2020
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Maryland | 25-1811499 | |||||||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||
| 44 Hersha Drive | Harrisburg | PA | 17102 | |||||||||||
(Address of | (Zip Code) | |||||||||||||
Large accelerated filer ☒ Non-accelerated filer ☐ PART I. FINANCIAL INFORMATION Item 1. Item 2. Item 3. Item 4. PART II. OTHER INFORMATION Item 1. Item 1A. Item 2. Item 3. Item 4. Item 5. Item 6. 2019 September 30, 2017 December 31, 2016 Assets: Investment in Hotel Properties, Net of Accumulated Depreciation $ $ Investment in Unconsolidated Joint Ventures Cash and Cash Equivalents Escrow Deposits Hotel Accounts Receivable, Net of Allowance for Doubtful Accounts of $22 and $91 Due from Related Parties Intangible Assets, Net of Accumulated Amortization of $5,987 and $4,532 Other Assets Hotel Assets Held for Sale - Total Assets $ $ Liabilities and Equity: Line of Credit $ - $ - Unsecured Term Loans, Net of Unamortized Deferred Financing Costs (Note 5) Unsecured Notes Payable, Net of Unamortized Deferred Financing Costs (Note 5) Mortgages Payable, Net of Unamortized Premium and Unamortized Deferred Financing Costs Accounts Payable, Accrued Expenses and Other Liabilities Dividends and Distributions Payable Liabilities Related to Hotel Assets Held for Sale - Deferred Gain on Disposition of Hotel Assets Total Liabilities $ $ Equity: Shareholders' Equity: Preferred Shares: $.01 Par Value, 29,000,000 Shares Authorized, 3,000,000 Series C, 7,700,000 Series D and 4,000,000 Series E Shares Issued and Outstanding at September 30, 2017 and December 31, 2016, with Liquidation Preferences of $25 Per Share (Note 1) $ $ Common Shares: Class A, $.01 Par Value, 104,000,000 Shares Authorized at September 30, 2017 and 90,000,000 Shares Authorized at December 31, 2016; 41,608,976 and 41,770,514 Shares Issued and Outstanding at September 30, 2017 and December 31, 2016, respectively Common Shares: Class B, $.01 Par Value, 1,000,000 Shares Authorized, None Issued and Outstanding at September 30, 2017 and December 31, 2016 - - Accumulated Other Comprehensive Income Additional Paid-in Capital Distributions in Excess of Net Income Total Shareholders' Equity Noncontrolling Interests (Note 1): Total Equity Total Liabilities and Equity $ $ Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Revenue: Hotel Operating Revenues $ $ $ $ Other Revenues Total Revenues Operating Expenses: Hotel Operating Expenses Hotel Ground Rent Real Estate and Personal Property Taxes and Property Insurance General and Administrative (including Share Based Payments of $1,512 and $1,514, and $5,468 and $5,793 for the three and nine months ended September 30, 2017 and 2016, respectively) Acquisition and Terminated Transaction Costs Depreciation and Amortization Property Losses in Excess of Insurance Recoveries - - Total Operating Expenses Operating Income Interest Income Interest Expense Other Expense (Loss) Gain on Disposition of Hotel Properties Lease Buyout - - (Loss) Gain on Debt Extinguishment Income Before Results from Unconsolidated Joint Venture Investments and Income Taxes Income (Loss) from Unconsolidated Joint Ventures Gain from Remeasurement of Investment in Unconsolidated Joint Venture - - - Income (Loss) from Unconsolidated Joint Venture Investments Income Before Income Taxes Income Tax Benefit (Expense) Net Income Loss (Income) Allocated to Noncontrolling Interests Preferred Distributions Extinguishment of Issuance Costs Upon Redemption of Series B Preferred Shares - - - Net (Loss) Income Applicable to Common Shareholders $ $ $ $ Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Earnings Per Share: BASIC (Loss) Income from Continuing Operations Applicable to Common Shareholders $ $ $ $ DILUTED (Loss) Income from Continuing Operations Applicable to Common Shareholders $ $ $ $ Weighted Average Common Shares Outstanding: Basic Diluted* Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Common Units and Vested LTIP Units Unvested Stock Awards and LTIP Units Outstanding - - - Contingently Issuable Share Awards - - - Total Potentially Dilutive Securities Excluded from the Denominator (LOSS) Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Net Income $ $ $ $ Other Comprehensive Income (Loss) Change in Fair Value of Derivative Instruments Less: Reclassification Adjustment for Change in Fair Value of Derivative Instruments Included in Net Income Total Other Comprehensive Income (Loss) $ $ $ $ Comprehensive Income Less: Comprehensive Loss (Income) Attributable to Noncontrolling Interests Less: Preferred Distributions Less: Extinguishment of Issuance Costs Upon Redemption of Series B Preferred Shares - - - Comprehensive (Loss) Income Attributable to Common Shareholders $ $ $ $ Shareholders' Equity Noncontrolling Interests Common Shares Class A Common Shares ($) Class B Common Shares ($) Preferred Shares Preferred Shares ($) Additional Paid-In Capital ($) Accumulated Other Comprehensive Income ($) Distributions in Excess of Net Income ($) Total Shareholders' Equity ($) Common Units and LTIP Units Common Units and LTIP Units ($) Total Equity ($) Balance at December 31, 2016 - Unit Conversion - - - - - - - Repurchase of Common Shares - - - - - - - Common Units Issued - - - - - - - - - Dividends and Distributions declared: Common Shares ($0.84 per share) - - - - - - - - - Preferred Shares - - - - - - - - - Common Units ($0.84 per share) - - - - - - - - - - LTIP Units ($0.84 per share) - - - - - - - - - - Dividend Reinvestment Plan - - - - - - - - Share Based Compensation: Grants - - - - - Amortization - - - - - - - - Change in Fair Value of Derivative Instruments - - - - - - - - Net Income - - - - - - - - Balance at September 30, 2017 - Shareholders' Equity Noncontrolling Interests Common Shares Class A Common Shares ($) Class B Common Shares ($) Preferred Shares Preferred Shares ($) Additional Paid-In Capital ($) Accumulated Other Comprehensive Loss ($) Distributions in Excess of Net Income ($) Total Shareholders' Equity ($) Common Units and LTIP Units Common Units and LTIP Units ($) Consolidated Variable Interest Entity ($) Total Noncontrolling Interests ($) Total Equity ($) Balance at December 31, 2015 - Repurchase of Common Shares - - - - - - - - Preferred Shares Preferred Share Offering, Net of Costs - - - - - - - - - Preferred Share Redemption - - - - - - - - Dividends and Distributions declared: Common Shares ($0.84 per share) - - - - - - - - - - - Preferred Shares - - - - - - - - - - - Common Units ($0.84 per share) - - - - - - - - - - - LTIP Units ($0.84 per share) - - - - - - - - - - - Dividend Reinvestment Plan - - - - - - - - - - Share Based Compensation: Grants - - - - - - Amortization - - - - - - - - - Change in Fair Value of Derivative Instruments - - - - - - - - - - - Exercise of Option to Acquire Noncontrolling Interest - - - - - - - - - Net Income (Loss) - - - - - - - - Balance at September 30, 2016 - - EQUITY Nine Months Ended September 30, 2017 2016 Operating Activities: Net Income $ $ Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: Gain on Disposition of Hotel Properties, Net Gain from Remeasurement of Investment in Unconsolidated Joint Ventures - Property Losses in Excess of Insurance Recoveries - Lease Buyout - Deferred Taxes Depreciation Amortization Loss on Debt Extinguishment Equity in Loss (Income) of Unconsolidated Joint Ventures Distributions from Unconsolidated Joint Ventures Loss Recognized on Change in Fair Value of Derivative Instrument Share Based Compensation Expense Change in Assets and Liabilities: (Increase) Decrease in: Hotel Accounts Receivable Escrows Other Assets Due from Related Parties (Decrease) Increase in: Due to Related Parties - Accounts Payable, Accrued Expenses and Other Liabilities Net Cash Provided by Operating Activities $ $ Investing Activities: Purchase of Hotel Property Assets $ $ Deposits on Hotel Acquisitions - Capital Expenditures Cash Paid for Hotel Development Projects - Proceeds from Disposition of Hotel Properties Net Changes in Capital Expenditure Escrows Proceeds from the Sale of Joint Venture Interests - Proceeds from Contribution of Hotel Property Assets to Unconsolidated Joint Venture - Repayment of Notes Receivable - Distributions from Unconsolidated Joint Ventures - Net Cash (Used in) Provided by Investing Activities $ $ EQUITY Nine Months Ended September 30, 2017 2016 Financing Activities: Repayment of Borrowings Under Line of Credit, Net $ - $ Proceeds of Unsecured Term Loan Borrowing Repayment of Borrowings Under Unsecured Term Loan Borrowing - Principal Repayment of Mortgages and Notes Payable Cash Paid for Deferred Financing Costs Cash Paid for Debt Extinguishment Proceeds from Issuance of Preferred Shares, Net - Redemption of Series B Preferred Shares - Repurchase of Common Shares Exercise of Option to Acquire Noncontrolling Interest - Dividends Paid on Common Shares Dividends Paid on Preferred Shares Distributions Paid on Common Units and LTIP Units Other Financing Activities - Net Cash Used in Financing Activities $ $ Net (Decrease) Increase in Cash and Cash Equivalents $ $ Cash and Cash Equivalents - Beginning of Period Cash and Cash Equivalents - End of Period $ $ 2019 2019 Dividend Per Share Shares Outstanding Nine Months Ended September 30, Series September 30, 2017 December 31, 2016 Aggregate Liquidation Preference Distribution Rate 2017 2016 Series C $ $ $ Series D $ $ Series E $ $ - Total 2019 2019 2019 September 30, 2017 December 31, 2016 Land $ $ Buildings and Improvements Furniture, Fixtures and Equipment Construction in Progress Less Accumulated Depreciation Total Investment in Hotel Properties $ $ Hotel Acquisition Date Land Buildings and Improvements Furniture, Fixtures and Equipment Other Intangibles Total Purchase Price Assumption of Debt Mystic Marriott Hotel & Spa, Groton, CT (1) 1/3/2017 $ $ $ $ * $ $ The Ritz-Carlton, Coconut Grove, FL 2/1/2017 ** The Pan Pacific Hotel, Seattle, WA 2/21/2017 - - Philadelphia Westin, Philadelphia, PA 6/29/2017 *** - TOTAL $ $ $ $ $ $ 2019 Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017 Hotel Revenue Net Income (Loss) Revenue Net Income (Loss) Mystic Marriott Hotel & Spa, Groton, CT $ $ $ $ The Ritz-Carlton, Coconut Grove, FL The Pan Pacific Hotel, Seattle, WA Philadelphia Westin, Philadelphia, PA Total $ $ $ $ Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Pro Forma Total Revenues $ $ $ Pro Forma Net Income (Income) Loss Allocated to Noncontrolling Interest Preferred Distributions Extinguishment of Issuance Costs Upon Redemption of Series B Preferred Shares - - - Pro Forma (Loss) Income Applicable to Common Shareholders $ $ $ $ Pro Forma (Loss) Income Applicable to Common Shareholders per Common Share Basic $ $ $ $ Diluted $ $ $ $ Weighted Average Common Shares Outstanding Basic Diluted NOTE 3 Percent Preferred Joint Venture Hotel Properties Owned Return September 30, 2017 December 31, 2016 SB Partners, LLC Holiday Inn Express, South Boston, MA N/A $ $ Hiren Boston, LLC Courtyard by Marriott, South Boston, MA N/A Cindat Hersha Owner JV, LLC Hilton and IHG branded hotels in NYC * - Mystic Partners, LLC Hilton and Marriott branded hotels in CT 8.8%-66.7% 8.5% non-cumulative - $ $ 2020. 2019 Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 SB Partners, LLC $ $ $ $ Hiren Boston, LLC Cindat Hersha Owner JV, LLC - Mystic Partners, LLC - - Income (Loss) from Unconsolidated Joint Venture Investments $ $ $ $ Balance Sheets September 30, 2017 December 31, 2016 Assets Investment in Hotel Properties, Net $ $ Other Assets Total Assets $ $ Liabilities and Equity Mortgages and Notes Payable $ $ Other Liabilities Equity: Hersha Hospitality Trust Joint Venture Partner(s) Accumulated Other Comprehensive Loss - Total Equity Total Liabilities and Equity $ $ 2019 Statements of Operations Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Room Revenue $ $ $ $ Other Revenue Operating Expenses Lease Expense Property Taxes and Insurance General and Administrative Depreciation and Amortization Interest Expense Acquisition Costs - - - Loss Allocated to Noncontrolling Interests - - Net Income (Loss) $ $ $ $ September 30, 2017 December 31, 2016 Our share of equity recorded on the joint ventures' financial statements $ $ Adjustment to reconcile our share of equity recorded on the joint ventures' financial statements to our investment in unconsolidated joint ventures(1) Investment in Unconsolidated Joint Ventures $ $ 2019 September 30, 2017 December 31, 2016 Derivative Asset $ $ Deferred Financing Costs Prepaid Expenses Investment in Statutory Trusts Investment in Non-Hotel Property and Inventories Deposits with Unaffiliated Third Parties Deferred Tax Asset, Net of Valuation Allowance of $804 Property Insurance Receivable - Other $ $ Sheets. items such as office leasehold improvements, furniture and equipment, and property inventories. 2019 September 30, 2017 December 31, 2016 Mortgage Indebtedness $ $ Net Unamortized Premium Net Unamortized Deferred Financing Costs Mortgages Payable $ $ Liabilities Related to Hotel Assets Held for Sale $ - $ The impact on interest expense related to the interest rate swap contracts on mortgages resulted in expense of $552 and $585 for the three and six months ended June 30, 2020 and a decrease to interest expense of $99 and $196 for the three and six months ended June 30, 2019. 2020. The failure of meeting a minimum debt service coverage ratio requirement in this one mortgage is not considered an event of default under the loan agreement but rather, triggers a cash escrow requirement related to future debt service. as of June 30, 2020 - Courtyard, Brookline, MA - - Holiday Inn Express, Cambridge, MA - Hampton Inn, Washington, DC - Envoy Hotel, Boston, MA - Ritz Carlton, Washington, DC - The Boxer, Boston, MA - Hilton Garden Inn, M Street, Washington, DC - Hampton Inn, Seaport, NY - Residence Inn, Coconut Grove, FL - The Duane Street Hotel, NY - The Winter Haven, Miami, FL - - The Blue Moon, Miami, FL - Holiday Inn Express, 29th Street, NY - - - The Parrot Key Hotel & Resort, Key West, FL - Hilton Garden Inn, JFK Airport, New York, NY - TownePlace Suites, Sunnyvale, CA - - The Ambrose Hotel, Santa Monica, CA - - Courtyard, San Diego, CA - - The Pan Pacific Hotel, Seattle, WA - The Rittenhouse, Philadelphia, PA - The Westin, Philadelphia, PA Outstanding Balance Borrowing Spread September 30, 2017 December 31, 2016 Line of Credit 1.50% to 2.25% $ - $ - First Term Loan 1.45% to 2.20% Second Term Loan 1.50% to 2.25% Third Term Loan 1.45% to 2.20% again become effective. The Credit Facility and the Term Loans include certain financial covenants and require that we maintain: (1) a minimum tangible net worth (calculated as total assets, plus accumulated depreciation, less total liabilities, intangibles and other defined adjustments) of the Paycheck Protection Program ("the PPP") under the Coronavirus Aid, Relief, and Economic Security Act. All funds borrowed under the PPP were returned without penalty during the three months ended June 30, 2020. 2019 2019 2019 Derivative Instruments 2019 Estimated Fair Value Asset / (Liability) Balance Hedged Debt Type Strike Rate Index Effective Date Derivative Contract Maturity Date Notional Amount September 30, 2017 December 31, 2016 Term Loan Instruments: Third Term Loan Swap 1-Month LIBOR + 2.20% November 3, 2016 October 3, 2019 $ $ Third Term Loan (1) Swap 1-Month LIBOR + 2.20% April 3, 2017 October 3, 2019 - Second Term Loan (2) Swap 1-Month LIBOR + 2.25% August 10, 2017 August 10, 2020 - Mortgages: Hyatt, Union Square, New York, NY Cap 1-Month LIBOR + 2.30% June 10, 2015 June 10, 2019 Hilton Garden Inn 52nd Street, New York, NY (3) Swap 1-Month LIBOR + 2.90% February 24, 2017 February 24, 2020 - Courtyard, LA Westside, Culver City, CA (4) Swap 1-Month LIBOR + 2.75% August 1, 2017 August 1, 2020 - Duane Street Hotel, New York, NY Swap 1-Month LIBOR + 4.50% February 1, 2014 February 1, 2017 - - Hilton Garden Inn 52nd Street, New York, NY (3) Swap 1-Month LIBOR + 2.90% June 1, 2015 February 21, 2017 - Courtyard, LA Westside, Culver City, CA (4) Cap 1-Month LIBOR + 3.00% October 27, 2015 September 29, 2017 - $ $ August 1, 2021. The fair value of 2019. Units Vested Unearned Compensation Issuance Date LTIP Units Issued Vesting Period Vesting Schedule September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 March 28, 2017 (2016 Annual EIP) 3 years 25%/year (1) - $ $ - March 30, 2016 (2015 Annual EIP) 3 years 25%/year (1) March 30, 2015 (2014 Annual EIP) 3 years 25%/year (1) December 23, 2014 5 years 33% Year 3, 4, 5 (2) - $ $ 2019 Units Vested Unearned Compensation Compensation Committee Approval Date LTIP Units Issued LTIP Issuance Date Performance Period September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 March 10, 2017 (2017 Multi-Year EIP) - N/A 1/1/2017 to 12/31/2019 - - $ $ - March 17, 2016 (2016 Multi-Year EIP) - N/A 1/1/2016 to 12/31/2018 - - March 18, 2015 (2015 Multi-Year EIP) - N/A 1/1/2015 to 12/31/2017 - - April 11, 2014 (2014 Multi-Year EIP) 3/28/2017 1/1/2014 to 12/31/2016 - - $ $ Shares Vested Unearned Compensation Original Year of Issuance Date Shares Issued Range of Share Price on Date of Grant Vesting Period Vesting Schedule September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 2017 $ 18.47-18.53 2-4 years 25-50% /year - $ $ - 2016 18.02-21.11 2-4 years 25-50% /year 2015 21.76-28.09 2-4 years 25-50% /year Total $ $ Unearned Compensation Original Issuance Date Shares Issued Share Price on Date of Grant Vesting Period Vesting Schedule September 30, 2017 December 31, 2016 December 30, 2016 $ 12 months 100% $ $ Shares Vested Unearned Compensation Original Issuance Date Shares Issued Vesting Period Vesting Schedule September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 December 30, 2016 3 years 33% /year - - $ $ March 30, 2016 3 years 33% /year December 30, 2014 3 years 33% /year $ $ Shares Vested Unearned Compensation Original Issuance Date Shares Issued Share Price on Date of Grant Vesting Period Vesting Schedule September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 March 28, 2017 $ 2 years 50% /year - $ $ - March 30, 2016 $ 2 years 50% /year - Total $ $ Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 NUMERATOR: Basic and Diluted* Net Income $ $ $ $ Loss (Income) allocated to Noncontrolling Interests Distributions to Preferred Shareholders Dividends Paid on Unvested Restricted Shares and LTIP Units Extinguishment of Issuance Costs Upon Redemption of Series B Preferred Shares - - - Net (Loss) Income attributable to Common Shareholders $ $ $ $ DENOMINATOR: Weighted average number of common shares - basic Effect of dilutive securities: Restricted Stock Awards and LTIP Units (unvested) - Contingently Issued Shares and Units - Weighted average number of common shares - diluted 2019 2017 2016 Common Shares issued as part of the Dividend Reinvestment Plan $ $ Acquisition of hotel properties: Assets acquired through joint venture assignment and assumption - Debt assumed, including premium Deposit paid in prior period towards acquisition which closed in current period - Conversion of Common Units to Common Shares - Issuance of Common Units - Accrued payables for fixed assets placed into service Contribution of fixed assets to joint venture - expenditures; policies such as immigration policies, border closings, and travel bans related to COVID-19; insure against those risks; economic impact of pandemics, epidemics, or other public health emergencies or fear of such events, such as the recent outbreak of COVID-19; These factors are not necessarily all of the important factors that could cause our actual results, performance or achievements to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors, many of which are beyond our control, also could harm our results, performance or achievements. SUMMARY OF OPERATING RESULTS COMPARABLE CONSOLIDATED HOTELS: (includes 42 hotels in both periods) Three Months Ended Nine Months Ended, September 30, September 30, 2017 2016 Variance 2017 2016 Variance Occupancy - 49 bps 27 bps Average Daily Rate (ADR) $ $ -1.4% $ $ 0.3% Revenue Per Available Room (RevPAR) $ $ -2.0% $ $ 0.6% Room Revenues $ $ -4.6% $ $ -0.7% Total Revenues $ $ -4.2% $ $ -0.3% COMPARABLE UNCONSOLIDATED JOINT VENTURES: (includes 9 hotels in both periods) Three Months Ended Nine Months Ended, September 30, September 30, 2017 2016 Variance 2017 2016 Variance Occupancy 337 bps 117 bps Average Daily Rate (ADR) $ $ -3.4% $ $ 0.4% Revenue Per Available Room (RevPAR) $ $ 0.2% $ $ 1.7% Room Revenues $ $ 0.2% $ $ 1.3% Total Revenues $ $ -0.6% $ $ 0.4% COMPARISON OF THE THREE MONTHS ENDED 2019 to remain at a decreased level until business and leisure activities return to pre-pandemic levels, which we have no way to predict at this time. successful real estate tax appeals. Assets COMPARISON OF THE 2019 to remain at a decreased level until business and leisure activities return to pre-pandemic levels, which we have no way to predict at this time. Total hotel operating expenses successful real estate tax appeals. during the first half of 2020 compared to 2019. 2020, with the exception of one mortgage. This covenant failure was the result of a failure to maintain a minimum debt service coverage ratio at the mortgaged hotel. This covenant failure does not result in an event of default; rather, it triggers certain cash escrow requirements at the property. Hotel Acquisition Date Land Buildings and Improvements Furniture, Fixtures and Equipment Other Intangibles Total Purchase Price Assumption of Debt Mystic Marriott Hotel & Spa, Groton, CT (1) 1/3/2017 $ $ $ $ * $ $ The Ritz-Carlton, Coconut Grove, FL 2/1/2017 ** The Pan Pacific Hotel, Seattle, WA 2/21/2017 - - Philadelphia Westin, Philadelphia, PA 6/29/2017 *** - TOTAL $ $ $ $ $ $ acquisition opportunities as we focus on maintaining liquidity or reducing debt obligations, when possible. We intend to invest in additional hotels only as suitable opportunities arise and adequate sources of financing are available. We expect that future investments in hotels will depend upon and will be financed by, in whole or in part, our existing cash, the proceeds from additional issuances of common or preferred shares, proceeds from the sale of assets, issuances of Common Units, issuances of preferred units or other securities or borrowings secured by hotel assets and under our Line of Credit. Credit Facility covenants. 2019. our unencumbered hotel properties and borrowing restrictions imposed by lenders or franchisors. We will continue to analyze which source of capital is most advantageous to us at any particular point in time, but financing may not be consistently available to us on terms that are attractive, or at all. year. 2019 and liabilities. 2020. comparative period in 2019. Three Months Ended Nine Months Ended September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016 Net (loss) income applicable to common shareholders $ $ $ $ (Loss) Income allocated to noncontrolling interest (Income) loss from unconsolidated joint ventures Loss (Gain) on disposition of hotel properties Loss from impairment of depreciable assets - - Depreciation and amortization Funds from consolidated hotel operations applicable to common shareholders and Common Units Income (loss) from unconsolidated joint ventures Gain from remeasurement of investment in unconsolidated joint ventures - - - Depreciation and amortization of difference between purchase price and historical cost (1) Interest in depreciation and amortization of unconsolidated joint ventures (2) Funds from unconsolidated joint ventures operations applicable to common shareholders and Common Units Funds from Operations applicable to common shareholders and Common Units $ $ $ $ Weighted Average Common Shares and Common Units Basic Diluted Additionally, our management companies will face challenges to raise room rates to reflect the impact of inflation until there is a substantial economic recovery from the COVID-19 pandemic. We review our portfolio on an on-going basis to evaluate the existence of any of the aforementioned events or changes in circumstances that would require us to test for recoverability. In general, our review of recoverability is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value expected, as well as the effects of hotel demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. We are required to make subjective assessments as to whether there are impairments in the values of our investments in hotel properties. New Accounting Pronouncements $911, respectively. any corresponding derivative instruments are indexed to various tenors of LIBOR, and we acknowledge that in 2021, the financial institutions that produce the LIBOR indexes are expected to discontinue that practice. We are currently evaluating the impact this will have on our financial results and liquidity and will continue to work with our lenders to find a suitable resolution for our LIBOR-based debt. $1,177,680. 2017 2018 2019 2020 2021 Thereafter Total Fixed Rate Debt $ $ $ $ $ $ $ Weighted Average Interest Rate Floating Rate Debt $ $ $ $ - $ - $ $ Weighted Average Interest Rate $ $ $ $ $ $ $ 2020. Issuer Purchases of Common Shares Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands) January 1 to January 31, 2017 - $ - - $ February 1 to February 28, 2017 - - - March 1 to March 31, 2017 - - - April 1 to April 30, 2017 - - - May 1 to May 31, 2017 - - - June 1 to June 30, 2017 - - - July 1 to July 31, 2017 August 1 to August 31, 2017 September 1 to September 30, 2017 101.INS The instance document does not appear in the interactive data file because its XBRL 101.SCH Inline XBRL Taxonomy Extension Schema 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase 101.LAB Inline XBRL Taxonomy Extension Labels Linkbase 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase /s/ Ashish R. Parikh Ashish R. ParikhTitle of each class Trading Symbol(s) Name of each exchange on which registered Class A Common Shares of Beneficial Interest, par value $.01 per share HT New York Stock Exchange 6.875% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, par $.01 per share HT-PC New York Stock Exchange 6.500% Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, par $.01 per share HT-PD New York Stock Exchange 6.500% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest, par $.01 per share HT-PE New York Stock Exchange (i)(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii)(2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐No☒Yes ☐Noand posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒Yes☒Yes ☐NoAct. (Check one):Act:☒Accelerated filer ☐ ☐Small reporting company ☐ Emerging growth company ☐ ☐Yes ☐No☐Yes ☐No☐Yes ☒No☐October 25, 2017,August 6, 2020, the number of Class A common shares of beneficial interest outstanding was 41,609,97438,789,371 and there were no0 Class B common shares of beneficial interest outstanding.outstanding.Page Financial Statements. 3 4 6 7 9 11 39 59 60 61 61 61 61 61 61 62 63 2SEPTEMBERJUNE 30, 20172020 (UNAUDITED) AND DECEMBER 31, 20162,034,588 1,767,570 3,705 11,441 57,529 185,644 8,504 8,993 13,344 8,769 4,708 18,332 16,969 16,944 46,107 39,370 98,473 2,185,454 2,155,536 721,361 663,500 50,617 50,578 311,200 337,821 62,166 65,106 17,588 26,050 51,428 81,269 81,314 1,244,201 1,275,797 147 147 416 418 648 1,373 1,194,637 1,198,311 (309,864) (364,831) 885,984 835,418 55,269 44,321 941,253 879,739 2,185,454 2,155,536 June 30, 2020 December 31, 2019 Assets: Investment in Hotel Properties, Net of Accumulated Depreciation $ 1,902,464 $ 1,975,973 Investment in Unconsolidated Joint Ventures 7,527 8,446 Cash and Cash Equivalents 23,228 27,012 Escrow Deposits 7,374 9,973 Hotel Accounts Receivable 3,801 9,213 Due from Related Parties 2,363 6,113 Intangible Assets, Net of Accumulated Amortization of $6,705 and $6,545 1,876 2,137 Right of Use Assets 44,761 45,384 Other Assets 20,996 38,177 Hotel Assets Held for Sale 40,170 — Total Assets $ 2,054,560 $ 2,122,428 Liabilities and Equity: Line of Credit $ 95,000 $ 48,000 Term Loans, Net of Unamortized Deferred Financing Costs (Note 5) 697,597 697,183 Unsecured Notes Payable, Net of Unamortized Deferred Financing Costs (Note 5) 50,763 50,736 Mortgages Payable, Net of Unamortized Premium and Unamortized Deferred Financing Costs 331,771 332,280 Lease Liabilities 54,217 54,548 Accounts Payable, Accrued Expenses and Other Liabilities 74,161 47,626 Dividends and Distributions Payable — 17,058 Total Liabilities $ 1,303,509 $ 1,247,431 Redeemable Noncontrolling Interests - Consolidated Joint Venture (Note 1) $ — $ 3,196 Equity: Shareholders' Equity: Preferred Shares: $.01 Par Value, 29,000,000 Shares Authorized, 3,000,000 Series C, 7,701,700 Series D and 4,001,514 Series E Shares Issued and Outstanding at June 30, 2020 and December 31, 2019, with Liquidation Preferences of $25.00 Per Share (Note 1) $ 147 $ 147 Common Shares: Class A, $.01 Par Value, 104,000,000 Shares Authorized at June 30, 2020 and December 31, 2019; 38,789,371 and 38,652,650 Shares Issued and Outstanding at June 30, 2020 and December 31, 2019, respectively 388 387 Common Shares: Class B, $.01 Par Value, 1,000,000 Shares Authorized, NaN Issued and Outstanding at June 30, 2020 and December 31, 2019 — — Accumulated Other Comprehensive (Loss) Income (27,097) 1,010 Additional Paid-in Capital 1,149,291 1,144,808 Distributions in Excess of Net Income (427,393) (338,695) Total Shareholders' Equity 695,336 807,657 Noncontrolling Interests (Note 1) 55,715 64,144 Total Equity 751,051 871,801 Total Liabilities and Equity $ 2,054,560 $ 2,122,428 3NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019 [UNAUDITED]129,510 120,515 374,478 354,991 79 92 1,113 192 129,589 120,607 375,591 355,183 76,917 66,779 220,706 198,397 892 891 2,593 2,676 8,419 7,307 24,113 24,412 4,919 5,400 16,142 17,255 297 170 2,121 1,733 21,658 18,704 61,234 57,259 3,812 3,812 116,914 99,251 330,721 301,732 12,675 21,356 44,870 53,451 40 95 237 219 (11,141) (10,425) (31,580) (33,927) (118) (125) (796) (864) (39) (437) 89,544 94,839 294 294 (312) 15 (586) (1,076) 1,399 10,479 101,983 112,642 539 (3,717) (2,636) (2,410) 16,239 539 (3,717) 13,603 (2,410) 1,938 6,762 115,586 110,232 1,325 1,443 (1,580) 4,513 3,263 8,205 114,006 114,745 90 (211) (5,849) (4,273) (6,040) (4,417) (18,124) (12,006) (4,021) (2,687) 3,577 90,033 94,445 Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenue: Hotel Operating Revenues: Room $ 15,139 $ 118,980 $ 86,222 $ 210,465 Food & Beverage 136 18,253 10,211 32,481 Other Operating Revenues 2,137 10,280 10,917 19,210 Other Revenues 29 (12) 228 138 Total Revenues 17,441 147,501 107,578 262,294 Operating Expenses: Hotel Operating Expenses: Room 3,622 24,013 22,714 46,103 Food & Beverage 721 13,990 11,342 26,822 Other Operating Expenses 14,035 44,607 49,841 84,796 Hotel Ground Rent 1,058 1,114 2,121 2,224 Real Estate and Personal Property Taxes and Property Insurance 9,969 8,997 19,911 18,394 General and Administrative (including Share Based Payments of $1,799 and $3,474, and $4,255 and $5,432 for the three and six months ended June 30, 2020 and 2019, respectively) 4,187 8,100 10,021 13,700 Loss on Impairment of Assets 1,069 — 1,069 — Depreciation and Amortization 24,322 23,964 48,510 48,092 Total Operating Expenses 58,983 124,785 165,529 240,131 Operating (Loss) Income (41,542) 22,716 (57,951) 22,163 Interest Income 2 58 38 141 Interest Expense (13,481) (13,325) (26,488) (26,223) Other Expense (385) (124) (457) (83) Loss on Debt Extinguishment — (34) — (34) (Loss) Income Before Results from Unconsolidated Joint Venture Investments and Income Taxes (55,406) 9,291 (84,858) (4,036) (Loss) Income from Unconsolidated Joint Ventures (502) 299 (1,520) 480 (Loss) Income Before Income Taxes (55,908) 9,590 (86,378) (3,556) Income Tax (Expense) Benefit (15,872) (4,031) (11,374) 1,233 Net (Loss) Income (71,780) 5,559 (97,752) (2,323) Loss Allocated to Noncontrolling Interests - Common Units 7,164 49 10,061 1,112 Loss (Income) Allocated to Noncontrolling Interests - Consolidated Joint Venture 3,196 (8) 3,196 152 Preferred Distributions (6,044) (6,043) (12,088) (12,087) Net Loss Applicable to Common Shareholders $ (67,464) $ (443) $ (96,583) $ (13,146) 4 (CONTINUED)NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019 [UNAUDITED](0.07) 0.08 2.15 2.17 (0.07) 0.08 2.13 2.14 41,721,425 42,309,044 41,725,159 43,368,153 41,721,425 42,745,864 42,225,238 43,869,293 Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Earnings Per Share: BASIC Loss from Continuing Operations Applicable to Common Shareholders $ (1.75) $ (0.02) $ (2.50) $ (0.35) DILUTED Loss from Continuing Operations Applicable to Common Shareholders $ (1.75) $ (0.02) $ (2.50) $ (0.35) Weighted Average Common Shares Outstanding: Basic 38,609,922 39,127,385 38,587,011 39,121,421 Diluted* 38,609,922 39,127,385 38,587,011 39,121,421 (the(the “Operating Partnership” or “HHLP”)has been excluded from the numerator andthe Class A common shares issuable upon any redemption of the Operating Partnership’s commonunitsof limited partnership interest (“Common Units”) and the Operating Partnership’s vested LTIP units (“Vested LTIP Units”)have been omitted from the denominator for the purpose of computingdiluted earnings per share becausethe effect of including theseshares and unitsin the numerator and denominator would have no impact. In addition, potentially dilutive common shares, if any, have been excluded from the denominator if they are anti-dilutive to income (loss)applicable to common shareholders.2,783,895 2,241,857 2,710,861 2,161,088 180,465 272,110 3,236,470 2,241,857 2,710,861 2,161,088 Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Common Units and Vested LTIP Units 3,943,319 3,379,354 3,891,032 3,344,178 Unvested Stock Awards and LTIP Units Outstanding 547,315 616,937 267,443 423,399 Contingently Issuable Share Awards 185,754 320,240 680,979 507,006 Total Potentially Dilutive Securities Excluded from the Denominator 4,676,388 4,316,531 4,839,454 4,274,583 5NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019 [UNAUDITED]3,263 8,205 114,006 114,745 611 43 (348) (496) (144) 110 (424) 428 467 153 (772) (68) 3,730 8,358 113,234 114,677 63 (211) (5,802) (4,273) (6,040) (4,417) (18,124) (12,006) (4,021) (2,247) 3,730 89,308 94,377 Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Net (Loss) Income $ (71,780) $ 5,559 $ (97,752) $ (2,323) Other Comprehensive Loss Change in Fair Value of Derivative Instruments (2,020) (4,122) (33,146) (5,902) Less: Reclassification Adjustment for Change in Fair Value of Derivative Instruments Included in Net Income 1,228 (1,112) 2,205 (2,253) Total Other Comprehensive Loss $ (792) $ (5,234) $ (30,941) $ (8,155) Comprehensive (Loss) Income (72,572) 325 (128,693) (10,478) Less: Comprehensive Loss Attributable to Noncontrolling Interests - Common Units 7,270 465 12,895 1,755 Less: Comprehensive Loss (Income) Attributable to Noncontrolling Interests - Consolidated Joint Venture 3,196 (8) 3,196 152 Less: Preferred Distributions (6,044) (6,043) (12,088) (12,087) Comprehensive Loss Attributable to Common Shareholders $ (68,150) $ (5,261) $ (124,690) $ (20,658) 6NINETHREE AND SIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019 [UNAUDITED]41,770,514 418 14,700,000 147 1,198,311 1,373 (364,831) 835,418 2,838,546 44,321 879,739 23,964 392 392 (23,964) (392) (264,805) (3) (4,746) (4,749) (4,749) 225,000 4,133 4,133 (35,066) (35,066) (35,066) (18,124) (18,124) (18,124) (1,673) (1,673) (1,146) (1,146) 3,427 63 63 63 75,876 1 (506) (505) 183,784 779 274 1,123 1,123 3,445 4,568 (725) (725) (47) (772) 108,157 108,157 5,849 114,006 41,608,976 416 14,700,000 147 1,194,637 648 (309,864) 885,984 3,223,366 55,269 941,253 Shareholders' Equity Noncontrolling Interests Redeemable Noncontrolling Interests Common Shares Class A Common Shares ($) Class B Common Shares ($) Preferred Shares Preferred Shares ($) Additional Paid-In Capital ($) Accumulated Other Comprehensive Income ($) Distributions in Excess of Net Income ($) Total Shareholders' Equity ($) Common Units and LTIP Units Common Units and LTIP Units ($) Total Equity ($) Consolidated Joint Venture ($) Balance at March 31, 2020 38,673,242 387 — 14,703,214 147 1,145,450 (26,411) (362,777) 756,796 4,279,946 59,162 815,958 3,196 Issuance Costs — — — — — (10) — — (10) — — (10) — Share Based Compensation: Grants 116,129 1 — — — — — — 1 1,101,924 — 1 — Amortization — — — — — 655 — — 655 3,823 4,478 — Change in Fair Value of Derivative Instruments — — — — — — (686) — (686) — (106) (792) — Adjustment to Record Noncontrolling Interest at Redemption Value — — — — — 3,196 — — 3,196 — — 3,196 (3,196) Net Loss — — — — — — — (64,616) (64,616) — (7,164) (71,780) — Balance at June 30, 2020 38,789,371 388 — 14,703,214 147 1,149,291 (27,097) (427,393) 695,336 5,381,870 55,715 751,051 — 7 (CONTINUED)NINETHREE AND SIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019 [UNAUDITED]44,457,368 444 7,600,000 76 1,086,259 (466) (408,274) 678,039 2,319,301 31,876 (1,760) 30,116 708,155 (2,605,649) (26) (49,023) (2) (49,051) (49,051) 7,700,000 77 185,922 185,999 185,999 (4,600,000) (46) (114,954) (115,000) (115,000) (36,095) (36,095) (36,095) (12,006) (12,006) (12,006) (1,431) (1,431) (1,431) (1,137) (1,137) (1,137) 2,576 47 47 47 62,943 1 (613) (612) 294,245 1,060 1,060 448 1,036 1,036 5,082 5,082 6,118 (68) (68) (68) (4,515) (4,515) 2,197 2,197 (2,318) 110,472 110,472 4,710 (437) 4,273 114,745 41,917,238 419 10,700,000 107 1,104,159 (534) (345,905) 758,246 2,613,546 40,160 40,160 798,406 Shareholders' Equity Noncontrolling Interests Redeemable Noncontrolling Interests Common Shares Class A Common Shares ($) Class B Common Shares ($) Preferred Shares Preferred Shares ($) Additional Paid-In Capital ($) Accumulated Other Comprehensive Income ($) Distributions in Excess of Net Income ($) Total Shareholders' Equity ($) Common Units and LTIP Units Common Units and LTIP Units ($) Total Equity ($) Consolidated Joint Venture ($) Balance at March 31, 2019 39,213,269 392 — 14,703,214 147 1,151,654 1,534 (291,282) 862,445 4,279,946 64,808 927,253 2,848 Issuance Costs — — — — — (21) — — (21) — — (21) — Dividends and Distributions declared: Common Shares ($0.28 per share) — — — — — — — (10,987) (10,987) — — (10,987) — Preferred Shares — — — — — — — (6,044) (6,044) — — (6,044) — Common Units ($0.28 per share) — — — — — — — — — — (580) (580) — LTIP Units ($0.28 per share) — — — — — — — — — — (620) (620) — Dividend Reinvestment Plan 1,231 — — — — 21 — — 21 — — 21 — Share Based Compensation: Grants 26,424 1 — — — 400 — — 401 — — 401 — Amortization — — — — — 893 — — 893 — 1,430 2,323 — Change in Fair Value of Derivative Instruments — — — — — — (4,819) — (4,819) — (415) (5,234) — Adjustment to Record Noncontrolling Interest at Redemption Value — — — — — (8) — — (8) — — (8) 8 Net Income — — — — — — — 5,608 5,608 (49) 5,559 — Balance at June 30, 2019 39,240,924 393 — 14,703,214 147 1,152,939 (3,285) (302,705) 847,489 4,279,946 64,574 912,063 2,856 8CASH FLOWSNINETHREE AND SIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019 [UNAUDITED]THOUSANDS]THOUSANDS, EXCEPT SHARES]114,006 114,745 (89,544) (94,839) (16,239) 3,812 (294) 1,580 (4,513) 59,953 56,808 2,592 1,204 586 1,076 2,636 2,410 400 1,237 33 47 5,468 5,793 (1,480) 1,018 525 2,608 1,577 4,333 13,624 (5,797) (8,789) (8,711) 904 90,524 78,245 (249,291) (238,848) (4,000) (32,982) (26,866) (1,500) 188,612 21,093 (36) 2,559 11,623 429,250 2,000 2,184 (81,574) 185,372 Shareholders' Equity Noncontrolling Interests Redeemable Noncontrolling Interests Common Shares Class A Common Shares ($) Class B Common Shares ($) Preferred Shares Preferred Shares ($) Additional Paid-In Capital ($) Accumulated Other Comprehensive Income ($) Distributions in Excess of Net Income ($) Total Shareholders' Equity ($) Common Units and LTIP Units Common Units and LTIP Units ($) Total Equity ($) Consolidated Joint Venture ($) Balance at December 31, 2019 38,652,650 387 — 14,703,214 147 1,144,808 1,010 (338,695) 807,657 4,279,946 64,144 871,801 3,196 Issuance Costs — — — — — (30) — — (30) — — (30) — Dividends and Distributions declared: Preferred Shares — — — — — — — (1,007) (1,007) — — (1,007) — Dividend Reinvestment Plan 1,094 — — — — 14 — — 14 — — 14 — Share Based Compensation: Grants 135,627 1 — — — — — — 1 1,101,924 — 1 — Amortization — — — — — 1,303 — — 1,303 4,466 5,769 — Change in Fair Value of Derivative Instruments — — — — — — (28,107) — (28,107) — (2,834) (30,941) — Adjustment to Record Noncontrolling Interest at Redemption Value — — — — — 3,196 — — 3,196 — — 3,196 (3,196) Net Loss — — — — — — — (87,691) (87,691) — (10,061) (97,752) — Balance at June 30, 2020 38,789,371 388 — 14,703,214 147 1,149,291 (27,097) (427,393) 695,336 5,381,870 55,715 751,051 — 9CASH FLOWS (CONTINUED)NINETHREE AND SIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019 [UNAUDITED]THOUSANDS]THOUSANDS, EXCEPT SHARES](27,000) 58,380 102,000 (39,480) (122,312) (156,921) (3,344) (1,828) (370) (1,026) 185,999 (115,000) (4,749) (49,051) (2,318) (43,401) (36,803) (17,729) (11,699) (3,279) (2,485) (261) (137,065) (155,612) (128,115) 108,005 185,644 27,955 57,529 135,960 Shareholders' Equity Noncontrolling Interests Redeemable Noncontrolling Interests Common Shares Class A Common Shares ($) Class B Common Shares ($) Preferred Shares Preferred Shares ($) Additional Paid-In Capital ($) Accumulated Other Comprehensive Income ($) Distributions in Excess of Net Income ($) Total Shareholders' Equity ($) Common Units and LTIP Units Common Units and LTIP Units ($) Total Equity ($) Consolidated Joint Venture ($) Balance at December 31, 2018 39,458,626 395 — 14,703,214 147 1,155,776 4,227 (267,740) 892,805 3,749,665 62,010 954,815 2,708 Repurchase of Common Shares (273,538) (3) — — — (4,693) — — (4,696) — — (4,696) — Issuance Costs — — — — — (21) — — (21) — — (21) — Dividends and Distributions declared: Common Shares ($0.56 per share) — — — — — — — (21,967) (21,967) — — (21,967) — Preferred Shares — — — — — — — (12,087) (12,087) — — (12,087) — Common Units ($0.56 per share) — — — — — — — — — — (1,158) (1,158) — LTIP Units ($0.56 per share) — — — — — — — — — — (1,362) (1,362) — Dividend Reinvestment Plan 2,496 — — — — 42 — — 42 — — 42 — Share Based Compensation: Grants 53,340 1 — — — 400 — — 401 530,281 — 401 — Amortization — — — — — 1,583 — — 1,583 — 6,839 8,422 — Equity Contribution to Consolidated Joint Venture — — — — — — — — — — — — 300 Change in Fair Value of Derivative Instruments — — — — — — (7,512) — (7,512) — (643) (8,155) — Adjustment to Record Noncontrolling Interest at Redemption Value — — — — — (148) — — (148) — — (148) 148 Net Loss — — — — — — — (911) (911) (1,112) (2,023) (300) Balance at June 30, 2019 39,240,924 393 — 14,703,214 147 1,152,939 (3,285) (302,705) 847,489 4,279,946 64,574 912,063 2,856 10 Six Months Ended June 30, 2020 2019 Operating Activities: Net Loss $ (97,752) $ (2,323) Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities: Loss from Impairment of Assets 1,069 — Deferred Taxes 11,390 (1,348) Depreciation 48,273 47,791 Amortization 1,116 1,107 Loss on Debt Extinguishment — 17 Equity in Loss (Income) of Unconsolidated Joint Ventures 1,520 (480) Distributions from Unconsolidated Joint Ventures — 478 Loss Recognized on Change in Fair Value of Derivative Instrument 2,205 163 Share Based Compensation Expense 4,255 5,432 Change in Assets and Liabilities: (Increase) Decrease in: Hotel Accounts Receivable 5,412 (325) Other Assets 4,884 (1,317) Due from Related Parties 3,750 (2,453) (Decrease) Increase in: Accounts Payable, Accrued Expenses and Other Liabilities (2,479) 129 Net Cash Provided by (Used in) Operating Activities $ (16,357) $ 46,871 Investing Activities: Capital Expenditures (15,612) (21,230) Cash Paid for Hotel Development Projects 21 (467) Contributions to Unconsolidated Joint Ventures (600) (4,000) Distributions from Unconsolidated Joint Ventures — 1,022 Net Cash Used in Investing Activities $ (16,191) $ (24,675) Six Months Ended June 30, 2020 2019 Financing Activities: Borrowings Under Line of Credit, Net $ 47,000 $ 27,000 Principal Repayment of Mortgages and Notes Payable (650) (56,636) Proceeds of Paycheck Protection Program ("PPP") Loans 18,936 — Repayment of PPP Loans (18,936) — Cash Paid for Deferred Financing Costs (2,104) (643) Repurchase of Common Shares — (4,624) Dividends Paid on Common Shares (10,809) (21,980) Dividends Paid on Preferred Shares (6,044) (12,087) Distributions Paid on Common Units and LTIP Units (1,198) (2,371) Other Financing Activities (30) (91) Net Cash Provided by (Used in) Financing Activities $ 26,165 $ (15,432) Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash $ (6,383) $ 6,764 Cash, Cash Equivalents, and Restricted Cash - Beginning of Period 36,985 40,783 Cash, Cash Equivalents, and Restricted Cash - End of Period $ 30,602 $ 47,547 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]ninesix months ended SeptemberJune 30, 20172020 are not necessarily indicative of the results that may be expected for the year ending December 31, 20172020 or any future period. Accordingly, readers of these consolidated interim financial statements should refer to the Company’s audited financial statements prepared in accordance with US GAAP, and the related notes thereto, for the year ended December 31, 2016,2019, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2019, as certain footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted from this report pursuant to the rules of the Securities and Exchange Commission.SeptemberJune 30, 2017,2020, we owned an approximate 92.8%87.8% partnership interest in HHLP, including a 1.0% general partnership interest.U.S. generally accepted accounting principlesUS GAAP and include all of our accounts as well as accounts of the Partnership, subsidiary partnerships and our wholly owned Taxable REIT Subsidiary Lessee (“TRS Lessee”)., 44 New England Management Company. All significant inter-company amounts have been eliminated. Control can be demonstrated when the general partner has the power to impact the economic performance of the partnership, which includes the ability of the general partner to manage day-to-day operations, refinance debt and sell the assets of the partnerships without the consent of the limited partners and the inability of the limited partners to replace the general partner. Control can be demonstrated by the limited partners if the limited partners have the right to dissolve or liquidate the partnership or otherwise remove the general partner without cause or have rights to participate in the significant decisions made in the ordinary course of the partnership’s business. Entities are consolidated if the determination is made that we are the primary beneficiary in a VIE or we maintain control of the asset through our voting interest or other rights in the operation of the entity. To determine if we are the primary beneficiary of a VIE, we evaluate whether we have a controlling financial interest in that VIE. An enterprise is deemed to have a controlling financial interest if it has i) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and ii) the obligation to absorb losses of the VIE that could be significant to the VIE or the rights to receive benefits from the VIE that could be significant to the VIE. Control can also be demonstrated by the ability of a member to manage day-to-day operations, refinance debt and sell the assets of the partnerships without the consent of the other member and the inability of the members to replace the managing member. Based on our examination, there have been no changes to the followingoperating structure of our legal entities were determined to be VIEs: HHLP, Cindat Hersha Owner JV, LLC; Cindat Hersha Lessee JV, LLC; South Bay Boston, LLC; Hersha Statutory Trust I;during the six months ended June 30, 2020 and, Hersha Statutory Trust II. As noted, HHLP meets the criteria as a VIE. The Company’s most significant asset is its investment in HHLP, and consequently, substantially all of the Company’s assets and liabilities represent those assets and liabilities of HHLP.Cindat Hersha Owner JV, LLC and Cindat Hersha Lessee JV, LLCtherefore, there are both VIE entities, however because we are not the primary beneficiary in either entity, they are not consolidated by the Company. Our maximum exposure to losses from our investment in Cindat Hersha Owner JV, LLC is limitedno changes to our basis inevaluation of VIE's as presented within our annual report presented on Form 10-K for the joint venture which is $0 as of September 30, 2017. Also, South Bay Boston, LLC leases hotel property and is a VIE. This entity is consolidated by the lessor, the primary beneficiary of the entity. Hersha Statutory Trust I and Hersha Statutory Trust II (collectively “Hersha Statutoryyear ended December 31, 2019.11NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]–- BASIS OF PRESENTATION (CONTINUED)Trusts”) are VIEs but the Company is not the primary beneficiary in these entities. Accordingly, the accounts of Hersha Statutory Trust I and Hersha Statutory Trust II are not consolidated. consolidated variable interest entity, common units of limited partnership interest in HHLP (“Common Units”), and Long Term Incentive Plan Units (“LTIP Units”) as equity. LTIP Units are a separate class of limited partnership interest in the Operating Partnership that are convertible into Common Units under certain circumstances. The noncontrolling interest of Common Units and LTIP Units totaled $55,269$55,715 as of SeptemberJune 30, 20172020 and $44,321$64,144 as of December 31, 2016.2019. As of SeptemberJune 30, 2017,2020, there were 3,223,3665,381,870 Common Units and LTIP Units outstanding with a fair market value of $60,180,$31,000, based on the price per share of our common shares on the NYSE on such date. In accordance with the partnership agreement of HHLP, holders of these Common Units may redeem them for cash unless we, in our sole and absolute discretion, elect to issue common shares on a one-for-one basis in lieu of paying cash.SeptemberJune 30, 20172020 and December 31, 20162019 are summarized as follows:3,000,000 3,000,000 75,000 6.875% 1.2891 1.2891 7,700,000 7,700,000 192,500 6.500% 1.2189 0.6094 4,000,000 4,000,000 100,000 6.500% 1.2189 14,700,000 14,700,000 In October 2016, our Board of Trustees authorized a new share repurchase program for up to $100,000 of common shares which commenced upon the completion of the existing repurchase program. The new repurchase program will expire on December 31, 2017, unless extended by our Board of Trustees.On April 26, 2017, we entered into Equity Distribution Agreements with four investment banks whereby we agreed to sell up to 8,000,000 Class A common shares, up to 1,000,000 Series D Cumulative Redeemable Preferred Shares, and up to 1,000,000 Series E Cumulative Redeemable Preferred Shares from time to time in an “at the market” offering. In conjunction with this transaction, the Company increased the number of authorized Class A common shares from 90,000,000 to 104,000,000.12NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]–- BASIS OF PRESENTATION (CONTINUED)New Accounting PronouncementsIn August 2017, Dividend Per Share Shares Outstanding Six Months Ended June 30, Series June 30, 2020 December 31, 2019 Aggregate Liquidation Preference Distribution Rate 2020 2019 Series C 3,000,000 3,000,000 $ 75,000 6.875 % — $ 0.8594 Series D 7,701,700 7,701,700 $ 192,500 6.500 % — $ 0.8126 Series E 4,001,514 4,001,514 $ 100,000 6.500 % — $ 0.8126 Total 14,703,214 14,703,214 FASB issued ASU No. 2017-12, DerivativesCOVID-19 pandemic and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.the effects of travel restrictions both globally and in the United States, the hospitality industry has experienced drastic drops in demand. The update will make more financial and nonfinancial hedging strategies eligible for hedge accounting, changes how companies assess hedge effectiveness, and amends the presentation and disclosure requirements for hedging transactions. The provisionsglobal impact of the update will be effective for the Company starting January 1, 2019 with the early adoption available as early as the quarter ended September 30, 2017. Based on the type of derivative instruments within the Company’s portfolio, we do not anticipate this update to have a material effect on our consolidated financial statementspandemic has been rapidly evolving and, related disclosures, however, we are currently assessing the ultimate impact of this update.In February 2017, the FASB issued ASU No. 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20). The update defines the term “in substance nonfinancial asset” as it is presented in Subtopic 610-20 as a “financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets that are promised to the counterparty in the contract is concentrated in nonfinancial assets.” As it relates to the Company, real estate,United States, certain states and cities, including most where we own properties, have reacted by instituting various restrictive measures such as landquarantines, restrictions on travel, school closings, "stay at home" rules and building, would be considered an examplerestrictions on types of a nonfinancial asset. Additionally,business that may continue to operate. During the update provides guidance over partial sale transactions, particularly, when an entity should derecognize a distinct nonfinancial asset or in substance nonfinancial asset in a partial sale transaction, and the extentfirst quarter of gain that should be recognized2020 as a result of the partial sale transaction. This standard is effectiveimpact of the COVID-19 pandemic, we had temporarily closed 21 of our 48 hotels while our remaining hotels operated in conjunction with ASU No. 2014-09 (presented below), which is effective for periods beginning after December 15, 2017, however early adoption is permitted. The provisionsa significantly reduced capacity. During the second quarter of this update must be applied at2020 we reopened 5 hotels, resulting in 16 hotels remaining closed as of June 30, 2020. We believe the same time asongoing effects of the adoption of ASU No. 2014-09. The Company is currently evaluating how the provisions of this update affect our adoption of ASU No. 2014-09. See below for our discussion of ASU No. 2014-09 and the effect it will haveCOVID-19 pandemic on our consolidated financial statementsoperations have had, and related disclosures. In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business as it relates to acquisitions and business combinations. The update adds further guidance that assists preparers in evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. We expect most of our hotel property acquisitions to qualify as asset acquisitions under the standard which permits the capitalization of acquisition costs to the underlying assets. The Company expects the standardcontinue to have ana material negative impact on our financial statements in periods during which we complete significant hotel acquisitions. For instance, duringresults and liquidity, and such negative impact may continue beyond the nine months ended September 30, 2017, the Company incurred $2,121 in expenses related to acquisition costs that would have been subject to capitalization under this ASU. This standard is effective for periods beginning after December 31, 2017, however early adoption is permitted. Effective January 1, 2017, we adopted ASU No. 2016-09, Improvements to Employee Share-Based Award Payment Accounting, which simplifies various aspects of how share-based payments are accounted for and presented in the financial statements. This standard requires companies to record allcontainment of the tax effects relatedpandemic.share-based payments throughestimate our liquidity requirements will be correct because the income statement, allows companieslodging industry has not previously experienced such an abrupt and drastic reduction in hotel demand, and as a consequence, our ability to elect an accounting policy to either estimatebe predictive is uncertain. In addition, the share based award forfeitures (and expense) or account for forfeitures (and expense) as they occur,magnitude, duration, and allows companies to withhold a percentagespeed of the shares issuable upon settlement of an award up topandemic is uncertain and we cannot estimate when travel demand will recover. As a consequence, we cannot estimate the maximum individual statutory tax rate without causing the award to be classified as a liability. The Company has elected to expense forfeitures of share-based award as they occur as our accounting policy. The adoption of ASU No. 2016-09 had no material impact on our consolidatedbusiness, financial statementscondition, or operating results with reasonable certainty, but we expect a net loss on a U.S. GAAP basis for the year ending December 31, 2020. On April 2, 2020, we amended our existing Credit Agreement (as defined below) and received $100,000 in available funds on our Line of Credit (as defined below), of which we drew $25,000 during April 2020 and $10,000 during July 2020. Additionally, the amendment provided a waiver of covenants under our Credit Facility (as defined below) through March 31, 2021 and changed the Credit Facility from an unsecured borrowing facility to a secured borrowing facility. Based on this amendment along with cost savings measures throughout our operations, we believe that we will be able to generate sufficient liquidity to satisfy our obligations for the next twelve months, absent a breach of Credit Facility covenants described below.disclosures.In November 2016to our mortgage borrowings with the FASB issued ASU No. 2016-18, Statementexception of Cash Flows (Topic 230),one mortgage where we failed a debt service coverage ratio requirement, which provides guidanceis not considered an event of default but triggers a cash escrow requirement related to future debt service. We have one mortgage borrowing in the amount of $25,000 that will mature within the next twelve months, which we expect to be able to extend the maturity based on the presentation of restricted cash or restricted cash equivalentsprovisions within the statementexisting mortgage or refinance the mortgage. After considering the effect of cash flows. Accordingly, amounts generally described as restricted cash and restricted cash equivalents shouldthe COVID-19 pandemic on our consolidated operations, it is probable that we will fail certain financial covenants within certain property-level mortgage borrowings or under our Credit Facility within the next twelve months. We have received financial covenant waivers from certain of our mortgage lenders, which provided us relief from financial covenants for a period of time that does not extend beyond the first quarter of 2021. For mortgages with financial covenants, the lenders' remedy of a covenant failure would be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard is effectivea requirement to escrow funds for the Company for periods beginning after December 15, 2017. The adoptionpurpose of ASU No. 2016-18 will changemeeting our future debt payment obligations, with the presentationexception of one mortgage borrowing. In this instance, the lender could require prepayment of the statementmortgage in full, however, we believe we would have sufficient available funds on our Credit Facility to accommodate this remedy of cash flowscovenant default. As noted above, the covenant waivers on our Credit Facility extend through March 31, 2021; however, we believe that it is probable we will breach certain of our Credit Facility covenants when measured for the Company andperiod ended June 30, 2021. This potential event of default could lead to potential acceleration of amounts due under the Credit Facility. Notwithstanding our belief that we will utilize a retrospective transition method for each period presented within financial statements for periods subsequent to the date of adoption.13NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]–- BASIS OF PRESENTATION (CONTINUED)In February 2016,FASB issued ASU No. 2016-02, Leases (Topic 842), terms of our Credit Facility prior to an event of default, we believe that we will continue to have access to the capital markets. Also, we could choose to raise cash by selling hotel properties, although there can be no assurances we would be successful on terms favorable to us.provideswould have a material adverse effect on our financial condition, which gives rise to substantial doubt about our ability to continue as a going concern. As a result, management determined that the principlesfuture valuation and ability to realize the benefits of our deferred tax assets is not probable and we have recorded a full valuation allowance against our net deferred tax assets as of June 30, 2020.the recognition, measurement, presentationbuildings and disclosure of leases. The accountingimprovements, two to seven years for lessors will remain largely unchanged from current GAAP; however, the standard requires that certain initial direct costs be expensed rather than capitalized. Under the standard, lessees apply a dual approach, classifying leases as either finance or operating leases. A lessee isfurniture, fixtures and equipment. We are required to make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in hotel properties. These assessments have a right-of-use assetdirect impact on our net income because if we were to shorten the expected useful lives of our investments in hotel properties we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.lease liabilitybusiness combination are recorded at full fair value. Estimating techniques and assumptions used in determining fair values involve significant estimates and judgments. These estimates and judgments have a direct impact on the carrying value of our assets and liabilities which can directly impact the amount of depreciation expense recorded on an annual basis and could have an impact on our assessment of potential impairment of our investment in hotel properties.all leasessale” on the balance sheet. In accordance with ASU Update No. 2014-08 concerning the classification and reporting of discontinued operations, we evaluate each disposition to determine whether we need to classify the disposition as discontinued operations. This amendment defines discontinued operations as a termcomponent of greater than 12 months, regardlessan entity that represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. We anticipate that most of their lease classification. our hotel dispositions will not be classified as discontinued operations as most will not fit this definition.our leases, we are the property’s carrying value. Such events or changes in circumstances include the following:lessee on ground leasessignificant decrease in certain markets, hotel equipment leases, and office space leases. We are alsothe market price of a lessorlong-lived asset;certain office space and retail lease agreements related to our hotels. While we do not anticipate any materialthe extent or manner in which a long-lived asset is being used or in its physical condition; toin legal factors or in the accounting for leases under which we arebusiness climate that could affect the value of a lessor, we are still evaluatinglong-lived asset, including an adverse action or assessment by a regulator;impact this ASU will have on the accounting for our leasing arrangements as well as our disclosures within the notes to our financial statements. This standard will be effectiveamount originally expected for the first annual reporting period beginning after December 15, 2018.On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contractsacquisition or construction of a long-lived asset;Customers, which requires an entity to recognize the amounta history of revenue to which it expects to be entitled for the transfer of promised goodsoperating or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. We are evaluating each of our revenue streams and related accounting policy under the standard. The new standard is effective for the Company on January 1, 2018. Early adoption is permitted, but not prior to the original effective date of January 1, 2017. The standard permitscash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of either the retrospective or modified retrospective transition method. The modified retrospective method allows for, among other things, a cumulative adjustment to opening equity upon adoption of the standard. The Company continues to evaluate the ultimate effectlong-lived asset; andASU No. 2014-09 will have on its consolidated financial statements and related disclosures. Based on our analysis to date, we doit is more likely than not expect the new revenue recognition model to havethat, a material impact on our hotel operating revenue, including room revenue, food and beverage, and other revenue, however, our final evaluation has not been concluded. Our evaluation under the standard also includes sales to third parties, primarily a result of dispositions of real estate. Our evaluation over sales of real estate is continuing andlong-lived asset will be impacted bysold or otherwise disposed of significantly before the FASB definitionend of a business and in substance nonfinancial assets, which have recently been addressed through the issuance of ASU No. 2017-01 and ASU No. 2017-05, respectively. Based on the provisions of ASU No. 2017-01 and ASU No. 2017-05, the Company would expect any future sales of interests in hotel properties to likely meet the criteria for full gain on sale recognition. This treatment is not different from our historical position when selling our entire interest in hotel properties, however, this is different than the historical treatment in certain instances where the Company sold partial interests in hotel properties. In particular, during 2016 the Company sold partial interests in seven hotel properties to a third party (“Cindat Sale”) resulting in an approximate $81 million deferred gain based on prevailing GAAP at the time of the transaction. The Company anticipates utilizing the modified retrospective transition method with available practical expedients upon adopting ASU No. 2014-09. As such, the Company is analyzing the Cindat Sale to assess whether it is defined to be a closed contract under the guidance of ASU No. 2014-09 which may result in no change to the deferred gain amount recorded in conjunction with the Cindat Sale.ReclassificationCertain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.14NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]–- INVESTMENT IN HOTEL PROPERTIESSeptemberJune 30, 20172020 and December 31, 2016:2019:538,322 499,484 1,625,695 1,383,266 248,142 204,212 2,450 950 2,414,609 2,087,912 (380,021) (320,342) 2,034,588 1,767,570 June 30, 2020 December 31, 2019 Land $ 505,156 $ 518,243 Buildings and Improvements 1,686,057 1,710,621 Furniture, Fixtures and Equipment 297,465 294,527 Construction in Progress 4,706 10,202 2,493,384 2,533,593 Less Accumulated Depreciation (590,920) (557,620) Total Investment in Hotel Properties * $ 1,902,464 $ 1,975,973 We acquiredfollowing properties during the ninesix months ended SeptemberJune 30, 2017:2020 and 2019, we acquired no hotel properties.1,420 40,440 7,240 899 49,999 41,333 5,185 30,742 1,064 (291) 36,700 3,150 13,079 59,256 6,665 79,000 19,154 103,451 12,028 367 135,000 38,838 233,889 26,997 975 300,699 44,483 (1) The Mystic Marriott & Spa was acquired as partial consideration withinDispositionstransaction to redeem and transfer our joint venture interest in Mystic Partners, LLC. See Note 3 for further description of the transaction.* Consists entirely of $899 of advanced bookings.** Includes an intangible asset for a lease-in-place of $229, and a below market lease liability of $520.*** Consists entirely of $367 of advanced bookings.The Company is currently finalizing our analysis of the fair value of assets acquired and liabilities incurred in connection with the purchase of the Ritz Carlton, Coconut Grove. As such, the amounts reported in the table above are preliminary. We expect the amounts will be finalized within the one year remeasurement period as defined within ASC 805.Acquisition-related costs, such as due diligence, legal and accounting fees, are not capitalized or applied in determining the fair value of the above acquired assets. During the three and ninesix months ended SeptemberJune 30, 2017,2020 and 2019, we incurred $297 and $2,121 in costs related to acquired assets and terminated transactions.15NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]following table illustrates total revenuessales of Duane Street Hotel and total net income, including related acquisition costs,Blue Moon Hotel are expected to close in 2020 and are included inas held for sale assets as of June 30, 2020. During the consolidated statementsecond quarter of operations for2020, the threeCompany amended the purchase and nine months ended September 30, 2017 for the hotels we acquired or assumed ownership during the nine months ended September 30, 2017 and consolidated since the date of acquisition of the hotels.5,667 744 15,819 1,303 2,377 (695) 8,921 (774) 4,485 669 9,795 638 6,758 1,308 6,787 296 19,287 2,026 41,322 1,463 Lease BuyoutDuring November 2016, we signed ansale agreement with our restaurant lessee at the Courtyard Cadillac Miami to buyout the remainderbuyer of their current lease. The agreement was made in conjunction with our overall property improvement plan, which will also include room and common area upgrades, with the intention to rebrand the hotel to reduce the purchase price by $2,000. As a more upscale Marriott brand. As defined by termsresult of the agreement, we were contractually obligatedreduced sales price and after consideration of selling costs to pay total consideration to complete the buyout of $10,000 and issue 450,000 operating partnership units. DuringCompany, management determined that the fourth quarter of 2016, we paid $5,000 and issued 225,000 units valued at $4,400 with the remaindercarrying value of the consideration due upon completion ofhotel exceeded the buyout. During 2016, we accounted for this transaction in accordance with ASU 420 “Exit or Disposal Cost Obligations,” recording the entire amount of consideration as an expense at the time of agreement execution,anticipated net proceeds from sale, resulting in a total expense of $18,831. This$1,069 impairment charge recorded expense was partially offset by the write-off of an intangible liability related to the lease of $2,000 during the fourth quarter of 2016. In September 2017, we completed the buy-out through the payment of $5,000 and the issuance of 225,000 units valued at $4,133.Property Damage from Natural DisasterDuring September 2017, all six of our hotels located in South Florida incurred property damage and an interruption of business operations as a result of Hurricane Irma. Two of our hotels, the Courtyard Cadillac Miami and the Parrot Key Hotel & Resort, incurred significant physical damage and have been closed since the disaster with the expectation to open for business during the first quarter of 2018. The remaining four properties have resumed normal business activities as of September 30, 2017. Based on our initial assessments, we have recorded estimated property impairment and remediation losses of $10,194 during the three and nine months ended SeptemberJune 30, 2017 offset by a corresponding insurance claim receivable2020.$6,382 for a net loss in excess of estimated insurance recoveries of $3,812. Our current insurance policies also contain coverage for income lost due to business interruption from covered losses. Any recoveries obtained through business interruption coverage will be recorded as a gain at such time that the recovery is probable. The Company recorded $0 gain related to business interruption insurance coverage during the three and nine months ended SeptemberJune 30, 2017.Hotel DispositionsIn July 2016, we entered into purchase and sale agreements to sell the Residence Inn, Greenbelt, MD, Courtyard, Alexandria, VA, Hyatt House, Scottsdale, AZ, Hyatt House, Pleasant Hill, CA, and Hyatt House, Pleasanton, CA to an unaffiliated buyer for a sales price of $185,000. The purchase and sale agreements were amended subsequently to increase the total sales price by $7,500 in exchange for providing the buyer with an extension to close on three of the assets. 16June 30, 2020 Land $ 13,087 Buildings and Improvements 35,482 Furniture, Fixtures and Equipment 6,418 54,987 Less Accumulated Depreciation (14,817) Assets Held for Sale $ 40,170 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019 [UNAUDITED]NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)On January 5, 2017, the Company closed on the sales of the Residence Inn, Greenbelt, MD, and the Courtyard, Alexandria, VA to an unaffiliated buyer for a combined total sales price of $62,000 resulting in a gain on sale of approximately $18,731. The Residence Inn, Greenbelt, MD was acquired by the Company in July 2004 and the Courtyard, Alexandria, VA was acquired by the Company in September 2006. The operating results for these hotels are included in operating income as shown in theconsolidated statements of operations for the period owned during the nine months ended September 30, 2017 and 2016 as disposition of these hotels does not represent a strategic shift in our business.On June 8, 2017, the Company closed on the sale of the Hyatt House, Scottsdale, AZ, Hyatt House, Pleasant Hill, CA, and Hyatt House, Pleasanton, CA to an unaffiliated buyer for a sales price of $130,500 resulting in a gain on sale of approximately $70,852. All three of the properties were acquired by the Company in December 2006. The operating results for these hotels are included in operating income as shown in the consolidated statements of operations for the period owned during the three and nine months ended September 30, 2017 and 2016 as disposition of these hotels does not represent a strategic shift in our business. Assets Held For SaleThere are no assets held for sale as of September 30, 2017. The table below shows the balances classified as assets held for sale as of December 31, 2016:December 31, 2016Land$22,208 Buildings and Improvements105,663 Furniture, Fixtures and Equipment24,187 152,058 Less: Accumulated Depreciation & Amortization(53,585)Assets Held for Sale$98,473 Liabilities Related to Assets Held for Sale$51,428 17HERSHA HOSPITALITY TRUST AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 [UNAUDITED][IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)Pro Forma Results (Unaudited)The following condensed pro forma financial data for the three and nine months ended September 30, 2017 and 2016 are presented as if the hotels acquired by the Company in 2017 and 2016 had been acquired as of January 1, 2017 and 2016, respectively. The condensed pro forma financial data are not necessarily indicative of what actual results of operations of the Company would have been for the periods presented assuming the acquisitions had been consummated on January 1, 2017 and 2016, nor do they purport to represent the results of operations for future periods.129,589 144,563 393,610 438,810 3,263 11,054 119,340 121,983 90 (354) (6,174) (4,617) (6,040) (4,417) (18,124) (12,006) (4,021) (2,687) 6,283 95,042 101,339 (0.07) 0.15 2.28 2.34 (0.07) 0.15 2.25 2.31 41,721,425 42,309,044 41,725,159 43,368,153 41,721,425 42,745,864 42,225,238 43,869,293 18HERSHA HOSPITALITY TRUST AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 [UNAUDITED][IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]–- INVESTMENT IN UNCONSOLIDATED JOINT VENTURESSeptemberJune 30, 20172020 and December 31, 2016,2019, our investment in unconsolidated joint ventures consisted of the following:50.0% 1,364 913 50.0% 2,341 2,112 30.0% 3,717 4,699 3,705 11,441 *See explanation below of the Cindat Hersha Owner JV, LLC (“Owner JV”) for more information on the preferred return provisions of this joint venture. Percent Joint Venture Hotel Properties Owned June 30, 2020 December 31, 2019 Cindat Hersha Owner JV, LLC Hilton and IHG branded hotels in NYC 31 % $ — $ — Hiren Boston, LLC Courtyard by Marriott, South Boston, MA 50 % 555 1,434 SB Partners, LLC Holiday Inn Express, South Boston, MA 50 % — — SB Partners Three, LLC Home2 Suites, South Boston, MA 50 % 6,972 7,012 $ 7,527 $ 8,446 2017,2020, we redeemedentered into an agreement with our joint venture interest in Mystic Partners, LLC by acquiring a 100% ownership interest in the Mystic Marriott Hotel & Spa and transferringpartner for our minority ownershippartner to purchase our membership interests in Hiren Boston, LLC and SB Partners, LLC.Net proceeds from the Hartford Marriott and Hartford Hilton to our joint venture partner. We received $11,623 in cash and assumed a mortgage on the Mystic Marriott Hotel & Spa of $41,333as consideration for this redemption and transfersale of our minority interest. Subsequentinterests are anticipated to be approximately $26,000 and this transaction is expected to close during the assumptionfourth quarter of the mortgage, the Company fully paid off the outstanding balance of the debt and added the property to the borrowing base of our Credit Facility. As a result of the remeasurement of the consideration received to fair value, the Company recognized a gain of $16,239 in conjunction with this transaction.For the (1) to us until we receive a 9% annual rate of return on our contributed $43,194 preferred equity interest, (2) then to(1) Cindat until they receive a return on their contributed $142,000$143,650 senior common equity interest, currently at 9.5%8%, and (3)(2) then to us until we receive an 8% return on our contributed $60,857$64,357 junior common equity interest. Any cash available for distribution remaining will be split 30%31% to us and 70%69% to Cindat. Cindat’s senior common equity return is reduced by 0.5% annually for 4 years following the closing until it is set at a rate of 8% for the remainder of the life of the joint venture. BeginningAs of June 30, 2016, a lender to the Owner JV determined that certain debt coverage ratio covenants contained in its loan agreement were not met. Pursuant to these agreements, the lender elected to escrow the operating cash flow for Owner JV, which continues as of September 30, 2017. The failure to meet these covenants, however, does not constitute an event of default. As of September 30, 2017,2020, based on the income allocation methodology described above, the Company has absorbed cumulative losses equal to our accounting basis in the joint venture resulting in a $0 investment balance in the table above, however, we currently maintain a positive equity balance within the venture. This difference is due to difference in our basis inside the venture versus our basis outside of the venture, which is explained later in this note.and Hiren Boston, LLC, and SB Partners Three, LLC, income or loss is allocated to us and our joint venture partners consistent with the allocation of cash distributions in accordance with the joint venture agreements. This results in an income allocation consistent with our percentage of ownership interests.19NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, for our investments in unconsolidated joint ventures is as follows:216 195 451 483 323 406 630 692 (80) (3,717) (239) (4,238) (3,346) 539 (3,717) (2,636) (2,410) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Cindat Hersha Owner JV, LLC $ — $ — $ — $ — Hiren Boston, LLC (477) 315 (880) 138 SB Partners, LLC — — (600) 375 SB Partners Three, LLC (25) (16) (40) (33) (Loss) Income from Unconsolidated Joint Venture Investments $ (502) $ 299 $ (1,520) $ 480 SeptemberJune 30, 20172020 and December 31, 20162019 and for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016. 2019.563,409 647,548 42,331 45,576 605,740 693,124 351,906 432,173 8,238 36,275 90,090 119,892 155,763 104,784 (257) 245,596 224,676 605,740 693,124 20 June 30, 2020 December 31, 2019 Assets Investment in Hotel Properties, Net $ 584,038 $ 579,287 Other Assets 28,359 33,891 Total Assets $ 612,397 $ 613,178 Liabilities and Equity Mortgages and Notes Payable $ 445,533 $ 430,282 Other Liabilities 22,452 19,185 Equity: Hersha Hospitality Trust 7,996 9,588 Joint Venture Partner(s) 136,977 154,998 Accumulated Other Comprehensive Loss (561) (875) Total Equity 144,412 163,711 Total Liabilities and Equity $ 612,397 $ 613,178 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]25,837 37,757 66,845 81,715 499 5,718 1,453 17,213 (11,632) (23,433) (31,988) (56,999) (164) (278) (504) (860) (2,948) (3,326) (8,444) (6,404) (1,428) (2,636) (3,956) (5,985) (3,152) (4,040) (9,157) (9,049) (5,375) (6,146) (15,473) (12,410) (1,499) (10) (50) 1,637 3,606 (1,224) 5,672 Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Room Revenue $ 5,588 $ 26,995 $ 16,932 $ 43,346 Other Revenue — 622 787 1,243 Operating Expenses (3,265) (11,890) (11,613) (21,921) Lease Expense (170) (164) (354) (365) Property Taxes and Insurance (3,154) (3,051) (6,438) (6,103) General and Administrative (553) (1,505) (1,516) (2,711) Depreciation and Amortization (3,925) (3,694) (7,840) (7,354) Interest Expense (5,582) (7,196) (11,869) (14,343) Net (Loss) Income $ (11,061) $ 117 $ (21,911) $ (8,208) SeptemberJune 30, 20172020 and December 31, 2016.2019.90,090 119,892 (86,385) (108,451) 3,705 11,441 June 30, 2020 December 31, 2019 Our share of equity recorded on the joint ventures' financial statements $ 7,996 $ 9,588 (469) (1,142) Investment in Unconsolidated Joint Ventures $ 7,527 $ 8,446 ·the difference between our basis in the investment in joint ventures and the equity recorded on the joint ventures' financial statements;·accumulated amortization of our equity in joint ventures that reflects the difference in our portion of the fair value of joint ventures' assets on the date of our investment when compared to the carrying value of the assets recorded on the joint ventures’ financial statements (this excess or deficit investment is amortized over the life of the properties, and the amortization is included in Income (Loss) from Unconsolidated Joint Venture Investments on our consolidated statement of operations); and·cumulative impairment of our investment in joint ventures not reflected on the joint ventures' financial statements, if any. 21NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]–- OTHER ASSETSSeptemberJune 30, 20172020 and December 31, 2016:2019:1,963 1,835 2,483 1,383 9,336 9,217 1,548 1,548 3,307 2,641 4,581 3,332 14,616 16,197 6,382 1,891 3,217 46,107 39,370 June 30, 2020 December 31, 2019 Derivative Asset $ — $ 2,514 Deferred Financing Costs 3,019 1,330 Prepaid Expenses 6,189 11,279 Investment in Statutory Trusts 1,548 1,548 Investment in Non-Hotel Property and Inventories 2,714 2,987 Deposits with Unaffiliated Third Parties 2,575 2,577 Deferred Tax Asset, Net of Valuation Allowance of $20,363 and $497, respectively — 11,390 Property Insurance Receivable 1,788 1,788 Other 3,163 2,764 $ 20,996 $ 38,177 Sheet. Our investment is accountedunder the equity method.approximately $14,616 ofrecorded a valuations allowance resulting in net deferred tax assets of $0 as of SeptemberJune 30, 2017.2020. We have considered various factors, including future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies in determining a valuation allowance forthe ability to realize the benefits of our deferred tax assets, andassets. In Note 1, we believealso disclosed factors that ithave given rise to substantial doubt in our ability to continue as a going concern, which is more likely than nota primary factor in our determination that we will be able to realize the $14,616 ofa full valuation allowance against our net deferred tax assets inwas appropriate to record during the future.three months ended June 30, 2020.22NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]–- DEBTSeptemberJune 30, 20172020 and December 31, 20162019 consisted of the following:312,129 338,529 1,928 2,313 (2,857) (3,021) 311,200 337,821 51,428 June 30, 2020 December 31, 2019 Mortgage Indebtedness $ 333,298 $ 333,948 Net Unamortized Premium 585 821 Net Unamortized Deferred Financing Costs (2,112) (2,489) Mortgages Payable $ 331,771 $ 332,280 alsoalso amortized over the remaining life of the loans.3.48%2.16% to 6.30% as of SeptemberJune 30, 2017.2020. Aggregate interest expense incurred under the mortgage loans payable totaled $3,172$3,031 and $4,930,$4,077, and $9,202$6,516 and $16,921$8,067, during the three and ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.SeptemberJune 30, 2017.SeptemberJune 30, 2017,2020, the maturity dates for the outstanding mortgage loans ranged from January 20182021 to September 2025.Subordinatedtwo2 junior subordinated notes payable in the aggregate amount of $51,548 to the Hersha Statutory Trusts pursuant to indenture agreements which will mature on July 30, 2035, but may be redeemed at our option, in whole or in part, prior to maturity in accordance with the provisions of the indenture agreements. The $25,774 of notes issued to each of Hersha Statutory Trust I and Hersha Statutory Trust II bear interest at a variable rate of LIBOR plus 3% per annum. This rate resets two2 business days prior to each quarterly payment. The face value of the notes payable is offset by $931$785 and $970$812 as of SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively, in net deferred financing costs incurred as a result of entering into these indentures. The deferred financing costs are amortized over the life of the notes payable. The weighted average interest rate on our two2 junior subordinated notes payable was 4.36%4.08% and 3.80%5.64%, and 4.17%4.45% and 3.69%5.66%, during the three and ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. Interest expense on Unsecured Notes Payable in the amount of $562$532 and $490,$734, and $1,614$1,160 and $1,427 $1,466, was recorded for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.three unsecured3 credit agreements which aggregate to $975,000$950,900 with Citigroup Global Markets Inc., Wells Fargo Bank, Inc. and various other lenders. The firstOur credit agreement was amended and restated during the third quarter of 2017. The first credit facility now(the "Credit Agreement") provides for a $475,000$457,000 senior unsecured credit facility (“Credit Facility”) which was an increase over the existing credit facility capacity of $460,520.. The Credit Facility consists of a$250,000 $250,000 senior unsecured revolving line of credit (“Line of Credit”), for which the balance remained unchanged as and a result of the refinance, and a$207,000 senior unsecured term loan (“("First Term Loan”Loan") for which the balance increased to $225,000 from $210,520 during the refinance.. TheCredit Facility expires onAugust 10, 2022, and, provided no event of default has occurred, we may request that the lendersrenew the credit facilityCredit Facility for an additionalone- year one-year period. The Credit Facility is also expandable to$875,000 $857,000 at our request, subject to the satisfaction of certain conditions.23HERSHA HOSPITALITY TRUST AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 [UNAUDITED][IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]NOTE 5 – DEBT (CONTINUED)Our secondWe maintain another credit agreement which provides for a $300,000 senior unsecured term loan agreement (“Second Term Loan”) and expires on AugustSeptember 10, 2020. Our third2024.$200,000$193,900 senior unsecured term loan agreement (“Third Term Loan” and collectively with the Credit Agreement and the Second Term Loan, the "Credit Agreements") and expires on August 2, 2021.First, Second and Third Term Loanindividual term loans (each a “Term Loan” and together the “Term Loans”) is governed by certain operating metrics of designated unencumbered hotel properties known as borrowing base assets. As of SeptemberJune 30, 2017,2020, the following hotel properties were borrowing base assets: secured the amended facilities under the Credit Agreements: Sheraton, Wilmington South, DEHampton Inn, Pearl Street,NU Hotel, Brooklyn, NYCourtyard,The Cadillac Hotel and Beach Club, Miami, FLSheraton Hotel,The Gate JFK Airport, New York, NYNU Hotel, Brooklyn,Hyatt House White Plains, NYHyatt House White Plains, NYHolidayHampton Inn, Express Chester, NY- Hampton Inn, Philadelphia, PA- Residence Inn, Tyson's Corner, VA- Hyatt House Gaithersburg, MD- Mystic Marriott Hotel & Spa, Groton, CT225,000 210,520 300,000 300,000 200,000 156,100 We maintain an interest rate swap, Outstanding Balance Borrowing Spread June 30, 2020 December 31, 2019 Line of Credit 1.50% to 2.25% $ 95,000 $ 48,000 Term Loan: First Term Loan 1.45% to 2.20% $ 207,000 $ 207,000 Second Term Loan 1.35% to 2.00% 300,000 300,000 Third Term Loan 1.45% to 2.20% 193,900 193,900 Deferred Loan Costs (3,303) (3,717) Total Term Loan $ 697,597 $ 697,183 a $150,000 notional amount, which effectively fixes the interest rate on $150,000April 2, 2020 amendment to the Credit Agreement. Upon expiration of the $200,000 Third Term Loan at a blended rate of 3.211%. This swap agreement matures on October 3, 2019. See “Note 7 – Fair Value Measurements and Derivative Instruments” for more information regarding interest rate hedging strategies we employ.Oncovenant waiver in March 14, 2017, we entered into an interest rate swap associated with $50,000 of our $200,000 Third Term Loan, which became effective on April 3, 2017. This swap effectively fixes2021, the interest rate on $50,000 of the Third Term Loan at 3.894%. This swap matures on October 3, 2019.24HERSHA HOSPITALITY TRUST AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 [UNAUDITED][IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]NOTE 5 – DEBT (CONTINUED)On March 23, 2017, we entered into an interest rate swap associated with our $300,000 Second Term Loan, which became effective beginning on August 10, 2017. This swap effectively fixes the interest rate of the Second Term Loan at 3.6930% from the effective date through August 9, 2018. For the period from August 10, 2018 to August 11, 2019, the interest ratefollowing covenant requirements will be fixed at 4.1155%. For the period from August 12, 2019 through maturity, the interest rate will be fixed at 4.3925%. This swap matures on August 10, 2020.The balance of the Term Loans is offset by $3,639 and $3,120 in net deferred financing costs as of September 30, 2017 and December 31, 2016, respectively. These costs were incurred as a result of originating the term loan borrowings and are amortized over the life of these loans.$1,075,000,$1,119,500, plus an amount equal to 75% of the net cash proceeds of all issuances and primary sales of equity interests of the parent guarantor or any of its subsidiaries consummated following the closing date; (2) annual distributions not to exceed 95% of adjusted funds from operations; and (3) certain financial ratios, including the following:···The Company is in compliance with all of the covenants as of September 30, 2017. $6,572 $5,370 and $3,983,$8,903, and $17,793$12,404 and $12,546$17,539, related to borrowings drawn on the Credit Facility and Term Loans for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. The impact on interest expense related to the interest rate swap contracts on the Credit Facility resulted in expense of $3,133 and $4,219 for the three and six months ended June 30, 2020 and a decrease to interest expense of $1,000 and $2,095 for the three and six months ended June 30, 2019. The weighted average interest rate, inclusive of the effect of derivative instruments, on the Credit Facility and Term Loans was 3.61%4.23% and 2.80%4.17%, and 3.35%4.21% and 2.71% 4.15%, for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016, respectively.Capitalized InterestWe utilize cash, mortgage debt and our Line of Credit to finance on-going capital improvement projects at our hotels. Interest incurred on mortgages and the Line of Credit that relates to our capital improvement projects is capitalized through the date when the assets are placed in service. For2019, respectively.and nine months ended SeptemberJune 30, 20172020, the Company applied for and 2016, we capitalized $0 of interest expensereceived $18,936 in loans pursuant to ongoing capital improvement projects.ninesix months ended SeptemberJune 30, 20172020 and 20162019 was $442$702 and $645, $560, and $1,703$1,267 and $1,945,$1,134, respectively.New Debt/RefinanceOn August 10, 2017, we amended and restated our existing credit facility, which now consists of a $250 million senior unsecured revolving line of credit and a $225 million senior unsecured term loan referred to above as the First Term Loan. The Credit Facility was due to expire on February 28, 2018, but will now expire on August 10, 2021. In conjunction with this transaction we recognized $280 in debt extinguishment costs.On August 1, 2017, we refinanced the outstanding mortgage debt with an original principal balance of $35,000 secured by the Courtyard Culver City, Los Angeles, CA. The loan was due to mature on September 29, 2017, but will now mature on August 1, 2021. We incurred approximately $32 in expense in third party fees.On February 24, 2017, we refinanced the outstanding mortgage debt with an original principal balance of$45,000secured by the Hilton Garden Inn, 52nd Street, NY.The loan was due to mature inMay 2017, but will now mature on February 24, 2020. Weincurred approximately$94 inexpense in third party fees.25NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]–- DEBT (CONTINUED)February 1, 2017,April 2, 2020, we issued a note payable inamended our Credit Agreements, which covered the amountCredit Facility and borrowing base of $3,150 withassets on the acquisitionLine of Credit, to access an additional $100,000. With these amendments, we received waivers on all financial covenants through March 31, 2021. The proceeds from the borrowings drawn will be used to fund the operating expenses of the Ritz Carlton Coconut Grove.On January 31, 2017, we repaid in full outstanding mortgage debt with an original principal balance of $9,500 secured by the Duane Street Hotel, NY, which was schedule to mature on February 1, 2017business. See "Liquidity, Capital Resources and we incurred approximately $12 in expense related to unamortized deferred financing costs and fees.On January 6, 2017, we repaid in full outstanding mortgage debt secured by the Hyatt House Scottsdale, AZ, the Hyatt House Pleasant Hill, CA, and the Hyatt House Pleasanton, which all matured on that date. These properties had a combined original principal balance of $51,428 and we incurred approximately $47 in expense related to unamortized deferred financing costs and fees.On January 3, 2017, we repaid in full outstanding mortgage debt with an original principal balance of $21,000 secured by theHilton Garden Inn, JFK Airport, New York, NY. The loan was due to mature on March 7, 2017, and we incurred approximately $37 in expense related to unamortized deferred financing costs and fees.On January 3, 2017, we repaid in full outstanding mortgage debt with an original principal balance of $43,000 secured by the Mystic Marriott Hotel & Spa, Groton, CT. The loan was due to mature in August of 2018, and we incurred approximately $84 in expense related to unamortized deferred financing costs and fees.On September 5, 2016, we repaid outstanding mortgage debt with an original principal balance of $55,000 secured by the Holiday Inn Express 29th Street, NY. The loan was due to mature on November 5, 2016, and we incurred approximately $42 in expense related to unamortized deferred financing costs and fees. We also recognized $133 of gain in unamortized original issue premiums related to the property.On August 2, 2016, we repaid in full outstanding mortgage debt with an original principal balance of $19,250 secured by the Hampton Inn Seaport, NY. The loan was due to mature on October 8, 2016, and we incurred approximately $67 in expense related to unamortized deferred financing costs and fees.On August 2, 2016, we repaid in full outstanding mortgage debt with an original principal balance of $25,000 secured by the Courtyard Alexandria, VA. The loan was due to mature on October 5, 2016, and we incurred approximately $9 in expense related to unamortized deferred financing costs and fees.We repaid in full the two mortgages related to the Hampton Inn Herald Square, NY and Hampton Inn Chelsea, NY, two properties contributed to the joint venture with Cindat. The mortgage debt secured by Hampton Inn Herald Square had an original balance of $26,500 and was due to mature on May 1, 2016. The mortgage debt secured by Hampton Inn Chelsea had an original balance of $36,000 and was due to mature on October 1, 2016. In addition, due to our contribution of certain of the borrowing base properties to the Cindat joint venture we were required to pay down $39,480 of the First Term Loan. We incurred a total of $1,049 in expense related to the payment of fees to extinguish debt and related to unamortized deferred financing costs associated with the mortgage debt and term loan repayments. On February 29, 2016, we repaidin full outstanding mortgage debt with an original principal balance of$8,500secured by theHawthorn Suites, Franklin, MA. The loan was due to mature on May1, 2016, and weincurred approximately$42 inexpense in unamortized deferred financing costs and fees.26NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]Three Months Ended June 30, 2020 Three Months Ended June 30, 2019 Ground Lease Office Lease Total Ground Lease Office Lease Total Operating lease costs $ 1,050 $ 121 $ 1,171 $ 973 $ 121 $ 1,094 Variable lease costs 8 87 95 141 88 229 Total lease costs $ 1,058 $ 208 $ 1,266 $ 1,114 $ 209 $ 1,323 Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 Ground Lease Office Lease Total Ground Lease Office Lease Total Operating lease costs $ 2,100 $ 242 $ 2,342 $ 1,946 $ 242 $ 2,188 Variable lease costs 21 154 175 278 159 437 Total lease costs $ 2,121 $ 396 $ 2,517 $ 2,224 $ 401 $ 2,625 June 30, 2020 June 30, 2019 Cash paid from operating cash flow for operating leases $ 1,951 $ 2,188 Weighted average remaining lease term 64.2 64.2 Weighted average discount rate 7.86 % 7.85 % five-year termsa term of five years and are subject to early termination upon the occurrence of defaults and certain other events described therein. As required under the REIT qualification rules, HHMLP must qualify as an “eligible independent contractor” during the term of the management agreements. Under the management agreements, HHMLP generally pays the operating expenses of our hotels. All operating expenses or other expenses incurred by HHMLP in performing its authorized duties are reimbursed or borne by our TRS to the extent the operating expenses or other expenses are incurred within the limits of the applicable approved hotel operating budget. HHMLP is not obligated to advance any of its own funds for operating expenses of a hotel or to incur any liability in connection with operating a hotel. Management agreements with other unaffiliated hotel management companies have similar terms.ninesix months ended SeptemberJune 30, 2017 2020 and 2016,2019, base management fees incurred from HHMLP totaled $3,650,$564 and $3,385,$3,949, and $10,208$2,933 and $9,994,$6,942, respectively, and are recorded as Hotel Operating Expenses. For the three and ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, we did not0t incur incentive management fees.ninesix months ended SeptemberJune 30, 2017 2020 and 20162019 were $6,385$775 and $6,252,$6,508, and $17,937$4,603 and $18,899,$11,483, respectively, and are recorded in Hotel Operating Expenses. The initial fees incurred to enter into the franchise agreements are amortized over the life of the franchise agreements.ninesix months ended SeptemberJune 30, 2017 2020 and 2016,2019, the Company incurred accounting fees of $326$319 and $341,$315, and $998$644 and $1,088,$631, respectively. For the three and ninesix months ended SeptemberJune 30, 2017 2020 and 2016,2019, the Company incurred information technology fees of $107$103 and $115,$102, and $329$208 and $346$203, respectively. Accounting fees and information technology fees are included in Hotel Operating Expenses.allcertain capital expenditures and pending renovation projects at the properties as compensation for procurement services related to capital expenditures and for project management of renovation projects. For the three and ninesix months ended SeptemberJune 30, 2017 2020 and 2016,2019, we incurred fees of $140$56 and $307,$989, and $781$956 and $1,036$1,513, respectively,, which were capitalized with the cost of fixed asset additions.capital expenditures.27NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019 [UNAUDITED]67 – COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, we incurred charges for hotel supplies of $45$11 and $41,$80, and $126$63 and $101, $214, respectively. For the three and ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, we incurred charges for capital expenditure purchases of $651$176 and $613,$3,882, and $1,512$1,056 and $1,927,$4,417, respectively. These purchases were made from Hersha Purchasing and Design, a hotel supply company owned, in part, by certain executives and trustees of the Company. Hotel supplies are expensed and included in Hotel Operating Expenses on our consolidated statements of operations, and capital expenditure purchases are included in investment in hotel properties on our consolidated balance sheets. Approximately $8$26 and $1$9 is included in accounts payable for the purchase of hotel supplies at SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively.SeptemberJune 30, 20172020 and December 31, 20162019 was approximately $4,708$2,363 and $18,332,$6,113, respectively. The balances primarily consisted of working capital deposits made to HHMLP and other entities owned, in part, by certain executives and trustees of the Company.SeptemberJune 30, 20172020 and December 31, 20162019 was $0.Hotel Ground RentFor the three and nine months ended September 30, 2017 and 2016, we incurred $892 and $891, and $2,593 and $2,676, respectively, of rent expense payable pursuant to ground leases related to certain hotel properties.28NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]78 – FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTSSeptemberJune 30, 2017,2020, the Company’s derivative instruments represented the only financial instruments measured at fair value. Currently, the Company uses derivative instruments, such as interest rate swapsand caps,to manage its interest raterisk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs.counterparty’scounter-party’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.counterparties.counter-parties. However, as of SeptemberJune 30, 20172020 we have assessed the significance of the effect of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.29HERSHA HOSPITALITY TRUST AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 [UNAUDITED][IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]NOTE 7 – FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS (CONTINUED)SeptemberJune 30, 20172020 and December 31, 2016.2019.30NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]78 – FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS (CONTINUED)1.011% 150,000 1,843 1,773 1.694% 50,000 (69) 1.443% 300,000 (894) 3.000% 55,750 5 54 1.600% 44,325 79 1.683% 35,000 37 0.933% (1) 1.152% 44,325 (26) 3.000% 35,000 8 1,001 1,808 Estimated Fair Value Asset / (Liability) Balance Hedged Debt Type Strike Rate Index Effective Date Derivative Contract Maturity Date Notional Amount June 30, 2020 December 31, 2019 Term Loan Instruments: Credit Facility Swap 1.341 % 1-Month LIBOR + 2.20% October 3, 2019 August 2, 2021 150,000 (1,965) 539 Credit Facility Swap 1.316 % 1-Month LIBOR + 2.20% September 3, 2019 August 2, 2021 43,900 (563) 175 Credit Facility Swap 1.824 % 1-Month LIBOR + 2.20% September 3, 2019 August 10, 2022 103,500 (3,698) (718) Credit Facility Swap 1.824 % 1-Month LIBOR + 2.20% September 3, 2019 August 10, 2022 103,500 (3,698) (718) Credit Facility Swap 1.460 % 1-Month LIBOR + 2.00% September 10, 2019 September 10, 2024 300,000 (15,695) 1,776 Mortgages: Courtyard, LA Westside, Culver City, CA Swap 1.683 % 1-Month LIBOR + 2.75% August 1, 2017 August 1, 2020 35,000 — (8) Annapolis Waterfront Hotel, MD Cap 3.350 % 1-Month LIBOR +2.65% May 1, 2018 May 1, 2021 28,000 — — Hyatt, Union Square, New York, NY Swap 1.870 % 1-Month LIBOR + 2.30% June 7, 2019 June 7, 2023 56,000 (2,827) (556) Hilton Garden Inn Tribeca, New York, NY Swap 1.768 % 1-Month LIBOR + 2.25% July 25, 2019 July 25, 2024 22,725 (1,438) (169) Hilton Garden Inn Tribeca, New York, NY Swap 1.768 % 1-Month LIBOR + 2.25% July 25, 2019 July 25, 2024 22,725 (1,438) (169) Hilton Garden Inn 52nd Street, New York, NY Swap 1.540 % 1-Month LIBOR + 2.30% December 4, 2019 December 4, 2022 44,325 (1,515) 23 Courtyard, LA Westside, Culver City, CA Swap 0.495 % 1-Month LIBOR + 2.75% June 1, 2020 August 1, 2021 35,000 (134) — $ (32,971) $ 175 (1) March 14, 2017,June 1, 2020, we entered into an accelerated termination agreement on the interest rate swap associated with our $50,000the $35,000 mortgage debt on the Courtyard LA Westside, which had an initial maturity of our $200,000 Third Term Loan, which became effectiveAugust 1, 2020. Also on April 3, 2017. This swap effectively fixes the interest rate of the Third Term Loan at 3.894%. This swap matures on October 3, 2019.(2) On March 23, 2017,June 1, 2020, we entered into ana new interest rate swap associated with our $300,000 Second Term Loan, which became effective beginningthe $35,000 mortgage on August 10, 2017. This swap effectively fixes the interest rate of the Second Term Loan at 3.6930%from theeffective date through August 9, 2018. For the period from August 10, 2018 to August 11, 2019, the interest rate will be fixed at 4.1155%. For the period from August 12, 2019 through maturity, the interest rate will be fixed at 4.3925%. This swap matures on August 10, 2020.(3) On February 24, 2017, we refinanced the debt associated with the Hilton Garden Inn 52nd Street, New York, NY. As a result, we entered into an interest rate swap with a strike rate of 1.60%. The interest rate swap designated as a hedge against the refinanced mortgage note matured on February 21, 2017. (4) On August 1, 2017, we refinanced debt associated with the Courtyard LA Westside, Culver City, CA. Concurrently, we entered into an interest rate swap with a strike rate of 1.683%. The interest rate cap designated as a hedge against the old refinanced mortgage note was due towhich will mature on September 29, 2017 and was terminated upon the refinance.31HERSHA HOSPITALITY TRUST AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 [UNAUDITED][IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]NOTE 7 – FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS (CONTINUED)certainthe old swap at the time of termination was a liability in the amount of $67. Instead of settling this amount with cash consideration at termination, the rate and terms of the new swap were such that, the fair value at termination of the old swap would carry over as the fair value of the new swap at inception. The other comprehensive income related to the old swap will be reclassified to interest expense until the date of the original maturity date of August 1, 2020.SeptemberJune 30, 20172020 and December 31, 2016.2019. The fair value of certain of our interest rate swaps with a negative balance is included in accounts payable, accrued expenses and other liabilities at SeptemberJune 30, 20172020 and December 31, 2016.in fair value ofrelated to derivative instruments designated as cash flow hedges recognized as unrealized gains and losses reflected on our consolidated balance sheet in accumulated other comprehensive income was a gainloss of $467$792 and a gainloss of $153$5,234 for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and a loss of $772$30,941 and a loss of $68$8,155 for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.derivative.derivatives. The change in net unrealized gains/losses on cash flow hedges reflects a reclassification of $144$1,228 and $110,$1,112 and $424$2,205 and $428$2,253 of net unrealized gains/losses from accumulated other comprehensive income as an increase/decrease to interest expense for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. For the next twelve months ending SeptemberJune 30, 2018,2021, we estimate that an additional $65$14,197 will be reclassified as a decreasean increase to interest expense.SeptemberJune 30, 2017,2020, the carrying value and estimated fair value of our debt were $1,083,178$1,175,131 and $1,061,598$1,150,217 respectively. As of December 31, 2016,2019, the carrying value and estimated fair value of our debt were $1,103,327$1,128,199 and $1,098,248,$1,098,082, respectively.32NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019 [UNAUDITED]89 – SHARE BASED PAYMENTSWe measure the cost of employee service received in exchange for an award of equity instruments based on the grant-date fair value of the award. The compensation cost is amortized on a straight line basis over the period during which an employee is required to provide service in exchange for the award. The compensation cost related to performance awards that are contingent upon market-based criteria being met is recorded at the fair value of the award on the date of the grant and amortized over the performance period. As discussed in Note 1 forfeitures of share-based awards are expensed as they occur.The Company established and ourExecutives & EmployeesAnnual Long Term Equity Incentive ProgramsTo further align Pursuant to the interests of the Company’s executives with those of shareholders, the Compensation Committee grants annual long term2012 Plan, equity incentive awards that are both “performance based” and “time based.”On March 10, 2017, the Compensation Committee approved the 2017 Annual Long Term Equity Incentive Program (“2017 Annual EIP”) for the executive officers, pursuant to which the executive officers are eligible to earn equity awardsmay be awarded in the form of stock awards, LTIP Units, or performance share awards issuableissuable.2012 Plan. These awards are earnedSTIP vest on December 31, 2021, the two year anniversary following the end of the performance period. On April 13, 2020, the Compensation Committee awarded 240,923 LTIP Units based on the achievement of certain metrics established under the 2017 AnnualMulti-Year EIP based on achieving a threshold, target or maximum level of performance infor the performance of RevPAR growth in certain defined areas. In addition,period ended December 31, 2019. Following the Compensation Committee providedthree year performance period, the optionawards issued pursuant to the executive officers to elect shares in lieu2017 Multi-Year EIP vest 50% on the date of cash paymentissuance and 50% on December 31, 2020. The LTIP Units awarded under both the 2019 STIP and the 2017 annual cash incentive program (“2017 ACIP”). The Company accounts for these grants as performance awards for whichMulti-Year EIP were determined by dividing the Company assessesdollar amount of award earned by $3.58, the probability of achievementper share volume weighted average trading price of the performance conditions atCompany’s common shares on the endNYSE for the 20 trading days prior to April 13, 2020, the date of each period. Asissuance.Septemberour share based compensation activity from January 1, 2020 to June 30, 2017, no shares or LTIP Units have been issued in accordance with the 2012 Plan to the executive officers in settlement of 2017 Annual EIP awards.2020 is as follows:33LTIP Unit Awards Restricted Share Awards Share Awards Number of Units Weighted Average Grant Date Fair Value Number of Restricted Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value Unvested Balance as of December 31, 2019 441,201 $ 17.99 92,102 $ 17.07 — Granted 1,101,924 5.23 135,740 5.21 — N/A Vested (120,459) 5.23 (75,384) 12.74 — N/A Forfeited — N/A (113) 18.00 — N/A Unvested Balance as of June 30, 2020 1,422,666 $ 9.19 152,345 $ 8.65 — NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 20162019 [UNAUDITED]89 – SHARE BASED PAYMENTS (CONTINUED)is a summary of all unvested LTIP Units issued to executives:122,727 30,680 680 183,396 91,696 91,696 411 868 128,832 96,623 96,623 56 225 258,899 258,899 172,599 457 693,854 477,898 360,918 1,147 1,550 (1)25% of the issued shares or LTIP Units vested immediately upon issuance. In general, the remaining shares or LTIP Units vest 25% on the first through third anniversaries of the end of the performance period, which is a calendar year-end (subject to continuous employment through the applicable vesting date).(2)On April 18, 2012, the Company entered into amended and restated employment agreements with the Company’s executive officers. To induce the executives to agree to the substantial reduction in benefits upon certain terminations following a change of control as described in the agreements, the Company awarded an aggregate of 258,899 restricted common shares to the executives pursuant to the 2012 Plan, which were subsequently forfeited and replaced with LTIP Units on December 23, 2014. One-third of each award of LTIP Units vested or will vest on each of the third, fourth and fifth anniversaries of the original date of issuance. Vesting will accelerate upon a change of control or if the relevant executive’s employment with the Company were to terminate for any reason other than for cause (as defined in the employment agreements).Stocksummarizes share based compensation expense related to the Annual Long Term Equity Incentive Programs and 2017 ACIP of $938 and $952 and, $3,044 and $3,314 was incurred duringfor the three and ninesix months ended SeptemberJune 30, 20172020 and 2016, respectively. Unearned2019 and unearned compensation related to the Annual Long Term Equity Incentive Programs as of SeptemberJune 30, 20172020 and December 31, 2016 was $1,1472019:Share Based
Compensation ExpenseUnearned
CompensationFor the Three Months Ended For the Six Months Ended As of 6/30/2020 6/30/2019 6/30/2020 6/30/2019 6/30/2020 12/31/2019 Issued Awards LTIP Unit Awards $ 1,142 $ 1,428 $ 2,951 $ 2,791 $ 4,179 $ 2,878 Restricted Share Awards 342 459 674 795 1,080 1,051 Share Awards — 402 — 402 — — Unissued Awards Market Based 315 430 630 689 2,110 2,739 Performance Based ��� 755 — 755 — — Total $ 1,799 $ 3,474 $ 4,255 $ 5,432 $ 7,369 $ 6,668 $1,550, respectively.Unearned compensation related0.9 years for Restricted Share Awards.the grants and amortization of LTIP Units is included in Noncontrolling Interests on the Company’s Consolidated Balance Sheets and Consolidated Statements of Equity.Multi-Year Long Term Equity Incentive ProgramsOn March 10, 2017, the Compensation Committee approved the 2017 Multi-Year Long Term Equity Incentive Program (“2017 Multi-Year EIP”). This program has a three-year performance period which commenced on January 1, 2017 and ends December 31, 2019. As of September 30, 2017, no shares or LTIP Units have been issued to the executive officers in settlement of 2017 Multi-Year EIP awards. 342020 2021 2022 2023 LTIP Unit Awards 524,540 898,126 — — Restricted Share Awards 3,784 144,376 3,654 531 528,324 1,042,502 3,654 531 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]8 – SHARE BASED PAYMENTS (CONTINUED)The following table is a summary of the approved Multi-Year Long Term Equity Incentive Programs:972 666 888 249 397 61,057 30,524 110 283 61,057 30,524 1,997 1,568 The shares or LTIP Units issuable under the Multi-Year Long Term Incentive Programs, including the 2017 Multi-Year EIP, are based on the Company’s achievement of a certain level of (1) absolute total shareholder return (37.50% of the award), (2) relative total shareholder return as compared to the Company’s peer group (37.50% of the award), and (3) relative growth in revenue per available room (RevPar) compared to the Company’s peer group (25% of the award).The Company accounts for the total shareholder return components of these grants as market based awards where the Company estimates unearned compensation at the grant date fair value which is then amortized into compensation cost over the vesting period of each individual plan. The Company accounts for the RevPAR component of the grants as performance-based awards for which the Company assesses the probable achievement of the performance conditions at the end of the reporting period.Stock based compensation expense of $309 and $343 and, $1,289 and $1,527 was recorded for the three and nine months ended September 30, 2017 and 2016, respectively, for the Multi-Year Long Term Equity Incentive Programs. Unearned compensation related to the multi-year program as of September 30, 2017 and December 31, 2016, respectively, was $1,997, and $1,568.Restricted Share AwardsIn addition to share based compensation expense related to awards to executives under the Multi-Year and Annual Long Term Equity Incentive Programs, share based compensation expense related to restricted common shares issued to employees of the Company of $187 and $150 and, $473 and $407 was incurred during the three and nine months ended September 30, 2017 and 2016, respectively. Unearned compensation related to the restricted share awards as of September 30, 2017 and December 31, 2016 was $843 and $505, respectively. The following table is a summary of all unvested share awards issued to employees under the 2012 Plan and prior equity incentive plans:44,125 885 644 30,070 18,160 497 141 348 23,281 20,815 13,733 58 157 97,476 39,860 14,230 843 505 35HERSHA HOSPITALITY TRUST AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 [UNAUDITED][IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]NOTE 8 – SHARE BASED PAYMENTS (CONTINUED)TrusteesBoard Fee CompensationThe Compensation Committee approved a program that allows the Company’s trustees to make a voluntary election to receive any portion of their board fee compensation in the form of common equity valued at a 25% premium to the cash that would have been received. On December 30, 2016, we issued 4,395 shares which do not fully vest until December 31, 2017. Compensation expense incurred for the three and nine months ended September 30, 2017 and 2016 was $23 and $37 and, $71 and $74, respectively. The following table is a summary of all unvested share awards issued to trustees in lieu of board fee compensation:4,395 21.50 24 94 Multi-Year Long-Term Equity IncentivesCompensation expense for the Multi-Year Long Term Incentive Programs for the Company’s trustees incurred for the three and nine months ended September 30, 2017 and 2016 was $20 and $15 and, $58 and $45, respectively. Unearned compensation related to the Multi-Year Long Term Equity Incentive Programs was $109 and $167 as of September 30, 2017 and December 31, 2016, respectively.The following table is a summary of all unvested share awards issued to trustees under the 2012 Plan and prior equity incentive plans:5,000 81 108 2,500 835 835 22 35 2,500 1,670 1,670 6 24 2,505 2,505 109 167 Share AwardsCompensation expense related to share awards issued to the Company’s trustees of $322 and $319 was incurred during the nine months ended September 30, 2017 and 2016, respectively, and is recorded in general and administrative expense on the statement of operations. Share grants issued to the Company’s trustees are immediately vested. On June 6, 2017, an aggregate of 17,074 shares were issued to the Company’s trustees at a price per share on the date of grant of $18.86.36HERSHA HOSPITALITY TRUST AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 [UNAUDITED][IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]NOTE 8 – SHARE BASED PAYMENTS (CONTINUED)Non-employeesThe Company issues share based awards as compensation to non-employees for services provided to the Company consisting primarily of restricted common shares. The Company recorded stock based compensation expense of $35 and $17 and, $211 and $107 for the three and nine months ended September 30, 2017 and 2016, respectively. Unearned compensation related to the restricted share awards as of September 30, 2017 and December 31, 2016 was $137 and $79, respectively. The following table is a summary of all unvested share awards issued to non-employees under the 2012 Plan:15,000 18.53 7,625 137 7,350 21.11 7,350 3,750 79 22,350 14,975 3,750 137 79 37HERSHA HOSPITALITY TRUST AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 [UNAUDITED][IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]NOTE 910 – EARNINGS PER SHARE3,263 8,205 114,006 114,745 90 (211) (5,849) (4,273) (6,040) (4,417) (18,124) (12,006) (90) (119) (286) (376) (4,021) (2,777) 3,458 89,747 94,069 41,721,425 42,309,044 41,725,159 43,368,153 241,771 195,645 227,572 195,049 304,434 273,568 41,721,425 42,745,864 42,225,238 43,869,293 Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 NUMERATOR: Basic and Diluted* Net (Loss) Income $ (71,780) $ 5,559 $ (97,752) $ (2,323) Loss allocated to Noncontrolling Interests 10,360 41 13,257 1,264 Distributions to Preferred Shareholders (6,044) (6,043) (12,088) (12,087) Dividends Paid on Unvested Restricted Shares and LTIP Units — (271) — (553) Net Loss applicable to Common Shareholders $ (67,464) $ (714) $ (96,583) $ (13,699) DENOMINATOR: Weighted average number of common shares - basic 38,609,922 39,127,385 38,587,011 39,121,421 Effect of dilutive securities: Restricted Stock Awards and LTIP Units (unvested) — — — — Contingently Issued Shares and Units — — — — Weighted average number of common shares - diluted 38,609,922 39,127,385 38,587,011 39,121,421 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016 [UNAUDITED]1011 – CASH FLOW DISCLOSURES AND NON CASH INVESTING AND FINANCING ACTIVITIESninesix months ended SeptemberJune 30, 20172020 and 20162019 totaled $29,770$21,488 and $32,991$27,802 respectively. Net Cash paid on Interest Rate Derivative contracts during the six months ended June 30, 2020 and 2019 totaled $1,505 and $(2,443) respectively. Cash paid for income taxes during the ninesix months ended SeptemberJune 30, 20172020 and 20162019 totaled $757$233 and $781,$466, respectively. The following non-cash investing and financing activities occurred during the ninesix months ended SeptemberJune 30, 20172020 and 2016:63 47 49,999 44,483 14,750 5,000 392 4,133 1,378 298 264,658 2020 2019 Common Shares issued as part of the Dividend Reinvestment Plan $ 14 $ 42 Issuance of share based payments 6,404 12,119 Accrued payables for capital expenditures placed into service 1,398 1,268 Adjustment to Record Noncontrolling Interest at Redemption Value (3,196) 148 Adjustment to Record Right of Use Asset & Lease Liability — 55,515 2020 2019 Cash and cash equivalents $ 23,228 $ 36,780 Escrowed cash 7,374 10,767 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 30,602 $ 47,547 2016,2019 and in our subsequent Quarterly Reports on Form 10-Q, that could cause actual results to differ. Statements regarding the following subjects are forward-looking by their nature:● our ability to repurchase shares on attractive terms from time to time; andexpenditures.policies;acquisitions, including the ability to ramp up and stabilize newly acquired hotels with limited or no operating history, and dispositions of hotel properties;including our abilityand increases in costs to forecast expenses and delays associated with repairs to our hotels damaged by Hurricane Irma;20162019 under the heading “Risk Factors”Factors,” in our subsequent Quarterly Reports on Form 10-Q and in other reports we file with the SEC from time to time.40SeptemberJune 30, 2017,2020, we owned interests in 5148 hotels in major urban gateway markets including New York, Washington DC, Boston, Philadelphia, San Diego, Los Angeles, Seattle, and Miami, including 4238 wholly-owned hotels, 1 hotel through our interest in a consolidated joint venture, and interests in 9 hotels owned through unconsolidated joint ventures. We also entered into a joint venture during the third quarter of 2018 that is constructing a new hotel adjacent to two existing hotels partially owned by us through separate, unconsolidated joint venture interests. We have elected to be taxed as a REIT for federal income tax purposes, beginning with the taxable year ended December 31, 1999. For purposes of the REIT qualification rules, we cannot directly operate any of our hotels. Instead, we must lease our hotels to a third party lessee or to a TRS, provided that the TRS engages an eligible independent contractor to manage the hotels. As of SeptemberJune 30, 2017,2020, we have leased all of our hotels to a wholly-owned TRS, a joint venture owned TRS, or an entity owned by our wholly-owned TRS. Each of these TRS entities will pay qualifying rent, and the TRS entities have entered into management contracts with qualified independent managers, including HHMLP, with respect to our hotels. We intend to lease all newly acquired hotels to a TRS.We believechangesbeginning of the year, we expected that we would achieve operating results for 2020 that would outperform other market participants due to the strong performance anticipated from newly renovated and upgraded hotels in our equity and debt capitalization and repositioning ofportfolio, primarily led by our portfolio better enables us to capitalize on further improvement in lodging fundamentals. During 2017 thus far, we continued to see improvements in Occupancy, ADR and RevPAR across most of our markets. We continue to seek acquisition opportunities of both branded and independent hotels in urban centers and central business districts, as well as in select destination markets. In addition, we will continue to look for attractive opportunities to divest certain ofSouth Florida. We started 2020 off on solid footing with our properties at favorable prices, potentially redeploying that capital in our focus markets or opportunistically repurchasing our common shares. We expect continued stability and improvement in consumer and commercial spending and lodging demand in many of our markets during 2017. However some markets, such as New York City and South Florida, are encountering less favorable supply and demand dynamics, which could affect individual hotel performance. During the third quarter of 2017 we experienced business interruptions for our hotels located in South Florida due to Hurricane Irma. The Courtyard Cadillac Hotel in Miami, FL and the Parrot Key Hotel and Resort in Key West, FL have been closed since August 10, 2017 and we expect for both hotels to remain closed for repairs and renovationscomparable portfolio achieving RevPAR growth through the end of February 2020 but this was quickly erased as a result of the fourth quarter of 2017.global economic slowdown caused by the COVID-19 pandemic. As a result of Hurricane Irma, during the nine months ended September 30, 2017, we recorded an impairment loss of $3.8 million which represents our estimate of property damagepandemic and remediation costs incurred up to our insurance policy deductibles. We continue to evaluate the financial impact of Hurricane Irmasubsequent government mandates and our ability to recover, through our insurance policies, losses due to interruption of business or damage to property. Industry wide occupancy has surpassed peak occupancy from the previous cycle which should allowhealth official recommendations, hotel operators to increase ADRdemand was substantially reduced across the United States (“U.S.”). International visitationStates.U.S.second quarter, group and business travel are unlikely to rebound quickly. As of August 1, 2020 we had 33 hotels open and by the end of the third quarter 2020, we anticipate having 44 of our 48 hotels open assuming there is no significant increase in COVID-19 cases or government mandated closures.growlast through at least the end of 2020, is expected to reduce our cash expenditures by $72.5 million on an annualized basis when compared to dividends we declared in 2019. We have also deferred certain planned capital expenditures for 2020 with an anticipated cash savings of between $10.0 million to $15.0 million for 2020. In April 2020, we amended our existing Credit Facility, which granted us a compound annual growth ratewaiver of 3.3%our covenants under the Credit Facility through March 31, 2021 according toand provided us with additional availability under the National TravelCredit Facility of $100 million, of which $25,000 was drawn in April 2020 and Tourism Office. However, the$10,000 during July 2020.continue tocontract or grow if at all, isare not reasonably predictable. In addition, the availability of hotel-level financing for the acquisition of new hotels is not within our control. As a result, there can be no assurances that we will be able to growachieve the hotel revenues, occupancy, ADRoperating metrics or RevPARthe results at our properties as we hope.have forecasted. Factors that might contribute to less-than-anticipated performance include those described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20162019 in our subsequent Quarterly Reports on Form 10-Q, and other documents that we may file with the SEC in the future.future, including this Quarterly Report on Form 10-Q. We will continue to cautiously monitor lodging demand and rates, our third-party hotel managers, and our performance generally.41The table below outlines operating results for the Company’s portfolio of wholly owned hotels consolidated in our financial statements for the three and nine months ended September 30, 2017 and 2016.We define a comparable consolidated hotel as one that is currently consolidated, that we have owned in whole or in part for the entirety of the periods being presented, and is deemed fully operational. Based on this definition, for the three and nine months ended September 30, 2017 and 2016, there are 42 comparable consolidated hotels. The comparable key hotel operating statistics presented in the table below have been computed using pro forma methodology to compute the operating results for the portion of time prior to our ownership of hotels purchased during the comparable period for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 for our comparable hotels. For the comparison of September 30, 2017 to September 30, 2016, comparable hotel operating results contain results from our consolidated hotels owned as of September 30, 2017, excluding the results of all hotels sold since December 31, 2015. The comparison of the nine months ended September 30, 2017 to September 30, 2016 includes results as reported by the prior owners for the following hotels acquired since December 31, 2015:·Sanctuary Resort – Monterey, CA (acquired 1/28/2016)·Hilton Garden Inn M Street – Washington, DC (acquired 3/9/2016)·The Envoy – Boston, MA (acquired 7/21/2016)·Courtyard – Sunnyvale, CA (acquired 10/20/2016)·The Ambrose – Santa Monica, CA (acquired 12/1/2016)·Mystic Marriott Hotel & Spa – Groton, CT (acquired 1/3/2017)·The Ritz-Carlton – Coconut Grove, FL (acquired 2/1/2017)·The Pan Pacific Hotel – Seattle, WA (acquired 2/21/2017)·The Westin – Philadelphia, PA (acquired 6/29/2017)The comparison of the three months ended September 30, 2017 to September 30, 2016 includes results as reported by the prior owners for the following hotels acquired since June 30, 2016:·The Envoy – Boston, MA (acquired 7/21/2016)·Courtyard – Sunnyvale, CA (acquired 10/20/2016)·The Ambrose – Santa Monica, CA (acquired 12/1/2016)·Mystic Marriott Hotel & Spa – Groton, CT (acquired 1/3/2017)·The Ritz-Carlton – Coconut Grove, FL (acquired 2/1/2017)·The Pan Pacific Hotel – Seattle, WA (acquired 2/21/2017)·The Westin – Philadelphia, PA (acquired 6/29/2017)87.2% 87.7% 83.9% 83.6% 214.39 217.49 214.97 214.29 186.90 190.66 180.29 179.14 107,688 112,892 313,799 315,889 129,366 135,017 380,055 381,142 For the three months ended September 30, 2017 we experienced negative trends on a comparative basis for occupancy, ADR and RevPAR. Our Philadelphia and Washington D.C. hotels encountered difficult comparables due to the demand driven political results during the third quarter of 2016 which drove the majority of our negative RevPAR results with decreases of 18.8% and 3.4%, respectively. Their performance outweighed the modest RevPAR increases for our New York City, Boston, and West Coast hotels, which experienced 1.7%, 2.0%, and 2.3% RevPAR growth for the three months ended September 30, 2017 when compared to the same period in 2016. 42For the nine months ended September 30, 2017 our comparable hotel metrics remained relatively flat when compared to the same period in 2016. Through the first nine months of 2017, our strongest RevPAR growth occurred at comparable consolidated hotels within Boston, the West Coast, Washington D.C., and New York City which experienced growth of 4.3%, 3.7%, 2.6%, and 1.9%, respectively, when compared to 2016. Performance lagged for hotels located in South Florida and Philadelphia, which experienced comparable RevPAR decreases of 5.3% and 4.0%, respectively for the nine months ended September 30, 2017 when compared to the same period in 2016. Management also notes a 0.7% decrease in room revenue while RevPAR increased 0.6% for the nine months ended September 30, 2017 compared to 2016. This can be directly attributed to the business interruption to our Florida hotels caused by Hurricane Irma. The hurricane caused rooms to be out of service for a period of time during September 2017 resulting in lost revenue, albeit at an average RevPAR below that of the consolidated hotel set, resulting in a slight increase in comparable consolidated RevPAR and a slight decrease in room revenue.The table below outlines operating results for the Company’s portfolio of hotels we own through interests in unconsolidated joint ventures for the three and nine months ended September 30, 2017 and 2016.We define a comparable unconsolidated joint venture hotel as one that is currently owned by our unconsolidated joint ventures in whole or in part for the entirety of the periods being presented, and is deemed fully operational. Based on this definition, for the three and nine months ended September 30, 2017 and 2016, there are 9 comparable unconsolidated joint venture hotels. The comparable key hotel operating statistics presented in the table below have been computed using pro forma methodology to compute the operating results for the portion of time prior to the joint venture’s ownership of hotels purchased during the comparable period for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 for our comparable hotels.95.1% 91.7% 89.8% 88.7% 215.79 223.34 199.09 198.36 205.14 204.81 178.86 175.88 25,837 25,796 66,845 65,973 26,337 26,508 68,298 68,032 Driving occupancy results, the Cindat properties experienced occupancy growth of 462 basis points and 255 basis points for the three and nine months ended September 30, 2017. The properties within our unconsolidated joint ventures, on a comparable basis, generated 0.2% and 1.7% growth in RevPAR for the three and nine months ended September 30, 2017, respectively. The increases in RevPAR are driven by the hotel properties located in New York City within the Cindat joint venture, which had increased RevPAR growth of 1.7% and 3.1% for the three and nine months ended September 30, 2017 over 2016. 43SEPTEMBERJUNE 30, 20172020 AND 2016September June 30, 20172020 consisted of hotel operating revenues and other revenue. Hotel operating revenues were approximately 99% of total revenues for the three months ended SeptemberJune 30, 20172020 and 2016.2019. Hotel operating revenues are recorded for wholly-owned hotels that are leased to our wholly owned TRS and hotels owned through joint venture or other interests that are consolidated in our financial statements. Hotel operating revenues increased $8,995decreased $130,101, or 7.5%88.2%, to $129,510$17,412 for the three months ended SeptemberJune 30, 20172020 compared to $120,515$147,513 for the same period in 2016.2019. This increasedecrease is attributable to the reduction in operations across our portfolio due to the decrease in demand caused by the COVID-19 pandemic. Management expects hotel operating revenues can be explained by the following table:Hotel Operating Revenue for the three months ended September 30, 2016$120,515 Incremental Revenue Additions from Acquisitions (6/1/2016 - 9/30/2017):The Envoy - Boston, MA1,721 Courtyard - Sunnyvale, CA2,827 The Ambrose - Santa Monica, CA2,022 Mystic Marriott Hotel & Spa - Groton, CT5,653 The Ritz-Carlton - Coconut Grove, FL2,341 The Pan Pacific Hotel - Seattle, WA2,023 The Westin - Philadelphia, PA6,787 Total Incremental Revenue from Acquisitions23,374 Incremental Revenue Reductions from Dispositions (6/1/2016 - 9/30/2017):Hawthorn Suites - Franklin, MA(754)Residence Inn - Framingham, MA(1,540)Residence Inn - Norwood, MA(1,200)Residence Inn - Greenbelt, MD(1,591)Courtyard - Alexandria, VA(1,718)Hyatt House - Scottsdale, AZ(1,066)Hyatt House - Pleasant Hill, CA(2,353)Hyatt House - Pleasanton, CA(2,409)Total Incremental Revenue from Dispositions(12,631)Change in Hotel Operating Revenue for Remaining Hotels(1,748)Hotel Operating Revenue for the three months ended September 30, 2017$129,510 44increased 15.2%decreased 77.8% to approximately $76,917$18,378 for the three months ended SeptemberJune 30, 20172020 from $66,779$82,610 for the three months ended SeptemberJune 30, 2016. This increase in operating expenses is primarily attributable to hotel properties acquired in our existing portfolio, offset by a2019. The decrease in hotel operating expenses which were not recognized in the three months ended September 30, 2017 due to hotel dispositions. This increase in hotel operating expenses can be explained by the following table:temporary closure of certain of our hotels and reduced operations at the remaining hotels as a result of the decrease in demand caused by the COVID-19 pandemic.Hotel Operating Expenses for the three months ended September 30, 2016$66,779 Incremental Expense Additions from Acquisitions (6/1/2016 - 9/30/2017):The Envoy - Boston, MA1,038 Courtyard - Sunnyvale, CA1,271 The Ambrose - Santa Monica, CA1,026 Mystic Marriott Hotel & Spa - Groton, CT3,893 The Ritz-Carlton - Coconut Grove, FL2,705 The Pan Pacific Hotel - Seattle, WA969 The Westin - Philadelphia, PA3,987 Total Incremental Expenses from Acquisitions14,889 Incremental Expense Reductions from Dispositions (6/1/2016 - 9/30/2017):Hawthorn Suites - Franklin, MA(387)Residence Inn - Framingham, MA(775)Residence Inn - Norwood, MA(586)Residence Inn - Greenbelt, MD(787)Courtyard - Alexandria, VA(1,223)Hyatt House - Scottsdale, AZ(830)Hyatt House - Pleasant Hill, CA(1,116)Hyatt House - Pleasanton, CA(1,085)Total Incremental Expenses from Dispositions(6,789)Change in Hotel Operating Expenses for Remaining Hotels2,038 Hotel Operating Expenses for the three months ended September 30, 2017$76,917 15.8%1.5%, or $2,954,$358, to $21,658$24,322 for the three months ended SeptemberJune 30, 20172020 from $18,704$23,964 for the three months ended SeptemberJune 30, 2016. The increase in depreciation and amortization was primarily attributable to the depreciation and amortization recorded on the hotels recently acquired offset by properties sold. 2019.$1,112,$972, or 15.2%10.8%, for the three months ended SeptemberJune 30, 20172020 when compared to the same period in 2016.2019. This was primarily attributableincrease is mostly related to increases from properties acquired since April 1, 2016 which added $1,142increased real estate tax that had been re-assessed by the applicable taxing authority, resulting in expense offset by $426increases in real estate and property insurance recognized for sold propertiestax expense for the three months ended September 30, 2016 which was not an expensequarter as we had to cumulatively catch up, in certain instances, our estimated tax accruals at the time of the Companynew assessment receipt during the three months ended September 30, 2017.quarter. We otherwise typically experience increases in tax assessments and tax rates as the economy improves which arecould be offset by reductions resulting from our management of this expense.8.9%48.3%, or approximately $481,$3,913, from $5,400$8,100 in the three months ended SeptemberJune 30, 20162019 to $4,919$4,187 for the same period in 2017.2020. General and administrative expense includes expenseexpenses related to payroll, rents, and other corporate level administrative costs as well as non-cash share based payments issued as incentive compensation to the Company’s trustees, executives, and employees. Execution of our cost containment strategies resulted in a decrease of $2,235 in our payroll and other administrative costs. Expenses related to non-cash share based compensation decreased $2$1,675 when comparing the three months ended SeptemberJune 30, 20172020 to the same period in 2016.2019. Please refer to “Note 89 – Share Based Payments” of the notes to the consolidated financial statements for more information about our share based compensation.Amounts recorded on our consolidated statement of operations for acquisition and terminated transaction costs will fluctuate from period to period based on our acquisition activities. Acquisition and terminated transaction costs typically consist of transfer taxes, legal fees and other costs associated with acquiring a hotel property and transactions that were terminated45during the year. Acquisition and terminated transaction costs increased $127 from $170SeptemberJune 30, 20162020 was $41,542 compared to $297operating income of $22,716 during the same period in 2019. Our operating loss for the second quarter 2020 compared to operating income for the same period in 2017.During2019 was largely the three months ended September 30, 2017,result of the Company recordedsecond quarter of 2020 hotel operating revenues decreasing at a loss in excesslarger rate than hotel operating expenses, both of insurance recoverieswhich are the result of $3,812. This loss represents both the impairment loss and remediation costs, net of estimated insurance recoveries, associated with the damage todecreased operations across our hotel properties in South Florida caused by Hurricane Irma. As of September 30, 2017 the Company has recorded an insurance receivable of $6,382. Our current insurance policies also contain coverage for income lostportfolio due to business interruption from covered losses. Any recoveries obtained through business interruption coverage will be recorded as a gain at such time that the recovery is probable. The Company recorded $0 gain related to business interruptionCOVID-19 pandemic. Additionally, we experienced increases in real estate taxes and insurance, coverageand depreciation and amortization expense during the three months ended September 30, 2017.Operating IncomeOperating incomesecond quarter of 2020 compared to 2019.SeptemberJune 30, 2017 was $12,675 compared2019 to operating income of $21,356 during the same period in 2016. Operating income was negatively impacted by increased costs in areas such as hotel operating expenses, acquisition expenses, depreciation and amortization, and losses in excess of insurance recoveries.Interest ExpenseInterest expense increased $716 from $10,425$13,481 for the three months ended SeptemberJune 30, 2016 to $11,141 for the three months ended September 30, 2017.2020. The balance of our borrowings, excluding discounts and deferred costs, have increased by $18,642$57,036 in total between SeptemberJune 30, 20162019 and SeptemberJune 30, 2017,2020, as we drew an additional $112,480$58,000, net on our Line of Credit and had a net decrease in mortgages payable of $963. The primary driver of our increased interest expense is due to increases in overall balance; however, the decrease in weighted average interest rates related to our Credit Facility and assumedalmost offset the $40,600 mortgage on the Courtyard, Sunnyvale, CA which were partially offset by debt paydowns of $134,437 since September 30, 2016. The sale of properties with mortgage debt and the pay-off of other property-level debt during 2016 and 2017 resulted in a reduction of interest expense of $2,655 for the three months ended September 30, 2017 compared to the corresponding period in 2016. This reduction in expense was offset by the Term Loan increase and the Courtyard Sunnyvale debt which contributed $3,389 to interest expense when comparing the three months ended September 30, 2017 to the corresponding period in 2016. While the overall weighted average interest rate for our debt portfolio has decreased as of September 30, 2017 compared to September 30, 2016 resulting in an decrease in interest expense for the nine months ended September 30, 2017, we experienced an increase in interest expense for the three months ended September 30, 2017 compared to the same period in 2016 due to the timingbalance growth.debt pay-off’s relative to the draws of funds from our credit facility.Unconsolidated Joint Venture InvestmentsThe income (loss) from unconsolidated joint ventures consists of our interest in the operating results of the properties we own in joint ventures. Income from our unconsolidated joint ventures increased by $4,255 from a loss of $(3,717) for the three months ended September 30, 2016 compared to income of $539 during the same period in 2017. Income Tax BenefitSeptemberJune 30, 2017,2020, the Company recorded an impairment charge of $1,069 related to the Duane Street Hotel, which is held for sale as of June 30, 2020. During the second quarter of 2020, the Company amended the purchase and sale agreement with the buyer of the hotel to reduce the purchase price by $2,000. As a result of the reduced sales price and after consideration of selling costs to the Company, management determined that the carrying value of the hotel exceeded the anticipated net proceeds from sale, resulting in the impairment charge.benefitexpense of $1,325$15,872 compared to an income tax benefitexpense of $1,443$4,031 for the three months ended SeptemberJune 30, 2016.2019. After considering various factors, including future reversals of existing taxable temporary differences, future taxable income and tax planning strategies, we believe it is no longer more likely than not that we will realize our deferred tax assets.During the three months ended June 30, 2020 we recorded a valuation allowance of $19,866 resulting in net deferred tax assets of $0 as of June 30, 2020. The amount ofThe changes to 2017 taxable income forecasted from our consolidated TRS’s resulted in the Company recording an income tax benefit for the three months ended September 30, 2017 compared to 2016 forecasted taxable losses that generated the income tax benefit recorded for the three months September 30, 2016. Despite anticipating taxable income for the year ended 2017 at our consolidated TRS’s the Company anticipates that any federal tax liability will be fully absorbed by the application of net operating loss carryforwards.(Loss) IncomeLoss Applicable to Common Shareholders(loss) incomeloss applicable to common shareholders for the three months ended SeptemberJune 30, 20172020 was a$67,464 compared to net loss of $(2,687) compared to income of $3,577$443 during the same period in 2016.2019. This decreaseincrease in loss was primarily related to decrease inthe decreased operating income during the respective periods partially offset by the change inand increased income from unconsolidated joint ventures for the three months ended September 30, 2017 compared to the same period in 2016. Also affecting net income applicable to common shareholders is an increase in dividends declared on preferred shares, which increased approximately $1,600tax expense during the three months ended SeptemberJune 30, 2017 when compared to2020, as discussed above. Partially offsetting the same period in 2016 due to the issuance of the Series D Preferred Shares and Series E Preferred Shares during 2016 offsetincrease is loss being absorbed by the redemption of Series B Preferred Shares during 2016.noncontrolling interests.46Comprehensive (Loss) Income Attributable to Common ShareholdersComprehensive (loss) income attributable to common shareholders for the three months ended September 30, 2017 was a loss of $(2,247) compared to income of $3,730 for the same period in 2016. For the three months ended September 30, 2017, we recorded comprehensive income of $3,730 compared to $8,358 for the three months ended September 30, 2016.47NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172020 AND 2016ninesix months ended SeptemberJune 30, 20172020 consisted of hotel operating revenues and other revenue. Hotel operating revenues were approximately 99% of total revenues for the ninesix months ended SeptemberJune 30, 20172020 and 2016.2019. Hotel operating revenues are recorded for wholly-owned hotels that are leased to our wholly owned TRS and hotels owned through joint venture or other interests that are consolidated in our financial statements. Hotel operating revenues increased $19,487decreased $154,806, or 5.5%59.1%, to $374,478$107,350 for the ninesix months ended SeptemberJune 30, 20172020 compared to $354,991$262,156 for the same period in 2016.2019. This increasedecrease is attributable to the reduction in operations across our portfolio due to the decrease in demand caused by the COVID-19 pandemic. During the six months ended June 30, 2020, our hotel portfolio experienced a decrease in RevPAR as a result of local stay-at-home orders and business restrictions implemented by local governments and national restrictions on travel. Management expects hotel operating revenues can be explained by the following table:
ExpensesHotel Operating Revenue for the nine months ended September 30, 2016$354,991 Incremental Revenue Additions from Acquisitions (1/1/2016 - 9/30/2017):Sanctuary Resort – Monterey, CA$236 Hilton Garden Inn M Street – Washington, DC2,461 The Envoy - Boston, MA10,915 Courtyard - Sunnyvale, CA8,252 The Ambrose - Santa Monica, CA5,539 Mystic Marriott Hotel & Spa - Groton, CT15,805 The Ritz-Carlton - Coconut Grove, FL8,872 The Pan Pacific Hotel - Seattle, WA7,332 The Westin - Philadelphia, PA6,787 Total Incremental Revenue from Acquisitions66,199 Incremental Revenue Reductions from Dispositions (1/1/2016 - 9/30/2017):Cindat Hotel Portfolio (7 hotels)(18,109)Hyatt Place - King of Prussia, PA(1,460)Hawthorn Suites - Franklin, MA(2,117)Residence Inn - Framingham, MA(4,185)Residence Inn - Norwood, MA(3,274)Residence Inn - Greenbelt, MD(5,027)Courtyard - Alexandria, VA(5,877)Hyatt House - Scottsdale, AZ(1,491)Hyatt House - Pleasant Hill, CA(3,096)Hyatt House - Pleasanton, CA(2,815)Total Incremental Revenue from Dispositions(47,451)Change in Hotel Operating Revenue for Remaining Hotels739 Hotel Operating Revenue for the nine months ended September 30, 2017$374,478 48Expensesincreased 11.2%decreased 46.8% to approximately $220,706$83,897 for the ninesix months ended SeptemberJune 30, 20172020 from $198,397$157,721 for the ninesix months ended SeptemberJune 30, 2016. This increase in operating expenses is primarily attributable to hotel properties acquired in our existing portfolio, offset by a2019. The decrease in hotel operating expenses which were not recognized in the nine months ended September 30, 2016 due to hotel dispositions and the contribution of seven hotel properties to the joint venture with Cindat. This increase in hotel operating expenses can be explained by the following table:Hotel Operating Expenses for the nine months ended September 30, 2016$198,397 Incremental Expense Additions from Acquisitions (1/1/2016 - 9/30/2017):Sanctuary Resort – Monterey, CA$699 Hilton Garden Inn M Street – Washington, DC1,319 The Envoy - Boston, MA6,731 Courtyard - Sunnyvale, CA3,592 The Ambrose - Santa Monica, CA2,680 Mystic Marriott Hotel & Spa - Groton, CT11,357 The Ritz-Carlton - Coconut Grove, FL8,111 The Pan Pacific Hotel - Seattle, WA4,841 The Westin - Philadelphia, PA3,987 Total Incremental Expenses from Acquisitions43,317 Incremental Expense Reductions from Dispositions (1/1/2016 - 9/30/2017):Cindat Hotel Portfolio (7 hotels)(10,924)Hyatt Place - King of Prussia, PA(1,155)Hawthorn Suites - Franklin, MA(1,279)Residence Inn - Framingham, MA(2,203)Residence Inn - Norwood, MA(1,680)Residence Inn - Greenbelt, MD(2,316)Courtyard - Alexandria, VA(3,708)Hyatt House - Scottsdale, AZ(943)Hyatt House - Pleasant Hill, CA(1,374)Hyatt House - Pleasanton, CA(1,219)Total Incremental Expenses from Dispositions(26,801)Change in Hotel Operating Expenses for Remaining Hotels5,793 Hotel Operating Expenses for the nine months ended September 30, 2017$220,706 6.9%0.9%, or $3,975,$418, to $61,234$48,510 for the ninesix months ended SeptemberJune 30, 20172020 from $57,259$48,092 for the ninesix months ended SeptemberJune 30, 2016. The increase in depreciation and amortization was primarily attributable to the depreciation and amortization recorded on the hotels recently acquired offset by the contribution of the seven hotel properties contributed to the joint venture with Cindat and other properties sold. 2019.decreased $299,increased $1,517, or 1.2%8.2%, for the ninesix months ended SeptemberJune 30, 20172020 when compared to the same period in 2016.2019. This was primarily attributableincrease is mostly related to increases from properties acquired since July 1, 2016 which added $3,438increased real estate tax that had been re-assessed by the applicable taxing authority, resulting in expense offset by $4,372increases in real estate and property insurance recognizedtax expense for the seven hotel properties contributedquarter as we had to cumulatively catch up, in certain instances, our estimated tax accruals at the joint venture with Cindat and other sold properties for the nine months ended September 30, 2016 which was not an expensetime of the Companynew assessment receipt during the nine months ended September 30, 2017.quarter. We otherwise typically experience increases in tax assessments and tax rates as the economy improves which arecould be offset by reductions resulting from our management of this expense.6.5%26.9%, or approximately $1,113,$3,679, from $17,255$13,700 in the ninesix months ended SeptemberJune 30, 20162019 to $16,142$10,021 for the same period in 2017.2020. General and administrative expense includes expenseexpenses related to payroll, rents, and other corporate level administrative costs as well as non-cash share based payments issued as incentive compensation to the Company’s trustees, executives, and49employees.our cost containment strategies resulted in a decrease of $2,517 in our payroll and other administrative costs. Expenses related to non-cash share based compensation decreased $325$1,177 when comparing the ninesix months ended SeptemberJune 30, 20172020 to the same period in 2016.2019. Please refer to “Note 89 – Share Based Payments” of the notes to the consolidated financial statements for more information about our share based compensation.Amounts recorded on our consolidated statement of operations for acquisition and terminated transaction costs will fluctuate from period to period based on our acquisition activities. Acquisition and terminated transaction costs typically consist of transfer taxes, legal fees and other costs associated with acquiring a hotel property and transactions that were terminated during the year. Acquisition and terminated transaction costs increased $388 from $1,733ninesix months ended SeptemberJune 30, 2016 to $2,121 for the same period in 2017.During the nine months ended September 30, 2017, the Company recorded a loss in excess of insurance recoveries of $3,812. This loss represents both the impairment loss and remediation costs, net of estimated insurance recoveries, associated with the damage to our hotel properties in South Florida caused by Hurricane Irma. As of September 30, 2017, the Company has recorded an insurance receivable of $6,382. Our current insurance policies also contain coverage for income lost due to business interruption from covered losses. Any recoveries obtained through business interruption coverage will be recorded as a gain at such time that the recovery is probable. The Company recorded $0 gain related to business interruption insurance coverage during the nine months ended September 30, 2017.Operating IncomeOperating income for the nine months ended September 30, 20172020 was $44,870$57,951 compared to operating income of $53,451$22,163 during the same period in 2016. The decrease2019. Our operating loss for the first half of 2020 compared to operating income during the same period in operating income can be attributed2019 was largely the result of hotel operating revenues for the six months ended June 30, 2020 decreasing at a larger rate than hotel operating expenses, both of which are the result of decreased operations across our portfolio due to decreased operating margins, a losstheexcess ofreal estate taxes and insurance, recoveries, and increased depreciation and amortization expense offset partially by a decrease in general and administrative expenses.decreased $2,347increased $265 from $33,927$26,223 for the ninesix months ended SeptemberJune 30, 20162019 to $31,580$26,488 for the ninesix months ended SeptemberJune 30, 2017.2020. The balance of our borrowings, excluding discounts and deferred costs, have increased by $18,642$57,036 in total between SeptemberJune 30, 20162019 and SeptemberJune 30, 2017,2020, as we drew an additional $112,480$58,000, net on our Line of Credit and had a net decrease in mortgages payable of $963. The primary driver of our increased interest expense is due to increases in overall balance; however, the decrease in weighted average interest rates related to our Credit Facility and assumedalmost fully offset the $40,600 mortgage onincrease due to balance growth.Courtyard, Sunnyvale, CA which were partially offset by debt paydowns of $134,437 since September 30, 2016. The sale of properties with mortgage debt and the pay-off of other property-level debt during 2016 and 2017 resulted in a reduction of interest expense of $10,341 for the ninesix months ended SeptemberJune 30, 2017 compared2020, the Company recorded an impairment charge of $1,069 related to the corresponding period in 2016. This reduction in expense was partially offsetDuane Street Hotel, which is held for sale as of June 30, 2020. During the second quarter of 2020, the Company amended the purchase and sale agreement with the buyer of the hotel to reduce the purchase price by $2,000. As a result of the Term Loan increasereduced sales price and the Courtyard Sunnyvale debt which contributed $7,337 to interest expense when comparing the nine months ended September 30, 2017after consideration of selling costs to the corresponding period in 2016.WhileCompany, management determined that the balancecarrying value of outstanding borrowings has risen since September 30, 2016, the corresponding interest expense has decreased due to a reduction in interest rate on outstanding debt. The debt that was paid off since September 30, 2016 had a weighted average interest rate of approximately 5.62% at September 30, 2016, whilehotel exceeded the $200,000 borrowing under the Third Term Loan as a fixed weighted average rate of 3.38%anticipated net proceeds from sale, resulting in the majority ofimpairment charge.decrease in interest expense for the ninesix months ended SeptemberJune 30, 2017 when compared to 2016.Gain on Disposition of Hotel PropertiesDuring the nine months ended September 30, 2017, the Company recorded a gain of $89,544 related to the sales of the Residence Inn, Greenbelt, MD, Courtyard, Alexandria, VA, Hyatt House, Scottsdale, AZ, the Hyatt House, Pleasanton, CA, and the Hyatt House, Pleasant Hill, CA. This is compared to a gain on sale recognized during the nine months ended September 30, 2016 of $94,839 related to the contribution of seven properties to the Cindat joint venture transaction and the sale of the Hyatt Place, King of Prussia, PA.Unconsolidated Joint Venture InvestmentsThe income (loss) from unconsolidated joint ventures consists of our interest in the operating results of the properties we own in joint ventures. The loss from our unconsolidated joint ventures increased by $226 from a loss of $2,410 for the nine months ended September 30, 2016 compared to a loss of $2,636 during the same period in 2017. We recognized a $16,239 gain on the remeasurement of investment in unconsolidated joint ventures related to our transfer and redemption of our joint venture interest in Mystic Partners, LLC. In exchange for our interest in the partnership, we received 100% ownership of the Mystic Marriott Hotel & Spa and $11,623 in cash proceeds.50Income Tax ExpenseDuring the nine months ended September 30, 2017,2020, the Company recorded an income tax expense of $1,580$11,374 compared to an income tax benefit of $4,513$1,233 for the ninesix months ended SeptemberJune 30, 2016. 2019. After considering various factors, including future reversals of existing taxable temporary differences, future taxable income and tax planning strategies, we believe it is no longer more likely than not that we will realize our deferred tax assets.The 2017 taxable income forecasted from our consolidated TRS’s resulted in the Company recording an income tax expense for the nine months ended September 30, 2017 compared to 2016 forecasted taxable losses that generated the income tax benefit recorded for the nine months September 30, 2016. Despite anticipating taxable income for the year ended 2017 at our consolidated TRS’s the Company anticipates that any federal tax liability will be fully absorbed by the application of net operating loss carryforwards.IncomeLoss Applicable to Common Shareholdersincomeloss applicable to common shareholders for the ninesix months ended SeptemberJune 30, 20172020 was $90,033$96,583 compared to $94,445net loss of $13,146 during the same period in 2016.2019, resulting in an increased loss of $83,437. This decreaseincrease in loss was primarily related to the decreased operating income an increase inand increased income tax expense and a greater allocationduring the first half of net income to noncontrolling interests and preferred shareholders, partially offset by an2020, as discussed above. Partially offsetting the increase in income from unconsolidated joint venture investments. Theloss is the increase in dividends declared on preferred shares, which increased approximately $6,100 during the nine months ended September 30, 2017 when compared to the same period in 2016, is due to the issuance of the Series D Preferred Shares and Series E Preferred Shares during 2016 offsetloss being absorbed by the redemption of Series B Preferred Shares during 2016.Comprehensive Income Attributable to Common ShareholdersComprehensive income attributable to common shareholders for the nine months ended September 30, 2017 was $89,308 compared to $94,377 for the same period in 2016. For the nine months ended September 30, 2017, we recorded comprehensive income of $113,234 compared to $114,677 for the nine months ended September 30, 2016.51SeptemberJune 30, 2017. unsecured debt facilities in the aggregate of $975,000$950,900 which is comprised of a $475,000$457,000 senior unsecured credit facility and two unsecured term loans totaling $500,000. $493,900. The unsecured credit facility (“Credit Facility”) contains a $225,000 unsecured$207,000 term loan (“First Term Loan”) and a $250,000 unsecured revolving line of credit (“Line of Credit”). This Credit Facility expires on August 10, 2022 and, provided no event of default has occurred, we may request that the lenders renew the credit facility for an additional one-year period. The Credit Facility is also expandable by $400,000 at our request, subject to the satisfaction of certain conditions. Our two additional unsecured term loans are $300,000 (“Second Term Loan”) and $200,000$193,900 (“Third Term Loan”), which mature on AugustSeptember 10, 20202024 and August 2, 2021, respectively.SeptemberJune 30, 2017,2020, the outstanding balance under the First Term Loan was $225,000,$207,000, under the Second Term Loan was $300,000, under the Third Term Loan was $200,000$193,900 and we had no$95,000 outstanding borrowings under the Line of Credit. As of September 30, 2017, our remaining borrowing capacity under the Credit Facility, Second Term Loan and Third Term Loan was $163,027 which is based on certain operating metrics of unencumbered hotel properties designated as borrowing base assets.SeptemberJune 30, 2017,2020, we have no$0 of mortgage indebtedness maturing on or before December 31, 2017.2020. We have one mortgage borrowing in the amount of $25,000 that will mature within the next twelve months, which we expect to be able to extend the maturity based on the provisions within the existing mortgage or refinance the mortgage. We currently expect that cash requirements for all debt that is not refinanced by our existing lenders for which the maturity date is not extended will be met through a combination of cash on hand, refinancing the existing debt with new lenders, draws on the Line of Credit and the issuance of our securities. or investment from a joint venture partner may serve as additional capital resources and sources of liquidity. We may recycle capital from stabilized assets as evidenced by our transaction involving the Cindat JV properties, or from sales of non-core hotels in secondary and tertiary markets.hotels. Capital from these types of transactions is intended to be redeployed into high growth acquisitions, share buybacks, orutilized to pay down existing debt.Common Share Repurchase PlanIn October 2016, our Board As of Trustees authorizedJune 30, 2020, we are not under any requirement to sell any properties as a share repurchase program for up to $100,000matter of common shares which commenced uponmeeting debt obligations.completion of the existing repurchase program. The program will expire on December 31, 2017, unless extended by our Board of Trustees. For the ninesix months ended September June 30, 2017, the Company repurchased 264,805 common shares for an average price of $17.92.52AcquisitionsDuring the nine months ended September 30, 2017,2020, we acquired no hotel properties. Given the following wholly-ownedcurrent economic downturn and challenging operating environment facing the lodging industry, we are not currently exploring hotel properties:1,420 40,440 7,240 899 49,999 41,333 5,185 30,742 1,064 (291) 36,700 3,150 13,079 59,256 6,665 79,000 19,154 103,451 12,028 367 135,000 38,838 233,889 26,997 975 300,699 44,483 (1)The Mystic Marriott Hotel & Spa was acquired as partial consideration within the transaction to redeem and transfer our joint venture interest in Mystic Partners, LLC.* Consists entirely of $899 of advanced bookings.** Includes an intangible asset for a lease-in-place of $229, and a below market lease liability of $520.*** Consists entirely of $367 of advanced bookings.Wenet cash provided by operations, existing cash balances and if necessary, short-term borrowings under the Line of Credit. WeThe ongoing effects of the COVID-19 pandemic on our operations have had, and will continue to have, a material negative impact on our financial results and liquidity, and such negative impact may continue beyond the containment of the pandemic. While we believe that the net cash provided by operations in the coming year and borrowings drawn on the Line of Credit and any cash provided by operations in the coming year will be adequate to fund the Company’s operating requirements and monthly recurring debt service, we cannot assure you that our assumptions used to estimate our liquidity requirements will be correct because we have not previously experienced such an abrupt and drastic reduction in hotel demand.The magnitude, duration, and speed of the pandemic is uncertain and, as a consequence, our ability to be predictive is uncertain and we cannot estimate the impact on our business, financial condition, or operating results with reasonable certainty. We have cancelled the payment of dividends in accordancefor the first and second quarter of 2020 and anticipate not paying dividends for the remainder of 2020. Based on remaining funds available to us on our Line of Credit, along with REIT requirementscost savings measures throughout our operations, we believe that we will be able to generate sufficient liquidity to satisfy our obligations for the next twelve months, absent a breach of the Internal Revenue Code of 1986, as amended.thatif and when we will continue to make distributions to our shareholders at the current rate of $0.28 per common share per quarter or at all.shareholders. Due to the seasonality of our business, cash provided by operating activities fluctuates significantly from quarter to quarter. However, we believe that, based on our current estimates, which include the addition of cash from operations provided by hotels acquired during 2017, our cash provided byquarter in a normal operating activities will be sufficient over the next 12 months to fund the payment of our dividend at its current level. However, ourperiod. Our Board of Trustees continues to evaluate the dividend policy in the context of our overall liquidity and market conditions and may electwill determine when we are able to reduce or suspend these distributions.reinstate the dividend. Net cash providedused by operating activities for the ninesix months ended SeptemberJune 30,, 2017 2020 was $90,524$16,357 and cash used for the payment of distributions and dividends for the ninesix months ended SeptemberJune 30,, 2017 2020 was $64,409,$18,051, which included a specialrelated to the dividend declared during the fourth quarter of $8,343 that was funded by a portion of our proceeds from 2016 dispositions.We also project that our operating cash flow and available borrowings under the Line of Credit will be sufficient to satisfy our liquidity and other capital needs over the next twelve to eighteen months.53ninesix months ended SeptemberJune 30,, 2017 increased 2020 decreased when compared to spending on capital improvements during the ninesix months ended SeptemberJune 30,, 2016. 2019. During the ninesix months ended SeptemberJune 30, 2017, 2020, we spent $32,982$15,612 on capital expenditures to renovate, improve or replace assets at our hotels. This compares to $26,866$21,230 during the same period in 2016.2019. These capital expenditures were undertaken to comply with brand mandated improvements and to initiate projects that we believe will generate a return on investment. As a resultIn an effort to properly manage liquidity in theCompany will incur additional capital expenditures in order to return properties to working order. In some instances, but not all, the Company expects to recover a portionremainder of the capital expenditure costs through insurance proceeds.DuringIn an effort to properly manage liquidity in the nine months ended September 30, 2017,current operating environment we spent $1,500 on hotel development projects comparedhave sought or are currently in negotiations with our mortgage lenders to $0 during the samedefer all payments into capital expenditure escrow accounts for a period of 2016. We expect6 months to use operating cash flow, borrowings under the Linea year.NineSix Months Ended SeptemberJune 30, 20172020 and 2016increased $12,279decreased $63,228 from $78,245$46,871 for the ninesix months ended SeptemberJune 30, 20162019 to $90,524 cash used by operating activities of $16,357 for the comparable period in 2017. Net2020. In addition to the change in net income adjusted for non-cash items, reflectedthe following items are the other contributing factors for the change in operating cash flow.statement ofsix months ended June 30, 2019 with no such proceeds in 2020.for the nine months ended September 30, 2017 and 2016, increased by $1,021 for the nine months ended September 30, 2017 when comparedrelated to 2016, partially driven by reduced costs in areas such as real estate taxes, and stock compensation expenses. Further, a net decreasechanges in working capital assets provided additional cash from operating activities.ninesix months ended SeptemberJune 30, 20172020 was $81,574$16,191 compared to net cash provided byused in investing activities of $185,372$24,675 for the ninesix months ended SeptemberJune 30, 2016. During2019. The following items are the ninemajor contributing factors for the change in investing cash flows:SeptemberJune 30, 2017, we received $188,6122020 compared to 2019.proceeds fromcomparative cash flows of $3,400 related to a contribution of $600 to unconsolidated joint ventures for the disposition of five hotel properties. Additionally, we received $11,623 in proceeds from the sale of our joint venture interest in Mystic Partners. During the ninesix months ended SeptemberJune 30, 2016 we received $21,0932020 compared to contributions of $4,000 made for the comparative period in proceeds from the disposition2019.one hotel and $429,250 in proceeds$1,022 related to distributions received from the contribution of seven hotels to the Cindatunconsolidated joint venture. Offsetting these sources of funds were $249,291 for the purchase of three hotel propertiesventures during the ninesix months ended SeptemberJune 30, 2017 compared to $238,848 for the purchase of three hotel properties2019. No such distributions were received during the nine months ended September 30, 2016. used inprovided by financing activities for the ninesix months ended SeptemberJune 30, 20172020 was $137,065$26,165 compared to net cash used in financing activities for the ninesix months ended SeptemberJune 30, 20162019 of $155,612. This is primarily due to $122,312$15,432. The following items are the major contributing factors for the change in repaymentsfinancing cash flows:mortgages payable offset partially by $58,380 in borrowings under the unsecured term loan facilityCredit during the ninesix months ended SeptemberJune 30, 2017. During the nine months ended September 30, 2016, we repaid amounts on the line of credit, unsecured term loan, and mortgages payable of $223,401. Also during the nine months ended September 30, 2016 we redeemed our Series B Preferred Shares in June 2016 for $115,000 and repurchased $49,051 of our Class A Common Shares, which were offset by $186,000 in proceeds from our Series D Preferred Shares. In addition, dividends and distributions paid during the nine months ended September 30, 2017 increased $13,4222020 when compared to the same period in 2016, due2019.increased number of preferred shares outstanding over the comparable period, and the special dividend declaredrepurchase on common sharesshares. During the six months ended June 30, 2019, we repurchased $4,624 in common shares. We had no such repurchases during 2020.fourth quarter of 2016 that wassix months ended June 30, 2020 we paid during$18,051 in dividends compared to $36,438 for the first three months of 2017.54April 2002 National Policy BulletinDecember 2018 Financial Standards White Paper of NAREIT, which we refer to as the White Paper. The White Paper defines FFO as net income (loss) (computed in accordance with GAAP) excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated assets, plus certain non-cash items, such as loss from impairment of assets and depreciation and amortization related to real estate, gains and after adjustments for unconsolidated partnershipslosses from the sale of certain real estate assets, gains and joint ventures.losses from change in control, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by an entity. Our interpretation of the NAREIT definition is that noncontrolling interest in net income (loss) should be added back to (deducted from) net income (loss) as part of reconciling net income (loss) to FFO. Our FFO computation may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than we do.55(2,687) 3,577 90,033 94,445 (90) 211 5,849 4,273 (539) 3,717 (13,603) 2,410 39 437 (89,544) (94,839) 2,057 2,057 21,658 18,704 61,234 57,259 20,438 26,646 56,026 63,548 539 (3,717) 13,603 (2,410) (16,239) (301) (222) (905) (193) 2,176 7,359 8,615 11,399 2,414 3,420 5,074 8,796 22,852 30,066 61,100 72,344 41,721,425 42,309,044 41,725,159 43,368,153 44,957,895 44,987,721 44,936,099 46,030,381 Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Net loss applicable to common shareholders $ (69,608) $ (443) $ (98,727) $ (13,146) Loss allocated to noncontrolling interest (8,216) (41) (11,113) (1,264) Loss (income) from unconsolidated joint ventures 502 (299) 1,520 (480) Loss from impairment of depreciable assets 1,069 — 1,069 — Depreciation and amortization 24,322 23,964 48,510 48,092 Funds from consolidated hotel operations applicable to common shareholders and Partnership Units (51,931) 23,181 (58,741) 33,202 (Loss) income from unconsolidated joint ventures (502) 299 (1,520) 480 (512) (35) (361) (3,008) 21 23 42 47 393 1,292 795 2,574 Funds from unconsolidated joint ventures operations applicable to common shareholders and Partnership Units (600) 1,579 (1,044) 93 Funds from Operations applicable to common shareholders and Partnership Units $ (52,531) $ 24,760 $ (59,785) $ 33,295 Weighted Average Common Shares and Common Units Basic 38,609,922 39,127,385 38,587,011 39,121,421 Diluted 43,286,310 43,443,916 43,426,465 43,396,004 (2) Allocation of depreciation and amortization is consistent with allocation of income and loss.Based on guidance provided by NAREIT, we have eliminated loss from the impairment of certain depreciable assets, including investments in unconsolidated joint ventures and land, from net loss to arrive at FFO in each year presented.5620172020 and 20162019 and none of the estimates or assumptions have proven to be materially incorrect or resulted in our recording any significant adjustments relating to prior periods. See Item 7 of our Annual Report on Form 10-K for the year ended December 31, 20162019 for a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements.Revenue RecognitionApproximately 100% of our revenues are derived from hotel room revenues and revenue from other hotel operating departments. We directly recognize revenue and expense for all consolidated hotels as hotel operating revenue and hotel operating expense when earned and incurred. These revenues are recorded net of any sales or occupancy taxes collected from our guests. All revenues are recorded on an accrual basis, as earned. We participate in frequent guest programs sponsored by the brand owners of our hotels and we expense the charges associated with those programs, as incurred.Other revenues consist primarily of fees earned for asset management services provided to hotels we own through unconsolidated joint ventures. Fees are earned as a percentage of hotel revenue and are recorded in the period earned.·a significant decrease in the market price of a long-lived asset;·a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition;
•a significant decrease in the market price of a long-lived asset;·a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator;
•a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition; ·an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset;
•a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator;·a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset; and57·a current expectation that, it is more likely than not that, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.SeptemberJune 30, 2017,2020, based on our analysis and given consideration to the impairment charge taken on one of our hotels held for sale, we have determined that the estimated future cash flow of each of the properties in our portfolio iswas sufficient to recover its carrying value.Investment in Joint VenturesProperties owned in joint ventures are consolidated if the determination is made that we are the primary beneficiary in a variable interest entity (VIE) or we maintain control of the asset through our voting interest or other rights in the operation of the entity. To determine if we are the primary beneficiary of a VIE, we evaluate whether we have a controlling financial interest in that VIE. An enterprise is deemed to have a controlling financial interest if it has i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance, and ii) the obligation to absorb losses of the VIE that could be significant to the VIE or the rights to receive benefits from the VIE that could be significant to the VIE. Control can also be demonstrated by the ability of a member to manage day-to-day operations, refinance debt and sell the assets of the partnerships without the consent of the other member and the inability of the members to replace the managing member. This evaluation requires significant judgment.If it is determined that we do not have a controlling interest in a joint venture, either through our financial interest in a VIE or our voting interest in a voting interest entity, the equity method of accounting is used. Under this method, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the affiliates as they occur rather than as dividends or other distributions are received, limited to the extent of our investment in, advances to and commitments for the investee. Pursuant to our joint venture agreements, allocations of profits and losses of some of our investments in unconsolidated joint ventures may be allocated disproportionately as compared to nominal ownership percentages due to specified preferred return rate thresholds.The Company periodically reviews the carrying value of its investment in unconsolidated joint ventures to determine if circumstances exist indicating impairment to the carrying value of the investment that is other than temporary. When an impairment indicator is present, we will estimate the fair value of the investment. Our estimate of fair value takes into consideration factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors. This determination requires significant estimates by management, including the expected cash flows to be generated by the assets owned and operated by the joint venture. Subsequent changes in estimates could impact the determination of whether impairment exists. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount over the fair value of our investment in the unconsolidated joint venture.Accounting for Derivative Financial Investments and Hedging ActivitiesWe use derivatives to hedge, fix and cap interest rate risk and we account for our derivative and hedging activities by recording all derivative instruments at fair value on the balance sheet. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking each hedge transaction. Cash flow hedges that are considered highly effective are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or liability, with a corresponding amount recorded in other comprehensive income within shareholders’ equity. Amounts are reclassified from other comprehensive income to the income statements in the period or periods the hedged forecasted transaction affects earnings.Under cash flow hedges, derivative gains and losses not considered highly effective in hedging the change in expected cash flows of the hedged item are recognized immediately in the income statement. For hedge transactions that do not qualify for the short-cut method, at the hedge’s inception and on a regular basis thereafter, a formal assessment is performed to58determine whether changes in the cash flows of the derivative instruments have been highly effective in offsetting changes in cash flows of the hedged items and whether they are expected to be highly effective in the future.August 2017,March 2020, the FASB issued ASU No. 2017-12, Derivatives and Hedging2020-4, Reference Rate Reform (Topic 815)848): Targeted Improvements to Accounting for Hedging Activities. The update will make more financial and nonfinancial hedging strategies eligible for hedge accounting, changes how companies assess hedge effectiveness, and amends the presentation and disclosure requirements for hedging transactions. The provisionsFacilitation of the update will be effective forEffects of Reference Rate Reform on Financial Reporting. As a result of identified structural risks of interbank offered rates, in particular, the Company starting January 1, 2019 with the early adoption available as early as the quarter ended September 30, 2017. Based on the type of derivative instruments within the Company’s portfolio, we do not anticipate this updateLondon Interbank Offered Rate (LIBOR), reference rate reform is underway to have a material effect on our consolidated financial statements and related disclosures, however, we are currently assessing the ultimate impact of this update.In February 2017, the FASB issued ASU No. 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20). The update defines the term “in substance nonfinancial asset” as it is presented in Subtopic 610-20 as a “financial asset promised to a counterparty in a contract if substantially all of the fair value of the assetsidentify alternative reference rates that are promised to the counterparty in the contract is concentrated in nonfinancial assets.” As it relates to the Company, real estate, such as land and building, would be considered an example of a nonfinancial asset. Additionally, themore observable or transaction based. The update provides guidance over partial salein accounting for changes in contracts, hedging relationships, and other transactions particularly, when an entity should derecognize a distinct nonfinancial asset or in substance nonfinancial asset in a partial sale transaction, and the extent of gain that should be recognized as a result of the partial sale transaction. This standard is effectivethis reference rate reform. The optional expedients and exceptions contained within this update, in conjunction with ASU No. 2014-09 (presented below), which is effective for periods beginning after December 15, 2017, however early adoption is permitted.general, only apply to contract amendments and modifications entered into prior to January 1, 2023. The provisions of this update must be applied atthat will most likely affect our financial reporting process relate to modifications of contracts with lenders and the same time as the adoption of ASU No. 2014-09. The Company is currently evaluating howrelated hedging contracts associated with each respective modified borrowing contract. In general, the provisions of thisthe update affect our adoptionwould benefit the Company by allowing, among other things, the following:ASU No. 2014-09. See below for our discussiondebt contracts with lenders that fall under the guidance of ASU No. 2014-09 and the effect it will have on our consolidated financial statements and related disclosures.In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business as it relatesASC Topic 470 to acquisitions and business combinations. The update adds further guidance that assists preparers in evaluating whether a transaction will be accounted for as an acquisitiona non-substantial modification and not be considered a debt extinguishment.an asset or a business. We expect most of our hotel property acquisitionshedging instrument in conjunction with reference rate reform to qualify as asset acquisitions under the standard which permits the capitalization of acquisition costs to the underlying assets. The Company expects the standard to have an impact on our financial statements in periods during which we complete significant hotel acquisitions. For instance, during the nine months ended September 30, 2017, the Company incurred $2,121 in expenses related to acquisition costs that would have been subject to capitalization under this ASU. This standard is effective for periods beginning after December 31, 2017, however early adoption is permitted. Effective January 1, 2017, we adopted ASU No. 2016-09, Improvements to Employee Share-Based Award Payment Accounting, which simplifies various aspects of how share-based payments are accounted for and presented in the financial statements. This standard requires companies to record allnot require a dedesignation of the tax effects related to share-based payments through the income statement, allows companies to elect an accounting policy to either estimate the share based award forfeitures (and expense) or account for forfeitures (and expense) as they occur, and allows companies to withholdhedging relationship. percentage of the shares issuable upon settlement of an award up to the maximum individual statutory tax rate without causing the award to be classified as a liability. The Company has elected to expense forfeitures of share-based award as they occur as our accounting policy. The adoption of ASU No. 2016-09 had no material impact on our consolidated financial statements and related disclosures.In November 2016 the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), which provides guidance on the presentation of restricted cash or restricted cash equivalents within the statement of cash flows. Accordingly, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard is effective for the Company for periods beginning after December 15, 2017. The adoption of ASU No. 2016-18 will change the presentation of the statement of cash flows for the Company and we will utilize a retrospective transition method for each period presented within financial statements for periods subsequent to the date of adoption.In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which provides the principles for the recognition, measurement, presentation and disclosure of leases. The accounting for lessors will remain largely unchanged from current GAAP; however, the standard requires that certain initial direct costs be expensed rather than capitalized. Under the standard, lessees apply a dual approach, classifying leases as either finance or operating leases. A lessee is required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months, regardless of their lease classification. Based on the review of our leases, we are a lessee on ground leases in certain markets, hotel equipment leases, and office space leases. We are also a lessor in certain office space and retail lease agreements related to our hotels. While we do not59anticipate any material change to the accountinginterest rate used for leases under whichmargining, discounting, or contract price alignment for a derivative that is a cash flow hedge to not be considered a change to the critical terms of the hedge and will not require a dedesignation of the hedging relationship.a lessor,indexed to LIBOR. While we anticipate the impact of this update may benefit the Company, we are still evaluating the overall impact this ASU will have on the accounting for our leasing arrangements as well as our disclosures within the notes to our financial statements. This standard will be effective for the first annual reporting period beginning after December 15, 2018.On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. We are evaluating each of our revenue streams and related accounting policy under the standard. The new standard is effective for the Company on January 1, 2018. Early adoption is permitted, but not prior to the original effective date of January 1, 2017. The standard permits the use of either the retrospective or modified retrospective transition method. The modified retrospective method allows for, among other things, a cumulative adjustment to opening equity upon adoption of the standard. The Company continues to evaluate the ultimate effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures. Based on our analysis to date, we do not expect the new revenue recognition model to have a material impact on our hotel operating revenue, including room revenue, food and beverage, and other revenue, however, our final evaluation has not been concluded. Our evaluation under the standard also includes sales to third parties, primarily a result of dispositions of real estate. Our evaluation over sales of real estate is continuing and will be impacted by the FASB definition of a business and in substance nonfinancial assets, which have recently been addressed through the issuance of ASU No. 2017-01 and ASU No. 2017-05, respectively. Based on the provisions of ASU No. 2017-01 and ASU No. 2017-05, the Company would expect any future sales of interests in hotel properties to likely meet the criteria for full gain on sale recognition. This treatment is not different from our historical position when selling our entire interest in hotel properties, however, this is different than the historical treatment in certain instances where the Company sold partial interests in hotel properties. In particular, during 2016 the Company sold partial interests in seven hotel properties to a third party (“Cindat Sale”) resulting in an approximate $81 million deferred gain based on prevailing GAAP at the time of the transaction. The Company anticipates utilizing the modified retrospective transition method with available practical expedients upon adopting ASU No. 2014-09. As such, the Company is analyzing the Cindat Sale to assess whether it is defined to be a closed contract under the guidance of ASU No. 2014-09 which may result in no change to the deferred gain amount recorded in conjunction with the Cindat Sale.60SeptemberJune 30, 2017,2020, we are exposed to interest rate risk with respect to variable rate borrowings under our Line of Credit, Facility, Second and Third Term Loans and certain variable rate mortgages, and notes payable. As of SeptemberJune 30, 2017,2020, we had total variable rate debt outstanding of $403,089$199,548 with a weighted average interest rate of 3.56%3.04%. The effect of a 100 basis point increase or decrease in the interest rate on our variable rate debt outstanding as of SeptemberJune 30, 20172020 would be an increase or decrease in our interest expense for the three and ninesix months ended SeptemberJune 30, 20172020 of $992$490 and $2,932.SeptemberJune 30, 2017,2020, we have an interest rate cap related to debt on the Hyatt Union Square, New York, NY and Courtyard, LA Westside, Culver City, CA,Annapolis Waterfront Hotel, MD and we have fourten interest rate swaps related to debt on the Hilton Garden Inn, 52nd52nd Street, New York, NY,NY; Courtyard, LA Westside, Culver City, CA; Hyatt Union Square, New York, NY; Hilton Garden Inn Tribeca, New York, NY; and our Second and Third Term Loans.Credit Facility. We do not intend to enter into derivative or interest rate transactions for speculative purposes.SeptemberJune 30, 2017,2020, approximately 68%85.5% of our outstanding consolidated long-term indebtedness iswas subject to fixed rates or effectively capped, while 32%14.5% of our outstanding long term indebtedness is subject to floating rates, including borrowings under our Credit Facility,Line of Credit. The majority of our floating rate debt and First Term Loan.SeptemberJune 30, 20172020 levels, with all other variables held constant. A 100 basis point increase in market interest rates would cause the fair value of our fixed-rate debt outstanding at SeptemberJune 30, 20172020 to be approximately $1,037,437$1,123,707 and a 100 basis point decrease in market interest rates would cause the fair value of our fixed-rate debt outstanding at SeptemberJune 30, 20172020 to be approximately $1,086,826.SeptemberJune 30, 2017,2020, the following table presents expected principal repayments and related weighted average interest rates by expected maturity dates: Less Than 1 Year 1 - 3 years 4 - 5 Years After 5 Years Total 283 1,165 1,435 346,021 258,582 74,951 682,437 Fixed Rate Debt $ 932 $ 505,385 $ 437,049 $ 37,831 $ 981,197 3.90% 3.90% 3.89% 3.99% 4.69% 4.69% 4.18% Weighted Average Interest Rate 3.83 % 3.83 % 3.79 % 4.72 % 4.04 % 265 26,071 100,205 276,548 403,089 Floating Rate Debt $ — $ 26,045 $ 26,955 $ 51,548 $ 104,548 3.57% 3.57% 3.58% 0.00% 0.00% 3.58% 3.58% Weighted Average Interest Rate — 3.04 % 3.09 % 3.16 % 3.03 % $ 932 $ 531,430 $ 464,004 $ 89,379 $ 1,085,745 548 27,236 101,640 346,021 258,582 351,499 1,085,526 Line of Credit Line of Credit $ — $ 95,000 $ — $ — $ 95,000 Weighted Average Interest Rate Weighted Average Interest Rate — 2.41 % — — 2.41 % $ 932 $ 626,430 $ 464,004 $ 89,379 $ 1,180,745 61SeptemberJune 30, 2017.SeptemberJune 30, 2017,2020, that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.62None.following ispayment by us of dividends, with limited exceptions, has been prohibited under the terms of the amendments to the Credit Agreements entered into on April 2, 2020. Unpaid dividends on our Series B and Series C Preferred Stock accumulate without interest. Unpaid dividends on our preferred shares shall accrue without interest. No cash dividends may be paid on our common shares unless all accrued but unpaid dividends on our preferred shares have been (or contemporaneously are) declared and paid, or declared and a table summarysum sufficient for such payment has been set apart for payment for all past dividend periods. As of the date of this report, the total arrearage of unpaid cash dividends due on each of our 6.875% Series C Cumulative Redeemable Preferred Shares, 6.50% Series D Cumulative Redeemable Preferred Shares and 6.50% Series E Cumulative Redeemable Preferred Shares is $2,578,200, $6,257,632 and $3,251,230, respectively.share repurchasesshares. Each of the employment agreements also contains certain confidentiality, non-competition and non-recruitment provisions.nine12-month period following a change of control), the Applicable Employee’s termination with cause, the Applicable Employee’s death or disability and the Applicable Employee’s termination without cause or resignation for good reason within 12 months ended September 30, 2017of a change of control. Certain compensation calculations are described below. All capitalized terms not defined herein shall have the meanings ascribed to them in the respective employment agreement.$100 million repurchase program authorizedCompany’s STIP that the employee could earn for the year that includes the date of termination;in October 2016. All such common shares were repurchased(the “Compensation Committee”) approved the 2020 STIP, pursuant to open market transactions.The share repurchase program will expirewhich the executive officers are eligible to earn cash and equity awards based on achieving a threshold, target or maximum level of defined performance objectives for the performance period ending on December 31, 2017, unless extended by our Board2020. The 2020 STIP objectives include the following metrics (1) liquidity generation, (2) balance sheet flexibility, (3) expense reduction measures and (4) exploration of Trustees.120,053 120,053 120,053 120,053 120,053 120,053 200 17.99 200 120,049 132,294 17.95 132,494 117,675 132,311 17.88 264,805 115,309 2020 STIP Ranges Threshold Target Maximum Chairman 60% 70% 80% CEO 120% 150% 190% COO 120% 150% 190% CFO 80% 120% 150% CAO 80% 90% 110% 2020 LTIP Ranges Threshold Target Maximum Chairman 115% 140% 170% CEO 160% 185% 210% COO 160% 185% 210% CFO 110% 130% 150% CAO 35% 60% 75% Exhibit No.Exhibit No. 10.1 31.1 31.2 32.1 32.2 Instance DocumentDocumentDocumentDocumentDocumentDocument104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * Filed herewith + Compensatory plan or arrangement 64HERSHA HOSPITALITY TRUST October 26, 201765