Debt | 9 Months Ended |
Sep. 30, 2013 |
Debt [Abstract] | ' |
Debt | ' |
NOTE 6 – DEBT |
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Mortgages |
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We had total mortgages payable at September 30, 2013 and December 31, 2012 of $647,787 and $641,160, respectively. These balances consisted of mortgages with fixed and variable interest rates, which ranged from 3.79% to 8.25% as of September 30, 2013. Included in these balances are net premiums of $2,613 and $3,245 as of September 30, 2013 and December 31, 2012, respectively, which are amortized over the remaining life of the loans. Aggregate interest expense incurred under the mortgage loans payable totaled $8,900 and $9,718, and $26,110 and $29,101 during the three and nine months ended September 30, 2013 and 2012, respectively. |
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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 five of our hotel properties were not met as of September 30, 2013. Pursuant to these loan agreements, the lender has elected to escrow the operating cash flow for a number of these properties. However, these covenants do not constitute an event of default for these loans. |
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As of September 30, 2013, the maturity dates for the outstanding mortgage loans ranged from August 2014 to February 2018. |
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Subordinated Notes Payable |
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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 three and nine months ended September 30, 2013 and 2012 was 3.34% and 3.53%, and 3.32% and 3.54%, respectively. Interest expense in the amount of $431 and $455 and $1,284 and $1,368 was recorded for the three and nine months ended September 30, 2013 and 2012, respectively. |
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Credit Facilities |
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On November 5, 2012, we entered into a senior unsecured credit agreement with Citigroup Global Markets Inc. and various other lenders. The credit agreement provides for a $400,000 senior unsecured credit facility consisting of a $250,000 senior unsecured revolving line of credit, and a $150,000 senior unsecured term loan. Our previous $250,000 senior secured credit facility was terminated and replaced by the $400,000 unsecured credit facility, and, as a result, all amounts outstanding under our $250,000 secured credit facility were repaid with borrowings from our $400,000 unsecured credit facility. The $400,000 unsecured credit facility expires on November 5, 2015, and, provided no event of default has occurred and remains uncured, we may request that the lenders renew the credit facility for two additional one-year periods. The credit facility is also expandable to $550,000 at our request, subject to the satisfaction of certain conditions. |
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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 September 30, 2013, the following hotel properties were borrowing base assets: |
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NOTE 6 – DEBT (CONTINUED) |
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- Holiday Inn Express, Hershey, PA | - Hampton Inn, West Haven, CT |
- Holiday Inn Express, Cambridge, MA | - Hampton Inn, Times Square, NY |
- Holiday Inn, Wall Street, NY | - Hampton Inn, Hershey, PA |
- Holiday Inn Express, Times Square, NY | - Hampton Inn, Philadelphia, PA |
- Residence Inn, Norwood, MA | - Hampton Inn, Washington, DC |
- Residence Inn, Langhorne, PA | - Hyatt Place, King of Prussia, PA |
- Residence Inn, Carlisle, PA | - Nu Hotel, Brooklyn, NY |
- Residence Inn, Framingham, MA | - Towneplace Suites, Harrisburg, PA |
- Sheraton, Wilmington South, DE | - Rittenhouse Hotel, Philadelphia, PA |
- Sheraton Hotel, JFK Airport, New York, NY | - The Boxer, Boston, MA |
- Candlewood Suites, Times Square, NY | - Holiday Inn Express (Water Street), New York, NY |
- Hampton Inn, Smithfield, RI | |
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The interest rate for the $400,000 unsecured credit facility is based on a pricing grid with a range of one month U.S. LIBOR plus 1.75% to 2.65%. As of September 30, 2013, we had borrowed $150,000 in unsecured term loans under the unsecured credit facility, and had entered into interest rate swaps which effectively fix the interest rate on these term loans at a blended rate of 3.19% to 3.25%. See “Note 8 – Fair Value Measurements and Derivative Instruments” for more information. |
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The credit agreement providing for the $400,000 unsecured credit facility includes certain financial covenants and requires that we maintain: (1) a minimum tangible net worth of $1,000,000, which is calculated by adding back accumulated depreciation to the recorded value of our investment in hotel properties and subtracting certain intangible assets and debt and is subject to increases under certain circumstances; (2) annual distributions not to exceed 95% of adjusted funds from operations; and (3) certain financial ratios, including the following: |
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·a fixed charge coverage ratio of not less than 1.45 to 1.00, which increases to 1.50 to 1.00 as of January 1, 2014; |
·a maximum leverage ratio of not more than 60%; and |
·a maximum secured debt leverage ratio of 55%, which decreased to 50% as of October 1, 2013 and further decreases to 45% as of October 1, 2014. |
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The Company is in compliance with each of the covenants listed above as of September 30, 2013. As of September 30, 2013, our remaining borrowing capacity under the new credit facility was $164,475, based on our current borrowing base assets. |
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As of September 30, 2013, the outstanding unsecured term loan balance under the $400,000 credit facility was $150,000 and we had outstanding borrowings of $79,700 on the revolving line of credit. As of December 31, 2012, the outstanding unsecured term loan was $100,000 and the revolving line of credit had no balance outstanding. |
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The Company recorded interest expense of $1,707 and $305 related to borrowings drawn on each of the aforementioned credit facilities, for the three months ended September 30, 2013 and 2012, respectively, and $3,804 and $1,818 for the nine months ended September 30, 2013 and 2012, respectively. The weighted average interest rate on our credit facilities was 3.18% and 4.31% for the three months ended September 30, 2013 and 2012, respectively, and was 3.04% and 4.55%, for the nine months ended September 30, 2013 and 2012, respectively. |
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On November 5, 2010, we entered into a Revolving Credit Loan and Security Agreement with T.D. Bank, NA and various other lenders, which provided for a senior secured revolving credit facility in the principal amount of up to $250,000, including a sub-limit of $25,000 for irrevocable stand-by letters of credit and a $10,000 sub-limit for the swing line loans. The $250,000 revolving credit facility was collateralized by a first lien-security interest in all existing and future unencumbered assets of HHLP, a collateral assignment of all hotel management contracts of the management companies in the event of default, and title-insured, first-lien mortgages on several hotel properties. |
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NOTE 6 – DEBT (CONTINUED) |
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Capitalized Interest |
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We utilize mortgage debt and our $400,000 revolving credit facility to finance on-going capital improvement projects at our hotels. Interest incurred on mortgages and the revolving credit facility that relates to our capital improvement projects is capitalized through the date when the assets are placed in service. For the three months ended September 30, 2013 and 2012, we capitalized $337 and $418 and for the nine months ended September 30, 2013 and 2012, we capitalized $934 and $1,182, respectively, of interest expense related to these projects. |
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Deferred Financing Costs |
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Costs associated with entering into mortgages and notes payable and our revolving line of credit are deferred and amortized over the life of the debt instruments. Amortization of deferred financing costs is recorded in interest expense. As of September 30, 2013, deferred costs were $8,344, net of accumulated amortization of $6,701. Amortization of deferred costs for the three and nine months ended September 30, 2013 and 2012 was $756 and $824, and $2,133 and $2,325 respectively. |
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Debt Payoff |
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On January 3, 2013, we funded an additional $50,000 in unsecured term loan borrowings under our $400,000 unsecured credit facility which was used to pay off the balance of the mortgage loan secured by the Holiday Inn Express, Times Square, New York, NY. This mortgage was also subject to an interest rate swap, which was terminated as a cash flow hedge as of December 31, 2012 due to this payoff. As a result of this payoff, we expensed $261 in unamortized deferred financing costs and fees, which are included in the Loss on Debt Extinguishment caption of the consolidated statements of operations for the nine months ended September 30, 2013. |
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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. |
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New Debt/Refinance |
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On April 24, 2013, we modified the $30,000 mortgage loan on the Courtyard by Marriott, Westside, Los Angeles, CA. The modified loan bears interest at a variable rate of one month U.S. dollar LIBOR plus 3.00%, and matures on September 29, 2017. The modification also contains an option for the Company to advance $5,000 in principal subject to certain conditions, including there being no event of default and compliance with debt service coverage ratio requirements. As a result of this modification, we incurred a loss on debt extinguishment of $284. This modification did not change the terms of the interest rate swap that we entered into in 2011, which had effectively fixed the interest at 4.947%, and now effectively fixes the interest at 4.10% through September 29, 2015. After the maturity date of the swap, the loan will bear interest at the stated variable rate of one-month U.S. dollar LIBOR plus 3.00, with a LIBOR floor of 0.75%. See “Note 8 – Fair Value Measurements and Derivative Instruments” for more information. |
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On January 31, 2012, we repaid outstanding mortgage debt with an original principal balance of $32,500 secured by the Capitol Hill Suites, Washington, D.C., incurring a loss on debt extinguishment of approximately $7 and simultaneously entered into a new mortgage obligation of $27,500. The new mortgage debt bears interest at a variable rate of one month U.S. dollar LIBOR plus 3.25% and matures on February 1, 2015. On the same date, we entered into an interest rate swap that effectively fixes the interest at 3.79% per annum. |
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On May 9, 2012, we repaid outstanding mortgage debt with a principal balance of $29,730 secured by the Courtyard by Marriott, Miami, FL. On July 2, 2012, we entered into a new mortgage with an initial obligation of $45,000, with three additional draws of $5,000 every 90 days to fund the construction of the new oceanfront tower as described in “Note 2 – Investment in Hotel Properties”. The new mortgage debt bears interest at a variable rate of one month U.S. LIBOR plus 3.50% and matures on July 1, 2016. Also on July 2, 2012, we entered into an interest rate cap that effectively limits interest to 4.32% per annum. |
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NOTE 6 – DEBT (CONTINUED) |
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On May 23, 2012, we repaid outstanding mortgage debt with an original principal balance of $22,000 secured by the Hotel 373, Fifth Avenue, NY, and on May 24, 2012 entered into a new mortgage obligation of $19,000, incurring a loss on debt extinguishment of approximately $66. The new mortgage debt bears interest at a variable rate of one month U.S. dollar LIBOR plus 3.85% and matures on June 1, 2017. In conjunction with this refinance, we entered into an interest rate cap that matures on June 1, 2015 that effectively limits interest to 5.85% per annum. |
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As a result of our acquisition of Metro 29th, first mortgage debt with a principal balance of $54,602 secured by the Holiday Inn Express, New York, NY is included on our consolidated balance sheet. This debt bears interest at a fixed rate of 6.50% and matures on November 5, 2016. In addition, we consolidated mezzanine debt with a principal balance of $15,000. We repaid this mezzanine debt on June 29, 2012 and incurred a loss on debt extinguishment of approximately $176. |
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