EX-99.2 4 ex99_2.htm EXHIBIT 99.2 Exhibit 99.2

Exhibit 99.2

HERSHA HOSPITALITY TRUST
 
Pro Forma Consolidated Balance Sheet
As of December 31, 2005
(Unaudited, Dollar Amounts in Thousands Except per Share Data)
 
The accompanying unaudited Pro Forma Consolidated Balance Sheet as of December 31, 2005 is presented as if the acquisition of our interests in the AHA Partnership and Metro LLC occurred on December 31, 2005.
 
This pro forma consolidated balance sheet should be read in conjunction with the Hersha and the AHA Partnership and Metro LLC historical financial statements and notes thereto. In management’s opinion, adjustments necessary to reflect the effects of the acquisition of our interests in the AHA Partnership and Metro LLC have been made based on management’s best estimate.
 
The following unaudited Pro Forma Consolidated Balance Sheet is not necessarily indicative of what the actual financial position of Hersha would have been assuming such acquisition had been completed as of December 31, 2005, nor is it indicative of future financial positions of Hersha.

   
(A)
  
(B)
      
   
Historical
  
AHA Partnership and Metro LLC
  
Pro Forma
  
Assets:
              
Investment in Hotel Properties, net
  
$
317,980
  
$
55,539
  
$
373,519
  
Investment in Unconsolidated Joint Ventures
    
55,981
   
-
   
55,981
 
Development Loans Receivable from Related Parties
    
32,470
   
-
   
32,470
 
Due from Related Parties
    
2,779
   
-
   
2,779
 
Other Assets
    
46,145
   
(7,621
)
  
38,524
 
Total Assets
  
$
455,355
  
$
47,918
  
$
503,273
  
                     
Liabilities and Shareholders’ Equity:
                    
Line of Credit
  
$
-
    
26,000
   
26,000
 
Mortgages Payable
    
256,146
   
13,000
   
269,146
 
Due to Related Parties
    
4,655
   
820
   
5,475
 
Other Liabilities
    
12,625
   
894
   
13,519
 
Total Liabilities
    
273,426
   
40,714
   
314,140
 
                     
Minority Interest:
                    
Common Units
    
15,147
   
3,653
   
18,800
  
Interest in Consolidated Joint Ventures
    
2,079
   
1,204
   
3,283
 
Total Minority Interest
    
17,226
   
4,857
   
22,083
  
                     
Shareholders’ Equity:
    
164,703
   
2,347
 
  
167,050
  
Total Liabilities and Shareholders’ Equity
  
$
455,355
  
$
47,918
  
$
503,273
  
 
1

HERSHA HOSPITALITY TRUST
 
Notes and Management’s Assumptions to the
Pro Forma Consolidated Balance Sheet
As of December 31, 2005
(Unaudited, Dollar Amounts in Thousands Except per Share Data)

(A)
Represents the Consolidated Balance Sheet of Hersha as of December 31, 2005 as filed on Form 10-K/A.

(B)
Represents the purchase of our interest in the AHA Partnership and Metro LLC as if it had occurred on December 31, 2005. We acquired an 80% interest in AHA Partnership for total consideration of $24,997. Cash was used to repay AHA Partnership debt of $17,392, settlement costs of $687 and distributions to AHA Sellers of $6,918. We will consolidate the AHA Partnership, since it is a voting interest entity, we are the general partner and we own a majority of the voting interest. We also acquired a 100% interest in Metro LLC for $28,994. The source of funding for these acquisitions was cash, borrowings under our line of credit, issuance of limited partnership units in HHLP, and mortgage payable assumed, as follows:

   
AHA Partnership
  
Metro LLC
  
Combined
  
               
Cash paid, net
  
$
3,997
  
$
4,994
  
$
8,991
  
Line of credit
    
21,000
   
5,000
   
26,000
 
                     
HHLP Limited Partnership Units (657,895 units issued at $9.12 per unit)
    
-
   
6,000
   
6,000
 
Less:
                    
Mortgage Payable assumed
    
-
   
13,000
   
13,000
 
                     
   
$
24,997
  
$
28,994
  
$
53,991
  


Preliminary allocation of purchase is detailed in the following table:

 
  
AHA Partnership
  
Metro LLC
  
Combined
  
               
Land
  
$
2,852
  
$
-
  
$
2,852
  
Building
    
21,228
   
24,889
   
46,117
 
Furniture and Fixtures
    
2,949
   
3,621
   
6,570
 
                     
Investment in Hotel Properties
    
27,029
   
28,510
   
55,539
 
                     
Hotel Accounts Receivable
    
171
   
598
   
769
 
Deferred Costs
    
-
   
190
   
190
 
Intangible Assets
    
43
   
301
   
344
 
Other Assets
    
40
   
27
   
67
 
Mortgage Payable
    
-
   
(13,000
)
  
(13,000
)
Capital Lease Payable
    
(873
)
  
-
   
(873
)
Advance Deposits
    
(21
)
  
-
   
(21
)
Due to related party
    
(188
)
  
(632
)
  
(820
)
Minority Interest
    
(1,204
)
  
-
   
(1,204
)

Included in intangible assets is purchase price allocated to franchise fees of $43 and $78 for the AHA Partnership and Metro LLC, respectively, and $226 related to an interest in a land lease. The land lease intangible relates to a land lease assumed with rates below fair value at the time of purchase and will be amortized over its remaining 94 year life.

As a result of the issuance of 657,895 limited partnership units, our pro forma ownership interest in HHLP is 85.3% while 14.7% is owned by a minority interest. To reflect the pro forma ownership interests in HHLP, Shareholder’s Equity was increased and Minority Interest was decreased by $2,347.
 
2

HERSHA HOSPITALITY TRUST
 
Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2005
(Unaudited, Dollar Amounts in Thousands Except per Share Data)
 
The accompanying unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2005 is presented as if the acquisition of our interest in the AHA Partnership and Metro LLC had been consummated on January 1, 2005.

This pro forma consolidated statement should be read in conjunction with the Hersha and the AHA Partnership and Metro LLC historical financial statements and notes thereto. In management’s opinion, adjustments necessary to reflect the effects of the acquisitions have been made based on management’s best estimate.
 
The following unaudited Pro Forma Consolidated Statement of Operations is not necessarily indicative of what actual results of Hersha would have been assuming such acquisition had been completed as of January 1, 2005, nor is it indicative of the results of operations for future periods.

   
(A)
 
(B)
                 
   
Historical
  
AHA Partnership and
Metro LLC
  
Combined
  
Adjustments
      
Pro Forma
  
Revenue:
                          
Hotel Operating Revenues
  
$
80,899
  
$
13,931
  
$
94,830
  
$
-
        
$
94,830
  
Total Revenue
    
80,899
   
13,931
   
94,830
   
-
         
94,830
 
Operating Expenses:
                                      
Hotel Operating Expenses
    
49,783
   
9,509
   
59,292
   
-
         
59,292
 
Land Lease
    
433
   
353
   
786
   
74
   
(C)
    
860
 
Real Estate and Personal Property Taxes and Property Insurance
    
4,346
   
-
   
4,346
   
-
         
4,346
 
General and Administrative
    
4,992
   
-
   
4,992
   
-
         
4,992
 
Unrecognized Gain on Derivative
    
(13
)
  
-
   
(13
)
  
-
         
(13
)
Depreciation and Amortization
    
10,600
   
1,836
   
12,436
   
472
   
(D)
    
12,908
 
Total Operating Expenses
    
70,141
   
11,698
   
81,839
   
546
         
82,385
 
                                       
Operating Income (Loss)
    
10,758
   
2,233
   
12,991
   
(546
)
        
12,445
 
                                       
Interest Income
    
359
   
-
   
359
   
-
         
359
 
Interest Income - Secured Loans Related Party
   
4,046
   
-
   
4,046
   
(1,226
)
  
(E)
   
2,820
 
Interest Income - Secured Loans
   
137
   
-
   
137
   
-
         
137
 
Other Revenue
    
520
   
-
   
520
   
-
         
520
 
Interest Expense
    
(14,094
)
  
(3,449
)
  
(17,543
)
  
1,875
   
(E)(F)
    
(15,668
)
Income (Loss) from continuing operations before income (loss) from joint venture investments, distributions to preferred unit holders and minority interests
    
1,726
   
(1,216
)
  
510
   
103
         
613
 
Income from Unconsolidated Joint Venture Investments
    
457
   
-
   
457
   
-
         
457
 
Income (Loss) from continuing operations before distributions to preferred unit holders and minority interests
    
2,183
   
(1,216
)
  
967
   
103
         
1,070
 
Loss Allocated to Minority Interest in Continuing Operations
    
-
   
-
   
-
   
233
   
(G)
    
233
 
                                       
Income (Loss) from Continuing Operations
    
2,183
 
$
(1,216
)
$
967
  
$
336
        
$
1,303
  
                                       
Preferred Distributions
    
1,920
   
-
   
1,920
   
-
         
1,920
 
                                       
Income (Loss) from Continuing Operations applicable to Common Shareholders
  
$
263
  
$
(1,216
)
$
(953
)
$
336
        
$
(617
)
                                       
Earnings Per Share from Continuing Operations applicable to Common Shareholders
                                      
Basic
 
$
0.01
                          
$
(0.03
)
Diluted
  
$
0.01
                          
$
(0.03
)
                                       
Weighted Average Common Shares Outstanding
                                      
Basic
   
20,293,554
                           
20,293,554
 
Diluted
    
20,335,181
                           
20,335,181
 
 
3

HERSHA HOSPITALITY TRUST
 
Notes and Management’s Assumptions to the
Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2005
(Unaudited, Dollar Amounts in Thousands Except per Share Data)

(A)
Represents Hersha’s Consolidated Statement of Operations for the year ended December 31, 2005 as filed on Form 10-K, excluding discontinued operations.

(B)
Represents the historical statement of operations for the AHA Partnership and Metro LLC for the year ended December 31, 2005, included in the combined financial statements of Affordable Hospitality Associates L.P. and Metro JFK Associates, LLC.

(C)
Represents the adjustment to reflect the amortization of the land lease intangible and lease expense for the Metro LLC land lease over the remaining 94 year life of the lease on a straight line basis. The pro forma adjustment is as follows:

Amortization of the land lease intangible and land lease expense on a straight line basis
  
$
427
  
Less: Metro LLC historical land lease expense
    
(353
)
Pro Forma Adjustment
  
$
74
  
 
(D)
Represents the adjustment to reflect the estimated depreciation on property of the AHA Partnership and Metro LLC after the allocation of purchase price, net of the amounts recorded for depreciation in the historical statement of operations for the AHA Partnership and Metro LLC. Depreciation and amortization are computed using the straight-line method and are based upon the estimated useful life of the asset.

We acquired an 80% interest in the AHA Partnership from our partners in the venture. The purchase price allocated to the property of the AHA Partnership represents the historical cost of the property, net of accumulated depreciation, and our portion of the fair value in excess of the net historical cost of the property. The pro forma adjustment reflects the depreciation expense incurred on the fair value in excess of the historical net cost of the property and is as follows:

Assets Acquired
  
Fair Value in excess of Net Historical Cost
  
Life
  
Depreciation Expense
  
Land
  
$
1,203
    
N/A
  
$
-
  
Building and Improvements
    
461
   
40
    
12
 
FF&E
    
1,464
   
7
    
209
 
Pro Forma Adjustment
              
$
221
  

We acquired a 100% interest in Metro LLC and have allocated the purchase price to the assets acquired and liabilities assumed. The purchase price allocated to the property of Metro LLC represents fair value of the property. The property was put in service and began depreciating on February 1, 2005. The pro forma adjustment reflects the depreciation expense incurred on the fair value of the property in excess of the depreciation included in the historical statement of operations for Metro LLC and is as follows:

Assets Acquired
  
Fair Value
  
Life
  
Depreciation Expense
  
               
Building and Improvements
  
$
24,889
    
40
  
$
544
  
FF&E
    
3,621
   
7
    
453
 
Total
                
997
 
Less: Metro LLC historical depreciation
               
(746
)
Pro Forma Adjustment
              
$
251
  
 
4

(E)
Represents the elimination of interest income and interest expense on development loans receivable with related parties and interest bearing deposits with the AHA Partnership and Metro LLC. We maintained a development loan receivable with Metro LLC bearing interest at 10.0% per annum. Interest from this development loan receivable was $1,156 for the year ended December 31, 2005. We also had deposits with the AHA Partnership and Metro LLC bearing interest at 8.0% per annum. Interest from these deposits was $70 for the year ended December 31, 2005.

(F)
Represents the adjustment to reflect the estimated interest expense for the AHA Partnership and Metro LLC on proceeds from the borrowings under the line of credit facility to finance the acquisition, net of interest expense included in the historical statement of operations for the AHA Partnership which was paid down on the date of acquisition. The line of credit bears interest at the Wall Street Journal Prime Rate less 0.50% which was 6.75% as of December 31, 2005. The pro forma adjustment is as follows:
 
 
 
 
    
Principal
    
Weighted
Average
Interest Rate
    
Interest Expense
  
Line of Credit
 
$
26,000
    
5.69
%
$
1,479
  
Less: AHA Partnership historical interest expense
                
(2,128
)
Pro Forma Adjustment
              
$
(649
)
 
(G)
Represents minority interest allocable to our partners in the AHA Partnership and minority interest allocable to holders of units of limited partnership interest in our operating partnership, HHLP.

The balance sheet and results of operation of AHA Partnership will be consolidated in our financial statements. Our 80% interest in the AHA Partnership carries a 9% participating preferred return on our contributed equity, limited by cash available for distribution. The 9% preferred return is non-cumulative. Cash available in excess of our 9% preferred return and the 9% return on our partners contributed equity is distributed in accordance with each partners interest in the AHA partnership. Pro forma cash available for distribution for the year ended December 31, 2005 was $1,702 and is allocated to Hersha in the amount of $1,362 and to our partner in the venture in the amount of $340. Based upon the preferences in cash distributions and upon liquidation, as defined in the partnership agreement, pro forma net loss of $151 was allocated to our partners in the venture due to our preference in the event of liquidation of the AHA Partnership.

We issued 657,895 common units of our operating partnership, HHLP in connection with the acquisition of Metro LLC, increasing the pro forma weighted average units outstanding in HHLP for the year ended December 31, 2005 from 2,842,507 to 3,299,952. As a result, pro forma weighted average minority interest percentage increased from 12.3% to 14.7%. The cumulative minority interest effect of the AHA Partnership and Metro LLC is calculated by using the weighted average minority interest percentage of 14.7% for year ended December 31, 2005, as follows:

Increase in historical Hersha income allocated to HHLP unit holders
        
$
(60
)
               
Minority interest in historical income (loss) of AHA Partnership and Metro LLC
              
Hersha interest in historical income of AHA Partnership
    
1,362
       
Historical Metro LLC net loss
    
(304
)
      
Total Interest in historical net income (loss) of AHA Partnership and Metro LLC
    
1,058
       
Minority interest percentage
   
14.7
%
      
Pro forma adjustment
          
(156
)
               
Minority interest in pro forma adjustments
              
Depreciation pro forma adjustment
    
(472
)
      
Interest expense pro forma adjustment
    
(1,479
)
      
Straight-line lease expense pro forma adjustment
    
(74
)
      
Total pro forma adjustments
    
(2,025
)
      
Minority interest percentage
   
14.7
%
      
Pro forma adjustment
          
298
 
               
Total pro forma adjustments for minority interest due to HHLP unit holders
        
$
82
  
 
The total pro forma adjustment for loss allocated to our partners in the AHA Partnership and the loss allocated to HHLP unit holders is $233.
 
 
5