156235_Concept Three 4/3/19 12:39 AM Page 1 2 0 1 8 HERSHA h o t e l s a n d r e s o r t s The Cadillac Hotel & Beach Club, Miami Beach 156235_Concept Three 4/3/19 12:39 AM Page 2 s t r o s e r d n a s l e t o h A H S R E H 156235_r1_Concept Three 4/8/19 3:58 AM Page 3 The Envoy, Boston Seaport Fellow Shareholders, We begin this letter with a great sense of pride in our accomplishments and the promise of an extraordinary year ahead. Reflecting on last year, and the several years leading up to it, the formulaic transformation that we have completed and the dramatic impact the change will have on the Company is clear and underway -- a multi-year capital recycling program, significant investments to elevate several of our legacy assets and the relaunch of our two largest South Florida oceanfront hotels that sustained catastrophic damage from Hurricane Irma and had been closed since the fall of 2017. With the disruptive and unpredictable part of our strategic plan behind us, we are keenly focused on driving performance, our demonstrated strong suit, and taking advantage of our company specific growth catalysts. The successful execution of our strategic plan positions us to leverage our best in class portfolio of newly renovated high-growth hotels located in the most valuable urban and destination markets in the United States. Investing in Repositioning Last year, we generously invested capital to tailor many of our hotels to address and inform the preferences and expectations of the modern global and domestic traveler. We completed renovations in each of our core markets across our 3, 4 and 5-star hotels to ensure that our portfolio of hotels drive the market share and loyalty of the travelling consumer for all of their travel occasions. Holistic transformations include our luxury hotels in Miami and Philadelphia, our resort destinations in Monterey and Key West, as well as our upscale business hotels in New York. We completed the majority of these projects by the fall of 2018, allowing us to drive meaningful RevPAR and EBITDA growth in the fourth quarter of last year. The combination of the disruptive The Ritz-Carlton, Coconut Grove 156235_Concept Three 4/3/19 12:39 AM Page 4 s t r o s e r d n a s l e t o h A H S R E H 156235_r1_Concept Three 4/8/19 4:00 AM Page 5 The Parrot Key Hotel & Villas, Key West construction at the hotels tailing off and the impact of our wellreceived enhancements, enabled our generating one of thehighest returns in the hotel sector during the quarter -- a verypositive milestone and strong support for the increasedprofitability that we project for our portfolio over the nextfew years. Performance of New AcquisitionsIn 2018 we started to reap significant benefit from the newlyacquired hotels in our portfolio from the capital recyclingcampaign. These 8 new hotels, that will account for 24% of ourearnings in 2019, outperformed the stabilized hotels in ourportfolio by 750 basis points in 2018 and we expect them tocontinue to grow ahead of our stabilized hotels and the marketas they ramp up. In addition to honing our portfolio’s exposureto urban gateway markets and coastal destinations, these newhotels in Boston, Philadelphia, Miami and the West Coastproduced 7.6% RevPAR growth and 12.0% EBITDA growthin 2018. The St. Gregory, Dupont Circle 156235_r1_Concept Three 4/8/19 4:06 AM Page 6 s t r o s e r d n a s l e t o h A H S R E H Reopening Miami Beach and Key West After a full year of construction, we successfully reopened our two South Florida hotels: The Cadillac Hotel & Beach Club on Miami Beach and The Parrot Key Hotel & Villas in Key West. These hotels are amongst the highest EBITDA producing hotels in our portfolio and will generate significant EBITDA growth for the Company in 2019 now that both are upgraded and operational. We are thrilled to have both assets back online and look forward to their substantial earnings contribution, which we have not had the benefit of since September of 2017. At the 357-room Cadillac Hotel and Beach Club, our $47.3 million transformation following Hurricane Irma from a Courtyard by Marriott to an independent, lifestyle Autograph Collection resort included comprehensive renovations of all guest rooms, restaurants and bars, meeting spaces, the lobby, both pools and all landscaping. The Cadillac will continue to deliver above market growth across the next several years, and early returns are compelling. The Miami market rebounded in 2018 and the near-term outlook is especially strong with less new supply and the Super Bowl coming in 2020. Additionally, the expansion of the Miami Beach Convention Center is now complete and is expected to drive meaningful room night growth over the next several years as major conventions return to this sought-after venue. 156235_Concept Three 4/3/19 12:39 AM Page 7 The Pan Pacific Hotel, Seattle The 148-room Parrot Key Hotel & Villas reopened for the December holiday season following its $25 million holistic renovation including all guest rooms & villas, the restaurant and bar, lobby, all four pools and our award-winning landscaping. Similar to the Cadillac, pent-up demand to Key West returned towards the end of 2018 and early results indicate continued outperformance into 2019. New York City Recovery Last year we saw performance improve in the New York City market. Visitation to New York grew by 3.8% to a record 65.2 million travelers in 2018 -- 13.5 million of which originated outside of the U.S. with notable increases from the Euro Zone and China. We captured this increased demand as our Manhattan portfolio generated robust returns in 2018, growing RevPAR by 4.7% and outperforming the market by 250 basis points. We are confident that our portfolio positioning in the market will allow us to take advantage of the early days of the recovery and deliver market leading performance there. The Envoy, Boston Seaport 156235_Concept Three 4/3/19 12:40 AM Page 8 s t r o s e r d n a s l e t o h A H S R E H 156235_r2_Concept Three 4/10/19 6:40 AM Page 9 Innovation Districts When we wrote last year, we highlighted our hotels located in the country’s deepest and most rapidly expanding technology and life sciences innovation districts including Silicon Valley, Silicon Beach in Los Angeles and South Lake Union in Seattle. This past year we saw continued strength in these markets and also witnessed growth in our life sciences and tech-sector submarkets up and down the East Coast. Boston is one of the leading innovation markets in the country with its world class universities, top-rated hospitals and research & development centers concentrated in Cambridge and the Seaport. New York City has seen the growth of Silicon Alley, a series of high-rise developments that house such firms as IBM Watson, Facebook, and Twitter, all proximate to our Hyatt Union Square. Our home town of Philadelphia boasts one of the nation’s top life sciences hubs and has seen significant capital investments in start-ups following the recent expansion of Comcast. Lastly, Miami is one of the country’s fastest growing start-up markets supported by its outpost of the Cambridge Innovation Center, home to over 250 tech and biomedical startups. The technology and life sciences sectors give us encouraging signs of growth as the many scaled, institutional companies continue to take advantage of long runways as they commercialize innovation and grow to serve an expanding global market. Financial Flexibility Our balance sheet management strategies provide us with significant optionality and allow us to remain opportunistic during volatile periods. With the stabilization of operations of our new hotels and reopening of our South Florida assets, our dividend payout ratio remains the lowest amongst our peer group. The Company’s financial position is also very strong with ample capacity on our undrawn credit line and approximately 90% of our debt fixed with hedging instruments to avoid shocks from interest rate hikes. In 2018 we also lowered the weighted average cost of borrowing in our joint venture with Cindat Capital Management. We refinanced the debt on seven assets in Manhattan and recovered our initial $43.2 million in preferred interest investment. We entered into a capital structure that provides the joint venture significantly more financial flexibility. We initially sold this portfolio for $571 million in April 2016, generating a 16.8% unlevered IRR on our investment. In total we recouped approximately $485 million from the sale and subsequent recapitalization and still retain a 30% interest in our seven-asset joint venture. Hersha’s management team, board of trustees and the founding partners are also significant owners of the stock, representing 10% of the shares outstanding. Our level of ownership showcases the strongest shareholder alignment in the sector. There have been a lot of moving parts in our portfolio over the last few years as we invested for the coming years and we thank you for your dedication to the Company and patience through these disruptive times. We look forward to harvesting the financial returns from the strategic and disciplined execution of our formulaic business plan together. We thank you for your confidence and ongoing support. jay h. shah chief executive officer neil h. shah president and chief operating officer The Cadillac Hotel & Beach Club, Miami Beach 156235_Concept Three 4/3/19 12:40 AM Page 10 s t r o s e r d n a s l e t o h A H S R E H Financial Highlights (In thousands, except per share data) consolidated hotel operating results hotel operating revenues average daily rate occupancy revenue per available room (In thousands, except per share data) hersha hospitality trust operating data: (Excluding Impairment Charges) Total Revenues (Including Discontinued Operations) Net Income applicable to Common Shareholders Gain on Disposition of Hotel Properties Adjusted EBITDA Adjusted Funds from Operations per share data: (Excluding Impairment Charges) Diluted Earnings Per Common Share Adjusted Funds from Operations Distributions to Common Shareholders balance sheet data: (as of December 31st) Total Assets Total Debt Total Liabilities and Equity $ $ $ $ $ $ Year Ended December 31, 2018 2017 2016 2015 2014 493,678 497,140 466,370 470,272 417,226 226.87 81.3% 184.34 215.58 83.4% 179.84 202.59 82.5% 167.13 197.29 84.1% 165.83 187.82 82.6% 155.19 Year Ended December 31, 2018 2017 2016 2015 2014 495,063 ) (14,184 4,148 173,695 95,352 ) (0.38 2.20 1.12 498,237 79,524 90,350 167,364 97,499 1.88 2.17 1.12 466,629 95,579 115,839 171,564 104,915 2.18 2.29 1.32 470,385 27,440 - 177,288 114,952 0.56 2.29 1.12 419,346 54,638 7,195 162,506 100,147 1.08 1.92 1.04 2,138,630 1,093,031 2,138,630 2,138,336 1,093,013 2,138,336 2,155,536 1,103,327 2,155,536 1,962,649 1,169,964 1,962,649 1,855,539 918,923 1,855,539 156235_Concept Three 4/3/19 12:40 AM Page 11 The Ambrose Hotel, Santa Monica hersha portfolio by market segment 1 Luxury & Lifestyle 54% Upscale 32% Upper Midscale 14% hersha portfolio by location 1 New York City 24% West Coast 21% South Florida 13% Philadelphia 13% Washington, DC 13% Boston 11% Other 5% (1) Reflects estimated 2019 Proforma Consolidated Portfolio EBITDA. (2) Total return as of March 29th, 2019, inclusive of dividends. TEN YEAR TOTAL RETURN 264% A N N U A L I Z E D RETURN 18% hersha total returns 2 hersha portfolio by hotel brand 1 Marriott 30% Hilton 20% Hyatt 6% IHG 6% Independent and Collections 38% The Sanctuary Beach Resort, Monterey Bay 156235_Concept Three 4/3/19 12:40 AM Page 12 s t r o s e r d n a s l e t o h A H S R E H 156235_r1_Concept Three 4/8/19 4:10 AM Page 13 ® We created Hersha’s award-winning sustainability program, EarthView®, in 2010, with the mission of improving the well-being of our guests, our associates, our communities, our business and our planet. Our innovative approach aligns with our core values and has established us as leaders in global efforts to drive environmental and social impact, while delivering positive financial results to Hersha. EarthView is implemented across our portfolio of high-quality hotels, which includes both leading global brands and independent hotels, in urban gateway markets and coastal resort destinations. Through our proactive approach, we invest in capital projects and operational efficiencies to drive incremental value to our portfolio and deliver measurable and timely returns. These efficiencies ultimately improve our operating margins and increase the valuations of our hotels. Our efficiency projects are coupled with our focus on social impact – ranging from engagement in our local and global communities, to addressing social issues including human rights, diversity, and workplace safety. By leveraging our scale in these areas, we are able to compound our impact and spur positive results across all three pillars of the triple-bottom-line. EarthView has repeatedly won the prestigious “Leader in the Light” award as the leading Lodging & Resort company for superior environmental, social and governance (ESG) initiatives from the National Association of Real Estate Investment Trusts (NAREIT). As leaders and innovators, we will continue our quest to identify opportunities that better our communities, facilitate our strategic use of resources, and provide solutions to our stakeholders. We are encouraged by the growing awareness of sustainability amongst our peers and the lodging community at large, and embrace partnerships that can help us further achieve triple-bottom-line success. As we continue our pursuit of sustainable hospitality, we look forward to sharing our progress in making our world a more inclusive, stronger, and resilient place. For more information, please visit Hersha.com/EarthView to view our 2018 Sustainability Report. 156235_r1_Concept Three 4/8/19 4:14 AM Page 14 s t r o s e r d n a s l e t o h A H S R E H new york city The Rittenhouse, Philadelphia Property Portfolio washington, d.c. The Ritz-Carlton, Georgetown The St. Gregory, Dupont Circle The Capitol Hill Hotel Hilton Garden Inn, M Street Hampton Inn Washington, D.C. Annapolis Waterfront Hotel miami & key west The Cadillac Hotel & Beach Club, Miami Beach The Winter Haven Hotel, Miami Beach The Blue Moon Hotel, Miami Beach The Ritz-Carlton, Coconut Grove Residence Inn, Coconut Grove The Parrot Key Hotel & Villas, Key West west coast The Pan Pacific Hotel, Seattle Courtyard by Marriott, Sunnyvale TownePlace Suites, Sunnyvale The Sanctuary Beach Resort, Monterey Bay The Hotel Milo, Santa Barbara The Ambrose Hotel, Santa Monica Courtyard by Marriott, Los Angeles Westside Courtyard by Marriott, Downtown San Diego Hyatt Union Square Duane Street Hotel, Tribeca NU Hotel, Brooklyn Hilton Garden Inn, Tribeca Hilton Garden Inn, Manhattan Midtown East Holiday Inn Express, Chelsea Hampton Inn, Seaport The Gate Hotel, JFK International Airport Hilton Garden Inn, JFK International Airport 1 Holiday Inn Express, Times Square South 1 Candlewood Suites, Times Square South 1 Hampton Inn, Times Square South Hampton Inn, Chelsea Hampton Inn, Madison Square Garden Holiday Inn, Wall Street Holiday Inn Express, Wall Street Hyatt House, White Plains 1 1 1 1 boston The Envoy, Boston Seaport The Boxer, Boston Courtyard by Marriott, Brookline Holiday Inn Express, Cambridge 1 Courtyard by Marriott, South Boston 1 Holiday Inn Express, South Boston Mystic Marriott Hotel & Spa, Mystic, CT philadelphia The Rittenhouse The Philadelphia Westin Hampton Inn, Center City/Convention Center Sheraton Wilmington South (1) Unconsolidated Joint-Venture 156235_Concept Three 4/3/19 12:40 AM Page 15 Duane Street Hotel, Tribeca 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. Jackson Hsieh President & Chief Executive Officer, Spirit Realty Capital, Inc. Thomas J. Hutchison III Former CEO, CNL Hotels & Resorts and CNL Retirement Properties, Inc. Michael A. Leven Former President & Chief Operating Officer, Las Vegas Sands Corp. Dianna F. Morgan Former Senior Vice President, Walt Disney World Co. John M. Sabin Executive Vice President & CFO, Revolution LLC. and Case Foundation management team Jay H. Shah Chief Executive Officer Neil H. Shah President & Chief Operating Officer Ashish R. Parikh Chief Financial Officer Michael R. Gillespie Chief Accounting Officer David L. Desfor Treasurer & Corporate Secretary Robert C. Hazard III Senior Vice President of Acquisitions & Development Bennett Thomas Senior Vice President of Finance & Sustainability William J. Walsh Senior Vice President of Asset Management 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 Andrews Kurth LLP independent registered public accounting firm KPMG LLP registrant address 44 Hersha Drive Harrisburg, PA 17102 Telephone: (717) 236-4400 Fax: (717) 774-7383 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, 2018. 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 Investor Relations Manager, Hersha Hospitality Trust, 510 Walnut Street, 9th Floor, Philadelphia, PA 19106; 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) at The St. Gregory Hotel in Washington, D.C., on Thursday, May 30th, 2019. 156235_Concept Three 4/3/19 12:40 AM Page 16 www.hersha.com