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Hersha Hospitality Announces Second Quarter 2006 Earnings.

PHILADELPHIA -- Hersha Hospitality Trust (AMEX: HT)

--Highlights:

--Adjusted FFO Rose 42% to $0.34 Per Diluted Share

--Consolidated RevPAR Improved 11.8%

--Acquired Five Hotel Properties with 661 Rooms

Hersha Hospitality Trust (AMEX: HT), a real estate investment trust (REIT) that owns interests in 60 nationally franchised, predominantly upscale and midscale hotels in high barrier-to-entry markets, today announced earnings for the second quarter 2006.

Consolidated Adjusted Funds from Operations (AFFO) for the second quarter 2006 increased to $0.34 per diluted share from $0.24 per diluted in the same quarter of 2005. Net income applicable to common shareholders was $2.2 million, or $0.09 per diluted share compared to net income of $3.8 million, or $0.18 per diluted share in second quarter 2005. The decrease in net income on a year-over-year basis is primarily due to higher depreciation and amortization charges from growth in the Company's portfolio, dividends on the Company's Series A Preferred shares issued in 2005 and increased interest expense, offset by increased hotel operating income.

Mr. Jay H. Shah, Chief Executive Officer, noted, "Our strong AFFO growth of 42% for the second quarter 2006 was due to the accretive contribution of the 25 assets we have acquired since the end of the second quarter 2005 and the overall position of our hotels serving predominantly business travelers. We were also able to timely deploy the capital we raised from common and preferred share offerings in 2005 and 2006. We continue to drive growth in average daily rate (ADR), given the position of our hotels in high barrier-to-entry markets. The combination of our recently opened hotels establishing their operations along with our already solid occupancy enabled the Company to achieve 11.8% Revenue Per Available Room (RevPAR) growth. Furthermore, EBITDA margins expanded 169 basis points for our consolidated hotels."

Financial Highlights for the Second Quarter 2006

For the three month period ended June 30, 2006, consolidated hotel revenues, increased 100% to $38.2 million from $19.1 million in the second quarter 2005 driven primarily by hotel acquisitions and growth in room revenues. RevPAR for the Company's consolidated hotels (44 hotels) increased 11.8% on a year-over-year basis to $89.15 driven by a 10.1% increase in ADR to $112.97 and a 1.6% improvement in occupancy to 78.9%. Gross operating profit margins, increased to 47.0% from 46.7% from the year ago quarter. Total EBITDA for consolidated hotels increased 108.2% to $15.2 million for the second quarter 2006. EBITDA margins for the quarter increased 169 basis points to 39.9% for consolidated hotels.

On a same-store basis (24 hotels), RevPAR for the three month period of the second quarter 2006 increased 7.3% on a year-over-year basis to $92.26 driven by a 6.4% increase in ADR to $116.08 and a 0.9% improvement in occupancy to 79.5%. Same-store EBITDA for the second quarter 2006 increased 10.6% to $9.4 million due to the increase in revenue, offset somewhat by higher utility costs, repairs and maintenance, accounting fees and payroll and benefits costs. The Company anticipates that its same-store results will be more similar to its consolidated results in the future, as the Company annualizes the date of acquisition of each of its acquired hotels.

Other Second Quarter 2006 Highlights

--In April, the Company closed on the sale of 7,497,500 common shares, receiving net proceeds of approximately $63.4 million. The Company used the proceeds to repay outstanding indebtedness under its revolving credit line, to fund acquisitions and development loans and for general corporate purposes.

--In April and May, Hersha closed on the acquisition of four Boston, Massachusetts area hotels for a combined purchase price of $44 million, in two separate transactions, purchasing the 112-room Holiday Inn Express Cambridge, Massachusetts, a 96-suite Residence Inn in North Dartmouth, Massachusetts, a 100-room Hawthorn Suites in Franklin, Massachusetts and an 84-room Comfort Inn in North Dartmouth, Massachusetts.

--In April, the Company also closed the sale of its Holiday Inn Express in Hartford, Connecticut for $3.6 million, which includes the transfer of the existing land lease obligations.

--In June, Hersha closed its acquisition of a 40% interest in the 136-suite extended-stay Homewood Suites by Hilton in Glastonbury, Connecticut. The Company's 40% interest was purchased for approximately $2.5 million and carries a preferred return of 10% per annum.

--In June, the Company signed definitive agreements to purchase the 161-room Hampton Inn in Farmingville, New York and the seven story 133-room Holiday Inn Express in Hauppauge, New York for a total of $39.5 million.

--The Company closed four separate development loans and land lease transactions during the quarter totaling $41 million, each bearing an interest rate of 10%. These loans will fund the development of New York City area hotels including the Sheraton Hotel at the JFK Airport, the Holiday Inn Express Manhattan-Chelsea, the Union Square Hotel and the Times Square Hotel on Eighth Avenue.

The Company's transactions for the second quarter 2006 are detailed in the supplemental schedule at the end of this release and on file on the Company's website.

Financial Highlights for the Six Month Period Ended June 30, 2006

For the six month period ended June 30, 2006, consolidated hotel revenues increased 106.3% to $62.1 million from $30.1 million in the second quarter 2005 driven primarily by hotel acquisitions and growth in room revenues. RevPAR for the Company's consolidated hotels (44 hotels) increased 15.3% on a year-over-year basis to $77.42 driven by a 10.1% increase in ADR to $107.58 and a 4.7% improvement in occupancy to 72.0%. Gross operating profit margins increased to 42.9% from 40.8% in the year ago quarter. Total EBITDA for consolidated hotels increased 132.2% to $21.6 million for the six month period ended June 30, 2006. EBITDA margins for the quarter increased 384 basis points to 34.8% for consolidated hotels.

On a same-store basis (24 hotels), RevPAR for the six month period ended June 30, 2006 increased 8.4% on a year-over-year basis to $76.67 driven by a 4.9% increase in ADR to $106.33 and a 3.3% improvement in occupancy to 72.1%. Same-store EBITDA for the six month period ended June 30, 2006 increased 10.5% to $11.6 million due to the increase in revenue, offset somewhat by higher utility costs, repairs and maintenance, accounting fees and payroll and benefits costs.

Balance Sheet

At June 30, 2006, Hersha Hospitality Trust had approximately $353 million of long-term debt outstanding, which included approximately $51.5 million of Trust Preferred Securities and $10.3 million of long-term debt on assets held for sale. The weighted average interest rate on the Company's fixed rate debt was approximately 6.55%, down from 6.71% in the first quarter 2006. The weighted average life to maturity of the Company's debt was 10.0 years. Fixed rate debt, including variable rate debt fixed by interest rate swaps, amounted to approximately 91.6% of total debt, up from 88.0% of total debt at the end of the first quarter 2006. At June 30, 2006, the Company's diluted common shares and partnership units outstanding were a combined 31,459,391.

Dividend

For the second quarter 2006, Hersha Hospitality Trust declared cash common share and limited partnership unit dividends of $0.18 per common share and unit. The Company's common dividend represents the 29th consecutive quarterly dividend at this amount since the Company's 1999 initial public offering. The common dividend represents a yield of approximately 7.9% based upon the closing price of Hersha Hospitality Trust stock on August 7, 2006. The Board of Trustees also declared a cash dividend of $0.50 per Series A Preferred Share.

Subsequent Events

--In July, Hersha signed an agreement to purchase the remaining two-thirds interest in the joint venture that owns the 144-room Hampton Inn Manhattan-Chelsea from its joint-venture partner, CNL Hotels & Resorts, Inc ("CNL").

--In July, the Company exercised its right of first refusal to purchase the 96-room Residence Inn in Norwood, Massachusetts. The brand new hotel opened on July 27th.

Mr. Shah concluded, "The decision to make the Hampton Inn Manhattan-Chelsea a wholly-owned asset is an example of how we intend to execute our joint-venture strategy. The significant advantage to our joint-venture agreements is that we can monitor the performance of these assets with the view of making these wholly-owned assets, once certain performance metrics are achieved. This allows us to build shareholder value, while minimizing the risk associated with developing a new property or entering a new market."

Outlook for 2006

Assuming a continued strong U.S. economy and limited supply growth, the Company anticipates that its current portfolio, including the acquisitions completed to date, will lead to another year of growth in AFFO.

The Company is maintaining its previously issued guidance for net income available to common shareholders for the full year ended December 31, 2006, which is forecasted to be in the range of $1.25 million to $2.25 million, or $0.04 to $0.08 per weighted average diluted share outstanding. The Company continues to expect AFFO to be in the range of $0.98 to $1.02 per diluted share for the full year ended December 31, 2006.

The Company's expectations for net income available to common shareholders, net income available to common shareholders per weighted average diluted share outstanding and AFFO per diluted share is based upon the Company achieving RevPAR growth of 8% to 10%, as compared to the full year 2005, across the Company's consolidated portfolio, which is also unchanged from the Company's previous report in its first quarter 2006 earnings release.

Second Quarter 2006 Earnings Conference Call

The Company will host a conference call to discuss its second quarter 2006 financial results, tomorrow, August 9, 2006 at 9:00 AM Eastern time. Hosting the call will be Mr. Jay H. Shah, Chief Executive Officer, and Mr. Ashish Parikh, Chief Financial Officer.

The conference call can be accessed by dialing (800) 817-4887 or for international participants (913) 981-4913. A replay of the call will be available from 1:00 PM Eastern time on August 9, 2006, through Midnight on August 16, 2006. The replay can be accessed by dialing (888) 203-1112 or for international participants (719) 457-0820 and entering passcode 6134785.
HERSHA HOSPITALITY TRUST
Summary Results
(in thousands, except shares and
 per share data)
 Three Months Six Months
 Ended Ended
 ----------------- -----------------
 June 30, June 30, June 30, June 30,
 2006 2005 2006 2005
 -------- -------- -------- --------
Revenue:
 Hotel Operating Revenues $38,183 $19,122 $62,084 $30,126

Expenses:
 Hotel Operating Expenses 21,392 10,857 37,350 18,952
 Land Lease 216 109 378 217
 Real Estate and Personal Property
 Taxes and Property Insurance 1,460 837 2,947 1,611
 General and Administrative 1,812 1,135 2,976 2,113
 Depreciation and Amortization 4,609 2,096 8,405 3,751
 -------- -------- -------- --------
Total Operating Expenses 29,489 15,034 52,056 26,644
 -------- -------- -------- --------

Operating Income 8,694 4,088 10,028 3,482

 Interest Income 322 64 480 101
 Interest Income - Secured Loans
 Related Party 295 911 723 1,911
 Other Revenue 230 159 424 203
 Interest Expense 5,923 2,633 11,541 4,259
 Debt Extinguishment 908 - 1,163 -
 -------- -------- -------- --------
Income (loss) before income (loss)
 from Unconsolidated Joint Venture
 Investments, Minority Interests
 and Discontinued Operations 2,710 2,589 (1,049) 1,438

Income (loss) from Unconsolidated
 Joint Venture Investments 769 279 (341) 328
 -------- -------- -------- --------

Income (Loss) before Minority
 Interests and Discontinued
 Operations 3,479 2,868 (1,390) 1,766
 -------- -------- -------- --------

Income (Loss) allocated to
 Minority Interest in Continuing
 Operations 690 399 (325) 157
 -------- -------- -------- --------
Income (Loss) from Continuing
 Operations 2,789 2,469 (1,065) 1,609
 -------- -------- -------- --------

Discontinued Operations (Note 12):
 Gain on Disposition of Hotel
 Properties 434 1,161 434 1,161
 Income (Loss) from Discontinued
 Operations 153 125 123 9
 -------- -------- -------- --------
Income from Discontinued
 Operations 587 1,286 557 1,170

Net Income (Loss) 3,376 3,755 (508) 2,779
 Preferred Distributions 1,200 - 2,400 -
 -------- -------- -------- --------

Net Income (Loss) applicable to
 Common Shareholders $ 2,176 $ 3,755 $(2,908) $ 2,779
 ======== ======== ======== ========


FFO and GAAP Reconciliation

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 Partnership 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 depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our interpretation of the NAREIT definition is that minority 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 shares, includes depreciation and amortization expenses, gains or losses on property sales, minority 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.

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

--adding back depreciation related to discontinued operations;

--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 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 Hersha'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 it excludes the effects of the assumption that the value of real estate assets diminishes predictably over time, and because it is widely used by industry analysts as a performance measure. 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 applicable to all common shares and Partnership units.

The following table reconciles FFO and AFFO for the periods presented to the most directly comparable GAAP measure, net income, for the same periods:
HERSHA HOSPITALITY TRUST
Funds from Operations (FFO)
(in thousands, except
 shares and per share
 data)

 Three Months Ending Six Months Ending
 ----------------------- -----------------------
 6/30/2006 6/30/2005 6/30/2006 6/30/2005
 ----------- ----------- ----------- -----------

Net income (loss)
 applicable to common
 shares $ 2,176 $ 3,755 $ (2,908) $ 2,779
 Income (loss)
 allocated to
 minority interest 690 399 (325) 157
 Income (loss) of
 discontinued
 operations allocated
 to minority interest 21 17 18 1
 (Income) loss from
 unconsolidated joint
 ventures (769) (279) 341 (328)
 Gain on sale of
 assets (434) (1,161) (434) (1,161)
 Depreciation and
 amortization 4,609 2,096 8,405 3,751
 FFO related to the
 minority interests
 in consolidated
 joint ventures (454) (257) (313) (216)
 ----------- ----------- ----------- -----------
 Funds from
 consolidated hotel
 operations applicable
 to common shares and
 Partnership units 5,839 4,570 4,784 4,983

 Income (Loss) from
 Unconsolidated Joint
 Ventures 769 279 (341) 328
 Add:
 Depreciation and
 amortization of
 purchase price in
 excess of
 historical cost 446 - 921 -
 Interest in
 depreciation and
 amortization of
 unconsolidated
 joint venture 1,553 259 2,573 516
 ----------- ----------- ----------- -----------
 Funds from
 unconsolidated joint
 ventures operations
 applicable to common
 shares and
 Partnership units 2,768 538 3,153 844

 ----------- ----------- ----------- -----------
Funds from Operations
 applicable to common
 shares and Partnership
 units 8,607 5,108 7,937 5,827

 Add:
 Depreciation from
 discontinued
 operations - 315 258 622
 Amortization of
 deferred financing
 costs 163 105 375 171
 Deferred financing
 costs written off
 in debt
 extinguishment 908 - 1,163 -
 Interest in deferred
 financing costs
 written off in
 unconsolidated
 joint venture debt
 extinguishment - - 207 -
 Amortization of
 ground lease
 expense 68 58 130 117
 ----------- ----------- ----------- -----------

Adjusted Funds from
 Operations $ 9,746 $ 5,586 $ 10,070 $ 6,737
 =========== =========== =========== ===========

AFFO per Diluted
 Weighted Average
 Common Shares and
 Units Outstanding $ 0.34 $ 0.24 $ 0.38 $ 0.29
 =========== =========== =========== ===========

Diluted Weighted
 Average Common Shares
 and Units Outstanding 29,056,539 23,159,013 26,311,095 23,146,372


HERSHA HOSPITALITY TRUST
Funds from Operations (FFO) -
2006 FORECAST RECONCILIATION
(in thousands, except shares and
 per share data)
 Low High
 Twelve Months Ending
 12/31/2006 12/31/2006
 ----------- -----------

Net Income applicable to common shares $1,250 $2,250
Less:
 (Income) from Unconsolidated Joint Ventures (1,614) (1,914)
Add:
 Depreciation and amortization 19,000 19,000
 ----------- -----------
Funds from Consolidated Hotel Operations 18,636 19,336

Income from Unconsolidated Joint Ventures 1,614 1,914
Add:
 Depreciation and amortization 6,000 6,000
 ----------- -----------
Funds from Unconsolidated Joint Ventures
 Operations 7,614 7,914

 ----------- -----------
Funds from Operations 26,250 27,250

Add:
 Income allocated to minority interest in our
 operating partnership 125 225
 Amortization of deferred financing costs 850 850
 Deferred financing costs written off in debt
 extinguishment 1,300 1,300
 Interest in deferred financing costs written
 off in unconsolidated jv debt extinguishment 207 207
 Amortization of ground lease expense 275 275
 ----------- -----------

Adjusted Funds from Operations $29,007 $30,107
 =========== ===========

Diluted Weighted Average Common Shares and
 Units Outstanding 29,500,000 29,500,000
Adjusted FFO per Diluted Weighted Average
 Common Shares and Units Outstanding $0.98 $1.02
 =========== ===========


EBITDA and GAAP Reconciliation

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. Management believes EBITDA to be a meaningful measure of a REIT's performance 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
EBITDA
(in thousands, except shares and
 per share data)

 Three Months Six Months
 Ended Ended
 ---------------- -----------------
 June 30, June 30,June 30, June 30,
 2006 2005 2006 2005
 -------- ------- -------- --------

Net Income (Loss) applicable to
 common shares $2,176 $3,755 $(2,908) $2,779
Less:
 (Income) Loss from Unconsolidated
 Joint Ventures (769) (279) 341 (328)
 Interest income (617) (975) (1,203) (2,012)
Add:
 Income (Loss) allocated to minority
 interest in common units 390 346 (155) 225
 Income (Loss) allocated to minority
 interest for discontinued
 operations 81 180 81 163
 Interest expense 5,923 2,633 11,541 4,259
 Deferred financing costs written
 off in debt extinguishment 908 - 1,163 -
 Distributions to Series A Preferred
 Shareholders 1,200 - 2,400 -
 Depreciation and amortization from
 continuing operations 4,609 2,096 8,405 3,751
 Depreciation from discontinued
 operations - 315 258 622
 Amortization of ground lease
 expense 68 58 130 117
 -------- ------- -------- --------

 EBITDA from consolidated hotel
 operations 13,969 8,129 20,053 9,576
 -------- ------- -------- --------

Income (Loss) from Unconsolidated
 Joint Ventures 769 279 (341) 328
Add:
 Interest expense 3,415 243 6,304 481
 Deferred financing costs written
 off in debt extinguishment - - 207 -
 Depreciation and amortization of
 purchase price in excess of
 historical cost 446 - 921 -
 Interest in depreciation and
 amortization of unconsolidated
 joint venture 1,553 259 2,573 516
 -------- ------- -------- --------

 EBITDA from unconsolidated joint
 venture operations 6,183 781 9,664 1,325
 -------- ------- -------- --------

EBITDA $20,152 $8,910 $29,717 $10,901
 ======== ======= ======== ========


Supplemental Schedules

The company has included supplemental schedules as an addendum to this press release in order to provide additional disclosure and financial information for the benefit of the company's stakeholders.

About Hersha Hospitality

Hersha Hospitality Trust is a self-advised real estate investment trust that owns interests in 60 midscale, upscale and upper upscale hotel properties with 7,443 rooms located in high barrier to entry markets primarily from Metro Boston, Massachusetts to Metro Washington, DC with strong, national franchise affiliations. The Company focuses on acquisition and joint venture opportunities in primary and secondary markets near major metropolitan markets. More information on the Company is available on the Company's web site at www.hersha.com.

Forward-Looking Statement:

Certain matters within this press release are discussed using forward-looking language as specified in 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 statement.
COPYRIGHT 2006 Business Wire
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2006, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Comment:Hersha Hospitality Announces Second Quarter 2006 Earnings.
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Date:Aug 8, 2006
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