing
revenue
recognition
guidance
in
U.S.
GAAP
when
it
becomes
effective.
The
new
standard
is
effective
for
the
Company
on
January
1,
2018.
Early
adoption
is
permitted,
but
not
prior
to
the
original
effective
date
of
January
1,
2017.
The
standard
permits
the
use
of
either
the
retrospective
or
cumulative
effect
transition
method.
The
Company
is
evaluating
the
effect
that
ASU
No.
2014-‐09
will
have
on
its
consolidated
financial
statements
and
related
disclosures.
The
Company
has
not
yet
selected
a
transition
method
nor
has
it
determined
the
effect
of
the
standard
on
its
ongoing
financial
reporting.
On
February
18,
2015,
the
FASB
issued
ASU
No.
2015-‐02,
Consolidation
–
Amendments
to
the
Consolidation
Analysis,
which
amends
the
current
consolidation
guidance
affecting
both
the
variable
interest
entity
(VIE)
and
voting
interest
entity
(VOE)
consolidation
models.
The
standard
does
not
add
or
remove
any
of
the
characteristics
in
determining
if
an
entity
is
a
VIE
or
VOE,
but
rather
enhances
the
way
the
Company
assesses
some
of
these
characteristics.
The
new
standard
is
effective
for
the
Company
on
January
1,
2016.
The
Company
does
not
expect
ASU
No.
2015-‐02
to
have
a
significant
impact
on
its
consolidated
financial
statements
and
related
disclosures.
On
April
17,
2015,
the
FASB
issued
ASU
No.
2015-‐03,
Simplifying
the
Presentation
of
Debt
Issuance
Costs,
which
requires
debt
issuance
costs
to
be
presented
in
the
balance
sheet
as
a
direct
deduction
from
the
associated
debt
liability.
ASU
2015-‐03
does
not
address
debt
issuance
costs
related
to
line-‐of-‐credit
arrangements.
The
SEC
staff
announced
at
the
June
18,
2015
Emerging
Issues
Task
Force
Meeting
that
it
would
not
object
to
an
entity
deferring
and
presenting
debt
issuance
costs
as
an
asset
and
subsequently
amortizing
deferred
debt
issuance
costs
ratably
over
the
term
of
a
line-‐of-‐credit
arrangement,
regardless
of
whether
there
are
outstanding
borrowings
under
that
line-‐of-‐credit
arrangement.
In
August
2015,
the
FASB
issued
ASU
2015-‐15,
Presentation
and
Subsequent
Measurement
of
Debt
Issuance
Costs
Associated
with
Line-‐of-‐Credit
Arrangements,
which
incorporates
the
SEC
staff
guidance
into
the
FASB
Accounting
Standards
Codification.
Currently,
debt
issuance
costs
are
recorded
as
an
asset
and
amortization
of
these
deferred
financing
costs
is
recorded
in
interest
expense.
Under
the
new
standard,
debt
issuance
costs
will
continue
to
be
amortized
over
the
life
of
the
debt
instrument
and
amortization
will
continue
to
be
recorded
in
interest
expense.
The
new
standard
is
effective
for
the
Company
on
January
1,
2016
and
will
be
applied
on
a
retrospective
basis.
The
Company
anticipates
a
change
in
our
balance
sheet
presentation
only
because
the
standard
does
not
alter
the
accounting
for
amortization
of
debt
issuance
costs.
29
Annual Report
2015
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.
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,
2015,
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
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
30
hersha hospitality trust
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.
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
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
6,
“Commitments
and
Contingencies
and
Related
Party
Transactions,”
to
the
consolidated
financial
statements.
31
Annual Report
2015
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,
2015.
Contractual
Obligations
Total
2016
2017
2018
2019
2020
Thereafter
Long
Term
Debt
$
596,584
$
158,167
$
203,737
$
101,871
$
2,872
$
2,912
$
127,025
Interest
Expense
on
Long
Term
Debt
Unsecured
Term
Loan
Unsecured
Line
of
Credit
Interest
Expense
on
Credit
Facility
Hotel
Ground
Rent
Total
87,982
550,000
27,000
73,159
262,944
25,812
9,954
7,243
5,309
5,194
34,470
-‐
-‐
-‐
-‐
15,662
2,701
15,662
2,706
-‐
250,000
300,000
27,000
15,662
2,714
-‐
9,764
2,719
-‐
8,584
2,744
-‐
-‐
7,825
249,360
$
1,597,669
$
202,342
$
232,059
$
154,490
$
270,664
$
319,434
$
418,680
32
hersha hospitality trust
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,
2015,
we
are
exposed
to
interest
rate
risk
with
respect
to
variable
rate
borrowings
under
our
$500,000
credit
facility
and
$300,000
unsecured
term
loan
and
certain
variable
rate
mortgages
and
notes
payable.
As
of
December
31,
2015,
we
had
total
variable
rate
debt
outstanding
of
$640,798
with
a
weighted
average
interest
rate
of
2.65%.
The
effect
of
a
100
basis
point
increase
or
decrease
in
the
interest
rate
on
our
variable
rate
debt
outstanding
as
of
December
31,
2015
would
be
an
increase
or
decrease
in
our
interest
expense
for
the
twelve
months
ended
December
31,
2015
of
$4,215.
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,
2015,
we
have
an
interest
rate
cap
related
to
debt
on
the
Hyatt
Union
Square,
New
York,
NY
and
Courtyard
by
Marriott,
Westside,
Los
Angeles,
CA
and
we
have
four
interest
rate
swaps
related
to
debt
on
the
Duane
Street
Hotel,
New
York,
NY,
Hilton
Garden
Inn,
52nd
Street,
New
York,
NY
and
our
unsecured
credit
facility.
We
do
not
intend
to
enter
into
derivative
or
interest
rate
transactions
for
speculative
purposes.
As
of
December
31,
2015
approximately
53%
of
our
outstanding
consolidated
long-‐term
indebtedness
is
subject
to
fixed
rates
or
effectively
capped,
while
47%
of
our
outstanding
long
term
indebtedness
is
subject
to
floating
rates,
including
borrowings
under
our
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,
2015
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,
2015
to
be
approximately
$1,159,874
and
a
100
basis
point
decrease
in
market
interest
rates
would
cause
the
fair
value
of
our
fixed-‐rate
debt
outstanding
at
December
31,
2015
to
be
approximately
$1,182,336.
2016
2017
2018
2019
2020
Thereafter
Total
Fixed
Rate
Debt
$
157,120
$
177,492
$
828
$
150,872
$
912
$
45,563
$
532,787
Weighted
Average
Interest
Rate
4.32%
3.51%
3.51%
5.39%
5.40%
5.39%
4.59%
Floating
Rate
Debt
$
1,047
$
26,245
$
101,043
$
102,000
$
2,000
$
381,462
$
613,797
Weighted
Average
Interest
Rate
2.74%
2.74%
2.76%
2.77%
2.77%
2.77%
2.76%
$
158,167
$
203,737
$
101,871
$
252,872
$
2,912
$
427,025
$
1,146,584
Line
of
Credit
Facility
$
Weighted
Average
Interest
Rate
-‐
$
-
-‐
$
27,000
$
-
2.81%
-‐
$
-
-‐
$
-‐
-‐
$
27,000
-‐
2.81%
$
158,167
$
203,737
$
128,871
$
252,872
$
2,912
$
427,025
$
1,173,584
The
table
incorporates
only
those
exposures
that
existed
as
of
December
31,
2015,
and
does
not
consider
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.
33
Annual Report
2015
Item
8.
Financial
Statements
and
Supplementary
Data
Hersha
Hospitality
Trust
Report
of
Independent
Registered
Public
Accounting
Firm
Consolidated
Balance
Sheets
as
of
December
31,
2015
and
2014
Consolidated
Statement
of
Operations
for
the
years
ended
December
31,
2015,
2014
and
2013
Consolidated
Statements
of
Comprehensive
Income
for
the
years
ended
December
31,
2015,
2014
and
2013
Consolidated
Statements
of
Equity
for
the
years
ended
December
31,
2015,
2014
and
2013
Consolidated
Statements
of
Cash
Flows
for
the
years
ended
December
31,
2015,
2014
and
2013
Notes
to
Consolidated
Financial
Statements
Schedule
III
-‐
Real
Estate
and
Accumulated
Depreciation
for
the
year
ended
December
31,
2015
Page
35
36
37
39
40
42
44
82
34
Report
of
Independent
Registered
Public
Accounting
Firm
hersha hospitality trust
The
Board
of
Trustees
and
Stockholders
Hersha
Hospitality
Trust:
We
have
audited
the
accompanying
consolidated
balance
sheets
of
Hersha
Hospitality
Trust
and
subsidiaries
as
of
December
31,
2015
and
2014,
and
the
related
consolidated
statements
of
operations,
comprehensive
income,
equity,
and
cash
flows
for
each
of
the
years
in
the
three-‐year
period
ended
December
31,
2015.
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
the
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
audit
to
obtain
reasonable
assurance
about
whether
the
financial
statements
are
free
of
material
misstatement.
An
audit
includes
examining,
on
a
test
basis,
evidence
supporting
the
amounts
and
disclosures
in
the
financial
statements.
An
audit
also
includes
assessing
the
accounting
principles
used
and
significant
estimates
made
by
management,
as
well
as
evaluating
the
overall
financial
statement
presentation.
We
believe
that
our
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,
2015
and
2014,
and
the
results
of
their
operations
and
their
cash
flows
for
each
of
the
years
in
the
three-‐year
period
ended
December
31,
2015,
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.
As
discussed
in
Note
11
to
the
consolidated
financial
statements,
the
Company
has
changed
its
method
for
reporting
discontinued
operations
as
of
January
1,
2014.
We
also
have
audited,
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States),
Hersha
Hospitality
Trust’s
internal
control
over
financial
reporting
as
of
December
31,
2015,
based
on
criteria
established
in
Internal
Control
-‐
Integrated
Framework
(2013)
issued
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission
(COSO),
and
our
report
dated
February
17,
2016,
expressed
an
unqualified
opinion
on
the
effectiveness
of
Hersha
Hospitality
Trust’s
internal
control
over
financial
reporting.
/s/
KPMG
LLP
Philadelphia,
Pennsylvania
February
17,
2016
35
hersha hospitality trust and subsidiaries
consolidated balance sheets
as of december 31, 2015 and 2014
[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
$82,787
and
$84,247
Investment
in
Unconsolidated
Joint
Ventures
Cash
and
Cash
Equivalents
Escrow
Deposits
Hotel
Accounts
Receivable,
Net
of
Allowance
for
Doubtful
Accounts
of
$12
and
$39
Deferred
Financing
Costs,
Net
of
Accumulated
Amortization
of
$8,024
and
$6,938
Due
from
Related
Parties
Intangible
Assets,
Net
of
Accumulated
Amortization
of
$3,951
and
$3,514
Deposits
on
Hotel
Acquisitions
Other
Assets
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
$52,509
and
$54,132
Accounts
Payable,
Accrued
Expenses
and
Other
Liabilities
Dividends
and
Distributions
Payable
Due
to
Related
Parties
Total
Liabilities
Equity:
Shareholders'
Equity:
Preferred
Shares:
$.01
Par
Value,
29,000,000
Shares
Authorized,
4,600,000
Series
B
and
3,000,000
Series
C
Shares
Issued
and
Outstanding
at
December
31,
2015
and
December
31,
2014,
with
Liquidation
Preferences
of
$25
Per
Share
(Note
1)
Common
Shares:
Class
A,
$.01
Par
Value,
300,000,000
Shares
Authorized
at
December
31,
2015
and
December
31,
2014,
44,457,368
and
49,708,771
Shares
Issued
and
Outstanding
at
December
31,
2015
and
December
31,
2014,
respectively
Common
Shares:
Class
B,
$.01
Par
Value,
1,000,000
Shares
Authorized,
None
Issued
and
Outstanding
at
December
31,
2015
and
December
31,
2014
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
and
LTIP
Units
Noncontrolling
Interests
-‐
Consolidated
Variable
Interest
Entity
Total
Noncontrolling
Interests
Total
Equity
Total
Liabilities
and
Equity
December
31,
2015
December
31,
2014
$
$
$
$
$
$
1,831,119
10,316
27,955
19,204
9,465
8,971
6,243
13,389
5,000
38,110
1,969,772
$
$
27,000
550,000
51,548
548,539
59,226
16,515
8,789
1,261,617
$
1,745,483
11,150
21,675
16,941
9,363
8,605
6,580
7,316
-‐
28,426
1,855,539
-‐
250,000
51,548
617,375
54,116
17,909
7,203
998,151
76
$
76
444
497
-‐
(466)
1,086,259
(408,274)
678,039
31,876
(1,760)
30,116
-‐
(358)
1,194,547
(365,381)
829,381
29,082
(1,075)
28,007
708,155
857,388
$
1,969,772
$
1,855,539
The
Accompanying
Notes
Are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
36
hersha hospitality trust and subsidiaries
consolidated statements of operations
for the years ended december 31, 2015, 2014 and 2013
[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
Insurance
Recoveries
Hotel
Ground
Rent
Real
Estate
and
Personal
Property
Taxes
and
Property
Insurance
General
and
Administrative
(including
Share
Based
Payments
of
$6,523,
$6,028
and
$9,746
for
the
year
ended
December
31,
2015,
2014
and
2013,
respectively)
Acquisition
and
Terminated
Transaction
Costs
Depreciation
and
Amortization
Contingent
Consideration
Related
to
Acquisition
of
Hotel
Property
Total
Operating
Expenses
Operating
Income
Interest
Income
Interest
Expense
Other
Expense
Gain
on
Disposition
of
Hotel
Properties
Gain
on
Hotel
Acquisitions,
net
Development
Loan
Recovery
Loss
on
Debt
Extinguishment
Year
Ended
December
31,
2015
2014
2013
$
$
470,272
-‐
113
470,385
$
417,226
-‐
180
417,406
254,313
-‐
3,137
34,518
20,515
1,119
74,390
-‐
387,992
82,393
193
(43,557)
(367)
-‐
-‐
-‐
(561)
227,324
(4,604)
2,433
30,342
20,363
2,472
69,167
2,000
349,497
805
(43,357)
(485)
7,195
12,667
22,494
(670)
67,909
44,690
Income
Before
Income
(Loss)
from
Unconsolidated
Joint
Venture
Investments,
Income
Taxes
and
Discontinued
Operations
38,101
66,558
Income
(Loss)
from
Unconsolidated
Joint
Ventures
Impairment
of
Investment
in
Unconsolidated
Joint
Venture
Income
(loss)
from
Unconsolidated
Joint
Venture
Investments
Income
Before
Income
Taxes
Income
Tax
Benefit
Income
from
Continuing
Operations
Discontinued
Operations
(Note
11):
(Loss)
Gain
on
Disposition
of
Discontinued
Assets
Impairment
of
Discontinued
Assets
Income
from
Discontinued
Operations,
Net
of
Income
Taxes
(Loss)
Income
from
Discontinued
Operations
Net
Income
Income
Allocated
to
Noncontrolling
Interests
Preferred
Distributions
Extinguishment
of
Issuance
Costs
Upon
Redemption
of
Series
A
Preferred
Shares
965
-‐
965
39,066
3,141
42,207
-‐
-‐
-‐
-‐
42,207
(411)
(14,356)
-‐
693
-‐
693
67,251
2,685
69,936
(128)
(1,800)
263
(1,665)
68,271
(1,016)
(14,356)
-‐
Net
Income
Applicable
to
Common
Shareholders
$
27,440
$
52,899
$
32,752
The
Accompanying
Notes
Are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
37
338,064
158
191
338,413
188,431
(403)
985
24,083
23,869
974
55,784
-‐
293,723
1,784
(40,935)
(102)
-‐
12,096
-‐
(545)
16,988
(22)
(1,813)
(1,835)
15,153
5,600
20,753
32,121
(10,314)
7,388
29,195
49,948
(335)
(14,611)
(2,250)
hersha hospitality trust and subsidiaries
consolidated statements of operations (continued)
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
Earnings
Per
Share:
BASIC
Income
from
Continuing
Operations
Applicable
to
Common
Shareholders
(Loss)
Income
from
Discontinued
Operations
Applicable
to
Common
Shareholders
Net
Income
Applicable
to
Common
Shareholders
DILUTED
Income
from
Continuing
Operations
Applicable
to
Common
Shareholders
(Loss)
Income
from
Discontinued
Operations
Applicable
to
Common
Shareholders
Net
Income
Applicable
to
Common
Shareholders
Weighted
Average
Common
Shares
Outstanding:
Basic
Diluted*
*
Year
Ended
December
31,
2015
2014
2013
$
$
$
$
0.56
$
1.08
$
0.00
(0.03)
0.56
$
1.05
$
0.56
$
1.07
$
0.00
(0.03)
0.56
$
1.04
$
0.07
0.57
0.64
0.07
0.56
0.63
47,786,811
49,777,302
49,597,613
48,369,658
50,307,506
50,479,545
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:
Common
Units
and
Vested
LTIP
Units
Total
Potentially
Dilutive
Securities
Excluded
from
the
Denominator
Year
Ended
December
31,
2015
2014
1,907,209
1,907,209
1,727,750
1,727,750
2013
1,742,009
1,742,009
The
Accompanying
Notes
Are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
38
hersha hospitality trust and subsidiaries
consolidated statements of comprehensive income
for the years ended december 31, 2015, 2014, and 2013
[in thousands]
Net
Income
Other
Comprehensive
Income
Change
in
Fair
Value
of
Derivative
Instruments
Year
Ended
December
31,
2015
2014
2013
$
42,207
$
68,271
$
49,948
1,459
1,527
2,694
Less:
Reclassification
Adjustment
for
Change
in
Fair
Value
of
Derivative
Instruments
Included
in
Net
Income
(1,567)
$
(108)
$
(1,509)
18
$
Comprehensive
Income
Less:
Comprehensive
Income
Attributable
to
Noncontrolling
Interests
Less:
Preferred
Distributions
42,099
(411)
(14,356)
Less:
Extinguishment
of
Issuance
Costs
Upon
Redemption
of
Series
A
Preferred
Shares
-‐
Comprehensive
Income
Attributable
to
Common
Shareholders
$
27,332
$
68,289
(1,016)
(14,356)
-‐
52,917
$
(1,284)
1,410
51,358
(335)
(14,611)
(2,250)
34,162
The
Accompanying
Notes
are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
39
hersha hospitality trust and subsidiaries
consolidated statements of equity
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
Balance
at
December
31,
2012
Unit
Conversion
Reallocation
of
Noncontrolling
Interest
Preferred
Shares
Preferred
Shares
Offering,
Net
of
Costs
Preferred
Shares
Redemption
Dividends
and
Distributions
declared:
Common
Stock
($0.24
per
share)
Preferred
Shares
Common
Units
($0.24
per
share)
Dividend
Reinvestment
Plan
Share
Based
Compensation:
Grants
Amortization
Change
in
Fair
Value
of
Derivative
Instruments
Net
Income
(Loss)
Balance
at
December
31,
2013
Unit
Conversion/Redemption
Restricted
Shares
Forfeiture/LTIP
Unit
Issuance
Repurchase
of
Common
Shares
Dividends
and
Distributions
declared:
Common
Shares
($0.26
per
share)
Preferred
Shares
Common
Units
($0.26
per
share)
LTIP
Units
($0.07
per
share)
Dividend
Reinvestment
Plan
Share
Based
Compensation:
Grants
Amortization
Change
in
Fair
Value
of
Derivative
Instruments
Net
Income
(Loss)
Balance
at
December
31,
2014
Unit
Conversion
Restricted
Shares
Forfeiture/LTIP
Unit
Issuance
Repurchase
of
Common
Shares
Dividends
and
Distributions
declared:
Common
Shares
Preferred
Shares
Common
Units
LTIP
Units
Dividend
Reinvestment
Plan
Share
Based
Compensation:
Grants
Amortization
Change
in
Fair
Value
of
Derivative
Instruments
Net
Income
(Loss)
Balance
at
December
31,
2015
Common
Shares
49,668,102
Class
A
Common
Shares
($)
497
6,948
-‐
-‐
-‐
-‐
-‐
-‐
1,802
1,013,017
-‐
-‐
-‐
50,689,868
4,725
(487,081)
(656,714)
-‐
-‐
-‐
-‐
2,162
155,811
-‐
-‐
-‐
49,708,771
8,965
-‐
(5,310,371)
-‐
-‐
-‐
-‐
-‐
2,018
47,985
-‐
-‐
-‐
44,457,368
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
10
-‐
-‐
-‐
507
-‐
(5)
(7)
-‐
-‐
-‐
-‐
-‐
2
-‐
-‐
-‐
497
-‐
-‐
(53)
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
444
Class
B
Common
Shares
($)
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
Shareholders'
Equity
Preferred
Shares
7,000,000
Preferred
Shares
($)
70
Additional
Paid-‐In
Capital
($)
1,179,780
-‐
-‐
-‐
-‐
(234)
-‐
3,000,000
(2,400,000)
30
(24)
72,340
(59,976)
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
7,600,000
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
7,600,000
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
7,600,000
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
76
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
76
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
76
-‐
-‐
-‐
38
497
9,871
-‐
-‐
1,202,316
(77)
5
(13,791)
-‐
-‐
-‐
-‐
50
647
5,397
-‐
-‐
1,194,547
132
-‐
(110,517)
-‐
-‐
-‐
-‐
50
620
1,427
-‐
-‐
1,086,259
Accumulated
Other
Comprehensive
Loss
($)
Distributions
in
Excess
of
Net
Earnings
($)
Total
Shareholders'
Equity
($)
(1,786)
(348,734)
829,827
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
1,410
-‐
(376)
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
18
-‐
(358)
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
(108)
-‐
(466)
-‐
-‐
-‐
-‐
(50,836)
(14,611)
-‐
-‐
-‐
-‐
-‐
49,613
(364,568)
-‐
-‐
(1,621)
(52,091)
(14,356)
-‐
-‐
-‐
-‐
-‐
-‐
67,255
(365,381)
-‐
-‐
(17,669)
(52,664)
(14,356)
-‐
-‐
-‐
-‐
-‐
-‐
41,796
(408,274)
(234)
-‐
72,370
(60,000)
(50,836)
(14,611)
-‐
38
507
9,871
1,410
49,613
837,955
(77)
0
(15,419)
(52,091)
(14,356)
-
-
50
649
5,397
18
67,255
829,381
132
-‐
(128,239)
(52,664)
(14,356)
-‐
-‐
50
620
1,427
(108)
41,796
678,039
The
Accompanying
Notes
are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
40
hersha hospitality trust and subsidiaries
consolidated statements of equity (continued)
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except shares and per share amounts]
Noncontrolling
Interests
Redeemable
Noncontrolling
Interests
Total
Equity
($)
Shares
Common
Units
($)
845,787
(1,000)
3,064,252
-‐
15,365
(3,064,252)
15,321
-‐
(15,365)
Balance
at
December
31,
2012
Unit
Conversion
Reallocation
of
Noncontrolling
Interest
Preferred
Shares
Preferred
Shares
Offering,
Net
of
Costs
Preferred
Shares
Redemption
Dividends
and
Distributions
declared:
Common
Stock
($0.24
per
share)
Preferred
Shares
Common
Units
($0.24
per
share)
Dividend
Reinvestment
Plan
Share
Based
Compensation:
Grants
Amortization
Change
in
Fair
Value
of
Derivative
Instruments
Net
Income
(Loss)
Balance
at
December
31,
2013
Unit
Conversion/Redemption
Restricted
Shares
Forfeiture/LTIP
Unit
Issuance
Repurchase
of
Common
Shares
Dividends
and
Distributions
declared:
Common
Shares
($0.26
per
share)
Preferred
Shares
Common
Units
($0.26
per
share)
LTIP
Units
($0.07
per
share)
Dividend
Reinvestment
Plan
Share
Based
Compensation:
Grants
Amortization
Change
in
Fair
Value
of
Derivative
Instruments
Net
Income
(Loss)
Balance
at
December
31,
2014
Unit
Conversion
Restricted
Shares
Forfeiture/LTIP
Unit
Issuance
Repurchase
of
Common
Shares
Dividends
and
Distributions
declared:
Common
Shares
Preferred
Shares
Common
Units
LTIP
Units
Dividend
Reinvestment
Plan
Share
Based
Compensation:
Grants
Amortization
Change
in
Fair
Value
of
Derivative
Instruments
Net
Income
(Loss)
Balance
at
December
31,
2015
Total
Shareholders'
Equity
($)
Shares
Common
Units
($)
Consolidated
Variable
Interest
Entity
($)
Total
Noncontrolling
Interests
($)
829,827
(234)
1,012,064
(49,448)
-‐
766,063
72,370
(60,000)
(50,836)
(14,611)
-‐
38
507
9,871
1,410
49,613
837,955
(77)
0
(15,419)
(52,091)
(14,356)
-
-
50
649
5,397
18
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
1,728,679
(16,326)
487,081
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
67,255
829,381
-‐
132
-‐
(128,239)
-‐
2,199,434
(8,965)
-‐
-‐
(52,664)
(14,356)
-‐
-‐
50
-‐
-‐
-‐
-‐
-‐
620
1,427
(108)
41,796
678,039
-‐
128,832
-‐
-‐
-‐
2,319,301
15,484
(766)
15,365
-‐
-‐
-‐
-‐
(1,669)
-‐
-‐
-‐
-‐
1,109
29,523
(261)
-‐
-‐
-‐
-‐
(1,793)
(136)
-‐
-‐
-‐
-‐
1,749
29,082
(132)
-‐
-‐
-‐
-‐
(1,913)
(694)
-‐
-‐
4,437
-‐
1,096
31,876
476
-‐
-‐
-‐
-‐
-‐
(818)
(342)
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
(733)
(1,075)
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
(685)
(1,760)
15,960
(766)
15,365
-‐
-‐
-‐
-‐
(1,669)
-‐
-‐
-‐
-‐
291
29,181
(261)
-‐
-‐
-‐
-‐
(1,793)
(136)
-‐
-‐
-‐
-‐
1,016
28,007
(132)
-‐
-‐
-‐
-‐
(1,913)
(694)
-‐
-‐
4,437
-‐
411
30,116
72,370
(60,000)
(50,836)
(14,611)
(1,669)
38
507
9,871
1,410
49,904
867,136
(338)
0
(15,419)
(52,091)
(14,356)
(1,793)
(136)
50
649
5,397
18
68,271
857,388
-‐
-‐
(128,239)
(52,664)
(14,356)
(1,913)
(694)
50
620
5,864
(108)
42,207
708,155
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
The
Accompanying
Notes
are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
44
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
41
hersha hospitality trust and subsidiaries
consolidated statements of cash flows
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except shares and per share amounts]
Operating
Activities:
Net
Income
Adjustments
to
Reconcile
Net
Income
to
Net
Cash
Provided
by
Operating
Activities:
Year
Ended
December
31,
2015
2014
2013
$
42,207
$
68,271
$
49,948
Gain
on
Acquisition
of
Hotel
Assets,
Net
Gain
on
Hotel
Acquisitions,
Net
Contingent
Consideration
Development
Loan
Recovery
Gain
on
Disposition
of
Hotel
Properties
Impairment
of
Hotel
Assets
Deferred
Taxes
Depreciation
Amortization
Loss
on
Debt
Extinguishment
Equity
in
(Income)
Loss
of
Unconsolidated
Joint
Ventures
Distributions
from
Unconsolidated
Joint
Ventures
Loss
Recognized
on
Change
in
Fair
Value
of
Derivative
Instrument
Share
Based
Compensation
Expense
Change
in
Assets
and
Liabilities:
(Increase)
Decrease
in:
Hotel
Accounts
Receivable
Escrows
Other
Assets
Due
from
Related
Parties
(Decrease)
Increase
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
Capital
Expenditures
Cash
Paid
for
Hotel
Development
Projects
Proceeds
from
Disposition
of
Hotel
Properties
Net
Changes
in
Capital
Expenditure
Escrows
Proceeds
from
Insurance
Claims
Repayment
of
Development
Loans
Receivable
Distributions
from
Unconsolidated
Joint
Venture
Advances
and
Capital
Contributions
to
Unconsolidated
Joint
Ventures
Net
Cash
Used
in
Investing
Activities
-‐
-‐
-‐
-‐
-‐
(3,141)
74,007
1,492
324
(965)
1,446
107
6,523
993
(14)
(6,973)
337
1,586
3,888
121,817
(110,176)
(5,000)
(27,366)
(950)
-‐
(779)
-‐
-‐
362
-‐
(143,909)
$
$
$
(12,667)
2,000
(22,494)
(7,067)
1,800
(2,685)
68,753
1,979
673
(693)
1,262
71
6,028
(350)
1,272
2,182
4,544
2,388
(2,373)
112,894
(175,236)
-‐
(38,342)
(3,764)
30,056
4,577
1,881
-‐
324
-‐
(180,504)
$
$
$
-‐
(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)
412
6,326
90,261
(217,142)
(1,836)
(42,854)
(20,054)
136,015
(1,287)
5,001
15,122
1,711
(150)
(125,474)
$
$
$
The
Accompanying
Notes
are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
42
hersha hospitality trust and subsidiaries
consolidated statements of cash flows (continued)
for the years ended december 31, 2015, 2014 and 2013
[in thousands]
Financing
Activities:
Proceeds
from
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
Shares,
Net
Redemption
of
Series
A
Preferred
Shares
Repurchase
of
Common
Shares
Redemption
of
Common
Partnership
Units
Settlement
of
Interest
Rate
Cap
Dividends
Paid
on
Common
Shares
Dividends
Paid
on
Preferred
Shares
Distributions
Paid
on
Common
Units
Net
Cash
Provided
by
Financing
Activities
Net
Increase
(Decrease)
in
Cash
and
Cash
Equivalents
Cash
and
Cash
Equivalents
-‐
Beginning
of
Period
Cash
and
Cash
Equivalents
-‐
End
of
Period
Year
Ended
December
31,
2015
2014
2013
27,000
300,000
(184,356)
87,750
(2,362)
-‐
-‐
(128,239)
-‐
(450)
(54,041)
(14,356)
(2,574)
28,372
6,280
21,675
$
$
$
-‐
100,000
(61,348)
101,000
(4,450)
-‐
-‐
(15,418)
(338)
(8)
(50,286)
(14,356)
(1,724)
53,072
(14,538)
36,213
$
$
$
-‐
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
27,955
$
21,675
$
36,213
$
$
$
$
The
Accompanying
Notes
are
an
Integral
Part
of
These
Consolidated
Financial
Statements.
43
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[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,
2015,
the
Company,
through
the
Partnership
and
subsidiary
partnerships,
wholly
owned
49
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,
2015,
the
Company
owned
joint
venture
interests
in
another
five
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%
15.0%
50.0%
50.0%
Marriott
Hilton
Marriott
Holiday
Inn
Express
Courtyard
Mystic,
CT
Hartford,
CT
Hartford,
CT
South
Boston,
MA
South
Boston,
MA
Mystic
Partners
Leaseco,
LLC
Mystic
Partners
Leaseco,
LLC
Mystic
Partners
Leaseco,
LLC
South
Bay
Sandeep,
LLC
South
Bay
Boston,
LLC
Mystic
Partners,
LLC
owns
an
interest
in
three
hotel
properties.
Our
interest
in
Mystic
Partners,
LLC
is
relative
to
our
interest
in
each
of
the
three
properties
owned
by
the
joint
venture
as
defined
in
the
joint
venture’s
governing
documents.
Each
of
the
three
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.
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.
44
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED)
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
$5,022
as
of
December
31,
2015.
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.
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,
45
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED)
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
7
to
40
Years
Furniture,
Fixtures
and
Equipment
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
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.
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.
46
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED)
Deferred
Financing
Costs
Deferred
financing
costs
are
recorded
at
cost
and
amortized
over
the
terms
of
the
related
indebtedness
using
the
effective
interest
method.
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.
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,
2015,
2014
and
2013
was
95.0%,
95.8%,
and
96.7%,
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.
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
$31,876
as
of
December
31,
2015
and
$29,082
as
of
December
31,
2014.
As
of
December
31,
2015,
there
were
2,319,301
47
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED)
Nonredeemable
Common
Units
outstanding
with
a
fair
market
value
of
$50,468,
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
did
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
have
been
treated
as
Nonredeemable
Common
Units.
The
carrying
value
of
the
Redeemable
Common
Units
equaled
the
greater
of
carrying
value
based
on
the
accumulation
of
historical
cost
or
the
redemption
value.
As
of
December
31,
2015
and
2014,
there
were
no
outstanding
Common
Units
designated
as
Redeemable
Common
Units.
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
venture
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.
Terms
of
the
Series
B
and
Series
C
Preferred
Shares
outstanding
at
December
31,
2015
and
2014
are
summarized
as
follows:
Shares
Outstanding
December
31,
2015
December
31,
2014
Aggregate
Liquidation
Preference
Distribution
Rate
Dividend
Per
Share
Year
Ended
December
31,
2015
2014
4,600,000
3,000,000
7,600,000
4,600,000
$
3,000,000
7,600,000
115,000
75,000
8.000%
$
6.875%
2.0000
$
1.7188
2.0000
1.7188
Series
Series
B
Series
C
Total
48
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED)
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.
In
February
2015,
our
Board
of
Trustees
authorized
us
to
repurchase
from
time
to
time
up
to
an
aggregate
of
$100,000
of
our
outstanding
shares.
In
October
2015,
our
Board
of
Trustees
authorized
a
new
share
repurchase
program
for
$100,000
which
would
commence
up
on
the
completion
of
the
existing
program.
The
new
program
will
expire
on
December
31,
2016
unless
extended
by
the
Board
of
Trustees.
We
may
seek
Board
of
Trustee
approval
to
increase
the
2016
authorization.
For
the
year
ended
December
31,
2015,
the
Company
repurchased
5,310,371
common
shares
for
an
aggregate
purchase
price
of
$128,239
under
the
February
2015
and
October
2015
repurchase
programs.
Upon
repurchase
by
the
Company,
these
common
shares
ceased
to
be
outstanding
and
became
authorized
but
unissued
common
shares.
On
December
23,
2014,
we
amended
our
partnership
agreement
to
allow
for
the
issuance
of
profits
interests
in
HHLP
in
the
form
of
LTIP
Units,
a
new
class
of
limited
partnership
units
in
HHLP,
and
to
establish
the
terms
of
the
LTIP
Units.
The
LTIP
Units
vest
on
December
31
and
June
1
of
each
year,
beginning
on
December
31,
2014
and
ending
on
June
1,
2017.
The
LTIP
units
contain
restricted
stock
awards
that
were
forfeited
and
replaced
with
LTIP
unit
awards
with
similar
terms.
The
total
number
of
Restricted
Stock
Awards
forfeited
and
LTIP
Units
awarded
was
1,948,324.
In
May
2015,
our
Board
of
Trustees
approved
a
reverse
share
split
of
our
issued
and
outstanding
common
shares
and
Common
Units
and
LTIP
units
at
a
ratio
of
1-‐for-‐4.
This
reverse
share
split
converted
every
four
issued
and
outstanding
common
shares
into
one
common
share.
The
reverse
share
split
was
effective
as
of
5:00
PM
Eastern
time
on
June
22,
2015.
As
a
result
of
the
reverse
share
split,
the
number
of
outstanding
Common
Units
and
LTIP
Units
was
reduced
from
9,313,063
to
2,328,276
units.
In
addition,
the
second
quarter
dividend
was
adjusted
to
$0.28
per
common
share
from
the
previously
announced
$0.07
per
common
share.
All
common
share,
Common
Unit
and
LTIP
Unit
and
per
share
data
related
to
these
classes
of
equity
have
been
updated
in
the
accompanying
consolidated
financial
statements
to
reflect
this
share
split
for
all
periods
presented.
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.
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.
49
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED)
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
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,
2015,
2014
and
2013,
the
Company
did
not
record
any
uncertain
tax
positions.
As
of
December
31,
2015,
with
few
exceptions,
the
Company
is
subject
to
tax
examinations
by
U.S.
federal,
state,
and
local
income
tax
authorities
for
years
2003
through
2015.
Reclassification
Certain
amounts
in
the
prior
year
financial
statements
have
been
reclassified
to
conform
to
the
current
year
presentation.
50
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
1
–
ORGANIZATION
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED)
New
Accounting
Pronouncements
On
May
28,
2014,
the
FASB
issued
ASU
No.
2014-‐09,
Revenue
from
Contracts
with
Customers,
which
requires
an
entity
to
recognize
the
amount
of
revenue
to
which
it
expects
to
be
entitled
for
the
transfer
of
promised
goods
or
services
to
customers.
The
ASU
will
replace
most
existing
revenue
recognition
guidance
in
U.S.
GAAP
when
it
becomes
effective.
The
new
standard
is
effective
for
the
Company
on
January
1,
2018.
Early
adoption
is
permitted,
but
not
prior
to
the
original
effective
date
of
January
1,
2017.
The
standard
permits
the
use
of
either
the
retrospective
or
cumulative
effect
transition
method.
The
Company
is
evaluating
the
effect
that
ASU
No.
2014-‐09
will
have
on
its
consolidated
financial
statements
and
related
disclosures.
The
Company
has
not
yet
selected
a
transition
method
nor
has
it
determined
the
effect
of
the
standard
on
its
ongoing
financial
reporting.
On
February
18,
2015,
the
FASB
issued
ASU
No.
2015-‐02,
Consolidation
–
Amendments
to
the
Consolidation
Analysis,
which
amends
the
current
consolidation
guidance
affecting
both
the
variable
interest
entity
(VIE)
and
voting
interest
entity
(VOE)
consolidation
models.
The
standard
does
not
add
or
remove
any
of
the
characteristics
in
determining
if
an
entity
is
a
VIE
or
VOE,
but
rather
enhances
the
way
the
Company
assesses
some
of
these
characteristics.
The
new
standard
is
effective
for
the
Company
on
January
1,
2016.
The
Company
does
not
expect
ASU
No.
2015-‐02
to
have
a
significant
impact
on
its
consolidated
financial
statements
and
related
disclosures.
On
April
17,
2015,
the
FASB
issued
ASU
No.
2015-‐03,
Simplifying
the
Presentation
of
Debt
Issuance
Costs,
which
requires
debt
issuance
costs
to
be
presented
in
the
balance
sheet
as
a
direct
deduction
from
the
associated
debt
liability.
ASU
2015-‐03
does
not
address
debt
issuance
costs
related
to
line-‐of-‐credit
arrangements.
The
SEC
staff
announced
at
the
June
18,
2015
Emerging
Issues
Task
Force
Meeting
that
it
would
not
object
to
an
entity
deferring
and
presenting
debt
issuance
costs
as
an
asset
and
subsequently
amortizing
deferred
debt
issuance
costs
ratably
over
the
term
of
a
line-‐of-‐credit
arrangement,
regardless
of
whether
there
are
outstanding
borrowings
under
that
line-‐of-‐credit
arrangement.
In
August
2015,
the
FASB
issued
ASU
2015-‐15,
Presentation
and
Subsequent
Measurement
of
Debt
Issuance
Costs
Associated
with
Line-‐of-‐Credit
Arrangements,
which
incorporates
the
SEC
staff
guidance
into
the
FASB
Accounting
Standards
Codification.
Currently,
debt
issuance
costs
are
recorded
as
an
asset
and
amortization
of
these
deferred
financing
costs
is
recorded
in
interest
expense.
Under
the
new
standard,
debt
issuance
costs
will
continue
to
be
amortized
over
the
life
of
the
debt
instrument
and
amortization
will
continue
to
be
recorded
in
interest
expense.
The
new
standard
is
effective
for
the
Company
on
January
1,
2016
and
will
be
applied
on
a
retrospective
basis.
The
Company
anticipates
a
change
in
our
balance
sheet presentation
only
because
the
standard
does
not
alter
the
accounting
for
amortization
of
debt
issuance
costs.
51
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[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,
2015
and
December
31,
2014:
Land
Buildings
and
Improvements
Furniture,
Fixtures
and
Equipment
Less
Accumulated
Depreciation
Total
Investment
in
Hotel
Properties
December
31,
2015
December
31,
2014
$
$
$
480,874
1,518,565
227,527
2,226,966
(395,847)
439,540
1,424,842
203,275
2,067,657
(322,174)
1,831,119
$
1,745,483
Depreciation
expense
was
$73,672,
$68,418
and
$61,500
(including
depreciation
on
assets
held
for
sale)
for
the
years
ended
December
31,
2015,
2014
and
2013,
respectively.
During
the
year
ended
December
31,
2015,
we
acquired
the
following
wholly-‐owned
hotel
properties:
Hotel
Acquisition
Date
Land
Buildings
and
Improvements
Furniture
Fixtures
and
Equipment
Other
Intangibles
Loan
Costs
Total
Purchase
Price
Assumption
of
Debt
St.
Gregory
Hotel,
Washington,
DC
6/16/2015
$
23,764
$
33,005
$
3,240
$
45
$
978
$
61,032
$
28,902
*
TownePlace
Suites,
Sunnyvale,
CA
8/25/2015
-‐
18,999
2,348
6,453
**
-‐
27,800
Ritz-‐Carlton
Georgetown,
DC
12/29/2015
17,570
29,160
3,270
-‐
-‐
50,000
-
-
TOTAL
*
$
41,334
$
81,164
$
8,858
$
6,498
$
978
$
138,832
$
28,902
Includes
a
$3,050
premium
as
we
determined
that
the
stated
rate
of
interest
on
the
assumed
mortgage
debt
was
above
market.
**
Acquired
ground
lease
asset
of
$6,353
and
intangible
asset
related
to
the
franchise
agreement
of
$100
with
purchase
of
the
property.
Acquisition-‐related
costs,
such
as
due
diligence,
legal
and
accounting
fees,
are
not
capitalized
or
applied
in
determining
the
fair
value
of
the
above
acquired
assets.
During
the
year
ended
December
31,
2015,
we
paid
$708
in
acquisition
costs
related
to
the
above
acquired
assets.
Included
in
the
consolidated
statements
of
operations
for
the
year
ended
December
31,
2015
are
total
revenues
of
$7,150
and
a
total
net
income
of
$548
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:
52
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
2
–
INVESTMENT
IN
HOTEL
PROPERTIES
(CONTINUED)
Year
Ended
December
31,
2015
Hotel
Revenue
$
$
5,257
1,744
149
7,150
$
$
Net
Income
164
364
20
548
St.
Gregory
Hotel,
Washington,
DC
TownePlace
Suites,
Sunnyvale,
CA
Ritz-‐Carlton
Georgetown,
DC
Total
Purchase
and
Sale
Agreement
In
October
2015,
we
entered
into
a
purchase
and
sale
agreement
to
purchase
the
Sanctuary
Beach
Resort
in
Monterey,
CA
from
an
unaffiliated
buyer
for
a
total
purchase
price
of
$39,500.
The
transaction
closed
on
January
28,
2016.
Upon
closing,
we
assumed
debt
of
$14,700.
Accounting
for
this
acquisition
requires
an
allocation
of
the
purchase
price
to
the
assets
acquired
and
the
liabilities
assumed
in
the
transaction
at
their
respective
estimated
fair
values.
The
purchase
price
allocations
are
estimated
based
on
current
available
information;
however,
we
still
are
in
the
process
of
obtaining
appraisals
and
finalizing
the
accounting
for
the
acquisition,
which
was
acquired
subsequent
to
year-‐end.
On
February
4,
2016,
we
announced
the
signing
of
definitive
agreements
with
Cindat
Capital
Management
Limited
to
form
a
joint
venture
for
7
of
our
limited
service
hotels
in
Manhattan
totaling
1,087
rooms
for
a
total
purchase
price,
including
closing
costs
of
$571,400,
or
$526
per
key.
The
proposed
joint
venture
is
structured
with
Cindat
as
the
preferred
joint
venture
partner
holding
a
70.0%
ownership
stake,
while
we
retain
a
30%
equity
interest.
We
also
announced
the
signing
of
a
purchase
and
sale
agreement
to
acquire
the
238-‐room
Hilton
Garden
Inn
M
Street,
in
Washington,
DC
for
$106,500.
These
transactions
are
expected
to
close
no
later
than
March
31,
2016,
and
are
subject
to
closing
conditions,
including
the
completion
of
the
buyer’s
due
diligence.
No
assurance
can
be
given
that
these
transactions
will
close
within
the
expected
time
frame
or
at
all.
During
the
year
ended
December
31,
2014,
we
acquired
the
following
wholly-‐owned
hotel
properties:
Hotel
Hotel
Milo,
Santa
Barbara,
CA
Parrot
Key
Resort,
Key
West,
FL
Hilton
Garden
Inn
52nd
Street,
New
York,
NY
Acquisition
Date
Land
Buildings
and
Improvements
Furniture
Fixtures
and
Equipment
Ground
Lease
Intangible
Franchise
Fees
and
Loan
Costs
Total
Purchase
Price
Assumption
of
Debt
2/28/2014
-‐
55,080
805
(14,230)
273
41,928
24,924
5/7/2014
57,889
33,959
8,152
5/27/2014
45,480
60,762
4,920
-‐
-‐
-‐
100,000
1,123
112,285
-‐
-‐
Total
$
103,369
$
149,801
$
13,877
$
(14,230)
$
1,396
$
254,213
$
24,924
Acquisition-‐related
costs,
such
as
due
diligence,
legal
and
accounting
fees,
are
not
capitalized
or
applied
in
determining
the
fair
value
of
the
above
acquired
assets.
During
the
year
ended
December
31,
2014,
we
paid
$2,178
in
acquisition
costs
related
to
the
above
acquired
assets.
The
purchase
agreement
for
the
acquisition
of
the
Parrot
Key
Resort
in
Key
West,
FL,
contained
a
provision
that
entitled
the
seller
to
additional
consideration
of
$2,000
contingent
upon
the
hotel
achieving
certain
net
operating
income
thresholds
within
twelve
months
of
acquisition.
At
the
time
of
acquisition,
no
liability
was
recorded
as
the
fair
market
value
of
the
contingent
consideration
was
determined
to
be
$0.
Upon
remeasurement
at
December
31,
2014,
a
liability
was
recorded
as
the
fair
market
value
of
the
contingent
consideration
was
determined
to
be
$2,000.
53
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
2
–
INVESTMENT
IN
HOTEL
PROPERTIES
(CONTINUED)
On
May
27,
2014,
we
completed
the
acquisition
of
the
Hilton
Garden
Inn
52nd
Street
hotel
in
New
York,
NY
from
an
unaffiliated
seller.
Previously,
we
had
entered
into
a
purchase
and
sale
agreement
to
acquire
this
property
for
total
consideration
of
$84,000.
The
purchase
price
for
this
property
was
contractually
fixed
on
August
23,
2012,
the
date
we
entered
into
the
purchase
and
sale
agreement.
During
the
21-‐month
period
of
time
between
entering
in
the
purchase
and
sale
agreement
on
August
23,
2012
and
the
closing
date,
the
real
estate
market
for
hotels
located
in
Manhattan
experienced
significant
price
appreciation
due
to
improved
economic
conditions
in
the
market
and
in
the
overall
economy.
This
resulted
in
an
increase
in
the
fair
value
of
the
property
at
the
time
of
closing
the
acquisition
and,
as
such,
we
recognized
a
gain
of
approximately
$13,594,
which
is
net
of
preopening
expenses
of
$927
on
the
statement
of
operations,
as
the
fair
value
of
the
asset
acquired
less
any
liabilities
assumed
exceeded
the
consideration
transferred.
Consideration
given
in
exchange
for
the
property
included
$27,500
paid
in
cash
to
the
seller
and
our
reinstatement
and
cancellation
of
a
development
loan
receivable
in
the
original
principal
amount
of
$10,000
and
$12,494
of
accrued
interest
and
late
fees.
This
development
loan
receivable
had
previously
been
fully
impaired
in
2009,
but
was
recovered
as
part
of
this
acquisition.
As
a
result,
we
recognized
a
gain
of
$22,494
on
the
recovery
of
the
previously
impaired
development
loan.
In
addition,
we
paid
off
the
existing
construction
financing
and
entered
into
a
new
mortgage
loan
of
$45,000.
Concurrent
with
our
entry
into
the
new
mortgage
loan,
we
entered
into
an
interest
rate
cap
and
swap
–
see
“Note
7
–
Fair
Measurements
and
Derivative
Instruments”
for
more
information
on
this
derivative.
No
other
consideration
was
exchanged
in
connection
with
the
acquisition
of
this
property.
Below
is
a
tabular
reference
to
illustrate
the
components
of
the
consideration
and
fair
value
of
the
property:
Hotel
Hilton
Garden
Inn
52nd
Street,
New
York,
NY
Initial
Purchase
Price
Interest
and
Late
Fees
on
Development
Loan
Non-‐Cash
Fair
Market
Value
Gain
on
Acquisition
Fair
Market
Value
At
Acquisition
Franchise
Fees
and
Loan
Costs
Asset
Value
Upon
Acquisition
Other
$
84,000
$
12,494
$
13,594
$
1,074
$
111,162
$
1,123
$
112,285
Included
in
the
consolidated
statement
of
operations
for
the
year
ended
December
31,
2014
are
total
revenues
of
$28,239
and
a
total
net
income
of
$6,219
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
Hotel
Milo,
Santa
Barbara,
CA
Parrot
Key
Resort,
Key
West,
FL
Hilton
Garden
Inn
52nd
Street,
New
York,
NY
Total
Asset
Development
and
Renovation
Year
Ended
December
31,
2014
Revenue
Net
Income
$
$
$
8,655
9,145
10,439
28,239
$
668
2,978
2,573
6,219
The
Company
has
opportunistically
engaged
in
the
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,
from
an
unaffiliated
seller
for
a
total
purchase
price
of
$28,300.
On
June
23,
2014,
this
property
opened
as
a
Hampton
Inn.
The
total
construction
costs
spent
on
this
property
since
acquisition
were
$9,564,
which
equates
to
a
total
carrying
value
of
approximately
$37,864
when
the
property
opened.
In
January
2014,
the
Company
completed
the
construction
of
an
additional
oceanfront
tower,
additional
meeting
space
and
structured
parking
on
a
land
parcel
adjacent
to
the
Courtyard
by
Marriott,
Miami,
FL,
a
hotel
acquired
on
November
16,
2011.
This
land
parcel
was
included
in
the
acquisition
of
the
hotel.
54
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
2
–
INVESTMENT
IN
HOTEL
PROPERTIES
(CONTINUED)
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,
2015,
2014
and
2013:
2015
Year
Ended
December
31,
2014
2013
Property
Tax
Interest
Expense
Utilities
Total
$
$
-‐
-‐
-‐
-‐
$
$
$
223
458
223
458
73
73
754
$
388
1,320
3
1,711
During
the
second
quarter
of
2014,
we
finalized
our
settlement
of
the
insurance
claim
we
had
for
losses
incurred
as
a
result
of
Hurricane
Sandy.
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,
which
was
subsequently
completed
on
June
23,
2014,
incurred
delays
in
construction
(Hampton
Inn,
Pearl
Street,
New
York,
NY).
Prior
to
March
31,
2014,
we
had
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
reopened
in
April
2013.
We
also
had
recorded
estimated
property
losses
of
$1,997
on
the
Hampton
Inn
Pearl
Street
and
a
corresponding
insurance
claim
receivable
of
$1,897.
This
hotel
opened
in
June
2014.
As
a
result
of
the
claim
settlement,
we
recorded
a
gain
on
insurance
settlements
of
approximately
$4,604,
which
included
business
interruption
claims.
754
Pro
Forma
Results
(Unaudited)
The
following
condensed
pro
forma
financial
data
are
presented
as
if
all
acquisitions
completed
since
January
1,
2015
and
2014
had
been
completed
on
January
1,
2014
and
2013.
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,
2015
and
2014
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
from
Discontinued
Operations
Pro
Forma
Net
Income
(Loss)
Allocated
to
Noncontrolling
Interest
Preferred
Distributions
Year
Ended
December
31,
2015
2014
493,096
456,189
43,180
-‐
43,180
(448)
(14,356)
73,717
(1,665)
72,052
(1,144)
(14,356)
56,552
Pro
Forma
Net
Income
Applicable
to
Common
Shareholders
$
28,376
$
Pro
Forma
Income
Applicable
to
Common
Shareholders
per
Common
Share
Basic
Diluted
Weighted
Average
Common
Shares
Outstanding
Basic
Diluted
$
$
0.59
0.59
$
$
1.14
1.12
47,786,811
48,369,658
49,777,302
50,307,506
55
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
3
–
INVESTMENT
IN
UNCONSOLIDATED
JOINT
VENTURES
As
of
December
31,
2015
and
December
31,
2014
our
investment
in
unconsolidated
joint
ventures
consisted
of
the
following:
Joint
Venture
Hotel
Properties
Percent
Owned
Preferred
Return
December
31,
2015
December
31,
2014
SB
Partners,
LLC
Holiday
Inn
Express,
South
Boston,
MA
50.0%
N/A
$
795
$
913
Hiren
Boston,
LLC
Courtyard
by
Marriott,
South
Boston,
MA
50.0%
Mystic
Partners,
LLC
Hilton
and
Marriott
branded
hotels
in
CT
8.8%-‐66.7%
N/A
8.5%
non-‐cumulative
$
4,499
5,022
10,316
$
4,680
5,556
11,150
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,
2015,
2014
and
2013,
for
our
investments
in
unconsolidated
joint
ventures
is
as
follows:
SB
Partners,
LLC
Hiren
Boston,
LLC
Mystic
Partners,
LLC
Income
(Loss)
from
Unconsolidated
Joint
Venture
Investments
Impairment
from
Unconsolidated
Joint
Ventures
Income
(Loss)
from
Unconsolidated
Joint
Venture
Investments
Year
Ended
Ended
December
31,
2015
2014
2013
582
$
694
(311)
965
-‐
965
$
407
$
603
(317)
693
-‐
693
$
264
113
(399)
(22)
(1,813)
(1,835)
$
$
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
transferred
the
title
to
the
property
to
the
lender
during
the
year
ended
December
31,
2014.
As
we
did
not
anticipate
recovering
our
investment
balance
in
this
asset,
we
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.
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
the
Hartford
Marriott,
7.0%
with
respect
to
the
Hartford
Hilton
and
56.7%,
with
respect
to
the
remaining
property.
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.
The
Hartford
Marriott,
part
of
the
Mystic
Partners,
LLC
joint
venture,
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
0.25%
of
operating
revenues.
56
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
3
–
INVESTMENT
IN
UNCONSOLIDATED
JOINT
VENTURES
(CONTINUED)
The
following
tables
set
forth
the
total
assets,
liabilities,
equity
and
components
of
net
income
or
loss,
including
the
Company’s
share,
related
to
the
unconsolidated
joint
ventures
discussed
above
as
of
December
31,
2015
and
December
31,
2014
and
for
the
years
ended
December
31,
2015,
2014
and
2013.
Balance
Sheets
Assets
Investment
in
Hotel
Properties,
Net
Other
Assets
Total
Assets
Liabilities
and
Equity
Mortgages
and
Notes
Payable
Other
Liabilities
Equity:
Hersha
Hospitality
Trust
Joint
Venture
Partner(s)
Total
Equity
$
$
$
December
31,
2015
December
31,
2014
105,354
15,558
120,912
$
$
113,532
30,575
$
22,698
(45,893)
(23,195)
106,430
19,032
125,462
115,446
30,832
23,060
(43,876)
(20,816)
Total
Liabilities
and
Equity
$
120,912
$
125,462
Statements
of
Operations
Room
Revenue
Other
Revenue
Operating
Expenses
Lease
Expense
Property
Taxes
and
Insurance
General
and
Administrative
Depreciation
and
Amortization
Interest
Expense
Debt
Extinguishment
and
Gain
on
Debt
Forgiveness
Gain
(Loss)
allocated
to
Noncontrolling
Interests
Net
Income
From
Continuing
Operations
(Loss)
Income
from
Discontinued
Operations
Gain
on
Disposition
of
Hotel
Properties
Net
Income
Year
Ended
December
31,
2015
2014
2013
57,927
$
22,776
(55,178)
(1,115)
(2,948)
(5,609)
(6,549)
(6,677)
-‐
(341)
59,135
$
21,725
(54,831)
(1,063)
(2,934)
(5,783)
(6,376)
(11,995)
3,016
115
2,286
$
1,009
$
-‐
-‐
-‐
-‐
58,273
22,606
(55,179)
(996)
(3,034)
(5,794)
(6,697)
(7,526)
-‐
(179)
1,474
(55)
1,161
2,286
$
1,009
$
2,580
$
$
$
57
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
3
–
INVESTMENT
IN
UNCONSOLIDATED
JOINT
VENTURES
(CONTINUED)
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,
2015
and
December
31,
2014.
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,
2015
December
31,
2014
22,698
$
23,060
(12,382)
10,316
$
(11,910)
11,150
(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).
58
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
4
–
OTHER
ASSETS
AND
DEPOSITS
ON
HOTEL
ACQUISITIONS
Other
Assets
Other
Assets
consisted
of
the
following
at
December
31,
2015
and
December
31,
2014:
Investment
in
Statutory
Trusts
Prepaid
Expenses
Deferred
Tax
Asset,
Net
of
Valuation
Allowance
of
$804
Other
December
31,
2015
December
31,
2014
1,548
14,434
14,590
7,538
38,110
$
1,548
7,883
11,448
7,547
28,426
$
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.
Deferred
Tax
Asset
-‐
We
have
approximately
$14,590
of
net
deferred
tax
assets
as
of
December
31,
2015.
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
$14,590
of
net
deferred
tax
assets
in
the
future.
Deposits
on
Hotel
Acquisitions
As
of
December
31,
2015,
we
had
$5,000
in
interest
bearing
deposits
related
to
the
future
acquisition
of
the
Sanctuary
Beach
Resort,
located
in
Marina,
California
(See
“Note
2
–
Investment
in
Hotel
Properties”
for
more
information).
As
of
December
31,
2014,
we
had
no
deposits
on
hotel
acquisitions.
59
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
5
–
DEBT
Mortgages
We
had
total
mortgages
payable
at
December
31,
2015
and
December
31,
2014
of
$548,539
and
$617,375,
respectively.
These
balances
consisted
of
mortgages
with
fixed
and
variable
interest
rates,
which
ranged
from
2.61%
to
6.50%
as
of
December
31,
2015.
Included
in
these
balances
are
net
premiums
of
$3,503
and
$1,584
as
of
December
31,
2015
and
December
31,
2014,
respectively,
which
are
amortized
over
the
remaining
life
of
the
loans.
Aggregate
interest
expense
incurred
under
the
mortgage
loans
payable
totaled
$26,581,
$31,046
and
$34,854
during
the
years
ended
December
31,
2015,
2014
and
2013,
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
two
of
our
hotel
properties
were
not
met
as
of
December
31,
2015.
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,
2015,
the
maturity
dates
for
the
outstanding
mortgage
loans
ranged
from
May
2016
to
April
2023.
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,
2015,
2014
and
2013
was
3.33%,
3.28%
and
3.32%,
respectively.
Interest
expense
in
the
amount
of
$1,715,
$1,690
and
$1,712
was
recorded
for
the
years
ended
December
31,
2015,
2014
and
2013,
respectively.
Credit
Facilities
On
August
10,
2015,
we
entered
into
a
$300,000
senior
unsecured
term
loan
agreement
with
Citigroup
Global
Markets
Inc.
and
various
other
lenders.
The
term
loan
expires
on
August
10,
2020.
This
new
term
loan
expands
our
senior
unsecured
borrowing
capacity
from
$500,000
to
$800,000.
On
February
28,
2014,
we
entered
into
a
senior
unsecured
credit
agreement
with
Citigroup
Global
Markets
Inc.
and
various
other
lenders.
The
credit
agreement
provides
for
a
$500,000
senior
unsecured
credit
facility
consisting
of
a
$250,000
senior
unsecured
revolving
line
of
credit
and
a
$250,000
senior
unsecured
term
loan.
This
new
facility
amended
and
restated
the
existing
$400,000
senior
unsecured
credit
facility.
The
$500,000
unsecured
credit
facility
expires
on
February
28,
2018
and,
provided
no
event
of
default
has
occurred,
we
may
request
that
the
lenders
renew
the
credit
facility
for
an
additional
one-‐year
period.
The
credit
facility
is
also
expandable
to
$850,000
at
our
request,
subject
to
the
satisfaction
of
certain
conditions.
Prior
to
February
28,
2014,
we
maintained
a
senior
unsecured
credit
agreement
with
Citigroup
Global
Markets
Inc.
and
various
other
lenders.
The
credit
agreement
provided
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.
60
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
5
–
DEBT
(CONTINUED)
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,
2015,
the
following
hotel
properties
were
borrowing
base
assets:
-‐
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
-‐
Winter
Haven,
Miami,
FL
-‐
Hampton
Inn,
Pearl
Street,
NY
-‐
Residence
Inn,
Greenbelt,
MD
-‐
Courtyard,
Miami,
FL
-‐
Residence
Inn,
Tyson's
Corner,
VA
-‐
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
-‐
Blue
Moon,
Miami,
FL
-‐
Parrot
Key
Resort,
Key
West,
FL
-‐
Courtyard,
Brookline,
MA
-‐
TownePlace
Suites,
Sunnyvale,
CA
The
interest
rate
for
the
$500,000
unsecured
credit
facility
is
based
on
a
pricing
grid
with
a
range
of
one
month
U.S.
LIBOR
plus
1.70%
to
2.45%
for
the
revolving
line
of
credit
and
1.60%
to
2.35%
for
the
unsecured
term
loan.
The
$300,000
unsecured
term
loan’s
interest
rate
is
based
on
a
pricing
grid
with
a
range
of
one
month
U.S
LIBOR
plus
1.50%
to
2.25%.
As
noted
above,
we
refinanced
our
credit
facility
during
February
2014.
Prior
to
this
refinancing,
the
pricing
grid
for
the
evolving
line
of
credit
and
unsecured
term
loan
was
U.S.
LIBOR
plus
1.75%
to
2.65%.
As
of
December
31,
2015,
we
had
borrowed
$250,000
in
unsecured
term
loans
under
the
$500,000
unsecured
credit
facility,
$150,000
for
which
we
had
entered
into
interest
rate
swaps
which
effectively
fix
the
interest
rate
on
these
term
loans
at
a
blended
rate
of
2.914%.
See
“Note
7
–
Fair
Value
Measurements
and
Derivative
Instruments”
for
more
information.
As
of
December
31,
2015,
we
had
fully
drawn
the
$300,000
unsecured
term
loan.
As
of
December
31,
2015,
we
had
a
balance
of
$27,000
outstanding
on
the
revolving
line
of
credit.
As
of
December
31,
2014,
the
outstanding
unsecured
$250,000
term
loan
under
the
$500,000
unsecured
credit
facility
was
fully
drawn
and
the
$250,000
revolving
line
of
credit
had
no
balance
outstanding.
The
credit
agreement
providing
for
the
$500,000
unsecured
credit
facility
and
$300,000
unsecured
term
loan
include
certain
financial
covenants
and
requires
that
we
maintain:
(1)
a
minimum
tangible
net
worth
of
$900,000,
plus
an
amount
equal
to
75%
of
the
net
cash
proceeds
of
all
issuances
and
primary
sales
of
equity
interests
of
the
parent
guarantor
or
any
of
its
subsidiaries
consummated
following
the
closing
date;
(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,
2016;
a
maximum
leverage
ratio
of
not
more
than
60%;
and
a
maximum
secured
debt
leverage
ratio
of
50%,
which
decreases
to
45%
as
of
January
1,
2016
The
Company
is
in
compliance
with
each
of
the
covenants
listed
above
as
of
December
31,
2015.
As
of
December
31,
2015,
our
remaining
borrowing
capacity
under
the
$500,000
unsecured
credit
facility
and
$300,000
unsecured
term
loan
was
$218,745
based
on
the
borrowing
base
assets
at
December
31,
2015.
The
Company
recorded
interest
expense
of
$10,147,
$6,218
and
$5,413
related
to
borrowings
drawn
on
each
of
the
aforementioned
credit
facilities,
for
the
years
ended
December
31,
2015,
2014
and
2013,
respectively.
The
weighted
average
interest
rate
on
our
credit
facilities
was
2.69%,
2.82%
and
3.08%
for
the
years
ended
December
31,
2015,
2014
and
2013,
respectively.
61
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
5
–
DEBT
(CONTINUED)
Aggregate
annual
principal
payments
for
the
Company’s
credit
facility,
unsecured
term
loan
and
mortgages
and
subordinated
notes
payable
for
the
five
years
following
December
31,
2016
and
thereafter
are
as
follows:
Year
Ending
December
31,
Amount
2016
2017
2018
2019
2020
Thereafter
Net
Unamortized
Premium
Capitalized
Interest
$
$
158,167
203,737
128,871
252,872
2,912
427,025
3,503
1,177,087
We
utilize
cash,
mortgage
debt
and
our
unsecured
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,
2015,
2014
and
2013,
we
capitalized
$0,
$458
and
$1,320
respectively,
of
interest
expense
related
to
these
projects.
Deferred
Financing
Costs
Costs
associated
with
entering
into
mortgages,
notes
payable,
unsecured
term
loan
and
our
credit
facilities
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,
2015,
deferred
costs
were
$8,971,
net
of
accumulated
amortization
of
$8,024.
Amortization
of
deferred
costs
for
the
years
ended
December
31,
2015,
2014
and
2013
was
$2,650,
$2,768
and
$2,886
respectively.
Debt
Payoff
On
August
10,
2015,
we
repaid
in
full
outstanding
mortgage
debt
with
an
original
principal
balance
of
$60,000
secured
by
the
Courtyard
by
Marriott,
Miami,
FL.
In
connection
with
this
transaction,
we
terminated
the
interest
rate
swap
associated
with
the
mortgage
on
this
property.
See
“Note
7
–
Fair
Value
Measurements
and
Derivative
Instruments”
for
more
information
on
this
transaction.
The
loan
was
due
to
mature
on
July
1,
2016,
and
we
incurred
approximately
$329
in
expense
in
unamortized
deferred
financing
costs
and
fees.
On
October
27,
2014,
we
repaid
$10,179
on
our
mortgage
with
Berkadia
Commercial
Mortgage,
LLC
for
the
Residence
Inn,
Greenbelt,
MD
property.
The
loan
was
due
to
mature
in
October
2014,
and
we
incurred
no
loss
on
debt
extinguishment
in
paying
off
the
loan.
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
3,
2013,
we
funded
an
additional
$50,000
in
unsecured
term
loan
borrowings
under
our
then
$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
on
January
7,
2013.
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.
62
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
5
–
DEBT
(CONTINUED)
New
Debt/Refinance
On
October
27,
2015,
we
refinanced
the
outstanding
mortgage
debt
with
an
original
balance
of
$30,000
secured
by
the
Courtyard
by
Marriott,
Los
Angeles,
California
and
simultaneously
entered
into
a
new
mortgage
obligation
of
$35,000,
incurring
a
loss
on
debt
extinguishment
of
approximately
$10.
The
new
mortgage
debt
bears
interest
at
a
variable
rate
of
one
month
U.S.
dollar
LIBOR
plus
3.00%
and
matures
on
September
29,
2017.
Also
on
October
27,
2015,
we
entered
into
an
interest
rate
cap
that
matures
on
September
27,
2017
that
effectively
limits
the
interest
at
3.00%
per
annum.
See
“Note
7
–
Fair
Value
Measurements
and
Derivative
Instruments”
for
more
information
on
the
interest
rate
cap.
On
June
10,
2015,
we
refinanced
the
outstanding
mortgage
debt
with
an
original
principal
balance
of
$55,000
secured
by
the
Hyatt
Union
Square,
New
York,
NY
and
simultaneously
entered
into
a
new
mortgage
obligation
of
$55,750,
incurring
a
loss
on
debt
extinguishment
of
approximately
$212.
The
new
mortgage
debt
bears
interest
at
a
variable
rate
of
one
month
U.S
dollar
LIBOR
plus
2.30%
and
matures
on
June
10,
2019.
Also
on
June
10,
2015,
we
entered
into
an
interest
rate
cap
that
matures
on
June
10,
2016
that
effectively
limits
the
interest
at
3.00%
per
annum.
See
“Note
7
–
Fair
Value
Measurements
and
Derivative
Instruments”
for
more
information
on
the
interest
rate
cap.
On
April
10,
2015,
we
refinanced
the
outstanding
mortgage
debt
with
an
original
principal
balance
of
$38,913
secured
by
the
Courtyard
by
Marriott,
Brookline,
MA.
The
loan
was
due
to
mature
in
July
2015,
and
we
incurred
approximately
$10
in
expense
in
unamortized
deferred
financing
costs
and
fees.
On
January
30,
2015,
we
repaid
in
full
outstanding
mortgage
debt
with
an
original
principal
balance
of
$27,500
secured
by
the
Capitol
Hill
Hotel,
Washington,
DC
and
simultaneously
entered
into
a
new
mortgage
obligation
of
$25,000.
The
new
mortgage
debt
bears
interest
at
a
variable
rate
of
one
month
U.S.
dollar
LIBOR
plus
2.25%
and
matures
on
January
30,
2018.
The
loan
was
due
to
mature
in
January
2015,
and
we
incurred
no
loss
on
debt
extinguishment
in
paying
off
the
loan.
We
had
previously
entered
into
an
interest
rate
swap
with
respect
to
the
$27,500
mortgage
loan
that
matured
on
February
1,
2015.
In
connection
with
this
transaction,
we
did
not
enter
into
a
new
derivative
instrument
to
fix
or
cap
the
rate
of
interest
payable
on
the
$25,000
mortgage
loan.
See
“Note
7
–
Fair
Value
Measurements
and
Derivative
Instruments”
for
more
information
on
this
transaction.
On
November
13,
2014,
we
repaid
outstanding
mortgage
debt
on
with
an
original
principal
balance
of
$32,000
secured
by
the
Hilton
Garden
Inn,
Tribeca,
NY
and
simultaneously
entered
into
a
new
mortgage
obligation
of
$46,500
with
a
new
lender.
The
new
mortgage
debt
bears
interest
at
a
variable
rate
of
one
month
U.S.
dollar
LIBOR
plus
2.30%
and
matures
on
November
1,
2019.
On
February
28,
2014,
we
refinanced
our
previous
$400,000
unsecured
credit
facility
with
a
$500,000
unsecured
credit
facility
with
Citigroup
Global
Markets
Inc.
and
various
other
lenders.
As
a
result
of
this
refinance,
we
expensed
$579
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,
2014.
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
expensed
$91
in
unamortized
deferred
financial
costs
and
fees
during
the
year
ended
December
31,
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
7
–
Fair
Value
Measurements
and
Derivative
Instruments”
for
more
information.
63
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
6
–
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,
2015,
2014
and
2013,
base
management
fees
incurred
totaled
$13,675,
$12,263
and
$11,713
respectively,
and
are
recorded
as
Hotel
Operating
Expenses.
For
the
years
ended
December
31,
2015,
2014
and
2013,
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,
2015,
2014
and
2013
were
$27,998,
$26,015
and
$26,247
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,
2015,
2014
and
2013,
the
Company
incurred
accounting
fees
of
$1,484,
$1,410
and
$1,739
respectively.
For
the
years
ended
December
31,
2015,
2014
and
2013,
the
Company
incurred
information
technology
fees
of
$441,
$416
and
$510
respectively.
Accounting
fees
and
information
technology
fees
are
included
in
Hotel
Operating
Expenses.
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,
2015,
2014
and
2013,
we
incurred
fees
of
$996,
$742
and
$1,459
respectively,
which
were
capitalized
with
the
cost
of
fixed
asset
additions.
64
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
6
–
COMMITMENTS
AND
CONTINGENCIES
AND
RELATED
PARTY
TRANSACTIONS
(CONTINUED)
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,
2015,
2014
and
2013,
we
incurred
charges
for
hotel
supplies
of
$189,
$163
and
$222
respectively.
For
the
years
ended
December
31,
2015,
2014
and
2013,
we
incurred
charges
for
capital
expenditure
purchases
of
$4,542,
$10,610
and
$19,783
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
$1
and
$2
is
included
in
accounts
payable
at
December
31,
2015
and
December
31,
2014,
respectively.
Due
From
Related
Parties
The
due
from
related
parties
balance
as
of
December
31,
2015
and
December
31,
2014
was
approximately
$6,243
and
$6,580,
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,
2015
and
December
31,
2014
was
approximately
$8,789
and
$7,203,
respectively.
The
balances
consisted
of
amounts
payable
to
HHMLP
for
administrative,
management,
and
benefit
related
fees.
Hotel
Ground
Rent
For
the
years
ended
December
31,
2015,
2014
and
2013
we
incurred
$3,137,
$2,433
and
$985
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
2016
2017
2018
2019
2020
Thereafter
Contingent
Consideration
$
$
2,701
2,706
2,714
2,719
2,744
249,360
262,944
The
purchase
agreement
for
the
acquisition
of
the
Parrot
Key
Resort
in
Key
West,
FL,
which
we
acquired
in
the
second
quarter
of
2014,
contained
a
provision
that
entitled
the
seller
to
additional
consideration
of
$2,000
contingent
upon
the
hotel
achieving
certain
net
operating
income
thresholds
within
twelve
months
of
acquisition.
At
the
time
of
acquisition,
no
liability
was
recorded
as
the
fair
65
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
6
–
COMMITMENTS
AND
CONTINGENCIES
AND
RELATED
PARTY
TRANSACTIONS
(CONTINUED)
market
value
of
the
contingent
consideration
was
determined
to
be
$0.
Upon
remeasurement
at
the
twelve
months
after
acquisition,
it
was
determined
that
the
hotel
achieved
a
net
operating
income
within
the
agreed
upon
threshold
and
the
liability
of
the
contingent
consideration
was
determined
to
be
$2,000;
and
thus
was
paid
to
the
seller
in
June
2015.
Litigation
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.
66
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
7
–
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,
2015,
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,
2015
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.
67
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
7
–
FAIR
VALUE
MEASUREMENTS
AND
DERIVATIVE
INSTRUMENTS
(CONTINUED)
Derivative
Instruments
Hedged
Debt
Strike
Rate
Type
Index
Effective
Date
Maturity
Date
Estimated
Fair
Value
Notional
Amount
December
31,
2015
December
31,
2014
Capitol
Hill
Hotel,
Washington,
DC*
Hilton
Garden
Inn
52nd
Street,
New
York,
NY
Swap
0.540%
Cap
1.100%
1-‐Month
LIBOR
+
3.25%
1-‐Month
LIBOR
+
2.90%
February
1,
2012
February
1,
2015
$
-‐
$
-‐
$
May
27,
2014
June
1,
2015
45,000
Courtyard,
LA
Westside,
Culver
City,
LA****
Swap
1.097%
1-‐Month
LIBOR
+
3.85%
September
29,
2011
September
29,
2015
-‐
-‐
-‐
Courtyard,
LA
Westside,
Culver
City,
LA****
Cap
3.000%
Hyatt,
Union
Square,
New
York,
NY
Cap
2.000%
Courtyard,
Miami,
FL***
Swap
0.820%
Unsecured
Term
Loan
Swap
0.545%
Unsecured
Term
Loan
Swap
0.600%
Duane
Street
Hotel,
New
York,
NY
Hilton
Garden
Inn
52nd
Street,
New
York,
NY
Swap
0.933%
Swap
1.152%
Hyatt,
Union
Square,
New
York,
NY**
Cap
3.000%
1-‐Month
LIBOR
+
3.00%
1-‐Month
LIBOR
+
4.19%
1-‐Month
LIBOR
+
3.50%
1-‐Month
LIBOR
+
2.35%
1-‐Month
LIBOR
+
2.35%
1-‐Month
LIBOR
+
4.50%
1-‐Month
LIBOR
+
2.90%
1-‐Month
LIBOR
+
2.30%
October
27,
2015
September
29,
2017
35,000
19
April
9,
2013
April
9,
2016
55,000
July
2,
2012
July
1,
2016
-‐
November
5,
2012
December
18,
2012
November
5,
2016
November
5,
2016
100,000
50,000
February
1,
2014
February
1,
2017
9,167
-‐
-‐
84
18
(21)
June
1,
2015
February
21,
2017
45,000
(215)
June
10,
2015
June
10,
2019
55,750
$
136
21
$
(8)
-‐
(174)
9
(218)
272
85
(29)
(149)
-‐
(212)
*
**
On
February
1,
2015,
the
interest
rate
swap
associated
with
Capitol
Hill
Hotel
matured,
and
we
refinanced
the
debt
on
this
property.
See
“Note
5
–
Debt”
for
more
information
regarding
this
refinance.
On
June
10,
2015,
we
refinanced
the
debt
associated
with
Hyatt
Union
Square.
As
a
result,
we
entered
into
an
interest
rate
cap
with
a
strike
rate
of
3.000%.
The
original
interest
rate
cap
will
mature
on
April
9,
2016.
See
“Note
5
–
Debt”
for
more
information
regarding
this
refinance.
***
On
August
10,
2015,
we
paid
off
the
debt
associated
with
Courtyard,
Miami,
FL,
and
therefore,
terminated
the
interest
rate
swap
associated
with
the
mortgage
on
this
property.
As
a
result
of
this
termination,
we
expensed
$190
in
fees.
See
“Note
5
–
Debt”
for
more
information
regarding
this
pay-‐off.
****
On
October
27,
2015,
we
refinanced
the
debt
associated
with
Courtyard,
LA
Westside.
As
a
result,
we
entered
into
an
interest
rate
cap
with
a
strike
rate
of
3.000%.
The
existing
interest
rate
swap
matured
on
September
29,
2015.
See
“Note
5
–
Debt”
for
more
information
regarding
this
refinance.
On
January
31,
2014,
we
entered
into
an
interest
rate
swap
that
effectively
fixes
interest
payments
at
5.433%
on
a
variable
rate
mortgage
on
the
Duane
Street
Hotel.
See
“Note
5
–
Debt”
for
more
information
on
the
interest
rate
swap.
On
April
30,
2014,
we
sold
Hotel
373,
New
York,
NY,
and
therefore,
terminated
the
interest
rate
cap
associated
with
the
mortgage
on
this
property.
As
a
result
of
this
termination,
we
expensed
$55
in
fees,
which
are
included
in
the
gain
on
disposition
of
hotel
properties.
On
May
27,
2014,
we
entered
into
an
interest
rate
cap
that
effectively
fixes
interest
payments
when
1
month-‐U.S.
dollar
LIBOR
exceeds
1.10%
on
a
variable
rate
mortgage
on
the
Hilton
Garden
Inn
52nd
Street,
New
York,
NY.
The
notional
amount
of
the
interest
rate
cap
is
$45,000
and
equals
the
principal
of
the
variable
rate
mortgage
being
hedged.
This
interest
rate
cap
matures
on
June
1,
2015.
Upon
maturity
of
the
interest
rate
cap,
an
interest
rate
swap
will
go
into
effect
that
effectively
fixes
the
interest
payment
at
4.052%.
68
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
7
–
FAIR
VALUE
MEASUREMENTS
AND
DERIVATIVE
INSTRUMENTS
(CONTINUED)
The
fair
value
of
certain
swaps
and
our
interest
rate
caps
is
included
in
other
assets
at
December
31,
2015
and
December
31,
2014
and
the
fair
value
of
certain
of
our
interest
rate
swaps
is
included
in
accounts
payable,
accrued
expenses
and
other
liabilities
at
December
31,
2015
and
December
31,
2014.
The
net
change
in
fair
value
of
derivative
instruments
designated
as
cash
flow
hedges
was
a
loss
of
$108,
and
a
gain
of
$18
and
$1,410
for
the
years
ended
December
31,
2015,
2014
and
2013,
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
$1,567
of
net
unrealized
gains/losses
from
accumulated
other
comprehensive
income
as
an
increase
to
interest
expense
during
2015.
During
2016,
the
Company
estimates
that
an
additional
$177
will
be
reclassified
as
an
increase
to
interest
expense.
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,
2015,
the
carrying
value
and
estimated
fair
value
of
the
Company’s
debt
were
$1,177,087
and
$1,170,901,
respectively.
As
of
December
31,
2014,
the
carrying
value
and
estimated
fair
value
of
the
Company’s
debt
were
$918,923
and
$916,877,
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
were
less
than
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
was
under
contract
to
sell
for
which
the
anticipated
net
proceeds
were
less
than
the
carrying
value.
The
fair
value
of
the
non-‐core
hotel
portfolio
was
estimated
using
level
2
inputs.
69
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
8
–
SHARE
BASED
PAYMENTS
In
May
2011,
the
Company
established
and
our
shareholders
approved
the
Hersha
Hospitality
Trust
2012
Equity
Incentive
Plan
(as
amended
through
the
date
hereof,
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
March
18,
2015,
the
Compensation
Committee
approved
the
2015
Annual
Long
Term
Equity
Incentive
Program
(“2015
Annual
EIP”)
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
(“LTIP
Units”).
LTIP
Units
are
earned
under
the
2015
Annual
EIP
based
on
achieving
a
threshold,
target
or
maximum
level
of
performance
in
the
performance
of
RevPAR
growth
in
certain
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
each
period.
As
of
December
31,
2015,
no
shares
or
LTIP
Units
have
been
issued
in
accordance
with
the
2012
Plan
to
the
executive
officers
in
settlement
of
2015
Annual
EIP
awards.
The
following
table
is
a
summary
of
all
unvested
LTIP
Units
issued
to
executives:
Issuance
Date
March
30,
2015
(2014
Annual
EIP)
December
23,
2014
(2013
Annual
EIP)
(3)
December
23,
2014
(2012
Annual
EIP)
(3)
December
23,
2014
(3)
LTIP
Units
Issued
Vesting
Period
Vesting
Schedule
December
31,
2015
December
31,
2014
December
31,
2015
December
31,
2014
Units
Vested
Unearned
Compensation
128,832
3
years
25%/year
(1)
64,415
-‐
$
758
$
-‐
83,993
3
years
25%/year
(1)
83,992
27,998
173
582
97,381
3
years
258,899
5
years
25%/year
(1)
33%
Year
3,
4,
5
(2)
569,105
194,761
86,299
429,467
48,690
-
76,688
$
-‐
1,553
2,484
$
309
2,650
3,541
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
effective
issuance
(subject
to
continuous
employment
through
the
applicable
vesting
date).
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
258,899
restricted
common
shares
to
the
executives
pursuant
to
the
2012
Plan,
which
were
subsequently
forfeited
and
replaced
with
LTIP
Units.
None
of
these
LTIP
Units
will
vest
prior
to
the
third
anniversary
of
the
date
of
issuance.
Thereafter,
33.3%
of
each
award
of
LTIP
Units
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
employment
agreements).
On
December
23,
2014,
the
2012
Plan
was
amended
and
restated
to
add
LTIP
Units
as
a
type
of
award
available
under
the
2012
Plan.
On
this
date,
the
Compensation
Committee
approved
an
aggregate
of
487,081
LTIP
Units
to
certain
executive
officers.
These
executive
officers
forfeited
an
aggregate
of
487,081
Class
A
Common
Shares,
all
of
which
were
unvested
as
of
the
grant
date
of
the
LTIP
Units
and
previously
awarded
to
the
executive
officers
under
the
2012
Plan
as
restricted
stock
awards.
These
LTIP
Units
are
subject
to
the
same
time-‐based
vesting
conditions
that
applied
to
the
forfeited
restricted
stock
awards.
(1)
(2)
(3)
70
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
8
–
SHARE
BASED
PAYMENTS
(CONTINUED)
Stock
based
compensation
expense
related
to
the
Annual
Long
Term
Equity
Incentive
Program
of
$4,490,
$4,083
and
$4,858
was
incurred
during
the
years
ended
December
31,
2015,
2014
and
2013,
respectively.
Unearned
compensation
related
to
the
Annual
Long
Term
Equity
Incentive
Program
as
of
December
31,
2015
and
December
31,
2014
was
$2,484
and
$3,541,
respectively.
Compensation
related
to
the
LTIP
Units
is
included
in
Noncontrolling
Interests
on
the
Company’s
Consolidated
Balance
Sheets
and
Consolidated
Statements
of
Equity.
Multi-‐Year
Long
Term
Equity
Incentive
Programs
On
March
18,
2015,
the
Compensation
Committee
approved
the
2015
Multi-‐Year
Long
Term
Equity
Incentive
Program
(“2015
Multi-‐Year
EIP”).
The
shares
or
LTIP
Units
issuable
under
this
program
are
based
on
the
Company’s
achievement
of
a
certain
level
of
(1)
absolute
total
shareholder
return
(37.50%
of
the
award),
(2)
relative
total
shareholder
return
as
compared
to
the
Company’s
peer
group
(37.50%
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,
2015
and
ends
December
31,
2017.
As
of
December
31,
2015,
no
shares
or
LTIP
Units
have
been
issued
to
the
executive
officers
in
settlement
of
2015
Multi-‐Year
EIP
awards.
On
April
11,
2014,
the
Compensation
Committee
approved
the
2014
Multi-‐Year
Long
Term
Equity
Incentive
Program
(“2014
Multi-‐Year
EIP”).
The
common
shares
issuable
under
this
program
are
based
on
the
Company’s
achievement
of
a
certain
level
of
(1)
absolute
total
shareholder
return
(37.50%
of
the
award),
(2)
relative
total
shareholder
return
as
compared
to
the
Company’s
peer
group
(37.50%
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,
2014
and
ends
December
31,
2016.
As
of
December
31,
2015
no
common
shares
have
been
issued
to
the
executive
officers
in
settlement
of
2014
Multi-‐Year
EIP
awards.
On
April
15,
2013,
the
Compensation
Committee
approved
the
2013
Multi-‐Year
Long
Term
Equity
Incentive
Program
(“2013
Multi-‐Year
EIP”).
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,
2015
no
common
shares
have
been
issued
to
the
executive
officers
in
settlement
of
2013
Multi-‐Year
EIP
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
probable
achievement
of
the
performance
conditions
at
the
end
of
the
reporting
period.
Stock
based
compensation
expense
of
$818,
$598
and
$3,481
was
recorded
for
the
years
ended
December
31,
2015,
2014
and
2013,
respectively,
for
the
Multi-‐Year
Long
Term
Equity
Incentive
Programs.
Unearned
compensation
related
to
the
multi-‐year
program
as
of
December
31,
2015
and
December
31,
2014,
respectively,
was
$1,548
and
$1,621.
71
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
8
–
SHARE
BASED
PAYMENTS
(CONTINUED)
Restricted
Share
Awards
In
addition
to
stock
based
compensation
expense
related
to
awards
under
the
Multi-‐Year
and
Annual
Long
Term
Equity
Incentive
Programs,
stock
based
compensation
expense
related
to
restricted
common
shares
issued
to
employees
of
the
Company
of
$455,
$399
and
$522
was
incurred
during
the
years
ended
December
31,
2015,
2014
and
2013
respectively.
Unearned
compensation
related
to
the
restricted
share
awards
as
of
December
31,
2015
and
December
31,
2014
was
$491
and
$322,
respectively.
The
following
table
is
a
summary
of
all
unvested
share
awards
issued
to
executives
under
the
2012
Plan
and
prior
equity
incentive
plans:
Original
Issuance
Date
December
31,
2015
July
14,
2015
June
1,
2015
March
27,
2015
July
15,
2014
June
23,
2014
March
24,
2014
February
13,
2014
June
28,
2013
June
29,
2012
June
30,
2011
Total
Original
Shares
Issued
816
$
15,817
1,651
5,208
10,352
1,103
2,046
462
11,899
13,646
4,423
67,423
Share
Price
on
Date
of
Grant*
21.76
28.09
25.92
25.88
27.00
26.00
22.76
21.76
22.56
21.12
22.28
Vesting
Period
2
years
2-‐4
years
2
years
2
years
2
years
2
years
2
years
2
years
2-‐4
years
2-‐4
years
2-‐4
years
Vesting
Schedule
50%
/year
25-‐50%
/year
50%
/year
50%
/year
50%
/year
50%
/year
50%
/year
50%
/year
25-‐50%
/year
25-‐50%
/year
25-‐50%
/year
Shares
Vested
Unearned
Compensation
December
31,
2015
December
31,
2014
December
31,
2015
December
31,
2014
-‐
-‐
-‐
600
6,069
550
2,046
462
11,199
12,445
4,423
37,794
-‐
$
-‐
-‐
-‐
1,532
-‐
1,023
231
5,724
11,242
3,451
23,203
$
13
$
335
30
41
48
6
-‐
-‐
7
11
-‐
491
$
-‐
-‐
-‐
-‐
177
20
10
2
69
36
8
322
*
Original
share
price
on
date
of
grant
was
multiplied
by
four
to
account
for
the
reverse
share
split
which
occurred
on
June
22,
2015.
See
“Note
1
–
Basis
of
Presentation”
for
more
information.
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.
Compensation
expense
incurred
for
the
years
ended
December
31,
2015,
2014
and
2013,
respectively,
was
$93,
$220
and
$160.
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*
Vesting
Period
Vesting
Schedule
Unearned
Compensation
December
31,
2015
December
31,
2014
December
30,
2014
3,215
$
29.00
1
year
100%
$
-‐
$
93
*
Original
share
price
on
date
of
grant
was
multiplied
by
four
to
account
for
the
reverse
share
split
which
occurred
on
June
22,
2015.
See
“Note
1
–
Basis
of
Presentation”
for
more
information.
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,
2015,
2014
and
2013,
respectively,
was
$59,
$71
and
$55.
Unearned
compensation
related
to
the
multi-‐year
long
term
equity
incentives
was
$67
and
$127
as
of
December
31,
2015
and
December
31,
2014,
respectively.
72
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
8
–
SHARE
BASED
PAYMENTS
(CONTINUED)
The
following
table
is
a
summary
of
all
unvested
share
awards
issued
to
trustees
under
the
2012
Plan
and
prior
equity
incentive
plans:
Original
Issuance
Date
December
30,
2014
December
27,
2013
December
28,
2012
Shares
Issued
2,500
3,000
3,000
Vesting
Period
3
years
3
years
3
years
Vesting
Schedule
33%
/year
33%
/year
33%
/year
Shares
Vested
Unearned
Compensation
December
31,
2015
December
31,
2014
December
31,
2015
December
31,
2014
835
2,170
3,000
6,005
-‐
$
1,334
2,168
3,502
$
48
$
19
-‐
67
$
73
38
16
127
Share
Awards
Compensation
expense
related
to
share
awards
issued
to
the
Board
of
Trustees
of
$434,
$457
and
$496
was
incurred
during
the
years
ended
December
31,
2015,
2014
and
2013,
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
1,
2015,
an
aggregate
of
10,442
shares
were
issued
to
the
Board
of
Trustees
at
a
price
per
share
on
the
date
of
grant
of
$25.92.
On
December
31,
2015,
an
aggregate
7,500
shares
were
issued
to
the
Board
of
Trustees
at
a
price
per
share
on
the
date
of
grant
of
$21.76.
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,
$200
and
$174
for
the
years
ended
December
31,
2015,
2014
and
2013,
respectively.
Unearned
compensation
related
to
the
restricted
share
awards
as
of
December
31,
2015
and
December
31,
2014
was
$90
and
$81,
respectively.
The
following
table
is
a
summary
of
all
unvested
share
awards
issued
to
non-‐employees
under
the
Company’s
2012
Plan:
Original
Issuance
Date
March
27,
2015
March
24,
2014
Shares
Issued
Share
Price
on
Date
of
Grant*
7,438
$
7,219
$
25.88
22.76
Vesting
Period
2
years
2
years
Vesting
Schedule
50%
/year
50%
/year
Total
14,657
Shares
Vested
Unearned
Compensation
December
31,
2015
December
31,
2014
December
31,
2015
December
31,
2014
3,762
7,219
10,981
-‐
$
3,750
3,750
$
90
$
-‐
90
$
-‐
81
81
*
Original
share
price
on
date
of
grant
was
multiplied
by
four
to
account
for
the
reverse
share
split
which
occurred
on
June
22,
2015.
See
“Note
1
–
Basis
of
Presentation”
for
more
information.
73
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
9
–
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,
2015
2014
2013
NUMERATOR:
Basic
and
Diluted*
Income
from
Continuing
Operations
$
42,207
$
69,936
$
20,753
(Income)
Loss
from
Continuing
Operations
allocated
to
Noncontrolling
Interests
Distributions
to
Preferred
Shareholders
Dividends
Paid
on
Unvested
Restricted
Shares
and
LTIP
Units
Extinguishment
of
Issuance
Costs
Upon
Redemption
of
Series
A
Preferred
Stock
(411)
(14,356)
(453)
-‐
(1,069)
(14,356)
(515)
-‐
Income
from
Continuing
Operations
attributable
to
Common
Shareholders
26,987
53,996
Discontinued
Operations
(Loss)
Income
from
Discontinued
Operations
Loss
(Income)
from
Discontinued
Operations
allocated
to
Noncontrolling
Interests
(Loss)
Income
from
Discontinued
Operations
attributable
to
Common
Shareholders
-‐
-‐
-‐
(1,665)
53
(1,612)
658
(14,611)
(804)
(2,250)
3,746
29,195
(993)
28,202
Net
Income
attributable
to
Common
Shareholders
$
26,987
$
52,384
$
31,948
DENOMINATOR:
Weighted
average
number
of
common
shares
-‐
basic
47,786,811
49,777,302
49,597,613
Effect
of
dilutive
securities:
Restricted
Stock
Awards
and
LTIP
Units
(unvested)
Contingently
Issued
Shares
303,949
278,898
347,829
182,375
596,041
*
285,891
*
Weighted
average
number
of
common
shares
-‐
diluted
48,369,658
50,307,506
50,479,545
*
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.
74
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
10
–
CASH
FLOW
DISCLOSURES
AND
NON
CASH
INVESTING
AND
FINANCING
ACTIVITIES
Interest
paid
during
2015,
2014
and
2013
totaled
$40,240,
$40,760
and
$42,984
respectively.
The
following
non-‐cash
investing
and
financing
activities
occurred
during
2015,
2014
and
2013:
Common
Shares
issued
as
part
of
the
Dividend
Reinvestment
Plan
Acquisition
of
hotel
properties:
Debt
assumed,
including
premium
Settlement
of
development
loan
receivable
principal
and
accrued
interest
revenue
receivable
Disposition
of
hotel
properties:
Debt
assumed
by
purchaser
Conversion
of
Common
Units
to
Common
Shares
Accrued
payables
for
fixed
assets
placed
into
service
2015
2014
2013
$
50
$
50
$
38
28,902
-‐
24,924
22,494
-‐
13,303
-‐
132
992
45,710
72
1,312
-‐
106
2,572
75
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
11
–
HOTEL
DISPOSITIONS
Effective
January
1,
2014,
we
early
adopted
ASU
Update
No.
2014-‐08
concerning
the
classification
and
reporting
of
discontinued
operations.
This
amendment
defines
discontinued
operations
as
a
component
of
an
entity
that
represents
a
strategic
shift
that
has
(or
will
have)
a
major
effect
on
an
entity’s
operations
and
financial
results.
As
a
result
of
the
early
adoption
of
ASU
Update
No.
2014-‐08,
we
anticipate
that
most
of
our
hotel
dispositions
will
not
be
classified
as
discontinued
operations
as
most
will
not
fit
this
definition.
For
transactions
that
have
been
classified
as
held
for
sale
or
as
discontinued
operations
for
periods
prior
to
our
adoption
of
ASU
Update
No.
2014-‐08,
we
will
continue
to
present
the
operating
results
as
discontinued
operations
in
the
statements
of
operations
for
all
applicable
periods
presented.
Disposed
Assets
Hotel
Acquisition
Date
Disposition
Date
Consideration
Gain
on
Disposition
Hotel
373
2014
Total
June
2007
April
2014
$
37,000
$
$
Non-‐Core
Portfolio
II
(12)
January
1999
-‐
July
2010
December
2013
$
158,600
$
Holiday
Inn
Express,
Camp
Springs,
MD
Comfort
Inn,
Harrisburg,
PA
2013
Total
June
2008
January
1999
September
2013
June
2013
8,500
3,700
7,195
7,195
(1)
31,559
(2)
120
(3)
442
32,121
(1) The
operations
from
this
property
included
(loss)
income
of
($137)
and
$858
for
the
years
ended
December
31,
2014,
and
2013,
respectively.
(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,
2014
and
2013.
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.
We
recorded
an
impairment
loss
of
approximately
$1,800
for
those
assets
for
which
the
anticipated
net
proceeds
did
not
exceed
the
carrying
value.
(3) We
recorded
an
impairment
loss
for
this
property
of
approximately
$3,723
as
the
net
proceeds
did
not
exceed
the
carrying
value.
76
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
11
–
HOTEL
DISPOSITIONS
(CONTINUED)
Assets
Held
for
Sale
As
of
December
31,
2015
and
2014,
we
had
no
assets
or
liabilities
related
to
assets
held
for
sale.
The
following
table
sets
forth
the
components
of
discontinued
operations
for
the
years
ended
December
31,
2014
and
2013.
Discontinued
operations
include
the
results
of
operations
for
hotels
sold
in
2013
and
the
first
quarter
of
2014.
Revenue:
Hotel
Operating
Revenues
Total
Revenues
Expenses:
Hotel
Operating
Expenses
Gain
on
Insurance
Settlements
Real
Estate
and
Personal
Property
Taxes
and
Property
Insurance
General
and
Administrative
Depreciation
and
Amortization
Interest
Expense
Other
Expense
Income
Tax
Expense
Total
Expenses
2014
2013
$
1,940
$
1,940
1,151
74
91
4
1
354
-‐
2
1,677
Income
from
Discontinued
Operations
$
263
$
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.
58,045
58,045
35,158
-‐
3,316
36
7,050
4,863
44
190
50,657
7,388
77
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
12
–
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,
2015,
2014
and
2013
was
1,703,386,
1,712,353
and
1,728,679,
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
2015,
2014
and
2013,
8,965,
4,725
and
6,948
Common
Units
were
converted
to
common
shares,
respectively.
In
addition,
as
noted
in
“Note
8
–
Share
Based
Payments,”
during
2015,
the
Company
issued
128,832
LTIP
Units.
78
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
13
–
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,
2014
2013
2015
Statutory
federal
income
tax
provision
Adjustment
for
nontaxable
income
for
Hersha
Hospitality
Trust
State
income
taxes,
net
of
federal
income
tax
effect
Recognition
of
deferred
tax
assets
Changes
in
valuation
allowance
$
$
13,282
(15,853)
(581)
11
-‐
$
22,865
(25,274)
(367)
91
-‐
5,152
(7,472)
(1,317)
(1,963)
-‐
Total
income
tax
benefit
$
(3,141)
$
(2,685)
$
(5,600)
The
components
of
the
Company’s
income
tax
expense
(benefit)
from
continuing
operations
for
the
years
ended
December
31,
2015,
2014
and
2013
were
as
follows:
For
the
year
ended
December
31,
2014
2013
2015
Income
tax
expense
(benefit):
Current:
Federal
State
Deferred:
Federal
State
Total
Income
tax
expense
(benefit):
From
continuing
operations
From
discontinued
operations
Total
$
$
$
$
-‐
-‐
$
-‐
-‐
-‐
-‐
(2,261)
(880)
(3,141)
(3,141)
-‐
(3,141)
$
$
(2,130)
(555)
(2,685)
(2,685)
2
(2,683)
$
$
(3,604)
(1,996)
(5,600)
(5,600)
190
(5,410)
79
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
13
–
INCOME
TAXES
(CONTINUED)
The
components
of
consolidated
TRS’s
net
deferred
tax
asset
as
of
December
31,
2015
and
2014
were
as
follows:
Deferred
tax
assets:
Net
operating
loss
carryforwards
Accrued
expenses
and
other
Tax
credit
carryforwards
Total
gross
deferred
tax
assets
Valuation
allowance
Total
net
deferred
tax
assets
Deferred
tax
liabilities:
Depreciation
and
amortization
Total
Net
deferred
tax
assets
(liabilities)
As
of
December
31,
2015
2014
$
$
$
14,168
1,292
558
16,018
(804)
15,214
624
14,590
$
$
$
11,387
616
481
12,484
(804)
11,680
232
11,448
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,
the
Company
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,
2015,
we
have
gross
federal
net
operating
loss
carryforwards
of
$35,353
which
expire
over
various
periods
from
2023
through
2035.
As
of
December
31,
2015,
we
have
gross
state
net
operating
loss
carryforwards
of
$40,546
which
expire
over
various
periods
from
2015
to
2035.
The
Company
has
tax
credits
of
$558
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,
2015,
2014
and
2013.
2015
2014
2013
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
80
N/A
N/A
N/A
100.00%
0.00%
0.00%
100.00%
0.00%
0.00%
79.49%
20.51%
0.00%
N/A
N/A
N/A
100.00%
0.00%
0.00%
100.00%
0.00%
0.00%
76.34%
23.66%
0.00%
100.00%
0.00%
0.00%
100.00%
0.00%
0.00%
100.00%
0.00%
0.00%
45.15%
54.85%
0.00%
hersha hospitality trust and subsidiaries
notes to the consolidated financial statements
for the years ended december 31, 2015, 2014 and 2013
[in thousands, except share/unit and per share amounts]
NOTE
14
–
SELECTED
QUARTERLY
FINANCIAL
DATA
(UNAUDITED)
Total
Revenues
Total
Expenses
(Loss)
Income
from
Unconsolidated
Joint
Ventures
(Loss)
Income
from
Continuing
Operations
Income
Tax
Benefit
Net
(Loss)
Income
(Loss)
Income
Allocated
to
Noncontrolling
Interests
in
Continuing
Operations
Preferred
Distributions
Year
Ended
December
31,
2015
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
95,760
$
127,081
$
124,560
$
123,177
99,875
(274)
(4,389)
108,090
111,396
113,116
526
608
105
19,517
13,772
10,166
-‐
109
631
(4,389)
19,626
14,403
(443)
3,589
405
3,589
244
3,589
2,401
12,567
205
3,589
8,773
Net
(Loss)
Income
applicable
to
Common
Shareholders
$
(7,535)
$
15,632
$
10,570
$
Basic
and
diluted
earnings
per
share:
Net
(Loss)
Income
applicable
to
Common
Shareholders
$
(0.16)
$
0.32
$
0.22
$
0.19
Weighted
Average
Common
Shares
Outstanding
Basic
Diluted
Total
Revenues
Total
Expenses
(Loss)
Income
from
Unconsolidated
Joint
Ventures
(Loss)
Income
from
Continuing
Operations
Income
Tax
Benefit
(Loss)
Income
from
Discontinued
Operations
(including
Gain
on
Disposition
of
Discontinued
Assets)*
Net
(Loss)
Income
(Loss)
Income
Allocated
to
Noncontrolling
Interests
in
Continuing
Operations
Preferred
Distributions
49,582,790
48,530,716
47,417,452
45,663,416
49,582,790
49,043,914
47,909,549
46,211,104
Year
Ended
December
31,
2014
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
80,348
$
111,830
$
113,048
$
112,985
85,216
(420)
(5,288)
108
(1,333)
(6,513)
(507)
3,589
53,662
106,767
106,340
419
58,587
607
6,888
87
6,732
(1)
-‐
699
1,879
-‐
-‐
58,586
7,587
8,611
1,655
3,589
(49)
3,589
(83)
3,589
5,105
Net
(Loss)
Income
applicable
to
Common
Shareholders
$
(9,595)
$
53,342
$
4,047
$
Basic
and
diluted
earnings
per
share:
(Loss)
Income
from
continuing
operations
applicable
to
common
shareholders
$
(0.16)
$
1.08
$
0.08
$
0.12
Discontinued
Operations
(0.04)
-‐
-‐
-‐
Net
Loss
(Income)
applicable
to
Common
Shareholders
$
(0.20)
$
1.08
$
0.08
$
0.12
Weighted
Average
Common
Shares
Outstanding
Basic
Diluted
*
Effective
January
1,
2014,
we
early
adopted
ASU
Update
No.
2014-‐08
concerning
the
classification
and
reporting
of
discontinued
operations.
As
such,
this
line
item
for
quarterly
results
presented
for
2014
will
not
be
comparable.
50,185,938
49,623,618
49,649,379
49,657,486
50,185,938
50,053,389
50,155,497
50,228,966
81
hersha hospitality trust and subsidiaries
schedule iii – real estate and accumulated depreciation as of december 31, 2015 (continued)
[in thousands]
Initial
Costs
Costs
Capitalized
Subsequent
to
Acquisition
Gross
Amounts
at
which
Carried
at
Close
of
Period
Accumulated
Depreciation
Net
Book
Value
Description
Encumbrances
Land
Improvements
Land
Improvements
Land
Buildings
&
Buildings
&
Buildings
&
Improvements
Total
Buildings
&
Improvements*
Land,
Buildings
&
Improvements
Date
of
Acquisition
Residence
Inn,
Framingham,
MA
1,325
12,737
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
(22,363)
5,472
23,280
2,615
14,815
-‐
47,414
4,283
14,475
(19,379)
-‐
25,018
(7,330)
1,872
8,968
1,956
9,793
1,970
11,761
(33,155)
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
Hyatt
House,
White
Plains,
NY
(33,030)
8,823
30,273
Holiday
Inn
Exp
&
Suites,
Chester,
NY
(6,156)
1,500
6,671
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
-‐
4,915
1,325
17,652
18,977
($5,774)
13,203
03/26/04
1,885
5,472
25,165
30,637
(7,489)
23,148
04/01/05
2,252
2,615
17,067
19,682
(5,688)
13,994
07/16/04
2,852
-‐
50,266
50,266
(13,877)
36,389
06/16/05
1,927
4,283
16,402
20,685
(4,714)
15,971
02/02/06
2,775
-‐
27,793
27,793
(7,736)
20,056
02/16/06
565
1,872
9,533
11,405
(2,501)
8,904
04/25/06
2,378
1,956
12,171
14,127
(3,978)
10,149
05/03/06
1,505
1,970
13,266
15,236
(3,392)
11,844
07/27/06
2,423
8,905
35,923
44,828
(9,286)
35,542
09/29/06
4,022
2,912
20,023
22,935
(5,528)
17,407
12/28/06
3,017
6,216
20,246
26,462
(5,046)
21,416
12/28/06
3,530
3,941
16,090
20,031
(4,609)
15,422
12/28/06
3,489
3,060
23,457
26,517
(6,549)
19,968
12/28/06
2,726
8,823
32,999
41,822
(8,631)
33,191
12/28/06
301
1,500
6,972
8,472
(1,603)
6,869
01/25/07
(1)
Costs
capitalized
subsequent
to
acquisition
include
reductions
of
asset
value
due
to
impairment.
82
hersha hospitality trust and subsidiaries
schedule iii – real estate and accumulated depreciation as of december 31, 2015 (continued)
[in thousands]
Initial
Costs
Costs
Capitalized
Subsequent
to
Acquisition
Gross
Amounts
at
which
Carried
at
Close
of
Period
Accumulated
Depreciation
Net
Book
Value
Description
Encumbrances
Land
Improvements
Land
Improvements
Land
Buildings
&
Buildings
&
Buildings
&
Improvements
Total
Buildings
&
Improvements*
Land,
Buildings
&
Improvements
Date
of
Acquisition
Capitol
Hill
Suites
Washington,
DC
Courtyard,
LA
Westside,
CA
Hampton
Inn,
Pearl
Street,
NY
Courtyard,
Miami,
FL
The
Rittenhouse
Hotel,
PA
Bulfinch,
Boston,
MA
Holiday
Inn
Express,
Manhattan,
NY
Hyatt,
Union
Square,
NY
Courtyard,
San
Diego,
CA
Residence
Inn,
Coconut
Grove,
FL
Hotel
Milo,
Santa
Barbara,
CA
Hilton
Garden
Inn,
Midtown
East,
NY
(25,000)
8,095
35,141
-‐
3,993
8,095
39,134
47,229
(5,763)
41,466
04/15/11
(35,000)
13,489
27,025
-‐
4,755
13,489
31,780
45,269
(4,477)
40,792
05/19/11
11,384
23,432
-‐
556
11,384
23,988
35,372
(958)
34,414
07/22/11
35,699
55,805
-‐
21,917
35,699
77,722
113,421
(7,241)
106,180
11/16/11
7,108
29,556
-‐
14,127
7,108
43,683
50,791
(7,555)
43,237
03/01/12
1,456
14,954
-‐
1,481
1,456
16,435
17,891
(1,921)
15,969
05/07/12
(51,862)
30,329
57,016
-‐
801
30,329
57,817
88,146
(5,341)
82,805
06/18/12
(55,750)
32,940
79,300
-‐
882
32,940
80,182
113,122
(5,599)
107,523
04/09/13
15,656
51,674
-‐
1,656
15,656
53,330
68,986
(3,504)
65,482
05/30/13
4,146
17,456
-‐
7,025
4,146
24,481
28,627
(2,317)
26,310
06/12/13
(24,147)
-‐
55,080
-‐
1,696
-‐
56,776
56,776
(2,696)
54,080
02/28/14
(45,000)
45,480
60,762
-‐
137
45,480
60,899
106,379
(2,440)
103,939
05/27/14
(1)
Costs
capitalized
subsequent
to
acquisition
include
reductions
of
asset
value
due
to
impairment.
83
hersha hospitality trust and subsidiaries
schedule iii – real estate and accumulated depreciation as of december 31, 2015 (continued)
[in thousands]
Initial
Costs
Costs
Capitalized
Subsequent
to
Acquisition
Gross
Amounts
at
which
Carried
at
Close
of
Period
Accumulated
Depreciation
Net
Book
Value
Description
Encumbrances
Land
Improvements
Land
Improvements
Land
Buildings
&
Buildings
&
Buildings
&
Improvements
Total
Buildings
&
Improvements*
Land,
Buildings
&
Improvements
Date
of
Acquisition
Parrot
Key
Hotel,
Key
West,
FL
Winter
Haven
Hotel,
Miami
Beach,
FL
Blue
Moon
Hotel,
Miami
Beach,
FL
St.
Gregory
Hotel,
Washington
D.C.
TownePlace
Suites,
Sunnyvale,
CA
Ritz
Carlton
Georgetown,
Washington
D.C.
Total
Investment
in
Real
Estate
$
57,889
33,959
-‐
523
57,889
34,482
92,371
(1,443)
90,928
05/07/14
5,400
18,147
-‐
523
5,400
18,670
24,070
(974)
23,096
12/20/13
4,874
20,354
-‐
705
4,874
21,059
25,933
(1,072)
24,861
12/20/13
(25,559)
23,764
33,005
-‐
52
23,764
33,057
56,821
(448)
56,374
06/16/15
-‐
18,999
-‐
1
-‐
19,000
19,000
(167)
18,832
08/25/15
17,570
29,160
-‐
-‐
17,570
29,160
46,730
(6)
46,724
12/29/15
($545,036)
480,874
1,393,353
$
-‐
125,213
480,874
1,518,565
1,999,438
$
($237,129)
1,762,309
*
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,
2015,
2014
and
2013
is
approximately
$1,848,773,
$1,836,861
and
$1,575,555,
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
84
hersha hospitality trust and subsidiaries
schedule iii – real estate and accumulated depreciation as of december 31, 2015 (continued)
[in thousands]
2015
2014
2013
Reconciliation
of
Real
Estate
Balance
at
beginning
of
year
Additions
during
the
year
Dispositions/Deconsolidation
of
consolidated
joint
venture
during
the
year
Changes/Impairments
in
Assets
Held
for
Sale
Total
Real
Estate
$
$
1,864,382
135,056
-‐
$
1,999,438
$
1,629,312
333,889
(98,819)
-‐
1,864,382
Reconciliation
of
Accumulated
Depreciation
Balance
at
beginning
of
year
Depreciation
for
year
Changes/Impairments
in
Assets
Held
for
Sale
Accumulated
depreciation
on
assets
sold
Balance
at
the
end
of
year
$
$
189,889
47,240
-‐
-‐
237,129
$
$
162,189
43,218
-‐
(15,518)
189,889
$
$
$
$
1,520,151
275,032
(156,504)
(9,367)
1,629,312
150,353
39,771
51
(27,986)
162,189
85
Annual Report
Item
9.
2015
Changes
in
and
Disagreements
with
Accountants
on
Accounting
and
Financial
Disclosure
None.
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
(2013)
issued
by
the
Committee
of
Sponsoring
Organizations
(COSO)
of
the
Treadway
Commission
as
of
December
31,
2015.
Based
on
that
evaluation,
management
has
concluded
that,
as
of
December
31,
2015,
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,
2015
has
been
audited
by
KPMG
LLP,
an
independent
registered
public
accounting
firm,
as
stated
in
their
attestation
report
which
is
included
herein.
86
Report
of
Independent
Registered
Public
Accounting
Firm
hersha hospitality trust
The
Board
of
Trustees
and
Stockholders
Hersha
Hospitality
Trust:
We
have
audited
Hersha
Hospitality
Trust’s
internal
control
over
financial
reporting
as
of
December
31,
2015,
based
on
criteria
established
in
Internal
Control
-‐
Integrated
Framework
(2013)
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,
2015,
based
on
based
on
criteria
established
in
Internal
Control
-‐
Integrated
Framework
(2013)
issued
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission
(COSO).
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,
2015
and
2014,
and
the
related
consolidated
statements
of
operations,
comprehensive
income,
equity,
and
cash
flows
for
each
of
the
years
in
the
three-‐year
period
ended
December
31,
2015,
and
our
report
dated
February
17,
2016
expressed
an
unqualified
opinion
on
those
consolidated
financial
statements.
/s/
KPMG
LLP
Philadelphia,
Pennsylvania
February
17,
2016
87
Annual Report
2015
CHANGES
IN
INTERNAL
CONTROL
OVER
FINANCIAL
REPORTING
There
were
no
changes
in
our
internal
control
over
financial
reporting
during
the
quarter
ended
December
31,
2015,
that
have
materially
affected,
or
are
reasonably
likely
to
materially
affect,
our
internal
control
over
financial
reporting.
88
2015 Financial Highlights
(In thousands, except per share data)
Consolidated Hotel
Operating Results
Hotel Operating Revenues
Average Daily Rate
Occupancy
Revenue per Available Room
(In thousands, except per share data)
Hersha Hospitality Trust
Operating Data: (Excluding Impairment Charges) (1)
Total Revenues (Including Discontinued Operations)
Net Income applicable to Common Shareholders
Adjusted EBITDA(2) (4)
Adjusted Funds from Operations (3) (4)
Per Share Data: (Excluding Impairment Charges) (1)
Basic/Diluted Earnings Per Common Share
AFFO
Distributions to Common Shareholders
Year Ended December 31,
2015
2014
2013
2012
2011
470,272
417,226
338,064
299,005
229,156
197.34
84.1%
165.88
187.82
82.6%
155.19
179.70
79.7%
143.30
175.23
78.6%
137.78
166.58
76.6%
127.64
Year Ended December 31,
2015
2014
2013
2012
2011
470,385
27,440
177,289
118,093
419,346
54,638
162,506
102,832
396,458
44,467
145,064
86,487
364,690
8,376
143,291
76,046
329,868
(5,133
)
132,969
68,710
0.56
2.35
1.12
1.08
1.96
1.04
0.88
1.64
0.96
0.16
1.52
0.96
(0.12
)
1.52
0.92
$
$
$
$
$
Balance Sheet Data: (as of December 31st)
Total Assets
Total Debt
Noncontrolling Interest in Partnership
Total Liabilities and Equity
$
1,969,772
1,177,087
30,116
1,855,539
1,748,097
1,707,679
1,630,909
918,923
28,007
819,336
29,181
792,708
31,281
820,132
32,124
1,969,772
1,855,539
1,748,097
1,707,679
1,630,909
(1) Operating and Per Share Data exclude charges recorded during 2011-2014 relating to impairment losses on investment in unconsolidated joint ventures and 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 interpretation of Adjusted EBITDA is that EBITDA derived from our investment in unconsolidated joint ventures should be added back to net income
(loss) as part of reconciling net income (loss) to Adjusted EBITDA. 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, 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 preferred share extinguishment costs, adding back prior period tax assessment 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.
(4) In these financial highlights and in the Letter to our Shareholders from our Chief Executive Officer and our President and Chief Operating Officer that follows, we present
non-GAAP financial measures, including EBITDA, Adjusted EBITDA, hotel EBITDA, FFO and AFFO. We have provided reconciliations of these non-GAAP financial measures to the
applicable GAAP measures in the appendix section that follows the letter to our shareholders, in portions of our Annual Report on Form 10-K for the year ended December 31,
2015, which accompanies this letter or can be viewed at www.hersha.com, under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of
Operations.” Because hotel EBITDA is specific to individual hotels or groups of hotels and not to our Company as a whole, it is not directly comparable to any GAAP measure and
should not be relied on as a measure of performance for our portfolio of hotels taken as a whole.
HERSHA
hersha hospitality trust
Corporate Headquarters
44 Hersha Drive
Harrisburg, PA 17102
Telephone: (717) 236-4400
Fax: (717) 774-7383
Executive Offices
One Washington Square
510 Walnut Street, 9th Floor
Philadelphia, PA 19106
Telephone: (215) 238-1046
Fax: (215) 238-0157
Corporate/Securities Counsel
Hunton & Williams LLP
Independent Auditors
KPMG LLP
Registrar & Stock Transfer Agent
American Stock Transfer & Trust Company
CommonStock Information
The Common Stock of Hersha Hospitality Trust
is traded on the New York Stock Exchange
under the Symbol “HT”.
Management Certifications
The Company’s Chief Executive Officer and Chief
Financial Officer provided certifications to the
Securities and Exchange Commission as required by
Section 302 of the Sarbanes-Oxley Act of 2002
and these certifications are included in the
Company’s Annual Report on Form 10-K for the year
ended December 31, 2015. In addition, as required
by Section 303A.12(a) of the New York Stock
Exchange (NYSE) Listed Company Manual, on June
22, 2015 the Company’s Chief Executive Officer
submitted to the NYSE the annual CEO certification
regarding the Company’s compliance with the
NYSE’s corporate governance listing standards.
Annual Report on Form 10-K
Shareholders may obtain a copy of the Company’s
Annual Report on Form 10-K as filed with the
Securities and Exchange Commission free of charge
(except for exhibits), by writing to the Company’s
Chief Financial Officer, Hersha Hospitality Trust, 44
Hersha Drive, Harrisburg, PA; or, visit the Company’s
website at www.hersha.com and refer to the
Company’s SEC Filings.
Annual Meeting
The annual meeting of shareholders of Hersha
Hospitality Trust will be held at 9:00 A.M. (EDT) on
Friday, May 27, 2016 at The Ritz-Carlton Georgetown,
3100 South Street, N.W., Washington, DC. 20007.
Board of Trustees
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.
Michael A. Leven
Former 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.
John M. Sabin
Executive Vice President and CFO,
Revolution LLC. and Case Foundation
Management Team
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
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
Senior Vice President of Finance and Sustainability
HERSHA
h e r s h a h o s p i t a l i t y t r u s t
HT2015
HERSHA
hersha hospitality trust
www.hersha.com