Hersha Hospitality Trust
Annual Report 2014

Plain-text annual report

HERSHA hersha hospitality trust 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 1 4 2014 (cid:13) (cid:13) www.hersha.com (cid:13) 2014 financial highlights (In thousands, except per share data) consolidated hotel operating results 2014 2013 2012 2011 2010 Year Ended December 31, hotel operating revenues average daily rate occupancy revenue per available room $ $ $ 417,226 338,064 299,005 229,156 184,998 187.82 82.6% 155.19 179.70 79.7% 143.30 175.23 78.6% 137.78 166.58 76.6% 127.64 157.11 76.7% 120.52 (In thousands, except per share data) hersha hospitality trust operating data: (Excluding Impairment Charges) (1) 2014 2013 Year Ended December 31, 2012 2011 2010 $ Total Revenues (Including Discontinued Operations) Net Income applicable to Common Shareholders Adjusted EBITDA(2) (4) Adjusted Funds from Operations (3) (4) 419,346 54,638 162,506 102,832 396,458 44,467 145,064 86,487 364,690 8,376 143,291 76,046 329,868 ) (5,133 132,969 68,710 283,597 ) (18,871 108,329 52,067 per share data: (Excluding Impairment Charges) (1) $ Basic/Diluted Earnings Per Common Share AFFO Distributions to Common Shareholders 0.27 0.49 0.26 0.22 0.41 0.24 0.04 0.38 0.24 ) (0.03 0.38 0.23 ) (0.14 0.36 0.20 balance sheet data: (as of December 31st) Total Assets Total Debt Noncontrolling Interest in Partnership Total Shareholder’s Equity $ 1,855,539 918,923 28,007 829,382 1,748,097 819,336 29,181 837,958 1,707,679 792,708 31,281 829,828 1,630,909 820,132 32,124 730,671 1,457,277 694,720 39,778 683,434 (1) Operating and Per Share Data exclude charges recorded during 2010-2014 relating to impairment losses on investment in unconsolidated joint ventures and assets held for sale. (2) Adjusted Earnings Before Interest, Taxes, and Depreciation and Amortization (EBITDA) is a non-GAAP financial measure within the meaning of the Securities and Exchange Commission rules. Our interpretation of Adjusted EBITDA is that EBITDA derived from our investment in unconsolidated joint ventures should be added back to net income (loss) as part of reconciling net income (loss) to Adjusted EBITDA. Our Adjusted EBITDA computation may not be comparable to EBITDA or Adjusted EBITDA reported by other companies that interpret the definition of EBITDA differently than we do. Management believes Adjusted EBITDA to be a meaningful measure of a REIT's performance because it is widely followed by industry analysts, lenders and investors and that it should be considered along with, but not as an alternative to, net income, cash flow, FFO and AFFO as a measure of the company's operating performance. (3) Funds from Operations (FFO) as defined by NAREIT represents net income (loss) (computed in accordance with generally accepted accounting principles), excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated assets, plus certain non-cash items, such as loss from impairment of assets and 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 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 acquisition and terminated transaction expenses, adding back preferred share extinguishment costs, adding back prior period tax assessment expenses, adding back FFO attributed to our partners in 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. (4) In these financial highlights and in the Letter to Shareholders from our Chief Executive Officer and our President and Chief Operating Officer that follows, we present non-GAAP financial measures, including EBITDA, Adjusted EBITDA, hotel EBITDA, FFO and AFFO. We have provided reconciliations of these non-GAAP financial measures to the applicable GAAP measures in the appendix section that follows the letter to our shareholders, in portions of our Annual Report on Form 10-K for the year ended December 31, 2014, which accompanies this Letter or can be viewed at www.hersha.com, under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Because hotel EBITDA is specific to individual hotels or groups of hotels and not to our Company as a whole, it is not directly comparable to any GAAP measure and should not be relied on as a measure of performance for our portfolio of hotels taken as a whole. HERSHA hersha hospitality trust Hersha Hospitality Trust (HT) is a self-advised real estate investment trust in the hospitality sector, which owns and operates high quality upscale hotels in urban gateway markets. The Company's 51 hotels totaling 8,259 rooms are located in New York, Boston, Philadelphia, Washington, DC, Miami and select markets on the West Coast. Hersha Hospitality Trust shares are traded on The New York Stock Exchange under the ticker “HT”. (1) hersha total returns since ipo in 1999 338% A H S R E H 272% 255% 251% 209% 190% 176% 154% 125% 68% R M Z I n d e x B e r k s h i r e H a t h a w a y s n e y C o m p a n y I n d e x 2 0 0 0 S N L U S H o t e l s e l D i R u s t W a l l R E I T I n d e x D o w J o n e s W a l - M a r S t o r e s S & P 5 0 0 t hersha portfolio by location (2) I n d e x N A R E I T I n d e x G e n e r a l 16% -54% r i c E l e c t F o r d M o t o r C o m p a n y New York City 36% California 15% Washington, DC 14% South Florida 12% Boston 10% Philadelphia 10% hersha portfolio by market segment (3) hersha portfolio by hotel brand (3) Upscale 46% Upper Midscale 44% Luxury/Upper Upscale 10% Marriott 27% Hilton 24% Intercontinental 20% Hyatt 13% Independent 13% Other 3% (1) Source: Bloomberg and SNL Financial. Total Returns from January 26, 1999 through December 31, 2014. Assumes dividends are reinvested. (2) Reflects portfolio concentration by room count for consolidated operations. (3) Reflects portfolio EBITDA concentration for consolidated operations. annual report 2014 hersha hospitality trust Fellow Shareholders Last year marked our 15th year as a publicly traded real estate investment trust. Since listing in 1999, we have delivered a 338% total return to our shareholders, outperforming most of the market’s relevant benchmarks. Our hotel investment strategy of owning urban transient hotels in high barrier to entry, global gateway markets in the United States is unique in the sector. The hotels that we buy produce above market cash flows and real estate value appreciation. The strategy is total return focused, with the resiliency that comes with the high margins we produce. Today we own over 50 hotels in the best markets in the country. The positive economic fundamentals in our markets, and the unique combination of premium room rates and efficient operating models at our hotels, position us for several more years of outsized earnings growth. Our skilled senior management team, which has led the Company since its IPO and successfully navigated 3 lodging cycles, is focused on driving internal growth with value-added asset and revenue management strategies. Our external growth emanates from a disciplined acquisitions program, with emphasis on buying hotels accretive to our already impressive operating and earnings metrics. Last year, we generated a 31% return to shareholders, meaningfully higher than the S&P 500’s 14% return and the Dow Jones Industrial Average’s 10% return. Urbanization Digitization annual report 2014 Portfolio Performance The positive macroeconomic environment, recovering group business, and the continued growth of international visitation to the United States drove a rare mid-cycle re-acceleration of Revenue per Available Room (RevPAR) growth. Full-year 2014 RevPAR in the United States increased 8.3%, compared to 5.4% growth in 2013. Since 1987, the industry has recorded only 3 years of 8% or stronger growth, with each of those years occurring earlier in their respective cycles. The Average Daily Rate (ADR) in the United States increased 4.6% driven by robust transient demand, while full-year 2014 Occupancy increased 220 basis points to 64.4%. While 2014 was the sixth year of a typical 5-to-9-year lodging cycle, the United States lodging sector remains squarely in the ‘middle-innings’ of what most experts believe to be a prolonged cycle. hersha hospitality trust Industry fundamentals played out better than expected in 2014, with low supply growth and an acceleration of room night demand driving revenue performance. Total hotel demand was 12.6% above the last cycle’s peak and the highest recorded in U.S. history. Group dynamics also improved in 2014, with increased group room demand creating compression in our markets that benefited pricing power at our transient hotels. International inbound travel grew briskly last year despite the strengthening U.S. dollar. In 2014, international visitation increased 7% compared to 2013, with Hersha’s geographic footprint uniquely positioned to capture a greater share of inbound international travelers vis-à-vis peers, as our gateway markets welcomed approximately 59% of total international overseas visitors in 2014. Our portfolio achieved record high RevPAR of $155 last year representing an increase of 8.3% compared to 2013. Portfolio ADR rose 4.5% to $188, while average hotel occupancy increased 3% to a robust 83%. Growth from higher room rates, ramp-up and stabilization of new hotels, limited disruption from renovations, and the addition of our development projects in Miami Beach and Manhattan produced impressive EBITDA growth. In 2014, hotel EBITDA reached $157.4 million, increasing 26.4% compared to 2013, while hotel EBITDA margins expanded to a sector leading 37.7%. annual report 2014 Investment Discipline During 2014, we bought 4 strategic hotels in California, South Florida and Manhattan. In March, we closed on the purchase of the Hotel Milo in Santa Barbara for approximately $42.0 million. This popular oceanfront hotel is an attractive addition to Hersha’s West Coast portfolio. The Santa Barbara hotel market is one of the highest RevPAR markets in the country with minimal new supply, making the future outlook there strong. The Hotel Milo is already producing attractive returns generating an 8.2% cash flow yield by the end of the year. We also purchased the 148-room Parrot Key Hotel & Resort in Key West, Florida in May for $100.0 million. The hotel is one of the most recently built waterfront hotels on the Key, with some of the largest rooms and the most oceanfront suites in Key West. The government- imposed ordinance limiting new hotel supply and consistent year-round demand make Key West a very desirable hotel investment market. hersha hospitality trust Parrot Key has exceeded our underwriting expectations producing an 8.3% yield on cost by the end of 2014, and is expected to generate $4.2 million of incremental EBITDA in 2015. Last year, our West Coast and South Florida portfolio contributed 25% of our EBITDA compared to 5% at the beginning of this cycle. Later in May, we opened the brand new 205-room Hilton Garden Inn Midtown East on 52nd Street off of 3rd Avenue in Manhattan. The hotel is ideally located in a corporate office market of approximately 20 million square feet. It is proximate to the United Nations, Grand Central Station and Rockefeller Center, and is only the second new hotel to be constructed in Midtown East in 15 years. Within its first year of operation, the hotel’s market value has reached $125.0 million, a $40.0 million gain to the Company. In June, we opened the brand new 81-room Hampton Inn Downtown Financial District located just a block and a half from Battery Park and the Ellis Island Ferry. The hotel is the Company’s 4th in the Financial District, a submarket that will benefit from 10 million square feet of brand new, world-class office space, which is expected to drive significant transient room night demand moving forward. Ramp- up at the hotel is strong with the hotel expected to achieve first-year ADR of $241 at 88% occupancy. Both hotels add to the quality and real estate value of our New York City portfolio and have been immediately accretive to earnings. The delivery of the Hilton Garden Inn Midtown East and the Hampton Inn Downtown Financial District also mark the successful conclusion of the Company’s construction and development pipeline. Optimization Globalization annual report 2014 While adding high-quality hotels to the portfolio, we also sold a number of stabilized, select service assets in suburban markets and one in the New York City market, monetizing gains and recycling the capital into new investments. During February 2014, the Company closed on the sale of the remaining 4 hotels of our non-core portfolio. Additionally in New York City, we sold the 70-room Hotel 373 in April to an offshore investment group for $37.0 million, realizing a gain of $7.2 million. We further enhanced portfolio value by executing on timely renovation projects that are generating returns now and will continue to drive outperformance in the coming years. In 2014, we completed work at The Rittenhouse Spa, Club, Salon and Pool in Philadelphia, completing the final element of renovations at the iconic luxury urban resort. Significant renovations were also completed at some of our hotels in Boston, Los Angeles, Washington D.C. and South Florida. These properties are enjoying improved performance and enhanced market positioning as a result of the renovations. At present, all of our significant renovation projects are complete. With 70% of the portfolio fully renovated in the past 3 years, our hotels are well-positioned to leverage incremental earnings at a time in the cycle when profit potential is at its highest. hersha hospitality trust Capital Management We are firmly committed to a balance sheet strategy that is both secure and flexible, and provides us with economic advantages. In the competitive transactions market, our financial strength allows us to capitalize on investment opportunities by offering agility and mitigating execution risk for sellers. In early 2014, we closed on a new, attractively priced $500.0 million credit facility, consisting of a $250.0 million senior unsecured revolving line of credit and a $250.0 million senior unsecured term loan. In addition to meaningful flexibility, the facility provides extended debt maturities and a reduced weighted average cost of debt. In addition, during the first quarter 2014, we repurchased approximately 2.6 million of our own shares for $15.2 million at a weighted average cost of $5.80 per share. We believe opportunistic share buybacks are an attractive use of available capital and a driver of share value when the share price is temporarily dislocated and at a material discount to the Company’s net asset value. At our Board of Trustees Meeting in September of last year, the Trustees voted to increase the quarterly cash dividend by 16.7% to $0.07 per share, representing an annualized dividend of $0.28 per share, a 4% dividend yield at year-end. In addition to being consistent with our total return focus, our increased common dividend reflects growing cash flow and the sound financial health of the marketplace. As we have detailed, the completion of our ground-up development projects and the majority of our large-scale renovation projects undertaken in the early part of the recovery has the Company well-positioned to harvest cash flow, leverage rate driven revenue growth and return capital to our shareholders. annual report 2014 The Company’s goal during this cycle is to remain nimble to quickly respond to any opportunities or changes within the market. The various corporate finance actions that took place in 2014 are supportive of this goal. Confidence is Preparation Our range of accomplishments in 2014 demonstrate our long-term value creation approach that has led to the Company’s meaningful total return outperformance across the last 15 years. Our clear path for earnings and value growth is more apparent than at any point in our years as a public company. hersha hospitality trust As we move into 2015 and beyond, we will seek growth in markets that we understand well and where we can leverage our differentiated investment philosophy. Last year’s strategic acquisitions, the delivery of the development pipeline and the results of our capital recycling, uniquely position the Company for earnings and share price outperformance. Our cash flow generation, driven by our urban transient hotel strategy in the country’s top gateway markets, the operational advantages the Company brings and our collaborative management structure is expected to accelerate through the cycle, further driving value for shareholders. In the coming year, we will continue to execute on our strategy, while simultaneously remaining agile and responsive to evolving market conditions. We are grateful for your continued trust and support for our thoughtful, absolute return approach, and we look forward to updating you across the year on our progress. jay h. shah chief executive officer neil h. shah president and chief operating officer Organization ® Hersha Hospitality Trust embraces environmental and community stewardship as an integral part of maintaining and building a successful business. For that reason, we created and branded the EarthView® program in 2010 with a cross-functional team from our properties and our corporate offices. Through EarthView, we deliver environmental and conservation programs that positively impact a hotel operation's financial performance while simultaneously improving the well-being of our guests, our associates, our communities, and our planet. new cadillac courtyard miami beach tower is leed certified The new 93 room tower built at the Cadillac Courtyard Miami Beach is now a LEED Certified addition to the hotel. As built, the tower will reduce energy use by 15% and water use by 30% as compared to similar hotels. Sustainability Our approach to sustainability is thoughtful and pragmatic, meaning we apply a rigorous analytical methodology to measure our financial impact, as well as our environmental and community impact. We are pleased with our results and EarthView’s recognition as an award winning program, distinguished by its innovative and strong commitment to sustainability practices. Initiatives implemented as a part of the EarthView program are designed to achieve a positive cumulative financial return. To date, these initiatives have resulted in net savings of approximately $3.2 million since the inception of the program. capturing sunshine in the sunshine state Hersha recently installed 336 Solar PV panels on the roof of its Residence Inn by Marriott Coconut Grove property in Florida. The system captures renewable energy from the sun and will generate over 150,000 kWh of electricity each year for use by the hotel. annual report 2014 Over the last two years, we have focused on capital initiatives to target reductions in utility expenses with clear and timely returns on investment. For example, guestroom energy management systems began installation across our portfolio at the end of 2013. These systems are able to reduce guestroom heating and cooling costs by 25-35%. With a capital cost of $2.1 Million and an annual savings in heating and cooling costs of roughly $1 Million, the payback period is just over 2 years. As a triple bottom line program, EarthView also focuses on strengthening Hersha’s commitment to the communities our properties operate in and fostering business practices that promote the public good. Within these efforts, we embrace our ongoing partnerships with various NGOs and Trade Organizations such as the United Way, the American Hotel & Lodging Association Educational Foundation, Clean the World, and most recently, Water.org. hersha hospitality trust hersha hospitality trust financial impact community engagement $3.2 million 2,600 hours EarthView’s recorded savings since inception from Hours volunteered by all of our associates. Over 14,000 energy initiatives implemented across our portfolio. hours since the start of the program. environmental performance Local and global organizations supported by EarthView’s 215 organizations supported 13% carbon reduction Reduced energy consumption across our portfolio resulted in a decrease in carbon emissions per philanthropic initiatives. 23,000 pounds of soap donated Pounds of soap donated to Clean the World, creating occupied room versus our baseline year of 2010. 63,000 new bars sent to developing nations. 8% water reduction clean water projects supported Reduced water consumption across our portfolio Support for clean water projects around the world versus our baseline year of 2010. 42% waste reduction Reduced waste sent to landfills across our portfolio versus our baseline year of 2010. through the EarthView water initiative, which donates $1 for every 1 bottle of EarthView branded water sold. annual report 2014 new york city philadelphia Hyatt Union Square, Greenwich Village Duane Street Hotel, Tribeca NU Hotel, Brooklyn Hilton Garden Inn, Midtown East Hilton Garden Inn, Tribeca Hampton Inn Manhattan/Times Square Hampton Inn, Madison Square Garden Hampton Inn, Chelsea Hampton Inn, Seaport Hampton Inn Downtown Financial District Holiday Inn, Wall Street Holiday Inn Express, Water Street Holiday Inn Express, Times Square South Holiday Inn Express, Madison Square Garden Candlewood Suites, Times Square South The Rittenhouse, Center City Philadelphia Hampton Inn, Center City/Convention Center Hyatt Place, King of Prussia/Valley Forge Sheraton Wilmington South, Wilmington, DE washington, d.c. Hampton Inn, Washington, D.C. Capitol Hill Hotel, Washington, D.C. Residence Inn by Marriott, Tyson’s Corner, VA Courtyard by Marriott, Alexandria, VA Residence Inn by Marriott, Greenbelt, MD Hyatt House, Gaithersburg, MD hersha hospitality trust properties miami Cadillac Courtyard Miami Beach Oceanfront, Miami Beach Blue Moon Hotel, Miami Beach Winter Haven, Miami Beach Residence Inn by Marriott Coconut Grove, Miami Parrot Key Hotel & Resort, Key West west coast Hotel Milo, Santa Barbara Courtyard by Marriott Westside, Los Angeles Courtyard by Marriott, Downtown San Diego Hyatt House, Pleasant Hill/Walnut Creek Hyatt House, Pleasanton/Dublin Hyatt House, Scottsdale, AZ Sheraton Hotel, JFK International Airport Hilton Garden Inn, JFK International Airport Hyatt House, White Plains Holiday Inn Express, Chester boston The Boxer, Boston Courtyard by Marriott, Boston/Brookline Courtyard by Marriott, South Boston Holiday Inn Express, Cambridge Holiday Inn Express, South Boston Residence Inn by Marriott, Framingham Residence Inn by Marriott, Norwood Hawthorn Suites, Franklin connecticut Marriott Downtown, Hartford Hilton Hotel, Hartford Mystic Marriott Hotel and Spa, Mystic/Groton Information contained in this Annual Report supercedes the information filed in Hersha Hospitality Trust’s 10-K filed on February 20, 2015. Please see our website for the definition and reconciliation of our historical non-GAAP financial measures. section part i item 1. item 2. part ii item 5. item 6. item 7. item 7a. item 8. item 9. item 9a. consolidated financial statements index Business Properties Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Mark Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures HERSHA hersha hospitality trust page 2 7 9 12 14 34 35 92 92 The Annual Report contains excerpts from our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, and substantially conforms with the version filed with the Securities and Exchange Commission (“SEC”). However, the Form 10-K also contains additional information. For a free copy of our Form 10-K, please contact: Investor Relations Hersha Hospitality Trust 44 Hersha Drive Harrisburg, PA 17102 Our Form 10-K and other filings with the SEC are also available on our website, www.hersha.com. The most recent certifications by our chief executive officer and chief financial officer pursuant to the Sarbanes-Oxley Act of 2002 are filed as exhibits to our Form 10-K. annual report 2014 Item  1.     Business   OVERVIEW   PART  I   Hersha  Hospitality  Trust  is  a  self-­‐advised  Maryland  real  estate  investment  trust  that  was  organized  in  1998   and  completed  its  initial  public  offering  in  January  of  1999.  Our  common  shares  are  traded  on  the  New  York  Stock   Exchange  under  the  symbol  “HT.”  We  invest  primarily  in  institutional  grade  hotels  in  major  urban  gateway  markets   including  New  York,  Washington  DC,  Boston,  Philadelphia,  South  Florida  and  select  markets  on  the  West  Coast.  Our   primary  strategy  is  to  continue  to  acquire  high  quality,  upscale,  mid-­‐scale  and  extended-­‐stay  hotels  in  metropolitan   markets  with  high  barriers  to  entry  in  markets  with  similar  characteristics.  We  have  operated  and  intend  to   continue  to  operate  so  as  to  qualify  as  a  REIT  for  federal  income  tax  purposes.   We  seek  to  identify  acquisition  candidates  located  in  markets  with  economic,  demographic  and  supply   dynamics  favorable  to  hotel  owners  and  operators.  Through  our  due  diligence  process,  we  select  those  acquisition   targets  where  we  believe  selective  capital  improvements  and  intensive  management  will  increase  the  hotel’s   ability  to  attract  key  demand  segments,  enhance  hotel  operations  and  increase  long-­‐term  value.   As  of  December  31,  2014,  our  portfolio  consisted  of  46  wholly  owned  limited  and  full  service  properties   with  a  total  of  6,587  rooms  and  interests  in  five  limited  and  full  service  properties  owned  through  joint  venture   investments  with  a  total  of  1,369  rooms.  These  51  properties,  with  a  total  of  7,956  rooms,  are  located  in  Arizona,   California,  Connecticut,  Delaware,  District  of  Columbia,  Florida,  Maryland,  Massachusetts,  New  York,  Pennsylvania,   and  Virginia  and  operate  under  leading  brands,  owned  by  Marriott  International,  Inc.  (“Marriott”),  Hilton   Worldwide,  Inc.  (“Hilton”),  InterContinental  Hotels  Group  (“IHG”),  Hyatt  Corporation  (“Hyatt”),  or  Starwood  Hotels   and  Resorts  Worldwide,  Inc.  (“Starwood”).  In  addition,  some  of  our  hotels  operate  as  independent  boutique  hotels.     We  are  structured  as  an  umbrella  partnership  REIT,  or  UPREIT,  and  we  own  our  hotels  and  our   investments  in  joint  ventures  through  our  operating  partnership,  Hersha  Hospitality  Limited  Partnership,  for  which   we  serve  as  general  partner.  As  of  December  31,  2014,  we  owned  an  approximate  95.8%  partnership  interest  in  our   operating  partnership.   The  majority  of  our  wholly-­‐owned  hotels  are  managed  by  Hersha  Hospitality  Management,  L.P.   (“HHMLP”),  a  privately  held,  qualified  management  company  owned  by  certain  of  our  trustees  and  executive   officers  and  other  unaffiliated  third  party  investors.  Third  party  qualified  management  companies  manage  the   hotels  that  we  own  through  joint  venture  interests.  We  lease  our  wholly-­‐owned  hotels  to  44  New  England   Management  Company  (“44  New  England”),  our  wholly-­‐owned  taxable  REIT  subsidiary  (“TRS”).  Each  of  the  hotels   that  we  own  through  a  joint  venture  investment  is  leased  to  another  TRS  that  is  owned  by  the  respective  joint   venture  or  an  entity  owned  in  part  by  44  New  England.   Our  principal  executive  office  is  located  at  44  Hersha  Drive,  Harrisburg,  Pennsylvania  17102.  Our   telephone  number  is  (717)  236-­‐4400.  Our  website  address  is  www.hersha.com.  The  information  found  on,  or   otherwise  accessible  through,  our  website  is  not  incorporated  into,  and  does  not  form  a  part  of,  this  report.   AVAILABLE  INFORMATION   We  make  available  free  of  charge  through  our  website  (www.hersha.com)  our  code  of  ethics,  corporate   governance  guidelines  and  the  charters  of  the  committees  of  our  Board  of  Trustees  (Acquisition  Committee,  Audit   Committee,  Compensation  Committee,  Nominating  and  Corporate  Governance  Committee  and  Risk   Sub-­‐Committee  of  the  Audit  Committee).  We  also  make  available  through  our  website  our  annual  reports  on  Form   10-­‐K,  quarterly  reports  on  Form  10-­‐Q,  current  reports  on  Form  8-­‐K  and  amendments  to  those  reports  filed  or   furnished  pursuant  to  Section  13(a)  or  15(d)  of  the  Exchange  Act  as  soon  as  reasonably  practicable  after  such   documents  are  electronically  filed  with,  or  furnished  to,  the  SEC.  The  information  available  on  our  website  is  not,   2                               hersha hospitality trust and  shall  not  be  deemed  to  be,  a  part  of  this  report  or  incorporated  into  any  other  filings  we  make  with  the  SEC.   INVESTMENT  IN  HOTEL  PROPERTIES   Our  operating  strategy  focuses  on  increasing  hotel  performance  for  our  portfolio.  The  key  elements  of  this   strategy  are:   •   •   working   together   with   our   hotel   management   companies   to   increase   revenue   per   available   room,   or   "RevPAR"   and   to   maximize   the   average   daily   rate,   or   “ADR”   and   occupancy   levels   through   active   property-­‐level   management,   intensive   marketing   efforts   to   tour   groups,   corporate   and   government   extended   stay   customers   and   other   wholesale   customers   and   expanded   yield   management   programs,  which  are  calculated  to  better  match  room  rates  to  room  demand;  and   maximizing  our  earnings  by  managing  costs  and  positioning  our  hotels  to  capitalize  on  increased  demand  in   the  high  quality,  upper-­‐upscale,  upscale,  mid-­‐scale  and  extended-­‐stay  lodging  segments,  which  we  believe   can  be  expected  to  follow  from  improving  economic  conditions.   including   ACQUISITIONS   We  selectively  acquire  high  quality  branded  upper-­‐upscale,  upscale,  mid-­‐scale  and  extended-­‐stay  hotels  in   metropolitan  markets  with  high  barriers-­‐to-­‐entry  and  independent  boutique  hotels  in  similar  markets.  Through  our   due  diligence  process,  we  select  those  acquisition  targets  where  we  believe  selective  capital  improvements  and   intensive  management  will  increase  the  hotel’s  ability  to  attract  key  demand  segments,  enhance  hotel  operations   and  increase  long-­‐term  value.  In  executing  our  disciplined  acquisition  program,  we  will  consider  acquiring  hotels   that  meet  the  following  additional  criteria:   •   •   •   •   nationally-­‐franchised   hotels   operating   under   popular   brands,   such   as   Marriott,   Residence   Inn   by   Marriott,   Courtyard   by   Marriott,   Hilton   Hotels,   Hilton   Garden   Inn,   Hampton   Inn,   Holiday   Inn,   Holiday   Inn   Express,   Holiday  Inn  Express  and  Suites,  Candlewood  Suites,  Hyatt  House,  Hyatt  Place,  Hyatt  and  Sheraton  Hotels;   hotels  in  locations  with  significant  barriers-­‐to-­‐entry,  such  as  high  development  costs,  limited  availability  of   land  and  lengthy  entitlement  processes;   hotels  in  our  target  markets  where  we  can  realize  operating  efficiencies  and  economies  of  scale;  and   independent  boutique  hotels  in  similar  markets   Since  our  initial  public  offering  in  January  1999  and  through  December  31,  2014,  we  have  acquired,  wholly   or  through  joint  ventures,  a  total  of  107  hotels,  including  28  hotels  acquired  from  entities  controlled  by  certain  of   our  trustees  and  executive  officers.  Of  the  28  acquisitions  from  entities  controlled  by  certain  of  our  trustees  and   executive  officers,  25  were  newly  constructed  or  substantially  renovated  by  these  entities  prior  to  our  acquisition.   We  take  advantage  of  our  relationships  with  entities  that  are  developing  or  substantially  renovating  hotels,   including  entities  controlled  by  certain  of  our  trustees  and  executive  officers,  to  identify  future  hotel  acquisitions   that  we  believe  may  be  attractive  to  us.  We  intend  to  continue  to  acquire  hotels  from  entities  controlled  by  certain   of  our  trustees  and  executive  officers  if  approved  by  a  majority  of  our  independent  trustees  in  accordance  with  our   related  party  transaction  policy.   DISPOSITIONS   We  evaluate  our  hotels  on  a  periodic  basis  to  determine  if  these  hotels  continue  to  satisfy  our  investment   criteria.  We  may  sell  hotels  opportunistically  based  upon  management’s  forecast  and  review  of  the  cash  flow   potential  of  each  hotel  and  re-­‐deploy  the  proceeds  into  debt  reduction  or  acquisitions  of  hotels.  We  utilize  several   criteria  to  determine  the  long-­‐term  potential  of  our  hotels.  Hotels  are  identified  for  sale  based  upon  management’s   forecast  of  the  strength  of  each  hotel’s  cash  flows  and  its  ability  to  remain  accretive  to  our  portfolio.  Our  decision   to  sell  a  hotel  is  often  predicated  upon  the  size  of  the  hotel,  strength  of  the  franchise,  property  condition  and   related  costs  to  renovate  the  property,  strength  of  market  demand  generators,  projected  supply  of  hotel  rooms  in   the  market,  probability  of  increased  valuation  and  geographic  profile  of  the  hotel.  All  asset  sales  are   3                   annual report 2014 comprehensively  reviewed  by  the  Acquisition  Committee  of  our  Board  of  Trustees,  which  committee  consists  solely   of  independent  trustees.  During  the  time  since  our  initial  public  offering  in  1999  through  December  31,  2014,  we   have  sold  a  total  of  62  hotels.   FINANCING   We  intend  to  finance  our  long-­‐term  growth  with  common  and  preferred  equity  issuances  and  debt   financing  having  staggered  maturities.  Our  debt  includes  unsecured  debt  provided  primarily  under  our  $500  million   unsecured  credit  facility  which  provides  for  a  $250  million  unsecured  term  loan  and  a  $250  million  unsecured   revolving  credit  facility  and  secured  mortgage  debt  in  our  hotel  properties.  We  intend  to  use  our  loan  capacity,   expanded  in  February  2014  as  discussed  below  and  the  undrawn  portion  of  our  $500  million  senior  unsecured   credit  facility  to  pay  down  mortgage  debt  and  fund  future  acquisitions,  as  well  as  for  capital  improvements  and   working  capital  requirements.  Subject  to  market  conditions,  we  intend  to  repay  amounts  outstanding  under  the     revolving  line  of  credit  portion  of  our  credit  facility  from  time  to  time  with  proceeds  from  periodic  common  and   preferred  equity  issuances,  long-­‐term  debt  financings  and  cash  flows  from  operations.  When  purchasing  hotel   properties,  we  may  issue  common  and  preferred  limited  partnership  interests  in  our  operating  partnership  as  full   or  partial  consideration  to  sellers.   FRANCHISE  AGREEMENTS   We  believe  that  the  public’s  perception  of  quality  associated  with  a  franchisor  is  an  important  feature  in   the  operation  of  a  hotel.  Franchisors  provide  a  variety  of  benefits  for  franchisees,  which  include  national   advertising,  publicity  and  other  marketing  programs  designed  to  increase  brand  awareness,  training  of  personnel,   continuous  review  of  quality  standards  and  centralized  reservation  systems.  Most  of  our  hotels  operate  under   franchise  licenses  from  national  hotel  franchisors,  including:   Franchisor   Franchises   Marriott  International   Hilton  Hotels  Corporation   IHG   Hyatt  Hotels  Corporation   Starwood  Hotels     Marriott,  Residence  Inn  by  Marriott,  Courtyard  by  Marriott     Hilton  Hotels,  Hilton  Garden  Inn,  Hampton  Inn     Holiday  Inn,  Holiday  Inn  Express,  Holiday  Inn  Express  &  Suites,  Candlewood  Suites     Hyatt  House,  Hyatt  Place,  Hyatt     Sheraton  Hotels   We  anticipate  that  most  of  the  hotels  in  which  we  invest  will  be  operated  pursuant  to  franchise  licenses.   The  franchise  licenses  generally  specify  certain  management,  operational,  record-­‐keeping,  accounting,   reporting  and  marketing  standards  and  procedures  with  which  the  franchisee  must  comply.  The  franchise  licenses   generally  obligate  our  lessees  to  comply  with  the  franchisors’  standards  and  requirements  with  respect  to  training   of  operational  personnel,  safety,  maintaining  specified  insurance,  the  types  of  services  and  products  ancillary  to   guest  room  services  that  may  be  provided  by  our  lessees,  display  of  signage,  and  the  type,  quality  and  age  of   furniture,  fixtures  and  equipment  included  in  guest  rooms,  lobbies  and  other  common  areas.  In  general,  the   franchise  licenses  require  us  to  pay  the  franchisor  a  fee  typically  ranging  between  6.0%  and  9.3%  of  such  hotel’s   revenues  annually.   PROPERTY  MANAGEMENT   We  work  closely  with  our  hotel  management  companies  to  operate  our  hotels  and  increase  same  hotel   performance  for  our  portfolio.   Through  our  TRS  and  our  investment  in  joint  ventures,  we  have  retained  the  following  management   companies  to  operate  our  hotels,  as  of  December  31,  2014:   4                                                               hersha hospitality trust Manager     Hotels       Rooms     Hotels     Rooms     Hotels     Rooms   Wholly  Owned   Joint  Ventures   Total   Hersha  Hospitality  Management,   L.P.   Waterford  Hotel  Group,  Inc.   South  Bay  Boston  Management,  Inc.     Northwood  Management,  LLC.     45       6,742       -­‐       -­‐       1       -­‐       -­‐     148     Total     46       6,890       -­‐       3       2     -     5       -­‐       45       1,087       282     -     3       2       1       6,439     1,087     282     148     1,369       51       8,259   Each  management  agreement  provides  for  a  set  term  and  is  subject  to  early  termination  upon  the   occurrence  of  defaults  and  certain  other  events  described  therein.  As  required  under  the  REIT  qualification  rules,   all  managers,  including  HHMLP,  must  qualify  as  an  “eligible  independent  contractor”  during  the  term  of  the   management  agreements.   Under  the  management  agreements,  the  manager  generally  pays  the  operating  expenses  of  our  hotels.  All   operating  expenses  or  other  expenses  incurred  by  the  manager  in  performing  its  authorized  duties  are  reimbursed   or  borne  by  our  applicable  TRS  to  the  extent  the  operating  expenses  or  other  expenses  are  incurred  within  the   limits  of  the  applicable  approved  hotel  operating  budget.  Our  managers  are  not  obligated  to  advance  any  of  their   own  funds  for  operating  expenses  of  a  hotel  or  to  incur  any  liability  in  connection  with  operating  a  hotel.   For  their  services,  the  managers  receive  a  base  management  fee,  and  if  a  hotel  meets  and  exceeds  certain   thresholds,  an  additional  incentive  management  fee.  For  the  year  ended  December  31,  2014,  these  thresholds   were  not  met  and  incentive  management  fees  were  not  earned.  The  base  management  fee  for  a  hotel  is  due   monthly  and  is  generally  equal  to  3%  of  the  gross  revenues  associated  with  that  hotel  for  the  related  month.   EMPLOYEES   As  of  December  31,  2014,  we  had  48  employees  who  were  principally  engaged  in  managing  the  affairs  of   the  Company  unrelated  to  property  operations.     We  believe  that  our  relations  with  our  employees  are   satisfactory.   TAX  STATUS   We  elected  to  be  taxed  as  a  REIT  under  Sections  856  through  860  of  the  Code,  commencing  with  our   taxable  year  ended  December  31,  1999.  As  long  as  we  qualify  for  taxation  as  a  REIT,  we  generally  will  not  be  subject   to  federal  income  tax  on  the  portion  of  our  income  that  is  currently  distributed  to  our  shareholders.  If  we  fail  to   qualify  as  a  REIT  in  any  taxable  year  and  do  not  qualify  for  certain  statutory  relief  provisions,  we  will  be  subject  to   federal  income  tax  (including  any  applicable  alternative  minimum  tax)  on  our  taxable  income  at  regular  corporate   tax  rates.     Additionally,  we  will  generally  be  unable  to  qualify  as  a  REIT  for  four  years  following  the  year  in  which   qualification  is  lost.     Even  if  we  qualify  for  taxation  as  a  REIT,  we  will  be  subject  to  certain  state  and  local  taxes  on   our  income  and  property  and  to  federal  income  and  excise  taxes  on  our  undistributed  income.   We  own  interests  in  several  TRSs.  We  may  own  up  to  100%  of  the  stock  of  a  TRS.  A  TRS  is  a  taxable   corporation  that  may  lease  hotels  from  our  operating  partnership  and  its  subsidiaries  under  certain  circumstances.   Overall,  no  more  than  25%  of  the  value  of  our  assets  may  consist  of  securities  of  one  or  more  TRSs.  In  addition,  no   more  than  25%  of  our  gross  income  for  any  year  may  consist  of  dividends  from  one  or  more  TRSs  and  income  from   certain  non-­‐real  estate  related  sources.   A  TRS  is  permitted  to  lease  hotels  from  us  as  long  as  the  hotels  are  operated  on  behalf  of  the  TRS  by  a   third  party  manager  that  qualifies  as  an  "eligible  independent  contractor."  To  qualify  for  that  treatment,  the   manager  must  satisfy  the  following  requirements:   5                                     annual report 2014 1.   2.   3.   4.   such   manager   is,   or   is   related   to   a   person   who   is,   actively   engaged   in   the   trade   or   business   of   operating   “qualified  lodging  facilities”  for  any  person  unrelated  to  us  and  the  TRS;   such  manager  does  not  own,  directly  or  indirectly,  more  than  35%  of  our  shares;   no  more  than  35%  of  such  manager  is  owned,  directly  or  indirectly,  by  one  or  more  persons  owning  35%  or   more  of  our  shares;  and   we  do  not,  directly  or  indirectly,  derive  any  income  from  such  manager.   The  deductibility  of  interest  paid  or  accrued  by  a  TRS  to  us  is  limited  to  assure  that  the  TRS  is  subject  to  an   appropriate  level  of  corporate  taxation.  A  100%  excise  tax  is  imposed  on  transactions  between  a  TRS  and  us  that   are  not  on  an  arm’s-­‐length  basis.   FINANCIAL  INFORMATION  ABOUT  SEGMENTS   We  are  in  the  business  of  acquiring  equity  interests  in  hotels,  and  we  manage  our  hotels  as  individual   operating  segments  that  meet  the  aggregation  criteria  and  are  therefore  disclosed  as  one  reportable  segment.  See   “Note  1  -­‐  Organization  and  Summary  of  Significant  Accounting  Policies”  in  Item  8  of  this  Annual  Report  on  Form   10-­‐K  for  segment  financial  information.   6                     hersha hospitality trust Item  2.     Properties   The  following  table  sets  forth  certain  information  with  respect  to  the  46  hotels  we  wholly  owned  as  of  December   31,  2014,  all  of  which  are  consolidated  on  the  Company’s  financial  statements.   Market   Name   Location   Year  Opened     Number  of  Rooms   Boston  Urban  and   Metro     Courtyard       Brookline/Boston,  MA*   Hawthorn  Suites  by   Wyndham     Franklin,  MA       Holiday  Inn  Express     Cambridge,  MA       Residence  Inn       Residence  Inn       The  Boxer     Framingham,  MA     Norwood,  MA       Boston,  MA   California  -­‐  Arizona     Courtyard       Courtyard       Hyatt  House     Hyatt  House     Hyatt  House     Hotel  Milo     Blue  Moon     Courtyard       Residence  Inn     Winter  Haven   South  Florida     San  Diego,  CA     Los  Angeles,  CA     Pleasant  Hill,  CA     Pleasanton,  CA       Scottsdale,  AZ       Santa  Barbara,  CA*     Miami,  FL     Miami,  FL     Coconut  Grove,  FL     Miami,  FL     Parrot  Key  Hotel  &  Resort     Key  West,  FL   NYC  Urban     Candlewood  Suites     Times  Square,  NY     Duane  Street     Hampton  Inn     Hampton  Inn     Hampton  Inn     Hampton  Inn     Hampton  Inn     TriBeCa,  NY       Chelsea/Manhattan,  NY     Herald  Square,  Manhattan,  NY       Seaport,  NY       Times  Square,  NY     Pearl  Street,  Manhattan,  NY     Hilton  Garden  Inn     JFK  Airport,  NY*       Hilton  Garden  Inn     TriBeCa,  NY       Holiday  Inn       Wall  Street,  NY     Holiday  Inn  Express     Times  Square,  NY     Holiday  Inn  Express     Water  Street,  Manhattan,  NY     Holiday  Inn  Express     Madison  Square  Garden,  Manhattan,  NY       Hyatt     Nu  Hotel     Union  Square,  NY     Brooklyn,  NY       Sheraton  Hotel     JFK  Airport,  NY*     Hilton  Garden  Inn     Midtown  East,  Manhattan,  NY   NY-­‐NJ  Metro     Holiday  Inn  Express     Chester,  NY       Hyatt  House     White  Plains,  NY     2003   1999   1997   2000   2006   2004   1999   2008   2003   1998   1999   2001   2013   2004   2000   2013   2013   2009   2008   2003   2005   2006   2009   2012   2005   2009   2010   2009   2010   2006   2013   2008   2008   2014   2006   2000   188   100   112   125   96   80   245   260   142   128   164   122   75   357   140   70   148   188   43   144   136   65   184   81   192   151   113   210   112   228   178   93   150   205   80   159   7                                                                                                                                                                                                                                                                                                                                                   annual report 2014 Market   Name   Property  Name   Year  Opened     Number  of  Rooms   Philadelphia     Hampton  Inn     Hyatt  Place     Philadelphia,  PA       King  of  Prussia,  PA     Sheraton  Hotel     New  Castle,  DE     The  Rittenhouse  Hotel     Philadelphia,  PA     Washington  D.C.     Courtyard       Hampton  Inn     Hyatt  House     Residence  Inn       Residence  Inn       Alexandria,  VA       Washington,  DC     Gaithersburg,  MD       Tysons  Corner,  VA       Greenbelt,  MD     The  Capitol  Hill  Hotel     Washington,  DC   2001   2010   2011   2004   2006   2005   1998   1984   2002   2007   250   129   192   116   203   228   140   96   120   152     TOTAL  ROOMS   6,890   *   Our  interests  in  these  hotels  are  subject  to  ground  leases  which,  in  most  cases,  require  monthly  rental   payment  as  determined  by  the  applicable  ground  lease  agreement.  These  ground  lease  agreements   typically  have  initial  terms  of  99  years  and  all  have  a  remaining  term  of  at  least  85  years.   The  following  table  sets  forth  certain  information  with  respect  to  the  five  hotels  we  owned  through   unconsolidated  joint  ventures  with  third  parties  as  of  December  31,  2014.   Market   Name   Location   Boston       Courtyard       South  Boston,  MA**     Holiday  Inn  Express     South  Boston,  MA**   Connecticut       Hilton     Marriott     Marriott     Hartford,  CT       Mystic,  CT     Hartford,  CT     Year   Opened   Number   of  Rooms     HHLP   Ownership   in  Asset   HHLP   Preferred   Return   2005     1998     2005     2001     2005     164     118     393     285     409     50.0%     50.0%     8.8%     66.7%     15.0%     N/A     N/A     8.5%     8.5%     8.5%     TOTAL  ROOMS     1,369       **   The  joint  ventures  interests  in  these  hotels  are  subject  to  ground  leases  which,  in  most  cases,  require   monthly  rental  payment  as  determined  by  the  applicable  ground  lease  agreements.  These  ground  lease   agreements  typically  have  terms  of  60  years  and  all  have  a  remaining  term  of  at  least  47  years.   8                                                                                                                                                                                                                                                                                                                                                           hersha hospitality trust PART  II   Item  5.   Market  for  Registrant’s  Common  Equity,  Related  Stockholder  Matters  and  Issuer   Purchases  of  Equity  Securities   MARKET  INFORMATION   Our  common  shares  trade  on  the  New  York  Stock  Exchange  under  the  symbol  “HT.”  As  of  February  19,   2015,  the  last  reported  closing  price  per  common  share  on  the  New  York  Stock  Exchange  was  $6.80.  The  following   table  sets  forth  the  high  and  low  sales  price  per  common  share  reported  on  the  New  York  Stock  Exchange  as  traded   and  the  dividends  paid  on  the  common  shares  for  each  of  the  quarters  indicated.   Year  Ended  December  31,  2014   High   Low   Fourth  Quarter   Third  Quarter   Second  Quarter   First  Quarter   Year  Ended  December  31,  2013   Fourth  Quarter   Third  Quarter   Second  Quarter   First  Quarter   SHAREHOLDER  INFORMATION   $   $   $   $   $   $   $   $     7.49       6.95       6.74       6.05     High     5.94       6.21       6.24       6.30     $   $   $   $   $   $   $   $     6.15       6.35       5.52       5.18     Low     5.33       5.18       5.27       5.07     $   $   $   $   $   $   $   $   Dividend  Per   Common  Share     0.07     0.07     0.06     0.06   Dividend  Per   Common  Share     0.06     0.06     0.06     0.06   At  December  31,  2014  we  had  approximately  120  shareholders  of  record  of  our  common  shares.  Common   Units  (which  are  redeemable  by  holders  for  cash  or,  at  our  option,  for  common  shares  on  a  one  for  one  basis,   subject  to  certain  limitations)  were  held  by  approximately  38  entities  and  persons,  including  our  company.   9                                                                                                                                                         annual report 2014 SHARE  PERFORMANCE  GRAPH   The  following  graph  compares  the  yearly  change  in  our  cumulative  total  shareholder  return  on  our   common  shares  for  the  period  beginning  December  31,  2008  and  ending  December  31,  2014,  with  the  yearly   changes  in  the  Standard  &  Poor’s  500  Stock  Index  (the  S&P  500  Index),  the  Russell  2000  Index,  and  the  SNL  Hotel   REIT  Index  for  the  same  period,  assuming  a  base  share  price  of  $100.00  for  our  common  shares,  the  S&P  500  Index,   the  Russell  2000  Index  and  the  Hotel  REIT  Index  for  comparative  purposes.  The  Hotel  REIT  Index  is  comprised  of   publicly  traded  REITs  which  focus  on  investments  in  hotel  properties.  Total  shareholder  return  equals  appreciation   in  stock  price  plus  dividends  paid  and  assumes  that  all  dividends  are  reinvested.  The  performance  graph  is  not   indicative  of  future  investment  performance.  We  do  not  make  or  endorse  any  predictions  as  to  future  share  price   performance.   Hersha  Hospitality  Trust     $   S&P  500   Russell  2000   SNL  Hotel  REIT  Index     $   2008     100.00     100.00       100.00       100.00     2009     104.67  $     123.45       125.22       163.13     2010     220.00  $     139.23       156.90       225.86     2011     162.67  $     139.23       148.35       191.77     2012     166.67  $     157.90       170.06       210.14     2013     218.13  $     204.63       232.98       257.04     2014     285.49     232.30     244.24     339.27   10 70542_PG10-10K-final.indd 1 4/2/15 8:01 PM                                                                                             hersha hospitality trust UNREGISTERED  SALES  OF  EQUITY  SECURITIES  AND  USE  OF  PROCEEDS     A  summary  of  our  common  share  repurchases  (in  millions,  except  average  price  per  share)  during  the  year   ended  December  31,  2014  under  the  $75  million  repurchase  program  authorized  by  our  Board  of  Trustees  in   December  2012  and  reauthorized  in  January  2014,  which  expired  on  December  31,  2014,  is  set  forth  in  the  table   below.  In  February  2015,  our  Board  of  Trustees  again  authorized  us  to  repurchase  from  time  to  time  up  to  an   aggregate  of  $100  million  of  our  outstanding  common  shares.     All  such  common  shares  were  repurchased   pursuant  to  open  market  transactions.     Issuer  Purchases  of  Common  Stock   Total   Number  of   Shares   Purchased   Average   Price   Paid  Per   Share   Total  Number  of   Shares  Purchased  As   Part  of  Publicly   Announced  Plans  or   Programs   Maximum  Number  (or   Approximate  Dollar   Value)  of  Shares  That   May  Yet  Be  Purchased   Under  the  Plans  or   Programs  (in  thousands)   as  of  12/31/2014     -­‐       -­‐       N/A     N/A   N/A   N/A     2,626,854     $   5.80       2,626,854       $   Period   January  1  to  January  31,  2014   February  1  to  February  28,  2014   March  1  to  March  31,  2014   April  1  to  April  30,  2014   May  1  to  May  31,  2014   June  1  to  June  30,  2014   July  1  to  July  31,  2014   August  1  to  August  31,  2014   September  1  to  September  30,   2014   October  1  to  October  31,  2014   November  1  to  November  30,   2014   December  1  to  December  31,   2014   Total     -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       2,626,854     N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A   N/A     75,000       -­‐       -­‐       (15,418)       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       2,626,854     $     59,582  *   *   The  repurchase  program  was  reauthorized  by  our  Board  of  Trustees  in  February  2015,  resulting  in  an   aggregate  dollar  value  of  the  maximum  number  of  common  shares  that  may  be  purchased  as  of  February   20,  2015  of  $100  million.   11                                                                                                                                                                                                                                                                 annual report 2014 Item  6.   Selected  Financial  Data   The  following  sets  forth  selected  financial  and  operating  data  on  a  historical  consolidated  basis.  The   following  data  should  be  read  in  conjunction  with  the  financial  statements  and  notes  thereto  and  Management’s   Discussion  and  Analysis  of  Financial  Condition  and  Results  of  Operations  included  elsewhere  in  this  Form  10-­‐K.       As  a  result  of  the  early  adoption  on  January  1,  2014  of  ASU  Update  No.  2014-­‐08,  we  do  not  expect  to  classify  most   of  our  hotel  dispositions  as  discontinued  operations.     For  purposes  of  this  table  below,  the  operating  results  of   certain  real  estate  assets  which  have  been  sold  prior  to  the  adoption  of  ASU  Update  No.  2014-­‐08  are  included  in   discontinued  operations  for  all  periods  presented.   HERSHA  HOSPITALITY  TRUST   SELECTED  FINANCIAL  DATA   (In  thousands,  except  per  share  data)   Revenue:     Hotel  Operating  Revenues     Interest  Income  From  Development  Loans   Other  Revenues   Total  Revenue     Operating  Expenses:     Hotel  Operating  Expenses     Gain  on  Insurance  Settlements   Hotel  Ground  Rent   Real  Estate  and  Personal  Property  Taxes  and  Property  Insurance     General  and  Administrative  (including  Share  Based  Payments  of   $6,028,  $9,746,  $9,678,  $7,590,  $6,649)   Acquisition  and  Terminated  Transaction  Costs   Depreciation  and  Amortization     Contingent  Consideration   Total  Operating  Expenses     Operating  Income  (Loss)   Interest  Income   Interest  Expense     Other  Expense   Gain  on  Disposition  of  Hotel  Properties   Gain  on  Hotel  Acquisitions,  net   Development  Loan  Recovery   Loss  on  Debt  Extinguishment   2014   2013   2012   2011   2010   $     417,226     $     -­‐       180         417,406         227,324         (4,604)       2,433         30,342         20,363         2,472         69,167         2,000         349,497         67,909         805         (43,357)       (485)       7,195         12,667         22,494         (670)       338,064     $     158         191         338,413         299,005     $     1,998         212         301,215         229,156     $     3,427         330         232,913         184,998       4,686       324       190,008       188,431         (403)       985         24,083         23,869         974         55,784         -­‐       293,723         44,690         1,784         (40,935)       (102)       -­‐       12,096         -­‐       (545)       161,982         -­‐       835         19,341         23,377         1,179         48,243         -­‐       254,957         46,258         1,311         (38,070)       (43)       -­‐       -­‐       -­‐       (3,189)       121,402         -­‐       877         15,936         18,449         2,734         40,562         -­‐       199,960         32,953         456         (34,266)       (231)       -­‐       -­‐       -­‐       (102)       98,930       -­‐     941       13,738       16,833       4,785       34,060       -­‐     169,287       20,721       168       (32,409)     (240)     -­‐     -­‐     -­‐     (852)   Income  (Loss)  before  (Loss)  Income  from  Unconsolidated  Joint   Venture  Investments  and  Discontinued  Operations       66,558         16,988         6,267         (1,190)       (12,612)   (Loss)  Income  from  Unconsolidated  Joint  Ventures     693         (22)       (232)       210         (1,751)   Impairment  of  Investment  in  Unconsolidated  Joint  Ventures   (Loss)  Gain  from  Remeasurement  of  Investment  in  Unconsolidated   Joint  Ventures   (Loss)  Income  from  Unconsolidated  Joint  Venture  Investments   Income  (Loss)  Before  Income  Taxes   Income  Tax  Benefit   Income  (Loss)  from  Continuing  Operations   Discontinued  Operations:   Gain(Loss)  on  Disposition  of  Hotel  Properties   Impairment  of  Assets  Held  for  Sale   Income  (Loss)  from  Discontinued  Operations     Income  (Loss)  from  Discontinued  Operations   Net  Income  (Loss)   (Income)  Loss  Allocated  to  Noncontrolling  Interests   Issuance  Costs  of  Redeemed  Preferred  Shares   Preferred  Distributions   Net  Income  (Loss)  applicable  to  Common  Shareholders   $     -­‐       (1,813)       -­‐       (1,677)       -­‐     -­‐       693         67,251         2,685         69,936         -­‐       (1,835)       15,153         5,600         20,753         (128)       (1,800)       263         (1,665)       68,271         (1,016)       -­‐       (14,356)       52,899     $     32,121         (10,314)       7,388         29,195         49,948         (335)       (2,250)       (14,611)       32,752     $     (1,892)       (2,124)       4,143         3,355         7,498         11,231         -­‐       3,489         14,720         22,218         158         -­‐       (14,000)       8,376     $     2,757         1,290         100         -­‐       100         991         (30,248)       2,189         (27,068)       (26,968)       1,734         -­‐       (10,499)       (35,733)   $     4,008       2,257       (10,355)     -­‐     (10,355)     347       (2,433)     (4,761)     (6,847)     (17,202)     845       -­‐     (4,800)     (21,157)   12                                                                                                                                                                                         hersha hospitality trust HERSHA  HOSPITALITY  TRUST   SELECTED  FINANCIAL  DATA   (In  thousands,  except  per  share  data)   Basic  Income  (Loss)  from  Continuing  Operations  applicable  to   Common  Shareholders   Diluted  Income  (Loss)  from  Continuing  Operations  applicable  to   Common  Shareholders  (1)   Dividends  declared  per  Common  Share     $     0.27    $     0.02     $     (0.03)   $     (0.06)   $     (0.11)     0.27         0.26         0.02         0.24         (0.03)       0.24         (0.06)       0.23         (0.11)     0.20     2014   2013   2012   2011   2010   Balance  Sheet  Data     Net  investment  in  hotel  properties     $     1,745,483    $     1,535,835     $     1,466,713     $     1,341,536     $     1,245,851     Assets  Held  for  Sale     Noncontrolling  Interests  Common  Units   Redeemable  Noncontrolling  Interest   Noncontrolling  Interests  Consolidated  Joint  Ventures     -­‐       29,082         56,583         29,523         -­‐       -­‐       -­‐       -­‐     Noncontrolling  Interests  Consolidated  Variable  Interest  Entity     (1,075)       (342)       -­‐       15,484         15,321         -­‐       476         93,829         16,862         14,955         307         -­‐       -­‐     19,410       19,894       474       -­‐   Shareholder's  equity     Total  assets     Total  debt       829,382         837,958         829,828         730,673         683,434       1,855,539         1,748,097         1,707,679         1,630,909         1,457,277       918,923         773,501         792,708         758,374         694,720     Liabilities  related  to  Assets  Held  for  Sale       -­‐       45,835         -­‐       61,758         -­‐   Other  Data     Net  cash  provided  by  operating  activities     Net  cash  used  in  investing  activities     Net  cash  provided  by  financing  activities     Weighted  average  shares  outstanding     Basic     Diluted  (1)   $   $   $     112,894    $     90,261     $     71,756     $     58,668     $     42,486       (180,504)  $     (125,474)   $     (55,817)   $     (230,758)   $     (310,567)     53,072    $     2,367     $     28,552     $     131,062     $     322,273       199,109,209      198,390,450    187,415,270    168,753,382    134,370,172     201,197,310      201,918,177    187,415,270    168,753,382    134,370,172   (1)     Income  allocated  to  noncontrolling  interest  in  HHLP  has  been  excluded  from  the  numerator  and  Common   Units  have  been  omitted  from  the  denominator  for  the  purpose  of  computing  diluted  earnings  per  share   because  the  effect  of  including  these  amounts  in  the  numerator  and  denominator  would  have  no  impact.   13                                                                                                                                                       annual report 2014 Item  7.   Management’s  Discussion  and  Analysis  of  Financial  Condition  and  Results  of   Operations   Certain  statements  appearing  in  this  Item  7  are  forward-­‐looking  statements  within  the  meaning  of  the   federal  securities  laws.  Our  actual  results  may  differ  materially.  We  caution  you  not  to  place  undue  reliance  on  any   such  forward-­‐looking  statements.  See  “Cautionary  Factors  That  May  Affect  Future  Results”  for  additional   information  regarding  our  forward-­‐looking  statements.   BACKGROUND   As  of  December  31,  2014,  we  owned  interests  in  51  hotels  in  major  urban  gateway  markets  including  New   York,  Washington  DC,  Boston,  Philadelphia,  San  Diego,  Los  Angeles  and  Miami,  including  46  wholly-­‐owned  hotels   and  interests  in  five  hotels  owned  through  unconsolidated  joint  ventures.  Our  "Summary  of  Operating  Results"   section  below  contains  operating  results  for  46  consolidated  hotel  assets  and  five  hotel  assets  owned  through   unconsolidated  joint  ventures.    We  have  elected  to  be  taxed  as  a  REIT  for  federal  income  tax  purposes,  beginning   with  the  taxable  year  ended  December  31,  1999.  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  TRS,  provided  that  the   TRS  engages  an  eligible  independent  contractor  to  manage  the  hotels.     As  of  December  31,  2014,  we  have  leased   all  of  our  hotels  to  a  wholly-­‐owned  TRS,  a  joint  venture  owned  TRS,  or  an  entity  owned  by  our  wholly-­‐owned  TRS.   Each  of  these  TRS  entities  will  pay  qualifying  rent,  and  the  TRS  entities  have  entered  into  management  contracts   with  qualified  independent  managers,  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.   OVERVIEW   We  believe  the  improvements  in  our  equity  and  debt  capitalization  and  repositioning  of  our  portfolio   better  enables  us  to  capitalize  on  further  improvement  in  lodging  fundamentals.  During  2014,  we  continued  to  see   improvements  in  ADR,  RevPAR  and  operating  margins,  led  by  hotels  in  most  of  our  major  locations.  We  continue  to   seek  acquisition  opportunities  in  urban  centers  and  central  business  districts.  In  addition,  we  will  continue  to  look   for  attractive  opportunities  to  dispose  of  properties  in  secondary  and  tertiary  markets  at  favorable  prices,   potentially  redeploying  that  capital  in  our  focus  markets.  We  do  not  expect  to  actively  pursue  acquisitions  made   through  joint  ventures  in  the  near  term;  however,  we  may  seek  to  buy  out,  or  sell  our  joint  venture  interests  to,   select  existing  joint  venture  partners.  We  do  not  expect  to  actively  pursue  development  loans  or  land  leases  in  the   near  term.   Although  we  expect  continued  stabilization  and  improvement  in  consumer  and  commercial  spending  and   lodging  demand  during  2015,  the  manner  in  which  the  economy  will  continue  to  grow,  if  at  all,  is  not  predictable.   In  addition,  the  availability  of  hotel-­‐level  financing  for  the  acquisition  of  new  hotels  is  not  within  our  control.  As  a   result,  there  can  be  no  assurances  that  we  will  be  able  to  grow  hotel  revenues,  occupancy,  ADR  or  RevPAR  at  our   properties  as  we  hope.     Factors  that  might  contribute  to  less  than  anticipated  performance  include  those   described  under  the  heading  “Item  1A.  Risk  Factors”  and  other  documents  that  we  may  file  with  the  SEC  in  the   future.  We  will  continue  to  cautiously  monitor  recovery  in  lodging  demand  and  rates,  our  third  party  hotel   managers  and  our  performance  generally.   14                           hersha hospitality trust SUMMARY  OF  OPERATING  RESULTS   The  following  table  outlines  operating  results  for  the  Company’s  portfolio  of  wholly  owned  hotels  and   those  owned  through  joint  venture  interests  (excluding  hotel  assets  classified  as  discontinued  operations)  that  are   consolidated  in  our  financial  statements  for  the  three  years  ended  December  31,  2014,  2013  and  2012.   CONSOLIDATED  HOTELS:   Year  Ended   2014   Year  Ended   2013   2014   vs.  2013   %  Variance     Year  Ended   2012   2013   vs.  2012   %  Variance   Occupancy   $   Average  Daily  Rate  (ADR)   Revenue  Per  Available  Room  (RevPAR)   $   82.6%       187.82     $     155.19     $   79.7%       179.70       143.30     2.9%   4.5%   8.3%   78.6%       175.23       137.78       $     $   1.1%   2.6%   4.0%   Room  Revenues   Hotel  Operating  Revenues   $   $     380,461     $     417,226     $     309,452       338,064     22.9%   23.4%     $     $     273,410       299,005     13.2%   13.1%   RevPAR  for  the  year  ended  December  31,  2014  increased  8.3%  for  our  consolidated  hotels  when   compared  to  the  same  period  in  2013.  This  increase  represents  a  continued  growth  trend  in  RevPAR,  which  is   primarily  due  to  the  improving  economic  conditions  in  2014  and  the  acquisition  of  hotel  properties  consummated   in  2014  that  are  accretive  to  RevPAR.     The  increase,  as  noted  in  the  table  above,  was  the  result  of  increases  in   both  occupancy  and  ADR.  Performing  particularly  well  in  2014  were  hotels  in  our  Boston,  West  Coast,  South   Florida  and  Washington  DC  markets,  each  of  which  posted  RevPAR  growth  in  excess  of  11.0%  versus  the  same   period  in  2013.     The  following  table  outlines  operating  results  for  the  three  years  ended  December  31,  2014,  2013  and   2012  for  hotels  we  own  through  unconsolidated  joint  venture  interests  (excluding  those  hotel  assets  have  been   sold  to  an  independent  third  party  during  the  period  presented).  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:   Year  Ended   2014   Year  Ended   2013   2014   vs.  2013   %  Variance     Year  Ended   2012   2013   vs.  2012   %  Variance   Occupancy   67.2%     68.3%     -­‐1.1%   68.6%     -­‐0.3%   Average  Daily  Rate  (ADR)   $     164.10     $     154.57     Revenue  Per  Available  Room  (RevPAR)   $     110.33     $     105.52     6.2%   4.6%     $     $     152.51       104.66     Room  Revenues   Total  Revenues   $   $     59,135     $     58,273       80,860     $     80,879     1.5%   0.0%     $     $     62,058       84,364     1.4%   0.8%   -­‐6.1%   -­‐4.1%   15                                                                                                                                                                                                                                                                                                               annual report 2014 For  our  unconsolidated  hotels,  RevPAR  for  the  year  ended  December  31,  2014  increased  4.6%  compared   to  RevPAR  achieved  during  the  year  ended  December  31,  2013.     The  2014  results  reflect  the  overall  condition  of   the  market  in  which  our  unconsolidated  joint  venture  hotels  operate,  particularly  Boston,  where  our  2  hotels   posted  RevPAR  growth  of  15.1%.     The  relatively  stable  results  in  RevPar  during  the  year  of  2013  when  compared   to  the  year  of  2012  is  primarily  the  result  of  a  joint  venture  asset  which  is  now  consolidated  for  financial  reporting   purposes  and  therefore  no  longer  contributes  to  the  operating  results  of  our  portfolio  of  unconsolidated  hotels.     The  Holiday  Inn  Express  29th  Street,  New  York,  NY,  which  as  of  June  18,  2012,  no  longer  was  included  in  our   unconsolidated  joint  venture  hotel  portfolio,  tended  to  have  higher  occupancy  and  ADR  than  the  remaining  hotels   in  our  unconsolidated  joint  venture  portfolio,  resulting  in  the  lower  room  revenues  and  total  revenues  in  the  above   table.     When  compared  to  the  same  period  in  2012,  the  remaining  unconsolidated  joint  venture  hotels  follow  the   same  growth  trend  for  RevPar  as  experienced  in  our  same  store  consolidated  hotels  reported  below  during  the   year  ended  December  31,  2013.   We  define  a  same  store  consolidated  hotel  as  one  that  is  currently  consolidated,  that  we  have  owned  in   whole  or  in  part  for  the  entire  period  being  reported  and  the  comparable  period  in  each  of  the  periods  being   presented,  and  is  deemed  fully  operational.  Based  on  this  definition,  for  the  years  ended  December  31,  2014  and   2013,  there  are  34  same  store  consolidated  hotels  and  31  same  store  consolidated  hotels  for  the  years  ended   December  31,  2013  and  2012.  The  following  table  outlines  operating  results  for  the  years  ended  December  31,   2014,  2013,  and  2012,  for  our  same  store  consolidated  hotels:   SAME  STORE  CONSOLIDATED   HOTELS:   (includes  34  hotels  in  both  years)   2014   vs.  2013   %   Variance     Year  Ended   2013   Year  Ended   2014   (includes  31  hotels  in  both  years)   Year   Ended   2013   Year   Ended   2012   2013   vs.  2012   %  Variance   Occupancy   Average  Daily  Rate  (ADR)   Revenue  Per  Available  Room   (RevPAR)   82.9%         179.76     $   79.7%       176.85     $   3.2%   1.6%   80.5%       174.65     $   78.6%       172.67       $   1.9%   1.1%   $     148.97     $     140.95     5.7%     $     140.55     $     135.69     3.6%   Room  Revenues   Total  Revenues   $     280,421     $     265,142     $     305,961     $     288,635     5.8%   6.0%     $     258,047     $     $     272,780     $     249,848       263,893     3.3%   3.4%   Driven  by  strong  performance  in  our  Boston,  West  Coast,  and  Washington  DC  markets,  RevPAR  for  our   same  store  consolidated  hotels  increased  5.7%,  when  compared  to  the  same  period  in  2013.   COMPARISON  OF  THE  YEAR  ENDED  DECEMBER  31,  2014  TO  DECEMBER  31,  2013   (dollars  in  thousands,  except  ADR  and  per  share  data)   Revenue   Our  total  revenues  for  the  years  ended  December  31,  2014  and  2013  primarily  consisted  of  hotel   operating  revenues  and  other  revenue.  Hotel  operating  revenues  were  approximately  100.0%  and  99.9%  of  total   revenues  for  the  years  ended  December  31,  2014  and  2013,  respectively.  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  were  consolidated  in  our  financial  statements  during  the  period.  Hotel  operating  revenues  increased  $79,162,   or  23.4%,  from  $338,064  for  the  year  ended  December  31,  2013  to  $417,226  for  the  same  period  in  2014.  This   increase  in  hotel  operating  revenues  was  primarily  attributable  to  the  acquisitions  consummated  in  2014  and  2013   as  well  as  increases  in  hotel  operating  revenues  for  our  same  store  consolidated  hotels.     16                                                                                                                                                                         hersha hospitality trust Since  December  31,  2013,  we  have  acquired  interests  in  three  consolidated  hotels  and  have  commenced   operations  at  the  Hampton  Inn  Pearl  Street.  These  four  hotels  contributed  the  following  operating  revenues  for   the  twelve  months  ended  December  31,  2014.   Brand   Location     Acquisition  Date     Rooms   2014  Hotel  Operating   Revenues   Hotel  Milo   Parrot  Key  Resort   Hilton  Garden  Inn  52nd   Street   Hampton  Inn  Pearl  Street     Santa  Barbara,  CA     February  28,  2014     Key  West,  FL     May  7,  2014     New  York,  NY     May  30,  2014*     New  York,  NY     June  23,  2014*   *   Date  the  hotel  began  operations.     122       148       205       81       556     $     8,655     9,145     10,439     2,867     31,106   Revenues  for  all  hotels  were  recorded  from  the  date  of  acquisition  as  hotel  operating  revenues.  Further,   hotel  operating  revenues  for  the  year  ended  December  31,  2014  included  revenues  for  the  following  hotels  that   were  purchased  during  the  year  ended  December  31,  2013.  Hotels  acquired  during  the  year  ended  December  31,   2013  would  have  a  full  year  of  results  included  in  the  year  ended  December  31,  2014  but  not  necessarily  a  full  year   of  results  during  the  same  period  in  2013.       We  acquired  interests  in  the  following  consolidated  hotels  during  the  year  ended  December  31,  2013:   Brand   Location     Acquisition  Date     Rooms   2014  Hotel  Operating   Revenues   2013  Hotel  Operating   Revenues   Hyatt  Union  Square     New  York,  NY     April  9,  2013     178       $     19,066       $   Courtyard  by  Marriott     San  Diego,  CA     May  30,  2013   Residence  Inn     Coconut  Grove,  FL     June  12,  2013   Winter  Haven     Miami,  FL     December  20,  2013     Blue  Moon     Miami,  FL     December  20,  2013       245         140         70         75         16,205         4,424         4,185         4,446         11,272       8,350       2,889       203       175       708       $     48,326       $     22,889     In  addition,  our  same  store  consolidated  portfolio  experienced  improvements  in  ADR  and  occupancy   during  the  year  ended  December  31,  2014  when  compared  to  the  same  period  in  2013.  Occupancy  in  our  same   store  consolidated  hotels  increased  320  basis  points  from  79.7%  during  the  year  ended  December  31,  2013  to   82.9%  for  the  same  period  in  2014.  ADR  improved  1.6%,  increasing  from  $176.85  for  the  year  ended  December  31,   2013  to  $179.76  during  the  same  period  in  2014.  These  improvements  were  due  to  improvements  in  lodging  trends   in  the  markets  in  which  our  hotels  are  located.   Expenses   Total  hotel  operating  expenses  increased  20.6%  to  approximately  $227,324  for  the  year  ended  December   31,  2014  from  $188,431  for  the  year  ended  December  31,  2013.  Consistent  with  the  increase  in  hotel  operating   revenues,  hotel  operating  expenses  increased  primarily  due  to  the  acquisitions  consummated  since  the   comparable  period  in  2013,  as  mentioned  above.  The  acquisitions  also  resulted  in  an  increase  in  depreciation  and   amortization  of  24.0%,  or  $13,383,  to  $69,167  for  the  year  ended  December  31,  2014  from  $55,784  for  the  year   ended  December  31,  2013.  Real  estate  and  personal  property  tax  and  property  insurance  increased  $6,259,  or   26.0%,  for  the  year  ended  December  31,  2014  when  compared  to  the  same  period  in  2013  due  to  our  acquisitions   17                                                                                                                                                                         annual report 2014 along  with  a  general  overall  increase  in  tax  assessments  and  tax  rates  as  the  economy  improves,  but  was  partially   offset  by  reductions  resulting  from  our  rigorous  management  of  this  expense.   General  and  administrative  expense  decreased  by  approximately  $3,506  from  $23,869  in  2013  to  $20,363   in  2014.  General  and  administrative  expense  includes  expense  related  to  non-­‐cash  share  based  payments  issued  as   incentive  compensation  to  the  Company’s  trustees,  executives,  and  employees.     Expense  related  to  share  based   compensation  decreased  $3,718  when  comparing  the  year  ended  December  31,  2014  to  the  same  period  in  2013.   This  decrease  in  share  based  compensation  expense  is  due  primarily  to  the  vesting  of  the  2010  Multi-­‐Year  LTIP  Plan   as  of  December  31,  2013  as  well  as  a  lesser  amount  of  restricted  shares  issued  since  December  31,  2013.     Please   refer  to  “Note  8  –  Share  Based  Payments”  of  the  notes  to  the  consolidated  financial  statements  for  more   information  about  our  stock  based  compensation.     Amounts  recorded  on  our  consolidated  statement  of  operations  for  acquisition  and  terminated   transactions  costs  will  fluctuate  from  period  to  period  based  on  our  acquisition  activities.  Acquisition  costs  typically   consist  of  transfer  taxes,  legal  fees  and  other  costs  associated  with  acquiring  a  hotel  property  and  transactions  that   were  terminated  during  the  year.  Acquisition  and  terminated  transaction  costs  increased  $1,498  from  $974  for  the   year  ended  December  31,  2013  to  $2,472  for  the  year  ended  December  31,  2014.     While  we  acquired  more   properties  in  2013,  the  manner  in  which  acquisition  targets  are  found  can  and  do  dictate  the  costs  necessary  to   complete  the  acquisition.     The  costs  incurred  in  2014  were  related  to  the  following  hotels:  $1,836  related  to  our   Hilton  Garden  Inn  52nd  Street  acquisition,  $173  related  to  our  Hotel  Milo  acquisition,  and  $169  related  to  our  Parrot   Key  Resort  acquisition.  The  costs  incurred  in  2013  were  related  to  the  following  hotels:  $500  related  to  our  Hyatt   Union  Square  acquisition;  $152  related  to  our  Residence  Inn  Coconut  Grove  acquisition;  $65  related  to  our   Courtyard  San  Diego  acquisition;  and  $138  for  our  Winter  Haven  and  Blue  Moon  Hotel  acquisitions.  Also  included  in   these  costs  are  charges  related  to  transactions  that  were  terminated  during  the  year.   Operating  Income   Operating  income  for  the  year  ended  December  31,  2014  was  $67,909  compared  to  operating  income  of   $44,690  during  the  same  period  in  2013.  Operating  income  was  positively  impacted  by  the  improved  operating   results  of  our  hotels  discussed  above  as  well  as  insurance  recoveries  of  $4,604,  much  of  which  represents   settlement  of  business  interruption  insurance  claims  that  arose  from  the  Hurricane  Sandy  natural  disaster  in  2012.   Interest  Expense   Interest  expense  increased  $2,422  from  $40,935  for  the  year  ended  December  31,  2013  to  $43,357  for  the   year  ended  December  31,  2014.  The  increase  in  interest  expense  is  primarily  due  to  increased  borrowings  drawn  on  our   unsecured  credit  facilities.     During  2014,  we  entered  into  a  new  credit  facility  which  allowed  for  an  additional  $100,000   in  unsecured  term  loan,  which  we  drew  during  the  second  quarter  of  2014.   Gain  on  Disposition  of  Hotel  Properties   During  the  year  ended  December  31,  2014,  the  Company  recorded  a  gain  of  $7,195  related  to  its  sale  of   Hotel  373  in  Manhattan.   Gain  on  Hotel  Acquisitions,  net   During  the  year  ended  December  31,  2014,  the  Company  recorded  a  net  gain  of  $12,667  related  primarily   to  its  purchase  of  the  Hilton  Garden  Inn  on  52nd  Street  in  Manhattan  as  the  purchase  price  of  the  asset  was  less   than  the  appraised  fair  value  as  of  the  closing  date.  During  the  year  ended  December  31,  2013,  the  company  had   recorded  a  similar  net  gain  of  $12,096  related  to  its  purchase  of  Hyatt  Union  Square.   18                                               hersha hospitality trust Development  Loan  Recovery   Consideration  given  in  exchange  for  the  Hilton  Garden  Inn  52nd  Street  included  cash  to  the  seller  and  our   reinstatement  and  cancellation  of  a  development  loan  receivable  in  the  original  principal  amount  of  $10,000  and   $12,494  of  accrued  interest  and  late  fees.  This  development  loan  receivable  had  previously  been  fully  impaired  in   2009,  but  was  recovered  as  part  of  this  acquisition.  As  a  result,  we  recognized  a  gain  of  $22,494  on  the  recovery  of   the  previously  impaired  development  loan.   Unconsolidated  Joint  Venture  Investments   The  loss  from  unconsolidated  joint  ventures  consists  of  our  interest  in  the  operating  results  of  the   properties  we  own  in  joint  ventures.  The  operating  results  of  the  unconsolidated  joint  ventures  improved  by  $715   for  the  year  ended  December  31,  2014.  This  is  primarily  because  of  the  improved  performance  in  our  Boston   market,  where  two  of  our  five  properties  owned  in  joint  ventures  are  located.     We  recorded  an  impairment  loss  of  $1,813  related  to  the  Courtyard,  Norwich,  CT,  one  of  the  properties   owned  by  Mystic  Partners,  LLC  during  the  year  ended  December  31,  2013.     At  that  time,  we  did  not  anticipate   recovering  our  investment  balance  in  this  asset,  and  as  such  we  reduced  our  investment  attributed  to  this  property   to  $0  as  of  December  31,  2013.     During  the  third  quarter  of  2014,  the  title  on  this  property  was  transferred  to  the   lender.   Income  Tax  Benefit   During  the  year  ended  December  31,  2014,  the  Company  recorded  an  income  tax  benefit  of  $2,685   compared  to  an  income  tax  benefit  of  $5,600  in  2013.  Prior  year  income  tax  benefit  included  the  reversal  of   allowances  against  state  deferred  tax  assets  resulting  from  cumulative  net  operating  losses  that  were  deemed  to   be  realizable  based  on  projections  of  future  performance  of  the  hotels  generating  these  net  operating  losses.   Discontinued  Operations   On  September  20,  2013,  the  Company  entered  into  a  purchase  and  sale  agreement  to  sell  a  portfolio  of  16   non-­‐core  hotels  for  an  aggregate  purchase  price  of  approximately  $217,000.  During  the  third  quarter  of  2013,  the   Company  had  recorded  an  impairment  of  $6,591  in  connection  with  the  anticipated  disposition.  As  of  December   31,  2013,  the  Company  had  closed  on  the  sale  of  12  of  the  hotels,  with  the  remaining  four  hotels  closing  during  the   first  quarter  of  2014.  Accordingly,  a  gain  of  $31,559  was  recognized  during  the  fourth  quarter  of  2013  as  the   proceeds  from  the  sale  exceeded  the  carrying  value.   For  the  year  ended  December  31,  2014,  the  Company  recorded  a  loss  of  $128  in  connection  with  the   closing  of  the  remaining  4  properties.  In  addition,  we  recorded  an  impairment  loss  of  $1,800  in  the  first  quarter  of   2014,  as  the  proceeds  did  not  exceed  the  carrying  value  for  certain  of  these  properties.     On  June  12,  2013,  we  closed  on  the  sale  of  our  Comfort  Inn,  Harrisburg,  PA.  The  Company  sold  the  hotel   for  $3,700  and  recorded  a  gain  on  sale  of  $442.  Additionally,  on  September  17,  2013,  we  closed  on  the  sale  of   Holiday  Inn  Express  Camp  Springs,  MD  property.  The  Company  sold  the  hotel  for  $8,500  and  recorded  a  gain  on  the   sale  of  $120  and  an  impairment  charge  of  $3,723  during  the  second  quarter  of  2013  as  the  anticipated  net   proceeds  did  not  exceed  the  carrying  value.   The  operating  results  for  all  18  of  the  above  described  hotel  properties  and  one  land  parcel  have  been   reclassified  to  discontinued  operations  in  the  statement  of  operations  for  the  years  end  December  31,  2014  and   2013,  respectively.   19                                   annual report 2014 We  recorded  income  from  discontinued  operations  of  approximately  $263  during  the  twelve  months   ended  December  31,  2014,  compared  to  income  of  approximately  $7,388  during  the  twelve  months  ended   December  31,  2013.  See  “Note  12  –  Discontinued  Operations”  for  more  information.   Effective  January  1,  2014,  we  early  adopted  ASU  Update  No.  2014-­‐08  concerning  the  classification  and   reporting  of  discontinued  operations.  This  amendment  defines  discontinued  operations  as  a  component  of  an   entity  that  represents  a  strategic  shift  that  has  (or  will  have)  a  major  effect  on  an  entity’s  operations  and  financial   results.  As  a  result  of  the  early  adoption  of  ASU  Update  No.  2014-­‐08,  we  anticipate  that  most  of  our  hotel   dispositions  will  not  be  classified  as  discontinued  operations  as  most  will  not  fit  this  definition.   Net  Income  Applicable  to  Common  Shareholders   Net  income  applicable  to  common  shareholders  for  the  year  ended  December  31,  2014  was  $52,899   compared  to  net  income  applicable  to  common  shareholders  of  $32,752  for  the  same  period  in  2013.  Net  income   applicable  to  common  shareholders  for  the  year  ended  December  31,  2014  was  positively  impacted  by  the  improved   operating  results  of  our  hotels  and  one-­‐time  gains  discussed  above.  Net  income  applicable  to  common  shareholders  for   the  year  ended  December  31,  2013  was  negatively  impacted  by  the  extinguishment  of  $2,250  of  issuance  costs   associated  with  the  redemption  of  all  of  our  outstanding  Series  A  Preferred  Shares.   Comprehensive  Income  Attributable  to  Common  Shareholders   Comprehensive  income  applicable  to  common  shareholders  for  the  year  ended  December  31,  2014  was   $52,917  compared  to  $34,162  for  the  same  period  in  2013.  This  amount  was  primarily  attributable  to  net  income   as  more  fully  described  above.  Further  change  in  other  comprehensive  income  was  primarily  the  result  of  the   positive  shift  in  the  position  of  the  fair  value  of  our  derivative  instruments.  For  the  year  ended  December  31,  2014,   we  recorded  other  comprehensive  income  of  $68,289  when  compared  to  $51,358  of  other  comprehensive  income   for  the  year  ended  December  31,  2013.  The  expected  rise  in  the  interest  rate  yield  curve  in  the  next  few  years  has   continued  to  increase  the  fair  value  of  our  interest  rate  swaps,  increasing  the  asset  value  of  certain  derivative   instruments  and  decreasing  the  liability  of  shifting  the  liability  to  an  asset  position  for  other  derivative  instruments.   COMPARISON  OF  THE  YEAR  ENDED  DECEMBER  31,  2013  TO  DECEMBER  31,  2012   (dollars  in  thousands,  except  per  share  data)   Revenue   Our  total  revenues  for  the  years  ended  December  31,  2013  and  2012  consisted  of  hotel  operating   revenues,  interest  income  from  our  development  loan  program  and  other  revenue.  Hotel  operating  revenues  were   approximately  99.9%  and  99.3%  of  total  revenues  for  the  years  ended  December  31,  2013  and  2012,  respectively.   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  were  consolidated  in  our  financial  statements  during  the  period.   Hotel  operating  revenues  increased  $39,059,  or  13.1%,  from  $299,005  for  the  year  ended  December  31,  2012  to   $338,064  for  the  same  period  in  2013.  This  increase  in  hotel  operating  revenues  was  primarily  attributable  to  the   acquisitions  consummated  in  2013  and  2012  as  well  as  increases  in  hotel  operating  revenues  for  our  same  store   consolidated  hotels.     20                                   hersha hospitality trust We  acquired  interests  in  the  following  consolidated  hotels  that  contributed  the  following  operating   revenues  for  the  year  ended  December  31,  2013:   Brand   Location   Hyatt  Union  Square   Courtyard  by  Marriott     New  York,  NY     San  Diego,  CA     Acquisition  Date     April  9,  2013     May  30,  2013   Residence  Inn   Winter  Haven   Blue  Moon     Coconut  Grove,  FL   June  12,  2013     Miami,  FL     Miami,  FL     December  20,  2013     December  20,  2013     Rooms   2013  Hotel  Operating   Revenues     178       $     245         140         70         75         708     $     11,272       8,350       2,889       203       175       22,889   Revenues  for  all  hotels  were  recorded  from  the  date  of  acquisition  as  hotel  operating  revenues.  Further,   hotel  operating  revenues  for  the  year  ended  December  31,  2013  included  revenues  for  the  following  hotels  that   were  purchased  during  the  year  ended  December  31,  2012.  Hotels  acquired  during  the  year  ended  December  31,   2012  would  have  a  full  year  of  results  included  in  the  year  ended  December  31,  2013  but  not  necessarily  a  full  year   of  results  during  the  same  period  in  2012.  We  acquired  interests  in  the  following  consolidated  hotels  during  the   year  ended  December  31,  2012:   Brand   Location     Acquisition  Date    Rooms     2013  Hotel   Operating   Revenues   2012  Hotel   Operating   Revenues   Rittenhouse  Hotel     Philadelphia,  PA     March  1,  2012     116     $     16,969     $   The  Boxer     Boston,  MA     May  7,  2012   Holiday  Inn  Express     New  York,  NY     June  18,  2012     80         228         3,799         16,746         424     $     37,514     $     16,809     2,791     10,170     29,770   In  addition,  our  same  store  consolidated  portfolio  experienced  improvements  in  ADR  and  occupancy   during  the  year  ended  December  31,  2013  when  compared  to  the  same  period  in  2012.  Occupancy  in  our  same   store  consolidated  hotels  increased  190  basis  points  from  78.6%  during  the  year  ended  December  31,  2012  to   80.5%  for  the  same  period  in  2013.  ADR  improved  1.1%,  increasing  from  $172.67  for  the  year  ended  December  31,   2012  to  $174.65  during  the  same  period  in  2013.  These  improvements  were  due  to  improvements  in  lodging  trends   in  the  markets  in  which  our  hotels  are  located.   We  had  previously  invested  in  hotel  development  projects  by  providing  mortgage  or  mezzanine  financing   to  hotel  developers  and  through  the  acquisition  of  land  that  is  then  leased  to  hotel  developers.  Interest  income   from  development  loans  receivable  was  $158  for  the  year  ended  December  31,  2013  compared  to  $1,998  for  the   same  period  in  2012.   In  April  2013,  we  acquired  the  Hyatt  Union  Square  and  as  part  of  the  consideration  we  agreed  to  cancel   the  $13,303  development  loan  receivable  in  its  entirety.  Furthermore,  the  only  remaining  development  loan,   related  to  the  Hyatt  48Lex,  was  paid  off  in  full  during  April  2013.  As  of  December  31,  2013,  we  had  no  outstanding   development  loans  receivable.   Expenses   Total  hotel  operating  expenses  increased  16.3%  to  approximately  $188,431  for  the  year  ended  December   31,  2013  from  $161,982  for  the  year  ended  December  31,  2012.  Consistent  with  the  increase  in  hotel  operating   revenues,  hotel  operating  expenses  increased  primarily  due  to  the  acquisitions  consummated  since  the   comparable  period  in  2012,  as  mentioned  above.  The  acquisitions  also  resulted  in  an  increase  in  depreciation  and   21                                                                                                                                                               annual report 2014 amortization  of  15.6%,  or  $7,541,  to  $55,784  for  the  year  ended  December  31,  2013  from  $48,243  for  the  year   ended  December  31,  2012.  Real  estate  and  personal  property  tax  and  property  insurance  increased  $4,742,  or   24.5%,  for  the  year  ended  December  31,  2013  when  compared  to  the  same  period  in  2012  due  to  our  acquisitions   along  with  a  general  overall  increase  in  tax  assessments  and  tax  rates  as  the  economy  improves.   General  and  administrative  expense  increased  by  approximately  $492  from  $23,377  in  2012  to  $23,869  in   2013.  Increases  in  other  general  and  administrative  expenses  were  primarily  from  increases  in  employee   headcount  and  resulting  base  compensation  and  payroll  taxes  increases.  General  and  administrative  expense   includes  expense  related  to  non-­‐cash  share  based  payments  issued  as  incentive  compensation  to  the  Company’s   trustees,  executives,  and  employees.  Expense  related  to  share  based  compensation  increased  $68  during  the  year   ended  December  31,  2013  when  compared  to  the  same  period  of  2012.  Please  refer  to  “Note  8  –  Share  Based   Payments”  of  the  notes  to  the  consolidated  financial  statements  for  more  information  about  our  stock  based   compensation.     Amounts  recorded  on  our  consolidated  statement  of  operations  for  acquisition  and  terminated   transactions  costs  will  fluctuate  from  period  to  period  based  on  our  acquisition  activities.  Acquisition  costs  typically   consist  of  transfer  taxes,  legal  fees  and  other  costs  associated  with  acquiring  a  hotel  property  and  transactions  that   were  terminated  during  the  year.  Acquisition  and  terminated  transaction  costs  decreased  $205  from  $1,179  for  the   year  ended  December  31,  2012  to  $974  for  the  year  ended  December  31,  2013.  While  we  acquired  more   properties  during  the  year  ended  December  31,  2013  when  compared  to  the  same  period  in  2012,  the  manner  in   which  acquisition  targets  are  found  can  and  do  dictate  the  costs  necessary  to  complete  the  acquisition.  The  costs   incurred  in  2013  were  related  to  the  following  hotels:  $500  related  to  our  Hyatt  Union  Square  acquisition;  $152   related  to  our  Residence  Inn  Coconut  Grove  acquisition;  $65  related  to  our  Courtyard  San  Diego  acquisition;  and   $138  for  our  Winter  Haven  and  Blue  Moon  Hotel  acquisitions.  The  costs  incurred  in  2012  were  related  to  following   hotels:  $963  related  to  our  acquisition  of  The  Rittenhouse  Hotel;  $61  related  to  acquisition  of  The  Boxer;  $67   related  to  our  acquisition  of  Holiday  Inn  Express  Manhattan.  The  remaining  costs  were  primarily  related  to   transactions  that  were  terminated  during  the  year.   Operating  Income   Operating  income  for  the  year  ended  December  31,  2013  was  $44,690  compared  to  operating  income  of   $46,258  during  the  same  period  in  2012.  As  noted  above,  the  decrease  in  operating  income  resulted  partially  from   improved  performance  of  our  portfolio  and  acquisitions  that  have  occurred  since  the  beginning  of  2012,  but  is   offset  by  increases  in  real  estate  taxes.     Interest  Expense   Interest  expense  increased  $2,865  from  $38,070  for  the  year  ended  December  31,  2012  to  $40,935  for  the   year  ended  December  31,  2013.  The  increase  in  interest  expense  is  due  primarily  to  an  increase  in  borrowings   drawn  on  our  senior  unsecured  term  loan  and  our  line  of  credit  throughout  the  year.  A  portion  of  these  borrowings   were  used  to  repay  various  mortgage  loans,  which  lowered  our  overall  consolidated  secured  mortgage   indebtedness  outstanding.  Additionally,  we  used  proceeds  from  the  line  of  credit  to  fund  the  purchase  of  our   Residence  Inn  Coconut  Grove  and  Courtyard  San  Diego  acquisitions.     Finally,  we  financed  a  portion  of  our  Hyatt   Union  Square  acquisition  with  variable  rate  mortgage  debt  and  borrowed  an  additional  $10,000  to  fund   construction  of  the  tower  at  our  Courtyard  Miami  Beach  hotel.       Unconsolidated  Joint  Venture  Investments   The  loss  from  unconsolidated  joint  ventures  consists  of  our  interest  in  the  operating  results  of  the   properties  we  own  in  joint  ventures.  The  operating  results  of  the  unconsolidated  joint  ventures  improved  by  $210   for  the  year  ended  December  31,  2013.     Since  the  beginning  of  2012,  we  have  made  efforts  to  decrease  our  investment  in  unconsolidated  joint   ventures  resulting  in  the  sale  of  5  of  these  assets  to  third  parties  and  the  purchase  of  the  remaining  50%  interest  in   22                     hersha hospitality trust our  Holiday  Inn  Express,  New  York,  NY  hotel  on  June  18,  2012.  Accordingly,  the  results  of  this  hotel  are  now   included  in  our  consolidated  results  and  our  interest  in  Metro  29th  was  remeasured.  As  a  result,  during  the  year   ended  December  31,  2012,  we  recorded  a  loss  from  the  remeasurement  of  our  investments  in  the  unconsolidated   joint  venture  of  approximately  $224.       On  August  13,  2012,  the  Company  purchased  the  remaining  50%  ownership  interest  in  Inn  America   Hospitality  at  Ewing,  the  lessee  of  the  Courtyard  by  Marriot,  Ewing,  NJ.  As  such,  we  ceased  to  account  for  our   investment  in  Inn  America  Hospitality  at  Ewing  under  the  equity  method  of  accounting  as  of  August  10,  2012   because  it  became  a  consolidated  subsidiary.  Our  interest  in  Inn  America  Hospitality  at  Ewing,  which  consisted  of   our  investment  in  Inn  America  Hospitality  at  Ewing  and  a  receivable,  was  remeasured  and  as  a  result  based  on  the   appraised  value  of  the  hotel,  we  recorded  a  loss  from  the  remeasurement  of  our  investments  in  the   unconsolidated  joint  venture  of  approximately  $1,668  during  the  twelve  months  ended  December  31,  2012.   We  recorded  an  impairment  loss  of  $1,813  related  to  the  Courtyard,  Norwich,  CT,  one  of  the  properties   owned  by  Mystic  Partners,  LLC  during  the  year  ended  December  31,  2013.  At  that  time,  we  did  not  anticipate   recovering  our  investment  balance  in  this  asset,  and  as  such  we  reduced  our  investment  attributed  to  this  property   to  $0  as  of  December  31,  2013.     Mystic  Partners,  LLC  transferred  title  to  the  property  to  the  lender  in  the  third   quarter  of  2014.   Income  Tax  Benefit   During  the  year  ended  December  31,  2013,  the  Company  recorded  an  income  tax  benefit  of  $5,600   compared  an  income  tax  benefit  of  $3,355  in  2012.  Excluded  from  the  income  tax  benefit  for  2013  is  $190  of   income  tax  expense  related  to  discontinued  operations.  Approximately  $2,866  of  the  income  tax  benefit  relates  to   deferred  tax  assets  that  the  Company  now  believes  are  realizable  and  variances  between  the  tax  return  and  year   end  provision  for  the  year  ended  December  31,  2012.  The  remaining  income  tax  benefit  is  a  result  of  the   operations  of  the  Company’s  taxable  REIT  subsidiary,  44  New  England.   Discontinued  Operations   On  September  20,  2013,  the  Company  entered  into  a  purchase  and  sale  agreement  to  sell  a  portfolio  of  16   non-­‐core  hotels  for  an  aggregate  purchase  price  of  approximately  $217,000.  During  the  third  quarter  of  2013,  the   Company  had  recorded  an  impairment  of  $6,591  in  connection  with  the  anticipated  disposition.  As  of  December   31,  2013,  the  Company  had  closed  on  the  sale  of  12  of  the  hotels.  Accordingly,  a  gain  of  $31,559  was  recognized   during  the  fourth  quarter  of  2013  as  the  proceeds  from  the  sale  exceeded  the  carrying  value.  The  Company  closed   on  the  remaining  four  non-­‐core  hotels  during  the  first  quarter  of  2014.   On  June  12,  2013,  we  closed  on  the  sale  of  our  Comfort  Inn,  Harrisburg,  PA.  The  Company  sold  the  hotel   for  $3,700  and  recorded  a  gain  on  sale  of  $442.  Additionally,  on  September  17,  2013,  we  closed  on  the  sale  of   Holiday  Inn  Express  Camp  Springs,  MD  property.  The  Company  sold  the  hotel  for  $8,500  and  recorded  a  gain  on  the   sale  of  $120  and  an  impairment  charge  of  $3,723  during  the  second  quarter  of  2013  as  the  anticipated  net   proceeds  did  not  exceed  the  carrying  value.   During  the  year  ended  December  31,  2012,  the  Company  closed  on  the  sale  of  18  non-­‐core  hotel   properties,  transferred  the  title  of  the  Comfort  Inn  North  Dartmouth,  MA  to  the  lender  and  closed  on  the  sale  of   the  land  parcel  and  improvements  located  at  585  Eighth  Avenue,  New  York,  NY.  As  a  result  of  these  transactions,   we  recognized  a  gain  of  approximately  $11,231  for  the  year  ended  December  31,  2012.   The  operating  results  for  all  37  of  the  above  described  hotel  properties  and  one  land  parcel  have  been   reclassified  to  discontinued  operations  in  the  statement  of  operations  for  the  years  end  December  31,  2013  and   2012,  respectively.   23                           annual report 2014 We  recorded  income  from  discontinued  operations  of  approximately  $7,388  during  the  twelve  months   ended  December  31,  2013,  compared  to  income  of  approximately  $3,489  during  the  twelve  months  ended   December  31,  2012.  See  “Note  11  –  Discontinued  Operations”  for  more  information.   Net  Income  Applicable  to  Common  Shareholders   Net  income  applicable  to  common  shareholders  for  the  year  ended  December  31,  2013  was  $32,752   compared  to  net  income  applicable  to  common  shareholders  of  $8,376  for  the  same  period  in  2012.  As  previously   discussed,  net  income  applicable  to  common  shareholders  for  the  year  ended  December  31,  2013  was  positively   impacted  by  a  net  gain  of  approximately  $12,096  on  the  purchase  of  the  Hyatt  Union  Square,  New  York,  NY,  as  the   fair  value  of  the  assets  acquired  less  any  liabilities  assumed  exceeded  the  consideration  transferred.  Additionally,   the  $31,559  gain  on  the  sale  of  12  of  the  16  non-­‐core  hotels  that  closed  during  the  year  ended  December  31,  2013   positively  impacted  net  income  applicable  to  common  shareholders.     Comprehensive  Income  Applicable  to  Common  Shareholders   Comprehensive  income  applicable  to  common  shareholders  for  the  year  ended  December  31,  2013  was   $34,162  compared  to  $7,741  for  the  same  period  in  2012.  This  amount  was  primarily  attributable  to  net   income/loss  as  more  fully  described  above.  Further  change  in  other  comprehensive  income  was  primarily  the  result   of  the  positive  shift  in  the  position  of  the  fair  value  of  our  derivative  instruments.  For  the  year  ended  December  31,   2013,  we  recorded  other  comprehensive  income  of  $1,410  when  compared  to  $635  of  other  comprehensive  loss   for  the  year  ended  December  31,  2012.  During  the  year,  a  projected  rise  in  the  interest  rate  yield  curve  had   favorably  shifted  many  of  our  interest  rate  swaps  from  a  liability  to  an  asset  position.   LIQUIDITY,  CAPITAL  RESOURCES,  AND  EQUITY  OFFERINGS   (dollars  in  thousands,  except  per  share  data)   Potential  Sources  of  Capital   Our  organizational  documents  do  not  limit  the  amount  of  indebtedness  that  we  may  incur.  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.   In  addition,  our  mortgage  indebtedness  contains  various  financial  and  non-­‐financial  covenants   customarily  found  in  secured,  nonrecourse  financing  arrangements.  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.  We   have  determined  that  certain  debt  service  coverage  ratio  covenants  contained  in  the  loan  agreements  securing  a   number  of  our  hotel  properties  were  not  met  as  of  December  31,  2014.  Pursuant  to  the  loan  agreements,  certain   lenders  have  elected  to  escrow  the  operating  cash  flow  for  these  properties.  However,  these  covenants  do  not   constitute  an  event  of  default  for  these  loans.  Future  deterioration  in  market  conditions  could  cause  restrictions  in   our  access  to  the  cash  flow  of  additional  properties.   On  February  28,  2014,  we  entered  into  a  senior  unsecured  credit  agreement  with  Citigroup  Global   Markets  Inc.  and  various  other  lenders.  The  credit  agreement  provides  for  a  $500,000  senior  unsecured  credit   facility  consisting  of  a  $250,000  senior  unsecured  revolving  line  of  credit  and  a  $250,000  senior  unsecured  term   loan.  This  new  facility  amended  and  restated  the  existing  $400,000  senior  secured  credit  facility.  The  $500,000   unsecured  credit  facility  expires  on  February  28,  2018  and,  provided  no  event  of  default  has  occurred,  we  may   request  that  the  lenders  renew  the  credit  facility  for  an  additional  one-­‐year  period.  The  credit  facility  is  also   expandable  to  $850,000  at  our  request,  subject  to  the  satisfaction  of  certain  conditions.   24                                   hersha hospitality trust As  of  December  31,  2014,  the  outstanding  unsecured  term  loan  balance  under  the  $500,000  senior   unsecured  credit  facility  was  $250,000  and  therefore  fully  drawn,  and  we  had  no  outstanding  borrowings  under   the  $250,000  revolving  line  of  credit.  As  of  December  31,  2014,  our  remaining  borrowing  capacity  under  the   $500,000  unsecured  credit  facility’s  revolving  line  of  credit  was  $245,745,  which  is  based  on  certain  operating   metrics  of  unencumbered  hotel  properties  designated  as  borrowing  base  assets.  We  intend  to  repay  indebtedness   incurred  under  the  $500,000  unsecured  credit  facility  from  time  to  time,  for  acquisitions  or  otherwise,  out  of  cash   flow  and  from  the  proceeds  of  issuances  of  additional  common  and  preferred  shares  and  potentially  other   securities.   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.  As  of   December  31,  2014,  we  have  $69,063  of  indebtedness  maturing  on  or  before  December  31,  2015.  We  currently   expect  that  cash  requirements  for  all  debt  that  is  not  refinanced  by  our  existing  lenders  for  which  the  maturity   date  is  not  extended  will  be  met  through  a  combination  of  cash  on  hand,  refinancing  the  existing  debt  with  new   lenders,  draws  on  the  $250,000  revolving  line  of  credit  portion  of  our  $500,000  credit  facility  and  the  issuance  of   our  securities.   On  February  25,  2013,  we  completed  a  public  offering  of  3,000,000  6.875%  Series  C  preferred  shares.   These  shares  have  a  par  value  of  $0.01  per  share  with  a  $25.00  liquidation  preference  per  share.  Net  proceeds  of   the  offering,  after  deducting  underwriting  discounts  and  offering  expenses,  were  approximately  $72,370.  We   utilized  the  net  proceeds  of  the  offering  to  redeem  all  outstanding  8.00%  Series  A  preferred  shares  on  March  28,   2013,  and  for  general  corporate  purposes.  The  Series  A  preferred  shares  were  redeemed  at  a  per  share   redemption  price  of  $25.00  together  with  accrued  and  unpaid  dividends  to  the  redemption  date  for  an  aggregate   per  share  redemption  price  of  $25.4056.  Dividends  ceased  accruing  on  the  Series  A  preferred  shares  on  March  28,   2013.   Common  Share  Repurchase  Plan   In  December  2012,  our  Board  of  Trustees  authorized  us  to  repurchase  from  time  to  time  up  to  an   aggregate  of  $75,000  of  our  outstanding  common  shares  through  December  31,  2013.  We  did  not  repurchase  any   common  shares  prior  to  the  expiration  of  the  share  repurchase  program.  In  January  2014,  our  Board  of  Trustees   again  authorized  us  to  repurchase  from  time  to  time  up  to  an  aggregate  of  $75,000  of  our  outstanding  common   shares.  In  February  2015,  our  Board  of  Trustees  again  authorized  us  to  repurchase  from  time  to  time  up  to  an   aggregate  of  $100,000  of  our  outstanding  common  shares.  The  current  share  repurchase  program  will  expire  on   December  31,  2015.  For  the  year  ended  December  31,  2014,  the  Company  repurchased  2,626,854  common  shares   for  an  aggregate  purchase  price  of  $15,418.  As  of  February  20,  2015,  we  have  not  repurchased  any  common  shares   pursuant  to  the  newly  reauthorized  share  repurchase  program.  Upon  repurchase  by  the  Company,  these  common   shares  ceased  to  be  outstanding  and  became  authorized  but  unissued  commons  shares.   Development  Loans  Receivable   During  April  2013,  we  acquired  the  Hyatt  Union  Square,  and  as  part  of  the  consideration  we  agreed  to   cancel  the  $13,303  development  loan  receivable  in  its  entirety.  Furthermore,  the  development  loan  related  to  the   Hyatt  48Lex  was  paid  in  full  during  the  year  ended  December  31,  2013.  As  of  December  31,  2014,  we  had  no   outstanding  development  loans  receivable.   25                               annual report 2014 Acquisitions   During  the  year  ended  December  31,  2014,  we  acquired  the  following  wholly-­‐owned  hotel  properties:   Hotel     Acquisition   Date   Land     Buildings  and   Improvements         Furniture   Fixtures   and   Equipment         Ground   Lease   Intangible       Franchise   Fees  and   Loan   Costs   Total   Purchase   Price         Assumption   of  Debt   Hotel  Milo,   Santa  Barbara,  CA   Parrot  Key  Resort,     Key  West,  FL   Hilton  Garden  Inn  52nd  Street,     New  York,  NY     2/28/2014     $     -­‐    $     55,080      $     805      $     (14,230)    $     273      $     41,928       $     24,924       5/7/2014         57,889           33,959           8,152           -­‐         -­‐         100,000         -   5/27/2014         45,480           60,762           4,920           -­‐         1,123           112,285           -­‐   TOTAL     $     103,369      $     149,801      $     13,877      $     (14,230)    $     1,396      $     254,213       $     24,924     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  or  preferred  shares,   proceeds  from  the  sale  of  assets,  issuances  of  Common  Units,  issuances  of  preferred  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  the  $250,000  unsecured   revolving  line  of  credit  portion  of  our  $500,000  unsecured  credit  facility.  We  believe  that  the  net  cash  provided  by   operations  in  the  coming  year  and  borrowings  drawn  on  the  $250,000  revolving  line  of  credit  portion  of  our   $500,000  unsecured  credit  facility  will  be  adequate  to  fund  the  Company’s  operating  requirements,  monthly   recurring  debt  service  and  the  payment  of  dividends  in  accordance  with  REIT  requirements  of  the  Code,  as   amended.   To  qualify  as  a  REIT,  we  must  distribute  annually  at  least  90%  of  our  taxable  income.  This  distribution   requirement  limits  our  ability  to  retain  earnings  and  requires  us  to  raise  additional  capital  in  order  to  grow  our   business  and  acquire  additional  hotel  properties.  However,  there  is  no  assurance  that  we  will  be  able  to  borrow   funds  or  raise  additional  equity  capital  on  terms  acceptable  to  us,  if  at  all.  In  addition,  we  cannot  guarantee  that  we   will  continue  to  make  distributions  to  our  shareholders  at  the  current  rate  or  at  all.  Due  to  the  seasonality  of  our   business,  cash  provided  by  operating  activities  fluctuates  significantly  from  quarter  to  quarter.  However,  we   believe  that,  based  on  our  current  estimates,  which  include  the  addition  of  cash  provided  by  hotels  acquired  during   2014,  our  cash  provided  by  operating  activities  will  be  sufficient  over  the  next  12  months  to  fund  the  payment  of   our  dividend  at  its  current  level.  However,  our  Board  of  Trustees  continues  to  evaluate  the  dividend  policy  in  the   context  of  our  overall  liquidity  and  market  conditions  and  may  elect  to  reduce  or  suspend  these  distributions.     Net   cash  provided  by  operating  activities  for  the  year  ended  December  31,  2014  was  $112,894  and  cash  used  for  the   payment  of  distributions  and  dividends  for  the  year  ended  December  31,  2014  was  $66,366.   We  also  project  that  our  operating  cash  flow  and  available  borrowings  under  the  $250,000  revolving  line   of  credit  portion  of  our  $500,000  unsecured  credit  facility  will  be  sufficient  to  satisfy  our  liquidity  and  other  capital   needs  over  the  next  twelve  to  eighteen  months.   Our  long-­‐term  liquidity  requirements  consist  primarily  of  the  costs  of  acquiring  additional  hotel  properties,   renovation  and  other  non-­‐recurring  capital  expenditures  that  need  to  be  made  periodically  with  respect  to  hotel   properties  and  scheduled  debt  repayments.  We  will  seek  to  satisfy  these  long-­‐term  liquidity  requirements  through   26                                                                                                                                       hersha hospitality trust various  sources  of  capital,  including  borrowings  under  the  $250,000  revolving  line  of  credit  portion  of  our  $500,000   unsecured  credit  facility  and  through  secured,  non-­‐recourse  mortgage  financings  with  respect  to  our   unencumbered  hotel  properties.  In  addition,  we  may  seek  to  raise  capital  through  public  or  private  offerings  of  our   securities.  Certain  factors  may  have  a  material  adverse  effect  on  our  ability  to  access  these  capital  sources,   including  our  degree  of  leverage,  the  value  of  our  unencumbered  hotel  properties  and  borrowing  restrictions   imposed  by  lenders  or  franchisors.  We  will  continue  to  analyze  which  source  of  capital  is  most  advantageous  to  us   at  any  particular  point  in  time,  but  financing  may  not  be  consistently  available  to  us  on  terms  that  are  attractive,  or   at  all.     Spending  on  capital  improvements  during  the  year  ended  December  31,  2014  decreased  when  compared   to  spending  on  capital  improvements  during  the  year  ended  December  31,  2013.  During  the  year  ended  December   31,  2014,  we  spent  $38,342  on  capital  expenditures  to  renovate,  improve  or  replace  assets  at  our  hotels.  This   compares  to  $42,854  during  the  same  period  in  2013.  These  capital  expenditures  were  undertaken  to  comply  with   brand  mandated  improvements  and  to  initiate  projects  that  we  believe  will  generate  a  return  on  investment  to   take  advantage  of  the  continuing  recovery  in  the  lodging  sector.     In  addition  to  capital  reserves  required  under  certain  loan  agreements  and  capital  expenditures  to   renovate,  improve  or  replace  assets  at  our  hotels,  we  have  opportunistically  engaged  in  hotel  development   projects.  During  the  twelve  months  ended  December  31,  2014,  we  spent  $16,290  less  on  hotel  development   projects  than  during  the  same  period  of  2013  as  both  the  new  tower  construction  at  Courtyard  Miami  Beach  and   re-­‐development  project  at  Hampton  Inn  Pearl  Street  hotels  neared  completion.  Projects  such  as  these  require   significant  capital,  which  we  expect  to  fund  with  various  sources  of  capital,  including  available  borrowings  under   the  $250,000  revolving  line  of  credit  portion  of  our  credit  facility  and  through  secured,  non-­‐recourse  mortgage   financings.  In  addition,  we  may  seek  to  raise  capital  through  public  or  private  offerings  of  our  securities  to  fund   these  capital  improvements.     We  may  spend  additional  amounts,  if  necessary,  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.  We  are  also  obligated  to  fund  the  cost  of  certain  capital  improvements  to  our  hotels.   We  expect  to  use  operating  cash  flow,  borrowings  under  the  $250,000  revolving  line  of  credit  portion  of  our  credit   facility,  and  proceeds  from  issuances  of  our  securities  to  pay  for  the  cost  of  capital  improvements  and  any   furniture,  fixture  and  equipment  requirements  in  excess  of  the  set  aside  referenced  above.   CASH  FLOW  ANALYSIS  (dollars  in  thousands,  except  per  share  data)   Comparison  of  the  Years  Ended  December  31,  2014  and  December  31,  2013   Net  cash  provided  by  operating  activities  increased  $22,633  from  $90,261  for  the  year  ended  December   31,  2013  to  $112,894  for  the  comparable  period  in  2014.  Net  income,  adjusted  for  non-­‐cash  items  reflected  in  the   statement  of  cash  flows  for  the  years  ended  December  31,  2014  and  2013,  increased  $17,698  for  the  year  ended   December  31,  2014  when  compared  to  2013.  This  is  primarily  due  to  cash  provided  by  properties  acquired  over  the   past  twelve  months  and  improving  operating  results  within  our  existing  portfolio.  The  offsetting  decrease  in  cash   provided  by  operating  activities  was  attributable  to  an  increase  in  working  capital  assets.     Net  cash  used  in  investing  activities  for  the  year  ended  December  31,  2014  increased  $55,030  from   $125,474  for  the  year  ended  December  31,  2013  compared  to  $180,504  for  2014.  While  spending  on  the  purchase   of  hotel  properties  and  deposits  on  hotel  acquisitions  was  $43,742  higher  during  the  year  ended  December  31,   2013,  compared  to  same  period  in  2014,  proceeds  from  the  disposition  of  hotel  properties  was  $105,959  less   during  the  year  ended  December  31,  2014  when  compared  to  the  year  ended  December  31,  2013.     Offsetting  this   was  spending  on  hotel  development  projects  which  was  $16,290  less  during  the  year  ended  December  31,  2014   when  compared  to  the  year  ended  December  31,  2013  and  a  repayment  of  note  receivable  of  $15,122  which   occurred  during  the  year  ended  December  31,  2013.  During  the  year  ended  December  31,  2014  we  received   27                     annual report 2014 $30,056  in  proceeds  from  the  disposition  of  Hotel  373  in  the  second  quarter  and  the  remaining  4  non-­‐core   properties  during  the  first  quarter.       Net  cash  provided  by  financing  activities  for  the  year  ended  December  31,  2014  was  $53,072  compared  to   net  cash  provided  by  financing  activities  for  the  year  ended  December  31,  2013  of  $2,367.  Net  proceeds  received   during  the  year  ended  December  31,  2014  under  our  unsecured  credit  facility  were  $50,000  higher  than  during  the   same  period  in  2013.  Net  proceeds  from  mortgages  and  notes  payable  were  $29,050  higher  during  the  year  ended   December  31,  2014,  when  compared  to  the  same  period  in  2013.  During  the  first  quarter  of  2013,  we  completed  an   offering  of  Series  C  Preferred  Shares  with  net  proceeds  of  $72,370,  after  deducting  underwriting  discounts  and   offering  expenses,  which  was  primarily  used  to  redeem  all  of  the  issued  and  outstanding  Series  A  Preferred  Shares   with  a  redemption  value  of  $60,000.    During  the  year  ended  December  31,  2014,  we  used  $15,418  for  the   repurchase  of  common  shares.  Dividends  and  distributions  payable  decreased  $391  during  the  year  ended   December  31,  2014,  compared  to  2013,  due  to  a  decrease  in  the  number  of  outstanding  common  shares.     Comparison  of  the  Years  Ended  December  31,  2013  and  December  31,  2012   Net  cash  provided  by  operating  activities  increased  $18,505,  from  $71,756  for  the  year  ended  December   31,  2012  to  $90,261  for  2013.  Net  income,  adjusted  for  non-­‐cash  items  such  as  gain  on  acquisition  of  hotel  assets,   gain  on  disposition  of  hotel  properties,  impairment  of  assets,  benefit  for  income  taxes,  depreciation  and   amortization,  non-­‐cash  debt  extinguishment,  development  loan  interest  income  added  to  principal,  interest  in   income/loss  from  and  distributions  from  unconsolidated  joint  ventures,  loss  recognized  on  change  in  fair  value  of   derivative  instruments  and  stock  based  compensation  increased  $4,720  for  the  year  ended  December  31,  2013   when  compared  to  2012.  This  is  primarily  due  to  cash  provided  by  properties  acquired  over  the  past  twelve  months   and  improving  operating  results  within  our  existing  portfolio.  In  addition  to  these  increases  in  cash  provided  by   these  operating  activities  was  an  increase  in  net  cash  used  in  funding  working  capital  assets,  such  as  payments  into   escrows,  and  repaying  working  capital  liabilities,  such  as  accounts  payable  and  accrued  expenses.   Net  cash  used  in  investing  activities  increased  $69,657,  from  $55,817  for  year  ended  December  31,  2012   to  $125,474  for  2013.  Spending  on  the  purchase  of  hotel  properties,  deposits  on  hotel  acquisitions  and   development  projects  was  $142,474  higher  during  2013  compared  to  2012.  Offsetting  this  increase  in  spending  on   the  purchase  of  new  hotels  was  in  increase  in  proceeds  from  the  disposition  of  hotel  properties,  which  during  the   year  ended  December  31,  2013  was  $72,293  higher  than  during  the  year  ended  December  31,  2012.   Net  cash  provided  by  financing  activities  for  year  ended  December  31,  2013  was  $2,367  compared  to   $28,552  during  the  same  period  in  2012.  During  the  year  ended  December  31,  2013,  we  received  proceeds  of   $72,370  from  the  issuance  of  our  series  C  preferred  shares  and  used  $60,000  of  these  proceeds  to  redeem  our   series  A  preferred  shares,  resulting  in  net  proceeds  of  $12,370.     During  the  same  period  in  2012  we  received  net   proceeds  of  $128,558  from  the  issuance  of  common  shares.  Dividends  and  distributions  payable  increased  $6,630   during  the  year  ended  December  31,  2013,  compared  to  2012,  due  to  an  increase  in  the  number  of  outstanding   common  shares  as  a  result  of  a  common  stock  offering  completed  in  May  2012,  and  the  additional  preferred  share   dividends  we  paid  due  to  the  timing  of  the  preferred  stock  offering  and  subsequent  redemption  which  occurred  in   March  2013.     For  the  year  ended  December  31,  2013,  borrowings  under  our  unsecured  term  loan  and  mortgages   and  notes  payable,  net  of  repayments  provided  cash  of  $60,602,  compared  to  net  repayments  of  $39,783  for  the   same  period  in  2012.   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.   28                         hersha hospitality trust FUNDS  FROM  OPERATIONS   (in  thousands,  except  share  data)   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,  gains  on  hotel  acquisitions,  plus  certain  non-­‐cash  items,  such  as  loss  from   impairment  of  assets  and  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  loss  from  the  impairment  of  certain  depreciable  assets,  our  investment  in   unconsolidated  joint  ventures  and  land,  depreciation  and  amortization  expenses,  gains  or  losses  on  property  sales,   gains  on  hotel  acquisitions,  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.  We  determined   that  the  loss  from  the  impairment  of  certain  depreciable  assets  including  investments  in  unconsolidated  joint   ventures  and  land,  was  driven  by  a  measurable  decrease  in  the  fair  value  of  certain  hotel  properties  and  other   assets  as  determined  by  our  analysis  of  those  assets  in  accordance  with  applicable  GAAP.  As  such,  these   impairments  have  been  eliminated  from  net  loss  to  determine  FFO.   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  the  Company’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.   29                 annual report 2014 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):     December  31,  2014       December  31,  2013       December  31,  2012   Year  Ended   Net  income  applicable  to  common  shareholders     $   Income  (loss)  allocated  to  noncontrolling  interests   (Income)  loss  from  unconsolidated  joint  ventures   Gain  on  hotel  acquisition   Development  Loan  Recovery   Gain  on  disposition  of  hotel  properties   Loss  from  impairment  of  depreciable  assets   Depreciation  and  amortization     Depreciation  and  amortization  from  discontinued  operations   Funds  from  consolidated  hotel  operations   applicable  to  common  shareholders  and  Partnership  units     52,899       $     1,016         (693)       (12,667)       (22,494)       (7,067)       1,800         69,167         -­‐       32,752       $     335         1,835         (12,096)       -­‐       (32,121)       10,314         55,784         7,050         8,376       (158)     2,124       -­‐     -­‐     (11,231)     -­‐     48,243       9,148       81,961         63,853         56,502     Income  (loss)  from  Unconsolidated  Joint  Ventures     693         (1,835)       (2,124)   Loss  from  remeasurement  of   investment  in  unconsolidated  joint  ventures   Impairment  of  investment  in  unconsolidated  joint  ventures   Depreciation  and  amortization  of  purchase  price         in  excess  of  historical  cost  (1)   Interest  in  depreciation  and  amortization         of  unconsolidated  joint  ventures  (2)   Funds  from  unconsolidated  joint  ventures  operations   applicable  to  common  shareholders  and  Partnership  units     -­‐       -­‐       570         5,915         7,178         -­‐       1,813         596         6,068         6,642         1,892       -­‐     902       5,441       6,111     Funds  from  Operations   applicable  to  common  shareholders  and  Partnership  units     $     89,139       $     70,495       $     62,613     Weighted  Average  Common  Shares  and  Units  Outstanding   Basic   Diluted     (1)   (2)   199,109,209     208,139,670     198,390,450     208,886,212     187,415,270   198,110,615   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.   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.   Certain  amounts  related  to  depreciation  and  amortization  and  depreciation  and  amortization  from   discontinued  operations  in  the  prior  year  FFO  reconciliation  have  been  recast  to  conform  to  the  current  year   presentation.  In  addition,  based  on  guidance  provided  by  NAREIT,  we  have  eliminated  loss  from  the  impairment  of   certain  depreciable  assets,  including  investments  in  unconsolidated  joint  ventures  and  land,  from  net  income  (loss)   to  arrive  at  FFO  in  each  year  presented.   INFLATION   Operators  of  hotel  properties,  in  general,  possess  the  ability  to  adjust  room  rates  daily  to  reflect  the   effects  of  inflation.  However,  competitive  pressures  may  limit  the  ability  of  our  management  companies  to  raise   room  rates.   30                                                                                                                                                                                                                                                                                       hersha hospitality trust CRITICAL  ACCOUNTING  POLICIES  AND  ESTIMATES   Our  discussion  and  analysis  of  our  financial  condition  and  results  of  operations  are  based  upon  our   consolidated  financial  statements,  which  have  been  prepared  in  accordance  with  accounting  principles  generally   accepted  in  the  United  States.  The  preparation  of  these  financial  statements  requires  us  to  make  estimates  and   judgments  that  affect  the  reported  amounts  of  assets,  liabilities,  revenues  and  expenses,  and  related  disclosure  of   contingent  assets  and  liabilities.   On  an  on-­‐going  basis,  estimates  are  evaluated  by  us,  including  those  related  to  carrying  value  of   investments  in  hotel  properties.  Our  estimates  are  based  upon  historical  experience  and  on  various  other   assumptions  we  believe  to  be  reasonable  under  the  circumstances,  the  results  of  which  form  the  basis  for  making   judgments  about  the  carrying  values  of  assets  and  liabilities  that  are  not  readily  apparent  from  other  sources.   Actual  results  may  differ  from  these  estimates  under  different  assumptions  or  conditions.   We  believe  the  following  critical  accounting  policies  affect  our  more  significant  judgments  and  estimates   used  in  the  preparation  of  our  consolidated  financial  statements:   Revenue  Recognition   Approximately  95%  of  our  revenues  are  derived  from  hotel  room  revenues  and  revenue  from  other  hotel   operating  departments.  We  directly  recognize  revenue  and  expense  for  all  consolidated  hotels  as  hotel  operating   revenue  and  hotel  operating  expense  when  earned  and  incurred.  These  revenues  are  recorded  net  of  any  sales  or   occupancy  taxes  collected  from  our  guests.  All  revenues  are  recorded  on  an  accrual  basis,  as  earned.  We   participate  in  frequent  guest  programs  sponsored  by  the  brand  owners  of  our  hotels  and  we  expense  the  charges   associated  with  those  programs,  as  incurred.   Revenue  for  interest  on  development  loan  financing  is  recorded  in  the  period  earned  based  on  the   interest  rate  of  the  loan  and  outstanding  balance  during  the  period.  Development  loans  receivable  and  accrued   interest  on  the  development  loans  receivable  are  evaluated  to  determine  if  outstanding  balances  are  collectible.   Interest  is  recorded  only  if  it  is  determined  the  outstanding  loan  balance  and  accrued  interest  balance  are   collectible.   Other  revenues  consist  primarily  of  fees  earned  for  asset  management  services  provided  to  hotels  we  own   through  unconsolidated  joint  ventures.  Fees  are  earned  as  a  percentage  of  hotel  revenue  and  are  recorded  in  the   period  earned.   New  Accounting  Pronouncements     On  May  28,  2014,  the  FASB  issued  ASU  No.  2014-­‐09,  Revenue  from  Contracts  with  Customers,  which   requires  an  entity  to  recognize  the  amount  of  revenue  to  which  it  expects  to  be  entitled  for  the  transfer  of   promised  goods  or  services  to  customers.    The  ASU  will  replace  most  existing  revenue  recognition  guidance  in  U.S.   GAAP  when  it  becomes  effective.    The  new  standard  is  effective  for  the  Company  on  January  1,  2017.    Early   adoption  is  not  permitted.    The  standard  permits  the  use  of  either  the  retrospective  or  cumulative  effect  transition   method.    The  Company  is  evaluating  the  effect  that  ASU  No.  2014-­‐09  will  have  on  its  consolidated  financial   statements  and  related  disclosures.    The  Company  has  not  yet  selected  a  transition  method  nor  has  it  determined   the  effect  of  the  standard  on  its  ongoing  financial  reporting.   Investment  in  Hotel  Properties   Investments  in  hotel  properties  are  recorded  at  cost.  Improvements  and  replacements  are  capitalized   when  they  extend  the  useful  life  of  the  asset.  Costs  of  repairs  and  maintenance  are  expensed  as  incurred.   Depreciation  is  computed  using  the  straight-­‐line  method  over  the  estimated  useful  life  of  up  to  40  years  for   buildings  and  improvements,  two  to  seven  years  for  furniture,  fixtures  and  equipment.  We  are  required  to  make   31                           annual report 2014 subjective  assessments  as  to  the  useful  lives  of  our  properties  for  purposes  of  determining  the  amount  of   depreciation  to  record  on  an  annual  basis  with  respect  to  our  investments  in  hotel  properties.  These  assessments   have  a  direct  impact  on  our  net  income  because  if  we  were  to  shorten  the  expected  useful  lives  of  our  investments   in  hotel  properties  we  would  depreciate  these  investments  over  fewer  years,  resulting  in  more  depreciation   expense  and  lower  net  income  on  an  annual  basis.   Most  identifiable  assets,  liabilities,  noncontrolling  interests,  and  goodwill  related  to  hotel  properties   acquired  in  a  business  combination  are  recorded  at  full  fair  value.  Estimating  techniques  and  assumptions  used  in   determining  fair  values  involve  significant  estimates  and  judgments.  These  estimates  and  judgments  have  a  direct   impact  on  the  carrying  value  of  our  assets  and  liabilities  which  can  directly  impact  the  amount  of  depreciation   expense  recorded  on  an  annual  basis  and  could  have  an  impact  on  our  assessment  of  potential  impairment  of  our   investment  in  hotel  properties.   The  operations  related  to  properties  that  have  been  sold  or  properties  that  are  intended  to  be  sold  are   presented  as  discontinued  operations  in  the  statement  of  operations  for  all  periods  presented,  and  properties   intended  to  be  sold  are  designated  as  “held  for  sale”  on  the  balance  sheet.   Based  on  the  occurrence  of  certain  events  or  changes  in  circumstances,  we  review  the  recoverability  of   the  property’s  carrying  value.  Such  events  or  changes  in  circumstances  include  the  following:   •   •   a  significant  decrease  in  the  market  price  of  a  long-­‐lived  asset;   a   significant   adverse   change   in   the   extent   or   manner   in   which   a   long-­‐lived   asset   is   being   used   or   in   its   physical  condition;   a   significant   adverse   change   in   legal   factors   or   in   the   business   climate   that   could   affect   the   value   of   a   long-­‐lived  asset,  including  an  adverse  action  or  assessment  by  a  regulator;   an   accumulation   of   costs   significantly   in   excess   of   the   amount   originally   expected   for   the   acquisition   or   construction  of  a  long-­‐lived  asset;   a  current-­‐period  operating  or  cash  flow  loss  combined  with  a  history  of  operating  or  cash  flow  losses  or  a   projection  or  forecast  that  demonstrates  continuing  losses  associated  with  the  use  of  a  long-­‐lived  asset;   and   a   current   expectation   that,   it   is   more   likely   than   not   that,   a   long-­‐lived   asset   will   be   sold   or   otherwise   disposed  of  significantly  before  the  end  of  its  previously  estimated  useful  life.   •   •   •   •   We  review  our  portfolio  on  an  on-­‐going  basis  to  evaluate  the  existence  of  any  of  the  aforementioned   events  or  changes  in  circumstances  that  would  require  us  to  test  for  recoverability.  In  general,  our  review  of   recoverability  is  based  on  an  estimate  of  the  future  undiscounted  cash  flows,  excluding  interest  charges,  expected   to  result  from  the  property’s  use  and  eventual  disposition.  These  estimates  consider  factors  such  as  expected   future  operating  income,  market  and  other  applicable  trends  and  residual  value  expected,  as  well  as  the  effects  of   hotel  demand,  competition  and  other  factors.  If  impairment  exists  due  to  the  inability  to  recover  the  carrying  value   of  a  property,  an  impairment  loss  is  recorded  to  the  extent  that  the  carrying  value  exceeds  the  estimated  fair  value   of  the  property.  We  are  required  to  make  subjective  assessments  as  to  whether  there  are  impairments  in  the   values  of  our  investments  in  hotel  properties.   As  of  December  31,  2014,  based  on  our  analysis,  we  have  determined  that  the  future  cash  flow  of  each  of   the  properties  in  our  portfolio  is  sufficient  to  recover  its  carrying  value.   Investment  in  Joint  Ventures   Properties  owned  in  joint  ventures  are  consolidated  if  the  determination  is  made  that  we  are  the  primary   beneficiary  in  a  variable  interest  entity  (VIE)  or  we  maintain  control  of  the  asset  through  our  voting  interest  or   other  rights  in  the  operation  of  the  entity.  To  determine  if  we  are  the  primary  beneficiary  of  a  VIE,  we  evaluate   whether  we  have  a  controlling  financial  interest  in  that  VIE.  An  enterprise  is  deemed  to  have  a  controlling  financial   interest  if  it  has  i)  the  power  to  direct  the  activities  of  a  variable  interest  entity  that  most  significantly  impact  the   entity’s  economic  performance,  and  ii)  the  obligation  to  absorb  losses  of  the  VIE  that  could  be  significant  to  the  VIE   32                   hersha hospitality trust or  the  rights  to  receive  benefits  from  the  VIE  that  could  be  significant  to  the  VIE.  Control  can  also  be  demonstrated   by  the  ability  of  a  member  to  manage  day-­‐to-­‐day  operations,  refinance  debt  and  sell  the  assets  of  the  partnerships     without  the  consent  of  the  other  member  and  the  inability  of  the  members  to  replace  the  managing  member.  This   evaluation  requires  significant  judgment.   If  it  is  determined  that  we  do  not  have  a  controlling  interest  in  a  joint  venture,  either  through  our  financial   interest  in  a  VIE  or  our  voting  interest  in  a  voting  interest  entity,  the  equity  method  of  accounting  is  used.  Under   this  method,  the  investment,  originally  recorded  at  cost,  is  adjusted  to  recognize  our  share  of  net  earnings  or  losses   of  the  affiliates  as  they  occur  rather  than  as  dividends  or  other  distributions  are  received,  limited  to  the  extent  of   our  investment  in,  advances  to  and  commitments  for  the  investee.  Pursuant  to  our  joint  venture  agreements,   allocations  of  profits  and  losses  of  some  of  our  investments  in  unconsolidated  joint  ventures  may  be  allocated   disproportionately  as  compared  to  nominal  ownership  percentages  due  to  specified  preferred  return  rate   thresholds.   The  Company  periodically  reviews  the  carrying  value  of  its  investment  in  unconsolidated  joint  ventures  to   determine  if  circumstances  exist  indicating  impairment  to  the  carrying  value  of  the  investment  that  is  other  than   temporary.  When  an  impairment  indicator  is  present,  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.  Subsequent  changes  in  estimates  could  impact  the  determination  of  whether  impairment   exists.  To  the  extent  impairment  has  occurred,  the  loss  will  be  measured  as  the  excess  of  the  carrying  amount  over   the  fair  value  of  our  investment  in  the  unconsolidated  joint  venture.   Accounting  for  Derivative  Financial  Investments  and  Hedging  Activities   We  use  derivatives  to  hedge,  fix  and  cap  interest  rate  risk  and  we  account  for  our  derivative  and  hedging   activities  by  recording  all  derivative  instruments  at  fair  value  on  the  balance  sheet.  Derivative  instruments   designated  in  a  hedge  relationship  to  mitigate  exposure  to  variability  in  expected  future  cash  flows,  or  other  types   of  forecasted  transactions,  are  considered  cash  flow  hedges.  We  formally  document  all  relationships  between   hedging  instruments  and  hedged  items,  as  well  as  our  risk-­‐management  objective  and  strategy  for  undertaking   each  hedge  transaction.  Cash  flow  hedges  that  are  considered  highly  effective  are  accounted  for  by  recording  the   fair  value  of  the  derivative  instrument  on  the  balance  sheet  as  either  an  asset  or  liability,  with  a  corresponding   amount  recorded  in  other  comprehensive  income  within  shareholders’  equity.  Amounts  are  reclassified  from  other   comprehensive  income  to  the  income  statements  in  the  period  or  periods  the  hedged  forecasted  transaction   affects  earnings.   Under  cash  flow  hedges,  derivative  gains  and  losses  not  considered  highly  effective  in  hedging  the  change   in  expected  cash  flows  of  the  hedged  item  are  recognized  immediately  in  the  income  statement.  For  hedge   transactions  that  do  not  qualify  for  the  short-­‐cut  method,  at  the  hedge’s  inception  and  on  a  regular  basis   thereafter,  a  formal  assessment  is  performed  to  determine  whether  changes  in  the  cash  flows  of  the  derivative   instruments  have  been  highly  effective  in  offsetting  changes  in  cash  flows  of  the  hedged  items  and  whether  they   are  expected  to  be  highly  effective  in  the  future.   RELATED  PARTY  TRANSACTIONS   We  have  entered  into  a  number  of  transactions  and  arrangements  that  involve  related  parties.  For  a   description  of  the  transactions  and  arrangements,  please  see  Note  6,  “Commitments  and  Contingencies  and   Related  Party  Transactions,”  to  the  consolidated  financial  statements.   33                         annual report 2014 CONTRACTUAL  OBLIGATIONS  AND  COMMERCIAL  COMMITMENTS   The  following  table  summarizes  our  contractual  obligations  and  commitments  to  make  future  payments   under  contracts,  such  as  debt  and  lease  agreements,  as  of  December  31,  2014.   Contractual  Obligations   2015   2016   2017   2018   2019   Thereafter   Long  Term  Debt     $     69,063       $     273,824       $     204,219       $     1,564       $     44,892       $     73,777     Interest  Expense  on  Long  Term  Debt     29,450         22,908         5,155         3,730         3,541         31,072     Unsecured  Term  Loan     Unsecured  Line  of  Credit   Interest  Expense  on  Unsecured  Term   Loan   Hotel  Ground  Rent         Total     -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       250,000         -­‐       7,320         2,342         7,320         2,374         7,320         2,374         7,320         2,374         651         2,374         -­‐     -­‐     -­‐     229,028       $     108,175       $     306,426       $     219,068       $     14,988       $     301,458       $     333,877     From  time  to  time,  we  acquire  properties  subject  to  an  obligation  to  pay  contingent  consideration   arrangements  with  the  former  owner  if  specified  operating  objectives  are  achieved  by  the  acquired  entity.  Our   current  maximum  cash  payment  under  this  arrangement  is  $2,000  in  2015  the  Parrot  Key  Resort  in  Key  West,  FL.   As  of  December  31,  2014,  we  recorded  the  full  amount  of  contingent  consideration  as  we  believe  the  likelihood  of   the  hotel  achieving  the  specific  operating  targets  is  probable.   34                                                                                                                                                                                 hersha hospitality trust Item  7A.   Quantitative  and  Qualitative  Disclosures  About  Market  Risk  (in  thousands,  except  per   share  data)   Our  primary  market  risk  exposure  is  to  changes  in  interest  rates  on  our  variable  rate  debt  which  has  not   been  effectively  hedged  with  interest  swaps  or  interest  rate  caps.  As  of  December  31,  2014,  we  are  exposed  to   interest  rate  risk  with  respect  to  variable  rate  borrowings  under  our  $500,000  credit  facility  and  certain  variable   rate  mortgages  and  notes  payable.  As  of  December  31,  2014,  we  had  total  variable  rate  debt  outstanding  of   $298,048  with  a  weighted  average  interest  rate  of  3.04%.  The  effect  of  a  100  basis  point  increase  or  decrease  in  the   interest  rate  on  our  variable  rate  debt  outstanding  as  of  December  31,  2014  would  be  an  increase  or  decrease  in   our  interest  expense  for  the  twelve  months  ended  December  31,  2014  of  $2,083.   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.  As  of  December  31,  2014,  we  have  an  interest  rate  cap  related  to  debt   on  the  Hilton  Garden  Inn,  52nd  Street,  New  York,  Hyatt  Union  Square,  New  York,  NY  and  our  two  subordinated   notes  payable,  and  we  have  six  interest  rate  swaps  related  to  debt  on  the  Courtyard  by  Marriott,  Westside,  Los   Angeles,  CA,  Capitol  Hill  Hotel,  Washington  DC,  Courtyard  by  Marriott,  Miami  Beach,  FL,  Duane  Street  Hotel,  New   York,  NY,  and  our  unsecured  credit  facility.  We  do  not  intend  to  enter  into  derivative  or  interest  rate  transactions   for  speculative  purposes.   As  of  December  31,  2014  approximately  84%  of  our  outstanding  consolidated  long-­‐term  indebtedness  is   subject  to  fixed  rates  or  effectively  capped,  while  16%  of  our  outstanding  long  term  indebtedness  is  subject  to   floating  rates,  including  borrowings  under  our  revolving  credit  facility.   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  December  31,  2014  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  December  31,  2014  to  be  approximately  $901,571  and  a  100  basis  point  decrease  in   market  interest  rates  would  cause  the  fair  value  of  our  fixed-­‐rate  debt  outstanding  at  December  31,  2014  to  be   approximately  $932,755.   2015   2016   2017       2018   2019       Thereafter       Total   Fixed  Rate  Debt     $     69,063    $     218,824    $     203,172    $     491    $     150,513    $   Weighted  Average  Interest  Rate       4.77%     4.29%     3.36%       3.36%     4.40%       22,229    $   4.40%       664,292   4.10%   Floating  Rate  Debt     $     -­‐    $     55,000    $   Weighted  Average  Interest  Rate       3.04%     2.68%       1,047    $   2.68%       1,073    $     144,379    $     2.68%     3.17%       51,548    $   3.17%       253,047   2.88%     $     69,063    $     273,824    $     204,219    $     1,564    $     294,892    $     73,777    $     917,339   Line  of  Credit  Facility     $   Weighted  Average  Interest  Rate       -­‐    $   -   -­‐    $   -   -­‐    $   -   -­‐    $     2.62%       -­‐    $     -­‐       -­‐    $     -­‐         $     69,063    $     273,824    $     204,219    $     1,564    $     294,892    $     73,777    $     -­‐   2.62%     917,339   The  table  incorporates  only  those  exposures  that  existed  as  of  December  31,  2014,  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.   35                                                                                                                                                                                                                                                                                                                                                                                 annual report 2014 Item  8.     Financial  Statements  and  Supplementary  Data   Hersha  Hospitality  Trust       Report  of  Independent  Registered  Public  Accounting  Firm       Consolidated  Balance  Sheets  as  of  December  31,  2014  and  2013       Consolidated  Statement  of  Operations  for  the  years  ended  December  31,  2014,  2013,  and  2012       Consolidated  Statements  of  Comprehensive  Income  (Loss)  for  the  years  ended  December  31,  2014,  2013,   and  2012       Consolidated  Statements  of  Equity  for  the  years  ended  December  31,  2014,  2013  and  2012       Consolidated  Statements  of  Cash  Flows  for  the  years  ended  December  31,  2014,  2013  and  2012       Notes  to  Consolidated  Financial  Statements       Schedule  III  -­‐  Real  Estate  and  Accumulated  Depreciation  for  the  year  ended  December  31,  2014   Page   37   38   39   41   42   44   46   88   36                                         hersha hospitality trust Report  of  Independent  Registered  Public  Accounting  Firm   The  Board  of  Trustees  and  Shareholders  of   Hersha  Hospitality  Trust:   We  have  audited  the  accompanying  consolidated  balance  sheets  of  Hersha  Hospitality  Trust  and  subsidiaries  as  of   December  31,  2014  and  2013,  and  the  related  consolidated  statements  of  operations,  comprehensive  income,   equity,  and  cash  flows  for  each  of  the  years  in  the  three-­‐year  period  ended  December  31,  2014.  In  connection  with   our  audits  of  the  consolidated  financial  statements,  we  have  also  audited  the  financial  statement  schedule  as  listed   in  the  accompanying  index.    These  consolidated  financial  statements  and  financial  statement  schedule  are  the   responsibility  of  Hersha  Hospitality  Trust’s  management.     Our  responsibility  is  to  express  an  opinion  on  these   consolidated  financial  statements  and  financial  statement  schedule  based  on  our  audits.   We  conducted  our  audits  in  accordance  with  the  standards  of  the  Public  Company  Accounting  Oversight  Board   (United  States).  Those  standards  require  that  we  plan  and  perform  the  audit  to  obtain  reasonable  assurance  about   whether  the  financial  statements  are  free  of  material  misstatement.    An  audit  includes  examining,  on  a  test  basis,   evidence  supporting  the  amounts  and  disclosures  in  the  financial  statements.    An  audit  also  includes  assessing  the   accounting  principles  used  and  significant  estimates  made  by  management,  as  well  as  evaluating  the  overall   financial  statement  presentation.    We  believe  that  our  audits  provide  a  reasonable  basis  for  our  opinion.   In  our  opinion,  the  consolidated  financial  statements  referred  to  above  present  fairly,  in  all  material  respects,  the   financial  position  of  Hersha  Hospitality  Trust  and  subsidiaries  as  of  December  31,  2014  and  2013,  and  the  results  of   their  operations  and  their  cash  flows  for  each  of  the  years  in  the  three-­‐year  period  ended  December  31,  2014,  in   conformity  with  U.S.  generally  accepted  accounting  principles.  Also  in  our  opinion,  the  related  financial  statement   schedule,  when  considered  in  relation  to  the  basic  consolidated  financial  statements  taken  as  a  whole,  presents   fairly,  in  all  material  respects,  the  information  set  forth  therein.   As  discussed  in  Note  11  to  the  consolidated  financial  statements,  the  Company  has  changed  its  method  for   reporting  discontinued  operations  as  of  January  1,  2014.   We  have  also  audited,  in  accordance  with  the  standards  of  the  Public  Company  Accounting  Oversight  Board   (United  States),  Hersha  Hospitality  Trust’s  internal  control  over  financial  reporting  as  of  December  31,  2014,  based   on  criteria  established  in  Internal  Control  -­‐  Integrated  Framework  (2013)  issued  by  the  Committee  of  Sponsoring   Organizations  of  the  Treadway  Commission  (COSO),  and  our  report  dated  February  20,  2015,  expressed  an   unqualified  opinion  on  the  effectiveness  of  Hersha  Hospitality  Trust’s  internal  control  over  financial  reporting.   /s/  KPMG  LLP   Philadelphia,  Pennsylvania   February  20,  2015   37                               hersha hospitality trust and subsidiaries consolidated balance sheets as of december 31, 2014 and 2013 [in thousands, except share/unit and per share amounts] Assets:   Investment  in  Hotel  Properties,  Net  of  Accumulated  Depreciation,  Including   Consolidation  of  Variable  Interest  Entity  Assets  of  $84,247  and  $85,759   Investment  in  Unconsolidated  Joint  Ventures   Cash  and  Cash  Equivalents   Escrow  Deposits   Hotel  Accounts  Receivable,  Net  of  Allowance  for  Doubtful  Accounts  of  $39  and  $43   Deferred  Financing  Costs,  Net  of  Accumulated  Amortization  of  $6,938  and  $7,070   Due  from  Related  Parties   Intangible  Assets,  Net  of  Accumulated  Amortization  of  $3,514  and  $3,227   Deposits  on  Hotel  Acquisitions   Other  Assets   Hotel  Assets  Held  for  Sale   Total  Assets   Liabilities  and  Equity:   Line  of  Credit   Unsecured  Term  Loan   Unsecured  Notes  Payable   Mortgages  Payable,  including  Net  Unamortized  Premium  and  Consolidation  of  Variable   Interest  Entity  Debt  of  $54,132  and  $55,714   Accounts  Payable,  Accrued  Expenses  and  Other  Liabilities   Dividends  and  Distributions  Payable   Due  to  Related  Parties   Liabilities  Related  to  Hotel  Assets  Held  for  Sale   Total  Liabilities   Equity:   Shareholders'  Equity:   Preferred  Shares:     $.01  Par  Value,  29,000,000  Shares  Authorized,  4,600,000  Series  B   and  3,000,000  Series  C  Shares  Issued  and  Outstanding  at  December  31,  2014  and   December  31,  2013,  with  Liquidation  Preferences  of  $25  Per  Share  (Note  1)   Common  Shares:     Class  A,  $.01  Par  Value,  300,000,000  Shares  Authorized  at   December  31,  2014  and  December  31,  2013,  198,835,083  and  202,759,419  Shares   Issued  and  Outstanding  at  December  31,  2014  and  December  31,  2013,  respectively   Common  Shares:     Class  B,  $.01  Par  Value,  1,000,000  Shares  Authorized,  None  Issued   and  Outstanding  at  December  31,  2014  and  December  31,  2013   Accumulated  Other  Comprehensive  Loss   Additional  Paid-­‐in  Capital   Distributions  in  Excess  of  Net  Income   Total  Shareholders'  Equity   Noncontrolling  Interests  (Note  1):   Noncontrolling  Interests  -­‐  Common  Units   Noncontrolling  Interests  -­‐  Consolidated  Variable  Interest  Entity   Total  Noncontrolling  Interests     December  31,  2014     December  31,  2013   $   $   $   $   $     1,745,483         11,150         21,675         16,941         9,363         8,605         6,580         7,316         -­‐       28,426         -­‐       1,855,539         -­‐     250,000       51,548       617,375       54,115       17,909       7,203       -­‐     998,150       $   $     $   $     1,535,835       12,044       36,213       25,938       9,141       7,570       11,124       7,603       18,586       27,460       56,583       1,748,097       -­‐     150,000       51,548       571,953       40,852       15,955       4,815       45,835       880,958       76       $     76       1,989       2,028       -­‐     (358)     1,193,056       (365,381)     829,382       29,082       (1,075)     28,007       -­‐     (376)     1,200,798       (364,568)     837,958       29,523       (342)     29,181     Total  Equity   Total  Liabilities  and  Equity     857,389       867,139     $     1,855,539       $     1,748,097     The  Accompanying  Notes  Are  an  Integral  Part  of  These  Consolidated  Financial  Statements.   38                                                                                                                                                                                                                                                                                                                                                                                                             hersha hospitality trust and subsidiaries consolidated statements of operations for the years ended december 31, 2014, 2013 and 2012 [in thousands, except share/unit and per share amounts] Revenue:   Hotel  Operating  Revenues   Interest  Income  from  Development  Loans   Other  Revenues     Total  Revenues   Operating  Expenses:   Hotel  Operating  Expenses   Insurance  Recoveries   Hotel  Ground  Rent   Real  Estate  and  Personal  Property  Taxes  and  Property  Insurance   General  and  Administrative  (including  Share  Based  Payments  of  $6,028,  $9,746,   and  $9,678  for  the  year  ended  December  31,  2014,  2013  and  2012,  respectively)     Acquisition  and  Terminated  Transaction  Costs   Depreciation  and  Amortization   Contingent  Consideration  Related  to  Acquisition  of  Hotel  Property   Total  Operating  Expenses   Operating  Income     Interest  Income   Interest  Expense   Other  Expense   Gain  on  Disposition  of  Hotel  Properties   Gain  on  Hotel  Acquisitions,  net   Development  Loan  Recovery   Loss  on  Debt  Extinguishment   Year  Ended  December  31,     2014   2013   2012     $   $     417,226         -­‐       180         417,406         $     338,064       158       191       338,413       299,005       1,998       212       301,215       227,324         (4,604)       2,433         30,342         20,363         2,472         69,167         2,000         349,497         188,431       (403)     985       24,083       23,869       974       55,784       -­‐     293,723       161,982       -­‐     835       19,341       23,377       1,179       48,243       -­‐     254,957       67,909         44,690       46,258       805         (43,357)       (485)       7,195         12,667         22,494         (670)       1,784       (40,935)     (102)     -­‐     12,096       -­‐     (545)     1,311       (38,070)     (43)     -­‐     -­‐     -­‐     (3,189)   Income  Before  Income  (Loss)  from  Unconsolidated  Joint  Venture  Investments,   Income  Taxes  and  Discontinued  Operations     66,558         16,988       6,267     Income  (Loss)  from  Unconsolidated  Joint  Ventures   Impairment  of  Investment  in  Unconsolidated  Joint  Venture   Loss  from  Remeasurement  of  Investment  in  Unconsolidated  Joint  Venture   Income  (Loss)  from  Unconsolidated  Joint  Venture  Investments   Income  Before  Income  Taxes   Income  Tax  Benefit   Income  from  Continuing  Operations   Discontinued  Operations     (Note  11):   (Loss)  Gain  on  Disposition  of  Discontinued  Assets   Impairment  of  Discontinued  Assets   Income  from  Discontinued  Operations,  Net  of  Income  Taxes   (Loss)  Income  from  Discontinued  Operations     693         -­‐       -­‐       693         (22)     (1,813)     -­‐     (1,835)     67,251         15,153       2,685         5,600       69,936         20,753       (128)       (1,800)       263         (1,665)       32,121       (10,314)     7,388       29,195       (232)     -­‐     (1,892)     (2,124)     4,143       3,355       7,498       11,231       -­‐     3,489       14,720     Net  Income     68,271         49,948       22,218     (Income)  Loss  Allocated  to  Noncontrolling  Interests   Preferred  Distributions   Extinguishment  of  Issuance  Costs  Upon  Redemption  of  Series  A  Preferred  Shares       (1,016)       (14,356)       -­‐       (335)     (14,611)     (2,250)     158       (14,000)     -­‐   Net  Income  Applicable  to  Common  Shareholders     $     52,899       $     32,752       $     8,376     The  Accompanying  Notes  Are  an  Integral  Part  of  These  Consolidated  Financial  Statements.   39                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     hersha hospitality trust and subsidiaries consolidated statements of operations (continued) for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] Earnings  Per  Share:   BASIC   Income  (Loss)  from  Continuing  Operations  Applicable  to  Common   Shareholders   Income  (Loss)  from  Discontinued  Operations  Applicable  to  Common   Shareholders   Year  Ended  December  31,     2014   2013   2012     $     0.27       $     0.02       $     (0.03)       (0.01)       0.14     Net  Income  (Loss)  Applicable  to  Common  Shareholders     $     0.26       $     0.16       $   DILUTED   Income  (Loss)  from  Continuing  Operations  Applicable  to  Common   Shareholders   Income  (Loss)  from  Discontinued  Operations  Applicable  to  Common   Shareholders     $     0.27       $     0.02       $     (0.03)       (0.01)       0.14     Net  Income  (Loss)  Applicable  to  Common  Shareholders     $     0.26       $     0.16       $     0.07         0.04         0.07         0.04       Weighted  Average  Common  Shares  Outstanding:   Basic     Diluted*       199,109,209           198,390,450         187,415,270         201,197,310         201,918,177         187,415,270     *   Income  (loss)  allocated  to  noncontrolling  interest  in  Hersha  Hospitality  Limited  Partnership  (the  “Operating   Partnership”  or  “HHLP”)  has  been  excluded  from  the  numerator  and  common  units  of  limited  partnership   interest  (“Common  Units”)  in  the  Operating  Partnership  have  been  omitted  from  the  denominator  for  the   purpose  of  computing  diluted  earnings  per  share  since  the  effect  of  including  these  shares  and  units  in  the   numerator  and  denominator  would  have  no  impact.    In  addition,  potentially  dilutive  common  shares,  if  any,   have  been  excluded  from  the  denominator  if  they  are  anti-­‐dilutive  to  income  (loss)  from  continuing   operations  applicable  to  common  shareholders.   The  following  table  summarizes  potentially  dilutive  securities  that  have  been  excluded  from  the  denominator  for   the  purpose  of  computing  diluted  earnings  per  share:   Common  Units   LTIP  Units   Unvested  Stock  Awards  Outstanding   Contingently  Issuable  Share  Awards   Options  to  Acquire  Common  Shares  Outstanding   Total  Potentially  Dilutive  Securities  Excluded  from  the  Denominator   Year  Ended  December  31,     2014   2013   2012     6,909,649       32,711       -­‐     -­‐     -­‐     6,942,360       6,968,035       7,208,123       -­‐     -­‐     -­‐     -­‐     -­‐     433,097       2,778,545       275,580       6,968,035     10,695,345   The  Accompanying  Notes  Are  an  Integral  Part  of  These  Consolidated  Financial  Statements.   40                                                                                                                                                                                                                                                                                                                                                                                                                                                       hersha hospitality trust and subsidiaries consolidated statements of comprehensive income (loss) for the years ended december 31, 2014, 2013, and 2012 [in thousands] Net  Income   Other  Comprehensive  Income  (Loss)     Change  in  Fair  Value  of  Derivative  Instruments   Less:  Reclassification  Adjustment  for  Change  in  Fair  Value  of  Derivative   Instruments  Included  in  Net  Income   Year  Ended  December  31,     2014   2013   2012     $     68,271      $     49,948       $     22,218       1,527       2,694           1,073       (1,509)     (1,284)         (1,708)   Comprehensive  Income   Less:     Comprehensive  Loss  (Income)  Attributable  to  Noncontrolling  Interests   Less:     Preferred  Distributions   Less:     Extinguishment  of  Issuance  Costs  Upon  Redemption  of  Series  A   Preferred  Shares   Comprehensive  Income  Attributable  to  Common  Shareholders     68,289       (1,016)     (14,356)     -­‐     $     52,917      $     51,358           (335)         (14,611)         (2,250)         34,162       $     21,583       158       (14,000)     -­‐     7,741     The  Accompanying  Notes  are  an  Integral  Part  of  These  Consolidated  Financial  Statements.   41                                                                                                                                                                   hersha hospitality trust and subsidiaries consolidated statements of equity for the years ended december 31, 2014, 2013 and 2012 [in thousands, except shares and per share amounts] Shareholders'  Equity   Class  B   Common   Shares   ($)   Preferred   Shares   ($)   Additional   Paid-­‐In  Capital   ($)   Accumulated   Other   Comprehensive   Loss  ($)   Distributions   in  Excess  of   Net  Earnings   ($)   Total   Shareholders'   Equity  ($)     70       1,041,027.00       571       (966)       -­‐       -­‐       (1,151)       -­‐       -­‐       (310,972)       -­‐       -­‐       730,673       572       (966)     Preferred   Shares     7,000,000       -­‐       -­‐     Balance  at  December  31,  2011   Unit  Conversion     Reallocation  of  Noncontrolling  Interest   Common  Stock  Issuance   Common  Stock  Offering,  Net  of  Costs   Common  Stock  Option  Cancellation   Dividends  and  Distributions  declared:   Common  Stock  ($0.24  per  share)   Preferred  Stock     Common  Units  ($0.24  per  share)   Dividend  Reinvestment  Plan     Stock  Based  Compensation   Grants   Amortization   Consolidation  of  Variable  Interest  Entity   Deconsolidation  of  Consolidated  Joint   Ventures   Change  in  Fair  Value  of  Derivative   Instruments   Net  Income  (Loss)   Balance  at  December  31,  2012   Unit  Conversion/Redemption   Reallocation  of  Noncontrolling  Interest   Preferred  Shares   Preferred  Share  Offering,  Net  of  Costs   Preferred  Share  Redemption   Dividends  and  Distributions  declared:   Common  Shares  ($0.24  per  share)   Preferred  Shares   Common  Units  ($0.24  per  share)   Dividend  Reinvestment  Plan     Share  Based  Compensation:   Grants   Amortization   Consolidation  of  Variable  Interest  Entity   Deconsolidation  of  Consolidated  Joint   Ventures   Change  in  Fair  Value  of  Derivative   Instruments   Net  Income   Balance  at  December  31,  2013   Unit  Conversion/Redemption   Restricted  Shares  Forfeiture/LTIP  Unit   Issuance   Repurchase  of  Common  Shares   Reclassification  of  Noncontrolling  Interest   Preferred  Stock   Preferred  Stock  Offering,  Net  of  Costs   Preferred  Stock  Redemption   Dividends  and  Distributions  declared:   Common  Shares  ($0.26  per  share)   Preferred  Shares   Common  Units  ($0.26  per  share)   LTIP  Units  ($0.07  per  share)   Dividend  Reinvestment  Plan     Share  Based  Compensation:   Grants   Amortization   Change  in  Fair  Value  of  Derivative   Instruments   Net  Income   Balance  at  December  31,  2014   Common   Shares     169,969,973       157,810       -­‐     Class  A   Common   Shares  ($)       1,699       1       -­‐       24,000,000       2,521,561       240       25       -­‐       -­‐       -­‐       5,117       -­‐       -­‐       -­‐         -­‐       2,017,895       -­‐       -­‐       -­‐       -­‐       -­‐       198,672,356       27,790       -­‐       21       -­‐       -­‐       -­‐       -­‐       -­‐       1,986       1       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       7,206       4,052,067       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐         -­‐       41       -­‐       -­‐       -­‐       -­‐       -­‐       202,759,419       18,900       (1,948,324)       (2,626,854)       -­‐       -­‐       -­‐       2,028       -­‐       (19)       (26)       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       8,647       641,295       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       6       -­‐       -­‐       -­‐       198,853,083       -­‐       -­‐       1,989       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       7,000,000       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       70       -­‐       -­‐       128,318       (25)       -­‐       -­‐       -­‐       24       2,616       6,727       -­‐       -­‐       -­‐       -­‐       1,178,292       (234)       -­‐       -­‐       3,000,000       -­‐       (2,400,000)       30       (24)       72,340       (59,976)       -­‐       -­‐       -­‐         -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       38       467       9,871       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       (635)       -­‐       (1,786)       -­‐       -­‐       -­‐       -­‐         -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       7,600,000       -­‐       -­‐       -­‐       76       -­‐       -­‐       -­‐       1,200,798       (77)       1,410       -­‐       (376)       -­‐       -­‐       49,613       (364,568)       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       19       (13,771)       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       50       641       5,396       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       7,600,000       -­‐       -­‐       76       -­‐       -­‐       1,193,056       18       -­‐       (358)       -­‐       67,255       (365,381)       18       67,255       829,382     -­‐     -­‐       -­‐       128,558       -­‐       (46,138)       (14,000)       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       22,376       (348,734)       -­‐       -­‐       (46,138)       (14,000)       -­‐       24       2,637       6,727       -­‐       -­‐       (635)       22,376       829,828       (233)       -­‐       -­‐       72,370       (60,000)       (50,836)       (14,611)       -­‐       -­‐       (50,836)       (14,611)       -­‐       38       -­‐       -­‐       -­‐       -­‐       508       9,871       -­‐       -­‐       1,410       49,613       837,958       (77)       -­‐       (15,418)       -­‐       -­‐       (1,621)       -­‐       -­‐       -­‐       -­‐       -­‐       (52,091)       (14,356)       -­‐       -­‐       -­‐       (52,091)       (14,356)       -­‐       -­‐       50       -­‐       -­‐       647       5,396     The  Accompanying  Notes  are  an  Integral  Part  of  These  Consolidated  Financial  Statements.   42                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           Noncontrolling  Interests   Total   Shareholders'   Equity  ($)     Shares     730,673       572       (966)     4,206,064     -­‐     (157,810)   Common   Units  ($)       16,862       (572)       -­‐     Consolidated   Joint   Ventures  ($)       307       -­‐       -­‐     Consolidated   Variable   Interest  Entity   ($)     -­‐     -­‐     -­‐   Total   Noncontrolling   Interests  ($)       17,169       (572)       -­‐       Shares   Total  Equity   ($)     747,842       3,064,252       -­‐       -­‐       -­‐       (966)     Redeemable   Noncontrolling   Interests   hospitality trust and subsidiaries consolidated statements of equity (continued) for the years ended december 31, 2014, 2013 and 2012 [in thousands, except shares and per share amounts] Balance  at  December  31,  2011   Unit  Conversion     Reallocation  of  Noncontrolling  Interest   Common  Stock  Issuance   Common  Stock  Offering,  Net  of  Costs   Common  Stock  Option  Cancellation   Dividends  and  Distributions  declared:   Common  Stock  ($0.24  per  share)   Preferred  Stock     Common  Units  ($0.24  per  share)   Dividend  Reinvestment  Plan     Stock  Based  Compensation   Grants   Amortization   Consolidation  of  Variable  Interest  Entity   Deconsolidation  of  Consolidated  Joint   Ventures   Change  in  Fair  Value  of  Derivative   Instruments   Net  Income  (Loss)   Balance  at  December  31,  2012   Unit  Conversion/Redemption   Reallocation  of  Noncontrolling  Interest   Preferred  Shares   Preferred  Share  Offering,  Net  of  Costs   Preferred  Share  Redemption   Dividends  and  Distributions  declared:   Common  Shares  ($0.24  per  share)   Preferred  Shares   Common  Units  ($0.24  per  share)   Dividend  Reinvestment  Plan     Share  Based  Compensation:   Grants   Amortization   Consolidation  of  Variable  Interest  Entity   Deconsolidation  of  Consolidated  Joint   Ventures   Change  in  Fair  Value  of  Derivative   Instruments   Net  Income   Balance  at  December  31,  2013   Unit  Conversion/Redemption   Restricted  Shares  Forfeiture/LTIP  Unit   Issuance   Repurchase  of  Common  Shares   Reclassification  of  Noncontrolling  Interest   Preferred  Stock   Preferred  Stock  Offering,  Net  of  Costs   Preferred  Stock  Redemption   Dividends  and  Distributions  declared:   Common  Shares  ($0.26  per  share)   Preferred  Shares   Common  Units  ($0.26  per  share)   LTIP  Units  ($0.07  per  share)   Dividend  Reinvestment  Plan     Share  Based  Compensation:   Grants   Amortization   Change  in  Fair  Value  of  Derivative   Instruments   Net  Income   Balance  at  December  31,  2014     -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       128,558       -­‐       (46,138)       (14,000)       -­‐       24       2,637       6,727       -­‐       -­‐       (635)       22,376       829,828       (233)       -­‐       72,370       (60,000)     4,048,254   (197,790)   3,064,252     -­‐       -­‐       (50,836)       (14,611)       -­‐       38       508       9,871       -­‐       -­‐       1,410       49,613       837,958       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐     6,914,716     (77)       (65,304)       -­‐       (15,418)       -­‐     1,948,324       -­‐       -­‐       -­‐       -­‐       (52,091)       (14,356)       -­‐       -­‐       50       647       5,396       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       (991)       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       185       15,484       (766)       15,365       -­‐       -­‐       -­‐       -­‐       (1,669)       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       1,109       29,523       (261)       -­‐       -­‐       -­‐         -­‐         -­‐         -­‐       -­‐       (1,793)       (136)       -­‐       -­‐       -­‐       18       67,255       829,382     8,797,736   -­‐     -­‐       -­‐       -­‐       1,749       29,082       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       (307)       -­‐         -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     956     -­‐     (480)     476     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     (818)     (342)     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐       -­‐       128,558       -­‐       (46,138)       (14,000)       (991)       24       2,637       6,727       956       (307)       -­‐       -­‐       (991)       -­‐       -­‐       -­‐       956       (307)       -­‐       (295)       15,960       (766)       15,365       (635)       22,081       -­‐       -­‐       845,788       3,064,252       -­‐       (999)       15,365       -­‐       -­‐       72,370       (60,000)     (3,064,252)     -­‐       -­‐       -­‐       -­‐       (1,669)       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       291       29,181       (261)       -­‐       -­‐       -­‐       -­‐       -­‐       (50,836)       (14,611)       (1,669)       38       508       9,871       -­‐       -­‐       1,410       49,904       867,139       (338)       -­‐       (15,418)       -­‐         -­‐         -­‐         -­‐       -­‐       (1,793)       (136)       -­‐       (52,091)       (14,356)       (1,793)       (136)       50       -­‐       -­‐       647       5,396       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐     Common   Units  ($)     14,955     -­‐     966     -­‐     -­‐     -­‐     -­‐     (736)     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     136     15,321     -­‐     (15,365)     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     44     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐     -­‐   43 The  Accompanying  Notes  are  an  Integral  Part  of  These  Consolidated  Financial  Statements.     -­‐     (733)     (1,075)     -­‐       1,016       28,007       18       68,271       857,389                                                                                                                                                                                                                                                                                                                                                                                                                                                         hersha hospitality trust and subsidiaries consolidated statements of cash flows for the years ended december 31, 2014, 2013 and 2012 [in thousands] Operating  Activities:   Net  Income   Adjustments  to  Reconcile  Net  Income  to  Net  Cash  Provided  by  Operating   Activities:   Gain  on  Hotel  Acquisitions,  Net   Contingent  Consideration   Development  Loan  Recovery   Gain  on  Disposition  of  Hotel  Properties   Impairment  of  Hotel  Assets   Deferred  Taxes   Depreciation   Amortization   Loss  on  Debt  Extinguishment   Development  Loan  Interest  Added  to  Principal   Equity  in  Loss  of  Unconsolidated  Joint  Ventures   Distributions  from  Unconsolidated  Joint  Ventures   Loss  Recognized  on  Change  in  Fair  Value  of  Derivative  Instrument   Share  Based  Compensation  Expense   Change  in  Assets  and  Liabilities:   (Increase)  Decrease  in:   Hotel  Accounts  Receivable     Escrows   Other  Assets   Due  from  Related  Parties   Increase  (Decrease)  in:     $     $   Due  to  Related  Parties   Accounts  Payable,  Accrued  Expenses  and  Other  Liabilities   Net  Cash  Provided  by  Operating  Activities   Investing  Activities:   Purchase  of  Hotel  Property  Assets   Deposits  on  Hotel  Acquisitions,  Net   Capital  Expenditures   Cash  Paid  for  Hotel  Development  Projects   Proceeds  from  Disposition  of  Hotel  Properties     Net  Changes  in  Capital  Expenditure  Escrows     Investment  in  Notes  Receivable   Repayment  of  Notes  Receivable   Proceeds  from  Insurance  Claims   Repayment  of  Development  Loans  Receivable   Distributions  from  Unconsolidated  Joint  Venture   Advances  and  Capital  Contributions  to  Unconsolidated  Joint  Ventures   Net  Cash  Used  in  Investing  Activities     $   2014   2013   2012     $     68,271       $     49,948       $     22,218       (12,667)     2,000       (22,494)     (7,067)     1,800       (2,685)     68,753       1,979       673       -­‐     (693)     1,262       71       6,028       (350)     1,272       2,182       4,544       2,388       (2,373)     112,894       (175,236)     -­‐     (38,342)     (3,764)     30,056       4,577       -­‐     -­‐     1,881       -­‐     324       -­‐     (180,504)     $     $     $     (12,096)     -­‐     -­‐     (32,121)     10,314       (5,500)     61,801       2,545       471       -­‐     1,835       568       22       9,746       2,419       476       (4,269)     (2,636)     412       6,326       90,261       (217,142)     (1,836)     (42,854)     (20,054)     136,015       (1,287)     -­‐     -­‐     5,001       15,122       1,711       (150)     (125,474)     $     $     $     -­‐     -­‐     -­‐     (11,231)     -­‐     (3,355)     56,071       3,680       2,261       (678)     2,124       1,387       658       9,678       (235)     (1,944)     (2,683)     (5,500)     1,541       (2,236)     71,756       (67,637)     (18,750)     (28,443)     (10,171)     63,722       (4,454)     (150)     1,720       -­‐     8,000       476       (130)     (55,817)   The  Accompanying  Notes  are  an  Integral  Part  of  These  Consolidated  Financial  Statements.   44                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             hersha hospitality trust and subsidiaries consolidated statements of cash flows (continued) for the years ended december 31, 2014, 2013, and 2012 [in thousands] Financing  Activities:   Proceeds  from  (Repayments  of)  Borrowings  Under  Line  of  Credit,  Net   Proceeds  from  Unsecured  Term  Loan  Borrowing   Principal  Repayment  of  Mortgages  and  Notes  Payable   Proceeds  from  Mortgages  and  Notes  Payable   Cash  Paid  for  Deferred  Financing  Costs   Proceeds  from  Issuance  of  Preferred  Shares,  Net   Proceeds  from  Issuance  of  Common  Shares,  Net   Redemption  of  Series  A  Preferred  Shares   Repurchase  of  Common  Shares   Redemption  of  Common  Partnership  Units   Settlement  of  Interest  Rate  Cap   Dividends  Paid  on  Common  Shares   Dividends  Paid  on  Preferred  Shares   Distributions  Paid  on  Common  Partnership  Units   Net  Cash  Provided  by  Financing  Activities   Net  Increase  (Decrease)  in  Cash  and  Cash  Equivalents     Cash  and  Cash  Equivalents  -­‐  Beginning  of  Period   2014   2013   2012     $     $     $     -­‐     100,000       (61,348)     101,000       (4,450)     -­‐     -­‐     -­‐     (15,418)     (338)     (8)     (50,286)     (14,356)     (1,724)     53,072       (14,538)     36,213       $     $     $     -­‐     50,000       (54,398)     65,000       (2,283)     72,370       -­‐     (60,000)     -­‐     (1,000)     (565)     (50,553)     (14,522)     (1,682)     2,367       (32,846)     69,059       $     $     $     (51,000)     100,000       (187,478)     98,695       (96)     -­‐     128,558       -­‐     -­‐     -­‐     -­‐     (44,391)     (14,000)     (1,736)     28,552       44,491       24,568     Cash  and  Cash  Equivalents  -­‐  End  of  Period     $     21,675       $     36,213       $     69,059     The  Accompanying  Notes  are  an  Integral  Part  of  These  Consolidated  Financial  Statements.   45                                                                                                                                                                                                                                                                               hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  1  –  ORGANIZATION  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES   Hersha  Hospitality  Trust  (“we”  or  the  “Company”)  was  formed  in  May  1998  as  a  self-­‐administered,  Maryland  real   estate  investment  trust.  We  have  elected  to  be  taxed  and  expect  to  continue  to  elect  to  be  taxed  as  a  real  estate   investment  trust,  or  REIT,  for  federal  income  tax  purposes.   The  Company  owns  a  controlling  general  partnership  interest  in  Hersha  Hospitality  Limited  Partnership  (“HHLP”  or   the  “Partnership”),  which  owns  a  99%  limited  partnership  interest  in  various  subsidiary  partnerships.  Hersha   Hospitality,  LLC  (“HHLLC”),  a  Virginia  limited  liability  company,  owns  a  1%  general  partnership  interest  in  the   subsidiary  partnerships  and  the  Partnership  is  the  sole  member  of  HHLLC.   The  Partnership  owns  a  taxable  REIT  subsidiary  (“TRS”),  44  New  England  Management  Company  (“44  New   England”  or  “TRS  Lessee”),  which  leases  certain  of  the  Company’s  hotels.   Hersha’s  common  shares  of  beneficial  interest  trade  on  the  New  York  Stock  Exchange  (“the  NYSE”)  under  the  ticker   symbol  "HT",  its  8.0%  Series  B  preferred  shares  of  beneficial  interest  trade  on  the  NYSE  under  the  ticker  symbol  “HT   PR  B”  and  its  6.875%  Series  C  preferred  shares  of  beneficial  interest  trade  on  the  NYSE  under  the  ticker  symbol  “HT   PR  C.”   As  of  December  31,  2014,  the  Company,  through  the  Partnership  and  subsidiary  partnerships,  wholly  owned  46   limited  and  full  service  hotels.  All  of  the  wholly  owned  hotel  facilities  are  leased  to  the  Company’s  TRS,  44  New   England.     In  addition  to  the  wholly  owned  hotel  properties,  as  of  December  31,  2014,  the  Company  owned  joint  venture   interests  in  another  five  properties.  The  properties  owned  by  the  joint  ventures  are  leased  to  a  TRS  owned  by  the   joint  venture  or  to  an  entity  owned  by  the  joint  venture  partners  and  44  New  England.  The  following  table  lists  the   properties  owned  by  these  joint  ventures:   Joint  Venture     Ownership     Property   Location   Lessee/Sublessee   Unconsolidated  Joint  Ventures     Mystic  Partners,  LLC   66.7%     Marriott     Mystic,  CT     Mystic  Partners  Leaseco,   8.8%     Hilton     Hartford,  CT     Mystic  Partners  Leaseco,   LLC   15.0%     Marriott     Hartford,  CT   LLC     Mystic  Partners  Leaseco,   LLC   SB  Partners,  LLC   Hiren  Boston,  LLC   50.0%   50.0%     Holiday  Inn   Express     Courtyard     South  Boston,  MA     South  Bay  Sandeep,  LLC     South  Boston,  MA     South  Bay  Boston,  LLC   Mystic  Partners,  LLC  owns  an  interest  in  three  hotel  properties.  Our  interest  in  Mystic  Partners,  LLC  is  relative  to   our  interest  in  each  of  the  three  properties  owned  by  the  joint  venture  as  defined  in  the  joint  venture’s  governing   documents.  Each  of  the  three  properties  owned  by  Mystic  Partners,  LLC  is  leased  to  a  separate  entity  that  is   consolidated  in  Mystic  Partners  Leaseco,  LLC  which  is  owned  by  44  New  England  and  our  joint  venture  partner  in   Mystic  Partners,  LLC.   The  properties  are  managed  by  eligible  independent  management  companies,  including  Hersha  Hospitality   Management,  LP  (“HHMLP”).  HHMLP  is  owned  in  part  by  certain  of  our  trustees  and  executive  officers  and  other   unaffiliated  third  party  investors.   Principles  of  Consolidation  and  Presentation   The  accompanying  consolidated  financial  statements  have  been  prepared  in  accordance  with  U.S.  generally   accepted  accounting  principles  and  include  all  of  our  accounts  as  well  as  accounts  of  the  Partnership,  subsidiary   partnerships  and  our  wholly  owned  TRS  Lessee.  All  significant  inter-­‐company  amounts  have  been  eliminated.   46                                                                                                 hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  1  –  ORGANIZATION  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)   Consolidated  properties  are  either  wholly  owned  or  owned  less  than  100%  by  the  Partnership  and  are  controlled  by   the  Company  as  general  partner  of  the  Partnership.  Properties  owned  in  joint  ventures  are  also  consolidated  if  the   determination  is  made  that  we  are  the  primary  beneficiary  in  a  variable  interest  entity  (VIE)  or  we  maintain  control   of  the  asset  through  our  voting  interest  in  the  entity.   Control  can  be  demonstrated  when  the  general  partner  has  the  power  to  impact  the  economic  performance  of  the   partnership,  which  includes  the  ability  of  the  general  partner  to  manage  day-­‐to-­‐day  operations,  refinance  debt  and   sell  the  assets  of  the  partnerships  without  the  consent  of  the  limited  partners  and  the  inability  of  the  limited   partners  to  replace  the  general  partner.  Control  can  be  demonstrated  by  the  limited  partners  if  the  limited  partners   have  the  right  to  dissolve  or  liquidate  the  partnership  or  otherwise  remove  the  general  partner  without  cause  or   have  rights  to  participate  in  the  significant  decisions  made  in  the  ordinary  course  of  the  partnership’s  business.   We  evaluate  each  of  our  investments  and  contractual  relationships  to  determine  whether  they  meet  the  guidelines   of  consolidation.  Entities  are  consolidated  if  the  determination  is  made  that  we  are  the  primary  beneficiary  in  a  VIE   or  we  maintain  control  of  the  asset  through  our  voting  interest  or  other  rights  in  the  operation  of  the  entity.  To   determine  if  we  are  the  primary  beneficiary  of  a  VIE,  we  evaluate  whether  we  have  a  controlling  financial  interest   in  that  VIE.  An  enterprise  is  deemed  to  have  a  controlling  financial  interest  if  it  has  i)  the  power  to  direct  the   activities  of  a  variable  interest  entity  that  most  significantly  impact  the  entity’s  economic  performance,  and  ii)  the   obligation  to  absorb  losses  of  the  VIE  that  could  be  significant  to  the  VIE  or  the  rights  to  receive  benefits  from  the   VIE  that  could  be  significant  to  the  VIE.  Control  can  also  be  demonstrated  by  the  ability  of  a  member  to  manage   day-­‐to-­‐day  operations,  refinance  debt  and  sell  the  assets  of  the  partnerships  without  the  consent  of  the  other   member  and  the  inability  of  the  members  to  replace  the  managing  member.  Based  on  our  examination,  the   following  entities  were  determined  to  be  VIE’s:  Mystic  Partners,  LLC;  Mystic  Partners  Leaseco,  LLC;  South  Bay   Boston,  LLC;  Brisam  Management  DE,  LLC;  Hersha  Statutory  Trust  I;  and  Hersha  Statutory  Trust  II.  Mystic  Partners,   LLC  is  a  VIE  entity,  however  because  we  are  not  the  primary  beneficiary  it  is  not  consolidated  by  the  Company.  Our   maximum  exposure  to  losses  due  to  our  investment  in  Mystic  Partners,  LLC  is  limited  to  our  investment  in  the  joint   venture  which  is  $5,556  as  of  December  31,  2014.  Also,  Mystic  Partners  Leaseco,  LLC;  and  South  Bay  Boston,  LLC   lease  hotel  properties  from  our  joint  venture  interests  and  are  VIEs.  These  entities  are  consolidated  by  the  lessors,   the  primary  beneficiaries  of  each  entity.  Brisam  Management  DE,  LLC  is  consolidated  in  our  financial  statements,  as   we  are  considered  to  be  the  primary  beneficiary.  Hersha  Statutory  Trust  I  and  Hersha  Statutory  Trust  II  are  VIEs  but   HHLP  is  not  the  primary  beneficiary  in  these  entities.  Accordingly,  the  accounts  of  Hersha  Statutory  Trust  I  and   Hersha  Statutory  Trust  II  are  not  consolidated  with  and  into  HHLP.   We  allocate  resources  and  assess  operating  performance  based  on  individual  hotels  and  consider  each  one  of  our   hotels  to  be  an  operating  segment.  All  of  our  individual  operating  segments  meet  the  aggregation  criteria.  All  of   our  other  real  estate  investment  activities  are  immaterial  and  meet  the  aggregation  criteria,  and  thus,  we  report   one  segment:  investment  in  hotel  properties.   Use  of  Estimates   The  preparation  of  financial  statements  in  conformity  with  accounting  principles  generally  accepted  in  the  United   States  (US  GAAP)  requires  management  to  make  estimates  and  assumptions  that  affect  the  reported  amount  of   assets  and  liabilities  and  disclosure  of  contingent  assets  and  liabilities  at  the  date  of  the  financial  statements  and   the  reported  amounts  of  revenue  and  expenses  during  the  reporting  period.  Actual  results  could  differ  from  those   estimates.   Although  we  believe  the  assumptions  and  estimates  we  made  are  reasonable  and  appropriate,  as  discussed  in  the   applicable  sections  throughout  these  Consolidated  Financial  Statements,  different  assumptions  and  estimates   could  materially  impact  our  reported  results.  The  current  economic  environment  has  increased  the  degree  of   uncertainty  inherent  in  these  estimates  and  assumptions  and  changes  in  market  conditions  could  impact  our  future   operating  results.   47                   hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  1  –  ORGANIZATION  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)   Investment  in  Hotel  Properties   The  Company  allocates  the  purchase  price  of  hotel  properties  acquired  based  on  the  fair  value  of  the  acquired  real   estate,  furniture,  fixtures  and  equipment,  and  intangible  assets  and  the  fair  value  of  liabilities  assumed,  including   debt.  The  fair  value  allocations  were  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  Company’s  investments  in   hotel  properties  are  carried  at  cost  and  are  depreciated  using  the  straight-­‐line  method  over  the  following   estimated  useful  lives:   Building  and  Improvements                         7  to  40  Years   Furniture,  Fixtures  and  Equipment                 2  to  7  Years   The  Company  periodically  reviews  the  carrying  value  of  each  hotel  to  determine  if  circumstances  indicate   impairment  to  the  carrying  value  of  the  investment  in  the  hotel  or  that  depreciation  periods  should  be  modified.  If   facts  or  circumstances  support  the  possibility  of  impairment,  the  Company  will  prepare  an  estimate  of  the   undiscounted  future  cash  flows,  without  interest  charges,  of  the  specific  hotel.  Based  on  the  properties   undiscounted  future  cash  flows,  the  Company  will  determine  if  the  investment  in  such  hotel  is  recoverable.  If   impairment  is  indicated,  an  adjustment  will  be  made  to  reduce  the  carrying  value  of  the  hotel  to  reflect  the  hotel  at   fair  value.   We  consider  a  hotel  to  be  held  for  sale  when  management  and  our  independent  trustees  commit  to  a  plan  to  sell   the  property,  the  property  is  available  for  sale,  management  engages  in  an  active  program  to  locate  a  buyer  for  the   property  and  it  is  probable  the  sale  will  be  completed  within  a  year  of  the  initiation  of  the  plan  to  sell.   Acquisition-­‐related  cost,  such  as  due  diligence,  legal  and  accounting  fees,  are  not  capitalized  or  applied  in   determining  the  fair  value  of  the  above  acquired  assets.       Investment  in  Unconsolidated  Joint  Ventures   If  it  is  determined  that  we  do  not  have  a  controlling  interest  in  a  joint  venture,  either  through  our  financial  interest   in  a  VIE  or  our  voting  interest  in  a  voting  interest  entity,  the  equity  method  of  accounting  is  used.  Under  this   method,  the  investment,  originally  recorded  at  cost,  is  adjusted  to  recognize  our  share  of  net  earnings  or  losses  of   the  affiliates  as  they  occur  rather  than  as  dividends  or  other  distributions  are  received,  limited  to  the  extent  of  our   investment  in,  advances  to  and  commitments  for  the  investee.  Pursuant  to  our  joint  venture  agreements,   allocations  of  profits  and  losses  of  some  of  our  investments  in  unconsolidated  joint  ventures  may  be  allocated   disproportionately  as  compared  to  nominal  ownership  percentages  due  to  specified  preferred  return  rate   thresholds.   The  Company  periodically  reviews  the  carrying  value  of  its  investment  in  unconsolidated  joint  ventures  to   determine  if  circumstances  indicate  impairment  to  the  carrying  value  of  the  investment  that  is  other  than   temporary.  When  an  impairment  indicator  is  present,  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.  To  the  extent  impairment  has  occurred  and  the  impairment  is  considered  other  than   temporary,  the  loss  will  be  measured  as  the  excess  of  the  carrying  amount  over  the  fair  value  of  our  investment  in   the  unconsolidated  joint  venture.   Cash  and  Cash  Equivalents   Cash  and  cash  equivalents  represent  cash  on  hand  and  in  banks  plus  short-­‐term  investments  with  an  initial   maturity  of  three  months  or  less  when  purchased.   48                           hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  1  –  ORGANIZATION  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)   Escrow  Deposits   Escrow  deposits  include  reserves  for  debt  service,  real  estate  taxes,  and  insurance  and  reserves  for  furniture,   fixtures,  and  equipment  replacements,  as  required  by  certain  mortgage  debt  agreement  restrictions  and   provisions.   Hotel  Accounts  Receivable   Hotel  accounts  receivable  consists  primarily  of  meeting  and  banquet  room  rental  and  hotel  guest  receivables.  The   Company  generally  does  not  require  collateral.  Ongoing  credit  evaluations  are  performed  and  an  allowance  for   potential  losses  from  uncollectible  accounts  is  provided  against  the  portion  of  accounts  receivable  that  is  estimated   to  be  uncollectible.   Deferred  Financing  Costs   Deferred  financing  costs  are  recorded  at  cost  and  amortized  over  the  terms  of  the  related  indebtedness  using  the   effective  interest  method.   Due  from/to  Related  Parties   Due  from/to  Related  Parties  represents  current  receivables  and  payables  resulting  from  transactions  related  to   hotel  management  and  project  management  with  affiliated  entities.  Due  from  related  parties  results  primarily  from   advances  of  shared  costs  incurred  and  interest  receivable  on  development  loans  made  to  related  parties.  Due  to   affiliates  results  primarily  from  hotel  management  and  project  management  fees  incurred.  Both  due  to  and  due   from  related  parties  are  generally  settled  within  a  period  not  to  exceed  one  year.   Intangible  Assets  and  Liabilities   Intangible  assets  consist  of  leasehold  intangibles  for  above-­‐market  value  of  in-­‐place  leases  and  deferred  franchise   fees.  The  leasehold  intangibles  are  amortized  over  the  remaining  lease  term.  Deferred  franchise  fees  are  amortized   using  the  straight-­‐line  method  over  the  life  of  the  franchise  agreement.       Intangible  liabilities  consist  of  leasehold  intangibles  for  below-­‐market  value  of  in-­‐place  leases.  The  leasehold   intangibles  are  amortized  over  the  remaining  lease  term.  Intangible  liabilities  are  included  in  the  accounts  payable,   accrued  expenses  and  other  liabilities  on  the  Company’s  consolidated  balance  sheets.   Development  Project  Capitalization   We  have  opportunistically  engaged  in  the  development  and  re-­‐development  of  hotel  assets.  We  capitalize   expenditures  related  to  hotel  development  projects  and  renovations,  including  indirect  costs  such  as  interest   expense,  real  estate  taxes  and  utilities  related  to  hotel  development  projects  and  renovations.   Noncontrolling  Interest   Noncontrolling  interest  in  the  Partnership  represents  the  limited  partner’s  proportionate  share  of  the  equity  of  the     Partnership.  Income  (loss)  is  allocated  to  noncontrolling  interest  in  accordance  with  the  weighted  average   percentage  ownership  of  the  Partnership  during  the  period.  At  the  end  of  each  reporting  period  the  appropriate   adjustments  to  the  income  (loss)  are  made  based  upon  the  weighted  average  percentage  ownership  of  the   Partnership  during  the  period.  Our  ownership  interest  in  the  Partnership  as  of  December  31,  2014,  2013  and  2012   was  95.8%,  96.7%,  and  96.5%,  respectively.   49                             hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  1  –  ORGANIZATION  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)   We  define  a  noncontrolling  interest  as  the  portion  of  equity  in  a  subsidiary  not  attributable,  directly  or  indirectly,  to   a  parent.  Such  noncontrolling  interests  are  reported  on  the  consolidated  balance  sheets  within  equity,  but   separately  from  the  shareholders’  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.   We  classify  the  noncontrolling  interests  of  our  consolidated  joint  ventures,  consolidated  variable  interest  entity,   and  certain  Common  Units  (“Nonredeemable  Common  Units”)  as  equity.  The  noncontrolling  interests  of   Nonredeemable  Common  Units  totaled  $29,082  as  of  December  31,  2014  and  $29,523  as  of  December  31,  2013.  As   of  December  31,  2014,  there  were  8,797,736  Nonredeemable  Common  Units  outstanding  with  a  fair  market  value   of  $61,848,  based  on  the  price  per  share  of  our  common  shares  on  the  NYSE  on  such  date.   In  accordance  with  the  partnership  agreement  of  the  Partnership,  holders  of  these  units  may  redeem  them  for  cash   unless  we,  in  our  sole  and  absolute  discretion,  elect  to  issue  common  shares  on  a  one-­‐for-­‐one  basis  in  lieu  of  paying   cash.   Prior  to  February  1,  2013,  certain  Common  Units  (“Redeemable  Common  Units”)  had  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  served  as  collateral  contains  a  provision  that  could  result  in  a  net  cash  settlement  outside  of  the   control  of  the  Company.  As  a  result,  prior  to  February  1,  2013,  the  Redeemable  Common  Units  were  classified  in   the  mezzanine  section  of  the  consolidated  balance  sheets  as  they  did  not  meet  the  requirements  for  equity   classification  under  US  GAAP.  Effective  February  1,  2013,  the  aforementioned  pledge  and  security  agreement  is  no   longer  in  place  and  therefore  these  Common  Units  have  been  treated  as  Nonredeemable  Common  Units.  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  December  31,  2014  and  2013,  there  were  no  outstanding  Common   Units  designated  as  Redeemable  Common  Units.     Net  income  or  loss  attributed  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   venture  and  consolidated  variable  interest  entity,  is  included  in  net  income  or  loss  in  the  consolidated  statements   of  operations.  Net  income  or  loss  attributed  to  the  Common  Units  and  the  noncontrolling  interests  of  our   consolidated  joint  ventures  and  consolidated  variable  interest  entity  is  excluded  from  net  income  or  loss  applicable   to  common  shareholders  in  the  consolidated  statements  of  operations.   Shareholders’  Equity   On  February  25,  2013,  we  completed  a  public  offering  of  3,000,000  6.875%  Series  C  Cumulative  Redeemable     Preferred  Shares.  These  shares  have  a  par  value  of  $0.01  per  share  with  a  $25.00  liquidation  preference  per  share.   Net  proceeds  of  the  offering,  after  deducting  the  underwriting  discount  and  the  offering  expenses  payable  by  us,   were  approximately  $72,370.     We  utilized  the  net  proceeds  of  the  offering  to  redeem  all  outstanding  8.00%  Series  A  Cumulative  Redeemable   Preferred  Shares  on  March  28,  2013,  and  for  general  corporate  purposes.     The  Series  A  Preferred  Shares  were     50                       hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  1  –  ORGANIZATION  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)   redeemed  at  a  per  share  redemption  price  of  $25.00  together  with  accrued  and  unpaid  dividends  to  the   redemption  date  for  an  aggregate  per  share  redemption  price  of  $25.4056.    Dividends  ceased  accruing  on  the   Series  A  Preferred  Shares  on  March  28,  2013.   Terms  of  the  Series  B  and  Series  C  Preferred  Shares  outstanding  at  December  31,  2014  and  2013  are  summarized   as  follows:   Shares  Outstanding   Dividend  Per  Share           Year  Ended  December  31,       December  31,   2014     December  31,   2013   Aggregate   Liquidation   Preference     Distribution   Rate   2014   2013     4,600,000         3,000,000         7,600,000         4,600,000       $     3,000,000         7,600,000         115,000       75,000     8.000%     $   6.875%       2.0000       $     1.7188         2.0000       1.4753     Series   Series  B   Series  C   Total   In  December  2012,  our  Board  of  Trustees  authorized  us  to  repurchase  from  time  to  time  up  to  an  aggregate  of   $75,000  of  our  outstanding  common  shares  through  December  31,  2013.  We  did  not  repurchase  any  common   shares  prior  to  the  expiration  of  the  share  repurchase  program.  In  January  2014,  our  Board  of  Trustees  again   authorized  us  to  repurchase  from  time  to  time  up  to  an  aggregate  of  $75,000  of  our  outstanding  common  shares.   In  February  2015,  our  Board  of  Trustees  again  authorized  us  to  repurchase  from  time  to  time  up  to  an  aggregate  of   $100,000  of  our  outstanding  shares.  The  current  share  repurchase  program  will  expire  on  December  31,  2015.  For   the  year  ended  December  31,  2014,  the  Company  repurchased  2,626,854  common  shares  for  an  aggregate   purchase  price  of  $15,418.  As  of  February  20,  2015,  we  have  not  repurchased  any  common  shares  pursuant  to  the   newly  reauthorized  share  repurchase  program.  Upon  repurchase  by  the  Company,  these  common  shares  ceased  to   be  outstanding  and  became  authorized  but  unissued  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  common  shares  at  a  price  of  $2.50  per  share  to  REIG  for  gross  proceeds  of   $14,250.  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  was  exercisable  through  August  4,  2014.  On  February  13,  2012,  pursuant  to  the  terms  of  the   original  option,  we  called  in  and  canceled  the  option  granted  to  REIG  in  exchange  for  the  issuance  of  2,521,561   common  shares  with  an  aggregate  value  equal  to  $13,566.  This  amount  equals  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  5,700,000  common  shares  remaining  under  the  option.   On  December  23,  2014,  we  amended  our  partnership  agreement  to  allow  for  the  issuance  of  profits  interests  in   HHLP  in  the  form  of  LTIP  Units,  a  new  class  of  limited  partnership  units  in  HHLP,  and  to  establish  the  terms  of  the   LTIP  Units.  The  LTIP  Units  vest  on  December  31  and  June  1  of  each  year,  beginning  on  December  31,  2014  and     ending  on  June  1,  2017.  The  LTIP  units  contain  restricted  stock  awards  that  were  forfeited  and  replaced  with  LTIP   unit  awards  with  similar  terms.  The  total  number  of  Restricted  Stock  Awards  forfeited  and  LTIP  Units  awarded  was   1,948,324.   Stock  Based  Compensation   We  measure  the  cost  of  employee  service  received  in  exchange  for  an  award  of  equity  instruments  based  on  the   grant-­‐date  fair  value  of  the  award.  The  compensation  cost  is  amortized  on  a  straight  line  basis  over  the  period   during  which  an  employee  is  required  to  provide  service  in  exchange  for  the  award.  The  compensation  cost  related   to  performance  awards  that  are  contingent  upon  market  based  criteria  being  met  is  recorded  at  the  fair  value  of       the  award  on  the  date  of  the  grant  and  amortized  over  the  performance  period.   51                                                                                                                                                                                                                 hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  1  –  ORGANIZATION  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)   Derivatives  and  Hedging   The  Company’s  objective  in  using  derivatives  is  to  add  stability  to  interest  expense  and  to  manage  its  exposure  to   interest  rate  movements.  To  accomplish  this  objective,  the  Company  primarily  uses  interest  rate  swaps  and   interest  rate  caps  as  part  of  its  cash  flow  hedging  strategy.  Interest  rate  swaps  designated  as  cash  flow  hedges   involve  the  receipt  of  variable-­‐rate  amounts  in  exchange  for  fixed-­‐rate  payments  over  the  life  of  the  agreements   without  exchange  of  the  underlying  principal  amount.  Interest  rate  caps  designated  as  cash  flow  hedges  limit  the   Company’s  exposure  to  increased  cash  payments  due  to  increases  in  variable  interest  rates.   Revenue  Recognition   We  recognize  revenue  and  expense  for  all  consolidated  hotels  as  hotel  operating  revenue  and  hotel  operating   expense  when  earned  and  incurred.  These  revenues  are  recorded  net  of  any  sales  or  occupancy  taxes  collected   from  our  guests.  We  participate  in  frequent  guest  programs  sponsored  by  the  brand  owners  of  our  hotels  and  we   expense  the  charges  associated  with  those  programs,  as  incurred.   Interest  income  on  development  loan  financing  is  recorded  in  the  period  earned  based  on  the  interest  rate  of  the   loan  and  outstanding  balance  during  the  period.  Development  loans  receivable  and  accrued  interest  on  the   development  loans  receivable  are  evaluated  to  determine  if  outstanding  balances  are  collectible.  Interest  is   recorded  only  if  it  is  determined  the  outstanding  loan  balance  and  accrued  interest  balance  are  collectible.   Other  revenues  consist  primarily  of  fees  earned  for  asset  management  services  provided  to  hotels  we  own  through   unconsolidated  joint  ventures.  Fees  are  earned  as  a  percentage  of  hotel  revenue  and  are  recorded  in  the  period   earned  to  the  extent  of  the  noncontrolling  interest  ownership.   Income  Taxes   The  Company  qualifies  as  a  REIT  under  applicable  provisions  of  the  Internal  Revenue  Code,  as  amended,  and   intends  to  continue  to  qualify  as  a  REIT.  In  general,  under  such  provisions,  a  trust  which  has  made  the  required   election  and,  in  the  taxable  year,  meets  certain  requirements  and  distributes  to  its  shareholders  at  least  90%  of  its   REIT  taxable  income  will  not  be  subject  to  Federal  income  tax  to  the  extent  of  the  income  which  it  distributes.   Earnings  and  profits,  which  determine  the  taxability  of  dividends  to  shareholders,  differ  from  net  income  reported   for  financial  reporting  purposes  due  primarily  to  differences  in  depreciation  of  hotel  properties  for  Federal  income   tax  purposes.   Deferred  income  taxes  relate  primarily  to  the  TRS  Lessee  and  are  accounted  for  using  the  asset  and  liability   method.  Under  this  method,  deferred  income  taxes  are  recognized  for  temporary  differences  between  the   financial  reporting  bases  of  assets  and  liabilities  of  the  TRS  Lessee  and  their  respective  tax  bases  and  for  their   operating  loss  and  tax  credit  carry  forwards  based  on  enacted  tax  rates  expected  to  be  in  effect  when  such     amounts  are  realized  or  settled.  However,  deferred  tax  assets  are  recognized  only  to  the  extent  that  it  is  more   likely  than  not  that  they  will  be  realized  based  on  consideration  of  available  evidence,  including  tax  planning   strategies  and  other  factors.   The  Company  may  recognize  a  tax  benefit  from  an  uncertain  tax  position  when  it  is  more-­‐likely-­‐than-­‐not  (defined   as  a  likelihood  of  more  than  50%)  that  the  position  will  be  sustained  upon  examination,  including  resolutions  of  any   related  appeals  or  litigation  processes,  based  on  the  technical  merits.  If  a  tax  position  does  not  meet  the   more-­‐likely-­‐than-­‐not  recognition  threshold,  despite  the  Company’s  belief  that  its  filing  position  is  supportable,  the   benefit  of  that  tax  position  is  not  recognized  in  the  statements  of  operations.  The  Company  recognizes  interest  and   penalties,  as  applicable,  related  to  unrecognized  tax  benefits  as  a  component  of  income  tax  expense.  The  Company   recognizes  unrecognized  tax  benefits  in  the  period  that  the  uncertainty  is  eliminated  by  either  affirmative   agreement  of  the  uncertain  tax  position  by  the  applicable  taxing  authority,  or  by  expiration  of  the  applicable     52                         hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  1  –  ORGANIZATION  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)   statute  of  limitation.  For  the  years  ended  December  31,  2014,  2013  and  2012,  the  Company  did  not  record  any   uncertain  tax  positions.  As  of  December  31,  2014,  with  few  exceptions,  the  Company  is  subject  to  tax  examinations   by  U.S.  federal,  state,  and  local  income  tax  authorities  for  years  2003  through  2014.   Reclassification   Certain  amounts  in  the  prior  year  financial  statements  have  been  reclassified  to  conform  to  the  current  year   presentation.   New  Accounting  Pronouncements     On  May  28,  2014,  the  FASB  issued  ASU  No.  2014-­‐09,  Revenue  from  Contracts  with  Customers,  which  requires  an   entity  to  recognize  the  amount  of  revenue  to  which  it  expects  to  be  entitled  for  the  transfer  of  promised  goods  or   services  to  customers.    The  ASU  will  replace  most  existing  revenue  recognition  guidance  in  U.S.  GAAP  when  it   becomes  effective.    The  new  standard  is  effective  for  the  Company  on  January  1,  2017.    Early  adoption  is  not   permitted.    The  standard  permits  the  use  of  either  the  retrospective  or  cumulative  effect  transition  method.    The   Company  is  evaluating  the  effect  that  ASU  No.  2014-­‐09  will  have  on  its  consolidated  financial  statements  and   related  disclosures.    The  Company  has  not  yet  selected  a  transition  method  nor  has  it  determined  the  effect  of  the   standard  on  its  ongoing  financial  reporting.   53                       hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  2  –  INVESTMENT  IN  HOTEL  PROPERTIES   Investment  in  hotel  properties  consists  of  the  following  at  December  31,  2014  and  December  31,  2013:     December  31,  2014     December  31,  2013   Land   Buildings  and  Improvements   Furniture,  Fixtures  and  Equipment   Construction  in  Progress   $   Less  Accumulated  Depreciation   $     439,540       1,424,842       203,275       -­‐       2,067,657       (322,174)       339,027     1,222,639     171,116     63,168     1,795,950     (260,115)   Total  Investment  in  Hotel  Properties   $     1,745,483     $     1,535,835   Depreciation  expense  was  $68,418,  $61,500  and  $55,956  (including  depreciation  on  assets  held  for  sale)  for  the   years  ended  December  31,  2014,  2013,  and  2012,  respectively.   During  the  year  ended  December  31,  2014,  we  acquired  the  following  wholly-­‐owned  hotel  properties:   Hotel     Acquisition   Date   Land     Buildings  and   Improvements         Furniture   Fixtures   and   Equipment         Ground   Lease   Intangible       Franchise   Fees  and   Loan   Costs   Total   Purchase   Price         Assumption   of  Debt   Hotel  Milo,   Santa  Barbara,  CA   Parrot  Key  Resort,     Key  West,  FL   Hilton  Garden  Inn  52nd  Street,     New  York,  NY     2/28/2014     $     -­‐    $     55,080      $     805      $     (14,230)    $     273      $     41,928       $     24,924       5/7/2014         57,889           33,959           8,152           -­‐         -­‐         100,000           1,123           112,285           1,396      $     254,213       $   -   -­‐     24,924     TOTAL     $     103,369      $     149,801      $     13,877      $     (14,230)    $     5/27/2014         45,480           60,762           4,920           -­‐       Acquisition-­‐related  cost,  such  as  due  diligence,  legal  and  accounting  fees,  are  not  capitalized  or  applied  in   determining  the  fair  value  of  the  above  acquired  assets.  During  the  year  ended  December  31,  2014,  we  paid   $2,178  in  acquisition  costs  related  to  the  above  acquired  assets.     The  purchase  agreement  for  the  acquisition  of  the  Parrot  Key  Resort  in  Key  West,  FL,  contains  a  provision  that   entitles  the  seller  to  additional  consideration  of  $2,000  contingent  upon  the  hotel  achieving  certain  net  operating   income  thresholds  within  twelve  months  of  acquisition.  At  the  time  of  acquisition,  no  liability  was  recorded  as  the   fair  market  value  of  the  contingent  consideration  was  determined  to  be  $0.  Upon  remeasurement  at  December  31,   2014,  a  liability  was  recorded  as  the  fair  market  value  of  the  contingent  consideration  was  determined  to  be   $2,000.   On  May  27,  2014,  we  completed  the  acquisition  of  the  Hilton  Garden  Inn  52nd  Street  hotel  in  New  York,  NY  from   an  unaffiliated  seller.  Previously,  we  had  entered  into  a  purchase  and  sale  agreement  to  acquire  this  property  for   total  consideration  of  $84,000.  The  purchase  price  for  this  property  was  contractually  fixed  on  August  23,  2012,   the  date  we  entered  into  the  purchase  and  sale  agreement.  During  the  21-­‐month  period  of  time  between  entering   in  the  purchase  and  sale  agreement  on  August  23,  2012  and  the  closing  date,  the  real  estate  market  for  hotels   located  in  Manhattan  experienced  significant  price  appreciation  due  to  improved  economic  conditions  in  the   market  and  in  the  overall  economy.  This  resulted  in  an  increase  in  the  fair  value  of  the  property  at  the  time  of   closing  the  acquisition  and,  as  such,  we  recognized  a  gain  of  approximately  $13,594,  which  is  net  of  preopening   expenses  of  $927  on  the  statement  of  operations,  as  the  fair  value  of  the  asset  acquired  less  any  liabilities  assumed   exceeded  the  consideration  transferred.   54                                                                                                                                                                                                                                                   hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  2  –  INVESTMENT  IN  HOTEL  PROPERTIES  (CONTINUED)   Consideration  given  in  exchange  for  the  property  included  $27,500  paid  in  cash  to  the  seller  and  our  reinstatement   and  cancellation  of  a  development  loan  receivable  in  the  original  principal  amount  of  $10,000  and  $12,494  of   accrued  interest  and  late  fees.  This  development  loan  receivable  had  previously  been  fully  impaired  in  2009,  but   was  recovered  as  part  of  this  acquisition.  As  a  result,  we  recognized  a  gain  of  $22,494  on  the  recovery  of  the   previously  impaired  development  loan.  In  addition,  we  paid  off  the  existing  construction  financing  and  entered   into  a  new  mortgage  loan  of  $45,000.  Concurrent  with  our  entry  into  the  new  mortgage  loan,  we  entered  into  an   interest  rate  cap  and  swap  –  see  “Note  7  –  Fair  Measurements  and  Derivative  Instruments”  for  more  information   on  this  derivative.  No  other  consideration  was  exchanged  in  connection  with  the  acquisition  of  this  property.   Below  is  a  tabular  reference  to  illustrate  the  components  of  the  consideration  and  fair  value  of  the  property:   Hotel   Hilton  Garden  Inn  52nd  Street,     New  York,  NY   Initial   Purchase   Price   Interest  and   Late  Fees  on   Development   Loan   Non-­‐Cash   Fair  Market   Value  Gain   on   Acquisition     Fair  Market   Value  At   Acquisition   Franchise   Fees  and   Loan  Costs       Asset  Value   Upon   Acquisition     Other   $     84,000       $     12,494      $     13,594      $     1,074      $     111,162       $     1,123       $     112,285     Included  in  the  consolidated  statement  of  operations  for  the  year  ended  December  31,  2014  are  total  revenues  of   $28,239  and  a  total  net  income  of  $6,219  for  hotels  we  have  acquired  and  consolidated  since  the  date  of   acquisition.  These  amounts  represent  the  results  of  operations  for  these  hotels  since  the  date  of  acquisition:   Year  Ended  December  31,     2014   Hotel     Revenue   Hotel  Milo,  Santa  Barbara,  CA   Parrot  Key  Resort,  Key  West,  FL   Hilton  Garden  Inn  52nd  Street,  New  York,  NY   Total   $   $     8,655       $     9,145       10,439       28,239       $   Net       Income       668       2,978       2,573       6,219     During  the  year  ended  December  31,  2013,  we  acquired  the  following  wholly-­‐owned  hotel  properties:   Hotel     Hyatt  Union  Square,     New  York,  NY*   Courtyard  by  Marriott,   San  Diego,  CA   Residence  Inn,           Coconut  Grove,  FL   Blue  Moon,   Miami  Beach,  FL   Winter  Haven,   Miami  Beach,  FL   Acquisition   Date   Land     Buildings  and   Improvements       Furniture   Fixtures  and   Equipment     Franchise  Fees   and  Loan   Costs   Total   Purchase  Price       4/9/2013   $     32,940       $     79,300       $     9,760       $     1,945       $   5/30/2013     15,656       51,674       3,671       183       123,945         71,184       6/12/2013     4,146       17,456       218       75       21,895       12/20/2013       4,874       20,354       1,125     12/20/2013       5,400       18,147       1,050       -­‐     -­‐   Total   $     63,016       $     186,931       $     15,824       $     2,203       $     26,353         24,597         267,974       55                                                                                                                                                                                                                                                                                                                                                                                                                                 hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  2  –  INVESTMENT  IN  HOTEL  PROPERTIES  (CONTINUED)   On  April  9,  2013,  we  completed  the  acquisition  of  the  Hyatt  Union  Square  hotel  in  New  York,  NY  from   *   Risingsam  Union  Square  LLC.    Consideration  given  in  exchange  for  the  property  included  $36,000  paid  in  cash  to   the  seller  and  our  cancellation  of  a  development  loan  receivable  in  the  original  principal  amount  of  $10,000  and   $3,303  of  accrued  interest  on  the  loan.  In  addition,  we  paid  off  the  existing  construction  financing  and  entered  into   a  new  mortgage  loan  of  $55,000.  We  recognized  a  net  gain  of  approximately  $12,108  on  the  purchase  of  the  Hyatt   Union  Square  hotel  as  the  fair  value  of  the  assets  acquired  less  any  liabilities  assumed  exceeded  the  consideration   transferred.   During  the  year  ended  December  31,  2013,  we  paid  $855  in  acquisition  costs  related  to  the  above  acquired  assets.   As  shown  in  the  table  below,  included  in  the  consolidated  statements  of  operations  for  the  year  ended  December   31,  2013  are  total  revenues  of  $22,889  and  a  total  net  income  of  $1,412  for  hotels  we  have  acquired  and   consolidated  since  the  date  of  acquisition.  These  amounts  represent  the  results  of  operations  for  these  hotels  since   the  date  of  acquisition:   Hotel     Hyatt  Union  Square,  New  York,  NY   Courtyard  by  Marriott,  San  Diego,  CA   Residence  Inn,  Coconut  Grove,  FL   Blue  Moon,  Miami  Beach,  FL   Winter  Haven,  Miami  Beach,  FL     $   Year  Ended  December  31,     2013   Revenue   Net     (Loss)  Income     $     11,272       8,350       2,889       175       203       (1,466)     1,914       713       111       140     Total     $     22,889       $     1,412     Pro  Forma  Results  (Unaudited)   The  following  condensed  pro  forma  financial  data  are  presented  as  if  all  acquisitions  completed  since  January  1,   2014  and  2013  had  been  completed  on  January  1,  2013  and  2012.  Properties  acquired  without  any  operating     history  are  excluded  from  the  condensed  pro  forma  operating  results.  The  condensed  pro  forma  financial  data  is   not  necessarily  indicative  of  what  actual  results  of  operations  of  the  Company  would  have  been  assuming  the   acquisitions  had  been  consummated  on  January  1,  2014  and  2013  at  the  beginning  of  the  year  presented,  nor  do   they  purport  to  represent  the  results  of  operations  for  future  periods.   Pro  Forma  Total  Revenues   Pro  Forma  Income  from  Continuing  Operations     (Loss)  from  Discontinued  Operations   Pro  Forma  Net  Income   Income  (Loss)  Allocated  to  Noncontrolling  Interest   Preferred  Distributions   Extinguishment  of  Issuance  Costs  Upon  Redemption  of  Series  A  Preferred  Shares   Pro  Forma  Net  Income  (Loss)  Applicable  to  Common  Shareholders   Pro  Forma  Income  Applicable  to  Common  Shareholders  per  Common  Share   Basic   Diluted   Weighted  Average  Common  Shares  Outstanding   Basic     Diluted   56   $     $     $   $   $   Year  Ended  December  31,     2014   2013     425,029       $     376,767       72,864       (1,665)     71,199       (1,016)     (14,356)     -­‐     55,827       $     $     0.28       0.28       $     $     27,859       29,195       57,054       (335)     (14,611)     (2,250)     39,858       0.20       0.20       199,109,209       201,197,310       198,390,450       201,918,177                                                                                                                                                                                                                                                                                                           hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  2  –  INVESTMENT  IN  HOTEL  PROPERTIES  (CONTINUED)   Asset  Development  and  Renovation   The  Company  has  opportunistically  engaged  in  the  development  of  hotel  assets.  On  July  22,  2011,  the  Company   completed  the  acquisition  of  the  real  property  and  improvements  located  at  32  Pearl  Street,  New  York,  NY,  from   an  unaffiliated  seller  for  a  total  purchase  price  of  $28,300.  On  June  23,  2014,  this  property  opened  as  a  Hampton   Inn.  The  total  construction  costs  spent  on  this  property  since  acquisition  were  $9,564,  which  equates  to  a  total   carrying  value  of  approximately  $37,864  when  the  property  opened.   In  January  2014,  the  Company  completed  the  construction  of  an  additional  oceanfront  tower,  additional  meeting   space  and  structured  parking  on  a  land  parcel  adjacent  to  the  Courtyard  by  Marriott,  Miami,  FL,  a  hotel  acquired   on  November  16,  2011.  This  land  parcel  was  included  in  the  acquisition  of  the  hotel.   We  capitalize  expenditures  related  to  hotel  development  projects  and  renovations,  including  indirect  costs  such  as   interest  expense,  real  estate  taxes  and  utilities  related  to  hotel  development  projects  and  renovations.   We  have  capitalized  the  following  indirect  development  costs  for  the  years  ended  December  31,  2014,  2013  and   2012:   2014   Year  Ended  December  31,     2013   2012   Property  Tax   Interest  Expense   Utilities   Total     $     $     223     458     73     754     $     $     388     1,320     3     1,711     $     $     296     1,542     9     1,847   During  the  second  quarter  of  2014,  we  finalized  our  settlement  of  the  insurance  claim  we  had  for  losses  incurred   as  a  result  of  Hurricane  Sandy.  In  October  2012,  Hurricane  Sandy  affected  numerous  hotels  within  our  portfolio.   Two  hotels  within  our  portfolio  were  significantly  impacted  by  this  natural  disaster;  one  hotel  was  inoperable   (Holiday  Inn  Express  Water  Street,  New  York,  NY)  and  one  hotel  development  project,  which  was  subsequently   completed  on  June  23,  2014,  incurred  delays  in  construction  (Hampton  Inn,  Pearl  Street,  New  York,  NY).  Prior  to   March  31,  2014,  we  had  recorded  estimated  property  losses  of  $1,586  on  the  Holiday  Inn  Express  Water  Street  and   a  corresponding  insurance  claim  receivable  of  $1,486.  This  hotel  reopened  in  April  2013.  We  also  had  recorded   estimated  property  losses  of  $1,997  on  the  Hampton  Inn  Pearl  Street  and  a  corresponding  insurance  claim   receivable  of  $1,897.  This  hotel  opened  in  June  2014.  As  a  result  of  the  claim  settlement,  we  recorded  a  gain  on   insurance  settlements  of  approximately  $4,604,  which  included  business  interruption  claims.   57                                                                                                                   hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  3  –  INVESTMENT  IN  UNCONSOLIDATED  JOINT  VENTURES   As  of  December  31,  2014  and  December  31,  2013  our  investment  in  unconsolidated  joint  ventures  consisted  of  the   following:   Joint  Venture   Hotel  Properties     Owned   Return   2014   2013   Percent       Preferred       December  31,         December  31,     SB  Partners,  LLC   Holiday  Inn  Express,  South  Boston,   MA   Hiren  Boston,  LLC   Courtyard  by  Marriott,  South   Boston,  MA   50.0%     N/A   $     913     $     1,057     50.0%     N/A     4,680       4,777     Mystic  Partners,   LLC   Hilton  and  Marriott  branded  hotels   in  CT     8.8%-­‐66.7%     8.5%   non-­‐cumulative       $     5,556       11,150       $     6,210       12,044     In  2013,  we  recorded  an  impairment  loss  of  $1,813  related  to  the  Courtyard,  Norwich,  CT,  one  of  the  properties   owned  by  Mystic  Partners,  LLC.    Mystic  Partners,  LLC  transferred  the  title  to  the  property  to  the  lender  during  the   year  ended  December  31,  2014.    As  we  did  not  anticipate  recovering  our  investment  balance  in  this  asset,  we   reduced  the  portion  of  our  Mystic  Partners,  LLC  investment  related  to  this  property  to  $0  as  of  December  31,   2013.     On  February  1,  2013,  the  Company  closed  on  the  sale  of  its  interest  in  one  of  the  unconsolidated  joint  venture   properties  owned  in  part  by  Mystic  Partners,  LLC  to  its  joint  venture  partner.  As  our  investment  in  this   unconsolidated  joint  venture  equated  the  net  proceeds  distributed  to  us,  we  did  not  record  a  gain  or  loss  in   connection  with  the  sale  of  this  hotel.   As  noted  in  “Note  2  –  Investment  in  Hotel  Properties,”  on  August  13,  2012,  the  Company  purchased  the  remaining   50%  ownership  interest  in  Inn  America  Hospitality  at  Ewing,  the  lessee  of  the  Courtyard  by  Marriot,  Ewing,  NJ.  As   such,  we  ceased  to  account  for  our  investment  in  Inn  America  Hospitality  at  Ewing  under  the  equity  method  of   accounting  as  of  August  13,  2012  because  it  became  a  consolidated  subsidiary.  Our  interest  in  Inn  America   Hospitality  at  Ewing,  which  consisted  of  our  investment  in  Inn  America  Hospitality  at  Ewing  and  a  receivable,  was   remeasured  and  as  a  result  based  on  the  appraised  value  of  the  hotel,  we  recorded  a  loss  of  approximately  $1,668   during  the  twelve  months  ended  December  31,  2012.   As  noted  in  “Note  2  –  Investment  in  Hotel  Properties,”  on  June  18,  2012,  the  Company  purchased  the  remaining   50%  ownership  interest  in  Metro  29th,  the  lessee  of  the  Holiday  Inn  Express,  Manhattan,  New  York,  NY.  As  such,   we  ceased  to  account  for  our  investment  in  Metro  29th  under  the  equity  method  of  accounting  as  of  June  18,  2012   because  it  became  a  consolidated  subsidiary.  Our  interest  in  Metro  29th  was  remeasured,  and  as  a  result,  we   recorded  a  loss  of  approximately  $224.   Fair  value  for  our  previously  held  investments  in  Inn  America  Hospitality  at  Ewing  and  Metro  29th  was  determined   through  the  use  of  an  income  approach  and  was  measured  using  Level  3  inputs.  The  income  approach  estimates  an   income  stream  for  a  hotel  property  (typically  5  years)  and  discounts  this  income  plus  a  reversion  (presumed  sale)   into  a  present  value  at  a  risk  adjusted  rate.  RevPAR  growth  assumptions  utilized  in  this  approach  are  derived  from   market  transactions  as  well  as  other  financial  and  industry  data.  The  terminal  cap  rate  and  discount  rate  are   significant  inputs  to  this  valuation.  The  fair  value  measurements  determined  during  the  year  included  RevPAR   growth  assumptions  ranging  between  3%  and  8%,  terminal  cap  rates  ranging  between  8.5%  and  9.5%,  and  a   discount  rate  of  10.5%.  Changes  in  these  inputs  could  result  in  a  significant  change  in  the  valuation  of  our  original   joint  venture  investments  and  a  change  in  the  loss  from  remeasurement  of  investment  in  unconsolidated  joint   venture  recognized  during  the  period.   58                                                                                                                                                                   hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  3  –  INVESTMENT  IN  UNCONSOLIDATED  JOINT  VENTURES  (CONTINUED)   On  February  23,  2012,  the  Company  closed  on  the  sale  of  14  non-­‐core  hotel  properties,  including  three  of  the   unconsolidated  joint  venture  hotel  properties.  On  May  8,  2012,  the  Company  closed  on  the  remaining  four   non-­‐core  hotel  properties,  including  one  of  the  unconsolidated  joint  venture  hotel  properties.  As  our  investment  in   these  unconsolidated  joint  ventures  equated  the  net  proceeds  distributed  to  us,  we  did  not  record  a  gain  or  loss  in   connection  with  the  sale  of  these  hotel  properties.  See  “Note  11  –  Hotel  Dispositions”  for  more  information.   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.   Income  (loss)  recognized  during  the  years  ended  December  31,  2014,  2013,  and  2012,  for  our  investments  in   unconsolidated  joint  ventures  is  as  follows:   SB  Partners,  LLC   Hiren  Boston,  LLC   Mystic  Partners,  LLC   Metro  29th  Street  Associates,  LLC    $   Income  (Loss)  from  Unconsolidated  Joint   Venture  Investments   Impairment  from  Unconsolidated  Joint   Ventures   Loss  from  Remeasurement  of  Investment  in   Unconsolidated  Joint  Ventures   Income  (Loss)  from  Unconsolidated  Joint   Venture  Investments   2014   Year  Ended  December  31,     2013   2012     407    $     603         (317)         -­‐         264    $     113         (399)         -­‐         693         (22)       85     230     (433)     (114)     (232)     -­‐     (1,813)         -­‐         -­‐         -­‐         (1,892)    $     693    $     (1,835)    $     (2,124)   The  Mystic  Partners,  LLC  joint  venture  agreement  provides  for  an  8.5%  non-­‐cumulative  preferred  return  based  on   our  contributed  equity  interest  in  the  venture.  Cash  distributions  will  be  made  from  cash  available  for  distribution,   first,  to  us  to  provide  an  8.5%  annual  non-­‐compounded  return  on  our  unreturned  capital  contributions  and  then  to   our  joint  venture  partner  to  provide  an  8.5%  annual  non-­‐compounded  return  of  their  unreturned  contributions.   Any  remaining  cash  available  for  distribution  will  be  distributed  to  us  10.5%  with  respect  to  the  net  cash  flow  from   the  Hartford  Marriott,  7.0%  with  respect  to  the  Hartford  Hilton  and  56.7%,  with  respect  to  the  remaining  property.   Mystic  Partners,  LLC  allocates  income  to  us  and  our  joint  venture  partner  consistent  with  the  allocation  of  cash   distributions  in  accordance  with  the  joint  venture  agreements.   Each  of  the  Mystic  Partners,  LLC  hotel  properties,  except  the  Hartford  Hilton,  is  under  an  Asset  Management   Agreement  with  44  New  England  to  provide  asset  management  services.  Fees  for  these  services  are  paid  monthly   to  44  New  England  and  recognized  as  income  in  the  amount  of  1%  of  operating  revenues,  except  for  the  Hartford   Marriott  which  is  0.25%  of  operating  revenues.   The  Company  and  our  joint  venture  partner  in  Mystic  Partners,  LLC  jointly  and  severally  guarantee  the  performance   of  the  terms  of  a  loan  to  Adriaen’s  Landing  Hotel,  LLC,  owner  of  the  Hartford  Marriott,  in  the  amount  of  $50,000,   and  315  Trumbull  Street  Associates,  LLC,  owner  of  the  Hartford  Hilton,  in  the  amount  of  $27,000,  if  at  any  time   during  the  term  of  the  note  and  during  such  time  as  the  net  worth  of  Mystic  Partners  falls  below  the  amount  of  the   guarantee.  We  have  determined  that  the  probability  of  incurring  loss  under  this  guarantee  is  remote  and  the  value   attributed  to  the  guarantee  is  de  minimis.   59                                                                                                               hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [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,  equity  and  components  of  net  income  or  loss,  including   the  Company’s  share,  related  to  the  unconsolidated  joint  ventures  discussed  above  as  of  December  31,  2014  and   December  31,  2013  and  for  the  years  ended  December  31,  2014,  2013,  and  2012.     Balance  Sheets   Assets   Investment  in  Hotel  Properties,  Net   Other  Assets   Total  Assets   Liabilities  and  Equity   Mortgages  and  Notes  Payable   Other  Liabilities   Equity:   Hersha  Hospitality  Trust   Joint  Venture  Partner(s)   Total  Equity   December  31,     2014   December  31,     2013    $    $    $     106,430    $     19,032         125,462    $     115,446    $     30,832         23,060         (43,876)         (20,816)         114,221     19,146     133,367     112,654     37,464     26,230     (42,981)     (16,751)   Total  Liabilities  and  Equity    $     125,462    $     133,367   Statements  of  Operations   Room  Revenue   Other  Revenue   Operating  Expenses   Lease  Expense   Property  Taxes  and  Insurance   General  and  Administrative   Depreciation  and  Amortization   Interest  Expense   Debt  Extinguishment  and  Gain  on  Debt   Forgiveness   Gain  (Loss)  allocated  to  Noncontrolling   Interests   Net  Income  from  Continuing  Operations   (Loss)  Income  from  Discontinued   Operations   Gain  on  Disposition  of  Hotel  Properties    $   2014   Year  Ended  December  31,     2013   2012     59,135    $     21,725         (54,831)         (1,063)         (2,934)         (5,783)         (6,376)         (11,995)         58,273    $     22,606         (55,179)         (996)         (3,034)         (5,794)         (6,697)         (7,526)         62,058     22,306     (57,131)     (3,729)     (3,438)     (5,904)     (6,533)     (7,650)     3,016         -­‐         -­‐     115         (179)         (2,614)     1,009         1,474         (2,635)     -­‐         -­‐         (55)         1,161         121     25,131         Net  Income      $     1,009    $     2,580    $     22,617   60                                                                                                                                                                                                                                                                                                                                     hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  3  –  INVESTMENT  IN  UNCONSOLIDATED  JOINT  VENTURES  (CONTINUED)   The  following  table  is  a  reconciliation  of  the  Company’s  share  in  the  unconsolidated  joint  ventures’  equity  to  the   Company’s  investment  in  the  unconsolidated  joint  ventures  as  presented  on  the  Company’s  balance  sheets  as  of   December  31,  2014  and  December  31,  2013.   Company's  share  of  equity  recorded  on  the  joint  ventures'   financial  statements    $   Adjustment  to  reconcile  the  Company's  share  of  equity   recorded  on  the  joint  ventures'  financial  statements  to  our   investment  in  unconsolidated  joint  ventures(1)   December  31,     2014   December  31,     2013     23,060    $     26,230     (11,910)         (14,186)     12,044   Investment  in  Unconsolidated  Joint  Ventures      $     11,150    $   (1)       Adjustment  to  reconcile  the  Company's  share  of  equity  recorded  on  the  joint  ventures'  financial   statements  to  our  investment  in  unconsolidated  joint  ventures  consists  of  the  following:   • • • cumulative  impairment  of  the  Company’s  investment  in  joint  ventures  not  reflected  on  the  joint  ventures'   financial  statements;   the  Company’s  basis  in  the  investment  in  joint  ventures  not  recorded  on  the  joint  ventures'  financial   statements;  and   accumulated  amortization  of  the  Company’s  equity  in  joint  ventures  that  reflects  the  Company’s  portion   of  the  excess  of  the  fair  value  of  joint  ventures'  assets  on  the  date  of  our  investment  over  the  carrying   value  of  the  assets  recorded  on  the  joint  ventures  financial  statements  (this  excess  investment  is   amortized  over  the  life  of  the  properties,  and  the  amortization  is  included  in  Income  (Loss)  from   Unconsolidated  Joint  Venture  Investments  on  the  Company’s  consolidated  statement  of  operations).   61                                                                 hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  4  –  OTHER  ASSETS  AND  DEPOSITS  ON  HOTEL  ACQUISITIONS   Other  Assets   Other  Assets  consisted  of  the  following  at  December  31,  2014  and  December  31,  2013:   Transaction  Costs   Investment  in  Statutory  Trusts   Prepaid  Expenses   Insurance  Claims  Receivable   Deferred  Tax  Asset,  Net  of  Valuation  Allowance  of  $804   Other     December  31,   2014     December  31,   2013     $     $     -­‐     1,548     7,883     64     11,448     7,483     28,426     $     $     115     1,548     9,256     1,706     8,766     6,069     27,460   Transaction  Costs  -­‐  Transaction  costs  include  legal  fees  and  other  third  party  transaction  costs  incurred  relative  to   entering  into  debt  facilities,  issuances  of  equity  securities,  and  other  costs  which  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.   Prepaid  Expenses  -­‐  Prepaid  expenses  include  amounts  paid  for  property  tax,  insurance  and  other  expenditures  that   will  be  expensed  in  the  next  twelve  months.   Insurance  Claims  Receivable  –  As  noted  in  “Note  2  –  Investment  in  Hotel  Properties,”  we  recorded  an  insurance   claim  receivable  due  to  the  property  damage  that  occurred  at  several  of  our  hotel  properties  as  a  result  of   Hurricane  Sandy  in  October  2012.     This  claim  was  settled  in  June  2014,  and  we  received  our  final  claim  payment   in  July  2014  in  the  amount  of  $2,498.  The  remaining  balance  in  insurance  claims  receivable  as  of  December  31,   2014  is  comprised  of  claims  that  arose  from  property  damage  at  hotel  properties  as  a  result  of  other  events.   Deferred  Tax  Asset  -­‐  We  have  approximately  $11,448  of  net  deferred  tax  assets  as  of  December  31,  2014.  We  have   considered  various  factors,  including  future  reversals  of  existing  taxable  temporary  differences,  future  projected   taxable  income  and  tax  planning  strategies  in  determining  a  valuation  allowance  for  our  deferred  tax  assets,  and   we  believe  that  it  is  more  likely  than  not  that  we  will  be  able  to  realize  the  $11,448  of  net  deferred  tax  assets  in  the   future.   Deposits  on  Hotel  Acquisitions   As  of  December  31,  2014,  we  had  no  deposits  on  hotel  acquisitions.  As  of  December  31,  2013,  deposits  on  hotel   acquisitions  consisted  of  $15,486  in  interest  bearing  deposits  related  to  the  acquisition  of  the  Hilton  Garden  Inn   52nd  Street,  New  York,  NY  and  $3,100  in  non-­‐interest  bearing  deposits  related  to  the  acquisition  of  the  Hotel  Milo,   located  in  Santa  Barbara,  California.  The  acquisition  of  the  Hotel  Milo  closed  in  the  first  quarter  and  the  Hilton   Garden  Inn  52nd  Street  closed  in  the  second  quarter  of  2014.  See  “Note  2  –  Investment  In  Hotel  Properties”  for   more  information.   62                                                                                                               hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  5  –  DEBT   Mortgages   We  had  total  mortgages  payable  at  December  31,  2014  and  December  31,  2013  of  $617,375  and  $617,788   (including  $45,835  in  outstanding  mortgage  indebtedness  related  to  assets  held  for  sale  at  December  31,  2013),   respectively.  These  balances  consisted  of  mortgages  with  fixed  and  variable  interest  rates,  which  ranged  from   2.47%  to  6.50%  as  of  December  31,  2014.  Included  in  these  balances  are  net  premiums  of  $1,584  and  $2,466  as  of   December  31,  2014  and  December  31,  2013,  respectively,  which  are  amortized  over  the  remaining  life  of  the  loans.   Aggregate  interest  expense  incurred  under  the  mortgage  loans  payable  totaled  $31,046,  $34,854,  and  $38,343   during  the  years  ended  December  31,  2014,  2013,  and  2012,  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.  We  have  determined  that   certain  debt  service  coverage  ratio  covenants  contained  in  the  loan  agreements  securing  four  of  our  hotel   properties  were  not  met  as  of  December  31,  2014.  Pursuant  to  these  loan  agreements,  the  lender  has  elected  to   escrow  the  operating  cash  flow  for  a  number  of  these  properties.  However,  these  covenants  do  not  constitute  an   event  of  default  for  these  loans.   As  of  December  31,  2014,  the  maturity  dates  for  the  outstanding  mortgage  loans  ranged  from  January  2015  to   April  2023.   Subordinated  Notes  Payable   We  have  two  junior  subordinated  notes  payable  in  the  aggregate  amount  of  $51,548  to  the  Hersha  Statutory   Trusts  pursuant  to  indenture  agreements  which  will  mature  on  July  30,  2035,  but  may  be  redeemed  at  our  option,   in  whole  or  in  part,  prior  to  maturity  in  accordance  with  the  provisions  of  the  indenture  agreements.    The  $25,774   notes  issued  to  Hersha  Statutory  Trust  I  and  Hersha  Statutory  Trust  II,  bear  interest  at  a  variable  rate  of  LIBOR  plus   3%  per  annum.    This  rate  resets  two  business  days  prior  to  each  quarterly  payment.    The  weighted  average  interest   rate  on  our  two  junior  subordinated  notes  payable  during  the  years  ended  December  31,  2014,  2013,  and  2012   was  3.28%,  3.32%,  and  3.51%,  respectively.    Interest  expense  in  the  amount  of  $1,690,  $1,712,  and  $1,810  was   recorded  for  the  years  ended  December  31,  2014,  2013,  and  2012,  respectively.   Credit  Facilities   On  February  28,  2014,  we  entered  into  a  senior  unsecured  credit  agreement  with  Citigroup  Global  Markets  Inc.   and  various  other  lenders.  The  credit  agreement  provides  for  a  $500,000  senior  unsecured  credit  facility  consisting   of  a  $250,000  senior  unsecured  revolving  line  of  credit  and  a  $250,000  senior  unsecured  term  loan.  This  new   facility  amended  and  restated  the  existing  $400,000  senior  unsecured  credit  facility.  The  $500,000  unsecured   credit  facility  expires  on  February  28,  2018  and,  provided  no  event  of  default  has  occurred,  we  may  request  that   the  lenders  renew  the  credit  facility  for  an  additional  one-­‐year  period.  The  credit  facility  is  also  expandable  to   $850,000  at  our  request,  subject  to  the  satisfaction  of  certain  conditions.   Prior  to  February  28,  2014,  we  maintained  a  senior  unsecured  credit  agreement  with  Citigroup  Global  Markets  Inc.   and  various  other  lenders.  The  credit  agreement  provided  for  a  $400,000  senior  unsecured  credit  facility  consisting   of  a  $250,000  senior  unsecured  revolving  line  of  credit  and  a  $150,000  senior  unsecured  term  loan.   63                         hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  5  –  DEBT  (CONTINUED)   The  amount  that  we  can  borrow  at  any  given  time  on  our  credit  facility  is  governed  by  certain  operating  metrics  of   designated  unencumbered  hotel  properties  known  as  borrowing  base  assets.  As  of  December  31,  2014,  the   following  hotel  properties  were  borrowing  base  assets:   -­‐  Holiday  Inn  Express,  Cambridge,  MA   -­‐  Hampton  Inn,  Philadelphia,  PA   -­‐  Holiday  Inn,  Wall  Street,  NY   -­‐  Hampton  Inn,  Washington,  DC   -­‐  Holiday  Inn  Express,  Times  Square,  NY   -­‐  Hyatt  Place,  King  of  Prussia,  PA   -­‐  Residence  Inn,  Norwood,  MA   -­‐  Nu  Hotel,  Brooklyn,  NY   -­‐  Residence  Inn,  Framingham,  MA   -­‐  The  Rittenhouse  Hotel,  Philadelphia,  PA   -­‐  Sheraton,  Wilmington  South,  DE   -­‐  The  Boxer,  Boston,  MA   -­‐  Sheraton  Hotel,  JFK  Airport,  New  York,  NY   -­‐  Holiday  Inn  Express  (Water  Street),  New  York,  NY   -­‐  Candlewood  Suites,  Times  Square,  NY   -­‐  Courtyard,  San  Diego,  CA   -­‐  Hampton  Inn,  Times  Square,  NY   -­‐  Residence  Inn,  Coconut  Grove,  FL   -­‐  Winter  Haven,  Miami,  FL   -­‐  Hampton  Inn,  Pearl  Street,  NY   -­‐  Residence  Inn,  Greenbelt,  MD   -­‐  Blue  Moon,  Miami,  FL   -­‐  Parrot  Key  Resort,  Key  West,  FL   The  interest  rate  for  the  $500,000  unsecured  credit  facility  is  based  on  a  pricing  grid  with  a  range  of  one  month   U.S.  LIBOR  plus  1.70%  to  2.45%  for  the  revolving  line  of  credit  and  1.60%  to  2.35%  for  the  unsecured  term  loan.       As  of  December  31,  2014,  we  had  borrowed  $250,000  in  unsecured  term  loans  under  the  unsecured  credit  facility,   $150,000  for  which  we  had  entered  into  interest  rate  swaps  which  effectively  fix  the  interest  rate  on  these  term   loans  at  a  blended  rate  of  3.217%.  See  “Note  7  –  Fair  Value  Measurements  and  Derivative  Instruments”  for  more   information.   The  credit  agreement  providing  for  the  $500,000  unsecured  credit  facility  includes  certain  financial  covenants  and   requires  that  we  maintain:  (1)  a  minimum  tangible  net  worth  of  $803,711,  which  is  calculated  by  adding  back   accumulated  depreciation  to  the  recorded  value  of  our  investment  in  hotel  properties  and  subtracting  certain   intangible  assets  and  debt  and  is  subject  to  increases  under  certain  circumstances;  (2)  annual  distributions  not  to   exceed  95%  of  adjusted  funds  from  operations;  and  (3)  certain  financial  ratios,  including  the  following:   ·∙   ·∙   ·∙   a  fixed  charge  coverage  ratio  of  not  less  than  1.45  to  1.00,  which  increases  to  1.50  to  1.00  as  of  January  1,   2016;   a  maximum  leverage  ratio  of  not  more  than  60%;  and   a  maximum  secured  debt  leverage  ratio  of  50%,  which  decreases  to  45%  as  of  January  1,  2016   The  Company  is  in  compliance  with  each  of  the  covenants  listed  above  as  of  December  31,  2014.  As  of  December   31,  2014,  our  remaining  borrowing  capacity  under  the  $500,000  unsecured  credit  facility  was  $245,745,  based  on   the  borrowing  base  assets  at  December  31,  2014.   As  of  December  31,  2014,  the  outstanding  unsecured  term  loan  balance  under  the  $500,000  unsecured  credit   facility  was  $250,000  and  we  had  outstanding  borrowings  of  $0  on  the  revolving  line  of  credit.  As  of  December  31,   2013,  the  outstanding  unsecured  term  loan  under  the  prior  $400,000  unsecured  credit  facility  was  $150,000  and   64                                 hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  5  –  DEBT  (CONTINUED)   the  revolving  line  of  credit  had  no  balance  outstanding.   The  Company  recorded  interest  expense  of  $6,218,  $5,413,  and  $2,405  related  to  borrowings  drawn  on  each  of  the   aforementioned  credit  facilities,  for  the  years  ended  December  31,  2014,  2013,  and  2012,  respectively.  The   weighted  average  interest  rate  on  our  credit  facilities  was  2.82%,  3.08%,  and  4.57%  for  the  years  ended  December   31,  2014,  2013,  and  2012,  respectively.   Aggregate  annual  principal  payments  for  the  Company’s  credit  facility  and  mortgages  and  subordinated  notes   payable  for  the  five  years  following  December  31,  2015  and  thereafter  are  as  follows:   Year  Ending  December  31,   Amount   2015   2016   2017   2018   2019   Thereafter   Net  Unamortized  Premium   Capitalized  Interest   $   $     69,063     273,824     204,219     1,564     294,892     73,777     1,584     918,923   We  utilize  mortgage  debt  and  our  $500,000  revolving  credit  facility  to  finance  on-­‐going  capital  improvement   projects  at  our  hotels.  Interest  incurred  on  mortgages  and  the  revolving  credit  facility  that  relates  to  our  capital   improvement  projects  is  capitalized  through  the  date  when  the  assets  are  placed  in  service.  For  the  years  ended   December  31,  2014,  2013,  and  2012,  we  capitalized  $458,  $1,320,  and  $1,542  respectively,  of  interest  expense   related  to  these  projects.   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  December  31,  2014,  deferred  costs  were  $8,605,  net  of  accumulated  amortization  of  $6,938.   Amortization  of  deferred  costs  for  the  years  ended  December  31,  2014,  2013,  and  2012  was  $2,768,  $2,886,  and   $2,991  respectively.   Debt  Payoff   On  October  27,  2014,  we  repaid  $10,179  on  our  mortgage  with  Berkadia  Commercial  Mortgage,  LLC  for  the   Residence  Inn,  Greenbelt,  MD  property.  The  loan  was  due  to  mature  in  October  2014,  and  we  incurred  no  loss  on   debt  extinguishment  in  paying  off  the  loan.   On  June  30,  2013,  we  repaid  $7,928  on  our  mortgage  with  Berkadia  Commercial  Mortgage,  LLC  for  the  Residence   Inn,  Tysons  Corner,  VA  property.     The  loan  was  due  to  mature  in  July  2013,  and  we  incurred  no  loss  on  debt   extinguishment  in  paying  off  the  loan.   On  January  3,  2013,  we  funded  an  additional  $50,000  in  unsecured  term  loan  borrowings  under  our  then  $400,000   unsecured  credit  facility  which  was  used  to  pay  off  the  balance  of  the  mortgage  loan  secured  by  the  Holiday  Inn   Express,  Times  Square,  New  York,  NY  on  January  7,  2013.    This  mortgage  was  also  subject  to  an  interest  rate  swap,     65                                                                             hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  5  –  DEBT  (CONTINUED)   which  was  terminated  as  a  cash  flow  hedge  as  of  December  31,  2012  due  to  this  payoff.    As  a  result  of  this  payoff,   we  expensed  $261  in  unamortized  deferred  financing  costs  and  fees,  which  are  included  in  the  Loss  on  Debt   Extinguishment  caption  of  the  consolidated  statements  of  operations  for  the  year  ended  December  31,  2013.  Due   to  the  timing  of  this  transaction,  the  hedge  relationship  on  our  interest  rate  swap  was  derecognized  as  of   December  31,  2012.  Therefore,  the  accumulated  other  comprehensive  loss  on  this  swap  as  of  December  31,  2012,   was  reclassified  to  income  and  we  recorded  $530  in  the  Loss  on  Debt  Extinguishment  on  the  statement  of   operations  for  the  year  ended  December  31,  2012.   As  previously  mentioned,  we  replaced  our  previous  $250,000  secured  credit  facility  with  a  new  $400,000   unsecured  credit  facility  with  Citigroup  Global  Markets  Inc.  and  various  other  lenders  on  November  5,  2012.   Concurrently  with  this  closing,  we  funded  $100,000  in  unsecured  term  loan  borrowings.  These  borrowings  were   used  to  pay  off  in  full  the  balance  on  seven  mortgage  loans  on  hotel  properties.  As  a  result  of  terminating  our   previous  $250,000  secured  credit  facility  and  extinguishing  the  debt  on  these  seven  properties,  we  expensed   $2,410  in  unamortized  deferred  financing  costs  and  fees,  which  are  included  in  the  Loss  of  Debt  Extinguishment   caption  on  the  consolidated  statements  of  operations  for  the  year  ended  December  31,  2012.   New  Debt/Refinance   On  November  13,  2014,  we  repaid  outstanding  mortgage  debt  on  with  an  original  principal  balance  of  $32,000   secured  by  the  Hilton  Garden  Inn,  Tribeca,  NY  and  simultaneously  entered  into  a  new  mortgage  obligation  of   $46,500  with  a  new  lender.  The  new  mortgage  debt  bears  interest  at  a  variable  rate  of  one  month  U.S.  dollar   LIBOR  plus  2.30%  and  matures  on  November  1,  2019.   As  previously  mentioned,  we  refinanced  our  previous  $400,000  unsecured  credit  facility  with  a  $500,000   unsecured  credit  facility  with  Citigroup  Global  Markets  Inc.  and  various  other  lenders  on  February  28,  2014.  As  a   result  of  this  refinance,  we  expensed  $579  in  unamortized  deferred  financing  costs  and  fees,  which  are  included  in   the  Loss  on  Debt  Extinguishment  caption  of  the  consolidated  statements  of  operations  for  the  year  ended   December  31,  2014.   On  January,  31,  2014,  we  paid  down  $5,175  of  the  outstanding  debt  and  modified  the  mortgage  loan  on  the  Duane   Street  Hotel,  New  York,  NY.  As  a  result,  we  entered  into  a  $9,500  loan  with  a  maturity  date  of  February  1,  2017.   The  modified  loan  bears  interest  at  a  variable  rate  of  one  month  U.S.  dollar  LIBOR  plus  4.50%.  The  modification   also  includes  an  interest  rate  swap,  which  effectively  fixes  the  interest  rate  at  5.433%.     As  a  result  of  this   modification,  we  expensed  $91  in  unamortized  deferred  financial  costs  and  fees  during  the  year  ended  December   31,  2014.     On  April  24,  2013,  we  modified  the  $30,000  mortgage  loan  on  the  Courtyard  by  Marriott,  Westside,  Los  Angeles,   CA.     The  modified  loan  bears  interest  at  a  variable  rate  of  one  month  U.S.  dollar  LIBOR  plus  3.00%,  and  matures   on  September  29,  2017.  The  modification  also  contains  an  option  for  the  Company  to  advance  $5,000  in  principal   subject  to  certain  conditions,  including  there  being  no  event  of  default  and  compliance  with  debt  service  coverage   ratio  requirements.     As  a  result  of  this  modification,  we  incurred  a  loss  on  debt  extinguishment  of  $284.     This   modification  did  not  change  the  terms  of  the  interest  rate  swap  that  we  entered  into  in  2011,  which  had   effectively  fixed  the  interest  at  4.947%,  and  now  effectively  fixes  the  interest  at  4.10%  through  September  29,   2015.     After  the  maturity  date  of  the  swap,  the  loan  will  bear  interest  at  the  stated  variable  rate  of  one-­‐month   U.S.  dollar  LIBOR  plus  3.00%,  with  a  LIBOR  floor  of  0.75%.     See  “Note  7  –  Fair  Value  Measurements  and  Derivative   Instruments”  for  more  information.   On  May  23,  2012,  we  repaid  outstanding  mortgage  debt  with  an  original  principal  balance  of  $22,000  secured  by   the  Hotel  373,  Fifth  Avenue,  NY,  and  on  May  24,  2012  entered  into  a  new  mortgage  obligation  of  $19,000,     66                   hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  5  –  DEBT  (CONTINUED)   incurring  a  loss  on  debt  extinguishment  of  approximately  $66.    The  new  mortgage  debt  bears  interest  at  a  variable   rate  of  one  month  U.S.  dollar  LIBOR  plus  3.85%  and  matures  on  June  1,  2017.    In  conjunction  with  this  refinance,   we  entered  into  an  interest  rate  cap  that  matures  on  June  1,  2015  that  effectively  limits  interest  to  5.85%  per   annum.   On  May  9,  2012,  we  repaid  outstanding  mortgage  debt  with  a  principal  balance  of  $29,730  secured  by  the   Courtyard  by  Marriott,  Miami,  FL.    On  July  2,  2012,  we  entered  into  a  new  mortgage  with  an  initial  obligation  of   $45,000,  with  three  additional  draws  of  $5,000  every  90  days  to  fund  the  construction  of  the  new  oceanfront   tower  as  described  in  “Note  2  –  Investment  in  Hotel  Properties”.    The  new  mortgage  debt  bears  interest  at  a   variable  rate  of  one  month  U.S.  LIBOR  plus  3.50%  and  matures  on  July  1,  2016.    Also  on  July  2,  2012,  we  entered   into  an  interest  rate  cap  that  effectively  limits  interest  to  4.32%  per  annum.   On  January  31,  2012,  we  repaid  outstanding  mortgage  debt  with  an  original  principal  balance  of  $32,500  secured   by  the  Capitol  Hill  Suites,  Washington,  D.C.,  incurring  a  loss  on  debt  extinguishment  of  approximately  $7  and   simultaneously  entered  into  a  new  mortgage  obligation  of  $27,500.    The  new  mortgage  debt  bears  interest  at  a   variable  rate  of  one  month  U.S.  dollar  LIBOR  plus  3.25%  and  matures  on  February  1,  2015.    On  the  same  date,  we   entered  into  an  interest  rate  swap  that  effectively  fixes  the  interest  at  3.79%  per  annum.   As  a  result  of  our  acquisition  of  Metro  29th,  first  mortgage  debt  with  a  principal  balance  of  $54,602  secured  by  the   Holiday  Inn  Express,  New  York,  NY  is  included  on  our  consolidated  balance  sheet.    This  debt  bears  interest  at  a   fixed  rate  of  6.50%  and  matures  on  November  5,  2016.    In  addition,  we  consolidated  mezzanine  debt  with  a   principal  balance  of  $15,000.    We  repaid  this  mezzanine  debt  on  June  29,  2012  and  incurred  a  loss  on  debt   extinguishment  of  approximately  $176.   67             hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  6  –  COMMITMENTS  AND  CONTINGENCIES  AND  RELATED  PARTY  TRANSACTIONS   Management  Agreements   Our  wholly-­‐owned  taxable  REIT  subsidiary  ("TRS"),  44  New  England,  engages  eligible  independent  contractors  in   accordance  with  the  requirements  for  qualification  as  a  REIT  under  the  internal  revenue  code  of  1986,  as   amended,  including  HHMLP,  as  the  property  managers  for  hotels  it  leases  from  us  pursuant  to  management   agreements.  HHMLP  is  owned,  in  part,  by  certain  executives  and  trustees  of  the  Company.  Our  management   agreements  with  HHMLP  provide  for  five-­‐year  terms  and  are  subject  to  early  termination  upon  the  occurrence  of   defaults  and  certain  other  events  described  therein.  As  required  under  the  REIT  qualification  rules,  HHMLP  must   qualify  as  an  “eligible  independent  contractor”  during  the  term  of  the  management  agreements.  Under  the   management  agreements,  HHMLP  generally  pays  the  operating  expenses  of  our  hotels.  All  operating  expenses  or   other  expenses  incurred  by  HHMLP  in  performing  its  authorized  duties  are  reimbursed  or  borne  by  our  TRS  to  the   extent  the  operating  expenses  or  other  expenses  are  incurred  within  the  limits  of  the  applicable  approved  hotel   operating  budget.  HHMLP  is  not  obligated  to  advance  any  of  its  own  funds  for  operating  expenses  of  a  hotel  or  to   incur  any  liability  in  connection  with  operating  a  hotel.  Management  agreements  with  other  unaffiliated  hotel   management  companies  have  similar  terms.   For  its  services,  HHMLP  receives  a  base  management  fee  and,  if  a  hotel  exceeds  certain  thresholds,  an  incentive   management  fee.  The  base  management  fee  for  a  hotel  is  due  monthly  and  is  equal  to  3%  of  gross  revenues   associated  with  each  hotel  managed  for  the  related  month.  The  incentive  management  fee,  if  any,  for  a  hotel  is   due  annually  in  arrears  on  the  ninetieth  day  following  the  end  of  each  fiscal  year  and  is  based  upon  the  financial   performance  of  the  hotels.  For  the  years  ended  December  31,  2014,  2013,  and  2012,  base  management  fees   incurred  totaled  $12,263,  $11,713,  and  $10,781  respectively,  and  are  recorded  as  Hotel  Operating  Expenses.  For   the  years  ended  December  31,  2014,  2013,  and  2012,  we  did  not  incur  incentive  management  fees.   Franchise  Agreements   Our  branded  hotel  properties  are  operated  under  franchise  agreements  assumed  by  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  years  ended  December  31,  2014,  2013,  and  2012  were  $26,015,  $26,247,  and  $24,278  respectively,  and  are   recorded  in  Hotel  Operating  Expenses.  The  initial  fees  incurred  to  enter  into  the  franchise  agreements  are   amortized  over  the  life  of  the  franchise  agreements.   Accounting  and  Information  Technology  Fees   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  between  $2  and  $3   per  property  and  monthly  information  technology  fees  range  from  $1  to  $2  per  property.  For  the  years  ended   December  31,  2014,  2013,  and  2012,  the  Company  incurred  accounting  fees  of  $1,410,  $1,739,  and  $1,741   respectively.  For  the  years  ended  December  31,  2014,  2013,  and  2012,  the  Company  incurred  information   technology  fees  of  $416,  $510,  and  $509  respectively.  Accounting  fees  and  information  technology  fees  are   included  in  Hotel  Operating  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  years  ended  December  31,  2014,  2013,  and  2012,  we  incurred  fees  of  $742,  $1,459,  and  $1,076   respectively,  which  were  capitalized  with  the  cost  of  fixed  asset  additions.   68                   hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  6  –  COMMITMENTS  AND  CONTINGENCIES  AND  RELATED  PARTY  TRANSACTIONS  (CONTINUED)   Acquisitions  from  Affiliates   We  have  entered  into  an  option  agreement  with  each  of  our  officers  and  certain  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  the  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  years  ended  December  31,  2014,  2013,  and  2012,  we  incurred  charges  for  hotel  supplies  of  $163,  $222,   and  $149  respectively.  For  the  years  ended  December  31,  2014,  2013,  and  2012,  we  incurred  charges  for  capital   expenditure  purchases  of  $10,610,  $19,783,  and  $11,809  respectively.  These  purchases  were  made  from  Hersha   Purchasing  and  Design,  a  hotel  supply  company  owned,  in  part,  by  certain  executives  and  trustees  of  the  Company.   Hotel  supplies  are  expensed  and  included  in  Hotel  Operating  Expenses  on  our  consolidated  statements  of   operations,  and  capital  expenditure  purchases  are  included  in  investment  in  hotel  properties  on  our  consolidated   balance  sheets.  Approximately  $2  is  included  in  accounts  payable  at  December  31,  2014  and  December  31,  2013,   respectively.   Due  From  Related  Parties   The  due  from  related  parties  balance  as  of  December  31,  2014  and  December  31,  2013  was  approximately  $6,580   and  $11,124,  respectively.  The  balances  primarily  consisted  of  working  capital  deposits  made  to  Hersha  affiliates.   Due  to  Related  Parties   The  balance  due  to  related  parties  as  of  December  31,  2014  and  December  31,  2013  was  approximately  $7,203   and  $4,815,  respectively.  The  balances  consisted  of  amounts  payable  to  HHMLP  for  administrative,  management,   and  benefit  related  fees.   Hotel  Ground  Rent   For  the  years  ended  December  31,  2014,  2013,  and  2012  we  incurred  $2,433,  $985,  and  $835  respectively,  of  rent   expense  payable  pursuant  to  ground  leases  related  to  certain  hotel  properties.   Future  minimum  lease  payments  (without  reflecting  future  applicable  Consumer  Price  Index  increases)  under  these   agreements  are  as  follows:   Year  Ending  December  31,   Amount   2015   2016   2017   2018   2019   Thereafter   $   $     2,342     2,374     2,374     2,374     2,374     229,028     240,866   69                                                                             hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  6  –  COMMITMENTS  AND  CONTINGENCIES  AND  RELATED  PARTY  TRANSACTIONS  (CONTINUED)   Contingent  Consideration   As  noted  in  “Note  2  –  Investment  in  Hotel  Properties”,  the  purchase  agreement  for  the  acquisition  of  the  Parrot   Key  Resort  in  Key  West,  FL,  contains  a  provision  that  entitles  the  seller  to  additional  consideration  of  $2,000   contingent  upon  the  hotel  achieving  certain  net  operating  income  thresholds  within  twelve  months  of  acquisition.   Since  the  time  of  acquisition  and  upon  measurement  at  December  31,  2014,  a  liability  of  $2,000  was  recorded  as   the  fair  value  of  the  contingent  consideration  was  determined  to  be  $2,000.  The  maximum  cash  payment  under   this  arrangement  is  $2,000  in  2015.   Litigation   We  are  not  presently  subject  to  any  material  litigation  nor,  to  our  knowledge,  is  any  other  litigation  threatened   against  us,  other  than  routine  actions  for  negligence  or  other  claims  and  administrative  proceedings  arising  in  the   ordinary  course  of  business,  some  of  which  are  expected  to  be  covered  by  liability  insurance  and  all  of  which   collectively  are  not  expected  to  have  a  material  adverse  effect  on  our  liquidity,  results  of  operations  or  business  or   financial  condition.   70             hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  7  –  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  December  31,  2014,  the  Company’s  derivative  instruments  represented  the  only  financial  instruments   measured  at  fair  value.  Currently,  the  Company  uses  derivative  instruments,  such  as  interest  rate  swaps  and   caps,  to  manage  its  interest  rate  risk.  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  the  counterparties.  However,  as   of  December  31,  2014  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.   71                   hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  7  –  FAIR  VALUE  MEASUREMENTS  AND  DERIVATIVE  INSTRUMENTS  (CONTINUED)   Derivative  Instruments   Hedged  Debt   Strike   Rate    Type     Index    Effective  Date    Maturity  Date   Estimated  Fair  Value     Notional   Amount     December   31,  2014     December   31,  2013   Courtyard,  LA  Westside,   Culver  City,  LA   Capitol  Hill  Hotel,  Washington,   DC    Swap    1.097%      Swap    0.540%     September  29,   2011   February  1,   2012   September  29,   2015   February  1,   2015   Hotel  373,  New  York,  NY  *    Cap    2.000%       May  24,  2012     June  1,  2015   $                    30,000      $     (174)    $     (374)     26,639           (8)         (88)     18,356           -­‐         1     Courtyard,  Miami,  FL    Swap    0.820%       July  2,  2012     July  1,  2016     60,000           (218)         (354)   Subordinated  Notes  Payable    Cap    2.000%     Unsecured  Term  Loan   Unsecured  Term  Loan   Hyatt,  Union  Square,  New   York,  NY   Duane  Street  Hotel,  New  York,   NY   Hilton  Garden  Inn  52nd  Street,   New  York,  NY   Hilton  Garden  Inn  52nd  Street,   New  York,  NY    Swap    0.545%      Swap    0.600%      Cap    2.000%      Swap    0.933%      Cap    1.100%      Swap    1.152%       July  30,  2012   November  5,   2012   December  18,   2012     April  9,  2013   February  1,   2014     July  30,  2014   November  5,   2016   November  5,   2016     April  9,  2016   February  1,   2017     May  27,  2014     June  1,  2015   February  21,   2017     June  1,  2015     51,548           -­‐         -­‐     100,000           272           430       50,000           85           137       55,000           9           76       9,352           (29)         45,000           -­‐         45,000            $     (149)         (212)    $     -­‐     -­‐     -­‐     (172)   1-­‐Month  LIBOR  +   3.85%   1-­‐Month  LIBOR  +   3.25%   1-­‐Month  LIBOR  +   3.85%   1-­‐Month  LIBOR  +   3.50%   1-­‐Month  LIBOR  +   3.00%   1-­‐Month  LIBOR  +   2.40%   1-­‐Month  LIBOR  +   2.40%   1-­‐Month  LIBOR  +   4.19%   1-­‐Month  LIBOR  +   4.50%   1-­‐Month  LIBOR  +   2.90%   1-­‐Month  LIBOR  +   2.90%   *   On  April  30,  2014,  we  sold  Hotel  373,  New  York,  NY,  and  therefore,  terminated  the  interest  rate  cap   associated  with  the  mortgage  on  this  property.  As  a  result  of  this  termination,  we  expensed  $55  in  fees,   which  are  included  in  the  gain  on  disposition  of  hotel  properties.     On  January  31,  2014,  we  entered  into  an  interest  rate  swap  that  effectively  fixes  interest  payments  at  5.433%  on  a   variable  rate  mortgage  on  the  Duane  Street  Hotel.  See  “Note  5  –  Debt”  for  more  information  on  the  interest  rate   swap.     On  May  27,  2014,  we  entered  into  an  interest  rate  cap  that  effectively  fixes  interest  payments  when  1  month-­‐U.S.   dollar  LIBOR  exceeds  1.10%  on  a  variable  rate  mortgage  on  the  Hilton  Garden  Inn  52nd  Street,  New  York,  NY.  The   notional  amount  of  the  interest  rate  cap  is  $45,000  and  equals  the  principal  of  the  variable  rate  mortgage  being   hedged.  This  interest  rate  cap  matures  on  June  1,  2015.  Upon  maturity  of  the  interest  rate  cap,  an  interest  rate   swap  will  go  into  effect  that  effectively  fixes  the  interest  payment  at  4.052%.   The  fair  value  of  certain  swaps  and  our  interest  rate  caps  is  included  in  other  assets  at  December  31,  2014  and   December  31,  2013  and  the  fair  value  of  certain  of  our  interest  rate  swaps  is  included  in  accounts  payable,  accrued   expenses  and  other  liabilities  at  December  31,  2014  and  December  31,  2013.   The  net  change  in  fair  value  of  derivative  instruments  designated  as  cash  flow  hedges  was  a  gain  of  $18  and  a  gain   of  $1,410,  and  a  loss  of  $635  for  the  years  ended  December  31,  2014,  2013,  and  2012,  respectively.  These   unrealized  gains  and  losses  were  reflected  on  our  consolidated  balance  sheet  in  accumulated  other  comprehensive   income.   Amounts  reported  in  accumulated  other  comprehensive  income  related  to  derivatives  will  be  reclassified  to   interest  expense  as  interest  payments  are  made  on  the  Company’s  variable-­‐rate  derivative.  The  change  in  net   72                                                                                                                                                                                             hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  7  –  FAIR  VALUE  MEASUREMENTS  AND  DERIVATIVE  INSTRUMENTS  (CONTINUED)   unrealized  gains/losses  on  cash  flow  hedges  reflects  a  reclassification  of  $1,509  of  net  unrealized  gains/losses  from   accumulated  other  comprehensive  income  as  an  increase  to  interest  expense  during  2014.  During  2015,  the   Company  estimates  that  an  additional  $1,113  will  be  reclassified  as  an  increase  to  interest  expense.   Fair  Value  of  Debt   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.  The  inputs  utilized  in  estimating  the  fair  value  of  debt  are   classified  in  Level  2  of  the  fair  value  hierarchy.    As  of  December  31,  2014,  the  carrying  value  and  estimated  fair   value  of  the  Company’s  debt  were  $918,923  and  $916,877,  respectively.    As  of  December  31,  2013,  the  carrying   value  and  estimated  fair  value  of  the  Company’s  debt  were  $819,336  and  $828,974,  respectively.   Impaired  Hotel  Property   As  discussed  in  “Note  12-­‐Discontinued  Operations,”  the  Company  recorded  an  impairment  loss  for  the  year  ended   December  31,  2013  of  approximately  $3,723  for  the  Holiday  Inn  Express  Camp  Springs,  MD  for  which  the   anticipated  net  proceeds  from  the  sale  of  the  hotel  did  not  exceed  the  carrying  value.     The  fair  value  of  the  hotel   was  estimated  using  level  2  inputs.   As  discussed  in  “Note  12-­‐Discontinued  Operations,”  the  Company  recorded  an  impairment  loss  for  the  year  ended   December  31,  2013  of  approximately  $6,591  for  the  non-­‐core  hotel  portfolio  the  Company  was  under  contract  to   sell  for  which  the  anticipated  net  proceeds  did  not  exceed  the  carrying  value.     The  fair  value  of  the  non-­‐core  hotel   portfolio  was  estimated  using  level  2  inputs.   73             hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  8  –  SHARE  BASED  PAYMENTS   In  May  2011,  the  Company  established  and  our  shareholders  approved  the  Hersha  Hospitality  Trust  2012  Equity   Incentive  Plan  (the  “2012  Plan”)  for  the  purpose  of  attracting  and  retaining  executive  officers,  employees,  trustees   and  other  persons  and  entities  that  provide  services  to  the  Company.       Executives  &  Employees   Annual  Long  Term  Equity  Incentive  Programs   To  further  align  the  interests  of  the  Company’s  executives  with  those  of  shareholders,  the  Compensation   Committee  grants  annual  long  term  equity  incentive  awards  that  are  both  “performance  based”  and  “time  based.”     The  following  table  is  a  summary  of  all  share  awards  issued  to  executives  under  the  Annual  LTIPs:   Original  Issuance   Date   Shares   Issued   Share  Price   on  date  of   grant   Vesting   Period   Vesting   Schedule   December  23,   2014     December  31,   2013     December   31,  2014     December   31,  2013   Shares  Vested  (2)   Unearned  Compensation  (2)   March  21,  2014   (2013  Annual   LTIP)   March  20,  2013   (2012  Annual   LTIP)   March  26,  2012   (2011  Annual   LTIP)       447,959       $     5.80       3  years     25%/year  (1)       111,988         -­‐     $     -­‐     $     -­‐     779,045       $     5.95       3  years     25%/year  (1)       389,520         389,520         -­‐       1,039       748,927       $     5.45       3  years     25%/year  (1)       561,694         561,694         1,063,202         951,214       $     -­‐       -­‐     $     266       1,305     (1)   (2)   25%  of  the  issued  shares  vested  immediately  upon  issuance.     In  general,  the  remaining  shares  vest  25%   on  the  first  through  third  anniversaries  of  the  date  of  effective  issuance  (subject  to  continuous   employment  through  the  applicable  vesting  date).   All  of  the  unvested  shares  issued  as  part  of  the  Annual  LTIP  plans  noted  above  were  forfeited  on   December  23,  2014,  and  concurrently  issued  as  LTIP  Units.     See  below  for  more  information.   Stock  based  compensation  expense  related  to  the  Annual  LTIP  Plans  of  $2,987,  $3,762,  and  $3,925  was  incurred   during  the  years  ended  December  31,  2014,  2013,  and  2012,  respectively.     Unearned  compensation  related  to   the  Annual  LTIPs  as  of  December  31,  2014  and  December  31,  2013  was  $0  and  $1,305,  respectively.   LTIP  Units   On  December  23,  2014,  the  2012  Plan  was  amended  and  restated  to  add  LTIP  Units  as  a  type  of  award  available   under  the  2012  Plan.     On  this  date,  the  Compensation  Committee  approved  an  aggregate  of  1,948,324  LTIP  Units   to  certain  executive  officers.     These  executive  officers  forfeited  an  aggregate  of  1,948,324  Class  A  Common   Shares,  all  of  which  were  unvested  as  of  the  grant  date  of  the  LTIP  Units  and  previously  awarded  to  the  executive   officers  under  the  2012  Plan  as  restricted  stock  awards.     The  LTIP  Units  granted  on  December  23,  2014  are   subject  to  the  same  time-­‐based  vesting  conditions  that  applied  to  the  forfeited  restricted  stock  awards.   74                                                                                                                                                                                                                                                                                                         hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  8  –  SHARE  BASED  PAYMENTS  (CONTINUED)   The  following  table  is  a  summary  of  the  LTIP  Units  issued  to  executive  officers  as  of  December  31,  2014.:   Issuance  Date   December  23,  2014   (2013  Annual  LTIP)   December  23,  2014   (2012  Annual  LTIP)   December  23,  2014   (2011  Annual  LTIP)   December  23,  2014   LTIP  Units   Issued   Vesting   Period   Vesting  Schedule   Units  Vested   Unearned   Compensation   December  31,  2014     335,972       3  years   25%/year  (1)     111,991       $     389,524       3  years   25%/year  (1)     194,761         187,233       3  years   25%/year  (1)     1,035,595       5  years   33%  Year  3,  4,  5  (2)     1,948,324         187,233         -­‐       493,985       $     582       309       -­‐     2,650       3,541     (1)   (2)   As  noted  above,  the  vesting  schedule  for  each  of  the  Annual  LTIP  Plans  remains  intact  with  the  conversion   to  LTIP  Units.   On  April  18,  2012,  the  Company  entered  into  amended  and  restated  employment  agreements  with  the   Company’s  executive  officers.    To  induce  the  executives  to  agree  to  the  substantial  reduction  in  benefits   upon  certain  terminations  following  a  change  of  control  as  described  in  the  agreements,  the  Company   awarded  an  aggregate  of  1,035,595  restricted  common  shares  to  the  executives  pursuant  to  the  2012   Plan.    None  of  these  restricted  common  shares  will  vest  prior  to  the  third  anniversary  of  the  date  of   issuance.    Thereafter,  33.3%  of  each  award  of  restricted  common  shares  will  vest  on  each  of  the  third,   fourth  and  fifth  anniversaries  of  the  date  of  issuance.    Vesting  will  accelerate  upon  a  change  of  control  or   if  the  relevant  executive’s  employment  with  the  Company  were  to  terminate  for  any  reason  other  than   for  cause  (as  defined  in  the  agreements).   Multi-­‐Year  LTIP   On  April  11,  2014,  the  Compensation  Committee  approved  the  2014  Multi-­‐Year  LTIP.  The  common  shares  issuable   under  this  program  are  based  on  the  Company’s  achievement  of  a  certain  level  of  (1)  absolute  total  shareholder   return  (37.50%  of  the  award),  (2)  relative  total  shareholder  return  as  compared  to  the  Company’s  peer  group   (37.50%  of  the  award),  and  (3)  relative  growth  in  revenue  per  available  room  compared  to  the  Company’s  peer   group  (25%  of  the  award).  This  program  has  a  three-­‐year  performance  period  which  commenced  on  January  1,   2014  and  ends  December  31,  2016.  As  of  December  31,  2014  no  common  shares  have  been  issued  in  accordance   with  the  2014  Plan  to  the  executive  officers  in  settlement  of  2014  Multi-­‐Year  LTIP  awards.   On  April  15,  2013,  the  Compensation  Committee  approved  the  2013  Multi-­‐Year  LTIP.  The  common  shares  issuable   under  this  program  are  based  on  the  Company’s  achievement  of  a  certain  level  of  (1)  absolute  total  shareholder   return  (50%  of  the  award),  (2)  relative  total  shareholder  return  as  compared  to  the  Company’s  peer  group  (25%  of   the  award),  and  (3)  relative  growth  in  revenue  per  available  room  compared  to  the  Company’s  peer  group  (25%  of   the  award).  This  program  has  a  three  year  performance  period  which  commenced  on  January  1,  2013  and  ends   December  31,  2015.  As  of  December  31,  2014  no  common  shares  have  been  issued  in  accordance  with  the  2013   Plan  to  the  executive  officers  in  settlement  of  2013  Multi-­‐Year  LTIP  awards.   The  Company  accounts  for  the  total  shareholder  return  components  of  these  grants  as  market-­‐based  awards   where  the  Company  estimates  unearned  compensation  at  the  grant  date  fair  value  which  is  then  amortized  into   compensation  cost  over  the  vesting  period  of  each  individual  plan.  The  Company  accounts  for  the  RevPAR   component  of  the  grants  as  performance-­‐based  awards.   75                                                                                                                                                                                                     hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  8  –  SHARE  BASED  PAYMENTS  (CONTINUED)   Stock  based  compensation  expense  of  $598,  $3,481  and  $3,192  was  recorded  for  the  years  ended  December  31,   2014,  2013,  and  2012,  respectively,  for  the  Multi-­‐Year  LTIPs.    Unearned  compensation  related  to  the  Multi  Year   LTIPs  as  of  December  31,  2014  and  December  31,  2013,  respectively,  was  $1,621  and  $1,157.   Restricted  Share  Awards   In  addition  to  stock  based  compensation  expense  related  to  awards  under  the  Multi-­‐Year  LTIPs  and  Annual  LTIPs,   stock  based  compensation  expense  related  to  restricted  common  shares  issued  to  executives  and  employees  of   the  Company  of  $1,495,  $1,618,  and  $1,911  was  incurred  during  the  years  ended  December  31,  2014,  2013,  and   2012  respectively.    Unearned  compensation  related  to  the  restricted  share  awards  as  of  December  31,  2014  and   December  31,  2013  was  $322  and  $4,102,  respectively.    The  following  table  is  a  summary  of  all  unvested  share   awards  issued  to  executives  under  the  2012  Plan  and  prior   equity  incentive  plans:   Original  Issuance   Date   July  15,  2014   June  23,  2014   March  24,  2014   February  13,  2014   September  20,  2013     June  28,  2013   June  29,  2012   Shares   Issued     52,077         4,411         8,184         1,846         4,605         48,600         52,703       April  18,  2012   June  30,  2011       1,035,595         17,692       Total       1,225,713       Share   Price  on   Date  of   Grant     6.75       6.50       5.69       5.44       5.52       5.64       5.28       5.47       5.57     Vesting   Period   2  years     2  years     2  years     2  years       2-­‐4  years       2-­‐4  years       2-­‐4  years     Vesting   Schedule   50%  /year   50%  /year   50%  /year   50%  /year   25-­‐50%  /year   25-­‐50%  /year   25-­‐50%  /year   5  years     33%  Year  3,  4,  5   (1)   25-­‐50%  /year     2-­‐4  years     Shares  Vested   Unearned  Compensation     December   31,  2014     December   31,  2013     December   31,  2014     December   31,  2013     6,126         -­‐       4,091         923         4,605         22,895         44,967         -­‐       13,804       97,411       -­‐       -­‐       -­‐       -­‐       -­‐       -­‐       22,480         177         20         10         2         -­‐       69         36         -­‐     -­‐     -­‐     -­‐     19       199       110       -­‐       9,919       32,399     $     -­‐       8         322       $     3,746       28       4,102     (1)   As  noted  above,  the  unvested  shares  associated  with  this  issuance  were  forfeited  and  immediately  issued   as  LTIP  Units  on  December  23,  2014.     The  historical  information  pertaining  to  the  unvested  shares  before   the  conversion  is  shown  this  table.   Trustees   Annual  Retainer   The  Compensation  Committee  approved  a  program  that  allows  the  Company’s  trustees  to  make  a  voluntary   election  to  receive  any  portion  of  the  annual  cash  retainer  in  the  form  of  common  equity  valued  at  a  25%  premium   to  the  cash  that  would  have  been  received.    On  December  30,  2014,  we  issued  12,860  shares  which  do  not  fully   vest  until  December  31,  2015.    Compensation  expense  incurred  for  the  years  ended  December  31,  2014,  2013,  and   2012,  respectively,  was  $220,  $160,  and  $66.       The  following  table  is  a  summary  of  all  unvested  share  awards  issued  to  trustees  in  lieu  of  annual  cash  retainer:   Original  Issuance  Date     December  30,  2014     December  27,  2013     Total     Shares   Issued     12,860       $     39,133           51,993       Share  Price  on   Date  of  Grant     7.25         5.63       Vesting   Period   1  year   1  year   Vesting   Schedule   100%   100%     $   Unearned  Compensation     December  31,   2014     December  31,   2013     93       $     -­‐         93         -­‐     220       220     76                                                                                                                                                                                                                                                                                                                                                       hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  8  –  SHARE  BASED  PAYMENTS  (CONTINUED)   Multi-­‐Year  Long-­‐Term  Equity  Incentives   Compensation  expense  for  the  multi-­‐year  long  term  incentive  plans  for  the  Company’s  trustees  incurred  for  the   years  ended  December  31,  2014,  2013,  and  2012,  respectively,  was  $71,  $55,  and  $43.    Unearned  compensation   related  to  the  multi-­‐year  long  term  equity  incentives  was  $127  and  $124  as  of  December  31,  2014  and  December   31,  2013,  respectively.   The  following  table  is  a  summary  of  all  unvested  share  awards  issued  to  trustees  under  the  2012  Plan  and  prior  to   equity  incentive  plans:   Original  Issuance   Date   December  30,  2014   December  27,  2013   December  28,  2012     June  5,  2012   Shares   Issued     10,000         12,000         12,000         10,800       Vesting   Period     3  years     3  years   3  years     3  years     Vesting   Schedule     33%  /year     33%  /year   33%  /year     33%  /year     Shares  Vested   Unearned  Compensation     December  31,   2014     December  31,   2013     December  31,   2014     December  31,   2013     -­‐       5,335         8,670         10,800         24,805         -­‐     $     -­‐       4,002         7,200         11,202       $     73       $     38           16         -­‐       127       $     -­‐     67       39       18       124     Share  Awards   Compensation  expense  related  to  share  awards  issued  to  the  Board  of  Trustees  of  $457,  $496  and  $402  was   incurred  during  the  years  ended  December  31,  2014,  2013,  and  2012,  respectively  and  is  recorded  in  general  and   administrative  expense  on  the  statement  of  operations.  Share  awards  issued  to  the  Board  of  Trustees  are   immediately  vested.  On  June  23,  2014  an  aggregate  47,475  shares  were  issued  to  the  Board  of  Trustees  at  a  price   per  share  on  the  date  of  grant  of  $6.50.     On  December  30,  2014,  an  aggregate  20,500  shares  were  issued  to  the   Board  of  Trustees  at  a  price  per  share  on  the  date  of  grant  of  $7.25.   Non-­‐employees   The  Company  issues  share  based  awards  as  compensation  to  non-­‐employees  for  services  provided  to  the  Company   consisting  primarily  of  restricted  common  shares.    The  Company  recorded  stock  based  compensation  expense  of   $200,  $174,  and  $139  for  the  years  ended  December  31,  2014,  2013,  and  2012,  respectively.    Unearned   compensation  related  to  the  restricted  share  awards  as  of  December  31,  2014  and  December  31,  2013  was  $81   and  $81,  respectively.  The  following  table  is  a  summary  of  all  unvested  share  awards  issued  to  non-­‐employees   under  the  Company’s  2008  Equity  Incentive  Plan  and  the  2012  Plan:   Original  Issuance  Date   March  24,  2014   Shares   Issued       30,000       $   Share  Price   on  Date  of   Grant   Vesting   Period     5.69       2  years   Vesting   Schedule     50%  /year     Shares  Vested   Unearned  Compensation     December   31,  2014     December   31,  2013     December   31,  2014     December   31,  2013     15,000         -­‐     $     81       $   February  1,  2013       30,000       $     5.41       2  years     50%  /year       30,000       14,999     Total     60,000     45,000   14,999    $     -­‐   81    $     -­‐     81     81   77                                                                                                                                                                                                                                                                                                                                                                                             hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  9  –  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.   NUMERATOR:   Basic  and  Diluted*   Income  from  Continuing  Operations     $     69,936       $     20,753       $     7,498       For  the  Year  Ended  December  31,   2014   2013   2012   (Income)  Loss  from  Continuing  Operations  allocated  to  Noncontrolling   Interests     Distributions  to  Preferred  Shareholders   Dividends  Paid  on  Unvested  Restricted  Shares  and  LTIP  Units   Extinguishment  of  Issuance  Costs  Upon  Redemption  of  Series  A   Preferred  Stock   Income  (Loss)  from  Continuing  Operations  attributable  to  Common   Shareholders   Discontinued  Operations     (1,069)     (14,356)     658         703         (14,611)       (14,000)       (515)     (804)       (459)       -­‐     (2,250)       -­‐       53,996       3,746         (6,258)     (Loss)  Income  from  Discontinued  Operations     (1,665)     29,195         14,720       Loss  (Income)  from  Discontinued  Operations  allocated  to   Noncontrolling  Interests     (Loss)  from  Discontinued  Operations  attributable  to  Common   Shareholders     53       (993)       (545)       (1,612)     28,202         14,175       Net  Income  attributable  to  Common  Shareholders     $     52,384       $     31,948       $     7,917       DENOMINATOR:   Weighted  average  number  of  common  shares  -­‐  basic     199,109,209       198,390,450           187,415,270       Effect  of  dilutive  securities:   Restricted  Stock  Awards  (unvested)   Contingently  Issued  Shares     1,358,603       729,498       2,384,165         1,143,562         -­‐  *     -­‐  *   Weighted  average  number  of  common  shares  -­‐  diluted     201,197,310       201,918,177           187,415,270       Income  (loss)  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.    In  addition,  potentially  dilutive  common  shares,  if  any,  have  been  excluded  from  the   denominator  if  they  are  anti-­‐dilutive  to  income  (loss)  from  continuing  operations  applicable  to  common   shareholders. * 78                                                                                                                                                                                                                                                                                                                                                                                                                             hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  9  –  EARNINGS  PER  SHARE  (CONTINUED)   The  following  table  summarizes  potentially  dilutive  securities  that  have  been  excluded  from  the  denominator  for   the  purpose  of  computing  diluted  earnings  per  share:   Common  Units   LTIP  Units   Unvested  Stock  Awards  Outstanding   Contingently  Issuable  Share  Awards   Options  to  Acquire  Common  Shares  Outstanding   Total  potentially  dilutive  securities   excluded  from  the  denominator   For  the  Year  Ended  December  31,   2014   2013   2012     6,909,649         32,711         -­‐       -­‐       -­‐       6,968,035         7,208,123       -­‐       -­‐       -­‐       -­‐       -­‐     433,097       2,778,545       275,580       6,942,360         6,968,035         10,695,345     79                                                                                             hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  10  –  CASH  FLOW  DISCLOSURES  AND  NON  CASH  INVESTING  AND  FINANCING  ACTIVITIES   Interest  paid  during  2014,  2013,  and  2012  totaled  $40,760,  $42,984,  and  $41,744  respectively.  The  following   non-­‐cash  investing  and  financing  activities  occurred  during  2014,  2013  and  2012:   Common  Shares  issued  as  part  of  the  Dividend  Reinvestment  Plan   Acquisition  of  hotel  properties:   Debt  assumed   Development  loan  accrued  interest  revenue  receivable  paid  in-­‐kind  by  adding   balance  to  development  loan  principal   Settlement  of  development  loan  receivable  principal  and  accrued  interest   revenue  receivable   Disposition  of  hotel  properties:   Investment  in  hotel  properties,  net,  conveyed  to  mortgage  lender   Debt  conveyed  to  mortgage  lender   Debt  assumed  by  purchaser   Conversion  of  Common  Units  to  Common  Shares   Reallocation  of  noncontrolling  interest   Accrued  payables  for  fixed  assets  placed  into  service   2014   2013   2012     $     50     $     38     $     24     24,924         -­‐         85,913     -­‐         -­‐         678     22,494         13,303         -­‐     -­‐         -­‐         45,710         72         -­‐         1,312         -­‐         -­‐         -­‐         106         -­‐         2,572         1,938     2,940     54,217     572     (966)     -­‐   80                                                                                                                                 hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  11  –  HOTEL  DISPOSITIONS   Effective  January  1,  2014,  we  early  adopted  ASU  Update  No.  2014-­‐08  concerning  the  classification  and  reporting  of   discontinued  operations.  This  amendment  defines  discontinued  operations  as  a  component  of  an  entity  that   represents  a  strategic  shift  that  has  (or  will  have)  a  major  effect  on  an  entity’s  operations  and  financial  results.  As  a   result  of  the  early  adoption  of  ASU  Update  No.  2014-­‐08,  we  anticipate  that  most  of  our  hotel  dispositions  will  not   be  classified  as  discontinued  operations  as  most  will  not  fit  this  definition.   For  transactions  that  have  been  classified  as  held  for  sale  or  as  discontinued  operations  for  periods  prior  to  our   adoption  of  ASU  Update  No.  2014-­‐08,  we  will  continue  to  present  the  operating  results  as  discontinued  operations   in  the  statements  of  operations  for  all  applicable  periods  presented.   Disposed  Assets   Hotel   Acquisition   Date   Disposition   Date       Consideration         Gain  on   Disposition     Hotel  373   2014  Total   June  2007     April  2014     $     37,000      $    $   Non-­‐Core  Portfolio  II  (12)   Holiday  Inn  Express,  Camp  Springs,   MD     January  1999  -­‐  July  2010     December  2013     $     158,600       $   June  2008     September  2013         8,500         Comfort  Inn,  Harrisburg,  PA   January  1999     June  2013         3,700         2013  Total   Non-­‐Core  Hotel  Portfolio  (18)   Land  Parcel,  Eighth  Ave,   Manhattan,  NY   Comfort  Inn,  North  Dartmouth,  MA     2012  Total   January  1999  -­‐  July  2007     2012     $     155,000      $   February  2012  &  May   June  2006     May  2006     April  2012       19,250     March  2012       -­‐     7,195         7,195    (1)     31,559    (2)     120    (3)     442         32,121         4,978    (4)     5,037         1,216    (5)    $     11,231       (1) (2) The  operations  from  this  property  included  (loss)  income  of  ($137),  $858,  $546  for  the  years  ended   December  31,  2014,  2013,  and  2012,  respectively.   In  September  2013,  our  Board  of  Trustees  authorized  management  of  the  Company  to  sell  this  portfolio.   On  September  20,  2013,  the  Company  entered  into  a  purchase  and  sale  agreement  to  dispose  of  a   portfolio  of  16  non-­‐core  hotel  properties,  for  an  aggregate  purchase  price  of  approximately   $217,000.    The  16  non-­‐core  hotel  properties  in  the  portfolio  were  acquired  by  the  Company  between   1999  and  2010.  We  recorded  an  impairment  loss  of  approximately  $6,591  for  those  assets  for  which  the   anticipated  net  proceeds  do  not  exceed  the  carrying  value.     On  December  20,  2013,  the  Company  closed  on  the  sale  of  12  of  these  non-­‐core  hotel  properties.  As  a   result  of  entering  into  these  purchase  and  sale  agreements  for  the  16  non-­‐core  assets  mentioned  above,   the  operating  results  for  the  consolidated  assets  were  reclassified  to  discontinued  operations  in  the   statement  of  operations  for  the  years  ended  December  31,  2014,  2013,  and  2012.    The  12  assets  were   sold  for  a  total  sales  price  of  $158,600,  reduced  the  Company’s  consolidated  mortgage  debt  by  $33,044   and  generated  a  gain  on  sale  of  approximately  $31,559.      In  February  2014,  the  remaining  4  assets  were   sold  for  a  total  sales  price  of  $58,400  and  reduced  the  Company’s  consolidated  mortgage  debt  by   $45,710.  We  recorded  an  impairment  loss  of  approximately  $1,800  for  those  assets  for  which  the   anticipated  net  proceeds  did  not  exceed  the  carrying  value.   81                                                                                                                                                                                                                       hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  11  –  HOTEL  DISPOSITIONS  (CONTINUED)   (3) (4) (5) We  recorded  an  impairment  loss  for  this  property  of  approximately  $3,723  as  the  net  proceeds  did  not   exceed  the  carrying  value.   On  February  23,  2012,  the  Company  closed  on  the  sale  of  14  non-­‐core  hotel  properties,  including  three   hotel  properties  owned  in  part  by  the  Company  through  an  unconsolidated  joint  venture,  and  closed  on   the  remaining  four  properties,  on  May  8,  2012,  including  one  hotel  property  owned  in  part  by  the   Company  through  an  unconsolidated  joint  venture.    The  operating  results  for  the  consolidated  assets   were  reclassified  to  discontinued  operations  in  the  statement  of  operations  for  the  year  ended  December   31,  2012.    The  18  assets  were  sold  for  a  total  sales  price  of  $155,000,  reduced  the  Company’s   consolidated  mortgage  debt  by  $61,298  and  generated  a  gain  on  sale  of  approximately  $4,978.         On  March  30,  2012,  we  transferred  the  title  to  the  Comfort  Inn,  located  in  North  Dartmouth,  to  the   lender.    Previously,  we  had  ceased  operations  at  this  property  on  March  31,  2011.    The  operating  results   were  reclassified  to  discontinued  operations  in  the  statements  of  operations  for  the  year  ended   December  31,  2012.    The  transfer  of  the  title  resulted  in  a  gain  of  approximately  $1,216,  since  the   outstanding  mortgage  loan  payable  exceeded  the  net  book  value  of  the  property.   Assets  Held  for  Sale   Assets  held  for  sale  or  liabilities  related  to  assets  held  for  sale  consisted  of  the  following  as  of  December  31,  2013:   Land   Buildings  and  Improvements   Furniture,  Fixtures  and  Equipment   Less:  Accumulated  Depreciation  &  Amortization   Assets  Held  for  Sale   Liabilities  Related  to  Assets  Held  for  Sale   December  31,  2013   $   $   $     9,517     58,129     9,198     76,844     (20,261)     56,583     45,835   82                                                                                               hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts]   NOTE  11  –  HOTEL  DISPOSITIONS  (CONTINUED)   The  following  table  sets  forth  the  components  of  discontinued  operations  for  the  years  ended  December  31,  2014,   2013,  and  2012.  Discontinued  operations  include  the  results  of  operations  for  hotels  sold  in  2013  and  the  first   quarter  of  2014  (which  were  held  for  sale  as  of  December  31,  2013).   Year  Ended  December  31,     2013   2014   2012   Revenue:   Hotel  Operating  Revenues   Other  Revenue   Total  Revenues   Expenses:     $     1,940       $     -­‐       1,940         58,045       $     -­‐       58,045       Hotel  Operating  Expenses   Gain  on  Insurance  Settlements   Hotel  Ground  Rent   Real  Estate  and  Personal  Property  Taxes  and  Property  Insurance   General  and  Administrative   Acquisition  and  Termination  Transaction  Costs   Depreciation  and  Amortization   Interest  Expense   Other  Expense   Loss  on  Debt  Extinguishment   Income  Tax  Expense   Total  Expenses     1,151         74         -­‐       91         4         -­‐       1         354         -­‐       -­‐       2         1,677         35,158         -­‐       -­‐       3,316         36         -­‐       7,050         4,863         44         -­‐       190         50,657         63,465       11       63,476       39,046       -­‐     72       3,636       27       8       9,148       7,872       10       168       -­‐     59,987     Income  from  Discontinued  Operations     $     263       $     7,388       $     3,489     We  allocate  to  income  or  loss  from  discontinued  operations  interest  expense  related  to  debt  that  is  to  be  assumed   or  that  is  required  to  be  repaid  as  a  result  of  the  disposal  transaction.   83                                                                                                                                                                                                                               hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  12  –  SHAREHOLDERS’  EQUITY  AND  NONCONTROLLING  INTERESTS  IN  PARTNERSHIP   Common  Shares   The  Company’s  outstanding  common  shares  have  been  duly  authorized,  and  are  fully  paid  and  non-­‐assessable.   Common  shareholders  are  entitled  to  receive  dividends  if  and  when  authorized  and  declared  by  the  Board  of   Trustees  of  the  Company  out  of  assets  legally  available  and  to  share  ratably  in  the  assets  of  the  Company  legally   available  for  distribution  to  its  shareholders  in  the  event  of  its  liquidation,  dissolution  or  winding  up  after  payment   of,  or  adequate  provision  for,  all  known  debts  and  liabilities  of  the  Company.   Preferred  Shares   The  Declaration  of  Trust  authorizes  our  Board  of  Trustees  to  classify  any  unissued  preferred  shares  and  to  reclassify   any  previously  classified  but  unissued  preferred  shares  of  any  series  from  time  to  time  in  one  or  more  series,  as   authorized  by  the  Board  of  Trustees.  Prior  to  issuance  of  shares  of  each  series,  the  Board  of  Trustees  is  required  by   Maryland  REIT  Law  and  our  Declaration  of  Trust  to  set  for  each  such  series,  subject  to  the  provisions  of  our   Declaration  of  Trust  regarding  the  restriction  on  transfer  of  shares  of  beneficial  interest,  the  terms,  the   preferences,  conversion  or  other  rights,  voting  powers,  restrictions,  limitations  as  to  dividends  or  other   distributions,  qualifications  and  terms  or  conditions  of  redemption  for  each  such  series.  Thus,  our  Board  of   Trustees  could  authorize  the  issuance  of  additional  preferred  shares  with  terms  and  conditions  which  could  have   the  effect  of  delaying,  deferring  or  preventing  a  transaction  or  a  change  in  control  in  us  that  might  involve  a   premium  price  for  holders  of  common  shares  or  otherwise  be  in  their  best  interest.   Common  Units   Common  Units  are  issued  in  connection  with  the  acquisition  of  wholly  owned  hotels  and  joint  venture  interests  in   hotel  properties.  The  total  number  of  Common  Units  outstanding  as  of  December  31,  2014,  2013  and  2012  was   6,849,412,  6,914,716,  and  7,112,506,  respectively.  These  units  can  be  redeemed  for  cash  or  converted  to  common   shares,  at  the  Company’s  option,  on  a  one-­‐for-­‐one  basis.  The  number  of  common  shares  issuable  upon  exercise  of   the  redemption  rights  will  be  adjusted  upon  the  occurrence  of  stock  splits,  mergers,  consolidation  or  similar  pro   rata  share  transactions,  that  otherwise  would  have  the  effect  of  diluting  the  ownership  interest  of  the  limited   partners  or  our  shareholders.  During  2014,  2013  and  2012,  18,900,  27,790,  and  157,810  Common  Units  were   converted  to  common  shares,  respectively.  The  Company  redeemed  46,404  Common  Units  for  $338  during  2014.     In  addition,  as  noted  in  “Note  8  –  Share  Based  Payments,”  during  2014,  the  Company  issued  1,948,324  of  LTIP   Units.   84                       hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts]   NOTE  13  –  INCOME  TAXES   The  Company  elected  to  be  taxed  as  a  REIT  under  Sections  856  through  860  of  the  Internal  Revenue  Code   commencing  with  its  taxable  year  ended  December  31,  1999.  To  qualify  as  a  REIT,  the  Company  must  meet  a   number  of  organizational  and  operational  requirements,  including  a  requirement  that  it  currently  distribute  at  least   90%  of  its  REIT  taxable  income  to  its  shareholders.  It  is  the  Company’s  current  intention  to  adhere  to  these   requirements  and  maintain  the  Company’s  qualification  for  taxation  as  a  REIT.  As  a  REIT,  the  Company  generally   will  not  be  subject  to  federal  corporate  income  tax  on  that  portion  of  its  net  income  that  is  currently  distributed  to   shareholders.  If  the  Company  fails  to  qualify  for  taxation  as  a  REIT  in  any  taxable  year,  it  will  be  subject  to  federal   income  taxes  at  regular  corporate  rates  (including  any  applicable  alternative  minimum  tax)  and  may  not  be  able  to   qualify  as  a  REIT  for  four  subsequent  taxable  years.  Even  if  the  Company  qualifies  for  taxation  as  a  REIT,  the   Company  may  be  subject  to  certain  state  and  local  taxes  on  its  income  and  property,  and  to  federal  income  and   excise  taxes  on  its  undistributed  taxable  income.   Taxable  income  from  non-­‐REIT  activities  managed  through  taxable  REIT  subsidiaries  is  subject  to  federal,  state  and   local  income  taxes.  44  New  England  is  subject  to  income  taxes  at  the  applicable  federal,  state  and  local  tax  rates.     The  provision  for  income  taxes  differs  from  the  amount  of  income  tax  determined  by  applying  the  applicable  U.S.   statutory  federal  income  tax  rate  to  pretax  income  from  continuing  operations  as  a  result  of  the  following   differences:   Statutory  federal  income  tax  provision     Adjustment  for  nontaxable  loss     State  income  taxes,  net  of  federal  income  tax  effect   Recognition  of  deferred  tax  assets   Changes  in  valuation  allowance     $     (25,274)       (367)       91       -­‐       5,152     $     (7,472)       (1,317)       (1,963)       -­‐       1,409     (623)     151     -­‐     (4,292)   For  the  year  ended  December  31,   2013   2012   2014     22,865     $   Total  income  tax  benefit     $     (2,685)     $     (5,600)     $     (3,355)   The  components  of  the  Company’s  income  tax  expense  (benefit)  from  continuing  operations  for  the  years  ended   December  31,  2014,  2013  and  2012  were  as  follows:   For  the  year  ended  December  31,   2013   2014   2012   Income  tax  expense  (benefit):   Current:                 Federal                 State   Deferred:                 Federal                 State   Total   Income  tax  expense  (benefit):                 From  continuing  operations                 From  discontinued  operations   Total     $     $     -­‐     $     -­‐       -­‐     $     -­‐       -­‐     229     (2,130)       (555)       (2,685)     $     (3,604)       (1,996)       (5,600)     $     (3,584)     -­‐     (3,355)     $     (2,685)       2       (2,683)     $     (5,600)       190       (5,410)     $     (3,355)     -­‐     (3,355)   85                                                                                                                                                                                                                                                                                                                 hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  13  –  INCOME  TAXES  (CONTINUED)   The  components  of  consolidated  TRS’s  net  deferred  tax  asset  as  of  December  31,  2014  and  2013  were  as  follows:   Deferred  tax  assets:   Net  operating  loss  carryforwards   Accrued  expenses  and  other   Tax  credit  carryforwards   Total  gross  deferred  tax  assets   Valuation  allowance   Total  net  deferred  tax  assets   Deferred  tax  liabilities:   Depreciation  and  amortization   Total  Net  deferred  tax  assets  (liabilities)   As  of  December  31,   2014   2013   $   $   $     11,387       616       481       12,484       (804)       11,680       232       11,448     $   $   $     8,605     685     280     9,570     (804)     8,766     -­‐     8,766   In  assessing  the  realizability  of  deferred  tax  assets,  management  considers  whether  it  is  more  likely  than  not  that   some  portion  or  all  of  the  deferred  tax  assets  will  not  be  realized.  Based  on  limitations  related  to  the  utilization  of   certain  tax  attribute  carryforwards,  the  Company  recorded  a  valuation  allowance  of  approximately  $804  as  these   attributes  are  not  more  likely  than  not  to  be  realized  prior  to  their  expiration.  Based  on  the  level  of  historical   taxable  income,  tax  planning  strategies  and  projections  for  future  taxable  income  over  the  periods  in  which  the   remaining  deferred  tax  assets  are  deductible,  Management  believes  it  is  more  likely  than  not  that  the  remaining   deferred  tax  assets  will  be  realized.   As  of  December  31,  2014,  we  have  gross  federal  net  operating  loss  carryforwards  of  $28,732  which  expire  over   various  periods  from  2023  through  2034.     As  of  December  31,  2014,  we  have  gross  state  net  operating  loss   carryforwards  of  $30,868  which  expire  over  various  periods  from  2014  to  2034.     The  Company  has  tax  credits  of   $481  available  which  begin  to  expire  in  2028.       Earnings  and  profits,  which  will  determine  the  taxability  of  distributions  to  shareholders,  will  differ  from  net   income  reported  for  financial  reporting  purposes  due  to  the  differences  for  federal  tax  purposes  in  the  estimated   useful  lives  and  methods  used  to  compute  depreciation.  The  following  table  sets  forth  certain  per  share   information  regarding  the  Company’s  common  and  preferred  share  distributions  for  the  years  ended  December  31,   2014,  2013  and  2012.   2014   2013   2012   Preferred  Shares  -­‐  8%  Series  A   Ordinary  income     Return  of  Capital     Capital  Gain  Distribution     Preferred  Shares  -­‐  8%  Series  B   Ordinary  income     Return  of  Capital     Capital  Gain  Distribution     Preferred  Shares  -­‐  6.875%  Series  C   Ordinary  income     Return  of  Capital     Capital  Gain  Distribution     Common  Shares  -­‐  Class  A   Ordinary  income     Return  of  Capital     Capital  Gain  Distribution     86 N/A     N/A     N/A     100.00%     0.00%     0.00%     100.00%     0.00%     0.00%     76.34%     23.66%     0.00%     100.00%     0.00%     0.00%     100.00%     0.00%     0.00%     100.00%     0.00%     0.00%     45.15%     54.85%     0.00%     100.00%   0.00%   0.00%   100.00%   0.00%   0.00%   N/A   N/A   N/A   1.28%   98.72%   0.00%                                                                                                                                                                                                                       hersha hospitality trust and subsidiaries notes to the consolidated financial statements for the years ended december 31, 2014, 2013, and 2012 [in thousands, except share/unit and per share amounts] NOTE  14  –  SELECTED  QUARTERLY  FINANCIAL  DATA  (UNAUDITED)   Year  Ended  December  31,  2014   First  Quarter     Second  Quarter     Third  Quarter   Total  Revenues   Total  Expenses     $     80,348       $     85,203         111,830       $     53,593         Fourth  Quarter     112,985       106,232       113,048       $     106,625       (Loss)  Income  from  Unconsolidated  Joint  Ventures   (Loss)  Income  from  Continuing  Operations     (420)       (5,275)       419         58,656         607         7,030         87       6,840     Income  Tax  Benefit   Income  (Loss)  from  Discontinued  Operations  (including  Gain  on  Disposition   of  Discontinued  Assets)*   Net  (Loss)  Income   (Loss)  Income  Allocated  to  Noncontrolling  Interests  in  Continuing  Operations     Issuance  Costs  of  Redeemed  Preferred  Stock   Preferred  Distributions   Net  (Loss)  Income  applicable  to  Common  Shareholders   Basic  and  diluted  earnings  per  share:   (Loss)  Income  from  continuing  operations  applicable  to  common   shareholders   Discontinued  Operations   Net  (Loss)  Income  applicable  to  Common  Shareholders   Weighted  Average  Common  Shares  Outstanding     $     $     $     108         (1)       699         1,879       (1,346)       (6,513)       (507)       -­‐       3,589         (69)       58,586         1,655         -­‐       3,589         (142)       7,587         (49)       -­‐       3,589         (9,595)     $     53,342       $     4,047       $     (0.04)     $     0.27       $     0.02       $     (0.01)     0.00       0.00         (0.05)     $     0.27       $     0.02       $     (108)     8,611       (83)     -­‐     3,589       5,105       0.03     0.00       0.03     Basic   Diluted   Total  Revenues   Total  Expenses   (Loss)  Income  from  Unconsolidated  Joint  Ventures   (Loss)  Income  from  Continuing  Operations       200,743,751           198,494,473           198,597,517           198,629,945         200,743,751           200,213,554           200,621,986           200,779,472     Year  Ended  December  31,  2013   First  Quarter     Second  Quarter     Third  Quarter     Fourth  Quarter     $     65,878       $     91,068       $     90,741       $     92,510       73,174         (396)       (7,692)       71,703         148         19,513         87,512         227         3,456         90,820       (1,814)     (124)   Income  Tax  Benefit   (Loss)  Income  from  Discontinued  Operations  (including  Gain  on   Disposition  of  Discontinued  Assets)   Net  (Loss)  Income     1,129         (1,222)       2,375         3,318       (1,113)       (7,676)       (206)       18,085         (3,532)       2,299         34,046       37,240     (Loss)  Income  Allocated  to  Noncontrolling  Interests  in  Continuing   Operations   Extinguishment  of  Issuance  Costs  Upon  Redemption  of  Series  A   Preferred  Shares   Preferred  Distributions   Net  (Loss)  Income  applicable  to  Common  Shareholders   Basic  and  diluted  earnings  per  share:   (Loss)  Income  from  continuing  operations  applicable  to  common   shareholders   Discontinued  Operations   Net  Loss  (Income)  applicable  to  Common  Shareholders   Weighted  Average  Common  Shares  Outstanding   Basic   Diluted   *     (673)       210         (164)       962       2,250         3,844         -­‐       -­‐       -­‐     3,589         3,589         3,589       (13,097)     $     14,286       $     (1,126)     $     32,689       (0.07)     $   0.00         (0.07)     $     0.08       $     (0.01)       0.01       $     (0.02)       0.07       $     (0.01)     $   0.00       0.16       0.16       $     $     $       197,029,017           198,633,051           198,878,496           198,944,277         197,029,017           201,201,337           201,644,633           198,944,277     Effective  January  1,  2014,  we  early  adopted  ASU  Update  No.  2014-­‐08  concerning  the  classification  and  reporting  of   discontinued  operations.  As  such,  this  line  item  for  quarterly  results  presented  for  2014  will  not  be  comparable. 87                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 hersha hospitality trust and subsidiaries schedule iii – real estate and accumulated depreciation as of december 31, 2014 [in thousands] Initial  Costs   Costs  Capitalized   Subsequent  to   Acquisition   Gross  Amounts  at   which  Carrried  at   Close  of  Period   Accumulated   Depreciation   Net  Book   Value   Description    Encumbrances  Land   Buildings  &           Improvements     Land   Buildings  &       Buildings  &       Improvements  Land   Improvements   Total     Buildings  &   Improvements*   Land,   Buildings  &   Improvements   Date  of   Acquisition   Residence   Inn,   Framingham,   MA   Hampton   Inn,   New  York,  NY     Residence   Inn,   Greenbelt,   MD   Courtyard,   Brookline,   MA   Residence   Inn,   Tyson's   Corner,  VA   Hilton   Garden  Inn,     JFK  Airport,   NY   Hawthorne   Suites,   Franklin,  MA     Holiday  Inn   Exp,   Cambridge,   MA   Residence   Inn,   Norwood,   MA   Hampton   Inn,   Chelsea,  NY   Hyatt  House,   Gaithersburg,   MD   Hyatt  House,   Pleasant   Hills,  CA   Hyatt  House,   Pleasanton,   CA   Hyatt  House,   Scottsdale,   AZ   Hyatt  House,   White  Plains,   NY   Holiday  Inn   Exp  &  Suites,   Chester,  NY   1,325       12,737       -­‐     4,844     1,325       17,581     18,906       ($4,860)     14,046     03/26/04   (23,026)   5,472       23,280       -­‐     1,458     5,472       24,738     30,210       (6,703)     23,507     04/01/05   2,615       14,815       -­‐     2,250     2,615       17,065     19,680       (5,021)     14,659     07/16/04   (36,453)     -­‐     47,414       -­‐     1,554       -­‐     48,968     48,968       (12,438)     36,530     06/16/05   4,283       14,475       -­‐     1,920     4,283       16,395     20,678       (4,113)     16,565     02/02/06   (19,707)     -­‐     25,018       -­‐     2,618       -­‐     27,636     27,636       (6,770)     20,866     02/16/06   (7,520)   1,872       8,968       -­‐     505     1,872       9,473     11,345       (2,211)     9,134     04/25/06   1,956       9,793       -­‐     2,352     1,956       12,145     14,101       (3,469)     10,632     05/03/06   1,970       11,761       -­‐     1,482     1,970       13,243     15,213       (2,904)     12,309     07/27/06   (33,696)   8,905       33,500       -­‐     1,944     8,905       35,444     44,349       (8,215)     36,134     09/29/06   (13,720)   2,912       16,001       -­‐     3,812     2,912       19,813     22,725       (4,616)     18,109     12/28/06   (20,160)   6,216       17,229       -­‐     2,996     6,216       20,225     26,441       (4,200)     22,241     12/28/06   (14,490)   3,941       12,560       -­‐     3,497     3,941       16,057     19,998       (3,815)     16,183     12/28/06   (16,778)   3,060       19,968       -­‐     3,408     3,060       23,376     26,436       (5,575)     20,861     12/28/06   (33,030)   8,823       30,273       -­‐     2,700     8,823       32,973     41,796       (7,501)     34,295     12/28/06   (6,264)   1,500       6,671       -­‐     242     1,500       6,913       8,413       (1,404)     7,009     01/25/07   (1)                 Costs  capitalized  subsequent  to  acquisition  include  reductions  of  asset  value  due  to  impairment.   88                                                                                                                                                                                                                                                                                                             hersha hospitality trust and subsidiaries schedule iii – real estate and accumulated depreciation as of december 31, 2014 [in thousands]   Initial  Costs   Costs  Capitalized   Subsequent  to   Acquisition   Gross  Amounts  at   which  Carrried  at   Close  of  Period   Accumulated   Depreciation   Net  Book   Value   Description    Encumbrances   Land   Improvements     Land   Improvements   Land   Improvements   Total   Buildings  &           Buildings  &       Buildings  &       Buildings  &   Improvements*   Land,   Buildings  &   Improvements   Date  of   Acquisition   Hampton  Inn,   Seaport,  NY   Sheraton   Hotel,   JFK  Airport,   NY   Hampton  Inn,   Philadelphia,   PA   Duane  Street,   Tribeca,  NY   NU  Hotel,   Brooklyn,  NY       Hilton   Garden  Inn,   Tribeca,  NY   Hampton  Inn,     Times   Square,  NY   Holiday  Inn   Express,   Times   Square,  NY   Candlewood   Suites,   Times   Square,  NY   Hyatt  Place,   KOP,  PA   Holiday  Inn   Express,     Wall  Street,   NY   Hampton  Inn,     Washington,   DC   Courtyard,   Alexandria,   VA   Sheraton,   Wilmington   South,  DE   Holiday  Inn,   Water  Street,   NY   (17,764)     7,816       19,040       -­‐     811       7,816       19,851     27,667       (4,049)     23,618     02/01/07     -­‐     27,315       -­‐     1,430       -­‐     28,745     28,745       (4,877)     23,868     06/13/08     3,490       24,382       -­‐     5,914       3,490       30,296     33,786       (10,619)     23,167     02/15/06   (9,352)     8,213       12,869       -­‐     1,276       8,213       14,145     22,358       (2,883)     19,475     01/04/08     -­‐     22,042       -­‐     1,515       -­‐     23,557     23,557       (3,947)     19,610     01/14/08     (46,500)   21,077       42,955         -­‐     583     21,077       43,538     64,615         (6,222)     58,393     05/01/09   10,691       41,637         -­‐     316     10,691       41,953     52,644         (5,163)     47,481     02/09/10   11,075       43,113         -­‐     54     11,075       43,167     54,242         (5,288)     48,954     02/09/10   10,281       36,687         -­‐     44     10,281       36,731     47,012         (4,491)     42,521     02/09/10       1,133       7,267         -­‐     4,012       1,133       11,279     12,412         (4,436)     7,976     08/17/10   12,152       21,100         -­‐     323     12,152       21,423     33,575         (2,526)     31,049     05/09/10       9,335       58,048         -­‐     1,191       9,335       59,239     68,574         (6,651)     61,923     09/01/10     (23,403)     6,376       26,089         -­‐     2,555       6,376       28,644     35,020         (6,701)     28,319     09/29/06       1,765       16,929         -­‐     1,187       1,765       18,116     19,881         (2,902)     16,979     12/21/10       7,341       28,591         -­‐     326       7,341       28,917     36,258         (2,415)     33,843     03/25/11   (1)                 Costs  capitalized  subsequent  to  acquisition  include  reductions  of  asset  value  due  to  impairment.   89                                                                                                                                                                                                                                                         hersha hospitality trust and subsidiaries schedule iii – real estate and accumulated depreciation as of december 31, 2014 [in thousands] Initial  Costs   Costs  Capitalized   Subsequent  to   Acquisition   Gross  Amounts  at   which  Carrried  at   Close  of  Period   Accumulated   Depreciation   Net  Book   Value   Description    Encumbrances   Land   Improvements     Land   Improvements   Land   Improvements   Total   Buildings  &           Buildings  &       Buildings  &       Buildings  &   Improvements*   Land,   Buildings  &   Improvements   Date  of   Acquisition   Capitol  Hill   Suites   Washington,   DC   Courtyard,   LA   Westside,   CA   Hampton   Inn,   Pearl  Street,   NY   Courtyard,   Miami,  FL   The   Rittenhouse   Hotel,  PA   Bulfinch,   Boston,  MA     Holiday  Inn   Express,   Manhattan,   NY   Hyatt,   Union   Square,  NY   Courtyard,     San  Diego,   CA   Residence   Inn,     Coconut   Grove,  FL   Hotel  Milo,     Santa   Barbara,  CA     Hilton   Garden  Inn,     Midtown   East,  NY     (26,639)     8,095       35,141         -­‐     3,874       8,095       39,015       47,110         (4,318)     42,792    04/15/11     (30,000)   13,489       27,025         -­‐     4,531     13,489       31,556       45,045         (3,142)     41,903    05/19/11   11,384       23,432         -­‐     480     11,384       23,912       35,296         (295)     35,001    07/22/11     (60,000)   35,699       55,805         -­‐     22,163     35,699       77,968     113,667         (5,080)     108,587    11/16/11       7,108       29,556         -­‐     13,661       7,108       43,217       50,325         (4,819)     45,506    03/01/12       1,456       14,954         -­‐     1,448       1,456       16,402       17,858         (1,338)     16,520    05/07/12   30,329       57,016         -­‐     731     30,329       57,747       88,076         (3,805)     84,271    06/18/12     (55,000)   32,940       79,300         -­‐     759     32,940       80,059     112,999         (3,499)     109,500    04/09/13   15,656       51,674         -­‐     274     15,656       51,948       67,604         (2,061)     65,543    05/30/13       4,146       17,456         -­‐     5,107       4,146       22,563       26,709         (953)     25,756    06/12/13     (24,577)     -­‐     55,080         -­‐     193       -­‐     55,273       55,273         (1,156)     54,117    02/28/14     (45,000)   45,480       60,762         -­‐     21     45,480       60,783     106,263         (908)     105,355    05/27/14   (1)                 Costs  capitalized  subsequent  to  acquisition  include  reductions  of  asset  value  due  to  impairment.   90                                                                                                                                                                                                                                   hersha hospitality trust and subsidiaries schedule iii – real estate and accumulated depreciation as of december 31, 2014 [in thousands]   Initial  Costs   Costs  Capitalized   Subsequent  to   Acquisition   Gross  Amounts  at   which  Carrried  at   Close  of  Period   Accumulated   Depreciation     Net  Book   Value   Description     Encumbrances     Land   Buildings  &           Improvements    Land     Buildings  &       Improvements     Land   Buildings  &       Improvements     Total   Buildings  &   Improvements*     Land,  Buildings   &   Improvements   Date  of   Acquisition   Parrot  Key   Hotel,   Key  West,   FL   Winter   Haven   Hotel,   Miami   Beach,  FL   Blue  Moon   Hotel,   Miami   Beach,  FL   Total   Investment   in  Real   Estate   $     -­‐       57,889         33,959         -­‐       54         57,889         34,014         91,903         (555)       91,348     05/07/14     -­‐       5,400         18,147         -­‐       110         5,400         18,258         23,658         (477)       23,181     12/20/13     -­‐       4,874         20,354         -­‐       127         4,873         20,482         25,354         (498)       24,856     12/20/13     (563,079)     439,540         1,312,189         -­‐       112,653       439,540         1,424,842       1,864,382       ($189,889)       1,674,493       *   Assets  are  depreciated  over  a  7  to  40  year  life,  upon  which  the  latest  income  statement  is  computed   The  aggregate  cost  of  land,  buildings  and  improvements  for  Federal  income  tax  purposes  for  the  years  ended   December  31,  2014,  2013  and  2012  is  approximately  $1,836,861,  $1,575,555,  and  $1,278,318  respectively.   Depreciation  is  computed  for  buildings  and  improvements  using  a  useful  life  for  these  assets  of  7  to  40  years.   See  Accompanying  Report  of  Independent  Registered  Public  Accounting  Firm   2014   2013   2012   Reconciliation  of  Real  Estate   Balance  at  beginning  of  year   Additions  during  the  year   Dispositions/Deconsolidation  of  consolidated  joint  venture  during   the  year   Changes/Impairments  in  Assets  Held  for  Sale     Total  Real  Estate     $     1,629,312     $     1,520,151     $     1,481,433     167,916     333,889       275,032       (98,819)       -­‐       (127,992)     (1,206)     $     1,864,382     $     1,629,312     $     1,520,151     (156,504)       (9,367)     Reconciliation  of  Accumulated  Depreciation   Balance  at  beginning  of  year   Depreciation  for  year   Changes/Impairments  in  Assets  Held  for  Sale     Accumulated  depreciation  on  assets  sold   Balance  at  the  end  of  year     $     162,189     $     150,353     $     43,218       -­‐       (15,518)       189,889     $     39,771       51       (27,986)       162,189     $     $     139,057     35,597     -­‐     (24,301)     150,353   91                                                                                                                                                                                                                                                               annual report 2014 Item  9.   Changes  in  and  Disagreements  with  Accountants  on  Accounting  and  Financial   Disclosure   None.   Item  9A.   Controls  and  Procedures   EVALUATION  OF  DISCLOSURE  CONTROLS  AND  PROCEDURES   Under  the  supervision  and  with  the  participation  of  our  management,  including  our  Chief  Executive  Officer   and  Chief  Financial  Officer,  we  conducted  an  evaluation  of  our  disclosure  controls  and  procedures,  as  such  term  is   defined  under  Rule  13a-­‐15(e)  promulgated  under  the  Securities  Exchange  Act  of  1934,  as  amended  (the  Exchange   Act),  as  of  the  end  of  the  period  covered  by  this  report.  Based  on  that  evaluation,  the  Chief  Executive  Officer  and   Chief  Financial  Officer  concluded  that  our  disclosure  controls  and  procedures  as  of  the  end  of  the  period  covered   by  this  report  are  functioning  effectively  to  provide  reasonable  assurance  that  the  information  required  to  be   disclosed  by  us  in  reports  filed  under  the  Securities  Exchange  Act  of  1934  is  (i)  recorded,  processed,  summarized   and  reported  within  the  time  periods  specified  in  the  SEC’s  rules  and  forms  and  (ii)  accumulated  and   communicated  to  our  management,  including  the  Chief  Executive  Officer  and  Chief  Financial  Officer,  as  appropriate   to  allow  timely  decisions  regarding  disclosure.  A  control  system  cannot  provide  absolute  assurance,  however,  that   the  objectives  of  the  controls  system  are  met,  and  no  evaluation  of  controls  can  provide  absolute  assurance  that  all   control  issues  and  instances  of  fraud,  if  any,  within  a  company  have  been  detected.   MANAGEMENT’S  ANNUAL  REPORT  ON  INTERNAL  CONTROL  OVER  FINANCIAL  REPORTING   The  Company’s  management  is  responsible  for  establishing  and  maintaining  adequate  internal  control   over  financial  reporting,  as  defined  within  Exchange  Act  Rules  13a-­‐15(f)  and  15d-­‐15(f).  Internal  control  over   financial  reporting  refers  to  the  processes  designed  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,  and  includes  policies  and  procedures  that:   •   •   •   pertain   to   the   maintenance   of   records   that,   in   reasonable   detail,   accurately   and   fairly   reflect   the   transactions  and  dispositions  of  the  assets  of  the  Company;   provide  reasonable  assurance  that  transactions  are  recorded  as  necessary  to  permit  preparation  of  financial   statements  in  accordance  with  generally  accepted  accounting  principles,  and  that  receipts  and  expenditures   of  the  Company  are  being  made  only  in  accordance  with  authorizations  of  management  and  directors  of  the   Company;  and   provide  reasonable  assurance  regarding  prevention  or  timely  detection  of  unauthorized  acquisition,  use,  or   disposition  of  the  Company’s  assets  that  could  have  a  material  effect  on  the  financial  statements.   Because  of  its  inherent  limitations,  internal  control  over  financial  reporting  may  not  prevent  or  detect   misstatements.  Also,  projections  of  any  evaluation  of  effectiveness  to  future  periods  are  subject  to  the  risk  that   controls  may  become  inadequate  because  of  changes  in  conditions,  or  that  the  degree  of  compliance  with  the   policies  or  procedures  may  deteriorate.   Management  conducted  an  evaluation  of  the  effectiveness  of  the  Company’s  internal  control  over   financial  reporting  based  on  the  criteria  contained  in  Internal  Control  —  Integrated  Framework  (2013)  issued  by  the   Committee  of  Sponsoring  Organizations  (COSO)  of  the  Treadway  Commission  as  of  December  31,  2014.  Based  on   that  evaluation,  management  has  concluded  that,  as  of  December  31,  2014,  the  Company’s  internal  control  over   financial  reporting  was  effective  based  on  those  criteria.  The  effectiveness  of  our  internal  control  over  financial   reporting  as  of  December  31,  2014  has  been  audited  by  KPMG  LLP,  an  independent  registered  public  accounting   firm,  as  stated  in  their  attestation  report  which  is  included  herein.   92                                   hersha hospitality trust   Report  of  Independent  Registered  Public  Accounting  Firm   The  Board  of  Trustees  and  Shareholders  of   Hersha  Hospitality  Trust:   We  have  audited  Hersha  Hospitality  Trust  and  subsidiaries’  internal  control  over  financial  reporting  as  of  December   31,  2014,  based  on  criteria  established  in  Internal  Control  -­‐  Integrated  Framework  (2013)  issued  by  the  Committee   of  Sponsoring  Organizations  of  the  Treadway  Commission  (COSO).  Hersha  Hospitality  Trust's  management  is   responsible  for  maintaining  effective  internal  control  over  financial  reporting  and  for  its  assessment  of  the   effectiveness  of  internal  control  over  financial  reporting,  included  in  the  accompanying  Management’s  Annual   Report  on  Internal  Control  Over  Financial  Reporting.  Our  responsibility  is  to  express  an  opinion  on  the  Company’s   internal  control  over  financial  reporting  based  on  our  audit.   We  conducted  our  audit  in  accordance  with  the  standards  of  the  Public  Company  Accounting  Oversight  Board   (United  States).  Those  standards  require  that  we  plan  and  perform  the  audit  to  obtain  reasonable  assurance  about   whether  effective  internal  control  over  financial  reporting  was  maintained  in  all  material  respects.  Our  audit   included  obtaining  an  understanding  of  internal  control  over  financial  reporting,  assessing  the  risk  that  a  material   weakness  exists,  and  testing  and  evaluating  the  design  and  operating  effectiveness  of  internal  control  based  on  the   assessed  risk.  Our  audit  also  included  performing  such  other  procedures  as  we  considered  necessary  in  the   circumstances.  We  believe  that  our  audit  provides  a  reasonable  basis  for  our  opinion.   A  company's  internal  control  over  financial  reporting  is  a  process  designed  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.    A  company's  internal  control  over  financial  reporting   includes  those  policies  and  procedures  that  (1)  pertain  to  the  maintenance  of  records  that,  in  reasonable  detail,   accurately  and  fairly  reflect  the  transactions  and  dispositions  of  the  assets  of  the  company;  (2)  provide  reasonable   assurance  that  transactions  are  recorded  as  necessary  to  permit  preparation  of  financial  statements  in  accordance   with  generally  accepted  accounting  principles,  and  that  receipts  and  expenditures  of  the  company  are  being  made   only  in  accordance  with  authorizations  of  management  and  directors  of  the  company;  and  (3)  provide  reasonable   assurance  regarding  prevention  or  timely  detection  of  unauthorized  acquisition,  use,  or  disposition  of  the   company’s  assets  that  could  have  a  material  effect  on  the  financial  statements.   Because  of  its  inherent  limitations,  internal  control  over  financial  reporting  may  not  prevent  or  detect   misstatements.    Also,  projections  of  any  evaluation  of  effectiveness  to  future  periods  are  subject  to  the  risk  that   controls  may  become  inadequate  because  of  changes  in  conditions,  or  that  the  degree  of  compliance  with  the   policies  or  procedures  may  deteriorate.   In  our  opinion,  Hersha  Hospitality  Trust  maintained,  in  all  material  respects,  effective  internal  control  over  financial   reporting  as  of  December  31,  2014,  based  on  criteria  established  in  Internal  Control  -­‐  Integrated  Framework  (2013)   issued  by  the  Committee  of  Sponsoring  Organizations  of  the  Treadway  Commission  (COSO).   We  also  have  audited,  in  accordance  with  the  standards  of  the  Public  Company  Accounting  Oversight  Board   (United  States),  the  consolidated  balance  sheets  of  Hersha  Hospitality  Trust  as  of  December  31,  2014  and  2013,   and  the  related  consolidated  statements  of  operations,  comprehensive  income,  equity,  and  cash  flows  for  each  of   the  years  in  the  three-­‐year  period  ended  December  31,  2014,  and  our  report  dated  February  20,  2015  expressed   an  unqualified  opinion  on  those  consolidated  financial  statements.   /s/  KPMG  LLP   Philadelphia,  Pennsylvania   February  20,  2015   93                               annual report 2014 CHANGES  IN  INTERNAL  CONTROL  OVER  FINANCIAL  REPORTING   There  were  no  changes  in  our  internal  control  over  financial  reporting  during  the  quarter  ended  December   31,  2014,  that  have  materially  affected,  or  are  reasonably  likely  to  materially  affect,  our  internal  control  over   financial  reporting.     94   2014 financial highlights (In thousands, except per share data) consolidated hotel operating results 2014 2013 2012 2011 2010 Year Ended December 31, hotel operating revenues average daily rate occupancy revenue per available room $ $ $ 417,226 338,064 299,005 229,156 184,998 187.82 82.6% 155.19 179.70 79.7% 143.30 175.23 78.6% 137.78 166.58 76.6% 127.64 157.11 76.7% 120.52 (In thousands, except per share data) hersha hospitality trust operating data: (Excluding Impairment Charges) (1) 2014 2013 Year Ended December 31, 2012 2011 2010 $ Total Revenues (Including Discontinued Operations) Net Income applicable to Common Shareholders Adjusted EBITDA(2) (4) Adjusted Funds from Operations (3) (4) 419,346 54,638 162,506 102,832 396,458 44,467 145,064 86,487 364,690 8,376 143,291 76,046 329,868 ) (5,133 132,969 68,710 283,597 ) (18,871 108,329 52,067 per share data: (Excluding Impairment Charges) (1) $ Basic/Diluted Earnings Per Common Share AFFO Distributions to Common Shareholders 0.27 0.49 0.26 0.22 0.41 0.24 0.04 0.38 0.24 ) (0.03 0.38 0.23 ) (0.14 0.36 0.20 balance sheet data: (as of December 31st) Total Assets Total Debt Noncontrolling Interest in Partnership Total Shareholder’s Equity $ 1,855,539 918,923 28,007 829,382 1,748,097 819,336 29,181 837,958 1,707,679 792,708 31,281 829,828 1,630,909 820,132 32,124 730,671 1,457,277 694,720 39,778 683,434 (1) Operating and Per Share Data exclude charges recorded during 2010-2014 relating to impairment losses on investment in unconsolidated joint ventures and assets held for sale. (2) Adjusted Earnings Before Interest, Taxes, and Depreciation and Amortization (EBITDA) is a non-GAAP financial measure within the meaning of the Securities and Exchange Commission rules. Our interpretation of Adjusted EBITDA is that EBITDA derived from our investment in unconsolidated joint ventures should be added back to net income (loss) as part of reconciling net income (loss) to Adjusted EBITDA. Our Adjusted EBITDA computation may not be comparable to EBITDA or Adjusted EBITDA reported by other companies that interpret the definition of EBITDA differently than we do. Management believes Adjusted EBITDA to be a meaningful measure of a REIT's performance because it is widely followed by industry analysts, lenders and investors and that it should be considered along with, but not as an alternative to, net income, cash flow, FFO and AFFO as a measure of the company's operating performance. (3) Funds from Operations (FFO) as defined by NAREIT represents net income (loss) (computed in accordance with generally accepted accounting principles), excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated assets, plus certain non-cash items, such as loss from impairment of assets and 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 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 acquisition and terminated transaction expenses, adding back preferred share extinguishment costs, adding back prior period tax assessment expenses, adding back FFO attributed to our partners in 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. (4) In these financial highlights and in the Letter to Shareholders from our Chief Executive Officer and our President and Chief Operating Officer that follows, we present non-GAAP financial measures, including EBITDA, Adjusted EBITDA, hotel EBITDA, FFO and AFFO. We have provided reconciliations of these non-GAAP financial measures to the applicable GAAP measures in the appendix section that follows the letter to our shareholders, in portions of our Annual Report on Form 10-K for the year ended December 31, 2014, which accompanies this Letter or can be viewed at www.hersha.com, under “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Because hotel EBITDA is specific to individual hotels or groups of hotels and not to our Company as a whole, it is not directly comparable to any GAAP measure and should not be relied on as a measure of performance for our portfolio of hotels taken as a whole. HERSHA hersha hospitality trust corporate headquarters 44 Hersha Drive Harrisburg, PA 17102 Telephone: (717) 236-4400 Fax: (717) 774-7383 executive offices One Washington Square 510 Walnut Street, 9th Floor Philadelphia, PA 19106 Telephone: (215) 238-1046 Fax: (215) 238-0157 corporate/securities counsel Hunton & Williams LLP independent auditors KPMG LLP registrar & stock transfer agent American Stock Transfer & Trust Company common stock information The Common Stock of Hersha Hospitality Trust is traded on The New York Stock Exchange under the Symbol “HT”. management certifications The Company’s Chief Executive Officer and Chief Financial Officer provided certifications to the Securities and Exchange Commission as required by Section 302 of the Sarbanes-Oxley Act of 2002 and these certifications are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. In addition, as required by Section 303A.12(a) of The New York Stock Exchange (NYSE) Listed Company Manual, on June 22, 2014, the Company’s Chief Executive Officer submitted to the NYSE the annual CEO certification regarding the Company’s compliance with the NYSE’s corporate governance listing standards. annual report on form 10-k Shareholders may obtain a copy of the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission free of charge (except for exhibits), by writing to the Company’s Chief Financial Officer, Hersha Hospitality Trust, 44 Hersha Drive, Harrisburg, PA; or, visit the Company’s website at www.hersha.com and refer to the Company’s SEC Filings. annual meeting The annual meeting of shareholders of Hersha Hospitality Trust will be held at 9:00 A.M. (EDT) on Thursday, May 21, 2015 at One Washington Square, 510 Walnut Street, 9th Floor, Philadelphia, PA 19106. board of trustees Hasu P. Shah Chairman, Hersha Hospitality Trust Jay H. Shah Chief Executive Officer, Hersha Hospitality Trust Donald J. Landry Lead Director, Hersha Hospitality Trust Former President & CEO, Sunburst Hospitality Inc. Michael A. Leven Former President and Chief Operating Officer, Las Vegas Sands Corp. Thomas J. Hutchison III Former CEO, CNL Hotels & Resorts and CNL Retirement Properties, Inc. Dianna F. Morgan Former Senior Vice President, Walt Disney World Co. John M. Sabin Executive Vice President and CFO, Revolution LLC. and Case Foundation management team Jay H. Shah Chief Executive Officer Neil H. Shah President and Chief Operating Officer Ashish R. Parikh Chief Financial Officer Michael R. Gillespie Chief Accounting Officer David L. Desfor Treasurer and Corporate Secretary William J. Walsh Senior Vice President of Asset Management Robert C. Hazard III Senior Vice President of Acquisitions and Development Bennett Thomas Vice President of Finance and Sustainability HERSHA hersha hospitality trust 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 1 4 2014 (cid:13) (cid:13) www.hersha.com (cid:13) 

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