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Hersha Hospitality Trust Reports Operating Results (10-Q)

November 05, 2009 | About:
10qk

10qk

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Hersha Hospitality Trust (HT) filed Quarterly Report for the period ended 2009-09-30.

Hersha Hospitality Trust is an entrepreneurial high-growth real estatedevelopment and management company focussed on the hospitalityindustry. Hersha currently owns operates and develops a portfolio ofhotels and assisted living facilities in the mid-Atlantic region of the United States. (PRESS RELEASE) Hersha Hospitality Trust has a market cap of $132.6 million; its shares were traded at around $2.7 with a P/E ratio of 3.4 and P/S ratio of 0.6. The dividend yield of Hersha Hospitality Trust stocks is 7.4%.

Highlight of Business Operations:

Total hotel operating expenses decreased $3,967, or 10.6%, to approximately $33,563 for the three months ended September 30, 2009 from $37,530 for the three months ended September 30, 2008. As a result of declining hotel operating revenues, our hotel operators implemented cost reduction and cost containment initiatives to reduce hotel operating expenses. Decreases in our hotel operating expenses resulting from lower occupancies and our operators cost reduction initiatives were partially offset by increases in hotel operating expenses due to the acquisitions consummated since September 30, 2008, as mentioned above. The acquisitions also resulted in a $703, or 6.9%, increase in depreciation and amortization expense from $10,221 for the three months ended September 30, 2008 to $10,924 for the three months ended September 30, 2009. Real estate and personal property tax and property insurance increased $594, or 18.6%, in the three months ended September 30, 2009 when compared to the same period in 2008 primarily from increases in assessments and rates at certain of the hotel properties. Insurance expense remained flat for the two periods.

Also contributing to the net loss recorded during the three months ended September 30, 2009 was an impairment charge of $17,682 recorded on two parcels of land and a hotel, each of which is classified as held for sale as of September 30, 2009. Due to the economic challenges facing hotel development projects, especially those that are in the early phase of development, we decided during the quarter ended September 30, 2009 to exit our two remaining land leases and dispose of the related land parcels. Effective July 1, 2009, we ceased accruing rents under these leases. We determined that the carrying value of the land exceeded fair value and we recorded an impairment of $14,545. We also determined that accrued rents under the leases were uncollectible and accrued rents receivable of $1,579 was expensed during the three months ended September 30, 2009. In addition, we committed to a plan to sell one of our hotels and determined that carrying value of this property exceeded fair value by $1,558 which was recorded as an impairment charge during the three months ended September 30, 2009. This charge was only partially offset by a $1,868 gain on the disposition of hotel properties held for sale during the three months ended September 30, 2009.

Hotel operating revenues decreased $20,566, or 11.4%, from $180,912 for the nine months ended September 30, 2008 to $160,346 for the same period in 2009. This decrease was primarily the result of a 10.9% decrease in ADR from $141.46 per room for the nine months ended September 30, 2008 to $126.04 per room during the same period in 2009. In addition, our occupancy rate decreased from 74.40% during the nine months ended September 30, 2008 to 68.69% for the same period in 2009. The decrease in hotel operating revenues was only partially offset by additional hotel operating revenues attributed to the acquisitions consummated since September 30, 2008 noted above.

Interest income from development loans receivable was $5,990 for the nine months ended September 30, 2009 compared to $5,759 for the same period in 2008. The average balance of development loans receivable outstanding during the nine months ended September 30, 2009 was higher than the average balance outstanding during the same period in 2008. This resulted in a $231, or a 4.0%, increase in interest income. As noted above, we determined that our development loans to Brisam East 52, LLC and Brisam Greenwich, LLC, which were secured by the equity interest in each entity, were permanently impaired as of September 30, 2009. We ceased accruing interest on the loan effective July 1, 2009. As of September 30, 2009, we have determined that the fair value of these two loans receivable is $0 and have incurred an impairment charge for the remaining principal on these loans in the aggregate amount of $21,408, which includes $1,408 of interest income paid in-kind which was recognized in part during the nine months ended September 30, 2009.

Total hotel operating expenses decreased $7,806, or 7.7%, to approximately $93,276 for the nine months ended September 30, 2009 from $101,082 for the nine months ended September 30, 2008. As a result of declining hotel operating revenues, our hotel operators implemented cost reduction and cost containment initiatives to reduce hotel operating expenses. Decreases in our hotel operating expenses resulting from lower occupancies and cost reduction initiatives implemented by our operators were partially offset by increases in hotel operating expenses due to the acquisitions consummated since September 30, 2008 mentioned above. The acquisitions also resulted in a $3,579, or 12.5%, increase in depreciation and amortization expense from $28,543 for the nine months ended September 30, 2008 to $32,122 for the nine months ended September 30, 2009. Real estate and personal property tax and property insurance increased $1,351, or 15.0%, in the nine months ended September 30, 2009 when compared to the same period in 2008 primarily from increases in assessments and rates at certain of the hotel properties. Insurance expense remained flat for the two periods.

Operating income for the nine months ended September 30, 2009 was $2,927 compared to operating income of $42,453 during the same period in 2008. The $39,526, or 93.1%, decrease in operating income was in part the result of an impairment charge taken on two of our development loans in the amount of $21,408. The remaining decrease of $18,118 was the result of declining hotel operating revenues which were only partially offset by decreases in hotel operating expenses.

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