10181_Editorial.qxd 4/4/07 12:28 PM Page 1 H E R S H A h e r s h a h o s p i t a l i t y t r u s t a n n u a l r e p o r t 2 0 0 6 H E R S H A www.hersha.com H e r s h a H o s p i t a l i t y T r u s t A n n u a l R e p o r t 2 0 0 6 10181_Editorial.qxd 4/4/07 12:28 PM Page 2 h e r s h a h o s p i t a l i t y t r u s t f i n a n c i a l h i g h l i g h t s 2 0 0 6 H E R S H A h e r s h a h o s p i t a l i t y t r u s t Annual Report 2006 H E R S H A (In thousands, except per share data) Year Ended December 31, hotel operating results (a) Total Revenues 2006 2005 2004 2003 2002 $ 259,485 $ 127,195 $ 72,076 $ 38,428 $ 33,384 Average Daily Rate Occupancy Revenue Per Available Room $ $ 117.91 71.75% 84.60 $ $ 106.18 71.32% 75.73 $ $ 97.62 67.21% 65.61 $ $ 85.52 64.80% 55.41 $ $ 81.66 63.81% 52.11 (a) Pertains to all hotels owned as of year end including the total results of hotels owned in a joint venture structure. (In thousands except per share data) Year Ended December 31, hersha hospitality trust (1) OPERATING DATA: Total Revenues (Including Discontinued Operations) Net Income applicable to Common Shareholders Adjusted Funds from Operations (AFFO) (2) PER SHARE DATA: Basic Earnings Per Common Share Diluted Earnings Per Common Share AFFO Distributions to Common Shareholders 2006 2005 2004 2003 2002 $ 153,887 298 29,870 $ 0.01 0.01 0.97 0.72 $ $ 89,466 1,377 15,567 0.07 0.07 0.67 0.72 $ $ 58,511 2,049 11,571 0.13 0.13 0.57 0.72 $ $ 19,324 785 7,728 0.17 0.17 0.69 0.72 $ $ 14,969 1,292 8,293 0.51 0.51 1.09 0.72 BALANCE SHEET DATA (as of December 31): Total Assets Total Debt Minority Interest in Partnership Total Shareholder’s Equity $ 968,208 580,542 25,933 331,619 $ 455,355 256,521 15,147 164,703 $ 261,021 111,846 16,779 119,792 $ 195,568 71,837 38,971 71,460 $ 101,516 65,341 20,258 11,378 (1) Total revenues consisted primarily of percentage and fixed lease revenues during 2001-2003. The Company terminated eight leases on January 31, 2004 and the remaining six leases as of April 1, 2004. (2) Funds from Operations (FFO) as defined by NAREIT represents net income (loss) (computed in accordance with generally accepted accounting princi- ples), 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. We present Adjusted Funds From Operations (AFFO), which reflects FFO in accordance with the NAREIT definition plus the following additional adjustments: adding back depreciation related to dis- continued operations; adding back write-offs of deferred financing costs on debt extinguishment, both for consolidated and unconsolidated properties, adding back amortization of deferred financing costs, adding back non-cash stock expense, adding back our non-cumulative preferred return on consolidated joint ventures, and making adjustments to ground lease payments, which are required by GAAP to be amortized on a straight-line basis over the term of the lease, to reflect the actual lease payment. board of trustees Hasu P. Shah Chairman Hersha Hospitality Trust Jay H. Shah Chief Executive Officer Hersha Hospitality Trust Thomas S. Capello Founder & Principal First Capital Equities Michael A. Leven Vice Chairman Marcus Foundation John M. Sabin CFO and General Counsel Phoenix Health Systems, Inc. Donald J. Landry Former CEO and President Sunburst Hospitality, Inc. K.D. Patel Director Hersha Hospitality Management, L.P. corporate officers Jay H. Shah Chief Executive Officer Neil H. Shah President & Chief Operating Officer Ashish R. Parikh Chief Financial Officer Michael R. Gillespie Chief Accounting Officer William J. Walsh Vice President of Asset Management Robert C. Hazard III Vice President of Acquisitions & Development David L. Desfor Treasurer Kiran P. Patel Corporate Secretary c o r p o r at e h e a d q u a r t e r s 44 Hersha Drive Harrisburg, PA 17102 Telephone: (717) 236-4400 Facsimile: (717) 774-7383 p h i l a d e l p h i a e x e c u t i v e o f f i c e s Penn Mutual Towers 510 Walnut Street, 9th Floor Philadelphia, PA 19106 Telephone: (215) 238-1046 Facsimile: (215) 238-0157 i n d e p e n d e n t a u d i to r s KPMG LLP Certified Public Accountants 1601 Market Street Philadelphia, PA 19103 Telephone: (267) 256-7000 r e g i s t r a r a n d s to c k t r a n s f e r a g e n t American Stock Transfer & Trust Company 10150 Mallard Creek Drive, Suite 307 Charlotte, NC 28262 Telephone: (800) 829-8432 l e g a l c o u n s e l Hunton & Williams Riverfront Plaza 951 East Byrd Street Richmond, Virginia 23219 Telephone: (804) 788-8200 c o m m o n s to c k i n f o r m at i o n The Common Stock of Hersha Hospitality Trust is traded on the American Stock Exchange under the Symbol “HT” 10181_Editorial.qxd 4/10/07 11:55 AM Page 3 50 H e r s h a H o s p i t a l i t y T r u s t ( H T ) 40 30 Hersha Hospitality Trust (HT) is a real estate investment trust (REIT) focused on the acquisition and aggressive management of primarily upscale hotels in metropolitan markets. Hersha trades under the symbol HT on the American Stock Exchange. As of March 1, 2007, the Company owned interests in 71 upper upscale, upscale, and midscale hotels located predominantly in the Northeastern United States. 10 20 Qualification as a REIT under the Internal Revenue Code enables the Company to distribute income to shareholders without federal income tax liability to the Company. 0 50 6 40 0 0 2 30 n r u 20 t e r 10 l a t o 0 t 500 400 300 200 100 0 % 4 5.6 4 3.4 % 4 % 0.6 % 3 5.3 3 4.0 % 2 9.5 % 2 6.7 % 2 4.1 % % 2 2.7 3 5.1 % % 1 3.6 a h s r e h n hilt o w in st o a r rio tt in te r n a tio n a l o tels n h o st m h l a s a lle h h o tel p r o p e r ties a r rio tt o s pit a lit y p r o p e r ties n s uit y in st a r in e q m % w d o o 1.3 n k ee p e r s u s a s & p 5 0 m n a r eit c o 0 p o site 500 9 9 9 1 400 e c n i s 300 200 100 n r u t e r l a t o 0 t h 2 9 1.1 % % 2 2 4.4 % 2 1 0.5 % 1 9 2.2 % 1 7 3.5 % 1 5 3.1 % 1 3 1.9 % 3 0 7.8 % 2 8 2.8 % 2 5 5.8 a h s r e h w d o o st a r uit y in o s pit a lit y p r o p e r ties a r rio tt in te r n a tio n a l n s a r rio tt n h o st m w in st o hilt o in e q h m % 1 3.3 0 o tels n k ee p e r s u s a o tels p o site s & p 5 0 n h m n a r eit c o Total Returns from December 31, 2005 through December 31, 2006. Assumes dividends are re-invested at ex-dividend date. Source: FactSet Total Returns from January 26, 1999 through December 31, 2006. Assumes dividends are re-invested at ex-dividend date. Source: FactSet ht portfolio by hotel brand Marriott 40% Hilton 26% Choice 7% Intercontinental 13% Starwood 2% Hyatt 13% Independent 1% ht portfolio by destination ht portfolio by market segment Major Metro 72% Secondary 21% Destination 7% Upper Upscale 13% Upscale 48% Midscale 39% 10181_Editorial.qxd 4/4/07 12:26 PM Page 4 Hampton Inn Manhattan, Seaport, NY 10181_Editorial.qxd 4/4/07 12:26 PM Page 5 h e r s h a h o s p i t a l i t y t r u s t Annual Report 2006 d e a r f e l l o w s h a r e h o l d e r s : Our company had an extraordinary 2006. We delivered strong portfolio growth, significantly improved shareholder liquidity and realized impressive returns through a combination of stock appreciation and a sector-leading dividend yield. Our work of assembling a portfolio of high-quality upscale and mid-scale hotels in the most attractive metropolitan markets in the country has positioned Hersha Hospitality Trust to deliver value to investors now and into the future. Let's take a look at the many milestones that the Company achieved this past year: (cid:2) At the end of 2006 our company's enterprise value reached $1.1 billion. As of this writing, our enterprise value is closer to $1.25 billion with ownership interests in 71 hotels. We have realized a 59% compounded annual rate of growth in our enterprise value since our 1999 initial public offering when we maintained an ownership interest in ten hotels, (cid:2) Acquired an interest in 24 hotels with 3,528 rooms and an aggregate value of $532 million in our core markets with high barriers to entry, (cid:2) Issued 20.1 million shares of new stock to raise an additional $202 million of growth capital, (cid:2) Forged a strong new relationship with the Global Hyatt family of brands through the purchase of 7 well-situated Hyatt Summerfield Suites hotels; we welcome Global Hyatt to our existing strong brand relationships with Marriott, Hilton, Starwood and Intercontinental Hotel Group, (cid:2) Paid our 31st consecutive quarterly dividend since our 1999 IPO, one of the highest yielding and consistent dividends among all publicly traded hotel companies, (cid:2) We have substantially removed interest rate risk from our balance sheet by fixing or capping 95% of our debt at a historically low weighted average interest rate of 6.23%, and H T h a s n ow m a d e t e n s i g n i f i c a n t h o t e l i n v e s t m e n t s i n N e w Yo r k C i t y - a m a r k e t t h a t w e b e l i e v e w i l l o u t p e r f o r m t h e i n d u s t r y. 10181_Editorial.qxd 4/4/07 12:26 PM Page 6 h e r s h a h o s p i t a l i t y t r u s t Annual Report 2006 (cid:2) We took advantage of current liquidity in the hotel transaction market by selling 4 non- strategic hotels in metro Atlanta, and further allocated our financial and managerial resources to our core, higher growth markets. revenue per available room or “RevPAR” growth of 13.8% over the prior year compared to 7.5% growth for the industry as a whole. System-wide, our average daily rate or "ADR", the most profitable component of growth, improved 9.7% from last year while our average occupancy rate Our portfolio is distinguished and highly valuable grew by 3.7% as a result of our selective market focus, the young average age of our hotels, quality brand partners, and leading managers at and above each property. Our high quality portfolio and our Company's strategy has been validated by our terrific market performance and positions us for further growth in the coming years. Your interests are well aligned with each of us on your management team. Our management team owns approximately 9% of the Company, collectively making us a top shareholder and beneficiary of our strategy and we as fellow shareholders remain very encouraged by our future prospects. FINANCIAL PERFORMANCE Our hotels turned in excellent performance in 2006. Our consolidated portfolio, produced Our consolidated portfolio produced gross operating profit margins of 44.2% in 2006, versus 42.2% for the full year 2005. Our earnings before interest, taxes, depreciation and amortization or “EBITDA” from our consolidated portfolio approximately doubled to $50.9 million. More than a quarter of our EBITDA came from hotels that are less than 3 years old, which means that we can expect higher growth from these assets relative to the broader portfolio as these properties continue to ramp-up to stabilized occupancy and ADR levels. Overall, the youthfulness of our portfolio will enable us to drive stronger growth relative to our peer set. Our adjusted funds from operations or "AFFO" for the full year benefited both from our same store internal growth and our growth through acquisitions. For the full year 2006, our AFFO increased an extraordinary 45% to $0.97 per 10181_Editorial.qxd 4/6/07 11:26 AM Page 7 Marriott Downtown Hartford, Hartford, Connecticut 10181_Editorial.qxd 4/4/07 12:26 PM Page 8 Hampton Inn Manhattan - Herald Square, New York, NY 10181_Editorial.qxd 4/4/07 12:26 PM Page 9 h e r s h a h o s p i t a l i t y t r u s t Annual Report 2006 share compared to $0.67 for the full year 2005. 11% from the Washington, DC Metro area. Said FOCUSED COMPANY-BUILDING another way, almost 80% of our earnings come from the 4 largest metropolitan markets in the northeast corridor. These are the most densely All of us at Hersha subscribe to the belief that populated markets in the United States with great value is created with a simple strategy diverse demand generators and high average daily executed exceedingly well. Our strategy is simply rate potentials; and contribute significantly to our to provide superior shareholder returns through delivering the highest margins among our peers. appreciation in the value of the hotels we purchase, and to extract leading FFO growth We purchased 6 hotels in the New York City through our deep understanding and careful management of our markets and assets. We metro last year, adding to our already strong concentration there. The restriction of new deliver on this strategy by executing on a supply in this market suggests an extended precisely targeted plan to acquire and own period of strong performance for our hotels in high-quality, branded hotels in urban and this cluster. The fully ramped-up hotels that we primary suburban markets and to manage them own there are generating EBITDA margins with rigorous, value-added expertise. DISCIPLINED ACQUISITIONS PROGRAM approaching 50%, which is remarkable when considering 35% average EBITDA margins among our peers. Our acquisition of the attractive Hyatt Although we have been aggressively acquiring Summerfield Suites portfolio gave us continued hotels across the last several years, we have concentration in our core markets, and created remained true to our plan of acquiring the opportunity for us to enter two new attractive best-in-class hotels in high barrier to entry metro markets: the San Francisco Bay area and markets. At this writing, our portfolio of hotels Scottsdale, Arizona. We studied these markets derives 38% of its EBITDA from New York City, very carefully and were pleased to learn that both 16% from Boston, 13% from Philadelphia and have similar supply demand dynamics to the 10181_Editorial.qxd 4/4/07 12:26 PM Page 10 h e r s h a h o s p i t a l i t y t r u s t Annual Report 2006 northeastern markets that we know so well. In We currently have $75 million invested in 7 new northern California, the resurgence of the development projects in New York City as technology led corporate sector and in Scottsdale, mezzanine or mortgage loan financing under our the continued corporate and residential growth development loan program. Our capital that is driven by the desirable lifestyle in this market, invested in this program earns an average of 10% present strong fundamentals to drive hotel in interest income during the development and revenues. Supply is difficult to come by in either construction phase of each project and further of these markets due largely to the scarcity of secures for the Company a first right of offer land resulting from densely developed in-fill to purchase the underlying assets from our markets and restrictive entitlement processes that development partners for two years from the are specifically designed to avoid ill-conceived development and sprawl. We are expecting date they open a subject hotel. The interest earnings from these loans is significant and double digit revenue growth at our properties in accretive to our earnings, but more importantly, both of these markets in 2007. the opportunity to buy these assets in an off-market transaction in the difficult to source In 2006, we also focused on acquiring more New York City market enables us to potentially extended-stay hotels and bought 3 Marriott acquire very new and high yielding assets without Residence Inns, 7 Hyatt Summerfield Suites, bearing development risk. and an interest in a Hilton Homewood Suites. Almost a third of our portfolio is now made up of extended-stay hotels. We have found this VALUE-ADDED ASSET MANAGEMENT segment to command strong margins and An integral component of our strategy is driving weather economic cycles better than transient continued revenue growth and profitability from hotels. We therefore expect our concentration our existing portfolio through aggressive asset in extended-stay hotels to provide consistent management. Our position as the leading owner cash flows for the Company during varying of multi-branded upscale and mid-scale hotels in market conditions. high barrier to new competition markets and our 10181_Editorial.qxd 4/4/07 12:26 PM Page 11 Marriott Downtown Hartford, Hartford, Connecticut 10181_Editorial.qxd 4/4/07 12:26 PM Page 12 Courtyard by Marriott, Brookline, Massachusetts 10181_Editorial.qxd 4/4/07 12:26 PM Page 13 Hartford Marriott Downtown, Hartford, Connecticut h e r s h a h o s p i t a l i t y t r u s t Annual Report 2006 unique cluster based ownership strategy creates a several years is testament that our vision and unique opportunity to benchmark similar hotels strategy is intact. Our dynamic growth coupled to identify best practices, value enhancement with our financial returns that have consistently tactics and efficiencies that can be used to better outperformed the sector is a direct result of our manage our hotels for internal earnings growth. assembled portfolio of high-quality, branded We will continue our aggressive revenue hotels in some of the country's great cities. We management programs to drive our managers continue to believe that our portfolio and our to optimize top line performance and identify strategy will continue to generate long-term synergies that can lead to higher profitability. value. The coming year is expected to deliver Our management of expenses is and remains a key priority. The quality of our hotels and the strong demand growth and limited new supply in our segments and our markets — we expect to take advantage of this opportunity and strive to markets within which they are located creates deliver some of the best results in our history. high guest expectations and, therefore, we must work very closely with our operators to improve As we mentioned, your management team productivity and generate savings that do not remains one of the largest shareholders in Hersha impact the perceived quality of our hotels or the Hospitality Trust and together with you, we look satisfaction of our guests. Nonetheless, our forward to strong returns next year and for the quality assets and the variety of demand years to come. generators that support them allow our managers to drive top line revenues leading to meaningful Best regards, margin growth and value creation for shareholders that more than offsets increasing operating costs. CONSISTENT EXECUTION The business that we have built across the last Hasu P. Shah Chairman Jay H. Shah Chief Executive Officer 10181_Editorial.qxd 4/4/07 12:26 PM Page 14 h e r s h a h o s p i t a l i t y t r u s t Annual Report 2006 hersha hospitality trust properties hersha hospitality trust properties NEW YORK & NEW JERSEY NEW YORK & NEW JERSEY MID-ATLANTIC REGION MID-ATLANTIC REGION N E W Y O R K C I T Y M E T R O A R E A N E W Y O R K C I T Y M E T R O A R E A Hampton Inn, Manhattan/Chelsea Hampton Inn, Manhattan/Chelsea Hampton Inn Manhattan/Herald Square Hampton Inn Manhattan/Herald Square Hampton Inn, Manhattan/Seaport 1) Hampton Inn, Manhattan/Seaport 1) Holiday Inn Express, Manhattan/Madison Square 1) Holiday Inn Express, Manhattan/Madison Square 1) Hilton Garden Inn, JFK International Airport Hilton Garden Inn, JFK International Airport Hyatt Summerfield Suites, White Plains Hyatt Summerfield Suites, White Plains Holiday Inn Express, Chester 1) Holiday Inn Express, Chester 1) Hampton Inn Brookhaven, Long Island/Farmingville Hampton Inn Brookhaven, Long Island/Farmingville Holiday Inn Express, Long Island/Hauppauge Holiday Inn Express, Long Island/Hauppauge N E W J E R S E Y N E W J E R S E Y Hilton Garden Inn, Edison/Raritan Center Hilton Garden Inn, Edison/Raritan Center Hampton Inn, Linden/Newark Airport Hampton Inn, Linden/Newark Airport Courtyard by Marriott, Ewing/Princeton Courtyard by Marriott, Ewing/Princeton Hyatt Summerfield Suites, Bridgewater Hyatt Summerfield Suites, Bridgewater Fairfield Inn by Marriott, Mt. Laurel Fairfield Inn by Marriott, Mt. Laurel NEW ENGLAND NEW ENGLAND B O S T O N M E T R O A R E A B O S T O N M E T R O A R E A Courtyard by Marriott, Brookline Courtyard by Marriott, Brookline Courtyard by Marriott, South Boston Courtyard by Marriott, South Boston Sheraton Four Points, Boston/Logan Airport Sheraton Four Points, Boston/Logan Airport Residence Inn by Marriott, Framingham Residence Inn by Marriott, Framingham Holiday Inn Express, Cambridge Holiday Inn Express, Cambridge Holiday Inn Express, South Boston Holiday Inn Express, South Boston Hawthorn Suites, Franklin Hawthorn Suites, Franklin Residence Inn by Marriott, Norwood Residence Inn by Marriott, Norwood Residence Inn by Marriott, North Dartmouth Residence Inn by Marriott, North Dartmouth Comfort Inn, North Dartmouth Comfort Inn, North Dartmouth Courtyard by Marriott, Warwick, RI Courtyard by Marriott, Warwick, RI C O N N E C T I C U T C O N N E C T I C U T Mystic Marriott Hotel and Spa, Groton Mystic Marriott Hotel and Spa, Groton Residence Inn by Marriott, Mystic Residence Inn by Marriott, Mystic Marriott Downtown, Hartford Marriott Downtown, Hartford Hilton Hotel, Hartford Hilton Hotel, Hartford Hilton Garden Inn, Hartford South/ Glastonbury Hilton Garden Inn, Hartford South/ Glastonbury Homewood Suites, Hartford South/Glastonbury Homewood Suites, Hartford South/Glastonbury SpringHill Suites, Waterford SpringHill Suites, Waterford Residence Inn by Marriott, Southington Residence Inn by Marriott, Southington Courtyard by Marriott, Norwich Courtyard by Marriott, Norwich Residence Inn by Marriott, Danbury Residence Inn by Marriott, Danbury P H I L A D E L P H I A M E T R O A R E A P H I L A D E L P H I A M E T R O A R E A Hampton Inn, Center City Philadelphia Hampton Inn, Center City Philadelphia Courtyard by Marriott, Langhorne/Oxford Valley Courtyard by Marriott, Langhorne/Oxford Valley Residence Inn by Marriott, Langhorne/Oxford Valley 1) Residence Inn by Marriott, Langhorne/Oxford Valley 1) Holiday Inn Express, Langhorne/Oxford Valley Holiday Inn Express, Langhorne/Oxford Valley Holiday Inn Express, King of Prussia/Valley Forge Holiday Inn Express, King of Prussia/Valley Forge Mainstay Suites, King of Prussia/Valley Forge Mainstay Suites, King of Prussia/Valley Forge Sleep Inn, King of Prussia/Valley Forge Sleep Inn, King of Prussia/Valley Forge Holiday Inn Express, Frazer/Malvern Holiday Inn Express, Frazer/Malvern Fairfield Inn & Suites, Allentown/Bethlehem Fairfield Inn & Suites, Allentown/Bethlehem P E N N S Y L V A N I A P E N N S Y L V A N I A Hampton Inn & Suites, Hershey Hampton Inn & Suites, Hershey Holiday Inn Express, Hershey Holiday Inn Express, Hershey Comfort Inn, West Hanover/Hershey Comfort Inn, West Hanover/Hershey Hilton Garden Inn, Gettysburg Hilton Garden Inn, Gettysburg Residence Inn by Marriott, Carlisle 1) Residence Inn by Marriott, Carlisle 1) Holiday Inn Conference Center, Harrisburg West Holiday Inn Conference Center, Harrisburg West Holiday Inn Express Hotel and Suites, Harrisburg Holiday Inn Express Hotel and Suites, Harrisburg Hampton Inn, Carlisle Hampton Inn, Carlisle Courtyard by Marriott, Scranton Courtyard by Marriott, Scranton Hampton Inn, Danville Hampton Inn, Danville Hampton Inn, Selinsgrove Hampton Inn, Selinsgrove Holiday Inn Express, New Columbia Holiday Inn Express, New Columbia W I L M I N G T O N , D E W I L M I N G T O N , D E Courtyard By Marriott, Wilmington Courtyard By Marriott, Wilmington Inn at Wilmington, Wilmington Inn at Wilmington, Wilmington W A S H I N G T O N D . C . M E T R O A R E A W A S H I N G T O N D . C . M E T R O A R E A Residence Inn by Marriott, Tyson's Corner, VA Residence Inn by Marriott, Tyson's Corner, VA Courtyard by Marriott, Alexandria, VA Courtyard by Marriott, Alexandria, VA Residence Inn by Marriott, Greenbelt, MD Residence Inn by Marriott, Greenbelt, MD Hyatt Summerfield Suites, Gaithersburg, MD Hyatt Summerfield Suites, Gaithersburg, MD Fairfield Inn, Laurel, MD Fairfield Inn, Laurel, MD Mainstay Suites, Frederick, MD Mainstay Suites, Frederick, MD Comfort Inn, Frederick, MD Comfort Inn, Frederick, MD V I R G I N I A / N O R T H C A R O L I N A V I R G I N I A / N O R T H C A R O L I N A Residence Inn by Marriott, Williamsburg, VA Residence Inn by Marriott, Williamsburg, VA Springhill Suites, Williamsburg, VA Springhill Suites, Williamsburg, VA Hyatt Summerfield Suites, Charlotte, NC Hyatt Summerfield Suites, Charlotte, NC WEST COAST WEST COAST C A L I F O R N I A / A R I Z O N A C A L I F O R N I A / A R I Z O N A Hyatt Summerfield Suites, Pleasant Hill/Walnut Creek, CA Hyatt Summerfield Suites, Pleasant Hill/Walnut Creek, CA Hyatt Summerfield Suites, Pleasanton/Dublin, CA Hyatt Summerfield Suites, Pleasanton/Dublin, CA Hyatt Summerfield Suites, Scottsdale, AZ Hyatt Summerfield Suites, Scottsdale, AZ 1) Acquired subsequent to December 31, 2006. 10181_Editorial.qxd 4/4/07 12:28 PM Page 2 h e r s h a h o s p i t a l i t y t r u s t f i n a n c i a l h i g h l i g h t s 2 0 0 6 H E R S H A h e r s h a h o s p i t a l i t y t r u s t Annual Report 2006 H E R S H A (In thousands, except per share data) Year Ended December 31, hotel operating results (a) Total Revenues 2006 2005 2004 2003 2002 $ 259,485 $ 127,195 $ 72,076 $ 38,428 $ 33,384 Average Daily Rate Occupancy Revenue Per Available Room $ $ 117.91 71.75% 84.60 $ $ 106.18 71.32% 75.73 $ $ 97.62 67.21% 65.61 $ $ 85.52 64.80% 55.41 $ $ 81.66 63.81% 52.11 (a) Pertains to all hotels owned as of year end including the total results of hotels owned in a joint venture structure. (In thousands except per share data) Year Ended December 31, hersha hospitality trust (1) OPERATING DATA: Total Revenues (Including Discontinued Operations) Net Income applicable to Common Shareholders Adjusted Funds from Operations (AFFO) (2) PER SHARE DATA: Basic Earnings Per Common Share Diluted Earnings Per Common Share AFFO Distributions to Common Shareholders 2006 2005 2004 2003 2002 $ 153,887 298 29,870 $ 0.01 0.01 0.97 0.72 $ $ 89,466 1,377 15,567 0.07 0.07 0.67 0.72 $ $ 58,511 2,049 11,571 0.13 0.13 0.57 0.72 $ $ 19,324 785 7,728 0.17 0.17 0.69 0.72 $ $ 14,969 1,292 8,293 0.51 0.51 1.09 0.72 BALANCE SHEET DATA (as of December 31): Total Assets Total Debt Minority Interest in Partnership Total Shareholder’s Equity $ 968,208 580,542 25,933 331,619 $ 455,355 256,521 15,147 164,703 $ 261,021 111,846 16,779 119,792 $ 195,568 71,837 38,971 71,460 $ 101,516 65,341 20,258 11,378 (1) Total revenues consisted primarily of percentage and fixed lease revenues during 2001-2003. The Company terminated eight leases on January 31, 2004 and the remaining six leases as of April 1, 2004. (2) Funds from Operations (FFO) as defined by NAREIT represents net income (loss) (computed in accordance with generally accepted accounting princi- ples), 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. We present Adjusted Funds From Operations (AFFO), which reflects FFO in accordance with the NAREIT definition plus the following additional adjustments: adding back depreciation related to dis- continued operations; adding back write-offs of deferred financing costs on debt extinguishment, both for consolidated and unconsolidated properties, adding back amortization of deferred financing costs, adding back non-cash stock expense, adding back our non-cumulative preferred return on consolidated joint ventures, and making adjustments to ground lease payments, which are required by GAAP to be amortized on a straight-line basis over the term of the lease, to reflect the actual lease payment. board of trustees Hasu P. Shah Chairman Hersha Hospitality Trust Jay H. Shah Chief Executive Officer Hersha Hospitality Trust Thomas S. Capello Founder & Principal First Capital Equities Michael A. Leven Vice Chairman Marcus Foundation John M. Sabin CFO and General Counsel Phoenix Health Systems, Inc. Donald J. Landry Former CEO and President Sunburst Hospitality, Inc. K.D. Patel Director Hersha Hospitality Management, L.P. corporate officers Jay H. Shah Chief Executive Officer Neil H. Shah President & Chief Operating Officer Ashish R. Parikh Chief Financial Officer Michael R. Gillespie Chief Accounting Officer William J. Walsh Vice President of Asset Management Robert C. Hazard III Vice President of Acquisitions & Development David L. Desfor Treasurer Kiran P. Patel Corporate Secretary c o r p o r at e h e a d q u a r t e r s 44 Hersha Drive Harrisburg, PA 17102 Telephone: (717) 236-4400 Facsimile: (717) 774-7383 p h i l a d e l p h i a e x e c u t i v e o f f i c e s Penn Mutual Towers 510 Walnut Street, 9th Floor Philadelphia, PA 19106 Telephone: (215) 238-1046 Facsimile: (215) 238-0157 i n d e p e n d e n t a u d i to r s KPMG LLP Certified Public Accountants 1601 Market Street Philadelphia, PA 19103 Telephone: (267) 256-7000 r e g i s t r a r a n d s to c k t r a n s f e r a g e n t American Stock Transfer & Trust Company 10150 Mallard Creek Drive, Suite 307 Charlotte, NC 28262 Telephone: (800) 829-8432 l e g a l c o u n s e l Hunton & Williams Riverfront Plaza 951 East Byrd Street Richmond, Virginia 23219 Telephone: (804) 788-8200 c o m m o n s to c k i n f o r m at i o n The Common Stock of Hersha Hospitality Trust is traded on the American Stock Exchange under the Symbol “HT” 10181_Editorial.qxd 4/4/07 12:28 PM Page 1 H E R S H A h e r s h a h o s p i t a l i t y t r u s t a n n u a l r e p o r t 2 0 0 6 H E R S H A www.hersha.com H e r s h a H o s p i t a l i t y T r u s t A n n u a l R e p o r t 2 0 0 6