Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
HT > SEC Filings for HT > Form 10-Q on 2-May-2013All Recent SEC Filings

Show all filings for HERSHA HOSPITALITY TRUST | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for HERSHA HOSPITALITY TRUST


2-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements containing the words, "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" and words of similar import. Such forward-looking statements relate to future events, our plans, strategies, prospects and future financial performance, and involve known and unknown risks that are difficult to predict, uncertainties and other factors which may cause our actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers should specifically consider the various factors identified in this and other reports filed by us with the SEC, including, but not limited to those discussed in the section entitled "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2012, that could cause actual results to differ. Statements regarding the following subjects are forward-looking by their nature:

? our business or investment strategy;

? our projected operating results;

? our distribution policy;

? our liquidity;

? completion of any pending transactions;

? our ability to obtain future financing arrangements;

? our understanding of our competition;

? market trends; and

? projected capital expenditures.

Forward-looking statements are based on our beliefs, assumptions and expectations, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Readers should not place undue reliance on forward-looking statements. The following factors could cause actual results to vary from our forward-looking statements:

? general volatility of the capital markets and the market price of our common shares;

? changes in our business or investment strategy;

? availability, terms and deployment of capital;

? availability of qualified personnel;

? changes in our industry and the market in which we operate, interest rates, or the general economy;

? the degree and nature of our competition;

? financing risks, including the risk of leverage and the corresponding risk of default on our mortgage loans and other debt and potential inability to refinance or extend the maturity of existing indebtedness;

? levels of spending in the business, travel and leisure industries, as well as consumer confidence;

? declines in occupancy, average daily rate and RevPAR and other hotel operating metrics;

? hostilities, including future terrorist attacks, or fear of hostilities that affect travel;

? financial condition of, and our relationships with, our joint venture partners, third-party property managers, franchisors and hospitality joint venture partners;

? the degree and nature of our competition;

? increased interest rates and operating costs;

? ability to complete development and redevelopment projects;

? risks associated with potential acquisitions, including the ability to ramp up and stabilize newly acquired hotels with limited or no operating history, and dispositions of hotel properties;

? availability of and our ability to retain qualified personnel;

? our failure to maintain our qualification as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended;

? environmental uncertainties and risks related to natural disasters;

? changes in real estate and zoning laws and increases in real property tax rates; and

? the factors discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012 under the heading "Risk Factors" and in other reports we file with the SEC from time to time.

These factors are not necessarily all of the important factors that could cause our actual results, performance or achievements to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors, many of which are beyond our control, also could harm our results, performance or achievements.


Table of Contents

All forward-looking statements contained in this report are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and we do not undertake or assume any obligation to update publicly any of these statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

BACKGROUND

As of March 31, 2013, we owned interests in 63 hotels, many of which are located in major urban gateway markets including New York, Washington DC, Boston, Philadelphia, Los Angeles and Miami, including 57 wholly-owned hotels and interests in six hotels owned through unconsolidated joint ventures. Our "Summary of Operating Results" section below contains operating results for 56 consolidated hotel assets and six hotel assets owned through an unconsolidated joint venture. These results exclude one hotel, the Hampton Inn Pearl Street, New York, NY, which is currently undergoing re-development and is expected to open during the fourth quarter of 2013. 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 March 31, 2013, we have leased all of our hotels to a wholly-owned TRS, a joint venture owned TRS, or an entity owned by our wholly-owned TRS. Each of these TRS entities will pay qualifying rent, and the TRS entities have entered into management contracts with qualified independent managers, including HHMLP, with respect to our hotels. We intend to lease all newly acquired hotels to a TRS. The TRS structure enables us to participate more directly in the operating performance of our hotels. The TRS directly receives all revenue from, and funds all expenses relating to, hotel operations. The TRS is also subject to income tax on its earnings.

OVERVIEW

As we begin 2013, 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 2013, we expect continued improvements in ADR, RevPAR and operating margins, led by hotels in our core urban markets of New York, Washington DC, Boston, Philadelphia, Los Angeles and Miami. We continue to seek acquisition opportunities in urban centers and central business districts. In addition, we will continue to look for attractive opportunities to dispose of properties in tertiary markets at favorable prices, potentially redeploying that capital in our focus markets. We do not expect to actively pursue acquisitions made through joint ventures in the near term; however, we may seek to buy out, or sell our joint venture interests to, select existing joint venture partners. We do not expect to actively pursue additional development loans or land leases in the near term. While property joint ventures, development loans and land leases played an important role in our growth in the past, we do not expect them to play the same role in our near-term future.

Although we are planning for continued improvement in consumer and commercial spending and lodging demand during 2013, the manner in which the economy will recover, if at all, is not predictable, and certain core economic metrics, including unemployment, are not rebounding as quickly as many had hoped. 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 "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2012 and other documents that we may file with the SEC in the future. We will continue to cautiously monitor the recovery in lodging demand and rates, our third-party hotel managers, our remaining portfolio of hotel development loans and our performance generally.

In October of 2012, our hotels across the eastern seaboard experienced the effects of Hurricane Sandy. Most of our hotels in these markets were able to remain open and continued to serve our guests through the duration of the storm. However, our Holiday Inn Express on Water Street in lower Manhattan experienced flooding and was forced to close. Subsequent to March 31, 2013, repairs were completed and this hotel was re-opened. Additionally, our hotel redevelopment project at 32 Pearl Street in lower Manhattan experienced some flooding at the job site and portions of the project did suffer damage. The continued strength in business transient and leisure transient customer demand in Manhattan partially offset the losses from the storm.


Table of Contents

SUMMARY OF OPERATING RESULTS

The following table outlines operating results for the three months ended March 31, 2013 and 2012 for the Company's portfolio of wholly owned hotels and those owned through joint venture interests (excluding hotel assets classified as discontinued operations and one hotel undergoing a re-development project) that are consolidated in our financial statements for the three months ended March 31, 2013 and 2012:

CONSOLIDATED HOTELS:
                                         Three Months Ended March 31,
                                                                                 2013
                                                                               vs. 2012
                                           2013                 2012          % Variance

Occupancy                                       69.7 %               65.9 %           3.8 %
Average Daily Rate (ADR)              $       151.19       $       142.92             5.8 %
Revenue Per Available Room (RevPAR)   $       105.43       $        94.16            12.0 %

Room Revenues                         $       70,371       $       60,185            16.9 %
Hotel Operating Revenues              $       76,790       $       64,854            18.4 %

RevPAR for the three months ended March 31, 2013 increased 12.0% for our consolidated hotels. This represents a growth trend in RevPAR which is primarily due to improving economic conditions in 2013 and the acquisition of hotel properties consummated since March 31, 2012 that are accretive to RevPAR. The first quarter has been, historically, our weakest quarter and we take advantage of this seasonality by completing a significant portion of our planned renovation activity during this period. Despite ongoing renovations at 11 of our properties, our portfolio was able to generate 12.0% RevPAR growth.

The following table outlines operating results for the three months ended March 31, 2013 and 2012 for hotels we own through an unconsolidated joint venture interest. 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:
                                                 Three Months Ended March 31,
                                                                                          2013
                                                                                        vs. 2012
                                                   2013                 2012           % Variance

Occupancy                                               62.9 %               64.8 %           -1.9 %
Average Daily Rate (ADR)                      $       144.03       $       139.66              3.1 %
Revenue Per Available Room (RevPAR)           $        90.61       $        90.47              0.2 %

Room Revenues                                 $       12,338       $       15,404            -19.9 %
Total Revenues                                $       17,623       $       20,738            -15.0 %

For our unconsolidated hotels, ADR increased 3.1% for the three months ended March 31, 2013. The increase, when compared to the same period in 2012, is primarily the result of an increase in corporate business. Occupancy and revenue declines were primarily the result of the sale of our joint venture interest in Holiday Inn Express 29th Street, which, as of June 18, 2012, was no longer included as an unconsolidated joint venture. This hotel tended to have higher occupancy rates than the remaining hotels in our unconsolidated joint venture hotel portfolio.

We define a same store hotel as one that is currently consolidated and that we have owned in whole or in part for the entire period being reported and the comparable period in the prior year. For the three months ended March 31, 2013 and 2012 there are 53 same store hotels. The following table outlines operating results for the three months ended March 31, 2013 and 2012, for our same store consolidated hotels:


Table of Contents

SAME STORE CONSOLIDATED HOTELS                (includes 53 hotels in both years)
                                        Three Months Ended March 31,
                                                                                2013
                                                                              vs. 2012
                                           2013                2012          % Variance

Occupancy                                       70.2 %             65.7 %            4.5 %
Average Daily Rate (ADR)              $       149.70       $     142.22              5.3 %
Revenue Per Available Room (RevPAR)   $       105.06       $      93.46             12.4 %

Room Revenues                         $       68,334       $     61,506             11.1 %
Total Revenues                        $       72,817       $     65,565             11.1 %

RevPAR for our same store consolidated hotels increased 12.4% during the three months ended March 31, 2013, when compared to the same period in 2012. This RevPAR growth is primarily due to the continuing improvement in economic conditions in our markets during these periods.

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012
(dollars in thousands, except ADR, RevPAR, and per share data)

Revenue

Our total revenues for the three months ended March 31, 2013 consisted of hotel operating revenues, interest income from our development loan program and other revenue. Hotel operating revenues were approximately 99.8% and 99.0% of total revenues for the three months ended March 31, 2013 and 2012, respectively. Hotel operating revenues are recorded for wholly owned hotels that are leased to our wholly owned TRS and hotels owned through joint venture interests that are consolidated in our financial statements. Hotel operating revenues increased $11,936, or 18.4%, to $76,790 for the three months ended March 31, 2013 compared to $64,854 for the same period in 2012. This increase in hotel operating revenues was primarily attributable to the acquisition of hotel properties consummated during or subsequent to the three months ended March 31, 2012.

We acquired interests in the following four consolidated hotels which contributed the following operating revenues for the three months ended March 31, 2013 and March 31, 2012.

                                                                                 2013             2012
                                                                                 Hotel            Hotel
                                                                              Operating        Operating
        Brand               Location       Acquisition Date     Rooms          Revenues         Revenues
The Rittenhouse Hotel   Philadelphia, PA    March 1, 2012            111            3,506            1,479
Bulfinch Hotel          Boston, MA           May 7, 2012              80              426                -
Holiday Inn Express     New York, NY        June 18, 2012            228            2,408                -
Courtyard by Marriott   Ewing, NJ          August 13, 2012           130              827                -
                                                                     549     $      7,167     $      1,479

In addition, our same store portfolio experienced a $7.48, or 5.3%, improvement in ADR, increasing from $142.22 for the three months ended March 31, 2012 to $149.70 during the same period in 2013. For the same store hotels, occupancy increased by 450 basis points from approximately 65.7% during the three months ended March 31, 2012 to approximately 70.2% for the same period in 2013. The resulting improvement in RevPAR was the product of improvements in lodging trends in the markets in which our hotels are located.

We have invested in hotel development projects by providing mortgage or mezzanine financing to hotel developers and through the acquisition of land that is then leased to hotel developers. Interest income from development loans receivable was $146 for the three months ended March 31, 2013 compared to $621 for the same period in 2012.

Of the $15,282 in development loans receivable outstanding as of March 31, 2013, $13,303 was invested in the Hyatt Union Square hotel. Subsequent to March 31, 2013, we acquired the Hyatt Union Square and as part of the consideration we agreed to cancel the $13,303 development loan receivable in its entirety. In April 2013, the development loan related to Hyatt 48Lex was paid off in full. As of April 30, 2013, we had no outstanding development loan receivables.


Table of Contents

Other revenue consists primarily of fees earned for asset management services provided to properties owned by certain of our unconsolidated joint ventures. These fees are earned as a percentage of the revenues of the unconsolidated joint ventures' hotels. Other revenues were $34 and $62 for the three months ended March 31, 2013 and 2012, respectively.

Expenses

Total hotel operating expenses increased 19.9% to approximately $48,364 for the three months ended March 31, 2013 from $40,350 for the three months ended March 31, 2012. Consistent with the increase in hotel operating revenues, hotel operating expenses increased primarily due to the acquisitions consummated since March 31, 2012, as mentioned above. The acquisitions also resulted in an increase in depreciation and amortization of 12.3%, or $1,655, to $15,096 for the three months ended March 31, 2013 from $13,441 for the three months ended March 31, 2012. Similarly, real estate and personal property tax and property insurance increased $1,556, or 30.5%, for the three months ended March 31, 2013 when compared to the same period in 2012 due to our acquisitions along with a general overall increase in tax assessments and tax rates as the economy improves, which was partially offset by reductions resulting from our rigorous management of this expense.

General and administrative expense decreased by approximately $172 from $5,168 in the three months ended March 31, 2012 to $4,996 for the same period in 2013. 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 $255 when comparing the three months ended March 31, 2013 to the same period in 2012. This increase in share based compensation expense is due primarily in additional restricted shares issued since March 31, 2012. Please refer to "Note
9 - Share Based Payments" of the notes to the consolidated financial statements for more information about our stock based compensation. Decreases in other general and administrative expenses resulted primarily from a decrease in incentive and bonus expense during the three months ended March 31, 2013.

Amounts recorded on our consolidated statement of operations for acquisition and terminated costs will fluctuate from period to period based on our acquisition activities. Acquisition and terminated transaction costs decreased $955 from $958 for the three months ended March 31, 2012 to $3 for the same period in 2013. The expenses incurred in 2012 were primarily related to the acquisition of the Rittenhouse Hotel. Acquisition and terminated transaction 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.

Operating Income

Operating income for the three months ended March 31, 2013 was $2,020 compared to operating income of $316 during the same period in 2012. As noted above, the increase in operating income resulted primarily from improved performance of our portfolio and acquisitions that have occurred subsequent to March 31, 2012.

Interest Expense

Interest expense decreased $1,062 from $11,482 for the three months ended March 31, 2012 to $10,420 for the three months ended March 31, 2013. The decrease in interest expense is due primarily to the reduction of the weighted average interest rate on our credit facility as a result of us entering into a new credit facility in November 2012. In addition, during the fourth quarter of 2012 and the three months ended March 31, 2013, we repaid in full eight mortgage loans, and did not enter into any new mortgage loans, lowering our overall mortgage payable portfolio.

Unconsolidated Joint Venture Investments

The loss from unconsolidated joint ventures consists of our interest in the operating results of the properties we own in joint ventures. The operating results for the unconsolidated joint ventures improved by $334 for the three months ended March 31, 2013. This improvement is primarily due to the results of the hotels owned by these joint ventures which have benefited from improved lodging fundamentals in the markets in which they operate.

We have made an effort to decrease our investment in unconsolidated joint ventures. Since January 1, 2012 we closed on the sale of 5 of our unconsolidated joint venture assets to third parties and we purchased the remaining ownership from our joint venture partners in 2 assets, which are now included in our consolidated results.


Table of Contents

Income Tax Benefit

During the three months ended March 31, 2013, the Company recorded an income tax benefit of $1,130. There was no comparable income tax benefit recorded in the prior year as the Company recorded a full valuation allowance against the net operating loss.

Discontinued Operations

During the three months ended March 31, 2012, we reclassified the operating results of 18 non-core hotel properties, one land parcel located at 585 Eighth Avenue, New York, NY, and the Comfort Inn, North Dartmouth, MA, to discontinued operations in the statement of operations. During the first quarter of 2012, we closed on the sale of 14 of the 18 non-core hotel properties, and transferred the title of the Comfort Inn, located In North Dartmouth, MA, to the lender. As a result, we recognized a gain of approximately $4,502 in the first quarter of 2012.

We recorded a loss from discontinued operations of approximately $384 during the three months ended March 31, 2012. See "Note 12 - Discontinued Operations" for more information.

Net Income/Loss

Net loss applicable to common shareholders for the three months ended March 31, 2013 was $13,097 compared to net loss applicable to common shareholders of $10,673 for the same period in 2012. Net loss for the three months ended March 31, 2012 was positively impacted by a gain of $4,502 which resulted from the sale of properties held as discontinued operations. Net loss for the three months ended March 31, 2013 was positively impacted by $1,062 decrease in interest expense, $1,704 improvement in operating income and income tax benefit of $1,130 recorded in the quarter. Net income applicable to common shareholders for the three months ended March 31, 2013 was negatively impacted by $344 of dividends accrued on our newly issued Series C Preferred Shares and on the extinguishment of $2,250 of issuance costs associated with the redemption of all of our outstanding Series A Preferred Shares.

LIQUIDITY, CAPITAL RESOURCES, AND EQUITY OFFERINGS
(dollars in thousands, except per share data)

Potential Sources of Capital

Our organizational documents do not limit the amount of indebtedness that we may incur. Our ability to incur additional debt is dependent upon a number of factors, including the current state of the overall credit markets, our degree of leverage and borrowing restrictions imposed by existing lenders. Our ability to raise funds through the issuance of debt and equity securities is dependent upon, among other things, capital market volatility, risk tolerance of investors, general market conditions for REITs and market perceptions related to the Company's ability to generate cash flow and positive returns on its investments.

In addition, our mortgage indebtedness contains various financial and non-financial covenants customarily found in secured, nonrecourse financing arrangements. If the specified criteria are not satisfied, the lender may be able to escrow cash flow generated by the property securing the applicable mortgage loan. We have determined that certain debt service coverage ratio covenants contained in the loan agreements securing a number of our hotel properties were not met as of March 31, 2013. Pursuant to the loan agreements, certain lenders have elected to escrow the operating cash flow for these properties. However, these covenants do not constitute an event of default for these loans. Future deterioration in market conditions could cause restrictions in our access to the cash flow of additional properties.

On November 5, 2012, we entered into a new $400,000 senior unsecured credit facility. The $400,000 credit facility provides for a $250,000 senior unsecured revolving line of credit and a $150,000 senior unsecured term loan. Our previous $250,000 secured credit facility was terminated and replaced by the new credit facility, and, as a result, all amounts outstanding under our previous credit facility were repaid with borrowings from our new credit facility. The $400,000 credit facility expires on November 5, 2015, and, provided no event of default . . .

  Add HT to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for HT - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.