UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HERSHA HOSPITALITY TRUST
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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Notes:
HERSHA HOSPITALITY TRUST
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 15, 2002
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The annual meeting of the shareholders (the "Annual Meeting") of Hersha
Hospitality Trust (the "Company"), will be held at the Doubletree Club Hotel at
156-06 Rockaway Blvd., Jamaica, NY on Wednesday, May 15, 2002, at 10:00 a.m.,
Eastern Standard Time, for the following purposes:
(1) To elect Class I Trustees to serve until the Annual Meeting of
shareholders in 2004; and
(2) To transact such other business as may properly come before the Annual
Meeting and any adjournments thereof.
Only shareholders of the Company of record as of the close of business on
March 28, 2002, will be entitled to notice of, and to vote at, the Annual
Meeting and any adjournments thereof.
There is enclosed, as a part of this Notice, a Proxy Statement that
contains further information regarding the Annual Meeting and the nominees for
election to the Board of Trustees of the Company.
In order that your shares may be represented at the Annual Meeting, you are
urged to promptly complete, sign, date and return the accompanying Proxy in the
enclosed envelope, whether or not you plan to attend the Annual Meeting. If you
attend the Annual Meeting in person, you may vote personally on all matters
brought before the Annual Meeting even if you have previously returned your
proxy.
BY ORDER OF THE BOARD OF TRUSTEES
Kiran P. Patel
Secretary
April 15, 2002
HERSHA HOSPITALITY TRUST
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is provided in connection with the solicitation of
proxies by the Board of Trustees of Hersha Hospitality Trust (the "Company") for
use at the annual meeting of shareholders to be held on May 15, 2002 ("Annual
Meeting") and at any adjournments thereof. The mailing address of the principal
executive offices of the Company is 148 Sheraton Drive, Box A, New Cumberland,
Pennsylvania 17070. This Proxy Statement and the Proxy Form, Notice of Meeting
and the Company's annual report to shareholders, all enclosed herewith, are
first being mailed to the shareholders of the Company on or about April 15,
2002.
THE PROXY
The solicitation of proxies is being made primarily by the use of the mail.
The cost of preparing and mailing this Proxy Statement and accompanying
material, and the cost of any supplementary solicitations, which may be made by
mail, telephone or personally by employees of the Company, will be borne by the
Company. The shareholder giving the proxy has the power to revoke it by
delivering written notice of such revocation to the Secretary of the Company
prior to the Annual Meeting or by attending the meeting and voting in person.
The proxy will be voted as specified by the shareholder in the spaces provided
on the Proxy Form or, if no specification is made, it will be voted for the
election of all of the nominees as trustees. In voting by proxy in regard to
the election of the trustees, shareholders may vote in favor of the nominees,
withhold their votes as to the nominees or withhold their votes as to a specific
nominee.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement and, if given or made, such
information or representation should not be relied upon as having been
authorized. This Proxy Statement does not constitute the solicitation of a
proxy, in any jurisdiction, from any person to whom it is unlawful to make such
solicitation in such jurisdiction. The delivery of this Proxy Statement shall
not, under any circumstances, imply that there has not been any change in the
information set forth herein since the date of the Proxy Statement.
Each outstanding Priority Class A common share of beneficial interest, $.01
par value (a "Priority Common Share"), and each outstanding Class B common share
of beneficial interest, $.01 par value (a "Class B Common Share" and, together
with the Priority Common Shares, the "Shares") is entitled to one vote.
Cumulative voting is not permitted. Only shareholders of record at the close of
business on March 28, 2002 will be entitled to notice of and to vote at the
Annual Meeting and at any adjournments thereof. At the close of business on
March 28, 2002, the Company had outstanding 2,480,000 Priority Common Shares and
no Class B Common Shares. The Priority Common Shares and the Class B Common
Shares vote together as a class on all matters being submitted to shareholders
at the Annual Meeting.
No specific provisions of the Company's Declaration of Trust or Bylaws
address the issue of abstentions or broker non-votes. Brokers holding shares
for beneficial owners must vote those shares according to the specific
instructions they receive from the owners. However, brokers or nominees holding
shares for a beneficial owner may not have discretionary voting power and may
not have received voting instructions from the beneficial owner with respect to
voting on certain proposals. In such cases, absent specific voting instructions
from the beneficial owner, the broker may not vote on these proposals. This
results in what is known as a "broker non-vote." A "broker non-vote" has the
effect of a negative vote when a majority of the shares outstanding and entitled
to vote is required for approval of a proposal, and "broker non-votes" will not
be counted as votes cast but will be counted for the purpose of determining the
existence of a quorum. Because the election of trustees is a routine matter for
which specific instructions from beneficial owners will not be required, no
"broker non-votes" will arise in the context of the election of trustees.
REPORTS OF BENEFICIAL OWNERSHIP
Under federal securities laws, the Company's trustees and executive
officers are required to report their ownership of the Shares and any changes in
ownership to the Securities and Exchange Commission (the "SEC"). These persons
are also required by SEC regulations to furnish the Company with copies of these
reports. Based solely on its review of the copies of such reports received by
it, or written representations from certain reporting persons that no reports
were required for those persons, the Company believes that during 2001 its
officers and trustees complied with all applicable filing requirements.
OWNERSHIP OF THE COMPANY'S PRIORITY COMMON SHARES
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Shares by each of the Company's trustees, each executive officer
and all trustees and executive officers as a group as of March 28, 2002. Unless
otherwise indicated, all shares are owned directly and the indicated person has
sole voting and investment power. The number of shares includes shares that may
be issued at the option of the Company upon the redemption of non-voting units
of limited partnership interest ("Units") in Hersha Hospitality Limited
Partnership, a Virginia limited partnership through which the Company owns its
interest in hotels (the "Partnership").
Number of Shares Percent of
Name of Beneficial Owner Beneficially Owned(1) Class(1)
- ------------------------------------ --------------------- -----------
Hasu P. Shah 782,215(2) 23.3%
K.D. Patel 640,181(2) 19.9%
Rajendra O. Gandhi 497,097(3) 16.2%
Kiran P. Patel 406,739(2) 13.6%
Ashish R. Parikh 2,500(4) (5)
Thomas S. Capello 3,000(4) (5)
L. McCarthy Downs 71,111(6) 2.7%
Donald J. Landry -- --
William Lehr Jr. 1,610(4) (5)
Michael A. Leven -- --
Total for all Officers and Trustees
(10 persons) 2,404,453 48.5%
===================== ===========
<FN>
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(1) The number of outstanding Priority Common Shares at April 15, 2002 was
2,575,000. Assumes (i) that all Units held by such person or group of
persons are redeemed for Class B Common Shares; (ii) conversion of the
Class B Common Shares into Priority Common Shares on a one-for-one basis;
and (iii) that all warrants held by such person are exercised for Priority
Common Shares. The total number of shares outstanding used in calculating
the percentage assumes that none of the Units or warrants held by other
persons are redeemed for Class B Common Shares or exercised for Priority
Common Shares, respectively. Units generally are not redeemable for Class B
Common Shares until at least one year following the acquisition of the
Company's hotels. Class B Common Shares automatically will be converted
into Priority Common Shares upon the earlier of (i) the date that is 15
trading days after the Company sends notice to the holders of the Priority
Common Shares that their priority period with respect to dividends and
liquidation 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 the 15-day period, or (ii) January 26, 2004.
(2) Represents Units owned by such person.
(3) Represents 375 Priority Common Shares and 496,722 Units owned by Mr.
Gandhi.
(4) Priority Common Shares that such person has advised the Company he
purchased.
(5) Owns less than 1% of the Shares.
(6) Represents 10,000 Priority Common Shares owned by Mr. Downs and 61,111
Priority Common Shares that Mr. Downs has that right to acquire for a price
of $9.90 per share upon the exercise of warrants granted to Mr. Downs in
connection with the Company's initial public offering.
2
BOARD OF TRUSTEES AND EXECUTIVE OFFICERS
Certain information regarding the Company's trustees and executive officers is
set forth below.
Name Age Position
- --- --- --------
Hasu P. Shah (Class II) 57 Chairman of the Board, Chief Executive
- --- Officer and Trustee
Ashish R. Parikh 32 Chief Financial Officer
Kiran P. Patel 52 Secretary
Rajendra O. Gandhi 53 Treasurer
K.D. Patel (Class II) 58 Trustee
L. McCarthy Downs, III (Class II) 49 Trustee
Michael A. Leven (Class II) 64 Independent Trustee
William Lehr, Jr. (Class I) 61 Independent Trustee
Thomas S. Capello (Class I) 58 Independent Trustee
Donald J. Landry (Class I) 53 Independent Trustee
PROPOSAL ONE - ELECTION OF TRUSTEES
The Company's Declaration of Trust divides the Board of Trustees into two
classes. Each Trustee in Class II is serving a term expiring at the 2003 annual
meeting of shareholders and each Trustee in Class I is serving a term expiring
at the Annual Meeting. Generally, one full class of trustees is elected by the
shareholders of the Company at each annual meeting. Each of the nominees
presently is serving as a Class I Trustee. Messrs. Landry and Lehr were
appointed as Class I Trustees upon the resignations of Messrs. Everette G.
Allen, Jr. and Mark R. Parthemer in April 2001.
If any nominee becomes unavailable or unwilling to serve the Company as a
Trustee for any reason, the persons named as proxies in the Proxy Form are
expected to consult with management of the Company in voting the shares
represented by them. The Board of Trustees has no reason to doubt the
availability of any nominee, and each has indicated his willingness to serve as
a trustee of the Company if elected.
The Company's Bylaws provide that a shareholder of record both at the time
of the giving of the required notice set forth in this sentence and at the time
of the Annual Meeting entitled to vote at the Annual Meeting may nominate
persons for election to the Board of Trustees by mailing written notice to the
Secretary of the Company not less than 120 days prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the event the
annual meeting is advanced by more than 30 days or delayed by more than 60 days,
notice must be received not earlier than 90 days prior to the announcement of
the annual meeting. The shareholder's notice must set forth (i) as to each
person whom the shareholder proposes to nominate for election as a trustee, all
information regarding each nominee as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the SEC had the nominee
been nominated by the Board of Trustees; (ii) the consent of each nominee to
serve as a trustee of the Company if so elected; (iii) the name and address of
the shareholder and of each person to be nominated; and (iv) the number of each
class of securities that are owned beneficially and of record by the
shareholder.
3
NOMINEES FOR ELECTION AS CLASS I TRUSTEES
(TERMS EXPIRING IN 2004)
WILLIAM LEHR, JR., one of the Company's Trustees, was previously with
Hershey Foods Corporation as a Senior Vice President, Corporate Secretary and
Treasurer. During his tenure with Hershey Foods, Mr. Lehr had a multitude of
diverse responsibilities including corporate governance, law, finance, human
resources, and public affairs. Mr. Lehr currently devotes a substantial amount
of his time in leadership positions with various nonprofit organizations such as
The Greater Harrisburg Foundation, Americans for the Arts and The Susquehanna
Art Museum. Mr. Lehr holds a Bachelor's degree in Business Administration from
the University of Notre Dame, where he graduated cum laude, and a law degree
from Georgetown University Law Center. Mr. Lehr is also a graduate of the
Stanford Executive Program and successfully completed The Governing for
Nonprofit Excellence Course at Harvard University's Graduate School of Business
Administration.
THOMAS S. CAPELLO, one of the Company's Trustees, is a Private Investor and
a Consultant specializing in strategic planning, mergers and acquisitions. From
1988 to 1999, Mr. Capello was the President, Chief Executive Officer and
Director of First Capitol Bank in York, Pennsylvania. From 1983 to 1988, Mr.
Capello served as Vice President and Manager of the Loan Production Office of
The First National Bank of Maryland. Prior to his service at The First National
Bank of Maryland, Mr. Capello served as Vice President and Senior Regional
Lending Officer at Commonwealth National Bank and worked at the Pennsylvania
Development Credit Corporation. Mr. Capello is an active member for the board of
WITF, Martin Library, Motter Printing Company, and Eastern York Dollars for
Scholars. Mr. Capello has served on the Board of Trustees since the Company's
initial public offering in January 1999. Mr. Capello is a graduate of the
Stonier Graduate School of Banking at Rutgers University and holds an
undergraduate degree with a major in Economics from the Pennsylvania State
University.
DONALD J. LANDRY, one of the Company's Trustees, has over thirty years of
lodging and hospitality experience in a variety of leadership positions. Most
recently, Mr. Landry was the Chief Executive Officer, President and Vice
Chairman of Sunburst Hospitality Inc. Mr. Landry has also served as an executive
officer for Choice Hotels International, Inc., Manor Care Hotel Division and
Richfield Hotel Management. Mr. Landry is a frequent guest lecturer at the
Harvard Business School, Cornell University and University of New Orleans. Mr.
Landry holds a Bachelor of Science from the University of New Orleans and was
the University's Alumnus of the Year in 1999. Mr. Landry is a Certified Hotel
Administrator.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE IN FAVOR OF EACH OF THE CLASS I TRUSTEE
NOMINEES
4
CLASS II TRUSTEES
HASU P. SHAH has been the Chairman of the Board and CEO of the Company
since its inception in 1998. Mr. Shah also is the President and CEO of Hersha
Enterprises, Ltd. (a real estate management and development company) and has
held that position since its inception in 1984. He started Hersha Enterprises,
Ltd. with the purchase of the 125-room Quality Inn Riverfront in Harrisburg,
Pennsylvania. In 1997, the "Central Penn Business Journal" honored Hersha
Enterprises, Ltd. as one of the Fifty Fastest Growing Companies in central
Pennsylvania. His interest in construction and renovations of hotels initiated
the development of Hersha Construction Company for the construction and
renovation of new properties and Hersha Hotel Supply Company to supply
furniture, fixtures and equipment supplies to the properties. Mr. Shah and his
wife, Hersha, are active members of the community. Mr. Shah serves on the Board
of Trustees of several organizations including the Pennsylvania State University
Capital Campus in Harrisburg, Pennsylvania, the Harrisburg Foundation, Human
Enrichment by Love and Peace (H.E.L.P.), the Capital Region Chamber of Commerce
and the Vraj Hindu Temple. Mr. Shah received a Bachelors of Science degree in
Chemical Engineering from Tennessee Technical University and obtained a Masters
degree in Administration from Pennsylvania State University.
L. MCCARTHY DOWNS, III, is Chairman of the Board for Anderson & Strudwick
Investment Corporation, the parent company of Anderson & Strudwick Inc., the
underwriter of the Company's initial public offering. He has been the manager
of the firm's Corporate Finance department since 1990 and has been involved in
several public and private financings for REITs. Prior to 1990, Mr. Downs was
employed by another investment banking and brokerage firm for seven years. Mr.
Downs has served on the Board of Trustees since the Company's initial public
offering in January 1999. Mr. Downs received a Bachelor of Science degree in
Business Administration from The Citadel and obtained an M.B.A. from The College
of William and Mary.
K.D. PATEL has been a principal of Hersha Enterprises, Ltd. since 1989.
Mr. Patel currently serves as the President of Hersha Hospitality Management,
L.P., the lessee of 14 of the Company's hotels. He has received national
recognition from Holiday Inn Worldwide for the successful management of Hersha's
Holiday Inn Express Hotels. In 1996, Mr. Patel was appointed by Holiday Inn
Worldwide to serve as an advisor on its Sales and Marketing Committee. Prior to
joining Hersha Enterprises, Ltd., Mr. Patel was employed by Dupont Electronics
in New Cumberland, Pennsylvania from 1973 to 1990. He is a member of the Board
of Trustees of a regional chapter of the American Red Cross and serves on the
Advisory Board of Taneytown Bank and Trust. Mr. Patel has served on the Board
of Trustees since the Company's initial public offering in January 1999. Mr.
Patel received a Bachelor of Science degree in Mechanical Engineering from the
M.S. University of India and a Professional Engineering License from the
Commonwealth of Pennsylvania in 1982.
MICHAEL A. LEVEN is the Chairman and Chief Executive Officer of US
Franchise Systems, Inc. (USFS), which franchises the Microtel, Hawthorn and Best
Inns & Suites hotel brands. Prior to forming USFS in 1995, he was president and
chief operating officer of Holiday Inn Worldwide. During his five-year tenure,
the new Holiday Inn Express brand grew from zero to 330 open hotels, with a
backlog of approximately 500 units. From 1985 to 1990, Mr. Leven was president
of Days Inn of America. Mr. Leven led the company through a reorganization
resulting in growth from a 225-unit regional chain to one of the largest brands
in the world with over 1,000 open units and 400 signed franchise agreements.
Mr. Leven is a co-founder of the Asian American Hotel Owners Association (AAHOA)
which now has over 7,000 members. Mr. Leven is a trustee of National Realty
Trust, The Marcus Foundation and The Chief Executive Leadership Institute. Mr.
Leven holds a Bachelor of Arts from Tufts University and a Master of Science
from Boston University.
5
OTHER EXECUTIVE OFFICERS
ASHISH R. PARIKH joined the Company in 1999 as the Chief Financial Officer.
Prior to joining Hersha Hospitality Trust, Mr. Parikh was an Assistant Vice
President in the Mergers and Acquisition Group for Fleet Financial Group where
he developed valuable expertise in numerous forms of capital raising activities
including leveraged buyouts, bank syndications and venture financing. Mr.
Parikh has also been employed by Tyco International Ltd. (diversified industrial
conglomerate) and Ernst & Young LLP (accounting and consulting firm). Mr.
Parikh received an MBA from New York University and a BBA from the University of
Massachusetts at Amherst. Mr. Parikh is a licensed Certified Public Accountant.
KIRAN P. PATEL has been a principal of Hersha Enterprises, Ltd. since 1993.
Mr. Patel is currently the partner in charge of Hersha's Land Development and
Business Services Divisions. Prior to joining Hersha Enterprises, Ltd., Mr.
Patel was employed by AMP Incorporated (electrical component manufacturer), in
Harrisburg, Pennsylvania. Mr. Patel serves on various Boards for community
service organizations. Mr. Patel received a Bachelor of Science degree in
Mechanical Engineering from M.S. University of India and obtained a Masters of
Science degree in Industrial Engineering from the University of Texas in
Arlington.
RAJENDRA O. GANDHI has been a principal of Hersha Enterprises, Ltd. since
1986. Mr. Gandhi currently serves (and has served since 1997) as President of
Hersha Hotel Supply, Inc., which provides furnishings, case goods and interior
furnishing materials to hotels and nursing homes in several states. Mr. Gandhi
is a graduate of the University of Bombay, India and obtained an MBA degree from
the University of West Palm Beach, Florida.
COMMITTEES AND MEETINGS OF THE BOARD OF TRUSTEES
Trustees' Meetings. The business of the Company is under the general
management of its Board of Trustees as provided by the Company's Bylaws and the
laws of Maryland. The Company's Board of Trustees consists of seven members,
four of whom are independent. The Board of Trustees holds regular quarterly
meetings during the Company's fiscal year and holds additional meetings as
needed in the ordinary course of business. The Board of Trustees held four
meetings during 2001. All trustees attended at least 75% of the aggregate of
(i) the total number of the meetings of the Board of Trustees and (ii) the total
number of meetings of all committees of the board on which the trustee then
served.
The Company presently has an Audit Committee, Nominating Committee and a
Compensation Committee of its Board of Trustees. The Company may, from time to
time, form other committees as circumstances warrant. Such committees have
authority and responsibility as delegated by the Board of Trustees.
Audit Committee. The Board of Trustees has established an Audit Committee,
which currently consists of Messrs. Capello (Chairperson), Landry and Lehr, all
of whom are independent trustees. The Audit Committee makes recommendations
concerning the engagement of independent public accountants, reviews with the
independent public accountants the plans and results of the audit engagement,
approves professional services provided by the independent public accountants,
reviews the independence of the independent public accountants, considers the
range of audit and non-audit fees and reviews the adequacy of the Company's
internal accounting controls. The audit committee met three times during 2001
and discussed relevant topics regarding financial reporting and auditing
procedures at the meetings of the Board of Trustees.
Compensation Committee. The Compensation Committee consists of Messrs.
Capello (Chairperson), Landry and Lehr, all of whom are independent trustees.
The Compensation Committee determines compensation for the Company's executive
officers and administers the Company's Option Plan. The Compensation Committee
met and discussed relevant topics regarding compensation at the meetings of the
Board of Trustees and did not schedule separate meetings during 2001.
Nominating Committee. The Nominating Committee consists of Messrs. Shah,
Capello and Downs. The Nominating Committee recommends candidates for election
as trustees and in some cases the election of officers. The Nominating Committee
met twice during 2001.
6
COMPENSATION OF TRUSTEES
Each independent and non-affiliated Trustee is paid $10,000 per year while
each affiliated trustee is paid $7,500 per year, payable in quarterly
installments. In addition, the Company will reimburse all trustees for
reasonable out-of-pocket expenses incurred in connection with their services on
the Board of Trustees.
On the effective date of the Company's initial public offering, Mr. Tom
Capello received options to purchase 3,000 Class B Common Shares at $6.00 per
share. The options were granted under the Hersha Hospitality Trust Non-Employee
Trustees' Option Plan (the "Trustees' Plan"), which may be amended by the
Company's board of trustees to provide for other awards, including awards to
future independent trustees. Options granted under the Trustees' Plan will be
exercisable only if (1) the Company obtains a per share closing price on the
Priority Common Shares of $9.00 for 20 consecutive trading days and (2) 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 Company's Board of Trustees 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 that section and
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 Company's Board of
Trustees approved the Plan. The Company's Board of Trustees 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).
EXECUTIVE COMPENSATION
Ashish R. Parikh, the chief financial officer of the Company, is paid a
salary of $90,000 by the Company's primary lessee, Hersha Hospitality
Management, L.P. ("HHMLP"). The Company and HHMLP have entered into an
Administrative Services Agreement to provide accounting and securities reporting
services. The terms of the agreement provide for a fixed fee of $55,000 with an
additional $10,000 per property (prorated from the time of acquisition) for each
hotel added to the Company's portfolio. The administrative services agreement
was reduced by $75,000 per year as of January 1, 2001. A portion of these fees,
charged by HHMLP, are allocated to the services of Mr. Parikh.
No other officers of the Company have received or are scheduled to receive
any cash compensation from the Company other than the Trustee's fees for those
officers who are trustees, provided, however, that the Chairman of the Board of
Trustees shall be entitled to receive a salary of not more than $100,000 per
year provided that the Priority Common Shares have a bid price of $9.00 per
share or higher for 20 consecutive trading days and remains at or above $9.00
per share.
7
The Company has a policy, which is subject to change at the sole discretion
of the Board of Trustees, of paying no compensation to its executive officers or
other employees. The following table summarizes the compensation paid or accrued
by the Company for each of the years ended December 31, 2001, 2000 and 1999 (1).
Annual Compensation Long Term Compensation
------------------- ----------------------
Securities
Name and Restricted Underlying All Other
Principal Position Year Salary Bonus Share Award Options/SAR Compensation
- ------------------------- ---- ----------- ------ ------------ ------------ -------------
Hasu P. Shah 2001 $ - (2) $ - $ - - $ -
Chairman and Chief 2000 - - - - -
Executive Officer 1999 - - - 21,850(4) -
Ashish R. Parikh 2001 $55,000 (3) $ - $ - - $ -
Chief Financial Officer 2000 55,000 - - - -
1999 55,000 - - - -
Kiran P. Patel 2001 $ - $ - $ - - $ -
Secretary 2000 - - - - -
1999 - - - 20,864(4) -
Rajendra O. Gandhi 2001 $ - $ - $ - - $ -
Treasurer 2000 - - - - -
1999 - - - 23,294(4) -
<FN>
(1) The Company commenced operations on January 26, 1999.
(2) Mr. Shah will be entitled to receive a salary of not more than
$100,000 per year provided that the Priority Common Shares have a bid
price of $9.00 per share or higher for 20 consecutive trading days and
remain at or above $9.00 per share.
(3) Of Mr. Parikh's $90,000 salary that is paid by the Lessee, $55,000 has
been designated as related to the services provided per the terms of
the Administrative Services Agreement between the Company and HHMLP.
The terms of the agreement provide for a fixed fee of $55,000 with an
additional $10,000 per property (prorated from the time of
acquisition) for each hotel added to the Company's portfolio. The
Administrative Services Agreement was reduced by $75,000 per year as
of January 1, 2001.
(4) Granted at time of the Company's initial public offering pursuant to
negotiations with the underwriter for the purpose of attracting and
retaining executive officers of the Company and the Partnership.
8
OPTION GRANTS
There were no option grants to the Chief Executive Officer or the other
executive officers of the Company during the last fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
Number of Unexercised Value of Unexercised
Options In-The Money Options at
at Fiscal Year-End (1) Fiscal Year-End (2)
Shares Acquired Value -------------------------- ----------------------------
NAME by exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------ --------------- --------- ----------- ------------- ------------ --------------
Hasu P. Shah - $ - - 21,850 $ - $ -
Ashish R. Parikh - $ - - - $ - $ -
Kiran P. Patel - $ - - 20,864 $ - $ -
Rajendra O. Gandhi - $ - - 23,294 $ - $ -
<FN>
(1) Represents the number of shares subject to outstanding options.
(2) Based on a price of $5.70 per share, the closing price of the Company's Priority Common Shares
on December 31, 2001.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Downs is Chairman of the Board for Anderson & Strudwick Investment
Corporation, the parent company of Anderson & Strudwick, Inc., the underwriter
of the Company's initial public offering.
The Company's operating partnership entered into the Option Agreement with
some of the Company's executive officers, trustees and their affiliates.
Pursuant to this agreement, the Company's operating partnership has the option
to purchase any hotels owned or developed in the future by these individuals or
entities that are within fifteen miles of any of the Company's hotels or any
hotel subsequently acquired by the Company for two years after acquisition or
development. Of the 14 hotel properties purchased since the Company's initial
public offering, six of the hotels have been purchased under this Option
Agreement.
During 2001 the Company acquired three hotels from limited partnerships
owned by some of the Company's executive officers, trustees and their
affiliates. The Company purchased the Holiday Inn Express, Long Island City, New
York from Metro Two Hotel, LLC, a New York limited liability company owned by
Hasu P. Shah, Kiran P. Patel, Rajendra O. Gandhi, K.D. Patel and their
affiliates, for approximately $8.5 million effective November 1, 2001. The
Company financed this purchase through the assumption of approximately $6.5
million of mortgage debt, the payment of cash of approximately $1.5 million and
issuance of limited partnership units valued at approximately $0.5 million. The
Company purchased the Mainstay Suites and Sleep Inn hotels located in King of
Prussia, Pennsylvania from 3244 Associates, a Pennsylvania limited partnership
owned by Hasu P. Shah, Kiran P. Patel, Rajendra O. Gandhi, K.D. Patel and their
affiliates, for approximately $9.4 million effective August 1, 2001. The Company
financed this purchase through the assumption of approximately $6.8 million of
mortgage debt, the assumption of $1.0 million of related party indebtedness,
available cash and the use of borrowings under the Company's line of credit.
In conjunction with the initial public offering, the Company acquired ten
initial hotels from affiliates and entered into percentage lease agreements with
HHMLP. HHMLP is owned by Messrs. Hasu P. Shah, Kiran P. Patel, Rajendra O.
Gandhi, K.D. Patel and some other of their affiliates. The Company has acquired
fourteen and disposed of six properties subsequent to the Company's initial
public offering. The Company has entered into percentage leases relating to
fourteen of the hotels with HHMLP. Each percentage lease with HHMLP has an
initial non-cancelable term of five years. All, but not less than all, of the
percentage leases for these hotels may be extended for an additional five-year
term at HHMLP's option. At the end of the first extended term, HHMLP, at its
9
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, HHMLP
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 hotel after the payment of certain operating expenses.
The Company has acquired, and expects to acquire in the future, from
affiliates of certain of the Company's executive officers and trustees,
newly-developed or newly-renovated hotels that do not have an operating history
that would allow the Company to make purchase price decisions based on
historical performance. In buying these hotels the Company has 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 the
Company initially purchased 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 the Company's 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 the Company's purchase. The leases for these hotels provide for fixed
initial rent for the one- or two-year adjustment period that provides the
Company with a 12% annual yield on the initial purchase price, net of certain
expenses. At the end of the one- or two-year period, the Company calculates a
value for the hotel, based on the actual net income during the previous twelve
months, net of certain expenses, such that it would have yielded a 12% return.
The Company then applies the percentage rent formula to the hotel's historical
revenues for the previous twelve months on a pro forma basis. If the pro forma
percentage rent formula would not have yielded a pro forma annual return to the
Company of 11.5% to 12.5% based on this calculated value, this value is adjusted
either upward or downward to produce a pro forma return of either 11.5% or
12.5%, as applicable. If this final purchase price is higher than the initial
purchase price, then the seller 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 the
Company 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 the Company's Board of Trustees, including the independent
trustees. Any operating partnership units issued by the Company or returned to
it 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 the Company's Board of Trustees, including the Company's independent
trustees. The sellers are entitled to receive quarterly distributions on the
operating partnership units prior to the units being returned to the Company in
connection with a downward purchase price adjustment.
The Company re-priced seven of its hotels acquired in connection with the
Company's initial public offering based upon operating results as of December
31, 1999 or December 31, 2000. Before the Company implemented the current
pricing methodology in December 2000, the Company's pricing methodology provided
for re-pricing of a hotel if there was any variance from its initial forecasted
12% return. Under this previous pricing methodology, as of January 1, 2000, the
Company 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, the Company 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. The Company 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 the
Company's initial public offering, the Company has acquired six additional
hotels from some of its executive officers, trustees and their affiliates for
initial prices that will be adjusted based upon operating results at December
31, 2001 or 2002.
The Company leases a parcel of real estate adjacent to the Hampton Inn,
Selinsgrove, Pennsylvania to Mr. Hasu P. Shah for a nominal amount per year.
This parcel of land is not subdivided from the property and does not have its
own private access way. The land has not been developed and in its current state
is not believed to maintain significant value.
10
The Company paid to the Shah Law Firm, whose senior partner Mr. Jay H. Shah
is the son of Mr. Hasu P. Shah, certain legal fees aggregating $43,000 during
2001. Of this amount, $10,000 was capitalized as settlement costs.
The Company approved the lending of up to $3.0 million to the Hersha
Affiliates to construct hotels and related improvements on specific hotel
projects. As of December 31, 2001, the Hersha Affiliates owe the Company $1.8
million related to this borrowing. The Hersha Affiliates have borrowed this
money from the Company at an interest rate of 12.0% per annum. Interest income
from these advances was $165,000 for the year ended December 31, 2001.
THE AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Trustees (the "Audit Committee") is
composed of three independent trustees and operates under a written charter
adopted by the Board of Trustees. The Audit Committee reviews audit fees and
recommends to the Board of Trustees, subject to shareholder ratification, the
selection of the Company's independent accountants. Management is responsible
for the Company's internal controls and the financial reporting process. The
independent accountants are responsible for performing an independent audit of
the Company's consolidated financial statements in accordance with generally
accepted auditing standards and for issuing a report thereon. The Audit
Committee's responsibility is to monitor and oversee these processes and to
report thereon to the Board of Trustees. In this context, the Audit Committee
has met and held discussions with management and Moore Stephens, P.C., the
Company's independent accountants.
Management represented to the Audit Committee that the Company's
consolidated financial statements were prepared in accordance with generally
accepted accounting principles, and the Audit Committee has reviewed and
discussed the consolidated financial statements with management and Moore
Stephens.
The Audit Committee has discussed with Moore Stephens the matters required
to be discussed by Statement on Auditing Standards No. 61 (Codification of
Statements on Accounting Standards), including the scope of the auditor's
responsibilities, significant accounting adjustments and any disagreements with
management.
The Audit Committee also has received the written disclosures and the
letter from Moore Stephens relating to the independence of that firm as required
by Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), and has discussed with Moore Stephens that firm's
independence from the Company.
Based upon the Audit Committee's discussions with management and Moore
Stephens and the Audit Committee's review of the representation of management
and the report of Moore Stephens to the Audit Committee, the Audit Committee
recommended that the Board of Trustees include the audited consolidated
financial statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001 filed with the Securities and Exchange Commission.
Either the Audit Committee or its Chairman reviews with management and the
independent accountants the results of the independent accountants' review of
the unaudited financial statements that are included in the Company's quarterly
reports on Form 10-Q. The Audit Committee also reviews the fees charged by the
Company's independent accountants. During the fiscal year ended December 31,
2001, Moore Stephens billed the Company the fees set forth below in connection
with services rendered by that firm to the Company.
Audit Fees. For professional services rendered by Moore Stephens for the
audit of the Company's annual financial statements for the fiscal year ended
December 31, 2001, and the reviews of the financial statements included in the
Company's Quarterly Reports Form 10-Q for the fiscal year ended December 31,
2001, Moore Stephens billed the Company fees in the aggregate amount of $58,000.
Financial Information Systems Design and Implementation Fees. For the
fiscal year ended December 31, 2000, there were no fees billed by Moore Stephens
for professional services rendered in connection with financial information
systems design and implementation.
11
All Other Fees. For professional services other than those described above
rendered by Moore Stephens for the fiscal year ended December 31, 2001, Moore
Stephens billed the Company fees in the aggregate amount of $28,375. There were
no fees charged for services rendered in connection with the performance of
internal audit procedures for the Company.
The Audit Committee has considered whether the provision of services
described above under "Financial Information Systems Design and Implementation
Fees" and "All Other Fees" is compatible with maintaining the independence of
Moore Stephens.
THE AUDIT COMMITTEE
Thomas S. Capello, Chairperson
Donald J. Landry
William Lehr, Jr.
March 28, 2002
12
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Priority Common Shares for the period from January 26, 1999 (commencement of
operations) through December 31, 2001, with the cumulative total shareholder
return for the Standard and Poor's 500 Stock Index and the Standard and Poor's
Composite REIT Index for the same period, assuming $100 is invested in the
Priority Common Shares and each index and dividends are reinvested quarterly.
The performance graph is not necessarily indicative of future investment
performance.
INDEX 1/26/99 (1) 12/31/99 12/31/00 12/31/01
- ------------------------ ----------- -------- -------- --------
HERSHA HOSPITALITY TRUST 100.0 93.6 114.8 130.0
S&P Composite REIT Index 100.0 87.6 104.6 119.2
S&P 500 INDEX 100.0 119.9 106.9 96.2
<FN>
(1) The Company commenced operations on January 26, 1999.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Moore Stephens, P.C. serves as auditors for the Company and its
subsidiaries and will continue to so serve until and unless changed by action of
the Board of Trustees. A representative of Moore Stephens, P.C. is expected to
be present at the Annual Meeting. This representative will have the opportunity
to make a statement if he desires to do so and is expected to be available to
respond to appropriate questions.
PROPOSALS FOR 2003 ANNUAL MEETING
Under the regulations of the SEC, any shareholder desiring to make a
proposal to be acted upon at the 2003 annual meeting of shareholders must
present such proposal to the Company at its principal office in New Cumberland,
Pennsylvania not later than December 13, 2002, in order for the proposal to be
considered for inclusion in the Company's proxy statement. The Company
anticipates holding the 2003 annual meeting on May 28, 2003.
The Company's bylaws provide that, in addition to any other applicable
requirements, for business to be properly brought before the annual meeting by a
shareholder, the shareholder must give timely notice in writing not later than
120 days prior to the first anniversary of the preceding year's annual meeting.
As to each matter, the notice shall contain (i) a brief description of the
business desired to be brought before the meeting and the reasons for addressing
it at the annual meeting; (ii) any material interest of the shareholder in such
business; (iii) the name and address of the shareholder; and (iv) the number of
each class of securities that are owned beneficially and of record by the
shareholder.
13
OTHER MATTERS
The Board of Trustees knows of no other business to be brought before the
Annual Meeting. If any other matters properly come before the Annual Meeting,
the proxies will be voted on such matters in accordance with the judgment of the
persons named as proxies therein, or their substitutes, present and acting at
the meeting.
The Company will furnish to each beneficial owner of Priority Common Shares
entitled to vote at the Annual Meeting, upon written request to Ashish Parikh,
the Company's Chief Financial Officer, at 148 Sheraton Drive, Box A, New
Cumberland, Pennsylvania 17070, Telephone (717) 770-2405, a copy of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001, including the financial statements and financial statement schedules filed
by the Company with the SEC.
BY ORDER OF THE BOARD OF TRUSTEES
KIRAN P. PATEL
Secretary
April 15, 2002
14
PROXY PROXY
HERSHA HOSPITALITY TRUST
NEW CUMBERLAND, PENNSYLVANIA
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 15, 2002
The undersigned hereby appoints Thomas S. Capello and Ashish R. Parikh, or
either of them, with full power of substitution in each, to vote all shares of
the undersigned in Hersha Hospitality Trust, at the annual meeting of
shareholders to be held May 15, 2002, and at any and all adjournments thereof.
1. ELECTION OF TRUSTEES
[ ] FOR ALL [ ] WITHHOLD ALL [ ] FOR ALL EXCEPT
Nominees: William Lehr, Jr., Thomas S. Capello, Donald J. Landry
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY SUCH NOMINEE(S), WRITE
THE NAME(S) OF THE NOMINEE(S) IN THE SPACE PROVIDED BELOW.
------------------------------------------------------------------------
2. In their discretion, the Proxies are authorized to vote upon such other
business and matters incident to the conduct of the meeting as may properly
come before the meeting.
This Proxy is solicited on behalf of the Board of Trustees. This Proxy
when properly executed will be voted in the manner directed herein by the
undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES AND ACCORDING TO THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER
MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENTS OR
ADJOURNMENTS THEREOF.
Dated _____________________, 2002
__________________________________
Signature
PLEASE SIGN NAME EXACTLY AS IT APPEARS ON THE
SHARE CERTIFICATE. ONLY ONE OF SEVERAL JOINT
OWNERS OR CO-OWNERS NEED SIGN. FIDUCIARIES SHOULD
GIVE FULL TITLE.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.