Form 8-K HERSHA HOSPITALITY TRUST For: Jul 27

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July  27, 2016 

HERSHA HOSPITALITY TRUST

(Exact name of registrant as specified in its charter)

44 Hersha Drive

Harrisburg, Pennsylvania 17102

(Address and zip code of principal executive offices)

Registrant’s telephone number, including area code: (717) 236-4400

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

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On July 27, 2016, Hersha Hospitality Trust issued a press release announcing results of operations for the quarter ended June  30, 2016.  A copy of that press release is furnished as Exhibit 99.1.

The information furnished with this report shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation by reference language contained therein, except as shall be expressly set forth by specific reference in such filing.





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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 thereunto duly authorized.







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Exhibit Index







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HERSHA HOSPITALITY TRUST ANNOUNCES

SECOND QUARTER 2016 RESULTS

- Comparable Portfolio RevPAR Growth of 2.6% -

-  Sells 7 Hotels to Cindat at a 5.4% Capitalization Rate - 

- Issues Preferred Shares at Lowest Coupon in Company History  -

- Repurchases $36.8 Million of Common Shares -

-  Continues Capital Recycling Via Suburban Boston Asset Sales -



Philadelphia, PA, July 27, 2016 -- Hersha Hospitality Trust (NYSE: HT) (“Hersha” or the “Company”), owner of upscale hotels in urban gateway markets, today announced results for the second quarter ended June  30, 2016.

Second Quarter 2016 Financial Results

Net income applicable to common shareholders was $102.2 million, or $2.33 per diluted common share, in second quarter 2016, compared to net income applicable to common shareholders of $15.6 million, or $0.32 per diluted common share, in second quarter 2015.  The increase in second quarter 2016 net income was the result of the gain recognized from the Company’s contribution and sale of seven premium limited service hotels in Manhattan to the Company’s joint venture with an affiliate of Cindat Capital Management Limited (“Cindat”).

Adjusted Funds from Operations (“AFFO”) per diluted common share and unit of limited partnership interest in Hersha Hospitality Limited Partnership (“OP Unit”) was $0.89 in second quarter 2016, a 17.1% increase from AFFO of $0.76 per diluted common share and OP Unit reported in second quarter 2015.  AFFO in second quarter 2016 increased by $2.4 million, or 6.2%, to $41.2 million, compared to $38.8 million in second quarter 2015.  The Company’s weighted average diluted common shares and OP Units outstanding were approximately 46.0 million as of June 30, 2016, compared to approximately 50.9 million as of June  30, 2015. 

Mr. Jay H. Shah, Hersha’s Chief Executive Officer, stated, “The Company’s portfolio-wide performance during the second quarter was driven by strong fundamentals in our West Coast, Philadelphia and Washington, DC hotel clusters.  While our comparable portfolio’s 2.6% RevPAR growth reflected weaker than anticipated business transient trends and a lack of pricing power in New York City.   Excluding our New York City portfolio, we reported more robust 5.0% RevPAR growth during the second quarter.    We remain constructive with regards to the back half of 2016 based on a favorable macroeconomic environment, healthy employment, and increasing consumer spending, coupled with positive demand trends and solid convention calendars in the majority of our markets.  Moving forward, we will continue to utilize hands-on asset and revenue management strategies to leverage the industry’s positive fundamentals to drive outperformance and profitability across our six gateway markets.”

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Mr. Shah continued, “Year-to-date in 2016 we have executed several unique entrepreneurial initiatives to drive results and position the Company to benefit from opportunities created by potential dislocation in the markets.  We capitalized on demand from international capital sources seeking cash flowing real estate in U.S. gateway markets through our transformative joint-venture with Cindat, a China-based investment management platform.  We leveraged the best preferred market in years, redeeming our $115.0 million 8.0% Series B Preferred Shares and raising $192.5 million through the issuance of 6.5% Series D Preferred Shares. We also took advantage of continued interest from local and offshore real estate investors in stabilized, select service assets in suburban markets, and sold a suburban Philadelphia hotel, while entering into an agreement to sell two assets in Suburban Boston at very attractive terms.   In addition, we utilized a significant portion of remaining 1031 Exchange proceeds from the Cindat transaction to acquire the very well-located Envoy Hotel in Boston’s flourishing Innovation District subsequent to the end of the second quarter.  Simultaneous to these transactions, we remained true to our value creation philosophy and commitment to total shareholder returns and repurchased $36.8 million of our common shares.  The activities of our busy second quarter furthered our strategy of crafting a differentiated portfolio, recycling investment capital and creating financial flexibility to execute our business plan and act in an opportunistic manner.”

Second Quarter 2016 Operating Results

The best performing market during the second quarter was the Company’s comparable Philadelphia portfolio, which reported 8.8%  revenue per available room (“RevPAR”) growth.  The Company’s comparable West Coast and Washington, DC portfolios reported 7.4% and 6.1%  RevPAR growth, respectively. 

RevPAR at the Company's 43 comparable hotels increased 2.6% to $187.00 in second quarter 2016.  The Company’s average daily rate (“ADR”) for the comparable hotel portfolio increased 1.8% to $213.22, while occupancy increased 66 basis points to 87.7%. Gross Operating Profit (“GOP“) margins increased 20 basis points to 51.4%.  However, Hotel EBITDA margins for the comparable hotel portfolio were flat at 41.7% primarily due to property tax increases.   

New York City and Manhattan

The New York City hotel portfolio, which includes the five boroughs, consisted of 10 hotels as of June  30, 2016.  The Company’s comparable New York City hotel portfolio reported a 3.9% RevPAR decrease to $219.89 due to a 2.5%  ADR decline to $237.16, as new supply continued to impact rate growth.  Occupancy decreased 132 basis points, but remained robust at 92.7%.

The Manhattan hotel portfolio consisted of 7 hotels as of June  30, 2016.  The Company’s comparable Manhattan hotel portfolio reported a 5.5% RevPAR decline to $243.87 as the aforementioned new supply inhibited rate growth, which drove a 3.1% ADR decline to $263.58.    Occupancy declined 232 basis points to 92.5%, demonstrating the continued demand resiliency characteristic of the Manhattan market.   The Company’s Manhattan portfolio reported GOP and EBITDA margins of 56.7% and 43.7%, respectively.



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Financing

As of June  30, 2016, the Company maintained significant financial flexibility with approximately $236.1 million of cash and cash equivalents and full capacity on the Company’s senior unsecured credit facility.  As of June  30, 2016,  54.0% of the Company’s consolidated debt was fixed rate debt or hedged through interest rate swaps and caps.  The Company’s total consolidated debt had a weighted average interest rate of approximately 3.7% and a weighted average life-to-maturity of approximately 3.6 years.

Preferred Shares

On May 24, 2016, the Company priced a public offering of 6.5% Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $.01 per share, for gross proceeds of $175.0 million.  Inclusive of the over-allotment exercised by the underwriters, the Company raised $192.5 million through the 6.5% Series D Preferred Share issuance.

On June 8, 2016, the Company redeemed its 8.0% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest.  The redemption price was equal to $25.00 per Series B Preferred Share, plus accrued and unpaid dividends through the Redemption Date in the amount of $0.3722 per Series B Preferred Share, for a total redemption price per Series B Preferred Share equal to $25.3722.

Dispositions

On April 29, 2016, the Company closed on the joint venture with Cindat for seven of the Company’s limited service hotels in Manhattan, for a total purchase price, including closing and capital improvement costs, of $571.4 million, or $526,000 per key.  The joint venture was structured with Cindat as the preferred joint venture partner holding a 70.0% ownership stake, while HT retained a 30.0% equity interest.  The purchase price including closing costs represented a trailing 5.4% economic capitalization rate and an EBITDA multiple of 16.8x based on 2015 results for the seven assets.

During the second quarter, the Company also closed on the sale of the 129-room Hyatt Place in King of Prussia, PA for $13.0 million, or approximately $101,000 per key.  The sale price reflected a trailing economic capitalization rate of 7.8% based on the hotel’s net operating income for the twelve-month period ended March 31, 2016, and a hotel EBITDA multiple of 10.9x.

Subsequent Events

In July, the Company acquired the 136-room Envoy Hotel in Boston for $112.5 million.  The fee simple asset, acquired unencumbered of debt or management, is affiliated with Marriott’s Autograph Collection, leveraging Marriott’s powerful distribution capabilities.

The Company has entered into a definitive agreement to sell the 125-room Residence Inn in Framingham, MA and the 96-room Residence Inn in Norwood, MA for a combined $47.0 million, or approximately $213,000 per key.    The sale price for the two suburban Boston hotels reflects a blended economic capitalization rate of 7.7% based on the hotels’ net operating

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income for the twelve-month period ended June  30, 2016, and a blended hotel EBITDA multiple of 11.7x.  The hotels are being sold to an offshore entity as a portfolio unencumbered of debt and management.  The sale is anticipated to close in third quarter 2016, subject to customary closing conditions.  No assurances can be given the sale will close within the expected time frame or at all.

Share Repurchase Activity

In second quarter 2016, the Company repurchased approximately 2.0 million common shares for an aggregate repurchase price of $36.8 million. Year-to-date through June 30, 2016, the Company repurchased approximately 2.1 million common shares for an aggregate repurchase price of $39.1 million, which represents 4.7% of the Company common shares outstanding.  The Company has approximately $33.0 million remaining on its $100 Million Share Repurchase Program.

Dividends

Hersha paid a dividend of $0.4297 per Series C Preferred Share for the second quarter ended June  30, 2016.  The Series C Preferred Share dividends were paid July 15, 2016 to holders of record as of July 1, 2016.  The Company paid an initial dividend of $0.203125 per Series D Preferred Share based on a settlement date of May 31, 2016 for the Series D Preferred Shares.  The Series D Preferred Share dividends were paid July 15, 2016 to shareholders of record as of July 1, 2016.

The Company also declared quarterly cash dividends of $0.28 per common share and per limited partnership unit for the second quarter ended June  30, 2016. The common share dividend and OP Unit distribution were paid July 15, 2016 to holders of record as of June 30, 2016.

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2016 Outlook



The Company is updating its operating and financial expectations for 2016 to reflect the sale of seven New York City hotels to Cindat, and the simultaneous formation of the Cindat joint venture, the issuance of the 6.5% Series D Preferred Shares, the disposition of the Hyatt Place in King of Prussia, PA, the planned disposition of two suburban Boston hotels, the acquisition of the Envoy Hotel in Boston, in addition to the Company’s current view of operating and economic fundamentals. The Company’s updated outlook does not build in any additional acquisitions, dispositions or capital market activities for 2016.  Based on management’s current outlook and assumptions, the Company’s updated full-year 2016 operating expectations are as follows:    





Second Quarter 2016 Conference Call

The Company will host a conference call to discuss these results at 9:00 a.m. Eastern Time on Thursday, July 28, 2016.  Hosting the call will be Mr. Jay H. Shah, Chief Executive Officer, Mr. Neil H. Shah, President and Chief Operating Officer, and Mr. Ashish Parikh, Chief Financial Officer.

A live webcast of the conference call will be available on the Company’s website at www.hersha.com.  The conference call can be accessed by dialing 1-888-438-5491 or 1-719-325-2491 for international participants.  A replay of the call will be available from 12:00 p.m. Eastern Time on Thursday, July 28, 2016, through midnight Eastern Time on Thursday, August 11, 2016. The replay can be accessed by dialing 1-877-870-5176 or 1-858-384-5517 for international participants. The passcode for the call and the replay is 6004920.  A replay of the webcast will be available on the Company’s website for a limited time. 

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About Hersha Hospitality Trust

Hersha Hospitality Trust (HT) is a self-advised real estate investment trust in the hospitality sector, which owns and operates high quality upscale hotels in urban gateway markets. The Company's 56 hotels totaling 8,899 rooms are located in New York, Boston, Philadelphia, Washington, DC, Miami and select markets on the West Coast. The Company's shares are traded on The New York Stock Exchange under the ticker “HT”.

Non-GAAP Financial Measures

An explanation of Funds from Operations (“FFO”), AFFO, Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), Adjusted EBITDA and Hotel EBITDA, as well as reconciliations of FFO, AFFO, EBITDA and Adjusted EBITDA to net income or loss, the most directly comparable U.S. GAAP measures, is included at the end of this release.

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Cautionary Statements Regarding Forward Looking Statements

Certain matters within this press release are discussed using “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statements. These forward-looking statements may include statements related to, among other things: the Company’s 2016 outlook for net income attributable to common shareholders, net income per weighted average common share and OP Units outstanding, Adjusted EBITDA, AFFO, AFFO per weighted average common share and OP Unit outstanding, consolidated and comparable RevPAR growth and consolidated and comparable EBITDA margin growth, economic and other assumptions underlying the Company’s 2016 outlook and assumptions regarding economic growth, labor markets, real estate values and the economic vibrancy of our target markets, the Company’s ability to grow operating cash flow, leverage rate-driven revenue growth, return capital to its shareholders, whether in the form of increased dividends or otherwise, the Company’s ability to match or outperform its competitors’ performance, the ability of the Company’s hotels to achieve stabilized or projected revenue, the stability of the lodging industry and the markets in which the Company’s hotel properties are located, the Company’s ability to generate internal and external growth, the Company’s ability to increase margins, including hotel EBITDA margins, the expected increase in the net asset value of the hotels in the Company’s portfolio as a result of capital being invested by foreign or domestic investors or for any other reason, and the Company’s ability to achieve its forecasted stabilization rates. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company’s current beliefs, expectations and assumptions regarding the future of its business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company’s control. The Company’s actual results and financial condition may differ materially from those indicated in the forward-looking statements contained in this press release. Therefore, you should not rely on any of these forward-looking statements.  For a description of factors that may cause the Company’s actual results or performance to differ from its forward-looking statements, please review the information under the heading “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed by the Company with the Securities and Exchange Commission (“SEC”) and other documents filed by the Company with the SEC from time to time.  All information provided in this press release, unless otherwise stated, is as of July 27, 2016, and the Company undertakes no duty to update this information unless required by law.

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Non-GAAP Measures



FFO and AFFO



The National Association of Real Estate Investment Trusts (“NAREIT”) developed Funds from Operations (“FFO”) as a non-GAAP financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. We calculate FFO applicable to common shares and Common Units in accordance with the April 2002 National Policy Bulletin of NAREIT, which we refer to as the White Paper. The White Paper defines FFO as net income (loss) (computed in accordance with GAAP) excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated assets, plus certain non-cash items, such as loss from impairment of assets and depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our interpretation of the NAREIT definition is that non-controlling interest in net income (loss) should be added back to (deducted from) net income (loss) as part of reconciling net income (loss) to FFO. Our FFO computation may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than we do.



The GAAP measure that we believe to be most directly comparable to FFO, net income (loss) applicable to common shareholders, includes loss from the impairment of certain depreciable assets, our investment in unconsolidated joint ventures and land, depreciation and amortization expenses, gains or losses on property sales, non-controlling interest and preferred dividends. In computing FFO, we eliminate these items because, in our view, they are not indicative of the results from our property operations.  We determined that the loss from the impairment of certain depreciable assets, including investments in unconsolidated joint ventures and land, was driven by a measurable decrease in the fair value of certain hotel properties and other assets as determined by our analysis of those assets in accordance with applicable GAAP.  As such, these impairments have been eliminated from net income (loss) to determine FFO.



Hersha also presents Adjusted Funds from Operations (AFFO), which reflects FFO in accordance with the NAREIT definition further adjusted by:



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FFO and AFFO do not represent cash flows from operating activities in accordance with GAAP and should not be considered an alternative to net income as an indication of the Company’s performance or to cash flow as a measure of liquidity or ability to make distributions. We consider FFO and AFFO to be meaningful, additional measures of our operating performance because they exclude the effects of the assumption that the value of real estate assets diminishes predictably over time, and because they are widely used by industry analysts as performance measures. We show both FFO from consolidated hotel operations and FFO from unconsolidated joint ventures because we believe it is meaningful for the investor to understand the relative contributions from our consolidated and unconsolidated hotels. The display of both FFO from consolidated hotels and FFO from unconsolidated joint ventures allows for a detailed analysis of the operating performance of our hotel portfolio by management and investors.  We present FFO and AFFO applicable to common shares and Partnership units because our Partnership units are redeemable for common shares.  We believe it is meaningful for the investor to understand FFO and AFFO applicable to all common shares and Partnership units.



Certain amounts related to depreciation and amortization and depreciation and amortization from discontinued operations in the prior year FFO reconciliation have been recast to conform to the current year presentation.  In addition, based on guidance provided by NAREIT, we have eliminated loss from the impairment of certain depreciable assets, including investments in unconsolidated joint ventures and land, from net (income) loss to arrive at FFO in each year presented.  The following table reconciles FFO and AFFO for the periods presented to the most directly comparable GAAP measure, net income (loss) applicable to common shares, for the same periods:

 



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Adjusted EBITDA



Adjusted Earnings Before Interest, Taxes, and Depreciation and Amortization (EBITDA) is a non-GAAP financial measure within the meaning of the Securities and Exchange Commission rules. Our interpretation of Adjusted EBITDA is that EBITDA derived from our investment in unconsolidated joint ventures should be added back to net income (loss) as part of reconciling net income (loss) to Adjusted EBITDA. Our Adjusted EBITDA computation may not be comparable to EBITDA or Adjusted EBITDA reported by other companies that interpret the definition of EBITDA differently than we do. Management believes Adjusted EBITDA to be a meaningful measure of a REIT's performance because it is widely followed by industry analysts, lenders and investors and that it should be considered along with, but not as an alternative to, net income, cash flow, FFO and AFFO, as a measure of the Company's operating performance.



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Hotel EBITDA



Hotel EBITDA is a commonly used measure of performance in the hotel industry for a specific hotel or group of hotels. We believe Hotel EBITDA provides a more complete understanding of the operating results of the individual hotel or group of hotels. We calculate Hotel EBITDA by utilizing the total revenues generated from hotel operations less all operating expenses, property taxes, insurance and management fees, which calculation excludes Company expenses not specific to a hotel, such as corporate overhead. Because Hotel EBITDA is specific to individual hotels or groups of hotels and not to the Company as a whole, it is not directly comparable to any GAAP measure and should not be relied on as a measure of performance for our portfolio of hotels taken as a whole.



Supplemental Schedules



The Company has published supplemental earnings schedules in order to provide additional disclosure and financial information for the benefit of the Company’s stakeholders.  These can be found in the Investor Relations section and the “SEC Filings and Presentations” page of the Company’s website, www.hersha.com.



Contact:
Ashish Parikh, Chief Financial Officer

Peter Majeski, Manager of Investor Relations & Finance

Phone:  215-238-1046

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