Debt | 9 Months Ended |
Sep. 30, 2014 |
Debt [Abstract] | ' |
Debt | ' |
NOTE 5 – DEBT |
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Mortgages |
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We had total mortgages payable at September 30, 2014 and December 31, 2013 of $613,668 and $617,788 (including $45,835 in outstanding mortgage indebtedness related to assets held for sale at December 31, 2013), respectively. These balances consisted of mortgages with fixed and variable interest rates, which ranged from 3.05% to 8.25% as of September 30, 2014. Included in these balances are net premiums of $1,805 and $2,466 as of September 30, 2014 and December 31, 2013, respectively, which are amortized over the remaining life of the loans. Aggregate interest expense incurred under the mortgage loans payable totaled $7,908 and $8,900 and $23,428 and $26,110 during the three and nine months ended September 30, 2014 and 2013, 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 four of our hotel properties were not met as of September 30, 2014. 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 loan agreements. |
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As of September 30, 2014, the maturity dates for the outstanding mortgage loans ranged from October 2014 to April 2023. |
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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 of 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 was 3.30% and 3.34% and 3.26% and 3.32% during the three and nine months ended September 30, 2014 and 2013, respectively. Interest expense in the amount of $426 and $431 and $1,264 and $1,284 was recorded for the three and nine months ended September 30, 2014 and 2013, respectively. |
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Credit Facilities |
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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. |
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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. |
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NOTE 5 – DEBT (CONTINUED) |
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The amount that we can borrow at any given time on our $500,000 unsecured credit facility is governed by certain operating metrics of designated unencumbered hotel properties known as borrowing base assets. As of September 30, 2014, the following hotel properties were borrowing base assets: |
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- Holiday Inn Express, Cambridge, MA | - Hampton Inn, Philadelphia, PA |
- Holiday Inn, Wall Street, NY | - Hampton Inn, Washington, DC |
- Holiday Inn Express, Times Square, NY | - Hyatt Place, King of Prussia, PA |
- Residence Inn, Norwood, MA | - Nu Hotel, Brooklyn, NY |
- Residence Inn, Framingham, MA | - The Rittenhouse Hotel, Philadelphia, PA |
- Sheraton, Wilmington South, DE | - The Boxer, Boston, MA |
- Sheraton Hotel, JFK Airport, New York, NY | - Holiday Inn Express (Water Street), New York, NY |
- Candlewood Suites, Times Square, NY | - Courtyard, San Diego, CA |
- Hampton Inn, Times Square, NY | - Residence Inn, Coconut Grove, FL |
- Winter Haven, Miami, FL | - Blue Moon, Miami, FL |
- Hampton Inn, Pearl Street, NY | - Parrot Key Resort, Key West, FL |
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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. |
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As of September 30, 2014, we had borrowed $250,000 in unsecured term loans under the 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 3.217%. See “Note 7 – Fair Value Measurements and Derivative Instruments” for more information. |
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The credit agreement providing for the $500,000 unsecured credit facility includes certain financial covenants and requires that we maintain: (1) a minimum tangible net worth of $803,711, 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: |
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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, 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. |
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The Company is in compliance with each of the covenants listed above as of September 30, 2014. As of September 30, 2014, our remaining borrowing capacity under the $500,000 unsecured credit facility was $218,745, based on the borrowing base assets at September 30, 2014. |
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As of September 30, 2014, the outstanding unsecured term loan balance under the $500,000 unsecured credit facility was $250,000 and we had outstanding borrowings of $27,000 on the revolving line of credit. As of December 31, 2013, the outstanding unsecured term loan under the prior $400,000 unsecured credit facility was $150,000 and the revolving line of credit had no balance outstanding. |
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The Company recorded interest expense of $1,809 and $1,707 and $4,461 and $3,804 related to borrowings drawn on each of the aforementioned credit facilities for the three and nine months ended September 30, 2014 and 2013, respectively. The weighted average interest rate on our credit facilities was 2.73% and 3.18% and 2.85% and 3.04% for the three and nine months ended September 30, 2014 and 2013, respectively. |
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NOTE 5 – DEBT (CONTINUED) |
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Capitalized Interest |
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We utilize mortgage debt and our $500,000 unsecured credit facility to finance on-going capital improvement projects at our hotels. Interest incurred on mortgages and the unsecured credit facility that relates to our capital improvement projects is capitalized through the date when the assets are placed in service. For the three and nine months ended September 30, 2014 and 2013, we capitalized $0 and $337 and $458 and $934, 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 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 September 30, 2014, deferred costs were $8,226, net of accumulated amortization of $7,064. Amortization of deferred costs for the three and nine months ended September 30, 2014 and 2013 was $710 and $756 and $2,064 and $2,133, 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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New Debt/Refinance |
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As previously mentioned, 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 nine months ended September 30, 2014. |
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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. In connection with this, we entered into a $9,500 mortgage loan with a maturity date of February 1, 2017. The modified mortgage 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%. See “Note 7 – Fair Value Measurements and Derivative Instruments” for more information on the interest rate swap. As a result of this modification, we expensed $65 in unamortized deferred financial costs and fees during the nine months ended September 30, 2014. |
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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 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. |
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