Edgar Filing: HERSHA HOSPITALITY TRUST

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K/A

FOR ANNUAL AND TRANSITIONAL
REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

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

For the transition period from to

Commission file number: 001-14765

HERSHA HOSPITALITY TRUST
(Exact Name of Registrant as Specified in Its Charter)

MARYLAND 251811499
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

148 SHERATON DRIVE, BOX A, NEW CUMBERLAND, PENNSYLVANIA 17070
(Address of Registrant's Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (717) 770-2405

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

Name of each exchange
Title of each class on which registered
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CLASS A COMMON SHARES OF BENEFICIAL INTEREST, AMERICAN STOCK EXCHANGE
PAR VALUE $.01 PER SHARE

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

NONE
(Title of class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

The aggregate market value of the voting and nonvoting common equity held
by non-affiliates of the registrant, as of June 30, 2003, was approximately
$20.35 million.

As of March 18, 2004, the number of outstanding Class A common shares of
beneficial interest outstanding was 13,571,665.

Documents Incorporated By Reference: None.

EXPLANATORY NOTE

This Amended Annual Report on Form 10-K/A is being filed solely to restate our
Consolidated Balance sheets as of December 31, 2003 and 2002 in order to present
the Minority Interest balances outside of Shareholders' Equity. Previously, we
had presented Minority Interest as a separate component within Shareholders'
Equity.

HERSHA HOSPITALITY TRUST
INDEX

ITEM NO.
------- FORM 10-K
REPORT
PAGE
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PART I

ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . 2

ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . 11

ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . 22

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 22

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES. . . . . . . . . . . . . . . . . . 23

ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . 25

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . 29

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK. . . . . . . . . . . . . . . . . . . . . 37

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . 39

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES . . . . . . 93

ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . 93

ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF OUR
COMPANY . . . . . . . . . . . . . . . . . . . . . . 93

ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . 97

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS. . . . . 100

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . 101

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. . . . . . . 106

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . 108

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

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, "believes," "anticipates," "expects" and words
of similar import. Such forward-looking statements relate to future events, our
future financial performance, and involve known and unknown risks, uncertainties
and other factors which may cause 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, or incorporated by reference in this report including, but
not limited to those discussed in the sections entitled "Growth Strategy" and
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and those discussed in any documents filed by us with the Securities
and Exchange Commission that could cause actual results to differ. We disclaim
any obligation to update any such factors or to publicly announce the result of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments, except as required by law.

ITEM 1. BUSINESS

OVERVIEW

Hersha Hospitality Trust is a self-advised Maryland real estate investment
trust that was organized in 1998 and completed its initial public offering in
January of 1999. Our common shares are traded on the American Stock Exchange
under the symbol "HT."

We focus primarily on owning and operating high quality, mid-scale limited
service hotels in established markets in the Eastern United States. Our primary
strategy is to continue to acquire high quality, mid-scale hotels in
metropolitan markets with high barriers to entry in the Northeastern United
States. As of December 31, 2003, our portfolio consisted of 22 hotels with a
total of 2,169 rooms located in Pennsylvania, New York, New Jersey, Maryland,
Georgia, and Connecticut, which operate under leading brands, such as Hampton
Inn(R), Hilton Garden Inn(R), Holiday Inn(R), Holiday Inn Express(R),
DoubleTree(R), Comfort Inn(R), Comfort Suites(R), Mainstay Suites(R), and Sleep
Inn(R).

We are structured as an umbrella partnership REIT, or UPREIT, and we own
our hotels through our operating partnership, Hersha Hospitality Limited
Partnership, for which we serve as general partner. All of our hotels are leased
or managed by Hersha Hospitality Management, L.P., or HHMLP, a private
management company owned by certain of our trustees, officers and other third
party investors. In response to tax law changes, we formed a wholly-owned
taxable REIT subsidiary, or TRS, to which we lease twelve hotels (as of January
26, 2004) and to which we intend to lease all of our hotels, including hotels we
may acquire in the future and hotels currently leased to HHMLP as those leases
expire. We have also established two TRS's to lease our assets owned via joint
venture entities. We believe that transitioning to this TRS structure positions
us to participate more directly in the operating efficiencies and revenue gains
at our hotels.

Our address is 148 Sheraton Drive, Box A, New Cumberland, Pennsylvania
17070. Our telephone number is (717) 770-2405.

As of December 31, 2003, we owned interests in the following 22 hotels:

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NUMBER OF NUMBER OF
HOTELS ROOMS HOTELS ROOMS
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HOLIDAY INN EXPRESS: HOLIDAY INN EXPRESS AND SUITES:
Hershey, PA 85 Harrisburg, PA 77
Duluth, GA 68 MAINSTAY SUITES:
Long Island City, NY 79 King of Prussia, PA 69
New Columbia, PA 81 Frederick, MD 72
HILTON GARDEN INN: COMFORT INN:
Glastonbury, CT (1) 150 Harrisburg, PA 81
Edison, NJ 132 SLEEP INN:
HAMPTON INN: King of Prussia, PA 87
Linden, NJ 149 COMFORT SUITES:
Chelsea, NY (1) 144 Duluth, GA 85
Carlisle, PA 95 HOLIDAY INN HOTEL AND CONFERENCE CENTER:
Danville, PA 72 Harrisburg, PA 196
Hershey, PA 110 DOUBLETREE CLUB
Newnan, GA 91 JFK Airport, NY 110
Peachtree, GA 61
Selinsgrove, PA 75
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Total Rooms 2,169
=========

(1) - Denotes properties owned in a joint venture.

Since our initial public offering in 1999, we have acquired, wholly or
through joint ventures, a total of 22 hotels, including 13 hotels acquired from
entities controlled by our officers or trustees. Of the 13 acquisitions from
these entities, 12 were newly-constructed or newly-renovated by these entities
prior to our acquisition. Since we do not develop properties, we take advantage
of our relationships with these development entities to identify development and
renovation projects that may be attractive to us. While these entities bear all
the risks of development, we maintain an option to purchase the hotel upon
completion. Historically we have purchased hotels from these entities subject to
a re-pricing mechanism which adjusts the purchase price based on the operating
performance of the hotel in the year or two subsequent to closing. While we
intend to continue to acquire hotels from these entities if approved by our
independent trustees, future acquisitions from these entities will not be
subject to these re-pricing adjustments.

In addition to the direct acquisition of hotels, we may make investments in
hotels through joint ventures with strategic partners or through equity
contributions, sales and leasebacks, or secured loans. We seek to identify
acquisition candidates located in markets with economic, demographic and supply
dynamics favorable to hotel owners and operators. Through our extensive due
diligence process, we select those acquisition targets where we believe
selective capital improvements and intensive management will increase the
hotel's ability to attract key demand segments, enhance hotel operations and
increase long-term value.

RECENT ACQUISITIONS

Since December, 31, 2003, we have acquired interests in the following
hotels:

- Holiday Inn Express, Hartfort, CT. On January 14, 2004, we assumed a
land lease on the 96 room Holiday Inn Express, Hartford, CT for
approximately $3 million and assumed the land lease for the underlying
property.
- Four Points by Sheraton Boston/Logan International Airport. On March
11, 2004, we acquired a 55% joint venture interest in the 180-room
Four Points by Sheraton Boston/Logan International Airport on for
approximately $3 million. The Four Points Sheraton Boston/Logan
International Airport was substantially rebuilt in 2001 and is located
in Revere, Mass., within five miles of Boston Logan Airport and
downtown Boston.

Both of these hotels have been or will be leased to a TRS and managed by
Hersha Hospitality Management, a Hersha-affiliated, regional hotel management
company.

JOINT VENTURES

In April of 2003, we entered into a strategic alliance with CNL Hospitality
Partners, L.P., a subsidiary of CNL Hospitality Properties, Inc. CNL is a public
company which has been one of the most active investors in lodging properties
over the past several years. The strategic alliance positions us as one of CNL's
preferred partners for investing in mid-scale hotels. Our agreement with CNL
provides that it will invest up to $25 million in our operating partnership and
up to $40 million in a newly formed hotel acquisition joint venture. CNL has
currently invested $19 million in our operating partnership and $8 million in
the joint venture, which acquired its first hotel, the Hampton Inn Chelsea, New
York, New York, on August 29, 2003.

In addition to our joint venture with CNL, in November of 2003, we acquired
a 40% joint venture interest in PRA Glastonbury, LLC. ("PRA") which owns a newly
constructed 150 room Hilton Garden Inn in Glastonbury, CT.

FINANCING

We may finance additional investments in hotels, in whole or in part, with
undistributed cash, issuances of common shares, preferred stock or operating
partnership units, cash received from the disposition of hotels or borrowings.
Our debt policy is to limit consolidated indebtedness to less than 67% of the
aggregate purchase prices paid for the hotels in which we invest. Our Board of
Trustees, however, may change the debt policy without the approval of our
shareholders. The aggregate purchase prices for our twenty two hotels, owned as
of December 31, 2003, was approximately $140.0 million, and our indebtedness at
December 31, 2003 was approximately $71.8 million, which represents
approximately 51.3% of the aggregate purchase price for our hotels.

We maintain a credit line with Sovereign Bank for $11.5 million.
Outstanding borrowings under the line of credit bear interest at the bank's
prime rate. The line of credit is collateralized by a first mortgage on one of
our hotels. The interest rate on borrowings under the line of credit at December
31, 2003 was 4.00%. The line of credit expires on December 31, 2004. There were
no outstanding principal balances on the line of credit at December 31, 2003.

DISPOSITIONS

Since our initial public offering in 1999, we have sold a total of eight
hotels, including four hotels sold back to entities controlled by our officers
or trustees at the same purchase price we acquired the hotels from those
entities. All sales to these entities were in situations where we believed an
independent buyer would demand seller financing, which we were not willing to
provide. We do not intend to sell hotels to such entities in the future.

We will evaluate our hotels on a periodic basis to determine if these
hotels continue to satisfy our investment criteria. We may sell hotels
opportunistically based upon management's forecast and review of the cash flow
potential for the hotel and re-deploy the proceeds into debt reduction or
acquisitions of hotels. We utilize several criteria to determine the long-term
potential of our hotels. Hotels are identified for sale based upon management's
forecast of the strength of the hotel's cash flows and its ability to remain
accretive to our portfolio. Our decision to sell an asset is often predicated
upon the size of the hotel, strength of the franchise, property condition and
related costs to renovate the property, strength of market demand generators,
projected supply of hotel rooms in the market, probability of increased
valuation and geographic profile of the hotel. All asset sales are
comprehensively reviewed by our Board of Trustees, including our independent
trustees. A majority of the independent trustees must approve the terms of all
asset sales.

PROPERTY MANAGEMENT

Our TRS's have engaged HHMLP as the property manager for fourteen of our
hotels pursuant to substantially similar management agreements. Each management
agreement provides for a five year term and is subject to early termination upon

the occurrence of defaults and certain other events described therein. As
required under the REIT qualification rules, 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.

For its services, HHMLP receives a base management fee, and if a hotel
meets and exceeds certain thresholds, an additional incentive management fee.
The base management fee for a hotel is due monthly and is equal to 3% of the
gross revenues associated with that hotel for the related month. The incentive
management fee, if any, for a hotel is due annually in arrears on the sixtieth
day following the end of each fiscal year and is equal to an amount determined
by our TRS and HHMLP prior to the commencement of each fiscal year and is
generally based upon the financial performance of the hotel.

HHMLP must from time to time make expenditures for repairs and maintenance
as are necessary to keep a hotel in good operating condition. Our TRS or we may
elect to, from time to time at its or our expense, make alterations, additions,
or improvements (including structural changes or repairs) in or to our hotels.

Under the management agreements, our TRSs retain the right to sell, lease,
transfer or otherwise dispose of our hotels. HHMLP may not transfer or assign
any of its rights and obligations under a management agreement without the prior
written consent of our TRS. On the other hand, our TRSs may transfer or assign
their rights and obligations under a management agreement without the consent of
HHMLP. However, HHMLP will have the right to terminate the management agreement
after receiving notice of such transfer or assignment.

As of March 1, 2004, eight of our hotels are leased to HHMLP. Each
percentage lease with HHMLP has an initial non-cancelable term of five years.
HHMLP has elected not to renew any of the leases upon expiration. Pursuant to
the terms of the percentage leases, HHMLP is required to pay initial fixed rent,
base rent or percentage rent and certain other additional charges and is
entitled to all profits from the operations of the hotel after the payment of
certain operating expenses.

The reason we do not operate our own hotels is that we are not permitted to
do so by the REIT qualification rules. Furthermore, under the REIT qualification
rules in effect prior to 2001, we were generally required to lease our hotels to
a third party and as a result, we originally leased substantially all of our
hotels to HHMLP. However, the REIT rules that prompted this structure were
modified in 2001 and the new rules permit a REIT to lease its hotels to a
taxable REIT subsidiary, or TRS, provided that the TRS engages an eligible
independent contractor to manage the hotels. Accordingly, since the time of the
rule modification we have leased six hotels, whose leases with a third party
lessee expired, to a wholly-owned TRS which pays us qualifying rents. We intend
to eventually lease all our hotels to a TRS. As of January 26, 2004 we leased
six additional assets to our TRS and we will re-lease to our wholly-owned TRS
the eight hotels currently leased to HHMLP. HHMLP has agreed to waive its rights
to extend the lease terms of these eight hotels.

The following table shows the expiration date of the leases for our 14
hotels leased to HHMLP as of December 31, 2003, six of which expired prior to
the date of this report and were re-leased to a TRS:

Comfort Inn, Harrisburg, PA January 26, 2004
Holiday Inn, Harrisburg, PA January 26, 2004
Holiday Inn Express, Hershey, PA January 26, 2004
Holiday Inn Express, New Columbia, PA January 26, 2004
Hampton Inn, Selinsgrove, PA January 26, 2004
Hampton Inn, Carlisle, PA January 26, 2004
Hampton Inn, Danville, PA September 1, 2004

Holiday Inn Express and Suites, Harrisburg, PA September 1, 2004
Hampton Inn, Hershey, PA December 31, 2004
Mainstay Suites, King of Prussia, PA June 1, 2006
Sleep Inn, King of Prussia, PA June 1, 2006
Holiday Inn Express, Long Island City, NY November 1, 2006
Mainstay Suites, Frederick, MD December 31, 2006
Doubletree, Jamaica, NY October 1, 2007

DISTRIBUTIONS

We have made twenty consecutive quarterly distributions to the holders of
our common shares since our initial public offering in January 1999 and intend
to continue to make regular quarterly distributions to our shareholders.

Our Board of Trustees will determine the amount of our future distributions
and its decision will depend on a number of factors, including the amount of
funds from operations, our partnership's financial condition, debt service
requirements, capital expenditure requirements for our hotels, the annual
distribution requirements under the REIT provisions of the Code and such other
factors as the trustees deem relevant. Our ability to make distributions will
depend on our receipt of distributions from our operating partnership and lease
payments from our lessees with respect to the hotels. We rely on our lessees to
generate sufficient cash flow from the operation of the hotels to meet their
rent obligations under the percentage leases.

The Class A common shares enjoyed a priority period that expired on January
26, 2004. During the priority period, holders of the Class A common shares were
entitled to receive, prior to any distributions either to the holders of the
operating partnership units or to the holders of the Class B common shares,
cumulative dividends in an amount per priority common share equal to $0.18 per
quarter. After holders of the Class A common shares received the $0.18 quarterly
distribution, holders of the operating partnership units and the Class B common
shares were entitled to receive an amount per operating partnership unit or
Class B common share equal to the distribution paid to the holders of the common
shares. Thereafter, holders of Class A common shares and the holders of the
operating partnership units and the Class B common shares were entitled to
receive future distributions on a pro rata basis. As of January 26, 2004, no
Class B common shares were outstanding. Thus, the Class A common shares had
priority distribution rights only with respect to the outstanding operating
partnership units. All distinctions between these two classes disappeared as of
January 20, 2004. All references herein to common shares refer to the Class A
common shares.

The hotel business is seasonal in nature and, therefore, revenues from the
hotels in the first and fourth quarters are traditionally lower than those in
the second and third quarters and our lease revenue may be lower in these
quarters. We expect to use excess cash flow from the second and third quarters
to fund distribution shortfalls in the first and fourth quarters. There are no
assurances we will be able to continue to make quarterly distributions at the
current rate.

OPERATING PRACTICES

HHMLP utilizes a centralized accounting and data processing system, which
facilitates financial statement and budget preparation, payroll management,
internal auditing and other support functions for the on-site hotel management
team. HHMLP provides centralized control over purchasing and project management
(which can create economies of scale in purchasing) while emphasizing local
discretion within specific guidelines.

SEASONALITY

Our hotels' operations historically have been seasonal in nature,
reflecting higher occupancy rates during the second and third quarters. This
seasonality can be expected to cause fluctuations in our quarterly lease revenue
to the extent that we receive percentage rent.

The hotel business is seasonal, with hotel revenue generally greater in the
second and third quarters than in the first and fourth quarters. To the extent
that cash flow from operating activities is insufficient to provide all of the
estimated quarterly distributions, we anticipate that we will be able to fund
any such deficit from future working capital.

COMPETITION

The mid-scale, limited service segment of the hotel business is highly
competitive. Our hotels compete on the basis of location, room rates and
quality, service levels, reputation, and reservation systems, among many other
factors. There are many competitors in our market segments, and many of them
have substantially greater marketing and financial resources than our operators
or us. New hotels are always being constructed, and these additions to supply
create new competitors, in some cases without corresponding increases in demand
for hotel rooms. The result in some cases may be lower revenue, which would
result in lower cash available for distribution to shareholders.

We also compete for hotel acquisitions with entities that have investment
objectives similar to ours but have substantially greater financial resources or
lower investment return requirements than we have. These entities generally may
be able to accept higher levels of debt, or otherwise may tolerate more risk
than we think is prudent for us. They may also have better relations with
franchisors, sellers or lenders. This competition could limit the number of
suitable investment opportunities offered to us. It may also increase the
bargaining power of property owners seeking to sell to us, making it more
difficult for us to acquire new properties on attractive terms.

EMPLOYEES

As of December 31, 2003, we had six employees who were principally engaged
in managing the affairs of the company unrelated to property management. HHMLP
had approximately 1,100 employees at that date. Our and HHMLP's relations with
our respective employees are satisfactory.

CAPITAL IMPROVEMENTS, RENOVATION AND REFURBISHMENT

We have established capital reserves for each of our hotels to maintain the
hotels in a condition that complies with their respective franchise licenses
among other requirements. In addition, we may upgrade the hotels in order to
capitalize on opportunities to increase revenue, and as deemed necessary by our
management to seek to meet competitive conditions and preserve asset quality.
We will also renovate hotels when we believe the investment in renovations will
provide an attractive return to us through increased revenue under the
percentage leases or is otherwise in the best interests of our shareholders.

BUSINESS RISKS

The hotels are subject to all operating risks common to the hotel industry.
These risks include, among other things, competition from other hotels, which
can adversely affect occupancy and room rates; increases in operating costs due
to inflation and other factors, which increases have not in recent years been,
and may not necessarily in the future be, offset by increased room rates;
significant dependence on business and commercial travelers and tourism;
increases in energy costs and other expenses of travel; and adverse effects of
general and local economic conditions. These factors could adversely affect a
lessee's ability to make lease payments and, therefore, our ability to make
expected distributions to shareholders. Further, decreases in room revenue at
the hotels will result in decreased revenue to our partnership and the
subsidiary partnerships, as applicable, under the percentage leases.

ENVIRONMENTAL RISKS

Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances,
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In addition, the presence of hazardous or toxic
substances, or the failure to remediate such property properly, may adversely
affect the owner's ability to borrow using such real property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility, whether or not such facility
is or ever was owned or operated by such person. Certain environmental laws and
common law principles could be used to impose liability for release of
asbestos-containing materials ("ACMs") into the air and third parties may seek
recovery from owners or operators of real properties for personal injury
associated with exposure to released ACMs. In connection with the ownership of
the hotels, we, our partnership or the subsidiary partnerships may be
potentially liable for any such costs.

Phase I environmental site assessments were obtained on all of the hotels
prior to their acquisition by us. Phase I environmental assessments were
intended to identify potential environmental contamination for which the hotels
may be responsible. The Phase I environmental assessments included historical
reviews of the hotels, reviews of certain public records, preliminary
investigations of the sites and surrounding properties, screening for the
presence of hazardous substances, toxic substances and underground storage
tanks, and the preparation and issuance of a written report. The Phase I
environmental assessments did not include invasive procedures, such as soil
sampling or ground water analysis.

The Phase I site assessments have not revealed any environmental liability
that we believe would have a material adverse effect on our business, assets,
results of operations or liquidity, nor are we aware of any such liability.
Nevertheless, it is possible that the Phase I site assessments do not reveal
environmental liabilities or that there are material environmental liabilities
of which we are unaware. Moreover, no assurance can be given that (i) future
laws, ordinances or regulations will not impose any material environmental
liability, or (ii) the current environmental condition of the hotels will not be
affected by the condition of other properties in the vicinity of the hotels
(such as the presence of leaking underground storage tanks) or by third parties
unrelated to us, our partnership, the subsidiary partnerships or HHMLP.

FRANCHISE AGREEMENTS

All of our hotels operate under franchise licenses from national hotel
franchisors, including Intercontinental Hotel Group, Hilton Hotels Corporation
and Choice Hotels International. Holiday Inn Express and Holiday Inn are
registered trademarks of Intercontinental Hotel Group; Hilton Garden Inn,
Hampton Inn and Doubletree Club are registered trademarks of Hilton Hotels
Corporation, and Comfort Inn, Comfort Suites, Mainstay Suites and Sleep Inn are
registered trademarks of Choice Hotels International.

44 New England, our TRS, holds the franchise license for certain properties that
it leases while the respective JV TRS' hold certain franchise licenses. HHMLP
holds some of the franchise licenses for the hotels that it leases from us. We
do not anticipate maintaining the franchise licenses for hotel properties
managed by third party management companies. It is anticipated that franchise
licenses for hotel properties managed by other lessees will be maintained by our
TRS.

We anticipate that most of the additional hotels in which we invest will be
operated under franchise licenses. We believe that the public's perception of
quality associated with a franchisor is an important feature in the operation of
a hotel. Franchisors provide a variety of benefits for franchisees, which
include national advertising, publicity and other marketing programs designed to
increase brand awareness, training of personnel, continuous review of quality
standards and centralized reservation systems.

The franchise licenses generally specify certain management, operational,
record-keeping, accounting, reporting and marketing standards and procedures
with which the franchisee must comply. The franchise licenses obligate our
lessees to comply with the franchisors' standards and requirements with respect
to training of operational personnel, safety, maintaining specified insurance,

the types of services and products ancillary to guest room services that may be
provided by our lessees, display of signage, and the type, quality and age of
furniture, fixtures and equipment included in guest rooms, lobbies and other
common areas.

The following table sets forth certain information in connection with the
franchise licenses:

HOTEL EFFECTIVE DATE EXPIRATION DATE FRANCHISE FEE(1)
----------------------------------------------- ------------------ ------------------ ----------------

Comfort Inn, Harrisburg, PA May 15, 1998 May 15, 2018 8.85%
Comfort Suites, Duluth, GA May 19, 2000 May 19, 2020 8.00%
Doubletree Club, Jamaica, NY (2) April 25, 2001 April 24, 2023 7.00%
Hampton Inn, Peachtree, GA April 20, 2000 April 19, 2021 8.00%
Hampton Inn, Newnan, GA April 20, 2000 April 19, 2021 8.00%
Hampton Inn, Selinsgrove, PA September 12, 1996 September 11, 2016 8.00%
Hampton Inn, Carlisle, PA June 16, 1997 June 15, 2017 8.00%
Hampton Inn, Chelsea, NY (3) July 12, 2001 July 11, 2023 8.00%
Hampton Inn, Danville, PA March 28, 1997 March 27, 2018 8.00%
Hampton Inn, Linden, NJ October 1, 2003 September 30, 2023 8.00%
Hampton Inn & Suites, Hershey, PA September 24, 1998 September 23, 2019 8.00%
Hilton Garden Inn, Edison, NJ October 1, 2003 April 12, 2022 9.00%
Hilton Garden Inn, Glastonbury, CT (3) November 16, 2003 February 23, 2023 9.00%
Holiday Inn Hotel and Conference Center,
Harrisburg, PA September 29, 1995 September 29, 2005 7.50%
Holiday Inn Express, Duluth, GA May 20, 2000 May 20, 2010 8.00%
Holiday Inn Express, Hershey, PA September 30, 1997 September 30, 2007 8.00%
Holiday Inn Express, New Columbia, PA December 3, 1997 December 3, 2007 8.00%
Holiday Inn Express, Long Island City, NY December 28, 2000 December 28, 2010 8.00%
Holiday Inn Express and Suites, Harrisburg, PA December 22, 1999 December 22, 2009 8.00%
Mainstay/Sleep Inn, King of Prussia, PA November 30, 1997 November 30, 2017 10.00%
Mainstay Suites, Frederick, MD (2) April 4, 2000 April 3, 2020 5.50%

________________

(1) Percentage of room revenues payable to the franchisors.
(2) Franchise fees are structured to increase on a yearly basis during the first five years of
operations.
(3) Hotel owned through a joint venture with third party.

TAX STATUS

We have elected to be taxed as a REIT under Section 856 through 860 of the
Internal Revenue Code, commencing with our taxable year ending December 31,
1999. As long as we qualify for taxation as a REIT, we generally will not be
subject to Federal income tax on the portion of our income that is distributed
to shareholders. If we fail to qualify as a REIT in any taxable year, we will
be subject to Federal income tax (including any applicable alternative minimum
tax) on our taxable income at regular corporate tax rates. Even if we qualify
for taxation as a REIT, we may be subject to certain state and local taxes on
our income and property and to Federal income and excise taxes on our
undistributed income.

Although we do not intend to request a ruling from the Internal Revenue
Service (the "Service") as to our REIT status, we have obtained the opinion of
our legal counsel that we qualify as a REIT, which opinion is based on certain
assumptions and representations and is not binding on the Service or any court.
Even if we qualify for taxation as a REIT, we may be subject to certain state
and local taxes on its income and properties.

Under the REIT Modernization Act ("RMA"), which became effective January 1,
2001, we may now own up to 100% of one or more taxable REIT subsidiaries
("TRS"). A TRS is a taxable corporation that may lease hotels under certain
circumstances, provide services to us, and perform activities such as third
party management, development, and other independent business activities.
Overall, no more than 20% of the value of our consolidated assets may consist of
securities of one or more TRSs. In addition, no more than 25% of our
consolidated revenue for any year, excluding all TRS revenues, but including any
dividends received from TRSs, may consist of dividends from one or more TRSs.

Under the RMA, a TRS is permitted to lease hotels from us as long as the
hotels are operated on behalf of the TRS by a third party manager who satisfies
the following requirements:

1. such manager is, or is related to a person who is, actively engaged in
the trade or business of operating "qualified lodging facilities" for
any person unrelated to us and the TRS;

2. such manager does not own, directly or indirectly, more than 35% of
our common shares;

3. no more than 35% of such manager is owned, directly or indirectly, by
one or more persons owning 35% or more of our common shares; and

4. we do not directly or indirectly derive any income from such manager

The RMA limits the deductibility of interest paid or accrued by a TRS to us
to assure that the TRS is subject to an appropriate level of corporate taxation.
The RMA also imposes a 100% excise tax on transactions between a TRS and us or
our tenants that are not on an arm's length basis.

Earnings and profits, which will determine the taxability of dividends to
shareholders, will differ from net income reported for financial reporting
purposes due to the differences for federal tax purposes in the estimated useful
lives and methods used to compute depreciation. Of the total 2003, 2002 and 2001
distributions, 83.5%, 89.8% and 89.0%, respectively, is considered ordinary
income while 16.5%, 10.2% and 11.0%, respectively, is considered a non-taxable
return of capital.

AVAILABLE INFORMATION

Our Internet website address is: www.hersha.com. We make available free
of charge through our website our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended, as soon as reasonably practicable after such documents are
electronically filed with, or furnished to, the SEC. The information of our
website is not, and shall not be deemed to be, a part of this report or
incorporated into any other filings we make with the SEC.

ITEM 2. PROPERTIES

The following table sets forth certain information with respect to the
hotels we owned as of December 31, 2003.

Twelve Months Ended December 31, 2003
-----------------------------------------------------------------------------
Average
Year Number of Room Other Daily
Opened Rooms Revenue Revenue(1) Occupancy Rate REVPAR(2)
------ --------- ----------- ----------- ---------- -------- ----------

HOTELS
------
COMFORT INN:
Harrisburg, PA. . . . . . . . . . . . . 1998 81 $ 1,538,805 $ 24,775 66.6% $ 80.14 $ 53.34

COMFORT SUITES:
Duluth, GA. . . . . . . . . . . . . . . 1996 85 $ 1,125,666 $ 38,593 60.2% $ 60.27 $ 36.28

DOUBLETREE CLUB:
Jamaica, NY . . . . . . . . . . . . . . 2002 110 $ 2,891,053 $ 499,146 72.4% $ 99.40 $ 72.01

Hampton Inn:
Peachtree City, GA. . . . . . . . . . . 1994 61 $ 1,071,804 $ 23,346 68.4% $ 70.37 $ 48.14
Newnan, GA . . . . . . . . . . . . . . 1996 91 $ 1,392,403 $ 30,073 63.7% $ 65.80 $ 41.92
Selinsgrove, PA (3) . . . . . . . . . . 1996 75 $ 1,830,868 $ 26,451 72.5% $ 93.55 $ 67.78
Carlisle, PA. . . . . . . . . . . . . . 1997 95 $ 2,163,173 $ 23,803 72.9% $ 83.80 $ 61.10
Danville, PA. . . . . . . . . . . . . . 1998 72 $ 1,448,379 $ 27,144 67.6% $ 81.55 $ 55.11
Hershey, PA . . . . . . . . . . . . . . 1999 110 $ 2,911,057 $ 61,259 56.7% $ 127.92 $ 72.50
Linden, NJ (4). . . . . . . . . . . . . 2003 149 $ 688,645 $ 22,624 49.0% $ 102.60 $ 50.24

Hilton Garden Inn:
Edison, NJ (4). . . . . . . . . . . . . 2003 132 $ 701,033 $ 240,951 55.1% $ 104.68 $ 57.73

HOLIDAY INN HOTEL AND CONFERENCE CENTER:
Harrisburg, PA. . . . . . . . . . . . . 1970 196 $ 3,285,380 $ 2,298,141 65.6% $ 69.66 $ 45.69
HOLIDAY INN EXPRESS:
Duluth, GA. . . . . . . . . . . . . . . 1996 68 $ 1,006,661 $ 30,842 60.5% $ 67.07 $ 40.56
Hershey, PA . . . . . . . . . . . . . . 1997 85 $ 2,017,802 $ 27,246 71.5% $ 100.76 $ 71.07
New Columbia, PA. . . . . . . . . . . . 1997 81 $ 1,379,094 $ 21,207 58.4% $ 80.81 $ 47.23
Long Island City, NY. . . . . . . . . . 2001 79 $ 2,057,964 $ 34,430 72.4% $ 98.57 $ 71.37

HOLIDAY INN EXPRESS AND SUITES:
Harrisburg, PA. . . . . . . . . . . . . 1997 77 $ 1,524,057 $ 17,347 68.2% $ 80.52 $ 54.94

MAINSTAY SUITES:
Frederick, MD . . . . . . . . . . . . . 2000 72 $ 1,082,917 $ 24,661 62.0% $ 65.82 $ 40.80
King of Prussia, PA . . . . . . . . . . 2000 69 $ 1,344,298 $ 73,429 65.4% $ 80.98 $ 53.00

SLEEP INN:
King of Prussia, PA . . . . . . . . . . 2000 87 $ 1,117,750 $ 15,465 55.5% $ 68.68 $ 38.13

Total . . . . . . . . . . . . . . . . . . 1,875 $32,578,759 $ 3,850,509
----------- -----------

Total Revenues. . . . . . . . . . . . . . $36,429,268
===========

Weighted average. . . . . . . . . . . . . 63.4% $ 85.58 $ 54.07

_________________________
(1) Represents restaurant revenue, telephone revenue and other revenue.
(2) REVPAR is determined by dividing room revenue by available rooms for the applicable period.
(3) A portion of the land adjacent to this hotel, which is not currently used for hotel operations, is leased to an
affiliate for $1 per year for 99 years.
(4) We assumed operations of this hotel in October 2003.

The following table sets forth certain information with respect to the
hotels we owned through joint ventures with third parties as of December 31,
2003.

Twelve Months Ended December 31, 2003
----------------------------------------------------------------------------
Average
Year Number of Room Other Daily
Opened Rooms Revenue Revenue(1) Occupancy Rate REVPAR(2)
------ --------- ---------- ----------- ---------- -------- ----------

HOTELS
------
Hampton Inn:
Chelsea, NY (3). . 2003 144 $2,015,202 $ 11,830 76.6% $ 143.91 $ 110.19

Hilton Garden Inn:
Glastonbury, CT (4) 2003 150 $ 203,785 $ 57,122 24.9% $ 111.42 $ 27.73

Total . . . . . . . 294 $2,218,987 $ 68,952
---------- -----------

Total Revenues. . . $2,287,939
==========

Weighted average. . 50.2% $ 127.33 $ 68.12

_________________________
(1) Represents restaurant revenue, telephone revenue and other revenue.
(2) REVPAR is determined by dividing room revenue by available rooms for the applicable period.
(3) Hotel opened in August 2003. We own 33.3% of the joint venture. CNL Hospitality Partners,
L.P. owns 66.7% of joint venture.
(4) Hotel opened in November 2003. We own 40% of the joint venture. Joseph Pacitti and PRA
Glastonbury Management own 59% and 1% of the joint venture, respectively.

A summary of each hotel owned by us or one of our joint ventures follows:

COMFORT INN

HARRISBURG, PENNSYLVANIA

Description. The Comfort Inn, Harrisburg, Pennsylvania is located eight
miles north of Hershey, Pennsylvania at 7744 Linglestown Road off exit 27 of
Interstate 81. The hotel opened in May 1998. It is an 81-room limited service
hotel. Amenities include an indoor pool, hot tub, fitness center, meeting
facilities, complimentary continental breakfast and 24-hour coffee. All rooms
have one king bed or two queen beds and some Jacuzzi suites are available.

Guest Profile and Local Competition. Approximately 25% of the hotel's business
is related to commercial activity from local businesses. The hotel's group
business, which accounts for approximately 5% of its business, is generated from
area institutions, local weddings and local social and sporting events. The
remainder of the hotel's business consists of transient and recreational
travelers generated by its proximity to Hershey, Pennsylvania. We consider our
primary competition to be the Comfort Suites and Holiday Inn in Grantville,
Pennsylvania.

COMFORT SUITES

DULUTH, GEORGIA

Description. The Comfort Suites, Gwinnett Place Mall is located just off
Pleasant Hill Road and Interstate 85 at exit 40. Opened in June 1996, this
85-suite hotel features large spacious guest suites each equipped with a king
size bed or two double beds. Amenities include a fitness center, Jacuzzi within
a large sunroom, indoor pool and meeting facilities with a 60-person capacity.

Motorola, Hitachi, and Lucent Technologies all have major offices in the area
and use this hotel frequently for room nights and meeting space. The leisure
market is fueled by the Gwinnett Place Mall and many local events. We consider
the hotel's primary competitors to be the Holiday Inn Express, the Hampton Inn &
Suites, the Courtyard Gwinnett Mall and the Fairfield Inn.

DOUBLETREE

JFK INTERNATIONAL AIRPORT, JAMAICA, NEW YORK

Description. The Doubletree Club, JFK Airport, Jamaica, New York is
located 16 miles from Manhattan, and is adjacent to the JFK International
Airport. Opened in January 2002, this 110-room hotel features high-speed
internet access in all rooms, a 24-hour business center with printers and
computers, a fitness room and a full service restaurant.

Guest Profile and Local Competition. Located near JFK Airport and close to
Manhattan, this hotel's main source of room nights is business travelers and
transient leisure travelers utilizing the JFK Airport. The main competitors in
the area are the Ramada Plaza JFK, Hampton Inn, Courtyard by Marriott and the
Radisson Hotel JFK Airport.

HAMPTON INNS

PEACHTREE, GEORGIA

Description. This Hampton Inn is located in the Atlanta community of
Peachtree City. This 61-room, limited service hotel opened in 1994. A poured
concrete structure, this two-story building features the traditional Hampton Inn
architecture with metal rooflines and an ample porte-cochere. This hotel
features an outdoor pool and has a well equipped fitness facility. The hotel
has a meeting room that can accommodate 25 persons.

Guest Profile and Local Competition. Peachtree City is home to over ten
Fortune 500 companies and boasts a two million square foot industrial park.
Several major Japanese companies, including Panasonic, Hoshizaki, TDK and
Shinsei, are located in Peachtree City. The hotel's primary competitors are the
Holiday Inn, Sleep Inn, and Days Inn located in Peachtree City.

NEWNAN, GEORGIA

Description. The Hampton Inn, Newnan is located in one of Atlanta's
fastest growing counties. This 91-room hotel sits adjacent to Interstate I-85
and features traditional Hampton Inn architecture with three floors on poured
concrete. This hotel features an outdoor pool, fitness centers, and
full-service meeting room.

Guest Profile and Local Competition. The primary demand generators for the
Hampton Inn, Newnan include several major corporations located in the industrial
park, which include Yokogawa, Johnson-Yokogawa, Yamaha, Kawasaki, Ryder, Ritchie
Brothers, and Southern States Vehicle Auctions. The industrial park is slated
for expansion and Coweta County's population has grown by over 40% since 1991.
Leisure demand is generated by weddings, festivals, local racetracks and a
tourist base. The main competition for this hotel includes the Jameson Inn,
Springhill Suites, Comfort Inn, Best Western and Holiday Inn Express.

SELINSGROVE, PENNSYLVANIA

Description. The Hampton Inn, Selinsgrove, Pennsylvania is located on
Pennsylvania Routes 11 and 15. The hotel, which opened in September 1996, is a
75-room, three story, limited service hotel. Amenities include an indoor pool,
hot tub, fitness center, meeting facilities, complimentary continental breakfast
and 24-hour coffee. All rooms have one king bed or two queen beds, some Jacuzzi
suites are available and some rooms have refrigerators, coffee makers and
microwaves.

Guest Profile and Local Competition. Approximately 80% of the hotel's
business is related to commercial activity from local businesses. The remainder
of the hotel's business consists of leisure travelers, transient guests and
demand generated by the hotel's proximity to area universities and Knoebels

Amusement Park. We consider our primary competition to be the Best Western near
Selinsgrove, Pennsylvania.

CARLISLE, PENNSYLVANIA

Description. The Hampton Inn, Carlisle, Pennsylvania is located at the
intersection of Route 11 and exit 16 off the Pennsylvania Turnpike. The hotel,
which opened in June 1997, is a 95-room limited service hotel. Amenities
include an indoor pool, hot tub, fitness center, meeting facilities,
complimentary continental breakfast and 24-hour coffee. All rooms have one king
bed or two queen beds, some Jacuzzi suites are available and some rooms have
refrigerators, coffee makers and microwaves.

Guest Profile and Local Competition. Approximately 50% of the hotel's
business is related to commercial activity from local businesses. The remainder
of the hotel's business consists of overnight travelers and general demand
generated by the hotel's proximity to the Carlisle Fairgrounds and the Army War
College. We consider our primary competition to be the Holiday Inn in Carlisle,
Pennsylvania.

DANVILLE, PENNSYLVANIA

Description. The Hampton Inn, Danville, Pennsylvania, is located at Exit
33 off Interstate 80. The hotel, which opened in September 1998, is a 72-room,
three story, limited service hotel. Amenities include an indoor pool, hot tub,
fitness center, meeting facilities, complimentary continental breakfast, and
24-hour coffee service. All rooms offer queen beds or king beds, and coffee
makers.

Guest Profile and Local Competition. The majority of the hotel guests
consist of tourists or overnight business travelers. We consider our primary
competition to be several non-franchised hotels located in the surrounding area.

NEW YORK, NEW YORK (CHELSEA)

Description. The Hampton Inn is a new modern 20 story high rise hotel
located in the trendy up-and-coming district of Chelsea in New York City,
bordering the West Village and Midtown Manhattan, and is equipped with many
modern conveniences. The hotel offers free High-Speed Internet Access,
complimentary breakfast and a 100% Satisfaction Guarantee. The grand opening of
the hotel was on August 27, 2003.

Guest Profile and Local Competition. We expect that the many businesses
located in the district of Chelsea between mid-town and lower Manhattan's
financial district will generate guest for this hotel. The surrounding area
also includes the Fashion Institute of Technology, the Toy & Gift buildings and
the nearby garment district. The hotel is also conveniently located near the
Jacob Javits Convention Center and the headquarters for Credit Suisse First
Boston. The leisure market is also an important segment fed by the nearby
theater district and other attractions in Manhattan. Nearby competing hotels
include a Comfort Inn, a Clarion, a Courtyard Marriott, the Giraffe and the
Chelsea Savoy hotel.

LINDEN, NEW JERSEY

Description. The Hampton Inn, Linden, New Jersey is located five miles
from Newark Liberty International Airport, adjacent to Linden Airport and 25
minutes from New York City. The hotel offers 148 rooms equipped with high speed
Internet access and refrigerators. The property also has an Executive Boardroom
and meeting room facilities.

Guest Profile and Local Competition. This Hampton Inn benefits from its
close proximity to Newark International Airport but also has a strong corporate
base from companies with a local presence, such as Merck and other
pharmaceutical companies as well as General Motors. The competition is
primarily comprised of branded airport hotels such as Comfort Suites, Courtyard
Marriott, Wyndham, Best Western and Sheraton.

HAMPTON INN AND SUITES

HERSHEY, PENNSYLVANIA

Description. The Hampton Inn and Suites is located at 749 East Chocolate
Avenue in Hershey, Pennsylvania. The hotel opened in September 1999 and has 110
rooms, 35 of which are suites. The hotel is located near all of the major
attractions in Hershey, including the amusement park and the Hershey chocolate
factory. Amenities include an indoor pool, exercise room, hot tub, meeting
facilities, complimentary continental breakfast and 24-hour coffee.

Guest Profile and Local Competition. The majority of the hotel guests
consist of tourists and overnight travelers. The hotel's close proximity to all
Hershey attractions makes this property especially attractive to leisure
travelers. The hotel's primary competitors are the Hilton Garden Inn, Comfort
Inn, Holiday Inn Express and Springhill Suites.

HILTON GARDEN INN

EDISON, NEW JERSEY

Description. The Hilton Garden Inn Edison/Raritan in Edison, New Jersey is
located in the Raritan Center Commercial Park and one half mile from the New
Jersey Convention and Exhibition Center. The hotel is 20 minutes from downtown
Newark, 25 minutes from Newark International Airport and only 30 minutes from
Manhattan. The hotel has 132 rooms, 5,000 square feet of meeting space and a
restaurant that serves breakfast, lunch and dinner. The hotel also has a 24
hour business center that includes complimentary high-speed Internet, fax and
copy machine.

Guest Profile and Local Competition. The typical Hilton Garden Inn,
Edison, guest is a corporate traveler visiting a number of business parks in the
local area. The Raritan Center is comprised of 108 buildings with over 350
companies in operation. The New Jersey Convention Center is located within the
Raritan Center Commercial Park with 131,700 square feet of space. The Metropark
Office Park is also located within five miles of the hotel. Two of the largest
shopping centers in the area, Menlo Park Mall and Woodbridge Center are located
within a few miles of the property. The competition is comprised of Hilton,
Sheraton, Clarion, Holiday Inn Express, Marriott Courtyard and Ramada hotels
located nearby.

GLASTONBURY, CONNECTICUT

Description. The Hilton Garden Inn, Glastonbury is located seven miles
southeast of Hartford, accessible via Connecticut SR-2 exit 6. The hotel opened
in 2003 and features 150 rooms, each equipped with a spacious work desk, two
phones, voice mail, data ports, as well as complimentary high-speed Internet
access. A hospitality center in each guestroom includes a microwave,
refrigerator and coffee maker. The hotel has a complimentary 24 hour business
center, restaurant, indoor pool, whirlpool, fitness center and 3200 square feet
of meeting space.

Guest Profile and Local Competition. The hotel is close to numerous office
buildings and industrial parks. Major nearby corporations include Pratt &
Whitney, Lowes, Amica Insurance and Ikon Office Solutions. The Hilton Garden
Inn, Glastonbury is within walking distance or a short drive from over 35
Hartford South/Glastonbury restaurants and numerous and varied shopping is
everywhere in the area, including the Shops at Somerset Square, across the
street. Competitors in the area include Sheraton, Crowne Plaza, Wellesley Inn
and Residence Inn.

HOLIDAY INN HOTEL AND CONFERENCE CENTER

HARRISBURG, PENNSYLVANIA

Description. The Holiday Inn Hotel and Conference Center, Harrisburg,
Pennsylvania is located at the intersection of the Pennsylvania Turnpike exit 18
and Interstate 83, ten minutes from downtown, Harrisburg International Airport

and Hershey Park. The hotel opened in 1970 as a Sheraton Inn and was converted
to a Ramada Inn in 1984. It was completely renovated and converted to a Holiday
Inn in September 1995. This hotel has 196 deluxe guest units and is a full
service hotel, including a full service restaurant as well as a nightclub.
Amenities include an indoor tropical courtyard with a pool and Jacuzzi as well
as a banquet and conference facility for up to 700 people.

Guest Profile and Local Competition. Approximately 40% of the hotel's
business is related to commercial activity from local businesses. The remainder
of the hotel's business consists of overnight travelers visiting Hershey and
Harrisburg. We consider our primary competition to be the Radisson Penn Harris
in Camp Hill, Pennsylvania.

Additional Information Regarding Depreciation. This is our only hotel that
generates more than 10% of our revenue. The federal tax basis is $1,238,000.
The depreciation method used is Modified Accelerated Recovery System and the
depreciation rate is based upon tables issued by the Internal Revenue Service
for properties utilizing this depreciation method. The life claimed with
respect to this property for purposes of depreciation is 39 years.

HOLIDAY INN EXPRESS

DULUTH, GEORGIA

Description. The Holiday Inn Express, Gwinnett Place Mall is located just
off Pleasant Hill Road and Interstate 85 at exit 40. Opened in June 1996, this
68-room hotel features spacious guestrooms equipped with a king size bed or two
double beds. This hotel features an outdoor pool along with a well-equipped
fitness center. Meeting space is also available and accommodates up to 50
people.

Guest Profile and Local Competition. Numerous local business parks in
Duluth, Norcross and Lawrenceville play a vital role in the hotel's success.
Companies such as Scientific Atlanta, Primerica Financial Services, NCR,
Motorola, Hitachi, and Lucent Technologies all have major offices in the area
and use this hotel frequently for room nights and meeting space. The Gwinnett
Civic and Cultural Center and the millions of Priority Club members worldwide
are also solid contributors of room nights throughout the year. We consider the
hotel's primary competitors to be the Comfort Suites, the Hampton Inn & Suites,
the Courtyard Gwinnett Mall and the Fairfield Inn.

HERSHEY, PENNSYLVANIA

Description. The Holiday Inn Express, Hershey, Pennsylvania is located on
Walton Avenue, one and one half miles from Hershey Park. The hotel, which
opened in October 1997, is an 85-room limited service hotel. Amenities include
an indoor pool, hot tub, fitness center, business service center, meeting
facility, complimentary continental breakfast and 24-hour coffee. All rooms
have one king bed or two queen beds and some rooms have refrigerators, coffee
makers and microwaves.

Guest Profile and Local Competition. Approximately 30% of the hotel's
business is related to commercial activity from local business. The hotel's
group business, which accounts for approximately 5% of its business, is
generated from area institutions, local weddings and local social and sporting
events. The remainder of the hotel's business consists of transient guests,
visitors to area residents and demand generated by the hotel's proximity to
Hershey Park. We consider our primary competition to be the Comfort Inn in
Hershey, Pennsylvania.

NEW COLUMBIA, PENNSYLVANIA

Description. The Holiday Inn Express, New Columbia, Pennsylvania is
located at the intersection of Interstate 80 and Route 15. The hotel, which
opened in December 1997, is an 81-room limited service hotel. Amenities include
an indoor pool, hot tub, fitness center, meeting facility, complimentary
continental breakfast and 24-hour coffee. All rooms have one king bed or two
queen beds, some Jacuzzi suites are available and some rooms have refrigerators,
coffee makers and microwaves. The Holiday Inn Express in New Columbia,

Pennsylvania is consistently ranked number one in its region for GSTS (Guest
Satisfaction Tracking System). This award recognizes the Holiday Inn Express in
New Columbia as the leader in guest satisfaction and product service out of 32
other Holiday Inns and Holiday Inns Express in the Eastern region.

Guest Profile and Local Competition. Approximately 80% of the hotel's
business is related to commercial activity from local business. As a result of
its proximity to ski resorts and nearby tourist attractions, recreational
travelers generate approximately 10% of the hotel's business. The remainder of
the hotel's business consists of overnight travelers and visitors to area
residents. We consider our primary competition to be the Comfort Inn in New
Columbia, Pennsylvania.

LONG ISLAND CITY (MIDTOWN TUNNEL), NEW YORK

Description. This Holiday Inn Express is located adjacent to the entrance
of the Midtown Tunnel in Long Island City and is within minutes from midtown
Manhattan. This 79-room, limited service hotel opened in 2001. A poured
concrete structure, this three-story building is conveniently located alongside
the Long Island Expressway.

Guest Profile and Local Competition. Long Island City is within minutes of
midtown Manhattan and is accessible via car or via direct access to the subway
line into Times Square. The hotel also serves numerous corporate headquarters
and businesses within Queens and is located within six miles of La Guardia
airport and within 13 miles of the JFK International Airport. The hotel
competes directly with the Best Western and numerous other limited service
hotels within Long Island City and Manhattan.

HOLIDAY INN EXPRESS AND SUITES

HARRISBURG, PENNSYLVANIA

Description. The Holiday Inn Express and Suites, Harrisburg, Pennsylvania
is located at 5680 Allentown Boulevard and is easily accessible from Interstates
81 and 83. The hotel, which opened in August 1998 as a Clarion Inn and Suites,
is a 77-room limited service hotel. Amenities include an outdoor pool, meeting
facilities, complimentary continental breakfast, and 24-hour coffee. All rooms
have one king bed or two queen beds. Jacuzzi suites are available and some
rooms also have refrigerators and microwaves.

Guest Profile and Local Competition. Approximately 40% of the hotel's
business is comprised of business travelers, 30% is related to group business,
20% is leisure travelers, and 10% is government business. We consider our
primary competition the Best Western and the Baymont Inn, both located in
Harrisburg, Pennsylvania.

MAINSTAY SUITES

FREDERICK, MARYLAND

Description. The Mainstay Suites, Frederick, Maryland is an all-suites
extended stay hotel located near the office parks of Frederick and convenient to
Baltimore and Washington, D.C. Each suite features a separate living area and
fully equipped kitchen and dining area. The property also features a fitness
room and indoor pool. There are also several suites with computers available in
the room.

Guest Profile and Local Competition. The Frederick market has experienced
significant growth over the past five years due to the development of new office
parks and governmental agencies due to its proximity to Baltimore and
Washington, D.C. Both governmental agencies and private companies utilize this
hotel for long-term accommodations for their employees. Tourist attractions in
close proximity to Frederick also attract leisure travelers that complement the
corporate and governmental business. The primary competition for this hotel
comes from the Residence Inn, Frederick and the Courtyard, Frederick.

KING OF PRUSSIA, PENNSYLVANIA

Description. This Mainstay Suites is located just off the Pennsylvania
Turnpike and is part of a unique dual branded hotel, the first to feature a
Mainstay Suites and Sleep Inn under one roof. This unique property combines
many amenities convenient for both the business and leisure traveler. This
69-room hotel opened in 2000 and the suites include fully-equipped kitchens, a
comfortable living room and a spacious work area.

Guest Profile and Local Competition. This hotel serves both the nearby
corporate market as well as the strong leisure demand generators such as the
Valley Forge Historic Park, Valley Forge Convention Center, King of Prussia
Mall. The hotel is within twenty miles of downtown Philadelphia and serves all
of the corporate and leisure demand generators of this market. The hotel's
primary competition includes the Fairfield Inn, Best Western, Comfort Inn and
McIntosh Inn located within King of Prussia.

SLEEP INN

KING OF PRUSSIA, PENNSYLVANIA

Description. This Sleep Inn is located just off the Pennsylvania Turnpike
and is part of a unique dual branded hotel, the first to feature a Mainstay
Suites and Sleep Inn under one roof. This unique property combines many
amenities convenient for both the business and leisure traveler. This 87-room
limited service hotel opened in 2000.

Guest Profile and Local Competition. This hotel serves both the nearby
corporate market as well as the strong leisure demand generators such as the
Valley Forge Historic Park, Valley Forge Convention Center and King of Prussia
Mall. The hotel is within twenty miles of downtown Philadelphia and serves all
of the corporate and leisure demand generators of this market. The hotel's
primary competition includes the Fairfield Inn, Best Western, Comfort Inn and
McIntosh Inn all located within King of Prussia.

The following table sets forth certain information with respect to each of
our hotels:

Year Ended December 31,
------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------

COMFORT INN - HARRISBURG, PA
Occupancy 66.6% 64.4% 58.9% 63.9% 60.3%
ADR $ 80.14 $ 78.20 $ 75.48 $ 73.91 $ 68.38
REVPAR $ 53.34 $ 50.33 $ 44.47 $ 47.20 $ 41.23

COMFORT SUITES, DULUTH, GA
Occupancy 60.2% 57.8% 70.4% 73.4% 71.8%
ADR $ 60.27 $ 61.37 66.3% $ 68.38 $ 67.70
REVPAR $ 36.28 $ 35.45 $ 46.70 $ 50.20 $ 48.59

DOUBLETREE CLUB, JFK AIRPORT, JAMAICA, NY (1)
Occupancy 72.4% 59.5%
ADR $ 99.40 $105.66
REVPAR $ 72.01 $ 62.91

HAMPTON INN, PEACHTREE CITY, GA
Occupancy 68.4% 73.3% 68.1% 71.5% 74.5%
ADR $ 70.37 $ 65.28 $ 67.64 $ 67.81 $ 68.21
REVPAR $ 48.14 $ 47.85 $ 46.04 $ 48.46 $ 50.79

HAMPTON INN, NEWNAN, GA
Occupancy 63.7% 68.4% 74.1% 71.4% 81.7%
ADR $ 65.80 $ 63.62 $ 64.68 $ 65.17 $ 64.23
REVPAR $ 41.92 $ 43.54 $ 47.91 $ 46.50 $ 52.46

HAMPTON INN - SELINSGROVE, PA
Occupancy 72.5% 77.6% 80.6% 82.3% 80.7%
ADR $ 93.55 $ 87.40 $ 81.50 $ 75.54 $ 69.80

REVPAR $ 67.78 $ 67.85 $ 65.66 $ 62.16 $ 56.31

HAMPTON INN - CARLISLE, PA
Occupancy 72.9% 65.4% 69.2% 71.4% 68.8%
ADR $ 83.80 $ 82.08 $ 76.71 $ 72.96 $ 70.10
REVPAR $ 61.10 $ 53.71 $ 53.09 $ 52.08 $ 48.26

HAMPTON INN, DANVILLE, PA
Occupancy 67.6% 71.5% 73.8% 77.4% 68.5%
ADR $ 81.55 $ 81.66 $ 79.41 $ 71.54 $ 63.62
REVPAR $ 55.11 $ 58.36 $ 58.57 $ 55.34 $ 43.60

HAMPTON INN, CHELSEA, NY (2)
Occupancy 76.6%
ADR $143.91
REVPAR $110.19

HAMPTON INN, LINDEN, NJ (3)
Occupancy 49.0%
ADR $102.60
REVPAR $ 50.24

HAMPTON INN & SUITES, HERSHEY, PA (4)
Occupancy 56.7% 57.3% 50.4% 46.7% 30.2%
ADR $127.92 $118.23 $106.15 $111.45 $ 80.07
REVPAR $ 72.50 $ 67.79 $ 53.45 $ 52.02 $ 24.20

HILTON GARDEN INN, EDISON, NJ (5)
Occupancy 55.1%
ADR $104.68
REVPAR $ 57.73

HILTON GARDEN INN, GLASTONBURY, CT (6)
Occupancy 24.9%
ADR $111.42
REVPAR $ 27.73

Year Ended December 31,
Year Ended December 31,
------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------

HOLIDAY INN HOTEL AND CONFERENCE CENTER
- HARRISBURG, PA
Occupancy 65.6% 56.7% 56.1% 61.1% 62.3%
ADR $ 69.66 $ 72.45 $ 68.81 $ 69.92 $ 69.76
REVPAR $ 45.69 $ 41.08 $ 38.62 $ 42.75 $ 43.48

HOLIDAY INN EXPRESS, DULUTH, GA
Occupancy 60.5% 62.3% 69.7% 75.2% 75.2%
ADR $ 67.07 $ 69.89 $ 71.13 $ 68.24 $ 65.07
REVPAR $ 40.56 $ 43.52 $ 49.55 $ 51.31 $ 48.91

HOLIDAY INN EXPRESS - HERSHEY, PA
Occupancy 70.5% 62.1% 59.3% 57.0% 59.2%
ADR $100.76 $111.57 $107.98 $108.44 $101.91
REVPAR $ 71.07 $ 69.26 $ 64.08 $ 61.84 $ 60.36

HOLIDAY INN EXPRESS - NEW COLUMBIA, PA
Occupancy 58.4% 63.0% 60.6% 60.0% 55.2%
ADR $ 80.81 $ 76.82 $ 70.69 $ 66.81 $ 61.34
REVPAR $ 47.23 $ 48.36 $ 42.81 $ 40.12 $ 33.83

HOLIDAY INN EXPRESS, LONG ISLAND CITY, NY (7)
Occupancy 72.4% 74.5% 57.5%
ADR $ 98.57 $ 94.28 $114.63
REVPAR $ 71.37 $ 70.19 $ 65.86

HOLIDAY INN EXPRESS & SUITES, HARRISBURG, PA
Occupancy 68.2% 65.9% 66.4% 63.4% 54.4%
ADR $ 80.52 $ 82.91 $ 76.64 $ 76.26 $ 61.83
REVPAR $ 54.94 $ 54.65 $ 50.87 $ 48.32 $ 33.66

MAINSTAY SUITES, FREDERICK, MD (8)
Occupancy 62.0% 74.8% 84.6% 81.1%
ADR $ 65.82 $ 60.93 $ 59.29 $ 59.39
REVPAR $ 40.80 $ 45.58 $ 50.17 $ 48.16

MAINSTAY SUITES, KING OF PRUSSIA, PA (9)
Occupancy 65.4% 60.2% 51.5% 35.7%
ADR $ 80.98 $ 83.74 $ 80.11 $ 85.79
REVPAR $ 53.00 $ 50.38 $ 41.26 $ 30.60

SLEEP INN, KING OF PRUSSIA, PA (9)
Occupancy 55.5% 56.7% 57.4% 35.7%
ADR $ 68.68 $ 68.27 $ 73.47 $ 74.48
REVPAR $ 38.13 $ 38.74 $ 42.15 $ 26.62

______________
(1) This hotel opened in January 2002.
(2) This hotel opened in August 2003 and, thus, the data shown for 2003
represents approximately five months of operations. The hotel is owned
by a joint venture with CNL Hospitality Partners, L.P.
(3) We assumed operations of this hotel in October 2003 and, thus, the
data shown for 2003 represents approximately three months of
operations.
(4) This hotel opened in September 1999 and, thus, the data shown for 1999
represents approximately four months of operations.
(5) This hotel opened in October 2003 and, thus, the data shown for 2003
represents approximately three months of operations.
(6) This hotel opened in November 2003 and, thus, the data shown for 2003
represents approximately two months of operations. The hotel is owned
by a joint venture with Joseph Pacitti and PRA Glastonbury Management.
(7) This hotel opened in May 2001 and, thus, the data shown for 2001
represents approximately eight months of operations.
(8) This hotel opened in April 2000 and, thus, the data shown for 2000
represents approximately nine months of operations.
(9) This hotel opened in September 2000 thus the data shown for 2000
represents four months of operations.

THE PERCENTAGE LEASES

Eight of our hotels are currently operated by HHMLP pursuant to percentage
leases. Each percentage lease with HHMLP has an initial non-cancelable term of
five years. HHMLP has agreed not to exercise its option to extend the current
lease term with respect to any of the 8 hotels it currently leases. The
percentage leases are subject to early termination upon the occurrence of
defaults thereunder and certain other events described therein.

The percentage leases are designed to allow us to participate in growth in
revenues at our hotels. The percentage lease formulas are based on certain
projections including projected revenues for the newly-developed and
newly-renovated hotels. We cannot assure you that future revenues for the hotels
will be consistent with prior performance or the estimates. With respect to
hotels subject to purchase price adjustment, until the purchase price adjustment
dates the rent is a fixed annual rent payable quarterly. After the adjustment
dates, rent will be computed based on a percentage of revenues of those hotels.
These percentage leases generally provide for the lessees to pay in each month
or calendar quarter the greater of a base rent or percentage rent. The
percentage rent for each hotel leased to HHMLP is comprised of:

- a percentage of room revenues up to a certain threshold amount,

- a percentage of room revenues in excess of the first threshold but
less than a second incentive threshold,

- a percentage of room revenues in excess of the second incentive
threshold and

- a percentage of revenues other than room revenues.

The incentive thresholds are designed to provide incentive to HHMLP to
generate higher revenues at each hotel by reducing the percentage of revenue
paid as rent above certain thresholds. In the case of any newly-renovated
hotels or newly-developed hotels, our lessees pay a fixed rent until an
adjustment date, after which our lessees pay the greater of a base rent or
percentage rent.

Under the percentage leases, we make available to our lessees for the
replacement and refurbishment of furniture, fixtures and equipment and other
capital improvements, determined in accordance with GAAP, when and as deemed
necessary by the lessees, an amount equal to 4% and 6% (for limited service and
full service hotels respectively) of gross revenues per quarter on a cumulative
basis. Our obligation will be carried forward to the extent that the lessees
have not expended such amount, and any unexpended amounts will remain our
property upon termination of the percentage leases. Other than as described
above, our lessees are responsible for all repair and maintenance of the hotels
and any capital improvements thereto.

TAXABLE REIT SUBSIDIARIES

In January 2003, the partnership formed a wholly owned taxable REIT
subsidiary (TRS), 44 New England Management Company ("44 New England"), to lease
certain of the company's hotels. As of January 26, 2004, 44 New England leased
10 of our hotels. As our eight current leases with HHMLP expire, new leases
will be formed with 44 New England. HHMLP has agreed to waive its rights to
extend the lease terms of these hotels. Additionally, any new acquisitions will
be integrated into the TRS operating structure. The company entered into joint
venture agreements with CNL Hospitality Partners, LP (CNL) and PRA Glastonbury,
LLC in 2003 and established a TRS for each, Hersha CNL TRS Inc. and Hersha PRA
TRS, Inc., respectively. Each joint venture TRS leases one property. We
believe that transitioning to TRS structures positions us to participate more
directly in the operating efficiencies and revenue gains at our hotels.

During the years ended December 31, 2003, 2002 and 2001, certain properties
owned by us were under fixed lease agreements with HHMLP. The payments received
from some of these fixed leases exceeded the payment that we estimate would have
been received had the properties been leased to our TRS. Several of the
properties still leased to HHMLP under fixed leases will undergo a repricing per
our pre-existing repricing formula described under the heading "Certain
Relationships and Related Transactions--Hotel Acquisition Repricing." In the

event that the properties do not achieve forecasted results, the properties will
be revalued such that a lower value will be paid for these assets to compensate
for the potential decline in income.

MANAGEMENT AGREEMENTS

Our TRSs have engaged HHMLP as the property manager for our hotels pursuant
to substantially similar management agreements. Each management agreement
provides for a five year term and is subject to early termination upon the
occurrence of defaults and certain other events described therein. As required
under the REIT qualification rules, HHMLP must qualify as an "eligible
independent contractor" during the term of the management agreements.

ITEM 3. LEGAL PROCEEDINGS

We are not presently subject to any material pending legal proceedings. We
are typically subject to routine actions and administrative proceedings, which
we expect to be covered by liability insurance and which, in the aggregate, we
do not expect to have a material adverse effect on our business or financial
condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of our security holders during the fourth
quarter of 2002, through the solicitation of proxies or otherwise.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

Our common shares began trading on the American Stock Exchange on January
20, 1999 under the symbol "HT." As of March 26, 2004, the last reported closing
price per common share on the American Stock Exchange was $10.74. The following
table sets forth the high and low sales price per common share reported on the
American Stock Exchange as traded and the dividends paid on the common shares
for each of the quarters indicated.

CASH
DIVIDEND
PRICE RANGE PER
YEAR ENDED DECEMBER 31, 2004 HIGH LOW SHARE
--------- ------ ------

First quarter (through March 26, 2004 $ 11.75 $ 9.90 $ 0.18*
PER
YEAR ENDED DECEMBER 31, 2003 HIGH LOW SHARE
--------- ------ ------
Fourth quarter $ 10.10 $ 8.41 $ 0.18
Third quarter $ 9.10 $ 7.93 $ 0.18
Second quarter $ 8.25 $ 6.54 $ 0.18
First quarter $ 7.30 $ 6.31 $ 0.18
PER
YEAR ENDED DECEMBER 31, 2002 HIGH LOW SHARE
--------- ------ ------
Fourth quarter $ 6.99 $ 5.40 $ 0.18
Third quarter $ 6.55 $ 5.75 $ 0.18
Second quarter $ 6.70 $ 6.00 $ 0.18
First quarter $ 6.70 $ 5.51 $ 0.18

* Payable on April 16, 2004 to shareholders of record on March 31, 2004

SHAREHOLDER INFORMATION

At March 26, 2004 we had approximately 150 holders of record and 2,000
beneficial owners of our common shares. Units of limited partnership interest in
our operating partnership (which are redeemable for common shares subject to
certain limitations) were held by 15 entities and/or persons.

Our organizational documents limit the number of equity securities of any
series that may be owned by any single person or affiliated group to 9.9% of the
outstanding shares. We granted limited waivers of these ownership limitations as
follows:

- a limited waiver to CNL allows CNL to own 100% of the outstanding
Series A Preferred Shares and up to 60% of the outstanding common
shares on a fully diluted basis, subject to CNL's compliance with
certain representations and warranties (see "CNL Strategic Alliance");

- a limited waiver to RREEF America L.L.C., Deutche Asset Management,
Inc., and their related mutual funds and accounts, specifically
including Scudder RREEF Real Estate Fund Inc., Scudder RREEF Real
Estate Fund II Inc. and Scudder RREEF Securities Trust (collectively,
the "Scudder RREEF Group") to own 15% of the outstanding common
shares, subject to their compliance with certain representations and
warranties, including that no single person will own more than 9.9% of
the outstanding common shares; and

- a limited waiver to K.G. Redding & Associates, and its managed
accounts to own 15% of the outstanding common shares, subject to their
compliance with certain representations and warranties including that
no single person will own more than 9.9% of the outstanding common
shares.

DISTRIBUTION INFORMATION

Our Board of Trustees declared a cash distribution for the holders of the
common shares and the operating partnership units for the period from January 1,
2004 to March 31, 2004 in the amount of $0.18 per share and unit, payable on
April 16, 2004, to holders of record on March 31, 2004. While it is the current
policy of our Board to maintain our dividend at least this level, future
distributions, if any, will be at the discretion of our Board of Trustees and
will depend on our actual cash flow, financial condition, capital requirements,
the annual distribution requirements under the REIT provisions of the Internal
Revenue Code and such other factors as we may deem relevant. Our ability to
make distributions will depend on our receipt of distributions from our
operating partnership and lease payments from our lessees with respect to the
hotels. We rely on our lessees to generate sufficient cash flow from the
operation of the hotels to meet their rent obligations under the percentage
leases.

COMMON SHARES ISSUABLE PURSUANT TO OPTIONS

The following table summarizes information with respect to equity
compensation as of December 31, 2003:

NUMBER OF SECURITIES
TO BE ISSUED WEIGHTED AVERAGE
UPON EXERCISE OF EXERCISE PRICE OF NUMBER OF SECURITIES
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, REMAINING AVAILABLE
WARRANTS AND RIGHTS WARRANTS AND RIGHTS FOR FUTURE ISSUANCE
-------------------- --------------------- --------------------

Equity compensation plans
approved by security holders 75,714 $ 6.00 166,000
Equity compensation plans
not approved by security - - -
holders -------------------- --------------------- --------------------
Total 75,714 $ 6.00 166,000
==================== ===================== ====================

After December 31, 2004, all outstanding options either expired unexercised
or were exercised. As of January 26, 2004, no options or warrants to acquire our
securities were outstanding.

RECENT ISSUANCES OF UNREGISTERED SECURITIES

In April of 2003, we entered into a strategic alliance with CNL Hospitality
Partners, L.P., a subsidiary of CNL Hospitality Properties, Inc. Our agreement
with CNL provides that it will invest up to $25 million in our operating
partnership and up to $40 million in a newly formed hotel acquisition joint
venture. On April 21 and May 21, 2003, CNL purchased a total of 150,000 units
of a newly created series of convertible preferred limited partnership units of
our operating partnership (the "Series A Convertible Preferred Units") in
exchange for CNL's payment of $15,000,000 in cash, net of certain transaction
costs. CNL purchased an additional 40,266 Series A Convertible Preferred Units
on August 29, 2003, for approximately $4 million. CNL may be obligated to
purchase up to an additional 59,734 Series A Convertible Preferred Units, also
at a per unit price of $100.00. A more complete description of our sales of
Series A Convertible Preferred Units to CNL is included in a Periodic Report on
Form 8-K filed by us on April 23, 2003 and in our Quarterly Reports on Form 10-Q
for the quarters ending June 30, 2003 and September 30, 2003.

Effective January 1, 2002, the operating partnership issued 333,541 units
of limited partnership interest to some of our executive officers, trustees and
their affiliates in transactions exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended. These units were issued in
connection with the repricing of the Hampton Inn and Suites, Hershey, Holiday
Inn Express and Suites, Harrisburg and Hampton Inn, Danville hotels. There were
no proceeds to us from this issuance.

ITEM 6. SELECTED FINANCIAL DATA

The following sets forth selected financial and operating data on a
historical consolidated basis. The following data should be read in conjunction
with the financial statements and notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in
this Form 10-K.

HERSHA HOSPITALITY TRUST
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

OPERATING DATA 2003 2002 2001 2000 1999 (1)
------------ ----------- ----------- ----------- -----------

REVENUE:
Percentage Lease Revenues - HHMLP (2) $ 12,910 $ 11,433 $ 9,558 $ 9,723 $ 7,264
Percentage Lease Revenues - Other (3) 960 2,801 2,801 1,850 -
Hotel Operating Revenues 4,731 - - - -
Interest 86 7 32 50 78
Interest Related Party 715 207 154 1 28
Other Revenue 8 - - - -
Income (Loss) from Equity Method Investees (24) - - - -
------------ ----------- ----------- ----------- -----------
Total Revenue 19,386 14,448 12,545 11,624 7,370
------------ ----------- ----------- ----------- -----------

EXPENSES:
Interest expense 4,894 4,766 4,697 4,142 1,428
Interest expense - related party 60 60 72 - -
Hotel Operating Expenses 3,323 - - - -
Land Lease - Related Party - - 13 15 20
Land Lease 50 - - - -
Real Estate and Personal Property
Taxes and Property Insurance 1,354 1,021 812 632 450
General and Administrative 691 567 534 578 363
Prepayment Penalties 116 - - 107 -
Gain on Sale of Assets - - (598) - -
Compensation Expense related to Option Redemption 1,307 - - - -
Depreciation and Amortization 4,790 3,994 3,897 3,507 2,064
------------ ----------- ----------- ----------- -----------
Total Expenses 16,585 10,408 9,427 8,981 4,325
------------ ----------- ----------- ----------- -----------

Income Before Distributions to Preferred
Unitholders, Minority Interest and
Discontinued Operations 2,801 4,040 3,118 2,643 3,045
Distributions to Preferred Unitholders 1,195 - - - -
Income Allocated to Minority Interest 821 3,238 2,342 1,908 1,707
------------ ----------- ----------- ----------- -----------
Income Applicable to Common Shareholders before
Discontinued Operations 785 802 776 735 1,338
Discontinued Operations:
Gain on Sale of Discontinued Operations - 449 - - -
Income from Discontinued Operations - 41 58 112 -
------------ ----------- ----------- ----------- -----------

Net income $ 785 $ 1,292 $ 834 $ 847 $ 1,338
============ =========== =========== =========== ===========

Basic Earnings Per Common Share (4) $ 0.17 $ 0.51 $ 0.37 $ 0.37 $ 0.59
Diluted Earning Per Common Share $ 0.17 $ - $ - $ 0.37 $ 0.48
Dividends declared per Common Share $ 0.72 $ 0.72 $ 0.72 $ 0.72 $ 0.67

BALANCE SHEET DATA
Net investment in hotel properties $ 121,076 $ 93,814 $ 88,100 $ 87,671 $ 51,908
Minority interest in Partnership $ 38,971 $ 20,258 $ 20,436 $ 17,679 $ 18,980
Shareholder's equity $ 71,460 $ 11,378 $ 10,210 $ 11,014 $ 11,805
Total assets $ 196,568 $ 101,516 $ 96,017 $ 94,531 $ 56,382
Total debt $ 71,837 $ 65,341 $ 61,535 $ 61,450 $ 24,754

OTHER DATA
Adjusted Funds from Operations (5) $ 9,151 $ 8,293 $ 7,054 $ 6,754 $ 5,109
Net cash provided by operating activities $ 5,193 $ 6,885 $ 6,828 $ 5,032 $ 3,075
Net cash provided by (used in) investing activities $ (58,370) $ (345) $ 5,513 $ (14,895) $ (9,149)
Net cash provided by (used in) financing activities $ 93,744 $ (7,859) $ (12,174) $ 9,739 $ 6,198
Weighted average shares outstanding
Basic 4,614,316 2,519,820 2,275,000 2,275,000 2,275,000
Diluted 11,137,894 7,619,542 7,296,596 6,715,996 6,326,690

_________________________
(1) We commenced operations on January 26, 1999.
(2) Represents initial fixed rent plus aggregate percentage rent paid by
HHMLP to the Partnership pursuant to percentage leases, which payments
are calculated by applying the rent provisions in the respective
percentage leases to the historical room revenues.
(3) Represents initial fixed rent paid by the lessee to the Partnership
pursuant to percentage leases, which payments are calculated by
applying the rent provisions in the respective percentage leases to
the historical room revenues.
(4) Represents basic earnings per share computed in accordance with FAS
No. 128.
(5) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Funds From Operations" for an explanation of
FFO, why we believe Adjusted FFO is a meaningful measure of our
operating performance and a reconciliation of Adjusted FFO to net
income calculated in accordance with GAAP.

HERSHA HOSPITALITY MANAGEMENT, L.P.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

2003 2002 2001 2000 1999
-------- -------- -------- -------- --------

REVENUES FROM HOTEL OPERATIONS
Room Revenue $26,593 $24,711 $25,560 $26,903 $21,871
Restaurant Revenue 2,584 2,445 1,880 1,875 2,074
Other revenue 3,109 2,782 1,843 1,340 1,354
-------- -------- -------- -------- --------
TOTAL REVENUES FROM HOTEL OPERATIONS 32,286 29,938 29,283 30,118 25,299
-------- -------- -------- -------- --------

EXPENSES:
Hotel Operating Expenses 10,863 10,061 10,373 10,739 9,788
Restaurant Operating Expenses 2,273 1,971 1,593 1,743 1,822
Advertising and Marketing 2,112 2,061 2,086 1,754 1,228
Bad Debts 8 13 124 17 247
Depreciation and Amortization 238 250 229 192 102
General and Administrative 5,218 4,746 4,708 4,911 3,873
General and Admin. - Related Parties - 21 126 141 45
Lease Expense - HHLP 12,910 11,432 10,396 9,933 7,264
Lease Expense - Other Related Parties - - 703 798 1,316
-------- -------- -------- -------- --------
TOTAL EXPENSES 33,622 30,555 30,338 30,228 25,685
-------- -------- -------- -------- --------

Loss before Discontinued (1,336) (617) (1,055) (110) (386)
Operations

Loss from Discontinued - (54) (49) (37) -
-------- -------- -------- -------- --------
Operations

NET LOSS $(1,336) $ (671) $(1,104) $ (147) $ (386)
======== ======== ======== ======== ========

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

All statements contained in this section that are not historical facts are
based on current expectations. Words such as "believes", "expects",
"anticipate", "intends", "plans" and "estimates" and variations of such words
and similar words also identify forward-looking statements. Our actual results
may differ materially. We caution you not to place undue reliance on any such
forward-looking statements. We assume no obligation to update any
forward-looking statements as a result of new information, subsequent events or
any other circumstances.

GENERAL

As of December 31, 2003, we owned 22 hotels in the eastern United States.
For purposes of the REIT qualification rules, we cannot directly operate any of
our hotels. Instead, we must lease our hotels. As of January 26, 2004, eight
of our hotels were leased to an eligible independent contractor, HHMLP, as
required by the REIT qualification rules in effect prior to 2001. Those rules
were recently modified, allowing a hotel REIT to lease its hotels to a taxable
REIT subsidiary, or TRS, provided that the TRS engages an "eligible independent
contractor" to manage the hotels. Accordingly, we have leased ten of our hotels
to a wholly-owned TRS, which will pay qualifying rent, and the TRS has in turn
entered into management contracts with HHMLP with respect to those hotels. We
intend to eventually lease all our hotels to a TRS, whether upon the acquisition
of new hotels or upon expiration of the leases for the eight hotels currently
leased to HHMLP. We also own two hotels through our joint ventures, and those
hotels are leased to TRSs that are wholly owned by those joint ventures. The
joint ventures' hotels are managed by HHMLP.

As more of our hotels are leased to our TRS, we will participate more
directly in the operating performance of our hotels. Rather than receiving base
and percentage lease payments from HHMLP, which funded its own hotel operating
expenses, our TRS will directly receive all revenue from, and be required to
fund all expenses relating to, hotel operations. Our TRS will also be subject to
income tax on its earnings.

Our current revenue is derived from lease payments from HHMLP, lease
payments from our TRS and distributions to us from our TRS and from our joint
ventures. Because the lease payments from HHMLP comprise a significant portion
of our revenue, the following discussion also addresses the performance of HHMLP
for the periods presented.

Comparison of year ended December 31, 2003 to year ended December 31, 2002

HERSHA HOSPITALITY TRUST

REVENUE

Our total revenues for the twelve-month period ended December 31, 2003
consisted substantially of percentage lease revenue recognized pursuant to
percentage leases with HHMLP and hotel operating revenues for hotels leased to
our wholly owned TRS, 44 New England. Our revenue was approximately
$19,386,000, an increase of 34.2% compared to revenue of $14,448,000 for the
year ended December 31, 2002. The increase in revenue is primarily attributable
to the direct recording of hotel operating revenues for hotels leased to our
TRS. Additionally, the company acquired a joint venture interest in the Hampton
Inn, Chelsea, NY in August, 2003, the Hampton Inn, Linden, NJ in October, 2003,
the Hilton Garden Inn, Edison, NJ in October, 2003 and a joint venture interest
in the Hilton Garden Inn, Glastonbury, CT in November, 2003 and recorded revenue
for these hotels from the date of acquisition.

EXPENSES

Total expenses increased 59.4% to approximately $16,585,000 from
$10,408,000 in 2002. The increase is primarily a result of the direct
recognition of hotel operating expenses for hotels leased to our TRS, increased

property taxes, insurance, depreciation and amortization, and non recurring
expenses related to the expensing of options granted in prior periods and
prepayment penalties on certain debt instruments.

NET INCOME

Net income for the period was approximately $785,000, compared to 2002 net
income of $1,292,000. Net income decreased from the prior year due to an
increase in property taxes, insurance, depreciation and amortization,
distributions to preferred unitholders (CNL), and non recurring expenses related
to the expensing of options granted in prior periods. In December 2004, we
negotiated a buyout of all of the outstanding options related to the HHMLP's
employee compensation plan for approximately $1,028 and recorded this amount as
compensation expense during the year. We have also recorded compensation expense
of $279 related to 75,714 options that had vested as of December 31, 2003 and
were exercised during January 2004. We also recorded approximately $116 of non
recurring expenses related to prepayment penalties on the early extinguishment
of debt with the proceeds of our October equity offering.

HHMLP

REVENUE

HHMLP's revenues increased by approximately $2,348,000 for the year ended
December 31, 2003, or 7.9%, to approximately $32,286,000 as compared to
$29,938,000 for the year ended 2002. The increase in revenues was primarily due
to additional room revenues from increased occupancy of our existing hotels and
from the addition of four new hotels during the latter half of 2003.
Additionally, HHMLP recorded a slight increase in restaurant and other revenue.

EXPENSES

Expenses increased by approximately $3,067,000 to $33,622,000 for the
period as compared to $30,555,000 for 2002, a 10.0% increase. The increase in
expenses is primarily attributable to incremental costs incurred due to higher
occupancies at our existing hotels and the addition of four new hotels during
2003. In addition we recognized an increased in utilities expenses, employee
health benefit costs, guest amenities and frequent stay programs. to increased
operating, general and administrative, and lease expenses.

NET LOSS

HHMLP's net loss for the year ended December 31, 2003 increased to
approximately $1,336,000 from a loss of $671,000 in 2002. The increase in our
net loss was primarily a result of increased operating, general and
administrative, and lease expenses. HHMLP absorbs significant start up expenses
related to newly built properties that have either commenced operations or are
currently in the development stage. These properties are developed by the
principal owners of HHMLP and are managed by HHMLP upon commencement of
operations.

Comparison of year ended December 31, 2002 to year ended December 31, 2001

HERSHA HOSPITALITY TRUST

Our total revenues for the twelve-month period ended December 31, 2002
consisted substantially of percentage lease revenue recognized pursuant to
percentage leases with HHMLP and Noble. Our revenue was approximately
$14,448,000, an increase of 15.2% compared to revenue of $12,545,000 for the
year ended December 31, 2001. Net income for the period was approximately
$1,292,000, an increase of 54.9% compared to 2001 net income of approximately
$834,000. The increase in revenue is primarily attributable to additional
percentage lease revenues at several of our existing properties along with a
full twelve months of operations at the Mainstay Suites, Frederick, MD that was

acquired on January 1, 2002, Mainstay Suites and Sleep Inn, King of Prussia, PA
that was acquired on June 1, 2001 and the Holiday Inn Express, Long Island City,
NY that was acquired on November 1, 2001.

Net income increased from the prior year due to an increase in percentage lease
revenues, as highlighted above, along with a decrease in interest expense from
our floating rate debt and a gain of approximately $449,000 on the sale of the
Clarion Suites, Philadelphia, PA.

HHMLP

HHMLP's revenues increased by approximately $655,000 for the year ended
December 31, 2002, or 2.2%, to approximately $29,938,000 as compared to
$29,283,000 for the year ended 2001. The increase in revenues was due to
additional Food and Beverage revenues at the Holiday Inn Conference Center, New
Cumberland and the increase in third party management fees. HHMLP's revenues
were slightly offset by a reduction in total room revenues. HHMLP's net loss
for the year ended December 31, 2002 decreased to approximately $671,000 from
$1,104,000 in 2001. The decrease in our net loss was primarily a result of
increased total revenues in addition to lower operating expenses and related
party rent payments. HHMLP absorbs significant start up expenses related to
newly built properties that have either commenced operations or are currently in
the development stage. These properties are developed by the principal owners
of HHMLP and are managed by HHMLP upon commencement of operations.

COMPARISON OF YEAR ENDED DECEMBER 31, 2001 TO YEAR ENDED DECEMBER 31, 2000

HERSHA HOSPITALITY TRUST

During 2002, we adopted the provisions of FASB No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The previously reported 2001 and
2000 results of operations have been reclassified to reflect the provisions of
FASB No. 144.

Our total revenues for the twelve-month period ended December 31, 2001
consisted substantially of percentage lease revenue recognized pursuant to
percentage leases with HHMLP and Noble. Our revenue was approximately
$12,545,000, an increase of 7.9% compared to revenue of $11,624,000 for the year
ended December 31, 2000. Net income for the period was approximately $834,000, a
decrease of 1.5% compared to 2000 net income of approximately $847,000. The
increase in revenue is primarily attributable to the full year of operations in
2001 from several properties acquired during 2000 along with three additional
acquisitions completed during 2001. Lease revenues were slightly offset by the
disposition of six hotels during 2001 and lower percentage lease revenues from
several of the hotels owned during 2001.

Net income decreased from the prior year due to an increase in interest
expense, property taxes, insurance and depreciation and amortization as a result
of the acquisitions during 2000 and 2001, as mentioned above.

HHMLP

HHMLP's revenues decreased by $835,000 for the year ended December 31,
2001, or 2.8%, to approximately $29,283,000 as compared to $30,118,000, for the
year ended 2000. The decrease in revenues was due to the sale of six properties
during 2001 along with lower occupancies and average daily rates at several
hotels. HHMLP's net loss for the year ended December 31, 2001 increased to
approximately $1,104,000 from $147,000 in 2000. The increase in our net loss was
a result of lower revenues mentioned above and consequently lower gross

operating profits at several of our leased hotels. In addition we incurred
losses due to the start up expenses incurred at several of the newly-built
properties that commenced operations in 2001.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of liquidity is rent payments from the Lessees under
the Percentage Leases and revenue from the Lessees operating under Taxable REIT
Subsidiaries. We are dependent on the Lessees to make such rent payments and
earn revenue to provide cash for debt service, distributions, capital
expenditures at its hotels, and working capital.

We expect to meet our short-term liquidity requirements generally through
net cash provided by operations, existing cash balances and, if necessary,
short-term borrowings under our line of credit. We believe that our net cash
provided by operations will be adequate to fund operating requirements, debt
service and our payment of dividends in accordance with REIT requirements of the
federal income tax laws. We expect to meet our long-term liquidity requirements,
such as scheduled debt maturities and property acquisitions, through long-term
secured and unsecured borrowings, the issuance of additional equity securities
or, in connection with acquisitions of hotel properties, the issuance of units
of operating partnership interest in our operating partnership subsidiary.

In October, 2003, we completed an equity offering of 9,775,000 common
shares. Net proceeds from the offering were $77,262,000 after deducting
underwriting discounts, commissions, and offering expenses paid by us. Net
proceeds were used to reduce debt; fund the redemption of limited partnership
units; pay dividends and operating expenses; and fund acquisitions. Due to this
offering, we had an increase in our cash and cash equivalents from $140,000 at
December 31, 2002 to $40,707,000 at December 31, 2003.

Additional proceeds from our October equity offering have been used since
the end of 2003. We redeemed 1,300,000 limited partnership units for a total of
$10.4 million in cash as of October 21, 2003. Of this $10.4 million, we paid
approximately $1.45 million to the limited partners in 2003. The limited
partners, at their discretion, had not elected to receive $8.95 million of
proceeds from us as of December 31, 2003 and we have established a liability for
this amount as of December 31, 2003. The limited partners requested receipt of
this $8.95 million as of January 4, 2004. Notwithstanding this delayed receipt
of the redemption proceeds, the units were retired effective October 21, 2003.
In addition to the redemption of the limited partnership units, as mentioned
above, since December 31, 2003, we have invested approximately $6.0 million in
the acquisition of the Holiday Inn Express, Hartford, and our joint venture
acquisition of the Sheraton Four Points, Revere. We expect to invest an
additional $15.6 million in hotel acquisitions that we expect to close in the
first quarter of 2003.

We currently maintain an $11.5 million line of credit with Sovereign Bank.
We may use the line of credit to fund future acquisitions and for working
capital. Outstanding borrowings under the line of credit bear interest at the
bank's prime rate and are collateralized by certain of our properties. In the
future, we may seek to increase the amount of the line of credit, negotiate
additional credit facilities or issue corporate debt instruments. Any debt
incurred or issued by us may be secured or unsecured, long-term or short-term,
fixed or variable interest rate and may be subject to such other terms as we
deem prudent. As of December 31, 2003, we had a zero balance on our line of
credit and the interest rate on short-term borrowings was 4.13%.

We have a debt policy that limits our consolidated indebtedness to less
than 67% of the aggregate purchase prices for the hotels in which we have
invested and our current level is approximately 51.3%. However, our
organizational documents do not limit the amount of indebtedness that we may
incur and our Board of Trustees may modify our debt policy at any time without
shareholder approval. We intend to repay indebtedness incurred under the line of
credit from time to time, for acquisitions or otherwise, out of cash flow and
from the proceeds of issuances of additional common shares and other securities.

We intend to invest in additional hotels only as suitable opportunities
arise and adequate sources of financing are available. Our bylaws require the
approval of a majority of our Board of Trustees, including a majority of the
independent trustees, to acquire any additional hotel in which one of our

trustees or officers, or any of their affiliates, has an interest (other than
solely as a result of his status as our trustee, officer or shareholder). We
expect that future investments in hotels will depend on and will be financed by,
in whole or in part, the proceeds from additional issuances of common shares,
issuances of operating partnership units or other securities or borrowings.
Because of the level of our indebtedness, the success of our acquisition
strategy will depend primarily on our ability to access additional capital
through issuances of equity securities. We currently have no agreement or
understanding to invest in any hotel and there can be no assurance that we will
make any investments in any other hotels that meet our investment criteria.

Pursuant to our leases, we are required to make available to the lessees of
our hotels 4% (6% for full service properties) of gross revenues per quarter, on
a cumulative basis, for periodic replacement or refurbishment of furniture,
fixtures and equipment at each of our hotels. We believe that a 4% (6% for full
service hotels) reserve is a prudent estimate for future capital expenditure
requirements. We intend to spend amounts in excess of the obligated amounts if
necessary to comply with the reasonable requirements of any franchise license
under which any of our hotels operate and otherwise to the extent we deem such
expenditures to be in our best interests. We are also obligated to fund the cost
of certain capital improvements to our hotels. We believe that amounts required
to be set aside in our leases will be sufficient to meet required expenditures
for furniture, fixtures and equipment during the term of the leases. We will use
undistributed cash or borrowings under credit facilities to pay for the cost of
capital improvements and any furniture, fixture and equipment requirements in
excess of the set aside referenced above.

FUNDS FROM OPERATIONS

The National Association of Real Estate Investment Trusts (NAREIT)
developed Funds from Operations ("FFO") as a relative non-GAAP financial measure
of performance and liquidity of an equity REIT in order to recognize that
income-producing real estate historically has not depreciated on the basis
determined under GAAP. FFO, as defined under the definition adopted by NAREIT is
net income (loss) (computed in accordance with GAAP), excluding gains (or
losses) from debt restructuring or sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. We also adjust FFO for preferred stock distributions to present FFO
applicable to the common shares. In addition, we have adjusted FFO to exclude
non-recurring prepayment penalties and a non-recurring compensation expense in
2003 related to redemption of outstanding stock options (which are described
above). Due to the nature of those non-recurring items, we believe that
excluding them from the Adjusted FFO calculation presents a more transparent
measure of our underlying operations. Neither FFO nor Adjusted FFO represents
cash flows from operating activities in accordance with GAAP (which, unlike FFO,
generally reflects all cash effects of transactions and other events in the
determination of net income) and should not be considered an alternative to net
income as an indication of our performance or to cash flow as a measure of
liquidity or ability to make distributions. We consider FFO and Adjusted FFO a
meaningful, additional measure of operating performance because it reflects the
funds generated from our operations, 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. Comparison of our
presentation of FFO or Adjusted FFO to similarly titled measures for other REITs
may not necessarily be meaningful due to possible differences in the
calculations used by such REITs.

The following table reconciles FFO and Adjusted FFO for the periods
presented to the most directly comparable GAAP measure, net income, for the same
periods.

YEAR ENDED DECEMBER 31,

2003 2002 2001 2000 1999
------ ------- ------- ------ ------

FFO RECONCILIATION (DOLLARS IN THOUSANDS)
Net Income $ 785 $1,292 $ 834 $ 847 $1,338
Less: Gain on Sale of Assets - (449) (598) - -
Add:
Income Allocated to Minority Interest 821 3,238 2,342 1,908 1,707
Distributions to Preferred Unitholders 1,195 - - - -
Depreciation and Amortization 4,790 4,212 4,476 3,892 2,064
Adjustments for Unconsolidated Joint
Ventures 137 - - - -
------ ------- ------- ------ ------
FFO Applicable to Common Shares $7,728 $8,293 $7,054 $6,647 $5,109

Non Recurring: Prepayment Penalties 116 - - 107 -
Non Recurring: Compensation Expense
Related to Option Redemption 1,307 - - - -
------ ------- ------- ------ ------
Adjusted FFO Applicable to Common Shares $9,151 $8,293 $7,054 $6,754 $5,109
------ ------- ------- ------ ------

Adjusted FFO was $9,151 for the year ended December 31, 2003, which was an
increase of approximately $858 or 10.3% over Adjusted FFO in the comparable
period in 2002, which was $8,293. The increase in Adjusted FFO for the year
ended December 31, 2003 was primarily a result of increased percentage lease
revenues from HHMLP, increased interest revenue from development line funding
and lower borrowing costs. Adjusted FFO was partially offset due to the
recognition of hotel operating expenses in excess of income from hotel
operations. These income and expense items were recognized during the quarter
due to the TRS structure implemented to lease the hotels previously leased to
Noble.

Adjusted FFO was $8,293 for the year ended December 31, 2002, which was an
increase of approximately $1,239 or 17.6% over Adjusted FFO in the comparable
period in 2001, which was $7,054. The increase in Adjusted FFO during the year
ended December 31, 2002 was primarily a result of higher percentage lease
revenues at several of our properties in addition to lower overall borrowing
costs on our floating rate debt.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amount of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities.

On an on-going basis, all estimates are evaluated by us, including those
related to carrying value of investments in hotel properties. All estimates are
based upon historical experience and on various other assumptions we believe to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:

Revenue Recognition. Percentage lease income is recognized when earned from
the lessees under the agreements from the date of acquisition of each hotel
property. Lease income is recognized under fixed rent agreements ratably over
the lease term. All leases between us and the lessees are operating leases.

We directly recognize revenue and expense for all hotels leased through 44
New England as "Hotel Operating Revenue" and "Hotel Operating Expense" when
earned.

Income is recognized quarterly for hotels owned through a joint venture TRS
when net cash flow distributions are made as "Income (Loss) from Equity Method
Investees."

Allowance for Doubtful Accounts. We have not recorded an allowance for
doubtful accounts. Substantially all of our receivables at December 31, 2003 and
2002 were comprised of rent due from our lessees under the percentage leases
("rent"), which were fully paid in January 2004 and 2003, respectively.
Historically, we have not experienced any losses on our lessees' receivables.
However, the lessees rely primarily on cash flow from their operation of the
hotels to pay rent, and collection of future receivables from the lessees,
therefore, cannot be assured.

Impairment of Long-Lived Assets. We review the carrying value of each hotel
property in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 144 to determine if circumstances exist indicating an impairment in the
carrying value of the investment in the hotel property or if depreciation
periods should be modified. Long-lived assets are reviewed for impairment
whenever events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable. We perform undiscounted cash
flow analyses to determine if an impairment exists. If an impairment is
determined to exist, any related impairment loss is calculated based on fair
value. Hotel properties held for sale are presented at the lower of carrying
amount or fair value less cost to sell.

We would record an impairment charge if we believe an investment in hotel
property has been impaired such that future undiscounted cash flows would not
recover the book basis of the investment in the hotel property. Future adverse
changes in market conditions or poor operating results of underlying investments
could result in losses or an inability to recover the carrying value of the
investments that may not be reflected in an investment's carrying value, thereby
possibly requiring an impairment charge in the future. We have reviewed each of
our hotel properties at June 30, 2003 for impairment and, based on our estimate
of each hotel's future undiscounted cash flows, determined that no impairment
existed at any of our hotels.

REIT QUALIFICATION TESTS

We are subject to numerous operational and organizational requirements to
maintain our REIT status. Based on tests performed by management for the years
ended December 31, 1999 through December 31, 2003, we believe that we satisfied
the requirements needed to maintain our REIT status. However, we are subject to
audit and if the Internal Revenue Service determined that we failed one or more
of these tests, we could lose our REIT status. If we did not qualify as a REIT,
our income would become subject to federal and state income taxes, which would
be substantial, and the resulting adverse effects on our results of operations,
liquidity and amounts distributable to shareholders would be material.

EQUITY OFFERING

In October, 2003, we completed an equity offering of 9,775,000 common
shares. Net proceeds from the offering were $77.3 million after deducting
underwriting discounts, commissions, and offering expenses paid by us. Net
proceeds were used to reduce debt; fund the redemption of limited partnership
units; pay dividends and operating expenses; and fund acquisitions.

DISTRIBUTIONS/DIVIDENDS

We have paid regular distributions on our common shares, and each of the
2003 and 2002 quarterly distributions was $0.18 per share. In addition, the
operating partnership has paid regular distributions to the holders of units of
limited partnership interest in the partnership in an amount of $0.18 per unit.
There currently are no accruals for distributions not yet paid to the
unitholders.

RELATED PARTY TRANSACTIONS

We have entered into a number of transactions and arrangements that involve
related parties. For a description of the transactions and arrangements, please
see Notes 4, 5 and 6 to the financial statements, and the information contained
under "Certain Relationships and Related Transactions."

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table summarizes our contractual obligations and commitments
to make future payments under contracts, such as debt and lease agreements, as
of December 31, 2003.

CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY PERIOD
----------------------- ---------------------------------------------------
2004 2005 2006 2007 2008 THEREAFTER
------ ------ ------ ------ ------ -----------

Long-term Debt $2,209 $1,401 $1,800 $1,942 $2,096 $ 62,389
Land Lease $ 200 $ 200 $ 200 $ 200 $ 200 $ 6,142

INFLATION

Operators of hotels in general possess the ability to adjust room rates.
However, competitive pressures may limit the lessee's ability to raise room
rates in the face of inflation, and annual increases in average daily rates have
failed to keep pace with inflation.

SEASONALITY

RECENTLY ISSUED ACCOUNTING STANDARDS

The FASB has issued SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities," which is effective for certain transactions
arising on or after June 30, 2003. SFAS No. 149 will have no impact on us.

The FASB has issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," which is
effective for interim financial periods beginning after June 15, 2003. Based on
the provisions of SFAS No. 150, we evaluated our Series A Preferred Units and
common partnership units and determined that they qualify as equity investments.

FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others-an interpretation of FASB Statements No. 5, 57, and 107
and rescission of FASB Interpretation No. 34," was issued in November 2002. FIN
45 elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees that
it has issued. It also clarifies that a guarantor is required to recognize, at
the inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. FIN 45 does not prescribe a specific
approach for subsequently measuring the guarantor's recognized liability over
the term of the related guarantee. The initial recognition and initial
measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The disclosure requirements in FIN 45 are effective
for financial statements of interim or annual periods ending after December 15,
2002. We have made the disclosures required by FIN 45.

FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest
Entities-an interpretation of ARB No. 51," was revised in December 2003. FIN 46
requires existing unconsolidated variable interest entities to be consolidated
by their primary beneficiaries if the entities do not effectively disperse risks
among parties involved. It applies for all variable interest entities in the
first period that ends after March 15, 2004. We will continue to monitor and
evaluate the impact of FIN 46 on our financial Statements as we purchase
interests in joint verntures.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risk exposure is to changes in interest rates on our
variable rate Line of Credit and other floating rate debt. At December 31, 2003,
we did not maintain any indebtedness under the Line of Credit. The total
floating rate mortgages payable of $16,366 had a current weighted average
interest rate of 5.01%.

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 may enter into derivative financial
instruments such as interest rate swaps or caps and treasury options or locks to
mitigate our interest rate risk on a related financial instrument or to
effectively lock the interest rate on a portion of our variable rate debt.
Currently, we have no derivative financial instruments. We do not enter into
derivative or interest rate transactions for speculative purposes.

Approximately 76.9% of our outstanding mortgages payable are subject to
fixed rates while approximately 23.1% of our outstanding mortgages payable are
subject to floating rates. We regularly review interest rate exposure on our
outstanding borrowings in an effort to minimize the risk of interest rate
fluctuations.

For debt obligations outstanding at December 31, 2003, the following table
presents principal repayments and related weighted average interest rates by
expected maturity dates (in thousands):

2004 2005 2006 2007 2008 THEREAFTER
------ ------ ------- ------- --------- -----------

Fixed Rate $ 717 $ 875 $1,239 $1,343 $ 1,457 $ 48,839
Average Interest 8.92% 8.64% 8.10% 8.11% 8.13% 7.78%
Floating Rate $ 493 $ 525 $ 561 $ 599 $ 639 $ 13,550
Average Interest 5.01% 5.01% 5.01% 5.01% 5.01% 5.01%

The table incorporates only those exposures that existed as of December 31,
2003 and does not consider exposure or positions that could arise after that
date. As a result, our ultimate realized gain or loss with respect to interest
rate fluctuations will depend on the exposures that arise during the future
period, prevailing interest rates, and our hedging strategies at that time.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

HERSHA HOSPITALITY TRUST

Reports of Independent Auditors
Consolidated Balance Sheets as of
December 31, 2003 and 2002
Consolidated Statements of Operations for the years ended
December 31, 2003, 2002 and 2001
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001
Notes to Consolidated Financial Statements
Schedule III - Real Estate and
Accumulated Depreciation for the year ended December 31, 2003

HERSHA HOSPITALITY MANAGEMENT, L.P.
Reports of Independent Auditors
Balance Sheets as of
December 31, 2003 and 2002
Statements of Operations for the years ended
December 31, 2003, 2002 and 2001
Statements of Partners' Equity (Deficit) for the years ended
December 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001
Notes to Financial Statements

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Trustees of
Hersha Hospitality Trust
New Cumberland, Pennsylvania

We have audited the accompanying consolidated balance sheet of Hersha
Hospitality Trust and subsidiaries as of December 31, 2003, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
year then ended. Our audit also included the financial statement schedule
included on Pages 77 and 78. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Hersha Hospitality Trust and subsidiaries as of December 31, 2003, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relationship to the consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.

REZNICK FEDDER & SILVERMAN

Baltimore, Maryland
March 5, 2004, except for the third paragraph
of Note 15 as to which the date is March 11, 2004

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Trustees of
Hersha Hospitality Trust
New Cumberland, Pennsylvania

We have audited the accompanying consolidated balance sheet of Hersha
Hospitality Trust and subsidiaries as of December 31, 2002, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 2002. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

MOORE STEPHENS, P.C.
Certified Public Accountants.
New York, New York
February 28, 2003

Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS

--------------------------------------------------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
[IN THOUSANDS, EXCEPT SHARE AMOUNTS]
--------------------------------------------------------------------------------------------------------------------------

DECEMBER 31, DECEMBER 31,
2003 2002
-------------- --------------

ASSETS:
Cash and cash equivalents $ 40,707 $ 140
Investment in Hotel Properties, net
of Accumulated Depreciation 121,076 93,814
Notes Receivable 15,200 200
Escrow Deposits 2,160 1,749
Accounts Receivable 223 -
Lease Payments Receivable - Related Party 2,590 2,562
Lease Payments Receivable - Other - 233
Intangibles, net of Accumulated Amortization of $540 and $430 1,322 1,165
Due from Related Party 5,768 1,130
Investment in Joint Ventures 6,576 -
Other Assets 946 523
-------------- --------------

TOTAL ASSETS $ 196,568 $ 101,516
============== ==============

LIABILITIES:
Mortgages Payable $ 70,837 $ 61,538
Notes Payable 1,000 -
Line of Credit - 3,803
Cash Payable - Common Partnership Unit Redemption 8,951 -
Deposits Payable - 1,000
Dividends and Distributions Payable 3,407 1,382
Due to Related Party 419 1,303
Accounts Payable and Accrued Expenses 1,523 854
-------------- --------------

TOTAL LIABILITIES 86,137 69,880
-------------- --------------

COMMITMENTS AND CONTINGENCIES

MINORITY INTEREST:
Common Units 21,891 20,258
Series A Preferred Units 17,080 -
-------------- --------------
TOTAL MINORITY INTEREST 38,971 20,258
-------------- --------------

SHAREHOLDERS' EQUITY:
Preferred Shares - Series A, $.01 Par Value, 350,000 Shares Authorized, None Issued and
Outstanding - -

Common Shares - Priority Class A, $.01 Par Value, 50,000,000 Shares Authorized,
12,355,075 and 2,576,863 Shares Issued and Outstanding at December 31, 2003 and
December 31, 2002, Respectively (Aggregate Liquidation Preference $74,130 and $15,457,
respectively) 124 26

Common Shares - Class B, $.01 Par Value, 50,000,000 Shares Authorized, None Issued and
Outstanding - -

Additional Paid-in Capital 76,217 13,679
Additional Paid-in Capital - Stock Options 279 -
Distributions in Excess of Net Earnings (5,160) (2,327)
-------------- --------------

71,460 11,378
-------------- --------------

TOTAL SHAREHOLDERS' EQUITY 110,431 31,636
-------------- --------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 196,568 $ 101,516
============== ==============

The Accompanying Notes Are an Integral Part of These Consolidated Financial
Statements.
42

----------------------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 2003, 2002 AND 2001
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
----------------------------------------------------------------------------------------------

2003 2002 2001
-------- ------- -------

REVENUE:
Percentage Lease Revenues - HHMLP $12,910 $11,433 $ 9,558
Percentage Lease Revenues - Other 960 2,801 2,801
Hotel Operating Revenues 4,731 - -
Interest 86 7 32
Interest - Related Party 715 207 154
Other Revenue 8 - -
Income (Loss) from Equity Method Investees (24) - -
-------- ------- -------

TOTAL REVENUE 19,386 14,448 12,545
-------- ------- -------

EXPENSES:
Interest expense 4,894 4,766 4,697
Interest expense - related party 60 60 72
Hotel Operating Expenses 3,323 - -
Land Lease - Related Party - - 13
Land Lease 50 - -
Real Estate and Personal Property Taxes and Insurance 1,354 1,021 812
General and Administrative 691 567 534
Prepayment Penalties - Debt 116 - -
Gain on Sale of Assets - - (598)
Compensation Expense related to Option Redemption 1,307 - -
Depreciation and Amortization 4,790 3,994 3,897
-------- ------- -------

TOTAL EXPENSES 16,585 10,408 9,427
-------- ------- -------

INCOME BEFORE DISTRIBUTION TO PREFERRED UNITHOLDERS,
MINORITY INTEREST AND DISCONTINUED OPERATIONS 2,801 4,040 3,118

DISTRIBUTIONS TO PREFERRED UNITHOLDERS 1,195 - -
INCOME ALLOCATED TO MINORITY INTEREST 821 3,238 2,342
-------- ------- -------

INCOME APPLICABLE TO COMMON SHAREHOLDERS BEFORE DISCONTINUED
OPERATIONS 785 802 776

DISCONTINUED OPERATIONS:
Gain on Disposition of Hotel Properties - 449 -
Income from Discontinued Operations - 41 58
-------- ------- -------

NET INCOME $ 785 $ 1,292 $ 834
======== ======= =======

EARNINGS PER SHARE DATA:
------------------------
Basic Earnings Per Common Share - before discontinued operations $ 0.17 $ 0.32 $ 0.34
Discontinued operations $ - $ 0.19 $ 0.03
Basic Earnings Per Common Share $ 0.17 $ 0.51 $ 0.37
Diluted Earnings Per Common Share $ 0.17 $ - $ -

The Accompanying Notes Are an Integral Part of These Consolidated Financial
Statements.
43

----------------------------------------------------------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
[IN THOUSANDS, EXCEPT SHARES]
----------------------------------------------------------------------------------------------------------------------------------

Priority Class A Class B Additional Distributions
Common Shares Common Shares Additional Paid-In in Excess
-------------------- --------------- Paid-In Capital Stock of Net
Shares Dollars Shares Dollars Capital Options Earnings Total
---------- -------- ------ ------- ------------ -------------- --------------- ---------

Balance at December 31, 2000 2,275,000 $ 23 - - $ 11,968 - $ (977) $ 11,014

Dividends declared - - - - - - (1,638) (1,638)

Net Income - - - - - - 834 834
---------- -------- ------ ------- ------------ -------------- --------------- ---------

Balance at December 31, 2001 2,275,000 23 - - 11,968 - (1,781) 10,210

Common Stock Issuance 300,000 3 - - 1,800 - - 1,803
Issuance Costs - - - - (89) - - (89)

Dividend Reinvestment Plan 1,863 - - - - - - -

Dividends declared - - - - - - (1,838) (1,838)

Net Income - - - - - - 1,292 1,292
---------- -------- ------ ------- ------------ -------------- --------------- ---------

Balance at December 31, 2002 2,576,863 26 - - 13,679 - (2,327) 11,378

Common Stock Issuance 9,775,000 98 - - 82,990 - - 83,088
Issuance Costs - - - - (5,826) - - (5,826)

Dividend Reinvestment Plan 3,212 - - - 24 - - 24

Compensation - Vesting of Options - - - - - 279 - 279

Reallocation of minority interest
due to equity issuance - - - - (14,650) - - (14,650)

Dividends declared - - - - - - (3,618) (3,618)

Net Income - - - - - - 785 785
---------- -------- ------ ------- ------------ -------------- --------------- ---------

Balance at December 31, 2003 12,355,075 $ 124 - - $ 76,217 $ 279 $ (5,160) $ 71,460
========== ======== ====== ======= ============ ============== =============== =========

The Accompanying Notes Are an Integral Part of These Consolidated Financial
Statements.
44

-------------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2003, 2002 AND 2001 (CONTINUED)
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
-------------------------------------------------------------------------------------

2003 2002 2001
--------- --------- ---------

OPERATING ACTIVITIES:
Net Income Allocated to Common Shareholders $ 785 $ 1,292 $ 834
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 4,681 4,089 4,202
Amortization 109 123 274
Income Allocated to Minority Interest 821 3,238 2,342
Loss from Investment in Joint Ventures 24 - -
Compensation - Vesting of Options 279 - -
(Gain) Loss on Disposal of Real Estate - (449) (598)
Change in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (223) - -
Escrow and Lease Deposits (411) (102) (469)
Lease Payments Receivable - Related Party (28) (419) 501
Lease Payments Receivable - Other 233 - -
Other Assets (423) (195) (92)
Due from Related Party 62 (46) 122
Increase (Decrease):
Deposits Payable (1,000) - -
Due to Related Party (884) 210 (179)
Accounts Payable and Accrued Expenses 669 436 (109)
Preferred Distributions Payable 499 - -
--------- --------- ---------
Total Adjustments 4,408 6,885 5,994
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,193 8,177 6,828
--------- --------- ---------

INVESTING ACTIVITIES:
Purchase of Hotel Property Assets (31,943) (5,142) (5,017)
Investment in Notes Receivable Joint Venture (15,000) (200) -
Purchase of Intangible Assets - - (69)
Franchise Fees Paid (127) - -
Purchase of Joint Venture Interests (6,600) - -
Sale of Hotel Property Assets - 5,997 12,599
Development Loans to Related Parties (4,700) (1,000) (2,000)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (58,370) (345) 5,513
--------- --------- ---------

FINANCING ACTIVITIES:
Proceeds from Borrowings Under Line of Credit 19,411 12,077 10,766
Repayment of Borrowings Under Line of Credit (23,214) (15,332) (15,108)
Principal Repayment of Mortgages Payable (19,608) (3,857) (2,729)
Principal Addition to Mortgages Payable 28,907 2,985 -
Proceeds from Notes Payable 1,000 - -
Financing Fees Paid (139) - -
Redemption of Common Partnership Units (1,449) - -
Repayment of Related Party Loans - - 30
Cash received from Stock Sales 77,262 1,711 -
Sale of Series A Preferred Units 17,080 - -
Common Shares Dividends Paid (1,834) (1,774) (1,638)
Limited Partnership Unit Distribution Paid (3,672) (3,669) (3,495)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 93,744 (7,859) (12,174)
--------- --------- ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 40,567 (27) 167
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 140 167 -
--------- --------- ---------

CASH AND CASH EQUIVALENTS - END OF PERIOD $ 40,707 $ 140 $ 167
========= ========= =========

The Accompanying Notes Are an Integral Part of These Consolidated Financial
Statements.
45

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Hersha Hospitality Trust (the "Company") was formed in May 1998 as a
self-administered, Maryland real estate investment trust ("REIT") for
Federal income tax purposes.

The Company owns a controlling general partnership interest in Hersha
Hospitality Limited Partnership (the "Partnership"), which owns a 99%
limited partnership interest in various subsidiary partnerships. Hersha
Hospitality, LLC ("HHLLC"), a Virginia limited liability company, owns a 1%
general partnership interest in the subsidiary partnerships and the
Partnership is the sole member of HHLLC.

On January 16, 2003, the Partnership formed a wholly owned taxable REIT
subsidiary, 44 New England Management Company ("44 New England"), to lease
certain of the Company's hotels.

On April 21, 2003, May 21, 2003 and August 29, 2003, CNL Hospitality
Partnership, LP ("CNL") purchased $10,000, $5,000 and $4,027, respectively,
of convertible preferred units of limited partnership interest in the
Partnership (the "Series A Preferred Units"). Net of offering expenses, the
Partnership received proceeds of $17,080.

HHLP and CNL also agreed to form a joint venture investment partnership,
HT/CNL Metro Hotels, LP ("HT/CNL"), to acquire hotel real estate utilizing
up to an additional $40,000 of joint venture funding from CNL. We have a
one third ownership interest in this joint venture while CNL maintains the
remaining two thirds interests.

On October 21, 2003, we completed a public offering of 9,775,000 class A
common shares at $8.50 per share. Proceeds to the Company, net of
underwriting discounts and commissions, structuring fees and expenses, were
approximately $77,262. Immediately upon closing of the offering, the
Company contributed all of the net proceeds to the Partnership and after
such contributions owns an 65.1% interest. Of the net offering proceeds to
the Company, $10,400 was utilized to fund limited partner redemptions (Note
10) and $24,000 was used to repay indebtedness. The remaining net proceeds
will be used principally to fund future acquisitions and for general
corporate purposes.

As of December 31, 2003, the Company, through the Partnership and
subsidiary partnerships, owned 20 limited and full service hotels and a
joint venture interest in 2 properties. The Company leased 14 of the hotel
facilities to Hersha Hospitality Management, LP ("HHMLP"), a Pennsylvania
limited partnership and six of the hotel facilities to 44 New England. The
Hampton Inn - Chelsea, owned in a joint venture with CNL is leased to
Hersha/CNL TRS Inc. and the Hilton Garden Inn - Glastonbury, owned in a
joint venture is leased to Hersha PRA TRS, Inc. HHMLP serves as the manager
for both of the joint venture assets. HHMLP is owned in part by three of
the Company's executive officers, two of its trustees and other third party
investors. HHMLP, 44 New England and the JV TRS Lessees operate and/or
lease the hotel properties pursuant to separate percentage lease agreements
(the "Percentage Leases") that provide for initial fixed rents or
percentage rents based on the revenues of the hotels. The hotels are
located principally in the Mid-Atlantic region of the United States.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

Principles of Consolidation and Presentation
------------------------------------------------

The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and include all of
our accounts as well as accounts of the Partnership, subsidiary
Partnerships and our wholly owned TRS Lessee. All significant inter-company
amounts have been eliminated.

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. Control is demonstrated by the ability of the general partner
to manage day-to-day operations, refinance debt and sell the assets of the
partnerships without the consent of the limited partners and the inability
of the limited partners to replace the general partner. The minority
interest balance in the accompanying balance sheets represents the limited
partners' interest in the net assets of the Partnership. Net operating
results of the Partnership are allocated after preferred distributions
(Note 10) based on their respective partners' ownership interests. Our
ownership interest in the Partnership as of December 31, 2003, 2002 and
2001 was 65.1%, 33.6% and 33.6%, respectively.

Investments in partnerships and joint ventures represent noncontrolling
ownership interests in properties ("Joint Venture Properties"). These
investments are accounted for using the equity method of accounting. These
investments are recorded initially at cost and subsequently adjusted for
net equity in income (loss), which is allocated in accordance with the
provisions of the applicable partnership or joint venture agreements, and
cash contributions and distributions.

Use of Estimates
------------------

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States (GAAP) requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.

Investment in Hotel Properties
---------------------------------

Investment in hotel properties is stated at cost. Depreciation for
financial reporting purposes is principally based upon the straight-line
method.

The estimated lives used to depreciate the Hotel properties are as follows:

Building and Improvements 15 to 40 Years
Furniture and Fixtures 5 to 7 Years

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

Cash Equivalents
-----------------

The Company considers highly liquid investments with an original maturity
of three months or less to be cash equivalents.

Accounts Receivable
--------------------

Accounts receivable are charged to bad debt expense when they are
determined to be uncollectible based upon a periodic review of the accounts
by management. Accounting principles generally accepted in the United
States of America require that the allowance method be used to recognize
bad debts; however, the effect of using the direct write-off method is not
materially different from the results that would have been obtained under
the allowance method.

Notes Receivable
-----------------

The Company has invested in notes receivable in connection with hotel
property transactions. Interest income is recognized on the notes
receivable based upon the terms of the related notes. The ultimate
repayment of the notes is subject to a number of variables, including the
performance and value of the underlying real property. The carrying amount
of the notes receivable approximates its fair value in consideration of
interest rates, market conditions and other qualitative factors.

Intangible Assets and Goodwill
---------------------------------

Intangible assets consist of loan acquisition fees and franchise fees and
are carried at cost net of accumulated amortization. Amortization of loan
acquisition fees is computed using the straight-line method over the term
of the related debt. Amortization of franchise fees is computed using the
straight-line method over the term of the related agreement.

Goodwill resulted from the acquisition of the Holiday Inn Hotel and
Conference Center, Harrisburg, Pennsylvania. We have not recognized
amortization expense on goodwill subsequent to December 31, 2001. We test
goodwill for impairment at least annually and have not recognized any
impairment during the three years ended December 31, 2003.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

Revenue Recognition
--------------------

Percentage lease income is recognized when earned from the Lessees, under
the agreements, from the date of acquisition of each hotel property. Lease
income is recognized under fixed rent agreements ratably over the lease
term. All leases between us and the lessees are operating leases.

We recognize lease revenue for interim and annual reporting purposes on an
accrual basis pursuant to the terms of the respective percentage leases and
on an interim basis in accordance with the Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 101 "Revenue
Recognition in Financial Statements."

We directly recognize revenue and expense for all hotels leased through 44
New England as "Hotel Operating Revenue" and "Hotel Operating Expense" when
earned and incurred.

Advertising and Marketing
---------------------------

Advertising and marketing costs are expensed as incurred and totaled $143
for the year ended December 31, 2003, related to the hotels operated by the
TRS and consolidated in these financial statements. In connection with our
franchise agreements, a portion of the franchise fees paid is for marketing
services.

Earnings Per Common Share
----------------------------

We compute earnings per share in accordance with Statement of Financial
Accounting Standards ["SFAS"] No. 128, "Earnings Per Share."

Impairment of Long Lived Assets
-----------------------------------

We review the carrying value of each hotel property in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 144 to determine
if circumstances exist indicating an impairment in the carrying value of
the investment in the hotel property or if depreciation periods should be
modified. Long-lived assets are reviewed for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable. We perform undiscounted cash flow
analyses to determine if impairment exists. If impairment is determined to
exist, any related impairment loss is calculated based on fair value. Hotel
properties held for sale are presented at the lower of carrying amount or
fair value less cost to sell.

Income Taxes
-------------

The Company qualifies and intends to continue to qualify as a REIT under
applicable provisions of the Internal Revenue Code, as amended. In general,
under such provisions, a trust which has made the required election and, in
the taxable year, meets certain requirements and distributes to its
shareholders at least 90% of its REIT taxable income will not be subject to
Federal income tax to the extent of the income which it distributes.
Earnings and profits, which determine the taxability of dividends to
shareholders, differ from net income reported for financial reporting
purposes due primarily to differences in depreciation of hotel properties
for Federal income tax purposes.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

Deferred income taxes relate primarily to the TRS Lessee and are accounted
for using the asset and liability method. Under this method, deferred
income taxes are recognized for temporary differences between the financial
reporting bases of assets and liabilities of the TRS Lessee and their
respective tax bases and for their operating loss and tax credit carry
forwards based on enacted tax rates expected to be in effect when such
amounts are realized or settled. However, deferred tax assets are
recognized only to the extent that it is more likely than not that they
will be realized based on consideration of available evidence, including
tax planning strategies and other factors.

Under the REIT Modernization Act ("RMA"), which became effective January 1,
2001, the Company is permitted to lease hotels to a wholly owned taxable
REIT subsidiary ("TRS") and may continue to qualify as a REIT provided the
TRS enters into management agreements with an "eligible independent
contractor" who will manage the hotels leased by the TRS. The Company
formed the TRS Lessee and, effective April 20, 2003, the TRS Lessee leased
two hotel properties with an additional two properties becoming effective
as of May 20, 2003. The TRS is subject to taxation as a C-Corporation. The
TRS Lessee had an operating loss for financial reporting purposes for the
period ended December 31, 2003. Although the TRS Lessee is expected to
operate at a profit for Federal income tax purposes in future periods, the
value of the deferred tax asset is not able to be quantified with
certainty. Therefore, no deferred tax assets have been recorded.

Distributions
-------------

We intend to pay distributions which, at a minimum, will be sufficient for
us to maintain our REIT status.

Concentration of Credit Risk
-------------------------------

Financial instruments that potentially subject us to concentrations of
credit risk include cash and cash equivalents, rent receivable and note
receivable arising from our normal business activities. We place our cash
and cash equivalents with high credit quality financial institutions. We do
not require collateral to support our financial instruments. We perform
periodic evaluations of the relative credit standing of these financial
institutions and limit the amount of credit exposure with any one
institution. At December 31, 2003, we maintained funds at financial
institutions that exceeded federally insured amounts.

Rental income is earned from one related party lessee and two joint venture
lessees. Therefore, the collection of rent receivable and rent income is
reliant on the continued financial health of these Lessees.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

Fair Value of Financial Instruments
---------------------------------------

At December 31, 2003 and 2002, financial instruments include cash and cash
equivalents, lease payments receivable, notes receivable, accounts payable,
accrued expenses, loans to and from related parties, notes payable, a line
of credit and mortgages payable. The fair values of cash and cash
equivalents, lease payments receivable, note receivable and accounts
payable and accrued expenses approximate carrying value because of the
short-term nature of these instruments. Loans with related parties carry
interest at rates that approximate our borrowing cost. The fair value of
mortgages payable and the line of credit approximates carrying value since
the interest rates approximate the interest rates currently offered for
similar debt with similar maturities.

Stock Based Compensation
--------------------------

We account for employee stock-based compensation under the intrinsic value
based method as prescribed by Accounting Principles Board ["APB"] Opinion
No. 25. We apply the provisions of SFAS No. 123, "Accounting for Stock
Based Compensation," to non-employee stock-based compensation and the pro
forma disclosure provisions of that statement to employee stock-based
compensation.

Reclassifications
-----------------

Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.

NOTE 2 - INVESTMENTS IN HOTEL PROPERTIES

Hotel properties consist of the following at December 31, 2003 and 2002:

2003 2002
-------- --------

Land $ 11,710 $ 10,500
Buildings and improvements 105,615 81,160
Furniture, fixtures and equipment 21,797 15,519
-------- --------

139,122 107,179
Less accumulated depreciation 18,046 13,365
-------- --------

$121,076 $ 93,814
======== ========

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 2 - INVESTMENTS IN HOTEL PROPERTIES (CONTINUED)

Depreciation expense was $4,681, $4,089 and $4,202 for the years ended
December 31, 2003, 2002 and 2001, respectively. The twenty hotels owned at
December 31, 2003 consist of eighteen premium limited service hotels and
two full service hotel properties.

In 2003, 2002 and 2001, we acquired and sold the following hotels for the
approximate amounts indicated.

No. of Purchase Sale
2003 Rooms Price Price
-------------------------------- ------- --------- ---------

Hampton Inn, Linden, NJ 148 $ 15,250 $ -
Hilton Garden Inn, Edison, NJ 132 14,750 -
------- --------- ---------

Total 280 $ 30,000 $ -
======= ========= =========

2002
--------------------------------

Mainstay Suites, Frederick, MD 72 $ 5,500 $ -
Sleep Inn, Corapolis, PA (143) - (5,500)
Clarion Suites, Philadelphia, PA (96) - (6,300)
Doubletree Club, Jamaica, NY 110 11,500 -
------- --------- ---------

Total ( 57) $ 17,000 $(11,800)
======= ========= =========

2001
--------------------------------

Mainstay Suite/Sleep Inn
Kings of Prussia, PA 156 $ 9,445 $ -
Holiday Inn Express, LI City, NY 79 8,500 -
Best Western, Indiana, PA (96) - (2,200)
Comfort Inn, McHenry, MD (77) - (1,800)
Comfort Inn, Denver, PA (45) - (2,100)
Comfort Inn, JFK, NY (60) - (7,000)
Holiday Inn Milesburg, PA (118) - (4,700)
Comfort Inn, Harrisburg, PA (117) - (3,400)
------- --------- ---------

Total (278) $ 17,945 $(21,200)
======= ========= =========

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 2 - INVESTMENTS IN HOTEL PROPERTIES (CONTINUED)

On January 1, 2001, we issued an additional 531,559 units of limited
partnership interest with an aggregate value of $3,189, in connection with
the repricing of the Holiday Inn Express, Hershey, Hampton Inn, Carlisle,
Holiday Inn Express, New Columbia and the Comfort Inn, Harrisburg.

On April 1, 2001, we sold the Best Western, Indiana for $2,200 to the
Hersha Affiliates. In conjunction with this transaction we received cash
proceeds of $400 and have redeemed 76,252 limited partnership units valued
at $457. The buyer also assumed the outstanding mortgage balance of $1,342.

On May 1, 2001, we sold the Comfort Inn, Denver for $2,100 to an unrelated
third party. Net of settlement fees and other costs we received $1,868. In
conjunction with this transaction we received cash proceeds of $460 and
have paid down the outstanding mortgage balance of $1,408 to Shreenathji
Enterprises, Ltd., a related party.

On June 1, 2001, we sold the Comfort Inn, JFK for $7,000 to an unrelated
third party. Net of settlement fees and other costs we received cash
proceeds of $6,613. Based upon the initial repricing formula, we issued an
additional 175,538 limited partnership units in conjunction with this
transaction.

On June 1, 2001, we purchased the Mainstay Suites and Sleep Inn in King of
Prussia from the Hersha Affiliates. We purchased these assets for $9,445
plus settlement costs and leased them to Hersha Hospitality Management, LP.
In conjunction with this transaction, we assumed the mortgage indebtedness
of $6,738, assumed $1,000 of related party debt and funded the remainder of
the proceeds of $1,768 from our available cash and outstanding line of
credit.

On November 1, 2001, we purchased the Holiday Inn Express hotel located in
Long Island City, New York from Hersha Affiliates. We purchased this asset
for $8,500 plus settlement costs of approximately $100 and leased it to
Hersha Hospitality Management, LP. In conjunction with this transaction, we
assumed the mortgage indebtedness of approximately $5,445, assumed $1,000
of related party debt, issued 76,555 of additional units for $459 and paid
cash of approximately $1,600.

On November 1, 2001, we sold the Comfort Inn, McHenry, MD to the Hersha
Affiliates for approximately $1,800, including the assumption of
approximately $1,180 in indebtedness, redemption of 55,175 limited
partnership units valued at approximately $331 and cash proceeds of
approximately $300.

On November 1, 2001, we sold the Comfort Inn, Riverfront, Harrisburg, PA to
the Hersha Affiliates for $3,400 net of selling costs, including the
assumption of approximately $2,500 in indebtedness and approximately $900
in cash.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 2 - INVESTMENTS IN HOTEL PROPERTIES (CONTINUED)

On November 1, 2001, we sold the Holiday Inn, Milesburg, PA to a third
party owner operator for approximately $4,700 less broker fees, settlement
and transfer costs of $617. Net of these fees and expenses we received cash
proceeds of $3,926 and paid down a related party loan receivable of $157.

For the year ended December 31, 2001, we recorded a gain of approximately
$125, $145, $170 and $266 on the sale of the Best Western, Indiana, Comfort
Inn, McHenry, Comfort Inn, Riverfront and the Holiday Inn, Milesburg,
respectively. We recorded a loss of approximately $108 on the sale of the
Comfort Inn, Denver. The net amount of these gains and losses of $598 is
included in the consolidated statement of operations and the consolidated
statement of cash flows for the year ended December 31, 2001, under the
caption "gain on disposition of hotel property." The use of fair value as
the appropriate accounting treatment was determined with reference to APB
29 and related accounting guidance.

On January 1, 2002, we issued an additional333,541 units of limited
partnership interest with and aggregate value of $2,001, in connection with
the re-pricing of the Holiday Inn Express & Suites, Harrisburg, the Hampton
Inn, Danville and the Hampton Inn & Suites, Hershey, Pennsylvania.

The Board of Trustees approved the purchase of the Mainstay Suites,
Frederick, Maryland, on February 27, 2002 to be effective January 1, 2002.
We purchased this asset for $5,500 plus settlement costs of approximately
$21 and leased it to HHMLP. In conjunction with this transaction, we
assumed mortgage indebtedness of approximately $3,100, assumed $800 of
related party debt, and paid cash of approximately $1,600. The financial
position and results of operations related to the Mainstay Suites,
Frederick, Maryland are included as of January 1, 2002.

Further, on February 27, 2002, the Board of Trustees also approved the sale
of the Sleep Inn, Corapolis, Pennsylvania to Hersha Affiliates to be
effective as of January 1, 2002. We sold this asset for $5,500, including
the assumption of approximately $3,500 in indebtedness and the redemption
of 327,038 limited partnership units valued at approximately $2,000. We
initially purchased this property from these executive officers, trustees
and their affiliates on October 1, 2000 for $5,500. This transaction has
been accounted for as of January 1, 2002.

On September 26, 2002, we sold the Clarion Suites, Philadelphia, PA to a
third party for $6,300 less transfer costs that are estimated at $93. In
order to complete the sale of this hotel, the Company provided $200 of
seller financing that is due and payable on July 31, 2004. This financing
was completed at an interest rate of 10%. The remaining proceeds from the
sale were utilized to payoff $5,997 of the Company's line of credit
balance.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 2 - INVESTMENTS IN HOTEL PROPERTIES (CONTINUED)

On October 1, 2002, we purchased the Doubletree Club hotel at the JFK
International Airport, Jamaica, NY from a third party. We purchased this
asset for $11,500 and leased it to Hersha Hospitality Management, LP. In
conjunction with this transaction, we assumed the mortgage and lease
indebtedness of approximately $8,705, assumed $1,000 of related party debt,
and paid cash of $1,795.

On October 1, 2003, we completed the acquisition of the 132 room Hilton
Garden Inn, Edison, New Jersey and the 148 room Hampton Inn, Linden, New
Jersey from third parties. We purchased these assets as a portfolio for an
aggregate price of $30,000 plus settlement costs of approximately $263 and
leased them to 44 New England Management Company, our wholly owned taxable
REIT subsidiary. In conjunction with this transaction, we assumed mortgage
indebtedness of approximately $23,000, including $1,000 of Seller
Financing, and paid cash of approximately $7,263.

The above acquisitions were accounted for as purchases, and the results of
such acquisitions are included in the Company's consolidated statements of
operations from the dates of acquisition. No goodwill arose in the
transactions.

The following summarizes the number of hotels owned excluding joint venture
acquisitions for the periods presented:

2003 2002 2001(a)
----- ----- -------

Hotels owned at beginning of years 18 18 21
Acquisitions 2 2 3
Sales of hotels (0) (2) (6)
----- ----- -------
Hotels owned at end of years 20 18 18
===== ===== =======

(a) The Sleep Inn and Mainstay Suites in King of Prussia, PA consist of
two separate hotels yet are accounted for as one purchase due to the
fact that the hotels share a common lobby and guest area and a common
deed.

NOTE 3 - NOTES RECEIVABLE

Joint Venture
-------------

On November 11, 2003 we provided financing to HT/CNL in the amount of
$15,000. The terms of the note call for interest only payments at 3.5% per
annum through maturity on November 10, 2004 when the outstanding balance
and any accrued interest are due. The note is secured by the hotel
property. For the year ended December 31, 2003, we earned interest income
of $79.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

Seller Financing
----------------

On September 26, 2000, in connection with the sale of the Clarion Suites,
Philadelphia, PA, we provided financing in the amount of $200. The terms of
the note call for accrued interest at 10% per annum through maturity on
December 31, 2003, when the outstanding balance and accrued interest are
due. The note is unsecured. During 2003, we extended the due date of the
note through July 31, 2004. We have not recorded interest income on the
note since inception due to its contingent nature.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 4 - INVESTMENT IN JOINT VENTURES

On August 29, 2003, HT/CNL Metro Hotels, LP purchased the Hampton Inn,
Manhattan (Chelsea), New York. We own a one third equity interest in this
joint venture partnership while CNL Hospitality Properties Trust owns the
remaining equity interests. HT/CNL purchased this asset for $28,000 plus
settlement costs of approximately $480 and leased it to Hersha CNL TRS,
Inc., a taxable REIT subsidiary wholly owned by the HT/CNL. In conjunction
with this transaction, HT/CNL executed mortgage indebtedness of
approximately $15,400 payable to the Partnership and paid cash of
approximately $14,080.

On November 13, 2003, we purchased a 40% joint venture interest in PRA
Glastonbury, LLC. The only asset owned by PRA Glastonbury LLC is the Hilton
Garden Inn, Glastonbury, CT. We purchased our joint venture interest in
this asset for $2,680 including settlement costs of approximately $250 and
leased it to Hersha PRA TRS, Inc., a taxable REIT subsidiary wholly owned
by PRA Glastonbury, LLC. In conjunction with this transaction, PRA
Glastonbury, LLC assumed mortgage indebtedness of approximately $9,900.

As of December 31, 2003 investment in joint ventures consists of the
following:

Percent
Owned Amount
-------- -------

HT/CNL Metro Hotels, LP 33.33% $ 4,098
PRA Glastonbury, LLC 40.00% 2,478
-------

$ 6,576
=======

The following schedule provides selected combined financial information for
the Company's unconsolidated joint ventures as of and for the year ended
December 31, 2003:

2003
-------

Balance Sheet
Assets
Investment in hotel property, net $44,459
Other assets 1,335
-------

Total assets $45,794
=======

Liabilities and Equity
Mortgages and notes payable $11,158
Note payable - Hersha Hospitality Trust, Inc. 15,000
Other liabilities 941
Equity
Hersha Hospitality Trust 6,576
Other 12,119
-------

Total liabilities and equity $45,794
=======

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 4 - INVESTMENT IN JOINT VENTURES (CONTINUED)

Statement of Operations
Room revenue $ 2,219
Other revenue 69
Operating expenses (1,637)
Interest expense (272)
Depreciation, amortization and other (403)
--------

Net income (loss) $ (24)
========

NOTE 5 - DEBT

Mortgages
---------

The total mortgages payable balance at December 31, 2003 and December 31,
2002 was $70,837 and $61,538, respectively, and consisted of mortgages with
fixed and variable interest rates ranging from 4.0% to 9.43%. The
maturities for the outstanding mortgages ranged from May 2007 to December
2012. Aggregate interest expense incurred under the mortgages payable
totaled $4,828, $4,622 and $4,357 during 2003, 2002 and 2001, respectively.
The mortgages are secured by various hotel properties with a combined net
book value of $121,076 and $93,814 as of December 31, 2003 and 2002,
respectively.

Revolving Line of Credit
---------------------------

The Company has a revolving line of credit from Sovereign Bank (the "Line
of Credit") in the maximum amount of $11,500. Outstanding borrowings under
the Line of Credit bear interest at the bank's prime rate and the Line of
Credit is collateralized by the Holiday Inn Express and Suites, Harrisburg.
The interest rate on borrowings under the Line of Credit at December 31,
2003 and 2002 was 4.00% and 4.25%, respectively. The Line of Credit expires
in December 2004. The outstanding principal balance on the Line of Credit
was $-0- at December 31, 2003 and approximately 3,803 at December 31, 2002.
The weighted average interest rate on short-term borrowings for 2003, 2002,
2001 was 4.13%, 4.73%, and 7.1%, respectively. Interest expense incurred on
borrowings under the Line of Credit totaled $66, $144 and $340 during 2003,
2002 and 2001, respectively.

Note Payable
-------------

The Company received seller financing of $1,000 from Inn America at
Aviation Plaza, L.L.C. (the "Inn America note") related to the purchase of
our Hampton Inn - Linden, NJ and Hilton Garden Inn - Edison, NJ. The
principal amount of this note is due on December 31, 2004 and there is no
interest expense related to this note.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 5 - DEBT (CONTINUED)

Aggregate annual principal payments for the Company's mortgages payable and
notes payble for the five years following December 31, 2003 and thereafter
are as follows:

December 31, 2004 $ 2,209
2005 1,401
2006 1,800
2007 1,942
2008 2,096
Thereafter 62,389
-------

$71,837
=======

NOTE 6 - COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS

We are the sole general partner in the Partnership, which is indirectly the
sole general partner of the subsidiary partnerships. In the opinion of
management, we do not anticipate any losses as a result of our obligations
as general partner.

Percentage Leases
------------------

Fourteen of our hotels are leased to HHMLP pursuant to percentage leases.
Each percentage lease with HHMLP has an initial non-cancelable term of five
years. All, but not less than all, of these leases may be extended for an
additional five-year term at HHMLP's option. At the end of the first
extended term, HHMLP, at its option, may extend some or all of the leases
for an additional five-year term. HHMLP has agreed not to exercise its
option to extend the current lease term with respect to any of the 14
hotels it currently leases. The percentage leases are subject to early
termination upon the occurrence of defaults thereunder and certain other
events described therein. Pursuant to the terms of the percentage leases,
HHMLP is required to pay initial fixed rent, base rent or percentage rent
and certain other additional charges and is entitled to all profits from
the operations of the hotels after the payment of certain specified
operating expenses.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 6 - COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(CONTINUED)

The Company had previously entered into leases with Noble Investment Group
Ltd. ("Noble"), an independent third party management company, to lease and
manage four hotels in the metropolitan Atlanta market. Noble elected not to
renew these leases upon expiration of the current terms. The leases for the
Hampton Inn Newman, GA and Hampton Inn Peachtree City, GA expired on April
20, 2003 and the leases for the Comfort Suites Duluth, GA and Holiday Inn
Express Duluth, GA expired on May 20, 2003.

On the respective lease termination dates, the Company leased the four
properties to 44 New England and engaged HHMLP to operate the hotels under
management contracts. Therefore, the consolidated financial statements as
of December 31, 2003 include the operating results of these four hotels
under the TRS structure. Previously, revenues on the consolidated financial
statements were derived primarily from lease payments which were made out
of the net operating income of the properties pursuant to the Percentage
Leases. Under the TRS structure, total revenues from the hotel properties
and the related operating expenses are also being reported in the
consolidated statements of operations.

We have annual lease commitments from HHMLP through November 1, 2007.
Minimum annual rental revenue under these non-cancelable operating leases
is as follows:

December 31, 2004 $ 5,593
2005 4,889
2006 3,074
2007 623
-------

$14,179
=======

For the year ended December 31, 2003, we earned fixed rents of $4,889 and
earned percentage rents of $8,021.

For the year ended December 31, 2002, we earned fixed rents of $6,510 and
earned percentage rents of $8,252.

For the year ended December 31, 2001, we earned fixed rents of $7,203 and
earned percentage rents of $6,698.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 6 - COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(CONTINUED)

Management Agreements
----------------------

Beginning in 2003, 44 New England, our TRS, engaged HHMLP as the property
manager for our hotels pursuant to substantially similar management
agreements. Each management agreement provides for a five year term and is
subject to early termination upon the occurrence of defaults and certain
other events described therein. As required under the REIT qualification
rules, 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.

As of December 31, 2003, HHMLP manages the six hotels leased to our TRS and
consolidated in these financial statements. For its services, HHMLP
receives a base management fee, and if a hotel meets and exceeds certain
thresholds, an additional 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 sixtieth day
following the end of each fiscal year and is equal to an amount determined
by our TRS and HHMLP prior to the commencement of each fiscal year
beginning in 2004, generally based upon the financial performance of the
hotel. For the year ended December 31, 2003, management fees incurred
totaled $142 and $82 remains payable to HHMLP as of December 31, 2003.

Administrative Services Agreement
-----------------------------------

We have executed an administrative services agreement with HHMLP to provide
accounting and securities reporting services for the Company. The terms of
the agreement provide for us to pay HHMLP an annual fee of $10 per property
(prorated from the time of acquisition) for each hotel in our portfolio.
For the years ending December 31, 2003, 2002 and 2001, $178, $175 and $134,
respectively, have been charged to operations.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 6 - COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(CONTINUED)

Franchise Agreements
---------------------

The hotel properties are operated under franchise agreements assumed by the
lessee that have 10 to 20 year lives but may be terminated by either the
franchisee or franchisor on certain anniversary dates specified in the
agreements. The agreements require annual payments for franchise royalties,
reservation, and advertising services, which are based upon percentages of
gross room revenue. These fees are paid by the lessees.

Acquisitions from Affiliates
------------------------------

We have acquired from affiliates of certain of our executive officers and
trustees, newly-developed or newly-renovated hotels that do not have an
operating history that would allow us to make purchase price decisions
based on historical performance. In buying these hotels, we have utilized,
a "re-pricing" methodology that, in effect, adjusts the initial purchase
price for the hotel, one or two years after we initially purchase the
hotel, based on the actual operating performance of the hotel during the
previous twelve months. All purchase price adjustments are approved by a
majority of our independent trustees.

The initial purchase price for each of these hotels was based upon
management's projections of the hotel's performance for one or two years
following our purchase. The leases for these hotels provide for fixed
initial rent for the one- or two-year adjustment period that provides us
with a 12% annual yield on the initial purchase price, net of certain
expenses. At the end of the one or two-year period, we calculate a value
for the hotel, based on the actual net income during the previous twelve
months, net of certain expenses, such that it would have yielded a 12%
return. We then apply the percentage rent formula to the hotel's historical
revenues for the previous twelve months on a pro forma basis. If the pro
forma percentage rent formula would not have yielded a pro forma annual
return to us of 11.5% to 12.5% based on this calculated value, this value
is adjusted either upward or downward to produce a pro forma return of
either 11.5% or 12.5%, as applicable. If this final purchase price is
higher than the initial purchase price, then the seller of the hotel will
receive consideration in an amount equal to the increase in price. If the
final purchase price is lower than the initial purchase price, then the
sellers of the hotel will return to us consideration in an amount equal to
the difference. Any purchase price adjustment will be made either in
operating partnership units or cash as determined by our Board of Trustees,
including the independent trustees. Any operating partnership units issued
by us or returned to us as a result of the purchase price adjustment
historically have been valued at $6.00 per unit. Any future adjustments
will be based upon a value per unit approved by our Board of Trustees,
including our independent trustees. The sellers are entitled to receive
quarterly distributions on the operating partnership units prior to the
units being returned to us in connection with a downward purchase price
adjustment.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 6 - COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(CONTINUED)

Five hotel acquisitions since January 1, 2001 -- the Doubletree, Jamaica,
New York (JFK Airport), the Mainstay Suites, Frederick, Maryland, the
Holiday Inn Express, Long Island City, New York, the Mainstay Suites and
Sleep Inn Hotel, King of Prussia, Pennsylvania -- are subject to future
re-pricing (Note 2). We originally purchased these hotels with anticipated
repricing dates from December 31, 2002 to December 31, 2004. Due to the
current operating environment, the ramp up and stabilization for these
newly-built properties is expected to take longer than initially projected.
As a result, effective January 1, 2003, we entered into an agreement with
the sellers of these five hotels to extend the repricing periods for these
hotels. The revised pricing dates range from June 1, 2006 to October 1,
2007. At the same time, we amended the percentage leases with HHMLP for
these hotels to extend the initial fixed rent period to coincide with the
extension period of the repricing and to delay the transition to percentage
rent. In addition, we have the right to sell each of these properties back
to the entities that initially sold the hotels to us at the end of the
applicable repricing period if adequate stabilization has not occurred
during the repricing period for a price not less than the purchase price of
the asset.

In the future, we do not intend to use any re-pricing methodology in
acquisitions from entities controlled by our officers and trustees.

We have entered into an option agreement with the Hersha Affiliates such
that we obtain a first right of refusal to purchase any hotel owned or
developed in the future by these individuals or entities regardless of
proximity to our hotels. This right of first refusal would apply to each
party until one year after such party ceases to be an officer or trustee of
our Company. Of the 22 hotel properties purchase by us since our initial
public offering, 14 were acquired from affiliates, 13 of which were
newly-constructed or substantially renovated.

Land Lease
-----------

During 2001, we terminated the lease on the parcel of real estate from the
Hersha Affiliates with an aggregate annual rental of $13 for the year ended
December 31, 2001.

During 2003, in conjunction with the acquisition the Hilton Garden Inn,
Edison, NJ, we assumed a land lease from a third party with an original
term of 75 years. Monthly payments as determined by the lease agreement are
due through the expiration in August 2074. For the year ended December 31,
2003, we incurred $50 in lease expense under the agreement.

Future minimum lease payments under the agreement are as follows:

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

December 31, 2004 $ 200
2005 200
2006 200
2007 200
2008 200
Thereafter 6,142
------

$7,142
======

Legal Fees
-----------

We paid Mr. Jay Shah, son of Mr. Hasu P. Shah, certain legal fees
aggregating $212, $60 and $43 for the years ended December 31, 2003, 2002
and 2001, of which $60, $28 and $10 was capitalized as settlement costs,
respectively.

Hotel Supplies
--------------

For the year ended December 31, 2003, we incurred $73 for hotel supplies
from Hersha Hotel Supply, of which $20 is included in accounts payable at
December 31, 2003. These expenses relate to the hotels operated by the TRS
and consolidated in these financial statements

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 6 - COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(CONTINUED)

Advances to/from Affiliates
-----------------------------

We have approved the lending of up to $10,000 to entities in which our
executive officers and trustees own an interest to construct hotels and
related improvements on specific hotel projects at interest rates ranging
from 10.0% to 12.0%. As of December 31, 2003 and December 31, 2002, amounts
due from these entities totaled $5,768 and $1,130, respectively. Interest
income from these advances was $636, $207 and $154, respectively for the
years ended December 31, 2003, 2002 and 2001, respectively.

Amounts due to related parties as of December 31, 2003 and 2002, totaled
$419 and $1,303, respectively. The balance due at December 31, 2003
consists of $128 payable to HHMLP for administrative and management fees
and $313 payable to HHMLP for FF&E reserves. At December 31, 2002 our
outstanding balance was primarily related to $1,000 borrowed from
Shreenathji Enterprises, Ltd. ("SEL"), an affiliated company. The remainder
of the balance of $303 consisted primarily of outstanding payments related
to property acquisitions and dispositions between the related parties and
interest. We incurred interest expense of approximately $60, $60 and $72
related to these borrowings from SEL for the years ended December 31, 2003,
2002 and 2001, respectively. We borrow from SEL at a fixed rate of 6.0% per
annum.

NOTE 7 - STOCK OPTION PLANS

Prior to the initial public offering, we adopted the Option Plan and the
Trustee's Plan. The Option Plan authorized the issuance of options to
purchase up to 650,000 Class B Common Shares and subordinated units and the
Trustee's Plan authorized the issuance of options to purchase up to 200,000
Class B Common Shares for our Independent Trustee's. The options granted
under the Option Plan and Trustee Plan were exercisable only if (i) we
obtained a per share closing price on the Common Shares of $9.00 or higher
for 20 consecutive trading days and (ii) the closing price per Common Share
for the prior trading day was $9.00 or higher. In addition, no option
granted under the either Plan may be exercised more than five years after
the date of grant.

In January 1999, we issued options to several of our Independent Trustee's
to purchase 34,000 Class B Common Shares under the Trustee's Plan and also
issued options to purchase 500,000 Class B common shares and units under
the Option Plan, with an exercise price of $6.00, subject to the price
restrictions mentioned above. Of the 500,000 options issued, 433,992 were
issued to two of our Trustees for the express purpose of facilitating the
HHMLP Share Appreciation Rights Plan (the "HHMLP SAR Plan") while 66,008
were issued to certain management personnel. Participants in the HHMLP SAR
Plan are not our employees. We therefore accounted for the option issuance
within the scope of SFAS 123. No compensation cost was recorded on the
grant date of the options based on the provisions of that fair value based
method. All of these options vested on December 11, 2003 based upon the
price of our stock achieving the above mentioned prices.

NOTE 7 - STOCK OPTION PLANS (CONTINUED)

In December 2003, we have negotiated a buyout of all of the outstanding
options related to the HHMLP SAR Plan for $1,028 and recorded this amount
as compensation expense during the year. We have also recorded compensation
expense of $279 related to 75,714 options that had vested as of December
31, 2003 and were exercised during January 2004. Due to the fact that the
Option Plan and Trustee's Plan expired on January 26, 2004, there is no
future exposure related to options that had vested and were unexercised as
of January 26, 2004 related to the Option Plan or the Trustee's Plan.

NOTE 8 - DISCONTINUED OPERATIONS

During 2002, we adopted the provisions of FASB No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."

On February 27, 2002, the Board of Trustees approved the sale of the Sleep
Inn, Corapolis, Pennsylvania to some of our executive officers, trustees
and their affiliates for $5,500, including the assumption of approximately
$3,500 in indebtedness and the cancellation of 327,038 limited partnership
units valued at approximately $2,000. We initially purchased this property
from these executive officers, trustees and their affiliates as of October
1, 2000 for $5,500 including 327,038 limited partnership units. This
transaction has been accounted for as of January 1, 2002. We did not
recognize any gain or loss on the sale of this asset.

On September 26, 2002, we sold the Clarion Suites, Philadelphia, PA to a
third party for $6,300 less transfer costs that are estimated at $103. In
order to complete the sale of this hotel, the Company is currently carrying
$200 of seller financing that is due and payable on October 1, 2003. The
note has been extended through July 31, 2004. This financing was completed
at an interest rate of 10%. The remaining proceeds from the sale were
utilized to payoff $5,997 of the Company's line of credit balance. We
recognized a gain of $469 in the third quarter of 2002 on the sale of the
property.

The results of the operations from these hotels are classified as
discontinued operations in the accompanying consolidated statements of
operations for the years ended December 31, 2002 and 2001. We did not
record any asset sales in 2003 and correspondingly there were no
discontinued operations reported in 2003.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 8 - DISCONTINUED OPERATIONS (CONTINUED)

The following table sets forth the components of discontinued operations
for the years ended December 31, 2002 and 2001:

2002 2001
----- ------

Percentage lease revenue $ 528 $1,542

Less:
Interest expense 178 653

Property taxes and insurance 83 232

General and administrative 8 20

Depreciation and amortization 218 579
----- ------

Income from discontinuing operations $ 41 $ 58
===== ======

NOTE 9 - EARNINGS PER SHARE

The following is a reconciliation of the income (numerator) and weighted average
shares (denominator) used in the calculation of basic earnings per common share
and diluted earnings per common share in accordance with SFAS No. 128, Earnings
Per Share;

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

2003 2002 2001
---------- ---------- ----------

NUMERATOR:
Income Before Distribution to Preferred Unitholders, Minority
Interest and Discontinued Operations $ 2,801 $ 4,040 $ 3,118

Distributions to Preferred Unitholders 1,195 - -

Minority Interest 821 3,238 2,342
---------- ---------- ----------

Income Applicable to Common Shareholders Before
Discontinued Operations 785 802 776

Discontinued Operations - 490 58
---------- ---------- ----------

Numerator for Basic Earnings Per Share - Income available to
Common Shareholders 785 1,292 834

Effect of Dilutive Securities:
Minority Interest 821 3,238 2,342
---------- ---------- ----------

Numerator for Diluted Earnings Per Share - Income Available to
Common Shareholders - After Assumed Conversion $ 1,606 $ 4,530 $ 3,176
========== ========== ==========

DENOMINATOR:
Denominator for basic earnings per share - weighted average
shares 4,614,316 2,519,820 2,275,000

Effect of Dilutive Securities:
Stock Options 57,194 - -
Minority Interest - Common Partnership Units 4,829,038 5,099,723 5,021,596
---------- ---------- ----------

Dilutive Potential Common Shares 4,886,232 5,099,723 5,021,596
---------- ---------- ----------

Denominator for diluted earnings per share - weighted average
shares and assumed conversion 9,500,548 7,619,542 7,296,596
========== ========== ==========

Basic Earnings Per Share - Before Discontinued Operations $ 0.17 $ 0.32 $ 0.34
Discontinued Operations $ - $ 0.19 $ 0.03
Basic Earnings Per Share $ 0.17 $ 0.51 $ 0.37
Diluted Earnings Per Share $ 0.17 $ - $ -

Our earnings per share calculation presents only basic earnings per share
in cases where the inclusion of the Common Partnership Units and Series A
Preferred Units are deemed to be anti-dilutive to earnings per share.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 9 - EARNINGS PER SHARE (CONTINUED)

Options to purchase 534,000 shares of Class B common shares for the years
ending December 31, 2002 and 2001, respectively, were outstanding but were
not included in the computation of diluted earnings per share because the
conditions for exercise were greater than the average market price of the
common shares, and the options, therefore, were not exercisable.

NOTE 10 - SHAREHOLDERS' EQUITY AND MINORITY INTEREST IN PARTNERSHIP

As of December 31, 2003, the Priority Class A Common Shares had priority as
to the payment of dividends until dividends equal $0.18 per share on a
quarterly basis ($.72 per year) and participated equally in additional
dividends after the Class B Common Shares received $.18 per share in each
quarterly period. The Priority Class A Common Shares carried a liquidation
preference of $6.00 per share plus unpaid dividends and vote with the Class
B Common Shares on a one vote per share basis. The priority period of the
Class A Shares commenced on the date of the closing of the initial public
offering and ended on January 26, 2004.

There have never been any Class B Common Shares outstanding since our
initial public offering on January 26, 1999. The conversion features of the
Class B Common Shares into Priority Class A Common Shares are exactly the
same as the conversion features of the Hersha Hospitality Limited
Partnership (HHLP) Units into Priority Class A Common Shares. The Limited
Partnership Units and Class B Common Shares are convertible into Priority
Class A Common Shares as of January 26, 2004.

The Company's common shares are duly authorized, fully paid and
non-assessable. Common shareholders are entitled to receive dividends if
and when authorized and declared by the Board of Trustees of the Company
out of assets legally available and to share ratably in the assets of the
Company legally available for distribution to its shareholders in the event
of its liquidation, dissolution or winding up after payment of, or adequate
provision for, all known debts and liabilities of the Company.

Upon liquidation of the Partnership after the Priority Period, after
payment of, or adequate provision for, debts and obligations of the
Partnership, including any partner loans, any remaining assets of the
Partnership will be distributed to us and the Limited Partners with
positive capital accounts in accordance with their respective positive
capital account balances.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 10 - SHAREHOLDERS' EQUITY AND MINORITY INTEREST IN PARTNERSHIP (CONTINUED)

Preferred Shares
-----------------

The Declaration of Trust authorizes our Board of Trustees to classify any
unissued preferred shares and to reclassify any previously classified but
unissued preferred shares of any series from time to time in one or more
series, as authorized by the Board of Trustees. Prior to issuance of shares
of each series, the Board of Trustees is required by Maryland REIT Law and
our Declaration of Trust to set for each such series, subject to the
provisions of our Declaration of Trust regarding the restriction on
transfer of shares of beneficial interest, the terms, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each such series. Thus, our Board of Trustees could
authorize the issuance of preferred shares with terms and conditions which
could have the effect of delaying, deferring or preventing a transaction or
a change in control in us that might involve a premium price for holders of
common shares or otherwise be in their best interest.

Preferred Units of Limited Partnership Interests
-----------------------------------------------------

During 2003, CNL purchased a total of 190,266 of convertible preferred
limited partnership units (the "Series A Convertible Preferred Units") at a
per unit price of $100.00. The Series A Preferred Units have priority over
all Common Shares and Partnership Units, as to the payment of dividends at
a rate of 10.5% per annum of the original issue price. In addition, the
Series A Preferred Units have a liquidation preference of $100 per unit
plus accrued and unpaid distributions.

The Series A Preferred Units are redeemable at the option of the Company at
a redemption price equal to the original issue price, plus all accrued but
unpaid distributions, plus a premium starting at 10.5% of the original
issue price and declining to zero on a straight-line basis through the
tenth year anniversary of the original issuance. The Series A Preferred
Units are exchangeable at any time, at the option of the holder, for Series
A Preferred Shares of Beneficial Interest in the Company on a one for one
basis, or for Common Partnership Units of the Partnership or for Class A
Common Shares of Beneficial Interest in the Company at an exchange price of
$6.7555 per share, which is the volume weighted average closing price of
the Company's Class A Common Shares on the American Stock Exchange for the
twenty days immediately preceding the initial closing. Any Series A
Preferred Shares of the Company issued upon exchange of the Series A
Preferred Units will have terms substantially similar to the Series A
Preferred Units and will be convertible into Class A Common Shares at a
conversion price of $6.7555 per share.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 10 - SHAREHOLDERS' EQUITY AND MINORITY INTEREST IN PARTNERSHIP (CONTINUED)

In connection with the issuance of the Series A Preferred Units, we granted
CNL a limited waiver from the share ownership limit in our Amended and
Restated Declaration of Trust, allowing CNL to own 100% of the outstanding
Series A Preferred Shares and up to 60% of the outstanding Class A Common
Shares on a fully diluted basis, subject to CNL's compliance with certain
representations and warranties. In addition, we have entered into a
Standstill Agreement with CNL pursuant to which CNL has agreed, among other
things, not to acquire any additional securities of our Company,
participate in any solicitation of proxies, call shareholder meetings, or
seek representation on our Board of Trustees.

The Standstill Agreement further provides that CNL will be entitled to vote
only the securities it owns in our Company which represent 40% or less of
our total outstanding voting securities at the time of such vote or
consent. Any additional voting securities owned by CNL will be voted pro
rata according to the votes of the shareholders unaffiliated with CNL. The
Standstill Agreement expires on its sixth anniversary, or earlier if, among
other things, the Company fails to pay the required distributions or
dividends on the Series A Preferred Units or Series A Preferred Shares, or
if the Company fails to maintain its status as a REIT.

Common Partnership Units
--------------------------

Since the completion of the initial public offering we have issued an
additional 173,539 units of limited partnership interest in connection with
the acquisition of the Hampton Inn, Danville, PA and 76,555 units in
connection with the acquisition of the Holiday Inn Express, Long Island
City. We have also issued an additional 1,275,663 units of limited
partnership interest in connection with final settlement of the purchase
prices of several hotels and have redeemed 458,465 units of limited
partnership interest in connection with the sale of certain hotels. On
October 21, 2003, we redeemed 1,300,000 limited partnership units at a
price of $8.00 per unit, or $10,400 in the aggregate. The redemption price
was funded with the proceeds of our public equity offering in October 2003.
As of December 31, 2003 we had a payable of $8,951 related to the
redemption of a portion of these limited partnership units. The total
number of units of limited partnership interest outstanding as of December
31, 2003, 2002 and 2001 was 3,799,723, 5,099,723 and 5,093,220,
respectively.

Pursuant to the Partnership Agreement, the Limited Partners will receive
the Redemption Rights, which will enable them to cause the Partnership to
redeem their interests in the Partnership in exchange for cash or, at the
option of the Company, Class B Common Shares on a one-for-one basis. In the
event that the Class B Common Shares are converted into Priority Common
Shares prior to redemption of the Subordinated Units, such outstanding
Subordinated Units will be redeemable for Priority Common Shares. The
holders of the Priority Common Shares and the Class B Common Shares have
identical voting rights and will vote together as a single class.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 10 - SHAREHOLDERS' EQUITY AND MINORITY INTEREST IN PARTNERSHIP (CONTINUED)

At December 31, 2003 and 2002, the aggregate number of common shares
issuable to the limited partners upon exercise of the redemption rights is
$3,799,723 and $5,099,723, respectively. The number of shares issuable upon
exercise of the redemption rights will be adjusted upon the occurrence of
stock splits, mergers, consolidation or similar pro rata share
transactions, that otherwise would have the effect of diluting the
ownership interest of the limited partners or our shareholders.

NOTE 11 - CASH FLOW DISCLOSURES AND NON-CASH INVESTING AND FINANCING
ACTIVITIES

Interest paid in 2003, 2002 and 2001 totaled $4,927, $5,364 and $4,445,
respectively. The following non-cash investing and financing activities
occurred during 2003, 2002 and 2001:

2003 2002 2001
------- -------- -------

Partnership units issued in connection with repricing
hotels (Note 10) $ - $ 2,001 $3,189

Net Partnership units issued (redeemed) in
connection with hotel property transactions (Note
10) $ - $(2,000) $ (330)

Net debt assumed (transferred) in hotel property
transactions $ - $ 8,305 $5,753

Net related party debt assumed in hotel property
transactions $ 1,800 $2,000

Redemption of minority interest units payable $ 8,951 $ - $ -

Adjustment to minority interest as result of common
stock issuance $14,650 $ - $ -

Common shares issued as part of the Dividend
Reinvestment Plan $ 24 $ - $ -

Dividends and distributions payable $ 3,407 $ 1,382 $1,325

NOTE 12 - RECENT ACCOUNTING PRONOUNCEMENTS

The FASB has issued SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

Hedging Activities," which is effective for certain transactions arising on
or after June 30, 2003. SFAS No. 149 will have no impact on the Company.

The FASB has issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," which is
effective for interim financial periods beginning after June 15, 2003. SFAS
150 establishes standards for how an issue classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
On October 29, 2003, the FASB agreed to defer indefinetly certain
provisions of SFAS No. 150 to noncontrolling interests in limited life
subsidiaries. The Company determined that its consolidated partnership is a
limited life subsidiary, the carrying value which is reported in minority
interest on the Company's balance sheet. The adoption of the remainder of
SFAS No. 150 on July 1, 2003, had no impact on the Company's financial
condition or its result of operations.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 12 - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others - an interpretation of FASB Statements No. 5, 57,
and 107 and rescission of FASB Interpretation No. 34," was issued in
November 2002. FIN 45 elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee,
a liability for the fair value of the obligation undertaken in issuing the
guarantee. FIN 45 does not prescribe a specific approach for subsequently
measuring the guarantor's recognized liability over the term of the related
guarantee. The initial recognition and initial measurement provisions of
FIN 45 are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002, irrespective of the guarantor's fiscal
year end. The disclosure requirements in FIN 45 are effective for financial
statements of interim or annual periods ending after December 15, 2002. The
Company has made the disclosures required by FIN 45.

FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest
Entities - an interpretation of ARB No. 51," as revised in December 2003.
FIN 46 requires existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not
effectively disperse risks among parties involved. It applies for all
variable interest entities in the first reporting period beginning after
March 15, 2004. The Company will continue to monitor and evaluate the
impact of FIN 46 on our financial statements as we purchase interests in
joint ventures.

NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

QUARTER
--------------------------------
1ST 2ND 3RD 4TH
------ ------ ------ --------

FISCAL 2003
Total Revenues $3,278 $5,004 $5,447 $ 5,657
Income Before Distributions to Preferred
Unitholders, Minority Interest and Discontinued
Operations $ 418 $1,392 $2,156 $(1,165)
Net Income Allocated to Common Shareholders $ 304 $ 34 $ 292 $ 155
Basic Earnings Per Common Share and Units $ 0.12 $ 0.01 $ 0.11 $ (0.07)

FISCAL 2002
Total Revenues $2,971 $4,039 $4,505 $ 2,933
Income Before Distributions to Preferred
Unitholders, Minority Interest and Discontinued
Operations $ 314 $1,272 $1,957 $ 497
Net Income Allocated to Common Shareholders $ 310 $ 308 $ 297 $ 377
Basic EarningsPer Common Share and Units $ 0.04 $ 0.12 $ 0.12 $ 0.23

FISCAL 2001
Total Revenues $2,792 $3,424 $3,809 $ 2,520
Income Before Distributions to Preferred
Unitholders, Minority Interest and Discontinued
Operations $ 92 $ 775 $1,280 $ 971
Net Income Allocated to Common Shareholders $ 116 $ 245 $ 234 $ 239
Basic Earnings Per Common Share and Units $ 0.02 $ 0.11 $ 0.10 $ 0.14

NOTE 14 - FINANCIAL STATEMENT RESTATEMENT

We have restated our Consolidated Balance Sheets as of December 31, 2003 and
2002 in order to present the Minority Interest balances outside of the
Shareholders' Equity. Previously, we had presented Minority Interest as a
separate component within Shareholders' Equity. The presentation below shows
the Consolidated Balance Sheets as presented and restated as of December 31,
2003 and 2002.

AS PREVIOUSLY
PRESENTED AS RESTATED
DECEMBER 31, DECEMBER 31,
2003 ADJUSTMENTS 2003
--------------- ------------- --------------

$ 196,568 $ 196,568
=============== ==============

TOTAL LIABILITIES 86,137 86,137
--------------- --------------
- -
MINORITY INTEREST:
Common Units 21,891 21,891
Series A Preferred Units 17,080 17,080
------------- --------------

TOTAL MINORITY INTEREST 38,971 38,971
------------- --------------

Preferred Shares - Series A, $.01 Par Value, 350,000 Shares Authorized,
None Issued and Outstanding - -

Common Shares - Class B, $.01 Par Value, 50,000,000 Shares Authorized,
None Issued and Outstanding - -

Additional Paid-in Capital 76,217 76,217
Additional Paid-in Capital - Stock Options 279 279
Distributions in Excess of Net Earnings (5,160) (5,160)
--------------- --------------

71,460
---------------

MINORITY INTEREST:
Common Units 21,891 (21,891)
Series A Preferred Units 17,080 (17,080)
--------------- -------------

38,971 (38,971)
--------------- -------------

TOTAL SHAREHOLDERS' EQUITY 110,431 71,460
--------------- --------------

$ 196,568 $ - $ 196,568
=============== ============= ==============

AS PREVIOUSLY
PRESENTED AS RESTATED
DECEMBER 31, DECEMBER 31,
2002 ADJUSTMENTS 2002
--------------- ------------- --------------

$ 101,516 $ 101,516
=============== ==============

TOTAL LIABILITIES 69,880 69,880
--------------- --------------

- - -

MINORITY INTEREST:
Common Units 20,258 20,258
Series A Preferred Units - -
------------- --------------
TOTAL MINORITY INTEREST 20,258 20,258
------------- --------------

Preferred Shares - Series A, $.01 Par Value, 350,000 Shares Authorized,
None Issued and Outstanding - -

Common Shares - Class B, $.01 Par Value, 50,000,000 Shares Authorized,
None Issued and Outstanding - -

Additional Paid-in Capital 13,679 13,679
Additional Paid-in Capital - Stock Options - -
Distributions in Excess of Net Earnings (2,327) (2,327)
--------------- --------------

11,378
---------------

MINORITY INTEREST:
Common Units 20,258 (20,258)
Series A Preferred Units - -
--------------- -------------

20,258 (20,258)
--------------- -------------

TOTAL SHAREHOLDERS' EQUITY 31,636 11,378
--------------- ------------- --------------

$ 101,516 $ - $ 101,516
=============== ============= ==============

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 15 - SUBSEQUENT EVENTS

On December 4, 2003 we declared a $0.18 per Class A common share dividend and a
distribution of $0.18 per limited partnership unit that was paid on January 16,
2004.

On January 14, 2004, we acquired the 96 room Holiday Inn Express, Hartford, for
$3,000 and assumed the underlying ground lease.

On March 11, 2004, we acquired a 55% joint venture interest in the 180-room Four
Points by Sheraton Boston/Logan International Airport hotel for approximately
$3,000.

Both of these hotels have been leased to a TRS and managed by HHMLP.

On January 26, 2004, the HHMLP leases for the following hotels expired, and each
of these hotels was re-leased to 44 New England (our TRS) on the same date:

Comfort Inn, Harrisburg, PA
Holiday Inn, Harrisburg, PA
Holiday Inn Express, Hershey, PA
Holiday Inn Express, New Columbia, PA
Hampton Inn, Selinsgrove, PA
Hampton Inn, Carlisle, PA

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2003
[IN THOUSANDS]
--------------------------------------------------------------------------------

GROSS AMOUNTS AT WHICH
COSTS CAPITALIZED CARRIED AT
INITIAL COSTS SUBSEQUENT TO ACQUISITION CLOSE OF PERIOD
------------------------------ ------------------------------ ------------------------
BUILDINGS AND BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
-------------------- -------------- -------------- -------------- -------------- -------------- -------- -------------

Holiday Inn,
Harrisburg, PA $ 3,299 $ 412 $ 1,234 $ - $ 2,796 $ 412 4,030
Holiday Inn Express,
New Columbia, PA 1,747 94 2,510 66 665 160 3,175
Holiday Inn Express,
Hershey, PA 4,561 426 2,645 410 3,080 836 5,725
Doubletree Club
Jamaica, NY 8,277 1,550 8,793 - - 1,550 8,793
HIEXP & Suites,
Harrisburg, PA - 213 1,934 81 967 294 2,901
Comfort Inn,
Harrisburg, PA 2,329 - 2,720 214 1,080 214 3,800
Hampton Inn,
Selinsgrove, PA 3,202 157 2,511 93 2,217 250 4,728
Hampton Inn,
Carlisle, PA 3,833 300 3,109 200 2,072 500 5,181
Hampton Inn,
Danville, PA 2,426 300 2,787 99 1,001 399 3,788
-------------- --------
Hampton Inn,
Hershey, PA - 807 5,714 4 136 811 5,850
-------------- --------
Hampton Inn,
Newnan, GA 3,197 712 5,504 - 91 712 5,595
-------------- --------
Hampton Inn,
Peachtree City, GA 2,121 394 3,054 - 8 394 3,062
-------------- --------
Comfort Suites,
Duluth, GA 3,146 432 4,343 - 11 432 4,354
-------------- --------
Holiday Inn Express,
Duluth, GA 2,610 470 2,912 - 36 470 2,948
-------------- --------
Mainstay Suites
Frederick, MD 2,894 262 1,049 171 2,891 433 3,940
-------------- --------
Sleep/Mainstay
KOP, PA - 1,133 7,294 - 25 1,133 7,319
-------------- --------
Holiday Inn Express,
LI City, NY 5,195 1,500 6,300 - 6 1,500 6,306
-------------- --------
Hampton Inn,
Linden, NJ 12,000 1,210 11,961 - - 1,210 11,961
-------------- --------
Hilton Garden Inn,
Edison, NJ 10,000 - 12,159 - - - 12,159
-------------- --------

$ 70,837 $ 10,372 $ 88,533 $ 1,338 $ 17,082 $ 11,710 $ 105,615
============== ============== ============== ============== ============== ======== =============

LIFE
ACCUMULATED NET BOOK UPON WHICH
DEPRECIATION VALUE LAND LATEST INCOME
BUILDINGS AND BUILDINGS AND DATE OF STATEMENT IS
DESCRIPTION TOTAL IMPROVEMENTS IMPROVEMENTS ACQUISITION COMPUTED
-------------------- -------- ------------- ------------- ----------- --------

Holiday Inn,
Harrisburg, PA $ 4,442 $ 1,175 $ 3,267 12/15/94 15 to 40
Holiday Inn Express,
New Columbia, PA 3,335 473 2,862 12/01/97 15 to 40
Holiday Inn Express,
Hershey, PA 6,561 789 5,772 10/01/97 15 to 40
Doubletree Club
Jamaica, NY 10,343 275 10,068 11/01/02 15 to 40
HIEXP & Suites,
Harrisburg, PA 3,195 344 2,851 03/06/98 15 to 40
Comfort Inn,
Harrisburg, PA 4,014 497 3,517 05/15/98 15 to 40
Hampton Inn,
Selinsgrove, PA 4,978 792 4,186 09/12/96 15 to 40
Hampton Inn,
Carlisle, PA 5,681 746 4,935 06/01/97 15 to 40
Hampton Inn,
Danville, PA 4,187 431 3,756 08/28/97 15 to 40
-------- ------------- -------------
Hampton Inn,
Hershey, PA 6,661 621 6,040 01/01/00 15 to 40
-------- ------------- -------------
Hampton Inn,
Newnan, GA 6,307 519 5,788 04/20/00 15 to 40
-------- ------------- -------------
Hampton Inn,
Peachtree City, GA 3,456 286 3,170 04/20/00 15 to 40
-------- ------------- -------------
Comfort Suites,
Duluth, GA 4,786 395 4,391 05/19/00 15 to 40
-------- ------------- -------------
Holiday Inn Express,
Duluth, GA 3,418 271 3,147 05/19/00 15 to 40
-------- ------------- -------------
Mainstay Suites
Frederick, MD 4,373 193 4,180 01/01/02 15 to 40
-------- ------------- -------------
Sleep/Mainstay
KOP, PA 8,452 466 7,986 06/01/01 15 to 40
-------- ------------- -------------
Holiday Inn Express,
LI City, NY 7,806 341 7,465 11/01/01 15 to 40
-------- ------------- -------------
Hampton Inn,
Linden, NJ 13,171 75 13,096 10/01/03 15 to 40
-------- ------------- -------------
Hilton Garden Inn,
Edison, NJ 12,159 76 12,083 10/01/03 15 to 40
-------- ------------- -------------

$117,325 $ 8,765 $ 108,560
======== ============= =============

--------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
SCHEDULE III
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

2003
--------

RECONCILIATION OF REAL ESTATE:
Balance at Beginning of Year $ 91,160
Additions During Year 26,165
Deletions During Year
--------
Balance at End of Year $117,325
========

RECONCILIATION OF ACCUMULATED DEPRECIATION:
Balance at Beginning of Year $ 6,312
Depreciation for the Year 2,453
Accumulated Depreciation on Deletions
--------
Balance at End of Year $ 8,765
========

The aggregate cost of land, buildings and improvements for
Federal income tax purposes is approximately $89,852.

Depreciation is computed based upon the following useful lives:
Buildings and Improvements 15 to 40 years

. . . . . .

REPORT OF INDEPENDENT AUDITOR

To the Partners of
Hersha Hospitality Management L.P.
New Cumberland, Pennsylvania

We have audited the accompanying balance sheet of Hersha Hospitality
Management L.P. as of December 31, 2003, and the related statements of
operations, partners' equity (deficit), and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hersha Hospitality
Management L.P. as of December 31, 2003, and the results of its operations and
its cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.

REZNICK FEDDER & SILVERMAN

Baltimore, Maryland
March 5, 2004

REPORT OF INDEPENDENT AUDITORS

To the Partners of
Hersha Hospitality Management L.P.
New Cumberland, Pennsylvania

We have audited the accompanying balance sheet of Hersha Hospitality
Management L.P. as of December 31, 2002, and the related statements of
operations, partners' equity (deficit), and cash flows for each of the two years
in the period ended December 31, 2002. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hersha Hospitality
Management L.P. as of December 31, 2002, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 2002,
in conformity with accounting principles generally accepted in the United States
of America.

MOORE STEPHENS, P.C.
Certified Public Accountants.

New York, New York
February 28, 2003

--------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
BALANCE SHEET
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

DECEMBER 31, DECEMBER 31,
-------------- --------------
2003 2002
-------------- --------------

CURRENT ASSETS:
Cash and Cash Equivalents $ 395 $ 217
Accounts Receivable, less allowance for doubtful accounts
of $83 and $100 703 775
Prepaid Expenses 320 139
Due from Related Party - HHLP 17 259
Due from Related Party - 44 New England 78 -
Due from Related Party - HT/CNL Metro 500 -
Due from Related Party - HHLP FF&E Reserves 324 -
Due from Related Party - Other 458 897
Other Assets 225 251
-------------- --------------
TOTAL CURRENT ASSETS 3,020 2,538

Franchise Licenses, Net of accumulated amortization of $201
and $167 237 276

Property and Equipment, net of accumulated depreciation 677 863
-------------- --------------

TOTAL ASSETS $ 4,096 $ 3,677
============== ==============

LIABILITIES AND PARTNERS' EQUITY (DEFICIT):
CURRENT LIABILITIES:
Accounts Payable $ 1,514 $ 1,134
Accrued Expenses 617 377
Other Liabilities - 5
Due to Related Parties 376 182
Lease Payments Payable Related Party - HHLP 2,590 2,562
-------------- --------------
TOTAL CURRENT LIABILITIES 5,097 4,260

PARTNERS' EQUITY (DEFICIT) (1,163) (583)
-------------- --------------

TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIT) $ 3,934 $ 3,677
============== ==============

The Accompanying Notes Are an Integral Part of This Financial Statement
81

--------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 and 2001
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001
-------------- -------------- --------------

REVENUES FROM HOTEL OPERATIONS
Room Revenue $ 26,593 $ 24,711 $ 25,560
Restaurant Revenue 2,584 2,445 1,880
Other Revenue 3,109 2,782 1,843
-------------- -------------- --------------
TOTAL REVENUES FROM HOTEL OPERATIONS 32,286 29,938 29,283
-------------- -------------- --------------

EXPENSES:
Hotel Operating Expenses 10,863 10,061 10,373
Restaurant Operating Expenses 2,273 1,971 1,593
Advertising and Marketing 2,112 2,061 2,086
Bad Debts 8 13 124
Depreciation and Amortization 238 250 229
General and Administrative 5,218 4,745 4,708
General and Administrative - Related Parties - 21 126
Lease Expense - HHLP 12,910 11,433 10,396
Lease Expense - Other Related Parties - - 703
-------------- -------------- --------------
TOTAL EXPENSES 33,622 30,555 30,338
-------------- -------------- --------------

LOSS BEFORE DISCONTINUED
OPERATIONS (1,336) (617) (1,055)

LOSS FROM DISCONTINUED
OPERATIONS - (54) (49)
-------------- -------------- --------------

NET LOSS $ (1,336) $ (671) $ (1,104)
============== ============== ==============

The Accompanying Notes Are an Integral Part of This Financial Statement
82

----------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
STAEMENT OF PARTNER'S EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2003, 2002
and 2001 [IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
----------------------------------------------------------------------------------

GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ---------- --------

Partners' Equity (Deficit) - December 31, 2000 $ (5) $ (70) $ (75)

Capital Contribution 6 710 716
Contributed Franchise Fee Write-Down - (23) (23)

Net Loss (11) (1,093) (1,104)
--------- ---------- --------

Partners' Equity (Deficit) - December 31, 2001 (10) (476) (486)

Capital Contribution 6 568 574

Net Loss (7) (664) (671)
--------- ---------- --------

Partners' Equity (Deficit) - December 31, 2002 (11) (572) (583)

Capital Contribution 8 748 756

Net Loss (13) (1,323) (1,336)
--------- ---------- --------

Partners' Equity (Deficit) - December 31, 2003 $ (16) $ (1,147) $(1,163)
========= ========== ========

The Accompanying Notes Are an Integral Part of This Financial Statement
83

--------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 and 2001
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001
-------------- -------------- --------------

OPERATING ACTIVITIES:
Net (Loss) $ (1,336) $ (671) $ (1,104)
-------------- -------------- --------------
Adjustments to Reconcile Net Income to
Net Cash Provided by (Used in) Operating Activities:
Depreciation 199 209 202
Amortization 39 48 41
Allowance for Doubtful Accounts (17) 13 124
Change in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable 89 (90) 69
Prepaid Expenses (181) (105) (21)
Other Assets 26 (20) 27
Due from Related Parties - HHLP 242 64 620
Due from Related Party - 44 New England (78) - -
Due from Related Party - HT/CNL Metro (500) - -
Due from Related Party - HHLP FF&E Reserve (324) - -
Due from Related Parties - Other 439 - -
Increase (Decrease):
Accounts Payable 380 (144) (361)
Accounts Payable - Related Party - - (60)
Lease Payments Payable - HHLP 28 186 (268)
Due to Related Parties 194 (128) (21)
Accrued Expenses 240 109 (182)
Other Liabilities (5) 5 (21)
-------------- -------------- --------------
Total Adjustments 771 147 149
-------------- -------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (565) (524) (955)

INVESTING ACTIVITIES
Purchase Property and Equipment (23) (54) (123)
Sale of Property and Equipment 10 - 5
Purchase of Franchise Licenses - (47) (68)
Sale of Franchise Licenses - 46 24
-------------- -------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (13) (55) (162)

FINANCING ACTIVITIES
Capital Contributed by Partners 756 574 716
-------------- -------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 756 574 716

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 178 (5) (401)

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 217 222 623
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 395 $ 217 $ 222
============== ============== ==============

The Accompanying Notes Are an Integral Part of This Financial Statement
84

--------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
NOTES TO FINANCIAL STATEMENTS
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION

Hersha Hospitality Management, L.P., ("HHMLP" or the "Lessee"), was
organized under the laws of the State of Pennsylvania in May, 1998 to lease
and operate ten existing hotel properties, principally in the Harrisburg
and Central Pennsylvania area, from Hersha Hospitality Limited Partnership
("HHLP" or the "Partnership"). The Lessee is owned by some of Hersha
Hospitality Trust's executive officers, trustees and their affiliates, some
of whom have ownership interests in the Partnership. We also manage certain
other properties owned by some of Hersha Hospitality Trust's executive
officers, trustees and their affiliates that are not owned by the
Partnership. HHMLP commenced operations on January 1, 1999 and as of
December 31, 2003 leased 14 hotel properties from the Partnership and
managed 8 properties in which the Partnership had an ownership interest.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates
------------------

The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

Cash and Cash Equivalents
----------------------------

Cash and cash equivalents are comprised of cash and certain highly liquid
investments with a maturity of three months or less when purchased. We have
no cash equivalents at December 31, 2003 or 2002.

Inventories
-----------

Inventories of $44 and $36, consisting primarily of food and beverages and
which are included in other assets for the years ended December 31, 2003
and 2002, respectively, are stated at the lower of cost (generally,
first-in, first-out) or market.

Accounts Receivable
--------------------

We are required to make certain estimates related to the allowances for
uncollectible accounts. These estimates and assumptions are reviewed
periodically and the effects of revisions are reflected in the financial
statements in the period they are determined to be necessary.

--------------------------------------------------------------------------------
HERSHA HOSPITALITY MANAGEMENT, L.P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and Equipment
------------------------

Property and equipment is stated at cost. Depreciation for financial
reporting purposes is principally based upon the straight-line method.

The estimated lives used to depreciate the property improvements and
equipment are as follows:

Property Improvements 15 years
Furniture Fixtures and Equipment 5 to 7 years
Software 3 years
Automobiles 3 years

Franchise Licenses
-------------------

The franchise agreements have lives ranging from 10 to 20 years but may be
terminated by either party on certain anniversary dates specified in the
agreements. The franchise fees are amortized over their respective
franchise lives utilizing the straight-line method. Amortization expense
was $39, $48 and $41 for the years ended December 31, 2003, 2002 and 2001,
respectively.

Revenue Recognition
--------------------

Revenue is recognized as earned when services are rendered.

Income Taxes
-------------

As a partnership, we are not subject to federal and state income taxes,
however, we must file informational income tax returns and the partners
must take their respective portion of the items of income or loss into
consideration when filing their respective returns.

Concentration of Credit Risk
-------------------------------

Financial instruments that potentially subject us to concentrations of
credit risk include cash and cash equivalents and accounts receivable
arising from our normal business activities. We place our cash with high
credit quality financial institutions. We do not require collateral to
support our financial instruments. At December 31, 2003 and 2002 we did not
maintain any monies in financial institutions that exceeded federally
insured amounts.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Advertising and Marketing
---------------------------

Advertising and marketing costs are expensed as incurred and totaled
$2,112, $2,106 and $2,155 for the years ended December 31, 2003, 2002 and
2001, respectively. In connection with our franchise agreements, a portion
of the franchise fees paid is for marketing services. Payments under these
agreements related to marketing services amounted to $543, $530 and $549
for the years ended December 31, 2003, 2002 and 2001, respectively.

Reclassification
----------------

Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.

NOTE 3 - COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS

We have assumed the rights and obligations under the terms of existing
franchise licenses relating to the hotels upon acquisition of the hotels by
the partnership. The franchise licenses generally specify certain
management, operational, accounting, reporting and marketing standards and
procedures with which the franchisee must comply and provide for annual
franchise fees based upon percentages of gross room revenue.

We have entered into percentage lease agreements ("Percentage Leases") with
HHLP. Each Percentage Lease has an initial non-cancelable term of five
years and may be extended for two additional five-year terms at HHMLP's
option. As of December 31, 2003, HHMLP had made the determination not to
exercise their option to renew any of the leases. Pursuant to the terms of
the Percentage Leases, we are required to pay the greater of the base rent
or the percentage rent for hotels with established operating histories. The
base rent is 6.5 percent of the purchase price assigned to each hotel. The
percentage rent for each hotel is comprised of (i) a percentage of room
revenues up to a certain threshold amount for each hotel up to which we
receive a certain percentage of room revenues as a component of percentage
rent, (ii) a percentage of room revenues in excess of the threshold amount,
but not more than a certain incentive threshold amount for each hotel in
excess of the threshold amount up to which we receive a certain percentage
of the room revenues in excess of the threshold amount as a component of
percentage rent, (iii) a percentage for room revenues in excess of the
incentive threshold amount, and (iv) a percentage of revenues other than
room revenues. For hotels with limited operating histories, the leases
provide for the payment of an initial fixed rent for certain periods as
specified in the leases and the greater of base rent or percentage rent
thereafter. The leases commenced on January 26, 1999.

NOTE 3 - COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(CONTINUED)

Minimum annual lease payments due during the noncancellable portion of the
leases are as follows:

December 31, 2004 $ 5,593
2005 4,889
2006 3,074
2007 623

-------

Total $14,179
=======

For the years ended December 31, 2003, 2002 and 2001, we incurred initial
fixed rents of $4,889, $3,710, $4,403 and percentage rents of $8,021,
$8,251 and $6,698, respectively. As of December 31, 2003 and 2002 the
amount due to the Partnership for lease payments was $2,590 and $2,562,
respectively.

Beginning in 2003, we entered into management agreements with affiliates to
manage eight hotels. Each management agreement provides for a five year
term and is subject to early termination upon the occurrence of defaults
and certain other events described therein. Under the management
agreements, we generally pay the operating expenses of the hotels. All
operating expenses or other expenses incurred by us in performing our
authorized duties are reimbursed or borne by the affiliates to the extent
the operating expenses or other expenses are incurred within the limits of
the applicable approved hotel operating budget. We are not obligated to
advance any of own funds for operating expenses of a hotel or to incur any
liability in connection with operating a hotel.

We receive a base management fee, and if a hotel meets and exceeds certain
thresholds, an additional 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 sixtieth day
following the end of each fiscal year and is equal to an amount determined
by us and the affiliates prior to the commencement of each fiscal year
beginning in 2004, generally based upon the financial performance of the
hotel. For the year ended December 31, 2003, management fees earned totaled
$142 and $82 remains receivable from the affiliates as of December 31,
2003.

We have executed an agreement with HHLP to provide accounting and
securities reporting services. The terms of the agreement provides for a
fee of $10 per property (prorated from the time of acquisition) for each
hotel added to the HHLP's portfolio. As of December 31, 2003, 2002 and
2001, $178, $175 and $134 has been earned from operations in each period,
respectively.

NOTE 3 - COMMITMENTS AND CONTINGENCIES AND RELATED PARTY
TRANSACTIONS (CONTINUED)

Due from Related Party
-------------------------

HHLP balance was $341 and $259 as of December 31, 2003 and 2002,
respectively. The December 31, 2003 balance consisted primarily of $324 for
a reimbursement for furniture, fixtures and equipment expenditures on
behalf of HHLP and a receivable of $17 related to administrative services
fees. The December 31, 2002 balance consisted primarily of $259 for a
reimbursement for furniture, fixtures and equipment expenditures on behalf
of HHLP.

Due from 44 New England Associates was $78 and $0 as of December 31, 2003
and 2002, respectively. The December 31, 2003 balance consisted of
management fees owed to us.

Due from HT/CNL Metro balance was $500 and $0 as of December 31, 2003 and
2002, respectively. The December 31, 2003 balance consisted primarily of
$464 of payroll and related operating expenses paid on behalf of HT/CNL
Metro and $36 in management fees.

Due from other related parties consists of receivables from affiliates of
HHMLP, excluding HHLP. The December 31, 2003 and 2002 balance was $458 and
$897, respectively. The Due from Related Party balance for both periods
consisted primarily of partnership loans created by cash flow deficits
existing at certain properties owned by affiliates of HHMLP.

Due to Related Parties balance was $376 and $182 as of December 31, 2003
and 2002, respectively. The Due to Related Parties balance consists
primarily of monies owed to Shreenathji Enterprises, Ltd. ("SEL") an
affiliate of HHMLP. These payables relate to borrowings by HHMLP utilized
for general working capital purposes of HHMLP.

Legal Fees
-----------

We paid to Mr. Jay H. Shah, son of Mr. Hasu P. Shah, certain legal fees
aggregating $56, $87 and $34 during the years ended December 31, 2003, 2002
and 2001, respectively.

Hotel Supplies
---------------

For the years ended December 31, 2003, 2002 and 2001, we paid to Hersha
Hotel Supply $468, $925 and $957, respectively, for hotel supplies of which
$125 and $86 was in accounts payable at December 31, 2003 and 2002,
respectively. These expenses are included in Hotel Operating Expenses and
Restaurant Operating Expenses.

We provide office space to various related entities. The total rent
collected for each of the years ended December 31, 2003, 2001 and 2000 was
$66.

NOTE 3 - COMMITMENTS AND CONTINGENCIES AND RELATED PARTY
TRANSACTIONS (CONTINUED)

During the years ended December 31, 2003, 2002 and 2001, we had advances to
related parties of $60, $72 and $66, respectively. These advances were
inclusive of repayments from related parties of $298, $128 and $685,
respectively. Interest income of $0, $0 and $90, respectively, was recorded
on these loans.

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31, 2003 and
2002:

2003 2002
------ ------

Property Improvements $ 693 $ 693
Furniture, Fixtures and Equipment 642 642
Software 43 43
Automobiles 69 119
------ ------
1,447 1,497
Less Accumulated Depreciation 770 634
------ ------
Total Property and Equipment $ 677 $ 863
====== ======

Depreciation expense was $199, $209 and $202 for the years ended December
31, 2003, 2002 and 2001, respectively.

NOTE 5 - EMPLOYEE BENEFIT PLANS

We sponsor a defined contribution employee benefit plan (the "401K Plan").
Substantially all employees who are age 21 or older and have at least six
months of service are eligible to participate in the 401K Plan. Employees
may contribute up to 15% of their compensation to the 401K Plan, subject to
certain annual limitations. Employer contributions to the 401K Plan are
discretionary and we currently do not contribute to the Plan. We do absorb
certain administrative expenses related to the maintenance of the 401K
Plan.

NOTE 6 - SELF-INSURANCE PROGRAM

Effective September 1, 2003, the Partnership has a self-insurance program
for hospitalization and medical coverage for its employees. The Partnership
limits its losses through the use of stop-loss policies from re-insurers.
Specific individual losses for claims are limited to $50 per year. The
Partnership's aggregate annual loss is limited to $1,000. The Partnership
has provided for claims incurred but not reported at December 31, 2003 of
$114, which is included in accrued expenses on the balance sheet.

NOTE 7 - DISCONTINUED OPERATIONS

On September 26, 2002, Hersha Hospitality Limited Partnership ("HHLP") sold
the Clarion Suites, Philadelphia, PA to a third party owner operator for
$6,300 less transfer costs that are estimated at $103. We have terminated
the lease with HHLP as of this date without any fees or penalties incurred
by either party. Total revenues related to the asset of $1,795 and a loss
from discontinued operations of $54 for the year ended December 31, 2002 is
included in discontinued operations. Total revenues related to the asset of
$2,088 and a loss from discontinued operations of $49 for the year ended
December 31, 2001 is included in discontinued operations.

NOTE 8 - NEW AUTHORITATIVE ANNOUNCEMENTS

The FASB has issued SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities," which is effective for certain
transactions arising on or after June 30, 2003. SFAS No. 149 will have no
impact on the Company.

FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others - an interpretation of FASB Statements No. 5, 57,
and 107 and rescission of FASB Interpretation No. 34," was issued in
November 2002. FIN 45 elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee,
a liability for the fair value of the obligation undertaken in issuing the
guarantee. FIN 45 does not prescribe a specific approach for subsequently
measuring the guarantor's recognized liability over the term of the related
guarantee. The initial recognition and initial measurement provisions of
FIN 45 are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002, irrespective of the guarantor's fiscal
year end. The disclosure requirements in FIN 45 are effective for financial
statements of interim or annual periods ending after December 15, 2002. The
Company has made the disclosures required by FIN 45.

the entities do not effectively disperse risks among parties involved. It
applies for all variable interest entities in the first in the first period
that ends after March 15, 2004. The Company will continue to monitor and
evaluate the impact of FIN 46 on our financial statements.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURES

None.

ITEM 9A. CONTROLS AND PROCEDURES

Our management, including the Chief Executive Officer and Chief Financial
Officer, has conducted an evaluation of the effectiveness of disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14 as of a date within 90 days
of the filing of this annual report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures are effective in ensuring that all material information
required to be filed in this annual report has been made known to them in a
timely fashion. There have been no significant changes in internal controls, or
in factors that could significantly affect internal controls, subsequent to the
date the Chief Executive Officer and Chief Financial Officer completed their
evaluation.

PART III

ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF OUR COMPANY

TRUSTEES AND EXECUTIVE OFFICERS

Our Board of Trustees consists of seven members, five of whom are
independent trustees under the rules of the American Stock Exchange. All of the
trustees serve staggered terms of two years and the trustees are divided into
two classes. Each trustee in Class I holds office for a term expiring at the
2004 annual meeting of shareholders and the election and qualification of his
successor and each trustee in Class II holds office initially for a term
expiring at the 2005 annual meeting of shareholders and the election and
qualification of his successor. Certain information regarding our trustees and
executive officers is set forth below.

NAME AGE POSITION
----------------- --- ---------------------------------------------------------------------

Hasu P. Shah 59 Chairman of the Board, Chief Executive Officer and Trustee (Class II)
Jay H. Shah 35 President and Chief Operating Officer
Ashish R. Parikh 34 Chief Financial Officer
Neil H. Shah 30 Director of Acquisitions & Development
Kiran P. Patel 54 Corporate Secretary
David L. Desfor 42 Treasurer
K.D. Patel 60 Trustee (Class II)
Michael A. Leven 66 Independent Trustee (Class II)
Donald J. Landry 54 Independent Trustee (Class I)
John M. Sabin 49 Independent Trustee (Class II)
Thomas S. Capello 60 Independent Trustee (Class I)
William Lehr, Jr. 63 Independent Trustee (Class I)

Hasu P. Shah has been the Chairman of the Board and Chief Executive Officer
since our inception in 1998. Mr. Shah is also the founder and CEO of the Hersha
Group. Mr. Shah founded Hersha with the purchase of a single hotel in
Harrisburg, Pennsylvania in 1984. In the last twenty years, Mr. Shah has
developed, owned, or managed over fifty hotels across the Eastern United States
and started affiliated businesses in general construction, purchasing, and hotel
management. He has earned numerous awards including the Entrepreneur of the
Year, the Creating a Voice award, and was recently named a Fellow of Penn State
University. Mr. Shah and his wife, Hersha, are active members of the local

community and remain involved with charitable initiatives in India as well. Mr.
Shah has been an active Rotarian for nearly twenty years and continues to serve
as a Trustee of several community service and spiritual organizations including
Vraj Hindu Temple and the India Heritage Research Foundation. Mr. Shah received
a Bachelors of Science degree in Chemical Engineering from Tennessee Technical
University and obtained a Masters degree in Administration from Pennsylvania
State University. Mr. Shah is also an alumnus of the Owner and President's
Management program at Harvard Business School.

Jay H. Shah was named President and Chief Operating Officer of Hersha on
September 3, 2003. Prior to his appointment, Mr. Shah was a principal in the law
firm of Shah & Byler, LLP, which he founded in 1997, and managing director of
the Hersha Group. Mr. Shah previously was a consultant with Coopers & Lybrand
LLP, served the late Senator John Heinz on Capitol Hill, and was employed by the
Philadelphia District Attorney's office and two Philadelphia-based law firms.
Mr. Shah received a Bachelor of Science degree from the Cornell University
School of Hotel Administration, a Masters degree from the Temple University
School of Business Management and a Law degree from Temple University School of
Law. Mr. Shah is the son of Hasu P. Shah, our Chairman and Chief Executive
Officer.

Ashish R. Parikh has been Chief Financial Officer of Hersha Hospitality
Trust since 1999. Previously, Mr. Parikh was Assistant Vice President in the
Mergers and Acquisition Group for Fleet Financial Group where he developed
valuable expertise in numerous forms of capital raising activities including
leveraged buyouts, bank syndications and venture financing. Mr. Parikh has also
been employed by Tyco International Ltd and Ernst & Young LLP. Mr. Parikh
received his MBA from New York University and a BBA from the University of
Massachusetts at Amherst. Mr. Parikh is a licensed Certified Public Accountant.

Neil H. Shah has served as our Director of Acquisitions & Development since
May 2002 and had been a principal of the Hersha Group since 2000. Prior to
joining Hersha, he served in senior management positions with the Advisory Board
Company and the Corporate Executive Board. Mr. Shah graduated with honors from
the University of Pennsylvania and the Wharton School with degrees in Management
and Political Science. Mr. Shah earned his MBA from the Harvard Business School.
Mr. Shah is the son of Hasu P. Shah, our Chairman and Chief Executive Officer.

Kiran P. Patel is our Secretary and has been a principal of the Hersha
Group since 1993. Prior to Hersha, Mr. Patel was employed by AMP Incorporated
(electrical component manufacturer), in Harrisburg, Pennsylvania. Mr. Patel
serves on various Boards for community service organizations. Mr. Patel received
a Bachelor of Science degree in Mechanical Engineering from M.S. University of
India and obtained a Masters of Science degree in Industrial Engineering from
the University of Texas in Arlington.

David L. Desfor has served as Treasurer of Hersha since December 2002.
Previously, Mr. Desfor has been a principal and comptroller of the Hersha Group
since 1992. Mr. Desfor previously co-founded and served as President of a hotel
management company focused on conference centers and full service hotels. Mr.
Desfor earned his undergraduate degree from East Stroudsburg University in Hotel
Administration.

K.D. Patel currently serves as the President of Hersha Hospitality
Management, L.P., the lessee of 14 of our hotels and the manager of all our
hotels. Mr. Patel has been a principal of the Hersha Group since 1989. Mr. Patel
was previously employed by Dupont Electronics from 1973 to 1990. Mr. Patel is
currently a Board member of the International Association of Holiday Inns and
has been a member of the Board of Trustees of the regional chapter of the
American Red Cross and the Advisory Board of Taneytown Bank and Trust. Mr. Patel
has served on our Board of Trustees since our initial public offering in 1999.
Mr. Patel received a Bachelor of Science degree in Mechanical Engineering from
the M.S. University of India and earned a Professional Engineering License from
the Commonwealth of Pennsylvania.

Michael A. Leven is the Chairman and Chief Executive Officer of US
Franchise Systems, Inc. (USFS), which franchises the Microtel, Hawthorn Suites
and Best Inns & Suites hotel brands. Prior to forming USFS in 1995, he was
President of Holiday Inns Worldwide. During his five-year tenure, the new
Holiday Inn Express brand grew from zero to 330 open hotels. From 1985 to 1990,
Mr. Leven was President of Days Inn of America leading the company from
reorganization of a regional chain to one of the largest brands in the world

with over 1,000 units. Mr. Leven is a co-founder of the Asian American Hotel
Owners Association (AAHOA) which now has over 7,000 members. Mr. Leven is a
Trustee of The Marcus Foundations, serves on the Boards of the Marcus Institute
and the Georgia Aquarium, and the United Jewish Communities. He has received
honorary doctorate degrees from The Johnson & Wales University and The College
of Hospitality and Tourism Management of Niagara University. Mr. Leven has
served on our Board of Trustees since 2001. Mr. Leven holds a Bachelor of Arts
from Tufts University and a Master of Science from Boston University.

Donald J. Landry is president and owner of Top Ten, an independent
hospitality industry consulting company. Mr. Landry has over thirty years of
lodging and hospitality experience in a variety of leadership positions. Most
recently, Mr. Landry was the Chief Executive Officer, President and Vice
Chairman of Sunburst Hospitality Inc. Mr. Landry has also served as an executive
officer for Choice Hotels International, Inc., Manor Care Hotel Division and
Richfield Hotel Management. Mr. Landry currently serves on the corporate
advisory boards of Unifocus and Campo Architects and numerous non-profit boards.
Mr. Landry is a frequent guest lecturer at the Harvard Business School, Cornell
University and University of New Orleans. Mr. Landry has served on the Board of
Trustees since our 2001 annual meeting. Mr. Landry holds a Bachelor of Science
from the University of New Orleans and was the University's Alumnus of the Year
in 1999. Mr. Landry is a Certified Hotel Administrator.

John M. Sabin is Chief Financial Officer, General Counsel and Secretary of
NovaScreen Biosciences Corporation, a private bioinformatics and contract
research biotech company. Prior to joining NovaScreen in 2000, he served as
Chief Financial Officer of Hudson Hotels Corporation from 1998 to 1999. From
1997 to 1998, Mr. Sabin was with Vistana, Inc., a public vacation time-share
company where he held positions of Senior Vice President, Treasurer and CFO.
Previously, Mr. Sabin served as an executive with Choice Hotels International,
Inc., Manor Care, Inc. and Marriott International, Inc. Mr. Sabin also serves on
the Board of Competitive Technologies, Inc. Mr. Sabin joined the Board of
Trustees on June 30, 2003.

Thomas S. Capello is a Private Investor and a Consultant specializing in
strategic planning, mergers and acquisitions. From 1988 to 1999, Mr. Capello was
the President, Chief Executive Officer and Director of First Capitol Bank in
York, Pennsylvania. From 1983 to 1988, Mr. Capello served as Vice President and
Manager of the Loan Production Office of The First National Bank of Maryland.
Prior to his service at The First National Bank of Maryland, Mr. Capello served
as Vice President and Senior Regional Lending Officer at Commonwealth National
Bank and worked at the Pennsylvania Development Credit Corporation. Mr. Capello
is the Chairman of the York regional Board of Directors of Community Bank, Inc.
Mr. Capello is an active member for the board of WITF, Martin Library, Motter
Printing Company, and Eastern York Dollars for Scholars. Mr. Capello has served
on the Board of Trustees since the our initial public offering in January 1999.
Mr. Capello is a graduate of the Stonier Graduate School of Banking at Rutgers
University and holds an undergraduate degree with a major in Economics from the
Pennsylvania State University.

William Lehr, Jr. retired from Hershey Foods Corporation in 1995. He had
been Senior Vice President and Secretary of the Corporation, as well as its
Treasurer. During a 28 year career with Hershey Foods, Mr. Lehr had a multitude
of diverse responsibilities, including senior management, corporate governance,
law, finance, human resources, and public affairs. Mr. Lehr is currently
devoting his time to working with various nonprofit organizations in the
following capacities. He is Chairman of the Board of Trustees of Lebanon Valley
College; Chairman of the Board of the Greater Harrisburg Foundation as well as
Chairman of the Capital Region's Early Childhood Training Institute; a director
and Vice Chairman of Capital Blue Cross; a director and immediate past Chairman
of Americans for the Arts and a director and immediate past President of the
Susquehanna Art Museum. Mr. Lehr holds a Bachelor's degree in Business
Administration from the University of Notre Dame, where he graduated cum laude,
and a law degree from Georgetown University Law Center. Mr. Lehr is also a
graduate of the Stanford Executive Program and successfully completed The
Governing for Nonprofit Excellence Course at Harvard University's Graduate
School of Business Administration.

INDEPENDENT TRUSTEES

The Board of Trustees has determined that the members of the Board
indicated as "independent" above are independent as that term is defined under
the general independence standards in the listing standards of the American
Stock Exchange.

COMMITTEES AND MEETINGS OF THE BOARD OF TRUSTEES

Trustees' Meetings. Our business is under the general management of our
Board of Trustees as provided by our Bylaws and the laws of Maryland. The Board
of Trustees holds regular quarterly meetings during our fiscal year and holds
additional meetings as needed in the ordinary course of business. The Board of
Trustees held four meetings and eight conference calls during 2003. All
trustees attended at least 75% of the aggregate of (i) the total number of the
meetings of the Board of Trustees and (ii) the total number of meetings of all
committees of the Board on which the trustee then served.

We presently have an Audit Committee, Compensation Committee, Nominating
Committee, Acquisition Committee and a Corporate Governance Committee of our
Board of Trustees. We may, from time to time, form other committees as
circumstances warrant. These committees have authority and responsibility as
delegated by the Board of Trustees.

Audit Committee. We have a separately-designated audit committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, as amended. The Audit Committee consists of Messrs. Capello
(Chairperson), Landry, Lehr and Sabin, all of whom are independent trustees. The
Audit Committee is responsible for the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, approves professional services provided by the
independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of our internal accounting controls. The Audit Committee met five
times during 2003 and discussed relevant topics regarding financial reporting
and auditing procedures.

The Board of Trustees has determined that Mr. Capello is an "audit
committee financial expert" as that term is defined in the rules promulgated by
the Securities and Exchange Commission pursuant to the Sarbanes-Oxley Act of
2002. The Board of Trustees has determined that each of the members of the Audit
Committee is financially literate and has accounting or related financial
management expertise, as such terms are interpreted by the Board of Trustees.

Compensation Committee. The Compensation Committee consists of Messrs.
Leven (Chairperson), Sabin, Landry and Lehr, all of whom are independent
trustees. The Compensation Committee determines compensation for our executive
officers and administers our option plan. Because we only paid compensation to
one officer in recent years, the Compensation Committee is typically able to
address its business in only one meeting during the past years. The Compensation
Committee met one time during 2003 and discussed relevant topics regarding
compensation and established a formal compensation plan for all officers and
trustees for 2004.

Nominating Committee. The Nominating Committee consists of Messrs. Sabin
(Chairperson), Capello and Leven. The Nominating Committee recommends candidates
for election as trustees and in some cases the election of officers. The
Nominating Committee met two times during 2003 as part of the full board's
meetings and discussed relevant topics regarding trustee and officer nominations
at the meetings of the Board of Trustees.

Acquisition Committee. The Acquisition Committee consists of Messrs. Landry
(Chairperson),, Leven and Sabin. The Acquisition Committee establishes
guidelines for acquisitions to be presented to the Board of Trustees and leads
the Board in its review of potential acquisitions presented by management. The
Acquisition Committee makes recommendations to the Board and senior management
regarding acquisitions and ensures that proper due diligence is conducted on all
properties. The Acquisition Committee was established in January, 2004.

Corporate Governance Committee. The Corporate Governance Committee consists
of Messrs. Lehr (Chairperson), Capello and Landry. The Corporate Governance
Committee develops and recommends to the Board of Trustees a set of Corporate
Governance guidelines and annually reviews these guidelines, considers questions
of possible conflicts of interest of Board members and executives and remains
informed about existing and new corporate governance standards mandated by the
SEC and American Stock Exchange as they apply to us. The Corporate Governance
Committee was established in January, 2004.

CODE OF ETHICS

Our Board of Trustees has adopted a Code of Ethics that applies to our
chief executive officer, chief financial officer, chief accounting officer,
controller and other executive officers. The Code of Ethics will be posted on
our Internet website, www.hersha.com, no later than the date on which the proxy
for the 2004 annual meeting is mailed to shareholders. We intend to satisfy the
disclosure requirement under Item 10 of Form 8-K relating to amendments to or
waivers from any provision of the Code of Ethics applicable to the our chief
executive officer, chief financial officer, chief accounting officer or
controller by posting such information on our Internet website.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based solely upon a review of forms furnished to us pursuant to Rule 16a-3(e)
during 2003, the following trustees and executive officers failed to file on a
timely basis, or failed to file, the following reports required by Section 16(a)
of the Exchange Act during 2003:

Trustee or Officer Description
---------------------- ------------

Jay H. Shah Mr. Jay Shah failed to file a Form 3 upon
(President and Chief becoming President and Chief Operating Officer
Operating Officer) as of September 3, 2003.

K.D. Patel Mr. K.D. Patel failed to timely file a Form 4
(Trustee) reporting his redemption for cash of 362,197
units of limited partnership in our operating
partnership as of October 22, 2003. This Form
4 was filed on January 5, 2004.

Nayana Gandhi Ms. Gandhi failed to file a Form 4 reporting
(former owner of more her redemption for cash of 281,148 units
than 10% of common of limited partnership in our operating
shares) partnership as of October 22, 2003.
As of that date, Ms. Ghandi no longer owns
more than 10% of our outstanding common shares.

ITEM 11. EXECUTIVE COMPENSATION

Ashish R. Parikh, our Chief Financial Officer, is paid a salary of $90,000
by HHMLP. We have entered into an Administrative Services Agreement with HHMLP
to provide accounting and securities reporting services. The terms of the
agreement provide for a fee of $10,000 per property per year (prorated from the
time of acquisition) for each hotel in our portfolio. A portion of these fees,
charged by HHMLP, are allocated to the services of Mr. Parikh.

No other officers have received or will receive any cash compensation from
us for 2003, other than the Trustee's fees for those officers who are trustees.

Since our inception, we have not paid compensation to our executive
officers or other employees. However, beginning with the 2004 fiscal year, we
intend to compensate certain of our executive officers, and the Compensation
Committee will attempt to establish compensation that is customary in our
industry. The following table summarizes the compensation paid or accrued for
each of the years ended December 31, 2003, 2002 and 2001.

Annual Compensation Long Term Compensation
------------------- ----------------------
Securities
Name and Restricted Underlying All Other
Principal Position Year Salary Bonus Share Award Options/SAR Compensation
--------------------------- ---- ------- ----- ----------- ----------- ------------

Hasu P. Shah 2003
Chairman and Chief 2002
Executive Officer 2001

Jay H. Shah 2003
President and 2002
Chief Operating Officer 2001

Ashish R. Parikh (1) 2003 $80,000
Chief Financial Officer 2002 80,000
2001 55,000

Kiran P. Patel 2003
Secretary 2002
2001

David L. Desfor 2003
Treasurer 2002
2001

Neil H. Shah 2003
Director of Acquisitions 2002
2001

_____________________
(1) Of Mr. Parikh's $90,000 salary that is paid by the Lessee, $80,000 has been
designated as related to the services provided per the terms of the
Administrative Services Agreement between us and HHMLP. The terms of the
agreement provide for a fee of $10,000 per property per year (prorated from
the time of acquisition) for each hotel in our portfolio.

OPTION GRANTS

There were no option grants to any executive officers or employees during
2003.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES

Number of Unexercised Value of Unexercised
Options In-The Money Options at
Shares at Fiscal Year-End (1) Fiscal Year-End (2)
Acquired by Value -------------------------- ----------------------------
NAME exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---------------- ----------- --------- ----------- ------------- ------------ --------------

Hasu P. Shah - $ - 21,850 - $ 89,585 $ -
Jay H. Shah - $ - - - $ - $ -
Ashish R. Parikh - $ - - - $ - $ -
Kiran P. Patel - $ - 20,864 - $ 85,542 $ -
David L. Desfor - $ - - - $ - $ -
Neil H. Shah - $ - - - $ - $ -

________________________
(1) Represents the number of shares subject to outstanding options.
(2) Based on a price of $10.10 per share, the closing price of our common shares on December
31, 2003.

The following graph compares the cumulative total shareholder return on the
Priority Common Shares for the period from January 26, 1999 (commencement of
operations) through December 31, 2003, with the cumulative total shareholder
return for the Standard and Poor's 500 Stock Index and the NAREIT Composite
Index for the same period, assuming $100 is invested in the Priority Common
Shares and each index and dividends are reinvested quarterly. The performance
graph is not necessarily indicative of future investment performance.

[GRAPHIC OMITED]

1/26/99 (1) 1999 2000 2001 2002 2003
----------- ----- ----- ----- ----- -----

HERSHA 100 94.5 115.8 130.2 153.2 227.5
S&P 500 100 119.9 106.9 96.2 74.9 96.4
NAREIT COMPOSITE INDEX 100 93.5 117.7 136.0 143.1 198.1

(1) The Company commenced operations on January 26, 1999.

COMPENSATION OF TRUSTEES

Each independent and non-affiliated trustee is paid $10,000 per year while
each affiliated trustee is paid $7,500 per year, payable in quarterly
installments. In addition, we will reimburse all trustees for reasonable
out-of-pocket expenses incurred in connection with their services on the Board
of Trustees.

In addition, we have adopted the Hersha Hospitality Trust Non-Employee
Trustees' Option Plan (the "Trustees' Plan") to provide incentives to attract
and retain independent trustees. The Trustees' Plan authorizes the issuance of
up to 200,000 common chares. Options issued under the Trustees' Plan are
exercisable for five years from the date of grant. The Trustees' Plan provides
that in the event the common shares are converted or exchanged into or for any
other securities, share grants and options will be granted in such other
security. No options under the Trustees' Plan are outstanding as of March 18,
2004.

A trustee's outstanding options will become fully exercisable if the
trustee ceases to serve on the Board of trustees due to death or disability. All
awards granted under the Trustees' Plan shall be subject to Board or other
approval sufficient to provide exempt status for such grants under Section 16 of
the Securities Exchange Act of 1934, as that section and rules thereunder are in
effect from time to time. No option may be granted under the Trustees' Plan more
than 10 years after the date that the Board of Trustees approved the Plan. The
Board of Trustees may amend or terminate the Trustees' Plan at any time but an
amendment will not become effective without shareholder approval if the
amendment increases the number of shares that may be issued under the Trustees'
Plan (other than equitable adjustments upon certain corporate transactions).

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding the beneficial
ownership of common shares by (i) each shareholder known by us to beneficially
own more than five percent of our common shares, (ii) each of our trustees and
executive officers, and (iii) all of our trustees and executive officers as a
group, each as of March 18, 2004. Unless otherwise indicated, all shares are
owned directly, and the indicated person has sole voting and investment power.
The number of outstanding common shares at March 18, 2004 was 13,571,665. This
table assumes that all limited partnership units held by such person or group of
persons are redeemed for common shares or, in the case of CNL, exchanged for
common shares. The total number of shares outstanding used in calculating the
percentage assumes that none of the limited partnership units held by other
persons are redeemed for common shares. Limited partnership units generally are
not redeemable for common shares until at least one year following the issuance
of such units.

NUMBER PERCENT OF
NAME OF BENEFICIAL OWNER OF SHARES CLASS
------------------------ --------- -----------

PERSONS BELIEVED TO OWN IN EXCESS OF 5% OF COMMON SHARES
CNL Hospitality Partners, L.P. (1) 4,008,601 22.80%
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801-3336
Deutsche Bank AG and RREEF America, L.L.C.(2) 1,281,500 9.44%
Taunusanlage 12, D-60325
Frankfurt am Main
Federal Republic of Germany
Security Capital Research & Management Incorporated (3) 831,300 6.13%
11 South LaSalle Street, 2nd Floor,
Chicago, Illinois 60603
Delaware Management Holdings(4) 797,800 5.88%
2005 Market Street
Philadelphia PA 19103
K. G. Redding & Associates, LLC (5) 1,645,100 12.12%
One North Wacker Drive, Suite 4343
Chicago, IL 60606-2841
OFFICERS AND TRUSTEES:
Hasu P. Shah(6) 243,837 1.76%
Neil H. Shah(6) 690,905 4.84%
Jay H. Shah(6) 742,719 5.19%
K.D. Patel(6) 282,393 2.04%
Kiran P. Patel(6) 46,969 *
David L. Desfor(7) 90,786 *
Ashish R. Parikh 2,500 *
John M. Sabin 500 *
Thomas S. Capello 7,400 *
Donald J. Landry - -
Michael A. Leven 2,500 *
William Lehr Jr. 1,610 *
Shreenathji Enterprises, Ltd.(6)(8) 15,454 *
TOTAL FOR ALL OFFICERS AND TRUSTEES (12 PERSONS)(9): 2,127,573 13.46%

____________________
* Less than 1%
(1) Reflects information on a Schedule 13D filed by CNL Hospitality Partners,
L.P., CNL Hospitality GP Corp., and CNL Hospitality Properties, Inc. on
September 5, 2003. CNL has sole dispositive and voting power over all
4,008,601 shares, which consists of (a) 2,816,460 common shares issuable
upon exchange of 190,266 Series A Preferred Partnership Units in our
operating partnership and (b) 1,192,141 common shares issuable upon
exchange of CNL's interest in our joint venture. CNL may only vote its
shares to the extent they do not exceed 40% of the total issued and
outstanding common shares.

100

(2) Based solely on Amendment No. 1 to Schedule 13G filed on February 26, 2004.
(3) Based solely on Schedule 13G filed on February 17, 2004.
(4) Based solely on Schedule 13G filed on February 9, 2004.
(5) Bases solely on Schedule 13G filed on January 14, 2004.
(6) Represents limited partnership units owned by such person.
(7) Represents 1,800 Common shares and 88,986 common limited participating
units owned by Mr. Desfor.
(8) Shreenathji Enterprises, Ltd. ("SEL") is a limited partnership owned by
Hasu P. Shah (12%), Kiran P. Patel (13%), Bharat C. Mehta (15%), Nayana
Ghandi (15%), Kanti D. Patel (15%), Jay H. Shah (15%) and Neil H. Shah
(15%). SEL acquired these Units in exchange for contributions of hotel
properties to the Partnership
(9) Includes the limited partnership units owned by Shreenathji Enterprises,
Ltd.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In developing our portfolio since our initial public offering in 1999, we
have entered into various transactions with our trustees, officers and entities
controlled by them, including transactions relating to the leasing and managing
of our hotels, acquisitions and dispositions of hotels, loans made by or for the
benefit of us, and the purchase of goods and services. Certain of these
transactions have been instrumental in the implementation of our business
strategy and the growth of our portfolio. Although we have made certain
efforts, described below, to ensure that these transactions were negotiated on
an arms-length basis, we cannot assure you of this fact or that the terms of
these transactions are as favorable to us as those we may have received from
unaffiliated third parties. As a result of the growth in our portfolio, our
current growth strategy and modifications to the REIT qualification rules, we
have adopted certain policies with respect to transactions with our trustees,
officers and entities controlled by them. The following is a summary of certain
of these transactions, including a description of the transaction, the business
purpose for the transaction and our current policy with respect to such a
transaction.

PORTFOLIO FORMATION TRANSACTIONS WITH TRUSTEES AND OFFICERS

In connection with our initial public offering in 1999, entities controlled
by our officers and trustees contributed ten hotels to us in exchange for
limited partnership units in our operating partnership. Since that time, we
have continued to buy hotels from, and sell hotels to, entities controlled by
our officers and trustees when a majority of our independent trustees has
determined it was in our best interest to do so.

HOTEL ACQUISITIONS

We have not, and do not in the future intend to, undertake the risks of
developing new hotels. However, since our initial public offering in 1999, we
have been able to acquire newly-constructed or newly-renovated hotels from
entities controlled by our officers or trustees. Of the 22 hotel properties
purchased by us since our initial public offering, 13 were acquired from
affiliates, 12 of which were newly-constructed or substantially renovated. In
connection with our initial public offering, we entered into an Option Agreement
with Hasu Shah, Jay Shah, Neil Shah, K.D. Patel, David Desfor, and Kiran Patel.
Pursuant to this agreement, we had the option to purchase any hotels owned or
developed by these individuals that was within fifteen miles of any of our
hotels or any hotel subsequently acquired by us for two years after such
acquisition or development. In September 2003, the parties to this agreement
amended the Option Agreement so that (a) the right of first refusal now applies
to all hotels owned or developed by the parties, regardless of proximity to our
hotels, and (b) the right of first refusal applies to each party until one year
after such party ceases to be an officer or trustee. This arrangement gives us
access to a pipeline of newly-constructed and newly-renovated hotels, without
bearing all the risks associated with development and renovation.

As of September 2001, the Board of Trustees has elected to hire an independent
accounting firm to review in advance all asset purchases and asset sales
between us and related parties. The Board of Trustees will determine the scope
of each review on a case-by-case basis. The independent third party accounting
firm will review each acquisition or sale to determine if the terms of the
transaction are in line with then-current market conditions as well as how the
transaction impacts us. The accounting firm then will present its findings to
the Board of Trustees to aid it in its evaluation of the terms of the
transaction.

The following table sets forth certain information with respect to all of
the acquisitions from entities controlled by our officers or trustees since
January 1, 2001.

101

HOTEL ACQUISITION DATE AFFILIATED SELLERS PURCHASE PRICE
--------------------- --------------------- ----------------------------- ---------------------------

Hampton Inn, New Acquired by our joint Chelsea Grand East, LLC, 28 million paid by a
York, venture with CNL on in which Hasu Shah owns joint venture in which
New York August 29, 2003 a 100% interest. we own a one-third interest,
including $16.4 million in
assumed debt and $11.6 in
cash.

Doubletree, October 1, 2002 5544 JFK Associates, in 11.5 million, including
Jamaica, New York which Hasu Shah, Jay Shah, the assumption of $8.7 million
(JFK Airport) Neil Shah, Kiran Patel, of mortgage debt, the
David Desfor, K.D. Patel assumption of $1 million
and their immediate families of related party debt
collectively owned a 86% and $1.8 million of cash
interest

Mainstay Suites, January 1, 2002 3044 Associates, in which 5.5 million, including
Frederick, Maryland Hasu Shah, Jay Shah, Neil the assumption of $3.3
Shah, Kiran Patel, David million of debt, the
Desfor, K.D. Patel and assumption of $0.8 million
their immediate families of related party debt and $1.6
collectively owned a 82% million of cash
interest

Holiday Inn Express, November 1, 2001 Metro Two Hotel, LLC, in 8.5 million, including the
Long Island City, which Hasu Shah, Jay Shah, assumption of $6.5 million
New York Kiran Patel and K.D. Patel of mortgage debt, $1.5 million
and their immediate families of cash, and $0.5 million of
collectively owned a 88% common limited partnership
interest units in our operating
partnership

Mainstay Suites and August 1, 2001 3244 Associates, in which 9.4 million, including the
Sleep Inn Hotel, Hasu Shah, Jay Shah, Kiran assumption of $6.8 million
King of Prussia, Patel and K.D. Patel and of mortgage debt, the
Pennsylvania their immediate families assumption of $1 million
collectively owned a 82% of related party debt and $1.6
interest million of cash

HOTEL ACQUISITION REPRICING

Each of these hotels were newly-developed or newly-renovated hotels that
did not have an operating history on which we could base purchase price
decisions. In buying these hotels we have utilized, a "re-pricing" methodology
that, in effect, adjusts the initial purchase price for the hotel, one or two
years after we initially purchase the hotel, based on the actual operating
performance of the hotel during the previous twelve months.

The initial purchase price for each of these hotels was based upon
management's projections of the hotel's performance for one or two years
following our purchase. The leases for these hotels provide for fixed initial
rent for the one- or two-year adjustment period that provides us with a 12%
annual yield on the initial purchase price, net of certain expenses. At the end
of the one- or two-year period, we calculate an initial value for the hotel,
based on the actual net income during the previous twelve months, net of certain
expenses, such that it would have yielded a 12% return. We then apply the
percentage rent formula to the hotel's historical revenues for the previous
twelve months on a pro forma basis. If the pro forma percentage rent formula
would not have yielded a pro forma annual return to us of 11.5% to 12.5% based
on this calculated value, this value is adjusted either upward or downward to
produce a pro forma return of either 11.5% or 12.5%, as applicable. If this
final purchase price is higher than the initial purchase price, then the seller
of the hotel will receive consideration in an amount equal to the increase in
price. If the final purchase price is lower than the initial purchase price,
then the sellers of the hotel will return to us consideration in an amount equal
to the difference. Any purchase price adjustment will be made either in common
limited partnership units in our operating partnership or cash as determined by
our Board of Trustees. Any common limited partnership units issued by us or
returned to us as a result of the purchase price adjustment will be based upon a
value per unit approved by our Board of Trustees, including our independent
trustees. The sellers are entitled to receive quarterly distributions on the
common limited partnership units prior to the units being returned to us in
connection with a downward purchase price adjustment. In addition, the sellers
are not entitled to receive any retroactive distributions in connection with any
upward purchase price adjustment.

102

The five hotel purchases described in the table above are subject to future
re-pricing. We originally purchased these hotels with anticipated repricing
dates from December 31, 2002 to December 31, 2004. Due to the then-current
operating environment, the ramp up and stabilization for these newly-built
properties is expected to take longer than initially projected. As a result,
effective January 1, 2003, we entered into an agreement with the sellers of
these five hotels to extend the repricing periods for these hotels. At the same
time, we amended the percentage leases with HHMLP for these hotels to extend the
initial fixed rent period to coincide with the extension period of the repricing
and to delay the transition to percentage rent. In addition, we have the right
to sell each of these properties back to the entities that initially sold the
hotels to us at the end of the applicable repricing period if adequate
stabilization has not occurred during the repricing period for a price not less
than the purchase price of the asset.

We have also acquired hotels in the past where the purchase prices were
subject to adjustment in a similar manner. On January 1, 2002, we issued an
aggregate of 333,541 additional common limited partnership units to the sellers
of the Holiday Inn Express & Suites, Harrisburg, the Hampton Inn, Danville and
the Hampton Inn & Suites, Hershey, Pennsylvania in connection with the
re-pricing of those hotels.

In the future, we do not intend to use any re-pricing methodology in
acquisitions from entities controlled by our officers and trustees.

DISPOSITIONS

Since our initial public offering in 1999, we have sold a total of eight
hotels, including four hotels sold back to entities controlled by our officers
or trustees at the same price at which we acquired the hotels from those
entities. All sales to these entities were in situations were we believed an
independent buyer would demand seller financing, which we were not willing to
provide. We do not intend to sell hotels to such entities in the future.

Effective as of January 1, 2002, we sold the Sleep Inn, Coraopolis,
Pennsylvania to 1944 Associates, an entity in which Hasu Shah, Jay Shah, Neil
Shah, Kiran Patel, K.D. Patel and David Desfor have a 74% interest, for
approximately $5.5 million, including the assumption of approximately $3.5
million in indebtedness, and redemption of 327,038 common limited partnership
units valued at approximately $2.0 million. We initially purchased this property
from this same entity as of October 1, 2000 for $5.5 million. The buyer is
currently looking for a third party buyer. This sale was supported by an
analysis of the property by an independent accounting firm and was approved by
our independent trustees. We do not intend to sell hotels to our affiliates in
the foreseeable future.

On April 1, 2001, we sold the Best Western in Indiana, Pennsylvania back to
the entity that sold us that property for $2.2 million (the same price at which
we acquired that hotel), including the assumption of approximately $1.4 million
in indebtedness. The acquiring entity was controlled by Hasu P. Shah, Jay H.
Shah, Kiran P. Patel and K.D. Patel. This entity then sold the hotel on May 1,
2001 for approximately $2.2 million, including the assumption of approximately
$1.4 million in indebtedness, $400,000 of cash, and seller financing in the
amount of approximately $400,000. We did not sell this hotel directly to the
independent buyer because we did not want to expose ourselves to the risks
associated with carrying an unsecured or secondary mortgage.

On November 1, 2001, we sold the Comfort Inn in McHenry, Maryland to the
entity that sold the hotel to us for approximately $1.8 million (the same price
at which we acquired that hotel), including the assumption of approximately $1.2
million in indebtedness. The acquiring entity was controlled by Hasu P. Shah,
Jay H. Shah, Kiran P. Patel and K.D. Patel. This entity then sold the hotel on
November 10, 2001 for approximately $2.0 million, including the assumption of
approximately $1.2 million in indebtedness, $300,000 in cash and seller
financing in the amount of approximately $500,000. We did not sell this hotel
directly to the independent buyer because we did not want to expose ourselves to
the risks associated with carrying an unsecured or secondary mortgage.

On November 1, 2001, we sold the Comfort Inn Riverfront in Harrisburg,
Pennsylvania back to the entity that sold the hotel to us for approximately $3.5
million (the same price at which we acquired that hotel), including the
assumption of approximately $2.5 million in indebtedness. This entity was
controlled by Hasu P. Shah, Jay H. Shah and Neil H. Shah, and then sold the
hotel in April 2002 for approximately $3.6 million, including the assumption of
approximately $2.8 million in indebtedness, $300,000 in cash and seller
financing in the amount of approximately $500,000. We did not sell this hotel

103

directly to the independent buyer because we did not want to expose ourselves to
the risks associated with carrying an unsecured or secondary mortgage.

HOTEL DEVELOPMENT LOANS

We have approved the lending of up to $10.0 million to entities owned in
part by Hasu P. Shah, Jay H. Shah Kiran P. Patel, Neil H. Shah, David L. Desfor
and K.D. Patel to construct hotels and related improvements on specific hotel
projects. These loans are secured by unrecorded liens on the development
projects and pledges of any limited partnership units in our operating
partnership owned by persons or entities borrowing the funds. In addition to
the option described above, we maintain the first right of refusal to purchase
the hotel assets collateralized by these development loans. We have previously
purchased three hotels that were developed using these funds. As of December
31, 2003, these affiliates owed us $5.8 million related to this borrowing.
These affiliates have borrowed this money from us at interest rates ranging from
10% to 12% per annum. Interest income from these advances was $207,000 for the
year ended December 31, 2002 and $636,000 for the year ended December 31, 2003.
These loans were approved by our independent trustees. We intend to continue to
use these loans to facilitate our acquisitions of newly-constructed hotels,
consistent with our strategy of avoiding the risks associated with developing
hotels directly but still maintaining an acquisition pipeline of
newly-constructed and newly-renovated projects.

GUARANTEES

As required due to the size of our company at the time of the loans,
lenders required that Mr. Hasu P. Shah guarantee the indebtedness related to
four of the hotels, and the bankruptcy of Mr. Shah would constitute a default
under the related loan documents. Three of these four loans were paid in full
with the proceeds of our equity offering in October 2003. We do not intend to
allow officers or trustees to guarantee our loans in the future.

LOANS FROM SHREENATHJI ENTERPRISES, LTD.

We borrowed funds from Shreenathji Enterprises, Ltd., a company owned by
Hasu P. Shah (12%), Kiran P. Patel (13%), Bharat C. Mehta (15%), Nayana Ghandi
(15%), Kanti D. Patel (15%), Jay H. Shah (15%) and Neil H. Shah (15%). No
borrowings were outstanding from Shreenathji Enterprises, Ltd. as of December
31, 2003. The highest outstanding amount of borrowings from Shreenathji
Enterprises since January 1, 2002 was approximately $1.0 million. Shreenathji
Enterprises, Ltd. funded our loan with the proceeds from a loan it received from
a third party financial institution which was secured by one of our properties.
The third party financial institution required the loan to be made through
Shreenathji Enterprises, Ltd. instead of us because it had a prior relationship
with Shreenathji Enterprises, Ltd. We do not intend to borrow funds from
related parties in the future.

LEASES AND MANAGEMENT AGREEMENTS WITH HHMLP

As of December 31, 2003, fourteen of our hotels are leased to HHMLP. Each
percentage lease with HHMLP has an initial non-cancelable term of five years.
All, but not less than all, of the percentage leases for these hotels may be
extended for an additional five-year term at HHMLP's option. At the end of the
first extended term, HHMLP, at its option, may extend some or all of the
percentage leases for these hotels for an additional five-year term. Pursuant
to the terms of the percentage leases, HHMLP is required to pay initial fixed
rent, base rent or percentage rent and certain other additional charges and is
entitled to all profits from the operations of the hotel after the payment of
certain operating expenses. Total rent payments to us from HHMLP for 2003 and
2002 were $12.9 million and $11.4 million, respectively. For 2003 and 2002,
HHMLP had net loss of $1.28 million and $0.67 million, respectively.

As of December 31, 2003, six of our hotels, each of which is leased to our
wholly-owned TRS, are managed by HHMLP pursuant to management agreements. In
addition, the hotel owned by our joint venture with CNL is managed by HHMLP
pursuant to a management agreement. Total payments to HHMLP pursuant to these
management agreements for 2003 were $142,000.

104

a third party and as a result, we lease eight of our hotels to HHMLP. However,
the REIT rules that prompted this structure were recently modified and the new
rules permit a REIT to lease its hotels to a taxable REIT subsidiary, or TRS,
provided that the TRS engages an eligible independent contractor to manage the
hotels. Accordingly, since the time of the rule modification we have leased
twelve hotels, whose leases with a third party lessee expired, to a wholly-owned
TRS which pays us qualifying rents. We intend to eventually lease all our hotels
to a TRS. As their leases expire, we will re-lease to our wholly-owned TRS the
eight hotels currently leased to HHMLP. As of October 2003, HHMLP agreed to
waive its rights to extend the lease terms of these eight hotels.

The following table shows the expiration date of the leases for our eight
hotels leased to HHMLP:

Hampton Inn, Danville, PA September 1, 2004
Holiday Inn Express and Suites, Harrisburg, PA September 1, 2004
Hampton Inn, Hershey, PA December 31, 2005
Mainstay Suites, King of Prussia, PA June 1, 2006
Sleep Inn, King of Prussia, PA June 1, 2006
Holiday Inn Express, Long Island City, NY November 1, 2006
Mainstay Suites, Frederick, MD December 31, 2006
Doubletree, Jamaica, NY October 1, 2007

UNIT REDEMPTION

On October 22, 2003, K.D. Patel, a Trustee, redeemed 362,197 units of
limited partnership interest in our operating partnership for $8.00 per unit in
cash. After that redemption, Mr. K.D. Patel continued to own 282,393 units.

MISCELLANEOUS SERVICES PROVIDED BY AFFILIATED ENTITIES

ADMINISTRATIVE SERVICES AGREEMENT WITH HHMLP

We have entered into an Administrative Services Agreement with HHMLP for
HHMLP to provide accounting and securities reporting services to us. The terms
of the agreement provide for a fixed annual fee of $75,000 with an additional
fee of $10,000 per property per year (pro-rated from the time of acquisition)
for each hotel added to our portfolio. A portion of these fees, charged by
HHMLP, are allocated to the services of Ashish Parikh, our CFO. For 2003 and
2002, we incurred administrative service fee expenses of $178,000 and $175,000,
respectively. As of December 31, 2003 and December 31, 2002, we owed HHMLP
$313,000 and $303,000, respectively for replacement FF&E reserve reimbursements.
We believe that because of our current size it is more cost effective to
outsource these services. We will reevaluate this policy as we continue to
grow.

PAYMENTS TO SHAH & BYLER LAW FIRM

We have paid to the law firm of Shah & Byler and its predecessor, Shah Ray
& Byler, LLP, whose former senior partner, Jay H. Shah is now our President and
Chief Operating Officer and is the son of Hasu P. Shah, legal fees aggregating
$211,568 and $60,000 during 2003 and 2002, respectively. Mr. Shah has resigned
from the law firm and relinquished all ownership and control of the firm. Mr.
Shah will continue as counsel to the law firm and may receive compensation from
the firm for prior client origination. We intend to continue to use the
services of Shah & Byler.

PAYMENTS TO HERSHA CONSTRUCTION COMPANY

HHMLP has engaged Hersha Construction Company, currently owned by Hasu P.
Shah, Jay H. Shah, Neil Shah, Kiran P. Patel, K.D. Patel, David Desfor and other
investors, from time to time to perform construction work related to the
renovation of our hotel properties. For 2003 and 2002, HHMLP paid Hersha
Construction Company $0, and $4,000, respectively. Hersha Construction Company
is not HHMLP's only provider of these services and must bid with a number of
unaffiliated providers for our business.

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PAYMENTS TO HERSHA HOTEL SUPPLY COMPANY

HHMLP has purchased hotel supplies for our hotel properties from time to
time from Hersha Hotel Supply Company, currently owned by Hasu P. Shah, Jay H.
Shah, Neil Shah, Kiran P. Patel, K.D. Patel and other investors. For 2003 and
2002, HHMLP paid Hersha Hotel Supply Company $468,000 and $925,000,
respectively. Hersha Hotel Supply Company is not HHMLP's only provider of hotel
supplies and must bid with a number of unaffiliated suppliers for our business.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Hersha's principal independent accountant for fiscal years 1999 through
2002 was Moore Stephens, P.C. Hersha's principal independent accountant for the
2003 fiscal year was Reznick, Fedder & Silverman, P.C. Currently, no principal
independent accountant has been selected for the 2004 fiscal year. The
selection of an principal independent accountant for the 2004 fiscal year will
be addressed in Hersha's proxy statement in connection with the 2004 annual
meeting.

We have provided below certain information with respect to each of Moore
Stephens and Reznick Fedder & Silverman.

MOORE STEPHENS

During the fiscal years ended December 31, 2002 and December 31, 2003,
Moore Stephens billed us the fees set forth below in connection with services
rendered by that firm.

AUDIT FEES

For professional services rendered by Moore Stephens for the audit of our
annual financial statements, reviews of the financial statements included in our
Quarterly Reports on Form 10-Q, and other services provided in connection with
statutory and regulatory filings, Moore Stephens billed us fees in the aggregate
amount of $78,500 during the 2002 fiscal year and $64,547 during the 2003 fiscal
year.

AUDIT RELATED FEES

Moore Stephens did not render or charge us for any services related to the
performance of the audit or review of the registrants financial statements and
not reported under "Audit Fees" above during 2002 or 2003.

TAX FEES

Moore Stephens did not render or charge us for any services related to tax
compliance, tax advice and tax planning matters during 2002 or 2003.

ALL OTHER FEES

For professional services other than those described above, Moore Stephens
billed us fees in the aggregate amount of $12,200 during 2002 and $4,062 during
2003. There were no fees charged for services rendered in connection with the
performance of internal audit procedures.

REZNICK FEDDER & SILVERMAN

During the fiscal years ended December 31, 2002 and December 31, 2003,
Reznick Fedder & Silverman billed us the fees set forth below in connection with
services rendered by that firm.

106

AUDIT FEES

For professional services rendered by Reznick Fedder & Silverman for the
audit of our annual financial statements, reviews of the financial statements
included in the our Quarterly Reports on Form 10-Q, and other services provided
in connection with statutory and regulatory filings, Reznick Fedder & Silverman
billed us no fees during the 2002 fiscal year and $40,000 during the 2003 fiscal
year.

AUDIT RELATED FEES

Reznick Fedder & Silverman did not render or charge us for any services
related to the performance of the audit or review of our financial statements
and not reported under "Audit Fees" above during 2002 or 2003.

TAX FEES

For professional services rendered by Reznick Fedder & Silverman for tax
compliance, tax advice and tax planning matters, Reznick Fedder & Silverman
billed us fees in the aggregate amount of $26,506 during the 2002 fiscal year
and $41,141 during the 2003 fiscal year.

ALL OTHER FEES

For professional services other than those described above, Reznick Fedder
& Silverman billed us fees in the aggregate amount of $8,000 during 2002 and
$51,500 during 2003. These fees related to the performance of certain agreed
upon procedures with respect to hotel properties we considered acquiring during
the respective years and, in 2003, services related to our public equity
offering. There were no fees charged for services rendered in connection with
the performance of internal audit procedures.

PRE-APPROVAL POLICIES FOR PERMISSABLE NON-AUDIT SERVICES

Consistent with SEC policies regarding auditor independence, the Audit
Committee has responsibility for appointing, setting compensation and overseeing
the work of the independent auditor. In recognition of this responsibility, the
Audit Committee has established a policy to pre-approve all audit and
permissible non-audit services provided by the independent auditor prior to
engagement of the auditor for each such service. All of the non-audit services
described above were approved by the audit committee in advance if the services
being provided.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K

(a) Financial Statements

INDEX TO FINANCIAL STATEMENTS

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
Reports of Independent Auditors
Consolidated Balance Sheets as of December 31, 2003 and 2002
Consolidated Statements of Operations for the years ended December
31, 2003, 2002 and 2001
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows for the years ended December
31, 2003, 2002 and 2001
Notes to Consolidated Financial Statements
Schedule III - Real Estate and Accumulated Depreciation for the year
ended December 31, 2003

HERSHA HOSPITALITY MANAGEMENT, L.P.
Reports of Independent Auditors
Balance Sheets as of December 31, 2003 and 2002
Statement of Operations for the years ended December 31, 2003, 2002
and 2001
Statements of Partners' Equity (Deficit) for the years ended December
31, 2003, 2002 and 2001
Statements of Cash Flows for the years ended December 31, 2003,
2002 and 2001
Notes to Financial Statements

(b) Reports on Form 8-K

No Current Reports on Form 8-K were filed by us during the fourth quarter
of 2003.

3.1 Amended and Restated Declaration of Trust of the Registrant.**

3.2 Articles Supplementary of Hersha Hospitality Trust which classify and
designate 350,000 preferred shares of beneficial interest as Series A
Preferred Shares of beneficial interest, par value $.01 per share (filed
as Exhibit 3.1 to the Form 8-K filed on April 23, 2003 (SEC File No.
001-14765))

3.3 Bylaws of the Registrant.*

4.1 Form of Common Share Certificate*

4.2 Excepted Holder Agreement, dated April 21, 2003, by and among CNL
Hospitality Properties, Inc., CNL Hospitality Partners, L.P., Hersha
Hospitality Trust and Hersha Hospitality Limited Partnership (filed as
Exhibit 4.1 to the Form 8-K filed on April 23, 2003 (SEC File No.
001-14765))

10.1 Amended and Restated Agreement of Limited Partnership of Hersha
Hospitality Limited Partnership*

108

10.2 Option Agreement dated as of June 3, 1998, among Hasu P. Shah, Jay H.
Shah, Neil H, Shah, Bharat C. Mehta, K.D. Patel, Rajendra O. Gandhi, Kiran
P. Patel, David L. Desfor, Madhusudan I. Patni and Manhar Gandhi, and the
Partnership*

10.3 Amendment to Option Agreement dated December 4, 1998*

10.4 Contribution Agreement, dated June 3, 1998, between Shree Associates, Devi
Associates, Shreeji Associates, Madhusudan I. Patni and Shreenathji
Enterprises, Ltd., as Contributor, and Hersha Hospitality Limited
Partnership, as Acquiror*

10.5 Contribution Agreement, dated June 3, 1998, between Shree Associates, as
Contributor, and Hersha Hospitality Limited Partnership, as Acquiror*

10.6 Purchase Leaseback Agreement entered into as of May 19, 2000 between
Hersha Hospitality Limited Partnership and each of Noble Investments
Newnan, LLC, Millennium Two Investments Duluth, LLC, Noble Investments
RMD, LLC and Embassy Investments Duluth, LLC, entities owned by Noble
Investment Group, Ltd. (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on June 5, 2000)

10.7 Form of Percentage Lease*

10.8 Administrative Services Agreement, dated January 26, 1999, between Hersha
Hospitality Trust and Hersha Hospitality Management, L.P.*

10.9 Purchase Agreement, dated December 4, 2001, between Metro Two Hotel, LLC,
as Seller, and HHLP Hunters Point, LLC, as Purchaser (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on December 7, 2001)

10.10 Securities Purchase Agreement, dated as of April 21, 2003, among CNL
Hospitality Partners, L.P., Hersha Hospitality Trust and Hersha
Hospitality Limited Partners (filed as Exhibit 10.1 to the Form 8-K filed
on April 23, 2003 (SEC File No. 001-14765))

10.11 Second Amendment to the Amended and Restated Agreement of Limited
Partnership of Hersha Hospitality Limited Partnership, dated as of April
21, 2003 (filed as Exhibit 10.2 to the Form 8-K filed on April 23, 2003
(SEC File No. 001-14765))

10.12 Standstill Agreement, dated as of April 21, 2003, by and among Hersha
Hospitality Trust, Hersha Hospitality Limited Partnership, CNL Hospitality
Partners, L.P. and CNL Financial Group, Inc. (filed as Exhibit 10.3 to the
Form 8-K filed on April 23, 2003 (SEC File No. 001-14765))

10.13 Registration Rights Agreement, dated April 21, 2003, between CNL
Hospitality Partners, L.P. and Hersha Hospitality Trust (filed as Exhibit
10.4 to the Form 8-K filed on April 23, 2003 (SEC File No. 001-14765))

10.14 Limited Partnership Agreement of HT/CNL Metro Hotels, LP, dated as of
April 21, 2003 (filed as Exhibit 10.5 to the Form 8-K filed on April 23,
2003 (SEC File No. 001-14765))

10.15 Second Amendment to Option Agreement (filed as Exhibit 10.15 to the
Registration Statement on Form S-3 filed on February 24, 2004 (File No.
333-113061)).

21 List of Subsidiaries of the Registrant***

23.1 Consent of Moore Stephens, P.C.****

23.2 Consent of Reznick Fedder & Silverman, P.C.****

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***

109

_____________________

* Filed with the SEC as an exhibit to Hersha Hospitality Trust's
registration statement on Form S-11, as amended, Registration No.
333-56087, and incorporated herein by reference.
** Filed with the SEC as an exhibit to the registration statement on Form
S-2, Registration No. 333-109100, filed on September 25, 2003, and
incorporated herein by reference.
*** Filed herewith with the SEC as an exhibit to Hersha Hospitality Trust's
Annual Report on Form 10-K filed on March 29, 2004.
**** Filed herewith.

(d) Financial Statement Schedules

Schedule III - Real Estate and Accumulated Depreciation as of December 31,
2001 included in Item 8 on page 77 hereof.

110

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

June 30, 2004
/s/ Hasu P. Shah
Hasu P. Shah
Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
-------------------------- ----- ----

/s/ Hasu P. Shah
-------------------------- Chairman of the Board and Chief June 30, 2003
Hasu P. Shah Executive Officer (Principal
Executive Officer)

/s/ Thomas S. Capello
-------------------------- Trustee June 30, 2003
Thomas S. Capello

/s/ John M. Sabin
-------------------------- Trustee June 30, 2003
John M. Sabin

/s/ Donald J. Landry
-------------------------- Trustee June 30, 2003
Donald J. Landry

-------------------------- Trustee
William Lehr, Jr.

/s/ Michael A. Leven
-------------------------- Trustee June 30, 2003
Michael A. Leven

/s/ K.D. Patel
-------------------------- Trustee June 30, 2003
K.D. Patel

/s/ Ashish R. Parikh
-------------------------- Chief Financial Officer (Principal June 30, 2003
Ashish R. Parikh Financial Officer)

/s/ David Desfor
-------------------------- Controller (Principal Accounting June 30, 2003
David Desfor Officer)

111

List of Exhibits

Unless otherwise indicated, the exhibits listed below are incorporated by
reference to our Registration Statement on Form S-11, File No. 333-56087.

3.1 Amended and Restated Declaration of Trust of the Registrant.**

3.3 Bylaws of the Registrant.*

4.1 Form of Common Share Certificate*

10.1 Amended and Restated Agreement of Limited Partnership of Hersha
Hospitality Limited Partnership*

10.3 Amendment to Option Agreement dated December 4, 1998*

10.5 Contribution Agreement, dated June 3, 1998, between Shree Associates, as
Contributor, and Hersha Hospitality Limited Partnership, as Acquiror*

10.7 Form of Percentage Lease*

10.8 Administrative Services Agreement, dated January 26, 1999, between Hersha
Hospitality Trust and Hersha Hospitality Management, L.P.*

112

10.14 Limited Partnership Agreement of HT/CNL Metro Hotels, LP, dated as of
April 21, 2003 (filed as Exhibit 10.5 to the Form 8-K filed on April 23,
2003 (SEC File No. 001-14765))

10.15 Second Amendment to Option Agreement (filed as Exhibit 10.15 to the
Registration Statement on Form S-3 filed on February 24, 2004 (File No.
333-113061)).

21 List of Subsidiaries of the Registrant***

23.1 Consent of Moore Stephens, P.C.****

23.2 Consent of Reznick Fedder & Silverman, P.C.****

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***

_____________________
* Filed with the SEC as an exhibit to Hersha Hospitality Trust's
registration statement on Form S-11, as amended, Registration No.
333-56087, and incorporated herein by reference.
** Filed with the SEC as an exhibit to the registration statement on Form
S-2, Registration No. 333-109100, filed on September 25, 2003, and
incorporated herein by reference.
*** Filed herewith with the SEC as an exhibit to Hersha Hospitality Trust's
Annual Report on Form 10-K filed on March 29, 2004
**** Filed herewith.

113