-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P+ZFdyr3BNvwg101OVQmDSUCrO3qmXsBTLMR7XM3fUADnXgQ2wMizuwRAwnvD5kB 9iG93kQq3ugIos9KswstVw== 0000916641-99-000906.txt : 19991117 0000916641-99-000906.hdr.sgml : 19991117 ACCESSION NUMBER: 0000916641-99-000906 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990901 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERSHA HOSPITALITY TRUST CENTRAL INDEX KEY: 0001063344 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 251811499 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-14765 FILM NUMBER: 99756488 BUSINESS ADDRESS: STREET 1: 148 SHERATON DRIVE, BOX A CITY: NEW CUMBERLAND STATE: PA ZIP: 17070 BUSINESS PHONE: 2157702405 8-K/A 1 HERSHA HOSPITALITY SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported): September 1, 1999 HERSHA HOSPITALITY TRUST (Exact name of registrant as specified in its charter) Maryland 005-55249 251811499 (State or other jurisdiction (Commission File No.) I.R.S. Employer of incorporation) (Identification No.) 148 Sheraton Drive, Box A New Cumberland, Pennsylvania 17070 (Address of principal executive offices) (717) 770-2405 (Registrant's telephone number, including area code) N/A (former name or former address, if changed since last report) Item 2. Acquisition or Disposition of Assets On July 27, 1999, the Board of Trustees of Hersha Hospitality Trust (the "Company") approved the acquisition of 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. The Board of Trustees also approved the acquisition of a Hampton Inn hotel located in Danville, Pennsylvania from 3544 Associates. Collectively, the Clarion Inn & Suites and the Hampton Inn hotels are referred to as the ("Hersha Acquisition Hotels"). 2844 and 3544 Associates were established as Pennsylvania limited partnerships owned by Hasu P. Shah and certain executive members and affiliates of the Company (the "Hersha Affiliates"). Shree Associates, JSK II Associates, Devi Associates, Shreeji Associates, Kunj Associates and Shanti III Associates (all Pennsylvania limited partnerships controlled by certain Hersha Affiliates); Neil H. Shah and David L. Desfor (both Hersha Affiliates); and Shreenathji Enterprises, Ltd. (a Pennsylvania corporation controlled by certain Hersha Affiliates) contributed their partnership interests in the Clarion Inn & Suites to 2844 Associates. All of the limited partnership interests in 2844 Associates were contributed to Hersha Hospitality Limited Partnership ("HHLP" or the "Partnership"). Further, the general partnership interest in 2844 Associates, which was owned by Shreenathji Enterprises, Ltd., was contributed to Hersha Hospitality, LLC, a Virginia limited liability company ("HHLLC"). HHLP is the sole member of HHLLC. Upon the transfer of both limited partnership and general partnership interests by the Hersha Affiliates, 2844 became a wholly-owned subsidiary of HHLP. 2844 Associates does not own any assets other than this recently-acquired Clarion Inn & Suites hotel. 144 Associates, 344 Associates, 544 Associates and 644 Associates, all Pennsylvania limited partnerships controlled by certain Hersha Affiliates, sold their interests in the Hampton Inn, Danville along with the land and improvements to 3544 Associates, a wholly-owned subsidiary of the Partnership. 3544 Associates does not own any assets other than this recently-acquired Hampton Inn hotel along with the land and improvements. The purchase prices for the Hampton Inn and Clarion Inn & Suites are $3.6 million and $2.7 million, respectively. The purchase price valuations for the properties acquired from the Hersha Affiliates were based upon the rent to be paid by the Lessee under percentage leases. The purchase prices of these hotels will be adjusted on December 31, 2001 by applying a pricing methodology to such hotels' cash flows in a manner similar to that of the other hotels purchased by HHLP from the Hersha Affiliates. The adjustments must be approved by a majority of the Company's independent trustees. The Partnership acquired the Hampton Inn in exchange for (i) subordinated units of limited partnership interest in the Partnership that will be redeemable, subject to certain limitations, for an aggregate of approximately 173,333 of the Company's Class B common shares of beneficial interest with a value of approximately $1.0 million, and (ii) the assumption of approximately $2.6 million of mortgage indebtedness. The Company's Priority Class A common shares of beneficial interest are entitled to a priority over the subordinated units and Class B common shares with respect to distributions and amounts payable upon liquidation for a period of time based upon the trading price of the Priority Class A common shares, but in no event ending later than January 26, 2004. The purchase price of the Clarion Inn & Suites was paid through the assumption of mortgage indebtedness of approximately $2.1 million and borrowings under the Company's line of credit. Both the Hampton Inn and the Clarion Inn & Suites were purchased as of September 1, 1999 (the "Settlement Date"). 2 Following the acquisition of the hotel properties by the Partnership, both properties will be leased by the Partnership to Hersha Hospitality Management, L.P. (the "Lessee"), the lessee of the Partnership's other hotel properties. The hotels will be leased pursuant to percentage leases that provide for rent based in part on the room revenues from the hotels. The leases went into effect on the Settlement Date. The following table sets forth (i) the Initial Fixed Rent, (ii) Annual Base Rent, and (iii) the annual Percentage Rent formula currently anticipated for the Hampton Inn and the Clarion Inn & Suites, respectively. Acquired Initial Base Hotel Fixed Rent Rent Percentage Rent Formula - ----- ---------- ---- ----------------------- Hampton Inn $504,116 $234,000 43.2% of room revenue up to Danville, PA $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. Clarion Inn & Suites $404,031 $175,500 35.3% of room revenue up to Harrisburg, PA $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. In connection with the sale of the Clarion Inn & Suites to the Company, 2844 Associates entered into an option agreement, dated September 1, 1999, with 2944 Associates, a Pennsylvania limited partnership owned by Hasu P. Shah and certain executive members and affiliates of the Company. Under this option agreement, 2844 Associates granted to 2944 Associates an option to purchase an outparcel of land adjacent to the Clarion Inn & Suites. In consideration for the grant of this option, 2944 Associates agreed to assume a debt of 2844 Associates to Shreenathji Enterprises, Ltd. in the amount of $500,000. The purchase price for this parcel shall be one dollar ($1.00), payable at the time of settlement. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial Statements. The combined balance sheets and statements of operations, partners' equity and cash flows of the Hersha Acquisition Hotels as of December 31, 1998 and June 30, 1999 are included as Exhibit 99.1 to this Form 8-K/A. (b) Pro Forma Financial Information. The pro forma financial (unaudited) as of June 30, 1999 and for the six months ended June 30, 1999 and the twelve months ended December 31, 1998 reflecting all of the acquisitions made by the Company since its inception, including the acquisitions of the Hersha Acquisition Hotels, is included as Exhibit 99.2 to this Form 8-K/A. (c) Exhibits. 10.1 Option Agreement, dated September 1, 1999, between 2844 Associates and 2944 Associates 99.1 The combined balance sheets and statements of operations, partners' equity and cash flows of the Hersha Acquisition Hotels as of December 31, 1998 and June 30, 1999. 99.2 The pro forma financial (unaudited) as of June 30, 1999 and for the six months ended June 30, 1999 and the twelve months ended December 31, 1998. 3 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Hersha Hospitality Trust By: /s/ Hasu P. Shah -------------------- Hasu P. Shah Chief Executive Officer Date: November 15, 1999 4 EXHIBIT INDEX 10.1 Option Agreement, dated September 1, 1999, between 2844 Associates and 2944 Associates 99.1 The combined balance sheets and statements of operations, partners' equity and cash flows of the Hersha Acquisition Hotels as of December 31, 1998 and June 30, 1999. 99.2 The pro forma financial (unaudited) as of June 30, 1999 and for the six months ended June 30, 1999 and the twelve months ended December 31, 1998. 5 EX-10.1 2 OPTION AGREEMENT OPTION AGREEMENT THIS OPTION AGREEMENT is made this 1st day of September, 1999. 2844 ASSOCIATES, a Pennsylvania limited partnership, ("Optionor") hereby agrees to grant to 2944 ASSOCIATES, a Pennsylvania limited partnership, ("Optionee") or to its assignee or nominee, an option (the "Option") to purchase all that certain restaurant outparcel portion of the premises situate at 2680 Allentown Boulevard, Harrisburg, Pennsylvania and commonly known as Clarion Inn and Suites, Harrisburg, Pennsylvania. Such parcel of land shall be in form of a unit of a condominium, which shall be created by a duly recorded Declaration of Condominium and such parcel is more particularly described on Exhibit "A" as attached to this Agreement (the "Restaurant Outparcel"). The Option shall include the Restaurant Outparcel and an undivided interest in the common element, if any, of the proposed condominium. WITNESSETH: WHEREAS, Optionor owes to Shreenathji Enterprises, Ltd., a Pennsylvania corporation ("Third party") a debt in the amount of Five Hundred Thousand Dollars ($500,000.00) (the "Obligations"); and WHEREAS, in consideration for the Option under this Agreement, Optionee hereby assumes the Obligations in their entirety notwithstanding the exercise of the Option by Optionee or failure thereof. NOW, THEREFORE, for assumption of the Obligations by Optionee and other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, the parties agree as follows: 1. Terms. Optionor hereby grants Optionee, or its assignee or nominee, an option to purchase the Restaurant Outparcel on the terms set forth in this Agreement. The purchase price for the Parcel shall be one Dollar ($1.00), payable at the time of settlement. 2. Settlement. Settlement to be made within NINETY (90) DAYS of the date of execution of this Agreement and all payments required in this Agreement shall be made promptly in accordance with this Agreement. 3. Default by Optionee. Should the Optionee default in performing any conditions of this Agreement, the sum or sums paid, if any, on account shall be retained by the Optionor as compensation for the damage and expenses to which Optionor has been put, as its sole remedy, and the transaction under this Agreement shall be deemed to be terminated and this Agreement shall become null and void. Notwithstanding the foregoing, Optionee shall still remain liable for any damage that results from the activities by Optionee or Optionee's authorized representatives upon the Restaurant Outparcel. 4. Possession. Possession of the Restaurant Outparcel will be delivered at the time of settlement by delivery to Optionee of general warranty deed for the condominium fee interest. 5. Liens and Encumbrances. The Restaurant Outparcel shall be conveyed clear of all liens and encumbrances except easements, rights, rights of way (recorded and unrecorded), and matters which an accurate survey would disclose. This conveyance is also subject to existing restrictions of record and/or physically noticeable easements, governmental regulations regarding sale, leasing, or possession, possible street improvements, if any, and provisions of zoning ordinances and/or any other act or ordinance affecting the use of and improvements to said Restaurant Outparcel (the "Exceptions"), provided that such Exceptions do not affect Optionee's intended use of the Restaurant Outparcel. 6. Zoning. Zoning classification of the Restaurant Outparcel is general commercial. The present use is in compliance with the zoning classification. 7. Causalty. (a) Loss or damage by fire or other casualty shall render this Agreement voidable at Optionee's option. (b) The Optionee shall be liable to Optionor for any personal injury or property damage resulting from tests and other activities on the Restaurant Outparcel by the Optionee and Optionee's representatives prior to settlement. 8. Title/Encumbrances. Optionor shall deliver good and marketable title, clear of all monetary and other liens, and such as will be insured at regular rates by any responsible title insurance company; otherwise, the Optionor shall be in default of this Agreement. Optionee shall be entitled to specific performance of Optionor's covenants in this Agreement respecting title. 9. Fixtures and Personal Property. Any and all fixtures, equipment, and personal property shall be removed by Optionor prior to settlement. 10. Taxes. Taxes, water rent, sewer rent and interest on encumbrances, if any, are to be apportioned to date of settlement. State and local transfer taxes shall be paid in equal shares by Optionor and Optionee. 11. Option Periods. (a) Optionee shall have an initial option of Ninety (90) days from execution of this Agreement (the "First Option Period"). Upon payment from Optionee to Optionor of an additional One Hundred Dollars ($100.00), Optionee shall have an additional 90-day option period (the "Second Option Period"), beginning immediately upon expiration of the First Option Period. Upon payment 2 from Optionee to Optionor of an additional Two Hundred Dollars ($200.00), Optionee shall have another additional 90-day option period (the "Third Option Period"), beginning immediately upon expiration of the Second Option Period and terminating 270 days from the execution of this Agreement. (b) Optionee and its representatives and assignees may enter upon the Restaurant Outparcel during the First Option Period, the Second Option Period and Third Option Period, if any, to perform at Optionee's sole cost and expense such inspections and investigations of the Restaurant Outparcel as Optionee, in its sole discretion, determines are necessary to ascertain the condition and suitability of the Restaurant Outparcel for Optionee's intended use, including but not limited to environmental testing, title matters, zoning approval analysis, matters contained in a current title report, etc., as often as Optionor shall cooperate with Optionee during the First Option Period, the Second Option Period and Third Option Period, if any. (c) Optionee may cancel this Agreement, and decline to exercise the Option, at any time within the First Option Period, the Second Option Period and/or the Third Option Period. In the event of such cancellation, this Agreement shall automatically become null and void, and all monies paid, if any, on account of the First Option Period, the Second Option Period and/or the Third Option Period on account of the First Option Period, the Second Option Period and/or the Third Option Period shall be retained by Optionor together with interest on them. In the event of such cancellation, Optionee shall be under a duty of payment of the Obligations to the Third Party. 12. Recording. This Agreement shall not be lodged for record in any public office. 13. Tender. Tender of an executed deed and purchase money is hereby waived. 14. Governmental Notices. Optionor represents that, as of the date of the approval of this Agreement, no notice of any municipal, county, or township authority has been served upon Optionor or anyone on Optionor's behalf including notices relating to violation of housing, building, safety or fire ordinances, and the Optionee agrees to assume all responsibility and will pay for all costs for any work required to be done by any such authority for which a notice may be served between the date of approval of this Agreement and final settlement, or when the work is done or ordered to be done without prior notice to the Optionor during the same period. Optionor shall deliver to Optionee, at least fifteen (15) days prior to the time of settlement, a certification from the appropriate governmental department disclosing notice of any uncorrected violation of housing, building, safety or fire ordinances. 15. Representations and Warranties. In addition to the other representations and warranties set forth in this Agreement, Optionor makes the following additional representations and warranties to Optionee, which shall also be conditions of closing: (a) Intentionally Omitted. (b) Optionor is not in bankruptcy, nor has there been any petition or insolvency proceedings filed for the reorganization of Optionor. 3 (c) There are no rights, options, or other Agreements of any kind to sell or transfer any interest in the Restaurant Outparcel (d) Optionor has authority and power to execute and record a declaration of condominium to create, out of the entire Premises it now owns, a condominium, one of the units of which shall consist of the Restaurant Outparcel. (e) The representations and warranties stated in this paragraph and in other paragraphs of this Agreement shall be true as of the date hereof and as of settlement, and shall survive settlement under this Agreement. 16. Indemnity. The parties agree that upon exercise of the Option, Optionee and Hersha Hospitality Management, LP, a Pennsylvania limited partnership ("HHLP") shall jointly and severally defend, indemnify and hold the Optionor and its successors, assigns or affiliates and their directors, officers, agents, and employees harmless from and against all claims, demands, causes of action, liabilities, losses, costs and expenses (including, without limitation, costs of suit, reasonable attorneys' fees and fees of expert witnesses) arising from or in connection with any use of the Restaurant Parcel by the Optionee and/or any third party. 17. Entire Agreement of Parties. This Agreement contains the whole Agreement between the parties and there are no other terms, obligations, covenants, representations, statements, or conditions, oral or otherwise, of any kind whatsoever. 18. Time of the Essence. It is understood and agreed that, with respect to all dates set forth in this Agreement, time is of the essence. 19. Third Party Beneficiary. The parties hereby acknowledge that Third Party is a third party beneficiary under this Agreement, upon execution of which Third Party shall have a right to payment by Optionee of the Obligations notwithstanding exercise of the Option by Optionee or failure thereof. 20. Notices. Notices under this Agreement shall be deemed received on the date sent and shall be sent to the following addressees: To Optionor: Hasu P. Shah 148 Sheraton Drive, Box A New Cumberland, PA 17070 Fax: 717/774-7383 4 With copy to: Lok Mohapatra The Shah Law Firm The Lafayette Building 437 Chestnut Street, Suite 615 Philadelphia, PA 19106 Fax: 215/238-0157 To Optionee: Kiran P. Patel 148 Sheraton Drive, Box A New Cumberland, PA 17070 Fax: 717/774-7383 With copy to: Lok Mohapatra The Shah Law Firm The Lafayette Building 437 Chestnut Street, Suite 615 Philadelphia, PA 19106 Fax: 215/238-0157 IN WITNESS WHEREOF, the parties have set their hands and seals the day and year first above written. OPTIONEE: 2944 ASSOCIATES, a Pennsylvania limited partnership BY: SHREENATHJI ENTERPRISES, LTD., a Pennsylvania corporation, its sole general partner By: /s/ Kiran P. Patel Kiran P. Patel, Secretary 5 OPTIONOR: 2844 ASSOCIATES, a Pennsylvania limited partnership BY: SHREENATHJI ENTERPRISES, LTD., a Pennsylvania corporation, its sole general partner By: /s/ Hasu P. Shah Hasu P. Shah, President 6 EX-99 3 EXHIBIT 99.1 EXHIBIT 99.1 FINANICAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT HERSHA ACQUISITION HOTELS DECEMBER 31, 1998 AND JUNE 30, 1999 Hersha Acquisition Hotels TABLE OF CONTENTS PAGE INDEPENDENT AUDITORS' REPORT 3 FINANCIAL STATEMENTS COMBINED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND JUNE 30, 1999 (UNAUDITED) 4 COMBINED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) 5 COMBINED STATEMENTS OF PARTNERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) 6 COMBINED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) 7 NOTES TO COMBINED FINANCIAL STATEMENTS 8 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors Hersha Hospitality Trust, Inc. We have audited the accompanying combined balance sheet of the Hersha Acquisition Hotels as of December 31, 1998, and the related combined statements of operations, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the management of the Hersha Acquisition Hotels. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. 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 audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above presently fairly, in all material respects, the combined financial position of the Hersha Acquisition Hotels as of December 31, 1998, the combined results of their operations and their combined cash flows for the year then ended in conformity with generally accepted accounting principles. Baltimore, Maryland August 18, 1999, except for the first paragraph of Note A as to which the date is August 31, 1999 -3- Hersha Acquisition Hotels COMBINED BALANCE SHEETS December 31, 1998 and June 30, 1999 (Unaudited)
December 31, June 30, 1998 1999 ----------------- ----------------- (Unaudited) ASSETS INVESTMENT IN HOTEL PROPERTIES Land $ 979,332 $ 979,332 Buildings and improvements 4,488,607 4,549,930 Furniture and equipment 1,322,727 1,342,774 ----------------- ----------------- 6,790,666 6,872,036 Less accumulated depreciation and amortization 74,669 232,852 ----------------- ----------------- Net investment in hotel properties 6,715,997 6,639,184 OTHER Cash 32,783 17,924 Accounts receivable 21,907 59,797 Due from affiliates 1,589 203,849 Prepaid expenses 20,275 62,313 Mortgage costs, net of accumulated amortization of $536 and $1,676 33,974 32,834 Franchise fees, net of accumulated amortization of $2,249 and $28,805 67,736 61,180 ----------------- ----------------- $ 6,894,261 $ 7,077,081 ================= ================= LIABILITIES AND PARTNERS' EQUITY LIABILITIES Mortgages payable $ 4,664,346 $ 4,608,714 Loans payable - affiliate 1,283,607 1,736,806 Cash overdraft 114,239 10,388 Accounts payable and accrued expenses 50,682 129,200 Accrued interest payable 79,509 56,328 ----------------- ----------------- 6,192,383 6,541,436 PARTNERS' EQUITY 701,878 535,645 ----------------- ----------------- $ 6,894,261 $ 7,077,081 ================= =================
See notes to combined financial statements - 4 - Hersha Acquisition Hotels COMBINED STATEMENTS OF OPERATIONS Year ended December 31, 1998 and the six months ended June 30, 1999 (Unaudited)
December 31, June 30, 1998 1999 --------------- --------------- (Unaudited) Revenue Room revenue $ 415,852 $ 863,598 Telephone revenue 4,511 16,510 Other revenue 1,388 4,788 --------------- --------------- Total revenue 421,751 884,896 --------------- --------------- Expenses Salaries and wages 144,387 184,362 Room expense 73,048 71,939 Management fee 19,568 35,508 General and administrative 35,898 45,336 Advertising 37,842 17,559 Utilities 93,408 114,116 Repairs and maintenance 16,776 17,245 Insurance 6,613 1,589 Real estate taxes 29,636 41,176 Franchise fees 27,866 59,956 Interest expense 198,608 276,464 Depreciation and amortization 77,454 185,879 --------------- --------------- Total expenses 761,104 1,051,129 --------------- --------------- NET LOSS $ (339,353) $ (166,233) =============== ===============
See notes to combined financial statements -5- Hersha Acquisition Hotels COMBINED STATEMENTS OF PARTNERS' EQUITY Year ended December 31, 1998 and the six months ended June 30, 1999 (Unaudited) Balance, December 31, 1997 $ - Contributions 1,041,231 Net loss (339,353) --------------- Balance, December 31, 1998 701,878 Net loss (166,233) --------------- Balance, June 30, 1999 (unaudited) $ 535,645 =============== See notes to combined financial statements -6- Hersha Acquisition Hotels COMBINED STATEMENTS OF CASH FLOWS Year ended December 31, 1998 and the six months ended June 30, 1999 (Unaudited)
December 31, June 30, 1998 1999 ------------- ----------- (Unaudited) Cash flows from operating activities Net loss $ (339,353) $ (166,233) Adjustments to reconcile net loss to net cash used in operating activities Depreciation 74,669 158,183 Amortization of mortgage costs and franchise fees 2,785 27,696 Changes in assets and liabilities Increase in accounts receivable (21,907) (37,890) Increase in prepaid expenses (20,275) (42,038) Increase in payment of franchise fees (69,985) (20,000) Increase in accounts payable and accrued expenses 50,682 78,518 Increase in due from affiliates (1,589) (202,260) Increase (decrease) in accrued interest payable 79,509 (23,181) -------------- ----------- Net cash used in operating activities (245,464) (227,205) -------------- ----------- Cash flow from investing activities Investment in hotel property (6,790,666) (81,370) ------------- ----------- Net cash used in investing activities (6,790,666) (81,370) ------------- ----------- Cash flow from financing activities Contributions 1,041,231 - Increase (decrease) in bank overdraft 114,239 (103,851) Payment of mortgage costs (34,510) - Proceeds from mortgage payable 4,700,000 - Principal payments on mortgage payable (35,654) (55,632) Proceeds from loans payable - affiliates 7,335,470 453,199 Principle payments on loans payable - affiliates (6,051,863) - ------------- ----------- Net cash provided by financing activities 7,068,913 293,716 ------------- ----------- NET INCREASE (DECREASE) IN CASH 32,783 (14,859) Cash, beginning - 32,783 ------------- ----------- Cash, ending $ 32,783 $ 17,924 ============= =========== Supplemental disclosures of cash flow information Cash paid during the year for interest, net of amounts capitalized $ 119,099 $ 299,645 ============= ===========
See notes to combined financial statements. -7- Hersha Acquisition Hotels NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998 and June 30, 1999 (Amounts and disclosures as of June 30, 1999 and for the six months then ended are unaudited) NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Hersha Acquisition Hotels combined financial statements are a combination of the balance sheets and statements of operations, partners' equity and cash flows of two hotel properties owned and operated by various limited partnerships under common control and management (collectively, the Owners). On August 31, 1999, the Owners entered into agreements to sell the hotel properties to Hersha Hospitality Limited Partnership. The sales agreements do not extend to any other assets or liabilities of the Owners. The hotel properties combined in these financial statements, which commenced operations in 1998, consist of the following: Hotel Date Opened Rooms Location ----- ----------- ----- -------- Hampton Inn September 1998 72 Danville, Pennsylvania Clarion Inn August 1998 77 Harrisburg, Pennsylvania Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Investment in Hotel Properties ------------------------------ The hotel properties are stated at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations by use of the straight-line method over estimated useful lives: Building and improvements ................................. 15 - 40 years Furniture and equipment ................................... 3 -7 years -8- Hersha Acquisition Hotels NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED December 31, 1998 and June 30, 1999 (Amounts and disclosures as of June 30, 1999 and for the six months then ended are unaudited) NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Maintenance and repairs are charged to operations as incurred. Additions and major improvements are capitalized. Upon sale or disposition, both the asset and related accumulated depreciation are relieved and the related gain or loss is included in operations. The Owners evaluate long-lived assets for potential impairment by analyzing the operating results, trends and prospects for the properties and considering any other events and circumstances which might indicate potential impairment. Mortgage Costs -------------- Mortgage costs are amortized over the term of the debt using the straight-line method which approximates the effective interest method. Franchise Fees -------------- The Hampton Inn Hotel is operated under a franchise agreement with Promus Hotels, Inc. The Clarion Inn Hotel was operated under a franchise agreement with Choice Hotels International, Inc. through May, 1999. Beginning in June 1999, the Clarion Inn Hotel was re-flagged as a Comfort Inn under a franchise agreement with Choice Hotels International, Inc. Franchise fees are amortized over the term of the franchise agreement using the straight-line method. During 1999, unamortized franchise fees of $24,062 associated with the Clarion franchise agreement were written off and are included in amortization expense. Revenue Recognition ------------------- Room and other revenue are recognized as earned. Ongoing credit evaluations are performed and accounts deemed uncollectible are charged to operations. Advertising Costs ----------------- Advertising costs are expensed as incurred, including costs incurred under the terms of the franchise agreements. -9- HERSHA ACQUISITION HOTELS NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED December 31, 1998 and June 30, 1999 (Amounts and disclosures as of June 30, 1999 and for the six months then ended are unaudited) Income Taxes ------------ No provision or benefit for income taxes has been included in the combined financial statements for the Owners since taxable income or loss passes through to, and is reportable by, the partners individually. -10- Hersha Acquisition Hotels NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED December 31, 1998 and June 30, 1999 (Amounts and disclosures as of June 30, 1999 and for the six months then ended are unaudited) NOTE B - MORTGAGES PAYABLE Mortgages payable at December 31, 1998 and June 1999, consisted of the following: December 31, June 30, 1998 1999 ------------ ----------- (Unaudited) Hampton Inn Mortgage payable in equal monthly installments of principal and interest of $26,585 bearing interest at 8.375% per annum. The mortgage matures on April 18, 2012. $ 2,564,346 $ 2,512,466 Clarion Inn Mortgage payable in equal monthly installments of principal and interest $18,382 bearing interest at 8.36% per annum. The mortgage matures on July 1, 2004. 2,100,000 2,096,248 ----------- ----------- $ 4,664,346 $ 4,608,714 =========== =========== The mortgages are secured by the hotel property and guaranteed by partners of the Owners. Annual principal payments on the mortgages for the five years following December 31, 1998 and June 30, 1999, are as follows. December 31, June 30, ------------ -------- (Unaudited) 1999 $217,786 $ - 2000 $336,789 $331,883 2001 $347,224 $341,900 2002 $358,551 $352,771 2003 $370,849 $364,574 2004 $ - $377,388 -11- Hersha Acquisition Hotels NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED December 31, 1998 and June 30, 1999 (Amounts and disclosures as of June 30, 1999 and for the six months then ended are unaudited) NOTE C - INTEREST Interest incurred during the period of construction of the hotels was capitalized as part of the costs of the investment in hotel properties. During the year ended December 31, 1998, interest costs incurred totaled $330,446 of which $131,838 was capitalized. During 1999, no interest costs were capitalized. NOTE D - RELATED PARTY TRANSACTIONS Due from Affiliates ------------------- Due from affiliates consists of operating advances to related parties which are unsecured, non-interest bearing and payable on demand. Management Fees --------------- During 1998, the hotel properties were managed by Shreenathji Enterprises, Ltd., an affiliate, under agreements providing for monthly fees equal to the greater of $1,500 or 4% of gross revenue. Beginning in 1999, the hotel properties were managed by Hersha Hospitality Management Limited Partnership, an affiliate, under agreements providing for monthly fees equal to 4% of gross revenue. Management fees totaling $19,568 and $35,508 were charged to operations during 1998 and 1999, respectively. Loans Payable - Affiliate ------------------------- During 1998 and 1999,an affiliate of the hotel properties, Shreenathji Enterprise, Ltd, provided funds for the payment of development and operating costs. The loans bear interest at the rate of 9.5% per annum payable quarterly, the outstanding balance and accrued interest are due on demand. As of December 31, 1998 and June 30, 1999, the following amounts were outstanding: 1998 1999 ---- ---- (Unaudited) Hampton Inn $ 58,187 $ 308,187 Clarion Inn 1,225,420 1,428,619 ---------- ---------- $ 1,283,607 $ 1,736,806 ========== ========== -12- Hersha Acquisition Hotels NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED December 31, 1998 and June 30, 1999 (Amounts and disclosures as of June 30, 1999 and for the six months then ended are unaudited) NOTE E - COMMITMENTS Franchise fees represent the annual expense for franchise royalties, reservations and advertising services under the terms of the hotel franchise agreements. The payments are based upon percentages of gross room revenue. -13- EX-99 4 EXHIBIT 99.2 EXHIBIT 99.2 PRO FORMA FINANCIAL INFORMATION (UNAUDITED) This unaudited Pro Forma Consolidated Balance Sheet of Hersha Hospitality Trust (the "Company") is presented as if the acquisition of the Hersha Acquisition Hotels had occurred on January 1, 1999. It should be read in conjunction with the consolidated financial statements of Hersha Hospitality Trust for the six months ended June 30, 1999 previously filed with the Securities and Exchange Commission in Form 10-Q and the financial statements of the Hersha Acquisition Hotels for the six months ended June 30, 1999, at pages X through X. In management's opinion, all adjustments necessary to reflect the effects of the above transactions have been made. This unaudited Pro Forma Balance Sheet is not necessarily indicative of what actual results of the Company would have been assuming such transactions had been completed as of January 1, 1999. HERSHA HOSPITALITY TRUST PRO FORMA CONSOLIDATED BALANCE SHEET JUNE 30, 1999 [UNAUDITED], [IN THOUSANDS]
Actual Pro Forma June 30, Pro Forma Consolidated 1999 (1) Adjustments Total (a) -------- ---------- --------- Assets: Investment in Hotel Properties, Net of Accumulated Depreciation $39,903 $ 6,639(b) $ 46,542 Cash and Cash Equivalents 1,593 7 1,600 Lease Payments Receivable 1,966 - 1,966 Accounts Receivable - 60 60 Due from Affiliates - 204 204 Intangibles, Net of Accumulated Amortization 1,565 94 1,659 Other Assets 523 63 586 -------- ---------- ---------- Total Assets $45,550 $ 7,067 $ 52,617 ======== ========== ========== Liabilities and Shareholders' Equity: Mortgages Payable $14,429 $ 4,609 $ 19,038 Dividends Payable 410 - 410 Loans Payable - Affiliate - 1,737 1,737 Accounts Payable and Accrued Expenses 468 185 653 --------- ---------- ---------- Total Liabilities $15,307 $ 6,531 $ 21,838 --------- ---------- ---------- Minority Interest 18,300 - 18,300 --------- ---------- ---------- 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 June 30, 1999 23 - 23 Common Shares - Priority Class B, $.01 Par Value, 50,000,000 Shares Authorized, -0- Shares Issued and Outstanding at June 30, 1999 - - - Additional Paid-in-Capital 11,968 536(c) 12,504 Distributions in Excess of Net Earnings (48) - (48) --------- ---------- ---------- Total Liabilities and Shareholders' Equity $45,550 $ 7,067 $ 52,617
HERSHA HOSPITALITY TRUST PRO FORMA CONSOLIDATED BALANCE SHEET JUNE 30, 1999 [UNAUDITED], [IN THOUSANDS] (CONTINUED) (1) Operations commenced on January 26, 1999 (a) Represents the combined interests of the Company after the acquisition of the Hersha Acquisition Hotels (b) Represents, the purchase price of the Hersha Acquisition Hotels, including related closing costs (c) Represents the original partnership interests of the sellers which were contributed into HHLP for cash and subordinated limited partnership interests This unaudited Pro Forma Statement of Operations of Hersha Hospitality Trust (the "Company") is presented as if the acquisition of the Hersha Acquisition Hotels had occurred on January 1, 1999. It should be read in conjunction with the consolidated financial statements of Hersha Hospitality Trust for the quarter ended June 30, 1999 previously filed with the Securities and Exchange Commission in Form 10-Q and the financial statements of the Hersha Acquisition Hotels for the six months ended June 30, 1999, at pages X through X. In management's opinion, all adjustments necessary to reflect the effects of the above transactions have been made. This unaudited Pro Forma Consolidated Statement of Operations is not necessarily indicative of what actual results of operations of the Company would have been assuming such transactions had been completed as of January 1, 1999, nor does it purport to represent the results of operations for future periods. HERSHA HOSPITALITY TRUST PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 [UNAUDITED], [IN THOUSANDS] Actual Pro Forma June 30, Pro Forma Consolidated 1999 (1) Adjustments Total (a) --------- ----------- ----------- Revenue: Percentage Lease Revenue $ 3,465 $ 454 (b) $ 3,919 Other Revenue 82 - 82 ---------- ---------- ----------- Total Revenue $ 3,547 $ 454 $ 4,001 Expenses: Interest 576 209 (c) 785 Property Tax & Insurance 249 25 (d) 274 General and Administrative 216 22 238 Depreciation and Amortization 1,006 125 (e) 1,131 ---------- ---------- ----------- Total Expenses $ 2,047 $ 381 $ 2,428 Income Before Minority Interest 1,500 73 (f) 1,573 Income Allocated to Minority Interest 788 44 832 Net Income $ 712 $ 29 $ 741 ========== ========== =========== Basic Earning Per Common Share $ 0.31 $ 0.33 Diluted Earnings Per Common Share $ 0.24 $ 0.24 Weighted Average Share: Basic 2,275,000 2,275,000 Diluted 6,307,431 173,333 (g) 6,480,764 (1) Operations commenced on January 26, 1999 (a) Represents results of operations for the Company and the Hersha Acquisition Hotels on a pro forma basis as if the Company began operations on January 1, 1999 and the Hersha Acquisition Hotels were owned by the Company and leased under the Percentage Leases as of January 1, 1999. (b) Represents lease payments from the Lessee to the Partnership calculated on a pro forma basis using the rent provisions in the Percentage Leases. (c) Represents interest computed on approximately $4.6 million of debt remaining outstanding during the period. (d) Represents estimated real estate and personal property taxes and property insurance for the Hersha Acquisition Hotels to be paid by the Partnership. (e) Represents depreciation of the Hersha Acquisition Hotels. Depreciation is computed using the straight-line method based upon estimated useful lives of 30-40 years for building and 5 years for furniture and equipment and the purchase prices of the Hersha Acquisition Hotels. The estimated useful lives are based on management's knowledge of the properties and the hotel industry in general. (f) Calculated based upon the minority interest formula per the Company's Prospectus. (g) Represents 4,032,431 subordinated units outstanding during the period presented plus 173,333 subordinated units issued in connection with the purchase of the Hersha Acquisition Hotels. This unaudited Pro Forma Condensed Statement of Operations of Hersha Hospitality Management, L.P. ("HHMLP") is presented as if the acquisition of the Hersha Acquisition Hotels had occurred on January 1, 1998, and the percentage leases for the Hersha Acquisition Hotels were effective January 1, 1998. Such estimated information should be read in conjunction with the financial statements of Hersha Hospitality Management, L.P., previously filed with the Securities and Exchange Commission in Form 10-K of Hersha Hospitality Management, L.P., for the year ended December 31, 1998, and the financial statements of the Hersha Acquisition Hotels for the year ended December 31, 1998, at pages X through X. In management's opinion, all adjustments necessary to reflect the effects of the above transactions have been made. This unaudited Pro Forma Statement of Operations is not necessarily indicative of what actual results of operations of Hersha Hospitality Management, L.P. would have been assuming such transactions had been completed as of January 1, 1998, nor does it purport to represent the results of operations for future periods. HERSHA HOSPITALITY MANAGEMENT, LP PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 [UNAUDITED] [IN THOUSANDS] ==============================================================================
Actual Pro Forma 12/31/98 Adjustments (1) 12/31/98 -------- --------------- -------- Revenues from Hotel Operations: Room Revenue $ 15,185 $ - $ 15,601 Restaurant Revenue 2,111 - 2,111 Other Revenue 790 155 796 ------------ ------------- ---------- Total Revenues from Hotel Operations $ 18,086 $ 155 $ 18,508 Expenses: Hotel Operating Expenses 7,449 364 7,813 Restaurant Operating Expenses 1,469 - 1,469 Advertising and Marketing 918 38 956 Depreciation and Amortization 1,543 77 1,620 Interest Expense 1,605 92 1,697 Interest Expense-Related Parties 386 107 493 General and Administrative 2,065 64 2,129 General and Administrative-Related Parties 608 20 628 Loss on Abandonments and Asset Disposal 95 - 95 ------------ ------------- ---------- Total Expenses $ 16,138 $ 761 $ 16,899 Net Income (Loss) $ 1,948 $ (339) $ (1,609) ============ ============= ==========
(1)Represents the operations of the Hersha Acquisition Hotels from their respective date of openings. The Clarion Inn & Suites, Harrisburg commenced operations in September 1998 and the Hampton Inn, Danville commenced operations in August, 1998. This unaudited Pro Forma Condensed Statement of Operations of Hersha Hospitality Management, L.P. ("HHMLP") is presented as if the acquisition of the Hersha Acquisition Hotels had occurred on January 1, 1999, and the percentage leases for the Hersha Acquisition Hotels were effective January 1, 1998. Such estimated information should be read in conjunction with the financial statements of Hersha Hospitality Management, L.P., previously filed with the Securities and Exchange Commission in Form 10-Q of Hersha Hospitality Management, L.P., for the six months ended June 30, 1999, and the financial statements of the Hersha Acquisition Hotels for the six months ended June 30, 1999 at pages X through X. In management's opinion, all adjustments necessary to reflect the effects of the above transactions have been made. This unaudited Pro Forma Statement of Operations is not necessarily indicative of what actual results of operations of Hersha Hospitality Management, L.P. would have been assuming such transactions had been completed as of June 30, 1999, nor does it purport to represent the results of operations for future periods. HERSHA HOSPITALITY MANAGEMENT, LP PRO FORMA STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 [UNAUDITED] [IN THOUSANDS]
Actual Pro Forma 6/30/99 (1) Adjustments 6/30/99 ----------- ----------- ------- Revenues from Hotel Operations: Room Revenue $ 7,013 $ - $ 7,013 Restaurant Revenue 971 - 971 Other Revenue 365 10 (a) 375 ------------ ----------- ----------- Total Revenues from Hotel $ 8,349 $ 10 $ 8,359 Operations Expenses: Hotel Operating Expenses 3,079 - 3,079 Restaurant Operating Expenses 819 - 819 Advertising and Marketing 387 - 387 General and Administrative 964 - 964 General and Administrative - Related Parties 153 (126) (b) 27 Depreciation and Amortization - - - Lease Payments 3,341, 454 (c) 3,795 ------------ ----------- ----------- Total Expenses $ 8,743 $ 328 $ 9,071 Net Income (Loss) $ (394) $ (318) $ (712) ============ =========== ===========
(1) Actual results for 6/30/99 reflect the operations of the Hersha Acquisition hotels for the six months ending 6/30/99. HHMLP commenced operations on 1/1/99 and manages the ten initial hotels contributed into Hersha Hospitality Trust (the "Initial Hotels"), the Hersha Acquisition Hotels and other properties owned by Hasu P. Shah, CEO and Chairman, and certain affiliates, ("Hersha Affiliates"). (a) Represents Administrative Service Fee Income (b) Represents the elimination of rent paid to HHLP (c) Represents the addition of lease payments for HHLP properties -----END PRIVACY-ENHANCED MESSAGE-----