SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): December 7,2001
HERSHA HOSPITALITY TRUST
(Exact name of registrant as specified in its charter)
Maryland 005-55249 251811499
(State or other jurisdiction (Commission File No.) I.R.S. Employer
of incorporation) (Identification No.)
148 Sheraton Drive, Box A
New Cumberland, Pennsylvania 17070
(Address of principal executive offices)
(717) 770-2405
(Registrant's telephone number, including area code)
N/A
(former name or former address, if changed since last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 4, 2001, Hersha Hospitality Trust (the "Company"), through
its interest in Hersha Hospitality Limited Partnership (the "Partnership"),
completed its acquisition of all the assets of Metro Two Hotel, LLC, a New York
limited liability company (the "Seller"). The Seller does not own any assets
other than a 79-room Holiday Inn Express hotel located in Long Island City, New
York. The purchase will be effective as of November 1, 2001.
The Partnership purchased all of the assets of the Seller for
approximately $8.5 million. The purchase price of this hotel will be adjusted
on December 31, 2002 by applying a pricing methodology to such hotel's cash
flows in a manner similar to that of the other hotels purchased by the
Partnership. The initial purchase price for this hotel was based upon
management's projections of the hotel's performance for one year following its
purchase. The percentage lease for this hotel provides for fixed initial rent
for the adjustment period that provides the Company with a 12% annual yield on
the initial purchase price, net of certain expenses. At the end of the
adjustment period, December 31, 2002, the Company will calculate a value for the
hotel, based on the actual net income during the previous twelve months, net of
certain expenses, such that it would have yielded a 12% return. The Company
then will apply the percentage rent formula to the hotel's historical revenues
for the previous twelve months on a pro forma basis. If the pro forma
percentage rent formula would not have yielded a pro forma annual return to the
Company of 11.5% to 12.5% based on this calculated value, this value is adjusted
either upward or downward to produce a pro forma return of either 11.5% or
12.5%, as applicable. If this final purchase price is higher than the initial
purchase price, then the Seller will receive consideration in an amount equal to
the increase in price. If the final purchase price is lower than the initial
purchase price, then the Seller will return to the Company consideration in an
amount equal to the difference. Any purchase price adjustment must be approved
by a majority of the Company's independent trustees and will be made either in
operating partnership units or cash as determined by the Company's Board of
Trustees, including the independent trustees.
The Partnership acquired all the assets in the Seller and consequently
the Holiday Inn Express through the assumption of approximately $6.5 million of
mortgage indebtedness, payment of cash of approximately $1.5 million and
issuance of limited partnership units valued at approximately $0.5 million. The
Company utilized a portion of the cash proceeds from the sales of the Holiday
Inn, Milesburg, PA, Comfort Inn, Riverfront, Harrisburg, PA and the Comfort Inn,
McHenry, MD to purchase this hotel.
The Seller is owned by Hasu P. Shah, the Company's Chairman and Chief
Executive Officer, K. D. Patel, one of the Company's Trustees, Rajendra O.
Gandhi, the Company's Treasurer, Kiran P. Patel, the Company's Secretary, and
certain officers and other affiliates of Hersha Hospitality Management, L.P.
("HHMLP"), the lessee of several of the Partnership's other hotel properties
that also will lease this hotel from the Company. HHMLP is owned by the same
individuals and affiliated entities of these individuals that own the Seller.
HHMLP has entered into a percentage lease with respect to this hotel that went
into effect as of November 1, 2001. This percentage lease provides for payment
of rent based in part on the room revenues from the hotel.
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The following table sets forth (i) the Initial Fixed Rent, (ii)
Annual Base Rent and (iii) the annual Percentage Rent formula currently
anticipated for this hotel:
Acquired Initial Base
Hotel Fixed Rent Rent Percentage Rent Formula
- ----- ----------- -------- -------------------------
Holiday Inn Express, $1,179,389 $552,468 43.96% of room revenue
up to $2,117,542 plus
Long Island City, 65% of room revenues
New York in excess of $2,117,542
but less than $2,491,226
plus 29.0% of room
revenue in excess of
$2,491,226, plus 8.0%
of all non-room
revenue.
On December 4, 2001, the Company completed the sale of the Comfort Inn
in McHenry, MD to Hasu P. Shah, K. D. Patel, Rajendra O. Gandhi, Kiran P. Patel
and their affiliates for approximately $1.8 million, including the assumption of
approximately $1.2 million in indebtedness. This sale was effective as of
November 1, 2001. The Company originally purchased this hotel from these
individuals and their affiliates on January 1, 2000 for approximately $1.8
million, including the assumption of approximately $1.2 million in indebtedness.
These individuals and their affiliates sold the hotel as of November 10, 2001
for approximately $2.0 million, including the assumption of $1.2 million and
receipt of a seller note in the amount of approximately $500,000. The Company
did not sell directly to this third party because the third party was having
difficulty obtaining the financing and the Company did not want to expose itself
to the risks associated with carrying an unsecured or secondary mortgage.
On December 4, 2001, the Company completed the sale of the Comfort Inn
in Riverfront, PA to Hasu P. Shah, K. D. Patel, Rajendra O. Gandhi, Kiran P.
Patel and their affiliates for approximately $3.5 million less selling costs,
including the assumption of approximately $2.5 million in indebtedness. This
sale was effective as of November 1, 2001. The Company originally purchased
this hotel from these individuals and their affiliates on January 26, 1999 for
approximately $3.0 million, including the assumption of approximately $2.1
million in indebtedness. On December 31, 1999, this hotel was re-priced at
approximately $3.4 million. These affiliated buyers currently are looking for a
third party buyer. In light of current economic conditions, the Company
believes that any sale will involve seller financing and the Company did not
want to expose itself to the risks associated with carrying an unsecured or
secondary mortgage.
On April 1, 2001, the Company completed the sale of the Best Western
in Indiana, PA to Hasu P. Shah, K. D. Patel, Rajendra O. Gandhi, Kiran P. Patel
and their affiliates for approximately $2.2 million, including the assumption of
approximately $1.4 million in indebtedness. The Company originally purchased
this hotel from these individuals and their affiliates on January 1, 2000 for
approximately $2.2 million, including the assumption of approximately $1.4
million in indebtedness. These individuals and their affiliates sold the hotel
on May 1, 2001 for approximately $2.2 million, including the assumption of $1.4
million and receipt of a seller note in the amount of approximately $400,000.
The Company did not sell directly to this third party because the third party
was having difficulty obtaining the financing and the Company did not want to
expose itself to the risks associated with carrying an unsecured or secondary
mortgage.
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On December 4, 2001, the Company completed the sale of the Holiday
Inn, Milesburg, PA to a third party owner operator for approximately $4.7
million less broker fees and transfer costs that are estimated at $0.7 million.
The sale included the assumption of approximately $3.5 million in indebtedness.
This sale was effective as of November 1, 2001.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements. No financial statements are required to be filed
in connection with this acquisition pursuant to Rule 3-05 of Regulation
S-X.
(b) Pro Forma Financial Statements. No pro forma financial statements are
required to be filed in connection with this acquisition pursuant to Rule
11-01 of Regulation S-X.
(c) Exhibits. The following exhibits are required by Item 601 of Regulation
S-K and are listed below:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
10.1 Purchase Agreement, dated December 4, 2001, between Metro Two
==== Hotel,LLC, as Seller, and HHLP Hunters Point, LLC, as Purchaser
10.2 Form of Percentage Lease
====
10.3 Purchase Agreement, dated December 4, 2001, between Hersha
==== Hospitality Limited Partnership, as Seller, and Riverfront Hotel
Associates, as Purchaser
10.4 Contribution Agreement, dated December 4, 2001, between Hersha
==== Hospitality Limited Partnership and Hersha Hospitality, LLC, as
Contributors, and Shree Associates, JSK II Associates, Shreeji
Associates, Kunj Associates, Shanti III Associates, Devi
Associates, Neil H. Shah, David L. Desfor and Shreenathji
Enterprises, Ltd., as Acquirors
10.5 Contribution Agreement, dated December 4, 2001, between Hersha
==== Hospitality Limited Partnership and Hersha Hospitality, LLC, as
Contributors, and Shree Associates, JSK II Associates, Shreeji
Associates, Kunj Associates, Shanti III Associates, Devi
Associates, Neil H. Shah, David L. Desfor and Shreenathji
Enterprises, Ltd., as Acquirors
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HERSHA HOSPITALITY TRUST
Date: December 7, 2001 By: /s/ Hasu P. Shah
----------------
Hasu P. Shah
Chief Executive Officer
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