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 September 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 September 30, 2009, the number of Priority Class A Common Shares of Beneficial Interest outstanding was 56,473,120.

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 September 30, 2009 [Unaudited] and December 31, 2008	3
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008 [Unaudited]	4
	Consolidated Statements of Equity for the Nine Months Ended September 30, 2009 and 2008 [Unaudited]	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 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.	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	43
Item 4.	Controls and Procedures.	45
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings.	46
Item 1A.	Risk Factors.	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	46
Item 3.	Defaults Upon Senior Securities.	46
Item 4.	Submission of Matters to a Vote of Security Holders.	46
Item 5.	Other Information.	46
Item 6.	Exhibits.	47

2

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements.

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

[IN THOUSANDS, EXCEPT SHARE AMOUNTS]

	September 30, 2009			December 31, 2008
Assets:
Investment in Hotel Properties, net of Accumulated Depreciation	$	936,031		$	982,082
Investment in Unconsolidated Joint Ventures		44,042			46,283
Development Loans Receivable		47,990			81,500
Cash and Cash Equivalents		12,494			15,697
Escrow Deposits		15,588			12,404
Hotel Accounts Receivable, net of allowance for doubtful accounts of $88 and $120		9,784			6,870
Deferred Financing Costs, net of Accumulated Amortization of $3,756 and $3,606		8,831			9,157
Due from Related Parties		3,138			3,595
Intangible Assets, net of Accumulated Amortization of $738 and $595		7,529			7,300
Other Assets		13,095			13,517
Assets Held for Sale		21,073			-
Total Assets	$	1,119,595		$	1,178,405
Liabilities and Equity:
Line of Credit	$	80,000		$	88,421
Mortgages and Notes Payable, net of unamortized discount of $52 and $61		640,470			655,360
Accounts Payable, Accrued Expenses and Other Liabilities		17,997			17,745
Dividends and Distributions Payable		4,232			11,240
Due to Related Parties		90			302
Liabilities Related to Assets Held for Sale		20,908			-
Total Liabilities		763,697			773,068
Redeemable Noncontrolling Interests - Common Units (Note 1)	$	15,391		$	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 September 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 September 30, 2009 and December 31, 2008, 56,473,120 and 48,276,222 Shares Issued and Outstanding at September 30, 2009 and December 31, 2008, respectively		564			483
Common Shares - Class B, $.01 Par Value, 1,000,000 Shares Authorized, None Issued and Outstanding		-			-
Accumulated Other Comprehensive Loss		(160	)		(109	)
Additional Paid-in Capital		483,226			463,772
Distributions in Excess of Net Income		(171,752	)		(114,207	)
Total Shareholders' Equity		311,902			349,963
Noncontrolling Interests (Note 1):
Noncontrolling Interests - Common Units		28,329			34,781
Noncontrolling Interests - Consolidated Joint Ventures		276			1,854
Total Noncontrolling Interests		28,605			36,635
Total Equity		340,507			386,598
Total Liabilities and Equity	$	1,119,595		$	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 NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 [UNAUDITED]

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

	Three Months Ended						Nine Months Ended
	September 30, 2009			September 30, 2008			September 30, 2009			September 30, 2008
Revenue:
Hotel Operating Revenues	$	60,245		$	68,471		$	160,346		$	180,912
Interest Income from Development Loans		1,427			1,586			5,990			5,759
Other Revenues		185			257			575			914
Total Revenues		61,857			70,314			166,911			187,585
Operating Expenses:
Hotel Operating Expenses		33,563			37,530			93,276			101,082
Hotel Ground Rent		292			308			876			750
Real Estate and Personal Property Taxes and Property Insurance		3,788			3,194			10,364			9,013
General and Administrative		1,512			1,457			4,362			4,490
Stock Based Compensation		579			416			1,500			1,043
Acquisition and Terminated Transaction Costs		32			21			76			211
Impairment of Development Loans Receivable		21,408			-			21,408			-
Depreciation and Amortization		10,924			10,221			32,122			28,543
Total Operating Expenses		72,098			53,147			163,984			145,132
Operating (Loss) Income		(10,241	)		17,167			2,927			42,453
Interest Income		49			69			159			252
Interest Expense		11,129			10,458			32,170			30,473
Other Expense		29			24			110			73
Loss on Debt Extinguishment		-			1,417			-			1,417
(Loss) Income before (Loss) Income from Unconsolidated Joint Venture Investments and Discontinued Operations		(21,350	)		5,337			(29,194	)		10,742
(Loss) Income from Unconsolidated Joint Venture Investments		(606	)		1,629			(2,330	)		2,251
(Loss) Income from Continuing Operations		(21,956	)		6,966			(31,524	)		12,993
Discontinued Operations  (Note 12):
Gain on Disposition of Hotel Properties		1,868			-			1,868			-
Impairment of Assets Held for Sale		(17,683	)		-			(17,683	)		-
(Loss) Income from Discontinued Operations		(164	)		794			205			844
(Loss) Income from Discontinued Operations		(15,979	)		794			(15,610	)		844
Net (Loss) Income		(37,935	)		7,760			(47,134	)		13,837
Loss (Income) Allocated to Noncontrolling Interests		5,560			(1,425	)		7,162			(2,156	)
Preferred Distributions		(1,200	)		(1,200	)		(3,600	)		(3,600	)
Net (Loss) Income applicable to Common Shareholders	$	(33,575	)	$	5,135		$	(43,572	)	$	8,081

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 NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 [UNAUDITED]

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

	Three Months Ended						Nine Months Ended
	September 30, 2009			September 30, 2008			September 30, 2009			September 30, 2008
Earnings Per Share:
BASIC
(Loss) Income from Continuing Operations applicable to Common Shareholders	$	(0.39	)	$	0.10		$	(0.62	)	$	0.16
(Loss) Income from Discontinued Operations applicable to Common Shareholders		(0.26	)		0.01			(0.27	)		0.02
Net (Loss) Income applicable to Common Shareholders	$	(0.65	)	$	0.11		$	(0.89	)	$	0.18
DILUTED
(Loss) Income from Continuing Operations applicable to Common Shareholders	$	(0.39	) *	$	0.10	*	$	(0.62	) *	$	0.16	*
(Loss) Income from Discontinued Operations applicable to Common Shareholders		(0.26	) *		0.01	*		(0.27	) *		0.02	*
Net (Loss) Income applicable to Common Shareholders	$	(0.65	) *	$	0.11	*	$	(0.89	) *	$	0.18	*
Weighted Average Common Shares Outstanding:
Basic		51,878,482			47,764,168			49,187,465			44,315,615
Diluted		51,878,482	*		47,764,168	*		49,187,465	*		44,315,615	*

* 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 September 30, 2009 and 2008 were 8,705,195 and 8,751,009, respectively.  Weighted average units of limited partnership interest in Hersha Hospitality Limited Partnership outstanding for the nine months ended September 30, 2009 and 2008 were 8,732,448 and 7,795,818, respectively.  Unvested stock awards and options to acquire our common shares have been omitted from the denominator for the purpose of computing diluted earnings per share for the three months ended September 30, 2009 and 2008, and for the nine months ended September 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 NINE MONTHS ENDED SEPTEMBER 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
Unit Conversion		-		-		-		255			-			-			255			(255	)		-			(255	)		-			-
Common Share Issuance, net of costs		-		73		-		17,648			-			-			17,721			-			-			-			17,721			-
Dividends and Distribution declared:
Distribution to noncontrolling interest in consolidated joint venture		-		-		-		-			-			-			-			-			(124	)		(124	)		(124	)		-
Preferred Shares ($1.50 per share)		-		-		-		-			-			(3,600	)		(3,600	)		-			-			-			(3,600	)		-
Common Shares ($0.28 per share)		-		-		-		-			-			(13,973	)		(13,973	)		-			-			-			(13,973	)		-
Common Units ($0.28 per share)		-		-		-		-			-			-			-			(1,588	)		-			(1,588	)		(1,588	)		(858	)
Dividend Reinvestment Plan		-		-		-		22			-			-			22			-			-			-			22			-
Stock Based Compensation
Restricted Share Award Grants		-		8		-		(8	)		-			-			-			-			-			-			-			-
Restricted Share Award Vesting		-		-		-		1,382			-			-			1,382			-			-			-			1,382			-
Performance Share Grants		-		-		-		70			-			-			70			-			-			-			70			-
Share Grants to Trustees		-		-		-		85			-			-			85			-			-			-			85			-
Disposition of Consolidated Joint Venture		-		-		-		-			-			-			-			-			(1,391	)		(1,391	)		(1,391	)		-
Comprehensive Loss:
Other Comprehensive Income		-		-		-		-			(51	)		-			(51	)		-			-			-			(51	)		-
Net Loss		-		-		-		-			-			(39,972	)		(39,972	)		(4,609	)		(63	)		(4,672	)		(44,644	)		(2,490	)
Total Comprehensive Loss																	(40,023	)		(4,609	)		(63	)		(4,672	)		(44,695	)		(2,490	)
Balance at September 30, 2009	$	24	$	564	$	-	$	483,226		$	(160	)	$	(171,752	)	$	311,902		$	28,329		$	276		$	28,605		$	340,507		$	15,391
Balance at December 31, 2007	$	24	$	412	$	-	$	397,127		$	(23	)	$	(67,135	)	$	330,405		$	42,845		$	1,908		$	44,753		$	375,158		$	-
Unit Conversion		-		2		-		1,371			-			-			1,373			(1,373	)		-			(1,373	)		-			-
Reallocation of Noncontrolling Interest		-		-		-		1,682			-			-			1,682			(1,682	)		-			(1,682	)		-			-
Common Units Issued for Acquisitions		-		-		-		-			-			-			-			21,624			-			21,624			21,624			-
Common Share Issuance, net of costs		-		66		-		61,779			-			-			61,845			-			-			-			61,845			-
Dividends and Distribution declared:
Preferred Shares ($1.50 per share)		-		-		-		-			-			(3,600	)		(3,600	)		-			-			-			(3,600	)		-
Common Shares ($0.54 per share)		-		-		-		-			-			(24,772	)		(24,772	)		-			-			-			(24,772	)		-
Common Units ($0.54 per share)		-		-		-		-			-			-			-			(4,469	)		-			(4,469	)		(4,469	)		-
Dividend Reinvestment Plan		-		-		-		23			-			-			23			-			-			-			23			-
Stock Based Compensation
Restricted Share Award Grant		-		3		-		(3	)		-			-			-			-			-			-			-			-
Restricted Share Award Vesting		-		-		-		989			-			-			989			-			-			-			989			-
Share Grants to Trustees		-		-		-		91			-			-			91			-			-			-			91			-
Comprehensive Income (Loss):
Other Comprehensive Income		-		-		-		-			162			-			162			-			-			-			162			-
Net Income (Loss)		-		-		-		-			-			11,681			11,681			2,054			102			2,156			13,837			-
Total Comprehensive Income (Loss)																	11,843			2,054			102			2,156			13,999			-
Balance at September 30, 2008	$	24	$	483	$	-	$	463,059		$	139		$	(83,826	)	$	379,879		$	58,999		$	2,010		$	61,009		$	440,888		$	-

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 NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 [UNAUDITED]

[IN THOUSANDS]

	For the Nine Months Ended
	September 30, 2009			September 30, 2008
Operating activities:
Net (loss) income	$	(47,134	)	$	13,837
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Gain on disposition of hotel properties		(1,868	)		-
Impairment of development loans receivable and assets held for sale		39,091			-
Loss on debt extinguishment		-			1,435
Depreciation		33,095			30,343
Amortization of intangible assets and deferred costs		1,718			1,346
Interest income from development loans paid in-kind		(2,649	)		-
Equity in loss (income) of unconsolidated joint venture investments		2,330			(2,251	)
Distributions from unconsolidated joint venture investments		400			2,991
Gain recognized on change in fair value of derivative instrument		(173	)		(18	)
Stock based compensation		1,500			1,043
Change in assets and liabilities:
(Increase) decrease in:
Hotel accounts receivable		(2,993	)		(2,259	)
Escrow Deposits		(3,184	)		2,612
Other assets		(4,277	)		(1,872	)
Due from related parties		1,432			(1,272	)
Increase (decrease) in:
Due to related parties		(1,262	)		(1,066	)
Accounts payable, accrued expenses and other liabilities		(1,767	)		383
Net cash provided by operating activities		14,259			45,252
Investing activities:
Purchase of hotel property assets		(5,994	)		(62,609	)
Capital expenditures		(5,237	)		(16,946	)
Proceeds from disposition of hotel properties		8,495			-
Cash paid for franchise fee intangible		(126	)		(57	)
Investment in development loans receivable		(2,000	)		(40,700	)
Repayment of development loans receivable		-			16,416
Repayment of notes receivable		-			1,350
Distributions from unconsolidated joint venture investments		-			350
Advances and capital contributions to unconsolidated joint venture investments		(492	)		(97	)
Net cash used in investing activities		(5,354	)		(102,293	)
Financing activities:
(Repayments of) proceeds from borrowings under line of credit, net		(8,421	)		7,700
Principal repayment of mortgages and notes payable		(36,395	)		(24,306	)
Proceeds from mortgages and notes payable		42,138			51,780
Cash paid for deferred financing costs		(17	)		(85	)
Proceeds from issuance of common shares, net of issuance costs		17,716			61,845
Distributions to noncontrolling interests in consolidated joint venture		(124	)		-
Dividends paid on common shares		(19,819	)		(23,501	)
Dividends paid on preferred shares		(3,600	)		(3,600	)
Distributions paid on common units		(3,586	)		(4,168	)
Net cash (used in) provided by financing activities		(12,108	)		65,665
Net (decrease) increase in cash and cash equivalents		(3,203	)		8,624
Cash and cash equivalents - beginning of period		15,697			12,327
Cash and cash equivalents - end of period	$	12,494		$	20,951

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 NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 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 US 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 US 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.

Sale of Common Shares

On August 4, 2009, we entered into a purchase agreement with Real Estate Investment Group L.P. (“REIG”), pursuant to which we 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 stock corporation organized under the laws of the Republic of Uruguay that is wholly-owned by IRSA Inversiones y Representaciones Sociedad Anónima, a stock corporation organized under the laws of the Republic of Argentina (“IRSA”).  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 our common shares on the New York Stock Exchange exceeds $5.00 for 20 consecutive trading days, we 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.

On June 12, 2009, we entered into a sales agreement with a broker-dealer acting as a sales agent, under which it may offer and sell up to 15,000,000 Class A common shares of beneficial interest.  Sales of shares under this agreement, if any, may be made by any method permitted by law deemed to be an “at the market offering” and in privately negotiated transactions.  The sales agent is to use its commercially reasonable efforts consistent with its normal trading and sales practice to sell the shares as directed by the Company.  The sales agent is entitled to compensation equal to 2.75% of the gross sales price per share for any shares sold under the agreement.  Under the sales agreement, during the three months ended September 30, 2009, we sold 1,479,000 shares with net proceeds of $4,436 and during the nine months ended September 30, 2009, we sold 1,551,500 with net proceeds of $4,620.

Noncontrolling Interest

Effective January 1, 2009, we adopted a new accounting standard which defines a noncontrolling interest as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent.  Under this standard, 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 US GAAP, 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 US GAAP 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.

8

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 [UNAUDITED]

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

NOTE 1 — BASIS OF PRESENTATION (CONTINUED)

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 $276 as of September 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 $28,329 as of September 30, 2009 and $34,781 as of December 31, 2008.  As of September 30, 2009, there were 5,637,558 Nonredeemable Common Units outstanding with a fair market value of $17,476, 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 US GAAP.  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 September 30, 2009, there were 3,064,252 Redeemable Common Units outstanding with a redemption value equal to the fair value of the Redeemable Common Units, or $9,499.  The redemption value of the Redeemable Common Units is based on the price per share of our common shares on the New York Stock Exchange on such date.  As of September 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 $15,391 and $18,739, respectively, since historical cost exceeded the Redeemable Common Units redemption value as of each such date.

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

Accounting Standards Codification

In June 2009, the Financial Accounting Standards Board (“FASB”) issued a pronouncement that established 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 US GAAP.  This standard is effective for interim and annual periods ending after September 15, 2009.  The Company has adopted this standard in accordance with US GAAP.

Subsequent Events

In May 2009, the FASB issued a pronouncement that 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.  Our adoption of this statement did not impact our consolidated financial condition and results of operations.

9

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 [UNAUDITED]

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

NOTE 1 — BASIS OF PRESENTATION (CONTINUED)

Business Combinations

On January 1, 2009, we adopted a pronouncement that requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at “full fair value.” The adoption of this standard 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 this standard, costs related to future acquisitions will be expensed as incurred compared to the Company’s practice prior to the adoption of this standard 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 this standard 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.

Disclosures about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued a standard that 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 this pronouncement on January 1, 2009 did not have a material effect on our consolidated financial condition and results of operations.

Equity Method Investment Accounting Considerations

In November 2008, the FASB ratified a pronouncement 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.  This pronouncement is effective for the Company beginning on January 1, 2009 and has been applied prospectively.  The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial condition and results of operations.

Participating Securities

In June 2008, the FASB issued a pronouncement stating 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 this pronouncement 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 to the pronouncement’s provisions. Our adoption of this pronouncement did not impact our financial position and results of operations.

Consolidation of Variable Interest Entities

In June 2009, the FASB issued a pronouncement that amends existing US GAAP 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.  This pronouncement is effective for the first annual reporting period that begins after November 15, 2009.  Earlier adoption is prohibited.  The Company will adopt this pronouncement on January 1, 2010.  Management does not believe adoption of this pronouncement will have a material effect on the Company’s consolidated financial statements.

10

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 September 30, 2009 and December 31, 2008:

	September 30, 2009			December 31, 2008
Land	$	160,396		$	184,879
Buildings and Improvements		803,267			802,760
Furniture, Fixtures and Equipment		120,539			121,991
		1,084,202			1,109,630
Less Accumulated Depreciation		(148,171	)		(127,548	)
Total Investment in Hotel Properties	$	936,031		$	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 as of the purchase date to acquire our 100% interest in York Street, LLC included:

Cash paid to seller	$	4,794
Amounts payable to seller		1,387	(1)
Settlement of development loans receivable and accrued interest income on development loans		19,555	(2)
Land and mortgage transferred to seller		10,118	(3)
Assumption of York Street, LLC mortgage loan payable		29,824	(4)
Net hotel working capital liabilities assumed		1,322
Total consideration given	$	67,000

(1) 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.

(2) “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.

(3) “Land and mortgage transferred to seller” consisted 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. In connection with our acquisition of the membership interests in York Street, LLC, we transferred this property to Metro Forty First Street, LLC, and that entity assumed our obligations under the $12,100 mortgage loan encumbering the property.

(4) The mortgage loan assumed in connection with the acquisition of York Street, LLC, which is secured by the Hilton Garden Inn, TriBeCa, New York, NY, was refinanced on August 7, 2009 with a $29,824 first mortgage loan which matures in July 2012 and bears interest at the Wall Street Journal variable prime rate plus 2.0% subject to an interest rate floor of 8.75%.

11

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 an intangible asset for the lease of restaurant space located in the Hilton Garden Inn, TriBeCa, New York, NY 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.  We earn fixed rent under this lease at 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, respectively.

Included in the consolidated statements of operations for the three and nine months ended September 30, 2009, are total revenues of approximately $2,438 and $3,840, respectively, and net loss of $25 and $120, respectively, 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

While we are unable to determine whether amounts will be paid under these three earn-out provisions until the expiration of the earn-out periods, we believe no amounts will be paid.  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 NINE MONTHS ENDED SEPTEMBER 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 September 30,						For the Nine Months Ended September 30,
	2009			2008			2009			2008
Pro Forma Total Revenues	$	61,857		$	70,439		$	168,537		$	189,236
Pro Forma (Loss) income from Continuing Operations applicable to Common Shareholders	$	(21,956	)	$	6,952		$	(31,839	)	$	13,140
(Loss) income from Discontinued Operations		(15,979	)		794			(15,610	)		844
Pro Forma Net (Loss) income		(37,935	)		7,746			(47,449	)		13,984
Loss (income) allocated to Noncontrolling Interest		5,560			(1,423	)		7,210			(2,178	)
Preferred Distributions		(1,200	)		(1,200	)		(3,600	)		(3,600	)
Pro Forma Net (loss) income applicable to Common Shareholders	$	(33,575	)	$	5,123		$	(43,839	)	$	8,206
Pro Forma (loss) income applicable to Common Shareholders per Common Share
Basic	$	(0.65	)	$	0.11		$	(0.89	)	$	0.19
Diluted	$	(0.65	)	$	0.11		$	(0.89	)	$	0.19
Weighted Average Common Shares Outstanding
Basic		51,878,482			47,764,168			49,187,465			44,315,615
Diluted		51,878,482			47,764,168			49,187,465			44,315,615

13

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 September 30, 2009 and December 31, 2008, our investment in unconsolidated joint ventures consists of the following:

		Percent			Preferred	September 30,		December 31,
Joint Venture	Hotel Properties	Owned			Return	2009		2008
PRA Glastonbury, LLC	Hilton Garden Inn, Glastonbury, CT		48.0	%	11.0% cumulative	$	558	$	738
Inn American Hospitality at Ewing, LLC	Courtyard by Marriott, Ewing, NJ		50.0	%	11.0% cumulative		487		736
Hiren Boston, LLC	Courtyard by Marriott, Boston, MA		50.0	%	N/A		3,583		3,960
SB Partners, LLC	Holiday Inn Express, Boston, MA		50.0	%	N/A		1,993		2,091
Mystic Partners, LLC	Hilton and Marriott branded hotels in CT and RI		8.8%-66.7	%	8.5% non-cumulative		27,456		27,977
PRA Suites at Glastonbury, LLC	Homewood Suites, Glastonbury, CT		48.0	%	10.0% non-cumulative		2,796		2,800
Metro 29th Street Associates, LLC	Holiday Inn Express, New York, NY		50.0	%	N/A		7,169		7,981
						$	44,042	$	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 nine months ended September 30, 2009 and 2008 for our investments in unconsolidated joint ventures is as follows:

	Three Months Ended						Nine Months Ended
	September 30, 2009			September 30, 2008			September 30, 2009			September 30, 2008
PRA Glastonbury, LLC	$	7		$	18		$	(80	)	$	83
Inn American Hospitality at Ewing, LLC		(36	)		(7	)		(98	)		(4	)
Hiren Boston, LLC		(159	)		59			(376	)		(110	)
SB Partners, LLC		44			101			(98	)		94
Mystic Partners, LLC		(417	)		797			(1,274	)		817
PRA Suites at Glastonbury, LLC		(2	)		(2	)		(3	)		(6	)
Metro 29th Street Associates, LLC		(43	)		663			(401	)		1,377
Net (loss) income from Investment in Unconsolidated Joint Ventures	$	(606	)	$	1,629		$	(2,330	)	$	2,251

14

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 September 30, 2009 and December 31, 2008.

Balance Sheets
	September 30,			December 31,
	2009			2008
Assets
Investment in hotel properties, net	$	200,048		$	209,468
Other Assets		28,602			25,334
Total Assets	$	228,650		$	234,802
Liabilities and Equity
Mortgages and notes payable	$	218,609		$	219,889
Other liabilities		16,688			11,636
Equity:
Hersha Hospitality Trust		43,968			44,938
Joint Venture Partner(s)		(50,615	)		(41,661	)
Total Equity		(6,647	)		3,277
Total Liabilities and Equity	$	228,650		$	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 September 30, 2009 and December 31, 2008.

	September 30,		December 31,
	2009		2008
Company's Share	$	43,968	$	44,938
Excess Investment (1)		74		1,345
Investment in Joint Venture	$	44,042	$	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 nine months ended September 30, 2009 and 2008.

Statements of Operations

	Three Months Ended						Nine Months Ended
	September 30, 2009			September 30, 2008			September 30, 2009			September 30, 2008
Room Revenue	$	22,157		$	27,675		$	60,706		$	77,514
Other Revenue		5,029			6,065			16,424			21,550
Operating Expenses		(17,180	)		(20,899	)		(50,960	)		(62,502	)
Interest Expense		(3,599	)		(3,303	)		(10,915	)		(10,020	)
Lease Expense		(1,503	)		(1,393	)		(4,245	)		(4,145	)
Property Taxes and Insurance		(1,704	)		(1,471	)		(4,975	)		(4,875	)
Federal & State Income Taxes		19			(54	)		-			(54	)
Depreciation and Amortization		(3,540	)		(4,211	)		(10,753	)		(12,062	)
General and Administrative		(1,973	)		(1,851	)		(5,602	)		(5,741	)
Net (loss) income	$	(2,294	)	$	558		$	(10,320	)	$	(335	)

15

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 $1,427 and $1,586 for the three months ended September 30, 2009 and 2008, respectively, and $5,990 and $5,759 for the nine months ended September 30, 2009 and 2008, respectively. Accrued interest on our development loans receivable was $2,030 as of September 30, 2009 and $2,785 as of December 31, 2008.

Hotel Property	Borrower	Principal Outstanding 9/30/2009			Principal Outstanding 12/31/2008		Interest Rate			Maturity Date (1)
Operational Hotels
Independent Hotel - New York, NY	Maiden Hotel, LLC	$	7,000		$	10,000		20	%	December 8, 2009
Renaissance by Marriott - Woodbridge, NJ	Hersha Woodbridge Associates, LLC		5,000			5,000		11	%	April 1, 2010	*
Hampton Inn & Suites - West Haven, CT	44 West Haven Hospitality, LLC		2,000			2,000		10	%	December 31, 2009
Hilton Garden Inn - Dover, DE	44 Aasha Hospitality Associates, LLC		1,000			1,000		10	%	November 1, 2010	*
Hilton Garden Inn - New York, NY	York Street, LLC		-			15,000		11	%	N/A
Construction Hotels
Lexington Avenue Hotel - New York, NY	44 Lexington Holding, LLC		11,274	(2)		10,000		11	%	December 31, 2010	*
Union Square Hotel - New York, NY	Risingsam Union Square, LLC		11,216	(2)		10,000		10	%	December 31, 2010
32 Pearl - New York, NY	SC Waterview, LLC		8,000			8,000		10	%	January 10, 2010
Element Hotel - Ewing, NJ	American Properties @ Scotch Road LLC		2,000			-		11	%	August 6, 2010	*
Homewood Suites - Newtown, PA	Reese Hotels, LLC		500			500		11	%	November 14, 2009
Early Phase Development
Hyatt Place - New York, NY	Brisam East 52, LLC		-	(2)		10,000		10	%	January 16, 2010
Greenwich Street Courtyard - New York, NY	Brisam Greenwich, LLC		-	(2)		10,000		10	%	December 31, 2010
Total Development Loans Receivable		$	47,990		$	81,500

* Indicates borrower is a related party.

(1) 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.

(2) 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 September 30, 2009:

	Interest Income
Borrower	Three Months Ended September 30, 2009		Nine Months Ended September 30, 2009		Cumulative Interest Income Paid In-Kind
Risingsam Union Square, LLC	$	279	$	782	$	1,216
Brisam East 52, LLC		-		503		672
44 Lexington Holding, LLC		308		861		1,274
Brisam Greenwich, LLC		-		503		736
Total	$	587	$	2,649	$	3,898

Impairment of Development Loans

We monitor our portfolio of development loans on an on-going basis to determine collectability of the loan principal and accrued interest.  As part of our review, we determined that our development loans to Brisam East 52, LLC and Brisam Greenwich, LLC, which were secured by the equity interest in each entity, were permanently impaired as of September 30, 2009.  We ceased accruing interest on the loans effective July 1, 2009.  As of September 30, 2009, we have determined that the fair value of each loan receivable is $0 and have incurred an impairment charge for the remaining principal on these loans in the aggregate amount of $21,408, which includes $1,408 of interest income paid in-kind.  The fair value of these loans was determined using Level 3 inputs, which are typically unobservable and are based on our own assumptions, as there is little, if any, related market activity.

16

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 have acquired land and improvements and leased 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.

On July 20, 2009, we 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, we entered into a modification and extension agreement for a mortgage loan on our land parcels located on Nevins Street, in Brooklyn, NY.  These parcels are leased to an entity that is owned, in part, by certain excutive officers and affiliated trustees of the Company.  This agreement modified the principal balance from $6,500 to $6,000.  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 September 24, 2009, our land parcel located at 440 West 41st Street, New York, NY, was transferred to the lessee, an entity controlled by the seller of York Street, LLC, as partial 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.”

During the quarter ended September 30, 2009, we decided to exit our two remaining land leases and dispose of the related land parcels located at 39th Street and 8th Avenue, New York, NY and Nevins Street, Brooklyn, NY.  Effective July 1, 2009, we ceased accruing rents under these leases.  The parcels of land are recorded as “assets held for sale” and our mortgage debt on the property is recorded as “liabilities related to assets held for sale” on our consolidated balance sheets as of September 30, 2009.  We determined that the carrying values of the two land parcels exceeded their respective fair values and we recorded an impairment of $14,545 as of September 30, 2009.  We also determined that accrued rents under the leases were uncollectible and accrued rents receivable of $1,579 was expensed during the three months ended September 30, 2009.  See Note 12, “Discontinued Operations” for further discussion of the land parcels recorded as assets held for sale.

Each parcel of land had been leased under fixed lease agreements which earned rents at a minimum rental rate of 10% of our net investment in the leased property. Additional rents were paid by the lessee for the interest on the mortgage, real estate taxes and insurance. Revenues from our land leases were 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.  Land lease revenues and land lease expense have been reclassified to discontinued operations on our consolidated statement of operations as a result of our decision to sell these parcels of land.

17

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 September 30, 2009 and December 31, 2008:

	September 30, 2009		December 31, 2008
Transaction Costs	$	126	$	237
Investment in Statutory Trusts		1,548		1,548
Notes Receivable		1,403		1,267
Deposits on Hotel Acquisitions		500		-
Due from Lessees		-		1,907
Prepaid Expenses		4,920		3,182
Interest Receivable from Development Loans to Non-Related Parties		1,099		2,024
Deposit on Property Improvement Plans		181		149
Hotel Purchase Option		933		933
Other		2,385		2,270
	$	13,095	$	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 September 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.

Deposits on Hotel Acquisitions - Deposits paid in connection with the acquisition of hotels, including accrued interest, are recorded in other assets. As of September 30, 2009, we had $500 in non-interest bearing deposits related to the acquisition of a hotel property.

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 $931 and $761 as of September 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 NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 [UNAUDITED]

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

NOTE 6 — DEBT

Mortgages and Notes Payable

We had total mortgages payable at September 30, 2009, and December 31, 2008, of $609,540 and $603,538, respectively.  These balances consisted of mortgages with fixed and variable interest rates, which ranged from 3.19% to 8.94% as of September 30, 2009. Aggregate interest expense incurred under the mortgage loans payable totaled $9,138 and $8,857 for the three months ended September 30, 2009 and 2008, respectively, and $26,201 and $26,107 for the nine months ended September 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 September 30, 2009 we were in compliance with all events of default covenants under the applicable loan agreements.  As of September 30, 2009, the maturities for the outstanding mortgage loans ranged from April 2010 to September 2023.

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 $945 and $947 was recorded for the three months ended September 30, 2009 and 2008, respectively, and $2,821 and $2,784 was recorded for the nine months ended September 30, 2009 and 2008, respectively.

HHLP has entered into a management agreement with an unaffiliated hotel manager that has 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 $290 as of September 30, 2009 and $274 as of December 31, 2008.

Revolving Line of Credit

During the nine months ended September 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 NINE MONTHS ENDED SEPTEMBER 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 September 30, 2009:

- 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 September 30, 2009.

The outstanding principal balance under the line of credit was of $80,000 at September 30, 2009 and $88,421 at December 31, 2008. The Company recorded interest expense of $780 and $549 related to the line of credit borrowings for the three months ended September 30, 2009 and 2008, respectively, and $2,518 and $2,162 for the nine months ended September 30, 2009 and 2008, respectively. The weighted average interest rate on our Line of Credit during the three months ended September 30, 2009 and 2008 was 3.25% and 5.00%, respectively, and 3.25% and 5.41% during the nine months ended September 30, 2009 and 2008, respectively. As of September 30, 2009 we had $3,865 in irrevocable letters of credit issued and our remaining borrowing capacity under the facility was $51,135.

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 September 30, 2009, the carrying value and estimated fair value of the Company’s debt was $741,378 and $695,447, 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 nine months ended September 30, 2009, we capitalized interest expense of $2 and $4, respectively.  For the three and nine months ended September 30, 2008, we capitalized interest expense of $38 and $544, 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 September 30, 2009, deferred financing costs were $8,831 net of accumulated amortization of $3,756. 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 September 30, 2009 and 2008 was $486 and $589, respectively, and was $1,553 and $1,487 for the nine months ended September 30, 2009 and 2008, respectively.

20

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 [UNAUDITED]

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

NOTE 6 — DEBT (CONTINUED)

Debt Extinguishment

On July 1, 2008, we settled on the defeasance of mortgage loans secured by four of our properties. These mortgage loans had an aggregate outstanding principal balance of approximately $11,028 as of June 30, 2008. As a result of this extinguishment, we expensed $1,399 in unamortized deferred costs and defeasance premiums for three of the four mortgage loans, which are included in “Loss on Debt Extinguishment” on the face of the consolidated statements of operations for the three and nine months ended September 30, 2008 and these three properties now serve as collateral for our revolving credit facility entered into on October 14, 2008. The mortgage loan secured by the fourth property, the Holiday Inn Conference Center, New Cumberland, PA, was defeased in connection with the sale of this property on October 30, 2008.  Unamortized deferred costs of $19 were expensed as a result of the debt extinguishment and is included in “(Loss) Income from Discontinued Operations” on the consolidated statements of operations for the three and nine months ended September 30, 2008.

On September 30, 2008, we repaid $8,188 on our mortgage with M&T Bank for the Holiday Inn Express, Cambridge property as a result of debt refinancing. The new mortgage of $11,000 has a fixed interest rate of 6.625% and a maturity date of September 30, 2023. As a result of this extinguishment, we expensed $17 in unamortized deferred costs, which are included in the “Loss on Debt Extinguishment” caption on the face of the consolidated statements of operations for the three and nine months ended September 30, 2008.

21

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 90th day following the end of each fiscal year and is based upon the financial performance of the hotel. For the three months ended September 30, 2009 and 2008, base management fees incurred totaled $1,567 and $1,849, respectively and for the nine months ended September 30, 2009 and 2008, totaled $4,174 and $4,688, 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 September 30, 2009 and 2008 was $4,017 and $4,974, respectively, and for the nine months ended September 30, 2009 and 2008 was $10,687 and $13,112, 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 September 30, 2009 and 2008, the Company incurred accounting fees of $358 and $369, respectively.  For the three months ended September 30, 2009 and 2008, the Company incurred information technology fees of $79 and $82, respectively.  For the nine months ended September 30, 2009 and 2008, the Company incurred accounting fees of $1,103 and $1,056, respectively.  For the nine months ended September 30, 2009 and 2008, the Company incurred information technology fees of $245 and $234, 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 September 30, 2009 and 2008, we incurred fees of $45 and $66, respectively, and for the nine months ended September 30, 2009 and 2008, we incurred fees of $125 and $207, respectively, which were capitalized with the cost of fixed asset additions.

22

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 September 30, 2009 and 2008, we incurred charges of $194 and $423, respectively and for the nine months ended September 30, 2009 and 2008, we incurred charges of $826 and $1,245, 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 $3 and $59 is included in accounts payable at September 30, 2009 and December 31, 2008, respectively.

Due from Related Parties

The due from related party balance as of September 30, 2009 and December 31, 2008 was approximately $3,138 and $3,595 respectively. The majority of the balance as of September 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 September 30, 2009 and December 31, 2008 was approximately $90 and $302, respectively. The balances as of September 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 September 30, 2009 and 2008, we incurred $292 and $308, respectively, and for the nine months ended September 30, 2009 and 2008, we incurred $876 and $750, respectively, of rent expense related to these leases.

23

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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

Our determination of fair value measurements are 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, we utilize 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 September 30, 2009, the Company’s derivative instruments represented the only financial instruments measured at fair value on a recurring basis. 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.

We incorporate credit valuation adjustments to appropriately reflect both our 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, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and its counterparties.  However, as of September 30, 2009, we have assessed the significance of the effect of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our 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 fixed 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.

24

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 effectively fixed 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 $6,594 as of September 30, 2009.

On February 1, 2008, we entered into an interest rate swap agreement that effectively fixed 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 fixed 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.

Prior to July 2009, we maintained an interest rate swap that fixed our interest rate on a variable rate mortgage on the Sheraton Four Points, Revere, MA.  Under the terms of this interest rate swap, we paid fixed rate interest of 4.73% of the notional amount and we received floating rate interest equal to the one month U.S. dollar LIBOR. The notional amount amortized in tandem with the amortization of the underlying hedged debt.  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 changes in fair value of the interest rate swap for the three and nine months ended September 30, 2009 was a gain of $20 and $172, respectively.  The changes in fair value of the interest rate swap for the three and nine months ended September 30, 2008 was a gain of $51 and $28, 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.”

The following table shows the estimated fair value of our derivatives at September 30, 2009 and December 31, 2008:

				Estimated Fair Value
Date of Transaction	Hedged Debt	Type	Maturity Date	September 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		-			(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		(54	)		(25	)
January 9, 2009	Variable Rate Mortgage - Nu Hotel, Brooklyn, NY	Swap	January 10, 2011		(101	)		-
				$	(155	)	$	(277	)

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

The change in fair value of derivative instruments designated as cash flow hedges was a loss of $86 and a gain of $160 for the three months ended September 30, 2009 and 2008, respectively, and a loss of $51 and a gain of $162 for the nine months ended September 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 $2 on cash flow hedges was recognized in interest expense for the three months ended September 30, 2009 and 2008, respectively, and $1 and $2 on cash flow hedges was recognized in interest expense for the nine months ended September 30, 2009 and 2008, respectively.

25

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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

On August 5, 2009, the Company’s Compensation Committee awarded an aggregate of 354,250 performance shares pursuant to the 2008 Plan to our executive officers.  Performance shares are earned based on the Company’s Class A common shares maintaining a closing price in excess of defined thresholds over a defined period of time and are settled in an equivalent number of Class A common shares.  A portion of the performance shares may be earned upon completion of the performance period, subject to the discretion of the Compensation Committee.  Unearned performance shares expire August 4, 2010.  On September 25, 2009, the first defined threshold was met and an aggregate of 108,334 Class A common shares were issued upon settlement of an equivalent number of earned performance shares.  Compensation expense of $70 was incurred during the three months ended September 30, 2009 for the performance shares and is recorded in stock based compensation on the consolidated statement of operations.

Compensation expense related to the restricted share awards issued to executives of the Company of $509 and $416 was incurred during the three months ended September 30, 2009 and 2008, respectively.  Compensation expense related to the restricted share awards issued to executives of the Company of $1,382 and $989 was incurred during the nine months ended September 30, 2009 and 2008, respectively.  Compensation expense related to the restricted share awards is recorded in stock based compensation on the statement of operations.  Unearned compensation as of September 30, 2009 and December 31, 2008 was $4,850 and $4,118, respectively.  The following table is a summary of all restricted share award 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	September 30, 2009		December 31, 2008		September 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		140		298
June 1, 2007		214,582	$	12.32	4 years	25%/year		107,291		53,645		1,100		1,597
June 2, 2008		278,059	$	8.97	4 years	25%/year		69,515		-		1,662		2,130
September 30, 2008		3,616	$	7.44	1-4 years	25-100%/year		654		-		7		22
June 1, 2009		744,128	$	2.80	4 years	25%/year		-		-		1,910		-
September 25, 2009		10,000	$	3.06	1 year	100%/year		-		-		31		-
Total		1,410,885						315,585		151,645		4,850		4,118

Trustees

Compensation expense related to stock awards issued to the Board of Trustees $48 and $54 was incurred during the nine months ended September 30, 2009 and 2008, respectively and is recorded in stock based compensation on the statement of operations. No compensation expense related to stock awards issued to the Board of Trustees was incurred during the three months ended September 30, 2009 and 2008, respectively.  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
Total		54,595

26

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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. The computation of basic and diluted earnings per share is presented below.

	Three Months Ended						Nine Months Ended
	September 30, 2009			September 30, 2008			September 30, 2009			September 30, 2008
Numerator:
BASIC AND DILUTED*
(Loss) Income from Continuing Operations	$	(21,956	)	$	6,966		$	(31,524	)	$	12,993
Loss (Income) from Continuing Operations allocated to Noncontrolling Interests		3,168			(1,228	)		4,758			(2,027	)
Distributions to 8.0% Series A Preferred Shareholders		(1,200	)		(1,200	)		(3,600	)		(3,600	)
Dividends Paid on Unvested Restricted Shares		(55	)		(91	)		(200	)		(240	)
(Loss) Income from Continuing Operations applicable to Common Shareholders		(20,043	)		4,447			(30,566	)		7,126
Discontinued Operations
(Loss) Income from Discontinued Operations		(15,979	)		794			(15,610	)		844
Income (Loss) from Discontinued Operations allocated to Noncontrolling Interests		2,392			(197	)		2,404			(129	)
(Loss) Income from Discontinued Operations applicable to Common Shareholders		(13,587	)		597			(13,206	)		715
Net (Loss) Income applicable to Common Shareholders	$	(33,630	)	$	5,044		$	(43,772	)	$	7,841
Denominator:
Weighted average number of  common shares – basic		51,878,482			47,764,168			49,187,465			44,315,615
Effect of dilutive securities:
Stock awards		-	**		-	**		-	**		-	**
Weighted average number of  common shares - diluted*		51,878,482			47,764,168			49,187,465			44,315,615

*             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 September 30, 2009 and 2008 were 8,705,195 and 8,751,009, respectively.  Weighted average units of limited partnership interest in Hersha Hospitality Limited Partnership outstanding for the nine months ended September 30, 2009 and 2008 were 8,732,448 and 7,795,818, respectively.

**           Unvested stock awards and options to acquire our common shares have been omitted from the denominator for the purpose of computing diluted earnings per share for the three months ended September 30, 2009 and 2008, and for the nine months ended September 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.

27

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 [UNAUDITED]

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

NOTE 10 — EARNINGS PER SHARE (CONTINUED)

	Three Months Ended					Nine Months Ended
	September 30, 2009			September 30, 2008		September 30, 2009			September 30, 2008
Earnings Per Share:
BASIC
(Loss) Income from Continuing Operations applicable to Common Shareholders	$	(0.39	)	$	0.10	$	(0.62	)	$	0.16
(Loss) Income from Discontinued Operations   applicable to Common Shareholders		(0.26	)		0.01		(0.27	)		0.02
Net (Loss) Income  applicable to Common Shareholders	$	(0.65	)	$	0.11	$	(0.89	)	$	0.18
DILUTED*
(Loss) Income from Continuing Operations applicable to Common Shareholders	$	(0.39	)	$	0.10	$	(0.62	)	$	0.16
(Loss) Income from Discontinued Operations applicable to Common Shareholders		(0.26	)		0.01		(0.27	)		0.02
Net (Loss) Income applicable to Common Shareholders	$	(0.65	)	$	0.11	$	(0.89	)	$	0.18

*           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 September 30, 2009 and 2008 were 8,705,195 and 8,751,009, respectively.  Weighted average units of limited partnership interest in Hersha Hospitality Limited Partnership outstanding for the nine months ended September 30, 2009 and 2008 were 8,732,448 and 7,795,818, respectively.

28

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 30, 2009 and 2008 totaled $31,278 and $31,284, respectively.

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

	2009		2008
Common Shares issued under the dividend reinvestment plan	$	22	$	23
Issuance of Common Shares to the Board of Trustees		85		91
Conversion of Common Units to Common Shares		255		1,373
Development loan accrued interest revenue receivable paid in-kind by adding balance to development loan principal		3,898		-
Issuance of Common Units for acquisitions of hotel properties		-		21,624
Debt assumed in acquisition of hotel properties		29,824		30,790
Settlement of development loans receivable principal and accrued interest revenue receivable in connection with acquisiton of hotel properties		19,555		-
Reallocation to noncontrolling interest		-		1,682

29

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 [UNAUDITED]

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

NOTE 12 — DISCONTINUED OPERATIONS

The operating results of certain real estate assets which have been sold or otherwise qualify as held for disposition are 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 nine months ended September 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 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 nine months ended September 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.  These properties were sold for $10,250 and the gain on the sale was approximately $1,495.

In May 2009, our Board of Trustees authorized management of the Company to sell its 55% interest in its consolidated joint venture that owns 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 nine months ended September 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 and the gain on the sale was approximately $165.

In June 2009, our Board of Trustees authorized management of the Company to sell the Hilton Garden Inn, Gettysburg, PA.  The operating results for this hotel were reclassified to discontinued operations in the statements of operations for the three and nine months ended September 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.  The gain on the sale was approximately $208.

On September 24, 2009, we transferred our investment in the land parcel located at 440 West 41st Street, New York, NY to Metro Forty First Street, LLC, an entity controlled by a non-affiliated third party.  This land parcel was part of the consideration given to acquire our 100% interest in York Street, LLC.  The operating results from this land parcel were reclassified to discontinued operations in the statements of operations for the three and nine months ended September 30, 2009 and 2008.  The land parcel was acquired in June 2007.  See “Note 2 – Investment in Hotel Properties” for more information related to the acquisition of York Street, LLC.

Our Board of Trustees authorized management of the Company to sell the Comfort Inn, North Dartmouth, MA.  The operating results for this hotel were reclassified to discontinued operations in the statements of operations for the three and nine months ended September 30, 2009 and 2008.  The hotel was acquired by the Company in May 2006.  We determined that carrying value of the property exceeded fair value and we recorded an impairment charge on this property of approximately $1,558.  The fair value of this property was determined using Level 3 inputs, which are typically unobservable and are based on our own assumptions, as there is little, if any, related market activity.  The property has a mortgage loan in the amount of $3,047 which is classified as “Liabilities Related to Assets Held for Sale” on our consolidated balance sheets as of September 30, 2009.

Our Board of Trustees authorized management of the Company to sell our two remaining land parcels located at 39th Street and 8th Avenue, New York, NY and Nevins Street, Brooklyn, NY.  The operating results from these land parcels were reclassified to discontinued operations in the statements of operations for the three and nine months ended September 30, 2009 and 2008.  The land parcels were acquired in July 2007.  We determined that carrying value of these land parcels exceeded fair value and we recorded an impairment charge on these land parcels of approximately $14,545.  The fair value of these land parcels was determined using Level 3 inputs, which are typically unobservable and are based on our own assumptions, as there is little, if any, related market activity.  The land parcels have mortgage loans in the aggregate amount of $17,861 which are classified as “Liabilities Related to Assets Held for Sale” on our consolidated balance sheets as of September 30, 2009.

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 $283 and $438 for the three months ended September 30, 2009, and 2008, respectively, and $1,050 and $1,546 for the nine months ended September 30, 2009 and 2008, respectively, of interest expense to discontinued operations.

30

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 [UNAUDITED]

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

NOTE 12 — DISCONTINUED OPERATIONS (CONTINUED)

Assets held for sale consisted of the following as of September 30, 2009:

	September 30, 2009
Land	$	18,389
Buildings and Improvements		2,912
Furniture, Fixtures and Equipment		531
Intangible Assets		50
		21,882
Less Accumulated Depreciation & Amortization		(809	)
Assets Held for Sale	$	21,073

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

	Three Months Ended					Nine Months Ended
	September 30, 2009			September 30, 2008		September 30, 2009			September 30, 2008
Revenue:
Hotel Operating Revenues	$	1,276		$	4,244	$	7,620		$	11,099
Hotel Lease Revenue		-			205		-			553
Land Lease Revenue		-			1,307		2,624			3,968
Total Revenues		1,276			5,756		10,244			15,620
Expenses:
Hotel Operating Expenses		913			2,987		6,002			8,553
Land Lease Expense		376			723		1,831			2,216
Real Estate and Personal Property Taxes and Property Insurance		146			160		442			488
Depreciation and Amortization		139			636		1,129			1,948
General and Administrative		(417	)		-		(415	)		7
Loss on Debt Extinguishment		-			18		-			18
Interest Expense		283			438		1,050			1,546
Total Expenses		1,440			4,962		10,039			14,776
(Loss) Income from Discontinued Operations	$	(164	)	$	794	$	205		$	844

31

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 [UNAUDITED]

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

NOTE 13 — SUBSEQUENT EVENT

The following event occurred subsequent to September 30, 2009 and through November 5, 2009, the date we filed our Quarterly Report on Form 10-Q for the period ending September 30, 2009:

On November 4, 2009, we entered into a contribution agreement and closed on the acquisition of 100% of the membership interests in 44 West Haven Hospitality, LLC, the indirect owner of the land, hotel and improvements associated with the Hampton Inn and Suites, West Haven, CT.  The aggregate purchase price paid for the membership interests in 44 West Haven Hospitality, LLC was approximately $13,000, including the assumption of $7,700 of existing mortgage debt secured by a first lien on the Hampton Inn and Suites, West Haven, CT, the release of $2,000 of existing mezzanine financing provided by us to 44 West Haven Hospitality, LLC, the cancellation of approximately $200 in accrued interest related to the existing mezzanine financing and approximately $3,100 of cash.  The assumed mortgage debt bears interest at a fixed rate of 6.0% and matures in November 2012, with a three year extension subject to approval by the lenders.  In addition, we paid the lenders a modification fee of $39.

Certain of our officers and affiliated trustees had direct or indirect interests in 44 West Haven Hospitality, LLC.  As a related party transaction, the transaction was approved by all of our independent trustees.  Hersha Hospitality Management L.P., our affiliated hotel management company, will continue to manage the Hampton Inn and Suites, West Haven, CT.

32

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 September 30, 2009, we owned interests in 73 hotels, located primarily in the eastern United States, including interests in 17 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 September 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 nine months ended September 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 is forecasted to continue to negatively impact overall lodging demand and our results of operations and financial condition.  For the three and nine months ended September 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 nine months ended September 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 turmoil in the financial markets may continue to have a negative impact on the collectability of our portfolio of development loans receivable.  While we have the intent to pursue collection of amounts contractually due to us, we recorded an impairment charge of $21,408 during the quarter ended September 30, 2009 related to amounts due to us for two development loans receivable.  We monitor this portfolio to determine the collectability of the loan principal and interest accrued and 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 these maturity dates 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.

33

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 nine months ended September 30, 2009 and 2008:

CONSOLIDATED HOTELS:
	Three Months Ended September 30,									Nine Months Ended September 30,
	2009			2008			% Variance			2009			2008			% Variance
Rooms Available		602,289			585,015			3.0	%		1,769,477			1,648,492			7.3	%
Rooms Occupied		450,157			453,892			-0.8	%		1,215,539			1,226,457			-0.9	%
Occupancy		74.74	%		77.59	%		-2.8	%		68.69	%		74.40	%		-5.7	%
Average Daily Rate (ADR)	$	128.09		$	144.90			-11.6	%	$	126.04		$	141.46			-10.9	%
Revenue Per Available Room (RevPAR)	$	95.73		$	112.42			-14.8	%	$	86.58		$	105.25			-17.7	%
Room Revenues	$	57,658,827		$	65,769,148			-12.3	%	$	153,207,431		$	173,495,874			-11.7	%
Hotel Operating Revenues	$	60,245,156		$	68,470,626			-12.0	%	$	160,346,189		$	180,911,877			-11.4	%

The following table outlines operating results for the three months and nine months ended September 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 September 30,									Nine Months Ended September 30,
	2009			2008			% Variance			2009			2008			% Variance
Rooms Available		242,232			242,308			0.0	%		718,962			721,696			-0.4	%
Rooms Occupied		167,185			180,862			-7.6	%		464,568			525,801			-11.6	%
Occupancy		69.02	%		74.64	%		-5.6	%		64.62	%		72.86	%		-8.2	%
Average Daily Rate (ADR)	$	132.89		$	153.02			-13.2	%	$	130.99		$	147.42			-11.1	%
Revenue Per Available Room (RevPAR)	$	91.72		$	114.21			-19.7	%	$	84.64		$	107.41			-21.2	%
Room Revenues	$	22,217,839		$	27,674,903			-19.7	%	$	60,851,457		$	77,513,917			-21.5	%
Total Revenues	$	27,246,607		$	33,739,757			-19.2	%	$	77,275,363		$	99,063,914			-22.0	%

RevPAR for the three and nine months ended September 30, 2009 decreased 14.8% and 17.7%, respectively, for our consolidated hotels and decreased 19.7% and 21.2% for the three and nine months ended September 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 SEPTEMBER 30, 2009 TO SEPTEMBER 30, 2008

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

Revenue

Our total revenues for three months ended September 30, 2009 consisted of hotel operating revenues, interest income from our development loan program, 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 $8,226 or 12.0%, from $68,471 for the three months ended September 30, 2008 to $60,245 for the same period in 2009.  This decrease resulted from decreases in both ADR and occupancy.  ADR decreased 11.6% from $144.90 per room for the three months ended September 30, 2008 to $128.09 per room during the same period in 2009.  Our occupancy rate decreased 285 basis points from approximately 77.59% during the three months ended September 30, 2008 to approximately 74.74% for the same period in 2009.

34

The decrease in hotel operating revenues was only partially offset by the additional hotel operating revenues attributed to the acquisitions consummated.  Hotels acquired since June 30, 2008 would have a full quarter of results included in the three months ended September 30, 2009 but not necessarily a full quarter of results during the same period in 2008. We acquired interests in the following three consolidated hotels since June 30, 2008:

Brand	Location	Acquisition Date	Rooms
nu Hotel	Brooklyn, NY	July 7, 2008*	93
Hampton Inn & Suites	Smithfield, RI	August 1, 2008	101
Hilton Garden Inn	TriBeCa, New York, NY	May 1, 2009**	151
			345
*    The property was purchased on January 14, 2008, but did not open for business until July 7, 2008.
**  We acquired a 49% interest in the entity that owns the property on May 1, 2009 and acquired the remaining 51% interest on June 30, 2009.

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 $1,427 for the three months ended September 30, 2009 compared to $1,586 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, $587 in accrued interest on these loans was added to principal for the three months ended September 30, 2009.

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, we determined that our development loans to Brisam East 52, LLC and Brisam Greenwich, LLC, which were secured by the equity interest in each entity, were permanently impaired as of September 30, 2009.  We ceased accruing interest on these two loans effective July 1, 2009.  As of September 30, 2009, we have determined that the fair value of the loan receivable is $0 and have incurred an impairment charge for the remaining principal on these loans in the aggregate amount of $21,408, which includes $1,408 of interest income paid in-kind.

Of the $47,990 in development loans receivable outstanding as of September 30, 2009, $15,000, or 31.3%, is invested in hotels that are operating and generating revenue and $32,990, or 68.7%, is invested in hotel construction projects with significant progress made toward completion.  We have written off and no longer reflect any value for development loans to hotel development projects that are in the early phase of development that includes land acquisition and site preparation.

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 $72, from $257 for the three months ended September 30, 2008 to $185 during the three months ended September 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 $3,967, or 10.6%, to approximately $33,563 for the three months ended September 30, 2009 from $37,530 for the three months ended September 30, 2008.  As a result of declining hotel operating revenues, our hotel operators implemented cost reduction and cost containment initiatives to reduce hotel operating expenses.  Decreases in our hotel operating expenses resulting from lower occupancies and our operators cost reduction initiatives were partially offset by increases in hotel operating expenses due to the acquisitions consummated since September 30, 2008, as mentioned above. The acquisitions also resulted in a $703, or 6.9%, increase in depreciation and amortization expense from $10,221 for the three months ended September 30, 2008 to $10,924 for the three months ended September 30, 2009. Real estate and personal property tax and property insurance increased $594, or 18.6%, in the three months ended September 30, 2009 when compared to the same period in 2008 primarily from increases in assessments and rates at certain of the hotel properties.  Insurance expense remained flat for the two periods.

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General and administrative expense increased $55, or 3.8%, from $1,457, for the three months ended September 30, 2008 to $1,512 for the three months ended September 30, 2009.  Non-cash stock based compensation expense increased $163 when comparing the three months ended September 30, 2009 to the same period in 2008 as a result of increased vesting of restricted shares and performance shares issued and earned during the three months ended September 30, 2009.

Unconsolidated Joint Venture Investments

Loss from unconsolidated joint venture investments for the three months ended September 30, 2009 was approximately $606 compared to income of $1,629 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 September 30, 2009 was $33,575 compared to net income applicable to common shareholders of $5,135 for the same period in 2008.

Operating loss for the three months ended September 30, 2009 was $10,241 compared to operating income of $17,167 during the same period in 2008. The $27,408, or 159.7%, decrease in operating income was in part the result of an impairment charge taken on two of our development loans in the amount of $21,408.  The remaining decrease of $6,000 was the result of declining hotel operating revenues which were only partially offset by decreases in hotel operating expenses.

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

Interest expense increased $671 from $10,458 for the three months ended September 30, 2008 to $11,129 for the three months ended September 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 September 30, 2009 when compared to the same period in 2008.  The increase in interest expense due to a larger weighted average balance on our line of credit has only been partially offset by declines in the prevailing interest rates on our other variable rate debt.

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2009 TO SEPTEMBER 30, 2008

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

Revenue

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

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

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Other revenues decreased $339, from $914 for the nine months ended September 30, 2008 to $575 during the nine months ended September 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 $7,806, or 7.7%, to approximately $93,276 for the nine months ended September 30, 2009 from $101,082 for the nine months ended September 30, 2008.  As a result of declining hotel operating revenues, our hotel operators implemented cost reduction and cost containment initiatives to reduce hotel operating expenses.  Decreases in our hotel operating expenses resulting from lower occupancies and cost reduction initiatives implemented by our operators were partially offset by increases in hotel operating expenses due to the acquisitions consummated since September 30, 2008 mentioned above. The acquisitions also resulted in a $3,579, or 12.5%, increase in depreciation and amortization expense from $28,543 for the nine months ended September 30, 2008 to $32,122 for the nine months ended September 30, 2009. Real estate and personal property tax and property insurance increased $1,351, or 15.0%, in the nine months ended September 30, 2009 when compared to the same period in 2008 primarily from increases in assessments and rates at certain of the hotel properties.  Insurance expense remained flat for the two periods.

As a result of cost reduction and cost containment initiatives put in place at a corporate level, general and administrative expense decreased $128, or 2.9%, from $4,490 for the nine months ended September 30, 2008 to $4,362 for the nine months ended September 30, 2009.  Non-cash stock based compensation expense increased $457 when comparing the nine months ended September 30, 2009 to the same period in 2008 as a result of performance shares issued and earned during the three months ended September 30, 2009 and an increase in restricted shares outstanding.

Unconsolidated Joint Venture Investments

Loss from unconsolidated joint venture investments for the nine months ended September 30, 2009 was approximately $2,330 compared to income of $2,251 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 hotels, and include declining ADR, occupancy and RevPAR.

Net Loss

Net loss applicable to common shareholders for nine months ended September 30, 2009 was $43,572 compared to net income applicable to common shareholders of $8,081 for the same period in 2008.

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

Also contributing to the net loss recorded during the nine months ended September 30, 2009 was the impairment charge of $17,682 recorded on two parcels of land and a hotel noted above, each of which is classified as held for sale as of September 30, 2009. This charge was only partially offset by a $1,868 gain on the disposition of hotel properties held for sale during the nine months ended September 30, 2009.

Interest expense increased $1,697 from $30,473 for the nine months ended September 30, 2008 to $32,170 for the nine months ended September 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 nine months ended September 30, 2009 when compared to the same period in 2008.  The increase in interest expense due to a larger weighted average balance on our line of credit has only been partially offset by declines in the prevailing interest rates on our other 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.

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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. In the current economic environment, the fair market value of certain of our hotel properties may have declined causing some of our indebtedness to exceed the 67% fair market value threshold our Board of Trustees intended at the time we acquired the properties. 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.

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.

We entered into a sales agreement with a broker dealer acting as a sales agent 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 and nine months ended September 30, 2009, we sold 1,479,000 and 1,551,500 shares, respectively.  Net proceeds from these sales after the payment of fees but before expenses of the program have been $4,436 and $4,620 for the three and nine months ended September 30, 2009, respectively. Subsequent to September 30, 2009 we have sold an additional 1,190,800 shares with additional net proceeds from these sales of $3,638 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 September 30, 2009 we have $47,990 in development loan principal receivable and $2,030 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, $587 and $3,898 of accrued interest was added to loan principal for the three and nine months ended September 30, 2009, respectively.    As noted above, we ceased accruing interest on two of these development loans effective July 1, 2009.  As of September 30, 2009, we have determined that the fair value of the loan receivable is $0 and have incurred an impairment charge for the remaining principal on these loans in the aggregate amount of $21,408, which includes $1,408 of interest income paid in-kind.  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 September 30, 2009, we believe no amounts will be due under this earn-out provision.

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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.  Beginning with 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.  The Board of Trustees continues to evaluate the dividend policy in the context of our overall liquidity and market conditions.

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 and existing credit facility will be sufficient to pay for almost all of our liquidity and other capital needs that we must undertake 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 nine months ended September 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 $30,993, or 68.5%, from $45,252 for the nine months ended September 30, 2008 to $14,259 for the same period in 2009.  Primarily as a result of declining ADR and occupancy at our wholly owned hotel properties, income before impairment charges, depreciation and amortization decreased $22,059 during the nine months ended September 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 $2,649 in current year development loan interest income that was added to principal and is not currently a source of operating cash.  Cash from operating activities of $3,184 has also been used to fund increases in our escrow deposits.  The increase in our escrow deposits is a result of reduced access to these funds due to decreases in our capital expenditures.

Net cash used in investing activities for the nine months ended September 30, 2009 decreased $96,939, from $102,293 in the nine months ended September 30, 2008 compared to $5,354 for the nine months ended September 30, 2009.  During the nine months ended September 30, 2008, we acquired six properties for a total purchase price of $115,842, including the assumption of $30,790 in mortgage debt, the issuance of a $500 note payable, the assumption of $319 of operating liabilities and the issuance of units in our operating partnership valued at $21,624 resulting in net cash paid for acquisitions of $62,609.  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 used $1,200 of the cash held back at settlement to facilitate the conveyance of land to the seller of the property during the three months ended September 30, 2009.  We decreased our capital expenditures from $16,946 during the nine months ended September 30, 2008 to $5,237 during the same period in 2009. This decrease was the result of our initiatives to defer all non-essential capital expenditures, reducing capital expenditures on a year over year basis.  In addition, cash used to invest in development loans receivable, net of repayments, was $24,284 for the nine months ended September 30, 2008 compared to $2,000 for the same period in 2009.  In addition, the sale of hotel properties during the nine months ended September 30, 2009 provided $8,495 in cash proceeds.

Net cash used in financing activities for the nine months ended September 30, 2009 was $12,108 compared to cash provided by financing activities of $65,665 during the same period in 2008.  During the nine months ended September 30, 2008, we issued 6,600,000 common shares resulting in net proceeds of $61,845. During the nine months ended September 30, 2009, we issued 7,251,500 common shares resulting in net proceeds of $17,716.  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.  The decrease in total dividends and distributions due to the decrease in the rate of dividends and distributions, was partially offset by an increase in dividend due to an increased number of shares outstanding.  Net proceeds from mortgages and notes payable were $27,474 during the nine months ended September 30, 2008 compared to net proceeds of $5,743 for the same period in 2009.  Net repayments of our credit facility were $8,421 during the nine months ended September 30, 2009 compared to net proceeds of $7,700 during the same period in 2008.  The decrease in borrowings from our credit facility is a result of a decrease in acquisition activity requiring short term borrowings and an effort to lower debt levels.

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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.

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.

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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						Nine Months Ended
	September 30, 2009			September 30, 2008			September 30, 2009			September 30, 2008
Net (loss) income applicable to common shares	$	(33,575	)	$	5,135		$	(43,572	)	$	8,081
Income (loss) allocated to noncontrolling interest		(5,560	)		1,425			(7,162	)		2,156
Loss (income) from unconsolidated joint ventures		606			(1,629	)		2,330			(2,251	)
Gain on sale of assets		(1,868	)		-			(1,868	)		-
Depreciation and amortization		10,924			10,221			32,122			28,543
Depreciation and amortization from discontinued operations		139			636			1,129			1,948
FFO allocated to noncontrolling interests in consolidated joint ventures (1)		(23	)		(167	)		(98	)		(229	)
Funds from consolidated hotel operations applicable to common shares and Partnership units		(29,357	)		15,621			(17,119	)		38,248
(Loss) income from Unconsolidated Joint Ventures		(606	)		1,629			(2,330	)		2,251
Add:
Depreciation and amortization of purchase price in excess of historical cost (2)		519			522			1,565			1,568
Interest in depreciation and amortization of unconsolidated joint ventures (3)		1,959			1,498			3,684			5,127
Funds from unconsolidated joint ventures operations applicable to common shares and Partnership units		1,872			3,649			2,919			8,946
Funds from Operations applicable to common shares and Partnership units	$	(27,485	)	$	19,271		$	(14,200	)	$	47,194
Weighted Average Common Shares and Units Outstanding
Basic		51,878,482			47,764,168			49,187,465			44,315,615
Diluted		60,583,677			56,515,177			57,919,913			52,111,433

(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 for the three and nine months ended September 30, 2009 was negatively impacted by total impairment charges of $39,091 taken during the third quarter of 2009.  Other than these impairment charges, 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.

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 an accounting model for the impairment or disposal of long-lived assets including discontinued operations in accordance with US GAAP.

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.

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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 September 30, 2009, based on our analysis, we have determined that our portfolio contains one hotel property in which the future cash flows of the properties is insufficient to recover its carrying value. As a result, we evaluated the fair value of the hotel property and determined that the property’s carrying value exceeded fair value by $1,558.  We have committed to a plan to sell this property and have recorded an impairment charge to reduce the carrying value to fair value.

In addition we evaluated two parcels of land which were being leased to hotel developers.  During the quarter ended September 30, 2009, we committed to a plan to exit our two remaining land leases and dispose of the related land parcels.  We determined that the carrying value of the land recorded as assets held for sale exceeded fair value and we recorded an impairment of $14,545.  We also determined that accrued rents under the leases were uncollectible and accrued rents receivable of $1,579 was expensed during the three months ended September 30, 2009.

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 September 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.  Our methodology consists of the following:

· Identifying loans for individual review. 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 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, we determined that our development loans to Brisam East 52, LLC and Brisam Greenwich, LLC, which were secured by the equity interest in each entity, were permanently impaired as of September 30, 2009.  We ceased accruing interest on the loans effective July 1, 2009.  As of September 30, 2009, we have determined that the fair value of each loan receivable is $0 and have incurred an impairment charge for the remaining principal on these loans in the aggregate amount of $21,408, which includes $1,408 of interest income paid in-kind.

42

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 September 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 September 30, 2009, we had total variable rate debt outstanding of $168,570 consisting of outstanding borrowings of $80,000 under our line of credit and outstanding borrowings of $88,570 under variable rate mortgages and notes payable.  At September 30, 2009, our variable rate debt outstanding had a weighted average interest rate of 4.44%. The effect of a 100 basis point increase or decrease in the interest rate on our variable rate debt outstanding at September 30, 2009, would be an increase or decrease in our interest expense for the three months ended September 30, 2009 of $338.  The effect of a 100 basis point increase or decrease in the interest rate on our variable rate debt outstanding at September 30, 2009, would be an increase or decrease in our interest expense for the nine months ended September 30, 2009 of $1,081.

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 two interest rate swaps related to debt on the 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.

As of September 30, 2009 approximately 86.6% 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 13.4% 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 such changes have no impact on interest expense incurred. 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 September 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 September 30, 2009 to be approximately $488,116, and a 100 basis point decrease in market interest rates would cause the fair value of our fixed-rate debt outstanding at September 30, 2008 to be approximately $570,354.

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 September 30, 2009, including liabilities related to assets held for sale, 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	$	1,410		$	14,560		$	31,505		$	7,561		$	25,340		$	492,484		$	572,860
Weighted Average Interest Rate		6.05	%		6.01	%		6.12	%		6.12	%		6.11	%		6.11	%		6.08	%
Floating Rate Debt	$	156		$	29,400		$	27,688		$	29,061		$	182		$	2,083		$	88,570
Weighted Average Interest Rate		5.46	%		6.99	%		8.30	%		3.00	%		3.00	%		3.00	%		4.96	%
	$	1,566		$	43,960		$	59,193		$	36,622		$	25,522		$	494,567		$	661,430
Credit Facility
							$	80,000												80,000
Weighted Average Interest Rate								3.25	%											3.25	%
TOTAL	$	1,566		$	43,960		$	139,193		$	36,622		$	25,522		$	494,567		$	741,430

The table incorporates only those exposures that existed as of September 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.

43

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

·           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 September 30, 2009, as noted above	$	1,566	$	43,960		$	139,193		$	36,622		$	25,522	$	494,567	$	741,430
Adjustments:  Extension Options (1)
Hotel 373 - 5th Avenue, New York, NY (2)		-		(22,000	)		-			22,000			-		-		-
Hilton Garden Inn TriBeCa - New York, NY (3)		-		-			-			(29,719	)		-		29,719		-
nu Hotel Brooklyn - New York, NY (4)		-		-			(18,000	)		-			18,000		-		-
Hilton Garden Inn - Edison, NJ (5)		-		-			(6,593	)		6,593			-		-		-
TownePlace Suites - Harrisburg, PA (6)		-		-			(9,250	)		9,250			-		-		-
Line of Credit Facility (7)		-		-			(80,000	)		80,000			-		-		-
Pro Forma Principal Repayments	$	1,566	$	21,960		$	25,350		$	124,746		$	43,522	$	524,286	$	741,430

(1) Adjustments reflects principal balances as of September 30, 2009.  Adjustment does not include amortization of prinicpal scheduled to occur subsequent to September 30, 2009 through maturity date or extended maturity date if options are exercised.

(2) 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.

(3) 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.

(4) 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.

(5) 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.

(6) 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.

(7) 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.

44

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 September 30, 2009.

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

45

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.

None.

Item 5. Other Information.

On November 4, 2009, HHLP entered into a contribution agreement with Hersha Northeast Associates, LLC and Kirit Patel and closed on the acquisition of 100% of the membership interests in 44 West Haven Hospitality, LLC, the indirect owner of the land, hotel and improvements associated with the Hampton Inn and Suites located at 410-544 Saw Mill Road, West Haven, CT.

The aggregate purchase price paid for the membership interests in 44 West Haven Hospitality, LLC was approximately $13.0 million, including the assumption of $7.7 million of existing mortgage debt secured by a first lien on the Hampton Inn and Suites, West Haven, CT, the release of $2.0 million of existing mezzanine financing provided by HHLP to 44 West Haven Hospitality, LLC, the cancellation of approximately $200,000 in accrued interest related to the existing mezzanine financing and approximately $3.1 million of cash paid by HHLP to the contributors.  The assumed mortgage debt has an outstanding principal balance of $7.7 million, bears interest at a fixed rate of 6.0% and matures in November 2012, with a three year extension subject to approval by the lenders.  In addition, HHLP paid the lenders a modification fee of ½% ($38,500) of the modified loan balance of $7.7 million.

Hersha Northeast Associates, LLC owned 67% of the membership interests in 44 West Haven Hospitality, LLC.  The following executive officers and trustees of Hersha have direct or indirect interests in Hersha Northeast:  Hasu P. Shah, the Chairman of our Board of Trustees, Kiran P. Patel, a member of our Board of Trustees; Jay H. Shah, a member of our Board of Trustees and our Chief Executive Officer; Neil H. Shah, our President and Chief Operating Officer; Ashish R. Parikh, our Chief Financial Officer, and David L. Desfor, our Treasurer and Secretary.

As a related party transaction, the transaction was approved by all of our independent trustees.  Hersha Hospitality Management L.P., our affiliated hotel management company, will continue to manage the Hampton Inn and Suites, West Haven, CT.

The preceding description of the material terms of the contribution agreement is qualified in its entirety by reference to the terms of the contribution agreement, which is attached to this Quarterly Report on Form 10-Q as Exhibit 10.2 and incorporated by reference herein.

46

Item 6. Exhibits.

Exhibit Number	Exhibit Description
10.1	Form of Performance Share Award Agreement.*
10.2	Contribution Agreement, dated as of November 4, 2009, by and among Hersha Northeast Associates, LLC and Kirit Patel, as Contributors, and Hersha Hospitality Limited Partnership, as Acquirer
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.
*	Management contract

47

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
November 5, 2009	/s/ Ashish R. Parikh
	Ashish R. Parikh
	Chief Financial Officer

48

EX-10.1

Exhibit 10.1

HERSHA HOSPITALITY TRUST

Form of Performance Share Award Agreement

THIS AGREEMENT, dated as of the 5th day of August, 2009, between HERSHA HOSPITALITY TRUST, a Maryland real estate investment trust (the “Company”) and _______________ (“Participant”), is made pursuant to the terms of the Company’s 2008 Equity Incentive Plan (the “Plan”).  All terms that are used herein that are defined in the Plan shall have the same meaning given them in the Plan.

1.             Grant of Performance Share Award.  Pursuant to the Plan, on August 5, 2009 (the “Date of Grant”), the Company granted Participant a Performance Share Award with respect to ______ shares of Common Stock, subject to the terms and conditions of the Plan and subject further to the terms and conditions set forth herein.

2.             Earning the Performance Shares.  Participant shall earn the Performance Shares, and become entitled to the issuance of shares of Common Stock in accordance with paragraph 3, to the extent that the following requirements are satisfied.

(a)           Participant shall earn ______ of the Performance Shares if during the Measurement Period the VWAP is at least $3.00 but less than $4.00.  Participant shall earn an additional _____ of the Performance Shares if during the Measurement Period the VWAP is at least $4.00 but less than $5.00.  Participant shall earn an additional _______ of the Performance Shares if during the Measurement Period the VWAP is $5.00 or more.

(b)           If during the Measurement Period the VWAP is at least $3.00, Participant may earn up to an additional ____ of the Performance Shares.  The additional Performance Shares, if any, earned under this paragraph 2(b) shall be determined by the Committee in its discretion following the last day of the Measurement Period.

(c)           Paragraphs 2(a) and 2(b) to the contrary notwithstanding, all of the Performance Shares not previously earned shall be earned on a Control Change Date if Participant remains in the continuous employ of the Company or an Affiliate from the Date of Grant until the Control Change Date and the Control Change Date occurs during the Measurement Period..

(d)           Paragraphs 2(a) and 2(b) to the contrary notwithstanding, all of the Performance Shares not previously earned shall be earned on the date of Participant’s termination of employment with the Company and its Affiliates if (i) Participant’s employment with the Company and its Affiliates is terminated by the Company or an Affiliate without Cause before the last day of the Measurement Period and (ii) Participant remained in the continuous employ of the Company or an Affiliate from the Date of Grant until the date that Participant’s employment ends as described in the preceding clause (i).

(e)           Any Performance Shares that are not earned on or before the date that Participant’s employment with the Company and its Affiliates ends for any reason shall be forfeited on the date that such employment ends.

3.              Settlement of Performance Shares.  Performance Shares that are earned in accordance with paragraph 2 shall be settled by the issuance of shares of Common Stock to Participant.  The number of shares of Common Stock to be issued to Participant shall equal the number of Performance Shares earned in accordance with paragraph 2.  Shares of Common Stock shall be issued in settlement of earned Performance Shares within ten days after the requirements of paragraph 2 are satisfied, e.g., within ten days after each of the applicable VWAP performance criteria are satisfied, within ten days after the Committee’s determination with respect to Performance Shares earned under paragraph 2(b) and within ten days after a termination of employment described in paragraph 2(c) or a Control Change Date.  Shares of Common Stock issued in settlement of earned Performance Shares shall be vested and nonforfeitable and, subject to the requirements of applicable securities laws, shall be transferable.

4.             Definitions.  For purposes of this Agreement, the following terms shall have the definitions set forth below:

(a)           “VWAP” means the volume weighted average of the Fair Market Value of the Common Stock during a period of twenty consecutive days on which the Common Stock is traded on the principal exchange on which the Common Stock is listed for trading.

(b)           “Measurement Period” means the period beginning on the Date of Grant and ending on August 4, 2010.

(c)           “Cause” has the same meaning as set forth in an employment agreement between Participant and the Company.  If Participant does not have an employment agreement with the Company or if such employment agreement does not define the term “Cause,” then for purposes of this Agreement the term “Cause” means a termination by the Company or an Affiliate of Participant’s employment with the Company and its Affiliates on account of:

(i)  Participant’s conviction of a felony;

(ii)  Participant’s theft, embezzlement, misappropriation of, or, misappropriation of or intentional and malicious infliction of damage to the Company’s or an Affiliate’s property or business opportunity;

(iii)  Participant’s material breach of any agreement between Participant and the Company;

(iv)  Participant’s neglect of Participant’s duties or responsibilities to the Company or an Affiliate or his failure or refusal to follow any written direction of the Board or any duly constituted committee thereof, which failure continues for a period of twenty calendar days after the Company provides Participant written notice thereof; or

(v)  Participant’s abuse of alcohol, drugs or other substances or his engaging in other deviant personal activities in a manner that, in the reasonable judgment of the Board, adversely affects the reputation, goodwill or business position of the Company.

5.             Shareholder Rights.  Participant will have no rights as a shareholder of the Company with respect to the Performance Shares unless and until shares of Common Stock are issued in settlement of earned Performance Shares.

6.             No Right to Continued Employment.  This Agreement does not confer upon Participant any right with respect to continuance of employment by the Company or an Affiliate, nor shall it interfere in any way with the right of the Company or an Affiliate to terminate Participant’s employment at any time.

7.             Change in Capital Structure.  In accordance with the terms of the Plan, the terms of this Performance Share Award shall be adjusted as the Board determines is equitably required in the event the Company effects one or more stock dividends, stock split-ups, subdivisions or consolidations of shares or other similar changes in capitalization.

8.             Governing Law.  This Agreement shall be governed by the laws of the State of Maryland (other than any choice-of-law provisions that would require the application of the laws of a State other than the State of Maryland).

9.             Conflicts.  In the event of any conflict between the provisions of the Plan as in effect on the Date of Grant and the provisions of this Agreement, the provisions of the Plan shall govern.  All reference herein to the Plan shall mean the Plan as in effect on the Award Date.

10.           Participant Bound by Plan.  Participant hereby acknowledges that a copy of the Plan has been made available to Participant and Participant agrees to be bound by all the terms and provisions thereof.

11.           Binding Effect.  Subject to the limitations stated above and in the Plan, this Agreement shall be binding upon and inure to the benefit of the legatees, distributees, and personal representatives of the Participant and the successors of the Company.

IN WITNESS WHEREOF, the Company has caused this Agreement to be signed on its behalf, and the Participant has affixed his signature hereto.

HERSHA HOSPITALITY TRUST

By

Name:

Title:

PARTICIPANT

Name:

EX-10.2

Exhibit 10.2

CONTRIBUTION AGREEMENT

dated as of November 4, 2009

by and among

HERSHA NORTHEAST ASSOCIATES, LLC

And

KIRIT PATEL,

as Contributors,

and

HERSHA HOSPITALITY LIMITED PARTNERSHIP

as Acquirer,

IN CONNECTION WITH THE ACQUISITION OF MEMBERSHIP INTERESTS IN

44 WEST HAVEN HOSPITALITY, LLC

OWNER OF THE HAMPTON INN AND SUITES LOCATED AT

510-544 SAW MILL ROAD, WEST HAVEN, CONNECTICUT

CONTRIBUTION AGREEMENT

THIS CONTRIBUTION AGREEMENT, dated as of November 4, 2009 (the “Agreement”), Hersha Northeast Associates, LLC, a Delaware limited liability company (the “Northeast Contributor”) and Kirit Patel, an individual (the “Patel Contributor”, and collectively, all together the “Contributors”), 44 West Haven Hospitality, LLC, a Connecticut limited liability company (the “Subject Company”), and Hersha Hospitality Limited Partnership, a Virginia limited partnership (the “Acquirer”) provides:

ARTICLE I

DEFINITIONS; RULES OF CONSTRUCTION

1.1           Definitions.   The following terms shall have the indicated meanings:

“Act of Bankruptcy” shall mean if a party hereto or any general partner thereof shall (a) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (b) admit in writing its inability to pay its debts as they become due, (c) make a general assignment for the benefit of its creditors, (d) file a voluntary petition or commence a voluntary case or proceeding under the Federal Bankruptcy Code (as now or hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, (g) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case or proceeding under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take any corporate or limited liability company action for the purpose of effecting any of the foregoing; or if a proceeding or case shall be commenced, without the application or consent of a party hereto or any general partner thereof, in any court of competent jurisdiction seeking (1) the liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of debts, of such party or general partner, (2) the appointment of a receiver, custodian, trustee or liquidator or such party or general partner or all or any substantial part of its assets, or (3) other similar relief under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, and such proceeding or case shall continue undismissed; or an order (including an order for relief entered in an involuntary case under the Federal Bankruptcy Code, as now or hereafter in effect) judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of sixty (60) consecutive days.

“Apportionment Date” shall mean the day immediately preceding the Closing Date.

“Articles of Organization” shall mean the Articles of Organization of the Subject Company and the Property Owner filed with the Secretary of State of the State of Connecticut, attached hereto as Exhibit F.

“Assignment and Assumption Agreement” shall mean those certain Assignment and Assumption Agreements with respect to the Interests (defined herein below), dated as of the Closing Date, by and between Contributors and Acquirer.

 “Authorizations” shall mean all licenses, permits and approvals required by any governmental or quasi-governmental agency, body or officer for the ownership, operation and use of the Property or any part thereof.

“Closing” shall mean the Closing of the contribution and acquisition of the Interests pursuant to this Agreement.

“Closing Date” shall mean the date on which the Closing occurs.

“Consideration” shall mean the value of Thirteen Million Dollars and 00/100 ($13,000,000.00) including the principal balance of the existing loan from M&T Bank to the Property Owner in the original principal amount of Nine Million Six Hundred Thousand Dollars ($9,600,000.00), the release of the Existing Mezzanine Loan, and cancellation of Two Hundred Thousand Dollars ($200,000.00) in accrued interest relating to the Existing Mezzanine Loan.

“Continuing Liabilities” shall include liabilities arising under Operating Contracts, Leases, equipment leases, loan agreements, or proration credits at Closing, but shall exclude any liabilities arising from any other arrangement, agreement or pending litigation.

“Deposit” shall mean the amount of Five Hundred Thousand Dollars ($500,000.00) paid by Acquirer.

 “Escrow Agent” shall mean Fidelity National Title Insurance Company, 111Founders Plaza #600, East Hartford, CT 06108; Phone: 860-528-9548; Fax: 860-528-7847.

“Existing Mezzanine Loan” shall mean the existing promissory note, pledge and security agreements and loan agreement, each dated as of October 9, 2006, as amended, from Hersha Hospitality Limited Partnership in the original principal amount of Two Million Dollars ($2,000,000.00) secured by interests in 44 West Haven Hospitality, LLC.

“Existing Mortgage” shall mean that certain Open-End Building Mortgage, Assignment of Rents and Security Modification Agreement securing a loan from M&T Bank to the Property Owner, in the original principal amount of Nine Million Six Hundred Thousand Dollars ($9,600,000.00).

“FIRPTA Certificate” shall mean the affidavit of the Contributors under Section 1445 of the Internal Revenue Code certifying that such Contributors are not a foreign corporation, foreign partnership, foreign limited liability company, foreign trust, foreign estate or foreign person (as those terms are defined in the Internal Revenue Code and the Income Tax Regulations), in form and substance satisfactory to the Acquirer.

“Governmental Body” means any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign.

2

“Hotel” shall mean the 98-room Hampton Inn and Suites hotel and related amenities located on the Land.

“Improvements” shall mean the Hotel and all other buildings, improvements, fixtures and other items of real estate located on the Land.

“Insurance Policies” shall mean those certain policies of insurance described on Exhibit B attached hereto.

“Intangible Personal Property” shall mean all intangible personal property owned or possessed by the Contributors, the Subject Company or the Property Owner and used in connection with the ownership, operation, leasing, occupancy or maintenance of the Property, including, without limitation, the right to use the trade name “Hampton Inn and Suites West Haven” and all variations thereof, the Authorizations, escrow accounts, insurance policies, general intangibles, business records, plans and specifications, surveys and title insurance policies pertaining to the real property and the personal property, all licenses, permits and approvals with respect to the construction, ownership, operation, leasing, occupancy or maintenance of the Property, any unpaid award for taking by condemnation or any damage to the Land by reason of a change of grade or location of or access to any street or highway, and the share of the Tray Ledger as hereinafter defined, excluding (a) any of the aforesaid rights the Acquirer elects not to acquire, (b) the Contributors’ cash on hand, in bank accounts and invested with financial institutions and (c) accounts receivable except for the above described share of the Tray Ledger.

“Interests” shall mean the Northeast Interests, and the Patel Interests, consisting of One Hundred Percent (100%) of the interests in the Subject Company.

“Inventory” shall mean all inventory located at the Hotel, including without limitation, all mattresses, pillows, bed linens, towels, paper goods, soaps, cleaning supplies and other such supplies.

“Knowledge” shall mean the knowledge of the Contributors that they would have had after making reasonable investigation.

 “Land” shall mean that certain land condominium unit lying and being in the County of New Havenand State of Connecticut located at 510-544 Saw Mill Road, West Haven, Connecticut, as more particularly described on Exhibit A attached hereto, together with all easements, rights, privileges and appurtenances thereunto belonging or in any way appertaining, and all of the leasehold, interest, estate, right, title, interest, claim or demand whatsoever of the Property Owner therein, in the streets and ways adjacent thereto and in the beds thereof, either at law or in equity, in possession or expectancy, now or hereafter acquired.

“Leases” shall mean those leases of real property listed on Exhibit C attached hereto.

“Manager” shall mean Hersha Hospitality Management, LP, a Pennsylvania limited partnership.

3

“Northeast Interests” shall mean all right, title and interest of Northeast Contributor in the Subject Company, consisting of a Sixty Seven Percent (67%) membership interest in the Subject Company.

“Operating Contracts” shall mean the management agreements, service contracts, supply contracts, leases (other than the Leases) and other agreements, if any, in effect with respect to the construction, ownership, operation, occupancy or maintenance of the Property.

“Owner’s Title Policy” shall mean an owner’s policy of title insurance issued to the Acquirer by the Title Company, dated as of the Closing Date, pursuant to which the Title Company insures the Property Owner’s ownership of title to the fee interest in the Real Property (including the marketability thereof) subject only to Permitted Title Exceptions.  The Owner’s Title Policy shall insure the Property Owner in the amount of the Consideration and shall be acceptable in form and substance to the Acquirer.  The description of the Land in the Owner’s Title Policy shall be by courses and distances and shall be identical to the description shown on a survey provided by the Contributors to the Acquirer.

“Patel Interests” shall mean all right, title and interest of Patel Contributor in the Subject Company, consisting of a Thirty-Three Percent (33%) membership interest in the Subject Company.

“Permitted Title Exceptions” shall mean those exceptions to title to the Real Property that are satisfactory to the Acquirer as determined pursuant to Section 2.2.

“Property” shall mean collectively the Land, Improvements, the Inventory, the Reservation System, the Tangible Personal Property and the Intangible Personal Property.

“Property Owner” shall mean Sawmill Three, LLC, a Connecticut limited liability company, which owns, as its only assets, the fee interest in the Land, the Hotel and Improvements located on the Land.

“Property Owner Operating Agreement” shall mean the current operating agreement of the Property Owner, attached hereto as Exhibit G.

“Real Property” shall mean the Land and the Improvements.

“Reservation System” shall mean the Property Owner’s reservation terminal and reservation system equipment and software, if any.

“Securities Act” shall mean the Securities Act of 1933, as amended.

“Study Period” shall mean the period commencing as of the date hereof, and continuing through the time of Closing.

“Subject Company” shall mean 44 West Haven Hospitality, LLC, a Connecticut limited liability company, which owns, as its only assets, One Hundred Percent (100%) membership interest in the Property Owner.

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“Subject Company Operating Agreement” shall mean the current operating agreement of the Subject Company, attached hereto as Exhibit G.

“Tangible Personal Property” shall mean the items of tangible personal property consisting of all furniture, fixtures and equipment situated on, attached to, or used in the operation of the Hotel, and all furniture, furnishings, equipment, machinery, and other personal property of every kind located on or used in the operation of the Hotel and owned by the Contributors, the Subject Company or the Property Owner.

“Title Commitment” shall mean the commitment by the Title Company to issue the Owner’s Title Policy.

“Title Company” shall mean Fidelity National Title Insurance Company, 111Founders Plaza #600, East Hartford, CT 06108; Phone: 860-528-9548; Fax: 860-528-7847.

“Tray Ledger” shall mean the final night’s room revenue (revenue from rooms occupied as of 11:59:59 p.m. on the Apportionment Date, inclusive of food, beverage, telephone and similar charges), net of any sales taxes, room taxes or other taxes thereon.

“Utilities” shall mean public sanitary and storm sewers, natural gas, telephone, public water facilities, electrical facilities and all other utility facilities and services necessary for the operation and occupancy of the Property as a hotel.

1.2           Rules of Construction.  The following rules shall apply to the construction and interpretation of this Agreement:

(a)           Singular words shall connote the plural number as well as the singular and vice versa, and the masculine shall include the feminine and the neuter.

(b)           All references herein to particular articles, sections, subsections, clauses or exhibits are references to articles, sections, subsections, clauses or exhibits of this Agreement.

(c)           Headings contained herein are solely for convenience of reference and shall not constitute a part of this Agreement nor shall they affect its meaning, construction or effect.

(d)           Each party hereto and its counsel have reviewed and revised (or requested revisions of) this Agreement, and therefore any usual rules of construction requiring that ambiguities are to be resolved against a particular party shall not be applicable in the construction and interpretation of this Agreement or any exhibits hereto.

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ARTICLE II

CONTRIBUTION AND ACQUISITION; STUDY PERIOD;

PAYMENT OF CONSIDERATION

2.1           Contribution and Acquisition.  The Contributors agree to contribute, assign and transfer their Interests to the Acquirer and the Acquirer agrees to accept the Interests in exchange for the Consideration and in accordance with the other terms and conditions set forth herein.

2.2           Study Period.  (a)  The Acquirer shall have the right, until the end of the Study Period, to enter upon the Real Property and to perform, at the Acquirer’s expense, such economic, surveying, engineering, environmental, topographic and marketing tests, studies and investigations as the Acquirer may deem appropriate.  If such tests, studies and investigations warrant, in the Acquirer’s sole, absolute and unreviewable discretion, the acquisition of the Interests for the purposes contemplated by the Acquirer, then the Acquirer may elect to proceed to Closing and shall so notify the Contributors prior to the expiration of the Study Period.  If for any reason the Acquirer does not so notify the Contributors of its determination to proceed to Closing prior to the expiration of the Study Period, or if the Acquirer notifies the Contributors, in writing, prior to the expiration of the Study Period that it has determined not to proceed to Closing, this Agreement automatically shall terminate, and the Acquirer shall be released from any further liability or obligation under this Agreement.

(b)           During the Study Period, the Contributors shall make available to the Acquirer, its agents, auditors, engineers, attorneys and other designees, for inspection copies of all existing architectural and engineering studies, surveys, title insurance policies, zoning and site plan materials, correspondence, environmental audits and other related materials or information if any, relating to the Property which are in, or come into, the Contributors’ possession or control.

(c)           The Acquirer hereby indemnifies and defends the Contributors against any loss, damage or claim arising from entry upon the Real Property by the Acquirer or any agents, contractors or employees of the Acquirer.  The Acquirer, at its own expense, shall restore any damage to the Real Property caused by any of the tests or studies made by the Acquirer.

(d)           During the Study Period, the Acquirer, at its expense, may cause an examination of title to the Property to be made, and, prior to the expiration of the Study Period, may notify the Contributors of any defects in title shown by such examination that the Acquirer is unwilling to accept.  The Contributors shall notify the Acquirer whether the Contributors are willing to cure such defects and to proceed to Closing.  Contributors may cure, but shall not be obligated to cure such defects.  If such defects consist of deeds of trust, mechanics’ liens, tax liens or other liens or charges in a fixed sum or capable of computation as a fixed sum, the Contributors, at their option, shall pay and discharge (in which event, the Escrow Agent is authorized to pay and discharge at Closing) such defects at Closing.  If the Contributors are unwilling or unable to cure any such defects by Closing, the Acquirer shall elect (1) to waive such defects and proceed to Closing without any abatement in the Consideration or (2) to terminate this Agreement.  The Contributors shall not, after the date of this Agreement, subject the Property to and shall take all reasonable best efforts to prevent the Property from being subjected to any liens, encumbrances, covenants, conditions, restrictions, easements or other title matters or seek any zoning changes or take any other action which may affect or modify the status of title without the Acquirer’s prior written consent, which consent shall not be unreasonably withheld or delayed.  All title matters revealed by the Acquirer’s title examination and not objected to by the Acquirer as provided above shall be deemed Permitted Title Exceptions.  If Acquirer shall fail to examine title and notify the Contributors of any such title objections by the end of the Study Period, all such title exceptions (other than those rendering title unmarketable and those that are to be paid at Closing as provided above) shall be deemed Permitted Title Exceptions.

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2.3           Payment of the Consideration. Acquirer shall pay the Consideration to the Contributors in the following manner:

(a)           Acquirer shall receive a credit of Nine Million Six Hundred Thousand Dollars ($9,600,000.00) for the pay off, assumption or modification of the existing loan from M&T Bank.

(b)           Acquirer shall release the Existing Mezzanine Loan for the benefit of Contributors.

(c)           Acquirer shall cancel Two Hundred Thousand Dollars ($200,000.00) in accrued interest relating to the Existing Mezzanine Loan for the benefit of Contributors.

(d)           Acquirer shall receive a credit of Five Hundred Thousand Dollars ($500,000.00) for the amount of the Deposit.

(e)           Acquirer shall pay to Contributors the remainder of the Consideration in the form of immediately available good funds of lawful money of the United States.

(f)           All mechanics’ liens shall be paid in full on or before closing, or Escrow Agent shall hold back an amount equal to one-hundred and twenty-five percent (125%) of the amount of any unpaid liens.

(g)           At Closing, the Existing Mortgage shall be paid off, assumed or modified by Acquirer, and, if assumed or modified, the Property Owner shall remain the borrower. Any adjustments and prorations to be made pursuant to the terms of this Agreement shall be paid by wire transfer of immediately available funds to an account specified by the party due to receive same.

(h)           Any adjustments and prorations to be made pursuant to the terms of this Agreement shall be paid by wire transfer of immediately available funds to an account specified by the party due to receive same.

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ARTICLE III

CONTRIBUTORS’ REPRESENTATIONS, WARRANTIES AND COVENANTS

To induce the Acquirer to enter into this Agreement and to acquire the Interests, Contributors hereby each make the following representations, warranties and covenants, upon each of which Contributors acknowledge and agree that the Acquirer is entitled to rely and has relied:

3.1           Identity and Power.

(a)           Each Contributor has all requisite powers and all governmental licenses, authorizations, consents and approvals necessary to carry on their business as now conducted, to own, lease and operate their respective properties, to execute and deliver this Agreement and any document or instrument required to be executed and delivered on behalf of each such Contributor hereunder, to perform their respective obligations under this Agreement and any such other documents or instruments and to consummate the transactions contemplated hereby.

3.2           Authorization, No Violations and Notices.

(a)           The execution, delivery and performance of this Agreement by the Contributors, and the consummation of the transactions contemplated hereby have been duly authorized, adopted and approved by the Contributors.  No other proceedings are necessary to authorize this Agreement and the transactions contemplated hereby.  This Agreement has been duly executed by the Contributors and is a valid and binding obligation enforceable against them in accordance with its terms.

(b)           Neither the execution, delivery, or performance by the Contributors of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance by the Contributors with any of the provisions hereof, will:

(i)           violate, conflict with, result in a breach of any provision of, constitute a default (or an event that, which, with or lapse of time or both, would constitute a default) under, result in the termination of, accelerate the performance required by, or result in a right of termination or acceleration, or the creation of any lien, security interest, charge, or encumbrance upon any of the Property, the assets of the Subject Company or assets of the Property Owner, under any of  the terms, conditions, or provisions of, the Articles of Organization, the Subject Company Operating Agreement, the Property Owner Operating Agreement or any note, bond, mortgage, indenture, deed of trust, license, lease, agreement, or other instrument, or obligation to which the Subject Company or the Property Owner is a party, or by which the Subject Company or the Property Owner may be bound, or to which the Subject Company or the Property Owner or their respective properties or assets, or the Property may be subject; or

(ii)           violate any judgment, ruling, order, writ, injunction, decree, statute, rule, or regulation applicable to the Subject Company or the Property Owner, their respective properties or assets, or the Property that would not be violated by the execution, delivery or performance of this Agreement or the transactions contemplated hereby by the Contributors or compliance by the Contributors with any of the provisions hereof.

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3.3           Litigation with respect to Contributors.  Except as set forth on Exhibit E, there is no action, suit, claim or proceeding pending or, to the Contributors’ Knowledge, threatened against or affecting the Contributors or their assets in any court, before any arbitrator or before or by any governmental body or other regulatory authority (i) that would materially adversely affect the Contributors or the Interests, (ii) that seeks restraint, prohibition, damages or other relief in connection with this Agreement or the transactions contemplated hereby, or (iii) would delay the consummation of any of the transactions contemplated hereby.  The Contributors are not subject to any judgment, decree, injunction, rule or order of any court relating to the Contributors’ participation in the transactions contemplated by this Agreement.

3.4           Interests and Property.

(a)           The Interests are, on the date hereof, and will be on the Closing Date, free and clear of all liens and encumbrances and the Contributors have good, marketable title thereto and the right to convey same in accordance with the terms of this Agreement.  Upon delivery of the Contributors’ Assignment and Assumption Agreement to the Acquirer at Closing, good valid and marketable title to the Contributors’ Interests, free and clear of all liens and encumbrances, will pass to the Acquirer.   The Interests constitute the only outstanding interests of the Subject Company.

(b)           Except for liens disclosed by Contributors to Acquirer, the Interests are, on the date hereof, and will be on the Closing Date, free and clear of all liens and encumbrances, and the Contributors have good, marketable title thereto and the right to convey same.  The Property Owner is the fee owner of the Real Property and the sole owner of the Property.  The Contributors own One Hundred Percent (100%) of the only outstanding securities and membership interests of the Subject Company.  As of the Closing Date, Acquirer will own One Hundred Percent (100%) of the only outstanding securities and membership interests of the Subject Company. The Subject Company owns One Hundred Percent (100%) of the only outstanding securities and membership interests of the Property Owner.

3.5           Bankruptcy.  No Act of Bankruptcy has occurred with respect to any of the Contributors.

3.6           Brokerage Commission.  The Contributors have not engaged the services of, nor are they or will they or Acquirer become liable to, any real estate agent, broker, finder or any other person or entity for any brokerage or finder’s fee, commission or other amount with respect to the transactions described herein on account of any action by the Contributors.

3.7           The Subject Company and the Property Owner.

(a)           The Subject Company is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Connecticut and has all requisite powers necessary to carry on its business as now conducted, to own, lease and operate its properties.

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(b)           The Property Owner is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Connecticut and has all requisite powers necessary to carry on its business as now conducted, to own, lease and operate its properties.

(c)           Neither the execution, delivery, or performance by the Contributors of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance by the Contributors, the Subject Company or the Property Owner with any of the provisions hereof, will:

(i)           violate, conflict with, result in a breach of any provision of, constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under, result in the termination of, accelerate the performance required by, or result in a right of termination or acceleration, or the creation of any lien, security interest, charge, or encumbrance upon any of the Property or other assets of the Subject Company or the Property Owner, under any of the terms, conditions, or provisions of, the Articles of Organization, the Subject Company Operating Agreement, the Property Owner Operating Agreement or any note, bond, mortgage, indenture, deed of trust, license, lease, agreement, or other instrument or obligation to which the Subject Company or the Property Owner is a party, or by which the Subject Company or the Property Owner may be bound, or to which the Subject Company or the Property Owner or their respective properties or assets may be subject; or

(ii)           violate any judgment, ruling, order, writ, injunction, decree, statute, rule, or regulation applicable to the Subject Company or the Property Owner or any of the Subject Company’s properties or assets or the Property Owner’s properties or assets, as applicable.

(d)           Except for the Contributors, no party has any interest in the Subject Company and no party has any interest in the Property Owner, or any portion thereof, or the right or option to acquire any interest in the Subject Company, the Property Owner or the Property or any portion thereof.  The Subject Company and the Property Owner have no subsidiaries and do not directly or indirectly own any securities of or interest in any entity, including, without limitation, any limited liability company or joint venture.

(e)           The Subject Company and the Property Owner have conducted no business other than the ownership and operation of the Property.

3.8           Liabilities, Debts and Obligations.  Except for the Continuing Liabilities and any other liabilities disclosed by Contributors to Acquirer, the Subject Company and the Property Owner have no liabilities, debts or obligations.

3.9           Tax Matters.

(a)           Notwithstanding anything to the contrary contained in this Agreement, including without limitation the use of words and phrases such as “sell,” “sale,” purchase,” and “pay,” the parties hereto acknowledge and agree that it is their intent that the transaction contemplated hereby shall be treated for federal income tax purposes pursuant to Section 721 of the Internal Revenue Code of 1986, as amended, as the contribution of the Interests by the Contributors to the Acquirer in exchange for the Consideration, and not as a transaction in which any Contributors are acting other than in the capacity as a prospective partner in the Partnership Acquirer.

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(b)           The Contributors represent and warrant that they have obtained from their own counsel advice regarding the tax consequences of (i) the transfer of the Interests to the Acquirer and the receipt of the Consideration therefor, (ii) the Contributors’ admission as a limited partner of the Partnership Acquirer, and (iii) any other transaction contemplated by this Agreement.  Each Contributor further represents and warrants that it has not relied on the Acquirer or the Acquirer’s representatives or counsel for such tax advice.

(c)           The Contributors have caused the Subject Company and the Property Owner to file within the time and in the manner prescribed by law all federal, state, and local tax returns and reports, including but not limited to income, gross receipts, intangible, real property, excise, withholding, franchise, sales, use, employment, personal property, and other tax returns and reports, required to be filed by the Subject Company and the Property Owner under the laws of the United States and of each state or other jurisdiction in which the Subject Company and the Property Owner conduct business activities requiring the filing of tax returns or reports.  All tax returns and reports filed by the Subject Company and the Property Owner are true and correct in all material respects.  The Subject Company and the Property Owner have paid in full all taxes of whatever kind or nature for the periods covered by such returns.  The Subject Company and the Property Owner have not been delinquent in the payment of any tax, assessment, or governmental charge or deposit and have no tax deficiency or claim outstanding, assessed, threatened, or proposed against it.  The charges, accruals, and reserves for unpaid taxes on the books and records of the Subject Company and the Property Owner as of the Closing Date are sufficient in all respects for the payment of all unpaid federal, state, and local taxes of the Subject Company and the Property Owner accrued for or applicable to all periods ended on or before the Closing Date.  There are no tax liens, whether imposed by the United States, any state, local, or other taxing authority, outstanding against the Subject Company and the Property Owner or any of their respective assets.  The federal, state, and local tax returns of the Subject Company and the Property Owner have not been audited, nor have the Subject Company, the Property Owner or the Contributors received any notice of any federal, state, or local audit.  The Subject Company and the Property Owner have not obtained or received any extension of time (beyond the Closing Date) for the assessment of deficiencies for any years or waived or extended the statute of limitations for the determination or collection of any tax.  To the Contributors’ Knowledge, no unassessed tax deficiency is proposed or threatened against the Subject Company or the Property Owner.

(d)           All taxes, including real property taxes and rental taxes or the equivalent, and all interest and penalties due thereon, required to be paid or collected by the Subject Company or the Property Owner in connection with the operation of the Property as of the Closing Date will have been collected and/or paid to the appropriate governmental authorities, as required or such amounts shall be pro-rated as of the Closing Date. The Contributors shall cause the Subject Company and the Property Owner to file, all necessary returns and petitions required to be filed through the Closing Date.  The Contributors shall cause the Subject Company and the Property Owner to prepare and file all federal and state income tax returns for the tax period ending on the Closing Date, which shall reflect the termination for tax purposes of the Subject Company and the Property Owner.

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3.10          Contracts and Agreements.  There is no loan agreement, guarantee, note, bond, indenture and other debt instrument, lease and other contract to which the Subject Company or the Property Owner is a party or by which their assets are bound other than the Permitted Title Exceptions, the Leases, and the Operating Contracts.

3.11          No Special Taxes.  The Contributors have no Knowledge of, nor have they received any written notice of, any special taxes or assessments relating to the Subject Company, the Property Owner or the Property or any part thereof or any planned public improvements that may result in a special tax or assessment against the Property.

3.12          Compliance with Existing Laws.  The Subject Company and the Property Owner possess all Authorizations, each of which is valid and in full force and effect, and, to Contributors’ Knowledge, no provision, condition or limitation of any of the Authorizations has been breached or violated.   Neither the Subject Company nor the Property Owner has misrepresented or failed to disclose any relevant fact in obtaining all Authorizations, and the Contributors have no Knowledge of any change in the circumstances under which those Authorizations were obtained that result in their termination, suspension, modification or limitation.  The Contributors have no Knowledge, nor have they received written notice within the past three (3) years, of any existing violation of any provision of any applicable building, zoning, subdivision, environmental or other governmental ordinance, resolution, statute, rule, order or regulation, including but not limited to those of environmental agencies or insurance boards of underwriters, with respect to the ownership, operation, use, maintenance or condition of the Property or any part thereof, or requiring any repairs or alterations other than those that have been made prior to the date hereof.

3.13          Operating Contracts.  The Subject Company and the Property Owner have performed all of their respective obligations under each of the Operating Contracts and no fact or circumstance has occurred which, by itself or with the passage of time or the giving of notice or both, would constitute a material default under any of the Operating Contracts.  Without the prior written consent of the Acquirer, which consent will not be unreasonably withheld or delayed, the Contributors shall cause the Subject Company and the Property Owner not to enter into any new management agreement, maintenance or repair contract, supply contract, lease in which it is lessee or other agreements with respect to the Property, nor shall the Contributors cause the Subject Company or the Property Owner to enter into any agreements modifying the Operating Contracts.

3.14          Warranties and Guaranties.  The Contributors shall cause the Subject Company and the Property Owner not to release or modify any warranties or guarantees, if any, of manufacturers, suppliers and installers relating to the Improvements and the Tangible Personal Property or any part thereof, except with the prior written consent of the Acquirer.  A complete list of all such warranties and guaranties in effect as of the date of this Agreement is attached hereto as Exhibit D.

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3.15          Insurance.  All of the Subject Company’s and the Property Owner’s Insurance Policies are valid and in full force and effect, all premiums for such policies were paid when due and the Contributors shall cause the Subject Company and the Property Owner to pay all future premiums for such policies (and any replacements thereof) on or before the due date therefor.  The Contributors shall cause the Subject Company and the Property Owner to pay all premiums on, and shall cause the Subject Company and the Property Owner not to cancel or allow to expire, any of their respective Insurance Policies prior to the Closing Date unless such policy is replaced, without any lapse of coverage, by another policy or policies providing coverage at least as extensive as the policy or policies being replaced.  The Contributors shall cause the Subject Company and the Property Owner to name the Acquirer as additional insureds on each of the Insurance Policies.

3.16          Condemnation Proceedings; Roadways.  Neither the Subject Company nor the Property Owner have received written notice of any condemnation or eminent domain proceeding pending or threatened against the Property or any part thereof.  The Contributors have no Knowledge of any change or proposed change in the route, grade or width of, or otherwise affecting, any street or road adjacent to or serving the Real Property.

3.17          (a) Litigation with Respect to the Subject Company.  Except as set forth on Exhibit E there is no action, suit or proceeding pending or known to be threatened against or affecting the Subject Company or any part of or interest in the Property in any court, before any arbitrator or before or by any governmental agency which (a) in any manner raises any question affecting the validity or enforceability of this Agreement or any other material agreement or instrument to which the Subject Company is a party or by which it is bound and that is or is to be used in connection with, or is contemplated by, this Agreement, (b) could materially and adversely affect the business, financial position or results of operations of the Subject Company, (c) could materially and adversely affect the ability of the Subject Company to perform its obligations hereunder, or under any document to be delivered pursuant hereto, (d) could create a material lien on the Property, any part thereof or any interest therein, or (e) could otherwise materially and adversely affect the Property, any part thereof or any interest therein or the use, operation, condition or occupancy thereof.

(b) Litigation with Respect to the Property Owner.  Except as set forth on Exhibit E there is no action, suit or proceeding pending or known to be threatened against or affecting the Property Owner or any part of or interest in the Property in any court, before any arbitrator or before or by any governmental agency which (a) in any manner raises any question affecting the validity or enforceability of this Agreement or any other material agreement or instrument to which the Property Owner is a party or by which it is bound and that is or is to be used in connection with, or is contemplated by, this Agreement, (b) could materially and adversely affect the business, financial position or results of operations of the Property Owner, (c) could materially and adversely affect the ability of the Property Owner to perform its obligations hereunder, or under any document to be delivered pursuant hereto, (d) could create a material lien on the Property, any part thereof or any interest therein, or (e) could otherwise materially and adversely affect the Property, any part thereof or any interest therein or the use, operation, condition or occupancy thereof.

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3.18           Labor Disputes and Agreements.  There are not currently any labor disputes pending or, threatened as to the operation or maintenance of the Property or any part thereof.   Neither the Subject Company nor the Property Owner is a party to any union or other collective bargaining agreement with employees employed in connection with the ownership, operation or maintenance of the Property.  The Acquirer will not be obligated to give or pay any amount to any employee of the Subject Company or the Property Owner, and the Acquirer shall not have any liability under any pension or profit sharing plan that the Subject Company or the Property Owner may have established with respect to the Property or their or its employees.

3.19           Financial Information.

(a)           To the Contributors’ Knowledge, except as otherwise disclosed in writing to the Acquirer prior to the end of the Study Period, for each of the Subject Company’s accounting years, when a given year is taken as a whole, all of the Subject Company’s financial information previously delivered or to be delivered to the Acquirer is and shall be correct and complete in all material respects and presents accurately the financial condition of the Subject Company and results of the operations of the Property for the periods indicated, except that such statements do not have footnotes or schedules that may otherwise be required by GAAP.  If requested by the Acquirer, the Contributors shall cause the Subject Company to deliver promptly all four-week period ending financial information available to the Subject Company.  The Subject Company’s financial information is prepared based on books and records maintained by the Subject Company in accordance with the Subject Company’s accounting system.  The Subject Company’s financial information has been provided to the Acquirer without any changes or alteration thereto.  To the best of Contributors’ Knowledge, since the date of the last financial statement included in the Subject Company’s financial information, there has been no material adverse change in the financial condition or in the operations of the Property.

(b)          To the Contributors’ Knowledge, except as otherwise disclosed in writing to the Acquirer prior to the end of the Study Period, for each of the Property Owner’s accounting years, when a given year is taken as a whole, all of the Property Owner’s financial information previously delivered or to be delivered to the Acquirer is and shall be correct and complete in all material respects and presents accurately the financial condition of the Property Owner and results of the operations of the Property for the periods indicated, except that such statements do not have footnotes or schedules that may otherwise be required by GAAP.  If requested by the Acquirer, the Contributors shall cause the Property Owner to deliver promptly all four-week period ending financial information available to the Property Owner.  The Property Owner’s financial information is prepared based on books and records maintained by the Property Owner in accordance with the Property Owner’s accounting system.  The Property Owner’s financial information has been provided to the Acquirer without any changes or alteration thereto.  To the best of Contributors’ Knowledge, since the date of the last financial statement included in the Property Owner’s financial information, there has been no material adverse change in the financial condition or in the operations of the Property.

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3.20          Organizational Documents.  The Articles of Organization, the Subject Company Operating Agreement and the Property Owner Operating Agreement, are in full force and effect and have not been modified or supplemented, and no fact or circumstance has occurred that, by itself or with the giving of notice or the passage of time or both, would constitute a default thereunder.

3.21          Operation of Property.  The Contributors covenant that between the date hereof and the Closing Date, Contributors shall cause the Subject Company and the Property Owner to (a) operate the Property only in the usual, regular and ordinary manner consistent with the Subject Company’s and the Property Owner’s prior practice, (b) maintain the books of account and records in the usual, regular and ordinary manner, in accordance with sound accounting principles applied on a basis consistent with the basis used in keeping its books in prior years, and (c) use all reasonable efforts to preserve intact the present business organization, keep available the services of the present officers and employees and preserve their relationships with suppliers and others having business dealings with them.  The Contributors shall cause the Subject Company and the Property Owner to continue to make good faith efforts to take guest room reservations and to book functions and meetings and otherwise to promote the business of the Property in generally the same manner as the Subject Company and the Property Owner did prior to the execution of this Agreement.  Except as otherwise permitted hereby, from the date hereof until Closing, the Contributors shall use their good faith efforts to ensure that the Subject Company and the Property Owner shall not take any action or fail to take action the result of which (i) would have a material adverse effect on the Property or the Acquirer’s ability to continue the operation thereof after the Closing Date in substantially the same manner as presently conducted, (ii) reduce or cause to be reduced any room rents or any other charges over which Contributors have operational control, or (iii) would cause any of the representations and warranties contained in this Article III to be untrue as of Closing.

3.22          Bankruptcy with respect to the Subject Company and the Property Owner.  No Act of Bankruptcy has occurred with respect to the Subject Company or the Property Owner.

3.23          Hazardous Substances.  Except for matters in the Subject Company’s, the Property Owner’s or Acquirer’s audits, Contributors have no Knowledge:  (a) of the presence of any Hazardous Substances (as defined below) on the Property, or any portion thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous Substances that have occurred or are presently occurring on or onto the Property, or any portion thereof, or (c) of the presence of any PCB transformers serving, or stored on, the Property, or any portion thereof, and Contributors have no Knowledge of any failure to comply with any applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Substances (as used herein, “Hazardous Substances” shall mean any substance or material whose presence, nature, quantity or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials is either:  (1) potentially injurious to the public health, safety or welfare, the environment or the Property, (2) regulated, monitored or defined as a hazardous or toxic substance or waste by any Governmental Body, or (3) a basis for liability of the owner of the Property to any Governmental Body or third party, and Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any products, by-products or components thereof, and asbestos).  Notwithstanding anything to the contrary contained herein Contributors shall have no liability to Acquirer for any Hazardous Substances of which Contributors have no Knowledge.

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3.24          Room Furnishings.  All public spaces, lobbies, meeting rooms, and each room in the Hotel available for guest rental is furnished in accordance with commercially reasonable standards for the Hotel and room type.

3.25          Independent Audit.  Contributors shall provide access by Acquirer’s representatives, to all financial and other information relating to the Property, the Subject Company and the Property Owner.

3.26          Bulk Sale Compliance.  Contributors shall indemnify Acquirer against any claim, loss or liability arising under the bulk sales law in connection with the transaction contemplated herein.

3.27          Sufficiency of Certain Items.  The Property contains not less than:

(a)           a sufficient amount of furniture, furnishings, color television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows, bedspreads and the like, to furnish each guest room, so that each such guest room is, in fact, fully furnished; and

(b)           a sufficient amount of towels, washcloths and bed linens, so that there are three (3) sets of towels, washcloths and linens for each guest room (one on the beds, one on the shelves, and one in the laundry), together with a sufficient supply of paper goods, soaps, cleaning supplies and other such supplies and materials, as are reasonably adequate for the current operation of the Hotel.

3.28          Leases.  True, complete copies of the Leases, are attached as Exhibit C hereto.  The Leases are, and will at Closing be, in full force and effect and neither Contributors, the Subject Company nor the Property Owner, are in default and the Contributors shall make good faith efforts for themselves, the Subject Company and the Property Owner not to be in default with respect thereto (with or without the giving of any notice and/or lapse of time).

3.29          Noncontravention.  The execution and delivery of, and the performance by the Contributors of, their obligations under this Agreement do not and will not contravene, or constitute a default under, any provision of applicable law or regulation, or any agreement, judgment, injunction, order, decree or other instrument binding upon the Contributors, or result in the creation of any lien or other encumbrance on any asset of the Contributors.  There are no outstanding agreements (written or oral) pursuant to which the Contributors (or any predecessor to or representative of the Contributors) have agreed to contribute or has granted an option or right of first refusal to acquire the Interests or the Property or any part thereof.

3.30          Patriot Act Representations.  Each Contributor and, to the actual knowledge of each such Contributor, any direct owner of the Subject Company, the Property Owner or such Contributor, (i) are not included on any Government List (as defined below), (ii) are not persons who have been determined by competent authority to be subject to the prohibitions contained in the Presidential Executive Order No. 13224 or any other similar prohibitions contained in the rules and regulations of the OFAC or in any enabling legislation or other Presidential Executive Orders in respect thereof, (iii) have not been indicted or convicted of any Patriot Act Offenses, or (iv) are not currently under investigation by any governmental authority for alleged criminal activity.  For purposes of this Agreement, (i) “Government List” means (A) the Specially Designated Nationals and Blocked Persons List maintained by OFAC, (B) any other list of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the Rules and Regulations of OFAC, or (C) any similar list maintained by the United States Department of State, the United States Department of Commerce or any other governmental authority or pursuant to any Executive Order of the President of the United States of America; (ii) “OFAC” means the Office of Foreign Asset Control, U.S. Department of the Treasury, (iii) “Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as the same may be amended from time to time, and corresponding provisions of future laws, and (iv) “Patriot Act Offense” means any violation of the criminal laws of the United States of America or of any of the several states, or that would be a criminal violation if committed within the jurisdiction of the United States of America or any of the several states, relating to terrorism or the laundering of monetary instruments, including any offense under (A) the criminal laws against terrorism, (B) the criminal laws against money laundering, (C) the Bank Secrecy Act, as amended, (D) the Money Laundering Control Act of 1986, as amended, or (E) the Patriot Act and also includes the crimes of conspiracy to commit, or aiding and abetting another to commit, any of the foregoing.

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Each of the representations, warranties and covenants contained in this Article III and its various subparagraphs are intended for the benefit of the Acquirer and may be waived in whole or in part, by the Acquirer, but only by an instrument in writing signed by the Acquirer.  Each of said representations, warranties and covenants shall survive the closing of the transaction contemplated hereby for twelve (12) months, and no investigation, audit, inspection, review or the like conducted by or on behalf of the Acquirer shall be deemed to terminate the effect of any such representations, warranties and covenants, it being understood that the Acquirer has the right to rely thereon and that each such representation, warranty and covenant constitutes a material inducement to the Acquirer to execute this Agreement and to close the transaction contemplated hereby and to pay the Consideration to the Contributors.  Acquirer acknowledges and agrees that, except for the representations and warranties expressly set forth herein, Acquirer is acquiring the Subject Company, the Property Owner and the Property “AS-IS, WHERE-IS” with no representations or warranties by or from Contributors, express or implied, or any nature whatsoever.

ARTICLE IV

ACQUIRER’S REPRESENTATIONS, WARRANTIES AND COVENANTS

To induce the Contributors to enter into this Agreement and to sell the Interests, the Acquirer hereby makes the following representations, warranties and covenants upon each of which the Acquirer acknowledges and agrees that the Contributors are entitled to rely and have relied:

4.1           Organization and Power.

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(a) The Acquirer is a limited partnership duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia, and has all partnership powers and all governmental licenses, authorizations, consents and approvals to carry on its business as now conducted and to enter into and perform its obligations under this Agreement and any document or instrument required to be executed and delivered on behalf of the Partnership Acquirer hereunder.

4.2           Noncontravention.  The execution and delivery of this Agreement and the performance by the Acquirer of its obligations hereunder do not and will not contravene, or constitute a default under, any provisions of applicable law or regulation, the Partnership Acquirer’s partnership agreement, or any agreement, judgment, injunction, order, decree or other instrument binding upon the Acquirer or result in the creation of any lien or other encumbrance on any asset of the Acquirer.

4.3           Litigation.  There is no action, suit or proceeding, pending or known to be threatened, against or affecting the Acquirer in any court or before any arbitrator or before any Governmental Body which (a) in any manner raises any question affecting the validity or enforceability of this Agreement or any other agreement or instrument to which the Acquirer are a party or by which it is bound and that is to be used in connection with, or is contemplated by, this Agreement, (b) could materially and adversely affect the ability of the Acquirer to perform its obligations hereunder, or under any document to be delivered pursuant hereto.

4.4           Bankruptcy.  No Act of Bankruptcy has occurred with respect to the Acquirer.

4.5           No Brokers.  The Acquirer has not engaged the services of, nor is it or will it become liable to, any real estate agent, broker, finder or any other person or entity for any brokerage or finder’s fee, commission or other amount with respect to the transaction described herein.

ARTICLE V

CONDITIONS AND ADDITIONAL COVENANTS

The Acquirer’s obligations hereunder are subject to the satisfaction of the following conditions precedent and the compliance by the Contributors with the following covenants:

5.1           Contributors’ Deliveries.  The Contributors shall have delivered to the Escrow Agent or the Acquirer, as the case may be, on or before the date of Closing, all of the documents and other information required of Contributors pursuant to Section 6.2.

5.2           Representations, Warranties and Covenants; Obligations of Contributors; Certificate.  All of the Contributors’ representations and warranties made in this Agreement shall be true and correct as of the date hereof and as of the Closing Date as if then made, there shall have occurred no material adverse change in the financial condition of the Property, the Subject Company or the Property Owner since the date hereof, the Contributors shall have performed all of their material covenants and other obligations under this Agreement and the Contributors shall have executed and delivered to the Acquirer at Closing a certificate to the foregoing effect.

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5.3           Title Insurance.  Good and indefeasible title to the fee interest in the Real Property shall be insurable as such by the Title Company at or below its regularly scheduled rates subject only to Permitted Title Exceptions as determined in accordance with Section 2.2.

5.4           Condition of Improvements.  The Improvements and the Tangible Personal Property (including but not limited to the mechanical systems, plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning and ventilating equipment, elevators, boilers, equipment, roofs, structural members and furnaces) shall be in the same condition at Closing as they are as of the date hereof, reasonable wear and tear excepted.  Prior to Closing, the Contributors shall not have diminished the quality or quantity of maintenance and upkeep services heretofore provided to the Real Property and the Tangible Personal Property and the Contributors shall not have diminished the Inventory.  The Contributors shall not have removed or caused or permitted to be removed any part or portion of the Real Property or the Tangible Personal Property unless the same is replaced, prior to Closing, with similar items of at least equal quality and acceptable to the Acquirer.

5.5           Utilities.  All of the Utilities shall be installed in and operating at the Property, and service shall be available for the removal of garbage and other waste from the Property.

5.6           Interests.  From the date hereof to and including the Closing Date, Contributors shall not sell, assign, pledge, hypothecate or otherwise transfer the Interests, except as contemplated by this Agreement, nor shall the Contributors cause or permit the Subject Company or the Property Owner to issue any securities, partnership or membership interests, as the case may be, to any person or to sell, pledge, transfer or otherwise dispose of the Property or any interest therein.

5.7           Existing Mortgage.  Acquirer acknowledges that the Property and the Property Owner are subject to the Existing Mortgage, a loan in the original principal amount of Nine Million Six Hundred Thousand Dollars ($9,600,000.00) from M&T Bank.  As part of the Consideration, Acquirer will assume, modify or pay off the Existing Mortgage.

5.8           Third Party Consents.  In the event of an assumption or modification of the Existing Mortgage as contemplated in Sections 2.3(b) and 5.7, then as a condition to Closing, the Contributors shall cause the Property Owner to receive approval from M&T Bank. (i) to the contribution of the Interests to Acquirer as contemplated hereunder and (ii) to the percentage lease structure whereby, on the Closing Date, the Property Owner shall lease the Property to a REIT subsidiary (“Lessee”) pursuant to a percentage lease, and Lessee shall enter into a new management agreement with Manager.

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ARTICLE VI

CLOSING

6.1           Closing.  Closing shall be held at a location that is mutually acceptable to the parties.  The anticipated Closing Date is September 1, 2009, which date may be modified by the mutual consent of the parties.

6.2           Contributor’ Deliveries.  At Closing, the Contributors shall deliver to Acquirer all of the following instruments, each of which shall have been duly executed and, where applicable, acknowledged on behalf of the Contributors and shall be dated as of the date of Closing:

(a)           Certificates representing the Interests.

(b)           The closing certificate required by Section 5.2.

(c)          The Assignment and Assumption Agreement.

(d)           Any and all service contracts, space leases, and agreements.

(e)           Such agreements, affidavits or other documents as may be required by the Title Company to issue the Owner’s Title Policy with affirmative coverage over mechanics’ and materialmen’s liens.

(f)           The FIRPTA Certificate.

(g)           True, correct and complete copies of all warranties, if any, of manufacturers, suppliers and installers possessed by the Contributors, the Subject Company or the Property Owner and relating to the Improvements and the Personal Property, or any part thereof.

(h)           Copies of the Articles of Organization, the Subject Company Operating Agreement and the Property Owner Operating Agreement.

(i)           Appropriate consent of the Subject Company, authorizing (A) the execution of any documents to be executed and delivered by the Subject Company prior to, at or otherwise in connection with Closing and in connection with the transactions contemplated by this Agreement, and (B) the performance by the Subject Company of its obligations hereunder and under such documents.

(j)           Appropriate consent of the Property Owner, authorizing (A) the execution of any documents to be executed and delivered by the Property Owner prior to, at or otherwise in connection with Closing and in connection with the transactions contemplated by this Agreement, and (B) the performance by the Property Owner of its obligations hereunder and under such documents.

(k)           Valid, final and unconditional certificate(s) of occupancy for the Real Property and Improvements, issued by the appropriate Governmental Body.

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(l)           Such proof, reasonably acceptable to the Acquirer, evidencing the payment by Contributors of all transfer taxes incurred in connection with the transactions contemplated by this Agreement.

(m)           A written instrument executed by the Contributors, conveying and transferring to the Acquirer all of the Contributors’ right, title and interest in any telephone numbers and facsimile numbers relating to the Property, and, if the Contributors maintain a post office box, conveying to the Acquirer all of their interest in and to such post office box and the number associated therewith, so as to assure a continuity in operation and communication.

(n)           All current real estate and personal property tax bills in the Contributors’ possession or under their control.

(o)           A complete set of all guest registration cards, guest transcripts, guest histories, and all other available guest information.

(p)           An updated schedule of employees, showing salaries and duties with a statement of the length of service of each such employee, brought current to a date not more than 48 hours prior to the Closing.

(q)           A complete list of all advance room reservations, functions and the like, in reasonable detail so as to enable the Acquirer to honor the Contributors’ commitments in that regard.

(r)           A list of the Contributors’ outstanding accounts receivable as of midnight on the date prior to the Closing, specifying the name of each account and the amount due the Contributors.

(s)           Possession of the Property and all keys for the Property.

(t)           All books, records, operating reports, appraisal reports, files and other materials in the Contributors’, the Subject Company’s or the Property Owner’s possession or control which are necessary in the Acquirer’s discretion to maintain continuity of operation of the Property.

(u)           To the extent permitted under applicable law, documents of transfer necessary to transfer to the Acquirer the Contributors’ employment rating for workmens’ compensation and state unemployment tax purposes.

(v)           As assignment of all warranties and guarantees from all contractors and subcontractors, manufacturers, and suppliers in effect with respect to the Improvements.

(w)           Complete set of “as-built” drawings for the Improvements as available in Contributors’, the Subject Company’s or the Property Owner’s possession.

(x)           Any other document or instrument reasonably requested by the Acquirer or required hereby.

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6.3           Acquirer’s Deliveries.  At Closing, the Acquirer shall pay or deliver to the Contributor the following:

(a)           The Consideration described in Section 2.3.

(b)           The Assignment and Assumption Agreement.

(c)           Any other document or instrument reasonably requested by the Contributors or required hereby.

6.4           Closing Costs.    Each party shall pay its own legal fees and expenses.  All filing fees and all charges for title insurance premiums shall be paid by Acquirer.  Any other costs, expenses or taxes shall be paid by Contributor.

6.5           Income and Expense Allocations.  All income, except any Intangible Personal Property, and expenses with respect to the Property, determined in accordance with United States generally accepted accounting principles consistently applied, shall be allocated between the Contributors and the Acquirer.  The Contributors shall be entitled to all income (including all cash box receipts and cash credits for unused expendables), and responsible for all expenses for the period of time up to but not including 12:01 a.m. on the Closing Date, and the Acquirer shall be entitled to all income and responsible for all expenses for the period of time from, after and including 12:01 a.m. on the Closing Date.  Only adjustments for ground rent, if applicable, and real estate taxes shall be shown on the settlement statements (with such supporting documentation as the parties hereto may require being attached as exhibits to the settlement statements) and shall increase or decrease (as the case may be) the amount payable by the Acquirer.  All other such adjustments shall be made by separate agreement between the parties and shall be payable by check or wire directly between the parties.  Without limiting the generality of the foregoing, the following items of income and expense shall be allocated as of the Closing Date:

(a)           Current and prepaid rents, including, without limitation, prepaid room receipts, function receipts and other reservation receipts.

(b)           Real estate and personal property taxes.

(c)           Amounts under the Operating Contracts.

(d)           Utility charges (including but not limited to charges for water, sewer and electricity).

(e)           Wages, vacation pay, pension and welfare benefits and other fringe benefits of all persons employed at the Property who the Acquirer elects to employ.

(f)           Value of fuel stored on the Property at the price paid for such fuel by the Contributors, including any taxes.

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(g)           All prepaid reservations and contracts for rooms confirmed by Contributors prior to the Closing Date for dates after the Closing Date, all of which Acquirer shall honor.

The Tray Ledger shall be retained by the Contributors.  The Contributors shall be required to pay all sales taxes and similar impositions currently up to the Closing Date.

Acquirer shall not be obligated to collect any accounts receivable or revenues accrued prior to the Closing Date for Contributors, but if Acquirer collects same, such amounts will be promptly remitted to Contributor in the form received.

If accurate allocations cannot be made at Closing because current bills are not obtainable (as, for example, in the case of utility bills or tax bills), the parties shall allocate such income or expenses at Closing on the best available information, subject to adjustment upon receipt of the final bill or other evidence of the applicable income or expense.  Any income received or expense incurred by the Contributors or the Acquirer with respect to the Property after the date of Closing shall be promptly allocated in the manner described herein and the parties shall promptly pay or reimburse any amount due.  The Contributors shall pay at Closing all special assessments and taxes applicable to the Property.

The certificates evidencing the Contributors’ ownership of the Interests will be dated as of the Closing Date

ARTICLE VII

CONDEMNATION; RISK OF LOSS

7.1           Condemnation.  In the event of any actual or threatened taking, pursuant to the power of eminent domain, of all or any portion of the Real Property, or any proposed sale in lieu thereof, the Contributors shall give written notice thereof to the Acquirer promptly after the Contributors learn or receive notice thereof.  If all or any part of the Real Property is, or is to be, so condemned or sold, the Acquirer shall have the right to terminate this Agreement pursuant to Section 8.3.  If the Acquirer elects not to terminate this Agreement, all proceeds, awards and other payments arising out of such condemnation or sale (actual or threatened) shall be paid or assigned, as applicable, to the Acquirer at Closing.

7.2           Risk of Loss.   The risk of any loss or damage to the Property prior to the recordation of the Deed shall remain upon Contributors.  If any such loss or damage to more than Ten Percent (10%) of the value of the Improvements occurs prior to Closing or any such loss or damage is uninsured or underinsured, the Acquirer shall have the right to terminate this Agreement pursuant to Section 8.3.  If the Acquirer elects not to terminate this Agreement, all insurance proceeds and rights to proceeds arising out of such loss or damage shall be paid or assigned, as applicable, to the Acquirer at Closing.

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ARTICLE VIII

LIABILITY OF ACQUIRER; INDEMNIFICATION BY CONTRIBUTORS;

TERMINATION RIGHTS

8.1           Liability of Acquirer.  Except for any obligation expressly assumed or agreed to be assumed by the Acquirer hereunder and in the Assignment and Assumption Agreement, the Acquirer does not assume any obligation of the Contributors or any liability for claims arising out of any occurrence prior to Closing.

8.2           Indemnification by Contributors.  The Contributors hereby indemnify and hold the Acquirer harmless from and against any and all suits, actions, claims, costs, penalties, damages, losses, liabilities and expenses, subject to Section  9.11, that may at any time be incurred by the Acquirer, whether before or after Closing, (i) as a result of any breach by the Contributors of any of their representations, warranties, covenants or obligations set forth herein or in any other document delivered by the Contributors pursuant hereto, (ii) relating to any suits, litigation or actions brought against any Contributors, the Subject Company or the Property Owner prior to the Closing Date, (iii) in connection with any and all liabilities and obligations of the Subject Company or the Property Owner occurring, accruing or arising prior to the Closing Date, and/or (iv) as a result of or in connection with the use or operation of the Property prior to the Closing Date.

8.3           Termination by Acquirer.  If any condition set forth herein cannot or will not be satisfied prior to Closing, or upon the occurrence of any other event that would entitle the Acquirer to terminate this Agreement and its obligations hereunder, and the Contributors fail to cure any such matter within five (5) days after notice thereof from the Acquirer, the Acquirer, at its option and as its sole remedy, shall elect either (a) to terminate this Agreement, and all other rights and obligations of the Contributors and the Acquirer hereunder shall terminate immediately, or (b) to waive its right to terminate and, instead, to proceed to Closing.

8.4           Termination by Contributors.  If, prior to Closing, the Acquirer defaults in performing any of its obligations under this Agreement, and the Acquirer fails to cure any such default within five (5) business days after notice thereof from the Contributors, then the Contributors’ sole remedy for such default shall be to terminate this Agreement.

ARTICLE IX

MISCELLANEOUS PROVISIONS

9.1           Completeness; Modification.  This Agreement constitutes the entire agreement between the parties hereto with respect to the transactions contemplated hereby and supersedes all prior discussions, understandings, agreements and negotiations between the parties hereto.  This Agreement may be modified only by a written instrument duly executed by the parties hereto.

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9.2           Assignments.  The Acquirer may assign its rights hereunder to any affiliate of Acquirer without the consent of the Contributors.  No such assignment shall relieve the Acquirer of any of its obligations and liabilities hereunder.

9.3           Successors and Assigns.  The benefits and burdens of this Agreement shall inure to the benefit of and bind the Acquirer and the Contributors and their respective successors and assigns.

9.4           Days.  If any action is required to be performed, or if any notice, consent or other communication is given, on a day that is a Saturday or Sunday or a legal holiday in the jurisdiction in which the action is required to be performed or in which is located the intended recipient of such notice, consent or other communication, such performance shall be deemed to be required, and such notice, consent or other communication shall be deemed to be given, on the first business day following such Saturday, Sunday or legal holiday.  Unless otherwise specified herein, all references herein to a “day” or “days” shall refer to calendar days and not business days.

9.5           Governing Law.  This Agreement and all documents referred to herein shall be governed by and construed and interpreted in accordance with the laws of the State of Connecticut.

9.6           Counterparts.  To facilitate execution, this Agreement may be executed in as many counterparts as may be required.  It shall not be necessary that the signature on behalf of both parties hereto appear on each counterpart hereof.  All counterparts hereof shall collectively constitute a single agreement.

9.7           Severability.  If any term, covenant or condition of this Agreement, or the application thereof to any person or circumstance, shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term, covenant or condition to other persons or circumstances, shall not be affected thereby, and each term, covenant or condition of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

9.8           Costs.  Regardless of whether Closing occurs hereunder, and except as otherwise expressly provided herein, each party hereto shall be responsible for its own costs in connection with this Agreement and the transactions contemplated hereby, including without limitation fees of attorneys, engineers and accountants.

9.9           Notices.  All notices, requests, demands and other communications hereunder shall be in writing and shall be delivered by hand, transmitted by facsimile transmission, sent prepaid by Federal Express (or a comparable overnight delivery service) or sent by the United States mail, certified, postage prepaid, return receipt requested, at the addresses and with such copies as designated below.  Any notice, request, demand or other communication delivered or sent in the manner aforesaid shall be deemed given or made (as the case may be) when actually delivered to the intended recipient.

If to the Contributors:                                                      Hersha Northeast Associates, LLC

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	44 Hersha Drive
	Harrisburg, PA 17102
	Phone:	(717) 236-4400
	Fax:	(717) 774-7383
	Kirit Patel
	245 Whiting Farms Road
	Holyoke, MA 01040
With a copy to:	Paul M. Maleck, Esquire
	Doherty, Wallace, Pillsbury and Murphy, P.C.
	One Monarch Place, Suite 1900
	Springfield, MA 01144
	Phone:	(413) 733-3111
	Fax:	(413) 734-3910
If to the Acquirer:	Hersha Hospitality Limited Partnership
	44 Hersha Drive
	Harrisburg, PA 17102
	Phone:	(717) 236-4400
	Fax:	(717) 774-7383
	Attn: Ashish R. Parikh
With a copy to:	Lok Mohapatra, Esquire
	Franklin Firm, LLP
	Penn Mutual Towers
	510 Walnut Street, 9th floor
	Philadelphia, PA  19106
	Phone:	(215) 238-1045
	Fax:	(267) 238-1874

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Or to such other address as the intended recipient may have specified in a notice to the other party.  Any party hereto may change its address or designate different or other persons or entities to receive copies by notifying the other party and the Escrow Agent in a manner described in this Section.

9.10           Incorporation by Reference.  All of the exhibits attached hereto are by this reference incorporated herein and made a part hereof.

9.11           Survival.  All of the representations, warranties, covenants and agreements of the Contributors and the Acquirer made in, or pursuant to, this Agreement shall survive for a period of twelve (12) months following Closing and shall not merge into the Assignment and Assumption Agreement or any other document or instrument executed and delivered in connection herewith, except for the representations and warranties set forth in Sections 3.4, 3.7 and 3.9, which shall survive for periods coterminous with applicable statutes of limitations.

9.12           Further Assurances.  The Contributors and the Acquirer each covenant and agree to sign, execute and deliver, or cause to be signed, executed and delivered, and to do or make, or cause to be done or made, upon the written request of the other party, any and all agreements, instruments, papers, deeds, acts or things, supplemental, confirmatory or otherwise, as may be reasonably required by either party hereto for the purpose of or in connection with consummating the transactions described herein.

9.13           No Partnership.  This Agreement does not and shall not be construed to create a partnership, joint venture or any other relationship between the parties hereto except the relationship of Contributors and Acquirer specifically established hereby.

9.14           Time of Essence.  Time is of the essence with respect to every provision of this Agreement.

9.15           Confidentiality.  Contributors and their representatives, including any professionals representing Contributors, shall keep the existence and terms of this Agreement strictly confidential, except to the extent disclosure is compelled by law, and then only to the extent of such compulsion.

[The remainder of this page is left intentionally blank.]

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IN WITNESS WHEREOF, the Contributors and the Acquirer have caused this Contribution Agreement to be executed in their names by their respective duly-authorized representatives.

CONTRIBUTORS:

HERSHA NORTHEAST ASSOCIATES, LLC, a Delaware limited liability company

By:	/s/ Bharat C. Mehta
Name:	Bharat C. Mehta
Title:	Manager

/s/ Kirit Patal

KIRIT PATEL, an individual

ACQUIRER:

HERSHA HOSPITALITY LIMITED PARTNERSHIP, a Virginia limited partnership
By:	Hersha Hospitality Trust, a Maryland real estate investment trust, its sole general partner
	By:	/s/ Ashish R. Parikh
	Name:	Ashish R. Parikh
	Title:	CFO

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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 September 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: November 5, 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 September 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: November 5, 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 September 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.

November 5, 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 September 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.

November 5, 2009
	/s/ Ashish R. Parikh
	Ashish R. Parikh
	Chief Financial Officer