10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

COMMISSION FILE NUMBER: 001-14765

HERSHA HOSPITALITY TRUST

(Exact Name of Registrant as Specified in Its Charter)

Maryland	251811499
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
44 Hersha Drive
Harrisburg, Pennsylvania	17102
(Address of Registrant’s Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (717) 236-4400

Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.

x Yes  ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

¨ Yes  ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨	Accelerated filer x
Non-accelerated filer ¨	Small reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

¨ Yes  x No

As of June 30, 2009, the number of Priority Class A Common Shares of Beneficial Interest outstanding was 49,129,932.

1

Hersha Hospitality Trust

Table of Contents for Quarterly Report on Form 10-Q

Item No.		Page
PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements.	3
	Consolidated Balance Sheets as of June 30, 2009 [Unaudited] and December 31, 2008	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008 [Unaudited]	4
	Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2009 and 2008 [Unaudited]	6
	Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2009 and 2008 [Unaudited]	7
	Notes to the Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	41
Item 4.	Controls and Procedures.	43
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings.	44
Item 1A.	Risk Factors.	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	44
Item 3.	Defaults Upon Senior Securities.	44
Item 4.	Submission of Matters to a Vote of Security Holders.	44
Item 5.	Other Information.	45
Item 6.	Exhibits.	46

2

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements.

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2009 [UNAUDITED] AND DECEMBER 31, 2008

[IN THOUSANDS, EXCEPT SHARE AMOUNTS]

	June 30, 2009			December 31, 2008
Assets:
Investment in Hotel Properties, net of Accumulated Depreciation	$	1,003,855		$	982,082
Investment in Unconsolidated Joint Ventures		44,814			46,283
Development Loans Receivable		68,810			81,500
Cash and Cash Equivalents		12,691			15,697
Escrow Deposits		13,648			12,404
Hotel Accounts Receivable, net of allowance for doubtful accounts of $58 and $120		9,306			6,870
Deferred Financing Costs, net of Accumulated Amortization of $4,673 and $3,606		8,101			9,157
Due from Related Parties		3,171			3,595
Intangible Assets, net of Accumulated Amortization of $709 and $595		7,499			7,300
Other Assets		14,384			13,517
Hotel Assets Held for Sale		26,901			-
Total Assets	$	1,213,180		$	1,178,405
Liabilities and Equity:
Line of Credit	$	113,521		$	88,421
Mortgages and Notes Payable, net of unamortized discount of $56 and $61		663,351			655,360
Accounts Payable, Accrued Expenses and Other Liabilities		31,789			17,745
Dividends and Distributions Payable		3,867			11,240
Due to Related Parties		227			302
Liabilities Related to Hotel Assets Held for Sale		18,707			-
Total Liabilities		831,462			773,068
Redeemable Noncontrolling Interests - Common Units (Note 1)	$	17,549		$	18,739
Equity:
Shareholders' Equity:
Preferred Shares - 8% Series A, $.01 Par Value, 2,400,000 Shares Issued and Outstanding (Aggregate Liquidation Preference $60,000) at June 30, 2009 and December 31, 2008		24			24
Common Shares - Class A, $.01 Par Value, 150,000,000 and 80,000,000 Shares Authorized at June 30, 2009 and December 31, 2008, 49,129,932 and 48,276,222 Shares Issued and Outstanding at June 30, 2009 and December 31, 2008, respectively		491			483
Common Shares - Class B, $.01 Par Value, 1,000,000 Shares Authorized, None Issued and Outstanding		-			-
Accumulated Other Comprehensive Loss		(74	)		(109	)
Additional Paid-in Capital		464,870			463,772
Distributions in Excess of Net Income		(135,353	)		(114,207	)
Total Shareholders' Equity		329,958			349,963
Noncontrolling Interests (Note 1):
Noncontrolling Interests - Common Units		32,571			34,781
Noncontrolling Interests - Consolidated Joint Ventures		1,640			1,854
Total Noncontrolling Interests		34,211			36,635
Total Equity		364,169			386,598
Total Liabilities and Equity	$	1,213,180		$	1,178,405

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

3

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

	Three Months Ended						Six Months Ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Revenue:
Hotel Operating Revenues	$	57,973		$	63,709		$	100,544		$	112,943
Interest Income from Development Loans		2,166			2,153			4,563			4,173
Land Lease Revenue		1,328			1,390			2,649			2,724
Other Revenues		149			342			365			594
Total Revenues		61,616			67,594			108,121			120,434
Operating Expenses:
Hotel Operating Expenses		31,791			33,976			60,141			64,011
Hotel Ground Rent		291			216			583			442
Land Lease Expense		732			745			1,456			1,494
Real Estate and Personal Property Taxes and Property Insurance		3,394			2,820			6,609			5,858
General and Administrative		1,374			1,478			2,853			3,036
Stock Based Compensation		499			313			921			627
Acquisition and Terminated Transaction Costs		37			49			44			49
Depreciation and Amortization		10,900			9,505			21,478			18,596
Total Operating Expenses		49,018			49,102			94,085			94,113
Operating Income		12,598			18,492			14,036			26,321
Interest Income		50			101			110			183
Interest Expense		10,951			10,058			21,326			20,308
Other Expense		31			159			81			187
Income (loss) before loss (income) from Unconsolidated Joint Venture Investments and Discontinued Operations		1,666			8,376			(7,261	)		6,009
(Loss) income from Unconsolidated Joint Venture Investments		(395	)		1,360			(1,724	)		622
Income (loss) from Continuing Operations		1,271			9,736			(8,985	)		6,631
Discontinued Operations  (Note 12):
Income (loss) from Discontinued Operations		213			226			(214	)		(554	)
Net Income (loss)		1,484			9,962			(9,199	)		6,077
(Income) loss allocated to Noncontrolling Interests		(451	)		(1,737	)		1,602			(730	)
Preferred Distributions		(1,200	)		(1,200	)		(2,400	)		(2,400	)
Net (Loss) income applicable to Common Shareholders	$	(167	)	$	7,025		$	(9,997	)	$	2,947

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

4

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

	Three Months Ended						Six Months Ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Earnings Per Share:
BASIC
(Loss) income from continuing operations applicable to common shareholders	$	0.00		$	0.16		$	(0.21	)	$	0.08
Income (loss) from discontinued operations applicable to common shareholders		0.00			0.00			0.00			(0.01	)
Net (loss) income applicable to common shareholders	$	0.00		$	0.16		$	(0.21	)	$	0.07
DILUTED
Income (loss) from continuing operations applicable to common shareholders	$	0.00	*	$	0.16	*	$	(0.21	)*	$	0.08	*
Income (loss) from discontinued operations applicable to common shareholders		0.00	*		0.00	*		0.00	*		(0.01	) *
Net (loss) income applicable to common shareholders	$	0.00	*	$	0.16	*	$	(0.21	)*	$	0.07	*
Weighted Average Common Shares Outstanding:
Basic		47,964,818			44,253,641			47,876,175			42,572,390
Diluted		47,964,818	*		44,253,641	*		47,876,175	*		42,572,390	*

* Income allocated to noncontrolling interest in Hersha Hospitality Limited Partnership has been excluded from the numerator and units of limited partnership interest in Hersha Hospitality Limited Partnership have been omitted from the denominator for the purpose of computing diluted earnings per share since the effect of including these amounts in the numerator and denominator would have no impact. Weighted average units of limited partnership interest in Hersha Hospitality Limited Partnership outstanding for the three months ended June 30, 2009 and 2008 were 8,746,300 and 7,447,149, respectively.  Weighted average units of limited partnership interest in Hersha Hospitality Limited Partnership outstanding for the six months ended June 30, 2009 and 2008 were 8,746, 300 and 7,312,974, respectively. Unvested stock awards have been omitted from the denominator for the purpose of computing diluted earnings per share for the three months ended June 30, 2009 and 2008, and for the six months ended June 30, 2009 and 2008 since the effect of including these awards in the denominator would be anti-dilutive to income from continuing operations applicable to common shareholders.

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

5

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

	Shareholders' Equity																		Noncontrolling Interests												Redeemable Noncontrolling Interests
	Series A Preferred Shares		Class A Common Shares		Class B Common Shares		Additional Paid-In Capital			Other Comprehensive Income			Distributions in Excess of Net Earnings			Total Shareholders' Equity			Common Units			Consolidated Joint Ventures			Total Noncontrolling Interests			Total Equity			Common Units
Balance at December 31, 2008	$	24	$	483	$	-	$	463,772		$	(109	)	$	(114,207	)	$	349,963		$	34,781		$	1,854		$	36,635		$	386,598		$	18,739
Common Share Issuance, net of costs		-		1		-		129			-			-			130			-			-			-			130			-
Dividends and Distribution declared:
Preferred Shares ($1.00 per share)		-		-		-		-			-			(2,400	)		(2,400	)		-			-			-			(2,400	)		-
Common Shares ($0.23 per share)		-		-		-		-			-			(11,149	)		(11,149	)		-			-			-			(11,149	)		-
Common Units ($0.23 per share)		-		-		-		-			-			-			-			(1,307	)		-			(1,307	)		(1,307	)		(705	)
Dividend Reinvestment Plan		-		-		-		19			-			-			19			-			-			-			19			-
Stock Based Compensation
Restricted Share Award Grants		-		7		-		(7	)		-			-			-			-			-			-			-			-
Restricted Share Award Vesting		-		-		-		873			-			-			873			-			-			-			873			-
Share Grants to Trustees		-		-		-		84			-			-			84			-			-			-			84			-
Comprehensive Loss:
Other Comprehensive Income		-		-		-		-			35			-			35			-			-			-			35			-
Net Loss		-		-		-		-			-			(7,597	)		(7,597	)		(903	)		(214	)		(1,117	)		(8,714	)		(485	)
Total Comprehensive Loss																	(7,562	)		(903	)		(214	)		(1,117	)		(8,679	)		(485	)
Balance at June 30, 2009	$	24	$	491	$	-	$	464,870		$	(74	)	$	(135,353	)	$	329,958		$	32,571		$	1,640		$	34,211		$	364,169		$	17,549
Balance at December 31, 2007	$	24	$	412	$	-	$	397,127		$	(23	)	$	(67,135	)	$	330,405		$	42,845		$	1,908		$	44,753		$	375,158		$	-
Unit Conversion		-		-		-		282			-			-			282			(282	)		-			(282	)		-			-
Reallocation of Noncontrolling Interest		-		-		-		1,772			-			-			1,772			(1,772	)		-			(1,772	)		-			-
Common Units Issued for Acquisitions		-		-		-		-			-			-			-			21,623			-			21,623			21,623			-
Common Share Issuance, net of costs		-		66		-		61,944			-			-			62,010			-			-			-			62,010			-
Dividends and Distribution declared:
Preferred Shares ($1.00 per share)		-		-		-		-			-			(2,400	)		(2,400	)		-			-			-			(2,400	)		-
Common Shares ($0.36 per share)		-		-		-		-			-			(16,085	)		(16,085	)		-			-			-			(16,085	)		-
Common Units ($0.36 per share)		-		-		-		-			-			-			-			(2,895	)		-			(2,895	)		(2,895	)		-
Dividend Reinvestment Plan		-		-		-		15			-			-			15			-			-			-			15			-
Stock Based Compensation
Restricted Share Award Grant		-		2		-		(2	)		-			-			-			-			-			-			-			-
Restricted Share Award Vesting		-		-		-		573			-			-			573			-			-			-			573			-
Share Grants to Trustees		-		1		-		91			-			-			92			-			-			-			92			-
Comprehensive Income (Loss):
Other Comprehensive Income		-		-		-		-			2			-			2			-			-			-			2			-
Net Income (Loss)		-		-		-		-			-			5,347			5,347			918			(187	)		730			6,077			-
Total Comprehensive Income (Loss)																	5,349			918			(187	)		730			6,079			-
Balance at June 30, 2008	$	24	$	481	$	-	$	461,802		$	(21	)	$	(80,273	)	$	382,013		$	60,437		$	1,721		$	62,157		$	444,170		$	-

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

6

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS]

	For the Six Months Ended
	June 30, 2009			June 30, 2008
Operating activities:
Net (loss) income	$	(9,199	)	$	6,077
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		22,084			19,536
Amortization of intangible assets and deferred costs		1,177			719
Interest income from development loans paid in-kind		(2,061	)		-
Equity in loss (income) of unconsolidated joint venture investments		1,724			(622	)
Distributions from unconsolidated joint venture investments		400			1,415
(Gain) loss recognized on change in fair value of derivative instrument		(151	)		32
Stock based compensation		921			627
Change in assets and liabilities:
(Increase) decrease in:
Hotel accounts receivable		(2,230	)		(3,652	)
Escrow Deposits		(1,244	)		36
Other assets		(3,290	)		216
Due from related parties		1,061			(1,087	)
Increase (decrease) in:
Due to related parties		(1,125	)		410
Accounts payable, accrued expenses and other liabilities		1,233			(990	)
Net cash provided by operating activities		9,300			22,717
Investing activities:
Purchase of hotel property assets		(4,794	)		(57,312	)
Capital expenditures		(4,033	)		(13,022	)
Cash paid for franchise fee intangible		-			(12	)
Investment in development loans receivable		(2,000	)		(29,700	)
Repayment of development loans receivable		-			15,416
Distributions from unconsolidated joint venture investments		100			347
Advances and capital contributions to unconsolidated joint venture investments		(753	)		(96	)
Net cash used in investing activities		(11,480	)		(84,379	)
Financing activities:
Proceeds from (repayments of) borrowings under line of credit, net		25,100			3,900
Principal repayment of mortgages and notes payable		(3,313	)		(2,297	)
Proceeds from mortgages and notes payable		182			31,589
Cash paid for mortgage defeasance deposit		-			(9,000	)
Cash paid for deferred financing costs		(11	)		(80	)
Proceeds from issuance of common shares, net of issuance costs		131			62,009
Dividends paid on common shares		(17,366	)		(14,820	)
Dividends paid on preferred shares		(2,400	)		(2,400	)
Distributions paid on common units		(3,149	)		(2,594	)
Net cash (used in) provided by financing activities		(826	)		66,307
Net (decrease) increase in cash and cash equivalents		(3,006	)		4,645
Cash and cash equivalents - beginning of period		15,697			12,327
Cash and cash equivalents - end of period	$	12,691		$	16,972

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

7

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Hersha Hospitality Trust (“we,” “us,” “our” or the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information and with the general instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals), considered necessary for fair presentation, have been included. Operating results for the three and six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009 or any future period.  Accordingly, readers of these consolidated interim financial statements should refer to the Company’s audited financial statements prepared in accordance with GAAP, and the related notes thereto, for the year ended December 31, 2008, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 as certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report pursuant to the rules of the SEC.

We are the sole general partner in our operating partnership subsidiary, Hersha Hospitality Limited Partnership (“HHLP”), which is indirectly the sole general partner of the subsidiary partnerships.

Application of New Accounting Standards

Effective January 1, 2009, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements (“SFAS No. 160”), which defines a noncontrolling interest as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent.  Under SFAS No. 160, such noncontrolling interests are reported on the consolidated balance sheets within equity, but separately from the Company’s equity.  Revenues, expenses and net income or loss attributable to both the Company and noncontrolling interests are reported on the consolidated statements of operations.

In accordance with FASB Emerging Issues Task Force (“EITF”) Topic No. D-98, “Classification and Measurement of Redeemable Securities” (“EITF D-98”), we classify securities that are redeemable for cash or other assets at the option of the holder, or not solely within the control of the issuer, outside of permanent equity in the consolidated balance sheet.  The Company makes this determination based on terms in applicable agreements, specifically in relation to redemption provisions.  Additionally, with respect to noncontrolling interests for which the Company has a choice to settle the contract by delivery of its own shares, the Company considers the guidance in EITF Topic No. 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock” to evaluate whether the Company controls the actions or events necessary to issue the maximum number of common shares that could be required to be delivered at the time of settlement of the contract.

As a result of the adoption of SFAS No. 160, we have reclassified the noncontrolling interests of our consolidated joint ventures from the mezzanine section of our consolidated balance sheets to equity.  These noncontrolling interests totaled $1,640 as of June 30, 2009 and $1,854 as of December 31, 2008.  In addition, certain common units of limited partnership interests in HHLP (“Nonredeemable Common Units”) were reclassified from the mezzanine section of our consolidated balance sheets to equity.  These noncontrolling interests of Nonredeemable Common Units totaled $32,571 as of June 30, 2009 and $34,781 as of December 31, 2008.  As of June 30, 2009, there were 5,682,048 Nonredeemable Common Units outstanding with a fair market value of $14,091, based on the price per share of our common shares on the New York Stock Exchange on such date.  These units are only redeemable by the unit holders for common shares on a one-for-one basis or, at our option, cash.

Certain common units of limited partnership interests in HHLP (“Redeemable Common Units”) have been pledged as collateral in connection with a pledge and security agreement entered into by the Company and the holders of the Redeemable Common Units.  The redemption feature contained in the pledge and security agreement where the Redeemable Common Units serve as collateral contains a provision that could result in a net cash settlement outside of the control of the Company.  As a result, the Redeemable Common Units will continue to be classified in the mezzanine section of the consolidated balance sheets as they do not meet the requirements for equity classification under EITF D-98.  As prescribed by EITF D-98, the carrying value of the Redeemable Common Units equals the greater of carrying value based on the accumulation of historical cost or the redemption value.  As of June 30, 2009, there were 3,064,252 Redeemable Common Units outstanding with a fair market value of $7,599, based on the price per share of our common shares on the New York Stock Exchange on such date.  As of June 30, 2009 and December 31, 2008, the Redeemable Common Units were valued on the consolidated balance sheets at carrying value based on historical cost of $17,549 and $18,739, respectively, since historical cost exceeded the Redeemable Common Units redemption value as of each date.

8

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 1 — BASIS OF PRESENTATION (CONTINUED)

Net income or loss related to Nonredeemable Common Units and Redeemable Common Units (collectively, “Common Units”), as well as the net income or loss related to the noncontrolling interests of our consolidated joint ventures, is included in net income or loss in the consolidated statements of operations.  Net income or loss related to the Common Units and the noncontrolling interests of our consolidated joint ventures is excluded from net income or loss applicable to common shareholders in the consolidated statements of operations.

Recent Accounting Pronouncements

FSP EITF 08-6

In November 2008, the FASB ratified EITF 08-6 “Equity Method Investment Accounting Considerations” which clarifies how to account for certain transactions involving equity method investments.  The initial measurement, decreases in value and changes in the level of ownership of the equity method investment are addressed.  EITF 08-6 is effective for the Company beginning on January 1, 2009, consistent with the effective dates of SFAS No. 141R and SFAS No. 160.  EITF 08-6 will be applied prospectively.  The adoption of EITF 08-6 did not have a material impact on the Company’s consolidated financial position and results of operations.

SFAS No. 141R

On January 1, 2009, we adopted SFAS No. 141R, “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at “full fair value.” The adoption of SFAS No.141R could have a material effect on the Company’s financial statements and the Company’s future financial results to the extent the Company acquires significant amounts of real estate assets.  Under SFAS No. 141R, costs related to future acquisitions will be expensed as incurred compared to the Company’s practice prior to the adoption of SFAS No. 141R of capitalizing such costs and amortizing them over the useful life of the acquired assets.  In addition, to the extent the Company enters into acquisition agreements after the adoption of SFAS No. 141R with earn-out provisions, a liability may be recorded at the time of acquisition based on an estimate of the earn-out to be paid compared to our current practice of recording a liability for the earn-out when amounts are probable and determinable.

SFAS No. 161

In March 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. The objective of the guidance is to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Our adoption of SFAS No. 161 on January 1, 2009 did not have a material effect on our financial statements.

FSP EITF 03-6-1

In June 2008, the FASB issued FASB Staff Position on Emerging Issues Task Force Issue 03-6, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share (“EPS”) pursuant to the two-class method. We adopted FSP EITF 03-6-1 on January 1, 2009 and as a result all prior-period EPS data presented has been adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of FSP EITF 03-6-1. Our adoption of this statement did not impact our financial position or net income.

9

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 1 — BASIS OF PRESENTATION (CONTINUED)

SFAS No. 165

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and disclosures that an entity should make about events or transactions that occurred after the balance sheet date.  We adopted the provisions of SFAS No. 165 in our Quarterly Report on Form 10-Q for the period ended June 30, 2009.  Adoption of this statement did not impact our financial position or net income.

SFAS No. 167

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”).  SFAS No. 167 amends FIN 46(R) as follows: (a) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity and to identify the primary beneficiary of a variable interest entity, (b) to require ongoing reassessment of whether an enterprise is the primary beneficiary of a variable interest entity, rather than only when specific events occur, (c) to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity, (d) to amend certain guidance for determining whether an entity is a variable interest entity, (e) to add an additional reconsideration event when changes in facts and circumstances pertinent to a variable interest entity occur, (f) to eliminate the exception for troubled debt restructuring regarding variable interest entity reconsideration, and (g) to require advanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity.  SFAS No. 167 is effective for the first annual reporting period that begins after November 15, 2009.  Earlier adoption is prohibited.  The Company will adopt SFAS 167 on January 1, 2010 and has not determined whether the adoption of SFAS No. 167 will have a material effect on the Company’s financial statements.

SFAS No. 168

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.”  SFAS No. 168 replaces FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” and establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP.  SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009.  The adoption of SFAS No. 168 will not have any impact on the Company’s consolidated financial position and results of operations.

10

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 2 — INVESTMENT IN HOTEL PROPERTIES

Investment in Hotel Properties consists of the following at June 30, 2009 and December 31, 2008:

	June 30, 2009			December 31, 2008
Land	$	204,259		$	184,879
Buildings and Improvements		818,140			802,760
Furniture, Fixtures and Equipment		120,321			121,991
		1,142,720			1,109,630
Less Accumulated Depreciation		(138,865	)		(127,548	)
Total Investment in Hotel Properties	$	1,003,855		$	982,082

Acquisitions

On May 1, 2009, we acquired, from an unaffiliated seller, a 49% membership interest in York Street, LLC, the owner of the Hilton Garden Inn, TriBeCa, New York, NY.  In connection with the acquisition of our 49% interest in York Street, LLC, we also entered into an option agreement to acquire the seller’s remaining 51% interest in York Street, LLC.  On June 30, 2009, we exercised the option and acquired the remaining 51% interest in York Street, LLC making the Hilton Garden Inn, TriBeCa, New York, NY, wholly owned.  Consideration given to acquire our 100% interest in York Street, LLC included:

Cash paid to seller	$	4,794
Amounts payable to seller		1,387
Settlement of development loans receivable and accrued interest income on development loans		19,555	*
Net obligation to transfer land and mortgage to seller		10,118	**
Assumption of York Street, LLC mortgage loan payable		29,824
Net hotel working capital liabilities assumed		1,322
Total consideration given	$	67,000

*           “Settlement of development loans receivable and accrued interest income on development loans” consists of principal and accrued interest receivable reductions with respect to development loans made to York Street, LLC and Maiden Hotel, LLC, an entity controlled by the seller.  See “Note 4 – Development Loans Receivable and Land Leases” for more information related to the development loans made to York Street, LLC and Maiden Hotel, LLC.

**         “Net obligation to transfer land and mortgage to seller” consists of our investment in real property at 440 West 41st Street, New York, NY, and related land lease revenue receivable.  This parcel was acquired on July 28, 2006 and leased to Metro Forty First Street, LLC, an entity controlled by the seller. We are obligated to transfer this property to Metro Forty First Street, LLC, and that entity will assume our obligations under the $12,100 mortgage loan encumbering the property.  See Note 4 – Development Loans Receivable and Land Leases” for more information related to the real property leased to Metro Forty First Street, LLC.

Cash payable to the seller of $1,387 was held back at settlement pending the seller’s completion of certain capital expenditures and the delivery on the Company’s obligation to transfer land to the seller.  The mortgage loan assumed in connection with the acquisition of the equity interests in York Street, LLC is secured by the Hilton Garden Inn, TriBeCa, New York, NY, matures in July 2010 and bears interest at the Wall Street Journal variable prime rate plus 1.0% subject to a weighted average interest rate floor of 8.40%.

11

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 2 — INVESTMENT IN HOTEL PROPERTIES (CONTINUED)

York Street, LLC was acquired at fair value which was allocated as follows:

Land	$	21,077
Building and Improvements		42,955
Furniture, Fixture and Equipment		2,668
Intangible Assets		300
Fair Value of Assets Acquired	$	67,000

We recorded the intangible asset for the lease of restaurant space in the hotel that was in place at the time of acquisition.  The lease is with an unrelated third party and has 15 years remaining until expiration with one five year extension option.  Fixed rent under this lease is a minimum of $300 per annum for the first five years of the lease and a minimum of $336 and $376 per annum for the second and third five-year periods of the lease.

Included in the consolidated statements of operations for the three and six months ended June 30, 2009, are total revenues of approximately $1,402 and net loss of $94 from the operations of the Hilton Garden Inn, TriBeCa, New York, NY, since the date of the acquisition.

Earn-out Provisions

The purchase agreements for some of our previous acquisitions contain certain provisions that entitle the seller to an earn-out payment based on the Net Operating Income of the properties, as defined in each purchase agreement.  The following table summarizes our existing earn-out provisions:

Acquisition Date	Acquisition Name	Maximum Earn-Out Payment Amount		Earn-Out Period Expiration
12/28/2006	Summerfield Suites Portfolio	$	6,000,000	December 31, 2009
6/26/2008	Holiday Inn Express, Camp Springs, MD		1,905,000	December 31, 2010
8/1/2008	Hampton Inn & Suites, Smithfield, RI		1,515,000	December 31, 2010

We are currently unable to determine whether amounts will be paid under these three earn-out provisions since significant time remains until the expiration of the earn-out periods.  Due to uncertainty of the amounts that will ultimately be paid, no accrual has been recorded on the consolidated balance sheet for amounts due under these earn-out provisions. In the event amounts are payable under these provisions, payments made will be recorded as additional consideration given for the properties.

12

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 2 — INVESTMENT IN HOTEL PROPERTIES (CONTINUED)

Pro forma Results (Unaudited)

The following condensed pro forma financial data is presented as if all 2009 and 2008 acquisitions had been consummated as of January 1, 2008.  Properties acquired without any operating history are excluded from the condensed pro forma operating results.  The condensed pro forma information is not necessarily indicative of what actual results of operations of the Company would have been assuming the acquisitions had been consummated at the beginning of the year presented, nor does it purport to represent the results of operations for future periods.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2009			2008			2009			2008
Pro Forma Total Revenues	$	62,331		$	68,621		$	109,857		$	122,074
Pro Forma Income (loss) from Continuing Operations applicable to Common Shareholders	$	1,592		$	9,887		$	(9,300	)	$	6,806
Income (loss) from Discontinued Operations		213			226			(214	)		(554	)
Pro Forma Net Income (loss)		1,805			10,113			(9,514	)		6,252
(Income) loss allocated to Noncontrolling Interest		(500	)		(1,759	)		1,651			(756	)
Preferred Distributions		(1,200	)		(1,200	)		(2,400	)		(2,400	)
Pro Forma Net (loss) income applicable to Common Shareholders	$	105		$	7,154		$	(10,263	)	$	3,096
Pro Forma (loss) income applicable to Common Shareholders per Common Share
Basic	$	-		$	0.16		$	(0.21	)	$	0.07
Diluted	$	-		$	0.16		$	(0.21	)	$	0.07
Weighted Average Common Shares Outstanding
Basic		47,964,818			44,253,641			47,876,175			42,572,390
Diluted		47,964,818			44,253,641			47,876,175			42,572,390

13

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 3 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

We account for our investment in the following unconsolidated joint ventures using the equity method of accounting.  As of June 30, 2009 and December 31, 2008, our investment in unconsolidated joint ventures consists of the following:

		Percent			Preferred	June 30,		December 31,
Joint Venture	Hotel Properties	Owned			Return	2009		2008
PRA Glastonbury, LLC	Hilton Garden Inn,   Glastonbury, CT		48.0	%	11.0% cumulative	$	551	$	738
Inn American Hospitality   at Ewing, LLC	Courtyard by Marriott,   Ewing, NJ		50.0	%	11.0% cumulative		674		736
Hiren Boston, LLC	Courtyard by Marriott,   Boston, MA		50.0	%	N/A		3,743		3,960
SB Partners, LLC	Holiday Inn Express,   Boston, MA		50.0	%	N/A		1,950		2,091
Mystic Partners, LLC	Hilton and Marriott branded   hotels in CT and RI		8.8%-66.7	%	8.5% non-cumulative		27,874		27,977
PRA Suites at   Glastonbury, LLC	Homewood Suites,   Glastonbury, CT		48.0	%	10.0% non-cumulative		2,798		2,800
Metro 29th Street   Associates, LLC	Holiday Inn Express,   New York, NY		50.0	%	N/A		7,224		7,981
						$	44,814	$	46,283

Income or loss from our unconsolidated joint ventures is allocated to us and our joint venture partners consistent with the allocation of cash distributions in accordance with the joint venture agreements. Any difference between the carrying amount of these investments and the underlying equity in net assets is amortized over the expected useful lives of the properties and other intangible assets. Gains and losses recognized during the three and six months ended June 30, 2009 and 2008 for our investments in unconsolidated joint ventures is as follows:

	Three Months Ended						Six Months Ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
PRA Glastonbury, LLC	$	(6	)	$	60		$	(87	)	$	65
Inn American Hospitality at Ewing, LLC		12			61			(63	)		2
Hiren Boston, LLC		15			111			(217	)		(169	)
SB Partners, LLC		21			76			(141	)		(7	)
Mystic Partners, LLC		(449	)		426			(857	)		21
PRA Suites at Glastonbury, LLC		(2	)		(2	)		(2	)		(4	)
Metro 29th Street Associates, LLC		14			628			(357	)		714
Net (loss) income from Investment in Unconsolidated Joint Ventures	$	(395	)	$	1,360		$	(1,724	)	$	622

14

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 3 — INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)

The following tables set forth the total assets, liabilities, and equity, including the Company’s share, related to the unconsolidated joint ventures discussed above as of June 30, 2009 and December 31, 2008.

Balance Sheets
	June 30,			December 31,
	2009			2008
Assets
Investment in hotel properties, net	$	203,349		$	209,468
Other Assets		26,432			25,334
Total Assets	$	229,781		$	234,802
Liabilities and Equity
Mortgages and notes payable	$	219,093		$	219,889
Other liabilities		14,741			11,636
Equity:
Hersha Hospitality Trust		44,197			44,938
Joint Venture Partner(s)		(48,250	)		(41,661	)
Total Equity		(4,053	)		3,277
Total Liabilities and Equity	$	229,781		$	234,802

The following table is a reconciliation of the Company’s share in the unconsolidated joint ventures to the Company’s investment in the unconsolidated joint ventures as presented on the Company’s balance sheets as of June 30, 2009 and December 31, 2008.

	June 30,		December 31,
	2009		2008
Company's Share	$	44,197	$	44,938
Excess Investment (1)		617		1,345
Investment in Joint Venture	$	44,814	$	46,283

(1) Excess investment represents the unamortized difference between the Company's investment and the Company's share of the equity in the underlying net investment in the unconsolidated joint ventures. The excess investment is amortized over the expected useful life of the properties, and the amortization is included in income or loss from investments in unconsolidated joint ventures.

The following table sets forth the components of net loss, including the Company’s share, related to the unconsolidated joint ventures discussed above for the three and six months ended June 30, 2009 and 2008.

Statements of Operations

	Three Months Ended						Six Months Ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Room Revenue	$	21,444		$	27,355		$	38,550		$	49,839
Other Revenue		6,082			8,162			11,395			15,485
Operating Expenses		(17,209	)		(21,351	)		(33,781	)		(41,512	)
Interest Expense		(4,083	)		(3,319	)		(7,316	)		(6,808	)
Lease Expense		(1,378	)		(1,379	)		(2,743	)		(2,753	)
Property Taxes and Insurance		(1,630	)		(1,703	)		(3,271	)		(3,404	)
Federal & State Income Taxes		(19	)		-			(19	)		-
Depreciation and Amortization		(3,625	)		(3,971	)		(7,213	)		(7,851	)
General and Administrative		(1,796	)		(1,997	)		(3,629	)		(3,889	)
Net (loss) income	$	(2,214	)	$	1,797		$	(8,027	)	$	(893	)

15

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 4 — DEVELOPMENT LOANS RECEIVABLE AND LAND LEASES

Development Loans

We have approved first mortgage and mezzanine lending to hotel developers, including entities in which our executive officers and affiliated trustees own an interest, to enable such entities to construct hotels and conduct related improvements on specific hotel projects at interest rates ranging from 10% to 20%.  Interest income from development loans was $2,166 and $2,153 for the three months ended June 30, 2009 and 2008, respectively, and $4,563 and $4,173 for the six months ended June 30, 2009 and 2008, respectively. Accrued interest on our development loans receivable was $2,474 as of June 30, 2009 and $2,785 as of December 31, 2008.

Hotel Property	Borrower	Principal Outstanding 6/30/2009		Principal Outstanding 12/31/2008		Interest Rate			Maturity Date **
Hampton Inn & Suites - West Haven, CT	44 West Haven Hospitality, LLC	$	2,000	$	2,000		10	%	October 9, 2009 *
Hilton Garden Inn - New York, NY	York Street, LLC		-		15,000		11	%		N/A
Homewood Suites - Newtown, PA	Reese Hotels, LLC		500		500		11	%	November 14, 2009
Union Square Hotel - Union Square, NY	Risingsam Union Square, LLC		10,936		10,000		10	%	December 31, 2010
Hyatt Place - Manhattan, NY	Brisam East 52, LLC		10,672		10,000		10	%	January 16, 2010
Lexington Avenue Hotel - Manhattan, NY	44 Lexington Holding, LLC		10,966		10,000		11	%	December 31, 2010 *
Renaissance by Marriott - Woodbridge, NJ	Hersha Woodbridge Associates, LLC		5,000		5,000		11	%	April 1, 2010 *
32 Pearl - Manhattan, NY	SC Waterview, LLC		8,000		8,000		10	%	January 10, 2010
Greenwich Street Courtyard - Manhattan, NY	Brisam Greenwich, LLC		10,736		10,000		10	%	December 31, 2010
Independent Hotel - New York, NY	Maiden Hotel, LLC		7,000		10,000		20	%	December 8, 2009
Hilton Garden Inn - Dover, DE	44 Aasha Hospitality Associates, LLC		1,000		1,000		10	%	November 1, 2009 *
Element Hotel - Ewing, New Jersey	American Properties @ Scotch Road LLC		2,000		-		11	%	August 6, 2010 *
Total Development Loans Receivable		$	68,810	$	81,500

*      Indicates borrower is a related party.

**    Represents current maturity date in effect. Agreements for our development loans receivable typically allow for two one-year extensions which can be exercised by the borrower if the loan is not in default.  As these loans typically finance hotel development projects, it is common for the borrower to exercise their options to extend the loans, in whole or in part, until the project has been completed and the project provides cash flow to the developer or is refinanced by the developer.

We amended the following development loans to allow the borrower to elect, quarterly, to pay accrued interest in-kind by adding the accrued interest to the principal balance of the loan as of June 30, 2009:

	Interest Income				Accrued Interest Paid In-Kind
Borrower	Three Months Ended June 30, 2009		Six Months Ended June 30, 2009		Three Months Ended June 30, 2009		Six Months Ended June 30, 2009
Risingsam Union Square, LLC	$	253	$	503	$	936	$	936
Brisam East 52, LLC		253		503		672		672
44 Lexington Holding, LLC*		278		553		966		966
Brisam Greenwich, LLC		253		503		736		736
Total	$	1,037	$	2,062	$	3,310	$	3,310

*      Indicates borrower is a related party.

16

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 4 — DEVELOPMENT LOANS RECEIVABLE AND LAND LEASES (CONTINUED)

Land Leases

We acquire land and improvements and lease them to entities, including entities in which our executive officers and affiliated trustees own an interest, to enable such entities to construct hotels and related improvements on the leased land.  The land is leased under fixed lease agreements which earn rents at a minimum rental rate of 10% of our net investment in the leased property. Additional rents are paid by the lessee for the interest on the mortgage, real estate taxes and insurance. Revenues from our land leases are recorded in land lease revenue on our consolidated statement of operations.  All expenses related to the land leases are recorded in operating expenses as land lease expense.  Leased land and improvements are included in investment in hotel properties on our consolidated balance sheet.  As of June 30, 2009 and December 31, 2008 our investment in leased land and improvements consists of the following:

	Investment In Leased Properties
Location	Land		Improvements		Other		Total Investment		Debt		Net Investment		Acquisition/ Lease Date	Lessee
440 West 41st Street, New York, NY	$	10,735	$	11,051	$	196	$	21,982	$	12,100	$	9,882	7/28/2006	Metro Forty First Street, LLC
39th Street and 8th Avenue, New York, NY		21,774		-		541		22,315		13,250		9,065	6/28/2006	Metro 39th Street Associates, LLC
Nevins Street, Brooklyn, NY		10,650		-		269		10,919		6,500		4,419	6/11/2007 & 7/11/2007	H Nevins Street Associates, LLC *
Total	$	43,159	$	11,051	$	1,006	$	55,216	$	31,850	$	23,366

*Indicates lessee is a related party

The land parcel located at 440 West 41st Street, New York, NY, is to be transferred to the lessee, an entity controlled by the seller of York Street, LLC as consideration for our acquisition of York Street, LLC, the owner of the Hilton Garden Inn, TriBeCa, New York, NY, as noted in Note 2, “Investment in Hotel Properties.”

17

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 5 — OTHER ASSETS

Other Assets consisted of the following at June 30, 2009 and December 31, 2008:

	June 30, 2009		December 31, 2008
Transaction Costs	$	340	$	237
Investment in Statutory Trusts		1,548		1,548
Notes Receivable		1,340		1,267
Due from Lessees		3,040		1,907
Prepaid Expenses		4,485		3,182
Interest Receivable from Development Loans to Non-Related Parties		641		2,024
Deposit on Property Improvement Plans		385		149
Hotel Purchase Option		933		933
Other		1,672		2,270
	$	14,384	$	13,517

Transaction Costs - Transaction costs, including legal fees and other third party transaction costs incurred relative to the disposition of hotel properties, entering into franchise agreements, entering into debt facilities or issuances of equity securities, are recorded in other assets prior to the closing of the respective transactions.

Investment in Statutory Trusts - We have an investment in the common stock of Hersha Statutory Trust I and Hersha Statutory Trust II. Our investment is accounted for under the equity method.

Notes Receivable – Notes receivable as of June 30, 2009 and December 31, 2008 includes a loan, and related accrued interest, made to one of our unconsolidated joint venture partners.  The $1,266 note bears interest at 11% and matures on December 31, 2009.

Due from Lessees - Due from lessees represent rents due under our land leases.

Prepaid Expenses - Prepaid expenses include amounts paid for property tax, insurance and other expenditures that will be expensed in the next twelve months.

Interest Receivable from Development Loans to Non-Related Parties– Interest receivable from development loans to non-related parties represents interest income receivable from loans extended to non-related parties that are used to enable such entities to construct hotels and conduct related improvements on specific hotel projects.  This excludes interest receivable from development loans extended to related parties in the amounts of $738 and $761 as of June 30, 2009 and December 31, 2008, respectively, which is included in due from related parties on the consolidated balance sheets.

Deposits on Property Improvement Plans – Deposits on property improvement plans consists of amounts advanced to HHMLP that are to be used to fund capital expenditures as part of our property improvement programs at certain properties.

Hotel Purchase Option – We have the option to acquire an interest in a hotel property at a fixed purchase price.

18

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 6 — DEBT

Mortgages and Notes Payable

The Company has a total mortgages payable at June 30, 2009, and December 31, 2008, of $630,226 and $603,538, respectively.  These balances consisted of mortgages with fixed and variable interest rates, which ranged from 3.19% to 10.25% as of June 30, 2009. Aggregate interest expense incurred under the mortgage loans payable totaled $8,778 and $8,640 for the three months ended June 30, 2009 and 2008, respectively, and $17,064 and $17,250 for the six months ended June 30, 2009 and 2008, respectively.  Our mortgage indebtedness contains various financial and non-financial covenants customarily found in secured, non-recourse financing arrangements.  Our mortgage loans payable typically require that specified debt service coverage ratios be maintained with respect to the financed properties before we can exercise certain rights under the loan agreements relating to such properties.  If the specified criteria are not satisfied, the lender may be able to escrow cash flow generated by the property securing the applicable mortgage loan.  As of June 30, 2009 we were in compliance with all events of default covenants under the applicable loan agreements.

As of June 30, 2009, the maturities for the outstanding mortgage loans ranged from July 2009 to January 2032.  The $12,100 mortgage loan related to our investment in real property located at 440 West 41st Street, New York, NY matures during the next twelve months and contains an extension option that can be exercised at our discretion, effectively extending the maturity of this mortgage loan to 2011.  This mortgage loan is to be assumed by the former lessee of the mortgaged land when the land is to be transferred to the lessee of the encumbered property as consideration for our acquisition of the Hilton Garden Inn, TriBeCa, New York, NY (see Note 2, “Investment in Hotel Properties” and note 13, “Subsequent Events” for more information).

We have two junior subordinated notes payable in the aggregate amount of $51,548 to the Hersha Statutory Trusts pursuant to indenture agreements. The $25,774 note issued to Hersha Statutory Trust I will mature on June 30, 2035, but may be redeemed at our option, in whole or in part, beginning on June 30, 2010 in accordance with the provisions of the indenture agreement. The $25,774 note issued to Hersha Statutory Trust II will mature on July 30, 2035, but may be redeemed at our option, in whole or in part, beginning on July 30, 2010 in accordance with the provisions of the indenture agreement. The note issued to Hersha Statutory Trust I bears interest at a fixed rate of 7.34% per annum through June 30, 2010, and the note issued to Hersha Statutory Trust II bears interest at a fixed rate of 7.173% per annum through July 30, 2010. Subsequent to June 30, 2010 for notes issued to Hersha Statutory Trust I and July 30, 2010 for notes issued to Hersha Statutory Trust II, the notes bear interest at a variable rate of LIBOR plus 3.0% per annum.  Interest expense in the amount of $940 and $940 was recorded for the three months ended June 30, 2009 and 2008, respectively, and $1,875 and $1,839 was recorded for the six months ended June 30, 2009 and 2008, respectively.

HHLP entered into a management agreement with an unaffiliated hotel manager that extended a $498 interest-free loan to HHLP for working capital contributions that are due at either the termination or expiration of the management agreement.  A discount was recorded on the note payable which reduced the principal balances recorded in the mortgages and notes payable. The discount is being amortized over the remaining life of the loan and is recorded as interest expense.  The balance of the note payable, net of unamortized discount, was $284 as of June 30, 2009 and $274 as of December 31, 2008.

Revolving Line of Credit

During the six months ended June 30, 2009, we maintained a revolving credit facility with T.D. Bank, NA and a syndicate of lenders.  The credit agreement provides for a revolving line of credit in the principal amount of up to $175,000, including a sub-limit of $25,000 for irrevocable stand-by letters of credit. The existing bank group has committed $135,000, and the credit agreement is structured to allow for an increase of up to an additional $40,000 under the line of credit, provided that additional collateral is supplied and additional lenders join the existing bank group.

Additional borrowings under the line of credit provided by T.D. Bank, NA and the other lenders may be used for working capital and general corporate purposes, including payment of distributions or dividends and for the future purchase of additional hotels. The line of credit expires on December 31, 2011, and, provided no event of default has occurred and remains uncured, we may request that T.D. Bank, NA and the other lenders renew the line of credit for an additional one-year period.

At HHLP’s option, the interest rate on the line of credit is either (i) the Wall Street Journal variable prime rate per annum or (ii) LIBOR available for the periods of 1, 2, 3, or 6 months plus two and one half percent (2.5%) per annum.

19

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 6 — DEBT (CONTINUED)

The line of credit is collateralized by a first lien-security interest in all existing and future assets of HHLP, a collateral assignment of all hotel management contracts of the management companies in the event of default, and title-insured, first-lien mortgages on the following properties as of June 30, 2009:

- Fairfield Inn, Laurel, MD	- Holiday Inn Express, Hershey, PA
- Hampton Inn, Danville, PA	- Holiday Inn Express, New Columbia, PA
- Hampton Inn, Philadelphia, PA	- Mainstay Suites and Sleep Inn, King of Prussia, PA
- Holiday Inn, Norwich, CT	- Residence Inn, Langhorne, PA
- Holiday Inn Express, Camp Springs, PA	- Residence Inn, Norwood, MA
- Holiday Inn Express and Suites, Harrisburg, PA	- Sheraton Hotel, JFK Airport, New York, NY

The credit agreement providing for the line of credit includes certain financial covenants and requires that we maintain (1) a minimum tangible net worth of $300,000; (2) a maximum accounts and other receivables from affiliates of $125,000; (3) annual distributions not to exceed 95% of adjusted funds from operations; (4) maximum variable rate indebtedness to total debt of 30%; and (5) certain financial ratios, including the following:

· a debt service coverage ratio of not less than 1.35 to 1.00;

· a total funded liabilities to gross asset value ratio of not more than 0.67 to 1.00; and

· a EBITDA to debt service ratio of not less than 1.40 to 1.00;

The Company is in compliance with each of the covenants listed above as of June 30, 2009.

The outstanding principal balance under the line of credit was of $113,521 at June 30, 2009 and $88,421 at December 31, 2008. The Company recorded interest expense of $946 and $707 related to the line of credit borrowings for the three months ended June 30, 2009 and 2008, respectively, and $1,738 and $1,614 for the six months ended June 30, 2009 and 2008, respectively. The weighted average interest rate on our Line of Credit during the three months ended June 30, 2009 and 2008 was 3.25% and 5.08%, respectively, and 3.25% and 5.61% during the six months ended June 30, 2009 and 2008, respectively. As of June 30, 2009 we had $4,770 in irrevocable letters of credit issued and our remaining borrowing capacity under the facility was $16,709.

The Company estimates the fair value of its fixed rate debt and the credit spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of the debt obligation with similar credit policies. Credit spreads take into consideration general market conditions and maturity.  As of June 30, 2009, the carrying value and estimated fair value of the Company’s debt was $795,579 and $749,128, respectively. As of December 31, 2008, the carrying value and estimated fair value of the Company’s debt was $743,781 and $695,330, respectively.

Capitalized Interest

We utilize mortgage debt and our revolving line of credit to finance on-going capital improvement projects at our properties.  Interest incurred on mortgages and the revolving line of credit that relates to our capital improvement projects is capitalized through the date when the assets are placed in service. For the three and six months ended June 30, 2009, we did not capitalize any interest.  For the three and six months ended June 30, 2008, we capitalized interest expense of $264 and $506, respectively.

Deferred Financing Costs

Costs associated with entering into mortgages and notes payable and our revolving line of credit are deferred and amortized over the life of the debt instruments. Amortization of deferred financing costs is recorded in interest expense. As of June 30, 2009, deferred financing costs were $8,101, net of accumulated amortization of $4,673. Deferred financing costs were $9,157 net of accumulated amortization of $3,606, as of December 31, 2008. Amortization of deferred costs for the three months ended June 30, 2009 and 2008 was $530 and $465, respectively, and was $1,067 and $897 for the six months ended June 30, 2009 and 2008, respectively.

20

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 7 — COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS

Management Agreements

Our wholly-owned taxable REIT subsidiary (“TRS”), 44 New England Management Company (“44New England”), engages eligible independent contractors in accordance with the requirements for qualification as a REIT under the Federal income tax laws, including Hersha Hospitality Management, LP (“HHMLP”), as the property managers for hotels it leases from us pursuant to management agreements. HHMLP is owned, in part, by certain executives and affiliated trustees of the Company.  Our management agreements with HHMLP provide for five-year terms and are subject to early termination upon the occurrence of defaults and certain other events described therein. As required under the REIT qualification rules, HHMLP must qualify as an “eligible independent contractor” during the term of the management agreements. Under the management agreements, HHMLP generally pays the operating expenses of our hotels. All operating expenses or other expenses incurred by HHMLP in performing its authorized duties are reimbursed or borne by our TRS to the extent the operating expenses or other expenses are incurred within the limits of the applicable approved hotel operating budget. HHMLP is not obligated to advance any of its own funds for operating expenses of a hotel or to incur any liability in connection with operating a hotel.  Management agreements with other unaffiliated hotel management companies have similar terms.

For its services, HHMLP receives a base management fee, and if a hotel exceeds certain thresholds, an incentive management fee. The base management fee for a hotel is due monthly and is equal to 3% of gross revenues associated with each hotel managed for the related month. The incentive management fee, if any, for a hotel is due annually in arrears on the ninetieth day following the end of each fiscal year and is based upon the financial performance of the hotel. For the three months ended June 30, 2009 and 2008, base management fees incurred totaled $1,540 and $1,645, respectively and for the six months ended June 30, 2009 and 2008, totaled $2,607 and $2,839, respectively, and are recorded as Hotel Operating Expenses.

Franchise Agreements

Our branded hotel properties are operated under franchise agreements between the franchisor and the hotel property lessee. The franchise agreements have 10 to 20 year terms but may be terminated by either the franchisee or franchisor on certain anniversary dates specified in the agreements. The franchise agreements require annual payments for franchise royalties, reservation, and advertising services, and such payments are based upon percentages of gross room revenue. These payments are paid by the hotels and charged to expense as incurred. Franchise fee expense for the three months ended June 30, 2009 and 2008 was $3,896 and $4,585, respectively, and for the six months ended June 30, 2009 and 2008 was $6,670 and $8,138, respectively.  The initial fees incurred to enter into the franchise agreements are amortized over the life of the franchise agreements.

Administrative Services Agreement

Each of the wholly owned hotels and consolidated joint venture hotel properties managed by HHMLP incurs a monthly accounting and information technology fee.  Monthly fees for accounting services are $2 per property and monthly information technology fees are $0.5 per property.  In addition, each of the wholly owned hotels not managed by HHMLP, but for which the accounting is provided by HHMLP incurs a monthly accounting fee of $3.  For the three months ended June 30, 2009 and 2008, the Company incurred accounting fees of $375 and $346, respectively.  For the three months ended June 30, 2009 and 2008, the Company incurred information technology fees of $84 and $77, respectively.  For the six months ended June 30, 2009 and 2008, the Company incurred accounting fees of $745 and $687, respectively.  For the six months ended June 30, 2009 and 2008, the Company incurred information technology fees of $166 and $152, respectively.  Accounting fees and information technology fees are included in General and Administrative expenses.

Capital Expenditure Fees

HHMLP charges a 5% fee on all capital expenditures and pending renovation projects at the properties as compensation for procurement services related to capital expenditures and for project management of renovation projects.  For the three months ended June 30, 2009 and 2008, we incurred fees of $38 and $75, respectively, and for the six months ended June 30, 2009 and 2008, we incurred fees of $80 and $141, respectively, which were capitalized with the cost of fixed asset additions.

21

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 7 — COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)

Acquisitions from Affiliates

We have entered into an option agreement with each of our officers and affiliated trustees such that we obtain a right of first refusal to purchase any hotel owned or developed in the future by these individuals or entities controlled by them at fair market value. This right of first refusal would apply to each party until one year after such party ceases to be an officer or trustee of our Company. Our Acquisition Committee of the Board of Trustees is comprised solely of independent trustees, and the purchase prices and all material terms of the purchase of hotels from related parties are approved by the Acquisition Committee.

Hotel Supplies

For the three months ended June 30, 2009 and 2008, we incurred charges of $6 and $367, respectively and for the six months ended June 30, 2009 and 2008, we incurred charges of $193 and $822, respectively, for hotel supplies and capital expenditure purchases from Hersha Purchasing and Design, a hotel supply company owned, in part, by certain executives and affiliated trustees of the Company.  Hotel supplies are expenses included in hotel operating expenses on our consolidated statements of operations.  Approximately $59 owed to Hersha Purchasing and Design is included in accounts payable at December 31, 2008.  As of June 30, 2009, the Company does not owe any amounts to Hersha Purchasing and Design.

Due from Related Parties

The due from related party balance as of June 30, 2009 and December 31, 2008 was approximately $3,171 and $3,595 respectively. The majority of the balance as of June 30, 2009 and December 31, 2008 were receivables owed from our unconsolidated joint ventures and interest income receivable from development loans extended to related parties.

Due to Related Parties

The due to related parties balance as of June 30, 2009 and December 31, 2008 was approximately $227 and $302, respectively. The balances as of June 30, 2009 and December 31, 2008 consisted of amounts payable to HHMLP for administrative, management, and benefit related fees.

Hotel Ground Rent

During 2003, in conjunction with the acquisition of the Hilton Garden Inn, Edison, NJ, we assumed a land lease with an original term of 75 years. Monthly payments as determined by the lease agreement are due through the expiration in August 2074. On February 16, 2006, in conjunction with the acquisition of the Hilton Garden Inn, JFK Airport, we assumed a land lease with an original term of 99 years.  Monthly payments are determined by the lease agreement and are due through the expiration in July 2100.  On June 13, 2008, in conjunction with the acquisition of the Sheraton Hotel, JFK Airport, we assumed a land lease with an original term of 99 years.  Monthly payments are determined by the lease agreement and are due through the expiration in November 2103.  Each land lease provides for rent increases at scheduled intervals. We record rent expense on a straight-line basis over the life of the lease from the beginning of the lease term. For the three months ended June 30, 2009 and 2008, we incurred $291 and $216, respectively, and for the six months ended June 30, 2009 and 2008, we incurred $583 and $442, respectively, of rent expense related to these leases.

22

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 8 — FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS

Fair Value Measurements

On January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  SFAS No. 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; the standard does not require any new fair value measurements of reported balances.

SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement.  Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.  As a basis for considering market participant assumptions in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liabilities, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

As of June 30, 2009, the Company’s derivative instruments represented the only financial instruments measured at fair value. Currently, the Company uses derivative instruments, such as interest rate swapsand caps,to manage its interest raterisk.  The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs.

To comply with the provisions of SFAS No. 157, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.  In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties.  However, as of June 30, 2009, the Company has assessed the significance of the effect of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Derivative Instruments

On January 9, 2009, we renewed our interest rate swap agreement that effectively fixes the interest rate on a variable rate mortgage on the nu Hotel, Brooklyn, NY, which bears interest at one month U.S. dollar LIBOR plus 2.0%.  Under the terms of the interest rate swap, we pay fixed rate interest of 1.1925% on the $18,000 notional amount and we receive floating rate interest equal to the one month U.S. dollar LIBOR, effectively fixing our interest on the mortgage debt at a rate of 3.1925%.  Prior to this renewal, we had maintained an interest rate swap agreement that effectively fixed the interest rate on a $13,240 portion of the variable rate mortgage at a rate of 5.245%. This swap matured on January 9, 2009 and was replaced with the renewed agreement.

23

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 8 — FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS (CONTINUED)

We maintain an interest rate swap agreement that fixes the interest rate on a variable rate mortgage, bearing interest at one month U.S. dollar LIBOR plus 3.0%, originated upon the refinance of the debt associated with the Hilton Garden Inn, Edison, NJ.  Under the terms of this interest rate swap, we pay fixed rate interest of 1.37% and we receive floating rate interest equal to the one month U.S. dollar LIBOR, effectively fixing our interest at a rate of 4.37%.  The notional amount amortizes in tandem with the amortization of the underlying hedged debt and is $6,632 as of June 30, 2009.

On February 1, 2008, we entered into an interest rate swap agreement that fixes the interest rate on a $40,000 portion of our floating revolving credit facility with T.D. Bank, NA, which bears interest at one month U.S. dollar LIBOR plus 2.5%.  Under the terms of this interest rate swap, we pay fixed rate interest of 2.6275% on the $40,000 notional amount and we receive floating rate interest equal to the one month U.S. dollar LIBOR, effectively fixing our interest on this portion of the line of credit at a rate of 5.1275%.  This interest rate swap agreement matured on February 1, 2009, and we did not replace it with another agreement.

We maintain an interest rate cap that effectively fixes interest payments when LIBOR exceeds 5.75% on our debt financing Hotel 373, New York, NY.  The notional amount of the interest rate cap is $22,000 and equals the principal of the variable interest rate debt being hedged.  This cap matured on April 9, 2009 and was renewed with an identical cap that matures on May 9, 2010.

We maintain an interest rate swap that fixes our interest rate on a variable rate mortgage on the Sheraton Four Points, Revere, MA.  Under the terms of this interest rate swap, we pay fixed rate interest of 4.73% of the notional amount and we receive floating rate interest equal to the one month U.S. dollar LIBOR. The notional amount amortizes in tandem with the amortization of the underlying hedged debt and is $7,533 as of June 30, 2009.  We entered into this interest rate swap in July of 2004 and designated it as a cash flow hedge in November of 2004 when the fair value of the swap was a liability of $342, causing ineffectiveness in the hedge relationship.  Prior to January 1, 2008, the hedge relationship was deemed to be effective and the change in fair value related to the effective portion of the interest rate swap was recorded in Accumulated Other Comprehensive Income on the Balance Sheet.  Subsequent to January 1, 2008, the hedge relationship was no longer deemed to be effective.  The change in fair value of the interest rate swap for the three and six months ended June 30, 2009 was a gain of $77 and $151, respectively.  The change in fair value of the interest rate swap for the three and six months ended June 30, 2008 was a gain of $113 and a loss $24, respectively.  The change in fair value of this interest rate swap was recorded in income (loss) from discontinued operations.  This property was sold in July 2009, as noted in “Note 12 – Discontinued Operations.”

At June 30, 2009 and December 31, 2008, the fair value of the interest rate swaps and cap were:

				Value
Date of Transaction	Hedged Debt	Type	Maturity Date	June 30, 2009			December 31, 2008
January 15, 2008	Variable Rate Mortgage - Nu Hotel, Brooklyn, NY	Swap	January 12, 2009	$	-		$	(6	)
February 1, 2008	Revolving Variable Rate Credit Facility	Swap	February 1, 2009		-			(74	)
July 2, 2004	Variable Rate Mortgage - Sheraton Four Points, Revere, MA	Swap	July 23, 2009		(20	)		(172	)
July 1, 2007	Variable Rate Mortgage - Hotel 373, New York, NY	Cap	May 9, 2010		-			-
December 31, 2008	Variable Rate Mortgage - Hilton Garden Inn, Edison, NJ	Swap	January 1, 2011		(32	)		(25	)
January 9, 2009	Variable Rate Mortgage - Nu Hotel, Brooklyn, NY	Swap	January 10, 2011		(39	)		-
				$	(91	)	$	(277	)

The fair value of the derivative instrument liabilities is included in accounts payable, accrued expenses and other liabilities at June 30, 2009 and December 31, 2008.

The change in fair value of derivative instruments designated as cash flow hedges was a loss of $16 and a gain of $239 for the three months ended June 30, 2009 and 2008, respectively, and a gain of $35 and a gain of $2 for the six months ended June 30, 2009 and 2008, respectively.  These unrealized gains and losses were reflected on our consolidated balance sheet in accumulated other comprehensive income. Hedge ineffectiveness of $0 and $7 on cash flow hedges was recognized in interest expense for the three months ended June 30, 2009 and 2008, respectively, and $1 and $0 on cash flow hedges was recognized in interest expense for the six months ended June 30, 2009 and 2008, respectively.

24

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 9 — SHARE-BASED PAYMENTS

In May 2008, the Company established the Hersha Hospitality Trust 2008 Equity Incentive Plan (the “2008 Plan”) for the purpose of attracting and retaining executive officers, employees, trustees and other persons and entities that provide services to the Company. Prior to the 2008 Plan, the Company made awards pursuant to the 2004 Equity Incentive Plan (the “2004 Plan”). Upon approval of the 2008 Plan by the Company’s shareholders on May 22, 2008, the Company terminated the 2004 Plan. Termination of the 2004 Plan did not have any effect on equity awards and grants previously made under that plan.

Executives

Compensation expense of $451 and $313 was incurred during the three months ended June 30, 2009 and 2008, respectively, and compensation expense of $873 and $573 was incurred during the six months ended June 30, 2009 and 2008, respectively, related to the restricted share awards issued to executives of the Company and is recorded in stock based compensation on the statement of operations. Unearned compensation as of June 30, 2009 and December 31, 2008 was $5,329 and $4,118, respectively.  The following table is a summary of all of the grants issued to executives under the 2004 and 2008 Plans:

							Shares Vested				Unearned Compensation
Original Issuance Date	Shares Issued		Share Price on date of grant		Vesting Period	Vesting Schedule	June 30, 2009		December 31, 2008		June 30, 2009		December 31, 2008
June 1, 2005		71,000	$	9.60	4 years	25%/year		71,000		53,250	$	-	$	71
June 1, 2006		89,500	$	9.40	4 years	25%/year		67,125		44,750		193		298
June 1, 2007		214,582	$	12.32	4 years	25%/year		107,291		53,645		1,266		1,597
June 2, 2008		278,059	$	8.97	4 years	25%/year		69,515		-		1,818		2,130
September 30, 2008		3,616	$	7.44	1-4 years	25-100%/year		-		-		12		22
June 1, 2009		744,128	$	2.80	4 years	25%/year		-		-		2,040		-
		1,400,885						314,931		151,645		5,329		4,118

Trustees

Compensation expense related to stock awards issued to the Board of Trustees of $48 and $0 was incurred during the three months ended June 30, 2009 and 2008, respectively, and $48 and $54 was incurred during the six months ended June 30, 2009 and 2008, respectively and is recorded in stock based compensation on the statement of operations. All shares issued to the Board of Trustees are immediately vested.  The following table is a summary of all of the grants issued to trustees under the 2004 and 2008 Plans:

Date of Award Issuance	Shares Issued		Share Price on date of grant
March 1, 2005		2,095	$	11.97
January 3, 2006		5,000		9.12
January 2, 2007		4,000		11.44
July 2, 2007		4,000		12.12
January 2, 2008		4,000		9.33
June 2, 2008		6,000		8.97
January 2, 2009		12,500		2.96
June 1, 2009		17,000		2.80
		54,595

25

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 10 — EARNINGS PER SHARE

The following table is a reconciliation of the income or loss (numerator) and the weighted average shares (denominator) used in the calculation of basic and diluted earnings per common share in accordance with SFAS No. 128, Earnings Per Share. The computation of basic and diluted earnings per share is presented below.

	Three Months Ended						Six Months Ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Numerator:
BASIC AND DILUTED*
Income (Loss) from Continuing Operations	$	1,271		$	9,736		$	(8,985	)	$	6,631
(Income) loss from continuing operations allocated to noncontrolling interests		(400	)		(1,640	)		1,500			(887	)
Distributions to 8.0% Series A Preferred Shareholders		(1,200	)		(1,200	)		(2,400	)		(2,400	)
Dividends paid on unvested restricted shares		(54	)		(90	)		(145	)		(147	)
(Loss) income from continuing operations applicable to common shareholders		(383	)		6,806			(10,030	)		3,197
Discontinued Operations
Income (loss) from discontinued operations		213			226			(214	)		(554	)
(Income) loss from discontinued operations allocated to noncontrolling interests		(51	)		(97	)		102			157
Income (loss) from discontinued operations applicable to common shareholders		162			129			(112	)		(397	)
Net (loss) income applicable to common shareholders	$	(221	)	$	6,935		$	(10,142	)	$	2,800
Denominator:
Weighted average number of common shares - basic		47,964,818			44,253,641			47,876,175			42,572,390
Effect of dilutive securities:
Stock awards		-	**		-	**		-	**		-	**
Weighted average number of common shares - diluted*		47,964,818			44,253,641			47,876,175			42,572,390

*           Income allocated to noncontrolling interest in Hersha Hospitality Limited Partnership has been excluded from the numerator and units of limited partnership interest in Hersha Hospitality Limited Partnership have been omitted from the denominator for the purpose of computing diluted earnings per share since the effect of including these amounts in the numerator and denominator would have no impact. Weighted average units of limited partnership interest in Hersha Hospitality Limited Partnership outstanding for the three months ended June 30, 2009 and 2008 were 8,746,300 and 7,447,149, respectively.  Weighted average units of limited partnership interest in Hersha Hospitality Limited Partnership outstanding for the six months ended June 30, 2009 and 2008 were 8,746,300 and 7,312,974, respectively.

**         Unvested stock awards have been omitted from the denominator for the purpose of computing diluted earnings per share for the three months ended June 30, 2009 and 2008, and for the six months ended June 30, 2009 and 2009 since the effect of including these awards in the denominator would be anti-dilutive to income from continuing operations applicable to common shareholders.

26

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 10 — EARNINGS PER SHARE (CONTINUED)

	Three Months Ended				Six Months Ended
	June 30, 2009		June 30, 2008		June 30, 2009			June 30, 2008
Earnings Per Share:
BASIC
(Loss) income from continuing operations applicable to common shareholders	$	0.00	$	0.16	$	(0.21	)	$	0.08
Income (loss) from discontinued operations applicable to common shareholders		0.00		0.00		0.00			(0.01	)
Net (loss) income applicable to common shareholders	$	0.00	$	0.16	$	(0.21	)	$	0.07
DILUTED*
(Loss) income from continuing operations applicable to common shareholders	$	0.00	$	0.16	$	(0.21	)	$	0.08
Income (loss) from discontinued operations applicable to common shareholders		0.00		0.00		0.00			(0.01	)
Net (loss) income applicable to common shareholders	$	0.00	$	0.16	$	(0.21	)	$	0.07

*           Income allocated to noncontrolling interest in Hersha Hospitality Limited Partnership has been excluded from the numerator and units of limited partnership interest in Hersha Hospitality Limited Partnership have been omitted from the denominator for the purpose of computing diluted earnings per share since the effect of including these amounts in the numerator and denominator would have no impact. Weighted average units of limited partnership interest in Hersha Hospitality Limited Partnership outstanding for the three months ended June 30, 2009 and 2008 were 8,746,300 and 7,447,149, respectively.  Weighted average units of limited partnership interest in Hersha Hospitality Limited Partnership outstanding for the six months ended June 30, 2009 and 2008 were 8,746,300 and 7,312,974, respectively.

27

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 11 — CASH FLOW DISCLOSURES AND NON-CASH ACTIVITIES

Interest paid during the six months ended June 30, 2009 and 2008 totaled $20,537 and $20,920, respectively.

The following non-cash activities occurred during the six months ended June 30, 2009 and 2008:

	2009		2008
Common Shares issued under the dividend reinvestment plan	$	19	$	15
Issuance of Common Shares to the Board of Trustees		84		92
Conversion of Common Units to Common Shares		-		282
Development loan accrued interest revenue receivable paid in-kind by adding balance to development loan principal		3,310		-
Issuance of Common Units for acquisitions of hotel properties		-		21,623
Debt assumed in acquisition of hotel properties		29,824		23,800
Settlement of development loans receivable principal and accrued interest revenue receivable in connection with acquisiton of hotel properties		19,555		-
Reallocation to noncontrolling interest		-		1,772

28

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 12 — DISCONTINUED OPERATIONS

We follow the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which requires, among other things, that the operating results of certain real estate assets which have been sold, or otherwise qualify as held for disposition (as defined by SFAS No. 144), be included in discontinued operations in the statements of operations for all periods presented.

In October 2008, the Company sold the Holiday Inn Conference Center, New Cumberland, PA (Holiday Inn).  We leased this hotel to an unrelated party and the lease agreement contained a purchase provision by the lessee.  The operating results for this hotel have been reclassified to discontinued operations in the statements of operation for the three and six months ended June 30, 2008.  Proceeds from the sale of this property were $6,456 and the gain on this sale was $2,888, of which $436 was allocated to noncontrolling interest in HHLP.

In May of 2009, our Board of Trustees authorized management of the Company to sell the Mainstay Suites, Frederick, MD (Mainstay Suites) and the Comfort Inn, Frederick, MD (Comfort Inn).  The operating results for these hotels were reclassified to discontinued operations in the statements of operations for the three and six months ended June 30, 2009 and 2008.  The Mainstay Suites was acquired by the Company in January 2002 and the Comfort Inn in May 2004.  These two properties were sold to an unrelated buyer in July 2009 for $10,500.

In May of 2009, our Board of Trustees authorized management of the Company to sell its 55% consolidated joint venture interest of the Sheraton Four Points, Revere, MA.  The operating results for this hotel were reclassified to discontinued operations in the statements of operations for the three and six months ended June 30, 2009 and 2008.  Our interest in the hotel was acquired in March 2004 and was sold to our joint venture partner in July 2009.  Proceeds from the sale were $2,500.

In June of 2009, our Board of Trustees authorized management of the Company to sell the Hilton Garden Inn, Gettysburg, PA.  The operating results for these hotels were reclassified to discontinued operations in the statements of operations for the three and six months ended June 30, 2009 and 2008.  The hotel was acquired by the Company in July 2004 and was sold to an unrelated buyer in July 2009 for $7,750.

We allocate interest to discontinued operations for debt that is to be assumed or that is required to be repaid as a result of the disposal transaction. We allocated $238 and $288 for the three months ended June 30, 2009, and 2008, respectively, and $482 and $815 for the six months ended June 30, 2009 and 2008, respectively, of interest expense to discontinued operations.

Hotel assets held for sale consisted of the following as of June 30, 2009:

	June 30, 2009
Land		1,698
Buildings and Improvements		30,006
Furniture, Fixtures and Equipment		5,923
		37,627
Less Accumulated Depreciation & Amortization		(10,726	)
Hotel Assets Held for Sale	$	26,901

29

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 12 — DISCONTINUED OPERATIONS (CONTINUED)

As of June 30, 2009, liabilities related to hotel assets held for sale was $18,707 and consisted of mortgage loans on each of the hotel assets held for sale.

The following table sets forth the components of discontinued operations for the three months ended June 30, 2009, and 2008, and for the six months ended June 30, 2009 and 2008:

	Three Months Ended				Six Months Ended
	June 30, 2009		June 30, 2008		June 30, 2009			June 30, 2008
Revenue:
Hotel Operating Revenues	$	3,403	$	3,668	$	5,901		$	6,353
Hotel Lease Revenue		-		211		-			348
Total Revenues		3,403		3,879		5,901			6,701
Expenses:
Hotel Operating Expenses		2,472		2,711		4,660			5,111
Real Estate and Personal Property Taxes and Property Insurance		130		144		263			288
Depreciation and Amortization		350		507		710			1,038
Other Expense		-		3		-			3
Interest Expense		238		288		482			815
Total Expenses		3,190		3,653		6,115			7,255
Income (Loss) from Discontinued Operations	$	213	$	226	$	(214	)	$	(554	)

30

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 13 — SUBSEQUENT EVENTS

The following events occurred subsequent to June 30, 2009 and through August 7, 2009, the date we filed our Quarterly Report on Form 10-Q for the period ending June 30, 2009:

Debt Refinances and Modifications

Subsequent to June 30, 2009, the following debt refinancing transactions occurred:

· On July 20, 2009, the Company entered into a modification and extension agreement for a mortgage loan on our land parcel located at 39th Street and 8th Avenue, New York, NY.  This agreement modified the principal balance from $13,250 to $12,000 and the interest rate from a fixed rate of 7.75% to a floating rate equal to the Wall Street Journal variable prime rate plus 1.00%, with a minimum interest rate of 6.875%.  Payments required under this loan continue to be interest-only and the maturity date was extended to July 1, 2011.

· Also on July 20, 2009, the Company entered into a modification and extension agreement for a mortgage loan on our land parcels located on Nevins Street, in Brooklyn, NY.  This agreement modified the principal balance from $6,500,000 to $6,000,000.  The agreement also modified the interest rate from a floating rate of 90-Day LIBOR plus 2.70%, with a minimum of 8.06%, to a floating rate equal to the Wall Street Journal variable prime rate plus 1.00%, with a minimum interest rate of 6.875%.  Payments required under this loan continue to be interest-only and the maturity date was extended to August 1, 2011.

· On July 29, 2009, the Company obtained individual mortgages for the Holiday Inn Express, Hershey, PA and the Fairfield Inn, Laurel, MD.  The two properties had previously been collateral for our line of credit with T.D. Bank, NA.  Proceeds from these mortgages were approximately $13,300 and were used to pay down our outstanding line of credit balance.  Each of the mortgages has a fixed interest rate of 6.50% and a maturity date of July 2014.

· On August 7, 2009, the Company refinanced its $29,824 mortgage loan for the Hilton Garden Inn, TriBeCa, NY.  The principal balance of the new mortgage loan remains at $29,824 and has a floating interest rate equal to the Wall Street Journal variable prime rate plus 2.00%, with a minimum interest rate of 8.75% and a maturity date of July 2012.

Sale of Common Shares

On August 4, 2009, the Company entered into a purchase agreement with Real Estate Investment Group L.P. (REIG), pursuant to which the Company sold 5,700,000 Class A common shares of beneficial interest at a price of $2.50 per share to REIG for gross proceeds of $14,250.  REIG is a Bermuda limited partnership, whose general partner and majority limited partner is Tyrus S.A., a Uruguayan sociedad anónima wholly-owned by IRSA Inversiones y Representaciones Sociedad Anónima, an Argentine sociedad anónima (“IRSA”).  IRSA is publicly traded on the Buenos Aires Stock Exchange and the New York Stock Exchange.  We also granted REIG the option to buy up to an additional 5,700,000 common shares at a price of $3.00 per share, which shall be exercisable through August 4, 2014.  If at any time after August 4, 2011 the closing price for the our common shares on the New York Stock Exchange exceeds $5.00 for 20 consecutive trading days, the Company may call in and cancel the option in exchange for issuance of common shares to REIG with an aggregate value equal to the volume weighted average price per common share for the 20 trading days prior to the exercise of the option, less the $3.00 option price, multiplied by the number of common shares remaining under the option.

31

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Statement Regarding Forward Looking Statements

All statements contained in this section that are not historical facts are based on current expectations. Words such as “believes”, “expects”, “anticipate”, “intends”, “plans” and “estimates” and variations of such words and similar words also identify forward-looking statements. Our actual results may differ materially. We caution you not to place undue reliance on any such forward-looking statements. We assume no obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances.

General

As of June 30, 2009, we owned interests in 77 hotels, located primarily in the eastern United States, including interests in 18 hotels owned through joint ventures. For purposes of the REIT qualification rules, we cannot directly operate any of our hotels. Instead, we must lease our hotels to a third party lessee or to a taxable REIT subsidiary (“TRS”), provided that the TRS engages an eligible independent contractor to manage the hotels.  As of June 30, 2009, we have leased all of our hotels to a wholly-owned TRS, a joint venture-owned TRS, or an entity owned in part by our wholly-owned TRS.  Each of these TRS entities will pay qualifying rent, and the TRS entities have entered into management contracts with eligible independent contractors, including HHMLP, with respect to our hotels. We intend to lease all newly acquired hotels to a TRS.

The TRS structure enables us to participate more directly in the operating performance of our hotels. The TRS directly receives all revenue from, and funds all expenses relating to hotel operations. The TRS is also subject to income tax on its earnings.

Outlook

During the six months ended June 30, 2009, the U.S. economy has been influenced by financial market turmoil, growing unemployment and declining consumer sentiment. The recessionary environment in 2009 has and will continue to negatively impact overall lodging demand and our results of operations and financial condition.  For the three and six months ended June 30, 2009, we have seen decreases in Average Daily Rate (“ADR”), occupancy, and Revenue Per Available Room (“RevPAR”) due to these economic factors as compared to the three and six months ended June 30, 2008.

The turmoil in the financial markets has caused credit to significantly tighten making it more difficult for hotel developers to obtain financing for development projects or for hotels with limited operating history.  This could have a negative impact on the collectability of our portfolio of development loans receivable.  We monitor this portfolio to determine the collectability of the loan principal and interest accrued.  We will continue to monitor this portfolio on an on-going basis.

In addition, the tightening credit markets have made it more difficult to finance the acquisition of new hotel properties or refinance existing hotel properties that do not have a history of profitable operations.  We monitor the maturity dates of our debt obligations and take steps in advance of the debt becoming due to extend or refinance the obligations.  Please refer to “Item 3.  Quantitative and Qualitative Disclosures About Market Risk” for a discussion of our debt maturities.

We believe that consumer and commercial spending and lodging demand will continue to decline in 2009. We do not anticipate an improvement in lodging demand until the current economic trends reverse course, particularly the expected continued weakness in the overall economy and the lack of liquidity in the credit markets. The general economic trends discussed above make it difficult to predict our future operating results; however, there can be no assurances that we will not experience further declines in hotel revenues, occupancy, ADR or RevPAR at our properties or experience defaults under our development loans for any number of reasons, including, but not limited to, greater than anticipated weakness in the economy, changes in travel patterns, the continued impact of the trends identified above and the limited availability of permanent financing to refinance or repay existing development loans, as well as other factors identified under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008 and other documents that we may file with the SEC in the future.

32

The following table outlines operating results for the Company’s portfolio of wholly owned hotels and those owned through joint venture interests that are consolidated in our financial statements for the three and six months ended June 30, 2009 and 2008:

CONSOLIDATED HOTELS:
	Three Months Ended June 30,									Six Months Ended June 30,
	2009			2008			% Variance			2009			2008			% Variance
Rooms Available		599,012			545,896			9.7	%		1,182,392			1,083,025			9.2	%
Rooms Occupied		439,598			426,881			3.0	%		770,973			779,023			-1.0	%
Occupancy		73.39	%		78.20	%		-4.8	%		65.20	%		71.93	%		-6.7	%
Average Daily Rate (ADR)	$	126.01		$	143.17			-12.0	%	$	124.50		$	138.92			-10.4	%
Revenue Per Available Room (RevPAR)	$	92.48		$	111.96			-17.4	%	$	81.18		$	99.93			-18.8	%
Room Revenues	$	55,395,814		$	61,118,556			-9.4	%	$	95,987,832		$	108,223,779			-11.3	%
Hotel Operating Revenues	$	57,972,622		$	63,709,401			-9.0	%	$	100,543,815		$	112,942,860			-11.0	%

The following table outlines operating results for the three months and six months ended June 30, 2009 and 2008, for hotels we own through an unconsolidated joint venture interest. These operating results reflect 100% of the operating results of the property including our interest and the interests of our joint venture partners and other noncontrolling interest holders.

UNCONSOLIDATED JOINT VENTURES:
	Three Months Ended June 30,									Six Months Ended June 30,
	2009			2008			% Variance			2009			2008			% Variance
Rooms Available		239,670			239,694			0.0	%		476,730			479,388			-0.6	%
Rooms Occupied		162,475			181,654			-10.6	%		297,473			344,889			-13.7	%
Occupancy		67.79	%		75.79	%		-8.0	%		62.40	%		71.94	%		-9.5	%
Average Daily Rate (ADR)	$	132.28		$	150.59			-12.2	%	$	129.87		$	144.51			-10.1	%
Revenue Per Available Room (RevPAR)	$	89.68		$	114.12			-21.4	%	$	81.04		$	103.96			-22.1	%
Room Revenues	$	21,492,644		$	27,354,813			-21.4	%	$	38,633,616		$	49,839,014			-22.5	%
Total Revenues	$	27,575,096		$	35,516,710			-22.4	%	$	50,028,757		$	65,324,156			-23.4	%

RevPAR for the three and six months ended June 30, 2009 decreased 17.4% and 18.8%, respectively, for our consolidated hotels and decreased 21.4% and 22.1% for the three and six months ended June 30, 2009, respectively, for our unconsolidated hotels when compared to the same period in 2008.  This decrease in RevPAR has been caused by decreases in both occupancy and ADR and is primarily due to deteriorating economic conditions in 2009, as discussed above.

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2009 TO JUNE 30, 2008

(dollars in thousands, except per room and per share data)

Revenue

Our total revenues for three months ended June 30, 2009 consisted of hotel operating revenues, interest income from our development loan program, land lease revenue, and other revenue. Hotel operating revenues are recorded for wholly-owned hotels that are leased to our wholly-owned TRS and hotels owned through joint venture interests that are consolidated in our financial statements. Hotel operating revenues decreased $5,736 or 9.0%, from $63,709 for the three months ended June 30, 2008 to $57,973 for the same period in 2009.  This decrease resulted from decreases in both ADR and occupancy.  ADR decreased 12.0% decrease in ADR from $143.17 per room for the three months ended June 30, 2008 to $126.01 per room during the same period in 2009.  Our occupancy rate decreased from approximately 78.2% during the three months ended June 30, 2008 to approximately 73.4% for the same period in 2009.

33

The decrease in hotel operating revenues was only partially offset by the additional hotel operating revenues attributed to the acquisitions consummated since June 30, 2008.  We acquired interests in the following three consolidated hotels since June 30, 2008:

Brand	Location	Acquisition Date	Rooms
nu Hotel	Brooklyn, NY	7/7/2008*		93
Hampton Inn & Suites	Smithfield, RI	8/1/2008		101
Hilton Garden Inn	TriBeCa, New York, NY	5/1/2009		151
				345
*The property was purchased on 1/14/2008, but did not open for business until 7/7/2008.

We invest in hotel development projects by providing secured first mortgage or mezzanine financing to hotel developers and through the acquisition of land that is then leased to hotel developers.  Interest income is earned on our development loans at rates ranging between 10.0% and 20.0%. Interest income from development loans receivable was $2,166 for the three months ended June 30, 2009 compared to $2,153 for the same period in 2008.

As hotel developers are engaged in constructing new hotels or renovating existing hotels the hotel properties are typically not generating revenue.  It is common for the developers to require construction type loans to finance the projects whereby interest incurred on the loan is not paid currently; rather it is added to the principal borrowed and repaid at maturity.  On June 30, 2009, we amended four development loans, with an aggregate principal balance of $40,000 prior to the amendment, to allow the borrower to elect, quarterly, to pay accrued interest in-kind by adding the accrued interest to the principal balance of the loan.  As a result, $3,310 in accrued interest on these loans was added to principal.

Of the $68,810 in development loans receivable outstanding as of June 30, 2009, $15,000, or 21.8%, is invested in hotels that are operating and generating revenue; $32,402, or 47.1%, is invested in hotel construction projects with significant progress made toward completion; and $21,408, or 31.1%, is invested in hotel development projects that are in the early phase of development that includes land acquisition and site preparation.  We monitor our development loan portfolio for indications of impairment considering the current economic environment, the borrowers’ access to other sources of financing to complete their hotel development projects, and the borrowers ability to repay amounts owed to us through the operation or eventual sale of the properties being financed by our loans receivable.  Based on our reviews of each of the development loans receivable, we have concluded, as of June 30, 2009, that no impairment exists, as we believe that all amounts due under each loan will be fully realized.

We own parcels of land which are being leased to hotel developers, some of which are owned in part by certain executives and affiliated trustees of the Company.  Our net investment in these parcels is approximately $23,366. Each land parcel is leased at a minimum rental rate of 10% of our net investment in the land. Additional rents are paid by the lessee for the principal and interest on the mortgage, real estate taxes and insurance.  During the three months ended June 30, 2009, we recorded $1,328 in land lease revenue from these parcels. We incurred $732 in expense related to these land leases resulting in a contribution of $596 to our operating income during the three months ended June 30, 2009.  These leases contributed $645 to our operating income during the three months ended June 30, 2008.  The land in which we had a net investment of $9,882 is to be transferred to its lessee as part of the consideration for our acquisition of the Hilton Garden Inn, TriBeCa, New York, NY. This will decrease our net investment in land leases to $13,484 going forward.

Other revenue consists primarily of fees earned for asset management services provided to properties owned by certain of our unconsolidated joint ventures.  These fees are earned as a percentage of the revenues of the unconsolidated joint ventures’ hotels.  Other revenues decreased $193, from $342 for the three months ended June 30, 2008 to $149 during the three months ended June 30, 2009.  The decrease in other revenue was due primarily to decreases in asset management fees as a result of declining revenues at the hotels owned by certain of our unconsolidated joint ventures.

Expenses

Total hotel operating expenses decreased $2,185, or 6.4%, to approximately $31,791 for the three months ended June 30, 2009 from $33,976 for the three months ended June 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 June 30, 2008, as mentioned above. The acquisitions also resulted in a $1,395, or 14.7%, increase in depreciation and amortization from $9,505 for the three months ended June 30, 2008 to $10,900 for the three months ended June 30, 2009. Real estate and personal property tax and property insurance increased $574, or 20.4%, in the three months ended June 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.

34

As a result of cost reduction and cost containment initiatives put in place at a corporate level, general and administrative expense decreased $104, or 7.0%, from $1,478, for the three months ended June 30, 2008 to $1,374 for the three months ended June 30, 2009.  Non-cash stock based compensation expense increased $186 when comparing the three months ended June 30, 2009 to the same period in 2008 due to the vesting of a larger number of restricted shares in 2009 when compared to 2008.

Unconsolidated Joint Venture Investments

Loss from unconsolidated joint venture investments for the three months ended June 30, 2009 was approximately $395 compared to income of $1,360 for the same period in 2008.  The loss from unconsolidated joint venture investments was the result of deteriorating revenues in the hotels owned by our unconsolidated joint ventures.  The operating factors impacting the results of our hotels owned by our unconsolidated joint ventures are consistent with those described above in the discussion of our consolidated hotels, and include declining ADR, occupancy and RevPAR.

Net Loss

Net loss applicable to common shareholders for the three months ended June 30, 2009 was $167 compared to net income applicable to common shareholders of $7,025 for the same period in 2008.

Operating income for the three months ended June 30, 2009 was $12,598 compared to operating income of $18,492 during the same period in 2008. The $5,894, or 31.9%, decrease in operating income was primarily the result of declining hotel operating revenues which were only partially offset by decreases in hotel operating expenses.

Interest expense increased $893 from $10,058 for the three months ended June 30, 2008 to $10,951 for the three months ended June 30, 2009. The increase in interest expense is due primarily to the increase in weighted average balance outstanding on our line of credit for the three months ended June 30, 2009 when compared to the same period in 2008.  The increase in interest expense due to larger weighted average balances on our line of credit has only been partially offset by declines in the prevailing interest rates on our variable rate debt.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2009 TO JUNE 30, 2008

(dollars in thousands, except per room and per share data)

Revenue

Hotel operating revenues decreased $12,399, or 11.0%, from $112,943 for the six months ended June 30, 2008 to $100,544 for the same period in 2009.  This decrease was primarily the result of a 10.4% decrease in ADR from $138.92 per room for the six months ended June 30, 2008 to $124.50 per room during the same period in 2009.  In addition, our occupancy rate decreased from 71.93% during the six months ended June 30, 2008 to 65.20% 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 June 30, 2008 noted above.

Interest income from development loans receivable was $4,563 for the six months ended June 30, 2009 compared to $4,173 for the same period in 2008.  The average balance of development loans receivable outstanding during the six months ended June 30, 2009 was higher than the average balance outstanding during the same period in 2008. This resulted in a $390, or a 9.3%, increase in interest income.

During the six months ended June 30, 2009, we recorded $2,649 in land lease revenue from these parcels. We incurred $1,456 in expense related to these land leases resulting in a contribution of $1,193 to our operating income during the six months ended June 30, 2009.  These leases contributed $1,230 to our operating income during the six months ended June 30, 2008.

Other revenues decreased $229, from $594 for the six months ended June 30, 2008 to $365 during the six months ended June 30, 2009.  The decrease in other revenue was due primarily to decreases in asset management fees as a result of declining revenues at the hotels owned by certain of our unconsolidated joint ventures.

Expenses

Total hotel operating expenses decreased $3,870, or 6.0%, to approximately $60,141 for the six months ended June 30, 2009 from $64,011 for the six months ended June 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 June 30, 2008 mentioned above. The acquisitions also resulted in a $2,882, or 15.5%, increase in depreciation and amortization from $18,596 for the six months ended June 30, 2008 to $21,478 for the six months ended June 30, 2009. Real estate and personal property tax and property insurance increased $751, or 12.8%, in the six months ended June 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.

35

As a result of cost reduction and cost containment initiatives put in place at a corporate level, general and administrative expense decreased $183, or 6.0%, from $3,036 for the six months ended June 30, 2008 to $2,853 for the six months ended June 30, 2009.  Non-cash stock based compensation expense increased $294 when comparing the three months ended June 30, 2009 to the same period in 2008 due the vesting of a larger number of restricted shares in 2009 when compared to 2008.

Unconsolidated Joint Venture Investments

Loss from unconsolidated joint venture investments for the six months ended June 30, 2009 was approximately $1,724 compared to income of $622 for the same period in 2008.  The loss from unconsolidated joint venture investments was the result of deteriorating revenues in the hotels owned by our unconsolidated joint ventures.  The operating factors impacting the results of our hotels owned by our unconsolidated joint ventures are consistent with those described above in our discussion of our consolidated hotel, and include declining ADR, occupancy and RevPAR.

Net Loss

Net loss applicable to common shareholders for six months ended June 30, 2009 was $9,997 compared to net income applicable to common shareholders of $2,947 for the same period in 2008.

Operating income for the six months ended June 30, 2009 was $14,036 compared to operating income of $26,321 during the same period in 2008. The $12,285, or 46.7%, decrease in operating income was primarily the result of declining hotel operating revenues which were only partially offset by decreases in hotel operating expenses.

Interest expense increased $1,018 from $20,308 for the six months ended June 30, 2008 to $21,326 for the six months ended June 30, 2009. The increase in interest expense is due primarily to the increase in weighted average balance outstanding on our line of credit for the six months ended June 30, 2009 when compared to the same period in 2008.  The increase in interest expense due to larger weighted average balances on our line of credit has only been partially offset by declines in the prevailing interest rates on our variable rate debt.

LIQUIDITY, CAPITAL RESOURCES, AND EQUITY OFFERINGS

(dollars in thousands, except per share data)

Debt and Equity Offerings

The current recession and related financial crisis has resulted in deleveraging attempts throughout the global financial system.  As banks and other financial intermediaries reduce their leverage and incur losses on their existing portfolio of loans, the ability to originate or refinance existing loans has become very restrictive for all borrowers, regardless of balance sheet strength.  As a result, it is a very difficult borrowing environment, even for those borrowers that have strong balance sheets.  While we maintain a portfolio of what we believe to be high quality assets and we believe our leverage to be at acceptable levels, the market for new debt origination and refinancing of existing debt remains very challenging and there is little visibility on the length of debt terms, the loan to value parameters and loan pricing on new debt originations.

We have a debt policy that limits our indebtedness at the time of acquisition to less than 67% of the fair market value for the hotels in which we have invested. However, our organizational documents do not limit the amount of indebtedness that we may incur and our Board of Trustees may modify our debt policy at any time without shareholder approval. We intend to repay indebtedness incurred under the line of credit from time to time, for acquisitions or otherwise, out of cash flow and from the proceeds of issuances of additional common shares and other securities.

Our ability to incur additional debt is dependent upon a number of factors, including the current state of the overall credit markets, our degree of leverage and borrowing restrictions imposed by existing lenders.  Our ability to raise funds through the issuance of debt and equity securities is dependent upon, among other things, capital market volatility, risk tolerance of investors, general market conditions for REITs and market perceptions related to the Company’s ability to generate cash flow and positive returns on its investments.

Subsequent to June 30, 2009, we completed the refinancing of mortgage loans with an aggregate principal balance of $19,750 that was originally scheduled to mature in 2009.  In connection with this refinancing activity, we repaid principal of $1,750 and the remaining $18,000 principal balance was refinanced at favorable terms when compared to the original loans.  These loans will now mature in 2011.  See “Note 13 – Subsequent Events” for more information regarding the refinancing of these loans.  In addition to refinancing mortgage loans, we sold four hotel properties subsequent to June 30, 2009.  As a result of these dispositions we have been relieved of $18,708 in mortgage loan obligations; $12,732 of which was due in 2009.  See “Note 12 – Discontinued Operations” for more information regarding the disposition of these properties.  Finally as part of the consideration for our acquisition of the Hilton Garden Inn, TriBeCa, New York, NY, we are transferring a parcel of land to the seller, who will assume a $12,100 mortgage loan encumbering the parcel.  This mortgage loan matures in 2009 and upon assumption of this mortgage loan, we will have no further obligations with respect to this debt.  The refinancing, the sale of properties, and the transfer of land has the aggregate effect of eliminating our 2009 maturities, leaving only principal amortization due for the remainder of the year.  Also, subsequent to June 30, 2009, we have leveraged some of our existing unencumbered assets as an additional source of funds and used $13,000 in proceeds to pay down our line of credit.  See “Note 13 – Subsequent Events” for more information regarding the mortgage loans we have entered into with respect to certain properties.

36

We will continue to monitor our debt maturities to manage our liquidity needs.  However, no assurances can be given that we will be successful in refinancing all or a portion of our future debt obligations due to factors beyond our control or that, if refinanced, the terms of such debt will not vary from the existing terms. We currently expect that cash requirements for all debt coming due on or before December 31, 2009 that is not refinanced by our existing lenders will be met through a combination of refinancing the existing debt with new lenders and draws on the remaining capacity on our existing credit facility.

During the quarter ended June 30, 2009, we entered into a sales agreement with an investment bank which allows us to sell Class A common shares in “at the market” offerings and in privately negotiated transactions.  The sales agreement allows us to instruct the investment bank to solicit sales of our common shares in quantities and at prices we determine.  The agreement also allows us discretion to suspend the solicitation of sales of our common shares.  During the three months ended June 30, 2009, we sold 72,500 shares and subsequent to June 30, 2009 we have sold an additional 133,000 shares.  Net proceeds from these sales have been $517 after the payment of fees but before expenses of the program.

On August 4, 2009, we sold 5,700,000 Class A common shares of beneficial interest at a price of $2.50 per share and granted the option to buy up to an additional 5,700,000 common shares at a price of $3.00 per share.  The option is exercisable through August 4, 2014.  If at any time after August 4, 2011 the closing price for the our common shares on the New York Stock Exchange exceeds $5.00 for 20 consecutive trading days, the we may call in and cancel the option in exchange for issuance of common shares with an aggregate value equal to the volume weighted average price per common share for the 20 trading days prior to the exercise of the option, less the $3.00 option price, multiplied by the number of common shares remaining under the option.  Proceeds from this offering were used to pay down amounts outstanding under our line of credit.

Development Loans Receivable

This borrowing environment has made it difficult for our development loan borrowers to obtain or renew construction financing to complete certain hotel development projects for which we have provided development loan financing.  As of June 30, 2009 we have $68,810 in development loan principal receivable and $2,474 in accrued interest receivable on these loans.  Most of our development loans have options to extend the maturity of the loan for periods up to three years from the original maturity date of the loan.  We expect certain development loan borrowers to take advantage of these extension options.

In addition, we have modified the contractual terms of four development loans to allow borrowers the option to add accrued interest to the loan principal in lieu of making current interest payments.  As a result of these amendments, $3,310 of accrued interest was added to loan principal on June 30, 2009.  We do not expect the payments of principal or accrued interest on the development loans to be a significant source of liquidity over the next twelve to eighteen months.

Acquisitions

Each of our development loans provides us with a right of first offer on hotels constructed through the development loan program.  We converted $18,000 in principal and $1,555 in interest due to us on certain development loans into equity interests in the Hilton Garden Inn, TriBeCa, New York, NY.  We plan to convert the principal and interest due to us on additional development loans into equity interests in the hotels developed allowing us to acquire new hotel properties without a significant outlay of cash.

Some of the purchase agreements for some of our previous acquisitions contain certain earn-out provisions that entitle the seller to a payment based on operating metrics of the hotel properties.  One such earn-out provision expires on December 31, 2009 and if the thresholds stipulated in the agreement are met we would have to pay up to $6,000.  Based on results of the properties through June 30, 2009, we believe no amounts will be due under this earn-out provision.

We intend to invest in additional hotels only as suitable opportunities arise and adequate sources of financing are available. We expect that future investments in hotels will depend on and will be financed by, in whole or in part, our existing cash, the proceeds from additional issuances of common shares, issuances of Common Units or other securities or borrowings.

Operating Liquidity and Capital Expenditures

We expect to meet our short-term liquidity requirements generally through net cash provided by operations, existing cash balances and, if necessary, short-term borrowings under our line of credit.  We believe that the net cash provided by operations in the third and fourth quarter of this year will be adequate to fund the Company’s operating requirements, debt service and the payment of dividends in accordance with REIT requirements of the federal income tax laws.  In the second quarter of 2009, the Company reduced its second quarter dividend by approximately 72% in order to preserve cash. This action is anticipated to strengthen our liquidity.

37

Owning hotels is a capital intensive enterprise.  Hotels are expensive to acquire or build and require regular significant capital expenditures to satisfy guest expectations.  However, even with the current depressed cash flows, we project that our operating cash flow will be sufficient to pay for almost all of our liquidity and other capital needs over the next twelve to eighteen months.

We make available to the TRS of our hotels 4% (6% for full service properties) of gross revenues per quarter, on a cumulative basis, for periodic replacement or refurbishment of furniture, fixtures and equipment at each of our hotels. We believe that a 4% (6% for full service hotels) reserve is a prudent estimate for future capital expenditure requirements. Our operators have implemented a policy of limiting capital expenditures in the current year to only those projects that impact safety of our guests or preserve the value of our assets.  As such, we have reduced amounts spent on capital improvements during the three and six months ended June 30, 2009 when compared to the same periods in 2008 and we expect to continue this trend over the next twelve months.  While we have reduced the amounts we are spending on capital expenditures, we may be required to comply with the reasonable requirements of any franchise license under which any of our hotels operate and otherwise to the extent we deem such expenditures to be in our best interests.

Cash Flow Analysis

Net cash provided by operating activities declined $13,417, or 59.1%, from $22,717 for the six months ended June 30, 2008 to $9,300 for the same period in 2009.  Primarily as a result of declining ADR and occupancy at our wholly owned hotel properties, income before depreciation and amortization decreased $12,270 during the six months ended June 30, 2009 when compared to the same period in 2008.  In addition, the modification of four development loans to allow borrowers the option to add accrued interest to the loan principal in lieu of making current interest payments resulted in $2,061 in current year development loan interest income that was added to principal and is not currently a source of operating cash.

Net cash used in investing activities for the year ended December 31, 2008 decreased $72,899, from $84,379 in the six months ended June 30, 2008 compared to $11,480 for the six months ended June 30, 2009.  During six months ended June 30, 2008, we acquired five properties for a total purchase price of $103,025, including the assumption of $23,800 in mortgage debt, the assumption of $290 of operating liabilities and the issuance of units in our operating partnership valued at $21,623 resulting in net cash paid for acquisitions of $57,312.  During the same period in 2009, we acquired one property for a total purchase price of $67,000, including the assumption of $29,824 in mortgage debt, the assumption of $1,322 of operating liabilities, the conversion of $19,555 in development loans and accrued interest, the conveyance of land and accrued rent receivable with a net value of $10,118 and cash held back at settlement of $1,387 resulting in net cash paid for acquisitions of $4,794.  We decreased our capital expenditures from $13,022 during the six months ended June 30, 2008 to $4,033 during the same period in 2009. This decrease was the result of our initiatives to defer all non-essential capital expenditures.  In addition, cash used to invest in development loans receivable, net of repayments, was $14,284 for the six months ended June 30, 2008 compared to $2,000 for the same period in 2009.

Net cash used in financing activities for the six months ended June 30, 2009 was $826 compared to cash provided by financing activities of $66,307 during the same period in 2008.  During the six months ended June 30, 2008, we issued 6,600,000 common shares resulting in net proceeds of $62,009. As a result of this common stock issuance and issuance of common units in connection with hotel acquisitions in 2008, dividends paid to common shareholders and common unit holders increased $3,101.  This increase in dividends and distributions paid will be offset in future periods by a decrease in the rate of dividends and distributions, as the Company reduced its quarterly common dividend rate by 72.2% from $0.18 per share to $0.05 per share beginning with the dividend and distribution payment in July of 2009.  Net proceeds from mortgages and notes payable were $29,292 during the six months ended June 30, 2008 compared to net cash used to repay mortgages and notes payable of $3,131 for the same period in 2009.  Net proceeds from our credit facility were $25,100 during the six months ended June 30, 2009 compared to net proceeds of $3,900 during the same period in 2008.  The increase in borrowings from our credit facility is a result of a decrease in availability of mortgage financing to fund investing activities.

Off Balance Sheet Arrangements

The Company does not have off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Funds From Operations

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 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.

38

The GAAP measure that we believe to be most directly comparable to FFO, net income (loss) applicable to common shareholders, includes 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.

FFO does 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 to be a meaningful, additional measure of 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 applicable to common shares and Common Units because our Common Units are redeemable for common shares. We believe it is meaningful for the investor to understand FFO applicable to all common shares and Common Units.

The following table reconciles FFO for the periods presented to the most directly comparable GAAP measure, net income, for the same periods.

(dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Net (loss) income applicable to common shares	$	(167	)	$	7,025		$	(9,997	)	$	2,947
Income (loss) allocated to noncontrolling interest		451			1,737			(1,602	)		730
Loss (income) from unconsolidated joint ventures		395			(1,360	)		1,724			(622	)
Depreciation and amortization		10,900			9,505			21,478			18,596
Depreciation and amortization from discontinued operations		350			507			710			1,038
FFO allocated to noncontrolling interests in consolidated joint ventures (1)		(287	)		(302	)		(75	)		(62	)
Funds from consolidated hotel operations applicable to common shares and Partnership units		11,642			17,112			12,238			22,627
(Loss) income from Unconsolidated Joint Ventures Add:		(395	)		1,360			(1,724	)		622
Depreciation and amortization of purchase price in excess of historical cost (2)		525			523			1,046			1,046
Interest in depreciation and amortization of unconsolidated joint ventures (3)		1,184			2,176			1,725			3,628
Funds from unconsolidated joint ventures operations applicable to common shares and Partnership units		1,314			4,059			1,047			5,296
Funds from Operations applicable to common shares and Partnership units	$	12,956		$	21,171		$	13,285		$	27,923
Weighted Average Common Shares and Units Outstanding
Basic		47,964,818			44,253,641			47,876,175			42,572,390
Diluted		56,711,118			51,700,790			56,622,475			49,885,364

(1) Adjustment made to deduct FFO related to the noncontrolling interest in our consolidated joint ventures. Represents the portion of net income and depreciation allocated to our joint venture partners.

(2) Adjustment made to add depreciation of purchase price in excess of historical cost of the assets in the unconsolidated joint venture at the time of our investment.

(3) Adjustment made to add our interest in real estate related depreciation and amortization of our unconsolidated joint ventures. Allocation of depreciation and amortization is consistent with allocation of income and loss.

FFO was $12,956 for the three months ended June 30, 2009, which was a decrease of $8,215, or 38.8%, over FFO in the comparable period in 2008, which was $21,171.  FFO was $13,285 for the six months ended June 30, 2009, which was a decrease of $14,638 or 52.4%, over FFO in the comparable period in 2008, which was $27,923.  The decrease in FFO was primarily a result of worsening economic conditions which has caused occupancies and average daily rates to decline at our hotel properties.  The decrease in revenues has only been partially offset by decreases in operating expenses resulting from declines in occupancy and our hotel operators cost reduction initiatives.

39

Critical Accounting Policies

The estimates and assumptions made by management in applying critical accounting policies have not changed materially during 2009 and 2008 and none of the estimates or assumptions have proven to be materially incorrect or resulted in our recording any significant adjustments relating to prior periods. See our Annual Report on Form 10-K for the year ended December 31, 2008 for a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements.

Investment in Hotel Properties

We follow SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which established a single accounting model for the impairment or disposal of long-lived assets including discontinued operations.

Based on the occurrence of certain events or changes in circumstances, we review the recoverability of the property’s carrying value. Such events or changes in circumstances include the following:

· a significant decrease in the market price of a long-lived asset;

· a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition;

· a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator;

· an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset;

· a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset; and

· a current expectation that, it is more likely than not that, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

We review our portfolio on an on-going basis to evaluate the existence of any of the aforementioned events or changes in circumstances that would require us to test for recoverability. In general, our review of recoverability is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value expected, as well as the effects of hotel demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. We are required to make subjective assessments as to whether there are impairments in the values of our investments in hotel properties. As of June 30, 2009, based on our analysis, we have determined that the future cash flows of each of our hotel properties is sufficient to recover the carrying value for each property.

Investment in Unconsolidated Joint Ventures

In addition, we periodically review the carrying value of our investments in unconsolidated joint ventures to determine if circumstances exist indicating impairment to the carrying value of the investment. When an impairment indicator is present, we will review the recoverability of our investment.  If the investment’s carrying value is not considered recoverable, we will estimate the fair value of the investment.  Our estimate of fair value takes into consideration factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors.  This determination requires significant estimates by management, including the expected cash flows to be generated by the assets owned and operated by the joint venture. As of June 30, 2009, based on our analysis, we have determined that the fair value of each of our investments in unconsolidated joint ventures exceeds the carrying value of our investment in each joint venture.

Investment in Development Loans

The Company accounts for the credit risk associated with its development loans receivable by monitoring the portfolio for indications of impairment.  We follow SFAS No. 114 “Accounting by Creditors for Impairment of a Loan, an amendment of FASB Statements No. 5 and 15” through a methodology that consists of the following:

· Identifying loans for individual review under SFAS No. 114. In general, these consist of development loans that are not performing in accordance with the contractual terms of the loan.

· Assessing whether the loans identified for review under SFAS No. 114 are impaired. That is, whether it is probable that all amounts will not be collected according to the contractual terms of the loan agreement.  We determine the amount of impairment by calculating the estimated fair value, discounted cash flows or the value of the underlying collateral.

Based on our reviews of each of the development loans receivable, we have concluded, as of June 30, 2009, that no impairment exists, as we believe the all amounts due under each loan will be fully realized.

40

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

(dollars in thousands, except per share data)

Our primary market risk exposure is to changes in interest rates on our variable rate debt. At June 30, 2009 we are exposed to interest rate risk with respect to our outstanding borrowings under our variable rate Line of Credit and certain variable rate mortgages and notes payable. At June 30, 2009, we had total variable rate debt outstanding of $196,584 consisting of outstanding borrowings of $113,521 under our line of credit and outstanding borrowings of $83,063 under variable rate mortgages and notes payable.  At June 30, 2009, our variable rate debt outstanding had a weighted average interest rate of 3.81%. The effect of a 100 basis point increase or decrease in the interest rate on our variable rate debt outstanding at June 30, 2009, would be an increase or decrease in our interest expense for the three months ended June 30, 2009 of $405.  The effect of a 100 basis point increase or decrease in the interest rate on our variable rate debt outstanding at June 30, 2009, would be an increase or decrease in our interest expense for the six months ended June 30, 2009 of $772.

Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates for a portion of our borrowings through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements. We have also entered into derivative financial instruments such as interest rate swaps or caps, and in the future may enter into treasury options or locks, to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable rate debt. Currently, we have three interest rate swaps related to debt on the Four Points by Sheraton, Revere, MA; nu Hotel, Brooklyn, NY; and Hilton Garden Inn, Edison, NJ and one interest rate cap related to debt on the Hotel 373, New York, NY. We do not intend to enter into derivative or interest rate transactions for speculative purposes.  Subsequent to June 30, 2009, the interest rate swap related to debt on the Four Points by Sheraton, Revere, MA matured.  Our interest in this hotel was sold on July 23, 2009.

As of June 30, 2009 approximately 89.1% of our outstanding mortgages and notes payable are subject to fixed rates, including variable rate debt that is effectively fixed through our use of a derivative instrument, while approximately 10.9% of our outstanding mortgages payable are subject to floating rates.

Changes in market interest rates on our fixed-rate debt impact the fair value of the debt, but it has no impact on interest incurred for cash flow. If interest rates rise 100 basis points and our fixed rate debt balance remains constant, we expect the fair value of our debt to decrease. The sensitivity analysis related to our fixed-rate debt assumes an immediate 100 basis point move in interest rates from their June 30, 2009 levels, with all other variables held constant. A 100 basis point increase in market interest rates would cause the fair value of our fixed-rate debt outstanding at June 30, 2009 to be approximately $543,152, and a 100 basis point decrease in market interest rates would cause the fair value of our fixed-rate debt outstanding at June 30, 2008 approximating $629,116.

We regularly review interest rate exposure on our outstanding borrowings in an effort to minimize the risk of interest rate fluctuations. For debt obligations outstanding at June 30, 2009, the following table presents expected principal repayments and related weighted average interest rates by expected maturity dates (in thousands):

Mortgages & Notes Payable		2009			2010			2011			2012			2013			Thereafter			Total
Fixed Rate Debt		$	27,921		$	14,330		$	31,265		$	7,305		$	25,066		$	480,136		$	586,023
Weighted Average Interest Rate			6.04	%		6.00	%		6.12	%		6.11	%		6.10	%		6.10	%		6.08	%
Floating Rate Debt		$	6,811		$	29,401		$	9,827		$	29,080		$	182		$	2,082		$	77,383
Weighted Average Interest Rate			5.13	%		7.05	%		8.31	%		3.06	%		3.06	%		3.06	%		4.94	%
		$	34,732		$	43,731		$	41,092		$	36,385		$	25,248		$	482,218		$	663,406
Credit Facility
			-			-		$	113,521			-			-			-			113,521
Weighted Average Interest Rate									3.25	%											3.25	%
Discontinued Operations (1)
		$	12,732		$	462		$	474		$	4,571		$	17		$	452		$	18,708
Weighted Average Interest Rate			2.45	%		2.46	%		2.47	%		4.00	%		4.00	%		4.00	%		3.23	%
	TOTAL	$	47,464		$	44,193		$	155,087		$	40,956		$	25,265		$	482,670		$	795,635

(1) Discontinued Operations includes Sheraton Four Points - Revere, MA; Mainstay Suites - Frederick, MD; Comfort Inn - Frederick, MD; and Hilton Garden Inn - Gettysburg, PA

The table incorporates only those exposures that existed as of June 30, 2009 and does not consider exposure or positions that could arise after that date. As a result, our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the future period, prevailing interest rates, and our hedging strategies at that time.

41

The following table illustrates principal repayments and certain adjustments to reflect:

· the decrease in principal obligations upon the disposal of properties recorded as discontinued operations and land to be disposed

· debt refinancing and related principal payments made in connection with debt refinancing that occurred subsequent to June 30, 2009,

· the Company’s exercise of each of the extension options within its discretion, and

· the lender’s extension of the maturity of the revolving line of credit extension options.

	2009			2010			2011			2012			2013			Thereafter			Total
Principal repayments due as of June 30, 2009, as noted above	$	47,464		$	44,193		$	155,087		$	40,956		$	25,265		$	482,670		$	795,635
Less:  Discontinued Operations (1)		(12,732	)		(462	)		(474	)		(4,571	)		(17	)		(452	)		(18,708	)
Less:  Debt Related to Land Parcel located at 440 West 41st Street, New York, NY to be disposed (2)		(12,100	)		-			-			-			-			-			(12,100	)
Less:  Debt Refinancings (3)
Principal refinanced		(18,000	)					18,000												-
Principal payment made in connection with debt refinancing subsequent to June 30, 2009		(1,750	)																	(1,750	)
Adjustment:  Originations (4)
Originations		72			225			240			256			274			12,283			13,350
Subsequent Credit Facility Pay Down											(13,000	)								(13,000	)
Adjustments:  Extension Options
Hotel 373 - 5th Avenue, New York, NY (5)		-			(22,000	)		-			22,000			-			-			-
Hilton Garden Inn TriBeCa - New York, NY (6)		-			-			-			(29,824	)		-			29,824			-
nu Hotel Brooklyn - New York, NY (7)		-			-			(18,000	)		-			18,000			-			-
Hilton Garden Inn - Edison, NJ (8)		-			-			(6,632	)		6,632			-			-			-
TownePlace Suites - Harrisburg, PA (9)		-			-			(9,250	)		9,250			-			-			-
Line of Credit Facility (10)		-			-			(113,521	)		113,521			-			-			-
PRO FORMA AMORTIZATION	$	2,954		$	21,956		$	25,450		$	145,220		$	43,522		$	524,325		$	763,427

(1)  Discontinued Operations:  represents debt on the Sheraton Four Points, Revere, MA; Mainstay Suites, Frederick, MD; Comfort Inn, Frederick, MD; and Hilton Garden Inn,  Gettysburg, PA which were sold subsequent to June 30, 2009.  Debt was recorded as "liabilities related to assets held for sale" on our consolidated balance sheet as of June 30, 2009.

(2)  Represents mortgage debt on a parcel of land that is being transferred to the land's lessee as part of the consideration for our acquisition of our interest in York Street, LLC, the owner of the Hilton Garden Inn, TriBeCa, New York, NY.  See "Note 2 - Investment in Hotel Properties" of our consolidated financial statements for a discussion of our acquisition of York Street, LLC.

(3)  Refinancings represent the refinancing of a $13,250 mortgage loan on a land parcel located at 39th Street & 8th Avenue, New York, NY and a $6,500 mortgage loan on a land parcel at Nevins Street, Brooklyn, NY.  We paid down $1,750 in principal on these two mortgage loans at the time of refinancing.  The principal balance of the refinanced mortgage loan on the land parcel at 39th Street and 8th Avenue, New York, NY is $12,000 and matures in July of 2011.  The principal balance of the refinanced mortgage loan on the land parcel at Nevins St, Brooklyn, NY is $6,000 and matures in August of 2011.  Both mortgage loans are interest only at the Wall Street Journal variable prime rate plus 1.0% with a minimum interest rate of 6.875%.

(4) Originations represent the $6,000 mortgage loan origination obtained for the Holiday Inn Express, Hershey, PA and the $7,350 mortgage loan origination obtained for the Fairfield Inn, Laurel, MD.  Each of the mortgage loans which were originated subsequent to June 30, 2009 have a fixed rate of interest of 6.50% and mature in July of 2014.  These two properties had previously been pledged as collateral for our revolving line of credit facility.  The net loan proceeds of both mortgages of approximately $13,000 were used to pay down the credit facility.

(5) Represents mortgage debt on the Hotel 373 - 5th Avenue, New York, NY which contains two one-year extension options, which can be exercised at our discretion, effectively extending the maturity from May of 2010 to May of 2012.

(6) Represents mortgage debt on the Hilton Garden Inn, TriBeCa, New York, NY which contains two one-year extension options, which can be exercised at our discretion, effectively extending the maturity from July of 2012 to July of 2014.

(7) Represents mortgage debt on the nu Hotel Brooklyn, New York, NY which contains two one-year extension options, which can be exercised at our discretion, effectively extending the maturity from January of 2011 to January of 2013.

(8) Represents mortgage debt on the Hilton Garden Inn, Edison, NY which contains a one-year extension option, which can be exercised at our discretion, effectively extending the maturity from January of 2011 to January of 2012.

(9) Represents the mortgage debt on the TownePlace Suites, Harrisburg, PA which contains a one-year extension option, which can be exercised at our discretion, effectively extending the maturity from July of 2011 to July of 2012.

(10) Represents the revolving line of credit, which contains a one-year extension option, which is subject to the lender's approval in its discretion, effectively extending the maturity from December of 2011 to December of 2012. There can be no assurance that the lenders will agree to extend the maturity on the revolving line of credit.

42

Item 4. Controls and Procedures.

Based on the most recent evaluation, the Company’s Chief Executive Officer and Chief Financial Officer believe the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of June 30, 2009.

There were no changes to the Company’s internal controls over financial reporting during the three months ended June 30, 2009, that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

43

PART II.OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

None.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

(a)           The annual meeting of the shareholders (the “Annual Meeting”) of the Company was held on Thursday, May 21, 2009.

(b)           The following Class I Trustees were elected at the 2008 Annual Meeting and will continue to serve as trustees until the 2010 Annual Meeting or the earlier of their resignation or removal:

· Donald J. Landry

· Thomas S. Capello

· Jay H. Shah

· Thomas J. Hutchison III

(c) At the Annual Meeting, the shareholders of the Company voted as follows:

(1) The election of the following Class II trustees to serve until the annual meeting of shareholders in 2011:

TRUSTEE	FOR		AGAINST		WITHHOLD		BROKER NON-VOTES
Hasu P. Shah		37,361,669		N/A		7,528,827		N/A
Michael A. Leven		40,973,202		N/A		3,917,295		N/A
Kiran P. Patel		36,761,787		N/A		8,128,710		N/A
John M. Sabin		40,974,255		N/A		3,916,241		N/A

(2) The ratification of the appointment of KPMG LLP to serve as independent auditors of the Company for 2009:

FOR		AGAINST		ABSTAIN		BROKER NON-VOTES
	41,853,260		2,902,373		134,862		N/A

44

Item 5. Other Information.

On August 5, 2009, the Compensation Committee awarded performance shares pursuant to our 2008 Equity Incentive Plan to the executive officers named in the table below:

Name	Number of Performance Share
Jay H. Shah		136,250
Neil H. Shah		136,250
Ashish R. Parikh		54,500
Michael R. Gillespie		27,250

All performance share awards were granted effective August 5, 2009 pursuant to the 2008 Equity Incentive Plan and the terms of a performance share award agreement.

If the “20-day VWAP” during the “measurement period” is at least $3.00 but less than $4.00, the executives will earn the following number of performance shares:  Mr. J. Shah—41,667 shares; Mr. N. Shah—41,667 shares; Mr. Parikh—16,667 shares; and Mr. Gillespie—8,333 shares.

If the 20-day VWAP during the measurement period is at least $4.00 but less than $5.00, the executives will earn the following number of additional performance shares:  Mr. J. Shah—31,250 shares; Mr. N. Shah—31,250 shares; Mr. Parikh—12,500 shares; and Mr. Gillespie—6,250 shares.

If the 20-day VWAP during the measurement period is $5.00 or more, the executives will earn the following number of additional performance shares:  Mr. J. Shah—30,000 shares; Mr. N. Shah—30,000 shares; Mr. Parikh—12,000 shares; and Mr. Gillespie—6,000 shares.

Following the last day of the measurement period and subject to the discretion of the Compensation Committee, if during the measurement period the 20-day VWAP is at least $3.00, the executives may earn the following number of additional performance shares:  Mr. J. Shah—33,333 shares; Mr. N. Shah—33,333 shares; Mr. Parikh—13,333 shares; and Mr. Gillespie—6,667 shares.

For purposes of the performance share award agreements, the term “20-day VWAP” means the volume weighted average of the closing price of our Class A common shares during a period of 20 consecutive days on which our Class A common shares are traded on the New York Stock Exchange, and the term “measurement period” means the period beginning on August 5, 2009 and ending on August 4, 2010.

Performance shares that have not previously been earned will be earned upon a change of control and upon a termination of the executives employment without cause before the last day of the measurement period, subject to certain conditions.  Performance shares that are earned will be settled by the issuance of an equivalent number of Class A common shares.

In addition, on August 5, 2009, the Compensation Committee approved a 5% increase in the base salary payable to the executive officers named above, retroactive as of January 1, 2009.

45

Item 6. Exhibits.

Exhibit Number	Exhibit Description
3.1	Articles of Amendment to the Amended and Restate Declaration of Trust.
10.1	Purchase Agreement, dated August 4, 2009, by and among Hersha Hospitality Trust, Hersha Hospitality Limited Partnership, Real Estate Investment Group L.P. and IRSA Inversiones y Representaciones Sociedad Anónima.*
10.2	Investor Rights and Option Agreement, dated August 4, 2009, by and among Hersha Hospitality Trust, Real Estate Investment Group L.P., IRSA Inversiones y Representaciones Sociedad Anónima and Eduardo S. Elsztain.*
10.3	Registration Rights Agreement, dated August 4, 2009, by and among Hersha Hospitality Trust, Real Estate Investment Group L.P. and IRSA Inversiones y Representaciones Sociedad Anónima.*
10.4	Trustee Designation Agreement, dated August 4, 2009, by and among Hersha Hospitality Trust, Real Estate Investment Group L.P. and IRSA Inversiones y Representaciones Sociedad Anónima.*
10.5	Sales Agreement, dated June 12, 2009, by and among Hersha Hospitality Trust, Hersha Hospitality Limited Partnership and Cantor Fitzgerald & Co.**
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on August 6, 2009.
**	Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 12, 2009.

46

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HERSHA HOSPITALITY TRUST
August 7, 2009	/s/ Ashish R. Parikh
	Ashish R. Parikh
	Chief Financial Officer

47

EX-3.1

Exhibit 3.1

HERSHA HOSPITALITY TRUST

ARTICLES OF AMENDMENT AND RESTATEMENT

Hersha Hospitality Trust, a Maryland real estate investment trust (the “Trust”) formed under Title 8 of the Corporation and Associations Article of the Annotated Code of Maryland (“Title 8”), desires to amend and restate its Declaration of Trust as currently in effect as hereinafter amended.

FIRST:  The following provisions are all of the provisions of the Declaration of Trust currently in effect and as hereinafter amended:

ARTICLE I

FORMATION

The Trust is a real estate investment trust (a “REIT”) within the meaning of Title 8.  The Trust shall not be deemed to be a general partnership, limited partnership, joint venture, joint stock company or a corporation (but nothing herein shall preclude the Trust from being treated for tax purposes as an association under the Internal Revenue Code of 1986, as amended (the “Code”).

ARTICLE II

NAME

The name of the Trust is:  Hersha Hospitality Trust

Under circumstances in which the Board of Trustees of the Trust (the “Board of Trustees” or “Board”) determines that the use of the name of the Trust is not practicable, the Trust may use any other designation or name for the Trust.

ARTICLE III

PURPOSES AND POWERS

Section 1.  Purposes.  The purposes for which the Trust is formed are to invest in and to acquire, hold, manage, administer, control and dispose of property and interests in property, including, without limitation or obligation, engaging in business as a REIT under the Code.

Section 2.  Powers.  The Trust shall have all of the powers granted to REITs by Title 8 and all other powers set forth in the Declaration of Trust as filed for record with the State Department of Assessment and Taxation of Maryland, and any amendments or supplements thereto (the “Declaration of Trust”) that are not inconsistent with law and are appropriate to promote and attain the purposes set forth in the Declaration of Trust.

ARTICLE IV

RESIDENT AGENT

The name of the resident agent of the Trust in the State of Maryland is James J. Hanks, Jr., c/o Ballard Spahr Andrews & Ingersoll, whose post office address is 300 East Lombard Street, Baltimore, Maryland 21202.  The resident agent is a citizen of and resides in the State of Maryland.  The Trust may have such offices or places of business within or outside the State of Maryland as the Board of Trustees of the Trust may from time to time determine.

1

ARTICLE V

BOARD OF TRUSTEES

Section 1.  Powers.

(a)           Subject to any express limitations contained in the Declaration of Trust or in the Bylaws of the Trust (“Bylaws”), (i) the business and affairs of the Trust shall be managed under the direction of the Board of Trustees and (ii) the Board shall have full, exclusive and absolute power, control and authority over any and all property of the Trust.  The Board may take any action as it, in its sole judgment and discretion, deems necessary or appropriate to conduct the business and affairs of the Trust.  The Declaration of Trust shall be construed with a presumption in favor of the grant of power and authority to the Board.  Any construction of the Declaration of Trust or determination made in good faith by the Board concerning its powers and authority hereunder shall be conclusive. The enumeration and definition of particular powers of the Trustees included in the Declaration of Trust or in the Bylaws shall in no way be construed or deemed by inference or otherwise in any manner to exclude or limit the powers conferred upon the Board of Trustees under the general laws of the State of Maryland or any other applicable laws.

(b)           Except as otherwise provided in the Bylaws, the Board, without any action by the shareholders of the Trust, shall have and may exercise, on behalf of the Trust, without limitation, the power to adopt, amend and repeal Bylaws; to elect officers in the manner prescribed in the Bylaws; to solicit proxies from holders of shares of beneficial interest of the Trust; and to do any other acts and deliver any other documents necessary or appropriate to the foregoing powers.

(c)           It shall be the duty of the Board of Trustees to use any and all commercially reasonable efforts to ensure that the Trust satisfies the requirements for qualification as a REIT under the Code, including, but not limited to, the ownership of outstanding shares of its beneficial interest, the nature of its assets, the sources of its income, and the amount and timing of its distributions to its shareholders.  The Board of Trustees shall take no action to disqualify the Trust as a REIT or to otherwise revoke the Trust’s election to be taxed as a REIT without the affirmative vote of two-thirds of the number of Common Shares entitled to vote on such matter at a meeting of the shareholders.

Section 2.  Classification and Number.

(a)           The Trustees of the Trust (hereinafter the “Trustees”) (other than any Trustee elected solely by holders of one or more classes or series of Preferred Shares) shall be classified, with respect to the terms for which they severally hold office, into two classes, as nearly equal in number as possible, one class (“Class I”) to hold office initially for a term expiring at the first annual meeting of shareholders (1999) and another class (“Class II”) to hold office initially for a term expiring at the second succeeding annual meeting of shareholders (2000), with the Trustees of each class to hold office until their successors are duly elected and qualified.  At each annual meeting of shareholders, the successors to the class of Trustees whose term expires at such meeting shall be elected to hold office for a term expiring at the annual meeting of shareholders held in the second year following the year of their election.  Shareholder votes to elect Trustees shall be conducted in the manner provided in the Bylaws.

(b)           The number of Trustees shall be no less than one and no more than seven, which number may be increased or decreased pursuant to the Bylaws.  The name and class of the Trustee who shall serve until his successor is duly elected and qualified shall be as follows:

Name	Class
Hasu P. Shah	Class II

The Trustees may increase the number of Trustees and fill any vacancy, whether resulting from an increase in the number of Trustees or otherwise, on the Board of Trustees in the manner provided in the Bylaws.  The Independent Trustees (as hereinafter defined) shall nominate replacements for vacancies among the Independent Trustees’ positions.  In the event that, after the closing of the Initial Public Offering (as hereinafter defined), three members of the Board of Trustees are not Independent Trustees by reason of the resignation or removal of one or more Independent Trustees or otherwise, it shall be a qualification for any individual elected to fill such vacancy that he satisfy the requirements of Section 4 of this Article V for being an Independent Trustee.  It shall not be necessary to list in the Declaration of Trust the names and addresses of any Trustees hereinafter elected.

2

Section 3.   Resignation or Removal.  Any Trustee may resign by written notice to the Board, effective upon execution and delivery to the Trust of such written notice or upon any future date specified in the notice.  Subject to the rights of holders of one or more classes or series of Preferred Shares to elect or remove one or more Trustees, a Trustee may be removed at any time, with or without cause, at a meeting of the shareholders, by the affirmative vote of the holders of not less than two-thirds of the Shares then outstanding and entitled to vote generally in the election of Trustees.

Section 4.  Independent Trustees.  Notwithstanding anything herein to the contrary, at all times from and after the closing with respect to the Company’s initial public offering of its Priority Class A Common Shares (except during a period not to exceed sixty (60) days following the death, resignation, incapacity or removal from office of a Trustee prior to expiration of the Trustee’s term of office), three members of the Board of Trustees shall be comprised of persons who are not officers, directors or employees of the Trust, any lessee of the Trust’s or the Partnership’s properties or any underwriter or placement agent of the shares of beneficial interest of the Trust that has been engaged by the Trust within the past three years, or any “Affiliates” thereof (each such person serving on the Board of Trustees being an “Independent Trustee”).

Section 5.  Definition of Affiliate.  For purposes of Section 4 above, “Affiliate” of a person shall mean (i) any person that, directly or indirectly, controls or is controlled by or is under common control with such person, (ii) any other person that owns, beneficially, directly or indirectly, five percent (5%) or more of the outstanding capital shares, shares or equity interests of such person, or (iii) any officer, director, employee, partner or trustee (including any family member of the foregoing) of such person or of any person controlling, controlled by or under common control with such person (excluding trustees and persons serving in similar capacities who are not otherwise an Affiliate of such person).  The term “person” means and includes individuals, corporations, general and limited partnerships, stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts, real estate investment trusts or other entities and governments and agencies and political subdivisions thereof.  For the purpose of this definition, “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, through the ownership of voting securities, partnership interests or other equity interests.

ARTICLE VI

SHARES OF BENEFICIAL INTEREST

Section 1.  Authorized Shares.  The beneficial interest of the Trust shall be divided into shares of beneficial interest (the “Shares”).  The Trust has authority to issue: (i) one hundred million (100,000,000) common shares of beneficial interest, $.01 par value per share (“Common Shares”), of which fifty million (50,000,000) will be Priority Class A Common Shares (the “Priority Common Shares”) and fifty million (50,000,000) will be Class B Common Shares (the “Class B Common Shares”); and (ii) ten million (10,000,000) preferred shares of beneficial interest, $.01 par value per share (“Preferred Shares”).  If Shares of one class are classified or reclassified into Shares of another class pursuant to this Article VI, the number of authorized Shares of the former class shall be automatically decreased and the number of Shares of the latter class shall be automatically increased, in each case by the number of Shares so classified or reclassified, so that the aggregate number of Shares of all classes that the Trust has the authority to issue shall not be more than the total number of Shares set forth in the second sentence of this paragraph.  The Board of Trustees, without any action by the shareholders of the Trust, may amend the Declaration of Trust from time to time to increase or decrease the aggregate number of Shares or the number of Shares of any class that the Trust has authority to issue.

Section 2.  Common Shares.  Subject to the provisions of Article VII, each Common Share shall entitle the holder thereof to one vote on each matter upon which holders of Common Shares are entitled to vote.  The holders of the Priority Common Shares and the Class B Common Shares shall vote together as a single class.  The Board of Trustees may reclassify any unissued Common Shares from time to time in one or more classes or series of Shares.

3

(a)           Priority Class A Common Shares.  The holders of the Priority Common Shares shall be entitled to the following rights (the “Priority Rights”) during the period beginning on the date of the closing of the initial public offering of the Priority Common Shares (the “Offering”), and ending on the earlier of: (i)  the date that is 15 trading days after the Company sends notice to the record holders of the Priority Common Shares that their Priority Rights will terminate in 15 trading days, provided that the closing bid price of the Priority Common Shares is at least $7.00 on each trading day during such 15-day period; or (ii) the fifth anniversary of the closing of the Offering (the “Priority Period”).  A “trading day” shall mean a day on which the principal national securities exchange on which the Priority Common Shares are listed or admitted to trading is open for the transaction of business or, if the Priority Common Shares are not listed or admitted to trading on any national securities exchange, shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.  Notwithstanding the foregoing, the Priority Period shall not end until the holders of the Priority Common Shares have received any accrued, but unpaid, Priority Distributions.

(i)           The Dividend Priority.  The holders of the Priority Common Shares shall be entitled to receive, prior to any distributions to the holders of the Class B Common Shares, cumulative dividends in an amount per Priority Common Share equal to $.18 per quarter (the “Priority Distribution”).  After the holders of the Class B Common Shares have received an amount per Class B Common Share equal to the Priority Distribution, the holders of the Priority Common Shares shall be entitled to receive any further distributions on a pro rata basis with the holders of the Class B Common Shares.  After the Priority Period, the holders of the Priority Common Shares shall be entitled to receive any further distributions on a pro rata basis with the holders of the Class B Common Shares. The dividends paid to the holders of the Priority Common Shares will be subject to the rights of any class or series of Preferred Shares.

No dividend will be declared or paid or other distribution of cash or other property declared or made directly by the Company or any person acting on behalf of the Company on any shares of beneficial interest that rank junior to the Priority Common Shares as to the payment of dividends or amounts upon liquidation, dissolution and winding up (“Junior Shares”) unless full cumulative dividends have been declared and paid or are contemporaneously declared and funds sufficient for payment set aside on the Priority Common Shares for all prior and contemporaneous dividend periods; provided, however, that if accumulated and accrued dividends on the Priority Common Shares for all prior and contemporaneous dividend periods have not been paid in full then any dividend declared on the Priority Common Shares for any dividend period and on any shares of beneficial interest of the Company that rank on parity with the Priority Common Shares as to the payment of dividends or amounts upon liquidation, dissolution and winding up (“Parity Shares”) will be declared ratably in proportion to accumulated, accrued and unpaid dividends on the Priority Common Shares and such Parity Shares.

No distributions on the Priority Common Shares shall be authorized by the Board of Trustees or paid or set apart for payment by the Company at such time as the terms and provisions of any agreement of the Company, including any agreement relating to its indebtedness, prohibits such authorization, payment or setting apart for payment or provides that such authorization, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such authorization or payment shall be restricted or prohibited by law.  Any distribution payment made on the Priority Common Shares shall first be credited against the earliest accrued but unpaid distribution due with respect to such shares which remains payable.

(ii)           Liquidation Preference.  In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, during the Priority Period, the holders of the Priority Common Shares shall be entitled to receive, prior to any liquidating payments to the holders of the Class B Common Shares, $6.00 per Priority Common Share (the “Liquidation Preference”), plus any accumulated and unpaid Priority Distributions (whether or not declared) on the Priority Common Shares to the date of distribution.  After the holders of the Class B Common Shares have received an amount equal to the Liquidation Preference plus any accumulated and unpaid Priority Distributions (whether or not declared) on the Class B Common Shares to the date of distribution, the holders of the Priority Common Shares shall share ratably with the holders of the Class B Common Shares in the assets of the Company.  In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, after the Priority Period, the holders of the Priority Common Shares shall share ratably with the holders of the Class B Common Shares in the assets of the Company.  The rights of the holders of the Priority Common Shares to liquidating payments shall be subject to rights of any class or series of Preferred Shares.

4

If, upon any liquidation, dissolution or winding up of the Company, the assets of the Company, or proceeds thereof, distributable among the holders of the Priority Common Shares are insufficient to pay in full the Liquidation Preference and all accumulated and unpaid dividends with respect to any of the Parity Shares, then such assets or the proceeds thereof will be distributed among the holders of the Priority Common Shares and any such Parity Shares ratably in accordance with the respective amounts that would be payable on the Priority Common Shares and such Parity Shares if all amounts payable thereon were paid in full.  None of (i) a consolidation or merger of the Company with another corporation, (ii) a statutory share exchange by the Company or (iii) a sale or transfer of all or substantially all of the Company’s assets will be considered a liquidation, dissolution or winding up, voluntary or involuntary, of the Company.

(b)           The Class B Common Shares

(i)            Dividends.  Subject to the preferential rights of the Priority Common Shares during the Priority Period or of any other shares or series of beneficial interest and to the provisions of this Declaration of Trust regarding the restriction on the transfer of shares of beneficial interest, holders of Class B Common Shares are entitled to receive dividends on shares if, as and when authorized and declared by the Board of Trustees of the Company out of assets legally available therefor and to share ratably in the assets of the Company legally available for distribution to its shareholders in the event of its liquidation, dissolution or winding-up after payment of, or adequate provision for, all known debts and liabilities of the Company.  In the event that the Company at any time is unable to pay to the holders of the Class B Common Shares an amount per Class B Common Share equal to the Priority Distribution, during the Priority Period the holders of the Class B Common Shares shall be entitled to receive an amount such that the cumulative amount received per Class B Common Share is equal to the cumulative Priority Distribution received per Priority Common Share.  The Company shall pay such amounts at such subsequent dividend payment dates that the Company has cash available for distribution to shareholders to pay such dividends.

(ii)           Conversion.  Upon termination of the Priority Period, the Class B Common Shares automatically will be converted into Priority Common Shares on a one-for-one basis, subject to adjustment as described in this Article VI, Section 2(b)(iii).  A notice informing holders of the Class B Common Shares of such conversion will be mailed by the Company to the holders of record of the Class B Common Shares as of the dividend payment record date for the next dividend payable after the expiration of the Priority Period, together with the dividend payable on such shares, at their respective addresses as they appear on the share transfer records of the Company.  No fewer than all of the outstanding Class B Common Shares shall be converted.

If the expiration of the Priority Period falls after a dividend payment record date and prior to the related payment date, the holders of the Class B Common Shares at the close of business on such record date will be entitled to receive the dividend payable on such shares on the corresponding dividend payment date, notwithstanding the conversion of such shares prior to such dividend payment date.  Upon expiration of the Priority Period, each holder of Class B Common Shares (unless the Company defaults in the delivery of the Priority Common Shares) will be, without any further action, deemed a holder of the amount of Priority Common Shares, as the case may be, for which such Class B Common Shares are convertible.  Fractional Priority Common Shares will not be issued upon conversion of the Class B Common Shares.

(c)           Conversion Ratio Adjustments.  The conversion ratio is subject to adjustment as hereinafter provided upon certain events, including (i) the payment of dividends (and other distributions) payable in Priority Common Shares on any class of shares of beneficial interest of the Company, (ii) subdivisions, combinations and reclassifications of Priority Common Shares and (iii) distributions to all holders of Priority Common Shares of evidences of indebtedness of the Company or assets (including securities, but excluding those dividends, rights, warrants and distributions referred to in clause (i) or (ii) above and dividends and distributions paid in cash).  In the case of the events referred to in clauses (i) and (ii) above, the number of Priority Common Shares to be issued upon conversion shall be determined by multiplying the number of Class B Common Shares to be converted by a fraction, the numerator of which shall be the number of Priority Common Shares issued and outstanding immediately after such event, and the denominator of which shall be the number of Priority Common Shares issued and outstanding immediately prior to such event.  In the case of the events referred to in clause (iii) above, the number of Priority Common Shares to be issued upon conversion shall be determined by multiplying the number of Class B Common Shares to be converted by a fraction, the numerator of which shall be the value, immediately after such event, of the Priority Common Shares plus the value of the evidences of indebtedness or assets received, and the denominator of which shall be the value of the Priority Common Shares immediately prior to such event.  The foregoing provisions notwithstanding, in making adjustments to the conversion ratio pursuant to this paragraph, no Priority Common Shares issued after the closing with respect to the Company’s initial public offering of Priority Common Shares (other than shares issued in connection with the events referred to in clauses (i) or (ii) above) and no evidences of indebtedness or assets received with respect to such shares shall be included in either numerator or denominator in making such adjustments.  In addition to the foregoing adjustments, the Company will be permitted to make such reductions in the conversion ratio as it considers to be advisable in order that any event treated for Federal income tax purposes as a dividend of Shares or share rights will not be taxable to the holders of the Class B Common Shares or, if that is not possible, to diminish any income taxes that are otherwise payable because of such event.

5

No adjustment of the conversion ratio is required to be made in any case until cumulative adjustments amount to 1% or more of the conversion ratio.  Any adjustments not so required to be made will be carried forward and taken into account in subsequent adjustments.

Section 3.  Preferred Shares.  The Board of Trustees may classify any unissued Preferred Shares and reclassify any previously classified but unissued Preferred Shares of any class or series from time to time, in one or more classes or series of Shares.

Section 4.  Classified or Reclassified Shares.  Prior to issuance of classified or reclassified Shares of any class or series, the Board of Trustees by resolution shall (a) designate that class or series to distinguish it from all other classes and series of Shares; (b) specify the number of Shares to be included in the class or series; (c) set, subject to the provisions of Article VII and subject to the express terms of any class or series of Shares outstanding at the time, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption for each series; and (d) cause the Trust to file articles supplementary with the State Department of Assessments and Taxation of Maryland (“SDAT”).  Any of the terms of any class or series of Shares set pursuant to clause (c) of this Section 3 may be made dependent upon facts or events ascertainable outside the Declaration of Trust (including the occurrence of any event, including a determination by the Trust or any other person or body) and may vary among holders thereof, provided that the manner in which such facts, events or variations shall operate upon the terms of such class or series of Shares is clearly and expressly set forth in articles supplementary filed with the SDAT.

Section 5.  Authorization by Board of Share Issuance.  The Board of Trustees may authorize the issuance from time to time of Shares of any class or series, whether now or hereafter authorized, or securities or rights convertible into Shares of any class or series, whether now or hereafter authorized, for such consideration (whether in cash, property, past or future services, obligation for future payment or otherwise) as the Board of Trustees may deem advisable (or without consideration in the case of a Share split or Share dividend), subject to such restrictions or limitations, if any, as may be set forth in the Declaration of Trust or the Bylaws.  Notwithstanding any other provision in the Declaration of Trust, no determination shall be made by the Board of Trustees nor shall any transaction be entered into by the Trust that would cause any Shares or other beneficial interest in the Trust not to constitute “transferable shares” or “transferable certificates of beneficial interest” under Section 856(a)(2) of the Code or which would cause any distribution to constitute a preferential dividend as described in Section 562(c) of the Code.

Section 6.  Dividends and Distributions.  The Board of Trustees may from time to time authorize to shareholders dividends or distributions, in cash or other assets of the Trust or in securities of the Trust or from any other source as the Board of Trustees in its discretion shall determine.  The Board of Trustees shall endeavor to authorize the Trust to pay such dividends and distributions as shall be necessary for the Trust to qualify as a REIT under the Code; however, shareholders shall have no right to any dividend or distribution unless and until authorized by the Board.  The exercise of the powers and rights of the Board of Trustees pursuant to this Section shall be subject to the provisions of any class or series of Shares at the time outstanding.  Notwithstanding any other provision in the Declaration of Trust, no determination shall be made by the Board of Trustees nor shall any transaction be entered into by the Trust that would cause any Shares not to constitute “transferable shares” or “transferable certificates of beneficial interest” under Section 856(a)(2) of the Code or that would cause any distribution to constitute a preferential dividend as described in Section 562(c) of the Code.

Section 7.  General Nature of Shares.  All Shares shall be personal property entitling the shareholders only to those rights provided in the Declaration of Trust.  The shareholders shall have no interest in the property of the Trust and shall have no right to compel any partition, division, dividend or distribution of the Trust or of the property of the Trust.  The death of a shareholder shall not terminate the Trust.  The Trust is entitled to treat as shareholders only those persons in whose names Shares are registered as holders of Shares on the beneficial interest ledger of the Trust.

6

Section 8.  Fractional Shares.  The Trust may, without the consent or approval of any shareholder, issue fractional Shares, eliminate a fraction of a Share by rounding up or down to a full Share, arrange for the disposition of a fraction of a Share by the person entitled to it, or pay cash for the fair value of a fraction of a Share.

Section 9.  Declaration of Trust and Bylaws.  All shareholders are subject to the provisions of the Declaration of Trust and the Bylaws of the Trust.

Section 10.  Divisions and Combinations of Shares.  Subject to an express provision to the contrary in the terms of any class or series of beneficial interest hereafter authorized, the Board of Trustees shall have the power to divide or combine the outstanding shares of any class or series of beneficial interest, without a vote of the shareholders, so long as the number of shares combined into one share in any such combination or series of combinations within any period of twelve months is not greater than four.

ARTICLE VII

RESTRICTIONS ON TRANSFER AND SHARES-IN-TRUST

Section 1.  Restrictions on Transfer.

(a)           Definitions.  For the purpose of this Article VII, the following terms shall have the following meanings:

(i)             “Beneficial Ownership” shall mean ownership of Equity Shares (or options to acquire Equity Shares) by a Person who would be treated as an owner of such Equity Shares either (a) directly (including through a nominee or similar arrangement) or (b) indirectly through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code.  The terms “Beneficial Owner,” “Beneficially Owns” and “Beneficially Owned” shall have correlative meanings.

(ii)            “Beneficiary” shall mean, with respect to any Share Trust, one or more organizations described in each of Section 170(b)(1)(A) (other than clause (vii) or (viii) thereof) and Section 170(c)(2) of the Code that are named by the Share Trust as the beneficiary or beneficiaries of such Share Trust, in accordance with the provisions of Section 2(A) hereof.

(iii)           “Board of Trustees” shall mean the Board of Trustees of the Trust.

(iv)           “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

(v)            “Constructive Ownership” shall mean ownership of Equity Shares (or options to acquire Equity Shares) by a Person, whether the interest in the Equity Shares is held directly or indirectly (including a nominee or similar arrangement), and shall include interests that are or would be treated as owned through the application of Section 318 of the Code, as modified by Section 856(d)(5) of the Code.  The terms “Constructive Owner,” “Constructively Owns” and “Constructively Owned” shall have correlative meanings.

(vi)           “Equity Shares” shall mean Shares of all classes or series, including without limitation Preferred Shares and Common Shares.  The term “Equity Shares” shall include all Preferred Shares and Common Shares that are held as Shares-in-Trust in accordance with the provisions of Section 2(A) hereof.

(vii)          “Hersha Hospitality Partnership Agreement” shall mean the agreement of limited partnership of Hersha Hospitality Limited Partnership, a Virginia limited partnership, as amended and restated.

7

(viii)         “Initial Public Offering” means the sale of Common Shares pursuant to the Trust’s first effective registration statement for such Common Shares filed under the Securities Act of 1933, as amended.

(ix)           “Market Price” on any date shall mean, with respect to any class or series of outstanding Equity Shares, the average of the Closing Price for the five consecutive Trading Days ending on such date.  The “Closing Price” on any date shall mean the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Equity Shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Equity Shares are listed or admitted to trading or, if the Equity Shares are not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc.  Automated Quotation System or, if such system is no longer in use, the principal other automated quotations system that may then be in use or, if the Equity Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Equity Shares selected by the Board of Trustees or, in the event that no trading price is available for such Equity Shares, the fair market value of the Equity Shares, as determined in good faith by the Board of Trustees. “Trading Day” shall mean a day on which the principal national securities exchange on which the Equity Shares are listed or admitted to trading is open for the transaction of business or, if the Equity Shares are not listed or admitted to trading on any national securities exchange, shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.

(x)            “Non-Transfer Event” shall mean an event (other than a purported Transfer) that would result in a change in Beneficial or Constructive Ownership of the Equity Shares, including, but not limited to, the granting of any option or entering into any agreement for the sale, transfer or other disposition of Equity Shares or the sale, transfer, assignment or other disposition of any securities or rights convertible into or exchangeable for Equity Shares.

(xi)           “Ownership Limit” shall mean 9.9% of the aggregate number of outstanding Common Shares of any class or series of Common Shares and 9.9% of the aggregate number of outstanding Preferred Shares of any class or series of Preferred Shares, in each case considered separately on a class by class or series by series basis.

(xii)           “Partnership” shall mean Hersha Hospitality Limited Partnership, a Virginia limited partnership.

(xiii           “Partnership Unit” shall mean a fractional, undivided share of the partnership interests of Hersha Hospitality Limited Partnership, a Virginia limited partnership.

(xiv)         “Permitted Transferee” shall mean any Person designated as a Permitted Transferee in accordance with the provisions of Section 2(E) hereof.

(xv)          “Person” shall mean an individual, corporation, partnership, limited liability company, estate, trust, a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity and also includes a “group” as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.

(xvi)         “Prohibited Owner” shall mean, with respect to any purported Transfer or Non-Transfer Event, any Person who, but for the provisions of Section 1(C) hereof, would own record title to Equity Shares.

(xvii)        “Redemption Rights” shall mean the rights granted under the Hersha Hospitality Partnership Agreement to the limited partners to redeem, under certain circumstances, their Partnership Units for cash (or, at the option of the Trust, Common Shares).

8

(xviii)       “REIT” shall mean a real estate investment trust under Section 856 of the Code.

(xix)          “Restriction Termination Date” shall mean the first day after the date of the Initial Public Offering on which the Board of Trustees and the shareholders of the Trust determine, pursuant to Article V, Section 1(C), that it is no longer in the best interests of the Trust to attempt to, or continue to, qualify as a REIT or for any other reason, the Board of Trustees and the shareholders amend the Declaration of Trust to terminate the provisions of this Article VII.

(xx)           “Shares-in-Trust” shall mean any Equity Shares designated Shares-in-Trust pursuant to Section 1(C) hereof.

(xxi)          “Share Trust” shall mean any separate trust created pursuant to Section 1(C) hereof and administered in accordance with the terms of Section 2 hereof, for the exclusive benefit of any Beneficiary.

(xxii)         “Share Trustee” shall mean any person or entity unaffiliated with both the Trust and any Prohibited Owner designated by the Trust to act as trustee of any Share Trust, or any successor trustee thereof.

(xxiii)        “Transfer” (as a noun) shall mean any issuance, sale, transfer, gift, assignment, devise or other disposition of Equity Shares, whether voluntary or involuntary, whether of record, constructively or beneficially and whether by operation of law or otherwise.  “Transfer” (as a verb) shall have the correlative meaning.

(b)           Restriction on Transfers.

(i)             Except as provided in Section 1(G) hereof, from the date of the Initial Public Offering and prior to the Restriction Termination Date, no Person shall Beneficially Own or Constructively Own outstanding Equity Shares in excess of the Ownership Limit.

(ii)            Except as provided in Section 1(G) hereof and subject to Section 1(H) hereof, from the date of the Initial Public Offering and prior to the Restriction Termination Date, any Transfer that, if effective, would result in any Person Beneficially Owning or Constructively Owning Equity Shares in excess of the Ownership Limit shall be void ab initio as to the Transfer of that number of Equity Shares that would be otherwise Beneficially Owned or Constructively Owned by such Person in excess of the Ownership Limit, and the intended transferee shall acquire no rights in such excess Equity Shares.

(iii)           Subject to Section 1(H) hereof, from the date of the Initial Public Offering and prior to the Restriction Termination Date, any Transfer that, if effective, would result in the Equity Shares being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution) shall be void ab initio as to the Transfer of that number of shares that otherwise would result in the Equity Shares being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution), and the intended transferee shall acquire no rights in such excess Equity Shares; provided, however that this Section 1(B)(3) shall not apply to the Transfer of Equity Shares from the Trust to the underwriter of the Initial Public Offering.

(iv)           Subject to Section 1(H) hereof, from the date of the Initial Public Offering and prior to the Restriction Termination Date, any Transfer of Equity Shares that, if effective, would result in the Trust being “closely held” within the meaning of Section 856(h) of the Code shall be void ab initio as to the Transfer of that number of Equity Shares that would cause the Trust to be “closely held” within the meaning of Section 856(h) of the Code, and the intended transferee shall acquire no rights in such excess Equity Shares; provided, however, that this Section 1(B)(4) shall not apply to the Transfer of Equity Shares from the Trust to the underwriter of the Initial Public Offering.

(v)            Subject to Section 1(H) hereof, from the date of the Initial Public Offering and prior to the Restriction Termination Date, any Transfer of Equity Shares that, if effective, would cause the Trust to Constructively Own 10% or more of the ownership interests in a tenant of the Trust’s or the Partnership’s real property, within the meaning of Section 856(d)(2)(B) of the Code, shall be void ab initio as to the Transfer of that number of Equity Shares that would cause the Trust to Constructively Own 10% or more of the ownership interests in a tenant of the Trust’s or the Partnership’s real property, within the meaning of Section 856(d)(2)(B) of the Code, and the intended transferee shall acquire no rights in such excess Equity Shares.

9

(c)           Transfer to Share Trust.

(i)             If, notwithstanding the other provisions contained in this Section 1, at any time after the date of the Initial Public Offering and prior to the Restriction Termination Date, there is a purported Transfer or Non-Transfer Event such that any Person would either Beneficially Own or Constructively Own Equity Shares in excess of the Ownership Limit, then (x) except as otherwise provided in Section 1(G) hereof, the purported transferee shall acquire no right or interest (or, in the case of a Non-Transfer Event, the person holding record title to the Equity Shares Beneficially Owned or Constructively Owned by such Beneficial Owner or Constructive Owner, shall cease to own any right or interest) in such number of Equity Shares that would cause such Beneficial Owner or Constructive Owner to Beneficially Own or Constructively Own Equity Shares in excess of the Ownership Limit, (y) such number of Equity Shares in excess of the Ownership Limit (rounded up to the nearest whole share) shall be designated Shares-in-Trust and, in accordance with the provisions of Section 2 hereof, transferred automatically and by operation of law to a Share Trust to be held in accordance with that Section 2, and (z) the Prohibited Owner shall submit such number of Equity Shares to the Trust for registration in the name of the Share Trust.  Such transfer to a Share Trust and the designation of shares as Shares-in-Trust shall be effective as of the close of business on the business day prior to the date of the Transfer or Non-Transfer Event, as the case may be.

(ii)            If, notwithstanding the other provisions contained in this Section 1, at any time after the date of the Initial Public Offering and prior to the Restriction Termination Date, there is a purported Transfer or Non-Transfer Event that, if effective, would (i) result in the Equity Shares being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution), (ii) result in the Trust being “closely held” within the meaning of Section 856(h) of the Code, or (iii) cause the Trust to Constructively Own 10% or more of the ownership interests in a tenant of the Trust’s or the Partnership’s real property, within the meaning of Section 856(d)(2)(B) of the Code, then (x) the purported transferee shall not acquire any right or interest (or, in the case of a Non-Transfer Event, the person holding record title of the Equity Shares with respect to which such Non-Transfer Event occurred, shall cease to own any right or interest) in such number of Equity Shares, the ownership of which by such purported transferee or record holder would (A) result in the Equity Shares being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution), (B) result in the Trust being “closely held” within the meaning of Section 856(h) of the Code or (C) cause the Trust to Constructively Own 10% or more of the ownership interests in a tenant of the Trust’s or the Partnership’s real property, within the meaning of Section 856(d)(2)(B) of the Code, (y) such number of Equity Shares (rounded up to the nearest whole share) shall be designated Shares-in-Trust and, in accordance with the provisions of Section 2 hereof, transferred automatically and by operation of law to the Share Trust to be held in accordance with that Section 2 and (z) the Prohibited Owner shall submit such number of Equity Shares to the Trust for registration in the name of the Share Trust.  Such transfer to a Share Trust and the designation of shares as Shares-in-Trust shall be effective as of the close of business on the business day prior to the date of the Transfer or Non-Transfer Event, as the case may be.

(d)           Remedies For Breach.  If the Trust, or its designees, shall at any time determine in good faith that a Transfer has taken place in violation of Section 1(B) hereof or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any Equity Shares in violation of Section 1(B) hereof, the Trust shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or acquisition, including, but not limited to, refusing to give effect to such Transfer on the books of the Trust or instituting proceedings to enjoin such Transfer or acquisition.

(e)           Notice of Restricted Transfer.  Any Person who acquires or attempts to acquire Equity Shares in violation of Section 1(B) hereof, or any Person who owned Equity Shares that were transferred to a Share Trust pursuant to the provisions of Section 1(C) hereof, shall immediately give written notice to the Trust of such event and shall provide to the Trust such other information as the Trust may request in order to determine the effect, if any, of such Transfer or Non-Transfer Event, as the case may be, on the Trust’s status as a REIT.

(f)            Owners Required To Provide Information.  From the date of the Initial Public Offering and prior to the Restriction Termination Date:

10

(i)            Every Beneficial Owner or Constructive Owner of more than 5%, or such lower percentages as required pursuant to regulations under the Code, of the outstanding Equity Shares of the Trust shall, within 30 days after December 31 of each year, provide to the Trust a written statement or affidavit stating the name and address of such Beneficial Owner or Constructive Owner, the number of Equity Shares Beneficially Owned or Constructively Owned, and a description of how such shares are held.  Each such Beneficial Owner or Constructive Owner shall provide to the Trust such additional information as the Trust may request in order to determine the effect, if any, of such Beneficial Ownership or Constructive Ownership on the Trust’s status as a REIT and to ensure compliance with the Ownership Limit and the other restrictions set forth in Section 1(B).

(ii)           Each Person who is a Beneficial Owner or Constructive Owner of Equity Shares and each Person (including the shareholder of record) who is holding Equity Shares for a Beneficial Owner or Constructive Owner shall provide to the Trust a written statement or affidavit stating such information as the Trust may request in order to determine the Trust’s status as a REIT and to ensure compliance with the Ownership Limit and the other restrictions set forth in Section 1(B).

(g)           Exception to Ownership Limit.  The Ownership Limit shall not apply to the acquisition of Equity Shares by an underwriter that participates in a public offering of such shares, for a period of 90 days following the purchase by such underwriter of such shares.  In addition, the Board of Trustees, upon receipt of advice of counsel or other evidence satisfactory to the Board of Trustees, in its sole and absolute discretion, in each case to the effect that the restrictions contained in Sections 1(B)(3), (4) and (5) hereof will not be violated and that REIT status will not otherwise be lost, may, in its sole and absolute discretion, exempt a Person from the Ownership Limit if such Person is not an individual for purposes of Section 542(a)(2) of the Code, provided that (i) the Board of Trustees obtains such representations and undertakings from such Person as are reasonably necessary to ascertain that no individual’s Beneficial Ownership or Constructive Ownership of Equity Shares will violate the Ownership Limit as a result of the exemption and (ii) such Person agrees that any violation or attempted violation of the terms of the exemption will result in a transfer to the Share Trust of Equity Shares pursuant to Section 1(C) hereof.

(h)           New York Stock Exchange Transactions.  Notwithstanding any provision contained herein to the contrary, nothing in this Declaration of Trust shall preclude the settlement of any transaction entered into through the facilities of the New York Stock Exchange.  The fact that the settlement of any transaction occurs shall not negate the effect of any other provision of this Article VII and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Article VII.

Section 2.  Shares-in-Trust.

(a)           Share Trust.  Any Equity Shares transferred to a Share Trust and designated Shares-in-Trust pursuant to Section 1(C) hereof shall be held for the exclusive benefit of a Beneficiary.  The Trust shall name a Beneficiary of each Share Trust within five days after discovery of the existence thereof.  Any transfer to a Share Trust, and subsequent designation of Equity Shares as Shares-in-Trust, pursuant to Section 1(C) hereof shall be effective as of the close of business on the business day prior to the date of the Transfer or Non-Transfer Event that results in the transfer to the Share Trust.  Shares-in-Trust shall remain issued and outstanding Equity Shares of the Trust and shall be entitled to the same rights and privileges on identical terms and conditions as are all other issued and outstanding Equity Shares of the same class and series.  When transferred to a Permitted Transferee in accordance with the provisions of Section 2(E) hereof, such Shares-in-Trust shall cease to be designated as Shares-in-Trust.

(b)           Dividend Rights.  The Share Trust, as record holder of Shares-in-Trust, shall be entitled to receive all dividends and distributions as may be declared by the Board of Trustees on such Equity Shares and shall hold such dividends or distributions in trust for the benefit of the Beneficiary.  The Prohibited Owner with respect to Shares-in-Trust shall repay to the Share Trust the amount of any dividends or distributions received by it that (i) are attributable to any Equity Shares designated Shares-in-Trust and (ii) the record date for which was on or after the date that such shares became Shares-in-Trust.  The Trust shall take all measures that it determines reasonably necessary to recover the amount of any such dividend or distribution paid to a Prohibited Owner, including, if necessary, withholding any portion of future dividends or distributions payable on Equity Shares Beneficially Owned or Constructively Owned by the Person who, but for the provisions of Section 1(C) hereof, would Constructively Own or Beneficially Own the Shares-in-Trust; and, as soon as reasonably practicable following the Trust’s receipt or withholding thereof, shall pay over to the Share Trust for the benefit of the Beneficiary the dividends so received or withheld, as the case may be.

11

(c)           Rights Upon Liquidation.  In the event of any voluntary or involuntary liquidation, dissolution or winding up of, or any distribution of the assets of, the Trust, each holder of Shares-in-Trust shall be entitled to receive, ratably with each other holder of Equity Shares of the same class or series, that portion of the assets of the Trust that is available for distribution to the holders of such class or series of Equity Shares.  The Share Trust shall distribute to the Prohibited Owner the amounts received upon such liquidation, dissolution or winding up, or distribution; provided, however, that the Prohibited Owner shall not be entitled to receive amounts pursuant to this Section 2(C) in excess of (i) in the case of a purported Transfer in which the Prohibited Owner gave value for Equity Shares and which Transfer resulted in the transfer of the shares to the Share Trust, the price per share, if any, such Prohibited Owner paid for the Equity Shares and (ii) in the case of a Non-Transfer Event or Transfer in which the Prohibited Owner did not give value for such shares (e.g., if the shares were received through a gift or devise) and which Non-Transfer Event or Transfer, as the case may be, resulted in the transfer of shares to the Share Trust, the price per share equal to the Market Price on the date of such Non-Transfer Event or Transfer.  Any remaining amount in such Share Trust shall be distributed to the Beneficiary.

(d)           Voting Rights.  The Share Trustee shall be entitled to vote all Shares-in-Trust.  Any vote by a Prohibited Owner as a holder of Equity Shares prior to the discovery by the Trust that the Equity Shares are Shares-in-Trust shall, subject to Maryland law, be rescinded and shall be void ab initio with respect to such Shares-in-Trust and the Prohibited Owner shall be deemed to have given, as of the close of business on the business day prior to the date of the purported Transfer or Non-Transfer Event that results in the transfer to the Share Trust of Equity Shares under Section 1(C) hereof, an irrevocable proxy to the Share Trustee to vote the Shares-in-Trust in the manner in which the Share Trustee, in its sole and absolute discretion, desires; provided, however, that if the Trust has already taken irreversible trust action, the Share Trustee shall not have the authority to rescind and recast such vote.

(e)           Designation of Permitted Transferee.  The Share Trustee shall have the exclusive and absolute right to designate a Permitted Transferee of any and all Shares-in-Trust.  In an orderly fashion so as not to materially adversely affect the Market Price of the Shares-in-Trust, the Share Trustee shall designate any Person as Permitted Transferee, provided, however, that (i) the Permitted Transferee so designated purchases for valuable consideration (whether in a public or private sale), at a price as set forth in Section 2(G) hereof, the Shares-in-Trust and (ii) the Permitted Transferee so designated may acquire such Shares-in-Trust without such acquisition resulting in a transfer to a Share Trust and the redesignation of such Equity Shares so acquired as Shares-in-Trust under Section 1(C) hereof.  Upon the designation by the Share Trustee of a Permitted Transferee in accordance with the provisions of this Section 2(E), the Share Trustee shall (i) cause to be transferred to the Permitted Transferee that number of Shares-in-Trust acquired by the Permitted Transferee, (ii) cause to be recorded on the books of the Trust that the Permitted Transferee is the holder of record of such number of Equity Shares, (iii) cause the Shares-in-Trust to be canceled and (iv) distribute to the Beneficiary any and all amounts held with respect to the Shares-in-Trust after making the payment to the Prohibited Owner pursuant to Section 2(F) hereof.

(f)            Compensation to Record Holder of Equity Shares that Become Shares-in-Trust.  Any Prohibited Owner shall be entitled (following discovery of the Shares-in-Trust and subsequent designation of the Permitted Transferee in accordance with Section 2(E) hereof or following the acceptance of the offer to purchase such shares in accordance with Section 2(G) hereof) to receive from the Share Trustee following the sale or other disposition of such Shares-in-Trust the lesser of (i) in the case of (a) a purported Transfer in which the Prohibited Owner gave value for Equity Shares and which Transfer resulted in the transfer of the shares to the Share Trust, the price per share, if any, such Prohibited Owner paid for the Equity Shares, or (b) a Non-Transfer Event or Transfer in which the Prohibited Owner did not give value for such shares (e.g., if the shares were received through a gift or devise) and which Non-Transfer Event or Transfer, as the case may be, resulted in the transfer of shares to the Share Trust, the price per share equal to the Market Price on the date of such Non-Transfer Event or Transfer and (ii) the price per share received by the Share Trustee from the sale or other disposition of such Shares-in-Trust in accordance with Section 2(E) hereof.  Any amounts received by the Share Trustee in respect of such Shares-in-Trust and in excess of such amounts to be paid the Prohibited Owner pursuant to this Section 2(F) shall be distributed to the Beneficiary in accordance with the provisions of Section 2(E) hereof.  Each Beneficiary and Prohibited Owner waive any and all claims that they may have against the Share Trustee and the Share Trust arising out of the disposition of Shares-in-Trust, except for claims arising out of the gross negligence or willful misconduct of, or any failure to make payments in accordance with this Section 2 by, such Share Trustee or the Trust.

12

(g)           Purchase Right in Shares-in-Trust.  Shares-in-Trust shall be deemed to have been offered for sale to the Trust, or its designee, at a price per share equal to the lesser of (i) the price per share in the transaction that created such Shares-in-Trust (or, in the case of devise, gift or Non-Transfer Event, the Market Price at the time of such devise, gift or Non-Transfer Event) and (ii) the Market Price on the date the Trust, or its designee, accepts such offer.  The Trust shall have the right to accept such offer for a period of ninety days after the later of (i) the date of the Non-Transfer Event or purported Transfer that resulted in such Shares-in-Trust and (ii) the date the Trust determines in good faith that a Transfer or Non-Transfer Event resulting in Shares-in-Trust has occurred, if the Trust does not receive a notice of such Transfer or Non-Transfer Event pursuant to Section 1(E) hereof.

Section 3.  Remedies Not Limited.  Subject to Section 1(H) hereof, nothing contained in this Article VII shall limit the authority of the Trust to take such other action as it deems necessary or advisable to protect the Trust and the interests of its shareholders by preservation of the Trust’s status as a REIT and to ensure compliance with the Ownership Limit.

Section 4.  Ambiguity.  In the case of an ambiguity in the application of any of the provisions of Article VII, including any definition contained in Section 1(A) hereof, the Board of Trustees shall have the power to determine the application of the provisions of this Article VII with respect to any situation based on the facts known to it.

Section 5.  Legend.  Each certificate for Equity Shares shall bear substantially the following legend:

“The [Common or Preferred] Shares evidenced by this certificate are subject to restrictions on transfer.  Subject to certain further restrictions and except as provided in the Declaration of Trust of the Trust, no Person may (i) Beneficially or Constructively Own Common Shares in excess of 9.9% of the number of outstanding Common Shares of any class or series, (ii) Beneficially or Constructively Own Preferred Shares in excess of 9.9% of the number of outstanding Preferred Shares of any class or series, (iii) Beneficially Own Equity Shares that would result in the Equity Shares being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution), (iv) Beneficially Own Equity Shares that would result in the Trust being “closely held” under Section 856(h) of the Internal Revenue Code of 1986, as amended (the “Code”), or (v) Constructively Own Equity Shares that would cause the Trust to Constructively Own 10% or more of the ownership interests in a tenant of the Trust’s or the Partnership’s real property, within the meaning of Section 856(d)(2)(B) of the Code.  Any Person who attempts to Beneficially or Constructively Own Equity Shares in excess of the above limitations must immediately notify the Trust in writing.  If any restrictions above are violated, the Equity Shares evidenced hereby will be transferred automatically to a Share Trust and shall be designated Shares-in-Trust for the benefit of one or more charitable beneficiaries.  In addition, upon the occurrence of certain events, attempted transfers in violation of the restrictions described above may be void ab initio.  All capitalized terms in this legend have the meanings defined in the Trust’s Declaration of Trust, as the same may be further amended from time to time, a copy of which, including the restrictions on transfer, will be sent without charge to each shareholder who so requests.  Such requests must be made to the Secretary of the Trust at its principal office or to the transfer agent.”

In place of the foregoing legend, the certificate may state that the Trust will furnish a full statement about certain restrictions or transferability to a shareholder on request and without charge.

Section 6.  Severability.  If any provision of this Article VII or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issues, the validity of the remaining provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court.

Section 7.  Non-Waiver.  No delay or failure on the part of the Trust or the Board of Trustees in exercising any right hereunder shall operate as a waiver of any right of the Trust or the Board of Trustees, as the case may be, except to the extent specifically waived in writing.

13

ARTICLE VIII

SHAREHOLDERS

Section 1.  Meetings.  There shall be an annual meeting of the shareholders, to be held on proper notice at such time (after the delivery of the annual report) and convenient location as shall be determined by or in the manner prescribed in the Bylaws, for the election of the Trustees, if required, and for the transaction of any other business within the powers of the Trust.  If there are no Trustees, the officers of the Trust shall promptly call a special meeting of the shareholders entitled to vote for the election of successor Trustees.  Any meeting may be adjourned and reconvened as the Trustees determine or as provided in the Bylaws.

Section 2.  Voting Rights.  Subject to the provisions of any class or series of Shares then outstanding, the shareholders shall be entitled to vote only on the following matters: (a) termination of REIT status as provided in Article V, Section (1)(C), (b) election of Trustees as provided in Article V, Section 2(A) and the removal of Trustees as provided in Article V, Section 3; (c) amendment of the Declaration of Trust as provided in Article X; (d) termination of the Trust as provided in Article XII, Section 2; (e) merger or consolidation of the Trust, or the sale or disposition of substantially all of the Trust Property (as hereinafter defined), as provided in Article XI; and (f) such other matters with respect to which a vote of the shareholders is required by applicable law or the Board of Trustees has adopted a resolution declaring that a proposed action is advisable and directing that the matter be submitted to the shareholders for approval or ratification.  Except with respect to the foregoing matters, no action taken by the shareholders at any meeting shall in any way bind the Board of Trustees.

Section 3.  Preemptive and Appraisal Rights.  Except as may be provided by the Board of Trustees in setting the terms of classified or reclassified Shares pursuant to Article VI, Section 4 or as otherwise may be provided by contract, no holder of Shares shall, as such holder, (a) have any preemptive or preferential right to purchase or subscribe for any additional Shares of the Trust or any other security of the Trust that it may issue or sell or (b), except as expressly required by Title 8, have any right to require the Trust to pay him the fair value of his Shares in an appraisal or similar proceeding.

Section 4.  Extraordinary Actions.  Except as specifically provided in Article V, Sections 1(C) and 3, Article X, Section 3 and Article XII, Section 2 of this Declaration of Trust, notwithstanding any provision of law permitting or requiring action to be taken or authorized by the affirmative vote of the holders of a greater number of votes, any such action shall be effective and valid if taken or approved by the affirmative vote of holders of Shares entitled to cast a majority of all of the votes entitled to be cast on the matter.

Section 5.  Board Approval.  The submission of any action to the shareholders for their consideration shall first be approved as advised by the Board of Trustees.

Section 6.  Action By Shareholders Without a Meeting.  The Bylaws may provide that any action required or permitted to be taken by the shareholders may be taken without a meeting by the written consent of the shareholders entitled to cast a sufficient number of votes to approve the matter as required by statute, the Declaration of Trust or the Bylaws, as the case may be.

ARTICLE IX

LIABILITY LIMITATION, INDEMNIFICATION

AND TRANSACTIONS WITH THE TRUST

Section 1.  Limitation of Shareholder Liability.  No shareholder shall be liable for any debt, claim, demand, judgment or obligation of any kind of, against or with respect to the Trust by reason of his being a shareholder, nor shall any shareholder be subject to any personal liability whatsoever, in tort, contract or otherwise, to any person in connection with the property or the affairs of the Trust by reason of his being a shareholder.

Section 2.  Limitation of Trustee and Officer Liability.  To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of trustees and officers of a REIT, no Trustee or officer of the Trust shall be liable to the Trust or to any shareholder for money damages.  Neither the amendment nor repeal of this Section, nor the adoption or amendment of any other provision of the Declaration of Trust or Bylaws inconsistent with this Section, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act that occurred prior to such amendment, repeal or adoption.  In the absence of any Maryland statute limiting the liability of trustees and officers of a Maryland REIT for money damages in a suit by or on behalf of the Trust or by any shareholder, no Trustee or officer of the Trust shall be liable to the Trust or to any shareholder for money damages except to the extent that (a) the Trustee or officer actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received; or (b) a judgment or other final adjudication adverse to the Trustee or officer is entered in a proceeding based on a finding in the proceeding that the Trustee’s or officer’s action or failure to act was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.

14

Section 3.  Express Exculpatory Clauses in Instruments.  Neither the shareholders nor the Trustees, officers, employees or agents of the Trust shall be liable under any written instrument creating an obligation of the Trust, and all Persons shall look solely to the Trust Property for the payment of any claim under or for the performance of that instrument.  The omission of the foregoing exculpatory language from any instrument shall not affect the validity or enforceability of such instrument and shall not render any Shareholder, Trustee, officer, employee or agent liable thereunder to any third party, nor shall the Trustees or any officer, employee or agent of the Trust be liable to anyone for such omission.  As used in this Declaration of Trust, “Trust Property” means any and all property, real, personal or otherwise, tangible or intangible, which is transferred or conveyed to the Trust or the Trustees (including all rents, income, profits and gains therefrom), which is owned or held by, or for the account of, the Trust or the Trustees.

Section 4.  Indemnification.  The Trust shall have the power, to the maximum extent permitted by Maryland law in effect from time to time, to obligate itself to indemnify, and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to, (a) any individual who is a present or former shareholder, Trustee or officer of the Trust or (b) any individual who, while a Trustee of the Trust and at the request of the Trust, serves or has served as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, real estate investment trust, employee benefit plan or other enterprise from and against any claim or liability to which such person may become subject or which such person may incur by reason of his status as a present or former shareholder, Trustee or officer of the Trust.  The Trust shall have the power, with the approval of its Board of Trustees, to provide such indemnification and advancement of expenses to a person who served as a predecessor of the Trust in any of the capacities described in (a) or (b) above, and to any employee or agent of the Trust or a predecessor of the Trust.

Section 5.  Transactions Between the Trust and its Trustees, Officers, Employees and Agents.  Subject to any express restrictions in the Declaration of Trust or adopted by the Trustees in the Bylaws or by resolution, the Trust may enter into any contract or transaction of any kind with any person, including any Trustee, officer, employee or agent of the Trust or any person affiliated with a Trustee, officer, employee or agent of the Trust, whether or not any of them has a financial interest in such transaction.

ARTICLE X

AMENDMENTS

Section 1.  General.  The Trust reserves the right from time to time to make any amendment to the Declaration of Trust, now or hereafter authorized by law, including any amendment altering the terms or contract rights, as expressly set forth in the Declaration of Trust, of any Shares.  All rights and powers conferred by this Declaration of Trust on shareholders, Trustees and officers are granted subject to this reservation.  An amendment to the Declaration of Trust (a) shall be signed and acknowledged by at least a majority of the Trustees or an officer duly authorized by at least a majority of the Trustees, (b) shall be filed for record with SDAT as provided in Article XIII, Section 5 and (c) shall become effective as of the later of the time the SDAT accepts the amendment for record or the time established in the amendment, not to exceed 30 days after the amendment is accepted for record.  All references to the Declaration of Trust shall include all amendments thereto.

Section 2.  By Trustees.  The Trustees by a majority vote may amend the Declaration of Trust from time to time in the manner provided by Title 8, without any action by the shareholders, to qualify as a REIT under the Code or under Title 8.

15

Section 3.  By Shareholders.  Other than amendments pursuant to Section 2 of this Article X and Section 1 of Article VI, any amendment to the Declaration of Trust shall be valid only if approved by the affirmative vote of at least a majority of all the votes entitled to be cast on the matter, except that any amendment to Article V, Article VII, Article X, Sections 2 and 3 and Article XII, Section 2 of this Declaration of Trust shall be valid only if approved by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter; but in each case only after due authorization, advice and approval of the Board of Trustees.

ARTICLE XI

MERGER, CONSOLIDATION OR SALE OF TRUST PROPERTY

Subject to the provisions of any class or series of Shares at the time outstanding, the Trust may (a) merge the Trust into another entity, (b) consolidate the Trust with one or more other entities into a new entity or (c) sell, lease, exchange or otherwise transfer all or substantially all of the Trust Property.  Any such action must be approved as advised by the Board of Trustees and, after notice to all shareholders entitled to vote on the matter, by the affirmative vote of a majority of all the votes entitled to be cast on the matter, except where approval of the shareholders is not required by Title 8 or would not be required by the Maryland General Corporation Law if the Trust were a Maryland corporation.

ARTICLE XII

DURATION AND TERMINATION OF TRUST

Section 1.  Duration.  The Trust shall continue perpetually unless terminated pursuant to Section 2 of this Article XII or pursuant to any applicable provision of Title 8.

Section 2.  Termination.

(a)           Subject to the provision of any class or series of Shares at the time outstanding, the Trust may be terminated at any meeting of shareholders, by the affirmative vote of two thirds of all the votes entitled to be cast on the matter, after due authorization, advice and approval thereof by a majority of the entire Board of Trustees.  Upon the termination of the Trust:

(i)            The Trust shall carry on no business except for the purpose of winding up its affairs.

(ii)           The Trustees shall proceed to wind up the affairs of the Trust and all of the powers of the Trustees under the Declaration of Trust shall continue, including the powers to fulfill or discharge the Trust’s contracts, collect its assets, sell, convey, assign, exchange, transfer or otherwise dispose of all or any part of the remaining Trust Property to one or more persons at public or private sale for consideration that may consist in whole or in part of cash, securities or other property of any kind, discharge or pay its liabilities and do all other acts appropriate to liquidate its business.

(iii)           After paying or adequately providing for the payment of all liabilities, and upon receipt of such releases, indemnities and agreements as it deems necessary for its protection, the Trust may distribute the remaining Trust Property among the shareholders so that after payment in full or the setting apart for payment of such preferential amounts, if any, to which the holders of any Shares at the time outstanding shall be entitled, the remaining Trust Property shall, subject to any participating or similar rights of Shares at the time outstanding, be distributed ratably among the holders of Common Shares at the time outstanding.

(b)           After termination of the Trust, the liquidation of its business and the distribution to the shareholders as herein provided, a majority of the Trustees shall execute and file with the Trust’s records a document certifying that the Trust has been duly terminated, and the Trustees shall be discharged from all liabilities and duties hereunder, and the rights and interests of all shareholders shall cease.

16

ARTICLE XIII

MISCELLANEOUS

Section 1.  Governing Law.  The Declaration of Trust is executed by the undersigned Trustees and delivered in the State of Maryland with reference to the laws thereof, and the rights of all parties and the validity, construction and effect of every provision hereof shall be subject to and construed according to the laws of the State of Maryland without regard to conflicts of laws provisions thereof.

Section 2.  Reliance by Third Parties.  Any certificate shall be final and conclusive as to any person dealing with the Trust if executed by the Secretary or an Assistant Secretary of the Trust or a Trustee, and if certifying to: (a) the number or identity of Trustees, officers of the Trust or shareholders; (b) the due authorization of the execution of any document; (c) the action or vote taken, and the existence of a quorum, at a meeting of the Board of Trustees or shareholders; (d) a copy of the Declaration of Trust or of the Bylaws as a true and complete copy as then in force; (e) an amendment to the Declaration of Trust; (f) the termination of the Trust; or (g) the existence of any fact relating to the affairs of the Trust.  No purchaser, lender, transfer agent or other person shall be bound to make any inquiry concerning the validity of any transaction purporting to be made by the Trust on its behalf or by any officer, employee or agent of the Trust.

Section 3.  Severability.

(a)           The provisions of the Declaration of Trust are severable, and if the Board of Trustees shall determine, with the advice of counsel, that any one or more of such provisions (the “Conflicting Provisions”) are in conflict with the Code, Title 8 or other applicable federal or state laws, the Conflicting Provisions, to the extent of the conflict, shall be deemed never to have constituted a part of the Declaration of Trust, even without any amendment of the Declaration of Trust pursuant to Article X and without affecting or impairing any of the remaining provisions of the Declaration of Trust or rendering invalid or improper any action taken or omitted prior to such determination.  No Trustee shall be liable for making or failing to make such a determination.  In the event of any such determination by the Board of Trustees, the Board shall amend the Declaration of Trust in the manner provided in Article X, Section 2.

(b)           If any provision of the Declaration of Trust shall be held invalid or unenforceable in any jurisdiction, such holding shall apply only to the extent of any such invalidity or unenforceability and shall not in any manner affect, impair or render invalid or unenforceable such provision in any other jurisdiction or any other provision of the Declaration of Trust in any jurisdiction.

Section 4.  Construction.  In the Declaration of Trust, unless the context otherwise requires, words used in the singular or in the plural include both the plural and singular and words denoting any gender include all genders. The title and headings of different parts are inserted for convenience and shall not affect the meaning, construction or effect of the Declaration of Trust.  In defining or interpreting the powers and duties of the Trust and its Trustees and officers, reference may be made by the Trustees or officers, to the extent appropriate and not inconsistent with the Code or Title 8, to Titles 1 through 3 of the Corporations and Associations Article of the Annotated Code of Maryland.  In furtherance and not in limitation of the foregoing, in accordance with the provisions of Title 3, Subtitles 6 and 7, of the Corporations and Associations Article of the Annotated Code of Maryland, the Trust shall be included within the definition of “corporation” for purposes of such provisions.

Section 5.  Recordation.  The Declaration of Trust and any amendment hereto shall be filed for record with the SDAT and may also be filed or recorded in such other places as the Trustees deem appropriate, but failure to file for record the Declaration of Trust or any amendment hereto in any office other than in the State of Maryland shall not affect or impair the validity or effectiveness of the Declaration of Trust or any part thereof.  A restated Declaration of Trust shall, upon filing, be conclusive evidence of all amendments contained therein and may thereafter be referred to in lieu of the original Declaration of Trust and the various amendments thereto.

SECOND:  These Articles of Amendment and Restatement have been duly adopted by the Board of Trustees and approved by the Shareholders of the Trust as required by law.

17

THIRD:  The total number of shares of beneficial interest which the Trust had authority to issue immediately prior to the filing of these Articles of Amendment and Restatement was 1,000, all of which were common shares of beneficial interest, par value $.01 per share.  The aggregate par value of all shares of beneficial interest having par value was $10.00.

The total number of shares of beneficial interest which the Trust has authority to issue pursuant to these Articles of Amendment and Restatement is 110,000,000 consisting of 100,000,000 common shares of beneficial interest, par value $.01 per share and 10,000,000 of preferred shares of beneficial interest, par value $.01 per share.  The aggregate par value of all authorized shares of beneficial interest having par value is $1,100,000.00.

FOURTH:  The undersigned Chairman of the Board of Trustees and Chief Executive Officer acknowledges these Articles of Amendment and Restatement to be the trust act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned Chairman of the Board of Trustees and Chief Executive Officer acknowledges that, to the best of his knowledge, information and belief, these matters are true in all material respects and that this statement is made under the penalties for perjury.

IN WITNESS WHEREOF, the Trust has caused these Articles of Amendment and Restatement to be signed in its name and on its behalf by its Chairman of the Board of Trustees and Chief Executive Officer, and attest to by its Secretary, on this 22nd day of December, 1998.

	HERSHA HOSPITALITY TRUST
ATTEST:
/s/Kiran P. Patel	/s/ Hasu P. Shah
Secretary	Hasu P. Shah
	Chairman of the Board of Trustees and Chief Executive Officer

18

HERSHA HOSPITALITY TRUST

ARTICLES SUPPLEMENTARY

Hersha Hospitality Trust, a Maryland real estate investment trust (the “Trust”), hereby certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: Under a power contained in Article VI of the Trust’s Amended and Restated Declaration of Trust (the “Declaration”), the Board of Trustees of the Trust (the “Board of Trustees”), by resolution duly adopted at a meeting duly called and held, classified and designated 350,000 preferred shares of beneficial interest (as defined in the Declaration) as Series A Preferred Shares of beneficial interest, par value $.01 per share (the “Series A Preferred Shares”), with the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption set forth below.  Upon any restatement of the Declaration, Sections 1 through 10 of this Article FIRST shall become part of Article Sixth of the Declaration, with such changes in enumeration as are necessary to complete such restatement.

SERIES A PREFERRED SHARES

1.           Designation and Amount; Rank.  350,000 preferred shares of beneficial interest are classified and designated as Series A Preferred Shares of beneficial interest, par value $.01 per share (the “Series A Preferred Shares”).  The Series A Preferred Shares shall rank (i) senior to any class of common shares of the Trust regardless of whether or not existing on the date of filing of these Articles Supplementary, which shall include, without limitation, the Trust’s Priority Class A Common Shares, $.01 par value per share, and the Trust’s Class B Common Shares, $.01 par value per share, and any other class or series of shares of beneficial interest of the Trust, either specifically ranking by its terms junior to the Series A Preferred Shares or not specifically ranking by its terms senior to or on parity with the Series A Preferred Shares (collectively, the “Junior Securities”), (ii) on parity with any class or series of shares of beneficial interest of the Trust specifically ranking by its terms on parity with the Series A Preferred Shares, and (iii) junior to any class or series of shares of beneficial interest of the Trust specifically ranking by its terms senior to the Series A Preferred Shares, in each case, as to payment of dividends, voting, distributions of assets upon liquidation, dissolution or winding-up, whether voluntary or involuntary, or otherwise.

2.           Dividend Rights.

(a)           Each Series A Preferred Share shall entitle the holder thereof to receive dividends out of any assets legally available therefor, prior to and in preference to any declaration or payment of any dividend on any Junior Securities and pari passu with any shares of beneficial interest ranking on parity with the Series A Preferred Shares.  Dividends shall be payable when and as authorized by the Board of Trustees and declared by the Trust.  Dividends on each Series A Preferred Share shall accrue at 10.5% per annum (the “Dividend Rate”) on the Original Issue Price (as hereafter defined), which dividend shall commence accruing on the Original Issue Date (as hereinafter defined).  Dividends on the Series A Preferred Shares shall be cumulative and shall be payable in cash in arrears on a date no later than the twentieth (20th) day after the end of each quarter (each a “Dividend Payment Date”), commencing with the quarter ending June 30, 2003, to holders of record on the close of business on the last Business day of the applicable quarter.  Dividends shall accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Trust legally available for the payment of dividends.  To the extent that any dividend on the Series A Preferred Shares is not paid on the Dividend Payment Date, such dividend shall accumulate, but not compound, from that date at the Dividend Rate until such dividend is paid in full.  The date on which the Trust initially issues a Series A Preferred Share shall be referred to as the “Original Issue Date” regardless of the number of transfers of such shares made on the share records maintained by or for the Trust and regardless of the number of certificates that may be issued to evidence such share.

(b)           The Trust shall not (i) pay or set aside for payment any dividends on Junior Securities or (ii) redeem, repurchase or otherwise acquire any Junior Securities, except as required by Article VII of the Declaration of Trust or the excess share and real estate investment trust qualification provisions of applicable law in a manner which satisfies Section 305(b) of the Code, until all accumulated, accrued and unpaid dividends have been paid on the Series A Preferred Shares through the last preceding Dividend Payment Date.

1

(c)           The amount of dividends payable for each quarterly dividend period for the Series A Preferred Shares shall be computed by multiplying the Original Issue Price by the Dividend Rate and dividing the result by four.  The amount of dividends payable for the initial dividend period or any other period shorter or longer than a full quarterly period shall be computed on the basis of twelve 30-day months and a 360-day year.

(d)           Dividend payments shall be made by wire transfer to an account designated by each holder of the Series A Preferred Shares or, if no account information is provided to the Trust by a holder of the Series A Preferred Shares, dividend payments shall be made by check delivered by first class mail to the address of such holder as set forth in the share records of the Trust.

(e)           For the sole purpose of determining whether a distribution (as defined in Section 2-301 of the Maryland General Corporation Law) is permitted under Maryland law, amounts that would be needed, if the Trust were dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights on dissolution are superior to those receiving the distribution shall not be added to the Trust’s total liabilities.

3.           Liquidation Rights.

(a)           In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, after payment or provision for payment of debts and other liabilities of the Trust, each holder of Series A Preferred Shares, before any distribution or payment is made upon any Junior Securities, shall be entitled to receive, out of the assets of the Trust available for distribution to the Trust’s shareholders, the sum of (A) $100.00 per share (subject to equitable adjustment to reflect share splits, share combinations, share dividends, recapitalizations, and like occurrences) and (B) all accrued but unpaid dividends (if any) payable with respect to such shares (the “Liquidation Preference”).

(b)           In the event the assets to be distributed among the holders of the Series A Preferred Shares upon any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, shall be insufficient to permit full payment of the Liquidation Preference and similar payments on any other class of shares ranking on a parity with the Series A Preferred Shares upon liquidation, then the holders of the Series A Preferred Shares and such other shares shall share ratably in any such distribution of the Trust’s assets in proportion to the full respective distributable amounts to which they are entitled.

(c)           Upon any such liquidation, dissolution or winding up of the Trust, after the holders of the Series A Preferred Shares and any other class of beneficial interests ranking on a parity with the Series A Preferred Shares upon liquidation shall have been paid in full in accordance with the rights and preferences to which they are entitled, the remaining net assets of the Trust shall be distributed to the holders of Junior Securities.

(d)           Written notice of such liquidation, dissolution or winding up, stating a payment date, the amount of the Liquidation Preference and the place where said sums shall be payable shall be given by mail, postage prepaid, not less than 30 or more than 60 days prior to the payment date stated therein, to the holders of record of the Series A Preferred Shares, such notice to be addressed to each such holder at his post office address as shown on the records of the Trust.

(e)           For purposes of this Section, a liquidation, dissolution or winding up of the Trust shall be deemed to be occasioned by, or to include, (A) the acquisition of a majority of the beneficial interests in the Trust by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Trust) in which outstanding shares of the Trust are exchanged for securities or other consideration issued, or caused to be issued by the acquiring entity or its subsidiary (an “Acquisition”), or (B) a sale, lease, exchange or other transfer (in one transaction or a series of transactions) of all or substantially all of the assets of the Trust (an “Asset Transfer”), unless in each of the cases set forth in (A) and (B) of this Section 3(e), the Trust’s shareholders of record as constituted immediately prior to such Acquisition or Asset Transfer will, immediately after such Acquisition or Asset Transfer (by virtue of securities issued as consideration for the Trust’s Acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving, continuing or purchasing entity.

2

(f)           Whenever the distribution provided for in this Section 3 shall be payable in property other than cash, the value of such property shall be the fair market value thereof as determined in good faith by a majority of the independent Trustees then serving on the Board of Trustees.  For purposes of this provision, the “independent” Trustees shall be those Trustees serving on the Board of Trustees of the Trust who satisfy the requirements for treatment as an “independent” trustee or “independent” director under the rules of the American Stock Exchange.

4.           Conversion.  The holders of Series A Preferred Shares shall have the following rights with respect to the conversion of the Series A Preferred Shares into shares of the Trust’s Priority Class A Common Shares (the “Conversion Rights”):

(a)           Optional Conversion.  Subject to and in compliance with the provisions of this Section 4, any Series A Preferred Shares may, at the option of the holder, be converted at any time into fully paid and nonassessable shares of the Trust’s Priority Class A Common Shares.  The number of shares of Priority Class A Common Shares to which a holder of Series A Preferred Shares shall be entitled upon conversion shall be the product obtained by multiplying the Conversion Rate then in effect (determined as provided in Section 4(b)) by the number of Series A Preferred Shares being converted.

(b)           Conversion Rate.  The conversion rate in effect at any time for conversion of the Series A Preferred Shares (the “Conversion Rate”) shall be the quotient obtained by dividing (x) $100.00 (hereinafter, the “Original Issue Price”), plus the per share amount of all accrued but unpaid dividends outstanding on the shares to be converted by (y) the Conversion Price, calculated as provided in Section 4(c).

(c)           Conversion Price.  The conversion price for the Series A Preferred Shares shall initially be equal to $6.7555 (as adjusted as hereinafter provided, the “Conversion Price”).  Such initial Conversion Price shall be adjusted from time to time in accordance with this Section 4.  All references to the Conversion Price herein shall mean the Conversion Price as so adjusted.

(d)           Mechanics of Conversion.

(i)            The Conversion Rights in this Section 4 shall be exercised by the holder thereof by giving written notice that the holder elects to convert a stated number of Series A Preferred Shares into Priority Class A Common Shares and by surrender of a certificate or certificates for the shares so to be converted and delivery of the undertaking described in Subsection (d)(ii) below, to the Trust at its principal office (or such other office or agency of the Trust as the Trust may designate by notice in writing to the holder or holders of the Series A Preferred Shares) at any time during its usual business hours on the date set forth in such notice, together with a statement of the name or names (with addresses), subject to compliance with Article VII of the Declaration and applicable laws to the extent such designation shall involve a transfer, in which the certificate or certificates for shares of Priority Class A Common Shares shall be issued.  Promptly after the receipt by the Trust of the written notice referred to in this Subsection 4(d) and surrender of the certificate or certificates for the share or shares of the Series A Preferred Shares to be converted, the Trust shall issue and deliver, or cause to be issued and delivered, to the holder, within five (5) business days, registered in such name or names as such holder may direct, subject to compliance with Article VII of the Declaration and applicable laws to the extent such designation shall involve a transfer, a certificate or certificates for the number of whole shares of Priority Class A Common Shares issuable upon the conversion of such share or Series A Preferred Shares.  To the extent permitted by law, such conversion shall be deemed to have been effected as of the close of business on the date on which such written notice shall have been received by the Trust and the certificate or certificates for such share or shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such Series A Preferred Shares shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Priority Class A Common Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby.

(ii)           It shall be a condition to the exercise of the conversion rights hereunder that each proposed registered holder of the Priority Class A Shares shall have executed and delivered to the Trust an undertaking to reimburse the Trust for the amount of any “unearned dividends” with respect to such shares.  The per share amount of such “unearned dividends” shall be equal to the product of (A) the amount of the per share dividend paid in respect of the Priority Class A Shares in respect of the next record date which is on or after the effective date of the conversion (which record date is hereafter referred to as the “Current Record Date”) multiplied by (B) a fraction, the numerator of which is the number of days in the period beginning with the day following the record date for the preceding dividend payment date (the “Prior Record Date”) and ending with the effective date of the conversion and the denominator of which is the number of days in the period beginning with the day following the Prior Record Date and ending on the Current Record Date.  Such undertaking shall acknowledge that the certificates representing the Priority Class A Shares may bear a legend referring to the provisions of this clause (ii) and such undertaking, which shall be binding on any transferee of such shares.

3

(e)           Adjustment for Shares Splits and Combinations.  If the Trust shall, at any time or from time to time after the Original Issue Date, effect a subdivision of the outstanding Priority Class A Common Shares without a corresponding subdivision of the Series A Preferred Shares, the Conversion Price in effect immediately before that subdivision shall be proportionately decreased.  Conversely, if the Trust shall, at any time or from time to time after the Original Issue Date, combine the outstanding shares of Priority Class A Common Shares into a smaller number of shares without a corresponding combination of the Series A Preferred Shares, the Conversion Price in effect immediately before the combination shall be proportionately increased.  Any adjustment under this Subsection 4(e) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(f)           Adjustment for Reclassification, Exchange and Substitution.  If, at any time or from time to time after the Original Issue Date, the Priority Class A Common Shares issuable upon the conversion of the Series A Preferred Shares are changed into the same or a different number of shares of any class or classes of shares, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or share dividend or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 4), each holder of Series A Preferred Shares shall have the right thereafter to convert such shares into the kind and amount of shares and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the maximum number of shares of Priority Class A Common Shares into which such Series A Preferred Shares could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof.

(g)           Reorganizations, Mergers, Consolidations or Sales of Assets.  If, at any time or from time to time after the Original Issue Date, there is a capital reorganization of the Priority Class A Common Shares (other than an Acquisition or Asset Transfer as defined in Section 3, or a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section 4), as a part of such capital reorganization, provision shall be made so that the holders of the Series A Preferred Shares shall thereafter be entitled to receive upon conversion of the Series A Preferred Shares the number of shares or other securities or property of the Trust to which a holder of the number of shares of Priority Class A Common Shares deliverable upon conversion would have been entitled on such capital reorganization, subject to adjustment in respect of such shares or securities by the terms thereof.  In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of Series A Preferred Shares after the capital reorganization such that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares issuable upon conversion of the Series A Preferred Shares) shall be applicable after that event and be as nearly equivalent as practicable.

(h)           Sale of HT Common Shares Below Conversion Price.

(i)            If, at any time or from time to time after the Original Issue Date, the Trust issues or sells, or is “deemed” by the express provisions of this Subsection 4(h)(i) to have issued or sold (other than in connection with an “Antidilution Carve Out Event”), Additional HT Common Shares (as defined in Subsection 4(h)(iv) below), for an Effective Price (as defined in Subsection 4(h)(iv) below) that is less than eighty-five percent (85%) of the then effective Conversion Price, then and in each such case, the then existing Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price determined by multiplying the Conversion Price by a fraction (i) the numerator of which shall be (A) the number of HT Common Shares deemed outstanding (as defined in the next sentence) immediately prior to such issue or sale, plus (B) the number of HT Common Shares which the aggregate consideration received (as defined in Subsection 4(h)(ii)) by the Trust for the total number of Additional HT Common Shares so issued would purchase at such Conversion Price, and (ii) the denominator of which shall be the number of HT Common Shares deemed outstanding (as defined below) immediately prior to such issue or sale plus the total number of Additional HT Common Shares actually issued.  As used herein, the number of HT Common Shares “deemed” to be outstanding as of a given date shall be the sum of (A) the number of HT Common Shares actually outstanding, (B) the number of HT Common Shares into which the then outstanding Series A Preferred Shares could be converted if fully converted on the day immediately preceding the given date, and (C) the number of HT Common Shares which could be obtained through the exercise or conversion of all other rights, options and convertible securities outstanding on the day immediately preceding the given date as set forth in Section 4(h)(ii) below.  As used herein, an “Antidilution Carve Out Event” shall mean the issuance of HT Common Shares (A) as a dividend or other distribution on any class of shares, (B) pursuant to a subdivision or combination of HT Common Shares as provided in Section 4(e) above, (C) pursuant to any employee benefit plan approved by the Board of Trustees which plans shall issue, in the aggregate, no more than 650,000 shares of HT Common Shares (an “Approved Employee Benefit Plan”), (D) pursuant to a plan providing for the issuance of additional HT Common Shares upon reinvestment of dividends and additional optional amounts under such plan where the dividends are reinvested at an amount per HT Common Share issued thereunder that is equal to or greater than 95% of the fair market value of such HT Common Shares (a “DRIP”) or (E) upon exchange of partnership interests in the Operating Partnership pursuant to and in accordance with Section 8.05 of the Amended and Restated Limited Partnership Agreement of Hersha Hospitality Limited Partnership (the “HLP Agreement”).

4

(ii)           For the purpose of making any adjustment required under this Section 4(h), the consideration received by the Trust for any issue or sale of securities shall (A) to the extent it consists of cash, be computed at the net amount of cash received by the Trust, after deduction of any underwriting or similar discount, commission, compensation or concessions paid or allowed by the Trust in connection with such issue or sale, but without deduction of any expenses payable by the Trust, (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board of Trustees, and (C) if Additional HT Common Shares, Convertible Securities (as defined in subsection 4(h)(iii)) or rights or options to purchase either Additional HT Common Shares or Convertible Securities are issued or sold together with other stock or securities or other assets of the Trust for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Trust’s Board of Trustees to be allocable to such Additional HT Common Shares, Convertible Securities or rights or options.

(iii)           For the purpose of the adjustment required under this Section 4(h), if the Trust issues or sells (i) stock or other securities convertible into Additional HT Common Shares (such convertible stock or securities being herein referred to as “Convertible Securities”) or (ii) rights or options for the purchase of Additional HT Common Shares or Convertible Securities, and if the Effective Price of such Additional HT Common Shares is less than eighty-five percent (85%) of the then effective Conversion Price, then in each such case, the Trust shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional HT Common Shares issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Trust for the issuance of such rights or options or Convertible Securities, plus, in the case of such rights or options, the minimum amounts of consideration, if any, payable to the Trust upon the exercise of such rights or options, plus, in the case of Convertible Securities, the minimum amount of consideration, if any, payable to the Trust (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion thereof; provided that if in the case of Convertible Securities the minimum amount of such consideration cannot be ascertained, but is a function of antidilution or similar protective clauses, the Trust shall be deemed to have received the minimum amounts of consideration without reference to such clauses; provided further that if the minimum amount of consideration payable to the Trust upon the exercise or conversion of rights, options or Convertible Securities is reduced over time or on the occurrence or non-occurrence of specified events other than by reason of antidilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; and provided further that if the minimum amount of consideration payable to the Trust upon the exercise or conversion of such rights, options or Convertible Securities is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Trust upon the exercise or conversion of such rights, options or Convertible Securities.  No further adjustment of the Conversion Price, as adjusted upon the issuance of such rights, options or Convertible Securities, shall be made as a result of the actual issuance of Additional HT Common Shares on the exercise of any such rights or options or the conversion of any such Convertible Securities.  If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire without having been exercised, the Conversion Price as adjusted upon the issuance of such rights, options or Convertible Securities shall be readjusted to the Conversion Price which would have been in effect had an adjustment been made on the basis that the only Additional HT Common Shares so issued were the Additional HT Common Shares, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional HT Common Shares, if any, were issued or sold for the consideration actually received by the Trust upon such exercise, plus the consideration, if any, actually received by the Trust for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted, plus the consideration, if any, actually received by the Trust (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Series A Preferred Shares.

5

(iv)           “HT Common Shares” shall mean and include the Trust’s authorized Priority Class A Common Shares, as constituted on the date of filing of these Articles Supplementary; provided, however, that such term, when used to describe the securities receivable upon conversion of shares of the Series A Preferred Shares, shall include only shares designated as HT Common Shares of the Trust on the date of filing of these Articles Supplementary, any shares resulting from any combination or subdivision thereof referred to in Section 4, or in case of any reorganization or reclassification of the outstanding shares thereof, the stock, securities or assets provided for in Section 4).  “Additional HT Common Shares” shall mean all HT Common Shares issued by the Trust or deemed to be issued pursuant to this Section 4(h), whether or not subsequently reacquired or retired by the Trust.  The “Effective Price” of Additional HT Common Shares shall mean the quotient determined by dividing the aggregate consideration received, or deemed to have been received by the Trust for such issuance or sale or deemed issuance or sale under this Section 4(h), for such Additional HT Common Shares by the total number of Additional HT Common Shares issued or sold, or deemed to have been issued or sold by the Trust under this Section 4(h).

(v)           If the Trust proposes to issue or sell Additional HT Common Shares for an Effective Price that is less than eighty-five percent (85%) of the Conversion Price and such issuance or sale will result in a reduction of the Conversion Price pursuant to this Section (h) (an “AMEX Dilutive Issuance”), then the AMEX Dilutive Issuance and the resulting potential issuance of Additional HT Common Shares upon conversion of the Series A Preferred Shares at a Conversion Price below the initial Conversion Price, must be approved by the shareholders of the Trust to the extent required by the rules of the American Stock Exchange.  If such holders do not approve the AMEX Dilutive Issuance, and the resulting potential issuance of Additional HT Common Shares upon conversion of the Series A Preferred Shares at a Conversion Price below the initial Conversion Price, as required to be approved by the preceding sentence, then the Trust shall not consummate the AMEX Dilutive Issuance in any manner that would cause a reduction of the Conversion Price pursuant to this Subsection (h).

(i)            Certificate of Adjustment.  In each case of an adjustment or readjustment of the Conversion Price for the number of Priority Class A Common Shares or other securities issuable upon conversion of any Series A Preferred Shares, if the Series A Preferred Shares are then convertible pursuant to this Section 4, the Trust, at its expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of Series A Preferred Shares at such holder’s address as shown in the Trust’s books and records.  The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Trust for any Additional HT Common Shares issued or sold or deemed to have been issued or sold, (ii) the Conversion Price in effect at the time, (iii) the number of Additional HT Common Shares issued or sold or deemed to have been issued or sold and (iv) the type and amount, if any, of other property which at the time would be received upon conversion of the Series A Preferred Shares.

(j)            Minimum Adjustment.  Notwithstanding anything herein to the contrary, no adjustment of the Conversion Price shall be made pursuant to this Section 4 in an amount less than $.01 per share, and any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more.

(k)           Notices of Record Date.  Upon (i) any taking by the Trust of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any Acquisition (as defined in Section 3) or other capital reorganization of the Trust, any reclassification or recapitalization of the capital stock of the Trust, any merger or consolidation of the Trust with or into any other entity, or any Asset Transfer (as defined in Section 3), or any voluntary or involuntary dissolution, liquidation or winding up of the Trust, the Trust shall mail to each holder of Series A Preferred Shares at least ten (10) days prior to the record date specified therein a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up is expected to become effective, and (C) the date, if any, that is to be fixed as to when the holders of record of Priority Class A Common Shares (or other securities) shall be entitled to exchange their shares of Priority Class A Common Shares (or other securities) for securities or other property deliverable upon such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up.

6

(l)           Optional Redemption by the Trust.

(i)           At any time, and from time to time, the Trust, by vote of a majority of the members of the Board of Trustees, may redeem all or any part of the outstanding Series A Preferred Shares (which number shall be in an amount not less than the lesser of the number of such shares outstanding or 50,000 shares), by giving written notice at least 30 but not more than 90 days prior to the Call Date (as defined below) (the “Redemption Notice”) to those holders whose Series A Preferred Shares the Trust wishes to redeem of the date on which such redemption will occur (the “Call Date”), during which period (the “Redemption Notice Period”), the holders of the Series A Preferred Shares who have received a Redemption Notice may in lieu of having their shares redeemed, elect to convert the Series A Preferred Shares covered by the Redemption Notice in accordance with the conversion provisions set forth in Section 4(d).  Notice having been mailed as aforesaid, from and after the Call Date (unless the Trust shall fail to make available an amount of cash necessary to effect such redemption), (i) except as otherwise provided herein, dividends on the Series A Preferred Shares so called for redemption shall cease to accrue, (ii) such shares shall no longer be deemed to be outstanding, and (iii) all rights of the holders thereof as holders of Series A Preferred Shares shall cease (except the rights to convert and to receive the cash payable upon such redemption, without interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon as described in clause (iii) below).  The Trust’s obligation to provide cash in accordance with the preceding sentence shall be deemed fulfilled if, on or before the Call Date, the Trust shall, in a segregated account separate from the Trust’s general assets, deposit with a bank or trust company (which may be an affiliate of the Trust) that has an office in the Borough of Manhattan, City of New York, and that has, or is an affiliate of a bank or trust company that has, capital and surplus of at least $50,000,000, the cash necessary for such redemption, in trust, with irrevocable instructions that such cash be applied to the redemption of the Series A Preferred Shares so called for redemption.  No interest shall accrue for the benefit of the holders of Series A Preferred Shares to be redeemed on any cash so set aside by the Trust.  Subject to applicable escheat laws, any such cash unclaimed at the end of two years from the Call Date shall revert to the general funds of the Trust, after which reversion the holders of such shares so called for redemption shall look only to the general funds of the Trust for the payment of such cash.

Promptly after the surrender (in accordance with such notice) of the certificates for any such shares so redeemed (properly endorsed or assigned for transfer, if the Trust shall so require and if the notice shall so state), such shares shall be exchanged for any cash (without interest thereon) for which such shares have been redeemed.  If fewer than all the outstanding Series A Preferred Shares are to be redeemed, shares to be redeemed shall be selected by the Trust from outstanding Series A Preferred Shares not previously called for redemption pro rata (as nearly as may be), by lot or by any other method determined by the Trust in its sole discretion to be equitable.  If fewer than all the Series A Preferred Shares evidenced by any certificate are redeemed, then new certificates evidencing the unredeemed shares shall be issued without cost to the holder thereof.

(ii)           The Redemption Notice shall set forth (A) the number of shares to be redeemed, (B) the Call Date, (C) the amount of the Redemption Price and (D) all other relevant terms.  The Redemption Notice shall be mailed by the Trust, postage prepaid, to each holder whose shares are to be redeemed at its address shown on the records of the Trust.  If the Trust elects to redeem any Series A Preferred Shares pursuant to this Section 4(l), such election shall not be revocable by the Trust and the Trust shall be obligated to redeem at the Redemption Price all shares to be redeemed on the Call Date set forth in the Redemption Notice, as described above.

(iii)           The per share Redemption Price shall be the sum of (A) the Original Issue Price, (B) all accrued but unpaid dividends thereon pursuant to Section 2(a) hereof, through and including the Call Date, without interest, and (C) a premium (the “Premium”), which Premium shall decline on a straight line basis over a ten (10) year period equal to: $10.50 per share, with respect to redemptions noticed during the first twelve month period immediately following the Original Issue Date; $9.45 per share with respect to redemptions noticed during the second twelve month period immediately following the Original Issue Date; $8.40 per share with respect to redemptions noticed during the third twelve month period immediately following the Original Issue Date; $7.35 per share with respect to redemptions noticed during the fourth twelve month period immediately following the Original Issue Date; $6.30 per share with respect to redemptions noticed during the fifth twelve month period immediately following the Original Issue Date; $5.25 per share with respect to redemptions noticed during the sixth twelve month period immediately following the Original Issue Date; $4.20 per share with respect to redemptions noticed during the seventh twelve month period immediately following the Original Issue Date; $3.15 per share with respect to redemptions noticed during the eighth twelve month period immediately following the Original Issue Date; $2.10 per share with respect to redemptions noticed during the ninth twelve month period immediately following the Original Issue Date; $1.05 per share with respect to redemptions noticed during the tenth twelve month period immediately following the Original Issue Date; and, no premium with respect to redemptions noticed after completion of the tenth twelve month period immediately following the Original Issue Date.  If the Call Date falls after a dividend payment record date and prior to the corresponding Dividend Payment Date, then each holder of Series A Preferred Shares at the close of business on such dividend payment record date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding any redemption of such shares before such Dividend Payment Date.  Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series A Preferred Shares called for redemption.

7

(m)           Fractional Shares.  No fractional shares of Priority Class A Common Shares shall be issued upon conversion of Series A Preferred Shares.  All shares of Priority Class A Common Shares (including fractions thereof) issuable upon conversion of more than one share of Series A Preferred Shares by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share.  If, after the aforementioned aggregation, the conversion would result in the issuance of any fractional share, the Trust shall, in lieu of issuing any fractional shares, pay cash equal to the product of such fraction multiplied by the Priority Class A Common Shares’ fair market value per share on the date of conversion (as reported by the securities exchange on which the Priority Class A Common Shares are then listed for trading, or if none, the most recently reported “over the counter” trade price or if none, as determined in good faith by the Board of Trustees).

(n)           Reservation of Shares Issuable Upon Conversion.  The Trust shall at all times reserve and keep available out of its authorized but unissued shares of Priority Class A Common Shares, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Shares, such number of its shares of Priority Class A Common Shares as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A Preferred Shares.  If at any time the number of authorized but unissued shares of Priority Class A Common Shares shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Shares, the Trust shall, prior to exceeding such number of authorized but unissued shares, take such Trust action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Priority Class A Common Shares to such number of shares as shall be sufficient for such purpose.

(o)           Notices.  Any notice required by the provisions of this Section 4 shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.  All notices shall be addressed to each holder of record at the address of such holder appearing on the books of the Trust.

(p)           Payment of Taxes.  The Trust shall pay any and all stamp, transfer and other similar taxes payable or determined to be payable in connection with the issuance of the Series A Preferred Shares and all Priority Class A Common Shares issuable upon exchange of the Convertible Preferred Units, or conversion of the Series A Preferred Shares.

5.           Voting Rights.

(a)           General Rights.  Holders of Series A Preferred Shares shall have the right to notice of and to vote, on an as converted basis, and as a single class with holders of Priority Class A Common Shares on all matters which holders of Priority Class A Common Shares have a right to vote by law, rules of any securities exchange on which any of the Trust’s securities are listed, provision of the Declaration, or otherwise, and as a separate class on those matters set forth in Section 5(c) hereof; provided, however, that holders of Series A Preferred Shares shall not have the right to participate in the designation, election or removal of trustees except as provided in Section 5(b) below.

(b)           Board of Trustees Designees.  If a Voting Event (as defined below) occurs, the holders of the Series A Preferred Shares, voting separately as a class, shall, have the right to nominate and elect at least one member and in any event no less than 11.1% of the total members of the Board of Trustees (the “Series A Preferred Share Trustees”) at each meeting of holders of shares of HT’s shares of beneficial interest held (or pursuant to action by written consent taken) for the purpose of electing members of the Board of Trustees.  Further, if either (x) the Trust fails to pay in full for two consecutive quarters the dividend required pursuant to Section 2 hereof, or the Operating Partnership, pursuant to the HLP Agreement , fails to pay two consecutive quarterly dividends or distributions with respect to its 10.5% Series A Preferred Units (the “Convertible Preferred Units”), as the case may be, or (y) the Trust fails to maintain its status as a real estate investment trust under the Internal Revenue Code of 1986, as amended, (the “Code”), then, upon notice from the holders of a majority of the Series A Preferred Shares outstanding (if any), either (A) 40% of the Board of Trustees shall resign and the holders of a majority of the Series A Preferred Shares shall have the right to elect members to the Board of Trustees to fill the vacancies created by such resignations, or (B) the Trust shall cause (and promptly take all Trust action as may be necessary to cause) the Declaration and/or the Trust’s Bylaws to be amended to increase the size of the Board of Trustees and the holders of a majority of the Series A Preferred Shares outstanding (if any) shall have the right to elect such number of members of the increased Board of Trustees as shall constitute 40% of the number of members of the increased Board of Trustees.  In the event 40% of the Board of Trustees, absent an increase, does not equal a whole number of Trustees, the Trust shall cause (and promptly take all Trust action as may be necessary to cause) the Declaration and/or the Trust’s Bylaws to be amended to increase or decrease (at the option of the Trust) the size of the Board of Trustees such that 40% of the total number of Trustees that the holders of a majority of the outstanding Series A Preferred Shares have the right to elect shall equal a whole number of Trustees.  While such voting rights continue, only the holders of a majority of the Series A Preferred Shares shall nominate and elect the Series A Preferred Share Trustees and the Series A Preferred Share Trustees shall be removed and replaced and their vacancies filled only by the affirmative vote of the holders of a majority of the Series A Preferred Shares.  One Series A Preferred Share Trustee shall be a member of all committees and sub-committees of the Board of Trustees.  In the event such Series A Preferred Share Trustee shall, by virtue of any law or the rules and regulations of the SEC or any national securities exchange on which the Trust’s Priority Class A Common Shares are listed for trading, be precluded from being a member of the Trust’s audit or other committee, then the Series A Preferred Share Trustee shall have the right to observe and be present, but not vote, at all such committee meetings and shall have all other rights attendant to members of such committees but shall not be counted for purposes of determining whether a quorum is present.  A “Voting Event” shall mean any of: (w) the receipt by the holder of a majority of the Series A Preferred Shares of a favorable ruling (a “Private Letter Ruling”) from the Internal Revenue Service which permits such holder of a majority of the Series A Preferred Shares to continue to qualify as a real estate investment trust within the meaning of Section 856 et seq. of the Code in the event such securities qualified as securities described in Section 856(c)(4)(A) of the Code as of the close of a quarter but failed to so qualify as of the close of a subsequent quarter and also failed to satisfy the requirements of Section 856(c)(4)(B)(iii) of the Code as of the close of such subsequent quarter or the close of any quarter thereafter, provided certain other requirements are met, (x) a change in law providing for relief comparable to that sought in the above referenced Private Letter Ruling, (y) the receipt by the holder of a majority of the Series A Preferred Shares of an opinion of counsel that is consistent with the relief sought in the above referenced Private Letter Ruling, or (z) a transfer of Convertible Preferred Units whereby the holder of a majority of the Series A Preferred Shares was a transferee of Convertible Preferred Units of the Operating Partnership which were converted into Series A Preferred Shares and such holder of a majority of the Series A Preferred Shares could hold such securities without causing such holder to violate the requirements of Section 856(c)(4) of the Code in the event such securities were to fail to qualify as securities defined in Section 856(c)(4)(A) of the Code and 856(c)(4)(B)(iii) of the Code as of the close of any quarter (including, for this purpose, a holder of Series A Preferred Shares which has not made an election to be taxable as a real estate investment trust pursuant to the provisions of Section 856 et.seq. of the Code).  The right to nominate and elect members of the Board of Trustees hereunder shall only exist at such times as holders of the Series A Preferred Shares hold that number of Series A Preferred Shares and other convertible and exchangeable securities that represents, on an as converted/exchanged basis, at least 5% of the HT Common Shares then issued and outstanding, on a fully diluted basis (which shall assume the conversion and/or exchange of all the Trust’s and the Operating Partnership’s securities convertible into or exchangeable for HT Common Shares):

8

(c)           Separate Class Voting Rights.  In addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least a majority of the then outstanding Series A Preferred Shares shall be necessary for effecting the following actions, except for any such action that provides that all holders of Series A Preferred Shares shall as a result of and simultaneously with such action receive a distribution of cash which is not less than the Liquidation Preference, plus the applicable Premium calculated pursuant to Section 4(l)(iii), provided, that the separate voting rights of the holders of Series A Preferred Shares described in clauses (v), (vi), (vii), (x) and (xi) below, shall only exist at such times as holders of the Series A Preferred Shares hold that number of Series A Preferred Shares that represents on an as converted basis at least 5% of the HT Common Shares then issued and outstanding, on a fully diluted basis (which shall assume the conversion and/or exchange of all the Trust’s and the Operating Partnership’s securities convertible into or exchangeable for HT Common Shares):

(i)            (A) any authorization or any designation, whether by reclassification or otherwise, of any new class or series of shares of beneficial interest or any other security convertible into equity securities of the Trust (or any increase in the authorized or designated number of any such new class or series) ranking senior to the Series A Preferred Shares as to payment of dividends, distribution of assets upon liquidation, dissolution or winding-up (whether voluntary or involuntary), voting or otherwise; or (B) other than in connection with a “Voting/Preemptive Rights Carve Out Event” as defined below, any issuance of any class or series of equity interest of the Trust or the Operating Partnership prior, in the case of the events set forth in this Subsection (i)(B), to the first to occur of (1) the issuance and sale of an aggregate 250,000 Convertible Preferred Units pursuant to the terms of the Securities Purchase Agreement or (2) a “SPA Termination,” defined as the termination of the Securities Purchase Agreement pursuant to Section 7.1 or 7.2 of the Securities Purchase Agreement.  As used herein, “Voting/Preemptive Rights Carve Out Event” shall mean (w) at any time after the consummation of the First Closing and the Second Closing under the Securities Purchase Agreement, the issuance of Common Units in exchange for a contribution of properties to the Operating Partnership approved by the Board of Trustees, (x) the issuance of Class B Common Shares upon redemption of Common Units, pursuant to the HLP Agreement, (y) the issuance of any securities pursuant to an Approved Employee Benefit Plan, which plans shall issue, in the aggregate, no more than 650,000 shares of HT Class A Common Shares or (z) the issuance of securities pursuant to a DRIP;

(ii)           Any purchase, redemption or other acquisition for value (or payment into or setting aside as a sinking fund for such purpose) of any shares of Junior Securities or any partnership or other interest in the Operating Partnership (other than the issuance of Class B Common Shares upon redemption of Common Units) in accordance with Section 8.05 of the HLP Agreement;

9

(iii)           Any action that results in the declaration or payment of dividends or any other distribution, direct or indirect on account of the Junior Securities, or any partnership or other interest in the Operating Partnership or the setting aside of any funds for any such purpose provided, that no such vote or consent shall be required if the Trust or the Operating Partnership (as the case may be) is not in default of its obligations to pay quarterly dividends on the Series A Preferred Shares or quarterly distributions on the Convertible Preferred Units at the time of such action;

(iv)           Any action that results in any amendment, alteration, or repeal (by merger or consolidation or otherwise) of any provisions of these Articles Supplementary, the Declaration, the Trust’s Bylaws, or of the HLP Agreement, the certificate of limited partnership of the Operating Partnership or any certificate amendatory thereof which eliminates, amends or affects any term (adversely or otherwise) of the Series A Preferred Shares and/or the Class A Shares or shares of any series ranking senior to the Series A Preferred Shares, including, without limitation, the redemption, dividend, voting, preemptive, antidilution and other powers, rights and preferences of such shares or adversely affects any holder thereof;

(v)           Any action where the Trust, the Operating Partnership or any of its or their subsidiaries merges with or into or consolidates with any other entity;

(vi)           Any action where the Trust, the Operating Partnership or any of its or their subsidiaries directly or indirectly sells, leases (other than in the case of operating leases entered into in the Trust’s and/or the Operating Partnership’s ordinary course of business), transfers, conveys or assigns (whether in a single transaction or series of related transactions) all or substantially all of the Trust’s, the Operating Partnership’s or any of its or their subsidiaries assets;

(vii)           All transactions involving the Trust, the Operating Partnership or any of its subsidiaries of the type referred in paragraph (a) of Rule 145 under the Securities Act of 1933, as amended, and all transactions involving the Trust constituting a change-in-control within the meaning of Rule 14(f) under the Securities Exchange Act of 1934, as amended;

(viii)           Any action where the Trust, the Operating Partnership or any of its or their subsidiaries files any voluntary, or consents to the filing of any involuntary, petition for relief under title 11 of the United States Code or any successor statute or under any reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law with respect to the Trust, the Operating Partnership or any of its or their subsidiaries;

(ix)           Any action where the Trust, the Operating Partnership or any of its or their subsidiaries appoints or consents to, or acquiesces in, the appointment of a receiver, conservator, trustee or other similar official charged with the administration, control, management, operation, liquidation, dissolution or valuation of the Trust, the Operating Partnership or any of their subsidiaries, or any of their respective businesses or assets;

(x)           Any action where the Trust, the Operating Partnership or any of its or their subsidiaries, or Hersha Hospitality Management, L.P., a Pennsylvania limited partnership, on the one hand, engages in any transaction with an affiliate of the Trust on the other hand, provided, however, to the extent such transactions are of the type which, but for their affiliated nature, would fall within the ordinary course of business and day-to day affairs of the Trust, such actions need not be approved on a transaction-by-transaction basis but may be entered into pursuant to annual budgets and purchase plans approved by the holders of the Series A Preferred Shares.  For purposes of this provision and these Articles Supplementary, “affiliate”, and all derivations thereof, shall have the meaning set forth in Rule 12b-2 of the Exchange Act and shall include, without limitation, for the avoidance of doubt, (a) the trustees and senior officers of HT, HLP and any Subsidiary, his or her spouse, parent, sibling, mother-in-law, father in-law, brother-in-law, sister-in-law, aunt, uncle, or first cousin, (b) any Person directly or indirectly owning, controlling or holding the power to vote 5% or more of the outstanding voting securities of HT, HLP or any Subsidiary, and (c) any Person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by HT, HLP or any subsidiary.

(xi)           The conduct by the Trust of any trade or business or the ownership of any asset (other than partnership interests in the Operating Partnership), in each case, other than through the Operating Partnership;

(xii)          For the Trust, the Operating Partnership or any of its or their Subsidiaries to engage in any business where either the operation of such business or ownership of the assets related to such business will result in the Trust failing to satisfy the provisions of Section 856 of the Code;

(xiii)         The termination of the Trust’s status as a REIT for federal income tax purposes; and

(xiv)         Any agreement to do any of the transactions set forth in this Section.

10

6.           Preemptive Rights.

Pursuant to Article VIII, Section 3 of the Declaration, each of the holders of the Series A Preferred Shares shall have the following preemptive rights:

(a)           Sale.  At all times commencing on the Original Issue Date and terminating three years thereafter, before the Trust offers to any party (a “Sale”) any shares of any class or series or any equity security, or any obligation or instrument convertible into or exchangeable for shares of any class or series of equity security of the Trust (the “Offered Securities”), other than in connection with the issuance of securities pursuant to a Voting/Preemptive Rights Carve Out Event, the Trust shall provide written notice at least fifteen (15) days in advance of the consummation of such Sale (the “Offer Notice”) to each holder of Series A Preferred Shares.  The holders of Series A Preferred Shares shall have no rights under this Section 6 in connection with the ultimate conversion or exchange of convertible or exchangeable securities if, prior to issuing such convertible or exchangeable securities, such convertible or exchangeable securities were offered to the holders of Series A Preferred Shares pursuant to this Section 6.

(b)           Offer.  The Offer Notice shall be irrevocable and shall constitute an offer by the Trust to sell to each holder of the Series A Preferred Shares at the per share sale price which the Trust would receive upon consummation of such proposed Sale (the “Sales Price”) up to such number of Offered Securities (or in the event the Trust desires to sell a fixed number of securities to a particular third party, such number of additional securities of the same class or series to permit the Trust to sell such fixed number of securities to such third party and satisfy its obligations under this Section 6) equal to the percentage which (i) the total number of shares of Priority Class A Common Shares into which such holders’ equity securities in the Trust and the Operating Partnership are convertible plus the number of Priority Class A Common Shares such Holder then holds, bears to (ii) the total number of shares of Priority Class A Common Shares into which any outstanding equity securities of the Trust and the Operating Partnership (which are convertible into Priority Class A Common Shares) are convertible plus the total number of Priority Class A Common Shares then issued and outstanding (the “Pro Rata Share”).

(c)           Response Period.  Each holder of the Series A Preferred Shares shall have a period of fifteen (15) days after receipt of the Offer Notice in which to elect to purchase up to its Pro Rata Share of the Offered Securities at the Sales Price, such election to be made by such holder by written notice (the “Acceptance Notice”).  Each Acceptance Notice shall also specify the maximum amount of additional Offered Securities which such holder desires to purchase in the event any other Holder fails to elect to purchase all of its Pro Rata Share of Offered Securities pursuant to the immediately preceding sentence on a timely basis or elects in writing not to do so (such unpurchased Offered Securities are hereinafter referred to as the “Remaining Securities”).  In the event that there are Remaining Securities available for purchase, each holder of the Series A Preferred Shares having specified in its Acceptance Notice a desire to purchase such Remaining Securities shall purchase such Remaining Securities on a pro rata basis (up to the amount of Remaining Securities specified by such holder in its Acceptance Notice), or in such other proportions as such holders may all agree, on the terms set forth herein.

(d)           Closing and Payment.  The closing of the sale and delivery of the share certificates representing the Offered Securities purchased hereunder by any such holder of the Series A Preferred Shares, and payment therefor (which shall be made by wire transfer in immediately available funds to an account designated by the Trust), shall be at a time and place designated by the Trust on the tenth (10th) day following the Trust’s receipt of such holder’s Acceptance Notice or such later date agreed to by a majority of the participating holders of Series A Preferred Shares.  The closing of any sale of Offered Securities to the participating holders of Series A Preferred Shares shall be conditioned on the closing of the initial proposed Sale.

(e)           Authorization of Securities.  The Trust shall reserve from time to time a sufficient number of Priority Class A Common Shares so that the holders of the Series A Preferred Shares may exercise the rights set forth in this Article 6 hereof to the fullest extent permitted hereunder.

7.           Tax Procedures.  While any Series A Preferred Shares are outstanding, the Trust shall (i) maintain such controls and procedures designed to ensure REIT compliance as are specified pursuant to Section 5.2(s) of the Securities Purchase Agreement, and (ii) within a reasonable period of time prior to consummation of any acquisition, disposition or other extraordinary corporate transaction, deliver to holders of the Series A Preferred Shares, any summary of the material terms and an analysis of the federal and state tax implications of such transaction delivered to any member of the Board of Trustees.

11

8.            Appraisal Rights.  Each holder of Series A Preferred Shares shall have the same rights to require the Trust to make payment of the fair value of its shares in an appraisal or similar proceeding, as set forth in Title 3 Subtitle 2 of the MGCL.

9.            No Waiver.  Except as otherwise modified or provided for herein, the holders of Series A Preferred Shares shall also be entitled to, and shall not be deemed to have waived, any other applicable rights granted to such holders under applicable law.

10.          No Impairment.  The Trust shall not by amendment of its Declaration, or these Articles Supplementary, through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Trust but will at all times in good faith, assist in the carrying out of all the provisions of these Articles Supplementary and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights and liquidation preferences granted hereunder to the holders of the Series A Preferred Shares against impairment.

SECOND: The Series A Preferred Shares have been classified and designated by the Board of Trustees under the authority contained in the Declaration.

THIRD: These Articles Supplementary have been approved by the Board of Trustees in the manner and by the vote required by law.

FOURTH: The undersigned President and Chief Executive Officer acknowledges these Articles Supplementary to be the trust act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned President and Chief Executive Officer acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

IN WITNESS WHEREOF, the Trust has caused these Articles Supplementary to be executed on behalf of the Trust by its President and Chief Executive Officer and attested to by its Secretary this 21st day of April 2003.

ATTEST:		HERSHA HOSPITALITY TRUST
By:	/s/ Kiran P. Patel	By:	/s/ Hasu P. Shah
	Name: Kiran P. Patel		Name: Hasu P. Shah
	Title: Secretary		Title:  President and Chief Executive Officer

12

HERSHA HOSPITALITY TRUST

ARTICLES SUPPLEMENTARY

ESTABLISHING AND FIXING THE RIGHTS AND PREFERENCES

OF

8.00% SERIES A CUMULATIVE REDEEMABLE PREFERRED SHARES

Pursuant to Section 8-203 of

Title 8 of the Corporations and Associations Article

of the Annotated Code of Maryland

Hersha Hospitality Trust, a Maryland real estate investment trust (the “Trust”), hereby certifies to the State Department of Assessments and Taxation of the State (“SDAT”) of Maryland that:

FIRST: Pursuant to the authority expressly vested in the Board of Trustees of the Trust by Article VI of its Amended and Restated Declaration of Trust (which, as hereafter restated or amended from time to time, are together with these Articles Supplementary herein referred to as the “Declaration”), the Board of Trustees has, by unanimous written consent, duly redesignated and reclassified its previously classified but unissued Series A preferred shares of beneficial interest of the Trust into a newly classified series of 2,400,000 preferred shares of beneficial interest designated the 8.00% Series A Cumulative Redeemable Preferred Shares of beneficial interest, par value $.01 per shares (the “Series A Preferred Shares”), and has provided for the issuance of such series. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Declaration.

SECOND: Subject in all cases to the provisions of the Declaration, including without limitation, Article VII with respect to limitations on the transfer and ownership of shares of beneficial interest of the Trust, the Series A Preferred Shares shall have the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption as set forth below:

(1)           Designation and Number. A series of preferred shares of beneficial interest, par value $.01 per share, designated the “8.00% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest” (the “Series A Preferred Shares”), is hereby established. The number of Series A Preferred Shares hereby authorized shall be 2,400,000. The terms of these Articles Supplementary replace in their entirety the terms of the Articles Supplementary designating the series A preferred shares of beneficial interest and filed with the SDAT on April 18, 2003.

(2)           Rank. The Series A Preferred Shares shall, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Trust, rank (a) senior to all classes or series of Common Shares of the Trust, and to all equity securities issued by the Trust ranking junior to such Series A Preferred Shares; (b) on a parity with all other equity securities issued by the Trust the terms of which specifically provide that such equity securities rank on a parity with the Series A Preferred Shares as to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding up; and (c) junior to (i) all indebtedness of the Trust and (ii) equity securities issued by the Trust the terms of which specifically provide that such equity securities rank senior to the Series A Preferred Shares as to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding up. The term “equity securities” shall not include convertible debt securities.

(3)           Dividends.

(a)           Holders of the then outstanding Series A Preferred Shares shall be entitled to receive, when and as declared by the Board of Trustees, out of funds legally available for the payment of dividends, cumulative cash dividends at the rate of 8.00% per year of the $25.00 liquidation preference (equivalent to a fixed annual amount of $2.00 per share). Dividends on the Series A Preferred Shares are payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year and, if such day is not a business day, the next succeeding business day, commencing on October 15, 2005 (each, a “Dividend Payment Date”). The quarterly period between Dividend Payment Dates is referred to herein as a “dividend period” and the dividend which shall accrue in respect of any full dividend period shall be $0.50 regardless of the actual number of days in such full dividend period. The first dividend will be for less than a full quarter and will cover the period from August 5, 2005 to October 15, 2005. Such dividend and any dividend payable on the Series A Preferred Shares for any partial dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as they appear in the stock records of the Trust at the close of business on the applicable record date, which shall be the first day of the calendar month in which the applicable Dividend Payment Date falls or on such other date designated by the Board of Trustees of the Trust as the record date for the payment of dividends on the Series A Preferred Shares that is not more than 30 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”).

1

(b)           No dividends on Series A Preferred Shares shall be declared by the Board of Trustees of the Trust or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, (i) prohibits such declaration, payment or setting apart for payment of dividends or (ii) provides that such declaration, payment or setting apart for payment of dividends would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

(c)           Notwithstanding the foregoing, dividends on the Series A Preferred Shares shall accrue whether or not the terms and provisions set forth in Section 3(b) hereof at any time prohibit the current payment of dividends, whether or not the Trust has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared.

(d)           Accrued but unpaid dividends on the Series A Preferred Shares will accumulate as of the Dividend Payment Date on which they first become payable. Except as provided in Section 3(e) below, no dividends will be declared or paid or set apart for payment, and no distribution will be made on any shares of beneficial interest in the Trust or any other series of Preferred Shares ranking, as to dividends, on a parity with or junior to the Series A Preferred Shares other than a dividend that consists of the Trust’s Common Shares or shares of any other class of shares of beneficial interest ranking junior to the Series A Preferred Shares as to dividends and upon liquidation, for any period unless full cumulative dividends on the Series A Preferred Shares have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series A Preferred Shares for all dividend periods ending on or prior to the date of such action with respect to our Common Shares or any other series of Preferred Shares ranking, as to dividends, on a parity with or junior to the Series A Preferred Shares.

(e)           When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series A Preferred Shares and the shares of any other series of Preferred Shares ranking on a parity as to dividends with the Series A Preferred Shares, all dividends declared upon the Series A Preferred Shares and any other series of Preferred Shares ranking on a parity as to dividends with the Series A Preferred Shares shall be declared pro rata so that the amount of dividends declared per share of Series A Preferred Shares and such other series of Preferred Shares shall in all cases bear to each other the same ratio that accrued dividends per share on the Series A Preferred Shares and such other series of Preferred Shares (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such Preferred Shares do not have a cumulative dividend) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on Series A Preferred Shares which may be in arrears.

(f)            Except as provided in the immediately preceding paragraph, unless full cumulative dividends on the Series A Preferred Shares have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods, no dividends (other than dividends paid in Common Shares or other shares of beneficial interest ranking junior to the Series A Preferred Shares as to dividends and upon liquidation) shall be declared or paid or set aside for payment, nor shall any other distribution be declared or made, upon the Common Shares or any other shares of beneficial Interest of the Trust ranking junior to or on a parity with the Series A Preferred Shares as to dividends or upon liquidation, nor shall any Common Shares, or any other shares of beneficial interest of the Trust ranking junior to or on a parity with the Series A Preferred Shares as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Trust (except by conversion into or exchange for other shares of beneficial interest of the Trust ranking junior to the Series A Preferred Shares as to dividends and upon liquidation and except for the redemption, purchase or acquisition of “Shares-in-Trust” under the Declaration, which are intended to assist the Trust in qualifying as a REIT for federal income tax purposes).

(g)           Holders of the Series A Preferred Shares shall not be entitled to any dividend, whether payable in cash, property or shares of beneficial interest in excess of full cumulative dividends on the Series A Preferred Shares as provided above. Any dividend payment made on Series A Preferred Shares shall first be credited against the earliest accrued but unpaid dividend due with respect to such shares which remains payable.

2

(4)           Liquidation Preference.

(a)           Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Trust, the holders of Series A Preferred Shares then outstanding are entitled to be paid out of the assets of the Trust legally available for distribution to its shareholders a liquidation preference of $25.00 per share, plus an amount equal to any accrued and unpaid dividends to the date of payment, before any distribution of assets is made to holders of Common Shares or any other class or series of shares of beneficial interest of the Trust that ranks junior to the Series A Preferred Shares as to liquidation rights. After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series A Preferred Shares will have no right or claim to any of the remaining assets of the Trust.

(b)           In the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up, the available assets of the Trust are insufficient to pay the amount of the liquidating distributions on all outstanding Series A Preferred Shares and the corresponding amounts payable on all shares of other classes or series of shares of beneficial interest of the Trust ranking on a parity with the Series A Preferred Shares in the distribution of assets, then the holders of the Series A Preferred Shares and all other such classes or series of shares of beneficial interest shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.

(c)           Written notice of any such liquidation, dissolution or winding up of the Trust, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series A Preferred Shares at the respective addresses of such holders as the same shall appear on the stock transfer records of the Trust.

(d)           The consolidation, combination or merger of the Trust with or into any other corporation, trust or entity or consolidation or merger of any other corporation with or into the Trust, or the sale, lease or conveyance of all or substantially all of the Trust’s assets, property or business or any statutory share exchange, shall not be deemed to constitute a liquidation, dissolution or winding up of the Trust.

(5)           Redemption.

(a)           Right of Optional Redemption. The Series A Preferred Shares are not redeemable prior to August 5, 2010. However, in an effort to ensure that the Trust remains a qualified real estate investment trust (“REIT”) for federal income tax purposes, the Series A Preferred Shares are, together with all other classes or series of shares of beneficial interest of the Trust, subject in all respects to the provisions of Article VII of the Declaration. Accordingly, pursuant to Article VII of the Declaration, a purported Transfer (as defined in Article VII) of Series A Preferred Shares as a result of which any person would maintain Beneficial Ownership (as defined in Article VII) of more than 9.9% of the outstanding Series A Preferred Shares will cause the number of Series A Preferred shares in excess of the Ownership Limit (rounded up to the nearest whole share) to be designated Shares-in-Trust and in accordance with the provisions of Article VII of the Declaration, be transferred to a Share Trust (as such term is defined in the Declaration), and the Trust will have the right to purchase such Shares-in-Trust from the holder.

On and after August 5, 2010, the Trust, at its option and upon not less than 30 nor more than 60 days’ written notice, may redeem the Series A Preferred Shares, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption (except as provided in Section 5(c) below), without interest. If less than all of the outstanding Series A Preferred Shares is to be redeemed, the Series A Preferred Shares to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method determined by the Trust.

(b)           Limitations on Redemption. Unless full cumulative dividends on all Series A Preferred Shares shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods, no Series A Preferred Shares shall be redeemed unless all outstanding Series A Preferred Shares are simultaneously redeemed, and the Trust shall not purchase or otherwise acquire directly or indirectly any Series A Preferred Shares (except by exchange for shares of beneficial interest of the Trust ranking junior to the Series A Preferred Shares as to dividends and upon liquidation); provided, however, that the foregoing shall not prevent the purchase by the Trust of Shares-in-Trust in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes or the purchase or acquisition of Series A Preferred Shares pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series A Preferred Shares.

3

(c)           Payment of Dividends in Connection with Redemption. Immediately prior to any redemption of Series A Preferred Shares, the Trust shall pay, in cash, any accumulated and unpaid dividends through the redemption date, unless a redemption date falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case each holder of Series A Preferred Shares at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date. Except as provided above, the Trust will make no payment or allowance for unpaid dividends, whether or not in arrears, on Series A Preferred Shares which are redeemed.

(d)           Procedures for Redemption.

(i)            Notice of redemption will be given (A) by publication in the New York Times, Wall Street Journal or other newspaper of similar general circulation in the city of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date, and (B) mailed by the Trust, postage prepaid, not less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series A Preferred Shares to be redeemed at their respective addresses as they appear on the stock transfer records of the Trust. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series A Preferred Shares except as to the holder to whom notice was defective or not given.

(ii)           In addition to any information required by law or by the applicable rules of any exchange upon which Series A Preferred Shares may be listed or admitted to trading, such notice shall state: (A) the redemption date; (B) the redemption price; (C) the number of Series A Preferred Shares to be redeemed; (D) the place or places where the Series A Preferred Shares are to be surrendered for payment of the redemption price; and (E) that dividends on the shares to be redeemed will cease to accrue on such redemption date. If less than all of the Series A Preferred Shares held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of Series A Preferred Shares held by such holder to be redeemed.

(iii)           If notice of redemption of any Series A Preferred Shares has been given and if the funds necessary for such redemption have been set aside by the Trust in trust for the benefit of the holders of any Series A Preferred Shares so called for redemption, then from and after the redemption date dividends will cease to accrue on such Series A Preferred Shares, such Series A Preferred Shares shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price. Holders of Series A Preferred Shares to be redeemed shall surrender such Series A Preferred Shares at the place designated in such notice and, upon surrender in accordance with said notice of the certificates for Series A Preferred Shares so redeemed (properly endorsed or assigned for transfer, if the Trust shall so require and the notice shall so state), such Series A Preferred Shares shall be redeemed by the Trust at the redemption price plus any accrued and unpaid dividends payable upon such redemption. In case less than all the Series A Preferred Shares represented by any such certificate are redeemed, a new certificate or certificates shall be issued representing the unredeemed Series A Preferred Shares without cost to the holder thereof.

(iv)           The deposit of funds with a bank or trust corporation for the purpose of redeeming Series A Preferred Shares shall be irrevocable except that:

(A) the Trust shall be entitled to receive from such bank or trust corporation the interest or other earnings, if any, earned on any money so deposited in trust, and the holders of any shares redeemed shall have no claim to such interest or other earnings; and

(B) any balance of monies so deposited by the Trust and unclaimed by the holders of the Series A Preferred Shares entitled thereto at the expiration of two years from the applicable redemption dates shall be repaid, together with any interest or other earnings thereon, to the Trust, and after any such repayment, the holders of the shares entitled to the funds so repaid to the Trust shall look only to the Trust for payment without interest or other earnings.

(e)           Shares-In-Trust Provisions. The Series A Preferred Shares are subject to the provisions of Article VII of the Declaration, including, without limitation, the provision for the purchase of Shares-in-Trust. In addition to the purchase right set forth in Article VII of the Declaration, Shares-in-Trust issued upon exchange of Series A Preferred Shares pursuant to such Article VII may be redeemed, in whole or in part, at any time when outstanding Series A Preferred Shares are being redeemed, for cash, at a redemption price of $25.00 per Series A Preferred Share, plus all accrued and unpaid dividends on the Series A Preferred Shares that were exchanged for such Shares-in-Trust, through the date of such exchange, without interest. If the Trust elects to redeem Shares-in-Trust pursuant to the redemption right set forth in the preceding sentence, such Shares-in-Trust shall be redeemed in such proportion and in accordance with such procedures as Series A Preferred Shares are being redeemed.

4

(f)           Status of Redeemed Shares. Any Series A Preferred Shares that shall at any time have been redeemed shall, after such redemption, have the status of authorized but unissued Preferred Shares, without designation as to series until such shares are thereafter designated as part of a particular series by the Board of Trustees.

(6)           Voting Rights.

(a)           Holders of the Series A Preferred Shares will not have any voting rights, except as set forth below or as otherwise from time to time required by law.

(b)           Whenever dividends on any Series A Preferred Shares shall be in arrears for six or more quarterly periods, whether or not consecutive (a “Preferred Dividend Default”), the holders of Series A Preferred Shares (voting separately as a class with the holders of all other series of Preferred Shares ranking on a parity with the Series A Preferred Shares as to dividends or upon liquidation (“Parity Preferred”) upon which like voting rights have been conferred and are exercisable) will be entitled to vote for the election of a total of two trustees of the Trust (the “Preferred Share Trustees”) at a special meeting of the shareholders called by the holders of record of at least 20% of the Series A Preferred Shares or the holders of 20% of any other series of Parity Preferred so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of shareholders), and at each subsequent annual meeting until all dividends accrued on such Series A Preferred Shares for the past dividend periods shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment.

(c)           If and when all accumulated dividends on the Series A Preferred Shares shall have been paid in full or declared and set aside for payment in full, the holders of Series A Preferred Shares shall be divested of the voting rights set forth in Section 6(b) hereof (subject to revesting in the event of each and every Preferred Dividend Default) and, if all accumulated dividends have been paid in full or declared and set aside for payment in full on all other series of Parity Preferred upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Share Trustee so elected shall terminate. Any Preferred Share Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding Series A Preferred Shares when they have the voting rights set forth in Section 6(b) (voting separately as a class with all other series of Parity Preferred upon which like voting rights have been conferred and are exercisable). So long as a Preferred Dividend Default shall continue, any vacancy in the office of a Preferred Share Trustee may be filled by written consent of the Preferred Share Trustee remaining in office, or if none remains in office, by a vote of the holders of record of a majority of the outstanding Series A Preferred Shares when they have the voting rights set forth in Section 6(b) (voting separately as a class with all other series of Parity Preferred upon which like voting rights have been conferred and are exercisable). The Preferred Share Trustees shall each be entitled to one vote per trustee on any matter.

(d)           So long as any Series A Preferred Shares remain outstanding, the Trust shall not, without the affirmative vote or consent of the holders of at least two-thirds of the Series A Preferred Shares outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of shares of beneficial interest ranking senior to the Series A Preferred Shares with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or reclassify any authorized shares of beneficial interest of the Trust into any such shares, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such shares or (ii) amend, alter or repeal the provisions of the Declaration, whether by merger, consolidation or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series A Preferred Shares or the holders thereof; provided, however, that with respect to the occurrence of any event set forth in (ii) above, the occurrence of any such event will not be deemed to materially and adversely affect any right, preference, privilege or voting power of the Series A Preferred Shares or the holders thereof so long as the Series A Preferred Shares remain outstanding with the terms thereof materially unchanged or, if the Trust is not the surviving entity in such transaction, are exchanged for a security of the surviving entity with terms that are materially the same as the Series A Preferred Shares, the occurrence of any such event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers of the holders of the Series A Preferred Shares and; provided, further, that (x) any increase in the amount of the authorized Common Shares or Preferred Shares or the creation or issuance of any other series of Common Shares or Preferred Shares, in each case ranking on a parity with or junior to the Series A Preferred Shares with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, (y) any change to the number or classification of our trustees, or (z) any amendment to Article VII of the Declaration relating to Shares-In-Trust, the Ownership Limit or any other matter described therein of any type or nature shall in no event be deemed to materially and adversely affect such rights, preferences, privileges or voting powers so long as after such amendment any single holder may maintain “beneficial ownership” (as defined in Article VII prior to or after such amendment) 9.9% of the outstanding Series A Preferred Shares and 9.9% of any other class or series of shares of beneficial interest without violating the Ownership Limit.

5

(e)           The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required to be effected, all outstanding Series A Preferred Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption.

(7)           Conversion. The Series A Preferred Shares are not convertible into or exchangeable for any other property or securities of the Trust, except that the Series A Preferred Shares will automatically be exchanged by the Trust for Shares-In-Trust, in accordance with Article VII of the Declaration in the same manner that Common Shares are exchanged for Shares-In-Trust pursuant thereto, in order to ensure that the Trust remains qualified as a REIT for federal income tax purposes.

THIRD: The Series A Preferred Shares have been classified and designated by the Board of Trustees under the authority contained in the Declaration.

FOURTH: These Articles Supplementary have been approved by the Board of Trustees in the manner and by the vote required by law.

FIFTH: The undersigned President and Chief Operating Officer acknowledges these Articles Supplementary to be the trust act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned President and Chief Operating Officer acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

IN WITNESS WHEREOF, the Trust has caused these Articles Supplementary to be executed on behalf of the Trust by its President and Chief Operating Officer and attested to by its Secretary this 2nd day of August 2005.

By:	/s/ Jay H. Shah
	Jay H. Shah
	President and Chief Operating Officer

 Attest:

By:	/s/ Kiran P. Patel
	Kiran P. Patel
	Secretary

6

HERSHA HOSPITALITY TRUST

ARTICLES OF AMENDMENT TO DECLARATION OF TRUST

Hersha Hospitality Trust, a Maryland real estate investment trust (the “Trust”), hereby certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: Pursuant to the authority expressly vested in the Board of Trustees of the Trust by Article VI of its Amended and Restated Declaration of Trust (the “Declaration of Trust”), the Board of Trustees of the Trust has, by unanimous written consent, duly authorized an increase in the aggregate number of Common Shares (as defined below) that the Trust has authority to issue from 81,000,000 Common Shares to 151,000,000 Common Shares, of which 150,000,000 shares now will be Priority Common Shares (as defined below) and 1,000,000 shares will continue to be Class B Common Shares (as defined below). In furtherance thereof, Section 1 of Article VI of the Declaration of Trust is hereby amended and

replaced in its entirety by the following:

“Section 1. Authorized Shares. The beneficial interest of the Trust shall be divided into shares of beneficial interest (the “Shares”). The Trust has authority to issue: (i) one hundred fifty one million (151,000,000) common shares of beneficial interest, $0.01 par value per share (“Common Shares”), of which one hundred fifty million (150,000,000) will be Priority Class A Common Shares (the “Priority Common Shares”) and one million (1,000,000) will be Class B Common Shares (the “Class B Common Shares”); and (ii) twenty nine million (29,000,000) will be preferred shares of beneficial interest, $0.01 par value per share (“Preferred Shares”). If Shares of one class are classified or reclassified into Shares of

another class pursuant to this Article VI, the number of authorized Shares of the former class shall be automatically decreased and the number of Shares of the latter class shall be automatically increased, in each case by the number of Shares so classified or reclassified, so that the aggregate number of Shares of all classes that the Trust has the authority to issue shall not be more than the total number of Shares set forth in the second sentence of this paragraph. The Board of Trustees, without any action by the shareholders of the Trust, may amend the Declaration of Trust to increase or decrease the aggregate number of Shares or the number of Shares of any class or series that the Trust has authority to issue.”

SECOND: The Shares have been authorized by the Board of Trustees under the authority contained in the Declaration of Trust.

THIRD: These Articles of Amendment to the Declaration of Trust (this “Amendment”) have been duly adopted by the Board of Trustees of the Trust in the manner and by the vote required by law.

FOURTH: The undersigned Chief Executive Officer of the Trust acknowledges this Amendment to be the act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned Chief Executive Officer of the Trust acknowledges that, to the best of his knowledge, information and belief, these matters are true in all material respects and that this statement is made under the penalties for perjury.

IN WITNESS WHEREOF, the Trust has caused these Articles of Amendment to be signed in its name and on its behalf by its Chief Executive Officer, and attested to by its Secretary, on this 26 day of May, 2009.

ATTEST:	HERSHA HOSPITALITY TRUST
By:  /s/ David L. Desfor	By:  /s/ Jay H. Shah
Name:  David L. Desfor	Name:  Jay H. Shah
Title:  Treasurer and Corporate Secretary	Title:  Chief Executive Officer

1

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Jay H. Shah, certify that:

1.           I have reviewed this Quarterly Report on Form 10-Q for the period ending June 30, 2009 of Hersha Hospitality Trust;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have;

a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on such evaluation; and

d)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.           The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);

a)           All significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2009

/s/ Jay H. Shah

Jay H. Shah

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Ashish R. Parikh, certify that:

1.           I have reviewed this Quarterly Report on Form 10-Q for the period ending June 30, 2009 of Hersha Hospitality Trust;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))  for the registrant and have;

a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on such evaluation; and

d)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.           The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);

a)           All significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2009

/s/ Ashish R. Parikh

Ashish R. Parikh

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Hersha Hospitality Trust (the “Company”) for the period ending June 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jay H. Shah, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 7, 2009

 /s/ Jay H. Shah

Jay H. Shah

Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Hersha Hospitality Trust (the “Company”) for the period ending June 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ashish R. Parikh, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 7, 2009

/s/ Ashish R. Parikh

Ashish R. Parikh

Chief Financial Officer