Hersha Hospitality Fourth Quarter Total Revenues Up 30%

Hersha Hospitality Trust (NYSE: HT) announced results for the fourth quarter ended December 31, 2012.

“Based upon our forward booking pace we anticipated a strong fourth quarter and were pleased that our results exceeded even our internal expectations, despite the initial disruption related to the impact of Hurricane Sandy in the Northeast”

Fourth Quarter 2012 Financial Results

Net income applicable to common shareholders improved by $6.1 million to $3.3 million for the fourth quarter ended December 31, 2012, compared to a net loss of ($2.8) million for the comparable quarter of 2011.

Adjusted Funds from Operations (“AFFO”) in the fourth quarter increased by $6.9 million to $23.4 million, compared to $16.5 million for the fourth quarter of 2011. AFFO per diluted common share and unit of limited partnership interest in Hersha Hospitality Limited Partnership (“OP Unit”) increased 22.2% to $0.11 compared to $0.09 in same quarter in 2011. The Company’s weighted average diluted common shares and OP Units outstanding were approximately 206.7 million in the fourth quarter of 2012, up from approximately 180.3 million in the comparable quarter of 2011.

“Based upon our forward booking pace we anticipated a strong fourth quarter and were pleased that our results exceeded even our internal expectations, despite the initial disruption related to the impact of Hurricane Sandy in the Northeast,” commented Mr. Jay H. Shah, the Company’s Chief Executive Officer. “After a difficult third quarter, we posted strong results in our NYC Urban and Manhattan portfolio during the fourth quarter. Our NYC Urban and Manhattan portfolio outperformed the market’s RevPAR growth by approximately 620 and 520 basis points, respectively. Our performance clearly demonstrates the benefits of our young business transient focused portfolio that continues to capture a disproportionate share of corporate and leisure demand. Furthermore, with market-leading EBITDA margins of 41% across our entire portfolio, and 53% in Manhattan, we believe that our portfolio has an unparalleled ability to convert this strong market share and revenue growth into cash flow.”

Mr. Shah continued, “Over the past few years we have made significant investments to enhance our portfolio, in terms of acquisitions, renovations and developments. We also recycled capital through the divestiture of a portfolio that did not have the same growth profile as our urban gateway focused portfolio. We invested in the early stages of the cycle, and are now realizing the benefits as the cycle is progressing. Our performance in the fourth quarter and year to date in 2013 from a margin perspective suggests that there is still more growth to realize. With most of our significant renovation activity completed and new assets scheduled to be delivered in 2013, we have a significant amount of embedded internal growth that should continue to yield meaningful EBITDA and cash flow in the coming years.”

Fourth Quarter 2012 Operating Results

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.

For the quarter ended December 31, 2012, revenue per available room (“RevPAR”) for the Company's consolidated hotels, 56 hotels at December 31, 2012 compared to 52 hotels as of December 31, 2011, was up 12.8% to $131.72 compared to $116.79 in the prior year period. The Company’s average daily rate (ADR) for its consolidated hotels increased by 7.8% to $175.17, and occupancy for its consolidated hotels increased by 331 basis points to 75.2%.

Hotel EBITDA for the Company’s consolidated hotels grew approximately 34.9%, or $10.4 million, to $40.2 million for the quarter ended December 31, 2012 compared to the same period in 2011. Hotel EBITDA margins increased 150 basis points to 40.9% in the fourth quarter of 2012 compared to 39.4% in the same quarter of 2011.

On a same-store basis (51 hotels), RevPAR for the Company’s consolidated hotels for the quarter ended December 31, 2012 was up 10.9% to $131.35 compared to $118.42 in the prior year period. ADR for the Company’s same-store consolidated hotels increased by 6.4% to $173.66, while occupancy for its same-store consolidated hotels increased by 310 basis points to 75.6%.

Hotel EBITDA for the Company’s same-store consolidated hotels for the quarter ended December 31, 2012 increased approximately 21.4% or $6.6 million, to $37.5 million compared to the quarter ended December 31, 2011. Hotel EBITDA margins for the Company’s same-store consolidated hotels increased by 360 basis points to 43.6% in the fourth quarter of 2012 compared to 40.0% in the fourth quarter of 2011.

The Company’s top performing markets during the quarter, excluding New York City and Manhattan, were the NY-NJ Metro, the California-Arizona and the Boston markets with RevPAR growth of 28.1%, 21.6% and 7.7%, respectively.

New York City and Manhattan

The New York City hotel portfolio, which includes the five boroughs, consisted of 15 hotels as of December 31, 2012. For the fourth quarter of 2012, the Company’s same-store New York City hotel portfolio (14 hotels) recorded a 14.6% increase in RevPAR to $230.85, as ADR increased 11.3% to $248.54 and occupancy increased 262 basis points to 92.9%. Hotel EBITDA margins increased 370 basis points to 51.5%.

The Manhattan hotel portfolio consisted of 12 hotels as of December 31, 2012. For the fourth quarter of 2012, the Company’s same-store Manhattan hotel portfolio (11 hotels) recorded an 11.5% increase in RevPAR to $242.38 as occupancy increased 155 basis points to 93.0% and ADR increased 9.7% to $260.51. Hotel EBITDA margins increased 250 basis points to 53.0%, the highest Manhattan portfolio EBITDA margins in the Company’s history.

In addition to strong business transient demand, the Company’s New York City hotel performance, primarily the Company’s JFK Airport hotels, benefited from the displacement caused by Hurricane Sandy in November and December. This displacement offset some of the disruption caused by the storm in late October as well as the approximately $0.7 million of lost business caused by the hurricane-related closure of the Holiday Inn Express – Water Street, located in Lower Manhattan. This asset is currently under renovation and is expected to reopen late in the second quarter of 2013.

Financing

As of December 31, 2012, the Company maintained significant financial flexibility with approximately $69.1 million of cash and cash equivalents and no borrowings on its $250.0 million senior unsecured revolving line of credit. The Company had $100 million drawn on its unsecured term loan facility as of December 31, 2012. In January 2013, the Company drew an additional $50 million on its unsecured term loan facility to refinance an existing mortgage on one of its assets. As of December 31, 2012, 100% of the Company’s consolidated debt is fixed rate debt or effectively fixed through interest rate swaps and caps and has a weighted average interest rate of approximately 5.26%. The weighted average life to maturity of total consolidated debt is approximately 4.6 years.

Acquisitions

In October 2012, the Company entered into a purchase and sale agreement to acquire the 205 room Hilton Garden Inn on 52^nd Street in Midtown East, Manhattan for total consideration of $74.0 million, or approximately $361,000 per key. The transaction is expected to close shortly after the developer completes construction, anticipated in the fourth quarter of 2013.

Subsequent Events

In February 2013, the Company sold its 66.7% interest in a 92-room Courtyard by Marriott located in Warwick, Rhode Island to its joint venture partner in a transaction valuing the property at $7.15 million. The sale of the Company’s interest in this property enhances the quality of the portfolio and helps further simplify the Company’s capital structure while reducing outstanding debt.

Outlook for 2013

The Company is introducing its operating expectations for 2013 for its portfolio as the Company continues to experience strong year over year trends. Based on management’s current outlook, the Company is issuing the following operating expectations for 2013 as follows:

Metric			2013 Expectation
Total consolidated RevPAR growth:			5.5% to 7.5%
Total consolidated portfolio Hotel EBITDA margins:			Improvement of 25 basis points to 50 basis points
Same-store consolidated RevPAR growth:			5.0% to 7.0%
Same-store consolidated Hotel EBITDA margin improvement:			Improvement of 25 basis points to 75 basis points

Dividend

For the fourth quarter of 2012, the Company paid dividends of $0.06 per common share and OP Unit and $0.50 per Series A and Series B preferred share.

About Hersha Hospitality

Hersha Hospitality Trust is a self-advised real estate investment trust, which owns 63 hotels in major urban gateway markets including New York City, Washington DC, Boston, Philadelphia, Los Angeles and Miami totaling 9,129 rooms. HT follows a highly selective investment approach and leverages operational advantage through rigorous and sustainable asset management practices.

HERSHA HOSPITALITY TRUST
Balance Sheet (unaudited)
(in thousands, except shares and per share data)
			December 31, 2012					December 31, 2011
Assets:
Investment in Hotel Properties, net of Accumulated Depreciation, (including consolidation of variable interest entity assets of $86,657 and $0)			$	1,466,713				$	1,341,536
Investment in Unconsolidated Joint Ventures				16,007					38,839
Development Loans Receivable				28,425					35,747
Cash and Cash Equivalents				69,059					24,568
Escrow Deposits				26,792					27,321
Hotel Accounts Receivable, net of allowance for doubtful accounts of $365 and $495				11,538					11,353
Deferred Financing Costs, net of Accumulated Amortization of $4,841 and $9,138				8,695					9,023
Due from Related Parties				8,488					6,189
Intangible Assets, net of Accumulated Amortization of $2,413 and $1,357				8,698					8,013
Deposits on Hotel Acquisitions				37,750					19,500
Other Assets				25,514					14,991
Hotel Assets Held for Sale				-					93,829
Total Assets			$	1,707,679				$	1,630,909
Liabilities and Equity:
Line of Credit			$	-				$	51,000
Unsecured Term Loan				100,000					-
Mortgages and Notes Payable, including net Unamortized Premium (including consolidation of variable interest entity debt of $57,256 and $0)				692,708					707,374
Accounts Payable, Accrued Expenses and Other Liabilities				33,838					31,140
Dividends and Distributions Payable				15,621					13,908
Due to Related Parties				4,403					2,932
Liabilities Related to Assets Held for Sale				-					61,758
Total Liabilities				846,570					868,112
Redeemable Noncontrolling Interests - Common Units			$	15,321				$	14,955
Equity:
Shareholders' Equity:
Preferred Shares: 8% Series A, $.01 Par Value, 29,000,000 shares authorized, 2,400,000 Shares Issued and Outstanding (Aggregate Liquidation Preference $60,000) at December 31, 2012 and December 31, 2011				24					24
Preferred Shares: 8% Series B, $.01 Par Value, 4,600,000 shares authorized, 4,600,000 Shares Issued and Outstanding (Aggregate Liquidation Preference $115,000) at December 31, 2012 and none issued and outstanding at December 31, 2011				46					46
Common Shares: Class A, $.01 Par Value, 300,000,000 Shares Authorized at December 31, 2012 and December 31, 2011, 198,672,356 and 169,969,973 Shares Issued and Outstanding at December 31, 2012 and December 31, 2011, respectively				1,986					1,699
Common Shares: Class B, $.01 Par Value, 1,000,000 Shares Authorized, None Issued and Outstanding				-					-
Accumulated Other Comprehensive Loss				(1,786	)				(1,151	)
Additional Paid-in Capital				1,178,292					1,041,027
Distributions in Excess of Net Income				(348,734	)				(310,972	)
Total Shareholders' Equity				829,828					730,673
Noncontrolling Interests:
Noncontrolling Interests - Common Units				15,484					16,862
Noncontrolling Interests - Consolidated Joint Ventures				-					307
Noncontrolling Interests - Consolidated Variable Interest Entity				476					-
Total Noncontrolling Interests				15,960					17,169
Total Equity				845,788					747,842
Total Liabilities and Equity			$	1,707,679				$	1,630,909

HERSHA HOSPITALITY TRUST
Summary Results (unaudited)
(in thousands, except shares and per share data)
			Three Months Ended										Year Ended
			December 31, 2012					December 31, 2011					December 31, 2012					December 31, 2011
Revenues:
Hotel Operating Revenues			$	98,458				$	75,678				$	356,005				$	282,534
Interest Income from Development Loans				396					617					1,998					3,427
Other Revenue				48					96					212					333
Total Revenues				98,902					76,391					358,215					286,294
Operating Expenses:
Hotel Operating Expenses				51,525					40,805					196,119					153,227
Hotel Ground Rent				213					184					835					877
Real Estate and Personal Property Taxes and Property Insurance				6,444					4,859					22,527					19,062
General and Administrative				4,858					4,451					13,749					10,942
Stock Based Compensation				3,356					2,825					9,678					7,590
Acquisition and Terminated Transaction Costs				20					479					1,187					2,742
Depreciation and Amortization				15,060					13,193					57,364					50,780
Total Operating Expenses				81,476					66,796					301,459					245,220
Operating Income				17,426					9,595					56,756					41,074
Interest Income				452					93					1,311					456
Interest Expense				10,894					10,962					43,967					40,478
Other Expense				223					107					788					970
Loss on Debt Extinguishment				3,075					68					3,324					123
Income (Loss) before (Loss) Income from Unconsolidated Joint Venture Investments, Income Taxes and Discontinued Operations				3,686					(1,449	)				9,988					(41	)
Unconsolidated Joint Ventures
(Loss) Income from Unconsolidated Joint Ventures				(153	)				1,282					(232	)				210
Impairment of Investment in Unconsolidated Joint Venture				-					-					-					(1,677	)
(Loss) Gain from Remeasurement of Investment in Unconsolidated Joint Ventures				-					-					(1,892	)				2,757
(Loss) Income from Unconsolidated Joint Venture Investments				(153	)				1,282					(2,124	)				1,290
Income (Loss) before Income Taxes				3,533					(167	)				7,864					1,249
Income Tax Benefit				3,355					-					3,355					-
Income (Loss) from Continuing Operations				6,888					(167	)				11,219					1,249
Discontinued Operations
(Loss) Gain on Disposition of Hotel Properties				(38	)				148					11,231					991
Impairment of Assets Held for Sale				-					-					-					(30,248	)
(Loss) Income from Discontinued Operations				(1	)				625					(232	)				1,040
(Loss) Income from Discontinued Operations				(39	)				773					10,999					(28,217	)
Net Income (Loss)				6,849					606					22,218					(26,968	)
(Income) Loss Allocated to Noncontrolling Interests				(65	)				115					158					1,734
Preferred Distributions				(3,500	)				(3,500	)				(14,000	)				(10,499	)
Net Income (Loss) Applicable to Common Shareholders			$	3,284				$	(2,779	)			$	8,376				$	(35,733	)
Earnings per Share:
BASIC
Income (Loss) from Continuing Operations Applicable to Common Shareholders			$	0.02				$	(0.02	)			$	(0.01	)			$	(0.05	)
(Loss) Income from Discontinued Operations				(0.00	)				0.00					0.05					(0.16	)
Net Income (Loss) Applicable to Common Shareholders			$	0.02				$	(0.02	)			$	0.04				$	(0.21	)
DILUTED
Income (Loss) from Continuing Operations Applicable to Common Shareholders			$	0.02				$	(0.02	)			$	(0.01	)			$	(0.05	)
(Loss) Income from Discontinued Operations				(0.00	)				0.00					0.05					(0.16	)
Net Income (Loss) Applicable to Common Shareholders			$	0.02				$	(0.02	)			$	0.04				$	(0.21	)
Weighted Average Common Shares Outstanding:
Basic				196,411,729					169,010,448					187,415,270					168,753,382
Diluted				199,593,648					169,010,448					187,415,270					168,753,382

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 noncontrolling 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, noncontrolling 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:

• adding back write-offs of deferred financing costs on debt extinguishment, both for consolidated and unconsolidated properties;
• adding back amortization of deferred financing costs;
• making adjustments for the amortization of original issue discount/premium;
• adding back non-cash stock expense;
• adding back acquisition and terminated transaction expenses;
• adding back FFO attributed to our partners in consolidated joint ventures; and
• making adjustments to ground lease payments, which are required by GAAP to be amortized on a straight-line basis over the term of the lease, to reflect the actual lease payment.

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:

HERSHA HOSPITALITY TRUST
Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO)
(in thousands, except shares and per share data)
				Three Months Ended										Year Ended
				December 31, 2012					December 31, 2011					December 31, 2012					December 31, 2011
Net income (loss) applicable to common shares				$	3,284				$	(2,779	)			$	8,376				$	(35,733	)
Income (Loss) allocated to noncontrolling interest					65					(115	)				(158	)				(1,734	)
Loss (income) from unconsolidated joint ventures					153					(1,282	)				2,124					(1,290	)
Loss (gain) on disposition of hotel properties					38					(148	)				(11,231	)				(991	)
Loss from impairment of depreciable assets					-					-					-					30,248
Depreciation and amortization					15,060					13,193					57,364					50,780
Depreciation and amortization from discontinued operations					1					28					27					4,924
FFO allocated to noncontrolling interests in consolidated joint ventures					-					(92	)				-					147
Funds from consolidated hotel operations applicable to common shares and Partnership units					18,601					8,805					56,502					46,351
(Loss) income from unconsolidated joint venture investments					(153	)				1,282					(2,124	)				1,290
Loss (gain) from remeasurement of investment in unconsolidated joint ventures					-					-					1,892					(2,757	)
Impairment of investment in unconsolidated joint ventures					-					-					-					1,677
Depreciation and amortization of purchase price in excess of historical cost					164					336					902					1,965
Interest in depreciation and amortization of unconsolidated joint ventures					1,231					1,481					5,441					5,906
Funds from unconsolidated joint venture operations applicable to common shares and Partnership units					1,242					3,099					6,111					8,081
Funds from Operations applicable to common shares and Partnership units					19,843					11,904					62,613					54,432
Add:
FFO allocated to noncontrolling interests in consolidated joint ventures					-					92					-					(147	)
Non-cash income tax benefit					(3,355	)				-					(3,355	)				-
Non-cash stock compensation expense					3,356					2,825					9,678					7,590
Acquisition and terminated transaction costs					20					479					1,187					2,742
Amortization of deferred financing costs					666					1,028					2,991					3,535
Amortization of discounts and premiums					(214	)				50					(432	)				206
Deferred financing costs written off in debt extinguishment					3,075					68					3,324					123
Straight-line amortization of ground lease expense					1					46					40					230
Adjusted Funds from Operations				$	23,392				$	16,492				$	76,046				$	68,711
AFFO per Diluted Weighted Average Common Shares and Units Outstanding				$	0.11				$	0.09				$	0.38				$	0.38
Diluted Weighted Average Common Shares and Units Outstanding					206,733,328					180,267,134					198,110,615					181,090,325

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.

HERSHA HOSPITALITY TRUST
Adjusted EBITDA
(in thousands)
			Three Months Ended										Year Ended
			December 31, 2012					December 31, 2011					December 31, 2012					December 31, 2011
Net income (loss) applicable to common shareholders			$	3,284				$	(2,779	)			$	8,376				$	(35,733	)
Loss (income) from unconsolidated joint ventures				153					(1,282	)				2,124					(1,290	)
Loss (gain) on disposition of hotel properties				38					(148	)				(11,231	)				(991	)
Income (loss) allocated to noncontrolling interest				65					(115	)				(158	)				(1,734	)
Loss from impairment of assets				-					-					-					30,248
Non-operating interest income				(28	)				(21

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