UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒

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

For the quarterly period ended ~~June~~September 30, 2023

☐

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

For the transition period from ____ to ____

COMMISSION FILE NUMBER: 001-14765

HERSHA HOSPITALITY TRUST

(Exact Name of Registrant as Specified in Its Charter)


Maryland						25-1811499
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

44 Hersha Drive

Harrisburg

17102

(Address of Principal Executive Offices)

(Zip Code)

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

Former name, former address and former fiscal year, if changed since last report: Not applicable

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Shares of Beneficial Interest, par value $.01 per share	HT	New York Stock Exchange
6.875% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, par $.01 per share	HT-PC	New York Stock Exchange
6.500% Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, par $.01 per share	HT-PD	New York Stock Exchange
6.500% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest, par $.01 per share	HT-PE	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒Yes ☐No

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


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Yes ☐No

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

Yes ☒No

As of ~~August~~November 29, 2023, the number of Class A common shares of beneficial interest outstanding was 40,~~104~~296,~~916~~166 and there were no Class B common shares of beneficial interest outstanding.

Hersha Hospitality Trust

Table of Contents

PART I. FINANCIAL INFORMATION		Page
Item 1.	Financial Statements.
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Comprehensive Income (Loss)	7
	Consolidated Statements of Equity	8
	Consolidated Statements of Cash Flows	12
	Notes to the Consolidated Financial Statements	1314
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3539
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4654
Item 4.	Controls and Procedures	4755
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	4856
Item 1A.	Risk Factors	4856
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4858
Item 3.	Defaults Upon Senior Securities	4858
Item 4.	Mine Safety Disclosures	4858
Item 5.	Other Information	4858
Item 6.	Exhibits	4959
	Signatures	5060

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF ~~JUNE~~SEPTEMBER 30, 2023 (UNAUDITED) AND DECEMBER 31, 2022

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

	June 30, 2023		December 31, 2022
	September 30, 2023		December 31, 2022
Assets:
Investment in Hotel Properties, Net of Accumulated Depreciation	$	1,~~182~~176,~~764~~444	$	1,189,239
Investment in Unconsolidated Joint Ventures	4,~~562~~068		4,989
Cash and Cash Equivalents	~~142~~146,~~391~~145		224,955
Escrow Deposits	4,~~797~~948		5,065
Hotel Accounts Receivable	6,~~201~~111		8,922
Due from Related Parties	82232		245
Intangible Assets, Net of Accumulated Amortization of $1,270 and $1,211	624		684
Intangible Assets, Net of Accumulated Amortization of $1,300 and $1,211	598		684
Right of Use Assets	16,~~774~~612		16,226
Other Assets	3533,~~584~~300		38,552
Total Assets	$	1,~~393~~388,~~779~~458	$	1,488,877
Liabilities and Equity:
Term Loans, Net of Unamortized Deferred Financing Costs (Note 5)	$	346,336	$	370,636
Term Loans, Net of Unamortized Deferred Financing Costs (Note 6)	$	346,686	$	370,636
Unsecured Notes Payable, Net of Unamortized Deferred Financing Costs (Note 5)	50,921		50,895
Unsecured Notes Payable, Net of Unamortized Deferred Financing Costs (Note 6)	50,935		50,895
Mortgages Payable, Net of Unamortized Premium and Unamortized Deferred Financing Costs	184,~~941~~730		208,354
Lease Liabilities	19,~~518~~338		19,003
Accounts Payable, Accrued Expenses and Other Liabilities	3539,~~855~~589		44,148
Dividends and Distributions Payable	8,451		31,694
Due to Related Parties	21,~~534~~369		2,610
Total Liabilities	$	~~648~~651,~~556~~098	$	727,340
Redeemable Noncontrolling Interests - Consolidated Joint Venture (Note 1)	$	4,660	$	5,076
Redeemable Noncontrolling Interests - Consolidated Joint Venture (Note 2)	$	4,660	$	5,076
Equity:
Shareholders' Equity:
Preferred Shares: $.01 Par Value, 29,000,000 Shares Authorized, 3,000,000 Series C, 7,701,700 Series D and 4,001,514 Series E Shares Issued and Outstanding at June 30, 2023 and December 31, 2022, with Liquidation Preferences of $25.00 Per Share (Note 1)	$	147	$	147
Preferred Shares: $.01 Par Value, 29,000,000 Shares Authorized, 3,000,000 Series C, 7,701,700 Series D and 4,001,514 Series E Shares Issued and Outstanding at September 30, 2023 and December 31, 2022, with Liquidation Preferences of $25.00 Per Share (Note 2)	$	147	$	147
Common Shares: Class A, $.01 Par Value, 104,000,000 Shares Authorized at June 30, 2023 and December 31, 2022; 40,103,391 and 39,697,451 Shares Issued and Outstanding at June 30, 2023 and December 31, 2022, respectively	401		398
Common Shares: Class A, $.01 Par Value, 104,000,000 Shares Authorized at September 30, 2023 and December 31, 2022; 40,104,916 and 39,697,451 Shares Issued and Outstanding at September 30, 2023 and December 31, 2022, respectively	401		398
Common Shares: Class B, $.01 Par Value, 1,000,000 Shares Authorized, None Issued and Outstanding at June 30, 2023 and December 31, 2022	—		—
Common Shares: Class B, $.01 Par Value, 1,000,000 Shares Authorized, None Issued and Outstanding at September 30, 2023 and December 31, 2022	—		—
Accumulated Other Comprehensive Income	1310,~~330~~968		16,213
Additional Paid-in Capital	1,161,~~282~~761		1,157,057
Distributions in Excess of Net Income	(~~508~~514,~~449~~917)		(490,815)
Total Shareholders' Equity	~~666~~658,~~711~~360		683,000
Noncontrolling Interests (Note 1)	73,852		73,461
Noncontrolling Interests (Note 2)	74,340		73,461
Total Equity	~~740~~732,~~563~~700		756,461
Total Liabilities and Equity	$	1,~~393~~388,~~779~~458	$	1,488,877

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

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

	Three Months Ended June 30,				Six months ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue:
Hotel Operating Revenues:
Room	$	7470,~~646~~159	$	9881,~~242~~473	$	~~132~~202,~~162~~321	$	~~163~~244,~~374~~847
Food & Beverage	1514,~~382~~153		1514,~~710~~405		2640,~~309~~462		2439,~~766~~171
Other Operating Revenues	7,~~702~~579		98,~~247~~263		1421,~~350~~929		1625,~~886~~149
Other Revenues	8493		91107		~~143~~236		~~132~~239
Total Revenues	9791,~~814~~984		~~123~~104,~~290~~248		~~172~~264,~~964~~948		~~205~~309,~~158~~406
Operating Expenses:
Hotel Operating Expenses:
Room	15,~~538~~487		1917,~~447~~892		3045,~~007~~494		3451,~~037~~929
Food & Beverage	1211,~~258~~187		11,~~607~~342		2334,~~152~~339		2031,~~011~~353
Other Operating Expenses	3029,~~123~~748		3633,~~039~~425		5787,~~474~~222		6295,~~395~~820
Insurance Recoveries in Excess of Property Losses	—		~~(987)~~—		—		(962)
Hotel Ground Rent	~~611~~586		1,~~531~~185		~~929~~1,515		23,~~621~~806
Real Estate and Personal Property Taxes and Property Insurance	6,~~259~~767		87,~~335~~561		1219,~~440~~207		1624,~~818~~379
General and Administrative (including Share Based Payments of $2,697 and $3,299 and $4,749 and $5,840 for the three and six months ended June 30, 2023 and 2022, respectively)	5,770		6,491		10,702		11,809
General and Administrative (including Share Based Payments of $2,339 and $2,768 and $7,088 and $8,608 for the three and nine months ended September 30, 2023 and 2022, respectively)	6,049		5,883		16,751		17,692
Depreciation and Amortization	14,006		17,003		27,675		36,279
Loss on Impairment of Assets	—		10,024		—		10,024
Total Operating Expenses	84,565		99,466		162,379		183,008
Depreciation and Amortization	13,794		14,900		41,469		51,179
Operating Income	13,249		23,824		10,585		22,150
Total Operating Expenses	83,618		102,212		245,997		285,220
Interest Income	1,695		1		3,434		2
Operating Income	8,365		2,036		18,950		24,186
Interest Expense	(8,865)		(14,397)		(17,954)		(28,267)
Interest Income	1,516		101		4,950		103
Other Income (Expense)	73		(108)		986		(207)
Interest Expense	(9,000)		(11,333)		(26,954)		(39,600)
Loss on Debt Extinguishment	(52)		—		(66)		—
Other Income	341		467		1,327		260
Income (Loss) Before Results from Unconsolidated Joint Venture Investments and Income Taxes	6,100		9,320		(3,015)		(6,322)
Gain on Disposition of Hotel Properties	—		167,800		—		167,800
(Loss) Income from Unconsolidated Joint Ventures	(74)		357		(426)		(579)
Loss on Debt Extinguishment	—		(17,958)		(66)		(17,958)
Income (Loss) Before Income Taxes	6,026		9,677		(3,441)		(6,901)
Income (Loss) Before Results from Unconsolidated Joint Venture Investments and Income Taxes	1,222		141,113		(1,793)		134,791
Income Tax Expense	(65)		(93)		(99)		(114)
Income (Loss) from Unconsolidated Joint Ventures	5		478		(421)		(101)
Net Income (Loss)	5,961		9,584		(3,540)		(7,015)
Income (Loss) Before Income Taxes	1,227		141,591		(2,214)		134,690
(Income) Loss Allocated to Noncontrolling Interests - Common Units	(3)		(423)		1,993		2,258
Income Tax Expense	(275)		(5,402)		(374)		(5,516)
Loss (Income) Allocated to Noncontrolling Interests - Consolidated Joint Venture	1,806		(691)		416		(2,964)
Net Income (Loss)	952		136,189		(2,588)		129,174
Preferred Distributions	(6,043)		(6,043)		(12,087)		(12,087)
Loss (Income) Allocated to Noncontrolling Interests - Common Units	629		(15,283)		2,622		(13,025)
Net Income (Loss) Applicable to Common Shareholders	$	1,721	$	2,427	$	(13,218)	$	(19,808)
Loss (Income) Allocated to Noncontrolling Interests - Consolidated Joint Venture	—		615		416		(2,349)
Preferred Distributions	(6,043)		(6,044)		(18,130)		(18,131)
Net (Loss) Income Applicable to Common Shareholders	$	(4,462)	$	115,477	$	(17,680)	$	95,669

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

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

	Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
(Loss) Earnings Per Share:
BASIC
Income (Loss) from Continuing Operations Applicable to Common Shareholders	$	0.04	$	0.06	$	(0.34)	$	(0.50)
(Loss) Income from Continuing Operations Applicable to Common Shareholders	$	(0.11)	$	2.92	$	(0.45)	$	2.43
DILUTED
Income (Loss) from Continuing Operations Applicable to Common Shareholders	$	0.04	$	0.06	$	(0.34)	$	(0.50)
(Loss) Income from Continuing Operations Applicable to Common Shareholders	$	(0.11)	$	2.82	$	(0.45)	$	2.35
Weighted Average Common Shares Outstanding:
Basic	3940,~~849~~012,~~859~~965		39,~~277~~465,~~269~~645		39,~~738~~831,~~662~~101		39,~~254~~325,~~536~~679
Diluted*	4140,~~287~~012,~~468~~965		40,~~453~~962,~~785~~773		39,~~738~~831,~~662~~101		3940,~~254~~670,~~536~~106

*~~Income~~ (Loss) Income allocated to noncontrolling interest in Hersha Hospitality Limited Partnership (the “Operating Partnership” or “HHLP”) has been excluded from the numerator and the Class A common shares issuable upon any redemption of the Operating Partnership’s common units of limited partnership interest (“Common Units”) and the Operating Partnership’s vested LTIP units (“Vested LTIP Units”) have been omitted from the denominator for the purpose of computing diluted earnings per share because 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) income 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:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Common Units and Vested LTIP Units

5,~~773~~685,~~844~~932

5,~~262~~153,~~313~~282

5,~~806~~766,~~837~~093

5,~~264~~227,~~772~~200

Unvested Stock Awards and LTIP Units Outstanding

—1,773,472

—

~~648~~1,~~667~~268,817

~~791,544~~—

Contingently Issuable Share Awards

—380,566

—

~~927~~632,~~301~~437

~~318,893~~—

Total Potentially Dilutive Securities Excluded from the Denominator

57,~~773~~839,~~844~~970

5,~~262~~153,~~313~~282

7,~~382~~667,~~805~~347

65,~~375~~227,~~209~~200

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

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS)

	Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net Income (Loss)	$	~~5,961~~952	$	9136,~~584~~189	$	(32,~~540~~588)	$	(7129,~~015)~~174
Other Comprehensive Income
Change in Fair Value of Derivative Instruments	~~623~~(2,747)		5,~~353~~935		(36,~~356~~103)		2026,~~842~~777
Reclassification Adjustment for Change in Fair Value of Derivative Instruments Included in Net Income (Loss)	4546		(~~372~~136)		5298		(~~739~~875)
Total Other Comprehensive Income (Loss)	$	668	$	4,981	$	(3,304)	$	20,103
Total Other Comprehensive (Loss) Income	$	(2,701)	$	5,799	$	(6,005)	$	25,902
Comprehensive Income (Loss)	6,629		14,565		(6,844)		13,088
Comprehensive (Loss) Income	(1,749)		141,988		(8,593)		155,076
Less: Comprehensive (Income) Loss Attributable to Noncontrolling Interests - Common Units	(92)		(1,011)		2,414		(121)
Less: Comprehensive Loss (Income) Attributable to Noncontrolling Interests - Common Units	968		(15,943)		3,382		(16,064)
Less: Comprehensive Loss (Income) Attributable to Noncontrolling Interests - Consolidated Joint Venture	~~1,806~~—		~~(691)~~615		416		(2,~~964~~349)
Less: Preferred Distributions	(6,043)		(6,~~043~~044)		(1218,~~087~~130)		(1218,~~087~~131)
Comprehensive Income (Loss) Attributable to Common Shareholders	$	2,300	$	6,820	$	(16,101)	$	(2,084)
Comprehensive (Loss) Income Attributable to Common Shareholders	$	(6,824)	$	120,616	$	(22,925)	$	118,532

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

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE ~~SIX~~THREE AND NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARES)

	Redeemable Noncontrolling Interests	Shareholders' Equity									Noncontrolling Interests
	Consolidated Joint Venture ($)	Common Shares	Class A Common Shares ($)	Class B Common Shares ($)	Preferred Shares	Preferred Shares ($)	Additional Paid-In Capital ($)	Accumulated Other Comprehensive Income ($)	Distributions in Excess of Net Income ($)	Total Shareholders' Equity ($)	Common Units and LTIP Units	Common Units and LTIP Units ($)	Total Equity ($)
Balance at March 31, 2023	6,466	39,874,899	399	—	14,703,214	147	1,157,015	12,751	(506,358)	663,954	8,044,927	74,023	737,977
Balance at June 30, 2023	4,660	40,103,391	401	—	14,703,214	147	1,161,282	13,330	(508,449)	666,711	8,037,472	73,852	740,563
Issuance Costs/Other	—	—	—	—	—	—	(~~104~~11)	—	~~(1)~~—	(~~105~~11)	—	—	(~~105~~11)
Unit Conversion	—	200,000	2	—	—	—	1,812	—	—	1,814	(200,000)	(1,814)	—
Dividends and Distributions declared:
Preferred Shares	—	—	—	—	—	—	—	—	(6,043)	(6,043)	—	—	(6,043)
Common Shares ($0.05 per share)	—	—	—	—	—	—	—	—	(2,~~005~~006)	(2,~~005~~006)	—	—	(2,~~005~~006)
Common Units ($0.05 per share)	—	—	—	—	—	—	—	—	—	—	—	(88)	(88)
LTIP Units ($0.05 per share)	—	—	—	—	—	—	—	—	—	—	—	(314)	(314)
Dividend Reinvestment Plan	—	1,~~407~~525	—	—	—	—	9	—	—	9	—	—	9
Share Based Compensation:
Grants	—	27,085	—	—	—	—	—	—	—	—	192,545	—	—
Amortization	—	—	—	—	—	—	481	—	—	481	—	1,858	2,339
Amortization	—	—	—	—	—	—	744	—	—	744	—	1,953	2,697
Change in Fair Value of Derivative Instruments	—	—	—	—	—	—	—	(2,362)	—	(2,362)	—	(339)	(2,701)
Change in Fair Value of Derivative Instruments	—	—	—	—	—	—	—	579	—	579	—	89	668
Net Income	—	—	—	—	—	—	—	—	1,581	1,581	—	(629)	952
Adjustment to Record Noncontrolling Interest at Redemption Value	(1,806)	—	—	—	—	—	1,806	—	—	1,806	—	—	1,806
Balance at September 30, 2023	4,660	40,104,916	401	—	14,703,214	147	1,161,761	10,968	(514,917)	658,360	8,037,472	74,340	732,700
Net Income	—	—	—	—	—	—	—	—	5,958	5,958	—	3	5,961
Balance at June 30, 2023	4,660	40,103,391	401	—	14,703,214	147	1,161,282	13,330	(508,449)	666,711	8,037,472	73,852	740,563

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE ~~SIX~~THREE AND NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARES)

	Redeemable Noncontrolling Interests	Shareholders' Equity									Noncontrolling Interests
	Consolidated Joint Venture ($)	Common Shares	Class A Common Shares ($)	Class B Common Shares ($)	Preferred Shares	Preferred Shares ($)	Additional Paid-In Capital ($)	Accumulated Other Comprehensive (Loss) Income ($)	Distributions in Excess of Net Income ($)	Total Shareholders' Equity ($)	Common Units and LTIP Units	Common Units and LTIP Units ($)	Total Equity ($)
Balance at March 31, 2022	4,583	39,354,893	394	—	14,703,214	147	1,153,486	7,077	(612,276)	548,828	6,926,253	52,176	601,004
Balance at June 30, 2022	5,274	39,514,661	396	—	14,703,214	147	1,154,367	11,426	(609,159)	557,177	7,070,680	54,947	612,124
Issuance Costs/Other	—	—	—	—	—	—	~~(10)~~—	—	—	~~(10)~~—	—	—6	~~(10)~~6
Unit Conversion	—	5080,~~000~~627	1	—	—	—	~~425~~422	—	—	~~426~~423	(5080,~~000~~627)	(~~426~~423)	—
Dividends and Distributions declared:
Common Shares ($0.05 per share)	—	—	—	—	—	—	—	—	(1,987)	(1,987)	—	—	(1,987)
Preferred Shares	—	—	—	—	—	—	—	—	(6,044)	(6,044)	—	—	(6,044)
Common Units ($0.05 per share)	—	—	—	—	—	—	—	—	—	—	—	(88)	(88)
LTIP Units ($0.05 per share)	—	—	—	—	—	—	—	—	—	—	—	(262)	(262)
Share Based Compensation:
Grants	—	~~109~~35,~~768~~481	1—	—	—	—	—	—	—	1—	~~194,427~~—	—	1—
Amortization	—	—	—	—	—	—	~~1,157~~809	—	—	~~1,157~~809	—	21,~~142~~959	32,~~299~~768
Change in Fair Value of Derivative Instruments	—	—	—	—	—	—	—	45,~~349~~226	—	45,~~349~~226	—	~~632~~573	45,~~981~~799
Adjustment to Record Noncontrolling Interest at Redemption Value	~~691~~(615)	—	—	—	—	—	~~(691)~~615	—	—	~~(691)~~615	—	—	~~(691)~~615
Net Income	—	—	—	—	—	—	—	—	9120,~~161~~906	9120,~~161~~906	—	~~423~~15,283	9136,~~584~~189
Balance at June 30, 2022	5,274	39,514,661	396	—	14,703,214	147	1,154,367	11,426	(609,159)	557,177	7,070,680	54,947	612,124
Balance at September 30, 2022	4,659	39,630,769	397	—	14,703,214	147	1,156,213	16,652	(496,284)	677,125	6,990,053	71,995	749,120

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARES)

	Redeemable Noncontrolling Interests	Shareholders' Equity									Noncontrolling Interests
	Consolidated Joint Venture ($)	Common Shares	Class A Common Shares ($)	Class B Common Shares ($)	Preferred Shares	Preferred Shares ($)	Additional Paid-In Capital ($)	Accumulated Other Comprehensive Loss ($)	Distributions in Excess of Net Income ($)	Total Shareholders' Equity ($)	Common Units and LTIP Units	Common Units and LTIP Units ($)	Total Equity ($)
Balance at December 31, 2022	5,076	39,697,451	398	—	14,703,214	147	1,157,057	16,213	(490,815)	683,000	6,940,053	73,461	756,461
Issuance Costs / Other	—	—	—	—	—	—	(~~106~~118)	—	~~(1)~~—	(~~107~~118)	—	—	(~~107~~118)
Unit Conversion	—	200,000	2	—	—	—	1,812	—	—	1,814	(200,000)	(1,814)	—
Dividends and Distributions declared:
Common Shares ($0.10 per share)	—	—	—	—	—	—	—	—	(3,999)	(3,999)	—	—	(3,999)
Preferred Shares	—	—	—	—	—	—	—	—	(18,131)	(18,131)	—	—	(18,131)
Preferred Shares	—	—	—	—	—	—	—	—	(12,087)	(12,087)	—	—	(12,087)
Common Shares ($0.15 per share)	—	—	—	—	—	—	—	—	(6,005)	(6,005)	—	—	(6,005)
Common Units ($0.10 per share)	—	—	—	—	—	—	—	—	—	—	—	(176)	(176)
Common Units ($0.15 per share)	—	—	—	—	—	—	—	—	—	—	—	(263)	(263)
LTIP Units ($0.10 per share)	—	—	—	—	—	—	—	—	—	—	—	(629)	(629)
LTIP Units ($0.15 per share)	—	—	—	—	—	—	—	—	—	—	—	(942)	(942)
Dividend Reinvestment Plan	—	1011,~~382~~907	—	—	—	—	8191	—	—	8191	—	—	8191
Share Based Compensation:
Grants	—	195,558	1	—	—	—	(1)	—	—	—	1,297,419	—	—
Amortization	—	—	—	—	—	—	2,~~023~~504	—	—	2,~~023~~504		57,~~424~~280	79,~~447~~784
Change in Fair Value of Derivative Instruments	—	—	—	—	—	—	—	(25,~~883~~245)	—	(25,~~883~~245)	—	(~~421~~760)	(36,~~304~~005)
Adjustment to Record Noncontrolling Interest at Redemption Value	(416)	—	—	—	—	—	416	—	—	416	—	—	416
Net Loss	—	—	—	—	—	—	—	—	~~(1,547)~~34	~~(1,547)~~34	—	(12,~~993~~622)	(32,~~540~~588)
Balance at June 30, 2023	4,660	40,103,391	401	—	14,703,214	147	1,161,282	13,330	(508,449)	666,711	8,037,472	73,852	740,563
Balance at September 30, 2023	4,660	40,104,916	401	—	14,703,214	147	1,161,761	10,968	(514,917)	658,360	8,037,472	74,340	732,700

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

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARES)

	Redeemable Noncontrolling Interests	Shareholders' Equity									Noncontrolling Interests
	Consolidated Joint Venture ($)	Common Shares	Class A Common Shares ($)	Class B Common Shares ($)	Preferred Shares	Preferred Shares ($)	Additional Paid-In Capital ($)	Accumulated Other Comprehensive Loss ($)	Distributions in Excess of Net Income ($)	Total Shareholders' Equity ($)	Common Units and LTIP Units	Common Units and LTIP Units ($)	Total Equity ($)
Balance at December 31, 2021	2,310	39,325,025	394	—	14,703,214	147	1,155,034	(6,211)	(592,314)	557,050	6,926,253	51,246	608,296
Unit Conversion	—	50130,~~000~~627	1	—	—	—	~~425~~847	—	—	~~426~~848	(50130,~~000~~627)	(~~426~~848)	—
Issuance Costs/Other	—	—	—	—	—	—	(4847)	—	~~(1)~~—	(4947)	—	—5	(4942)
Dividends and Distributions declared:
Preferred Shares	—	—	—	—	—	—	—	—	(12,087)	(12,087)	—	—	(12,087)
Common Shares ($0.05 per share)	—	—	—	—	—	—	—	—	(1,988)	(1,988)	—	—	(1,988)
Preferred Shares	—	—	—	—	—	—	—	—	(18,131)	(18,131)	—	—	(18,131)
Common Units ($0.05 per share)	—	—	—	—	—	—	—	—	—	—	—	(88)	(88)
LTIP Units ($0.05 per share)	—	—	—	—	—	—	—	—	—	—	—	(262)	(262)
Share Based Compensation:
Grants	—	~~139~~175,~~636~~117	12	—	—	—	(12)	—	—	—	194,427	—	—
Amortization	—	—	—	—	—	—	12,~~921~~730	—	—	12,~~921~~730	—	35,~~919~~878	58,~~840~~608
Change in Fair Value of Derivative Instruments	—	—	—	—	—	—	—	1722,~~637~~863	—	1722,~~637~~863	—	23,~~466~~039	2025,~~103~~902
Adjustment to Record Noncontrolling Interest at Redemption Value	2,~~964~~349	—	—	—	—	—	(2,~~964~~349)	—	—	(2,~~964~~349)	—	—	(2,~~964~~349)
Net Loss	—	—	—	—	—	—	—	—	(4116,~~757)~~149	(4116,~~757)~~149		(213,~~258)~~025	(7129,~~015)~~174
Balance at June 30, 2022	5,274	39,514,661	396	—	14,703,214	147	1,154,367	11,426	(609,159)	557,177	7,070,680	54,947	612,124
Balance at September 30, 2022	4,659	39,630,769	397	—	14,703,214	147	1,156,213	16,652	(496,284)	677,125	6,990,053	71,995	749,120

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

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS)

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2023		2022
Operating Activities:
Net Loss	$	(3,540)	$	(7,015)
Net (Loss) Income	$	(2,588)	$	129,174
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:
Gain on Disposition of Hotel Properties	—		(167,800)
Loss on Impairment of Assets	—		10,024
Insurance Recoveries in Excess of Property Loss	—		(962)
Junior Note PIK Interest Added to Principal	—		1,855
Depreciation	2741,~~615~~379		3650,~~117~~965
Amortization	1,~~337~~981		3,~~017~~984
Loss on Debt Extinguishment	66		—17,958
Equity in Loss of Unconsolidated Joint Ventures	~~426~~421		~~579~~101
Loss (Gain) Recognized on Change in Fair Value of Derivative Instrument	5298		(~~739~~875)
Share Based Compensation Expense	47,~~749~~088		58,~~840~~608
Change in Assets and Liabilities:
(Increase) Decrease in:
Hotel Accounts Receivable	2,~~721~~811		~~249~~1,726
Other Assets	(~~885~~1,581)		(4,~~057~~152)
Due from Related Parties	~~163~~13		12,~~961~~353
Increase (Decrease) in:
Due to Related Parties	(761,241)		(~~1,241~~239)
Accounts Payable, Accrued Expenses and Other Liabilities	(~~6,011~~963)		412,~~882~~577
Net Cash Provided by Operating Activities	$	2647,~~617~~484	$	4065,~~486~~297
Investing Activities:
Capital Expenditures	(2029,~~681~~390)		(1217,~~041~~936)
Proceeds from Disposition of Hotel Properties	—		382,699
Contributions to Unconsolidated Joint Ventures	—		(485)
Proceeds from Insurance Claims	—		1,294
Net Cash Used in Investing Activities	$	(20,681)	$	(11,232)
Distributions from Unconsolidated Joint Ventures	500		—
Net Cash (Used in) Provided by Investing Activities	$	(28,890)	$	365,572

Financing Activities:
Payments on Term Loans	(25,000)		—
Principal Repayment of Mortgages	(23,618)		(1,221)
Deferred Financing Costs	(99)		(209)
Dividends Paid on Common Shares	(23,746)		—
Dividends Paid on Preferred Shares	(12,087)		(12,087)
Distributions Paid on Common Units and LTIP Units	(4,218)		—
Net Cash Used in Financing Activities	$	(88,768)	$	(13,517)
Net (Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash	$	(82,832)	$	15,737
Cash, Cash Equivalents, and Restricted Cash - Beginning of Period	230,020		84,945
Cash, Cash Equivalents, and Restricted Cash - End of Period	$	147,188	$	100,682

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

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS)




Financing Activities:
Repayments on Line of Credit	$	—	$	(118,684)
Proceeds of Term Loan Borrowing	—		400,000
Payments on Term Loans	(25,000)		(497,481)

Principal Repayment of Mortgages	(23,928)		(159,923)
Deferred Financing Costs	(99)		(4,052)
Cash Paid for Debt Extinguishment	—		(10,143)




Dividends Paid on Common Shares	(25,742)		—
Dividends Paid on Preferred Shares	(18,131)		(18,131)

Distributions Paid on Common Units and LTIP Units	(4,621)		—
Net Cash Used in Financing Activities	$	(97,521)	$	(408,414)

Net (Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash	$	(78,927)	$	22,455
Cash, Cash Equivalents, and Restricted Cash - Beginning of Period	230,020		84,945

Cash, Cash Equivalents, and Restricted Cash - End of Period	$	151,093	$	107,400

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

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 1 - ~~BASIS~~COMPANY OFOVERVIEW ~~PRESENTATION~~AND MERGER AGREEMENT

The accompanying unaudited consolidated financial statements of Hersha Hospitality Trust (“we,” “us,” “our” or the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information and with the general instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals), considered necessary for a fair presentation have been included. Operating results for the three and ~~six~~nine months ended ~~June~~September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any future period. Accordingly, readers of these consolidated interim financial statements should refer to the Company’s audited financial statements prepared in accordance with US GAAP, and the related notes thereto, for the year ended December 31, 2022, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as certain footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted from this report pursuant to the rules of the Securities and Exchange Commission.

We are a self-administered Maryland real estate investment trust that was organized in May 1998 and completed our initial public offering in January 1999. Our common shares are traded on the New York Stock Exchange (the “NYSE”) under the symbol “HT.” We own our hotels and our investments in joint ventures through our operating partnership, Hersha Hospitality Limited Partnership (“HHLP” or “the Partnership”), for which we serve as the sole general partner. As of ~~June~~September 30, 2023, we owned an approximate 83.3% partnership interest in HHLP, including a 1.0% general partnership interest.

The Merger Agreement

On August 27, 2023, Hersha Hospitality Trust and HHLP entered into an Agreement and Plan of Merger (the “Merger Agreement”), with 1776 Portfolio Investment, LLC (“Parent”), 1776 Portfolio REIT Merger Sub, LLC, a wholly owned subsidiary of Parent (“REIT Merger Sub”), and 1776 Portfolio OP Merger Sub, LP, a subsidiary of Parent (“OP Merger Sub” and, together with Parent and REIT Merger Sub, the “Parent Parties”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, OP Merger Sub will be merged with and into HHLP (the “Partnership Merger”, and such surviving entity, the “Surviving Partnership”) and, immediately following the Partnership Merger, the Company shall be merged with and into REIT Merger Sub (the “Company Merger” and, together with the Partnership Merger, the “Mergers”). Upon completion of the Company Merger, REIT Merger Sub will survive as a wholly owned subsidiary of Parent and the separate existence of the Company will cease. The Company Merger and the other transactions contemplated by the Merger Agreement were approved and declared advisable by the board of trustees of the Company (the “Company Board”) and the Transaction Committee of the Company Board (the “Company Transaction Committee”).

Merger Consideration

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Company Merger (the "Company Merger Effective Time) (A) each Priority Class A common share of beneficial interest, $0.01 par value per share, of the Company issued and outstanding immediately prior to the Company Merger Effective Time (other than Excluded Shares) will be automatically converted into the right to receive an amount in cash equal to $10.00 per share; (B) each 6.875% Series C Cumulative Redeemable Preferred Share of Beneficial Interest, par value $0.01 per share, of the Company issued and outstanding immediately prior to the Company Merger Effective Time (other than Excluded Shares) will be automatically converted into the right to receive an amount in cash equal to $25.00 per share plus accrued and unpaid dividends, if any, up to and including the date on which the closing takes place (the "Closing Date"), without interest; (C) each 6.50% Series D Cumulative Redeemable Preferred Share of Beneficial Interest, par value $0.01 per share, of the Company issued and outstanding immediately prior to the Company Merger Effective Time (other than Excluded Shares) will be automatically converted into the right to receive an amount in cash equal to $25.00 per share plus accrued and unpaid dividends, if any, up to and including the Closing Date, without interest; and (D) each 6.50% Series E Cumulative Redeemable Preferred Share of Beneficial Interest, par value $0.01 per share, of the Company issued and outstanding immediately prior to the Company Merger Effective Time (other than Excluded Shares) will be automatically converted into the right to receive an amount in cash equal to $25.00 per share plus accrued and unpaid dividends, if any, up to and including the Closing Date, without interest. At the effective time of the Partnership Merger (the "Partnership Merger Effective Time"), each Company Partnership Unit (as defined in the Merger Agreement) issued and outstanding immediately prior to the Partnership

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 1 - COMPANY OVERVIEW AND MERGER AGREEMENT (CONTINUED)

Merger Effective Time (other than Excluded Units) will be converted into the right to receive an amount in cash equal to the Per Company Share Merger Consideration, without interest (the “OP Merger Consideration”).

Company Equity Awards

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the Company Merger Effective Time, each award of restricted Company Common Shares granted under the Company’s Amended and Restated 2012 Equity Incentive Plan (each a “Company Restricted Share Award”) that is outstanding immediately prior to the Company Merger Effective Time will vest, and each Company Restricted Share Award will be canceled and converted into the right to receive a payment (without interest and subject to applicable tax withholding) equal to the number of Company Common Shares underlying such Company Restricted Share Award at $10.00 per share. At the Partnership Merger Effective Time, each Company LTIP Unit that is outstanding and unvested as of immediately prior to the Partnership Merger Effective Time shall vest and become transferable and immediately thereafter, the Company shall cause a Forced Conversion (as defined in the Merger Agreement) with respect to all Company LTIP Units then eligible for conversion (after giving effect to the vesting of all Company LTIP Units as described in in the Merger Agreement) such that, as of the Partnership Merger Effective Time, each then outstanding Company LTIP Unit will be converted into an equal number of common Company Partnership Units (with such converted Company Partnership Units treated in the same manner under the Merger Agreement as other outstanding Company Partnership Units).

Closing Conditions

The consummation of the Mergers is subject to certain customary closing conditions, including, among others, the approval of the Company Merger by the affirmative vote of the holders of a majority of the outstanding shares of Company Common Shares entitled to vote on the Company Merger (the “Company Shareholder Approval”) and the other transactions contemplated by the Merger Agreement. The special meeting of shareholders (the “Special Meeting”) was held on November 8, 2023 in which the Company Shareholder Approval was obtained and other transactions proposed as part of the Mergers received a majority affirmative vote. The obligations of the parties to consummate the Mergers are not subject to any financing condition or the receipt of any financing by the Parent Parties. The Merger Agreement provides that, unless Parent otherwise notifies the Company in writing, the closing of the Mergers will not occur prior to November 28, 2023.

Representations, Warranties and Covenants

The Merger Agreement contains customary representations, warranties and covenants, including, among others, covenants by the Company to conduct its business in the ordinary course consistent with past practice, subject to certain exceptions, during the period between the execution of the Merger Agreement and the Company Merger Effective Time. The Merger Agreement also requires the Company to convene and hold a shareholders’ meeting for the purpose of obtaining the Company Shareholder Approval, which, as noted above, was held on November 8, 2023.

Termination of the Merger Agreement; Termination Payment

The Merger Agreement contains customary termination rights, including, among others, the right of either Parent or the Company to terminate the Merger Agreement if the Company Merger Effective Time has not occurred on or before 5:00 p.m. (Eastern Time) on February 27, 2024 (the “End Date”), if any Governmental Entity (as defined in the Merger Agreement) of competent jurisdiction has issued a final, non-appealable order permanently enjoining or otherwise prohibiting the consummation of the Mergers, or the Company Shareholder Approval has not been obtained upon a vote taken at the shareholders’ meeting or any adjournment or postponement thereof. The Merger Agreement also may be terminated by the Company under certain circumstances, including if, prior to obtaining the Company Shareholder Approval and after following certain procedures and adhering to certain restrictions, the Company Board (or a committee thereof) effects a Company Change of Recommendation in respect of a Company Superior Proposal and the Company pays Parent the Company Termination Payment (as defined below) or due to certain uncured material breaches of the Merger Agreement by any of the Parent Parties that causes certain conditions to the Closing not to be satisfied. In addition, Parent may terminate the Merger Agreement under certain circumstances and subject to certain restrictions, including if, prior to obtaining the Company

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 1 - COMPANY OVERVIEW AND MERGER AGREEMENT (CONTINUED)

Shareholder Approval, the Company Board or Company Transaction Committee effects a Company Change of Recommendation or due to certain uncured material breaches of the Merger Agreement by the Company or Company OP that causes certain conditions to the Closing not to be satisfied.

In certain specified circumstances further described in the Merger Agreement, in connection with the termination of the Merger Agreement, the Company will be required to pay Parent a termination fee of $30.0 million. In addition, in certain specified circumstances further described in the Merger Agreement, in connection with the termination of the Merger Agreement, Parent will be required to pay the Company a termination fee of $67.5 million upon termination of the Merger Agreement, including if the Company terminates the Merger Agreement as a result of the Parent Parties’ failure to close when otherwise obligated pursuant to the Merger Agreement or as a result of an uncured material breach of the Merger Agreement by the Parent Parties that causes certain conditions to the Closing not to be satisfied or as a result of the Closing not having occurred by the End Date in circumstances, in each case where the Company could have terminated as a result of the Parent Parties’ failure to close when otherwise obligated pursuant to the Merger Agreement.

Dividends

Pursuant to the terms of the Merger Agreement, the Company may declare and pay regular quarterly dividends and HHLP may declare and pay regular quarterly distributions, in each case, subject to certain limitations. The Company and HHLP may not pay dividends or distributions other than the Company Permitted Dividend without the written consent of Parent, except as necessary to preserve the Company’s tax status as a real estate investment trust or to avoid the imposition of income or excise taxes, subject to certain limitations.

The foregoing description of the Merger Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which is filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on August 28, 2023.

Commitments and Guarantees

The Parent Parties have obtained debt and equity commitments for the transactions contemplated by the Merger Agreement, the aggregate proceeds of which will be sufficient for the Parent Parties to pay all amounts the Parent Parties may be obligated to pay pursuant to the Merger Agreement or the Mergers, including the Merger Consideration, the Preferred Merger Consideration and the OP Merger Consideration and all related fees and expenses.

Certain entities affiliated with the Parent Parties have committed to fund Parent, prior to or substantially concurrently with the Closing, with aggregate equity contributions in an amount equal to $400 million, subject to the terms and conditions set forth in such equity commitment letter, dated as of August 27, 2023.

The Parent Parties have delivered to the Company an executed debt commitment letter pursuant to which the lenders party thereto have committed to provide debt financing to Parent in an aggregate amount up to $1.05 billion, subject to the terms and conditions set forth in such debt commitment letter, dated as of August 27, 2023, to enable Parent to consummate the Mergers and make payments required under and in connection with the Merger Agreement.

In addition, certain entities affiliated with the Parent Parties have entered into a limited guarantee for certain other payment obligations of the Parent Parties under the Merger Agreement in favor of the Company (the “Limited Guarantee”), up to an aggregate amount equal to $75.0 million, subject to the terms and conditions of the Limited Guarantee.

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 1 - COMPANY OVERVIEW AND MERGER AGREEMENT (CONTINUED)

Going Concern Consideration

Our secured term loan which has a principal balance of $347,853 as of September 30, 2023 will mature on August 4, 2024, and five of our mortgages totaling $184,952 mature in the next twelve months. Our current and anticipated liquidity is less than the principal balance of these obligations.

As noted above, we anticipate that the closing of the transactions contemplated by the Merger Agreement will occur in the fourth quarter of 2023, subject to the closing conditions. Should the transactions contemplated by the Merger Agreement not close as anticipated, we fail to repay or refinance the debt noted above, or obtain a waiver or amendment for the debt, an event of default could occur. The occurrence of these events requires participation of third parties. As a result, we have concluded that substantial doubt exists about our ability to continue as a going concern.

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 2 - BASIS OF PRESENTATION

Principles of Consolidation and Presentation

The accompanying consolidated financial statements have been prepared in accordance with US GAAP and include all of our accounts as well as accounts of the Partnership, subsidiary partnerships and our wholly owned Taxable REIT Subsidiary Lessee (“TRS Lessee”), 44 New England Management Company. All significant inter-company amounts have been eliminated.

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.

Variable Interest Entities

We evaluate each of our investments and contractual relationships to determine whether they meet the guidelines for consolidation. 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, there have been no changes to the operating structure of our legal entities during the three and ~~six~~nine months ended ~~June~~September 30, 2023 and, therefore, there are no changes to our evaluation of VIE's as presented within our annual report presented on Form 10-K for the year ended December 31, 2022.

13Noncontrolling Interest

We classify the noncontrolling interests of our common units of limited partnership interest in HHLP (“Common Units”), and Long Term Incentive Plan Units (“LTIP Units”) as equity. LTIP Units are a separate class of limited partnership interest in the Operating Partnership that are convertible into Common Units under certain circumstances. The noncontrolling interest of Common Units and LTIP Units totaled $74,340 as of September 30, 2023 and $73,461 as of December 31, 2022. As of September 30, 2023, there were 8,037,472 Common Units and LTIP Units outstanding with a fair market value of $79,249, based on the price per share of our common shares on the NYSE on such date. In accordance with the partnership agreement of HHLP, holders of these Common 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.

As noted in Note 1 - Company Overview and Merger Agreement, at the Company Merger date, each Company LTIP Unit that is outstanding and unvested shall vest and become transferable and immediately thereafter, the Company shall cause a Forced Conversion (as defined in the Merger Agreement) with respect to all Company LTIP Units then eligible for conversion (after giving effect to the vesting of all Company LTIP Units as described in the Merger Agreement) such that, as of the Partnership Merger Effective Time, each then outstanding Company LTIP Unit will be converted into an equal number of common Company Partnership Units (with such converted Company Partnership Units treated in the same manner under the Merger Agreement as other outstanding Company Partnership Units).

Net income or loss attributed to Common Units and LTIP Units is included in net income or loss but excluded from net income or loss applicable to common shareholders in the consolidated statements of operations.

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 12 - BASIS OF PRESENTATION (CONTINUED)

Noncontrolling Interest

We classify the noncontrolling interests of our common units of limited partnership interest in HHLP (“Common Units”), and Long Term Incentive Plan Units (“LTIP Units”) as equity. LTIP Units are a separate class of limited partnership interest in the Operating Partnership that are convertible into Common Units under certain circumstances. The noncontrolling interest of Common Units and LTIP Units totaled $73,852 as of June 30, 2023 and $73,461 as of December 31, 2022. As of June 30, 2023, there were 8,037,472 Common Units and LTIP Units outstanding with a fair market value of $48,948, based on the price per share of our common shares on the NYSE on such date. In accordance with the partnership agreement of HHLP, holders of these Common 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.

We are party to a joint venture that owns the Ritz-Carlton Coconut Grove, FL, in which our joint venture partner has a noncontrolling equity interest of 15% in the property. Hersha Holding RC Owner, LLC, the owner entity of the Ritz-Carlton Coconut Grove joint venture ("Ritz Coconut Grove"), will distribute income based on cash available for distribution which will be distributed as follows: (1) to us until we receive a cumulative return on our contributed senior common equity interest, currently at 8%, and (2) then to the owner of the noncontrolling interest until they receive a cumulative return on their contributed junior common equity interest, currently at 8%, and (3) then 75% to us and 25% to the owner of the noncontrolling interest until we both receive a cumulative return on our contributed senior common equity interest, currently at 12%, and (4) finally, any remaining operating profit shall be distributed 70% to us and 30% to the owner of the noncontrolling interest. Additionally, the noncontrolling interest in the Ritz Coconut Grove has the right to put their ownership interest to us for cash consideration at any time during the life of the venture. The balance sheets and financial results of the Ritz Coconut Grove are included in our consolidated financial statements and the book value of the noncontrolling interest in the Ritz Coconut Grove is classified as temporary equity within our Consolidated Balance Sheets.

For Ritz Coconut Grove, income or loss is allocated using Hypothetical Liquidation at Book Value ("HLBV method") as the liquidation rights and priorities, as defined by the venture's governing agreement, differs from the underlying percentage ownership in the venture. The Company applies the HLBV method using a balance sheet approach. A calculation is prepared at each balance sheet date to determine the amount that we would receive if the venture entity were to liquidate all of its assets at carrying value and distribute that cash to the joint venture based on the contractually defined liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is our share of the earnings or losses and the remainder is allocated to noncontrolling interest.

The noncontrolling interest in the Ritz Coconut Grove is measured at the greater of historical cost or the put option redemption value, and is recorded as part of the (Income) Loss Allocated to Noncontrolling Interests - Consolidated Joint Venture line item within the Consolidated Statements of Operations. The value of the noncontrolling interest at the put option redemption value was $4,660 as of ~~June~~September 30, 2023. As such, we reclassified $(1,806) from Additional Paid in Capital to Redeemable Noncontrolling Interests - Consolidated Joint Venture during the six months ended June 30, 2023 to record the noncontrolling interest at the estimated value of the put option.

14Shareholders’ Equity

Terms of the Series C, Series D, and Series E Preferred Shares outstanding at September 30, 2023 and December 31, 2022 are summarized as follows:


							Dividend Per Share
	Shares Outstanding						Nine Months Ended September 30,
Series	September 30, 2023	December 31, 2022	Aggregate Liquidation Preference		Distribution Rate		2023		2022
Series C	3,000,000	3,000,000	$	75,000	6.875	%	$	1.2891	$	1.2891
Series D	7,701,700	7,701,700	$	192,500	6.500	%	$	1.2188	$	1.2188
Series E	4,001,514	4,001,514	$	100,000	6.500	%	$	1.2188	$	1.2188
Total	14,703,214	14,703,214

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 12 - BASIS OF PRESENTATION (CONTINUED)

~~Shareholders’~~As ~~Equity~~noted in Note 1 - Company Overview and Merger Agreement, pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the Company Merger Effective Time, (A) each Priority Class A common share of beneficial interest, $0.01 par value per share, of the Company issued and outstanding immediately prior to the Company Merger Effective Time (other than Excluded Shares) will be automatically converted into the right to receive an amount in cash equal to $10.00 per share; (B) each 6.875% Series C Cumulative Redeemable Preferred Share of Beneficial Interest, par value $0.01 per share, of the Company issued and outstanding immediately prior to the Company Merger Effective Time (other than Excluded Shares) will be automatically converted into the right to receive an amount in cash equal to $25.00 per share plus accrued and unpaid dividends, if any, up to and including the Closing Date, without interest; (C) each 6.50% Series D Cumulative Redeemable Preferred Share of Beneficial Interest, par value $0.01 per share, of the Company issued and outstanding immediately prior to the Company Merger Effective Time (other than Excluded Shares) will be automatically converted into the right to receive an amount in cash equal to $25.00 per share plus accrued and unpaid dividends, if any, up to and including the Closing Date, without interest; and (D) each 6.50% Series E Cumulative Redeemable Preferred Share of Beneficial Interest, par value $0.01 per share, of the Company issued and outstanding immediately prior to the Company Merger Effective Time (other than Excluded Shares) will be automatically converted into the right to receive an amount in cash equal to $25.00 per share per share plus accrued and unpaid dividends, if any, up to and including the Closing Date, without interest.

							Dividend Per Share
	Shares Outstanding						Six Months Ended June 30,
Series	June 30, 2023	December 31, 2022	Aggregate Liquidation Preference		Distribution Rate		2023		2022
Series C	3,000,000	3,000,000	$	75,000	6.875	%	$	0.8594	$	0.8594
Series D	7,701,700	7,701,700	$	192,500	6.500	%	$	0.8125	$	0.8125
Series E	4,001,514	4,001,514	$	100,000	6.500	%	$	0.8125	$	0.8125
Total	14,703,214	14,703,214

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, and two to seven years for furniture, fixtures and equipment. We are required to make 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.

Identifiable assets, liabilities, and noncontrolling interests related to hotel properties acquired are recorded at 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.

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. We evaluate each disposition to determine whether we need to classify the disposition as discontinued operations. We generally include the operations of a hotel that was sold or a hotel that has been classified as held for sale in continuing operations unless the sale represents a strategic shift that will have a major impact on our future operations and financial results. We anticipate that most of our hotel dispositions will not be classified as discontinued operations as most will not fit this definition.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 12 - BASIS OF PRESENTATION (CONTINUED)

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 ongoing 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. Other assumptions used in the review of recoverability include the holding period and expected terminal capitalization rate. 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.

~~Revision of Prior Period Financial Statements~~21

During the third quarter of 2022, the Company identified immaterial errors in its previously issued financial statements resulting from the incorrect amortization of accumulated other comprehensive income related to interest rate hedges. This occurred over the periods from 2019 through 2021, thereby overstating interest expense in those periods as well as impacting certain captions in the equity section of the consolidated balance sheet, including accumulated other comprehensive income, distributions in excess of net income, and noncontrolling interests.

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

In accordance with Staff Accounting Bulletin (“SAB”) No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company assessed the materiality of these misstatements both quantitatively and qualitatively and determined that these errors and the related impact did not, either individually or in the aggregate, materially misstate previously issued consolidated financial statements. To reflect the correction of these immaterial errors, the Company is revising the previously issued consolidated financial statements for the three and six months ended June 30, 2022 in this Form 10-Q. As a result, the Company has corrected the immaterial misstatements as disclosed in the following tables for all impacted financial statement line items in prior periods.

	For the Three Months Ended						For the Six Months Ended
	June 30, 2022						June 30, 2022
	As Previously Reported		Adjustment		As Revised		As Previously Reported		Adjustment		As Revised
Consolidated Statement of Operations:
Interest Expense	$	(14,769)	$	372	$	(14,397)	$	(29,006)	$	739	$	(28,267)
Income (Loss) Before Results from Unconsolidated Joint Venture Investments and Income Taxes	8,948		372		9,320		(7,061)		739		(6,322)
Income (Loss) Before Income taxes	9,305		372		9,677		(7,640)		739		(6,901)
Net Income (Loss)	9,212		372		9,584		(7,754)		739		(7,015)
(Income) Loss Allocated to Noncontrolling Interests - Common Units	(379)		(44)		(423)		2,345		(87)		2,258
Net Income (Loss) Applicable to Common Shareholders	2,099		328		2,427		(20,460)		652		(19,808)
Net Income (Loss) Per Share:
Basic - Income (Loss) from Continuing Operations Applicable to Common Shareholders	$	0.05	$	0.01	$	0.06	$	(0.52)	$	0.02	$	(0.50)
Diluted - Income (Loss) from Continuing Operations Applicable to Common Shareholders	$	0.05	$	0.01	$	0.06	$	(0.52)	$	0.02	$	(0.50)
Consolidated Statement of Comprehensive Income (Loss):
Net Income (Loss)	$	9,212	$	372	$	9,584	$	(7,754)	$	739	$	(7,015)
Reclassification Adjustment for Change in Fair Value of Derivative Instruments Included in Net Income (Loss)	—		(372)		(372)		—		(739)		(739)
Total Other Comprehensive Income	5,353		(372)		4,981		20,842		(739)		20,103
Consolidated Statement of Cash Flows:
Operating Activities:
Net Loss							(7,754)		739		(7,015)
Gain Recognized on Change in Fair Value of Derivative Instrument							—		(739)		(739)

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 23 - INVESTMENT IN HOTEL PROPERTIES

Investment in hotel properties consists of the following at ~~June~~September 30, 2023 and December 31, 2022:

	June 30, 2023		December 31, 2022
	September 30, 2023		December 31, 2022
Land	$	390,532	$	390,532
Buildings and Improvements	1,~~106~~107,~~216~~687		1,093,575
Furniture, Fixtures and Equipment	~~214~~216,~~339~~477		203,369
Construction in Progress	48,~~515~~309		7,105
	1,715,602		1,694,581
	1,723,005		1,694,581
Less Accumulated Depreciation	(~~532~~546,~~838~~561)		(505,342)
Total Investment in Hotel Properties *	$	1,~~182~~176,~~764~~444	$	1,189,239

* The net book value of investment in hotel property at Ritz Coconut Grove, which is a variable interest entity, is $36,~~638~~176 and $37,303 at ~~June~~September 30, 2023 and December 31, 2022, respectively.

Acquisitions

For the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, we acquired no hotel properties.

Hotel Dispositions

During the year ended December 31, 2022, we had the following hotel dispositions:


Hotel	Acquisition Date	Disposition Date	Consideration		Gain on Disposition
Urban Select Service (7 hotels)	June 2005 - October 2016	8/4/2022, 10/26/22	$	505,000	$	170,193
Hotel Milo Santa Barbara	02/28/2014	10/06/2022	55,000		25,784
Pan Pacific Seattle	02/21/2017	10/19/2022	70,000		1,532
Gate hotel JFK Airport	06/13/2008	11/02/2022	11,000		—


2022 Total					$	197,509

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 34 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

As of ~~June~~September 30, 2023 and December 31, 2022, our investment in unconsolidated joint ventures consisted of the following:

Joint Venture	Hotel Properties	Percent Owned			~~June~~September 30, 2023		December 31, 2022
SB Partners, LLC	Holiday Inn Express, South Boston, MA	50	%	*	$	—	$	—
SB Partners Three, LLC	Home2 Suites, South Boston, MA	50	%		4,~~562~~068		4,989
					$	4,~~562~~068	$	4,989

*In the third quarter of 2023, we received a $500 non-refundable deposit from our joint venture partner to buy our 50% interest. The deposit will be credited against the purchase price at closing, which we anticipate will occur in the fourth quarter of 2023, subject to customary closing conditions.

Income/Loss Allocation

Income or loss is allocated to us and our joint venture partners consistent with the allocation of cash distributions in accordance with the joint venture agreements. This results in an income allocation consistent with our percentage of ownership interests. When we absorb cumulative losses equal to our accounting basis in the joint venture, our investment balance is $0 as presented in the table above.

Any difference between the carrying amount of any of our investments noted above 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 three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 for our investments in unconsolidated joint ventures is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Hiren Boston, LLC*	$	—	$	~~301~~394	$	—	$	42436
SB Partners, LLC	—		—		—		(310)
SB Partners Three, LLC	~~(74)~~5		5684		(~~426~~421)		(~~311~~227)
(Loss) Income from Unconsolidated Joint Venture Investments	$	(74)	$	357	$	(426)	$	(579)
Income (Loss) from Unconsolidated Joint Venture Investments	$	5	$	478	$	(421)	$	(101)

*On November 30, 2022, we sold our 50% membership interest in Hiren Boston, LLC.

1923

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 34 – 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 ~~June~~September 30, 2023 and December 31, 2022 and for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022.

Balance Sheets

	June 30, 2023		December 31, 2022
	September 30, 2023		December 31, 2022
Assets
Investment in Hotel Properties, Net	$	4544,~~241~~247	$	47,356
Other Assets	12,~~238~~131		11,803
Total Assets	$	5756,~~479~~378	$	59,159
Liabilities and Equity
Mortgages	$	49,~~727~~304	$	50,236
Other Liabilities	10,~~294~~196		10,012
Equity:
Hersha Hospitality Trust	1,~~903~~613		2,630
Joint Venture Partner(s)	(4,~~445~~735)		(3,719)
Total Equity	(23,~~542~~122)		(1,089)
Total Liabilities and Equity	$	5756,~~479~~378	$	59,159

Statements of Operations

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Room Revenue

5,~~037~~668

68,~~848~~166

713,~~335~~003

917,~~495~~661

Other Revenue

~~196~~208

~~318~~405

~~323~~531

~~504~~909

Operating Expenses

(2,~~693~~854)

(34,~~630~~156)

(47,~~328~~182)

(610,~~083~~239)

Lease Expense

(~~184~~159)

(~~257~~320)

(~~319~~478)

(~~514~~834)

Property Taxes and Insurance

(~~379~~417)

(~~572~~588)

(~~753~~1,170)

(1,~~144~~732)

General and Administrative

827

(1571)

7278

(35107)

Depreciation and Amortization

(1,~~072~~041)

(1,~~248~~244)

(23,~~144~~184)

(23,~~502~~746)

Interest Expense

(~~836~~851)

(~~773~~923)

(12,~~639~~490)

(12,~~442~~364)

Income Tax (Expense) Benefit

(98)

(74)

—

Income Tax Expense

(140)

(114)

(140)

(62)

Net Income (Loss)

53421

~~597~~1,155

(1,~~453~~032)

(~~1,670~~514)

2024

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 34 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)

The following table is a reconciliation of our share in the unconsolidated joint ventures’ equity to our investment in the unconsolidated joint ventures as presented on our balance sheets as of ~~June~~September 30, 2023 and December 31, 2022.

	June 30, 2023		December 31, 2022
	September 30, 2023		December 31, 2022
Our share of equity recorded on the joint ventures' financial statements	$	1,~~903~~613	$	2,630
Adjustment to reconcile our share of equity recorded on the joint ventures' financial statements to our investment in unconsolidated joint ventures(1)	2,~~659~~455		2,359
Investment in Unconsolidated Joint Ventures	$	4,~~562~~068	$	4,989

(1) Adjustment to reconcile our share of equity recorded on the joint ventures' financial statements to our investment in unconsolidated joint ventures consists of the difference between our basis in the investment in joint ventures and the equity recorded on the joint ventures' financial statements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 45 - OTHER ASSETS

Other Assets

Other Assets consisted of the following at ~~June~~September 30, 2023 and December 31, 2022:

	June 30, 2023		December 31, 2022
	September 30, 2023		December 31, 2022
Derivative Asset	$	1512,~~353~~606	$	18,709
Deferred Financing Costs	~~819~~630		1,197
Prepaid Expenses	1011,~~745~~989		10,481
Investment in Statutory Trusts	1,548		1,548
Investment in Non-Hotel Property and Inventories	1,~~903~~859		2,026
Deposits with Unaffiliated Third Parties	~~525~~362		597
Deferred Tax Asset, Net of Valuation Allowance of $14,320 and $14,414, respectively	—		—
Deferred Tax Asset, Net of Valuation Allowance of $13,903 and $14,414, respectively	—		—
Swap Interest Receivable	1,~~150~~176		932
Other	3,~~541~~130		3,062
	$	3533,~~584~~300	$	38,552

Derivative Asset - This category represents the Company’s gross asset fair value of interest rate swaps and interest rate caps. Any swaps and caps resulting in a liability to the Company are accounted for separately within Other Liabilities on the Balance Sheet.

Deferred Financing Costs – This category represents financing costs paid by the Company to establish our Line of Credit. These costs have been capitalized and will amortize to interest expense over the term of the Line of Credit.

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

Investment in Statutory Trusts – We have an investment in the common stock of Hersha Statutory Trust I and Hersha Statutory Trust II.

Investment in Non-Hotel Property and Inventories – This category represents the costs paid and capitalized by the Company for items such as office leasehold improvements, furniture and equipment, and property inventories.

Deposits with Unaffiliated Third Parties – These deposits represent deposits made by the Company with unaffiliated third parties for items such as lease security deposits, utility deposits, and deposits with unaffiliated third party management companies.

Deferred Tax Asset – We have $0 of net deferred tax assets as of ~~June~~September 30, 2023. 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 at the current time, we believe that it is more likely than not that we will not be able to realize the net deferred tax assets in the future, and a valuation allowance for the entire deferred tax asset has been recorded.

Swap Interest Receivable – Swap Interest Receivable represents amounts due from counterparties under our swap agreements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 56 - DEBT

Mortgages

Mortgages payable at ~~June~~September 30, 2023 and December 31, 2022 consisted of the following:

	June 30, 2023		December 31, 2022
	September 30, 2023		December 31, 2022
Mortgage Indebtedness	$	~~185~~184,~~262~~952	$	208,880
Net Unamortized Premium	42		7
Net Unamortized Deferred Financing Costs	(~~325~~224)		(533)
Mortgages Payable	$	184,~~941~~730	$	208,354

On May 1, 2023, we repaid in full the outstanding mortgage debt of $23,000 secured by the St. Gregory hotel, D.C., and incurred debt extinguishment expense of $52.

On June 7, 2023 we refinanced the outstanding mortgage debt with an original principal balance of $56,000 secured by the Hyatt Union Square, New York, NY, which extended the maturity date to June 7, 2024. Contemporaneous with the mortgage refinance, we entered into an interest rate swap that matures June 7, 2024 that fixes the interest rate at 7.39% until maturity.

Net Unamortized Deferred Financing Costs associated with entering into mortgage indebtedness are deferred and amortized over the life of the mortgages. Net Unamortized Premiums are also amortized over the remaining life of the loans. Mortgage indebtedness balances are subject to fixed and variable interest rates, which ranged from 4.02% to 78.8309% as of ~~June~~September 30, 2023.

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, or require an additional principal payment to achieve the desired threshold. We have determined that all debt covenants contained in the loan agreements securing our consolidated hotel properties were met as of ~~June~~September 30, 2023.

As of ~~June~~September 30, 2023, the maturity dates for the outstanding mortgage loans ranged from December 2023 to July 2024. For mortgages with maturity dates within the next twelve months, we plan to refinance each mortgage before their maturities, or use available cash on hand or capacity under our revolving line of credit to pay the obligation.

Credit Facilities

On August 4, 2022, we entered into a credit agreement (the "Credit Agreement"), which provided for a secured term loan of $400,000 and secured revolving line of credit with capacity of $100,000, both of which mature on August 4, 2024. Borrowings under the Credit Agreement bear interest at a rate of Term Secured Overnight Financing Rate ("SOFR") plus a 250 basis point spread. The following table summarizes the secured term loan balances outstanding as of ~~June~~September 30, 2023 and December 31, 2022:

	Outstanding Balance
	June 30, 2023		December 31, 2022
	September 30, 2023		December 31, 2022
Principal	$	347,853	$	372,853
Deferred Loan Costs	(1,~~517~~167)		(2,217)
Total Secured Term Loan	$	346,~~336~~686	$	370,636

Immediately upon entering into the Credit Agreement, proceeds from the $400,000 new term loan, along with a portion of the proceeds from the dispositions discussed in Note 23 – Investment in Hotel Properties, were used to pay off and terminate ~~all borrowings under our previous credit facility agreement ("the Prior Facilities"), which consisted of three secured credit arrangements which had an aggregate principal balance of $497,481.~~

2327

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 56 - DEBT (CONTINUED)

~~The~~all ~~Credit~~borrowings ~~Agreement~~under ~~contains~~our ~~financial~~previous ~~covenants,~~credit ~~including~~facility aagreement ~~fixed~~("the ~~charge~~Prior ~~coverage~~Facilities"), ~~ratio~~which ofconsisted ~~not less than 1.50 to 1.00; and a maximum leverage ratio~~ of ~~not~~three ~~more~~secured ~~than~~credit ~~60%.~~arrangements Wewhich ~~have~~had ~~determined~~an ~~that~~aggregate weprincipal ~~are~~balance ~~in compliance with all covenants contained in the Credit Agreement as~~ of ~~June 30~~$497, ~~2023~~481.

The ~~amount~~Credit ~~that~~Agreement wecontains ~~can~~financial ~~borrow~~covenants, atincluding ~~any~~a ~~given~~fixed ~~time~~charge ~~under~~coverage ~~the~~ratio ~~Credit~~of ~~Agreement~~not isless ~~governed~~than by1.50 ~~certain~~to ~~operating~~1.00; ~~metrics~~and ofa ~~designated~~maximum ~~hotel~~leverage ~~properties~~ratio ~~known~~of asnot ~~borrowing~~more ~~base~~than ~~assets~~60%. AsWe ofhave ~~June 30,~~determined ~~2023,~~that ~~the~~we ~~following~~are ~~hotel~~in ~~properties~~compliance ~~secure~~with all covenants contained in the Credit Agreement: as of September 30, 2023.

The amount that we can borrow at any given time under the Credit Agreement is governed by certain operating metrics of designated hotel properties known as borrowing base assets. As of September 30, 2023, the following hotel properties secure the Credit Agreement:


- The Envoy Boston Seaport, Boston, MA			- Ritz-Carlton Georgetown, Washington, DC
- The Boxer, Boston, MA			- The Winter Haven Hotel Miami Beach, Miami, FL
- Hampton Inn Seaport, Seaport, New York, NY			- The Blue Moon Hotel Miami Beach, Miami, FL
- Holiday Inn Express Chelsea, 29th Street, New York, NY			- Cadillac Hotel & Beach Club, Miami, FL
- NU Hotel, Brooklyn, New York, NY			- The Parrot Key Hotel & Villas, Key West, FL
- Hyatt House White Plains, White Plains, NY			- The Ambrose Hotel, Santa Monica, CA
- The Rittenhouse, Philadelphia, PA			- Mystic Marriott Hotel & Spa, Groton, CT
- Philadelphia Westin, Philadelphia, PA			- Hilton Garden Inn JFK Airport, New York, NY

The weighted average interest rate on our credit facilities, including our Prior Facilities and including the effect of derivative instruments, was 4.4842% and 3.5290%, 4.4746% and 3.5347% for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively.

Notes Payable

Notes payable at ~~June~~September 30, 2023 and December 31, 2022 consisted of the following:

	June 30, 2023		December 31, 2022
	September 30, 2023		December 31, 2022
Statutory Trust I and Statutory Trust II Notes Payable Indebtedness	$	51,548	$	51,548
Net Unamortized Deferred Financing Costs	(~~627~~613)		(653)
Statutory Trust I and Statutory Trust II Notes Payable	$	50,~~921~~935	$	50,895

We have two junior subordinated notes payable in the aggregate amount of $51,548 related 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 of notes issued to each of Hersha Statutory Trust I and Hersha Statutory Trust II bear interest at a variable rate of LIBOR plus 3.00% per annum, or SOFR plus 3% plus the spread adjustment of 0.26% after June 30, 2023. This rate resets 2 business days prior to each quarterly payment. The related deferred financing costs are amortized over the life of the notes payable. The weighted average interest rate on our two junior subordinated notes payable was 8.2352% and 35.9725%, and 78.9514% and 34.6116% for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively.

~~Interest Expense~~28

The table below summarizes interest expense incurred by the Company during the three and six months ended June 30, 2023 and 2022:

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 56 - DEBT (CONTINUED)

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Mortgage Loans Payable	$	3,712	$	2,948	$	7,509	$	5,477
Interest Rate Swap Contracts on Mortgages	(695)		358		(1,370)		923
Unsecured Notes Payable	1,067		4,589		2,069		8,995
Credit Facility and Term Loans	6,920		4,507		13,547		8,157
Interest Rate Swap Contracts on Credit Facilities	(2,881)		599		(5,344)		2,054
Deferred Financing Costs Amortization	663		1,235		1,360		2,426
Other	79		161		183		235
Total Interest Expense	$	8,865	$	14,397	$	17,954	$	28,267

Interest Expense

~~Liquidity~~The table below summarizes interest expense incurred by the Company during the three and ~~Debt~~nine ~~Maturities~~months ended September 30, 2023 and 2022:

As noted above, our term loan which has a principal balance of $347,853 as of June 30, 2023 will mature on August 4, 2024.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Mortgage Loans Payable	$	3,683	$	3,503	$	11,192	$	8,980
Interest Rate Swap Contracts on Mortgages	(480)		(184)		(1,850)		739
Unsecured Notes Payable	1,123		2,222		3,192		11,217
Credit Facility and Term Loans	6,973		5,455		20,520		13,611
Interest Rate Swap Contracts on Credit Facilities	(3,044)		(675)		(8,388)		1,378
Deferred Financing Costs Amortization	652		896		2,012		3,322
Other	93		116		276		353
Total Interest Expense	$	9,000	$	11,333	$	26,954	$	39,600

The Company believes that we will be able to refinance this debt, extend the maturity, or generate the cash necessary to pay off the debt through asset sales or an equity offering prior to its maturity. Refinancing or extending the maturity of this debt requires participation of third parties and accordingly, there is no assurance that we can successfully negotiate terms similar to or better than our current terms. 29

Four of our mortgages totaling $139,811 mature in the next twelve months. We plan to exercise available extension options, refinance each mortgage before their maturities, or use available cash on hand or capacity under our revolving line of credit to pay the obligations.

Table of Contents

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 67 – LEASES

As of ~~June~~September 30, 2023, we own two hotels, the Hilton Garden Inn JFK and the Annapolis Waterfront Hotel, within our consolidated portfolio of hotels where we do not own the land on which the hotels reside, rather we lease the land from an unrelated third-party lessor. Our land leases are classified as operating leases and have initial terms with extension options that range from August 2064 to October 2103. We also have two additional office space leases for our Philadelphia office and New York City office. The Philadelphia office lease commenced in April 2023 with a lease term through July 2028. Our New York City office lease term is through December 2027. Lease costs for our office spaces are included in General and Administrative expense.

We disposed of the following hotels during the year ended December 31, 2022 which had ground leases that were assumed by the buyers: the Courtyard Brookline, the Gate hotel JFK Airport, Hotel Milo, and Towneplace Suites Sunnyvale.

The components of lease costs for the three months ended ~~June~~September 30, 2023 and 2022 were as follows:

Three Months Ended June 30, 2023

Three Months Ended June 30, 2022

Three Months Ended September 30, 2023

Three Months Ended September 30, 2022

Ground Lease

Office Lease

Total

Ground Lease

Office Lease

Total

Operating lease costs

~~304~~302

~~140~~51

~~444~~353

~~1,050~~943

~~153~~121

1,~~203~~064

Variable lease costs

~~307~~284

4045

~~347~~329

~~481~~242

8747

~~568~~289

Total lease costs

~~611~~586

~~180~~96

~~791~~682

1,~~531~~185

~~240~~168

1,~~771~~353

The components of lease costs for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 were as follows:

Six months ended June 30, 2023

Six months ended June 30, 2022

Nine months ended September 30, 2023

Nine months ended September 30, 2022

Ground Lease

Office Lease

Total

Ground Lease

Office Lease

Total

Operating lease costs

~~607~~909

~~261~~306

~~868~~1,215

23,~~101~~045

~~242~~363

23,~~343~~408

Variable lease costs

~~322~~606

~~121~~172

~~443~~778

~~520~~761

~~156~~203

~~676~~964

Total lease costs

~~929~~1,515

~~382~~478

1,~~311~~993

23,~~621~~806

~~398~~566

34,~~019~~372

Other information related to leases as of and for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 is as follows:

	June 30, 2023			June 30, 2022
	September 30, 2023			September 30, 2022
Cash paid from operating cash flow for operating leases	$	12,~~347~~048		$	24,~~758~~080
Weighted average remaining lease term (in years)	48.67			6366.54
Weighted average discount rate	7.84		%	7.8687		%

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 78 – COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS

Management Agreements

Our wholly-owned TRS, 44 New England Management Company, and certain of our joint venture entities engage eligible independent contractors in accordance with the requirements for qualification as a REIT under the Internal Revenue Code of 1986, as amended, including Hersha Hospitality Management Limited Partnership (“HHMLP”), as the property managers for hotels it leases from us pursuant to management agreements. Certain executives and trustees of the Company own a minority interest in HHMLP. Our management agreements with HHMLP provide for a term of five years 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 three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, base management fees incurred to HHMLP totaled $2,531 and $32,~~145~~675, and $46,~~229~~411 and $57,~~143~~818 respectively, and are recorded as Hotel Operating Expenses.

Franchise Agreements

Our branded hotel properties that are not managed by the brand 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, advertising services and certain other charges, and such payments are primarily based upon percentages of gross room revenue. These payments are paid by the hotels and charged to expense as incurred. Franchise fee expenses for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 were $3,~~813~~829 and $54,~~362~~181, and $610,~~483~~312 and $812,~~413~~595 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, Revenue Management 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. Revenue management service fees are incurred to reimburse HHMLP for costs related to corporate level direct sales and sales support, and are allocated based on total hotel revenue. For the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, the Company incurred the following fees which are included in Hotel Operating Expenses under Other Operating Expenses:

For the Three Months Ended

For the ~~Six~~Nine Months Ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

Accounting fees

204

~~277~~244

~~409~~613

~~555~~799

Information technology fees

9080

~~140~~206

~~177~~257

Revenue management service fees

449

~~574~~515

~~898~~1,347

1,~~149~~664

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 78 – COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)

Capital Expenditure Fees

HHMLP charges fees between 3% and 5% on certain capital expenditures and pending renovation projects at the properties as compensation for procurement services related to capital expenditures and for project management of renovation projects. For the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, we incurred fees of $~~350~~149 and $~~170~~126, and $~~655~~804 and $~~294~~420, respectively, which were capitalized with the cost of capital expenditures.

Acquisitions from Affiliates

We have entered into an option agreement with certain of our officers and 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

We purchase certain hotel supplies and make certain capital expenditures from Hersha Purchasing and Design (HPD), a hotel supply company owned, in part, by certain executives and trustees of the Company. WeFor ~~did~~the ~~not~~three ~~incur~~and nine months ended September 30, 2023 and 2022, we incurred charges for hotel supplies ~~purchased~~of ~~from~~$12 ~~HPD~~and ~~for~~$0, ~~the~~and ~~three~~$12 and ~~six months~~$0, ~~ended June 30~~respectively, ~~2023~~for ~~and~~hotel ~~2022~~supplies purchased from HPD. For the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, we incurred charges of $94,~~824~~847 and $31,~~652~~150, and $1015,~~712~~559 and $45,~~541~~691, respectively, for capital expenditure purchases from HPD. 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.

Corporate Shared Services

The Company utilizes the services of HHMLP to provide risk management, information technology, and human resource services to the Company. The fees incurred for these services for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 were $124 and $146, and $~~248~~371 and $~~293~~439, respectively, and are included in General and Administrative Expense on our consolidated statements of operations.

Restaurant Lease Agreements with Independent Restaurant Group

The Company has entered into management agreements with Independent Restaurant Group (“IRG”), owned, in part, by certain executives and trustees of the Company. As of September 30, 2023, IRG is subject to the supervision of HHMLP, as property manager, for ~~restaurants~~the restaurant at ~~two~~one of ~~its~~our hotel properties. The IRG lease for a restaurant at the Rittenhouse hotel was terminated as of August 1, 2023. For the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, management fees incurred which were paid to IRG totaled $5839 and $6861, and $~~105~~143 and $~~111~~172, respectively.

Due From Related Parties

The due from related parties balance as of ~~June~~September 30, 2023 and December 31, 2022 was approximately $82232 and $245, respectively. The balances primarily consist of asset management fees due from our unconsolidated joint ventures.

Due to Related Parties

The balance due to related parties as of ~~June~~September 30, 2023 and December 31, 2022 was $21,~~534~~369 and $2,610, respectively. The balance at ~~June~~September 30, 2023 and December 31, 2022 primarily consisted of amounts due to HHMLP for monthly management fees discussed above.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 89 – 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 ~~June~~September 30, 2023, 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 counter-party’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 counter-parties. However, as of ~~June~~September 30, 2023 we have assessed the significance of the effect of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Derivative Instruments

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. The following table presents our derivative instruments as of ~~June~~September 30, 2023 and December 31, 2022:

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 89 – FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS (CONTINUED)

Estimated Fair Value

Asset Balance

Hedged Debt

Type

Strike Rate

Index

Effective Date

Derivative Contract Maturity Date

Notional Amount

~~June~~September 30, 2023

December 31, 2022

Term Loan Instruments:

Credit Facility

Swap

1.341

1-Month SOFR + 2.50%

August 30, 2022

September 10, 2024

270,000

129,~~026~~988

14,123

Credit Facility

Swap

1.279

1-Month SOFR + 2.50%

September 6, 2022

August 4, 2024

30,000

1,~~261~~017

1,533

Mortgages:

Hyatt, Union Square, New York, NY

Swap

1.870

1-Month LIBOR + 2.30%

June 7, 2019

June 7, 2023

56,000

—

699

Hilton Garden Inn Tribeca, New York, NY

Swap

1.768

1-Month LIBOR + 2.25%

July 25, 2019

July 25, 2024

22,725

~~844~~678

1,007

Hilton Garden Inn Tribeca, New York, NY

Swap

1.768

1-Month LIBOR + 2.25%

July 25, 2019

July 25, 2024

22,725

~~844~~678

1,007

Hilton Garden Inn 52nd Street, New York, NY

Cap

4.000

1-Month SOFR

December 4, 2022

December 1, 2023

44,325

~~242~~100

340

Hyatt, Union Square, New York, NY

Swap

4.988

1-Month SOFR + 2.40%

June 7, 2023

June 7, 2024

56,000

~~136~~145

—

1512,~~353~~606

18,709

The fair value of the interest rate swaps and cap are included in Other Assets at ~~June~~September 30, 2023 and December 31, 2022.

The net change related to derivative instruments designated as cash flow hedges recognized as unrealized gains reflected on our consolidated balance sheet in accumulated other comprehensive income was a ~~gain/~~(loss)/gain of $~~668~~(2,701) and $45,~~981~~799, and $(36,~~304~~005) and $2025,~~103~~902 for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made and received on the Company’s variable-rate derivatives. The change in net unrealized gains/(losses) on cash flow hedges reflects a reclassification of $4546 and $(~~372~~136), and $5298 and $(~~739~~875) of net unrealized gains/(losses) from accumulated other comprehensive income as an increase/decrease to interest expense for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. For the next twelve months ending ~~June~~September 30, 2024, we estimate that an additional $1312,~~564~~847 will be reclassified as a decrease to interest expense.

Fair Value of Debt

We estimate the fair value of our fixed rate debt and the credit spreads over variable market rates on our 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 ~~June~~September 30, 2023, the carrying value and estimated fair value of our debt was $582,~~198~~351 and $~~563~~566,~~172~~640, respectively. As of December 31, 2022, the carrying value and estimated fair value of our debt was $629,885 and $610,401, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 910 – SHARE BASED PAYMENTS

On May 25, 2023, our shareholders approved an amendment to the Hersha Hospitality Trust 2012 Equity Incentive Plan which provides equity-based incentives for the purpose of attracting and retaining executive officers, employees, trustees and other persons and entities that provide services to the Company.

On March 9, 2023, the Compensation Committee approved the 2023 Long Term Incentive Plan ("2023 LTIP") in which 60% of the LTIP Units are issuable based on the Company's achievement of a certain level of (1) absolute total shareholder return (37.5% of the award), (2) relative total shareholder return as compared to the Company’s peer group (37.5% of the award), and (3) relative growth in revenue per available room ("RevPar") compared to the Company’s peer group (25.0% of the award) and the remaining 40% of the LTIP Units awarded provide for time based vesting.

The 60% market-based portion of the 2023 LTIP has a three-year performance period which commenced on January 1, 2023 and ends December 31, 2025. As of ~~June~~September 30, 2023, no shares or LTIP Units have been issued to the executive officers in settlement of 2023 LTIP market-based awards.

A summary of our share based compensation activity from December 31, 2022 to September 30, 2023 is as follows:

	LTIP Unit Awards				Restricted Share Awards			Share Awards
	Number of Units		Weighted Average Grant Date Fair Value		Number of Restricted Shares	Weighted Average Grant Date Fair Value		Number of Shares	Weighted Average Grant Date Fair Value
Unvested Balance as of December 31, 2022	1,105,573		$	9.65	164,166	$	9.83	—
Granted	1,297,419	(1)	5.90		52,710	5.90		145,615	$	6.36
Vested	(51,452)		5.90		(122,423)	10.03		(145,615)	6.36
Forfeited	—		N/A		(2,767)	10.52		—	N/A
Unvested Balance as of June 30, 2023	2,351,540		$	7.66	91,686	$	7.29	—
Unvested Balance as of September 30, 2023	2,351,540		$	7.66	91,686	$	7.29	—

(1) On March 22, 2023, 1,104,874 Units were issued to the executive officers in settlement of the 2022 Short Term Incentive Program. These Units vest on December 31, 2024, the two year anniversary following the end of the performance period and were determined by dividing the dollar amount of award earned by $9.32, the per share volume weighted average trading price of the Company's common shares on the NYSE for the 20 trading days prior to December 31, 2022.

On June 21, 2023, the Compensation Committee awarded 192,545 LTIP Units related to the time based portion of the 2023 LTIP. These LTIP Units vest over a three year period from January 1, 2023 to December 31, 2025. The LTIP Units awarded were determined by dividing the dollar amount of award earned by $9.32, the per share volume weighted average trading price of the Company’s common shares on the NYSE for the 20 trading days prior to December 31, 2022.

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 910 – SHARE BASED PAYMENTS (CONTINUED)

The following table summarizes share based compensation expense for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 and unearned compensation as of ~~June~~September 30, 2023 and December 31, 2022:

Share BasedCompensation Expense

UnearnedCompensation

For the Three Months Ended

For the ~~Six~~Nine Months Ended

As of

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

June 30, 2023

December 31, 2022

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

September 30, 2023

December 31, 2022

Issued Awards

LTIP Unit Awards

1,~~953~~857

21,~~142~~960

24,~~726~~584

35,~~919~~878

75,~~547~~689

5,311

Restricted Share Awards

~~177~~98

~~346~~228

~~376~~473

~~538~~767

~~500~~358

683

Share Awards

~~205~~45

~~478~~152

1,~~015~~060

~~764~~916

—

Unissued Awards

Market Based

~~362~~339

~~333~~428

~~632~~971

~~619~~1,047

2,~~971~~632

2,541

Total

2,~~697~~339

32,~~299~~768

47,~~749~~088

58,~~840~~608

118,~~018~~679

8,535

The weighted-average period of which the unrecognized compensation expense will be recorded is approximately 1.76 years for LTIP Unit Awards and 1.21 years for Restricted Share Awards.

The remaining unvested target units are expected to vest as follows:


	2023	2024	2025	2026
LTIP Unit Awards	1,110,621	1,176,738	64,181	—
Restricted Share Awards	—	73,758	10,464	7,464
	1,110,621	1,250,496	74,645	7,464

32As noted in Note 1 - Company Overview and Merger Agreement, pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the Company Merger Effective Time, each Company Restricted Share Award that is outstanding immediately prior to the Company Merger Effective Time will vest, and each Company Restricted Share Award will be canceled and converted into the right to receive a payment (without interest and subject to applicable tax withholding) equal to the number of Company Common Shares underlying such Company Restricted Share Award at $10.00 per share. At the Partnership Merger Effective Time, each Company LTIP Unit that is outstanding and unvested as of immediately prior to the Partnership Merger Effective Time shall vest and become transferable and immediately thereafter, the Company shall cause a Forced Conversion (as defined in the Merger Agreement) with respect to all Company LTIP Units then eligible for conversion (after giving effect to the vesting of all Company LTIP Units as described in the Merger Agreement) such that, as of the Partnership Merger Effective Time, each then outstanding Company LTIP Unit will be converted into an equal number of common Company Partnership Units (with such converted Company Partnership Units treated in the same manner under the Merger Agreement as other outstanding Company Partnership Units).

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 1011 – EARNINGS PER SHARE

The following table is a reconciliation of the income or loss (numerator) and the weighted average shares (denominator) used in the calculation of basic and diluted earnings per common share. The computation of basic and diluted earnings per share is presented below.

	Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
NUMERATOR:
Basic and Diluted*
Net income (loss)	$	~~5,961~~952	$	9136,~~584~~189	$	(32,~~540~~588)	$	(7129,~~015)~~174
Loss (Income) Allocated to Noncontrolling Interests	~~1,803~~629		(114,~~114~~668)		23,~~409~~038		(~~706~~15,374)
Distributions to Preferred Shareholders	(6,043)		(6,~~043~~044)		(1218,~~087~~130)		(1218,~~087~~131)
Dividends Paid on Unvested Restricted Shares and LTIP Units	(122)		—(101)		(~~238~~361)		—(101)
Net income (loss) applicable to Common Shareholders	$	1,599	$	2,427	$	(13,456)	$	(19,808)
Net (loss) income applicable to Common Shareholders	$	(4,584)	$	115,376	$	(18,041)	$	95,568
DENOMINATOR:
Weighted average number of common shares - basic	3940,~~849~~012,~~859~~965		39,~~277~~465,~~269~~645		39,~~738~~831,~~662~~101		39,~~254~~325,~~536~~679
Effect of dilutive securities:
Restricted Stock Awards and LTIP Units (unvested)	~~1,011,129~~—		~~853~~1,~~136~~095,727		—		—979,938
Contingently Issued Shares and Units	~~426,480~~—		~~323~~401,~~380~~401		—		—364,489
Weighted average number of common shares - diluted	4140,~~287~~012,~~468~~965		40,~~453~~962,~~785~~773		39,~~738~~831,~~662~~101		3940,~~254~~670,~~536~~106

*Loss (Income) allocated to noncontrolling interest in HHLP has been excluded from the numerator and Common Units and Vested LTIP Units have been omitted from the denominator for the purpose of computing diluted earnings per share since 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 net ~~income~~ (loss) income applicable to common shareholders.

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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)

NOTE 1112 – CASH FLOW DISCLOSURES AND NON CASH INVESTING AND FINANCING ACTIVITIES

Interest paid during the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 totaled $2234,~~880~~886 and $1931,~~976~~087, respectively. Net cash received on Interest Rate Derivative contracts during the ~~six~~nine months ended ~~June~~September 30, 2023 totaled $610,~~549~~093 and net cash paid on Interest Rate Derivative contracts during the ~~six~~nine months ended ~~June~~September 30, 2022 totaled $4,~~333~~347. Cash paid for income taxes during the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 totaled $4,~~728~~762 and $1,~~085~~246, respectively. The following non-cash investing and financing activities occurred during the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022:

	2023		2022
Issuance of share based payments	$	9,181	$	5,~~171~~462
Accrued payables for capital expenditures placed into service	~~1,972~~666		~~433~~1,222
Adjustment to Record Noncontrolling Interest at Redemption Value	(416)		2,~~964~~349
Adjustment to Record Right of Use Asset & Lease Liability	~~926~~917		—

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022:

	2023		2022
Cash and cash equivalents	$	~~142~~146,~~391~~145	$	8794,~~918~~271
Escrowed cash	4,~~797~~948		1213,~~764~~129
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows	$	~~147~~151,~~188~~093	$	~~100~~107,~~682~~400

Amounts included in restricted cash represent those required to be set aside in escrow by contractual agreement with various lenders for the payment of specific items such as property insurance, property tax, and capital expenditures.

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

Cautionary Statement Regarding Forward Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements containing the words, “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may,” "could," "will," "would," "forecast," "project," "potential," "likely," and words of similar import. Such forward-looking statements relate to future events, our plans, strategies, prospects and future financial performance, and involve known and unknown risks that are difficult to predict, uncertainties and other factors that are, in some cases, beyond our control and which could materially affect our actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers should specifically consider the various factors identified in this report and other reports filed by us with the U.S. Securities and Exchange Commission (the "SEC"), including, but not limited to those discussed in the sections entitled “Risk Factors” and "Management's Discussion and Analysis of Financial Conditions and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2022 and in this Quarterly Report on Form 10-Q, that could cause actual results to differ. Statements regarding the following subjects are forward-looking by their nature:

● the satisfaction or waiver of other conditions to closing in the Merger Agreement (as defined below) or the failure of the
Mergers to close for any other reason;

● the occurrence of any change, effect, event, circumstance, occurrence or state of facts that could give rise to the
termination of the Merger Agreement;

● the outcome of the legal proceedings that may be instituted against the Company and others related to the Mergers and
the Merger Agreement;

● unanticipated difficulties or expenditures relating to the Mergers, the response of business partners, hotel operators and
competitors to the announcement and pendency of the Mergers, and potential difficulties in employee retention as a result
of the announcement and pendency of the Mergers;

● the Company’s exclusive remedy against the counterparties to the Merger Agreement with respect to any breach of the
Merger Agreement being to seek payment of the parent termination fee, which may not be adequate to cover the
Company’s damages;

● the Company’s restricted ability to pay dividends to its common shareholders pursuant to the Merger Agreement;
● unexpected costs, liabilities or delays involving the proposed Mergers;

● risks related to disruption of management’s attention from the Company’s ongoing business operations due to the
proposed Mergers;

● our business or investment strategy;

● our projected operating results;

● our ability to generate positive cash flow from operations;

● our distribution policy;

● our liquidity and management's plans with respect thereto;

● completion of any pending transactions;

● our ability to maintain existing financing arrangements, including compliance with covenants and our ability to obtain future financing arrangements or refinance or extend the maturity of existing financing arrangements as they come due;

● our ability to negotiate with lenders;

● our understanding of our competition;

● market trends;

● projected capital expenditures;

● the impact of inflation and the change in interest rates;

● the potential effects of a pandemic or epidemic;

● the supply and demand factors in our markets or sub-markets, or a potential recessionary environment;

● our access to capital on the terms and timing we expect;

● the restoration of public confidence in domestic and international travel;

● permanent structural changes in demand for conference centers by business and leisure clientele; and

● our ability to dispose of selected hotel properties on the terms and timing we expect, if at all.

Forward-looking statements are based on our beliefs, assumptions and expectations, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Readers should not place undue reliance on forward-looking statements.

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Important factors that we think could cause our actual results to differ materially from expected results are summarized below. The most significant factors, we believe, are: the ongoing impact of the novel coronavirus on the United States, the uncertainties in the regional and global economies, the direction and volatile nature of the broader financial markets, our customers and employees perceptions of the economy and its impact on them, governmental responses to all of the items mentioned and others which may occur in the future and the operational changes we have made as well as those we may implement in the future in response thereto.

New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

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The following non-exclusive list of factors could also cause actual results to vary from our forward-looking statements:

● general volatility of the capital markets and the market price of our common shares;

● changes in our business or investment strategy;

● availability, terms and deployment of capital;

● changes in our industry and the market in which we operate, interest rates, or the general economy;

● decreased international travel because of geopolitical events, including terrorism and current U.S. government policies such as immigration policies, border closings, and travel bans related to COVID-19;

● widespread adoption of teleconference and virtual meeting technologies could reduce the number of in person business meetings and demand for travel and our services;

● uncertainty surrounding the financial stability of the United States, Europe and China;

● the degree and nature of our competition;

● financing risks, including (i) the risk of leverage and the corresponding risk of default on our mortgage loans and other debt, including default with respect to applicable covenants, (ii) potential inability to obtain waivers of covenants or refinance or extend the maturity of existing indebtedness and (iii) our ability to negotiate with lenders;

● levels of spending in the business, travel and leisure industries, as well as consumer confidence;

● declines in occupancy, average daily rate and RevPAR and other hotel operating metrics;

● hostilities, including future terrorist attacks, or fear of hostilities that affect travel;

● financial condition of, and our relationships with, our joint venture partners, third-party property managers, and franchisors;

● increased interest rates and operating costs and the impact of inflation;

● ability to complete development and redevelopment projects;

● risks associated with potential dispositions of hotel properties;

● availability of and our ability to retain qualified personnel;

● decreases in tourism due to pandemics, geopolitical instability or changes in foreign exchange rates;

● our failure to maintain our qualification as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the "Code";

● environmental uncertainties and risks related to natural disasters and increases in costs to insure against those risks;

● changes in real estate and zoning laws and increases in real property tax rates;

● the uncertainty and economic impact of pandemics, epidemics, or other public health emergencies or fear of such events, and the measures that international, federal, state and local governments, agencies and/or health authorities may implement to address such events, which may have adverse effects on our financial conditions, results of operations, cash flows, and performance for an indefinite period of time.

● world events impacting the ability or desire of people to travel may lead to a decline in demand for hotels; and

● the factors discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 under the headings “Risk Factors” and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in other reports we file with the SEC from time to time.

These factors are not necessarily all of the important factors that could cause our actual results, performance or achievements to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors, many of which are beyond our control, also could harm our results, performance or achievements.

All forward-looking statements contained in this report are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and we do not undertake or assume any obligation to update publicly any of these statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

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changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

RECENT EVENTS

Merger Agreement and Mergers

On August 27, 2023, Hersha Hospitality Trust, Hersha Hospitality Limited Partnership, a subsidiary of the Company (“Company OP”), 1776 Portfolio Investment, LLC (“Parent”), 1776 Portfolio REIT Merger Sub, LLC, a wholly owned subsidiary of Parent (“REIT Merger Sub”), and 1776 Portfolio OP Merger Sub, LP, a subsidiary of Parent (“OP Merger Sub” and, together with Parent and REIT Merger Sub, the “Parent Parties”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, OP Merger Sub will be merged with and into Company OP (the “Partnership Merger”, and such surviving entity, the “Surviving Partnership”) and, immediately following the Partnership Merger, the Company shall be merged with and into REIT Merger Sub (the “Company Merger” and, together with the Partnership Merger, the “Mergers”). Upon completion of the Company Merger, REIT Merger Sub will survive as a wholly owned subsidiary of Parent and the separate existence of the Company will cease. Upon completion of the Company Merger, the Company will cease to be a publicly traded company and, pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Company Merger (the "Company Merger Effective Time"), other than Excluded Shares: (i) each Company Common Share issued and outstanding immediately prior to the merger will be converted into the right to receive $10.00 in cash without interest; and (ii) each 6.875% Series C Cumulative Redeemable Preferred Share (“Series C Preferred Share”) issued and outstanding will be converted into the right to receive $25.00 in cash plus accrued and unpaid dividends, if any, up to and including the Closing Date, without interest; and (iii) each 6.50% Series D Cumulative Redeemable Preferred Share (“Series D Preferred Share”) issued and outstanding will be converted into the right to receive $25.00 in cash plus accrued and unpaid dividends, if any, up to and including the Closing Date, without interest; and (iv) each 6.50% Series E Cumulative Redeemable Preferred Share (“Series E Preferred Share”) issued and outstanding will be converted into the right to receive $25.00 in cash plus accrued and unpaid dividends, if any, up to and including the Closing Date, without interest.

On October 3, 2023, the Company filed a definitive proxy statement on Schedule 14A relating to the Merger (the “Proxy Statement”). The special meeting of shareholders (the “Special Meeting”) was held on November 8, 2023 in which an affirmative vote of the majority of the outstanding common shares was made to approve the Company Merger and other transactions proposed as part of the Mergers.

The transactions contemplated by the Merger Agreement are expected to be completed in the fourth quarter of 2023; however, the closing of the Mergers is subject to various closing conditions, each of which is more fully described in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 28, 2023 and the Proxy Statement filed with the Securities and Exchange Commission on October 3, 2023. See Note 1 to the unaudited condensed consolidated financial statements included with this report, “Company Overview and Merger Agreement” for additional information.

BACKGROUND

As of ~~June~~September 30, 2023, we owned interests in 25 hotels in major urban gateway markets including New York, Washington DC, Boston, Philadelphia, Monterey Bay, Key West, and Miami, including 22 wholly-owned hotels, one hotel through our interest in a consolidated joint venture, and interests in two hotels 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 September 30, 2023, 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.

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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 June 30, 2023, 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 started to realize the effects from the global economic slowdown caused by the COVID-19 pandemic in March of 2020. In response to the COVID-19 pandemic, we completed several hotel dispositions to enhance our liquidity to address our various debt obligations and limit capital expenditures.

During 2022, we closed on the sale of ten hotel properties for consideration of $641.0 million. The proceeds from the sales were used to pay off the Company's unsecured notes facility at a redemption price of $164.4 million, and to pay down amounts borrowed under the Company’s line of credit and term loans. On August 4, 2022, the Company entered into a new credit agreement for a senior secured credit facility which provided for a $100.0 million revolving line of credit and a $400.0 million term loan. The Company made an initial draw of $400.0 million on the facility’s term loan, using the proceeds to pay off the remaining balances under the Company’s prior line of credit and term loans, effectively reducing the Company’s borrowings and moving the maturity of borrowings under the Company’s credit facility to August of 2024. The $100.0 million line of credit provided by the new credit facility remains undrawn.

The manner in which the ongoing COVID-19 pandemic will be resolved or the manner that the hospitality and tourism industries will return to historical performance norms, and whether the economy will contract or grow are not reasonably predictable. As a result, there can be no assurances that we will be able to achieve the hotel operating metrics or the results at our properties we have forecasted. Factors that might contribute to less-than-anticipated performance include those described under the headings “Risk Factors” and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2022 and other documents that we may file with the SEC in the future. We will continue to cautiously monitor lodging demand and rates, our third-party hotel managers, and our performance generally.

SUMMARY OF OPERATING RESULTS

COMPARISON OF THE THREE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022

(dollars in thousands, except ADR, RevPAR, and per share data)

Revenue

Hotel operating revenues are recorded for wholly-owned hotels that are leased to our wholly owned TRS and hotels owned through joint venture or other interests that are consolidated in our financial statements. Hotel operating revenues decreased $2512,~~469~~250 to $9791,~~730~~891 for the three months ended ~~June~~September 30, 2023 compared to $~~123~~104,~~199~~141 for the same period in 2022. This decrease is primarily attributable to the sale of ten hotel properties (the Courtyard Brookline, Gate hotel JFK Airport, Hampton Inn Philadelphia, Hampton Inn D.C., Courtyard Los Angeles, the Hotel Milo, TownePlace Suites Sunnyvale, Hilton Garden Inn M Street, Courtyard Sunnyvale, and Pan Pacific Seattle) in the third and fourth quarters of 2022, which contributed hotel operating revenue of $2917,~~093~~076 during the three months ended ~~June~~September 30, 2022. This decrease is partially offset by an increase in demand across our urban markets in 2023.

Expenses

Total hotel operating expenses decreased $96,~~174~~237 to $5756,~~919~~422 for the three months ended ~~June~~September 30, 2023 compared to $6762,~~093~~659 for the three months ended ~~June~~September 30, 2022. This decrease is primarily attributable to the sale of the ten hotel properties referenced above during the third and fourth quarters of 2022, which contributed hotel operating expense of $148,~~500~~585 during the three months ended ~~June~~September 30, 2022. This decrease is partially offset by an increase in hotel operating expenses due primarily to the reopening of food and beverage outlets at several of our hotels, and due to increased occupancy at our hotels for the three months ended ~~June~~September 30, 2023 as a result of the increase in demand noted above.

37Hotel ground rent decreased by $599, or 50.5%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 as a result of the disposal of the following hotels during the year ended December 31, 2022 which had ground leases that were assumed by the buyers: the Courtyard Brookline, the Gate hotel JFK Airport, the Hotel Milo and the TownePlace Suites Sunnyvale. As of September 30, 2023, we have two hotels in our portfolio in which we incur ground rent: the Hilton Garden Inn JFK and the Annapolis Waterfront Hotel.

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~~Hotel~~Real ~~ground~~estate ~~rent~~and ~~decreased~~personal byproperty tax and property insurance decreased $~~920~~794, or 6010.15%, for the three months ended ~~June~~September 30, 2023 when compared to the ~~three~~same ~~months~~period ~~ended~~in ~~June 30,~~ 2022 ~~as a result of the disposal of the following hotels during the year ended December 31~~, ~~2022~~ which ~~had~~is ~~ground~~primarily ~~leases~~driven ~~that were assumed~~ by the ~~buyers:~~sale ~~the~~of ~~Courtyard~~ten ~~Brookline,~~hotel ~~the~~properties ~~Gate~~in ~~JFK Airport,~~ the ~~Hotel~~third ~~Milo~~ and ~~the~~fourth ~~TownePlace~~quarters ~~Suites~~of ~~Sunnyvale~~2022 noted above. AsIn ~~of June 30~~general, ~~2023,~~our weproperty ~~have~~insurance ~~two~~costs ~~hotels~~continue into ~~our~~rise ~~portfolio~~annually, in which wewas ~~incur~~partially ~~ground~~offset ~~rent: the~~by ~~Hilton~~a ~~Garden~~reduction ~~Inn~~in ~~JFK~~expense ~~and~~due to the ~~Annapolis~~dispositions ~~Waterfront~~noted ~~Hotel~~above.

~~Real~~General ~~estate~~ and ~~personal~~administrative ~~property~~expense ~~tax and property insurance decreased~~ increased $2166,~~076,~~ or 242.98%, from $5,883 for the three months ended ~~June~~September 30, 2022 to $6,049 for the same period in 2023. General and administrative expense includes expenses related to payroll, rents, and other corporate level administrative costs as well as non-cash share based payments issued as compensation to the Company’s trustees, executives, and employees. Expenses related to non-cash share based compensation decreased $429 when ~~compared~~comparing the three months ended September 30, 2023 to the same period in 2022,. Please ~~which~~refer isto ~~primarily~~“Note ~~driven~~10 by– ~~the~~Share ~~sale~~Based Payments” of ~~ten~~the ~~hotel~~notes ~~properties~~to in the ~~third~~consolidated ~~and~~financial ~~fourth~~statements ~~quarters~~for ofmore ~~2022~~information ~~noted~~about ~~above~~our share based compensation.

~~General~~Depreciation and ~~administrative~~amortization ~~expense~~ decreased by $~~721~~1,106, or 117.14%, ~~from~~to $613,~~491~~794 for the three months ended ~~June~~September 30, ~~2022~~2023 tofrom $514,~~770~~900 for the same period in 2023. General and administrative expense includes expenses related to payroll, rents, and other corporate level administrative costs as well as non-cash share based payments issued as compensation to the Company’s trustees, executives, and employees. Expenses related to non-cash share based compensation decreased $602 when comparing the three months ended ~~June~~September 30, ~~2023 to the same period in~~ 2022. ~~Please~~ ~~refer~~The todecrease ~~“Note~~is 9primarily –attributable ~~Share~~to ~~Based~~the ~~Payments”~~sale of ~~the~~ten ~~notes~~hotels toin ~~the~~2022 ~~consolidated~~noted ~~financial~~above, ~~statements~~and ~~for~~assets ~~more~~that ~~information~~fully ~~about~~depreciated ~~our~~during ~~share based compensation~~2022.

~~Depreciation~~During ~~and~~the ~~amortization~~third ~~decreased~~quarter byof $22022,~~997,~~ orthe ~~17.6%,~~Company todetermined ~~$14,006~~that ~~for~~ the ~~three~~carrying ~~months~~value ~~ended~~of ~~June 30, 2023 from $17,003 for~~ the ~~three~~Gate ~~months~~hotel ~~ended~~JFK ~~June 30,~~Airport ~~2022.~~exceeded ~~The~~the ~~decrease~~anticipated isnet ~~primarily~~proceeds ~~attributable~~from ~~to the~~ sale, ofresulting ~~ten~~in ~~hotels~~a in$10,024 ~~2022~~loss ~~noted~~on ~~above,~~impairment ~~and~~of assets ~~that~~recorded ~~fully~~during ~~depreciated~~the ~~during~~third quarter of 2022.

Operating Income

Operating income for the three months ended ~~June~~September 30, 2023 was $138,~~249~~365 compared to operating income of $232,~~824~~036 during the same period in 2022. This ~~decrease~~increase is primarily driven by the $10,024 loss on impairment of assets recorded during the third quarter of 2022, as compared to no impairment incurred during the three months ended September 30, 2023. This is partially offset by decreases in hotel operating revenue and hotel operating expenses described above.

Interest Income

Interest income increased $1,~~694~~415 from $1101 for the three months ended ~~June~~September 30, 2022 to $1,~~695~~516 for the three months ended ~~June~~September 30, 2023. The increase in interest income is primarily driven by an increase in cash and cash equivalents as a result of the 2022 hotel dispositions noted above, and increases in interest rates in the overall market which have increased the interest income earned on cash and cash equivalents.

Interest Expense

Interest expense decreased $52,~~532~~333 from $1411,~~397~~333 for the three months ended ~~June~~September 30, 2022 to $89,~~865~~000 for the three months ended ~~June~~September 30, 2023. The decrease in interest expense is primarily driven by the pay down of the amount drawn under the prior line of credit of $118,684 on August 4, 2022, the decrease in the principal term loan balance of $97,481 after the credit refinancing on August 4, 2022, and the pay off of certain unsecured notes payable on August 4, 2022 which had a principal balance of $158,094.

~~Other~~Gain ~~Income~~on ~~(Expense)~~Disposition of Hotel Properties

~~Other~~During ~~income was $73 for~~ the three months ended ~~June~~September 30, ~~2023~~2022, ~~compared~~we toclosed ~~other~~on ~~expense of $108 for~~ the ~~three~~sale ~~months~~of ~~ended~~six ~~June 30,~~of ~~2022. Other income during~~ the ~~three~~seven ~~months~~urban ~~ended~~select ~~June 30,~~service ~~2023~~hotels ~~primarily~~and ~~consists~~recognized ofa ~~the~~gain ~~recovery~~ of ~~certain~~$167,800 ~~deposits~~accordingly. ~~associated~~There ~~with~~were ~~properties~~no ~~sold~~hotel indispositions ~~2022~~during ~~that~~the wethree ~~had~~months ~~previously~~ended ~~deemed~~September 30, ~~uncollectible~~2023.

~~Unconsolidated~~Loss ~~Joint~~on ~~Venture~~Debt ~~Investments~~Extinguishment

~~The~~During ~~loss from unconsolidated joint ventures consists of our interest in~~ the ~~operating results of the properties we own in joint ventures. Loss from our unconsolidated joint ventures decreased by $431 to a loss of $74 for the~~ three months ended ~~June~~September 30, ~~2023~~2022, ~~compared~~we toincurred ~~income~~a ofloss ~~$357~~on ~~during~~debt ~~the~~extinguishment ~~same~~of ~~period in 2022~~$17,958. ~~The~~We ~~income~~incurred ~~from unconsolidated joint ventures for the three months ended June 30~~$13,725 ~~2022 includes income~~ of ~~$301~~debt ~~for~~extinguishment ~~Hiren~~losses ~~Boston,~~upon ~~LLC,~~redemption ~~which~~of wethe ~~sold~~Junior Notes on ~~November~~August 304, 2022~~. The~~, ~~remaining~~and ~~change is attributable to a decline in operating results at our Home2 Suites~~$4,233 ~~South~~of ~~Boston~~debt ~~joint~~modification ~~venture~~and ~~for~~extinguishment ~~the~~losses ~~three~~as ~~months~~a ~~ended~~result ~~June 30,~~of ~~2023~~refinancing ~~compared~~our tocredit ~~the~~facilities ~~three~~on ~~months~~August ~~ended June 30~~4, 2022.

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Other Income

Other income was $341 for the three months ended September 30, 2023 compared to $467 for the three months ended September 30, 2022. Other income during the three months ended September 30, 2023 primarily consists of the recovery of certain deposits associated with properties sold in 2022 that we had previously deemed uncollectible.

Unconsolidated Joint Venture Investments

The income from unconsolidated joint ventures consists of our interest in the operating results of the properties we own in joint ventures. Income from our unconsolidated joint ventures decreased by $473 to $5 for the three months ended September 30, 2023 compared to $478 during the same period in 2022. The income from unconsolidated joint ventures for the three months ended September 30, 2022 includes income of $394 for Hiren Boston, LLC, which we sold on November 30, 2022. The remaining change is attributable to a decline in operating results at our Home2 Suites, South Boston joint venture for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

Income Tax Expense

During the three months ended ~~June~~September 30, 2023, the Company recorded income tax expense of $65275 compared to $5,402 for the three months ended September 30, 2022. The decrease is primarily driven by state income tax ~~expense~~incurred as a result of ~~$93~~gains ~~for~~on hotel dispositions recognized during the three months ended ~~June~~September 30, 2022. for the hotel dispositions noted above.

After considering various factors, including future reversals of existing taxable temporary differences, future taxable income and tax planning strategies, we believe that as of ~~June~~September 30, 2023, it is not more likely than not that we will be able to realize our net deferred tax asset and therefore, maintained the full valuation allowance that was established during the second quarter of 2020. As a result, the balance of our net deferred tax asset at ~~June~~September 30, 2023 is $0. Absent the valuation allowance and the impact of hotel dispositions, the amount of income tax expense or benefit that the Company typically records depends mostly on the amount of taxable income or loss that is generated by our consolidated taxable REIT subsidiaries (“TRS”).

Net ~~Income~~ (Loss) Income Applicable to Common Shareholders

Net ~~income~~loss applicable to common shareholders for the three months ended ~~June~~September 30, 2023 was $14,~~721~~462 compared to net income applicable to common shareholders of $2115,~~427~~477 during the same period in 2022. This decrease is primarily driven by the ~~hotels~~$167,800 ~~disposed~~gain recognized on the sale of inthe ~~2022~~Courtyard Brookline, ~~and~~Hampton anInn ~~increase~~Philadelphia, inHampton ~~hotel~~Inn ~~operating~~D.C., ~~expenses~~Courtyard ~~due~~Los toAngeles, ~~the~~TownePlace ~~reopening~~Suites ofSunnyvale, ~~certain~~and ~~food~~Hilton ~~and~~Garden ~~beverage~~Inn ~~outlets~~M Street during the nine months ended September 30, 2022. This change is partially offset by a decrease in interest expense, depreciation and amortization, and real estate and personal property taxes and property insurance, and an increase in interest income in 2023 as compared to the same period in 2022.

COMPARISON OF THE ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022

(dollars in thousands, except ADR, RevPAR, and per share data)

Revenue

Our total revenues for the ~~six~~nine months ended ~~June~~September 30, 2023 consisted of hotel operating revenues and other revenue. Hotel operating revenues are recorded for wholly-owned hotels that are leased to our wholly owned TRS and hotels owned through joint venture or other interests that are consolidated in our financial statements. Hotel operating revenues decreased $3244,~~205~~455, or 1514.74%, to $~~172~~264,~~821~~712 for the ~~six~~nine months ended ~~June~~September 30, 2023 compared to $~~205~~309,~~026~~167 for the same period in 2022. The decrease in hotel operating revenue is primarily attributable to the sale of ten hotel properties (the Courtyard Brookline, Gate hotel JFK Airport, Hampton Inn Philadelphia, Hampton Inn D.C., Courtyard Los Angeles, the Hotel Milo, TownePlace Suites Sunnyvale, Hilton Garden Inn M Street, Courtyard Sunnyvale, and Pan Pacific Seattle) during the third and fourth quarters of 2022. These hotels contributed hotel operating revenue of $4663,~~142~~218 during the ~~six~~nine months ended ~~June~~September 30, 2022. The decrease attributable to hotel dispositions is partially offset by an increase in demand across our urban markets in 2023 and an increase in Food & Beverage revenues due to the reopening of food and beverage outlets at several of our hotels.

~~Expenses~~44

Total hotel operating expenses decreased $5,810, or 5.0%, to $110,633 for the six months ended June 30, 2023 from $116,443 for the six months ended June 30, 2022. This decrease is primarily attributable to the sale of ten hotel properties in the third and fourth quarters of 2022 noted above, which contributed hotel operating expense of $23,263 during the six months ended June 30, 2022. This is partially offset by an increase in hotel operating expenses due primarily to the reopening of food and beverage outlets noted above, and due to increased occupancy at our hotels for the three months ended June 30, 2023 as a result of the increase in demand noted above.

Depreciation and amortization decreased by 23.7%, or $8,604, to $27,675 for the six months ended June 30, 2023 from $36,279 for the six months ended June 30, 2022. The decrease is primarily attributable to assets that fully depreciated during 2021 and a reduction in expense due to the 2022 hotel dispositions noted above.

Real estate and personal property tax and property insurance decreased $4,378, or 26.0%, for the six months ended June 30, 2023 when compared to the same period in 2022, which is primarily due to the sale of hotels noted above. In general, our property insurance costs continue to rise annually, which was partially offset by a reduction in expense due to the dispositions noted above.

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General and administrative expense was $10,702 for the six months ended June 30, 2023 compared to $11,809 for the six months ended June 30, 2022. General and administrative expense includes expenses related to payroll, rents, and other corporate level administrative costs as well as non-cash share based payments issued as compensation to the Company’s trustees, executives, and employees. Expenses related to non-cash share based compensation decreased $1,091 when comparing the six months ended June 30, 2023 to 2022. Please refer to “Note 9 – Share Based Payments” of the notes to the consolidated financial statements for more information about our share based compensation.

Total hotel operating expenses decreased $12,047, or 6.7%, to $167,055 for the nine months ended September 30, 2023 from $179,102 for the nine months ended September 30, 2022. This decrease is primarily attributable to the sale of ten hotel properties in the third and fourth quarters of 2022 noted above, which contributed hotel operating expense of $31,848 during the nine months ended September 30, 2022. This is partially offset by an increase in hotel operating expenses due primarily to the reopening of food and beverage outlets noted above, and due to increased occupancy at our hotels for the nine months ended September 30, 2023 as a result of the increase in demand noted above.

Depreciation and amortization decreased by 19.0%, or $9,710, to $41,469 for the nine months ended September 30, 2023 from $51,179 for the nine months ended September 30, 2022. The decrease is primarily attributable to assets that fully depreciated during 2022 and a reduction in expense due to the 2022 hotel dispositions noted above.

Real estate and personal property tax and property insurance decreased $5,172, or 21.2%, for the nine months ended September 30, 2023 when compared to the same period in 2022, which is primarily due to the sale of hotels noted above. In general, our property insurance costs continue to rise annually, which was partially offset by a reduction in expense due to the dispositions noted above.

General and administrative expense decreased by $941, or 5.3%, to $16,751 for the nine months ended September 30, 2023 from $17,692 for the nine months ended September 30, 2022. General and administrative expense includes expenses related to payroll, rents, and other corporate level administrative costs as well as non-cash share based payments issued as compensation to the Company’s trustees, executives, and employees. Expenses related to non-cash share based compensation decreased $1,520 when comparing the nine months ended September 30, 2023 to 2022. Please refer to “Note 10 – Share Based Payments” of the notes to the consolidated financial statements for more information about our share based compensation.

During the third quarter of 2022, the Company determined that the carrying value of the Gate hotel JFK Airport exceeded the anticipated net proceeds from sale, resulting in a $10,024 loss on impairment of assets.

Operating Income

Operating income for the ~~six~~nine months ended ~~June~~September 30, 2023 decreased $115,~~565~~236 to operating income of $1018,~~585~~950 during the ~~six~~nine months ended ~~June~~September 30, 2023 from $2224,~~150~~186 during the same period in 2022. This decrease is primarily driven by the 2022 hotel dispositions and decreases in hotel operating revenue and hotel operating expenses described above.

Interest Income

Interest income increased $34,~~432~~847 from $2103 for the ~~six~~nine months ended ~~June~~September 30, 2022 to $34,~~434~~950 for the ~~six~~nine months ended ~~June~~September 30, 2023. The increase in interest income is primarily driven by an increase in cash and cash equivalents as a result of the 2022 hotel dispositions noted above, and increases in interest rates in the overall market which have increased the interest income earned on cash and cash equivalents.

Interest Expense

Interest expense for the ~~six~~nine months ended ~~June~~September 30, 2023 was $1726,954 compared to $2839,~~267~~600 for the ~~six~~nine months ended ~~June~~September 30, 2022. The decrease in interest expense is primarily driven by the pay down of the amount drawn under the prior line of credit of $118,684 on August 4, 2022, the decrease in the principal term loan balance of $97,481 after the credit refinancing on August 4, 2022, and the pay off of certain unsecured notes payable on August 4, 2022 which had a principal balance of $158,094.

Gain on Disposition of Hotel Properties

During the nine months ended September 30, 2022, we closed on the sale of six of the seven urban select service hotels and recognized a gain of $167,800 accordingly. There were no hotel dispositions during the nine months ended September 30, 2023.

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Loss on Debt Extinguishment

During the nine months ended September 30, 2022, we incurred a loss on debt extinguishment of $17,958. We incurred $13,725 of debt extinguishment losses upon redemption of the Junior Notes on August 4, 2022, and $4,233 of debt modification and extinguishment losses as a result of refinancing our credit facilities on August 4, 2022.

Income Tax Expense

During the ~~six~~nine months ended ~~June~~September 30, 2023, the Company recorded income tax expense of $99374 compared to income tax expense of $~~114~~5,516 for the ~~six~~nine months ended ~~June~~September 30, 2022. The decrease is primarily driven by state income tax incurred as a result of gains on hotel dispositions recognized during the nine months ended September 30, 2022 for the hotel dispositions noted above.

Net ~~Income~~ (Loss) Income Applicable to Common Shareholders

Net loss applicable to common shareholders for the ~~six~~nine months ended ~~June~~September 30, 2023 was $1317,~~218~~680 compared to a net ~~loss~~income of $1995,~~808~~669 during the same period in 2022, which is andecrease ~~improvement~~ of $6113,~~590~~349. The change is primarily driven by athe ~~decrease~~$167,800 ingain ~~interest~~recognized ~~expense~~on ~~and~~the ansale ~~increase~~of inthe ~~interest~~Courtyard ~~income~~Brookline, inHampton ~~2023~~Inn asPhiladelphia, ~~compared~~Hampton toInn D.C., Courtyard Los Angeles, TownePlace Suites Sunnyvale, and Hilton Garden Inn M Street during the ~~same~~nine ~~period~~months inended September 30, 2022, offset, in part, by a decrease in ~~operating~~interest expense, a decrease in impairment of assets, a decrease in loss on debt extinguishment, and an increase in interest income in 2023 as compared to the same period in 2022.

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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. Future deterioration in market conditions could cause restrictions in our access to the cash flow of additional properties.

In addition to the incurrence of debt and the offering of equity securities, dispositions of property may serve as additional capital resources and sources of liquidity. We may recycle capital from stabilized assets or from sales of hotels in secondary and tertiary markets. Capital from these types of transactions is intended to be redeployed into high growth acquisitions, share buybacks, or to pay down existing debt.

As of ~~June~~September 30, 2023 we had no off-balance sheet arrangements.

Credit Facility and Term Loans

On August 4, 2022, we entered into a credit agreement (the "Credit Agreement"), with certain lenders, for whom Citibank, N.A. ("Citibank") acted as the administrative agreement and collateral agent, Wells Fargo Bank, N.A. and Manufacturers and Traders Trust Company acted as the co-syndication agents, and Citibank, Wells Fargo Securities, LLC, and Manufacturers and Traders Trust Company acted as joint lead arrangers and joint book running managers. The Credit Agreement provided for a new secured term loan of $400.0 million and secured revolving line of credit with capacity of $100.0 million which mature in August of 2024. Immediately upon entering into the Credit Agreement, proceeds from the $400.0 million new term loan, along with a portion of the proceeds from the dispositions discussed in Note 23 – Investment in Hotel Properties, were used to pay off and terminate all borrowings under the Prior Facilities. Subsequent to August 4, 2022, we made additional principal payments on the term loan as required by the loan agreements when we sold hotels which were borrowing base assets, as well as at our election, leaving an outstanding term loan balance of $347,853 as of ~~June~~September 30, 2023.

All borrowings under the Credit Agreement bear interest at a rate per annum equal to, at the option of the Company, either (i) 2.50% plus Adjusted Term SOFR (defined as the forward-looking term rate based on SOFR plus 0.10%), or (ii) 1.50% plus the Base Rate (defined as the highest of (a) the rate of interest announced publicly by Citibank, as its base rate, (b) ½ of 1% per annum above the Federal Funds Rate and (c) the Adjusted Term SOFR for a one-month Interest Period in effect on such day plus 1.00% per annum). The Credit Agreement provides for a 0.00% floor for borrowings at Adjusted Term SOFR and a 1.00% floor for borrowings at the Base Rate. The Credit Agreement also permits the issuance of letters of credit.

Acquisitions

During the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, we acquired no hotel properties and we do not anticipate any acquisitions prior to the closing of the Mergers. WeShould the Mergers not close as anticipated, we intend to invest in additional hotels only as suitable opportunities arise and adequate sources of capital are available. We expect that future investments in hotels will depend upon 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 secured by hotel assets and under our Line of Credit.

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Dispositions

~~During~~On August 4, 2022 and October 26, 2022, we closed on two related closings on the ~~six~~sale ~~months~~of ~~ended~~a ~~June 30~~total of seven hotels to an unaffiliated buyer for a purchase price of $505,000. ~~2023~~These ~~and~~seven ~~2022~~hotels included the Courtyard Brookline; the Hampton Inn Washington, ~~there~~DC; Hilton Garden Inn M Street Washington, DC; Hampton Inn Philadelphia; TownePlace Suites Sunnyvale; Courtyard Sunnyvale; and the Courtyard Los Angeles Westside. The proceeds from the sale were noused to pay off the Junior Notes at a redemption price of 104%, or $164,418, and the Prior Facilities. The mortgage loan amount of $39,309 secured by the Courtyard Sunnyvale hotel ~~property~~was ~~dispositions~~assumed by the buyer and we paid off the Courtyard Los Angeles mortgage with a principal balance of $35,000 at closing.

On October 6, 2022, we closed on the sale of the Hotel Milo Santa Barbara for a sales price of $55,000 and paid off the outstanding mortgage of $20,696 at closing. On October 19, 2022, we closed on the sale of the Pan Pacific Seattle for a sales price of $70,000, and a portion of the proceeds were used to pay down the Term Loan in the amount of $22,380. On November 2, 2022, we closed on the sale of the Gate hotel JFK Airport for a sales price of $11,000, and a portion of the proceeds were used to pay down the Term Loan in the amount of $4,767.

Operating Liquidity and Capital Expenditures

Our short-term liquidity requirements generally consist of funds necessary to pay our scheduled debt service and operating expenses and capital expenditures directly associated with our hotels. 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 new $100.0 million line of credit.

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 be able to make distributions to our shareholders.

At ~~June~~September 30, 2023, we were in compliance with our debt service coverage ratio ("DSCR") requirements for our mortgage borrowings. It is possible that we could fail certain financial covenants within certain property-level mortgage borrowings. The lenders' remedy of a covenant failure would be a requirement to escrow funds for the purpose of meeting our future debt payment obligations, or require an additional principal payment to achieve the desired threshold.

~~Four~~As noted above, our secured term loan which has a principal balance of $347,853 as of September 30, 2023 will mature on August 4, 2024, and all five of our mortgages totaling $~~139~~184,~~811~~952 mature in the next twelve months. We ~~plan~~anticipate tothat ~~exercise~~the ~~available~~closing ~~extension~~of ~~options~~the Mergers will occur in the fourth quarter of 2023, ~~refinance~~subject ~~each~~to ~~mortgage~~the ~~before~~closing ~~their~~conditions. ~~maturities~~Should the Mergers not close as anticipated, we fail to repay or ~~use~~refinance ~~available~~the ~~cash~~debt onnoted ~~hand~~above, or ~~capacity~~obtain ~~under~~a ~~our~~waiver ~~revolving~~or ~~line~~amendment for the debt, an event of ~~credit~~default could occur. The occurrence of these events requires participation of third parties. As a result, we have concluded that substantial doubt exists about our ability to ~~pay~~continue ~~the~~as ~~obligation~~a going concern.

Spending on capital improvements during the ~~six~~nine months ended ~~June~~September 30, 2023 increased when compared to spending on capital improvements during the ~~six~~nine months ended ~~June~~September 30, 2022. During the ~~six~~nine months ended ~~June~~September 30, 2023, we spent $2029,~~681~~390 on capital expenditures to renovate, improve or replace assets at our hotels. This compares to $1217,~~041~~936 spent during the same period in 2022. These capital expenditures were undertaken to comply with brand mandated improvements and to initiate projects that we believe will generate a return on investment. We may spend additional amounts, if necessary, to comply with the requirements of any franchise license under which any of our hotels operate and otherwise to the extent we deem such expenditures to be prudent. 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 Line of Credit, and proceeds from issuances of our securities and hotel dispositions to pay for the cost of capital improvements and any furniture, fixture and equipment requirements.

Restrictions per the Merger Agreement

Pursuant to the terms of the Merger Agreement, the Company agreed to certain capital restrictions as we conduct our business until the closing of the Merger Agreement, which includes, but is not limited to:

•Declaration and payment of regular quarterly dividends and quarterly distributions only. No additional
dividends or distributions are permitted without the written consent of Parent, except as necessary to

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preserve the Company’s tax status as a real estate investment trust or to avoid the imposition of income or
excise taxes;

•Certain equity activity is prohibited, including the issuance of additional securities, and splits or repurchases
of any shares of the Company or its subsidiaries, with limited exceptions;

•No additional debt shall be incurred unless under certain specified circumstances;

•The Company will not make capital expenditures outside of those set forth in the Merger Agreement
and normal, recurring capital expenditures necessary to fulfil obligations under management and franchise
agreements; and

•Restriction on the purchase, transfer, or disposition of any hotel property of the Company, unless under
certain defined circumstances, or those defined as Pending Sales Contracts in the Merger Agreement.

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CASH FLOW ANALYSIS

(dollars in thousands, except per share data)

Comparison of the ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022

Net cash provided by operating activities decreased by $1317,~~869~~813 from $4065,~~486~~297 for the ~~six~~nine months ended ~~June~~September 30, 2022 to $2647,~~617~~484 for the comparable period in 2023. The decrease in cash flow is primarily attributable to a decrease in hotel property cash flow as a result of the sale of ten hotel properties in the third and fourth quarters of 2022.

Net cash (used in) provided by investing activities for the ~~six~~nine months ended ~~June~~September 30, 2023 ~~increased~~changed by $9394,~~449~~462 to net cash used in investing activities of $2028,~~681~~890 from net cash provided by investing activities of $11365,~~232~~572 for the ~~six~~nine months ended ~~June~~September 30, 2022. ~~This~~ ~~was~~The decrease is primarily adriven ~~result~~by proceeds received of $382,699 for the sale of six of the seven urban select service hotels during the nine months ended September 30, 2022. In addition, there was an increase of $811,~~640~~454 for capital expenditures for the ~~six~~nine months ended ~~June~~September 30, 2023 compared to 2022 as we completed certain selective capital expenditure projects during the ~~six~~nine months ended ~~June~~September 30, 2023. During the ~~six~~nine months ended ~~June~~September 30, 2022 we contributed $485 to the Hiren Boston and SB Partners unconsolidated joint ventures compared to no contributions during the ~~six~~nine months ended ~~June~~September 30, 2023. Lastly, we received insurance proceeds of $1,294 during the ~~six~~nine months ended ~~June~~September 30, 2022 related to property damage incurred for a 2021 claim at our Hampton Inn Philadelphia hotel, and a we received a $500 distribution from our Home2 Suites unconsolidated joint venture during the nine months ended September 30, 2023.

Net cash used in financing activities ~~increased~~decreased by $75310,~~251~~893 to $8897,~~768~~521 for the ~~six~~nine months ended ~~June~~September 30, 2023 compared to $13408,~~517~~414 for the ~~six~~nine months ended ~~June~~September 30, 2022. ~~One~~The ~~driver~~following ofitems ~~the~~are ~~increase relates to an increase in cash payments of $27,964 related to dividends paid. During~~ the ~~six~~major ~~months~~contributing ~~ended~~factors ~~June 30,~~for ~~2023, we paid dividends totaling $0.60 per common share and per limited partnership unit compared to no dividends paid on common shares and per limited partnership units during~~ the ~~six~~change ~~months~~in ~~ended~~financing ~~June 30,~~cash 2022. In addition, during the six months ended June 30, 2023 we paid off the St. Gregory mortgage which had a principal balance of $23,000, as compared to recurring principal payments only on mortgages totaling flows:

42•During the nine months ended September 30, 2023, we made a $25,000 payment on the principal balance on the term loan, and made principal payments totaling $23,928 on our mortgages, which includes the $23,000 payoff of the St. Gregory mortgage. Our primary use of cash in 2022 was the repayment of the Prior Term Loans of $497,481 and the Prior Line of Credit of $118,684, as well as the pay down of the Junior Notes of $159,923. We used proceeds from the hotel dispositions noted above, as well as proceeds of $400,000 from the new Term Loan to repay these debt obligations.

•Payment of $14,195 for deferred financing costs and debt extinguishment for the nine months ended
    September 30, 2022 which primarily related to the new Credit Agreement and premium paid to redeem the
    junior notes, as compared to payments of $99 during the nine months ended September 30, 2023 which
    primarily relates to the St. Gregory mortgage pay off noted above.

•An increase in cash payments of $30,363 related to dividends paid. During the nine months ended
    September 30, 2023, we paid dividends totaling $0.65 per common share and per limited partnership unit
    compared to no dividends paid on common shares and per limited partnership units during the nine months
    ended September 30, 2022.

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$1,221 during the six months ended June 30, 2022. In addition, during the six months ended June 30, 2023, we made a $25,000 payment on the principal balance on the term loan.

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 December 2018 Financial Standards White Paper 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 depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by an entity. 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, 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.

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The following table reconciles FFO for the periods presented to the most directly comparable GAAP measure, net income, for the same periods (dollars in thousands):

	Three Months Ended				~~Six~~Nine Months Ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Income (loss) applicable to common shareholders	$	1,721	$	2,427	$	(13,218)	$	(19,808)
Net (loss) income applicable to common shareholders	$	(4,462)	$	115,477	$	(17,680)	$	95,669
(Loss) income allocated to noncontrolling interest	(~~1,803~~629)		114,~~114~~668		(23,~~409~~038)		~~706~~15,374
Loss (income) from unconsolidated joint ventures	74		(357)		426		579
(Income) loss from unconsolidated joint ventures	(5)		(478)		421		101
Depreciation and amortization	14,006		17,003		27,675		36,279
Gain on disposition of hotel properties	—		(167,800)		—		(167,800)
Funds from consolidated hotel operations applicable to common shareholders and Partnership Units	13,998		20,187		12,474		17,756
Loss from impairment of depreciable assets	—		10,024		—		10,024
(Loss) income from unconsolidated joint ventures	(74)		357		(426)		(579)
Depreciation and amortization	13,794		14,900		41,469		51,179
Unrecognized pro rata interest in income (loss) (1)	83		(81)		(337)		(300)
Funds from consolidated hotel operations applicable to common shareholders and Partnership Units	8,698		(13,209)		21,172		4,547
Depreciation and amortization of difference between purchase price and historical cost (2)	18		21		37		42
Income (loss) from unconsolidated joint ventures	5		478		(421)		(101)
Interest in depreciation and amortization of unconsolidated joint ventures (3)	536		625		1,072		1,252
Unrecognized pro rata interest in income (loss) (1)	185		78		(152)		(220)
Funds from unconsolidated joint ventures operations applicable to common shareholders and Partnership Units	563		922		346		415
Depreciation and amortization of difference between purchase price and historical cost (2)	19		21		56		63
Funds from Operations applicable to common shareholders and Partnership Units	$	14,561	$	21,109	$	12,820	$	18,171
Interest in depreciation and amortization of unconsolidated joint ventures (3)	521		621		1,593		1,873
Funds from unconsolidated joint ventures operations applicable to common shareholders and Partnership Units	730		1,198		1,076		1,615
Funds from Operations applicable to common shareholders and Partnership Units	$	9,428	$	(12,011)	$	22,248	$	6,162
Weighted Average Common Shares and Common Units
Basic	3940,~~849~~012,~~859~~965		39,~~277~~465,~~269~~645		39,~~738~~831,~~662~~101		39,~~254~~325,~~536~~679
Diluted	47,~~061~~852,~~312~~936		4546,~~716~~116,~~098~~055		47,~~121~~498,~~467~~448		45,~~629~~897,~~745~~306

(1) For U.S. GAAP reporting purposes, our interest in the joint venture's loss is not recognized since our U.S. GAAP basis in the joint venture has been reduced to $0. Our interest in FFO from the joint venture equals our percentage ownership in the venture's FFO, including loss we have not recognized for U.S. GAAP reporting.

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

(3) Adjustment made to add our interest in real estate related depreciation and amortization of our unconsolidated joint ventures.

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CYBERSECURITY

The hospitality industry and certain of the major brand and franchise companies have recently experienced cybersecurity breaches. We are not aware of any material cybersecurity losses at any of our properties. We manage cybersecurity risks at our hotel properties through our franchisors and property management companies. An important part of our cybersecurity risk mitigation efforts includes maintaining cybersecurity insurance and indemnifications in certain of our property management agreements. The Risk & Environmental, Social, Governance Sub-Committee of the Audit Committee of the Board of Trustees provides on-going oversight of management's approach to managing cybersecurity risks.

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. Additionally, our management companies will face challenges to raise room rates to reflect the impact of inflation. Increasing inflation could adversely affect consumer confidence, which could reduce consumer purchasing power and demand for lodging. Additionally, an increased rate of inflation will cause our operating and renovation costs to increase. These conditions could have a material adverse effect on our business, financial conditions, results of operations and cash flows.

BUSINESS INTERRUPTION

Being in the real estate industry, the Company is exposed to natural disasters on both a local and national scale. Although management believes the Company has adequate insurance to cover this exposure, there can be no assurance that such events will not have a material adverse effect on the Company’s financial position or results of operations.

CRITICAL ACCOUNTING ESTIMATES

Critical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results of operations and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain, especially in light of the current economic environment. The estimates and assumptions made by management in applying critical accounting policies have not changed materially during 2023 and 2022 and none of the estimates or assumptions have proven to be materially incorrect or resulted in our recording any significant adjustments relating to prior periods.

Investment in Hotel Properties

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.

Our impairment evaluation contains uncertainties because it requires management to make assumptions and to apply judgment to estimate future cash flows and asset fair values. Key assumptions used in estimating future cash flows and asset fair values include expected future operating income, as well as the holding period and the expected terminal capitalization rate. Estimates of revenue growth and operating expenses are based on third-party market data, where available and applicable to the hotel evaluated, and internal projections which consider the hotel’s historical performance, hotel demand, competition and other factors that impact the hotel’s performance. The terminal capitalization rate is selected based on third-party market data, recent dispositions, and what we believe a buyer would assume when determining a purchase price for the hotel. These estimates are subjective and our ability to realize future cash flows and asset fair values is affected by factors such as ongoing maintenance and improvement of the assets, changes in economic conditions and changes in operating performance.

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. As of ~~June~~September 30, 2023, based on our analysis, we have determined that the estimated future cash flow of each of the properties in our portfolio is sufficient to recover its carrying value.

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Item 3. 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. As of ~~June~~September 30, 2023, we are exposed to interest rate risk with respect to certain variable rate mortgages, and notes payable. As of ~~June~~September 30, 2023, we had total variable rate debt outstanding of $125,~~379~~146 with a weighted average interest rate of 78.7809% for the ~~six~~nine months ended ~~June~~September 30, 2023. The effect of a 100 basis point increase or decrease in the interest rate on our variable rate debt outstanding as of ~~June~~September 30, 2023 would be an increase or decrease in our interest expense for the three and ~~six~~nine months ended ~~June~~September 30, 2023 of $~~345~~313 and $~~711~~1,035, respectively.

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 ~~June~~September 30, 2023, we have five interest rate swaps and one interest rate cap related to debt on Hilton Garden Inn, 52nd Street, New York, NY; Hyatt Union Square, New York, NY; Hilton Garden Inn Tribeca, New York, NY; and our Credit Facility. We do not intend to enter into derivative or interest rate transactions for speculative purposes.

As of ~~June~~September 30, 2023, approximately 79% of our outstanding consolidated long-term indebtedness was subject to fixed rates, while 21% of our outstanding long term indebtedness is subject to floating rates. The majority of our floating rate debt and any corresponding derivative instruments are indexed to various tenors of SOFR.

On March 5, 2021, the Financial Conduct Authority (“FCA”) announced that USD LIBOR will no longer be published after June 30, 2023. This announcement has several implications, including setting the spread that may be used to automatically convert contracts from LIBOR to the Secured Overnight Financing Rate ("SOFR"). Additionally, banks discontinued new LIBOR debt issuances by December 31, 2021. As LIBOR iswas no longer available beginning July 2023, the Accounting Standards Update ("ASU") 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting issued by the Financial Accounting Standards Board, provides practical expedients for contract modifications made as part of the transition from LIBOR to alternative reference rates. Our two junior subordinated notes payable in the aggregate amount of $51,548 related to the Hersha Statutory Trusts ~~will~~ bear interest at a rate of SOFR plus 3% plus the spread adjustment of 0.26% after June 30, 2023. Our remaining debt has been renegotiated subsequent to the FCA announcement and bears interest at various tenors of SOFR, or the agreements define a benchmark replacement rate and adjustment applicable after June 30, 2023.

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 ~~June~~September 30, 2023 levels, with all other variables held constant. A 100 basis point increase in market interest rates would cause the fair value of our fixed-rate debt outstanding at ~~June~~September 30, 2023 to be approximately $~~558~~563,~~577~~090 and a 100 basis point decrease in market interest rates would cause the fair value of our fixed-rate debt outstanding at ~~June~~September 30, 2023 to be approximately $~~567~~570,~~821~~224.

We regularly review interest rate exposure on our outstanding borrowings in an effort to minimize the risk of interest rate fluctuations. For debt obligations outstanding as of ~~June~~September 30, 2023, the following table presents expected principal repayments and related weighted average interest rates by expected maturity dates:

	2023			2024 - 2025			2026 - 2027		Thereafter			Total
Fixed Rate Debt	$	44,~~475~~401		$	414,~~809~~807		$	—	$	—		$	459,~~284~~208
Weighted Average Interest Rate	4.45		%	3.93		%	N/A		N/A			4.19		%
Floating Rate Debt	$	4847,~~035~~949		$	25,~~796~~649		$	—	$	51,548		$	125,~~379~~146
Weighted Average Interest Rate	8.1432		%	8.3044		%	N/A		8.3044		%	8.2540		%
	$	92,~~510~~350		$	440,~~605~~456		$	—	$	51,548		$	584,~~663~~354

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Item 4. Controls and Procedures

Based on the most recent evaluation, the Company’s Chief Executive Officer and Chief Financial Officer believe the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of ~~June~~September 30, 2023.

There were no changes to the Company’s internal controls over financial reporting during the three months ended ~~June~~September 30, 2023, that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

We are not ~~presently~~aware ~~subject~~of to any pending or threatened legal proceedings against us that could have a material ~~litigation~~adverse ~~nor,~~effect toon our ~~knowledge~~business, isoperating ~~any~~results ~~other~~or financial conditions, except as discussed below with respect to litigation ~~threatened~~relating ~~against~~to ~~us,~~the ~~other~~proposed ~~than~~Mergers. We are subject to 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~~business, operating results ~~of operations~~ or ~~business or~~ financial ~~condition~~conditions.

On October 6, 2023, a complaint was filed in the United States District Court for the Southern District of New York, captioned O’Dell v. Hersha Hospitality Trust, et al., case number 1:23-cv-08811 (the “O’Dell Complaint”). Also on October 6, 2023, a complaint was filed in the United States District Court for the Southern District of New York, captioned Viradia v. Hersha Hospitality Trust, et al., case number 1:23-cv-08820 (the “Viradia Complaint”). On October 11, 2023, a complaint was filed in the United States District Court for the Southern District of New York, captioned Wang v. Hersha Hospitality Trust, et al., case number 1:23-cv-08917 (the “Wang Complaint”). On October 18, 2023, a complaint was filed in the Court of Common Pleas of Montgomery County, Pennsylvania, captioned Garfield v. Hsieh, et al., case number 2023-23106 (the “Garfield Complaint,” and together with the O’Dell, Viradia, and Wang Complaints, the “Complaints”). On October 24, 2023, Plaintiff Garfield filed a motion seeking a preliminary Injunction, or in the alternative, a special injunction temporarily restraining Defendants pending a hearing on a preliminary injunction. On October 27, 2023, Defendants filed their response in opposition to such motion. On October 30, 2023, the parties held a hearing on Plaintiff Garfield’s motion.

The Complaints name as defendants Hersha and members of the Hersha Board of Trustees, including Neil H. Shah, Jackson Hsieh, Dianna F. Morgan, John M. Sabin, Jay H. Shah, Thomas J. Hutchinson III, Donald J. Landry, and Michael A. Leven. The Garfield Complaint additionally names KSL and KSL affiliates. The Complaints generally allege that the defendants filed a materially incomplete and misleading registration statement and/or solicitation statement on Schedule 14D-9 with the Securities and Exchange Commission. Each of the Complaints seek injunctive relief requiring additional disclosures and/or delay of the consummation of the transaction until such disclosures are made, unspecified damages, and other relief. The Company believes the allegations in the Complaints and Garfield Motion are without merit and does not believe that the preliminary proxy statement is deficient in any respect.

Between September 27, 2023 and October 26, 2023, the Company received thirteen demand letters each making similar allegations to those in the Complaints. The Company believes the allegations in the demand letters are without merit and does not believe that the proxy statements are deficient in any respect.

The Company is unable to predict the developments in, outcome of, and/or economic or other consequences of these Complaints and demand letters or predict the developments in, outcome of, and/or other consequences arising out of any potential future litigation or government inquiries related to the Mergers.

Item 1A. Risk Factors.

~~There~~We have ~~been~~included noin ~~material~~Part ~~changes~~I, ~~to the Risk Factors previously disclosed in~~ Item 1A inof ~~the~~our Annual Report on Form 10-‑K for the year ended December 31, 2022, a description of certain risks and uncertainties that could have a material adverse effect on our business, financial condition, results of operations or cash flows. In addition to those risk factors, we have identified the following additional risk factors related to the Mergers. The following list is not exhaustive. We have included a more fulsome explanation of the risk factors associated with the Mergers in the definitive proxy statement on Schedule 14A that we filed with the Securities and Exchange Commission on October 3, 2023.

The announcement and pendency of the transactions contemplated by the Merger Agreement may have an adverse effect on our business, financial condition, operating results and cash flows.

Uncertainty about the effect of the proposed Mergers on our employees, partners, guests and other third parties may disrupt our sales and marketing or other key business activities and may have a material adverse effect on our business, financial condition, operating results and cash flows. Current and prospective employees may experience uncertainty about their roles following the Mergers, and this may have an effect on our corporate culture. There can be no assurance we will be able to attract and retain key talent to the same extent that we have previously been able to attract and retain employees. Any loss or distraction of such employees could have a material adverse effect on our business, financial condition and operating results. In addition, we have devoted, and will continue to devote, significant management and other internal resources towards the completion of the Mergers and planning for integration, which could materially adversely affect our business, financial condition, operating results and cash flows. Parties with which we have business relationships may experience uncertainty as to the future of such relationships and may delay or defer certain business decisions, seek alternative

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relationships with third parties or seek to alter their present business relationships with us. Parties with whom we otherwise may have sought to establish business relationships may seek alternative relationships with third parties.

The Merger Agreement generally requires us to operate our business in the ordinary course pending consummation of the proposed Mergers and generally restricts us from taking certain specified actions until the Mergers are completed. These restrictions may affect our ability to execute our business strategies, to respond effectively to competitive pressures and industry developments, and to attain our financial and other goals and may otherwise harm our business, financial condition, operating results and cash flows.

The failure to complete the Mergers in a timely manner or at all could negatively impact the market price of our common shares as well as adversely affect our business, financial condition, operating results and cash flows.

The Mergers cannot be completed until the conditions to closing are satisfied or (if permissible under applicable law) waived. We cannot guarantee that the remaining closing conditions set forth in the Merger Agreement will be satisfied or, even if satisfied, that no event of termination will take place. In the event that the Mergers are not completed for any reason, the holders of our common stock will not receive any payment for their shares of common stock in connection with the proposed Mergers. Instead, we will remain an independent public company and the holders of our common shares will continue to own their shares of stock.

If the Mergers or a similar transaction is not completed, the share price of our common shares may drop to the extent that the current market price of our common shares reflects an assumption that a transaction will be completed.

Furthermore, if the Mergers are significantly delayed or not completed, we may suffer other consequences that could adversely affect our business, results of operations and share price, including the following:

•we could be required to pay a termination fee of $30.0 million to Parent, under certain circumstances as described in the Merger Agreement;

•we would have incurred significant costs in connection with the Mergers that we would be unable to recover;

•we may be subject to negative publicity or be negatively perceived by the investment or business communities;

•we may be subject to legal proceedings related to any delay or failure to complete the Mergers;

•any disruptions to our business resulting from the announcement and pendency of the Mergers, including any adverse changes in our relationships with our guests, suppliers, other business partners and employees, may continue or intensify in the event the Mergers are not consummated; and

•we may not be able to take advantage of alternative business opportunities or effectively respond to competitive pressures.

There can be no assurance that our business, financial condition, operating results and cash flows will not be adversely affected, as compared to our condition prior to the announcement of the Mergers, if the Mergers are not consummated.

The Merger Agreement contains provisions that could discourage or deter a potential competing acquirer that might be willing to pay more to effect an alternative transaction with us.

The Merger Agreement contains provisions that, subject to certain exceptions, limit our ability to initiate, solicit or knowingly encourage, or engage in discussions or negotiations with respect to, or provide non-public information in connection with, a proposal from a third party with respect to an alternative transaction. In addition, under specified circumstances in which the Merger Agreement is terminated, we could be required to pay a termination fee of $30.0 million to Parent. It is possible that these or other provisions in the Merger Agreement might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of our company from considering or proposing an acquisition or might result in a potential competing acquirer proposing to pay a lower per share price to acquire our common shares than it might otherwise have proposed to pay.

Litigation challenging the Merger Agreement may prevent the Mergers from being consummated at all or within the expected timeframe and may result in substantial costs to us.

As described in Item 1, “Legal Proceedings,” four complaints have been filed by alleged shareholders of the Company against the Company which purport that the preliminary proxy statement omits material information. If the Complaints are found to have merit, then the Mergers may not be consummated at all or within the expected timeframe. Additional lawsuits and demands may be filed or made, respectively, against the Company, the Board of Trustees or the Company’s officers in connection with the Mergers, which could result in substantial costs to the Company, including any costs associated with

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indemnification. Also, if the Company’s insurance provider were to deny coverage under the existing insurance policies covering such actions or should such policies fail to cover the costs of defending any one or more of the lawsuits, we may incur substantial costs.

We will incur substantial transaction fees and costs in connection with the Mergers.

We expect to incur fees for professional services and other transaction costs in connection with the Mergers. A material portion of these expenses will be payable by us whether or not the Mergers are completed. While we have assumed that a certain amount of transaction expenses will be incurred, factors beyond our control could affect the total amount or the timing of these expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately. These expenses may exceed the costs historically borne by us. These costs could adversely affect our business, financial condition, operating results and cash flows.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

During the three months ended ~~June~~September 30, 2023, none of the Company’s trustees or officers adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).

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Item 6. Exhibits.

Exhibit No.
2.1						Agreement and Plan of Merger, dated as of August 27, 2023, by and among Hersha Hospitality Trust, Hersha Hospitality Limited Partnership, 1776 Portfolio Investment, LLC, 1776 Portfolio REIT Merger Sub, LLC, and 1776 Portfolio OP Merger Sub, LP.
10.1+						Amendment to Amended and Restated Hersha Hospitality Trust 2012 Equity Incentive Plan, amended as of May 25, 2023 (incorporated by reference to Appendix A to Hersha Hospitality Trust's Definitive Proxy Statement filed on April 13, 2023).
31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS						The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document
101.SCH						Inline XBRL Taxonomy Extension Schema Document*
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB						Inline XBRL Taxonomy Extension Labels Linkbase Document*
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*						Filed herewith
+						Compensatory plan or arrangement

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			HERSHA HOSPITALITY TRUST
August 2, 2023			/s/ Ashish R. Parikh
November 9, 2023			/s/ Ashish R. Parikh
			Ashish R. Parikh
			Chief Financial Officer(Principal Financial Officer)

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