Hersha Hospitality Trust HT ("Hersha" or the "Company"), owner of upscale hotels in urban gateway markets, today announced results for the full-year and fourth quarter ended December 31, 2014.
Full‐Year and Fourth Quarter 2014 Financial Results
Net income applicable to common shareholders was $52.9 million, or $0.26 per diluted common share, for the full-year ended December 31, 2014 compared to net income applicable to common shareholders of $32.8 million, or $0.16 per diluted common share in 2013. The increase in net income reported for the full‐year was primarily attributable to same store growth, contributions from stabilizing assets, as well as income generated from acquisitions and completed development projects. Net income was further aided by non-recurring gains recorded on hotel dispositions, acquisitions and development loan recoveries during the year.
Adjusted Funds from Operations ("AFFO") in 2014 increased by $16.3 million to $102.8 million, compared to $86.5 million in 2013. The Company's weighted average diluted common shares and units of limited partnership interest in Hersha Hospitality Limited Partnership ("OP Unit") outstanding were approximately 207.8 million as of December 31, 2014, compared to approximately 208.9 million as of December 31, 2013. AFFO per diluted common share and OP Unit was $0.49, a 20% increase from AFFO of $0.41 per diluted common share and OP Unit reported in 2013.
AFFO in the fourth quarter increased $3.7 million to $28.3 million, compared to $24.6 million in the fourth quarter 2013. AFFO per diluted common share and OP Unit was $0.14, an increase from AFFO of $0.12 per diluted common share and OP Unit reported in the same quarter in 2013. An explanation of certain non-GAAP financial measures used in this press release, including, among others, AFFO, as well as reconciliations of those non-GAAP financial measures, is included at the end of this press release.
Mr. Jay H. Shah, Hersha's Chief Executive Officer, stated, "The culmination of Hersha's development pipeline and portfolio recycling strategy in 2014, combined with a reacceleration of corporate and leisure transient demand led to material improvement in the Company's RevPAR quality and EBITDA growth. Hersha's young, high quality, urban transient portfolio concentrated in coastal gateway markets delivered Hotel EBITDA of $157.4 million and Consolidated RevPAR of $155.19 in 2014. With our markets above prior peak occupancy, revenue management strategies in 2014 focused on generating ADR growth. As a result, approximately 55% of our 2014 RevPAR growth was comprised of rate increases. We expect a higher proportion of ADR driven RevPAR expansion in 2015 as our hotels continue to stabilize. During fourth quarter 2014, the Consolidated Portfolio reported rate-driven RevPAR growth of 8.6%, supported by favorable market conditions on the West Coast and in Boston, where our RevPAR increased 17.1% and 10.1%, respectively."
Mr. Shah continued, "During 2014, we continued to execute our focused and differentiated approach by acquiring high quality independent hotels in Southern California and South Florida, markets that boast significant barriers-to-entry and growing, high-rated transient demand. In addition, we successfully delivered two new hotels in robust Manhattan submarkets with deep and diverse corporate and leisure demand. As we look ahead, Hersha's pure-play urban transient portfolio is expected to benefit from an improving macroeconomic environment, ADR‐based growth, portfolio ramp‐up and stabilization, and minimal renovation disruption. In addition, the net asset value of Hersha's geographically concentrated portfolio continues to increase, driven in part by international capital seeking well‐located cash flowing real estate in recognizable safe, stable and liquid U.S. gateway markets."
Fourth Quarter 2014 Operating Results
For fourth quarter 2014, revenue per available room ("RevPAR") at the Company's 46 consolidated hotels as of December 31, 2014, compared to 43 hotels as of December 31, 2013, increased 8.6% to $161.37. The Company's average daily rate ("ADR") for the consolidated hotel portfolio increased 4.9% to $198.37, while occupancy increased 275 basis points to 81.3%. Hotel EBITDA margins for the consolidated hotel portfolio increased 50 basis points to 38.0%, with Hotel EBITDA increasing 24.3%, or $8.4 million, to $42.9 million.
For fourth quarter 2014, RevPAR at the Company's 44 comparable hotels increased 5.7% to $158.20, with an ADR increase of 3.4% to $195.91 and occupancy growth of 178 basis points to 80.8%. As previously mentioned, the Company's best performing market during the fourth quarter was the West Coast, which reported 17.1% RevPAR growth. The Company's Boston portfolio reported 10.1% RevPAR growth, while the Washington, DC and Philadelphia portfolios delivered 14.9% and 12.0% growth, respectively. The Company's comparable South Florida portfolio continued to be impacted by renovations at the Residence Inn Coconut Grove. Excluding these renovations, the Company's comparable South Florida portfolio reported 7.9% RevPAR growth in fourth quarter 2014.
New York City and Manhattan
The New York City hotel portfolio, which includes the five boroughs, consisted of 17 hotels as of December 31, 2014. For fourth quarter 2014, the Company's comparable New York City hotel portfolio (15 hotels) recorded a 2.2% increase in RevPAR to $226.59, as ADR rose 0.4% to $242.23, while occupancy increased 160 basis points to 93.5%.
The Manhattan hotel portfolio consisted of 14 hotels as of December 31, 2014. For fourth quarter 2014, the Company's comparable Manhattan hotel portfolio (12 hotels) recorded a 2.6% increase in RevPAR to $244.81, as ADR remained relatively constant at $257.01, and occupancy increased 284 basis points to 95.3%. The Company's Manhattan portfolio reported strong EBITDA margins of 44.8% during the fourth quarter.
Financing
As of December 31, 2014, the Company maintained significant financial flexibility with approximately $21.7 million of cash and cash equivalents and full capacity under the Company's revolving line of credit provided under its credit facility. As of December 31, 2014, 84.0% of the Company's consolidated debt is fixed rate debt or effectively fixed through interest rate swaps and caps. The Company's total consolidated debt has a weighted average interest rate of approximately 4.4% and a weighted average life-to-maturity of approximately 3.8 years assuming no extension options are exercised.
During fourth quarter 2014, the Company refinanced the mortgage debt at the Hilton Garden Inn Tribeca within a favorable financing environment in terms of rate, duration and proceeds. The new $46.5 million loan is priced at 30-day LIBOR plus 2.30%, and is interest only in the first two years of the five-year term.
2015 Outlook
Hersha is introducing operating and financial expectations for fiscal year 2015 for the Company's consolidated and comparable portfolios. These expectations, which are based on the Company's current view of operating and economic fundamentals, assume no additional acquisitions, dispositions or capital market activities. As a result, Hersha's 2015 operating and financial expectations are as follows:
| 2015 Outlook | ||||||
| ($'s in millions except per share amounts) | Low | High | ||||
| Net Income | $27.0 | $31.0 | ||||
| Net Income per diluted share | $0.13 | $0.15 | ||||
| Consolidated RevPAR Growth | 6.0% | 8.0% | ||||
| Consolidated EBITDA Margin Growth | 75 bps | 125 bps | ||||
| Comparable Property RevPAR Growth | 5.0% | 6.0% | ||||
| Comparable Property EBITDA Margin Growth | 50 bps | 100 bps | ||||
| Adjusted EBITDA | $176.0 | $180.0 | ||||
| Adjusted FFO | $116.0 | $120.0 | ||||
| Adjusted FFO per diluted share | $0.56 | $0.58 | ||||
Dividends
Hersha paid a dividend of $0.50 per Series B preferred share and $0.4297 per Series C preferred share for the fourth quarter 2014. The preferred share dividends were paid on January 15, 2015 to holders of record as of January 1, 2015.
The Company's Board of Trustees also declared quarterly cash dividends of $0.07 per common share and per OP Unit for the fourth quarter. The common share dividend and the OP Unit distribution was paid January 15, 2015 to holders of record as of January 5, 2015.
Fourth Quarter 2014 Conference Call
The Company will host a conference call to discuss its financial results at 8:00 a.m. Eastern Time on Thursday, February 19, 2015. 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 1-888-359-3624 or 1-719-325-2469 for international participants. A replay of the call will be available from 12:00 p.m. Eastern Time on Thursday, February 19, 2015, through midnight Eastern Time on Thursday, March 5, 2015. 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 6610872. A replay of the webcast will be available on the Company's website for a limited time.
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 51 hotels totaling 8,259 rooms are located in New York, Boston, Philadelphia, Washington, DC, Miami and select markets on the West Coast and South Florida. 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.
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 2015 outlook for net income attributable to common shareholders, net income per weighted average common share and OP Units outstanding, Adjusted EBITDA, Adjusted FFO, Adjusted FFO 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 2015 outlook, 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, and to outperform, the ability of recently acquired 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 our 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, 2013 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 February 18, 2015, and the Company undertakes no duty to update this information unless required by law.
| HERSHA HOSPITALITY TRUST | ||||||||||
| Balance Sheet (unaudited) | ||||||||||
| (in thousands, except shares and per share data) | ||||||||||
| December 31, 2014 | December 31, 2013 | |||||||||
| Assets: | ||||||||||
|
Investment in Hotel Properties, Net of Accumulated Depreciation, Including Consolidation of Variable Interest Entity Assets of $84,247 and $85,759 |
$ | 1,745,483 | $ | 1,535,835 | ||||||
| Investment in Unconsolidated Joint Ventures | 11,150 | 12,044 | ||||||||
| Cash and Cash Equivalents | 21,675 | 36,213 | ||||||||
| Escrow Deposits | 16,941 | 25,938 | ||||||||
| Hotel Accounts Receivable, Net of Allowance for Doubtful Accounts of $39 and $43 | 9,363 | 9,141 | ||||||||
| Deferred Financing Costs, Net of Accumulated Amortization of $6,938 and $7,070 | 8,605 | 7,570 | ||||||||
| Due from Related Parties | 6,580 | 11,124 | ||||||||
| Intangible Assets, Net of Accumulated Amortization of $3,514 and $3,227 | 7,316 | 7,603 | ||||||||
| Deposits on Hotel Acquisitions | - | 18,586 | ||||||||
| Other Assets | 28,426 | 27,460 | ||||||||
| Hotel Assets Held for Sale | - | 56,583 | ||||||||
| Total Assets | $ | 1,855,539 | $ | 1,748,097 | ||||||
| Liabilities and Equity: | ||||||||||
| Line of Credit | $ | - | $ | - | ||||||
| Unsecured Term Loan | 250,000 | 150,000 | ||||||||
| Unsecured Notes Payable | 51,548 | 51,548 | ||||||||
|
Mortgages Payable, including Net Unamortized Premium and Consolidation of Variable Interest Entity Debt of $54,132 and $55,714 |
617,375 | 571,953 | ||||||||
| Accounts Payable, Accrued Expenses and Other Liabilities | 54,115 | 40,852 | ||||||||
| Dividends and Distributions Payable | 17,909 | 15,955 | ||||||||
| Due to Related Parties | 7,203 | 4,815 | ||||||||
| Liabilities Related to Hotel Assets Held for Sale | - | 45,835 | ||||||||
| Total Liabilities | $ | 998,150 | $ | 880,958 | ||||||
| Equity: | ||||||||||
| Shareholders' Equity: | ||||||||||
|
Preferred Shares: $.01 Par Value, 29,000,000 Shares Authorized, 4,600,000 Series B and 3,000,000 Series C Shares Issued and Outstanding at December 31, 2014 and December 31, 2013, with Liquidation Preferences of $25 Per Share |
$ | 76 | $ | 76 | ||||||
|
Common Shares: Class A, $.01 Par Value, 300,000,000 Shares Authorized, 198,835,083 and 202,759,419 Shares Issued and Outstanding at December 31, 2014 and December 31, 2013, respectively |
1,989 | 2,028 | ||||||||
|
Common Shares: Class B, $.01 Par Value, 1,000,000 Shares Authorized, None Issued and Outstanding at December 31, 2014 and December 31, 2013 |
- | - | ||||||||
| Accumulated Other Comprehensive Loss | (358 | ) | (376 | ) | ||||||
| Additional Paid-in Capital | 1,193,056 | 1,200,798 | ||||||||
| Distributions in Excess of Net Income | (365,381 | ) | (364,568 | ) | ||||||
| Total Shareholders' Equity | 829,382 | 837,958 | ||||||||
| Noncontrolling Interests: | ||||||||||
| Noncontrolling Interests - Common Units | 29,082 | 29,523 | ||||||||
| Noncontrolling Interests - Consolidated Variable Interest Entity | (1,075 | ) | (342 | ) | ||||||
| Total Noncontrolling Interests | 28,007 | 29,181 | ||||||||
| Total Equity | 857,389 | 867,139 | ||||||||
| Total Liabilities and Equity | $ | 1,855,539 | $ | 1,748,097 | ||||||
| HERSHA HOSPITALITY TRUST | ||||||||||||||||||||
| Summary Results (unaudited) | ||||||||||||||||||||
| (in thousands, except shares and per share data) | ||||||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||||||
| December 31, 2014 | December 31, 2013 | December 31, 2014 | December 31, 2013 | |||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Hotel Operating Revenues | $ | 112,895 | $ | 92,045 | $ | 417,226 | $ | 338,064 | ||||||||||||
| Interest Income from Development Loans | - | - | - | 158 | ||||||||||||||||
| Other Revenue | 31 | 56 | 180 | 191 | ||||||||||||||||
| Total Revenues | 112,926 | 92,101 | 417,406 | 338,413 | ||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||
| Hotel Operating Expenses | 60,952 | 50,880 | 227,324 | 188,431 | ||||||||||||||||
| Insurance Recoveries | - | - | (4,604 | ) | (403 | ) | ||||||||||||||
| Hotel Ground Rent | 718 | 246 | 2,433 | 985 | ||||||||||||||||
| Real Estate and Personal Property Taxes and Property Insurance | 8,322 | 6,329 | 30,342 | 24,083 | ||||||||||||||||
| General and Administrative | 4,181 | 5,156 | 14,335 | 14,123 | ||||||||||||||||
| Share Based Compensation | 1,872 | 2,927 | 6,028 | 9,746 | ||||||||||||||||
| Acquisition and Terminated Transaction Costs | 328 | 171 | 2,472 | 974 | ||||||||||||||||
| Depreciation and Amortization | 16,802 | 14,628 | 69,167 | 55,784 | ||||||||||||||||
| Contingent Consideration Related to Hotel Acquisition | 1,000 | - | 2,000 | - | ||||||||||||||||
| Total Operating Expenses | 94,175 | 80,337 | 349,497 | 293,723 | ||||||||||||||||
| Operating Income | 18,751 | 11,764 | 67,909 | 44,690 | ||||||||||||||||
| Interest Income | 59 | 409 | 805 | 1,784 | ||||||||||||||||
| Interest Expense | (11,108 | ) | (10,642 | ) | (43,357 | ) | (40,935 | ) | ||||||||||||
| Other (Expense) Income | (104 | ) | 171 | (485 | ) | (102 | ) | |||||||||||||
| Gain on Disposition of Hotel Properties | - | - | 7,195 | - | ||||||||||||||||
| (Loss) Gain on Hotel Acquisitions, Net | (927 | ) | (12 | ) | 12,667 | 12,096 | ||||||||||||||
| Development Loan Recovery | - | - | 22,494 | - | ||||||||||||||||
| Loss on Debt Extinguishment | (26 | ) | - | (670 | ) | (545 | ) | |||||||||||||
|
Income before Income (Loss) from Unconsolidated Joint Venture Investments, Income Taxes and Discontinued Operations |
6,645 | 1,690 | 66,558 | 16,988 | ||||||||||||||||
| Unconsolidated Joint Ventures | ||||||||||||||||||||
| Income (Loss) from Unconsolidated Joint Ventures | 87 | (1 | ) | 693 | (22 | ) | ||||||||||||||
| Impairment of Investment in Unconsolidated Joint Venture | - | (1,813 | ) | - | (1,813 | ) | ||||||||||||||
|
Loss from Remeasurement of Investment in Unconsolidated Joint Ventures |
- | - | - | - | ||||||||||||||||
| Income (Loss) from Unconsolidated Joint Venture Investments | 87 | (1,814 | ) | 693 | (1,835 | ) | ||||||||||||||
| Income (Loss) before Income Taxes | 6,732 | (124 | ) | 67,251 | 15,153 | |||||||||||||||
| Income Tax Benefit | 1,879 | 3,318 | 2,685 | 5,600 | ||||||||||||||||
| Income from Continuing Operations | 8,611 | 3,194 | 69,936 | 20,753 | ||||||||||||||||
| Discontinued Operations | ||||||||||||||||||||
| Gain (Loss) on Disposition of Discontinued Assets | - | 31,089 | (128 | ) | 32,121 | |||||||||||||||
| Impairment of Discontinued Assets | - | - | (1,800 | ) | (10,314 | ) | ||||||||||||||
| Income from Discontinued Operations, Net of Income Taxes | - | 2,956 | 263 | 7,388 | ||||||||||||||||
| Income (Loss) from Discontinued Operations | - | 34,045 | (1,665 | ) | 29,195 | |||||||||||||||
| Net Income | 8,611 | 37,239 | 68,271 | 49,948 | ||||||||||||||||
| Loss (Income) Allocated to Noncontrolling Interests | 84 | (963 | ) | (1,016 | ) | (335 | ) | |||||||||||||
| Preferred Distributions | (3,589 | ) | (3,589 | ) | (14,356 | ) | (14,611 | ) | ||||||||||||
|
Extinguishment of Issuance Costs Upon Redemption of Series A Preferred Shares |
- | - | - | (2,250 | ) | |||||||||||||||
| Net Income Applicable to Common Shareholders | $ | 5,106 | $ | 32,687 | $ | 52,899 | $ | 32,752 | ||||||||||||
|
Earnings per Share: |
||||||||||||||||||||
| BASIC | ||||||||||||||||||||
|
Income (Loss) from Continuing Operations Applicable to Common Shareholders |
$ | 0.03 | $ | (0.01 | ) | $ | 0.27 | $ | 0.02 | |||||||||||
| Income (Loss) from Discontinued Operations | 0.00 | 0.17 | (0.01 | ) | 0.14 | |||||||||||||||
| Net Income Applicable to Common Shareholders | $ | 0.03 | $ | 0.16 | $ | 0.26 | $ | 0.16 | ||||||||||||
| DILUTED | ||||||||||||||||||||
|
Income (Loss) from Continuing Operations Applicable to Common Shareholders |
$ | 0.02 | $ | (0.01 | ) | $ | 0.27 | $ | 0.02 | |||||||||||
| Income (Loss) from Discontinued Operations | 0.00 | 0.17 | (0.01 | ) | 0.14 | |||||||||||||||
| Net Income Applicable to Common Shareholders | $ | 0.02 | $ | 0.16 | $ | 0.26 | $ | 0.16 | ||||||||||||
|
Weighted Average Common Shares Outstanding: |
||||||||||||||||||||
| Basic | 198,629,945 | 198,994,277 | 199,109,209 | 198,390,450 | ||||||||||||||||
| Diluted | 200,779,472 | 198,994,277 | 201,197,310 | 201,918,177 | ||||||||||||||||
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:
- 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 preferred share extinguishment costs
- adding back prior period tax assessment 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, 2014 |
December 31, 2013 | December 31, 2014 | December 31, 2013 | |||||||||||||||||
| Net income applicable to common shares | $ | 5,106 | $ | 32,687 | $ | 52,899 | $ | 32,752 | ||||||||||||
| (Loss) income allocated to noncontrolling interest | (84 | ) | 963 | 1,016 | 335 | |||||||||||||||
| (Income) loss from unconsolidated joint ventures | (87 | ) | 1,814 | (693 | ) | 1,835 | ||||||||||||||
| Loss (gain) on hotel acquisition | 927 | 12 | (12,667 | ) | (12,096 | ) | ||||||||||||||
| Development loan recovery | - | - | (22,494 | ) | - | |||||||||||||||
| Gain on disposition of hotel properties | - | (31,089 | ) | (7,067 | ) | (32,121 | ) | |||||||||||||
| Loss from impairment of depreciable assets | - | - | 1,800 | 10,314 | ||||||||||||||||
| Depreciation and amortization | 16,802 | 14,628 | 69,167 | 55,784 | ||||||||||||||||
| Depreciation and amortization from discontinued operations | - | 13 | - | 7,050 | ||||||||||||||||
|
Funds from consolidated hotel operations applicable to common shares and Partnership units |
22,664 | 19,028 | 81,961 | 63,853 | ||||||||||||||||
| Income (loss) from unconsolidated joint venture investments | 87 | (1,814 | ) | 693 | (1,835 | ) | ||||||||||||||
| Impairment of investment in unconsolidated joint ventures | - | 1,813 | - | 1,813 | ||||||||||||||||
|
Depreciation and amortization of purchase price in excess of historical cost |
143 | 147 | 570 | 596 | ||||||||||||||||
|
Interest in depreciation and amortization of unconsolidated joint ventures |
1,612 | 1,774 | 5,915 | 6,068 | ||||||||||||||||
|
Funds from unconsolidated joint venture operations applicable to common shares and Partnership units |
1,842 | 1,920 | 7,178 | 6,642 | ||||||||||||||||
| Funds from Operations applicable to common shares and Partnership units | 24,506 | 20,948 | 89,139 | 70,495 | ||||||||||||||||
| Add: | ||||||||||||||||||||
| Non-cash extinguishment of issuance costs upon redemption of Series A Preferred Shares | - | - | - | 2,250 | ||||||||||||||||
| Non-cash share based compensation expense | 1,872 | 2,927 | 6,028 | 9,746 | ||||||||||||||||
| Acquisition and terminated transaction costs | 328 | 171 | 2,472 | 974 | ||||||||||||||||
| Contingent consideration | 1,000 | - | 2,000 | - | ||||||||||||||||
| Amortization of deferred financing costs | 704 | 753 | 2,768 | 2,886 | ||||||||||||||||
| Amortization of discounts and premiums | (258 | ) | (213 | ) | (955 | ) | (845 | ) | ||||||||||||
| Deferred financing costs written off in debt extinguishment | 26 | - | 670 | 545 | ||||||||||||||||
| Straight-line amortization of ground lease expense | 122 | - | 408 | 2 | ||||||||||||||||
| State and local tax expense related to reassessment of prior period assessment | - | - | 302 | 434 | ||||||||||||||||
| Adjusted Funds from Operations | $ | 28,300 | $ | 24,586 | $ | 102,832 | $ | 86,487 | ||||||||||||
|
AFFO per Diluted Weighted Average Common Shares and Units Outstanding |
$ | 0.14 | $ | 0.12 | $ | 0.49 | $ | 0.41 | ||||||||||||
| Diluted Weighted Average Common Shares and Units Outstanding | 207,810,478 | 209,016,369 | 207,764,287 | 208,886,212 | ||||||||||||||||
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, 2014 | December 31, 2013 | December 31, 2014 | December 31, 2013 | |||||||||||||||||
| Net income applicable to common shareholders | $ | 5,106 | $ | 32,687 | $ | 52,899 | $ | 32,752 | ||||||||||||
| (Loss) income allocated to noncontrolling interest | (84 | ) | 963 | 1,016 | 335 | |||||||||||||||
| (Income) loss from unconsolidated joint ventures | (87 | ) | 1,814 | (693 | ) | 1,835 | ||||||||||||||
| Loss (gain) on hotel acquisition | 927 | 12 | (12,667 | ) | (12,096 | ) | ||||||||||||||
| Development loan recovery | - | - | (22,494 | ) | - | |||||||||||||||
| Gain on disposition of hotel properties | - | (31,089 | ) | (7,067 | ) | (32,121 | ) | |||||||||||||
| Loss from impairment of assets | - | - | 1,800 | 10,314 | ||||||||||||||||
| Non-operating interest income | (44 | ) | (13 | ) | (104 | ) | (70 | ) | ||||||||||||
| Distributions to Preferred Shareholders | 3,589 | 3,589 | 14,356 | 14,611 | ||||||||||||||||
| Interest expense from continuing operations | 11,108 | 10,642 | 43,357 | 40,935 | ||||||||||||||||
| Interest expense from discontinued operations | - | 1,084 | 354 | 4,863 | ||||||||||||||||
| Extinguishment of issuance costs upon redemption of Series A Preferred Shares | - | - | - | 2,250 | ||||||||||||||||
| Income tax benefit | (1,879 | ) | (3,318 | ) | (2,685 | ) | (5,600 | ) | ||||||||||||
| Deferred financing costs written off in debt extinguishment | 26 | - | 670 | 545 | ||||||||||||||||
| Depreciation and amortization from continuing operations | 16,802 | 14,628 | 69,167 | 55,784 | ||||||||||||||||
| Depreciation and amortization from discontinued operations | - | 13 | - | 7,050 | ||||||||||||||||
| Acquisition and terminated transaction costs | 328 | 171 | 2,472 | 974 | ||||||||||||||||
| Contingent consideration | 1,000 | - | 2,000 | - | ||||||||||||||||
| Non-cash share based compensation expense | 1,872 | 2,927 | 6,028 | 9,746 | ||||||||||||||||
| Straight-line amortization of ground lease expense | 122 | - | 408 | 2 | ||||||||||||||||
| State and Local tax expense related to reassessment of prior period assessment | - | - | 302 | 434 | ||||||||||||||||
| Adjusted EBITDA from consolidated hotel operations | 38,786 | 34,110 | 149,119 | 132,543 | ||||||||||||||||
| Income (loss) from unconsolidated joint venture investments | 87 | (1,814 | ) | 693 | (1,835 | ) | ||||||||||||||
| Add: | ||||||||||||||||||||
| Impairment of investment in unconsolidated joint ventures | - | 1,813 | - | 1,813 | ||||||||||||||||
| Depreciation and amortization of purchase price in excess of historical cost | 143 | 147 | 570 | 596 | ||||||||||||||||
|
Adjustment for interest in interest expense, depreciation and amortization of unconsolidated joint ventures |
3,075 | 3,527 | 12,124 | 12,898 | ||||||||||||||||
| Adjusted EBITDA from unconsolidated joint venture operations | 3,305 | 3,673 | 13,387 | 13,472 | ||||||||||||||||
| Adjusted EBITDA | $ | 42,091 | $ | 37,783 | $ | 162,506 | $ | 146,015 | ||||||||||||
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 web site, www.hersha.com.
Hersha Hospitality Trust
Ashish Parikh, Chief Financial Officer
215-238-1046
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