SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITIONAL
REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 005-55249
HERSHA HOSPITALITY TRUST
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 251811499
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
148 SHERATON DRIVE, BOX A, NEW CUMBERLAND, PENNSYLVANIA 17070
(Address of Registrant's Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (717) 770-2405
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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PRIORITY CLASS A COMMON SHARES OF AMERICAN STOCK
BENEFICIAL INTEREST, PAR VALUE $.01 PER SHARE EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting and nonvoting common equity held
by non-affiliates of the registrant, as of March 29, 2002, was approximately
$16.6 million.
As of March 29, 2002, the number of outstanding Priority Class A Common
Shares of Beneficial Interest outstanding was 2,575,000.
Documents Incorporated By Reference: Portions of the 2001 Hersha
Hospitality Trust Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after the year covered by this Form 10-K with respect
to the Annual Meeting of Shareholders to be held on May 15, 2002 are
incorporated by reference into Part III hereof.
HERSHA HOSPITALITY TRUST
INDEX
Form 10-K
Report
Item No. Page
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PART I
1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . 24
5. Market for Registrant's Common Equity and Related Stockholder Matters 24
6. Selected Financial and Operating Data . . . . . . . . . . . . . . . . 25
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . 30
7A. Quantitative and Qualitative Disclosures About Market Risk. . . . . . 34
8. Financial Statements and Supplementary Data . . . . . . . . . . . . . 35
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures. . . . . . . . . . . . . . . . . . . . . . . 77
10. Trustees and Executive Officers of Our Company. . . . . . . . . . . . 77
11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . 77
12. Security Ownership of Certain Beneficial Owners and Management. . . . 77
13. Certain Relationships and Related Transactions. . . . . . . . . . . . 77
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . 78
2
ITEM 1. BUSINESS
OVERVIEW
Hersha Hospitality Trust is a Maryland real estate investment trust
organized in 1998 that invests in limited service and full service hotels with
strong, national franchise affiliations, or hotels with the potential to obtain
these franchises, in the mid-scale market segment in the eastern United States.
Since our initial public offering in January 1999, we have concentrated on
owning economy, mid-scale and upper-economy hotels located in diverse markets.
We recently have re-focused our business strategy toward acquiring mid-scale
hotels in leading central business districts, in close proximity to business and
leisure demand generators in suburban areas around major metropolitan markets.
We completed an initial public offering of two million of our Class A Priority
Common Shares on January 26, 1999 at $6.00 per share. In addition, on February
5, 1999, we sold an additional 275,000 Class A Priority Common Shares pursuant
to an over allotment option granted to the underwriter in our initial public
offering. Our Priority Class A Common Shares are traded on the American Stock
Exchange under the symbol "HT."
In connection with our initial public offering of priority common shares,
our operating partnership acquired ten initial hotels in exchange for (i)
4,032,431 subordinated units of operating partnership interest in the
partnership that are redeemable for the same number of Class B Common Shares
with a value of approximately $24.2 million based on the initial public offering
price, and (ii) the assumption of approximately $23.3 million of indebtedness of
which approximately $6.1 million was repaid immediately after the acquisition of
the hotels using the proceeds of the offering.
We own our hotels through our operating partnership, Hersha Hospitality
Limited Partnership, of which we are the general partner and own 31% of the
partnership interests. In order for us to qualify as a REIT, we cannot operate
our hotels. Therefore, we lease each of our hotels to management companies to
operate our hotels. We lease 14 of our hotels to Hersha Hospitality Management,
L.P. (HHMLP), a Pennsylvania limited partnership. HHMLP is owned in part by
three of our executive officers, two of our trustees and their affiliates. We
lease the remaining four hotels located in Atlanta, Georgia to subsidiaries of
Noble Investment Group, Ltd., an unaffiliated third party real estate
development and hotel management company. In addition, HHMLP provides
administrative services to us for a fixed annual fee. We have four executive
officers, and these officers are our only employees.
The leases are designed to allow us to participate in revenue growth at our
hotels by providing for percentage rent based on hotel revenues. The percentage
rent calculation in each of these leases is based upon incentive thresholds.
These thresholds are designed to provide incentive to our lessees to generate
higher revenues at each hotel and to increase the rent percentage due above the
incentive thresholds while simultaneously increasing the lessee's profitability
from the hotel's operations.
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As of December 31, 2001, we owned the following 18 hotels:
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NUMBER OF
HOTELS ROOMS
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HOLIDAY INN EXPRESS:
Hershey, PA 85
Duluth, GA 68
Long Island City, NY 79
New Columbia, PA 81
HAMPTON INN:
Carlisle, PA 95
Danville, PA 72
Hershey, PA 110
Newnan, GA 91
Peachtree, GA 61
Selinsgrove, PA 75
COMFORT INN:
Harrisburg, PA 81
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NUMBER OF
HOTELS ROOMS
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HOLIDAY INN EXPRESS AND SUITES:
Harrisburg, PA 77
CLARION SUITES:
Philadelphia, PA 96
MAINSTAY SUITES:
King of Prussia, PA 69
SLEEP INN:
King of Prussia, PA 87
Corapolis, PA 143
COMFORT SUITES:
Duluth, GA 85
HOLIDAY INN HOTEL AND CONFERENCE CENTER:
Harrisburg, PA 196
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Total Rooms 1,651
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GROWTH STRATEGY
We seek to enhance shareholder value by increasing amounts available for
distribution to our shareholders by (1) acquiring additional hotels that meet
our investment criteria and (2) participating in any increased revenue from our
hotels through percentage leases.
ACQUISITION STRATEGY
Our acquisition policy is to acquire hotels for which we expect to receive
rents at least equal to 10% -12% of the purchase price paid for each hotel, net
of certain costs. In addition, we intend to acquire hotels that meet one or
more of the following criteria:
- nationally-franchised hotels such as Comfort Inn(R), Fairfield Inn(R),
Marriott Courtyard(R), Hampton Inn(R), Hilton Garden Inn(R), Holiday
Inn(R) and Holiday Inn Express(R) hotels, and limited service
extended-stay hotels such as Comfort Suites(R), Homewood Suites(R),
Main Stay Suites(R), Staybridge Suites(R), Embassy Suites(R),
Summerfield Suites(R) and Residence Inn by Marriott(R) hotels;
- hotels with significant barriers to entry, such as high development
costs, limited availability of land and the presence of similarly
branded hotels;
- poorly-managed hotels, which could benefit from new management, a new
marketing strategy and association with a national franchisor;
- hotels in deteriorated physical condition that could benefit
significantly from renovations; and
- hotels in attractive locations that we believe could benefit
significantly by changing franchises to a superior brand.
Future acquisitions may include hotels newly developed by some of our executive
officers, trustees and their affiliates.
In addition to the direct acquisition of hotels, we may make investments in
hotels through joint ventures with strategic partners or through equity
contributions, sales and leasebacks, or secured loans. We seek to identify
acquisition candidates located in markets with economic, demographic and supply
dynamics favorable to hotel owners and operators. Through our extensive 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.
4
We intend to lease hotels that we acquire to operators, including our
current lessees, HHMLP and Noble, as well as other third party non-affiliated
lessees. Future leases with our current lessees generally will be similar to the
current percentage leases. We will negotiate the terms and provisions of each
future lease, depending on the purchase price paid, economic conditions and
other factors deemed relevant at the time.
During 2001, we completed the acquisition of three hotels. We acquired the
87-room Sleep Inn and 69-room Mainstay Suites in King of Prussia, PA on June 1,
2001. We acquired these properties for approximately $9.4 million. The Sleep Inn
and Mainstay Suites share a common lobby and meeting space and is the first dual
branded hotel in the United States catering to the leisure and extended stay
traveler.
On November 1, 2001, we completed the acquisition of the Holiday Inn
Express, Long Island City, NY. We acquired this 79-room hotel from affiliates of
certain of our executive officers and trustees for $8.5 million. We have leased
all three hotels to HHMLP under percentage lease terms similar to the terms of
the other leases that we have entered into with them in previous transactions.
FINANCING
We may finance additional investments in hotels, in whole or in part, with
undistributed cash, issuances of priority common shares, preferred stock or
operating partnership units, cash received from the disposition of hotels or
borrowings. Our debt policy is to limit consolidated indebtedness to less than
67% of the aggregate purchase prices paid for the hotels in which we invest.
Our Board of Trustees, however, may change the debt policy without the approval
of our shareholders. The aggregate purchase prices for our eighteen hotels,
owned as of December 31, 2001, was approximately $100.0 million, and our
indebtedness at December 31, 2001 was approximately $61.5 million, which
represents approximately 61.5% of the aggregate purchase price for our hotels.
In February 2000, we entered into a portfolio refinancing of seven of our
hotel properties for approximately $22.1 million. Outstanding borrowings under
the refinancing bear interest at a fixed rate of 8.94%, have a total loan
amortization period of 23.5 years and have a maturity date of February 2010. The
first eighteen months of the loan was structured to be interest only financing
with no principal pay off during the period. The loan proceeds were utilized to
pay off existing loans, to pay accrued distributions to the limited partners of
our operating partnership and to acquire hotel properties.
We maintain a credit line with Sovereign Bank for $11.5 million.
Outstanding borrowings under the line of credit bear interest at the bank's
prime rate. The line of credit is collateralized by first mortgages on two of
our hotels. The interest rate on borrowings under the line of credit at December
31, 2001 was 5.0%. The line of credit expires on August 8, 2002. The outstanding
principal balance on the line of credit was approximately $7.1 million at
December 31, 2001.
INTERNAL GROWTH STRATEGY
Our percentage leases are designed to allow us to participate in growth in
revenues at our hotels. Our percentage leases generally provide that the lessee
will pay in each month or calendar quarter the greater of base rent or
percentage rent. The percentage rent for each hotel leased to HHMLP is
comprised of:
- a percentage of room revenues up to a certain threshold amount,
- a percentage of room revenues in excess of the first threshold but
less than a second incentive threshold,
- a percentage of room revenues in excess of the second incentive
threshold and
- a percentage of revenues other than room revenues.
The percentage rent for each hotel leased to Noble is comprised of:
- a percentage of room revenues up to an incentive threshold and
- a percentage of room revenues above this threshold amount.
5
The incentive thresholds are designed to provide incentive to our lessees
to generate higher revenues at each hotel by reducing the percentage of revenue
paid as rent above certain thresholds. In the case of any newly-renovated
hotels or newly-developed hotels, our lessees pay a fixed rent until an
adjustment date, after which our lessees pay the greater of a base rent or
percentage rent.
We seek to increase percentage lease payments through the following:
- asset management, which includes monitoring the operators' marketing
programs, sales management policies and operational initiatives at the
hotels; and
- reinvestment in the hotels as management deems necessary.
DISPOSITION
We will evaluate our hotels on a periodic basis to determine if these
hotels continue to satisfy our new investment criteria. We may sell hotels
opportunistically based upon management's forecast and review of the cash flow
potential for the hotel and re-deploy the proceeds into debt reduction or
acquisitions of hotels. 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 the hotel's cash flows and its ability to remain
accretive to our portfolio. Our decision to sell an asset 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 market, probability of increased
valuation and geographic profile of the hotel.
We have sold four hotels since the initial public offering to third parties
and have sold two hotels back to some of our executive officers, trustees and
their affiliates to prevent the REIT from having to take on seller financing.
All asset sales are comprehensively reviewed by our Board of Trustees,
including our independent trustees. A majority of the independent trustees must
approve the terms of all asset sales.
We sold six properties during 2001. The property sales were undertaken as a
result of our strategic and cash flow forecasts of the individual hotels and
other strategic criteria mentioned above.
Of these six property sales, three hotels were sold directly to third party
owner operators. These asset sales consist of the Comfort Inn, Denver, the
Comfort Inn, JFK Airport and the Holiday Inn, Milesburg.
We sold the Best Western, Indiana, the Comfort Inn, Riverfront and the
Comfort Inn, McHenry, MD to affiliates of certain of our executive officers and
trustees. All three of these hotels were initially purchased from affiliates of
certain of our executive officers and trustees. We did not sell these assets
directly to a third party due to the high probability of having to maintain a
certain amount of seller financing in order to complete these transactions. We
consummated these sales for substantially the same purchase prices as these
affiliates obtained in their subsequent sales of these hotels to third party
owner operators.
INDEPENDENT REVIEW OF ACQUISITION AND DISPOSITIONS WITH RELATED PARTIES
As of September 2001, the Board of Trustees has elected to hire an
independent third party accounting firm to review in advance all asset purchases
and asset sales between us and related parties. The Board of Trustees will
determine the scope of each review on a case-by-case basis. The independent
third party accounting firm will review each acquisition or sale to determine if
the terms of the transaction are in line with then-current market conditions as
well as how the transaction impacts us. The accounting firm then will present
its findings to the Board of Trustees to aid it in its evaluation of the terms
of the transaction.
RE-PRICING OUR HOTELS
We have acquired, and expect to acquire in the future, from affiliates of
certain of our executive officers and trustees, newly-developed or
newly-renovated hotels that do not have an operating history that would allow us
to make purchase price decisions based on historical performance. In buying
6
these hotels we have utilized, and expect to continue to utilize, a "re-pricing"
methodology that, in effect, adjusts the initial purchase price for the hotel,
one or two years after we initially purchase the hotel, based on the actual
operating performance of the hotel during the previous twelve months. All
purchase price adjustments are approved by a majority of our independent
trustees.
The initial purchase price for each of these hotels was based upon
management's projections of the hotel's performance for one or two years
following our purchase. The leases for these hotels provide for fixed initial
rent for the one- or two-year adjustment period that provides us with a 12%
annual yield on the initial purchase price, net of certain expenses. At the end
of the one- or two-year period, we 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. We then 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 us 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 of the hotel 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 sellers of the
hotel will return to us consideration in an amount equal to the difference. Any
purchase price adjustment will be made either in operating partnership units or
cash as determined by our Board of Trustees, including the independent trustees.
Any operating partnership units issued by us or returned to us as a result of
the purchase price adjustment historically have been valued at $6.00 per unit.
Any future adjustments will be based upon a value per unit approved by our Board
of Trustees, including our independent trustees. The sellers are entitled to
receive quarterly distributions on the operating partnership units prior to the
units being returned to us in connection with a downward purchase price
adjustment.
We re-priced seven of our hotels acquired in connection with our initial
public offering based upon operating results as of December 31, 1999 or December
31, 2000. Before we implemented the current pricing methodology in December
2000, our pricing methodology provided for re-pricing of a hotel if there was
any variance from our initial forecasted 12% return. Under this previous
pricing methodology, as of January 1, 2000, we issued an aggregate of 235,026
additional operating partnership units in connection with the re-pricing of the
Holiday Inn, Milesburg; the Comfort Inn, Denver; and the Comfort Inn,
Harrisburg, each of which subsequently was sold. In addition, on January 1,
2001, we issued an aggregate of 531,559 additional operating partnership units
in connection with the re-pricing of the Holiday Inn Express, Hershey; Hampton
Inn, Carlisle; Holiday Inn Express, New Columbia; and the Comfort Inn,
Harrisburg. We also issued 175,538 operating partnership units at a value equal
to approximately $1 million in connection with the repricing of the Comfort Inn,
Jamaica, New York located at John F. Kennedy International Airport prior to its
sale in June 2001.
Since our initial public offering, we have acquired six additional hotels
from some of our executive officers, trustees and their affiliates for initial
prices that will be adjusted based upon operating results at January 1, 2002 or
2003. Based upon unaudited results for the period ending December 31, 2001, our
partnership anticipates issuing additional units for the Hampton Inn, Danville,
the Holiday Inn Express & Suites, Harrisburg and the Hampton Inn & Suites,
Hershey, PA.
PROPERTY MANAGEMENT
In order for us to qualify as a REIT, neither we, our operating partnership
nor the subsidiary partnerships can operate hotels. Therefore, each of the
hotels is leased to a lessee under percentage leases. We currently lease
properties to HHMLP and Noble. HHMLP also manages certain other properties
owned by affiliates of certain of our executive officers and trustees that are
not owned by our operating partnership. HHMLP commenced operations on January
1, 1999 and as of December 31, 2001 leases 14 hotel properties from our
operating partnership and also manages other properties for affiliates of
certain of our executive officers and trustees. Noble is an independent third
party real estate development and management company based in Atlanta, GA.
DISTRIBUTIONS
We have made twelve consecutive quarterly distributions to the holders of
our priority common shares since our initial public offering in January 1999 and
intend to continue to make regular quarterly distributions to our shareholders.
7
Our Board of Trustees will determine the amount of our future distributions
and its decision will depend on a number of factors, including the amount of
funds from operations, our partnership's financial condition, debt service
requirements, capital expenditure requirements for our hotels, the annual
distribution requirements under the REIT provisions of the Code and such other
factors as the trustees 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 our lessees to
generate sufficient cash flow from the operation of the hotels to meet their
rent obligations under the percentage leases.
The priority common shares have a priority period which expires on the
earlier of (i) January 26, 2004 and (ii) an election by us to end the priority
period within 15 days if the share price remains over $7.00 per share for these
15 days. During the priority period, holders of the priority common shares are
entitled to receive, prior to any distributions either to the holders of the
operating partnership units or to the holders of the Class B Common Shares,
cumulative dividends in an amount per priority common share equal to $0.18 per
quarter. After holders of the priority common shares have received the $0.18
quarterly distribution, holders of the operating partnership units and the Class
B Common Shares are entitled to receive an amount per operating partnership unit
or Class B Common Share equal to the distribution paid to the holders of the
priority common shares. Thereafter, holders of priority common shares and the
holders of the operating partnership units and the Class B Common Shares are
entitled to receive future distributions on a pro rata basis. As of December 31,
2001, no Class B Common Shares are outstanding. Thus, the priority common shares
have priority distribution rights only with respect to the outstanding operating
partnership units. In the future, we may issue additional priority common
shares, and our partnership may issue operating partnership units that are not
subordinated to the priority common shares.
The hotel business is seasonal in nature and, therefore, revenues from the
hotels in the first and fourth quarters are traditionally lower than those in
the second and third quarters and our lease revenue may be lower in these
quarters. We expect to use excess cash flow from the second and third quarters
to fund distribution shortfalls in the first and fourth quarters. There are no
assurances we will be able to continue to make quarterly distributions at the
current rate.
OPERATING PRACTICES
HHMLP and Noble utilize a centralized accounting and data processing
system, which facilitates financial statement and budget preparation, payroll
management, internal auditing and other support functions for the on-site hotel
management team. The lessees provide centralized control over purchasing and
project management (which can create economies of scale in purchasing) while
emphasizing local discretion within specific guidelines.
We have entered into an Administrative Services Agreement with HHMLP for
HHMLP to provide accounting and securities reporting services to us. The terms
of the agreement provide for a fixed annual fee of $55,000 with an additional
fee of $10,000 per property per year (pro-rated from the time of acquisition)
for each hotel added to our portfolio. Based upon the revised 11.5% to 12.5%
pricing methodology, the administrative services agreement was reduced by
$75,000 per year as of January 1, 2001.
HHMLP and Noble each employ approximately 700 people in operating the
hotels. The lessees have advised us that its relationship with its employees is
good.
CAPITAL IMPROVEMENTS, RENOVATION AND REFURBISHMENT
The percentage leases require the lessees to maintain the hotels in a
condition that complies with their respective franchise licenses among other
requirements. In addition, we may upgrade the hotels in order to capitalize on
opportunities to increase revenue, and as deemed necessary by our management to
seek to meet competitive conditions and preserve asset quality. We will also
renovate hotels when we believe the investment in renovations will provide an
attractive return to us through increased revenue under the percentage leases or
is otherwise in the best interests of our shareholders.
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BUSINESS RISKS
The hotels are subject to all operating risks common to the hotel industry.
These risks include, among other things, competition from other hotels, which
can adversely affect occupancy and room rates; increases in operating costs due
to inflation and other factors, which increases have not in recent years been,
and may not necessarily in the future be, offset by increased room rates;
significant dependence on business and commercial travelers and tourism;
increases in energy costs and other expenses of travel; and adverse effects of
general and local economic conditions. These factors could adversely affect a
lessee's ability to make lease payments and, therefore, our ability to make
expected distributions to shareholders. Further, decreases in room revenue at
the hotels will result in decreased revenue to our partnership and the
subsidiary partnership, as applicable, under the percentage leases.
ENVIRONMENTAL RISKS
Under various federal, state, and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances,
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In addition, the presence of hazardous or toxic
substances, or the failure to remediate such property properly, may adversely
affect the owner's ability to borrow using such real property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility, whether or not such facility
is or ever was owned or operated by such person. Certain environmental laws and
common law principles could be used to impose liability for release of
asbestos-containing materials ("ACMs") into the air and third parties may seek
recovery from owners or operators of real properties for personal injury
associated with exposure to released ACMs. In connection with the ownership of
the hotels, we, our partnership or the subsidiary partnerships may be
potentially liable for any such costs.
Phase I environmental site assessments were obtained on all of the hotels
prior to their acquisition by us. Phase I environmental assessments were
intended to identify potential environmental contamination for which the hotels
may be responsible. The Phase I environmental assessments included historical
reviews of the hotels, reviews of certain public records, preliminary
investigations of the sites and surrounding properties, screening for the
presence of hazardous substances, toxic substances and underground storage
tanks, and the preparation and issuance of a written report. The Phase I
environmental assessments did not include invasive procedures, such as soil
sampling or ground water analysis.
The Phase I site assessments have not revealed any environmental liability
that we believe would have a material adverse effect on our business, assets,
results of operations or liquidity, nor are we aware of any such liability.
Nevertheless, it is possible that the Phase I site assessments do not reveal
environmental liabilities or that there are material environmental liabilities
of which we are unaware. Moreover, no assurance can be given that (i) future
laws, ordinances or regulations will not impose any material environmental
liability, or (ii) the current environmental condition of the hotels will not be
affected by the condition of other properties in the vicinity of the hotels
(such as the presence of leaking underground storage tanks) or by third parties
unrelated to us, our partnership, the subsidiary partnerships or HHMLP.
We believe that the hotels are in compliance in all material respects with
all federal, state and local ordinances and regulations regarding hazardous or
toxic substances or other environmental matters. Neither we nor, to our
knowledge, any of the former owners of our hotels have been notified by any
governmental authority of any material noncompliance, liability or claim
relating to hazardous or toxic substances or other environmental matters in
connection with any of the hotels.
FRANCHISE AGREEMENTS
HHMLP, which is owned by affiliates of certain of our executive officers
and trustees, holds all of the franchise licenses for all of the hotels that it
leases from us. HHMLP is expected to hold all of the franchise licenses for any
subsequently acquired hotel properties that it leases. We do not hold the
franchise licenses for the hotels leased to Noble. We do not anticipate
maintaining the franchise licenses for hotel properties managed by third party
management companies. It is anticipated that franchise licenses for hotel
9
properties managed by other lessees will be maintained by that lessee. During
2001 and 2000, HHMLP paid franchise fees in the aggregate amount of
approximately $2,003 and $2,184, respectively.
Holiday Inn Express and Holiday Inn are registered trademarks of Six
Continents Hotels Plc; Hampton Inn is a registered trademark of Hilton Hotels
Corporation, and Comfort Inn, Comfort Suites, Mainstay Suites, Sleep Inn and
Clarion Suites are registered trademarks of Choice Hotels International.
We anticipate that most of the additional hotels in which we invest will be
operated under franchise licenses. 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.
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 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.
The following table sets forth certain information in connection with the
franchise licenses:
HOTEL EFFECTIVE DATE EXPIRATION DATE FRANCHISE FEE(1)
----- ------------------ ------------------ ----------------
Holiday Inn Express, Long Island City, NY December 28, 2000 December 28, 2010 8.00%
Holiday Inn Express, Hershey, PA September 30, 1997 September 30, 2007 8.00%
Holiday Inn Express, New Columbia, PA December 3, 1997 December 3, 2007 8.00%
Holiday Inn Express, Duluth, GA May 20, 2000 May 20, 2010 8.00%
Holiday Inn Hotel and Conference Center,
Harrisburg, PA September 29, 1995 September 29, 2005 7.50%
Holiday Inn Express and Suites, Harrisburg,
PA December 22, 1999 December 22, 2009 8.00%
Hampton Inn, Danville, PA March 28, 1997 March 27, 2018 8.00%
Hampton Inn, Carlisle, PA June 16, 1997 June 15, 2017 8.00%
Hampton Inn, Selinsgrove, PA September 12, 1996 September 11, 2016 8.00%
Hampton Inn & Suites, Hershey, PA September 24, 1998 September 23, 2019 8.00%
Hampton Inn, Newnan, GA April 20, 2000 April 19, 2021 8.00%
Hampton Inn, Peachtree, GA April 20, 2000 April 19, 2021 8.00%
Mainstay/Sleep Inn, King of Prussia, PA November 30, 1997 November 30, 2017 7.50%
Comfort Inn, Harrisburg, PA May 15, 1998 May 15, 2018 8.85%
Comfort Suites, Duluth, GA May 19, 2000 May 19, 2020 8.00%
Clarion Suites, Philadelphia, PA August 4, 1995 August 4, 2015 6.05%
Sleep Inn, Corapolis, PA June 29, 1998 June 29, 2018 8.35%
<FN>
(1) Percentage of room revenues payable to the franchisors.
TAX STATUS
We have elected to be taxed as a REIT under Section 856 through 860 of the
Internal Revenue Code, commencing with our taxable year ending December 31,
10
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 distributed
to shareholders. If we fail to qualify as a REIT in any taxable year, we will
be subject to Federal income tax (including any applicable alternative minimum
tax) on our taxable income at regular corporate tax rates. Even if we qualify
for taxation as a REIT, we may be subject to certain state and local taxes on
its income and property and to Federal income and excise taxes on our
undistributed income.
Earnings and profits, which will determine the taxability of dividends 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. Of the total 2001
distributions, 89.0% is considered ordinary income while 11.0% is considered a
non-taxable return of capital. All of the 2000 distributions were considered
ordinary income.
11
ITEM 2. PROPERTIES
The following table sets forth certain information with respect to the
hotels we owned as of December 31, 2001.
Twelve Months Ended December 31, 2001
-----------------------------------------------------------------------------
Average
Year Number of Room Other Daily
Opened Rooms Revenue Revenue(1) Occupancy Rate REVPAR(2)
------ --------- ----------- ----------- ---------- -------- ----------
HOTELS
- ------
CLARION SUITES:
Philadelphia, PA . . . . 1995 96 $ 1,900,984 $ 179,981 59.6% $ 90.97 $ 54.25
COMFORT SUITES:
Duluth, GA . . . . . . . 1996 85 $ 1,448,963 $ 40,828 70.4% $ 66.30 $ 46.70
COMFORT INN:
Harrisburg, PA . . . . . 1998 81 $ 1,298,582 $ 28,393 58.9% $ 75.48 $ 44.47
HAMPTON INN
Peachtree City, GA 1994 61 $ 1,025,162 $ 34,042 68.1% $ 67.64 $ 46.04
Newnan, GA . . . . . . . 1996 91 $ 1,591,277 $ 43,747 74.1% $ 64.68 $ 47.91
Selinsgrove, PA (3). . . 1996 75 $ 1,773,357 $ 43,197 80.6% $ 81.50 $ 65.66
Carlisle, PA . . . . . . 1997 95 $ 1,879,661 $ 26,717 69.2% $ 76.71 $ 53.09
Danville, PA . . . . . . 1998 72 $ 1,539,207 $ 24,928 73.8% $ 79.41 $ 58.57
Hershey, PA. . . . . . . 1999 110 $ 2,146,087 $ 51,333 50.4% $ 106.15 $ 53.45
HOLIDAY INN:
Harrisburg, PA . . . . . 1970 196 $ 2,777,050 $ 1,895,747 56.1% $ 68.81 $ 38.62
HOLIDAY INN EXPRESS:
Duluth, GA . . . . . . . 1996 68 $ 1,229,757 $ 35,813 69.7% $ 71.13 $ 49.55
Long Island City, NY (4) 2001 79 $ 1,259,631 $ 21,152 57.5% $ 114.63 $ 65.86
Harrisburg, PA . . . . . 1997 77 $ 1,420,388 $ 26,755 66.4% $ 76.64 $ 50.87
Hershey, PA. . . . . . . 1997 85 $ 1,946,827 $ 40,006 59.3% $ 107.98 $ 64.08
New Columbia, PA . . . . 1997 81 $ 1,250,049 $ 24,578 60.6% $ 70.69 $ 42.81
SLEEP INN:
Corapolis, PA. . . . . . 1998 143 $ 1,229,025 $ 38,176 49.7% $ 47.34 $ 23.55
King of Prussia, PA. . . 2000 87 $ 1,061,634 $ 23,713 57.4% $ 73.47 $ 42.15
MAINSTAY SUITES:
King of Prussia, PA. . . 2000 69 $ 1,310,222 $ 88,384 51.5% $ 80.11 $ 41.26
Total/weighted average. . . 1,651 $28,087,863 $ 2,667,490 61.7% $ 76.91 $ 47.44
----------- -----------
Total Revenue . . . . . . . $30,755,353
<FN>
- --------------------
(1) Represents restaurant revenue, telephone revenue and other revenue.
(2) REVPAR is determined by dividing room revenue by available rooms for the applicable period.
(3) A portion of the land adjacent to this hotel, which is not currently used for hotel operations,
is leased to an affiliate for $1 per year for 99 years.
(4) Hotel began operations in May 2001.
CLARION SUITES, PHILADELPHIA, PENNSYLVANIA
Description. The Clarion Suites, Philadelphia, Pennsylvania is located at
1010 Race Street, one half block from the newly-developed Philadelphia
convention center and six blocks from the Independence Hall historic district
and the Liberty Bell. The hotel is located in the historic Bentwood Rocking
Chair Company building, which was constructed in 1896 and converted to a Quality
Suites hotel in the 1980s. The hotel was purchased by some of our executive
officers, trustees and their affiliates as a Ramada Suites in 1995 and
substantially rehabilitated. These individuals and their affiliates later
converted the hotel to a Clarion Suites. The hotel has 96 executive suites with
fully-equipped kitchens and an eight-story interior corridor with Victorian
style architecture. The hotel has a lounge featuring light fare and a comedy
cabaret. Amenities include two large meeting rooms, boardrooms, a fitness room
and a complimentary continental breakfast.
12
Guest Profile and Local Competition. Approximately 20% of the hotel's
business is comprised of leisure travelers and transient guests related to its
close proximity to the historic district. The remainder of the hotel's business
is due to commercial activity from local businesses and people visiting area
residents. We consider our primary competition to be all Center City,
Philadelphia hotels.
COMFORT SUITES, DULUTH, GEORGIA
Description. The Comfort Suites, Gwinnett Place Mall is located just off
Pleasant Hill Road and Interstate 85 at exit 40. Opened in June 1996, this
85-suite hotel features large spacious guest suites each equipped with a king
size bed or two double beds. Amenities include a fitness center, Jacuzzi within
a large sunroom, indoor pool and meeting facilities with a 60-person capacity.
Guest Profile and Local Competition. Numerous local business parks in
Duluth, Norcross and Lawrenceville play a vital role in the hotel's success.
Companies such as Scientific Atlanta, Primerica Financial Services, NCR,
Motorola, Hitachi, and Lucent Technologies all have major offices in the area
and use this hotel frequently for room nights and meeting space. The leisure
market is fueled by the Gwinnett Place Mall and many local events. We consider
the hotel's primary competitors to be the Holiday Inn Express, the Hampton Inn &
Suites, the Courtyard Gwinnett Mall and the Fairfield Inn.
COMFORT INN, HARRISBURG, PENNSYLVANIA
Description. The Comfort Inn, Harrisburg, Pennsylvania is located 8 miles
north of Hershey, Pennsylvania at 7744 Linglestown Road off exit 27 of
Interstate 81. The hotel opened in May 1998. It is an 81-room limited service
hotel. Amenities include an indoor pool, hot tub, fitness center, meeting
facilities, complimentary continental breakfast and 24-hour coffee. All rooms
have one king bed or two queen beds and some Jacuzzi suites are available.
Guest Profile and Local Competition. Approximately 25% of the hotel's
business is related to commercial activity from local businesses. The hotel's
group business, which accounts for approximately 5% of its business, is
generated from area institutions, local weddings and local social and sporting
events. The remainder of the hotel's business consists of transient and
recreational travelers generated by its proximity to Hershey, Pennsylvania. We
consider our primary competition to be the Comfort Suites and Holiday Inn in
Grantville, Pennsylvania.
HAMPTON INN, PEACHTREE, GEORGIA
Description. This Hampton Inn is located in the Atlanta community of
Peachtree City. This 61-room, limited service hotel opened in 1994. A poured
concrete structure, this two-story building features the traditional Hampton Inn
architecture with metal rooflines and an ample porte-cochere. This hotel
features an outdoor pool and has an oversize fitness facility. The hotel has a
meeting room that can accommodate 25 persons.
Guest Profile and Local Competition. Peachtree City is home to over ten
Fortune 500 companies and boasts a two million square foot industrial park.
Several major Japanese companies, including Panasonic, Hoshizaki, TDK and
Shinsei, are headquartered in Peachtree City. The hotel's primary competitors
are the Holiday Inn, Sleep Inn, and Days Inn located in Peachtree City.
HAMPTON INN, NEWNAN, GEORGIA
Description. The Hampton Inn, Newnan, is located in one of Atlanta's
fastest growing counties. This 91-room hotel sits adjacent to Interstate I-85
and features traditional Hampton Inn architecture with three floors on poured
concrete. This hotel features an outdoor pool, fitness centers, and
full-service meeting room.
Guest Profile and Local Competition. The primary demand generators for the
Hampton Inn, Newnan, include several major corporations located in the
industrial park, which include Yokogawa, Johnson-Yokogawa, Yamaha, Kawasaki,
Ryder, Ritchie Brothers, and Southern States Vehicle Auctions. The industrial
park is slated for expansion and Coweta County's population has grown by over
40% since 1991. Leisure demand is generated by weddings, festivals, local
racetracks and a tourist base. The main competition for this hotel includes the
Jameson Inn, Springhill Suites, Comfort Inn, Best Western and Holiday Inn
Express.
13
HAMPTON INN, SELINSGROVE, PENNSYLVANIA
Description. The Hampton Inn, Selinsgrove, Pennsylvania is located on
Pennsylvania Routes 11 and 15. The hotel, which opened in September 1996, is a
75-room, three story, limited service hotel. Amenities include an indoor pool,
hot tub, fitness center, meeting facilities, complimentary continental breakfast
and 24-hour coffee. All rooms have one king bed or two queen beds, some Jacuzzi
suites are available and some rooms have refrigerators, coffee makers and
microwaves.
Guest Profile and Local Competition. Approximately 80% of the hotel's
business is related to commercial activity from local businesses. The remainder
of the hotel's business consists of pleasure travelers, transient guests and
demand generated by the hotel's proximity to area universities and Knoebels
Amusement Park. We consider our primary competition to be the Best Western near
Selinsgrove, Pennsylvania.
HAMPTON INN, CARLISLE, PENNSYLVANIA
Description. The Hampton Inn, Carlisle, Pennsylvania is located at the
intersection of Route 11 and exit 16 off the Pennsylvania Turnpike. The hotel,
which opened in June 1997, is a 95-room limited service hotel. Amenities
include an indoor pool, hot tub, fitness center, meeting facilities,
complimentary continental breakfast and 24-hour coffee. All rooms have one king
bed or two queen beds, some Jacuzzi suites are available and some rooms have
refrigerators, coffee makers and microwaves.
Guest Profile and Local Competition. Approximately 50% of the hotel's
business is related to commercial activity from local businesses. The remainder
of the hotel's business consists of overnight travelers and general demand
generated by the hotel's proximity to the Carlisle Fairgrounds and the Army War
College. We consider our primary competition to be the Holiday Inn in Carlisle,
Pennsylvania.
HAMPTON INN, DANVILLE, PENNSYLVANIA
Description. The Hampton Inn, Danville, Pennsylvania, is located at Exit
33 off Interstate 80. The hotel, which opened in September 1998, is a 72-room,
three story, limited service hotel. Amenities include an indoor pool, hot tub,
fitness center, meeting facilities, complimentary continental breakfast, and
24-hour coffee service. All rooms offer queen beds or king beds, and coffee
makers.
Guest Profile and Local Competition. The majority of the hotel guests
consist of tourists or overnight business travelers. We consider our primary
competition to be several non-franchised hotels located in the surrounding area.
HAMPTON INN AND SUITES, HERSHEY, PENNSYLVANIA
Description. The Hampton Inn and Suites is located at 749 East Chocolate
Avenue in Hershey, Pennsylvania. The hotel opened in September 1999 and has 110
rooms, 35 of which are suites. The hotel is located near all of the major
attractions in Hershey, including the amusement park and the Hershey chocolate
factory. Amenities include an indoor pool, exercise room, hot tub, meeting
facilities, complimentary continental breakfast and 24-hour coffee.
Guest Profile and Local Competition. The majority of the hotel guests
consist of tourists and overnight travelers. The hotel's close proximity to all
Hershey attractions makes this property especially attractive to leisure
travelers. The hotel's primary competitors are the Hilton Garden Inn, Comfort
Inn, Holiday Inn Express and Springhill Suites.
HOLIDAY INN HOTEL AND CONFERENCE CENTER, HARRISBURG, PENNSYLVANIA
Description. The Holiday Inn Hotel and Conference Center, Harrisburg,
Pennsylvania is located at the intersection of the Pennsylvania Turnpike exit 18
and Interstate 83, ten minutes from downtown, Harrisburg International Airport
and Hershey Park. The hotel opened in 1970 as a Sheraton Inn and was converted
to a Ramada Inn in 1984. It was completely renovated and converted to a Holiday
Inn in September 1995. This hotel has 196 deluxe guest units and is a full
14
service hotel, including a full service restaurant as well as a nightclub.
Amenities include an indoor tropical courtyard with a pool and Jacuzzi as well
as a banquet and conference facility for up to 700 people.
Guest Profile and Local Competition. Approximately 40% of the hotel's
business is related to commercial activity from local businesses. The remainder
of the hotel's business consists of overnight travelers visiting Hershey and
Harrisburg. We consider our primary competition to be the Radisson Penn Harris
in Camp Hill, Pennsylvania.
Additional Information Regarding Depreciation. This is our only hotel that
generates more than 10% of our revenue. The federal tax basis is $1,238,000. The
depreciation method used is Modified Accelerated Recovery System and the
depreciation rate is based upon tables issued by the Internal Revenue Service
for properties utilizing this depreciation method. The life claimed with respect
to this property for purposes of depreciation is 39 years.
HOLIDAY INN EXPRESS, DULUTH, GEORGIA
Description. The Holiday Inn Express, Gwinnett Place Mall is located just
off Pleasant Hill Road and Interstate 85 at exit 40. Opened in June 1996, this
68-room hotel features spacious guestrooms equipped with a king size bed or two
double beds. This hotel features an outdoor pool along with a well-equipped
fitness center. Meeting space is also available and accommodates up to 50
people.
Guest Profile and Local Competition. Numerous local business parks in
Duluth, Norcross and Lawrenceville play a vital role in the hotel's success.
Companies such as Scientific Atlanta, Primerica Financial Services, NCR,
Motorola, Hitachi, and Lucent Technologies all have major offices in the area
and use this hotel frequently for room nights and meeting space. The Gwinnett
Civic and Cultural Center and the millions of Priority Club members worldwide
are also solid contributors of room nights throughout the year. We consider the
hotel's primary competitors to be the Comfort Suites, the Hampton Inn & Suites,
the Courtyard Gwinnett Mall and the Fairfield Inn.
HOLIDAY INN EXPRESS, LONG ISLAND CITY (MIDTOWN TUNNEL), NEW YORK
Description. This Holiday Inn Express is located adjacent to the entrance
of the Midtown Tunnel in Long Island City and is within minutes from midtown
Manhattan. This 79-room, limited service hotel opened in 2001. A poured
concrete structure, this three-story building is conveniently located alongside
the Long Island Expressway.
Guest Profile and Local Competition. Long Island City is within minutes of
midtown Manhattan and is accessible via car or via direct access to the subway
line into Times Square. The hotel also serves numerous corporate headquarters
and businesses within Queens and is located within six miles of La Guardia
airport and within 13 miles of the JFK International Airport. The hotel competes
directly with the Best Western and numerous other limited service hotels within
Long Island City and Manhattan.
HOLIDAY INN EXPRESS AND SUITES, HARRISBURG, PENNSYLVANIA
Description. The Holiday Inn Express and Suites, Harrisburg, Pennsylvania
is located at 5680 Allentown Boulevard and is easily accessible from Interstates
81 and 83. The hotel, which opened in August 1998 as a Clarion Inn and Suites,
is a 77-room limited service hotel. Amenities include an outdoor pool, meeting
facilities, complimentary continental breakfast, and 24-hour coffee. All rooms
have one king bed or two queen beds. Jacuzzi suites are available and some
rooms also have refrigerators and microwaves.
Guest Profile and Local Competition. Approximately 40% of the hotel's
business is comprised of business travelers, 30% is related to group business,
20% is leisure travelers, and 10% is government business. We consider our
primary competition the Best Western and the Baymont Inn, both located in
Harrisburg, Pennsylvania.
HOLIDAY INN EXPRESS, HERSHEY, PENNSYLVANIA
Description. The Holiday Inn Express, Hershey, Pennsylvania is located on
Walton Avenue, one and one half miles from Hershey Park. The hotel, which
opened in October 1997, is an 85-room limited service hotel. Amenities include
an indoor pool, hot tub, fitness center, business service center, meeting
15
facility, complimentary continental breakfast and 24-hour coffee. All rooms
have one king bed or two queen beds and some rooms have refrigerators, coffee
makers and microwaves.
Guest Profile and Local Competition. Approximately 30% of the hotel's
business is related to commercial activity from local business. The hotel's
group business, which accounts for approximately 5% of its business, is
generated from area institutions, local weddings and local social and sporting
events. The remainder of the hotel's business consists of transient guests,
visitors to area residents and demand generated by the hotel's proximity to
Hershey Park. We consider our primary competition to be the Comfort Inn in
Hershey, Pennsylvania.
HOLIDAY INN EXPRESS, NEW COLUMBIA, PENNSYLVANIA
Description. The Holiday Inn Express, New Columbia, Pennsylvania is
located at the intersection of Interstate 80 and Route 15. The hotel, which
opened in December 1997, is an 81-room limited service hotel. Amenities include
an indoor pool, hot tub, fitness center, meeting facility, complimentary
continental breakfast and 24-hour coffee. All rooms have one king bed or two
queen beds, some Jacuzzi suites are available and some rooms have refrigerators,
coffee makers and microwaves. The Holiday Inn Express in New Columbia,
Pennsylvania is consistently ranked number one in its region for GSTS (Guest
Satisfaction Tracking System). This award recognizes the Holiday Inn Express in
New Columbia as the leader in guest satisfaction and product service out of 32
other Holiday Inns and Holiday Inns Express in the Eastern region.
Guest Profile and Local Competition. Approximately 80% of the hotel's
business is related to commercial activity from local business. As a result of
its proximity to ski resorts and nearby tourist attractions, recreational
travelers generate approximately 10% of the hotel's business. The remainder of
the hotel's business consists of overnight travelers and visitors to area
residents. We consider our primary competition to be the Comfort Inn in New
Columbia, Pennsylvania.
SLEEP INN, CORAPOLIS, PENNSYLVANIA
Description. The Sleep Inn is located six miles from the Pittsburgh
International Airport and thirteen miles from downtown Pittsburgh. This hotel
was constructed in 1998 and has 143 guest rooms. The hotel's amenities include
an indoor pool, fitness center, an 800-square foot conference facility, and a
complimentary breakfast.
Guest Profile and Local Competition. The majority of the hotel's business
consists business travelers, leisure travelers and airline employees utilizing
the Pittsburgh International Airport. The hotel's primary competitors are the
Holiday Inn and Comfort Inn located near the airport.
SLEEP INN, KING OF PRUSSIA, PENNSYLVANIA
Description. This Sleep Inn is located just off the Pennsylvania Turnpike
and is part of a unique dual branded hotel, the first to feature a Mainstay
Suites and Sleep Inn under one roof. This unique property combines many
amenities convenient for both the business and leisure traveler. This 87-room
limited service hotel opened in 2000.
Guest Profile and Local Competition. This hotel serves both the nearby
corporate market as well as the strong leisure demand generators such as the
Valley Forge Historic Park, Valley Forge Convention Center and King of Prussia
Mall. The hotel is within twenty miles of downtown Philadelphia and serves all
of the corporate and leisure demand generators of this market. The hotel's
primary competition includes the Fairfield Inn, Best Western, Comfort Inn and
McIntosh Inn all located within King of Prussia.
MAINSTAY SUITES, KING OF PRUSSIA, PENNSYLVANIA
Description. This Mainstay Suites is located just off the Pennsylvania
Turnpike and is part of a unique dual branded hotel, the first to feature a
Mainstay Suites and Sleep Inn under one roof. This unique property combines
many amenities convenient for both the business and leisure traveler. This
69-room hotel opened in 2000 and the suites include fully-equipped kitchens, a
comfortable living room and a spacious work area.
16
Guest Profile and Local Competition. This hotel serves both the nearby
corporate market as well as the strong leisure demand generators such as the
Valley Forge Historic Park, Valley Forge Convention Center, King of Prussia
Mall. The hotel is within twenty miles of downtown Philadelphia and serves all
of the corporate and leisure demand generators of this market. The hotel's
primary competition includes the Fairfield Inn, Best Western, Comfort Inn and
McIntosh Inn located within King of Prussia.
The following table sets forth certain information with respect to each of our hotels:
Year Ended December 31,
----------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- ------- -------
HOLIDAY INN EXPRESS - HERSHEY, PA (1)
Occupancy 59.3% 57.0% 59.22% 64.4% 38.8%
ADR $107.98 $108.44 $101.91 $81.25 $75.62
REVPAR $ 64.08 $ 61.84 $ 60.36 $52.33 $29.35
HOLIDAY INN EXPRESS - NEW COLUMBIA, PA (2)
Occupancy 60.6% 60.0% 55.2% 49.3% 9.0%
ADR $ 70.69 $ 66.81 $ 61.34 $58.96 $59.68
REVPAR $ 42.81 $ 40.12 $ 33.83 $29.08 $ 5.39
HAMPTON INN - CARLISLE, PA (3)
Occupancy 69.2% 71.4% 68.8% 66.8% 53.5%
ADR $ 76.71 $ 72.96 $ 70.10 $63.63 $65.33
REVPAR $ 53.09 $ 52.08 $ 48.26 $42.48 $34.93
HAMPTON INN - SELINSGROVE, PA (4)
Occupancy 80.6% 82.3% 80.7% 78.6% 71.9%
ADR $ 81.50 $ 75.54 $ 69.80 $65.58 $65.29
REVPAR $ 65.66 $ 62.16 $ 56.31 $51.57 $46.96
HAMPTON INN, DANVILLE, PA (5)
Occupancy 73.8% 77.4% 68.5% 46.6%
ADR $ 79.41 $ 71.54 $6 3.62 $61.97
REVPAR $ 58.57 $ 55.34 $ 43.60 $28.85
HOLIDAY INN HOTEL AND CONFERENCE CENTER
- - HARRISBURG, PA
Occupancy 56.1% 61.1% 62.3% 63.5% 63.3%
ADR $ 68.81 $ 69.92 $ 69.76 $68.34 $68.22
REVPAR $ 38.62 $ 42.75 $ 43.48 $43.37 $43.17
COMFORT INN - HARRISBURG, PA (6)
Occupancy 58.9% 63.9% 60.3% 54.4%
ADR $ 75.48 $ 73.91 $68.38 $65.88
REVPAR $ 44.47 $ 47.20 $41.23 $35.85
CLARION SUITES, PHILADELPHIA, PA (7)
Occupancy 59.6% 72.4% 64.1% 70.2% 73.7%
ADR $ 90.97 $ 94.08 $ 99.82 $99.11 $91.02
REVPAR $ 54.25 $ 68.12 $ 63.99 $69.56 $67.09
HOLIDAY INN EXPRESS & SUITES, HARRISBURG, PA
Occupancy 66.4% 63.4% 54.4% 24.5%
ADR $ 76.64 $ 76.26 $ 61.83 $63.77
REVPAR $ 50.87 $ 48.32 $ 33.66 $15.61
17
Year Ended December 31,
----------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- ------- -------
HAMPTON INN & SUITES, HERSHEY, PA (8)
Occupancy 50.4% 46.7% 30.2%
ADR $106.15 $111.45 $ 80.07
REVPAR $ 53.45 $ 52.02 $ 24.20
HAMPTON INN, NEWNAN, GA
Occupancy 74.1% 71.4% 81.7% 79.8% 77.1%
ADR $ 64.68 $ 65.17 $ 64.23 $63.37 $58.63
REVPAR $ 47.91 $ 46.50 $ 52.46 $50.53 $45.15
HAMPTON INN, PEACHTREE CITY, GA
Occupancy 68.1% 71.5% 74.5% 79.6% 81.6%
ADR $ 67.64 $ 67.81 $ 68.21 $65.31 $65.21
REVPAR $ 46.04 $ 48.46 $ 50.79 $51.96 $53.18
HOLIDAY INN EXPRESS, DULUTH, GA
Occupancy 69.7% 75.2% 75.2% 70.3% 69.5%
ADR $ 71.13 $ 68.24 $ 65.07 $64.38 $60.38
REVPAR $ 49.55 $ 51.31 $ 48.91 $45.24 $41.98
COMFORT SUITES, DULUTH, GA
Occupancy 70.4% 73.4% 71.8% 71.9% 69.8%
ADR 66.3% $ 68.38 $ 67.70 $64.69 $63.32
REVPAR $ 46.70 $ 50.20 $ 48.59 $46.53 $44.18
SLEEP INN, CORAPOLIS, PA (9)
Occupancy 49.7% 70.0% 54.0% 56.2%
ADR $ 47.34 $ 48.15 $ 45.30 $45.54
REVPAR $ 23.55 $ 33.69 $ 24.48 $25.60
SLEEP INN, KING OF PRUSSIA, PA (10)
Occupancy 57.4% 35.7%
ADR $ 73.47 $ 74.48
REVPAR $ 42.15 $ 26.62
MAINSTAY SUITES, KING OF PRUSSIA, PA (10)
Occupancy 51.5% 35.7%
ADR $ 80.11 $ 85.79
REVPAR $ 41.26 $ 30.60
HOLIDAY INN EXPRESS, LONG ISLAND CITY, NY (11)
Occupancy 57.5%
ADR $114.63
REVPAR $ 65.86
<FN>
- ----------------
(1) This hotel opened in October 1997 and, thus, the data shown for 1997
represents approximately three months of operations.
(2) This hotel opened in December 1997 and, thus, the data shown for 1997
represents approximately one month of operations.
(3) This hotel opened in June 1997 and, thus, the data shown for 1997
represents approximately seven months of operations.
(4) This hotel opened in September 1996 and, thus, the data shown for 1996
represents approximately four months of operations.
(5) This hotel opened in September 1998 and, thus, the data shown for 1998
represents approximately four months of operations.
(6) This hotel opened in May 1998 and, thus, the data shown for 1998 represents
approximately eight months of operations.
(7) This hotel opened in August 1998 and, thus, the data shown for 1998
represents approximately five months of operations.
(8) This hotel opened in September 1999 and, thus, the data shown for 1999
represents approximately four months of operations.
(9) This hotel opened in July 1998 and, thus, the data shown for 1998
represents approximately six months of operations.
18
(10) This hotel opened in September 2000 and, thus, the data shown for 2000
represents approximately four months of operations.
(11) This hotel opened in May 2001 and, thus, the data shown for 2001 represents
approximately eight months of operations.
THE PERCENTAGE LEASES
Our hotels are operated by our lessees, HHMLP and Noble, pursuant to
percentage leases. We intend to lease any hotels acquired in the future to
operators, including both our lessees and operators unaffiliated with our
lessees. Future leases with our lessees generally will be similar to the
percentage leases. Future leases with operators unaffiliated with our lessees
may or may not be similar to the percentage leases. We will negotiate the terms
and provisions of each future lease, depending on the purchase price paid,
economic conditions and other factors deemed relevant at the time.
Each percentage lease with HHMLP has an initial non-cancelable term of five
years. All, but not less than all, of these leases may be extended for an
additional five-year term at HHMLP's option. At the end of the first extended
term, HHMLP, at its option, may extend some or all of the leases for an
additional five-year term. The percentage leases are subject to early
termination upon the occurrence of defaults thereunder and certain other events
described therein.
Each percentage lease with Noble has an initial non-cancelable term of
three years. These leases may be extended for an additional three-year period at
Noble's option and upon agreement by both parties for an additional three-year
period.
The percentage leases are designed to allow us to participate in growth in
revenues at our hotels. The percentage lease formulas are based on certain
projections including projected revenues for the newly-developed and
newly-renovated hotels. We can give no assurance that future revenues for the
hotels will be consistent with prior performance or the estimates. With respect
to hotels subject to purchase price adjustment, until the purchase price
adjustment dates the rent is a fixed annual rent payable quarterly. After the
adjustment dates, rent will be computed based on a percentage of revenues of
those hotels. These percentage leases generally provide for the lessees to pay
in each month or calendar quarter the greater of a base rent or percentage rent.
The percentage rent for each hotel leased to HHMLP is comprised of:
- a percentage of room revenues up to a certain threshold amount,
- a percentage of room revenues in excess of the first threshold but
less than a second incentive threshold,
- a percentage of room revenues in excess of the second incentive
threshold and
- a percentage of revenues other than room revenues.
The percentage rent for each hotel leased to Noble is comprised of:
- a percentage of room revenues up to an incentive threshold and
- a percentage of room revenues above this threshold amount.
The incentive thresholds are designed to provide incentive to our lessees to
generate higher revenues at each hotel by reducing the percentage of revenue
paid as rent above certain thresholds. In the case of any newly-renovated
hotels or newly-developed hotels, our lessees pay a fixed rent until an
adjustment date, after which our lessees pay the greater of a base rent or
percentage rent.
19
The following table sets forth (i) room revenue, (ii) other revenue, (iii)
the fixed rent, if applicable, (iv) the annual base rent and (v) the percentage
rent formulas:
Room Other Initial Annual Percentage
Hotel Revenue(1) Revenue(1) Fixed Rent Base Rent Rent Formula
----- ----------- ----------- ---------- ---------- ------------
HOLIDAY INN EXPRESS
Hershey, PA $ 1,946,827 $ 40,006 $ 794,686 $ 364,000 42.1% of room revenue up to
1,479,523, plus 65.0% of
room revenue in excess of $
1,479,523 but less than
1,740,615, plus 29.0% of
room revenue in excess of
1,740,615, plus 8.0% of
all non-room revenue.
Long Island City, NY $ 1,259,631 $ 21,152 $1,179,389(3), (4) $ 552,468 43.96% of room revenue up
to $2,117,542, plus 65.0% of
room revenue 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.
New Columbia, PA $ 1,250,049 $ 24,578 $ 498,198 $ 227,500 46.7% of room revenue up to
850,986, plus 65.0% of room
revenue in excess of $850,986
but less than $1,001,160, plus
29.0% of room revenue in
excess of $1,001,160, plus
8.0% of all non-room revenue.
Duluth, GA $ 1,229,757 $ 55,383 N/A $ 533,000 43.47% of room revenue up
to $1,226,000, plus 40% of
room revenues in excess of
$ 1,226,000.
HAMPTON INN:
Carlisle, PA $ 1,879,661 $ 26,717 $ 699,062 $ 325,000 42.3% of room revenue up to
1,293,906, plus 65.0% of
room revenue in excess of
1,293,906 but less than
1,522,242, plus 29.0% of
room revenue in excess of
1,522,242, plus 8.0% of
all non-room revenue.
Danville, PA $ 1,539,207 $ 24,928 $ 504,116(2) $ 234,000 43.2% of room revenue up
to $916,749, plus 65% of
room revenue in excess of
916,749 but less than
1,078,528, plus 29.0% of
room revenue in excess of
1,078,528, plus 8.0% of
all non-room revenue.
Selinsgrove, PA $ 1,773,357 $ 43,197 N/A $ 308,469 49.0% of room revenue up
to $1,081,152, plus 65.0%
of room revenue in excess
of $1,081,152 but less than
1,271,943, plus 29.0% of
room revenue in excess of
1,271,943, plus 8.0% of all
non-room revenue.
Hershey, PA $ 2,146,087 $ 51,333 $ 1,040,476(2) $ 487,528 51.2% of room revenue up to
1,643,560, plus 65% of room
revenue in excess of $1,643,560
but less than $1,993,600, plus
29.0% of room revenue in excess
of 1,933,600, plus 8.0% of all
non-room revenue.
Newnan, GA $ 1,591,277 $ 43,747 N/A $ 965,000 53.76% of room revenue up to
1,795,000, plus 40% of room
revenues in excess of
$ 1,795,000.
Peachtree City, GA $ 1,025,162 $ 34,042 N/A $ 557,000 46.85% of room revenue up to
1,189,000, plus 40% of room
revenues in excess of
$ 1,189,000.
COMFORT INN:
Harrisburg, PA $ 1,298,582 $ 28,393 $ 514,171 $ 234,000 40.7% of room revenue up to
980,050, plus 65.0% of room
revenue in excess of $980,050
but less than $1,153,000, plus
29.0% of room revenue in excess
of $1,153,000, plus 8.0% of all
non-room revenue.
20
Room Other Initial Annual Percentage
Hotel Revenue(1) Revenue(1) Fixed Rent Base Rent Rent Formula
----- ----------- ----------- ---------- ---------- ------------
COMFORT SUITES:
Duluth, GA $ 1,448,963 $ 40,828 N/A $ 745,000 47.54% of room revenue up to
1,567,000, plus 40% of room
revenue in excess of $1,567,000.
HOLIDAY INN EXPRESS
& SUITES:
Harrisburg, PA $ 1,420,388 $ 26,755 $ 404,031(2) $ 175,500 35.3% of room revenue up to
855,611, plus 65% of room
revenue in excess of $855,611
but less than $1,006,601, plus
29.0% of room revenue in
excess of $1,006,601, plus
8.0% of all non-room revenue.
HOLIDAY INN HOTEL
AND CONFERENCE
CENTER:
Harrisburg, PA $ 2,777,050 $ 1,895,747 N/A $ 675,921 44.3% of room revenue up to
2,638,247, plus 65% of room
revenue in excess of $2,638,247
but less than $3,103,820, plus
31.0% of room revenues in
excess of $3,103,820, plus 8.0%
of all non-room revenue.
SLEEP INN:
Corapolis, PA 1,229,025 38,176 $ 838,280(3) $ 357,500 37.6% of room revenue up to
1,700,000 plus 65% of room
revenues in excess of $1,700,000
but less than $2,000,000, plus
29.0% of room revenue in excess
of $2,000,000, plus 8.0% of all
non-room revenue.
CLARION SUITES:
Philadelphia, PA $ 1,900,984 $ 179,981 N/A $ 418,593 36.1% of room revenue up to
1,998,097, plus 65.0% of room
revenue in excess of $1,998,097
but less than $2,350,702, plus
29.0% of room revenue in
excess of $2,350,702, plus
8.0% of all non-room revenue.
MAINSTAY SUITES AND
SLEEP INN:
King of Prussia, $ 1,310,222 $ 88,384 $ 1,352,010(3) $ 613,798 43.7% of room revenue up to
PA(5) 2,434,590 plus 65% of room
revenues in excess of $2,434,590
but less than $2,864,224 plus
29.0% of room revenue in
excess of $2,864,224, plus
8.0% of all non-room revenue.
<FN>
- ----------------
(1) For year ended December 31, 2001.
(2) Initial fixed rent period expires on December 31, 2001, at which time this hotel will be re-priced according to
our re-pricing methodology.
(3) Initial fixed rent period expires on December 31, 2002, at which time this hotel will be re-priced according to
our re-pricing methodology.
(4) Hotel commenced operations as of May 1, 2001.
(5) Dual branded hotel that includes both a Mainstay Suites and a Sleep Inn under one roof. We entered into one
lease with respect to these two hotels.
Other than real estate and personal property taxes; ground lease rent
(where applicable); the cost of certain furniture, fixtures and equipment;
certain capital expenditures; and property and casualty insurance premiums, all
21
of which are our obligations, the percentage leases require our lessees to pay
the operating expenses of the hotels (including insurance other than property
and casualty insurance, all costs, expenses, utility and other charges incurred
in the operation of the hotels) during the term of the percentage leases. The
percentage leases also provide for rent reductions and abatements in certain
cases in the event of damage, destruction or a partial taking of any of our
hotels.
Under the percentage leases, we make available to our lessees for the
replacement and refurbishment of furniture, fixtures and equipment and other
capital improvements, determined in accordance with generally accepted
accounting principles, when and as deemed necessary by the lessees, an amount
equal to 4% (6% for the Holiday Inn Hotel and Conference Center, Harrisburg, PA)
of gross revenues per quarter on a cumulative basis. Our obligation will be
carried forward to the extent that the lessees have not expended such amount,
and any unexpended amounts will remain our property upon termination of the
percentage leases. Other than as described above, our lessees are responsible
for all repair and maintenance of the hotels and any capital improvements
thereto.
Our lessees, at their expense, may make non-capital and capital additions,
modifications or improvements to the hotels, provided that such action does not
significantly alter the character or purposes of the hotels or significantly
detract from the value or operating efficiencies of the hotels. All of these
alterations, replacements and improvements are subject to all the terms and
provisions of the percentage leases and will become our property upon
termination of the leases. We own substantially all personal property (other
than inventory, linens and other non-depreciable personal property) not affixed
to, or deemed a part of, the real estate or improvements on the hotels, except
to the extent that ownership of such personal property would cause the rent
under a percentage lease not to qualify as "rents from real property" for REIT
income test purposes.
We are responsible for paying or reimbursing our lessees for real estate
and personal property taxes on our hotels (except to the extent that personal
property associated with the hotels is owned by the lessees), and all premiums
for property and casualty insurance. Our lessees are required to pay for all
other insurance on the hotels, including comprehensive general public liability,
workers' compensation and other insurance appropriate and customary for
properties similar to our hotels, and to name us as an additional named insured.
Our lessees are not permitted to sublet all or any part of our hotels or
assign their interest under any of the percentage leases without our prior
written consent. No assignment or subletting will release our lessees from any
of their obligations under the percentage leases.
In the event of damage to or destruction of any hotel, covered by
insurance, that renders the hotel unsuitable for its primary intended use, the
percentage lease will terminate as of the date of the casualty, neither we nor
our lessees shall have any further liability under the percentage lease, and we
will retain all insurance proceeds. In the event of damage to or destruction of
any hotel covered by insurance that does not render that hotel unsuitable for
its primary intended use, we (or, at our election, our lessees) will restore the
hotel, the percentage lease will not terminate and we will retain all insurance
proceeds (if, however, our lessees restore the hotel, the insurance proceeds
will be paid out by us to the lessees). If the cost of restoration exceeds the
amount of insurance proceeds received by us, we will contribute any excess
amounts prior to requiring our lessees to commence work. In the event of damage
to or destruction of any hotel not covered by insurance, whether or not such
damage or destruction renders the hotel unsuitable for its primary intended use,
we at our option either (i) will restore the hotel at our cost and expense and
the percentage lease will not terminate or (ii) will terminate the percentage
lease and neither we nor our lessees shall have any further liability under the
percentage lease. Any damage or destruction notwithstanding, and provided the
percentage lease has not been terminated, our lessees' obligation to pay rent
will remain unabated by any damage or destruction that does not result in a
reduction of gross revenues at the hotel. If any damage or destruction results
in a reduction of such gross revenues, we will receive all loss of income
insurance and our lessees will not have an obligation to pay rent in excess of
the amount of percentage rent, if any, realizable from gross revenues generated
by the operation of the hotel during the existence of such damage or
destruction.
In the event of a total condemnation of any of our hotels, or in the event
of a partial taking that renders the hotel unsuitable for its primary intended
use, either we or our lessees will have the option to terminate the relevant
percentage lease as of the date of taking, and we and our lessees will be
entitled to their shares of the condemnation award in accordance with the
provisions of the percentage lease. In the event of a partial taking that does
not render the hotel unsuitable for its primary intended use, we (or, at our
option, our lessees) will restore the untaken portion of the hotel to a complete
22
architectural unit and we shall contribute the cost of such restoration in
accordance with the provisions of the percentage lease. In the event of a
partial taking, the base rent will be abated taking into consideration, among
other factors, the number of usable rooms, the amount of square footage, or the
revenues affected by the partial taking.
Events of default under the percentage leases include, among others, the
following:
(i) the failure by our lessees to pay base rent, percentage rent (or,
fixed rent, as applicable) or any additional charges when due and the
continuation of such failure for a period of 10 days after receipt by our
lessees of notice from us that the same has become due and payable,
provided that we shall not be required to give any such notice more than
twice in any lease year and that any third or subsequent failure by our
lessees during such lease year to make any payment of base rent or
percentage rent (or, fixed rent, as applicable) on the date the same
becomes due and payable shall constitute an immediate event of default;
(ii) the failure by our lessees to observe or perform any other term
of a percentage lease and the continuation of such failure for a period of
30 days after receipt by our lessees of notice from us thereof, unless: (A)
such failure cannot be cured within such period and our lessees commences
appropriate action to cure such failure within such 30-day period and
thereafter acts, with diligence, to correct such failure within such time
as is necessary, provided in no event shall such period exceed 120 days,
which 120-day period shall cease to run during any period that a cure of
such failure is prevented by certain unavoidable delays and shall resume
running upon the cessation of such unavoidable delay; and (B) such failure
does not result in a notice or declaration of default under any material
contract or agreement to which we or any affiliate thereof is a party or by
which any of our assets are bound;
(iii) if our lessees shall file a petition in bankruptcy or
reorganization pursuant to any federal or state bankruptcy law or any
similar federal or state law; shall be adjudicated a bankrupt; shall make
an assignment for the benefit of creditors; shall admit in writing its
inability to pay its debts generally as they become due; if a petition or
answer proposing the adjudication of our lessees as a bankrupt or their its
reorganization pursuant to any federal or state bankruptcy law or any
similar federal or state law shall be filed in any court and our lessees
shall be adjudicated a bankrupt and such adjudication shall not be vacated
or set aside or stayed within 60 days after the entry of an order in
respect thereof; if a receiver of our lessees or of the whole or
substantially all of the assets of our lessees shall be appointed in any
proceeding brought by our lessees; or if any such receiver, trustee or
liquidator shall be appointed in any proceeding brought against our lessees
and shall not be vacated or set aside or stayed within 60 days after such
appointment;
(iv) if our lessees liquidate or dissolve; begin proceedings toward
such liquidation or dissolution, or in any manner cease to do business or
permit the sale or divestiture of substantially all of their assets;
(v) if the estate or interest of our lessees in the percentage lease
or any part thereof is voluntarily or involuntarily transferred, assigned,
conveyed, levied upon or attached in any proceeding (for this purpose, a
change in control of our lessees constitutes an assignment of the lease);
(vi) if our lessees voluntarily discontinue operations of any of our
hotels except as a result of damage, destruction or condemnation;
(vii) if the franchise license with respect to any of our hotels is
terminated by the franchisor as a result of any action or failure to act by
our lessees or their agents, other than the failure to complete
improvements required by a franchisor because our operating partnership
fails to pay the costs of such improvements; or
(viii) the occurrence of an event of default occurs under any other
percentage lease between us and our lessees.
If an event of default occurs and continues beyond any curative period, we
will have the option of terminating the percentage lease and any or all other
percentage leases by giving our lessees 10 days' written notice of the date for
23
termination of the percentage leases and, unless such event of default is cured
prior to the termination date set forth in such notice, the percentage leases
shall terminate on the date specified in our notice and the lessees shall be
required to surrender possession of the affected hotels.
In the event we enter into an agreement to sell or otherwise transfer one
of our hotels to a third party, we have the right to terminate the percentage
lease with respect to such hotel if within six months after the closing of such
sale we either (i) pay our lessee the fair market value of our lessees'
leasehold interest in the remaining term of the percentage lease to be
terminated, or (ii) offer to lease to our lessee one or more substitute hotels
on terms that would create a leasehold interest in such hotels with a fair
market value equal to or exceeding the fair market value of our lessee's
remaining leasehold interest under the percentage lease to be terminated.
Upon notice from our lessees that we have breached any of the leases, we
will have 30 days to cure the breach or proceed to cure the breach, which period
may be extended in the event of certain specified, unavoidable delays.
All inventory required in the operation of our hotels is and will be
purchased and owned by our lessees at their expense. We will have the option to
purchase all inventory related to a particular hotel at fair market value upon
termination of the percentage lease for that hotel.
ITEM 3. LEGAL PROCEEDINGS
We are not presently subject to any material litigation. To our knowledge,
no litigation has been threatened against us or our affiliates other than
routine actions and administrative proceedings, substantially all of which we
expect to be covered by liability insurance and which, in the aggregate, we do
not expect to have a material adverse effect on our business or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of our security holders during 2001,
through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
Our Priority Class A Common Shares began trading on the American Stock
Exchange on January 20, 1999 under the symbol "HT." As of March 28, 2002, the
last reported closing price per Priority Class A Common Share on the American
Stock Exchange was $6.50. The following table sets forth the high and low sales
price per Priority Class A Common Share reported on the American Stock Exchange
as traded for the period indicated.
PERIOD HIGH LOW
- --------------------------------------------------------------- ----- -----
1999
First Quarter (January 21, 1999 through March 31, 1999) $6.31 $5.75
Second Quarter (April 1, 1999 through June 30, 1999) $6.13 $5.13
Third Quarter (July 1, 1999 through September 30, 1999) $5.88 $5.00
Fourth Quarter (October 1, 1999 through December 31, 1999) $5.50 $4.81
2000
First Quarter (January 1, 2000 through March 31, 2000) $5.50 $4.00
Second Quarter (April 1, 2000 through June 30, 2000) $6.00 $4.50
Third Quarter (July 1, 2000 through September 30, 2000) $6.06 $5.38
Fourth Quarter (October 1, 2000 through December 31, 2000) $5.94 $5.50
24
2001
First Quarter (January 1, 2001 through March 31, 2001) $6.06 $5.50
Second Quarter (April 1, 2001 through June 30, 2001) $6.00 $5.35
Third Quarter (July 1, 2001 through September 30, 2001) $6.90 $4.25
Fourth Quarter (October 1, 2001 through December 31, 2001) $6.25 $5.70
SHAREHOLDER INFORMATION
At March 29, 2002, we had approximately 125 holders of record and 1,100
beneficial owners of our Priority Class A Common Shares. The subordinated units
of limited partnership interest in our operating partnership (which are
redeemable for Class B Common Shares subject to certain limitations) were held
by 15 entities and/or persons.
Our organizational documents limit the number of equity securities of any
series that may be owned by any single person or affiliated group to 9.9% of the
outstanding shares.
DISTRIBUTION INFORMATION
Our Board of Trustees declared a cash distribution for the holders of the
priority common shares and the operating partnership units for the period from
January 1, 2002 to March 31, 2002 in the amount of $0.18 per share, payable on
April 26, 2002, to holders of record on March 29, 2002. We currently anticipate
maintaining at least the current distribution rate for the immediate future,
unless actual results of operations, economic conditions or other factors differ
from our current expectations. 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 operating partnership subsidiary anticipates that it will pay a
distribution to the holders of its subordinated units of limited partnership
interest concurrently with the payment of the first quarter 2002 cash
distribution to our public shareholders.
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
The following sets forth selected financial and operating data on a pro
forma and 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.
Historical operating results of the combined hotels prior to our
acquisition, including net income, may not be comparable to future operating
results.
25
HERSHA HOSPITALITY TRUST
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA 2001 2000 1999 (1)
----------- ----------- -----------
REVENUE:
Percentage Lease Revenues (2) $ 13,901 $ 12,773 $ 7,264
Interest 165 50 78
Interest - Related Party 21 1 28
----------- ----------- -----------
Total Revenue 14,087 12,824 7,370
EXPENSES:
Interest expense 5,422 4,712 1,428
Land Lease - Related Party 13 15 20
Real Estate and Personal Property
Taxes and Property Insurance 1,044 753 450
General and Administrative 554 590 363
Early Payment Penalty - 107 -
Depreciation and Amortization 4,476 3,892 2,064
----------- ----------- -----------
Total Expenses 11,509 10,069 4,325
Income Before Gain on Sale of Assets 2,578 2,755 3,045
Gain on Sale of Assets 598 - -
----------- ----------- -----------
Income Before Minority Interest 3,176 2,755 3,045
Income Allocated to Minority Interest 2,342 1,908 1,707
----------- ----------- -----------
Net income $ 834 $ 847 $ 1,338
=========== =========== ===========
Basic Earnings Per Common Share (3) $ 0.37 $ 0.37 $ 0.59
Diluted Earnings Per Common Share and Units (3) $ 0.37 $ 0.37 $ 0.48
Funds from Operations per Diluted Share (4) $ 0.97 $ 0.99 $ 0.79
Dividends declared per Common Share $ 0.72 $ 0.72 $ 0.67
BALANCE SHEET DATA
Net investment in hotel properties $ 88,100 $ 87,671 $ 51,908
Minority interest in Partnership $ 20,436 $ 17,679 $ 18,980
Shareholder's equity $ 10,210 $ 11,014 $ 11,805
Total assets $ 96,017 $ 94,531 $ 56,382
Total debt $ 61,535 $ 61,450 $ 27,754
OTHER DATA
FUNDS FROM OPERATIONS (SEE PAGE 25) $ 7,054 $ 6,647 $ 5,109
Net cash provided by operating activities $ 6,828 $ 5,032 $ 3,075
Net cash provided by (used in) investing activities $ 5,513 $ (14,895) $ (9,149)
Net cash provided by (used in) financing activities $ (12,174) $ 9,739 $ 6,198
Weighted average shares outstanding
Basic 2,275,000 2,275,000 2,275,000
Diluted 7,296,596 6,715,996 6,326,690
26
- -----------------
(1) Hersha Hospitality Trust commenced operations on January 26, 1999 and
therefore the results shown are as of January 26, 1999.
(2) Represents initial fixed rent plus aggregate Percentage Rent paid by HHMLP
and Noble to the Partnership pursuant to percentage leases, which payments
are calculated by applying the rent provisions in the respective percentage
leases to the historical room revenues.
(3) Represents basic and diluted earnings per share computed in accordance with
FAS No. 128.
(4) We note that industry analysts and investors use Funds From Operations
(FFO) as a tool to compare equity real estate investment trust performance.
In accordance with the resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts (NAREIT), FFO
represents net income (loss) (computed in accordance with generally
accepted accounting principles), excluding gains (or losses) from debt
restructing or sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. FFO
presented herein is not necessarily comparable to FFO presented by other
real estate companies due to the fact that not all real estate companies
use the same definition.
THE FOLLOWING TABLE COMPUTES FFO AND FFO PER DILUTED SHARE:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999 (1)
-------------- ------------- --------------
Net income applicable to common shares $ 834 $ 847 $ 1,338
Less: Gain on Sale of Assets (598) -0- -0-
Add:
Minority interest 2,342 1,908 1,707
Depreciation and amortization 4,476 3,892 2,064
-------------- ------------- --------------
Funds From Operations $ 7,054 $ 6,647 $ 5,109
============== ============= ==============
FFO per Weighted Average Diluted Share $ 0.97 $ 0.99 $ 0.79
============== ============= ==============
<FN>
- -----------------
(1) Commenced operations on January 26, 1999.
27
HERSHA HOSPITALITY MANAGEMENT, L.P.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2001 2000 1999
-------- -------- --------
REVENUES FROM HOTEL OPERATIONS
Room Revenue $27,461 $29,297 $21,871
Restaurant Revenue 1,939 1,963 2,074
Other revenue 1,971 1,568 1,354
-------- -------- --------
TOTAL REVENUES FROM HOTEL OPERATIONS $31,371 $32,828 $25,299
EXPENSES:
Hotel Operating Expenses 11,621 12,228 9,788
Restaurant Operating Expenses 1,601 1,754 1,822
Advertising and Marketing 2,163 1,856 1,228
Bad Debts 124 17 247
Depreciation and Amortization 243 207 102
General and Administrative 4,794 5,051 3,873
General and Admin. - Related Parties 126 141 45
Lease Expense - HHLP 11,100 10,923 7,264
Lease Expense - Other Related Parties 703 798 1,316
-------- -------- --------
TOTAL EXPENSES $32,475 $32,975 $25,685
-------- -------- --------
NET LOSS $(1,104) $ (147) $ (386)
======== ======== ========
28
COMBINED ENTITIES - INITIAL HOTELS
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996 1995
------- ------- -------- -------
OPERATING DATA
Room revenue $15,185 $10,880 $ 7,273 $5,262
Restaurant revenue 2,111 1,744 2,106 1,515
Other revenue 790 821 610 442
------- ------- -------- -------
TOTAL REVENUE 18,086 13,445 9,989 7,219
Hotel operating expenses 7,449 5,628 4,538 3,789
Restaurant operating expenses 1,469 996 1,304 961
Advertising and Marketing 918 571 532 185
Depreciation and amortization 1,543 1,189 924 711
Interest expense 1,605 821 605 434
Interest expense - Related parties 386 533 316 200
General and Administrative 2,065 1,644 1,422 779
General and Administrative - Related Parties 608 320 364 102
Loss on Abandonments and Asset Disposals 95 - 12 284
Liquidation Damages - 14 - 150
------- ------- -------- -------
TOTAL EXPENSES 16,138 11,716 10,017 7,595
------- ------- -------- -------
NET INCOME $ 1,948 $ 1,729 $ (28) $ (376)
======= ======= ======== =======
29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
All statements contained in this section that are not historical facts are
based on current expectations. Words such as "believes", "expects",
"anticipate", "intends", "plans" and "estimates" and variations of such words
and similar words also identify forward-looking statements. Our actual results
may differ materially. We caution you not to place undue reliance on any such
forward-looking statements. We assume no obligation to update any
forward-looking statements as a result of new information, subsequent events or
any other circumstances.
OVERVIEW
Please refer to the information under Item 1, entitled "Overview."
GENERAL
Our principal source of revenue is from payments by HHMLP and Noble under
the percentage leases. The principal determinants of percentage rent are the
hotels' room revenue, and to a lesser extent, other revenue. HHMLP's and
Noble's ability to make payments to us under their respective percentage leases
is dependent on the operations of the hotels.
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 amount of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities.
On an on-going basis, all estimates are evaluated by us, including those
related to carrying value of investments in hotel properties. All 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
Percentage lease income is recognized when earned from the lessees under
the agreements from the date of acquisition of each hotel property. Lease
income is recognized under fixed rent agreements ratably over the lease term.
All leases between us and the lessees are operating leases.
We recognize lease revenue for interim and annual reporting purposes on an
accrual basis pursuant to the terms of the respective percentage leases and on
an interim basis in accordance with the Securities and Exchange Commission
("SEC") Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in
Financial Statements." Under the provisions of SAB 101, which we adopted in the
fourth quarter of 2000, a portion of our percentage lease revenues, which
historically were recognized in the first, second, and third quarters, are
deferred and recognized in the fourth quarter. The adoption of SAB 101 impacts
the interim reporting of revenues related to our leases, but has no impact on
its interim cash flow or year-end results of operations.
IMPAIRMENT OF LONG-LIVED ASSETS
We review the carrying value of each hotel property in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121 to determine if
circumstances exist indicating an impairment in the carrying value of the
investment in the hotel property or that depreciation periods should be
modified. Long-lived assets are reviewed for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the
30
assets may not be fully recoverable. We perform undiscounted cash flow analyses
to determine if an impairment exists. If an impairment is determined to exist,
any related impairment loss is calculated based on fair value. We do not
believe that there are any current facts or circumstances indicating impairment
of any of our investment in hotel properties.
We would record an impairment charge if we believe an investment in hotel
property has been impaired such that future undiscounted cash flows would not
recover the book basis of the investment in the hotel property. Future adverse
changes in market conditions or poor operating results of underlying investments
could result in losses or an inability to recover the carrying value of the
investments that may not be reflected in an investment's carrying value, thereby
possibly requiring an impairment charge in the future.
COMPARISON OF YEAR ENDED DECEMBER 31, 2001 TO YEAR ENDED DECEMBER 31, 2000
HERSHA HOSPITALITY TRUST
Our total revenues for the twelve-month period ended December 31, 2001
consisted substantially of percentage lease revenue recognized pursuant to
percentage leases with HHMLP and Noble. Our revenue was approximately
$14,086,924 an increase of 9.8% compared to revenue of $12,824,332 for the year
ended December 31, 2000. Net income for the period was approximately $834,000 a
decrease of 1.5% compared to 2000 net income of approximately $846,579. The
increase in revenue is primarily attributable to the full year of operations
from several properties acquired in 2000 along with three additional
acquisitions completed during 2001. Lease revenues were slightly offset by the
disposition of six assets during 2001 and lower percentage lease revenues from a
few of the hotels owned during 2001.
Net income decreased from the prior year due to an increase in interest
expense, property taxes, insurance and depreciation and amortization as a result
of the acquisitions during 2000 and 2001, as mentioned above.
HHMLP
HHMLP's revenues decreased by $1,456,639 for the year ended December 31,
2001, or 4.4%, to approximately $31,370,961 as compared to $32,827,604, for the
year ended 2000. The decrease in revenues was due to the sale of six properties
during 2001 along with lower occupancies and average daily rates at several
hotels. HHMLP's net loss for the year ended December 31, 2001 increased to
$1,103,711 from $146,917 in 2000. The increase in our net loss was a result of
lower revenues mentioned above and consequently lower gross operating profits at
several of our leased hotels. In addition we incurred losses due to the start
up expenses incurred at several of the Newly built properties that commenced
operations in 2001.
COMPARISON OF YEAR ENDED DECEMBER 31, 2000 TO YEAR ENDED DECEMBER 31, 1999
HERSHA HOSPITALITY TRUST
Our total revenues for the twelve-month period ended December 31, 2000
consisted substantially of percentage lease revenue recognized pursuant to
percentage leases with HHMLP and Noble. Our revenue was approximately
$12,824,332, an increase of 74.0% compared to revenue of $7,369,330 for the year
ended December 31, 1999. Net income for the period was approximately $846,579,
a decrease of 36.7% compared to 1999 net income of approximately $1,337,460.
The increase in revenue is primarily attributable to the acquisition of eight
hotels from January through October of 2000 and a full year of operation in 2000
of hotels acquired in 1999. Net income includes certain one-time charges
related to prepayment penalties on refinanced debt. Net income was also
affected by an increase in interest expense, property taxes, insurance and
depreciation and amortization as a result of the acquisitions during 2000, as
mentioned above.
HHMLP
HHMLP's revenues increased by $7,282,773 for the year ended December 31,
2000, or 28.51%, to approximately $32,827,604, as compared to approximately
$25,544,831 for the year ended 1999. HHMLP's net loss for the year ended
December 31, 2000 decreased approximately $188,369, to approximately $146,917
from a net loss of $335,286 in 1999. The increase in room revenues is primarily
attributable to the increase in the number of hotels leased and managed from 17
to 23 properties. These new hotels came on line during various times during the
31
year. The increase in room revenues is also due to additional occupancy at
properties, a higher average daily rate (ADR) and increases in the revenue per
available room (REVPAR).
PRO FORMA RESULTS OF OPERATIONS OF OUR HOTELS
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO YEAR ENDED DECEMBER 31, 1998
Room revenue for our hotels increased $4,487,852 or 27.8% to $20,649,276 in
1999 from $16,161,424 in 1998. The increase resulted from the addition of
80,890 available room nights with an overall increase of 54,776 room nights
sold. The increase in room nights available was a result of opening three new
hotels in 1998, which were open the full year in 1999, and one hotel that opened
in 1999. In addition, a 2% increase in occupancy to 58% in 1999 as well as a
3.5% increase in our average daily rate to $71.64 compared to $69.23 augmented
the available room-nights. REVPAR increased 7.0% to $41.34 from $38.61.
Total expenses less depreciation, amortization and interest increased by
$2,277,434 or 18.2% to $14,806,884. Operating income before interest expense,
depreciation and amortization increased by 56.4% to $8,702,136 from $5,563,648.
RESULTS OF OPERATIONS OF OUR HOTELS PRIOR TO THE COMMENCEMENT OF OPERATIONS FOR
HERSHA HOSPITALITY TRUST.
The information presented for our hotels prior to the commencement of
operations includes certain hotels that were not contributed to the REIT.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997
Room revenue for our hotels increased $4,305,000 or 40% to $15,185,000 in
1998 from $10,880,000 in 1997. The increase resulted from the addition of 86,114
available room nights with an overall increase of 58,986 room nights sold. The
increase in room nights available was a result of opening three new hotels in
1997, which were open the full year in 1998, and one hotel that opened in 1998.
In addition, a 3% increase in occupancy to 62% from 60% in 1997 as well as a 2%
increase in our average daily rate to $69.54 compared to $68.27 in 1997
augmented the available room nights. REVPAR increased 5% to $43.30 from $41.09.
Total expenses less depreciation, amortization and interest increased by
$3,431,000 or 37% to $12,604,000. Operating income before interest expense,
depreciation and amortization increased by 28% to $5,482,000 from $4,272,000.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
Room revenue increased by $3,607,000 or 50% to $10,880,000 in 1997 from
$7,273,000 in 1996. The increase resulted from the addition of four new hotels
opening in 1997 and one hotel which was only open during half of 1996 being open
for the entire 1997 period. These new properties added additional available
room-nights of 43,171. In addition, a 13% increase in occupancy to 60% from 53%
in 1996 as well as a 7.5% increase in our average daily rate to $68.27 compared
to $63.51 in 1996 augmented the available room-nights. Revenue per available
room increased 22.7% to $41.09 from $33.48.
Total expenses less depreciation, amortization and interest increased by
$1,001,000 or 12% to $9,173,000 but decreased as a percentage of total revenue
to 68% from 82%. Operating income before interest expense, depreciation and
amortization increased to $4,272,000 from $1,817,000.
LIQUIDITY AND CAPITAL RESOURCES
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 our line of credit. We believe that our net cash
provided by operations will be adequate to fund operating requirements, debt
service and our payment of dividends in accordance with REIT requirements of the
federal income tax laws. We expect to meet our long-term liquidity
requirements, such as scheduled debt maturities and property acquisitions,
through long-term secured and unsecured borrowings, the issuance of additional
equity securities or, in connection with acquisitions of hotel properties, the
issuance of units of operating partnership interest in our operating partnership
subsidiary.
32
We currently maintain a $11.5 million line of credit with Sovereign Bank.
We may use the line of credit to fund future acquisitions and for working
capital. Outstanding borrowings under the line of credit bear interest at the
bank's prime rate and are collateralized by certain of our properties. In the
future, we may seek to increase the amount of the line of credit, negotiate
additional credit facilities or issue corporate debt instruments. Any debt
incurred or issued by us may be secured or unsecured, long-term or short-term,
fixed or variable interest rate and may be subject to such other terms as we
deem prudent. The outstanding principal balance on the line of credit was
approximately $7.1 million at December 31, 2001. The weighted average interest
rate on short-term borrowings was 7.1%.
We have a debt policy that limits our consolidated indebtedness to less
than 67% of the aggregate purchase prices for the hotels in which we have
invested and our current level is approximately 61%. However, our
organizational documents do not limit the amount of indebtedness that we may
incur and our Board of Trustees may modify our debt policy at any time without
shareholder approval. We intend to repay indebtedness incurred under the line
of credit from time to time, for acquisitions or otherwise, out of cash flow and
from the proceeds of issuances of additional priority common shares and other
securities.
We intend to invest in additional hotels only as suitable opportunities
arise and adequate sources of financing are available. Our bylaws require the
approval of a majority of our Board of Trustees, including a majority of the
independent trustees, to acquire any additional hotel in which one of our
trustees or officers, or any of their affiliates, has an interest (other than
solely as a result of his status as our trustee, officer or shareholder). We
expect that future investments in hotels will depend on and will be financed by,
in whole or in part, the proceeds from additional issuances of priority common
shares, issuances of operating partnership units or other securities or
borrowings. Because of the level of our indebtedness, the success of our
acquisition strategy will depend primarily on our ability to access additional
capital through issuances of equity securities. We currently have no agreement
or understanding to invest in any hotel and there can be no assurance that we
will make any investments in any other hotels that meet our investment criteria.
Pursuant to our percentage leases, we are required to make available to the
lessees of our hotels 4% (6% for full service properties) of gross revenues per
quarter, on a cumulative basis, for periodic replacement or refurbishment of
furniture, fixtures and equipment at each of our hotels. We believe that a 4%
(6% for full service hotels) reserve is a prudent estimate for future capital
expenditure requirements. We intend to spend amounts in excess of the obligated
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 believe that
amounts required to be set aside in our percentage leases will be sufficient to
meet required expenditures for furniture, fixtures and equipment during the term
of the percentage leases. We will use undistributed cash or borrowings under
credit facilities to pay for the cost of capital improvements and any furniture,
fixture and equipment requirements in excess of the set aside referenced above.
INFLATION
Operators of hotels in general possess the ability to adjust room rates
quickly. However, competitive pressures may limit the lessee's ability to raise
room rates in the face of inflation, and annual increases in average daily rates
have failed to keep pace with inflation.
SEASONALITY
Our hotels' operations historically have been seasonal in nature,
reflecting higher occupancy rates during the second and third quarters. This
seasonality can be expected to cause fluctuations in our quarterly lease revenue
to the extent that we receive percentage rent.
RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2001, the Financial Accounting Standards Board ("FASB") approved
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS No. 144"). The Statement requires that long-lived assets to be disposed
of other than by sale be considered held and used until they are to be disposed
of. SFAS No. 144 requires that long-lived assets to be disposed of by sale be
accounted for under the requirements of SFAS No. 121. SFAS No. 121 requires that
such assets be measured at the lower of carrying amounts or fair value less cost
33
to sell and to cease depreciation (amortization). SFAS No. 144 requires a
probability-weighted cash flow estimation approach in situations where
alternative courses of action to recover the carrying amount of a long-lived
asset are under consideration or a range of possible future cash flow amounts
are estimated. As a result, discontinued operations will no longer be measured
on a net realizable basis, and future operating losses will no longer be
recognized before they occur. Additionally, goodwill will be removed from the
scope of SFAS No. 144. As a result goodwill will no longer be required to be
allocated to long-lived assets to be tested for impairment. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. We are
currently in the process of evaluating the effect this new standard will have on
our consolidated financial position or results of operations.
On August 15, 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations ("SFAS No. 143"). SFAS No. 143 requires that the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. SFAS No. 143 will be effective for
financial statements issued for fiscal years beginning after June 15, 2002. An
entity shall recognize the cumulative effect of adoption of SFAS No. 143 as a
change in accounting principle. We are not currently affected by this
Statement's requirements.
In June 2001, the FASB issued SFAS No. 141 ("SFAS 141"), "Business
Combinations", and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets",
collectively referred to as the "Standards". SFAS 141 supersedes Accounting
Principles Board Opinion (APB) No. 16, "Business Combinations". SFAS 141 (1)
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, (2) provides specific criteria for
the initial recognition and measurement of intangible assets apart from goodwill
and (3) requires that unamortized negative goodwill be written off immediately
as an extraordinary gain. SFAS 142 supersedes APB 17, "Intangible Assets," and
is effective for fiscal years beginning after December 15, 2001. SFAS 142
primarily addresses the accounting for goodwill and intangible assets subsequent
to their initial recognition. SFAS 142 (1) prohibits the amortization of
goodwill and indefinite-lived intangible assets, (2) requires testing of
goodwill and indefinite-lived intangible assets on an annual basis for
impairment (and more frequently if the occurrence of an event or circumstance
indicates an impairment), (3) requires that reporting units be identified for
the purpose of assessing potential future impairments of goodwill and (4)
removes the forty-year limitation on the amortization period of intangible
assets that have finite lives. The provisions of the Standards also apply to
equity-method investments made both before and after June 30, 2001. SFAS 141
requires that the unamortized deferred credit related to an excess over cost
arising from an investment acquired prior to July 1, 2001 accounted for using
the equity method (equity-method negative goodwill), must be written-off
immediately and recognized as the cumulative effect of a change in accounting
principle. Equity-method negative goodwill arising from equity investments made
after June 30, 2001 must be written-off immediately and recorded as an
extraordinary gain. We will adopt SFAS 142 on January 1, 2002. Going forward, we
will test goodwill for impairment annually or more frequently if the occurrence
of an event or circumstance indicate potential impairment.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposure is to changes in interest rates on our
variable rate Line of Credit. At December 31, 2001, we had total outstanding
indebtedness under the Line of Credit of approximately $7.1 million at an
interest rate of 5.0%. At March 29, 2002, we had total outstanding indebtedness
under the Line of Credit of approximately $10.2 million at an interest rate of
4.75%. The entire amount outstanding under the Line of Credit becomes due and
payable as of August 8, 2002. We have not entered into, but in the future may
enter into, derivative financial instruments such as interest rate swaps to
mitigate its interest rate risk. In the event that we do not have sufficient
cash reserves to pay off the Line of Credit when due, it will have to borrow an
amount sufficient to pay off the Line of Credit at the prevailing interest rate
at the time the amount outstanding becomes due and payable. The extent of this
risk is not quantifiable or predictable because of the variability of future
interest rates and our financing requirements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
34
INDEX TO FINANCIAL STATEMENTS
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
Report of Independent Auditor. . . . . . . . . . . . . . . . . . . . . 36
Consolidated Balance Sheets as of December 31, 2001 and 2000 . . . . . 37
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999 . . . . . . . . . . . . . . . . . . . 38
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2001, 2000 and 1999 . . . . . . . . . . . . . . . . . . . 39
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999 . . . . . . . . . . . . . . . . . . . 40
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 44
Schedule III - Real Estate and Accumulated Depreciation for the
year ended December 31, 2001 . . . . . . . . . . . . . . . . . . . . . 63
HERSHA HOSPITALITY MANAGEMENT, L.P.
Report of Independent Auditor. . . . . . . . . . . . . . . . . . . . . 65
Balance Sheets as of December 31, 2001 and 2000. . . . . . . . . . . . 66
Statement of Operations for the years ended December 31, 2001,2000
and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Statements of Partners' Capital for the years ended December 31, 2001,
2000 and 1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Statements of Cash Flows for the years ended December 31, 2001,
2000 and 1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . 71
35
REPORT OF INDEPENDENT AUDITOR
To the Shareholders and Board of Trustees of
Hersha Hospitality Trust
New Cumberland, Pennsylvania
We have audited the accompanying consolidated balance sheets of Hersha
Hospitality Trust and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2001.
These consolidated financial statements and consolidated financial statement
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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 consolidated financial
position of Hersha Hospitality Trust and subsidiaries as of December 31, 2001
and 2000, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States Our audit
was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the index to financial statements is
the responsibility of Hersha Hospitality Trust's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. The schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
MOORE STEPHENS, P. C.
Certified Public Accountants.
New York, New York
March 8, 2002
36
=============================================================================================
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
[IN THOUSANDS EXCEPT SHARE AMOUNTS]
=============================================================================================
DECEMBER 31, DECEMBER 31,
-------------- --------------
ASSETS: 2001 2000
-------------- --------------
Cash and cash equivalents $ 167 $ --
Investment in Hotel Properties, Net of
Accumulated Depreciation 88,100 87,671
Escrow Deposits 1,647 1,178
Lease Payments Receivable - Related Party 2,376 2,877
Intangibles, Net of Accumulated Amortization 1,515 1,720
Due from Related Party 1,884 849
Other Assets 328 236
-------------- --------------
TOTAL ASSETS $ 96,017 $ 94,531
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Line of Credit $ 7,058 $ 11,400
Deposits Payable 1,000 1,000
Mortgages Payable 54,477 50,050
Dividends Payable 1,325 1,209
Due to Related Party 1,093 1,650
Accounts Payable and Accrued Expenses 418 529
-------------- --------------
TOTAL LIABILITIES $ 65,371 $ 65,838
-------------- --------------
MINORITY INTEREST 20,436 17,679
-------------- --------------
COMMITMENTS AND CONTINGENCIES -- --
-------------- --------------
SHAREHOLDERS' EQUITY:
Preferred Shares, $.01 par value, 10,000,000 Shares
authorized, None Issued and Outstanding -- --
Common Shares - Priority Class A, $.01 Par Value,
50,000,000 Shares Authorized, 2,275,000 Shares Issued and
Outstanding at December 31, 2001 and 2000, (Aggregate
Liquidation Preference $13,650) 23 23
Common Shares - Class B, $.01 Par Value, 50,000,000 Shares
Authorized, -0- Shares Issued and Outstanding at December
31, 2001 and 2000 -- --
Additional Paid-in Capital 11,968 11,968
Distributions in Excess of Net Earnings (1,781) (977)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 10,210 11,014
-------------- --------------
Total Liabilities and Shareholders' Equity $ 96,017 $ 94,531
============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
37
=================================================================================
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001,
2000 AND 1999(1)
[IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS]
=================================================================================
2001 2000 1999
------------ ------------ ------------
REVENUE:
Percentage Lease Revenues $ 13,901 $ 12,773 $ 7,264
Interest 165 50 78
Interest - Related Party 21 1 28
------------ ------------ ------------
TOTAL REVENUE 14,087 12,824 7,370
EXPENSES:
Interest expense 5,422 4,712 1,428
Land Lease - Related Party 13 15 20
Real Estate and Personal Property
Taxes and Property Insurance 1,044 753 450
General and Administrative 554 590 363
Early Payment Penalty - 107 -
Depreciation and Amortization 4,476 3,892 2,064
------------ ------------ ------------
TOTAL EXPENSES 11,509 10,069 4,325
INCOME BEFORE GAIN ON SALE OF ASSETS 2,578 2,755 3,045
Gain on Sale of Assets 598 - -
------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST 3,176 2,755 3,045
INCOME ALLOCATED TO MINORITY INTEREST 2,342 1,908 1,707
------------ ------------ ------------
NET INCOME $ 834 $ 847 $ 1,338
============ ============ ============
BASIC EARNINGS PER COMMON SHARE $ 0.37 $ 0.37 $ 0.59
============ ============ ============
DILUTED EARNINGS PER COMMON SHARE $ 0.37 $ 0.37 $ 0.48
============ ============ ============
WEIGHTED AVERAGE SHARES:
Basic 2,275,000 2,275,000 2,275,000
Diluted 7,296,596(2) 6,715,996(2) 6,326,690(2)
(1) Operations commenced on January 26, 1999
(2) Includes 5,093,220, 4,440,996 and 4,205,970 units of limited partnership
interest that are redeemable on a one-for-one basis for Class B Common
Shares.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
38
================================================================================================================
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999(1)
[IN THOUSANDS, EXCEPT SHARES]
================================================================================================================
Priority Class A Class B
Common Shares Common Shares Additional Distributions
-------------------- ----------------- paid-in in excess of
Shares Dollars Shares Dollars capital net earnings Total
---------- -------- ------- -------- ----------- --------------- --------
Balance at January 1, 1999 - - 100 - - - -
Cancellation of Initial Shares - - (100) - - - -
Issuance of shares, 2,275,000 $ 23 - - $ 11,968 - $11,991
net of offering expenses
Dividends declared - - - - - $ (1,524) $(1,524)
($0.67 per share)
Net Income $ 1,338 $ 1,338
Balance at December 31, 1999 2,275,000 $ 23 - $ - $ 11,968 $ (186) $11,805
Dividends declared - - - - - $ (1,638) $(1,638)
($0.72 per share)
Net Income $ 847 $ 847
Balance at December 31, 2000 2,275,000 $ 23 - $ - $ 11,968 $ (977) $11,014
Dividends declared - - - - - $ (1,638) $(1,638)
($0.72 per share)
Net Income $ 834 $ 834
-------------------------------------------------------------------------------
Balance at December 31, 2001 2,275,000 $ 23 - $ - $ 11,968 $ (1,781) $10,210
===============================================================================
<FN>
(1) Operations commenced on January 26, 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
39
================================================================================
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2001, 2000 AND 1999(1)
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
2001 2000 1999
--------- --------- --------
OPERATING ACTIVITIES:
Net Income $ 834 $ 847 $ 1,338
--------- --------- --------
Adjustments to Reconcile Net Income to
Net Cash provided by Operating Activities:
Depreciation and Amortization 4,476 3,892 2,064
Gain on Sale of Assets (598) - -
Income Allocated to Minority Interest 2,342 1,908 1,707
Change in Assets and Liabilities:
(Increase) Decrease in:
Escrow Deposits (469) (1,178) -
Lease Payments Receivable - Related Party 501 (761) (2,116)
Other Assets (92) 115 (351)
Due from Related Party 122 (21) -
Increase (Decrease):
Due to Related Parties (179) 54 188
Accounts Payable and Accrued Expenses (109) 176 245
--------- --------- --------
Total Adjustments 5,994 4,185 1,737
--------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,828 5,032 3,075
INVESTING ACTIVITIES:
Purchase of Hotel Property Assets (5,017) (13,017) (7,209)
Sale of Hotel Property Assets 12,599 - -
Purchase of Intangible Assets (69) (1,078) (940)
Loans to Related Party (2,000) (800) (1,000)
--------- --------- --------
NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES 5,513 (14,895) (9,149)
FINANCING ACTIVITIES:
Net Proceeds from Issuance of Stock - - 11,991
Proceeds from Borrowings Under Line of Credit 10,766 5,496 6,096
Repayment of Borrowings Under Line of Credit (15,108) - -
Borrowings from Mortgages Payable - 25,050 -
Principal Repayment of Mortgages Payable (2,729) (17,016) (5,460)
Dividends Paid (1,638) (1,638) (1,114)
Limited Partnership Unit Distributions Paid (3,495) (3,561) (1,580)
Borrowings from Related Party 30 1,408 -
Repayment of Related Party Loans - - (3,735)
--------- --------- --------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES (12,174) 9,739 6,198
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 167 (124) 124
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR - 124 -
--------- --------- --------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 167 $ - $ 124
========= ========= ========
(1) Operations commenced on January 26, 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS CONSOLIDATED FINANCIAL
STATEMENT.
40
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2001, 2000 AND 1999(CONTINUED)
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid During the Period: 12/31/01 12/31/00 12/31/99
--------- --------- ---------
Interest $ 5,364 $ 4,445 $ 1,393
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
We have acquired an Investment in Hotel Properties with an approximate value, at
the commencement of operations, of $40,307 in exchange for (i) 4,032,321
subordinated units of limited partnership interest in the Partnership that are
redeemable for the same number of Class B Common Shares with a value of
approximately $24,200 based on the initial offering price and (ii) the
assumption of approximately $23,300 of indebtedness of which approximately
$6,100 was repaid immediately after the acquisition of the hotels and
approximately $2,800 was repaid prior to June 30, 1999.
On August 11, 1999 we purchased, from Messrs. Hasu P. Shah, our chairman, chief
executive officer and trustee, K.D. Patel, one of our trustees, Rajendra O.
Gandhi, our treasurer, Kiran P. Patel, our secretary, certain officers of HHMLP
and other affiliated individuals, [the "Hersha Affiliates"], all the partnership
interests in 3744 Associates, a Pennsylvania limited partnership and through the
ownership of 3744 Associates, a 60- room Comfort Inn hotel located near the John
F. Kennedy International Airport in Jamaica, New York. The Comfort Inn, JFK was
newly constructed and commenced operations on August 12, 1999. We have
purchased the Comfort Inn, JFK for $5,500.
On September 1, 1999 we purchased, from the Hersha Affiliates, all the
partnership interests in 2844 Associates, a Pennsylvania limited partnership and
through the ownership of 2844 Associates, a 77-room Clarion Inn & Suites hotel
located in Harrisburg, Pennsylvania. We acquired the Clarion Inn & Suites for a
purchase price of $2,700. We have assumed a mortgage payable of $2,000 in
connection with the acquisition of this hotel. The Clarion Inn & Suites was
subsequently converted to a Holiday Inn Express and Suites in 2000.
On September 1, 1999 we purchased, from the Hersha Affiliates, all the
partnership interests in 3544 Associates, a Pennsylvania limited partnership and
through the ownership of 3544 Associates, a 72-room Hampton Inn hotel located in
Danville, Pennsylvania. The total purchase price was $3,600. We have acquired
an Investment in the Hampton Inn, Danville, PA in exchange for (i) 173,359
subordinated units of limited partnership interest in the partnership that are
redeemable for the same number of Class B Common Shares with a value of
approximately $1,000 based on the initial offering price and (ii) the assumption
of approximately $2,600 of indebtedness.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS CONSOLIDATED FINANCIAL
STATEMENT.
41
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2001, 2000 AND 1999 (CONTINUED)
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
As of January 1, 2000, we issued an additional 235,026 units of limited
partnership interest in connection with final settlement of the purchase prices
for the Holiday Inn, Milesburg, the Comfort Inn, Denver and the Holiday Inn
Express, Riverfront. The total number of units outstanding as of January 1,
2000 was 4,440,996. No additional units were issued during 2000.
On January 1, 2000, we purchased three hotels from the Hersha Affiliates. These
hotels consist of the Hampton Inn & Suites, Hershey, the Best Western, Indiana
and the Comfort Inn, McHenry. The purchase prices paid for these hotels were
$7,500, $2,200 and $1,800, respectively. We have assumed mortgages payable of
$5,000, $1,400 and $1,200, respectively, and also assumed related party debt of
$1,000 related to the purchase of the Hampton Inn & Suites, Hershey. The Hersha
Affiliates have received cash of approximately $1,500, $800 and $600,
respectively, for the remainder of the proceeds from the sale of these hotels.
On May 19, 2000, we completed the acquisition of four hotels from Noble
Investment Group, Ltd. ("Noble") for $20,000. We have simultaneously entered
into lease agreements with Noble for the four properties. We lease the
properties to entities owned by Noble pursuant to percentage leases that provide
for rent based, in part, on the room revenues from the hotels. The leases for
the Comfort Suites, Duluth, GA and the Holiday Inn Express, Duluth, GA are
effective as of May 19, 2000. The leases for the Hampton Inn hotels located in
Newnan and Peachtree City are effective as of April 20, 2000.
On October 1, 2000, we purchased the Sleep Inn in Corapolis, PA from the Hersha
Affiliates. The purchase price paid for this hotel was $5,500. We have assumed
a mortgage payable of $3,800. The Hersha Affiliates have received cash of
approximately $1,700 for the remainder of the proceeds from the sale of this
hotel.
As of January 1, 2001, we have issued an additional 531,559 units of limited
partnership interest in connection with the repricing of the Holiday Inn
Express, Hershey, Hampton Inn, Carlisle, Holiday Inn Express, New Columbia and
the Comfort Inn, Harrisburg. The total number of units outstanding as of
January 1, 2001 was 4,972,555.
On April 1, 2001, we have sold the Best Western, Indiana for $2,200 to the
Hersha Affiliates. In conjunction with this transaction we have received cash
proceeds of $400 and have redeemed 76,252 limited partnership units valued at
$457. The buyer also assumed the outstanding mortgage balance of $1,342.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS CONSOLIDATED FINANCIAL
STATEMENT.
42
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2001, 2000 AND 1999 (CONTINUED)
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
On May 1, 2001, we have sold the Comfort Inn, Denver for $2,100 to an unrelated
third party. Net of settlement fees and other costs we received $1,868. In
conjunction with this transaction we have received cash proceeds of $460 and
have paid down the outstanding mortgage balance of $1,408 to Shreenathji
Enterprises, Ltd., a related party.
On June 1, 2001, we have sold the Comfort Inn, JFK for $7,000 to an unrelated
third party. Net of settlement fees and other costs we have received cash
proceeds of $6,613. Based upon the initial repricing formula, we have issued an
additional 175,538 limited partnership units in conjunction with this
transaction.
On June 1, 2001, we have purchased the Mainstay Suites and Sleep Inn in King of
Prussia from the Hersha Affiliates. We have purchased these assets for $9,445
plus settlement costs and leased them to Hersha Hospitality Management, LP. In
conjunction with this transaction, we have assumed the mortgage indebtedness of
$6,738, assumed $1,000 of related party debt and funded the remainder of the
proceeds of $1,768 from our available cash and outstanding line of credit.
On November 1, 2001 we purchased the Holiday Inn Express hotel located in Long
Island City, New York. We have purchased this asset for $8,500 plus settlement
costs of approximately $100 and leased it to Hersha Hospitality Management, LP.
In conjunction with this transaction, we have assumed the mortgage indebtedness
of approximately $5,445, assumed $1,000 of related party debt, issued additional
units for $459 and paid cash of approximately $1,600.
On November 1, 2001 we have sold the Comfort Inn, McHenry, MD to the Hersha
Affiliates for approximately $1,800, including the assumption of approximately
$1,180 in indebtedness, redemption of 55,175 limited partnership units valued at
approximately $331 and cash proceeds of approximately $300.
On November 1, 2001 we have sold the Comfort Inn, Riverfront, Harrisburg, PA to
the Hersha Affiliates for $3,400 net of selling costs, including the assumption
of approximately $2,500 in indebtedness and approximately $900 in cash.
On November 1, 2001 we have sold the Holiday Inn, Milesburg, PA to a third party
owner operator for approximately $4,700 less broker fees and transfer costs that
are estimated at $600. The sale included the payoff of $3,362 in mortgage
indebtedness, a related party loan receivable of $157 and approximately $600 in
cash.
On December 28, 2001 we declared a $0.18 per Class A Common Share dividend and a
distribution of $0.18 per limited partnership unit that was paid on January 25,
2002.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS CONSOLIDATED FINANCIAL
STATEMENT.
43
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[1] ORGANIZATION AND BASIS OF FINANCIAL PRESENTATION
Hersha Hospitality Trust [the "Company"] was formed in May 1998 to acquire
equity interests in ten existing hotel properties. We are a self-administered,
Maryland real estate investment trust for federal income tax purposes. On
January 26, 1999, we completed an initial public offering of 2,275,000 shares of
$.01 par value Priority Class A Common Shares. The offering price per share was
$6 resulting in gross proceeds of $13,650. Net of underwriters discount and
offering expenses, we received proceeds of $11,991.
Upon completion of the initial public offering, we contributed substantially all
of the net proceeds to Hersha Hospitality Limited Partnership [the
"Partnership"] in exchange for a 36.1% general partnership interest in the
Partnership. The Partnership used these proceeds to acquire an equity interest
in ten hotels, [the "Initial Hotels"] through subsidiary partnerships, and to
retire certain indebtedness relating to these hotels. The Partnership acquired
these hotels in exchange for (i) units of limited partnership interest in the
Partnership which are redeemable, subject to certain limitations, for an
aggregate of 4,032,431 Priority Class B Common Shares, with a value of
approximately $24,200 based on the initial public offering, and (ii) the
assumption of approximately $23,300 of indebtedness of which approximately
$6,100 was repaid immediately after the acquisition of the hotels. Hasu P. Shah
and certain affiliates [the "Hersha Affiliates"] received units of limited
partnership interests in the Partnership aggregating a 63.9% equity interest in
the Partnership. The Partnership owns a 99% limited partnership interest and
Hersha Hospitality, LLC ["HHLLC"], a Virginia limited liability company, owns a
1% general partnership interest in the subsidiary partnerships. The Partnership
is the sole member of HHLLC. We began operations on January 26, 1999,
therefore, the historical financial statements include activity from January 26,
1999 to December 31, 2001.
We lease 14 of our hotel facilities to Hersha Hospitality Management, LP,
["HHMLP"], a Pennsylvania limited partnership. HHMLP is owned in part by three
of our executive officers, two of our trustees and their affiliates. HHMLP
operates and leases the hotel properties pursuant to separate percentage lease
agreements [the "Percentage Leases"] that provide for initial fixed rents or
percentage rents based on the revenues of the hotels. The hotels are located
principally in the Mid-Atlantic region of the United States. We have also
entered into percentage leases with Noble Investment Group, Ltd. ["Noble"], an
independent third party management company, to lease and manage four hotels in
the metropolitan Atlanta market.
The following summarizes the number of hotels owned for the periods presented:
2001(a) 2000 1999
------- ---- ----
Hotels owned at beginning of years 21 13 10
Acquisitions 3 8 3
Sales of hotels (6) 0 0
------- ---- ----
Hotels owned at end of years 18 21 13
======= ==== ====
<FN>
(a) - The Sleep Inn and Mainstay Suites in King of Prussia, PA consist of
two separate hotels yet are accounted for as one purchase due to the fact that
the hotels share a common lobby and guest area and a common deed.
44
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[1] ORGANIZATION AND BASIS OF FINANCIAL PRESENTATION [CONTINUED]
Since the completion of the initial public offering we have issued an additional
173,539 units of limited partnership interest in connection with the acquisition
of the Hampton Inn, Danville, PA and 76,555 units in connection with the
acquisition of the Holiday Inn Express, Long Island City. We have also issued
an additional 942,123 units of limited partnership interest in connection with
final settlement of the purchase prices of several hotels and have redeemed
131,427 units of limited partnership interest in connection with the sale of
certain hotels.
The total number of units of limited partnership interest outstanding as of
December 31, 2001, 2000 and 1999 was 5,093,220, 4,440,996 and 4,205,970
respectively.
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and include all of our accounts as well as accounts of the Partnership and the
subsidiary Partnerships. All inter-company amounts have been eliminated.
USE OF ESTIMATES The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
INVESTMENT IN HOTEL PROPERTIES - Investment in hotel properties are stated at
cost. Depreciation for financial reporting purposes is principally based upon
the straight-line method.
The estimated lives used to depreciate the Hotel properties are as follows:
Building and Improvements 15 to 40 Years
Furniture and Fixtures 5 to 7 Years
IMPAIRMENT OF LONG-LIVED ASSETS - We review the carrying value of each hotel
property in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121 to determine if circumstances exist indicating an impairment in the
carrying value of the investment in the hotel property or that depreciation
periods should be modified. Long-lived assets are reviewed for impairment
whenever events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable. We perform undiscounted cash
flow analyses to determine if an impairment exists. If an impairment is
determined to exist, any related impairment loss is calculated based on fair
value. We do not believe that there are any current facts or circumstances
indicating impairment of any of our investment in hotel properties.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents are comprised of cash and
certain highly liquid investments with maturities of three months or less when
acquired, carried at cost, which approximates fair value. We had no cash
equivalents at December 31, 2001.
45
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
INTANGIBLE ASSETS - Intangible assets are carried at cost and consist of loan
acquisition fees and goodwill. Amortization of loan acquisition fees is
computed using the straight-line method over the two-year term of the related
debt and over a 15 year period for goodwill. Amortization expense related to
goodwill assets will not be recognized after December 31, 2001.
REVENUE RECOGNITION - Percentage lease income is recognized when earned from the
Lessees under the agreements from the date of acquisition of each hotel
property. Lease income is recognized under fixed rent agreements ratably over
the lease term. All leases between us and the lessees are operating leases.
We recognize lease revenue for interim and annual reporting purposes on an
accrual basis pursuant to the terms of the respective percentage leases and on
an interim basis in accordance with the Securities and Exchange Commission
("SEC") Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in
Financial Statements." Under the provisions of SAB 101, which we adopted in the
fourth quarter of 2000, a portion of our percentage lease revenues, which
historically were recognized in the first, second, and third quarters, are
deferred and recognized in the fourth quarter. The adoption of SAB 101 impacts
the interim reporting of revenues related to our leases, but has no impact on
its interim cash flow or year-end results of operations.
INCOME TAXES - We qualify as a real estate investment trust under Section 856
and 860 of the Internal Revenue Code. Accordingly, no provision for federal
income taxes has been reflected in the financial statements.
Earnings and profits that determine the taxability of dividends to shareholders
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. During 2001, 11.0% of the distributions were
considered to be return of capital and 89.0% ordinary income for Federal income
tax purposes. During 2000 and 1999, none of the distributions were considered
to be return of capital for Federal income tax purposes.
MINORITY INTEREST - Minority interest in the Partnership represents the limited
partners' proportionate share of the equity of the Partnership. The limited
partnership interests are owned by numerous individuals and companies. Income
is allocated to minority interest based on weighted average percentage ownership
throughout the year.
EARNINGS PER COMMON SHARE - We compute earnings per share in accordance with
Statement of Financial Accounting Standards ["SFAS"] No. 128, "Earnings Per
Share."
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject us
to concentrations of credit risk include cash and cash equivalents and rent
receivable arising from our normal business activities. We place our cash and
cash equivalents with high credit quality financial institutions. We do not
require collateral to support our financial instruments. We have not
experienced any losses with respect to bank balances in excess of
government-provided insurance.
46
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
Rental income is earned from one related party lessee and one unrelated party
lessee. Therefore, the collection of rent receivable and rent income is reliant
on the continued financial health of these Lessees.
STOCK BASED COMPENSATION - We account for employee stock-based compensation
under the intrinsic value based method as prescribed by Accounting Principles
Board ["APB"] Opinion No. 25. We apply the provisions of SFAS No. 123,
"Accounting for Stock Based Compensation," to non-employee stock-based
compensation and the pro forma disclosure provisions of that statement to
employee stock-based compensation.
ESCROW DEPOSITS - Escrow deposits relate to the Company's mortgages payable.
RECENT ACCOUNTING PRONOUNCEMENTS - In August 2001, the Financial Accounting
Standards Board ("FASB") approved SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("SFAS No. 144"). The Statement requires that
long-lived assets to be disposed of other than by sale be considered held and
used until they are disposed of. SFAS No. 144 requires that long-lived assets to
be disposed of by sale be accounted for under the requirements of SFAS No. 121.
SFAS No. 121 requires that such assets be measured at the lower of carrying
amounts or fair value less cost to sell and to cease depreciation
(amortization). SFAS No. 144 requires a probability-weighted cash flow
estimation approach in situations where alternative courses of action to recover
the carrying amount of a long-lived asset are under consideration or a range of
possible future cash flow amounts are estimated. As a result, discontinued
operations will no longer be measured on a net realizable basis, and future
operating losses will no longer be recognized before they occur. Additionally,
goodwill will be removed from the scope of SFAS No. 144. As a result goodwill
will no longer be required to be allocated to long-lived assets to be tested for
impairment. SFAS No. 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001, and interim periods within those fiscal
years. We are currently in the process of evaluating the effect this new
standard will have on our consolidated financial position or results of
operations.
On August 15, 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations ("SFAS No. 143"). SFAS No. 143 requires that the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. SFAS No. 143 will be effective for
financial statements issued for fiscal years beginning after June 15, 2002. An
entity shall recognize the cumulative effect of adoption of SFAS No. 143 as a
change in accounting principle. We are not currently affected by this
Statement's requirements.
In June 2001, the FASB issued SFAS No. 141 ("SFAS 141"), "Business
Combinations", and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets",
collectively referred to as the "Standards". SFAS 141 supersedes Accounting
Principles Board Opinion (APB) No. 16, "Business Combinations". SFAS 141 (1)
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, (2) provides specific criteria for
the initial recognition and measurement of intangible assets apart from goodwill
and (3) requires that unamortized negative goodwill be written off immediately
as an extraordinary gain. SFAS 142 supersedes APB 17, "Intangible Assets," and
is effective for fiscal years beginning after December 15, 2001.
47
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
SFAS 142 primarily addresses the accounting for goodwill and intangible assets
subsequent to their initial recognition. SFAS 142 (1) prohibits the amortization
of goodwill and indefinite-lived intangible assets, (2) requires testing of
goodwill and indefinite-lived intangible assets on an annual basis for
impairment (and more frequently if the occurrence of an event or circumstance
indicates an impairment), (3) requires that reporting units be identified for
the purpose of assessing potential future impairments of goodwill and (4)
removes the forty-year limitation on the amortization period of intangible
assets that have finite lives. The provisions of the Standards also apply to
equity-method investments made both before and after June 30, 2001. SFAS 141
requires that the unamortized deferred credit related to an excess over cost
arising from an investment acquired prior to July 1, 2001 accounted for using
the equity method (equity-method negative goodwill), must be written-off
immediately and recognized as the cumulative effect of a change in accounting
principle. Equity-method negative goodwill arising from equity investments made
after June 30, 2001 must be written-off immediately and recorded as an
extraordinary gain. We will adopt SFAS 142 on January 1, 2002. Going forward,
we will test goodwill for impairment annually or more frequently if the
occurrence of an event or circumstance indicate potential impairment.
[3] INTANGIBLE ASSETS
At December 31, 2001 and 2000 intangibles consisted of the following:
ACCUMULATED
DESCRIPTION COST AMORTIZATION NET
- --------------------- ------ ------------- ------
December 31, 2001:
Goodwill $1,168 $ 528 $ 640
Loan Acquisition Fees 1,183 308 875
------ ------------- ------
Totals $2,351 $ 836 $1,515
====== ============= ======
December 31, 2000:
Goodwill $1,168 $ 450 $ 718
Loan Acquisition Fees 1,144 142 1,002
------ ------------- ------
Totals $2,312 $ 592 $1,720
====== ============= ======
Amortization expense was $274, $213 and $85 for the years ending December 31,
2001, 2000 and 1999, respectively.
48
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[4] INVESTMENT IN HOTEL PROPERTIES
Hotel properties consist of the following at December 31, 2001 and 2000:
2001 2000
-------- -------
Land $ 10,156 $ 8,574
Buildings and Improvements 74,592 74,830
Furniture, Fixtures and Equipment 15,648 16,108
-------- -------
100,396 99,512
Less Accumulated Depreciation 12,296 11,841
-------- -------
$ 88,100 $87,671
======== =======
Depreciation expense was $4,202, $3,679 and $1,979 for the years ended December
31, 2001, 2000 and 1999, respectively.
The eighteen hotels owned at December 31, 2001 consist of seventeen premium
limited service hotels and one full service hotel property.
49
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[4] INVESTMENT IN HOTEL PROPERTIES [CONTINUED]
In 2001, 2000 and 1999, we acquired and sold the following hotels for the
approximate amounts indicated.
NO. OF PURCHASE SALE
ROOMS PRICE PRICE
------- ---------- ---------
2001
- ----
Mainstay Suites/Sleep Inn,
King of Prussia, PA 156 9,445
Holiday Inn Express, LI City, NY 79 8,500
Best Western, Indiana, PA (96) (2,200)
Comfort Inn, McHenry, MD (77) (1,800)
Comfort Inn, Denver, PA (45) (2,100)
Comfort Inn, JFK, NY (60) (7,000)
Holiday Inn Milesburg, PA (118) (4,700)
Comfort Inn, Harrisburg, PA (117) (3,400)
------- ---------- ---------
Total (278) $ 17,945 $(21,200)
======= ========== =========
2000
- ----
Hampton Inn & Suites, Hershey, PA 110 $ 7,500
Best Western, Indiana, PA 96 2,200
Comfort Inn, McHenry, MD 77 1,800
Hampton Inn, Newnan, GA 91 7,117
Hampton Inn, Peachtree City, GA 61 3,940
Comfort Suites, Duluth 85 5,208
Holiday Inn Express, Duluth 68 3,735
Sleep Inn, Corapolis, PA 143 5,500
------- ----------
Total 731 $ 37,000
======= ==========
1999
- ----
Comfort Inn - JFK, NY 60 $ 5,500
Clarion Inn & Suites, Harrisburg, PA 77 2,700
Hampton Inn, Danville, PA 72 3,600
------- ----------
Total 209 $ 11,800
======= ==========
50
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[4] INVESTMENT IN HOTEL PROPERTIES [CONTINUED]
On August 11, 1999 we purchased, from the Hersha Affiliates, all the partnership
interests in 3744 Associates, a Pennsylvania limited partnership and through the
ownership of 3744 Associates, a 60- room Comfort Inn hotel located near the John
F. Kennedy International Airport in Jamaica, New York. The Comfort Inn was
newly constructed and commenced operations on August 12, 1999.
On September 1, 1999 we purchased, from the Hersha Affiliates, all the
partnership interests in 2844 Associates, a Pennsylvania limited partnership
and, through the ownership of 2844 Associates, a 77-room Clarion Inn & Suites
hotel located in Harrisburg, Pennsylvania. We also purchased the 72-room
Hampton Inn hotel located in Danville, Pennsylvania from 3544 Associates.
The purchase prices for the Comfort Inn, JFK, Hampton Inn, Danville and the
Clarion Inn & Suites, Harrisburg are $5,500, $3,600 and $2,700, respectively.
On January 1, 2000, we purchased three hotels from the Hersha Affiliates. These
hotels consist of the Hampton Inn, Hershey, the Best Western, Indiana and the
Comfort Inn, McHenry. The purchase prices paid for these hotels were $7,500,
$2,200 and $1,800, respectively. We have assumed mortgages payable of $5,000,
$1,400 and $1,200, respectively, and also assumed related party debt of $1,000
related to the purchase of the Hampton Inn, Hershey. The Hersha Affiliates have
received cash of approximately $1,500, $800 and $600, respectively, for the
remainder of the proceeds from the sale of these hotels.
On May 19, 2000, we completed the acquisition of four hotels from Noble
Investment Group, Ltd. ("Noble") for $20,000. We have simultaneously entered
into lease agreements with Noble for the four properties. We lease the
properties to entities owned by Noble pursuant to percentage leases that provide
for rent based, in part, on the room revenues from the hotels. The leases for
the Comfort Suites, Duluth, GA. and the Holiday Inn Express, Duluth, GA. are
effective as of May 19, 2000. The leases for the Hampton Inn hotels located in
Newnan and Peachtree City are effective as of April 20, 2000.
On October 1, 2000, we purchased the Sleep Inn in Corapolis, PA from the Hersha
Affiliates. The purchase price paid for this hotel was $5,500. We have assumed
a mortgage payable of $3,800. The Hersha Affiliates have received cash of
approximately $1,700 for the remainder of the proceeds from the sale of this
hotel.
As of January 1, 2001, we have issued an additional 531,559 units of limited
partnership interest in connection with the repricing of the Holiday Inn
Express, Hershey, Hampton Inn, Carlisle, Holiday Inn Express, New Columbia and
the Comfort Inn, Harrisburg.
51
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[4] INVESTMENT IN HOTEL PROPERTIES [CONTINUED]
On April 1, 2001, we have sold the Best Western, Indiana for $2,200 to the
Hersha Affiliates. In conjunction with this transaction we have received cash
proceeds of $400 and have redeemed 76,252 limited partnership units valued at
$457. The buyer also assumed the outstanding mortgage balance of $1,342.
On May 1, 2001, we have sold the Comfort Inn, Denver for $2,100 to an unrelated
third party. Net of settlement fees and other costs we received $1,868. In
conjunction with this transaction we have received cash proceeds of $460 and
have paid down the outstanding mortgage balance of $1,408 to Shreenathji
Enterprises, Ltd., a related party.
On June 1, 2001, we have sold the Comfort Inn, JFK for $7,000 to an unrelated
third party. Net of settlement fees and other costs we have received cash
proceeds of $6,613. Based upon the initial repricing formula, we have issued an
additional 175,538 limited partnership units in conjunction with this
transaction.
On June 1, 2001, we have purchased the Mainstay Suites and Sleep Inn in King of
Prussia from the Hersha Affiliates. We have purchased these assets for $9,445
plus settlement costs and leased them to Hersha Hospitality Management, LP. In
conjunction with this transaction, we have assumed the mortgage indebtedness of
$6,738, assumed $1,000 of related party debt and funded the remainder of the
proceeds of $1,768 from our available cash and outstanding line of credit.
On November 1, 2001 we purchased the Holiday Inn Express hotel located in Long
Island City, New York. We have purchased this asset for $8,500 plus settlement
costs of approximately $100 and leased it to Hersha Hospitality Management, LP.
In conjunction with this transaction, we have assumed the mortgage indebtedness
of approximately $5,445, assumed $1,000 of related party debt, issued additional
units for $459 and paid cash of approximately $1,600.
On November 1, 2001 we have sold the Comfort Inn, McHenry, MD to the Hersha
Affiliates for approximately $1,800, including the assumption of approximately
$1,180 in indebtedness, redemption of 55,175 limited partnership units valued at
approximately $331 and cash proceeds of approximately $300.
On November 1, 2001 we have sold the Comfort Inn, Riverfront, Harrisburg, PA to
the Hersha Affiliates for $3,400 net of selling costs, including the assumption
of approximately $2,500 in indebtedness and approximately $900 in cash.
On November 1, 2001 we have sold the Holiday Inn, Milesburg, PA to a third party
owner operator for approximately $4,700 less broker fees and transfer costs that
are estimated at $600. The sale included the payoff of $3,362 in mortgage
indebtedness, a related party loan receivable of $157 and approximately $600 in
cash.
52
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[4] INVESTMENT IN HOTEL PROPERTIES [CONTINUED]
The above acquisitions were accounted for as purchases, and the results of such
acquisitions are included in the Company's consolidated statements of operations
from the dates of acquisition. No goodwill arose in the transactions.
[5] DEBT
Debt is comprised of the following at December 31, 2001 and 2000:
2001 2000
------- -------
Mortgages Payable $54,477 $50,050
Revolving Credit Facility 7,058 11,400
------- -------
$61,535 $61,450
======= =======
Substantially all of our mortgage indebtedness is collateralized by property and
equipment and in certain situations is personally guaranteed by the Hersha
Affiliates. The total mortgages payable balance at December 31, 2001 and 2000
was $54,477 and $50,050, respectively, and consisted of mortgages with fixed
interest rates ranging from 7.75% to 9.43%. The maturities for the outstanding
mortgages ranged from August 2004 to May 2011.
On August 9, 1999, the Company obtained a $7,000 credit facility from Sovereign
Bank (the "Line of Credit"). The Line of Credit was extended to $11,500 as of
December 1, 2000. Outstanding borrowings under the Line of Credit bear interest
at the bank's prime rate and the Line of Credit is collateralized by the Holiday
Inn Express and Suites, Harrisburg and the Clarion Suites, Philadelphia, PA.
The interest rate on borrowings under the Line of Credit at December 31, 2001
and 2000 was 5.0% and 9.50%, respectively. The Line of Credit expires on August
8, 2002. The outstanding principal balance on the Line of Credit was
approximately $7,058 and $11,400 at December 31, 2001 and 2000, respectively.
The weighted average interest rate on short-term borrowings for 2001 and 2000
was 7.1% and 9.0%, respectively.
Aggregate annual principal payments for the Company's mortgages payable at
December 31, 2001 are due as follows:
2002 $ 1,000
2003 1,289
2004 1,404
2005 1,531
2006 1,672
Thereafter 47,581
-------
TOTAL $54,477
=======
53
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[6] COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
In conjunction with the initial public offering, we acquired the Initial Hotels
and entered into percentage lease agreements with Hersha Hospitality Management,
L.P. ("HHMLP"). We have acquired ten properties from the Hersha Affiliates that
were subsequently leased to HHMLP and four properties from Noble Investment
Group, Ltd. ("Noble") that were leased to Noble, subsequent to our public
offering. We have sold three properties back to the Hersha Affiliates during
2001. Under the percentage leases, the Partnership is obligated to pay the
costs of certain capital improvements, real estate and personal property taxes
and property insurance, and to make available to the lessee an amount equal to
4% [6% for some hotels] of room revenues per quarter, on a cumulative basis, for
the periodic replacement or refurbishment of furniture, fixtures and equipment
at these hotels.
There was no commitment outstanding to the limited partners as of December 31,
2001 and 2000. The Priority Class A Common shareholders will be entitled to
receive dividends in excess of the priority distribution [See Note 9] after the
limited partners have received an amount equal to the priority distribution.
The holders of the Priority Class A Common Shares will be entitled to receive
further distributions on a pro rata basis with the holders of the limited
partnership units.
We are the sole general partner in the Partnership, which is the sole general
partner in the subsidiary partnerships and, as such, are liable for all recourse
debt of the Partnership to the extent not paid by the Partnerships. In the
opinion of management, we do not anticipate any losses as a result of our
obligations as general partner.
We have entered into percentage leases relating to 14 hotels with HHMLP. Each
percentage lease will have an initial non-cancelable term of five years. All,
but not less than all, of the percentage leases for these 14 hotels may be
extended for an additional five-year term at the Lessee's option. At the end of
the first extended term, the Lessee, at its option, may extend some or all of
the percentage leases for these hotels for an additional five-year term.
Pursuant to the terms of the percentage leases, the Lessee is required to pay
initial fixed rent, base rent or percentage rent and certain other additional
charges and is entitled to all profits from the operations of the hotels after
the payment of certain specified operating expenses.
54
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[6] COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS [CONTINUED]
We have future lease commitments from HHMLP through November 2006 and with Noble
through May 2003. Minimum future rental income under these non-cancellable
operating leases at December 31, 2001, is as follows:
2002 $ 9,621
2003 6,547
2004 2,497
2005 1,166
2006 716
Thereafter 0
--------
TOTAL $ 20,547
========
We have entered into percentage leases relating to 4 hotels with Noble. Each
percentage lease has an initial non-cancelable term of three years. All, but
not less than all, of the Percentage Leases for these 4 hotels may be extended
for an additional three-year term at Noble's option. At the end of the first
extended term, we or Noble may extend all, but not less than all, of the
Percentage Leases for these hotels for an additional three-year term. Pursuant
to the terms of the Percentage Leases, Noble is required to pay initial fixed
rent or percentage rent and certain other additional charges and is entitled to
all profits from the operations of the hotels after the payment of certain
specified operating expenses.
For the year ended December 31, 2001 we earned initial fixed rents of $7,203 and
earned percentage rents of $6,698. For the year ended December 31, 2000 we
earned initial fixed rents of $7,896 and earned percentage rents of $4,878.
We have acquired six hotels, since the commencement of operations, for prices
that will be adjusted as of either December 31, 2001 or 2002.
We have acquired, and expect to acquire in the future, from affiliates of
certain of our executive officers and trustees, newly-developed or
newly-renovated hotels that do not have an operating history that would allow us
to make purchase price decisions based on historical performance. In buying
these hotels we have utilized, and expect to continue to utilize, a "re-pricing"
methodology that, in effect, adjusts the initial purchase price for the hotel,
one or two years after we initially purchase the hotel, based on the actual
operating performance of the hotel during the previous twelve months. All
purchase price adjustments are approved by a majority of our independent
trustees.
The initial purchase price for each of these hotels was based upon management's
projections of the hotel's performance for one or two years following our
purchase. The leases for these hotels provide for fixed initial rent for the
one- or two-year adjustment period that provides us with a 12% annual yield on
the initial purchase price, net of certain expenses. At the end of the one- or
two-year period, we 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. We then 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 us of
55
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[6] COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS [CONTINUED]
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 of the hotel 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 sellers of the hotel will return to us
consideration in an amount equal to the difference. Any purchase price
adjustment will be made either in operating partnership units or cash as
determined by our Board of Trustees, including the independent trustees. Any
operating partnership units issued by us or returned to us as a result of the
purchase price adjustment historically have been valued at $6.00 per unit. Any
future adjustments will be based upon a value per unit approved by our Board of
Trustees, including our independent trustees. The sellers are entitled to
receive quarterly distributions on the operating partnership units prior to the
units being returned to us in connection with a downward purchase price
adjustment.
We have entered into an Administrative Services Agreement with HHMLP for HHMLP
to provide accounting and securities reporting services to us. The terms of the
agreement provide for a fixed annual fee of $55,000 with an additional fee of
$10,000 per property per year (pro-rated from the time of acquisition) for each
hotel added to our portfolio. Based upon the revised 11.5% to 12.5% pricing
methodology, the administrative services agreement was reduced by $75,000 per
year as of January 1, 2001.
We owed the Lessee, a related party, $24 and $42 for replacement reserve
reimbursements and $39 and $133 under the administrative services agreement as
of December 31, 2001 and 2000, respectively.
We leased a parcel of real estate to Mr. Hasu P. Shah for a nominal amount
during 2001.
We leased one parcel of real estate from the Hersha Affiliates for an aggregate
annual rental of $13 and $15 during the years ended December 31, 2001 and 2000,
respectively.
We paid to Mr. Jay H. Shah, son of Mr. Hasu P. Shah, certain legal fees
aggregating $43 and $199 during the years ended December 31, 2001 and 2000,
respectively. Of this amount $10 and $174 was capitalized as Settlement costs,
respectively.
We have approved the lending of up to $3,000 to the Hersha Affiliates to
construct hotels and related improvements on specific hotel projects. As of
December 31, 2001 and 2000, the Hersha Affiliates owe us $1,800 and $800 related
to this borrowing. The Hersha Affiliates have borrowed this money from us at an
interest rate of 12.0% per annum. Interest income from these advances was $154
and $50 for the year ended December 31, 2001 and 2000, respectively.
[7] STOCK OPTION PLANS
[A] Prior to the initial public offering, we adopted the Option Plan. The
Option Plan is administered by the Compensation Committee of the Board of
Trustees, or its delegate.
Our officers and other employees generally are eligible to participate in the
Option Plan. The administrator of the plan selects the individuals who
participate in the Option Plan.
56
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[7] STOCK OPTION PLANS [CONTINUED]
The Option Plan authorizes the issuance of options to purchase up to 650,000
Class B Common Shares and subordinated units. The Option Plan provides for the
grant of (i) options intended to qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended, and (ii) options
not intended to so qualify. Options under the Option Plan may be awarded by the
administrator of the Option Plan, and the administrator will determine the
option exercise period and any vesting requirements. The options granted under
the Option Plan will be exercisable only if (i) we obtain a per share closing
price on the Common Shares of $9.00 or higher for 20 consecutive trading days
and (ii) the closing price per Common Share for the prior trading day was $9.00
or higher. In addition, no option granted under the Option Plan may be
exercised more than five years after the date of grant. The exercise price for
options granted under the Option Plan will be determined by the Compensation
Committee at the time of grant.
No option award may be granted under the Option Plan more than ten years after
the date the Board of Trustees approved such Plan. The Board may amend or
terminate the Option Plan at any time, but an amendment will not become
effective without shareholder approval if the amendment (i) increases the number
of shares that may be issued under the Option Plan, (ii) materially changes the
eligibility requirements or (iii) extends the length of the Option Plan. No
amendment will affect a participant's outstanding award without the
participant's consent.
As of December 31, 2001 we have issued options to purchase 500,000 Class B
common shares and units under the Option Plan with an exercise price of $6.00,
subject to the price restrictions mentioned above. Utilizing the Black Scholes
option pricing model no compensation is required to be recorded.
[B] Prior to the initial public offering, the Board of Trustees also adopted,
and our sole shareholder approved, the Trustees' Plan to provide incentives to
attract and retain Independent Trustees. The Trustees' Plan authorizes the
issuance of up to 200,000 Class B Common Shares. The Trustees' Plan provides
for, in the event the Class B Common Shares are converted into another or our
securities, the issuance of equivalent amounts of such security and options to
purchase such security into which the Class B Common Shares are converted.
Under the Trustees' Plan, we granted a nonqualified option for Class B Common
Shares to our independent Trustees who were members of the Board on the
effective date of the initial public offering. The exercise price of each such
option is equal to the offering price. Each such option shall become
exercisable over the particular Trustee's initial term, provided that the
Trustee is a member of the Board on the applicable date. An option granted
under the Trustees' Plan will be exercisable only if (i) we obtain a per share
closing price on the Priority Common Shares of $9.00 for 20 consecutive trading
days and (ii) the per share closing price on the Priority Common Shares for the
prior trading day was $9.00 or higher. Options issued under the Trustees' Plan
are exercisable for five years from the date of grant.
A Trustee's outstanding options will become fully exercisable if the Trustee
ceases to serve on the Board due to death or disability. All awards granted
under the Trustees' Plan shall be subject to Board or other approval sufficient
to provide exempt status for such grants under Section 16 of the Securities
Exchange Act of 1934, as amended, as that section and the rules thereunder are
in effect from time to time. No option may be granted under the Trustees' Plan
more than 10 years after the date that the Board of Trustees approved the Plan.
The Board may amend or terminate the Trustees' Plan at any time but an amendment
will not become effective without shareholder approval if the amendment
increases the number of shares that may be issued under the Trustees' Plan
(other than equitable adjustments upon certain corporate transactions).
57
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[7] STOCK OPTION PLANS [CONTINUED]
We issued options to purchase 34,000 Class B Common Shares under the Trustees'
Plan with an exercise price of $6.00, subject to the price restrictions
mentioned above. Utilizing the Black Scholes option pricing model no
compensation is required to be recorded.
The fair value of each option grant is estimated on the date of the grant with
the following weighted average assumptions:
Dividend Yield 12.00%
Expected Volatility 10.0%
Risk-Free Interest Rate 4.50%
Expected Lives 2 Years
The changes in the outstanding stock options during the years ended December 31,
2001, 2000 and 1999, are summarized below:
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
---------- ---------------
Outstanding December 31, 1998 - $ -
Granted 1,033,975 $ 6.00
Exercised - -
Forfeited/Expired - -
Cancelled (499,975) $ 6.00
---------- ---------------
Outstanding December 31, 1999 534,000 $ 6.00
========== ===============
Exercisable December 31, 1999 -
==========
Granted - -
Exercised - -
Forfeited/Expired - -
Cancelled - -
---------- ---------------
Outstanding December 31, 2000 534,000 $ 6.00
========== ===============
Exercisable December 31, 2000 -
==========
Granted - -
Exercised - -
Forfeited/Expired - -
Cancelled - -
---------- ---------------
Outstanding December 31, 2001 534,000 $ 6.00
========== ===============
Exercisable December 31, 2001 -
==========
58
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[7] STOCK OPTION PLANS [CONTINUED]
The following table summarizes information about stock options at December 31,
2001:
OUTSTANDING EXERCISABLE
----------------------------------- ------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE REMAINING EXERCISE EXERCISE
PRICE SHARES CONTRACTUAL LIFE PRICE SHARES PRICE
- --------- ------- ---------------- ----------------- ------ ----------------
6.00 534,000 2.42 $ 6.00 - -
The number of shares available at December 31, 2001 and 2000 for granting of
options was 316,000.
[8] EARNINGS PER SHARE
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999
------------- ------------- -------------
Net Income for Basic Earnings Per Share $ 834 $ 847 $ 1,338
Add: Income Attributable to Minority Interest 2,342 1,908 1,707
------------- ------------- -------------
NET INCOME FOR DILUTED EARNINGS PER SHARE $ 3,176 $ 2,755 $ 3,045
- ----------------------------------------- ============= ============= =============
Weighted Average Shares for Basic Earnings Per Share 2,275,000 2,275,000 2,275,000
Dilutive Effect of Weighted Average Limited Partnership Units 5,021,596 4,440,996 4,094,700
WEIGHTED AVERAGE SHARES FOR DILUTED EARNINGS PER SHARE 7,296,596 6,715,996 6,326,690
- ------------------------------------------------------ ============= ============= =============
Potential future dilutive securities include 5,093,220 shares issuable under
limited partnership units and 534,000 shares issuable under outstanding options.
[9] CAPITAL STOCK
The Priority Class A Common Shares have priority as to the payment of dividends
until dividends equal $0.18 per share on a quarterly basis and participate
equally in additional dividends after the Class B Common Shares have received
$0.18 per share in each quarterly period. The Priority Class A Common Shares
carry a liquidation preference of $6.00 per share plus unpaid dividends and vote
with the Class B Common Shares on a one vote per share basis. The priority
period of the Class A Shares commenced on the date of the closing of the initial
public offering and ends on the earlier of (i) five years after the initial
public offering of the Priority Common Shares, or (ii) the date that is 15
trading days after the closing bid price of the Priority Common Shares is at
least $7 on each trading day during such 15-day period.
Pursuant to the Hersha Hospitality Limited Partnership Agreement, the limited
partners have certain redemption rights that enable them to cause the
Partnership to redeem their units of limited partnership interest in exchange
for Class B Common Shares or for cash at our election. In the event
59
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[9] CAPITAL STOCK [CONTINUED]
the Class B Common Shares are converted into Priority Class A Common Shares
prior to redemption of the units, the units will be redeemable for Priority
Class A Common Shares. If we do not exercise our option to redeem the units for
Class B Common Shares, then the limited partner may make a written demand that
we redeem the units for Class B Common Shares. At December 31, 2001 and 2000,
the aggregate number of Class B Common Shares issuable to the limited partners
upon exercise of the redemption rights is 5,093,220 and 4,440,996, respectively.
The number of 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.
The Company's common stock is duly authorized, fully paid and nonassessable.
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. Each outstanding share of common stock entitles the
holder to one vote on all matters submitted to a vote of shareholders.
The holders of the Priority Common Shares will be entitled to a priority with
respect to distributions and amounts payable upon liquidation [the "Priority
Rights"] for a period [the "Priority Period"] beginning on January 26, 1999 and
ending on the earlier of: (i) the date that is 15 trading days after the
Company sends notice to the record holders of the Priority Common Shares that
their Priority Rights will terminate in 15 trading days, provided that the
closing bid price of the Priority Common Shares is at least $7.00 on each
trading day during such 15-day period, or (ii) the fifth anniversary of the
closing of the Offering.
Upon liquidation of the Partnership during the Priority Period, after payment
of, or adequate provision for, debts and obligations of the Partnership,
including any partner loans, any remaining assets of the Partnership will be
distributed in the following order of priority: (i) first, to us until we have
received any unpaid Preferred Return plus an amount equal to $6.00 per Unit held
by us, (ii) second, to the Limited Partners in accordance with their respective
percentage interests in the Partnership until each Limited Partner has received
an amount equal to any unpaid Preferred Return plus $6.00 per Unit held by such
Limited Partner, and (iii) finally, to us and the Limited Partners with positive
capital accounts.
Upon liquidation of the Partnership after the Priority Period, after payment of,
or adequate provision for, debts and obligations of the Partnership, including
any partner loans, any remaining assets of the Partnership will be distributed
to us and the Limited Partners with positive capital accounts in accordance with
their respective positive capital account balances.
Pursuant to the Partnership Agreement, the Limited Partners will receive the
Redemption Rights, which will enable them to cause the Partnership to redeem
their interests in the Partnership in exchange for cash or, at the option of the
Company, Class B Common Shares on a one-for-one basis. In the event that the
Class B Common Shares are converted into Priority Common Shares prior to
redemption of the Subordinated Units, such outstanding Subordinated Units will
be redeemable for Priority Common Shares. The holders of the Priority Common
Shares and the Class B Common Shares have identical voting rights and will vote
together as a single class.
60
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[10] FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 2001 and 2000, financial instruments include cash and cash
equivalents, lease payments receivable, accounts payable, accrued expenses,
loans to and from related parties, a line of credit and mortgages payable. The
fair values of cash and cash equivalents, lease payments receivable and accounts
payable and accrued expenses approximate carrying value because of the
short-term nature of these instruments. Loans to and from related parties carry
interest at rates that approximate our borrowing cost. The fair value of
mortgages payable and the line of credit approximates carrying value since the
interest rates approximate the interest rates currently offered for similar debt
with similar maturities.
[11] SUBSEQUENT EVENTS
The Board of Trustees has approved the sale of the Sleep Inn, Corapolis, PA to
the Hersha Affiliates for a sale price of $5,500. We originally purchased this
hotel from the Hersha Affiliates as of October 1, 2000 for approximately $5,500.
The transaction terms and structure are being reviewed by an independent third
party accounting firm per the agreement between the Board of Trustees and the
Hersha Affiliates. The sale of the property will be effective as of January 1,
2002 upon satisfactory completion of this independent third party review.
The Board of Trustees has approved the purchased of the Mainstay Suites,
Frederick, MD from the Hersha Affiliates for a purchase price of $5,500. The
transaction terms and structure are being reviewed by an independent third party
accounting firm per the agreement between the Board of Trustees and the Hersha
Affiliates. The purchase of the property will be effective as of January 1,
2002 upon satisfactory completion of this independent third party review.
On December 28, 2001 we declared a $0.18 per Class A Common Share dividend and a
distribution of $0.18 per limited partnership unit that was paid on January 25,
2002.
We have issued an additional 300,000 shares of Priority Class A Common Shares at
$6.00 per share, prior to offering expenses, during the first quarter ended
March 31, 2002. The proceeds from the additional share issuance will be used
for acquisitions and general corporate purposes.
61
================================================================================
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
================================================================================
[12] SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER
------------------------------------------------------
1ST 2ND 3RD 4TH
------------ ------------ ------------ ------------
(Dollars in thousands, except per share amounts)
FISCAL 2001
Total Revenues $ 3,002 $ 3,634 $ 4,204 $ 3,247
Income Before Minority Interest 116 785 1,305 970
Net Income 116 245 234 239
Basic Earnings Per Common Share $ 0.05 $ 0.11 $ 0.10 $ 0.11
============ ============ ============ ============
Diluted Earnings Per Common Share $ 0.02 $ 0.11 $ 0.10 $ 0.11
============ ============ ============ ============
FISCAL 2000
Total Revenues $ 2,353 $ 3,216 $ 3,687 $ 3,568
Income Before Minority Interest 322 562 993 878
Net Income 294 207 269 77
Basic Earnings Per Common Share $ 0.13 $ 0.09 $ 0.12 $ 0.03
============ ============ ============ ============
Diluted Earnings Per Common Share $ 0.05 $ 0.09 $ 0.12 $ 0.03
============ ============ ============ ============
Quarterly operating results are not necessarily representative of operations for
a full year for various reasons, including the seasonal nature of the lodging
industry and the number of accounting days per quarter.
62
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HERSHA HOSPITALITY TRUST SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2001
[IN THOUSANDS]
================================================================================
COSTS CAPITALIZED GROSS AMOUNTS AT WHICH
SUBSEQUENT CARRIED AT
INITIAL COSTS TO ACQUISITION CLOSE OF PERIOD
------------------------------ ----------------------- -----------------------
BUILDINGS AND BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
- -------------------- -------------- -------------- -------------- -------- ------------- -------- -------------
Holiday Inn,
Harrisburg, PA $ 3,390 $ 412 $ 1,234 $ - $ 2,592 $ 412 $ 3,826
Holiday Inn Express,
New Columbia, PA 1,795 94 2,510 66 665 160 3,175
Holiday Inn Express,
Hershey, PA 4,687 426 2,645 410 2,938 836 5,583
Clarion Suites,
Philadelphia, PA - 262 1,049 828 3,736 1,090 4,785
HIEXP & Suites,
Harrisburg, PA - 213 1,934 - 204 213 2,138
Comfort Inn,
Harrisburg, PA 2,393 - 2,720 214 1,025 214 3,745
Hampton Inn,
Selinsgrove, PA 3,291 157 2,511 93 2,008 250 4,519
Hampton Inn,
Carlisle, PA 3,935 300 3,109 200 1,933 500 5,042
Hampton Inn,
Danville, PA 2,493 299 2,787 - 83 299 2,870
Hampton Inn,
Hershey, PA 5,261 807 5,714 - - 807 5,714
Hampton Inn,
Newnan, GA 3,419 712 5,504 - - 712 5,504
Hampton Inn,
Peachtree City, GA 2,263 394 3,054 - - 394 3,054
Comfort Suites,
Duluth, GA 3,225 432 4,343 - - 432 4,343
Holiday Inn Express,
Duluth, GA 2,675 470 2,912 - - 470 2,912
Sleep Inn,
Pittsburg, PA 3,538 734 3,785 - - 734 3,785
Sleep/Mainstay
KOP, PA 6,686 1,133 7,294 - 3 1,133 7,297
Holiday Inn Express,
LI City, NY 5,427 1,500 6,300 - - 1,500 6,300
-------------- -------------- -------------- -------- ------------- -------- -------------
$ 54,478 $ 8,345 $ 59,405 $ 1,811 $ 15,187 $ 10,156 $ 74,592
============== ============== ============== ======== ============= ======== =============
LIFE
ACCUMULATED NET UPON WHICH
DEPRECIATION BOOK VALUE LATEST INCOME
BUILDINGS AND BUILDINGS AND DATE OF STATEMENT IS
DESCRIPTION TOTAL IMPROVEMENTS IMPROVEMENTS ACQUISITION COMPUTED
- -------------------- -------------- -------------- -------------- ------------ ------------
Holiday Inn,
Harrisburg, PA $ 4,238 $ 707 $ 3,531 12/15/94 15 to 40
Holiday Inn Express,
New Columbia, PA 3,335 306 3,029 12/01/97 15 to 40
Holiday Inn Express,
Hershey, PA 6,419 467 5,952 10/01/97 15 to 40
Clarion Suites,
Philadelphia, PA 5,875 616 5,259 06/30/95 15 to 40
HIEXP & Suites,
Harrisburg, PA 2,351 180 2,171 03/06/98 15 to 40
Comfort Inn,
Harrisburg, PA 3,959 295 3,664 05/15/98 15 to 40
Hampton Inn,
Selinsgrove, PA 4,769 509 4,260 09/12/96 15 to 40
Hampton Inn,
Carlisle, PA 5,542 460 5,082 06/01/97 15 to 40
Hampton Inn,
Danville, PA 3,169 232 2,937 08/28/97 15 to 40
Hampton Inn,
Hershey, PA 6,521 325 6,196 01/01/00 15 to 40
Hampton Inn,
Newnan, GA 6,216 235 5,981 04/20/00 15 to 40
Hampton Inn,
Peachtree City, GA 3,448 130 3,318 04/20/00 15 to 40
Comfort Suites,
Duluth, GA 4,775 176 4,599 05/19/00 15 to 40
Holiday Inn Express,
Duluth, GA 3,382 118 3,264 05/19/00 15 to 40
Sleep Inn,
Pittsburg, PA 4,519 341 4,178 10/01/00 15 to 40
Sleep/Mainstay
KOP, PA 8,430 99 8,331 06/01/01 15 to 40
Holiday Inn Express,
LI City, NY 7,800 26 7,774 11/01/01 15 to 40
-------------- -------------- -------------- ------------ ------------
$ 84,748 $ 5,222 $ 79,526
============== ============== ==============
63
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HERSHA HOSPITALITY TRUST SUBSIDIARIES
NOTES TO SCHEDULE III
[IN THOUSANDS]
- --------------------------------------------------------------------------------
2001
---------------
RECONCILIATION OF REAL ESTATE:
Balance at Beginning of Year $ 83,404
Additions During Year 20,080
Deletions During Year 18,736
---------------
Balance at End of Year $ 84,748
===============
RECONCILIATION OF ACCUMULATED DEPRECIATION:
Balance at Beginning of Year $ 5,383
Depreciation for the Year 2,175
Accumulated Depreciation on Deletions 2,336
---------------
Balance at End of Year $ 5,222
===============
The aggregate cost of land, buildings and improvements for
federal income tax purposes is approximately $66,631
Depreciation is computed based upon the following useful lives:
Buildings and Improvements 15 to 40 years
64
REPORT OF INDEPENDENT AUDITOR
To the Partners of
Hersha Hospitality Management L.P.
New Cumberland, Pennsylvania
We have audited the accompanying balance sheets of Hersha Hospitality
Management L.P. as of December 31, 2001 and 2000, and the related statements of
operations, partners' capital, and cash flows for each of the three years in the
period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial statements referred to above present fairly,
in all material respects, the financial position of Hersha Hospitality
Management L.P. as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
MOORE STEPHENS, P. C.
Certified Public Accountants.
New York, New York
March 8, 2002
65
- ----------------------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
BALANCE SHEETS
[IN THOUSANDS]
- ----------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
-------------- --------------
CURRENT ASSETS: 2001 2000
-------------- --------------
Cash and Cash Equivalents $ 222 $ 623
Accounts Receivable, less allowance for doubtful accounts of
$230 and $135 at December 31, 2001 and 2000, respectively 698 891
Prepaid Expenses 34 13
Due from Related Party - HHLP 63 175
Due from Related Parties 1,097 1,604
Other Assets 252 281
-------------- --------------
TOTAL CURRENT ASSETS 2,366 3,587
FRANCHISE LICENSES [NET OF ACCUMULATED AMORTIZATION OF $149
AND $28 AT DECEMBER 31, 2001 AND 2000, RESPECTIVELY]
293 307
CONSTRUCTION IN PROGRESS 8 -
PROPERTY AND EQUIPMENT 1,079 1,175
-------------- --------------
TOTAL ASSETS $ 3,746 $ 5,069
============== ==============
LIABILITIES AND PARTNERS' CAPITAL:
CURRENT LIABILITIES:
Accounts Payable $ 1,278 $ 1,639
Accounts Payable Related Party - 60
Accrued Expenses 268 449
Other Liabilities - 21
Due to Related Parties 310 331
Lease Payments Payable Related Party - HHLP 2,376 2,644
-------------- --------------
TOTAL CURRENT LIABILITIES 4,232 5,144
COMMITMENTS - -
PARTNERS' CAPITAL (486) (75)
-------------- --------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 3,746 $ 5,069
============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
66
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999(1)
[IN THOUSANDS]
- --------------------------------------------------------------------------------
2001 2000 1999
-------- -------- --------
REVENUES FROM HOTEL OPERATIONS
Room Revenue $27,461 $29,297 $21,871
Restaurant Revenue 1,939 1,963 2,074
Other revenue 1,971 1,568 1,354
-------- -------- --------
TOTAL REVENUES FROM HOTEL OPERATIONS $31,371 $32,828 $25,299
EXPENSES:
Hotel Operating Expenses 11,621 12,228 9,788
Restaurant Operating Expenses 1,601 1,754 1,822
Advertising and Marketing 2,163 1,856 1,228
Bad Debts 124 17 247
Depreciation and Amortization 243 207 102
General and Administrative 4,794 5,051 3,873
General and Admin. - Related Parties 126 141 45
Lease Expense - HHLP 11,100 10,923 7,264
Lease Expense - Other Related Parties 703 798 1,316
-------- -------- --------
TOTAL EXPENSES $32,475 $32,975 $25,685
-------- -------- --------
NET LOSS $(1,104) $ (147) $ (386)
======== ======== ========
<FN>
(1) Operations commenced on January 1, 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
67
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (1)
[IN THOUSANDS]
- --------------------------------------------------------------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ---------- --------
Partners Capital - December 31, 1998 $ - $ - $ -
Contribution by Partners - 458 458
Net Loss (4) (382) (386)
--------- ---------- --------
Partners Capital - December 31, 1999 $ (4) $ 76 $ 72
Net Loss (1) (146) (147)
--------- ---------- --------
Partners Capital - December 31, 2000 $ (5) $ (70) $ (75)
Capital Contribution 6 710 716
Contributed Franchise Fee Write-Down (23) (23)
Net Loss (11) (1,093) (1,104)
--------- ---------- --------
Partners Capital - December 31, 2001 $ (10) $ (476) $ (486)
========= ========== ========
<FN>
(1) Operations commenced on January 1, 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
68
- -----------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999(1)
[IN THOUSANDS]
- -----------------------------------------------------------------------------------
2001 2000 1999
-------- ------ --------
OPERATING ACTIVITIES:
Net (Loss) $(1,104) $(147) $ (386)
-------- ------ --------
Adjustments to Reconcile Net Income to
Net Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization 243 207 102
Allowance for Doubtful Accounts 124 - 247
Change in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable 69 (74) (1,064)
Prepaid Expenses (21) 47 (60)
Other Assets 27 (97) (52)
Due from Related Parties 620 (265) (1,714)
Increase (Decrease):
Accounts Payable (361) 285 1,354
Accounts Payable - Related Party (60) 30 30
Lease Payments Payable - HHLP (268) 528 2,116
Due to Related Parties (21) (200) -
Accrued Expenses (182) 18 432
Other Liabilities (21) 21 -
-------- ------ --------
Total Adjustments 149 500 1,391
-------- ------ --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (955) 353 1,005
INVESTING ACTIVITIES
Purchase Property and Equipment (124) (448) (217)
Sale of Property and Equipment 5
Purchase of Franchise Licenses (68)
Sale of Franchise Licenses 24 (60) (10)
-------- ------ --------
NET CASH USED IN INVESTING ACTIVITIES (163) (508) (227)
FINANCING ACTIVITIES
Capital Contributed by Partners 717 - -
-------- ------ --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 717 - -
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (401) (155) 778
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 623 778 -
-------- ------ --------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 222 $ 623 $ 778
======== ====== ========
(1) Operations commenced on January 1, 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
69
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999(1)
[IN THOUSANDS]
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On January 26, 1999 we received franchise agreements, property and certain other
assets with book values of $305, $21 and $132, respectively, from our partners.
These amounts were recorded as a contribution to capital.
On January 26, 1999 we recorded property and a liability to a related party of
$730.
Upon the sale of the Comfort Inn, Denver, PA, we wrote down $23 of franchises
fees that were contributed as partners' capital on January 26, 1999
(1) Operations commenced on January 1, 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
70
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
NOTES TO FINANCIAL STATEMENTS,
[IN THOUSANDS]
- --------------------------------------------------------------------------------
[1] ORGANIZATION
Hersha Hospitality Management, L.P., [the "Lessee"], was organized under the
laws of the State of Pennsylvania in May, 1998 to lease and operate ten existing
hotel properties, principally in the Harrisburg and Central Pennsylvania area,
from Hersha Hospitality Limited Partnership ["HHLP" or the "Partnership"]. The
Lessee is owned by Mr. Hasu P. Shah and certain affiliates, [the "Hersha
Affiliates"], some of whom have ownership interests in the Partnership. We also
manage certain other properties owned by the Hersha Affiliates that are not
owned by the Partnership. We commenced operations on January 1, 1999 and as of
December 31, 2001 leased 14 hotel properties from the Partnership.
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - Cash and cash equivalents are comprised of cash and
certain highly liquid investments with a maturity of three months or less when
purchased, carried at cost, which approximates fair value. We have no cash
equivalents at December 31, 2001 or 2000.
INVENTORIES - Inventories of $31 and $28, consisting primarily of food and
beverages and which are included in other assets for the years ended December
31, 2001 and 2000, respectively, are stated at the lower of cost [generally,
first-in, first-out] or market.
ACCOUNTS RECEIVABLE - We are required to make certain estimates related to the
allowances for uncollectible accounts. These estimates and assumptions are
reviewed periodically and the effects of revisions are reflected in the
financial statements in the period they are determined to be necessary.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost. Depreciation
for financial reporting purposes is principally based upon the straight-line
method.
The estimated lives used to depreciate the property improvements are as follows:
Building and Improvements 15 to 40 years
Furniture and Equipment 5 to 7 years
FRANCHISE LICENSES - The franchise agreements have lives ranging from 10 to 20
years but may be terminated by either party on certain anniversary dates
specified in the agreements. The franchise fees are amortized over their
respective franchise lives utilizing the straight-line method. Amortization
expense was $41, $39 and $28 for the years ended December 31, 2001, 2000 and
1999, respectively.
REVENUE RECOGNITION - Revenue is recognized as earned which is when services are
rendered.
INCOME TAXES - As a partnership, we are not subject to federal and state income
taxes, however, we must file informational income tax returns and the partners
must take their respective portion of the items of income or loss into
consideration when filing their respective returns.
71
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
NOTES TO FINANCIAL STATEMENTS,
[IN THOUSANDS]
- --------------------------------------------------------------------------------
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject us
to concentrations of credit risk include cash and cash equivalents and accounts
receivable arising from our normal business activities. We place our cash with
high credit quality financial institutions. We do not require collateral to
support our financial instruments. We have not experienced any losses with
respect to bank balances in excess of government-provided insurance.
USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
ADVERTISING AND MARKETING - Advertising and marketing costs are expensed as
incurred and totaled $2,155 and $1,856 for the years ended December 31, 2001 and
2000, respectively. In connection with our franchise agreements, a portion of
the franchise fees paid is for marketing services. Payments under these
agreements related to marketing services amounted to $549 and $571 for the years
ended December 31, 2001 and 2000, respectively.
RECLASSIFICATION - Certain prior year numbers have been reclassified to conform
to current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS - In August 2001, the Financial Accounting
Standards Board ("FASB") approved SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("SFAS No. 144"). The Statement requires that
long-lived assets to be disposed of other than by sale be considered held and
used until they are disposed of. SFAS No. 144 requires that long-lived assets to
be disposed of by sale be accounted for under the requirements of SFAS No. 121.
SFAS No. 121 requires that such assets be measured at the lower of carrying
amounts or fair value less cost to sell and to cease depreciation
(amortization). SFAS No. 144 requires a probability-weighted cash flow
estimation approach in situations where alternative courses of action to recover
the carrying amount of a long-lived asset are under consideration or a range of
possible future cash flow amounts are estimated. As a result, discontinued
operations will no longer be measured on a net realizable basis, and future
operating losses will no longer be recognized before they occur. Additionally,
goodwill will be removed from the scope of SFAS No. 144. As a result goodwill
will no longer be required to be allocated to long-lived assets to be tested for
impairment. SFAS No. 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001, and interim periods within those fiscal
years. We are currently in the process of evaluating the effect this new
standard will have on our consolidated financial position or results of
operations.
72
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HERSHA HOSPITALITY MANAGEMENT, L.P.
NOTES TO FINANCIAL STATEMENTS,
[IN THOUSANDS]
- --------------------------------------------------------------------------------
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
On August 15, 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations ("SFAS No. 143"). SFAS No. 143 requires that the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. SFAS No. 143 will be effective for
financial statements issued for fiscal years beginning after June 15, 2002. An
entity shall recognize the cumulative effect of adoption of SFAS No. 143 as a
change in accounting principle. We are not currently affected by this
Statement's requirements.
In June 2001, the FASB issued SFAS No. 141 ("SFAS 141"), "Business
Combinations", and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets",
collectively referred to as the "Standards". SFAS 141 supersedes Accounting
Principles Board Opinion (APB) No. 16, "Business Combinations". SFAS 141 (1)
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, (2) provides specific criteria for
the initial recognition and measurement of intangible assets apart from goodwill
and (3) requires that unamortized negative goodwill be written off immediately
as an extraordinary gain. SFAS 142 supersedes APB 17, "Intangible Assets," and
is effective for fiscal years beginning after December 15, 2001. SFAS 142
primarily addresses the accounting for goodwill and intangible assets subsequent
to their initial recognition. SFAS 142 (1) prohibits the amortization of
goodwill and indefinite-lived intangible assets, (2) requires testing of
goodwill and indefinite-lived intangible assets on an annual basis for
impairment (and more frequently if the occurrence of an event or circumstance
indicates an impairment), (3) requires that reporting units be identified for
the purpose of assessing potential future impairments of goodwill and (4)
removes the forty-year limitation on the amortization period of intangible
assets that have finite lives. The provisions of the Standards also apply to
equity-method investments made both before and after June 30, 2001. SFAS 141
requires that the unamortized deferred credit related to an excess over cost
arising from an investment acquired prior to July 1, 2001 accounted for using
the equity method (equity-method negative goodwill), must be written-off
immediately and recognized as the cumulative effect of a change in accounting
principle. Equity-method negative goodwill arising from equity investments made
after June 30, 2001 must be written-off immediately and recorded as an
extraordinary gain. We will adopt SFAS 142 on January 1, 2002. Going forward,
we will test goodwill for impairment annually or more frequently if the
occurrence of an event or circumstance indicate potential impairment.
[3] COMMITMENTS AND RELATED PARTY TRANSACTIONS
We have assumed the rights and obligations under the terms of existing franchise
licenses relating to the hotels upon acquisition of the hotels by the
Partnership. The franchise licenses generally specify certain management,
operational, accounting, reporting and marketing standards and procedures with
which the franchisee must comply and provide for annual franchise fees based
upon percentages of gross room revenue. During the years ended December 31,
2001, 2000 and 1999 franchise fees totaling $1,454, $1,612 and $1,182 were
charged to general and administrative expenses, respectively.
73
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
NOTES TO FINANCIAL STATEMENTS,
[IN THOUSANDS]
- --------------------------------------------------------------------------------
[3] COMMITMENTS AND RELATED PARTY TRANSACTIONS [CONTINUED]
We have entered into percentage leases with HHLP. Each percentage lease will
have an initial non-cancelable term of five years and may be extended for an
additional five-year term at our option. Pursuant to the terms of the
percentage leases, we are required to pay the greater of the base rent or the
percentage rent for hotels with established operating histories. The base rent
is 6.5 percent of the purchase price assigned to each hotel. The percentage rent
for each hotel is comprised of (i) a percentage of room revenues up to a certain
threshold amount for each hotel up to which we receive a certain percentage of
room revenues as a component of percentage rent, (ii) a percentage of room
revenues in excess of the threshold amount, but not more than a certain
incentive threshold amount for each hotel in excess of the threshold amount up
to which we receive a certain percentage of the room revenues in excess of the
threshold amount as a component of percentage rent (iii) a percentage for room
revenues in excess of the incentive threshold amount and (iv) a percentage of
revenues other than room revenues. For hotels with limited operating histories,
the leases provide for the payment of an initial fixed rent for certain periods
as specified in the leases and the greater of base rent or percentage rent
thereafter. The leases commenced on January 26, 1999.
Minimum future lease payments due during the non-cancellable portion of the
leases as of December 31, 2001 are as follows:
2002 $ 6,820
2003 5,601
2004 2,497
2005 1,166
2006 716
Thereafter 0
TOTAL $16,800
For the years ended December 31, 2001, 2000 and 1999 we incurred initial fixed
rents of $4,403, $6,045 and $4,152 and percentage rents of $6,698, $4,878 and
$3,112, respectively.
As of December 31, 2001 and 2000, the amount due to the Partnership for lease
payments was $2,376 and $2,644, respectively.
During the years ended December 31, 2001, 2000 and 1999, we provided for and
were reimbursed for capital improvements totaling $1,476, $1,076 and $794 to the
hotels that are the responsibility of HHLP. As of December 31, 2001 and 2000,
$24 and $42, respectively, remains receivable and is recorded as Due from HHLP.
We have entered into an Administrative Services Agreement with HHLP for us to
provide accounting and securities reporting services to them. The terms of the
agreement provide for a fixed annual fee of $55,000 with an additional fee of
$10,000 per property per year (pro-rated from the time of acquisition) for each
hotel added to our portfolio. Based upon a revision in pricing methodology, the
administrative services agreement was reduced by $75,000 per year as of January
1, 2001. For the years ended December 31, 2001, 2000 and 1999, we have earned
$134, $243 and $155, respectively for the services provided in accordance with
the Agreement. These fees are included in Other Revenues. At December 31, 2001
and 2000, $39 and $133, respectively, remains receivable and is recorded as Due
from HHLP.
74
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HERSHA HOSPITALITY MANAGEMENT, L.P.
NOTES TO FINANCIAL STATEMENTS,
[IN THOUSANDS]
- --------------------------------------------------------------------------------
[3] COMMITMENTS AND RELATED PARTY TRANSACTIONS [CONTINUED]
We paid to Mr. Jay H. Shah, son of Mr. Hasu P. Shah, certain nominal legal fees
for consultation.
For the years ended December 31, 2001, 2000 and 1999, we paid to Hersha
Construction Company $0, $186 and $1,101, respectively, for construction work
related to the renovation of hotel properties.
For the years ended December 31, 2001, 2000 and 1999, we paid to Hersha Hotel
Supply $957, $976 and $761, respectively, for hotel supplies of which $0 and $60
was in accounts payable at December 31, 2001 and 2000, respectively. These
expenses are included in Hotel Operating Expenses and Restaurant Operating
Expenses.
We provide office space to various related entities. The total rent collected
for the years ended December 31, 2001, 2000 and 1999 was $66, $99 and $0,
respectively.
During the years ended December 31, 2001, 2000 and 1999, we had advances to
related parties of $66, $950 and $1,196, respectively. These advances were
inclusive of repayments from related parties of $685, $473 and $400,
respectively. Interest income of $90, $45 and $102, respectively, was recorded
on these loans.
[4] PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 2001 and 2000:
2001 2000
------ ------
Buildings and Improvements $ 693 $ 682
Furniture, Fixtures and Equipment 752 650
Automobiles 118 118
------ ------
Subtotal 1,563 1,450
Less Accumulated Depreciation 484 275
------ ------
1,079 1,175
Construction in Progress 8 -
------ ------
Total Property and Equipment $1,087 $1,175
====== ======
Depreciation expense was $202, $168 and $74 for the years ended December 31,
2001, 2000 and 1999, respectively.
75
- --------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
NOTES TO FINANCIAL STATEMENTS,
[IN THOUSANDS]
- --------------------------------------------------------------------------------
[5] SHARE APPRECIATION RIGHTS PLAN ["SAR"]
We have established a share appreciation rights plan ["SAR"] to incentivize our
employees to improve the operations of our Lessor, HHLP, and to associate our
employee's interest with those of our Lessor. Officers and employees of our
company are eligible to participate in the SAR. The SAR entitles the holder to
receive, with respect to each Class B Common Share encompassed by the exercise
of such SAR, the amount determined by the Administrator and specified in an
Agreement.
A SAR granted under this Plan will be exercisable only if (i) the General
Partner of the Lessor, Hersha Hospitality Trust, obtains a per share closing
price on the Class A Common Shares of $9.00 or higher for 20 consecutive trading
days; and (ii) the closing price on the Class A Common Shares for the prior
trading day was $9.00 or higher.
The maximum period in which a SAR may be exercised shall be determined by the
Administrator on the date of grant, except that no SAR shall be exercisable
after the expiration of five years from the date such SAR is granted.
The administrator of the plan, Hersha Hospitality Management, Co. [HHMCO],
selects the individuals who participate in the Option Plan. The maximum
aggregate number of Class B Common Shares with respect to which SARs may be
granted under this Plan is 300,000. Hersha Hospitality Trust has issued 300,000
restricted share options for the express purpose of exercising SARs on their
respective exercise dates. As of December 31, 2001 and 2000, we have issued 0
and 273,850 SARs to our employees, respectively.
[6] EMPLOYEE BENEFIT PLANS
We sponsor a defined contribution employee benefit plan (the "401K Plan").
Substantially all employees who are age 21 or older and have at least six months
of service are eligible to participate in the 401K Plan. Employees may
contribute up to 15% of their compensation to the 401K Plan, subject to certain
annual limitations. Employer contributions to the 401K Plan are discretionary
and we currently do not contribute to the Plan. We do absorb certain
administrative expenses related to the maintenance of the 401K Plan.
[7] FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 2001, financial instruments include cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses and loans to related
parties. The fair values of these instruments approximate carrying value
because of their short-term nature.
76
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF OUR COMPANY
Incorporated herein by reference from our definitive proxy statement to be filed
with the Securities and Exchange Commission within 120 days after the year
covered by this Form 10-K with respect to our Annual Meeting of Shareholders to
be held on May 15, 2002.
ITEM 11. EXECUTIVE COMPENSATION
Documents Incorporated By Reference: Portions of the Hersha Hospitality Trust
Proxy Statement are to be filed approximately 120 days following the year
covered by this Form 10-K with respect to the Annual Meeting of Shareholders to
be held on May 15, 2002, which are incorporated by reference in Part III hereof.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Documents Incorporated By Reference: Portions of the Hersha Hospitality Trust
Proxy Statement are to be filed approximately 120 days following the year
covered by this Form 10-K with respect to the Annual Meeting of Shareholders to
be held on May 15, 2002, which are incorporated by reference in Part III hereof.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Documents Incorporated By Reference: Portions of the Hersha Hospitality Trust
Proxy Statement are to be filed approximately 120 days following the year
covered by this Form 10-K with respect to the Annual Meeting of Shareholders to
be held on May 15, 2002, which are incorporated by reference in Part III hereof.
77
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
INDEX TO FINANCIAL STATEMENTS
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
Report of Independent Auditor. . . . . . . . . . . . . . . . . . . . . 36
Consolidated Balance Sheets as of December 31, 2001 and 2000 . . . . . 37
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999 . . . . . . . . . . . . . . . . . . . 38
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2001, 2000 and 1999 . . . . . . . . . . . . . . . . . . . 39
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999 . . . . . . . . . . . . . . . . . . . 40
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 44
Schedule III - Real Estate and Accumulated Depreciation for the
year ended December 31, 2001 . . . . . . . . . . . . . . . . . . . . . 63
HERSHA HOSPITALITY MANAGEMENT, L.P.
Report of Independent Auditor. . . . . . . . . . . . . . . . . . . . . 65
Balance Sheets as of December 31, 2001 and 2000. . . . . . . . . . . . 66
Statement of Operations for the years ended December 31, 2001,2000
and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Statements of Partners' Capital for the years ended December 31, 2001,
2000 and 1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Statements of Cash Flows for the years ended December 31, 2001,
2000 and 1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . 71
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed by us on July 31, 2001 reporting the
acquisition of two hotel properties, on December 7, 2001 disclosing various
material risk factors that may affect our business, financial condition and
operations, and on December 10, 2001 reporting the acquisition of a hotel
property and the disposition of four hotel properties.
(c) Exhibits
Unless otherwise indicated, the exhibits listed below are incorporated by
reference to our Registration Statement on Form S-11, File No. 333-56087.
Exhibit Document
- ------- --------
3.1 Amended and Restated Declaration of Trust of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Form of Common Share Certificate.
10.1 Amended and Restated Agreement of Limited Partnership of Hersha
Hospitality Limited Partnership
10.2 Option Agreement dated as of June 3, 1998, among Hasu P. Shah, Jay H.
Shah, Neil H, Shah, Bharat C. Mehta, K.D. Patel, Rajendra O. Gandhi,
Kiran P. Patel, David L. Desfor, Madhusudan I. Patni and Manhar
Gandhi, and the Partnership
78
10.3 Amendment to Option Agreement dated December 4, 1998
10.4 Contribution Agreement, dated as of June 3, 1998, between Hasu P. Shah
and Bharat C. Mehta, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror
10.5 Contribution Agreement, dated as of June 3, 1998, between Shree
Associates, JSK Associates, Shanti Associates, Shreeji Associates,
Kunj Associates, Devi Associates, Neil H. Shah, David L. Desfor,
Madhusudan I. Patni, Manhar Gandhi and Shreenathji Enterprises, Ltd.,
as Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror
10.6 Contribution Agreement, dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj Associates,
Devi Associates, Neil H. Shah, David L. Desfor and Shreenathji
Enterprises, Ltd., as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror
10.7 Contribution Agreement, dated as of June 3, 1998, between 2144
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror
10.8 Contribution Agreement, dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj Associates,
Neil H. Shah, David L. Desfor, Madhusudan I. Patni, Manhar Gandhi and
Shreenathji Enterprises, Ltd., as Contributor, and Hersha Hospitality
Limited Partnership, as Acquiror
10.9 Contribution Agreement, dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj Associates,
Neil H. Shah, Madhusudan I. Patni and Shreenathji Enterprises, Ltd.,
as Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror
10.10 Contribution Agreement, dated as of June 3, 1998, between 2144
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror
10.11 Contribution Agreement, dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj Associates,
Neil H. Shah, David L. Desfor and Shreenathji Enterprises, Ltd., as
Contributor, and Hersha Hospitality Limited Partnership, as Acquiror
10.12 Contribution Agreement, dated as of June 3, 1998, between 2144
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror
10.13 Contribution Agreement, dated as of June 3, 1998, between 144
Associates, 344 Associates, 544 Associates and 644 Associates, Joint
Tenants Doing Business as 2544 Associates, as Contributor, and Hersha
Hospitality Limited Partnership, as Acquiror
10.14 Contribution Agreement, dated June 3, 1998, between Shree Associates,
as Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror
10.15 Contribution Agreement, dated June 3, 1998, between 2144 Associates,
as Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror
10.16 Contribution Agreement, dated June 3, 1998, between 144 Associates,
344 Associates, 544 Associates and 644 Associates, Joint Tenants Doing
Business as 2544 Associates, as Contributor, and Hersha Hospitality
Limited Partnership, as Acquiror
10.17 Contribution Agreement, dated June 3, 1998, between Shree Associates,
Devi Associates, Shreeji Associates, Madhusudan I. Patni and
Shreenathji Enterprises, Ltd., as Contributor, and Hersha Hospitality
Limited Partnership, as Acquiror
10.18 Contribution Agreement, dated June 3, 1998, between Shree Associates,
as Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror
10.19 Contribution Agreement, dated August 11, 1999, between Shree
Associates, JSK II Associates, Shreeji Associates, Kunj Associates,
Shanti III Associates, Neil H. Shah, David L. Desfor, Manish M. Patni
and Shreenathji Enterprises, Ltd., collectively as Contributor, and
Hersha Hospitality Limited Partnership, as Acquiror (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on August 26, 1999)
79
Exhibit Document
- ------- --------
10.20 Contribution Agreement, dated September 1, 1999, between 2844
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror (incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K filed on August 26, 1999)
10.21 Purchase Agreement, dated September 1, 1999, between 2544 Associates,
as Seller, and 3544 Associates, as Purchaser (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on September 14, 1999)
10.22 Contribution Agreement, dated January 1, 2000, between 1544
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror (incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K filed on March 23, 2000)
10.23 Contribution Agreement, dated January 1, 2000, between 1844
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror (incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K filed on March 23, 2000)
10.24 Contribution Agreement, dated January 1, 2000, between 3144
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on March 23, 2000)
10.25 Contribution Agreement, dated October 1, 2000, between 1944
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on November 9, 2000)
10.26 Purchase Leaseback Agreement entered into as of May 19, 2000 between
Hersha Hospitality Limited Partnership and each of Noble Investments
Newnan, LLC, Millennium Two Investments Duluth, LLC, Noble Investments
RMD, LLC and Embassy Investments Duluth, LLC, entities owned by Noble
Investment Group, Ltd. (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on June 5, 2000)
10.27 Form of Ground Lease
10.28 Form of Percentage Lease
10.29 Administrative Services Agreement, dated January 26, 1999, between
Hersha Hospitality Trust and Hersha Hospitality Management, L.P.
10.30 Warrant Agreement, dated January 26, 1999, between Anderson &
Strudwick, Inc. and Hersha Hospitality Trust
10.31 Warrant Agreement, dated June 3, 1999, between 2744 Associates, L.P.
and Hersha Hospitality Limited Partnership
10.32 Hersha Hospitality Trust Option Plan
10.33 Hersha Hospitality Trust Non-Employee Trustees' Option Plan
10.34 Loan and Security Agreement between 1444 Associates and MEPS
Associates and Sovereign Bank (incorporated by reference to Exhibit
10.25 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999)
10.35 Note executed by 1444 Associates and MEPS Associates in connection
with the Loan and Security Agreement (incorporated by reference to
Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999)
10.36 Purchase Agreement, dated December 4, 2001, between Metro Two Hotel,
LLC, as Seller, and HHLP Hunters Point, LLC, as Purchaser
(incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on December 7, 2001)
10.37 Purchase Agreement, dated December 4, 2001, between Hersha
Hospitality Limited Partnership, as Seller, and Riverfront Hotel
Associates, as Purchaser (incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K filed on December 7, 2001)
80
Exhibit Document
- ------- --------
10.38 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 (incorporated by reference to Exhibit 10.4 to the Company's
Current Report on Form 8-K filed on December 7, 2001)
10.39 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 (incorporated by reference to Exhibit 10.5 to the Company's
Current Report on Form 8-K filed on December 7, 2001)
21.1* Subsidiaries of the Registrant
23.1* Consent of Moore Stephens, P.C.
- ----------------
* Filed herewith
(d) Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation as of December
31, 2001 included in Item 8 on page 63 hereof.
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HERSHA HOSPITALITY TRUST
March 29, 2002 /s/ Hasu P. Shah
-------------------------------------------------
Hasu P. Shah
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- -------------------------- --------------------------------------- --------------
/s/ Hasu P. Shah Chairman of the Board and Chief March 29, 2002
- -------------------------- Executive Officer (Principal Executive
Hasu P. Shah Officer)
/s/ Thomas S. Capello Trustee March 29, 2002
- --------------------------
Thomas S. Capello
/s/ L. McCarthy Downs, III Trustee March 29, 2002
- --------------------------
L. McCarthy Downs, III
/s/ Donald J. Landry Trustee March 29, 2002
- --------------------------
Donald J. Landry
/s/ William Lehr, Jr. Trustee March 29, 2002
- --------------------------
William Lehr, Jr.
/s/ Michael A. Leven Trustee March 29, 2002
- --------------------------
Michael A. Leven
/s/ K. D. Patel Trustee March 29, 2002
- --------------------------
K. D. Patel
/s/ Ashish R. Parikh Chief Financial Officer (Principal March 29, 2002
- -------------------------- Financial Officer)
Ashish R. Parikh
/s/ David Desfor Controller (Principal Accounting March 29, 2002
- -------------------------- Officer)
David Desfor
82
List of Exhibits
Unless otherwise indicated, the exhibits listed below are incorporated by
reference to our Registration Statement on Form S-11, File No. 333-56087.
Exhibit Document
- ------- --------
3.1 Amended and Restated Declaration of Trust of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Form of Common Share Certificate.
10.1 Amended and Restated Agreement of Limited Partnership of Hersha
Hospitality Limited Partnership
10.2 Option Agreement dated as of June 3, 1998, among Hasu P. Shah, Jay H.
Shah, Neil H, Shah, Bharat C. Mehta, K.D. Patel, Rajendra O. Gandhi,
Kiran P. Patel, David L. Desfor, Madhusudan I. Patni and Manhar
Gandhi, and the Partnership
10.3 Amendment to Option Agreement dated December 4, 1998
10.4 Contribution Agreement, dated as of June 3, 1998, between Hasu P. Shah
and Bharat C. Mehta, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror
10.5 Contribution Agreement, dated as of June 3, 1998, between Shree
Associates, JSK Associates, Shanti Associates, Shreeji Associates,
Kunj Associates, Devi Associates, Neil H. Shah, David L. Desfor,
Madhusudan I. Patni, Manhar Gandhi and Shreenathji Enterprises, Ltd.,
as Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror
10.6 Contribution Agreement, dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj Associates,
Devi Associates, Neil H. Shah, David L. Desfor and Shreenathji
Enterprises, Ltd., as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror
10.7 Contribution Agreement, dated as of June 3, 1998, between 2144
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror
10.8 Contribution Agreement, dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj Associates,
Neil H. Shah, David L. Desfor, Madhusudan I. Patni, Manhar Gandhi and
Shreenathji Enterprises, Ltd., as Contributor, and Hersha Hospitality
Limited Partnership, as Acquiror
10.9 Contribution Agreement, dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj Associates,
Neil H. Shah, Madhusudan I. Patni and Shreenathji Enterprises, Ltd.,
as Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror
10.10 Contribution Agreement, dated as of June 3, 1998, between 2144
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror
10.11 Contribution Agreement, dated as of June 3, 1998, between JSK
Associates, Shanti Associates, Shreeji Associates, Kunj Associates,
Neil H. Shah, David L. Desfor and Shreenathji Enterprises, Ltd., as
Contributor, and Hersha Hospitality Limited Partnership, as Acquiror
10.12 Contribution Agreement, dated as of June 3, 1998, between 2144
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror
10.13 Contribution Agreement, dated as of June 3, 1998, between 144
Associates, 344 Associates, 544 Associates and 644 Associates, Joint
Tenants Doing Business as 2544 Associates, as Contributor, and Hersha
Hospitality Limited Partnership, as Acquiror
10.14 Contribution Agreement, dated June 3, 1998, between Shree Associates,
as Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror
10.15 Contribution Agreement, dated June 3, 1998, between 2144 Associates,
as Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror
Exhibit Document
- ------- --------
10.16 Contribution Agreement, dated June 3, 1998, between 144 Associates,
344 Associates, 544 Associates and 644 Associates, Joint Tenants Doing
Business as 2544 Associates, as Contributor, and Hersha Hospitality
Limited Partnership, as Acquiror
10.17 Contribution Agreement, dated June 3, 1998, between Shree Associates,
Devi Associates, Shreeji Associates, Madhusudan I. Patni and
Shreenathji Enterprises, Ltd., as Contributor, and Hersha Hospitality
Limited Partnership, as Acquiror
10.18 Contribution Agreement, dated June 3, 1998, between Shree Associates,
as Contributor, and Hersha Hospitality Limited Partnership, as
Acquiror
10.19 Contribution Agreement, dated August 11, 1999, between Shree
Associates, JSK II Associates, Shreeji Associates, Kunj Associates,
Shanti III Associates, Neil H. Shah, David L. Desfor, Manish M. Patni
and Shreenathji Enterprises, Ltd., collectively as Contributor, and
Hersha Hospitality Limited Partnership, as Acquiror (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on August 26, 1999)
10.20 Contribution Agreement, dated September 1, 1999, between 2844
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror (incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K filed on August 26, 1999)
10.21 Purchase Agreement, dated September 1, 1999, between 2544 Associates,
as Seller, and 3544 Associates, as Purchaser (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on September 14, 1999)
10.22 Contribution Agreement, dated January 1, 2000, between 1544
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror (incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K filed on March 23, 2000)
10.23 Contribution Agreement, dated January 1, 2000, between 1844
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror (incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K filed on March 23, 2000)
10.24 Contribution Agreement, dated January 1, 2000, between 3144
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on March 23, 2000)
10.25 Contribution Agreement, dated October 1, 2000, between 1944
Associates, as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on November 9, 2000)
10.26 Purchase Leaseback Agreement entered into as of May 19, 2000 between
Hersha Hospitality Limited Partnership and each of Noble Investments
Newnan, LLC, Millennium Two Investments Duluth, LLC, Noble Investments
RMD, LLC and Embassy Investments Duluth, LLC, entities owned by Noble
Investment Group, Ltd. (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on June 5, 2000)
10.27 Form of Ground Lease
10.28 Form of Percentage Lease
10.29 Administrative Services Agreement, dated January 26, 1999, between
Hersha Hospitality Trust and Hersha Hospitality Management, L.P.
10.30 Warrant Agreement, dated January 26, 1999, between Anderson &
Strudwick, Inc. and Hersha Hospitality Trust
10.31 Warrant Agreement, dated June 3, 1999, between 2744 Associates, L.P.
and Hersha Hospitality Limited Partnership
10.32 Hersha Hospitality Trust Option Plan
10.33 Hersha Hospitality Trust Non-Employee Trustees' Option Plan
10.34 Loan and Security Agreement between 1444 Associates and MEPS
Associates and Sovereign Bank (incorporated by reference to Exhibit
10.25 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999)
Exhibit Document
- ------- --------
10.35 Note executed by 1444 Associates and MEPS Associates in connection
with the Loan and Security Agreement (incorporated by reference to
Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999)
10.36 Purchase Agreement, dated December 4, 2001, between Metro Two Hotel,
LLC, as Seller, and HHLP Hunters Point, LLC, as Purchaser
(incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on December 7, 2001)
10.37 Purchase Agreement, dated December 4, 2001, between Hersha
Hospitality Limited Partnership, as Seller, and Riverfront Hotel
Associates, as Purchaser (incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K filed on December 7, 2001)
10.38 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 (incorporated by reference to Exhibit 10.4 to the Company's
Current Report on Form 8-K filed on December 7, 2001)
10.39 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 (incorporated by reference to Exhibit 10.5 to the Company's
Current Report on Form 8-K filed on December 7, 2001)
21.1* Subsidiaries of the Registrant
23.1* Consent of Moore Stephens, P.C.
- ----------------
* Filed herewith.