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HT Hersha Hospitality Trust

Filed: 29 Mar 21, 4:32pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number: 001-14765
HERSHA HOSPITALITY TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland25-1811499
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
44 Hersha DriveHarrisburgPA17102
(Address of Principal Executive Offices)(Zip Code)
Registrant’s telephone number, including area code: (717) 236-4400
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A Common Shares of Beneficial Interest, par value $.01 per shareHTNew York Stock Exchange
6.875% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $.01 per shareHT-PCNew York Stock Exchange
6.50% Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $.01 per shareHT-PDNew York Stock Exchange
6.50% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $.01 per shareHT-PENew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of the outstanding Class A common shares held by non-affiliates of the registrant, computed by reference to the closing sale price at which Class A common shares were last sold on June 30, 2020, was approximately $223.4 million.
As of March 29, 2021, the number of Class A common shares outstanding was 39,132,307 and there were 0 Class B common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement, to be filed with the Securities and Exchange Commission not later than 120 days after the end of the registrant’s last fiscal year pursuant to Regulation 14A, are incorporated herein by reference into Part II, Item 5 and Part III.

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HERSHA HOSPITALITY TRUST
Table of Contents

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CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Unless the context otherwise requires, references in this report to: (1) “we,” “us,” “our,” the “Company” and “Hersha” mean Hersha Hospitality Trust and its consolidated subsidiaries, including Hersha Hospitality Limited Partnership, taken as a whole; (2) “HHLP” and “our operating partnership” mean Hersha Hospitality Limited Partnership; and (3) “common shares” mean our Class A common shares of beneficial interest, $0.01 par value per share.
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”), as amended, including, without limitation, statements containing the words, “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” and words of similar import. Such forward-looking statements relate to future events, our plans, strategies, prospects and future financial performance, and involve known and unknown risks that are difficult to predict, uncertainties and other factors which may cause our actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers should specifically consider the various factors identified in this report and other reports filed by us with the U.S. Securities and Exchange Commission (the "SEC") including, but not limited to those discussed in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” that could cause actual results to differ. Statements regarding the following subjects are forward-looking by their nature:
our business or investment strategy;
our projected operating results;
our ability to generate positive cash flow from operations;
our distribution policy;
our liquidity and management's plans with respect thereto;
completion of any pending transactions;
our ability to maintain existing financing arrangements, including compliance with covenants, and our ability to obtain future financing arrangements or refinance or extend the maturity of existing financing arrangements as they come due;
our ability to negotiate with lenders;
our understanding of our competition;
market trends;
projected capital expenditures;
the impact of and changes to various government programs, including in response to the novel coronavirus, or COVID-19, including those specifically affecting New York City;
the timing of the development of any effective cure or treatment for COVID-19;
our access to capital on the terms and timing we expect;
the restoration of public confidence in domestic and international travel;
permanent structural changes in demand for conference centers by business and leisure clientele;
our ability to dispose of selected hotel properties on the terms and timing we expect, if at all; and
our ability to reopen our nonoperational hotels on the terms and timing we expect, if at all.

Forward-looking statements are based on our beliefs, assumptions and expectations, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Readers should not place undue reliance on forward-looking statements.
Important factors that we think could cause our actual results to differ materially from expected results are summarized below. One of the most significant factors, however, is the ongoing impact of the current outbreak of the novel coronavirus on the United States, regional and global economies, the broader financial markets, our customers and employees, governmental responses thereto and the operation changes we have and may implement in response thereto. The current outbreak of COVID-19 has also impacted, and is likely to continue to impact, directly or indirectly, many other important factors below.
New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. In particular, it is difficult to fully assess the impact of COVID-19 at this time due to, among other factors, uncertainty regarding the severity and duration of the outbreak domestically and internationally and the effectiveness of federal, state and local governments' efforts to contain the spread of COVID-19 and respond to its direct and indirect impact on the U.S. economy and economic activity.

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The following non-exclusive list of factors could also cause actual results to vary from our forward-looking statements:
general volatility of the capital markets and the market price of our common shares;
changes in our business or investment strategy;
availability, terms and deployment of capital;
changes in our industry and the market in which we operate, interest rates, or the general economy;
decreased international travel because of geopolitical events, including terrorism, and current U.S. government policies, such as immigration policies, border closings, and travel bans related to COVID-19;
the degree and nature of our competition;
financing risks, including (i) the risk of leverage and the corresponding risk of default on our mortgage loans and other debt, including default with respect to applicable covenants, (ii) potential inability to obtain waivers of covenants or refinance or extend the maturity of existing indebtedness and (iii) our ability to negotiate with lenders;
levels of spending in the business, travel and leisure industries, as well as consumer confidence;
declines in occupancy, average daily rate and RevPAR and other hotel operating metrics;
hostilities, including future terrorist attacks, or fear of hostilities that affect travel;
financial condition of, and our relationships with, our joint venture partners, third-party property managers, franchisors and hospitality joint venture partners;
increased interest rates and operating costs;
ability to complete development and redevelopment projects;
risks associated with potential dispositions of hotel properties;
availability of and our ability to retain qualified personnel;
decreases in tourism due to pandemics, geopolitical instability or changes in foreign exchange rates;
our failure to maintain our qualification as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the "Code";
environmental uncertainties and risks related to natural disasters and increases in costs to insure against those risks;
changes in real estate and zoning laws and increases in real property tax rates;
the uncertainty and economic impact of pandemics, epidemics, or other public health emergencies or fear of such events, such as the recent outbreak of COVID-19, including with respect to New York City;
the current COVID-19 pandemic had, and will continue to have, adverse effects on our financial conditions, results of operations, cash flows, and performance for an indefinite period of time. Future pandemics may also have adverse effects on our financial condition, results of operations, cash flows, and performance;
world events impacting the ability or desire of people to travel may lead to a decline in demand for hotels; and
the factors discussed in Item 1A of this Annual Report on Form 10-K for the year ended December 31, 2020 under the headings “Risk Factors” and "Management's Discussion and Analysis of Financial Conditions and Results of Operations" and in other reports we file with the SEC from time to time.
These factors are not necessarily all of the important factors that could cause our actual results, performance or achievements to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors, many of which are beyond our control, also could harm our results, performance or achievements.
All forward-looking statements contained in this report are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and we do not undertake or assume any obligation to update publicly any of these statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
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PART I
Item 1.    Business
OVERVIEW
Hersha Hospitality Trust is a self-advised Maryland real estate investment trust that was organized in 1998 and completed its initial public offering in January of 1999. Our common shares are traded on the New York Stock Exchange under the symbol “HT.” We invest primarily in institutional grade hotels in major urban gateway markets including New York, Washington, DC, Boston, Philadelphia, South Florida and select markets on the West Coast. Our primary strategy prior to the COVID-19 pandemic was to continue to own high quality luxury, upscale, upper midscale and extended-stay hotels in metropolitan markets with high barriers to entry and independent boutique hotels in markets with similar characteristics. We have operated and intend to continue to operate so as to qualify as a REIT for federal income tax purposes.
Historically, we have created value through our ability to source capital and identify high growth acquisition targets.  We sought acquisition candidates located in markets with economic, demographic and supply dynamics favorable to hotel owners and operators. Through our due diligence process, we selected those acquisition targets where we believed selective capital improvements and intensive management would increase the hotel’s ability to attract key demand segments, enhance hotel operations and increase long-term value. To drive sustainable shareholder value, we also sought to recycle capital from stabilized assets in markets with lower forecasted growth rates. Capital from these types of transactions may be and has been redeployed into high growth acquisitions, share buybacks and reduction of debt, subject to compliance with applicable law, our declaration of trust (as amended and supplemented, our "Declaration of Trust") and certain financial covenants.
However, as described below, our operations and strategy have evolved, and continue to adapt to the ongoing effects of the COVID-19 pandemic. Due to the COVID-19 pandemic and the effects of travel restrictions both globally and in the United States, the hospitality industry has experienced drastic drops in demand. The global impact of the pandemic has been rapidly evolving and, in the United States, certain states and cities, including most of the states and cities where we own properties, have reacted by instituting various restrictive measures such as quarantines, restrictions on travel, school closings, "stay at home" rules and restrictions on types of business that may continue to operate. During the first quarter of 2020 as a result of the impact of the COVID-19 pandemic, we had temporarily closed 21 of our 48 hotels while our remaining hotels operated in a significantly reduced capacity. During the second quarter of 2020 we reopened 5 hotels, during the third quarter of 2020 we reopened 8 hotels, and during the fourth quarter of 2020 we reopened 2 hotels resulting in 6 hotels remaining closed as of December 2020. We believe the 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. As such, our current operations and strategic focus has shifted to focus on the near-term by (i) operating efficiently at reduced occupancies, and with certain hotel properties closed entirely, (ii) executing expense mitigation, and (iii) shoring up liquidity through strategic capital raising and hotel dispositions to address our various debt obligations.
As of December 31, 2020, our portfolio consisted of 37 wholly owned limited and full service properties with a total of 5,912 rooms, 1 hotel owned through a consolidated joint venture with a total of 115 rooms, and interests in 10 limited service properties owned through joint venture investments with a total of 1,555 rooms. These 48 properties, with a total of 7,582 rooms, are located in California, Connecticut, District of Columbia, Florida, Maryland, Massachusetts, New York, Pennsylvania, and Washington and operate under leading brands owned by Marriott International, Inc. (“Marriott”), Hilton Worldwide, Inc. (“Hilton”), InterContinental Hotels Group (“IHG”), Hyatt Corporation (“Hyatt”), and Pan Pacific Hotels and Resorts (“Pan Pacific”). In addition, some of our hotels operate as independent hotels.
Subsequent to December 31, 2020, we sold 4 wholly owned hotels, with a total of 650 rooms. Proceeds from the sale of these properties were used to pay down borrowings, to pay accrued preferred dividends, and for general corporate purposes. Also, subsequent to December 31, 2020, the mezzanine lender to a joint venture, through which we owned interests in 7 limited service properties with a total of 1,087 rooms, foreclosed and took ownership of those properties. After giving effect to these transactions, we maintain interests in 37 properties, with a total of 5,845 rooms.

We are structured as an umbrella partnership REIT, or UPREIT, and we own our hotels and our investments in joint ventures through our operating partnership, Hersha Hospitality Limited Partnership (the "Partnership"), for which we serve as the sole general partner. As of December 31, 2020, we owned an approximate 87.8% partnership interest in our operating partnership including all of the general partnership interest.
The majority of our wholly-owned hotels are managed by Hersha Hospitality Management, L.P. (“HHMLP”), a privately held, qualified management company owned primarily by other unaffiliated third party investors and in which certain of our trustees and executive officers have a minority investment. Other third party qualified management companies manage
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certain hotels that are wholly owned or in which we own through joint venture interests. We lease our wholly-owned hotels to 44 New England Management Company (“44 New England”), our wholly-owned taxable REIT subsidiary (“TRS”), or one of its wholly owned subsidiaries. Each of the hotels that we own through a joint venture investment is leased to another TRS that is owned by the respective joint venture or an entity owned in part by 44 New England.
Our principal executive office is located at 44 Hersha Drive, Harrisburg, Pennsylvania 17102. Our telephone number is (717) 236-4400. Our website address is www.hersha.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this report.
AVAILABLE INFORMATION
We make available free of charge through our website (www.hersha.com) our code of ethics, corporate governance guidelines and the charters of the committees of our Board of Trustees (Acquisition Committee, Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee and Risk Sub-Committee of the Audit Committee). We also make available through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the SEC. All reports that we have filed with the SEC including this annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, can also be obtained free of charge from the SEC’s website at www.sec.gov.
INVESTMENT IN HOTEL PROPERTIES

Prior to the ongoing COVID-19 pandemic, and consumer and governmental responses thereto, our operating strategy focused on increasing hotel performance for our portfolio. The key elements of this strategy were:
working together with our hotel management companies to increase revenue per available room, or RevPAR, and to maximize the average daily rate, or ADR, and occupancy levels at each of our hotels through active property-level management, including intensive marketing efforts to tour groups, corporate and government extended stay customers and other wholesale customers and expanded yield management programs, which are calculated to better match room rates to room demand; and
maximizing our hotel-level earnings by managing hotel-level costs and positioning our hotels to capitalize on increased demand in the high quality, upper-upscale, upscale and extended-stay lodging segments, which followed from improving economic conditions, and maximizing our operating margins.
In response to the ongoing COVID-19 pandemic, and consumer and governmental responses thereto, our strategy has shifted to, and remains focused on the near-term by (i) operating efficiently at reduced occupancies, and with certain hotel properties closed entirely (ii) executing expense mitigation and (iii) shoring up liquidity through strategic capital raising and hotel dispositions to address our various debt obligations.
ACQUISITIONS
When acquisitions are within our operating strategy, we selectively acquire high quality branded luxury, upper-upscale, upscale, upper-midscale and extended-stay hotels in metropolitan markets with high barriers-to-entry and independent boutique hotels in similar markets. Through our due diligence process, we select those acquisition targets where we believe selective capital improvements and intensive management will increase the hotel’s ability to attract key demand segments, enhance hotel operations and increase long-term value. In executing our disciplined acquisition program, we will consider acquiring hotels that meet the following additional criteria:
nationally-franchised hotels operating under popular brand families, such as Marriott, Hilton, IHG, Hyatt, Accor, and Four Seasons;
hotels in locations with significant barriers-to-entry, such as high development costs, limited availability of land and lengthy entitlement processes;
hotels in our target markets where we can realize operating efficiencies and economies of scale; and
independent boutique hotels that have strong business generating potential in similar markets.

All asset acquisitions are comprehensively reviewed and approved by the Acquisition Committee of our Board of Trustees, which consists solely of independent trustees.
We utilize our relationships with entities that are developing or substantially renovating hotels, including entities controlled by certain of our trustees and executive officers, to identify future hotel acquisitions that we believe may be
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attractive to us. We may continue to acquire hotels from entities controlled by certain of our trustees and executive officers if approved by a majority of our independent trustees in accordance with our related party transaction policy.
However, in response to the COVID-19 pandemic, we acquired no hotel properties in the year ended December 31, 2020 and do not intend to acquire hotel properties in the short term as part of our current operating strategy. 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.
DISPOSITIONS
We evaluate our hotels and the markets in which they operate on a periodic basis to determine if these hotels continue to satisfy our investment criteria. We may sell hotels opportunistically based upon management’s forecast and review of the cash flow potential of each hotel and re-deploy the proceeds into debt reduction, acquisitions of hotels and, from time to time, share buybacks. We utilize several criteria to determine the long-term potential of our hotels. Hotels are identified for sale based upon management’s forecast of the strength of each hotel’s cash flows, its ability to remain accretive to our portfolio, and the expectations for the market in which the hotel operates. Our decision to sell a hotel is often predicated upon the size of the hotel, strength of the franchise, property condition and related costs to renovate the property, strength of market demand generators, projected supply of hotel rooms in the market, probability of increased valuation and geographic profile of the hotel. All asset sales are comprehensively reviewed by the Acquisition Committee of our Board of Trustees.
In response to the COVID-19 pandemic, we have completed and are pursuing several hotel dispositions to enact management's strategies of expense management and shoring up liquidity to address our various debt obligations and mitigate expenses. During the year ended December 31, 2020, we disposed of the Sheraton Wilmington and we entered into an agreement to sell the Duane Street Hotel. Subsequently, we sold the Residence Inn Coconut Grove, the Courtyard San Diego, the Capitol Hill Hotel and the Holiday Inn Express Cambridge Hotel. The purchase and sale agreement entered into for the Blue Moon Hotel on February 21, 2020 expired as of December 31, 2020. As evidenced by the sales we have completed, buyer interest increased during the fourth quarter 2020 and continues to grow.

For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and Note 2, “Investment in Hotel Properties.”
FINANCING
We intend to finance our long-term growth with common and preferred equity issuances and debt financing with staggered maturities. Our organizational documents do not limit the amount of indebtedness that we may incur. Our ability to incur additional debt is dependent upon a number of factors, including the current state of the overall credit markets, our degree of leverage and borrowing restrictions imposed by debt covenants and existing lenders. Our ability to raise funds through the issuance of debt and equity securities is dependent upon, among other things, capital market volatility, risk tolerance of investors, general market conditions for REITs and market perceptions related to the Company's ability to generate cash flow and positive returns on its investments. As discussed above, we may also pursue hotel dispositions, among other strategic initiatives, in order to bolster our financial position.
Our debt includes secured debt of $935 million, which is comprised of a $452 million senior secured credit facility (which includes a $202 million secured term loan and $250 million secured line of credit), and two secured term loans totaling $482 million.  Our debt also includes secured mortgage debt on our hotel properties.  Historically, we have used our line of credit capacity to pay down mortgage debt, repurchase common shares subject to market conditions, and fund future acquisitions, as well as for capital improvements and working capital requirements. Given the current operating environment of the hotel industry as a result of the COVID-19 pandemic, which has had a negative impact on our results of operations beginning in March 2020, our main use of proceeds from our line of credit is to fund working capital requirements and necessary capital improvements. Subject to market conditions, we intend to repay amounts outstanding under the line of credit portion of our credit facility from time to time with proceeds from asset sales, periodic common and preferred equity issuances, debt issuances, long-term debt financings and cash flows from operations. When purchasing hotel properties, we may issue common and preferred limited partnership interests in our operating partnership as full or partial consideration to sellers.
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Subsequent to December 31, 2020, the Company entered into an unsecured notes facility that provided an initial $150 million at closing. An incremental $50 million may be drawn, at the Company’s discretion in minimum installments of $25 million, at any point on or prior to September 30, 2021. Proceeds from the initial $150 million provided by this facility, along with a portion of the proceeds from asset sales, were used to repay amounts outstanding under our senior secured credit facility and our two secured term loans. Also subsequent to December 31, 2020, the Company executed amendments to its senior secured credit facility and two secured term loans in connection with entering into our unsecured notes facility and property dispositions. The amendments to the senior secured credit facility and two secured term loans eliminate term loan maturities until August of 2022, waive all financial covenants through March 31, 2022, establish accommodative covenant testing methodology through December 31, 2022, enable the Company to pay down the accrual of the Company’s preferred dividends and, subject to the discretion and approval of our Board of Trustees, to declare regular quarterly dividends on our preferred shares on an ongoing basis, and provide additional liquidity at the Company’s discretion.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information on our indebtedness and financing.
SUSTAINABILITY
Our proprietary sustainability platform, EarthView®, was created in 2010 and is one of the most established sustainability programs in the industry. Through EarthView, we incorporate economic, environmental, and social initiatives into our overall business strategy. Our approach to sustainability not only drives lower operating expenses and higher real estate value, but is also a framework for identifying efficiencies in current practices, areas for hospitality innovation, and future market trends.

We have been recognized for our approach to driving positive environmental and community impact, and for our leadership in sustainability. In 2019, Hersha participated in the Global Real Estate Sustainability Benchmark (GRESB) assessment, earning GRESB’s “Green Star” and ranking in the top 15% of all GRESB participants for the fifth year in a row. We have also been selected as “Leader in the Light” by NAREIT in the Lodging & Resorts sector four times for our superior sustainability practices. Additionally, we were included in America’s Most Responsible Companies 2020 by Newsweek, ranking 279 out of 2,000 US companies on environmental, social, and governance (ESG) practices.

We are committed to transparent reporting of our ESG results. As such, Hersha publishes an annual sustainability report that is prepared in accordance with relevant international standards and best practices, specifically the Sustainable Accounting Standards Board (SASB) for the Real Estate Sector and the Task-force for Climate Financial Disclosures (TCFD). Our reporting of key environmental metrics - including energy, greenhouse gas emissions, water, and waste as it compares to our baseline year of 2010 - is third-party verified.

For more information on these and our other sustainability practices, including environmental and community impact results, as well as enterprise-wide policies, please see our current and historical sustainability reports, available on our website https://www.hersha.com/earthview/. The contents of our website are not incorporated by reference into this report.
FRANCHISE AGREEMENTS
Franchisors provide a variety of benefits for franchisees, which include national advertising, publicity and other marketing programs designed to increase brand awareness, training of personnel, continuous review of quality standards and centralized reservation systems. Most of our hotels operate under franchise licenses from national hotel franchisors, including:
FranchisorFranchises
Marriott InternationalRitz-Carlton, Marriott, Westin, Residence Inn by Marriott, Courtyard by Marriott, TownePlace Suites, Sheraton Hotels
Hilton Hotels CorporationHilton Hotels, Hilton Garden Inn, Hampton Inn
Hyatt Hotels CorporationHyatt, Hyatt House
IHGHoliday Inn, Holiday Inn Express, Holiday Inn Express & Suites, Candlewood Suites
Pan Pacific Hotel GroupPan Pacific
We anticipate a majority of the hotels in which we invest will be operated pursuant to franchise licenses.
The franchise licenses generally specify certain management, operational, record-keeping, accounting, reporting and marketing standards and procedures with which the franchisee must comply. The franchise licenses generally obligate our
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lessees to comply with the franchisors’ standards and requirements with respect to training of operational personnel, safety, maintaining specified insurance, the types of services and products ancillary to guest room services that may be provided by our lessees, display of signage, and the type, quality and age of furniture, fixtures and equipment included in guest rooms, lobbies and other common areas. In general, the franchise licenses require us to pay the franchisor a fee typically ranging between 3.7% and 9.7% of such hotel’s revenues annually.
PROPERTY MANAGEMENT
We work closely with our hotel management companies to operate our hotels and increase hotel performance for our portfolio.
Through our TRS and our investment in joint ventures, we have retained the following management companies to operate our hotels as of December 31, 2020:
Wholly OwnedJoint VenturesTotal
ManagerHotelsRoomsHotelsRoomsHotelsRooms
Hersha Hospitality Management, L.P.36 5,826 1,087 43 6,913 
South Bay Boston Management, Inc.— — 468 468 
Marriott Management86 115 201 
Total37 5,912 11 1,670 48 7,582 

Each management agreement provides for a set term and is subject to early termination upon the occurrence of defaults and certain other events described therein. As required under the REIT qualification rules, all managers, including HHMLP, must qualify as an “eligible independent contractor” during the term of the management agreements.
Under the management agreements, the manager generally pays the operating expenses of our hotels. All operating expenses or other expenses incurred by the manager in performing its authorized duties are reimbursed or borne by our applicable TRS to the extent the operating expenses or other expenses are incurred within the limits of the applicable approved hotel operating budget. Our managers are not obligated to advance any of their own funds for operating expenses of a hotel or to incur any liability in connection with operating a hotel.
For their services, the managers receive a base management fee, and if a hotel meets and exceeds certain thresholds, an additional incentive management fee. For the year ended December 31, 2020, these thresholds were not met and incentive management fees were not incurred. The base management fee for a hotel is due monthly and is generally equal to 3% of the gross revenues associated with that hotel for the related month.
CAPITAL IMPROVEMENTS, RENOVATION AND REFURBISHMENT
Under certain loan agreements, we have established capital reserves for our hotels to maintain the hotels in a condition that complies with their respective requirements. These capital reserves typically range from 3% to 5% of a hotel’s gross revenues and are included in escrow deposits on the consolidated balance sheet. In addition, we may upgrade hotels in our portfolio in order to capitalize on opportunities to increase revenue, and, as deemed necessary by our management, to seek to meet competitive conditions and preserve asset quality. We will also renovate hotels when we believe the investment in renovations will provide an attractive return to us through increased revenues and profitability and is in the best interests of our shareholders. We maintain a capital expenditures policy by which replacements and renovations are monitored to determine whether they qualify as capital improvements. All items that are deemed to be repairs and maintenance costs are expensed and recorded in Hotel Operating Expenses in the Consolidated Statements of Operations.
OPERATING PRACTICES
Our hotel managers utilize centralized accounting and data processing systems, which facilitate financial statement and budget preparation, payroll management, quality control and other support functions for the on-site hotel management team. Our hotel managers also provide centralized control over purchasing and project management (which can create economies of scale in purchasing) while emphasizing local discretion within specific guidelines.
SEASONALITY
Our hotels’ operations historically have been seasonal in nature, reflecting lower revenues and occupancy rates during the first quarter of each year when compared to the remaining three quarters. This seasonality causes fluctuations in our
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quarterly operating revenues, profitability, and cash flow. However, as a result of the COVID-19 pandemic, we may be unable to anticipate changes to the seasonality of our operations, if any.
COMPETITION
The U.S. hotel industry is highly competitive. Our hotels compete with other hotels for guests in each of their markets on the basis of several factors, including, among others, location, quality of accommodations, convenience, brand affiliation, room rates, service levels and amenities, and level of customer service. In addition to traditional hotels, our properties also compete with non-traditional accommodations for travelers such as online room sharing services. Competition is often specific to the individual markets in which our hotels are located and includes competition from existing and new hotels operated under premium brands in the focused-service and full-service segments. Furthermore, we have experienced, and continue to experience, heightened competition due to the ongoing COVID-19 pandemic due to, among other factors: (i) increased fears regarding travel and lodging, which has lowered the number of domestic and international travelers, and (ii) governmental responses to the ongoing COVID-19 pandemic, which has restricted lodging capacity and operations. We believe that hotels, such as our hotels, that are affiliated with leading national brand families, such as the Marriott, Hilton, Hyatt, IHG, or Pan Pacific will enjoy the competitive advantages associated with operating under such brands. Increased competition could harm our occupancy and revenues and may require us to provide additional amenities or make capital improvements that we otherwise would not have to make, which may materially and adversely affect our operating results and liquidity.
Historically, the upper-upscale and upscale limited service segments of the hotel business have been highly competitive.  There are many competitors in our markets and new hotels are routinely being constructed. Additions to supply create new competitors, in some cases without corresponding increases in demand for hotel rooms.
We also compete for (i) hotel acquisitions with entities that have investment objectives similar to ours and (ii) buyers for various hotel dispositions. We face competition for the acquisition of hotels from institutional pension funds, private equity funds, REITs, hotel companies and others who are engaged in the acquisition of hotels. Many of these competitors have substantially greater financial and operational resources and access to capital than we have and may have greater knowledge of the markets in which we seek to invest. This competition may reduce the number of suitable investment opportunities offered to us, increase the bargaining power of property owners seeking to sell to us and decrease the attractiveness of the terms on which we may acquire our targeted hotel investments, including the cost thereof, making it more difficult for us to acquire new properties on attractive terms. Furthermore, an increase in disposition activity by other lodging competitors may negatively impact our ability to dispose of certain hotel properties on the terms and timing we expect, if at all.
HUMAN CAPITAL
As of December 31, 2020, we had 32 employees who were principally engaged in managing the affairs of the Company. The hotel management companies we engage to operate our hotels are responsible for hiring and maintaining the labor force at each of our hotels. Although we do not manage employees at our hotels, we are still subject to the many costs and risks generally associated with the labor at our hotels.
Hersha's priorities with regard to the human capital aspects of our business are aligned with our core values and focus on supporting our associates, valuing diversity and inclusion, and embracing health and wellness.
Supporting our Associates: We aim to attract, develop, and retain top talent and are committed to creating an environment for our associates that makes Hersha an exceptional place to work. We provide competitive pay, comprehensive benefit programs, and an inclusive, safe, and open work environment. We are committed to our Code of Conduct and Code of Ethics and provide opportunities for advancement and personal growth.
Diversity and Inclusion: We support and respect the protection of the internationally recognized United Nations Universal Declaration of Human Rights, as well as labor rights. This approach has led to a diverse workforce at the senior management and workforce levels, with the following demographics across Hersha Hospitality Trust:
39% of our workforce is women
24% of our workforce identifies as a member of a minority group
24% of our workforce is under the age of 30, while 61% of our workforce is between the ages of 30 and 50
Health and Wellness: We support the physical and mental health of our associates by providing access to stress management and healthy living instruction, as well as providing a physical work environment that is comfortable and safe. We encourage work-life balance and have provided associates with the flexibility to work from home during the COVID-19 pandemic.
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Our efforts have been recognized, with our Philadelphia office being named "Best Place to Work" by the Philadelphia Business Journal three years in a row. In 2020, we were also named in Newsweek's list of America's Most Responsible Companies.
TAX STATUS
We elected to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with our taxable year ended December 31, 1999. As long as we qualify for taxation as a REIT, we generally will not be subject to federal income tax on the portion of our income that is currently distributed to our shareholders. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to federal income tax on our taxable income at regular corporate tax rates.  Additionally, we will generally be unable to qualify as a REIT for four years following the year in which qualification is lost.  Even if we qualify for taxation as a REIT, we will be subject to certain state and local taxes on our income and property and to federal income and excise taxes on our undistributed income.
We own interests in several TRSs. We may own up to 100% of the stock of a TRS. A TRS is a taxable corporation that may lease hotels from our operating partnership and its subsidiaries under certain circumstances. Overall, no more than 20% of the value of our assets may consist of securities of one or more TRS. In addition, no more than 25% of our gross income for any year may consist of dividends from one or more TRS and income from certain non-real estate related sources.
A TRS is permitted to lease hotels from us as long as the hotels are operated on behalf of the TRS by a third party manager that qualifies as an "eligible independent contractor." To qualify for that treatment, the manager must satisfy the following requirements:
1.such manager is, or is related to a person who is, actively engaged in the trade or business of operating “qualified lodging facilities” for any person unrelated to us and the TRS;
2.such manager does not own, directly or indirectly, more than 35% of our shares;
3.no more than 35% of such manager is owned, directly or indirectly, by one or more persons owning 35% or more of our shares; and
4.we do not, directly or indirectly, derive any income from such manager.
The deductibility of interest paid or accrued by a TRS to us is limited to assure that the TRS is subject to an appropriate level of corporate taxation, and in certain circumstances, other limitations on deductions of interest may apply. A 100% excise tax would be imposed on transactions between a TRS and us that are not on an arm’s-length basis.
REGULATION
General
Our hotels are subject to various U.S. federal, state and local laws, ordinances and regulations, including regulations relating to common areas and fire and safety requirements. We believe that each of our hotels has the necessary permits and approvals to operate its business.
Americans with Disabilities Act
Our hotels must comply with applicable provisions of the Americans with Disabilities Act of 1993, or ADA, to the extent that such hotels are "public accommodations" as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our hotels where such removal is readily achievable. We believe that our hotels are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA. However, non-compliance with the ADA could result in imposition of fines or an award of damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our hotels and to make alterations as appropriate in this respect.
Environmental Matters
Under various laws relating to the protection of the environment, a current or previous owner or operator (including tenants) of real estate may be liable for contamination resulting from the presence or discharge of hazardous or toxic substances at that property and may be required to investigate and clean up such contamination at that property or emanating from that property. These costs could be substantial and liability under these laws may attach without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants, and the liability may be joint and several. The presence of contamination or the failure to remediate contamination at our hotels may expose us to third-party liability or materially and adversely affect our ability to sell, lease or develop the real estate or to incur debt using the real estate as collateral.
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Our hotels are subject to various federal, state, and local environmental, health and safety laws and regulations that address a wide variety of issues, including, but not limited to, storage tanks, air emissions from emergency generators, storm water and wastewater discharges, lead-based paint, mold and mildew and waste management. Our hotels incur costs to comply with these laws and regulations and could be subject to fines and penalties for non-compliance.
Environmental laws require that owners or operators of buildings with asbestos-containing building materials properly manage and maintain these materials, adequately inform or train those who may come into contact with asbestos and undertake special precautions, including removal or other abatement, in the event that asbestos is disturbed during building renovation or demolition. These laws may impose fines and penalties on building owners or operators for failure to comply with these requirements. In addition, third parties may seek recovery from owners or operators for personal injury associated with exposure to asbestos-containing building materials.
Some of our hotels may contain or develop harmful mold or suffer from other adverse conditions, which could lead to liability for adverse health effects and costs of remediation. The presence of significant mold or other airborne contaminants at any of our hotels could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected hotel or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from guests or employees at our hotels and others if property damage or health concerns arise.
INSURANCE
We require comprehensive insurance to be maintained by our hotel management companies, including HHMLP, on each of our hotels, including liability and fire and extended coverage in amounts sufficient to permit the replacement of the hotel in the event of a total loss, subject to applicable deductibles. However, there are certain types of losses, generally of a catastrophic nature, such as earthquakes, floods, hurricanes and acts of terrorism that may be uninsurable or not economically insurable. Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it impracticable to use insurance proceeds to replace the applicable hotel after such applicable hotel has been damaged or destroyed. Under such circumstances, the insurance proceeds received by us might not be adequate to restore our economic position with respect to the applicable hotel. If any of these or similar events occur, it may reduce the return from the attached property and the value of our investment.
Of note in 2020, we received proceeds from insurance totaling $10.7 million, including $4.4 million for business interruption, in response to properties that were closed due to pervasive damage. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information.
FINANCIAL INFORMATION ABOUT SEGMENTS
We allocate resources and assess operating performance based on individual hotels and consider each one of our hotels to be an operating segment.  No operating segment, individually, meets the threshold for a reportable segment as defined within ASC Topic 280 – Segment Reporting, nor do they fully satisfy the requisite aggregation criteria therein.  As a result, the Company does not present separate operating segment information within the Notes to the Consolidated Financial Statements. See “Note 1 - Organization and Summary of Significant Accounting Policies” in Item 8 of this Annual Report on Form 10-K for segment financial information.

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Item 1A.    Risk Factors
You should carefully consider the following risks, together with the other information included in this Annual Report on Form 10-K. If any of the following risks actually occur, our business, financial condition or results of operations may suffer. As a result, the trading price of our securities could decline, and you may lose all or part of any investment you have in our securities.
SUMMARY
RISKS RELATED TO THE ECONOMY AND CREDIT MARKETS
Economic conditions have reduced, and may continue to reduce, demand for hotel properties, which has, and may continue to, adversely affect the Company’s profitability.
A sustained recession could result in declines in our average daily room rates, occupancy and RevPAR.
Disruptions in the financial markets could adversely affect our ability to obtain sufficient third-party financing.
Changes in the method pursuant to which the LIBOR rates are determined and potential phasing out of LIBOR.

RISKS RELATED TO THE HOTEL INDUSTRY
Our hotels are subject to general hotel industry operating risks.
The value of our hotels depends on conditions beyond our control.
Our investments are concentrated in a single segment of the hotel industry.
Operating costs and capital expenditures for hotel renovation may be greater than anticipated.
The franchise licenses under which we operate our hotels may be terminated or not renewed.
The seasonal and cyclical nature of the hotel industry may cause fluctuations in our operating performance.
The increasing use of Internet travel intermediaries by consumers.
The need for business-related travel may decline.
Future terrorist attacks or changes in terror alert levels could adversely affect travel and hotel demand.
The COVID-19 pandemic has had, and will continue to have, adverse effects on our business.

RISKS RELATED TO OUR BUSINESS AND OPERATIONS
We face risks associated with the use of debt, including covenant compliance and refinancing risk.
We may fail to maintain an effective system of internal controls.
We do not operate our hotels or have complete control over implementation of our strategic decisions.
Most of our hotels are located in the area from Washington, DC to Boston, MA, including New York City, which may increase the effect of any regional or local events or conditions.
We own a limited number of hotels.
We focus on acquiring hotels operating under a limited number of franchise brands.
We depend on key personnel.
Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers’ financial conditions and disputes between us and our co-venturers.
We engage in hedging transactions to limit our exposure to fluctuations in interest rates.
Hedging transactions may reduce our shareholders’ equity.
We and our hotel managers rely on information technology, which may fail or be inadequate, in our operations.
We face possible risks associated with the physical effects of severe weather and climate change.
We may be contractually prohibited from paying dividends.
If we default on our property level secured debt and if we are unable to negotiate forbearance agreements, the lenders may foreclose on our hotels.
We could be required to refinance our debt before it matures and may not be able to do so on acceptable terms.



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RISKS RELATED TO REAL ESTATE INVESTMENT GENERALLY
Real estate investments can be illiquid.
We may suffer losses not covered by insurance or that are in excess of our insurance coverage limits.
Real estate is subject to property taxes.
Environmental matters could adversely affect our results.
Our hotel properties may contain or develop harmful mold, which could lead to liability and remediation costs.
Costs associated with complying with the ADA may adversely affect our financial condition and operating results.

RISKS RELATED TO CONFLICTS OF INTEREST
Many of our existing agreements may not have been negotiated on an arm’s-length basis.
Conflicts of interest with HHMLP may result in decisions that do not reflect our best interests.
Sales or refinancing of certain hotels acquired from related parties may lead to decisions not in our best interest.

RISKS RELATED TO OUR STRUCTURE
There are no assurances of our ability to make distributions in the future.
Holders of our outstanding preferred shares have certain senior rights to the holders of our common shares.
Our Board of Trustees may authorize the issuance of additional shares.
Our Declaration of Trust contains a provision that creates staggered terms for our Board of Trustees.
Certain provisions of Maryland law may discourage a third party from acquiring us.
Our Board of Trustees and management make decisions on our behalf and shareholders have limited policymaking and management rights.

RISKS RELATED TO OUR TAX STATUS
If we fail to qualify as a REIT, our dividends will not be deductible, and our income will be subject to taxation.
To qualify as a REIT, we must distribute annually a certain percentage of our REIT taxable income.
If the leases of our hotels to our TRSs are not respected as true leases, we would fail to qualify as a REIT.
Our ownership of our TRSs is limited and our transactions with our TRSs will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm's-length terms.
If our hotel managers do not qualify as “eligible independent contractors,” we would fail to qualify as a REIT.
The federal income tax laws governing REITs are complex.
Complying with REIT requirements may force us to sell otherwise attractive investments.
The prohibited transactions tax may limit our ability to engage in certain transactions, including dispositions.
We may pay taxable dividends partly in shares and partly in cash.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
Our share ownership limitation may prevent certain transfers of our shares.
We may be subject to adverse legislative or regulatory tax changes.
The federal income tax laws governing REITs are complex.

GENERAL RISK FACTORS
An increase in market interest rates may have an adverse effect on the market price of our securities.
Future offerings of equity securities may adversely affect the market price of our common shares.
The market price of our securities has been, and may continue to be, volatile and has declined, and
may continue to decline.
Future sales of our securities could depress the market price of our common shares.




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RISKS RELATED TO THE ECONOMY AND CREDIT MARKETS

Economic conditions have reduced, and may continue to reduce, demand for hotel properties, which has affected, and may continue to, adversely affect the Company’s profitability.

The performance of the lodging industry is highly cyclical and has traditionally been closely linked with the performance of the general economy and, specifically, growth in the U.S. gross domestic product, employment, and investment and travel demand. The Company cannot predict the pace or duration of the global economic cycle or the cycles of the lodging industry. Furthermore, the Company cannot predict major disruptions in business cycles, including the development, length and ultimate effects of a global pandemic, such as COVID-19.

As a result of the COVID-19 pandemic, (i) conditions in the lodging industry have deteriorated and show inconsistent signs of improvement, and (ii) we are experiencing a period of economic weakness. The Company’s occupancy rates, revenues and profitability have been, and may continue to be, adversely affected. Other macroeconomic factors, such as consumer confidence and conditions which negatively shape public perception of travel, have also had, and may continue to have, a negative effect on the lodging industry and the Company’s business.

Furthermore, some of the Company’s hotels are classified as upper-upscale or upscale. These types of hotels have been, and may continue to be, more susceptible to a decrease in revenue, as compared to hotels in other categories that have lower room rates. This characteristic may result from the fact that upper-upscale hotels generally target business and high-end leisure travelers. Furthermore, because of the COVID-19 pandemic, business and leisure travelers have reduced, and may continue to reduce, travel costs by limiting travel or seeking to reduce costs on their trips. In addition, profitability has been, and may continue to be, negatively affected by the relatively high fixed costs of operating upper-upscale and upscale hotels.

A sustained recession could result in declines in our average daily room rates, occupancy and RevPAR, and thereby have a material adverse effect on our results of operations.

The performance of the hotel industry has traditionally been closely linked with the general economy. For example, during both the recession of 2008 and 2009 and the COVID-19-related downturn, overall travel was reduced, which had a significant effect on our results of operations. While operating results subsequently improved, the COVID-19 pandemic has depressed economic activity. Certain of our properties’ occupancy and room rates have dropped, and others may drop, such that their revenues are insufficient to cover their respective operating expenses. As a result, we have been, and may continue to be, required to spend additional funds for such properties’ operating expenses. Other factors that may also affect our revenues and earnings include, but are not limited to, hindered growth in the economy, changes in unemployment, underemployment, administration policies and changes in travel patterns. A sustained recession would have a material adverse effect on our results of operations.

In addition, operating results have declined, and may continue to decline, at our hotels secured by mortgage debt, which has resulted, and may continue to result, in insufficient operating profit from such hotels to cover the respective debt service on the mortgage. In response, we have been, and may continue to be, forced to choose from a number of unfavorable options, including using corporate cash, drawing on our revolving credit facility, selling the hotel on disadvantageous terms, including at an unattractive price, or defaulting on the mortgage debt and permitting the lender to foreclose. Any one of these options could have a material adverse effect on our business, results of operations, financial condition and ability to pay distributions to our shareholders.

Disruptions in the financial markets could adversely affect our ability to obtain sufficient third-party financing for our capital needs, including expansion, acquisition and other activities, on favorable terms or at all, which could materially and adversely affect us.

In response to the COVID-19 pandemic, the U.S. stock and credit markets have experienced significant price volatility, dislocations and liquidity disruptions, which have caused market prices of many stocks, including ours, to fluctuate substantially and the spreads on prospective debt financings to widen considerably. These circumstances have materially impacted liquidity in the financial markets, making terms for certain financings less attractive, and in some cases have resulted in the unavailability of financing, even for companies which otherwise are qualified to obtain financing. Continued volatility and uncertainty in the stock and credit markets in the U.S. and abroad have negatively impacted, and may continue to negatively impact, our ability to access additional financing for our capital needs, including expansion, acquisition activities and other purposes, on favorable terms or at all, which may negatively affect our business. Additionally, due to this uncertainty, we may in the future be unable to refinance or extend our debt, or the terms of any refinancing may not be as favorable as the terms of our existing debt. If we are not successful in refinancing our debt when it becomes due, we may be forced to dispose of hotels on disadvantageous terms, which might adversely affect our ability to service other debt and to
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meet our other obligations. A prolonged downturn in the financial markets may cause us to seek alternative sources of potentially less attractive financing and may require us to further adjust our business plan accordingly. These events also may make it more difficult or costly for us to raise capital through the issuance of new equity capital or the incurrence of additional secured or unsecured debt, which could materially and adversely affect us.

The elimination of LIBOR after June 2023 may affect our financial results.

On March 5, 2021, the United Kingdom Financial Conduct Authority (the “FCA”), which regulates the London Interbank Offered Rate (“LIBOR”), announced (the “FCA Announcement”) that all LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023. The FCA’s Announcement coincides with the March 5, 2021, announcement of LIBOR’s administrator, the ICE Benchmark Administration Limited (the “IBA”), indicating that, as a result of not having access to input data necessary to calculate LIBOR tenors relevant to us on a representative basis after June 30, 2023, the IBA would have to cease publication of such LIBOR tenors immediately after the last publication on June 30, 2023. These announcements mean that any of our LIBOR-based borrowings that extend beyond June 30, 2023 will need to be converted to a replacement rate. In the United States, the Alternative Reference Rates Committee (the “ARRC”), a committee of private sector entities with ex-officio official sector members convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has recommended the Secured Overnight Financing Rate (“SOFR”) plus a recommended spread adjustment as LIBOR’s replacement. There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities. If our LIBOR-based borrowings are converted to SOFR, the differences between LIBOR and SOFR, plus the recommended spread adjustment, could result in interest costs that are higher than if LIBOR remained available, which could have a material adverse effect on our operating results. Although SOFR is the ARRC’s recommended replacement rate, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in other ways that would result in higher interest costs for us. It is not yet possible to predict the magnitude of LIBOR’s end on our borrowing costs given the remaining uncertainty about which rates will replace LIBOR.

RISKS RELATED TO THE HOTEL INDUSTRY

Our hotels are subject to general hotel industry operating risks, which may impact our ability to make distributions to shareholders.

Our hotels are subject to all operating risks common to the hotel industry. The hotel industry has previously experienced, and is currently experiencing, volatility, as have, and are, our hotels, and there can be no assurance that such volatility will subside or not occur in the future. These risks include, among other things: competition from other hotels; over-building in the hotel industry that could adversely affect hotel revenues and hotel values; increases in operating costs due to inflation and other factors, which may not be offset by increased room rates; reduction in business and commercial travel and tourism, including as a result of legislation, executive policies or pandemics such as COVID-19; strikes and other labor disturbances of hotel employees; increases in energy costs and other expenses of travel; civil unrest; adverse effects of general and local economic conditions; and adverse political conditions. Certain of these factors have reduced, and may continue to reduce, revenues of our hotels, which has adversely affected, and may continue to adversely affect, our ability to make distributions to our shareholders.

The value of our hotels depends on conditions beyond our control.

Our hotels are subject to varying degrees of risk generally incident to the ownership of hotels. The underlying value of our hotels, our income and ability to make distributions to our shareholders are dependent upon the operation of the hotels in a manner sufficient to maintain or increase revenues in excess of operating expenses. Hotel revenues may be adversely affected by adverse changes in national economic conditions, adverse changes in local market conditions due to changes in general or local economic conditions and neighborhood characteristics, competition from other hotels, changes in interest rates and in the availability, cost and terms of mortgage funds, the impact of present or future environmental legislation and compliance with environmental laws, the ongoing need for capital improvements, particularly in older structures, changes in real estate tax rates and other operating expenses, adverse changes in governmental rules and fiscal policies, civil unrest, acts of terrorism, acts of God, including earthquakes, hurricanes and other natural disasters, acts of war, adverse changes in zoning laws, pandemics and epidemics such as COVID-19 and other factors that are beyond our control. In particular, general and local economic conditions (i) have been, and may continue to be, adversely affected by the COVID-19 pandemic and (ii) may be adversely affected by terrorist incidents, which may target cities where many of our hotels are located. Our management is unable to determine the long-term impact, if any, of these incidents or of any acts of war or terrorism in the United States or worldwide, on the U.S. economy, on us or our hotels or on the market price of our securities.


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Our investments are concentrated in a single segment of the hotel industry.

Our primary business strategy is to continue to acquire high quality, upper-upscale, and upscale limited service and extended-stay hotels in metropolitan markets with high barriers to entry including New York, Washington DC, Boston, Philadelphia, South Florida, select markets on the West Coast, and other markets with similar characteristics. We are subject to risks inherent in concentrating investments in a single industry and in a specific market segment within that industry. The adverse effect on amounts available for distribution to shareholders resulting from a downturn in the hotel industry in general or the mid-scale segment in particular has been, and may continue to be, more pronounced than if we had diversified our investments outside of the hotel industry or in additional hotel market segments.

Operating costs and capital expenditures for hotel renovation may be greater than anticipated and may adversely impact distributions to shareholders.

Hotels generally have an ongoing need for renovations and other capital improvements, particularly in older structures, including periodic replacement of furniture, fixtures and equipment. Under the terms of our management agreements, we generally are obligated to pay the cost of expenditures for items that are classified as capital items under GAAP that are necessary for the continued operation of our hotels.

If these expenses exceed our expectations, the additional cost could have an adverse effect on amounts available for distribution to shareholders. In addition, we may acquire hotels in the future that require significant renovation. Renovation of hotels involves certain risks, including the possibility of environmental problems, construction cost overruns and delays, uncertainties as to market demand or deterioration in market demand after commencement of renovation and the emergence of unanticipated competition from hotels.

Risks of operating hotels under franchise licenses, which may be terminated or not renewed, may impact our ability to make distributions to shareholders.

The continuation of our franchise licenses is subject to specified operating standards and other terms and conditions. All of the franchisors of our hotels periodically inspect our hotels to confirm adherence to their operating standards. The failure to maintain such standards or to adhere to such other terms and conditions could result in the loss or cancellation of the applicable franchise license. It is possible that a franchisor could condition the continuation of a franchise license on the completion of capital improvements that our trustees determine are too expensive or otherwise not economically feasible in light of general economic conditions, the operating results or prospects of the affected hotel. In that event, our trustees may elect to allow the franchise license to lapse or be terminated.

There can be no assurance that a franchisor will renew a franchise license at each option period. If a franchisor terminates a franchise license, we may be unable to obtain a suitable replacement franchise, or to successfully operate the hotel independent of a franchise license. The loss of a franchise license could have a material adverse effect upon the operations or the underlying value of the related hotel because of the loss of associated name recognition, marketing support and centralized reservation systems provided by the franchisor. Our loss of a franchise license for one or more of the hotels could have a material adverse effect on our partnership’s revenues and our amounts available for distribution to shareholders.

The seasonal and cyclical nature of the hotel industry may cause fluctuations in our operating performance, which could have a material adverse effect on us.

The hotel industry is seasonal in nature. Generally, in certain markets we operate, hotel revenues are greater in the second and third quarters than in the first and fourth quarters. Revenues for hotels and resorts in tourist areas generally are substantially greater during tourist season than other times of the year. Our hotels’ operations historically reflect this trend in these markets. As a result, our results of operations may vary on a quarterly basis, impairing comparability of operating data and financial performance on a quarter to quarter basis.

Additionally, the hotel industry historically has been, and continues to be, highly cyclical in nature. Fluctuations in lodging demand and, therefore, operating performance, are caused largely by general economic and local market conditions, which subsequently affect levels of business and leisure travel. In addition to general economic conditions, new hotel room supply is an important factor that can affect the hotel industry's performance, and overbuilding has the potential to further exacerbate the negative impact of an economic recession. Room rates and occupancy, and thus RevPAR, tend to increase when demand growth exceeds supply growth. We can provide no assurances regarding whether, or the extent to which, lodging demand will
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rebound or whether any such rebound will be sustained. An adverse change in lodging fundamentals could result in returns that are substantially below our expectations or result in losses, which could have a material adverse effect on us.

The increasing use of Internet travel intermediaries by consumers may materially and adversely affect our profitability.

Although a majority of rooms sold on the Internet are sold through websites maintained by the hotel franchisors and managers, some of our hotel rooms will be booked through Internet travel intermediaries. These Internet travel intermediaries may purchase rooms at a negotiated discount from participating hotels, which could result in lower room rates than the franchisor or manager otherwise could have obtained. As these Internet bookings increase, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from us and any hotel management companies that we engage. Moreover, some of these Internet travel intermediaries are attempting to offer hotel rooms as a commodity, by increasing the importance of price and general indicators of quality, such as "three-star downtown hotel," at the expense of brand identification or quality of product or service. If consumers develop brand loyalties to Internet reservations systems rather than to the brands under which our hotels are franchised, the value of our hotels could deteriorate and our business could be materially and adversely affected. Although most of the business for our hotels is expected to be derived from traditional channels, if the amount of sales made through Internet intermediaries increases significantly, room revenues may flatten or decrease and our profitability may be materially and adversely affected.

The need for business-related travel and, thus, demand for rooms in our hotels may be materially and adversely affected by the increased use of business-related technology.

The increased use of teleconference and video-conference technology by businesses could result in decreased business travel as companies increase the use of technologies that allow multiple parties from different locations to participate at meetings without traveling to a centralized meeting location, such as our hotels. To the extent that such technologies play an increased role in day-to-day business and the necessity for business-related travel decreases, demand for our hotel rooms may decrease and we could be materially and adversely affected.

Future terrorist attacks or changes in terror alert levels could adversely affect travel and hotel demand.

Previous terrorist attacks and subsequent terrorist alerts have adversely affected the U.S. travel and hospitality industries in prior years, often disproportionately to the effect on the overall economy. The impact that terrorist attacks in the U.S. or elsewhere could have on domestic and international travel and our business in particular cannot be determined but any such attacks or the threat of such attacks could have a material adverse effect on our business, our ability to finance our business, our ability to insure our properties and our results of operations and financial condition.

The COVID-19 pandemic has had, and will continue to have, adverse effects on our financial condition, results of operations, cash flows and performance for an indeterminate period of time. Future pandemics may also have adverse effects on our financial condition, results of operations, cash flows and performance.

The global pandemic caused by COVID-19 has had, and is continuing to have, a severe and negative impact on both the U.S. economy and the global economy. Financial markets have experienced significant volatility during 2020, which is expected to continue over upcoming quarters. Globally and throughout the United States, federal, state, and local governments have instituted quarantines, domestic and international travel restrictions and advisories, school closings, "shelter in place" orders, social distancing efforts, limits on gathering size and restrictions on types of businesses that may continue operations. These restrictions have had, and may continue to have, a severe impact on the U.S. lodging industry and many of our hotels have suspended operations while others continue to operate at a significantly reduced occupancy.

During the first half of 2020 as a result of the impact of the COVID-19 pandemic, we had temporarily closed 21 of our 48 hotels while our remaining hotels operated in a significantly reduced capacity. During the second quarter of 2020 we reopened 5 hotels, during the third quarter of 2020 we reopened 8 hotels, and during the fourth quarter of 2020 we reopened 2 hotels resulting in 6 hotels remaining closed as of December 2020. We believe the 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 the rapid development and fluidity of the COVID-19 pandemic precludes any prediction as to the ultimate adverse impact of COVID-19, the spread of COVID-19 has resulted in, and may continue to result in, significant disruption of the global financial market and an increase in unemployment in the U.S. Although the FDA has approved certain therapies and two vaccines for emergency use and distribution to certain groups of individuals, (i) the initial rollout of vaccine distribution has encountered significant delays, and (ii) there remain uncertainties as to the amount of vaccine available for distribution, the logistics of implementing a national vaccine program, and the overall efficacy of the vaccines once widely administered,
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especially as new strains of COVID-19 have been discovered, and the level of resistance these new strains have to the existing vaccines, if any, remains unknown. Until such therapies and vaccines are widely available and effective, the pandemic and public and private responses to the pandemic may lead to deterioration of economic conditions, an economic downturn, and/or a recession, at a global scale, which could materially affect our performance, financial condition, results of operations, and cash flows.

In response to the supply and distribution issues surrounding the vaccine, in January 2021, President Biden outlined a plan to create additional vaccination sites, increase the supply and distribution of vaccines, and increase the number of vaccinations administered to Americans. The Biden administration plans to utilize the Defense Production Act to maximize the manufacturing and distribution of vaccines in order to administer 100 million vaccination shots within the first 100 days of holding office.

In addition to the currently approved vaccines, as of January 2021, there were over 60 other potential vaccines in clinical development that may contribute to increasing the supply of vaccines in 2021. The current vaccines in development use a myriad of different scientific approaches to attempt to provoke an immune response, including:

Genetic vaccines that use part of the coronavirus's genetic code;
Viral vector vaccines that use a virus to deliver coronavirus genes into cells;
Protein-based vaccines that use a coronavirus protein or protein fragment to stimulate the immune system; and
Whole-virus vaccines that use a weakened or inactivated version of the coronavirus.

Over 60 potential vaccines are currently in human clinical trials, with nearly a third of these in later stages of clinical development. Phase I trials typically include a small number of participants to test safety and dosage as well as to confirm that the vaccine stimulates the immune system. Phase II trials involve hundreds of participants split into groups, such as children and the elderly, to determine whether the vaccine acts differently in each subpopulation. Phase III trials involve delivering the vaccine to tens of thousands of people, observing how many subsequently become infected, and determining the severity of symptoms when compared with volunteer subjects who received a placebo. Regulators in each country will review the trial results to make a determination as to whether the drug or vaccine should be approved. As of January 2021, there were 20 potential vaccines in Phase III trials, including a number that require only a single dose, rather than two doses for the currently approved vaccines and that are potentially easier to distribute.

The following factors should be considered because the COVID-19 pandemic has significantly adversely affected, and continues to affect, the ability of our hotel managers to successfully operate our hotels and has had, and continues to have, a significant adverse effect on our financial condition, results of operations and cash flows due to, among other factors:

a complete suspension or significant reduction of operations at many of our properties, including our largest concentration of properties in New York City, which has been disproportionately adversely affected by COVID-19;
a variety of factors related to the coronavirus have caused, and may continue to cause, a sharp decline in group, business and leisure travel, including but not limited to (i) restrictions on travel mandated by governmental entities or voluntarily imposed by employers, (ii) the postponement or cancellation of conventions and conferences, music and arts festivals, sporting events and other large public gatherings, (iii) the closure of amusement parks, museums and other tourist attractions, (iv) the closure of colleges and universities, and (v) negative public perceptions of travel and public gatherings in light of the perceived risks associated with COVID-19;
travelers have been, and may continue to be, wary to travel where, or because, they may view the risk of contagion as increased and contagion or virus-related deaths linked or alleged to be linked to travel to our properties, whether accurate or not, may injure our reputation;
travelers may be dissuaded from traveling due to possible enhanced COVID-19-related screening measures which are being implemented across multiple markets we serve;
travelers may be dissuaded from traveling due to the concern that additional travel restrictions implemented between their departure and return may affect their ability to return to their homes;
commercial airline service has been reduced or suspended to many of the areas in which our hotels are located, if scheduled airline service does not increase or return to normal levels once our hotels and resorts are re-opened it could negatively affect our revenues;
there remain uncertainties as to the amount of vaccine available for distribution, the logistics of implementing a national vaccine program, and the overall efficacy of the vaccines once widely administered, especially as new strains of COVID-19 have been discovered and the level of resistance to these new strains;

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the reduced economic activity could also result in an economic recession, and increased unemployment, which could negatively impact future ability or desire to travel lodging demand and, therefore, our revenues, even after the temporary restrictions are lifted;
a decrease in the ancillary revenue from amenities at our properties;
the financial impact of the COVID-19 pandemic has (i) negatively impacted our compliance with covenants in certain debt obligations, triggering cash management provisions provided for in two mortgages and resulting in an event of default in a third mortgage, which, if not resolved through negotiations with the lenders, will accelerate such indebtedness and adversely affect our financial condition and liquidity and (ii) could negatively impact our future compliance with the financial covenants of our Credit Facility after these covenants again become applicable in 2021, which could result in an event of default and an acceleration of indebtedness under the Credit Facility, which would adversely affect our financial condition and liquidity;
a potential decline in asset values at one or more of our properties encumbered by mortgage debt, which could inhibit our ability to successfully refinance one or more such properties, result in a default under the applicable mortgage debt agreement and potentially cause the acceleration of such indebtedness;
difficulty in accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital;
the general decline in business activity and demand for real estate transactions adversely affecting our ability to acquire additional properties;
the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during and after this disruption;
we may be subject to increased risks related to employee matters, including increased employment litigation and claims for severance or other benefits tied to termination or furloughs as a result of hotel closures or reduced operations prompted by the effects of the pandemic;
employee or guest assertions that our properties were not adequately cleaned or that adequate safeguards were not in place to prevent contact with employees or guests may result in liabilities; and
the reduction in our cash flows, prohibitions contained in our Credit Agreements (as defined below) and, with respect to our common dividends, the terms of our declaration of trust designating our preferred shares, have caused the indefinite suspension of dividends and could impact our ability to pay dividends to our stockholders at expected levels in the future.

The rapid development and fluidity of the COVID-19 pandemic makes it extremely difficult to assess its full adverse economic impact, and future impact, on our financial condition, results of operations, cash flows and performance. In addition, an outbreak of another disease or similar public health threat, or fear of such an event, that affects travel demand, travel behavior or travel restrictions could have a material adverse impact on the Company's business, financial condition and operating results. Outbreaks of other diseases could also result in increased government restrictions and regulation, such as those actions described above or otherwise, which could adversely affect our operations.

The potential effects of COVID-19 also could intensify or otherwise affect many of our other risk factors that are included herein, including, but not limited to, those factors listed under “Risks Related to the Economy and Credit Markets” and “Risks Related to the Hotel Industry” and in this report and other reports filed by us with the SEC. Because the COVID-19 situation is unprecedented and continuously evolving, the other potential impacts to our risk factors that are further described herein, and in other reports filed by us with the SEC are uncertain.

RISKS RELATED TO OUR BUSINESS AND OPERATIONS

We face risks associated with the use of debt, including covenant compliance and refinancing risk.

At December 31, 2020, we had outstanding long-term debt of approximately $1.2 billion. We may borrow additional amounts from the same or other lenders in the future. Any future repurchases of our own shares may require additional borrowings. Some of these additional borrowings may be secured by our hotels. Our declaration of trust (as amended and restated, our “Declaration of Trust”) does not limit the amount of indebtedness we may incur. We cannot assure you that we will be able to meet our debt service obligations and, to the extent that we cannot, we risk the loss of some or all of our hotels to foreclosure. Our indebtedness contains various financial and non-financial events of default covenants customarily found in financing arrangements. Our mortgages payable typically require that specified debt service coverage ratios be maintained with respect to the financed properties before we can exercise certain rights under the loan agreements relating to such properties. If the specified criteria are not satisfied, the lender may be able to escrow cash flow from the applicable hotels.
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At December 31, 2020, we failed our debt service coverage ratio ("DSCR") requirement related to four of our mortgage borrowings. Three of these DSCR failures trigger a cash management provision within their respective mortgages, which results in our respective lenders sweeping cash receipts from the properties into a lockbox to service debt payments. The remaining mortgage for which we failed the DSCR requirement was repaid in its entirety with the sale of the hotel. While we have amended the agreements governing our credit facility and have received waivers of certain covenants through March 31, 2022, after considering the effect of the COVID-19 pandemic on our consolidated operations, it is possible that we could 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 2022. For mortgages with financial covenants, the lenders' remedy of a covenant failure would be a requirement to escrow funds for the purpose of meeting our future debt payment obligations.

A substantial amount of our indebtedness will mature within the next 1 to 4 years. There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of the existing debt. If principal payments due at maturity cannot be refinanced, extended or repaid with proceeds from other sources, such as new equity capital or sales of properties, we may be forced to use operating income to repay such indebtedness, which would have a material adverse effect on our cash available for distribution in years when significant “balloon” payments come due. In some such cases, we may lose the applicable hotels to foreclosure. This risk is particularly significant.

Additionally, our substantial indebtedness has had and may continue to have significant effects on our business. For example, it could:
increase our vulnerability to general adverse economic and industry conditions;
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, our strategic growth initiatives and development efforts and general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
restrict us from exploiting business opportunities;
place us at a competitive disadvantage compared to our competitors that have less indebtedness; and
limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes.

Our ability to repay the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control, including the COVID-19 pandemic, the responses thereto and the effects thereof, and our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not continue to maintain sufficient cash reserves, our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures, and our cash needs may increase. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, obtaining waivers with respect to our debt or obtaining additional debt financing or equity capital on terms that may be onerous or highly dilutive. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. In addition, any of our future debt agreements may contain restrictive covenants that may prohibit us from adopting any of these alternatives. Our failure to comply with our debt covenants, or obtain waivers with respect thereto, could result in an event of default which, if not cured or waived, could result in acceleration of our debt.

If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, our shareholders could lose confidence in our financial results, which could harm our business and the value of our common shares.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We may in the future discover areas of our internal controls that need improvement. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal controls over financial reporting and have our independent auditors annually issue their own opinion on our internal controls over financial reporting. We cannot be certain that we will be successful in maintaining adequate internal controls over our financial reporting and financial processes. Furthermore, as we grow our business, our internal controls will become more complex, and we will require significantly more resources to ensure our internal controls remain effective. If we or our independent auditors discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market value of our common shares. Additionally, the existence of any material weakness or significant deficiency would require management to devote significant time and incur significant
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expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner.

We do not operate our hotels and, as a result, we do not have complete control over implementation of our strategic decisions.

In order for us to satisfy certain REIT qualification rules, we cannot directly or indirectly operate or manage any of our hotels. Instead, we must engage an independent management company to operate our hotels. As of December 31, 2020, our TRSs and our joint venture partnerships have engaged independent management companies as the property managers for all of our wholly owned hotels leased to our TRSs and the respective hotels for the joint ventures, as required by the REIT qualification rules. The management companies operating the hotels make and implement strategic business decisions with respect to these hotels, such as decisions with respect to the repositioning of a franchise or food and beverage operations and other similar decisions. Decisions made by the management companies operating the hotels may not be in the best interests of a particular hotel or of the Company. Accordingly, we cannot assure you that the management companies will operate our hotels in a manner that is in our best interests. In addition, the financial condition of the management companies could impact their future ability to operate our hotels.

Most of our hotels are located in major gateway urban markets in the United States with many located in the area from Washington, DC to Boston, MA, including New York City, which may increase the effect of any regional or local events or conditions.

Most of our hotels are located in major gateway urban markets in the United States, with many located in the area from Washington, DC to Boston, MA. As a result, regional or localized adverse events or conditions, such as an economic recession or pandemic, in any of these major gateway urban markets could have a significant adverse effect on our operations, and ultimately on the amounts available for distribution to shareholders.

Specifically, a significant portion of our portfolio is concentrated in New York City. The operations of our consolidated portfolio of hotels in New York City will have a material impact on our overall results of operations. Concentration risk with respect to our ownership of hotels in the New York City market may lead to increased volatility in our overall results of operations. Our overall results of operations may be adversely affected and our ability to pay distributions to our shareholders could be negatively impacted in the event:
downturns in lodging fundamentals are more severe or prolonged in New York City compared to the United States as a whole;

negative economic conditions are more severe or prolonged in New York City compared to other areas, due to concentration of the financial industry in New York or otherwise;

as new hotel supply enters the New York City market, this could impact our ability to grow ADR and RevPar as a result of the new supply; or

New York City is impacted by other unforeseen events beyond our control, including, among others, terrorist attacks and travel related health concerns including pandemics and epidemics.
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As of December 31, 2020, New York City has been significantly adversely impacted by the COVID-19 pandemic disproportionately compared to other cities in the U.S. and across the globe. Many of our hotels closed in the first quarter of 2020 but began reopening when New York City entered phase two of its state-mandated reopening plan in the second quarter of 2020. Because of the disproportionate impact, the economic recovery following the COVID-19 pandemic may be delayed more in New York City than in other parts of the country, which may cause reduced demand for hotels there. Therefore, our concentration of assets in New York City may have an adverse impact on the fair value of our assets, our results of operations, our financial condition and our ability to pay dividends to our stockholders at expected levels or at all.

We own a limited number of hotels and significant adverse changes at one hotel may impact our ability to make distributions to shareholders.

As of December 31, 2020, our portfolio consisted of 37 wholly-owned limited and full service properties with a total of 5,912 rooms, 1 hotel owned through a consolidated joint venture with a total of 115 rooms, and interests in 10 limited service properties owned through joint venture investments with a total of 1,555 rooms. However, certain larger hotels or hotels in
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certain locations disproportionately impact our performance. Accordingly, significant adverse changes in the operations of any one of these hotels could have a material adverse effect on our financial performance and on our ability to make expected distributions to our shareholders.

We focus on acquiring hotels operating under a limited number of franchise brands, which creates greater risk as the investments are more concentrated.

We place particular emphasis in our acquisition strategy on hotels similar to our current hotels. We invest in hotels operating under a few select franchises and therefore will be subject to risks inherent in concentrating investments in a particular franchise brand, which could have an adverse effect on amounts available for distribution to shareholders. These risks include, among others, the risk of a reduction in hotel revenues following any adverse publicity related to a specific franchise brand or the failure of the franchisor to maintain a certain brand.

We depend on key personnel.

We depend on the services of our existing senior management team, including Jay H. Shah, Neil H. Shah, Ashish R. Parikh and Michael R. Gillespie, to carry out our business and investment strategies. As we expand, we will continue to need to attract and retain qualified additional senior management. We have employment agreements with certain of our senior management; however, the employment agreements may be terminated under certain circumstances. The termination of an employment agreement and the loss of the services of any of our key management personnel, or our inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial results.

Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers’ financial conditions and disputes between us and our co-venturers.

As of December 31, 2020, we had several joint ventures in which we shared ownership and decision-making power with one or more parties. Joint venture investments involve risks that may not be present with other methods of ownership, including the possibility: that our partner might become insolvent, refuse to make capital contributions when due or otherwise fail to meet its obligations, which may result in certain liabilities to us for guarantees and other commitments; that our partner might at any time have economic or other business interests or goals that are or become inconsistent with our interests or goals; that we could become engaged in a dispute with our partner, which could require us to expend additional resources to resolve such disputes and could have an adverse impact on the operations and profitability of the joint venture; and that our partner may be in a position to take action or withhold consent contrary to our instructions or requests. Our joint venture partners must agree in order for the applicable joint venture to take, or in some cases, may have control over whether the applicable joint venture will take, specific major actions, such as budget approvals, acquisitions, sales of assets, debt financing, executing lease agreements, and vendor approvals. Under these joint venture arrangements, any disagreements between us and our partners may result in delayed decisions. Our inability to take unilateral actions that we believe are in our best interests may result in missed opportunities and an ineffective allocation of resources and could have an adverse effect on the financial performance of the joint venture and our operating results.

We engage in hedging transactions to limit our exposure to fluctuations in interest rates, which can result in recognizing interest expense at rates higher than the stated rates within our floating rate debt.

We enter into hedging transactions intended to protect us from the effects of interest rate fluctuations on floating rate debt. Our hedging transactions may include entering into interest rate swaps, caps, and floors, options to purchase such items, and futures and forward contracts. Hedging activities may not have the desired beneficial impact on our results of operations or financial condition, particularly in a declining rate environment. No hedging activity can completely insulate us from the risks associated with changes in interest rates. Moreover, interest rate hedging could fail to protect us or could adversely affect our operating results because, among other things:
Available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought;

The duration of the hedge may not match the duration of the related liability;

The party at risk in the hedging transaction may default on its obligation to pay;

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The credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and

The value of derivatives used for hedging may be adjusted from time to time in accordance with accounting rules to reflect changes in fair value.

Hedging transactions may reduce our shareholders’ equity.

Hedging involves risk and typically involves costs, including transaction costs, which may reduce returns on our investments. These costs increase as the period covered by the hedging increases and during periods of rising and volatile interest rates. These costs will also limit the amount of cash available for distribution to shareholders. The REIT qualification rules may also limit our ability to enter into hedging transactions. We generally intend to hedge as much of our interest rate risk as our management determines is in our best interests given the cost of such hedging transactions and the requirements applicable to REITs. If we are unable to hedge effectively because of the cost of such hedging transactions or the limitations imposed by the REIT rules, we will face greater interest risk exposure than may be commercially prudent.

We and our hotel managers rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.

We and our hotel managers rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, reservations, billing and operating data. We and our hotel managers purchase some of our information technology from vendors, on whom our systems depend. We and our hotel managers rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential operator and other customer information, such as individually identifiable information, including information relating to financial accounts. Although we and our hotel managers have taken steps we believe are necessary to protect the security of our information systems and the data maintained in those systems, it is possible that the safety and security measures taken will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. In November 2018, Marriott announced a data security incident involving a guest reservation database. Security breaches such as the one that occurred at Marriott and, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations.

We face possible risks associated with the physical effects of severe weather and climate change.

We recognize there are inherent weather and climate risks that may impact our business, including, but not limited to, storms, hurricanes, sea level rise, floods, extreme temperatures, wildfires, drought, and water stress. Climate change may increase the frequency and severity of such climate phenomenon and weather events. Should (i) weather events or (ii) the impact of climate change be severe or continue for lengthy periods of times, these risks may be exacerbated and may directly damage our hotels, disrupt hotel operations and our supply chain, reduce travel demand to affected areas, increase operating costs, and increase (or make unavailable) property insurance on terms we find acceptable. There can be no assurance that severe weather and climate change will not have a material adverse effect on our properties, operations, or business.

We may be contractually prohibited from paying dividends.

Our Credit Agreements, as amended, contain restrictions against our payment of dividends on common or preferred shares, including, in certain instances after the enhanced negative covenant period, at any time when there is an event of default under such credit agreement. There are exceptions, however, for payment of dividends necessary to maintain our REIT status as long as no payment or bankruptcy event of default has occurred and the debt has not been accelerated. Events of default under the Credit Agreements include failure to comply with various covenants, including reporting obligations and other nonmonetary obligations, as well as financial conditions that may be beyond our control. An event of default occurs as soon as the failure occurs. If an event of default has occurred and is continuing on the day when a dividend is otherwise payable on our common or preferred shares, we will be unable to pay the dividend unless the lenders on these credit agreements waive the event of default or such dividend falls within an exception as noted above. Failure to pay dividends could jeopardize our continued qualification as a REIT (causing us to be subject to corporate income tax) and could cause us to be subject to a 4% nondeductible excise tax.
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We could be required to refinance our debt before it matures and there is no assurance that we will be able to refinance our debt on acceptable terms.

To the extent the COVID-19 pandemic continues or our business levels do not recover to pre-pandemic levels or we are otherwise unable to refinance our debt on acceptable terms, we may be forced to choose from a number of unfavorable options, including agreeing to otherwise unfavorable financing terms, selling one or more hotel properties at unattractive prices or on disadvantageous terms, or defaulting on mortgages and allowing our lenders to foreclose. Any one of these options could have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our stockholders.

RISKS RELATED TO REAL ESTATE INVESTMENT GENERALLY

Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.

Real estate investments are relatively illiquid. Our ability to vary our portfolio in response to changes in operating, economic and other conditions will be limited. No assurances can be given that the fair market value of any of our hotels will not decrease in the future.

If we suffer losses that are not covered by insurance or that are in excess of our insurance coverage limits, we could lose investment capital and anticipated profits.

We require comprehensive insurance to be maintained on each of the our hotels, including liability and fire and extended coverage in amounts sufficient to permit the replacement of the hotel in the event of a total loss, subject to applicable deductibles. However, there are certain types of losses, generally of a catastrophic nature, such as earthquakes, floods, hurricanes and acts of terrorism that may be uninsurable or not economically insurable. Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it impracticable to use insurance proceeds to replace the applicable hotel after such applicable hotel has been damaged or destroyed. Under such circumstances, the insurance proceeds received by us might not be adequate to restore our economic position with respect to the applicable hotel. If any of these or similar events occur, it may reduce the return from the attached property and the value of our investment.

Real estate is subject to property taxes.

Each hotel is subject to real and personal property taxes. The real and personal property taxes on hotel properties in which we invest may increase as property tax rates change and as the properties are assessed or reassessed by taxing authorities. Many state and local governments are facing budget deficits that have led many of them, and may in the future lead others to, increase assessments and/or taxes. If property taxes increase, our operating results may be negatively affected.

Environmental matters could adversely affect our results.

Operating costs may be affected by the obligation to pay for the cost of complying with existing environmental laws, ordinances and regulations, as well as the cost of future legislation. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The cost of complying with environmental laws could materially adversely affect amounts available for distribution to shareholders. Phase I environmental assessments have been obtained on all of our hotels. Nevertheless, it is possible that these reports do not reveal all environmental liabilities or that there are material environmental liabilities of which we are unaware.

Our hotel properties may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing, as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of mold to which hotel guests or
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employees could be exposed at any of our properties could require us to undertake a remediation program to contain or remove the mold from the affected property, which could be costly. In addition, exposure to mold by guests or employees, management company employees or others could expose us to liability if property damage or health concerns arise.

Costs associated with complying with the ADA may adversely affect our financial condition and operating results.

Under the ADA, all public accommodations are required to meet certain federal requirements related to access and use by disabled persons. While we believe that our hotels are substantially in compliance with these requirements, a determination that we are not in compliance with the ADA could result in imposition of fines or an award of damages to private litigants. In addition, changes in governmental rules and regulations or enforcement policies affecting the use and operation of the hotels, including changes to building codes and fire and life-safety codes, may occur. If we were required to make substantial modifications at the hotels to comply with the ADA or other changes in governmental rules and regulations, our ability to make expected distributions to our shareholders could be adversely affected.

RISKS RELATED TO CONFLICTS OF INTEREST

Due to conflicts of interest, many of our existing agreements may not have been negotiated on an arm’s-length basis and may not be in our best interest.

Some of our officers and trustees have minority ownership interests in HHMLP and in entities with which we have entered into transactions, including hotel acquisitions and dispositions and certain financings. Consequently, the terms of our agreements with those entities, including hotel contribution or purchase agreements, the Option Agreement (as defined below) between our operating partnership and some of the trustees and officers and our property management agreements with HHMLP, while intended to be negotiated on an arm’s-length basis, may not have been and may not be in the best interest of all our shareholders. We have policies in place to encourage agreements to be negotiated on an arm’s-length basis. Transactions with related persons must be approved by a majority of the Company’s independent trustees. The Board of Trustees’ policy requires any independent trustee with a direct or indirect interest in the transaction to excuse himself or herself from any consideration of the related person transaction in which he or she has an interest.

Conflicts of interest with HHMLP may result in decisions that do not reflect our best interests.

We have entered into an option agreement (as amended, the “Option Agreement”) with each of our officers and certain trustees such that we obtain a right of first refusal to purchase any hotel owned or developed in the future by these individuals or entities controlled by them at fair market value. This right of first refusal would apply to each party until one year after such party ceases to be an officer or trustee of the Company. Our Acquisition Committee of the Board of Trustees is comprised solely of independent trustees, and the purchase prices and all material terms of the purchase of hotels from related parties are approved by the Acquisition Committee.

The following officers and trustees own collectively approximately 14% of HHMLP: Hasu P. Shah, Jay H. Shah, Neil H. Shah and Ashish R. Parikh. Conflicts of interest may arise with respect to the ongoing operation of our hotels including, but not limited to, the enforcement of the contribution and purchase agreements, the Option Agreement and our property management agreements with HHMLP. These officers and trustees also make decisions for our company with respect to property management. Consequently, these officers and trustees may not act solely in the best interests of our shareholders relating to property management by HHMLP.

Conflicts of interest relating to sales or refinancing of hotels acquired from some of our trustees and officers may lead to decisions that are not in our best interest.

Some of our non-independent trustees and officers have unrealized gains associated with their interests in the hotels we have acquired from them and, as a result, any sale of these hotels or refinancing or prepayment of principal on the indebtedness assumed by us in purchasing these hotels may cause adverse tax consequences to such trustees and officers. Therefore, our interests and the interests of these individuals may be different in connection with the disposition or refinancing of these hotels.

RISKS RELATED TO OUR STRUCTURE

There are no assurances of our ability to make distributions in the future.

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Our ability to pay dividends has been, and may continue to be, adversely affected by the risk factors described herein and in other reports filed by us with the SEC. All distributions will be made at the discretion of our Board of Trustees and will depend upon our earnings, our financial condition, maintenance of our REIT status and such other factors as our Board of Trustees may deem relevant from time to time. There are no assurances of our ability to pay dividends in the future. Furthermore, our Credit Agreements, as amended, contain prohibitions against our payment of any dividend on common or preferred shares, including at any time when there is an event of default under such credit agreement. As a result, our inability to pay dividends to our shareholders may cause us to fail the 90% distribution requirement causing us to be subject to corporate income tax and the 4% nondeductible excise tax.

Holders of our outstanding preferred shares have dividend, liquidation and other rights that are senior to the rights of the holders of our common shares.

Our Board of Trustees has the authority to designate and issue preferred shares with liquidation, dividend and other rights that are senior to those of our common shares. As of December 31, 2020, 3,000,000 Series C Preferred Shares, 7,701,700 Series D Preferred Shares and 4,001,514 Series E Preferred Shares were issued and outstanding. Holders of our outstanding preferred shares are entitled to cumulative dividends before any dividends may be declared or set aside on our common shares. Upon our voluntary or involuntary liquidation, dissolution or winding up, before any payment is made to holders of our common shares, holders of our preferred shares are entitled to receive a liquidation preference of $25.00 per share plus any accrued and unpaid distributions. This will reduce the remaining amount of our assets, if any, available to distribute to holders of our common shares. In addition, holders of our preferred shares have the right to elect two additional trustees to our Board of Trustees whenever dividends are in arrears in an aggregate amount equivalent to six or more quarterly dividends, whether or not consecutive.

Our Board of Trustees may authorize the issuance of additional shares that may cause dilution or prevent a transaction that is in the best interests of our shareholders.

Our Declaration of Trust authorizes the Board of Trustees, without shareholder approval, to:

amend the Declaration of Trust to increase or decrease the aggregate number of shares of beneficial interest or the number of shares of beneficial interest of any class or series that we have the authority to issue;

cause us to issue additional authorized but unissued common shares or preferred shares; or

classify or reclassify any unissued common or preferred shares and to set the preferences, rights and other terms of such classified or reclassified shares, including the issuance of additional common shares or preferred shares that have preference rights over the common shares with respect to dividends, liquidation, voting and other matters.

Any one of these events could cause dilution to our common shareholders, delay, deter or prevent a transaction or a change in control that might involve a premium price for the common shares or otherwise not be viewed in the best interest of holders of common shares.

Our Declaration of Trust contains a provision that creates staggered terms for our Board of Trustees.

Our Board of Trustees is divided into two classes, the terms of which expire every two years. Trustees of each class are elected for two-year terms upon the expiration of their current terms and each year one class of trustees will be elected by the shareholders. The staggered terms of trustees may delay, deter or prevent a tender offer, a change in control of us or other transaction, even though such a transaction might be viewed in the best interest of the shareholders.

Certain provisions of Maryland law may discourage a third party from acquiring us.

Under the Maryland General Corporation Law, as amended (the "MGCL"), as applicable to REITs, certain “business combinations” (including certain issuances of equity securities) between a Maryland REIT and any person who beneficially owns ten percent or more of the voting power of the trust’s shares, or an affiliate thereof, are prohibited for five years after the most recent date on which such shareholder acquired at least ten percent of the voting power of the trust’s shares. Thereafter, any such business combination must be approved by two super-majority shareholder votes unless, among other conditions, the trust’s common shareholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for its common shares.
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These provisions could delay, deter or prevent a change of control or other transaction in which holders of our equity securities might receive a premium for their shares above then-current market prices or which such shareholders otherwise might believe to be in their best interests. Although our bylaws contain a provision exempting acquisitions of our shares from the control share acquisition legislation referenced above, there can be no assurance that this provision will not be amended or eliminated at any time in the future.

Our Board of Trustees and management make decisions on our behalf, and shareholders have limited policymaking and management rights.

Our major policies, including our policies with respect to acquisitions, financing, growth, operations, debt limitation and distributions, are determined by our Board of Trustees. The Trustees may amend or revise these and other policies from time to time without a vote of the holders of the common shares.

Under Maryland law, generally, a trustee’s actions will be upheld if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinary prudent person in a like position would use under similar circumstances. Our shareholders have no right or power to take part in our management except through the exercise of voting rights on certain specified matters. The Board of Trustees is responsible for our management and strategic business direction, and our management is responsible for our day-to-day operations. Certain policies of our Board of Trustees may not be consistent with the short-term best interests of our shareholders.

RISKS RELATED TO OUR TAX STATUS

If we fail to maintain our qualification as a REIT, our dividends will not be deductible to us, and our income will be subject to taxation, which would reduce the cash available for distribution to our shareholders.

We have operated and intend to continue to operate so as to qualify as a REIT for federal income tax purposes. However, the federal income tax laws governing REITs are extremely complex, and interpretations of the federal income tax laws governing REITs are limited. Our continued qualification as a REIT will depend on our continuing ability to meet various requirements concerning, among other things, the ownership of our outstanding shares of beneficial interest, the nature of our assets, the sources of our income, and the amount of our distributions to our shareholders. Moreover, new tax legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. If we were to fail to qualify as a REIT in any taxable year and did not qualify for certain statutory relief provisions, we would not be allowed a deduction for distributions to our shareholders in computing our taxable income and would be subject to federal income tax on our taxable income at regular corporate rates. Any such corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our shareholders, which in turn could have an adverse impact on the value of, and trading prices for, our shares. Unless entitled to relief under certain Code provisions, we also would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. As a result, amounts available for distribution to shareholders would be reduced for each of the years involved. Although we currently intend to continue to operate in a manner so as to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our Board of Trustees, with the consent of holders of two-thirds of the outstanding shares, to revoke our REIT election.

To maintain our qualification as a REIT and avoid corporate income tax and excise tax, we must distribute annually a certain percentage of our REIT taxable income, which could require us to raise capital on terms or sell properties at prices or at times that are unfavorable.

In order to maintain our qualification as a REIT, each year we must distribute to our shareholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain. To the extent that we satisfy the 90% distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our actual distributions in any year are less than the sum of:
85% of our REIT ordinary income for that year;

95% of our REIT capital gain net income for that year; and

100% of our undistributed taxable income required to be distributed from prior years.

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Historically, we have distributed our taxable income to our shareholders in a manner intended to satisfy the 90% distribution requirement and to avoid corporate income tax and the 4% nondeductible excise tax. Differences in timing between the recognition of income and the related cash receipts, limitations on our ability or the ability of our subsidiaries to deduct interest expense from borrowings under Section 163(i) of the Code or the effect of required debt amortization payments could require us to borrow or raise capital on terms we regard as unfavorable, or sell assets at prices or at times we regard as unfavorable to distribute out enough of our taxable income to satisfy the distribution requirement and to avoid corporate income tax and the 4% nondeductible excise tax in a particular year. In the past we have borrowed, and in the future we may borrow, to pay distributions to our shareholders and the limited partners of our operating partnership. Such borrowings subject us to risks from borrowing as described herein. Additionally, we may, if necessary and allowable, pay taxable dividends of our shares to meet the distribution requirements.

If the leases of our hotels to our TRSs are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT.

To maintain our qualification as a REIT, we must satisfy two gross income tests, under which specified percentages of our gross income must be derived from certain sources, such as “rents from real property.” Rents paid to our operating partnership by our TRSs pursuant to the lease of our hotels constitute substantially all of our gross income. In order for such rent to qualify as “rents from real property” for purposes of the gross income tests, the leases must be respected as true leases for federal income tax purposes and not be treated as service contracts, joint ventures or some other type of arrangement. If our leases are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT.
Our ownership of our TRSs is limited and our transactions with our TRSs will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm's-length terms.

A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross operating income from hotel operations pursuant to hotel management contracts. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT's assets may consist of stock or securities of one or more TRSs. In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation, and in certain circumstances, other limitations on the deductibility of interest may apply. The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm's-length basis.

Our TRSs are subject to applicable federal, foreign, state and local income tax on their taxable income, and their after-tax net income will be available for distribution to us but is not required to be distributed to us. We believe that the aggregate value of the stock and securities of our TRSs is and will continue to be less than 20% of the value of our total assets (including our TRS stock and securities). Furthermore, we will monitor the value of our respective investments in our TRSs for the purpose of ensuring compliance with TRS ownership limitations. In addition, we will scrutinize all of our transactions with our TRSs to ensure that they are entered into on arm's-length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the 20% limitation discussed above or to avoid application of the 100% excise tax discussed above.

If our hotel managers do not qualify as “eligible independent contractors,” we would fail to qualify as a REIT.

Rent paid by a lessee that is a “related party tenant” of ours will not be qualifying income for purposes of the two gross income tests applicable to REITs. We lease our hotels to our TRSs. A TRS will not be treated as a “related party tenant,” and will not be treated as directly operating a lodging facility, which is prohibited, to the extent the TRS leases properties from us that are managed by an “eligible independent contractor.”

We believe that the rent paid by our TRSs is qualifying income for purposes of the REIT gross income tests and that our TRSs qualify to be treated as taxable REIT subsidiaries for federal income tax purposes, but there can be no assurance that the Internal Revenue Service, or the IRS, will not challenge this treatment or that a court would not sustain such a challenge. If the IRS successfully challenged this treatment, we would likely fail to satisfy the asset tests applicable to REITs and substantially all of our income would fail to qualify for the gross income tests. If we failed to satisfy either the asset or gross income tests, we would likely lose our REIT qualification for federal income tax purposes, unless certain relief provisions applied.

If our hotel managers do not qualify as “eligible independent contractors,” we would fail to qualify as a REIT. Each of the hotel management companies that enters into a management contract with our TRSs must qualify as an “eligible independent contractor” under the REIT rules in order for the rent paid to us by our TRSs to be qualifying income for our REIT income test
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requirements. Among other requirements, in order to qualify as an eligible independent contractor a manager must not own more than 35% of our outstanding shares (by value) and no person or group of persons can own more than 35% of our outstanding shares and the ownership interests of the manager, taking into account only owners of more than 5% of our shares and, with respect to ownership interests in such managers that are publicly traded, only holders of more than 5% of such ownership interests. Complex ownership attribution rules apply for purposes of these 35% thresholds. Although we intend to continue to monitor ownership of our shares by our hotel managers and their owners, there can be no assurance that these ownership levels will not be exceeded.

Complying with REIT requirements may force us to sell otherwise attractive investments.

To maintain our qualification as a REIT, we must satisfy certain requirements with respect to the character of our assets. If we fail to comply with these requirements at the end of any calendar quarter, we must correct such failure within 30 days after the end of the calendar quarter (by, possibly, selling assets notwithstanding their prospects as an investment) to avoid losing our REIT status. If we fail to comply with these requirements at the end of any calendar quarter, and the failure exceeds a de minimis threshold, we may be able to preserve our REIT status if (a) the failure was due to reasonable cause and not to willful neglect, (b) we dispose of the assets causing the failure within six months after the last day of the quarter in which we identified the failure, (c) we file a schedule with the IRS, describing each asset that caused the failure, and (d) we pay an additional tax of the greater of $50,000 or the product of the highest applicable tax rate multiplied by the net income generated on those assets. As a result, we may be required to liquidate otherwise attractive investments.

The prohibited transactions tax may limit our ability to engage in transactions, including dispositions of assets that would be treated as sales for federal income tax purposes.

A REIT's net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. We may be subject to the prohibited transaction tax upon a disposition of real property. Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, we cannot assure you that we can comply with the safe harbor or that we will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business. Consequently, we may choose not to engage in certain sales of real property or may conduct such sales through a TRS.

We may pay taxable dividends partly in shares and partly in cash, in which case shareholders may sell our shares to pay tax on such dividends, placing downward pressure on the market price of our shares.

We may make taxable dividends that are payable partly in cash and partly in shares. Under IRS Revenue Procedure 2017-45 (as modified by Revenue Procedure 2020-19), as a publicly offered REIT, as long as at least 20% (or 10% for our tax year ended December 31, 2020) of the total dividend is available in cash and certain other requirements are satisfied, the IRS will treat the share distribution as a dividend (to the extent applicable rules treat such distribution as being made out of our earnings and profits). If in the future we choose to pay dividends in our own shares, our shareholders may be required to pay tax in excess of the cash that they receive. If a U.S. shareholder sells the shares that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our shares at the time of the sale. Furthermore, with respect to certain non-U.S. shareholders, we may be required to withhold U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in shares. If we pay dividends in our own shares and a significant number of our shareholders sell our shares in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our shares.

Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

The maximum U.S. federal income tax rate applicable to qualified dividend income payable to certain non-corporate U.S. holders is 20%. Dividends payable by REITs, however, generally are not eligible for the reduced qualified dividend rates. For taxable years beginning before January 1, 2026, non-corporate taxpayers may deduct up to 20% of certain pass-through business income, including “qualified REIT dividends” (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income tax rate of 29.6% on such income. Although the reduced U.S. federal income tax rate applicable to qualified dividend income does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends and the reduced corporate tax rate (currently 21%) could cause certain non-corporate investors to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our shares.
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Our share ownership limitation may prevent certain transfers of our shares.

In order to maintain our qualification as a REIT, not more than 50% in value of our outstanding shares of beneficial interest may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities). Our Declaration of Trust prohibits direct or indirect ownership (taking into account applicable ownership provisions of the Code) of more than (a) 9.9% of the aggregate number of outstanding common shares of any class or series or (b) 9.9% of the aggregate number of outstanding preferred shares of any class or series of outstanding preferred shares by any shareholder or group, or the Ownership Limitation. Generally, the shares of beneficial interest owned by related owners will be aggregated for purposes of the Ownership Limitation. The Board of Trustees, upon receipt of advice of counsel or other evidence satisfactory to the Board of Trustees, in its sole and absolute discretion, may exempt a shareholder from the Ownership Limitation. The Ownership Limitation could have the effect of delaying, deterring or preventing a change in control or other transaction in which holders of shares might receive a premium for their shares over the then prevailing market price or which such holders might believe to be otherwise in their best interests. Any transfer of shares of beneficial interest that would violate the Ownership Limitation, cause us to have fewer than 100 shareholders, cause us to be “closely held” within the meaning of Section 856(h) of the Code or cause us to own, directly or indirectly, 10% or more of the ownership interest in any tenant (other than a TRS) will be void, the intended transferee of such shares will be deemed never to have had an interest in such shares, and such shares will be designated “shares-in-trust.” Further, we will be deemed to have been offered shares-in-trust for purchase at the lesser of the market price (as defined in the Declaration of Trust) on the date we accept the offer and the price per share in the transaction that created such shares-in-trust (or, in the case of a gift, devise or non-transfer event (as defined in the Declaration of Trust), the market price on the date of such gift, devise or non-transfer event). Therefore, the holder of shares of beneficial interest in excess of the Ownership Limitation will experience a financial loss when such shares are purchased by us, if the market price falls between the date of purchase and the date of redemption.

We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our shares.

At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. We cannot predict when or if any new federal income tax law, regulation, or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation, or interpretation may take effect retroactively. Additional changes to the tax laws are likely to continue to occur. We cannot predict the long-term effect of any recent changes or any future law changes on REITs and their shareholders. We and our shareholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative interpretation.

The federal income tax laws governing REITs are complex.

The REIT qualification requirements are extremely complex and interpretations of the federal income laws governing qualification as a REIT are limited. Accordingly, we cannot be certain that we will be successful in operating so we can continue to qualify as a REIT. At any time, new laws, interpretations, or court decisions may change the federal tax laws or the federal income tax consequences of our qualification as a REIT.

GENERAL RISK FACTORS

An increase in market interest rates may have an adverse effect on the market price of our securities.

One of the factors that investors may consider in deciding whether to buy or sell our securities is our dividend rate as a percentage of our share or unit price, relative to market interest rates. If market interest rates increase, prospective investors may desire a higher dividend or interest rate on our securities or seek securities paying higher dividends or interest. The market price of our common shares likely will be based primarily on the earnings and return that we derive from our investments and income with respect to our properties and our related distributions to shareholders, and not from the market value or underlying appraised value of the properties or investments themselves. The market price of our preferred shares is based in large part on prevailing interest rates. As a result, interest rate fluctuations and capital market conditions can affect the market price of our common shares and preferred shares. For instance, if interest rates rise without an increase in our dividend rate, the market price of our common shares could decrease because potential investors may require a higher dividend yield on our common shares as market rates on interest-bearing securities, such as bonds, rise. In addition, rising interest rates would result in increased interest expense on our variable rate debt, thereby adversely affecting cash flow and our ability to service our indebtedness and pay dividends.

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Future offerings of equity securities, which would dilute our existing shareholders and may be senior to our common shares for the purposes of dividend distributions, may adversely affect the market price of our common shares.

In the future, we may attempt to increase our capital resources by making additional offerings of equity securities, including classes of preferred or common shares. Upon liquidation, holders of our preferred shares and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common shares. Additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common shares, or both. Our preferred shares could have a preference on liquidating distributions or a preference on dividend payments that could limit our ability to make a dividend distribution to the holders of our common shares. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our shareholders bear the risk of our future offerings reducing the market price of our common shares and diluting their share holdings in us.

The market price of our securities has been, and may continue to be, volatile and has declined, and may continue to decline, which may result in a substantial or complete loss of your investment in our securities.

The stock markets have previously and recently experienced significant price and volume fluctuations. As a result, the market price of our securities has been and could be similarly volatile in the future, and investors in our securities may experience a decrease in the value of their investments, including decreases unrelated to our operating performance or prospects. The market price of our securities could be subject to wide fluctuations in response to a number of factors, including:
our operating performance and the performance of other similar companies;

actual or anticipated differences in our operating results;

changes in our revenues or earnings estimates or recommendations by securities analysts; publication of research reports about us or our industry by securities analysts;

additions and departures of key personnel;

strategic decisions by us or our competitors, such as mergers and acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business strategy;

the passage of legislation or other regulatory developments or executive policies that adversely affect us or our industry;

speculation in the press or investment community; actions by institutional shareholders;

changes in accounting principles;

terrorist acts;

general market conditions, including factors unrelated to our performance; and
pandemics and epidemics, such as the COVID-19 pandemic, and the related governmental and economic responses thereto.

In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources.

Future sales of our common shares, preferred shares, or securities convertible into or exchangeable or exercisable for our common shares could depress the market price of our common shares.

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We cannot predict whether future sales of our common shares, preferred shares, or securities convertible into or exchangeable or exercisable for our common shares or the availability of these securities for resale in the open market will decrease the market price of our common shares. Sales of a substantial number of these securities in the public market, including sales upon the redemption of Common Units held by the limited partners of our operating partnership, (other than us and our subsidiaries) or the perception that these sales might occur, may cause the market price of our common shares to decline and you could lose all or a portion of your investment.

Future issuances of our common shares, preferred shares, or other securities convertible into or exchangeable or exercisable for our common shares, including, without limitation, common units of beneficial interest in our Operating Partnership (“Common Units”), in connection with property, portfolio or business acquisitions and issuances of equity-based awards to participants in our equity incentive plans, could have an adverse effect on the market price of our common shares. Future issuances of these securities also could adversely affect the terms upon which we obtain additional capital through the sale of equity securities. In addition, future sales or issuances of our common shares may be dilutive to existing shareholders.


Item 1B.    Unresolved Staff Comments
None.
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Item 2.    Properties
The following table sets forth certain information with respect to the 37 hotels we wholly owned and 1 hotel owned within our consolidated joint venture as of December 31, 2020, all of which are consolidated on the Company’s financial statements.
MarketNameLocationYear OpenedNumber of Rooms
Boston Urban and MetroThe Envoy, Boston SeaportBoston, MA2015136 
The Boxer, BostonBoston, MA200480 
Courtyard by Marriott BrooklineBrookline/Boston, MA (1)2003188 
Holiday Inn Express CambridgeCambridge, MA (2)1997112 
Mystic Marriott Hotel & SpaGroton, CT2001285 
    
California - WashingtonThe Ambrose Hotel, Santa MonicaSanta Monica, CA201577 
The Sanctuary Beach ResortMonterey Bay, CA201460 
The Hotel Milo, Santa BarbaraSanta Barbara, CA (1)2001121 
Courtyard by Marriott Los Angeles WestsideLos Angeles, CA2008260 
Courtyard by Marriott Downtown San DiegoSan Diego, CA (2)1999245 
Courtyard by Marriott SunnyvaleSunnyvale, CA2014145 
TownePlace Suites SunnyvaleSunnyvale, CA (1)200394 
The Pan Pacific Hotel SeattleSeattle, WA2006153 
    
NYC UrbanHyatt Union SquareUnion Square, New York, NY2013178 
Duane Street HotelTriBeCa, New York, NY200843 
Hilton Garden Inn Manhattan Midtown EastMidtown East, New York, NY2014206 
Hilton Garden Inn TriBeCaTriBeCa, New York, NY2009151 
Hampton Inn SeaportSeaport, New York, NY200665 
Holiday Inn Express ChelseaMadison Square Garden, New York, NY2006228 
Hilton Garden Inn JFKJFK Airport, New York, NY (1)2005192 
Gate Hotel JFK AirportJFK Airport, New York, NY (1)2008150 
Nu Hotel, BrooklynBrooklyn, New York, NY200893 
NY-NJ MetroHyatt House White PlainsWhite Plains, NY2000187 
PhiladelphiaThe Rittenhouse HotelPhiladelphia, PA2004118 
Philadelphia WestinPhiladelphia, PA1990294 
Hampton Inn Center City/ Convention CenterPhiladelphia, PA2001250 

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MarketNameLocationYear OpenedNumber of Rooms
South FloridaCadillac Hotel & Beach ClubMiami, FL2004357 
The Ritz-Carlton, Coconut GroveCoconut Grove, FL2002115 
The Blue Moon Hotel, Miami BeachMiami, FL201375 
The Winter Haven Hotel, Miami BeachMiami, FL201370 
Residence Inn Miami Coconut GroveCoconut Grove, FL (2)2000140 
Parrot Key Hotel & VillasKey West, FL2013148 
Washington D.C.The Ritz-Carlton, GeorgetownGeorgetown, DC201486 
The St. Gregory Hotel, Dupont CircleWashington, DC2014156 
The Capitol Hill HotelWashington, DC (2)2007153 
Hilton Garden Inn M StreetWashington, DC2014238 
Hampton Inn Washington, D.C.Washington, DC2005228 
Annapolis Waterfront HotelAnnapolis, MD (1)1968150 
TOTAL ROOMS6,027 
(1) Our interests in these hotels are subject to ground leases which, in most cases, require monthly rental payment as determined by the applicable ground lease agreement. These ground lease agreements typically have initial terms of 99 years and all have a remaining term of at least 45 years.
(2) Subsequent to December 31, 2020 this property was sold.

The following table sets forth certain information with respect to the 10 hotels we owned through unconsolidated joint ventures with third parties as of December 31, 2020.
MarketNameLocationYear OpenedNumber of RoomsHHLP Ownership
in Asset
BostonCourtyardSouth Boston, MA (1)2005164 50 %
Holiday Inn ExpressSouth Boston, MA (1)1998174 50 %
Home2 SuitesSouth Boston, MA (1)2020130 50 %
NYC UrbanHampton Inn Manhattan/ Times Square SouthTimes Square, New York, NY (2)2009184 31 %
Hampton Inn Manhattan- ChelseaChelsea/Manhattan, New York, NY (2)2003144 31 %
Hampton Inn Manhattan- Madison Square GardenHerald Square, New York, NY (2)2005136 31 %
Holiday Inn New York City- Wall StreetWall Street, New York, NY (2)2010113 31 %
Holiday Inn Express New York City Times SquareTimes Square, New York, NY (2)2009210 31 %
Holiday Inn Express Wall StreetWater Street, New York, NY (2)2010112 31 %
Candlewood Suites New York City- Times SquareTimes Square, New York, NY (2)2009188 31 %
TOTAL ROOMS1,555 
(1) The joint ventures interests in these hotels are subject to ground leases which, in most cases, require monthly rental payment as determined by the applicable ground lease agreements. These ground lease agreements typically have terms of 60 years and all have a remaining term of at least 44 years.
(2) Subsequent to December 31, 2020, the mezzanine lender to the joint venture foreclosed and took ownership of this property.

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Item 3.    Legal Proceedings
We are not presently subject to any material litigation nor, to our knowledge, is any other litigation threatened against us, other than routine actions for negligence or other claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse effect on our liquidity, results of operations or business or financial condition.

Item 4.    Mine Safety Disclosures
Not applicable.
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PART II
Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common shares trade on the New York Stock Exchange under the symbol “HT.”
SHAREHOLDER INFORMATION
At December 31, 2020 we had approximately 137 shareholders of record of our common shares. Common Units (which are redeemable by holders for cash or, at our option, for common shares on a one for one basis, subject to certain limitations) were held by approximately 32 entities and persons, including our company.
Our Declaration of Trust, subject to certain exceptions, provides that no person may own, or be deemed to own by virtue of the attribution provisions of the Code, more than 9.9% of the number of outstanding common shares of any class or series of common shares or the number of outstanding preferred shares of any class or series of preferred shares. For this purpose, a person includes a “group” and a “beneficial owner” as those terms are used for purposes of Section 13(d)(3) of the Exchange Act. Any transfer of common or preferred shares that would result in any person owning, directly or indirectly, common or preferred shares in excess of the ownership limitation, result in the common and preferred shares being owned by fewer than 100 persons (determined without reference to any rules of attribution), result in our being “closely held” within the meaning of Section 856(h) of the Code, or cause us to own, actually or constructively, 10% or more of the ownership interests in a tenant (other than a TRS) of our or our operating partnership’s real property, within the meaning of Section 856(d)(2)(B) of the Code, will be null and void, and the intended transferee will acquire no rights in such common or preferred shares.
Any person who acquires or attempts to acquire common or preferred shares in violation of the foregoing restrictions, or any person who owned common or preferred shares that were transferred to a trust, will be required to give written notice immediately to us of such event and provide us with such other information as we may request in order to determine the effect, if any, of such transfer on our status as a REIT.
In addition, our trustees, upon receipt of advice of counsel or other evidence satisfactory to the trustees, in their sole and absolute discretion, may, in their sole and absolute discretion, exempt a person from the ownership limitation under certain circumstances. The foregoing restrictions continue to apply until the trustees determine that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT and there is an affirmative vote of two-thirds of the number of common and preferred shares entitled to vote on such matter at a regular or special meeting of our shareholders.
All certificates representing common or preferred shares bear a legend referring to the restrictions described above.
The restrictions on ownership and transfer described above could have the effect of delaying, deterring or preventing a change in control or other transaction in which holders of some, or a majority, of our common shares might receive a premium for their shares over the then-prevailing market price or which such holders might believe to be otherwise in their best interest.
EQUITY COMPENSATION PLAN
See Part III, Item 12, for a description of securities authorized for issuance under our Amended and Restated 2012 Equity Incentive Plan.
DISTRIBUTION INFORMATION
Future distributions, if any, will be at the discretion of our Board of Trustees and will depend on our actual cash flow, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and such other factors as we may deem relevant. Our ability to make distributions will depend on our receipt of distributions from our operating partnership and lease payments from our lessees with respect to the hotels. We rely on the profitability and cashflows of our hotels to generate sufficient cash flow for distributions. Additionally, we may, if necessary and allowable, pay taxable dividends of our shares to meet the distribution requirements.

Item 6.    Selected Financial Data

[Reserved.]
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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statement and Notes thereto. This section includes discussion of financial information as of and for the year ended December 31, 2020 and provides comparisons to the same information as of and for the year ended December 31, 2019. Comparisons of 2019 financial information to the same information for 2018 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the Securities and Exchange Commission on February 25, 2020.
Certain statements appearing in this Item 7 are forward-looking statements within the meaning of the federal securities laws. Our actual results may differ materially. We caution you not to place undue reliance on any such forward-looking statements. See “Cautionary Factors That May Affect Future Results” for additional information regarding our forward-looking statements.
BACKGROUND
As of December 31, 2020, we owned interests in 48 hotels in major urban gateway markets including New York, Washington DC, Boston, Philadelphia, San Diego, Los Angeles, Miami and select markets on the West Coast including 37 wholly-owned hotels, 1 hotel through our interest in a consolidated joint venture, and interests in 10 hotels owned through unconsolidated joint ventures.  We have elected to be taxed as a REIT for federal income tax purposes, beginning with the taxable year ended December 31, 1999. For purposes of the REIT qualification rules, we cannot directly operate any of our hotels. Instead, we must lease our hotels to a third party lessee or to a TRS, provided that the TRS engages an eligible independent contractor, as defined under the REIT rules, to manage the hotels. As of December 31, 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. The TRS structure enables us to participate more directly in the operating performance of our hotels. Each TRS directly receives all revenue from, and funds all expenses relating to, hotel operations of the hotels that it leases. Each TRS is also subject to income tax on its earnings.
COVID-19
At the beginning of the year, we expected that we would achieve operating results for 2020 that would out perform other market participants due to the strong performance anticipated from newly renovated and upgraded hotels in our portfolio, primarily led by our hotels in South Florida. We started 2020 off on solid footing with our comparable portfolio achieving RevPAR growth through the end of February 2020 but this was quickly erased as a result of the global economic slowdown caused by the COVID-19 pandemic. Due to the COVID-19 pandemic and the effects of travel restrictions both globally and in the United States, the hospitality industry has experienced drastic drops in demand. The global impact of the pandemic has been rapidly evolving, and in the United States, certain states and cities, including most of the states and cities where we own properties, have reacted by instituting various restrictive measures such as quarantines, restrictions on travel, school closings, "stay at home" rules and restrictions on types of business that may continue to operate. During the first half of 2020 as a result of the impact of the COVID-19 pandemic, we had temporarily closed 21 of our 48 hotels while our remaining hotels operated in a significantly reduced capacity. During the second quarter of 2020 we reopened 5 hotels, during the third quarter of 2020 we reopened 8 hotels, and during the fourth quarter of 2020 we reopened 2 hotels resulting in 6 hotels remaining closed as of December 2020. We believe the 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. In addition to our focus on strategically reopening hotels and driving occupancy at these hotels, we have remained focused on executing expense mitigation measures and shoring up our liquidity position as we continue to face a challenging operating environment. For example, we suspended all common and preferred dividends in 2020, deferred certain planned capital expenditures and amended our Credit Agreements.
We cannot assure you that our assumptions used to estimate our liquidity requirements will be correct because the lodging industry has not previously experienced such an abrupt and drastic reduction in hotel demand, and as a consequence, our ability to be predictive is uncertain. In addition, the magnitude, duration, and speed of the pandemic is uncertain and we cannot estimate when travel demand will recover. As a consequence, we cannot estimate the impact on our business, financial condition, or operating results with reasonable certainty.
Furthermore, as a result of the turmoil in the financial markets resulting from the spread of the novel coronavirus and the global COVID-19 pandemic, on March 19, 2020, in order to preserve liquidity, we revoked our previously announced first quarter 2020 quarterly cash dividends on our common shares, 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.
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Subsequent to December 31, 2020, we amended our Credit Agreements which allowed us, subject to certain conditions (including paying down existing debt under the Credit Agreements and limitations on the source of funds), to pay 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 and keep these dividends current going forward.

OVERVIEW
As a result of the COVID-19 pandemic and subsequent government mandates and health official recommendations, hotel demand has been substantially reduced across the United States.

Following the government mandates and health official recommendations, and after evaluating the cost of running our respective properties at low occupancy levels versus closing the properties, we originally closed 21 of our 48 hotel properties and dramatically reduced staffing at the hotels that remained open and at the corporate level. As of the date of this filing, we have 37 hotels of our 38 wholly-owned hotels operating while 1 hotel has remained closed. The hotel that has remained closed is under a contract to sell and is classified as held for sale as of December 31, 2020. The reopening of our wholly-owned hotels provided us the opportunity to capture incremental demand through the end of the year and we are prepared to capture market share during the early stages of an economic recovery in 2021.
In addition to our focus on strategically reopening hotels and driving occupancy at these hotels, we have remained focused on executing expense mitigation measures and shoring up our liquidity position as we continue to face a challenging operating environment. The suspension of our common and preferred dividends through the end of 2020 reduced our cash expenditures by $72.5 million when compared to dividends we declared in 2019. Subsequent to December 31, 2020, we paid approximately $24.2 million in preferred dividend arrearage that was not paid in 2020. We 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 waiver of our covenants under the Credit Facility through March 31, 2021 and provided us with additional availability under the Credit Facility. Subsequent to December 31, 2020, the Company entered into an unsecured notes facility that provided an initial $150 million at closing. An incremental $50 million may be drawn, at the Company’s discretion in minimum installments of $25 million, at any point on or prior to September 30, 2021. Proceeds from the initial $150 million provided by this facility, along with a portion of the proceeds from asset sales, were used to repay amounts outstanding under our Credit Facility, allowing us to amend our Credit Facility again subsequent to December 31, 2020, eliminating maturities under the Credit Facility until August of 2022. The Credit Facility amendment also waives all financial covenants through March 31, 2022, establishes accommodative covenant testing methodology through December 31, 2022, and provides additional liquidity at the Company’s discretion.

The manner in which the ongoing COVID-19 pandemic will be resolved or the manner that the hospitality and tourism industries will return to historical performance norms, and whether the economy will contract or grow are not reasonably predictable. As a result, there can be no assurances that we will be able to achieve the hotel operating metrics or the results at our properties we have forecasted. Factors that might contribute to less-than-anticipated performance include those described under the heading "Risk Factors" in this report and other documents that we may file with the SEC in the future. We will continue to cautiously monitor lodging demand and rates, our third-party hotel managers, and our performance generally.
SUMMARY OF OPERATING RESULTS
The following tables outline operating results for the Company’s portfolio of wholly owned hotels and those owned through joint venture interests that are consolidated in our financial statements for the years ended December 31, 2020, and 2019. Common key performance metrics utilized by the lodging industry are occupancy, average daily rate ("ADR"), and revenue per available room ("RevPAR"). Occupancy is calculated as the percentage total rooms sold compared to rooms available to be sold, while ADR measures the average rate earned per occupied room, calculated as total room revenue divided by total rooms sold. RevPAR is a derivative of these two metrics which shows the total room revenue earned per room available to be sold. Management uses these metrics in comparison to other hotels in our self-defined competitive peer set within proximity to each of our hotel properties.
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 as of the end of the period reported. Based on this definition, for the year ended December 31, 2020, there are 37 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 year ended December 31, 2020 compared to the year ended December 31, 2019 for our comparable hotels. 
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For the comparison of December 31, 2020 to December 31, 2019, comparable hotel operating results contain results from our consolidated hotels owned as of December 31, 2020, excluding: (1) The Boxer as this hotel was closed for a portion of December 2019 through May 2020 to perform remediation from water damage; and (2) the results of all hotels sold during the years ended December 31, 2020 and 2019.

COMPARABLE CONSOLIDATED HOTELS:
(Includes 37 hotels in both years)
Year Ended December 31, 2020Year Ended December 31, 20192020 vs. 2019 % Variance
(dollars in thousands except ADR and RevPAR)
Occupancy36.2 %82.8 %(4,660) bps
Average Daily Rate (ADR)$178.03 $229.83 (22.5)%
Revenue Per Available Room (RevPAR)$64.46 $190.32 (66.1)%
Room Revenues$140,301 $413,071 (66.0)%
Hotel Operating Revenues$172,545 $513,082 (66.4)%
Overall, our comparable hotel portfolio experienced significant operating disruptions as a result of the COVID-19 pandemic, which resulted in local and federal restrictions on travel and leisure activities as well as drastic reductions in business travel. This reduction in demand across the entire hotel industry resulted in 2020 operating results far below that of 2019. RevPAR for the year ended December 31, 2020 decreased 66.1% for our comparable consolidated hotels when compared to 2019.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2020 TO DECEMBER 31, 2019
(dollars in thousands)
Revenue
Our total revenues for the years ended December 31, 2020 and 2019 consisted of hotel operating revenues and other revenue. Hotel operating revenues were approximately 99% of total revenues for the years ended December 31, 2020 and 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 decreased $353,225 or 66.7%, to $176,443 for the year ended December 31, 2020 compared to $529,668 for the same period in 2019. This decrease in hotel operating revenues can be attributed to the aforementioned decline in the overall demand for hotel rooms during 2020 as a result of the COVID-19 pandemic, which the Company began experiencing during March 2020. During 2020 each of our hotels experienced a decrease in hotel operating revenue when compared to 2019. The decrease in hotel operating revenue per hotel ranged from a decrease of 7.5% to 86.2%. As the demand from our traditional hotel customers waned, we worked closely with our third-party management companies to employ alternate revenue generation strategies that included a focus on student housing, accommodations for health and safety workers, contracts with professional sports teams needing in-season quarantine accommodations, and other contract based group accommodations. These alternative revenue strategies proved helpful in partially reducing the negative impact of the pandemic on our operations.
Expenses

Total hotel operating expenses decreased 55.8% to approximately $140,256 for the year ended December 31, 2020 from $317,436 for the year ended December 31, 2019. This decrease in hotel operating expenses is directly correlated to the reduction in hotel room demand as a result of the COVID-19 pandemic. As we started to experience negative operating trends during March 2020, our management team worked closely with our third-party hotel management companies to identify which hotels were candidates for temporary closure and which hotels could continue to operate at a reduced capacity. For hotels that remained open for operation, we utilized appropriate cost savings measures that included reduced staffing levels, a reduction of in-room amenities, modified food and beverage offerings, and modifications to room attendant schedules while implementing health and safety measures to ensure the protection of our guests and hotel staff.
Depreciation and amortization increased by 0.4%, or $429, to $96,958 for the year ended December 31, 2020 from $96,529 for the year ended December 31, 2019. The increase was a result of depreciation and amortization recorded on the
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hotels newly renovated, partially offset by those assets that fully depreciated during 2020 and the cessation of depreciation on the Duane Street Hotel, as it was held for sale for the majority of 2020.
Real estate and personal property tax and property insurance increased $2,327, or 6.0%, for the year ended December 31, 2020 when compared to the same period in 2019. Approximately $647 of the increase relates to higher property insurance costs for 2020 compared to 2019. The majority of this increase in insurance expense is attributable to increased insurance costs at our Florida hotel properties with the largest increases affecting The Cadillac Hotel and Beach Club and the Parrot Key Hotel & Villas. The remaining $1,680 increase relates to increased real estate tax costs. A portion of this increase is related to real estate taxes on New York City properties that had experienced tax rebate phase outs, resulting in higher 2020 expense of $513. Property value re-assessments on our Florida assets also added $102 of higher expense in 2020. The remaining unexplained difference is the result of normal real estate jurisdictional rate increases less net property tax refunds during the year ended December 31, 2020. We typically experience annual increases in either tax assessments or tax rates, or both, which are offset by reductions of expense resulting from successful real estate tax appeals.
General and administrative expense decreased by approximately $6,353 to $20,078 for the year ended December 31, 2020 from $26,431 for the year ended December 31, 2019.  General and administrative expense includes expense related to non-cash share based payments issued as incentive compensation to the Company’s trustees, executives, and employees. These non-cash expenses related to share based compensation decreased $1,315 when comparing the year ended December 31, 2020 to the same period in 2018.  Please refer to “Note 9 – Share Based Payments” of the notes to the consolidated financial statements for more information about our stock based compensation. The execution of our cost containment strategies resulted in a decrease of $5,038 in our payroll and other administrative costs.
Loss on Impairment of Assets
During the year ended December 31, 2020, the Company recorded an impairment charge of $1,069 related to the Duane Street Hotel, which was held for sale as of December 31, 2020. During the second quarter 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.
Gains / Losses on Insurance Recoveries
During the year ended December 31, 2020, the Company recorded a gain from insurance recoveries in the amount of $8,960 compared to property losses in excess of recoveries of $12 during the comparable period in 2019.  During the year ended December 31, 2020, the Company received a total of $10,749 in insurance proceeds, which was offset by a total of $1,789 in funds applied to previously recorded insurance receivables. We received no insurance proceeds during the year ended December 31, 2019. Included in the insurance proceeds above is a final settlement payment of $8,147 from our insurer related to the Hurricane Irma damages incurred at the Parrot Key Hotel & Villas.
Operating (Loss) Income
Operating loss for the year ended December 31, 2020 was $122,389 compared to operating income of $46,370 during the same period in 2019. Our operating loss for the year ended December 31, 2020 compared to operating income during the same period in 2019 was largely the result of hotel operating revenues decreasing at a larger rate than hotel operating expenses, both of which are the result of decreased operations across our portfolio due to the COVID-19 pandemic. Additionally, we experienced increases in real estate taxes and insurance, and a loss on an impairment of assets during 2020 compared to 2019. Partially offsetting this loss was a decrease in general and administrative expenses and a gain from insurance recoveries.
Interest Expense
Interest expense increased $1,074 from $52,205 for the year ended December 31, 2019 to $53,279 for year ended December 31, 2020. The balance of our borrowings, excluding discounts and deferred costs, have increased by $66,974 in total between December 31, 2019 and December 31, 2020, as we completed net draws on our line of credit of $85,053, which was partially offset by net mortgage debt paydowns of $1,684 and term loan paydowns of $16,395.  The increase in interest expense when comparing the year ended December 31, 2020 to the corresponding period in 2019 can be explained by: (1) an increase in interest expense from the credit facility which contributed $2,013 incrementally; and (2) a decrease in interest expense from our notes payable and variable mortgage debt due to variable rates decreasing, resulting in a decrease in expense of $1,178.

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Gain on Disposition of Hotel Properties
During the year ended December 31, 2020, the Company sold the Sheraton Wilmington and recorded a gain of $1,158 as a result. For the year ended December 31, 2019 we sold no hotel properties and, therefore, recorded no gain.
Unconsolidated Joint Venture Investments
The 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 decreased by $3,629 to a loss of $2,938 for the year ended December 31, 2020 compared to income of $691 during the same period in 2019. This reduction in income relates to the net operating losses of our joint venture properties for the year ended December 31, 2020 compared to 2019.
Income Tax Expense
During the year ended December 31, 2020, the Company recorded an income tax expense of $11,329 compared to $92 for the year ended December 31, 2019.  After considering various factors, including future reversals of existing taxable temporary differences, future taxable income and tax planning strategies, we believe that as of December 31, 2020 it is not more likely than not that we will realize our net deferred tax asset. During the year ended December 31, 2020 we recorded a valuation allowance of $23,591 resulting in a net deferred tax asset of $0 as of December 31, 2020. Absent the valuation allowance, the amount of income tax expense or benefit that the Company typically records depends mostly on the amount of taxable income or loss that is generated by our consolidated taxable REIT subsidiaries (“TRS”).
Net Loss Applicable to Common Shareholders
Net loss applicable to common shareholders for the year ended December 31, 2020 was $190,521 compared to a net loss of $27,843 during the same period in 2019.  This increase in net loss was primarily caused by: (1) lower operating income of $168,759 (2) decreased income from unconsolidated joint ventures of $3,629; (3) increased interest expense of $1,074; and (4) increased income tax expense of $11,237. Partially offsetting these items was $20,737 in additional loss allocated to minority interest holders and a higher net gain on hotel dispositions of $1,158.
Comprehensive (Loss) Income Applicable to Common Shareholders
Comprehensive loss applicable to common shareholders for the year ended December 31, 2020 was $210,806 compared to comprehensive loss of $31,060 for the same period in 2019. This change can be attributed to the items affecting Net Loss Applicable to Common Shareholders as more fully described above. For the year ended December 31, 2020, we recorded comprehensive loss of $211,608 compared to $9,342 of comprehensive income for the year ended December 31, 2019.
LIQUIDITY, CAPITAL RESOURCES, AND EQUITY OFFERINGS
(dollars in thousands, except share data)
Potential Sources of Capital
Our organizational documents do not limit the amount of indebtedness that we may incur. Our ability to incur additional debt is dependent upon a number of factors, including the current state of the overall credit markets, our degree of leverage and borrowing restrictions imposed by debt covenants and existing lenders. Our ability to raise funds through the issuance of debt and equity securities is dependent upon, among other things, capital market volatility, risk tolerance of investors, general market conditions for REITs and market perceptions related to the Company’s ability to generate cash flow and positive returns on its investments.
In addition, our mortgage indebtedness contains various financial and non-financial covenants customarily found in secured, nonrecourse financing arrangements. If the specified criteria are not satisfied, the lender may be able to escrow cash flow generated by the property securing the applicable mortgage loan. Future deterioration in market conditions could cause restrictions in our access to the cash flow of additional properties.
Our secured debt facilities aggregate to $934,506 and are comprised of a $452,158 senior secured credit facility and two secured term loans totaling $482,348. The secured credit facility (“Credit Facility”) contains a $202,158 secured term loan (“First Term Loan”) and a $250,000 secured 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 secured term loans are $292,983 (“Second Term Loan”) and $189,365 (“Third Term Loan”), which mature on September 10, 2024 and August 2, 2021, respectively.
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On April 2, 2020, we amended our existing Credit Agreement and received $100,000 in available funds on our Line of Credit (as defined below). In total we borrowed $66,000 through December 31, 2020 and an additional $13,500 through March of 2021.
Subsequent to December 31, 2020, the Company entered into a junior unsecured notes facility (“Junior Notes”) that provided an initial $150,000 at closing. An incremental $50,000 may be drawn, at the Company’s discretion, in minimum installments of $25,000 at any point on or prior to September 30, 2021. The Junior Notes bear interest at a rate of 9.50%, of which half, or 4.75%, will be paid in cash with the remaining half added to the principle of the note through March 31, 2022. The Junior Notes mature in February of 2026 and are non-callable through February 2022. The Junior Notes are callable at 104% beginning February of 2022, 102% beginning in February 2023, and at par any time beginning in February 2024.

Proceeds from the initial $150,000 provided by Junior Notes, along with a portion of the proceeds from asset sales, were used to repay amounts outstanding under the Credit Facility, the Second Term Loan, and the Third Term Loan. The Junior Notes and asset sales that closed in the first quarter of 2021 allowed the Company to execute amendments to Credit Agreements governing the Credit Facility, the Second Term Loan, and the Third Term Loan. These amendments eliminate term loan maturities until August of 2022, waive all financial covenants through March 31, 2022, establish accommodative covenant testing methodology through December 31, 2022, enable the Company to pay down the accrual of the Company’s preferred dividends and the ongoing preferred dividend accrual to be kept current, and provide additional liquidity at the Company’s discretion.

As of December 31, 2020, the outstanding balance under the First Term Loan was $202,158, under the Second Term Loan was $292,983, under the Third Term Loan was $189,365 and we had $133,053 outstanding under the Line of Credit. Subsequent to December 31, 2020, $200,694 was used to pay down balances under the Credit Facility, the Second Term Loan and the Third Term Loan.

At December 31, 2020, we failed our debt service coverage ratio ("DSCR") requirement related to four of our mortgage borrowings. Three of these DSCR failures trigger a cash management provision within their respective mortgages, which results in our respective lenders sweeping cash receipts from the properties into a lockbox to service debt payments. The remaining mortgage for which we failed the DSCR requirement has resulted in an event of default on the mortgage. This property was sold subsequent to December 31, 2020 and the mortgage was repaid in its entirety. After considering the effect of the COVID-19 pandemic on our consolidated operations, it is possible that we could fail certain financial covenants within certain property-level mortgage borrowings. 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 a requirement to escrow funds for the purpose of meeting our future debt payment obligations.

We will continue to monitor our debt maturities to manage our liquidity needs. However, no assurances can be given that we will be successful in refinancing all or a portion of our future debt obligations due to factors beyond our control or that, if refinanced, the terms of such debt will not vary from the existing terms. As of December 31, 2020, we have $406,436 of indebtedness due on or before December 31, 2021. After giving effect to the amendments to our Credit Agreements and the proceeds from our Junior Notes and asset sales, which all occurred subsequent to December 31, 2020, we have $59,019 of indebtedness due on or before December 31, 2021. 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 or Junior Notes and the issuance of our securities.

In addition to the incurrence of debt and the offering of equity securities, dispositions of property or investment from a joint venture partner may serve as additional capital resources and sources of liquidity. We may recycle capital from stabilized assets or from sales of non-core hotels in secondary and tertiary markets.  Capital from these types of transactions is intended to be redeployed into high growth acquisitions, share buybacks, or to pay down existing debt.
Common Share Repurchase Plan
There was no share repurchase program for the year-ended December 31, 2020.



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Acquisitions
During the year ended December 31, 2020, we acquired no hotel properties and do not intend to acquire hotel properties in the short term as part of our current operating strategy. 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.
Dispositions
During the year ended December 31, 2020, we disposed of the Sheraton Wilmington for a sales price of $19,500 resulting in a gain on disposition of $1,158.
On January 3, 2020, we entered into an agreement with our joint venture partner for our partner to purchase our membership interests in Hiren Boston, LLC and SB Partners, LLC. Net proceeds from the sale of our interests are anticipated to be approximately $24,000 and this transaction is expected to close during the first half of 2021. Additionally, on January 20, 2020, we entered into a purchase and sale agreement to sell the Duane Street Hotel to an unrelated third party for a disposition price of $20,000, which was amended during the second quarter of 2020, lowering the disposition price to $18,000. This transaction is anticipated to close during the first half of 2021.
While we regard the completion of the pending dispositions identified as probable, these transactions are subject to customary closing conditions, including the completion of due diligence, and there can be no assurance that these dispositions will be completed on the terms and timing described above, if at all.

On December 3, 2020, we entered into a purchase and sale agreement to sell the Courtyard San Diego to an unrelated third party for a sales price of $64,500. On December 9, 2020, we entered into a purchase and sale agreement to sell the Residence Inn Coconut Grove to an unrelated third party for a sales price of $31,000. On January 12, 2021, we entered into (i) a purchase and sale agreement to sell the Capitol Hill Hotel to an unrelated third party for a sales price of $51,000 and (ii) a purchase and sale agreement to sell the Holiday Inn Express Cambridge Hotel to the same unrelated third party for a sales price of $32,000. Each of these transactions closed in the first quarter of 2021 and the net proceeds were used to repay existing debt.

Operating Liquidity and Capital Expenditures

We expect to meet our short-term liquidity requirements generally through net cash provided by operations, existing cash balances and, if necessary, short-term borrowings under the Line of Credit. We believe that the net cash provided by operations in the coming year and borrowings drawn on the Line of Credit will be adequate to fund the Company’s operating requirements, monthly recurring debt service and the payment of dividends in accordance with REIT requirements of the Code.

To qualify as a REIT, we must distribute annually at least 90% of our taxable income. This distribution requirement limits our ability to retain earnings and requires us to raise additional capital in order to grow our business and acquire additional hotel properties. However, there is no assurance that we will be able to borrow funds or raise additional equity capital on terms acceptable to us, if at all. In addition, we cannot guarantee that we will be able to make distributions to our shareholders.

We will seek to satisfy long-term liquidity requirements through various sources of capital, including borrowings under the Line of Credit and through secured, non-recourse mortgage financings with respect to our unencumbered hotel properties. In addition, we may seek to raise capital through public or private offerings of our securities. Certain factors may have a material adverse effect on our ability to access these capital sources, including our degree of leverage, the value of our unencumbered hotel properties and borrowing restrictions imposed by lenders or franchisors. We will continue to analyze which source of capital is most advantageous to us at any particular point in time, but financing may not be consistently available to us on terms that are attractive, or at all.

Spending on capital improvements during the year ended December 31, 2020 decreased when compared to spending on capital improvements during the year ended December 31, 2019. During the year ended December 31, 2020, we spent $26,340 on capital expenditures to renovate, improve or replace assets at our hotels. This compares to $48,936 during the same period in 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. We may spend additional amounts, if necessary, to
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comply with the requirements of any franchise license under which any of our hotels operate and otherwise to the extent we deem such expenditures to be prudent. We are also obligated to fund the cost of certain capital improvements to our hotels.

We expect to use operating cash flow, borrowings under the Line of Credit, and proceeds from issuances of our securities and hotel dispositions to pay for the cost of capital improvements and any furniture, fixture and equipment requirements in excess of the set aside referenced above. As a result of damage caused by Hurricane Irma, the Company incurred additional capital expenditures in order to return properties to working order. In some instances, but not all, the Company has recovered a portion of the capital expenditure costs through insurance proceeds.

CASH FLOW ANALYSIS 
(dollars in thousands)

Comparison of the Years Ended December 31, 2020 and December 31, 2019
Net cash provided by operating activities decreased $160,577 from cash provided by operations of $103,112 for the year ended December 31, 2019 to cash used by operations of $57,465 for the comparable period in 2020. As a result of the impact of the COVID-19 pandemic on the lodging industry, we experienced a significant net loss in 2020 when compared to 2019. In addition to the change in net loss adjusted for non-cash items, the following items are the major contributing factors for the change in operating cash flow:
Proceeds from business interruption insurance totaled $4,441 for the year ended December 31, 2020 with no such proceeds in 2019.
The remaining change in operating cash flows related to net changes in working capital assets and liabilities.
Net cash used in investing activities for the year ended December 31, 2020 was $1,515 compared to net cash used in investing activities of $53,566 for the year ended December 31, 2019. The following items are the major contributing factors for the change in investing cash flow.
An increase in comparative cash flows of $22,596 related to a decrease in spending on capital expenditures and planned property repositioning for the year ended December 31, 2020 compared to 2019;

An increase in comparative cash flows of $19,591 from the sale of one hotel property during the year ended December 31, 2020 compared to no hotel property sales for the year ended December 31, 2019;

An increase in comparative cash flows from the receipt of $6,338 in insurance proceeds during the year ended December 31, 2020 related to claims for property losses compared to no proceeds received during the year ended December 31, 2019; and
A net increase in comparative cash flows of $3,353 related to a decrease in net contributions to joint ventures mostly related to contributions made to the joint venture that owns the Home2 Suites in South Boston in 2019 that did not recur in the same magnitude in 2020.

Net cash provided by financing activities for the year ended December 31, 2020 was $45,602 compared to net cash used in financing activities for the year ended December 31, 2019 of $53,344. We undertook a number of measures to fund operating losses caused by the impact of the COVID-19 pandemic on the lodging industry and our business, including increased borrowings, suspension of dividends, and termination of our share buyback program. The following items are the major contributing factors for the change in financing cash flow.  

An increase in comparative cash flows of $50,000 related to net increased borrowings on our line of credit during the year ended December 31, 2020 compared to 2019;
An increase in comparative cash flows of $54,650 related to the suspension of dividend payments in 2020; and

An increase in comparative cash flows of $14,195 as a result of the termination of our share buyback program in 2020.



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OFF BALANCE SHEET ARRANGEMENTS
The Company does not have off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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FUNDS FROM OPERATIONS
(in thousands, except share data)
The National Association of Real Estate Investment Trusts (“NAREIT”) developed Funds from Operations (“FFO”) as a non-GAAP financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. We calculate FFO applicable to common shares and Common Units in accordance with the December 2018 Financial Standards White Paper of NAREIT, which we refer to as the White Paper. The White Paper defines FFO as net income (loss) (computed in accordance with GAAP) excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by an entity. Our interpretation of the NAREIT definition is that noncontrolling interest in net income (loss) should be added back to (deducted from) net income (loss) as part of reconciling net income (loss) to FFO. Our FFO computation may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than we do.
The GAAP measure that we believe to be most directly comparable to FFO, net income (loss) applicable to common shareholders, includes loss from the impairment of certain depreciable assets, our investment in unconsolidated joint ventures and land, depreciation and amortization expenses, gains or losses on property sales, noncontrolling interest and preferred dividends. In computing FFO, we eliminate these items because, in our view, they are not indicative of the results from our property operations.
FFO does not represent cash flows from operating activities in accordance with GAAP and should not be considered an alternative to net income as an indication of the Company’s performance or to cash flow as a measure of liquidity or ability to make distributions. We consider FFO to be a meaningful, additional measure of operating performance because it excludes the effects of the assumption that the value of real estate assets diminishes predictably over time, and because it is widely used by industry analysts as a performance measure. We show both FFO from consolidated hotel operations and FFO from unconsolidated joint ventures because we believe it is meaningful for the investor to understand the relative contributions from our consolidated and unconsolidated hotels. The display of both FFO from consolidated hotels and FFO from unconsolidated joint ventures allows for a detailed analysis of the operating performance of our hotel portfolio by management and investors. We present FFO applicable to common shares and Common Units because our Common Units are redeemable for common shares. We believe it is meaningful for the investor to understand FFO applicable to all common shares and Common Units.
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The following table reconciles FFO for the periods presented to the most directly comparable GAAP measure, net income, for the same periods (dollars in thousands):
Year Ended
December 31, 2020December 31, 2019December 31, 2018
Net loss applicable to common shareholders$(190,521)$(27,843)$(14,184)
Loss allocated to noncontrolling interests(22,915)(2,178)(1,625)
Loss (income) from unconsolidated joint ventures2,938 (691)(1,084)
Gain on disposition of hotel properties(1,158)— (4,148)
Loss from impairment of depreciable assets1,069 — — 
Depreciation and amortization96,958 96,529 89,831 
Funds from consolidated hotel operations
applicable to common shareholders and Partnership units
(113,629)65,817 68,790 
(Loss) income from Unconsolidated Joint Ventures(2,938)691 1,084 
Unrecognized pro rata interest in income (loss) (1)
(1,416)(4,247)(4,115)
Depreciation and amortization of purchase price
  in excess of historical cost (2)
83 96 94 
Interest in depreciation and amortization
  of unconsolidated joint ventures (3)
1,828 5,234 4,536 
Funds from unconsolidated joint ventures operations
applicable to common shareholders and Partnership units
(2,443)1,774 1,599 
Funds from Operations
applicable to common shareholders and Partnership units
$(116,072)$67,591 $70,389 
Weighted Average Common Shares and Units Outstanding
Basic38,613,563 38,907,894 39,383,763 
Diluted44,066,289 43,390,093 43,411,274 
(1) For U.S. GAAP reporting purposes, our interest in the joint venture's loss is not recognized since our U.S. GAAP basis in the joint venture has been reduced to $0. Our interest in EBITDA from the joint venture equals our percentage ownership in the venture.
(2)    Adjustment made to add depreciation of purchase price in excess of historical cost of the assets in the unconsolidated joint venture at the time of our investment.
(3)    Adjustment made to add our interest in real estate related depreciation and amortization of our unconsolidated joint ventures. Allocation of depreciation and amortization is consistent with allocation of income and loss.
INFLATION
Operators of hotel properties, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. However, competitive pressures may limit the ability of our management companies to raise room rates.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES (dollars in thousands)
The estimates and assumptions made by management in applying critical accounting policies have not changed materially during 2020 and 2019 and none of the estimates or assumptions have proven to be materially incorrect or resulted in our recording any significant adjustments relating to prior periods.
Investment in Hotel Properties
Investments in hotel properties are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful life of up to 40 years for buildings and improvements, two to seven years for furniture, fixtures and equipment. We are required to make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in hotel properties. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our investments in hotel properties we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.
Identifiable assets, liabilities, and noncontrolling interests related to hotel properties acquired are recorded at fair value. Estimating techniques and assumptions used in determining fair values involve significant estimates and judgments. These estimates and judgments have a direct impact on the carrying value of our assets and liabilities which can directly impact the amount of depreciation expense recorded on an annual basis and could have an impact on our assessment of potential impairment of our investment in hotel properties.
Properties intended to be sold are designated as “held for sale” on the balance sheet. We consider a hotel to be held for sale when management and our independent trustees commit to a plan to sell the property, the property is available for sale, management engages in an active program to locate a buyer for the property and it is probable the sale will be completed within a year of the initiation of the plan to sell. 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 component of an entity that represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. We anticipate that most of our hotel dispositions will not be classified as discontinued operations as most will not fit this definition.

Based on the occurrence of certain events or changes in circumstances, we review the recoverability of the property’s carrying value. Such events or changes in circumstances include the following:
a significant decrease in the market price of a long-lived asset;
a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition;
a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator;
an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset;
a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset; and
a current expectation that, it is more likely than not that, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
We review our portfolio on an on-going basis to evaluate the existence of any of the aforementioned events or changes in circumstances that would require us to test for recoverability. In general, our review of recoverability is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value expected, as well as the effects of hotel demand, competition and other factors. Other assumptions used in the review of recoverability include the holding period and the expected terminal capitalization rate. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. We are required to make subjective assessments as to whether there are impairments in the values of our investments in hotel properties.

As of December 31, 2020, based on our analysis and giving 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 is sufficient to recover its carrying value.


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New Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional expedients and exceptions to U.S. GAAP guidance intended to ease the burden of the accounting impacts of reference rate reform related to contracts, hedging relationships, and other transactions. Adoption of the expedients is allowed after March 12, 2020 and no later than December 31, 2022. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The update will simplify several aspects of the accounting for nonemployee share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this update affects all entities that enter into share-based payment transactions for acquiring goods and services from nonemployees. The provisions of the update are effective for the Company starting January 1, 2019. The adoption of this update did not have a material effect on our consolidated financial statements or the disclosures of share-based payments within Note 9 of these consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The update makes 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 Company adopted the provisions of this update effective January 1, 2019.  The adoption of this update did not have a material effect on our consolidated financial statements or the disclosures related to fair value measurements with Note 8 of these consolidated financial statements.

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. The Company adopted the provisions of the update effective January 1, 2019. As a result, the Company recorded right of use assets and corresponding lease liabilities of $55,515 at January 1, 2019 for leases where we are the lessee. The Company also reclassified $11,050 previously included in intangible assets to the right of use asset, related to purchase accounting adjustments for below market rate leases. Additionally, the Company reclassified $19,627 previously included in accounts payable and accrued expenses to the right of use assets. This reclassification related to amounts recorded for accrued lease expense, as a result of using the straight-line rent method, and intangible liabilities derived from land leases acquired at above market lease rates. Upon adoption, the right of use assets had a weighted average useful life of 64.2 years. We are also a lessor in certain office space and retail lease agreements related to our hotels and the adoption of this ASU did not have a material impact on our accounting for leases where we are the lessor. The adoption of this ASU did not impact revenue recognition policies for the Company. See Note 6 to these consolidated financial statements for further lease disclosures.

RELATED PARTY TRANSACTIONS

We have entered into a number of transactions and arrangements that involve related parties. For a description of the transactions and arrangements, please see Note 7, “Commitments and Contingencies and Related Party Transactions,” to the consolidated financial statements.







Item 7A.    Quantitative and Qualitative Disclosures About Market Risk (in thousands, except per share data)
Our primary market risk exposure is to changes in interest rates on our variable rate debt which has not been effectively hedged with interest swaps or interest rate caps. As of December 31, 2020, we are exposed to interest rate risk with respect to variable rate borrowings under our Credit Facility, Second Term and Third Term Loans and certain variable rate mortgages
51


and notes payable. As of December 31, 2020, we had total variable rate debt outstanding of $237,601 with a weighted average interest rate of 2.58%. The effect of a 100 basis point increase or decrease in the interest rate on our variable rate debt outstanding as of December 31, 2020 would be an increase or decrease in our interest expense for the twelve months ended December 31, 2020 of $1,974.
Our interest rate risk objectives are to limit the impact of interest rate fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we manage our exposure to fluctuations in market interest rates for a portion of our borrowings through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements. We have also entered into derivative financial instruments such as interest rate swaps or caps, and in the future may enter into treasury options or locks, to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of our variable rate debt. As of December 31, 2020, we have an interest rate cap related to debt on the Annapolis Waterfront Hotel, Annapolis, MD; and we have ten interest rate swap contracts related to debt on Hilton Garden Inn, 52nd Street, New York, NY; Courtyard, LA Westside, Culver City, CA; Hyatt Union Square, New York, NY; Hilton Garden Inn Tribeca, New York, NY; and our Credit Facility. We do not intend to enter into derivative or interest rate transactions for speculative purposes.
As of December 31, 2020, approximately 83% of our outstanding consolidated long-term indebtedness is subject to fixed rates or effectively capped, while 17% of our outstanding long term indebtedness is subject to floating rates, including borrowings under our Line of Credit. The majority of our floating rate debt and 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.
Changes in market interest rates on our fixed-rate debt impact the fair value of the debt, but such changes have no impact on interest expense incurred. If interest rates rise 100 basis points and our fixed rate debt balance remains constant, we expect the fair value of our debt to decrease. The sensitivity analysis related to our fixed-rate debt assumes an immediate 100 basis point move in interest rates from their December 31, 2020 levels, with all other variables held constant. A 100 basis point increase in market interest rates would cause the fair value of our fixed-rate debt outstanding at December 31, 2020 to be approximately $1,154,976 and a 100 basis point decrease in market interest rates would cause the fair value of our fixed-rate debt outstanding at December 31, 2020 to be approximately $1,198,970.
We regularly review interest rate exposure on our outstanding borrowings in an effort to minimize the risk of interest rate fluctuations. For debt obligations outstanding as of December 31, 2020, the following table presents expected principal repayments and related weighted average interest rates by expected maturity dates:
Less Than 1 Year1 - 3 Years4 - 5 YearsAfter 5 YearsTotal
     
Fixed Rate Debt$247,942 $325,508 $390,320 $— $963,770 
Weighted Average Interest Rate3.86 %3.75 %4.72 %N/A4.11 %
     
Floating Rate Debt$25,441 $1,230 $26,329 $51,548 $104,548 
Weighted Average Interest Rate3.02 %3.02 %3.14 %3.14 %3.08 %
     
$273,383 $326,738 $416,649 $51,548 $1,068,318 
Line of Credit$133,053 $— $— $— $133,053 
Weighted Average Interest Rate2.39 %— %— %— %2.39 %
$406,436 $326,738 $416,649 $51,548 $1,201,371 
The table incorporates only those exposures that existed as of December 31, 2020, and does not consider exposure or positions that could arise after that date. As a result, our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the future period, prevailing interest rates, and our hedging strategies at that time.
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Item 8.    Financial Statements and Supplementary Data

53


Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees
Hersha Hospitality Trust:
Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Hersha Hospitality Trust and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 29, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of FASB ASC 842, Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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The assessment of consolidated hotel properties for potential impairment

As discussed in Note 1 to the consolidated financial statements, the Company tests its hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of any of the hotel properties may not be recoverable. For hotel properties that have an indication that its carrying value may not be recoverable, an undiscounted cash flow analysis is prepared using various inputs and assumptions, including estimated holding period, and expected terminal capitalization rate. The novel coronavirus (COVID-19) has reduced travel significantly and adversely affected the hospitality industry and resulted in a recoverability analyses being performed on all of the Company’s consolidated hotel properties and COVID-19 has had a significant impact on the Company’s ability to project future cash flows from operations and estimated holding period. Investment in hotel properties, net of accumulated depreciation, was $1.8 billion, or 90% of total assets at December 31, 2020.

We identified the assessment of consolidated hotel properties for potential impairment as a critical audit matter. Significant auditor judgment was required to evaluate certain key assumptions, specifically, the judgments related to the Company’s estimated holding period, expected terminal capitalization rate, and projected undiscounted cash flows from operations including the effects of COVID-19 and resulting duration of the economic downturn. Changes in the key assumptions could have a significant impact on the determination of recoverability of the carrying value of the Company’s investments in hotel properties.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process over the determination of the estimated holding period, expected terminal capitalization rate and projected undiscounted cash flows from operations. We inquired of Company officials and inspected documents such as meeting minutes of the board of trustees to evaluate the likelihood that it was more-likely-than not that a property will be sold significantly before the end of its previously estimated useful life. We also read publicly available information in order to identify information regarding potential sales of the Company’s properties. For certain of the properties, we also performed sensitivity analyses over the estimated holding period by changing the Company’s estimates to assess the impact on the analysis. We evaluated the Company’s expected terminal capitalization rates by comparing to published third party industry reports as well as certain of the Company’s historical hotel property sales. For certain of the hotel properties, we performed sensitivity analyses over the estimated terminal capitalization rate by considering points within the ranges we obtained from published third party industry reports. We evaluated the Company’s projected undiscounted cash flows from operations by comparing to published third-party industry reports evaluating the impact of COVID-19 on the hotel industry. We inquired and obtained representations from the Company regarding the status and evaluation of any potential disposal of properties and read minutes of the board of trustees. We corroborated that information with others in the organization who are responsible for, and have authority over, disposition activities.

/s/ KPMG LLP
We have served as the Company’s auditor since 2004.
Philadelphia, Pennsylvania
March 29, 2021
55


`HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
[IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS]
December 31, 2020December 31, 2019
Assets:
Investment in Hotel Properties, Net of Accumulated Depreciation$1,784,838 $1,975,973 
Investment in Unconsolidated Joint Ventures6,633 8,446 
Cash and Cash Equivalents16,637 27,012 
Escrow Deposits6,970 9,973 
Hotel Accounts Receivable5,690 9,213 
Due from Related Parties2,641 6,113 
Intangible Assets, Net of Accumulated Amortization of $6,840 and $6,5451,739 2,137 
Right of Use Assets44,126 45,384 
Other Assets15,494 38,177 
Hotel Assets Held for Sale96,220 
Total Assets$1,980,988 $2,122,428 
Liabilities and Equity:
Line of Credit$133,053 $48,000 
Secured Term Loans, Net of Unamortized Deferred Financing Costs (Note 5)681,744 697,183 
Unsecured Notes Payable, Net of Unamortized Deferred Financing Costs (Note 5)50,789 50,736 
Mortgages Payable, Net of Unamortized Premium and Unamortized Deferred Financing Costs330,848 332,280 
Lease Liabilities53,852 54,548 
Accounts Payable, Accrued Expenses and Other Liabilities58,453 47,626 
Dividends and Distributions Payable17,058 
Total Liabilities$1,308,739 $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 December 31, 2020 and December 31, 2019, with Liquidation Preferences of $25 Per Share (Note 1)$147 $147 
Common Shares: Class A, $.01 Par Value, 104,000,000 Shares Authorized at December 31, 2020 and December 31, 2019; 38,843,482, and 38,652,650 Shares Issued and Outstanding at December 31, 2020 and December 31, 2019, respectively389 387 
Common Shares: Class B, $.01 Par Value, 1,000,000 Shares Authorized, NaN Issued and Outstanding at December 31, 2020 and December 31, 2019
Accumulated Other Comprehensive (Loss) Income(19,275)1,010 
Additional Paid-in Capital1,150,985 1,144,808 
Distributions in Excess of Net Income(509,243)(338,695)
Total Shareholders' Equity623,003 807,657 
Noncontrolling Interests (Note 1):49,246 64,144 
Total Equity672,249 871,801 
Total Liabilities, Redeemable Noncontrolling Interests, and Equity$1,980,988 $2,122,428 
The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

56


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE /UNIT AND PER SHARE AMOUNTS]
Year Ended December 31,
202020192018
Revenue:
Hotel Operating Revenues:
Room$142,260 $424,698 $397,907 
Food & Beverage15,418 65,379 64,546 
Other Operating Revenues18,765 39,591 31,225 
Other Revenues217 292 1,385 
Total Revenues176,660 529,960 495,063 
Operating Expenses:
Hotel Operating Expenses:
Room38,787 93,488 88,663 
Food & Beverage16,199 52,820 52,122 
Other Operating Expenses85,270 171,128 158,064 
Hotel Ground Rent4,301 4,581 4,228 
Real Estate and Personal Property Taxes and Property Insurance40,928 38,601 35,194 
General and Administrative (including Share Based Payments of $9,488, $10,803, and $11,436 for the years ended December 31, 2020, 2019, and 2018, respectively)20,078 26,431 26,881 
Acquisition and Terminated Transaction Costs4,419 29 
Loss on Impairment of Assets1,069 
Depreciation and Amortization96,958 96,529 89,831 
(Gains from) Property Losses in Excess of Insurance Recoveries(8,960)12 (12,649)
Total Operating Expenses299,049 483,590 442,363 
Operating (Loss) Income(122,389)46,370 52,700 
Interest Income39 253 114 
Interest Expense(53,279)(52,205)(48,491)
Other Expense(522)(584)(901)
Gain on Disposition of Hotel Properties1,158 4,148 
Loss on Debt Extinguishment(280)(22)
(Loss) Income Before Results from Unconsolidated Joint Venture Investments and Income Taxes(174,993)(6,446)7,548 
(Loss) Income from Unconsolidated Joint Venture Investments(2,938)691 1,084 
(Loss) Income Before Income Taxes(177,931)(5,755)8,632 
Income Tax Expense(11,329)(92)(267)
Net (Loss) Income(189,260)(5,847)8,365 
Loss Allocated to Noncontrolling Interests - Common Units19,698 2,366 916 
(Income) Loss Allocated to Noncontrolling Interests - Consolidated Joint Venture3,217 (188)709 
Preferred Distributions(24,176)(24,174)(24,174)
Net Loss Applicable to Common Shareholders$(190,521)$(27,843)$(14,184)
The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.
57


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
Year Ended December 31,
202020192018
Earnings Per Share:
BASIC
Loss from Continuing Operations Applicable to Common Shareholders$(4.93)$(0.74)$(0.38)
DILUTED
Loss from Continuing Operations Applicable to Common Shareholders$(4.93)$(0.74)$(0.38)
Weighted Average Common Shares Outstanding:
Basic38,613,563 38,907,894 39,383,763 
Diluted*38,613,563 38,907,894 39,383,763 
*    Income allocated to noncontrolling interest in Hersha Hospitality Limited Partnership (the “Operating Partnership” or “HHLP”) has been excluded from the numerator and the Class A common shares issuable upon any redemption of the Operating Partnership’s common units of limited partnership interest (“Common Units”) and the Operating Partnership’s vested LTIP units (“Vested LTIP Units”) have been omitted from the denominator for the purpose of computing diluted earnings per share because the effect of including these shares and units in the numerator and denominator would have no impact.  In addition, potentially dilutive common shares, if any, have been excluded from the denominator if they are anti-dilutive to income applicable to common shareholders.
The following table summarizes potentially dilutive securities that have been excluded from the denominator for the purpose of computing diluted earnings per share:
 Year Ended December 31,
 202020192018
Common Units and Vested LTIP Units3,926,767 3,363,169 3,141,981 
Unvested Stock Awards and LTIP Units Outstanding971,287 651,093 358,141 
Contingently Issuable Share Awards554,672 467,937 527,389 
Total Potentially Dilutive Securities Excluded from the Denominator5,452,726 4,482,199 4,027,511 
The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.
58


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS]
Year Ended December 31,
202020192018
Net (Loss) Income$(189,260)$(5,847)$8,365 
Change in Fair Value of Derivative Instruments(26,431)(4,502)3,343 
Less:  Reclassification Adjustment for Change in Fair Value of Derivative Instruments Included in Net Income4,083 1,007 (2,827)
Total Other Comprehensive (Loss) Income$(22,348)$(3,495)$516 
Comprehensive (Loss) Income(211,608)(9,342)8,881 
Less: Comprehensive Loss Applicable to Noncontrolling Interests - Common Units21,761 2,644 878 
Less: Comprehensive (Income) Loss Applicable to Noncontrolling Interests - Consolidated Joint Venture3,217 (188)709 
Less: Preferred Distributions(24,176)(24,174)(24,174)
Comprehensive Loss Applicable to Common Shareholders$(210,806)$(31,060)$(13,706)
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
59


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS]

 Shareholders' EquityNoncontrolling InterestsRedeemable Noncontrolling Interests
Common SharesClass A Common Shares ($)Class B Common Shares ($)Preferred SharesPreferred Shares ($)Additional Paid-In Capital ($)Accumulated Other Comprehensive Income ($)Distributions in Excess of Net Income ($)Total Shareholders' Equity ($)Common Units and LTIP UnitsCommon Units and LTIP Units ($)Total Equity ($)Consolidated Joint Venture ($)
Balance at December 31, 201938,652,650 387 14,703,214 147 1,144,808 1,010 (338,695)807,657 4,279,946 64,144 871,801 3,196 
Issuance Costs— — — — — (137)— — (137)— — (137)— 
Dividends and Distributions declared:
Preferred Shares— — — — — — — (1,007)(1,007)— — (1,007)— 
Dividend Reinvestment Plan1,094 — — — — 14 — — 14 — — 14 — 
Share Based Compensation:
Grants189,738 — — — (2)— — — 1,112,862 — — — 
Amortization— — — — — 3,106 — — 3,106 — 6,863 9,969 — 
Equity Contribution to Consolidated Joint Venture— — — — — — — — — — — — 21 
Change in Fair Value of Derivative Instruments— — — — — — (20,285)— (20,285)— (2,063)(22,348)— 
Adjustment to Record Noncontrolling Interest at Redemption Value— — — — — 3,196 — — 3,196 — — 3,196 (3,196)
Net Income (Loss)— — — — — — — (169,541)(169,541)— (19,698)(189,239)(21)
Balance at December 31, 202038,843,482 389 14,703,214 147 1,150,985 (19,275)(509,243)623,003 5,392,808 49,246 672,249 
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
60


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS]
 Shareholders' EquityNoncontrolling InterestsRedeemable Noncontrolling Interests
Common SharesClass A Common Shares ($)Class B Common Shares ($)Preferred SharesPreferred Shares ($)Additional Paid-In Capital ($)Accumulated Other Comprehensive Income ($)Distributions in Excess of Net Income ($)Total Shareholders' Equity ($)Common Units and LTIP UnitsCommon Units and LTIP Units ($)Total Equity ($)Consolidated Joint Venture ($)
Balance at December 31, 201839,458,626 395 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(933,436)(9)— — — (14,277)— — (14,286)— — (14,286)— 
Dividends and Distributions declared:
Common Shares ($1.12 per share)— — — — — — — (43,600)(43,600)— — (43,600)— 
Preferred Shares— — — — — — — (24,174)(24,174)— — (24,174)— 
Common Units ($1.12 per share)— — — — — — — — — — (2,314)(2,314)— 
LTIP Units ($1.12 per share)— — — — — — — — — — (2,601)(2,601)— 
Dividend Reinvestment Plan3,760 — — — — 60 — — 60 — — 60 — 
Share Based Compensation:
Grants123,700 — — — 675 — — 676 530,281 — 676 — 
Amortization— — — — — 3,062 — — 3,062 — 9,693 12,755 — 
Equity Contribution to Consolidated Joint Venture— — — — — — — — — — — — 300 
Change in Fair Value of Derivative Instruments— — — — — — (3,217)— (3,217)— (278)(3,495)— 
Adjustment to Record Noncontrolling Interest at Redemption Value— — — — — (488)— — (488)— — (488)488 
Net Income (Loss)— — — — — — — (3,181)(3,181)— (2,366)(5,547)(300)
Balance at December 31, 201938,652,650 387 14,703,214 147 1,144,808 1,010 (338,695)807,657 4,279,946 64,144 871,801 3,196 
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
61


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS]
Shareholders' EquityNoncontrolling Interests Redeemable Noncontrolling Interests
Common SharesClass A Common Shares ($)Class B Common Shares ($)Preferred SharesPreferred Shares ($)Additional Paid-In Capital ($)Accumulated Other Comprehensive Income ($)Distributions in Excess of Net Income ($)Total Shareholders' Equity ($)Common Units and LTIP UnitsCommon Units and LTIP Units ($)Total Equity ($)Consolidated Joint Venture ($)
Balance at December 31, 201739,916,661 399 14,701,700 147 1,164,946 3,749 (335,373)833,868 3,223,366 54,286 888,154 
Cumulative Effect of Adoption of ASC 610-20
— — — — — — — 123,228 123,228 — 5,793 129,021 — 
Adjusted balance at January 1, 201839,916,661 399 14,701,700 147 1,164,946 3,749 (212,145)957,096 3,223,366 60,079 1,017,175 
Unit Conversion62,807 — — 1,172 — — 1,173 (62,807)(1,173)— — 
Repurchase of Common Shares(635,590)(6)— — — (10,827)— — (10,833)— — (10,833)— 
Preferred Shares ATM Issuance, Net of Costs— — — 1,514 — (128)— — (128)— — (128)— 
Dividends and Distributions declared:
Common Shares ($1.12 per share)— — — — — — — (44,119)(44,119)— — (44,119)— 
Preferred Shares— — — — — — — (24,174)(24,174)— — (24,174)— 
Common Units ($1.12 per share)— — — — — — — — — — (2,331)(2,331)— 
LTIP Units ($1.12 per share)— — — — — — — — — — (1,980)(1,980)— 
Dividend Reinvestment Plan4,132 — — — — 77 — — 77 — — 77 — 
Share Based Compensation:
Grants110,616 — — — 997 — — 998 589,106 — 998 — 
Amortization— — — — — 2,247 — — 2,247 — 8,293 10,540 — 
Equity Contribution to Consolidated Joint Venture— — — — — — — — — — — — 3,417 
Change in Fair Value of Derivative Instruments— — — — — — 478 — 478 — 38 516 — 
Adjustment to Record Noncontrolling Interest at Redemption Value— — — — — (2,708)— — (2,708)— — (2,708)2,708 
Net Income (Loss)— — — — — — — 12,698 12,698 — (916)11,782 (3,417)
Balance at December 31, 201839,458,626 395 14,703,214 147 1,155,776 4,227 (267,740)892,805 3,749,665 62,010 954,815 2,708 
The Accompanying Notes are an Integral Part of These Consolidated Financial Statement
62


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS]
Year Ended December 31,
202020192018
Operating Activities:
Net (Loss) Income$(189,260)$(5,847)$8,365 
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Gain on Disposition of Hotel Properties, Net(1,158)(4,148)
Property Impairment and Terminated Transaction Costs5,488 
(Gains from) Property Losses in Excess of Insurance Recoveries(8,960)12 (12,649)
Deferred Taxes11,290 (312)(144)
Depreciation96,527 95,982 88,897 
Amortization3,540 2,137 2,816 
Loss on Debt Extinguishment280 22 
Equity in (Income) Loss of Unconsolidated Joint Ventures2,938 (691)(1,084)
Loss Recognized on Change in Fair Value of Derivative Instrument4,084 1,007 215 
Share Based Compensation Expense9,488 10,803 11,436 
Distributions from Unconsolidated Joint Ventures728 1,426 
Proceeds Received for Business Interruption Insurance Claims, net4,411 8,440 
Change in Assets and Liabilities:
(Increase) Decrease in:
Hotel Accounts Receivable3,523 1,028 1,760 
Other Assets7,738 (1,476)(2,556)
Due from Related Parties3,472 (2,819)1,307 
(Decrease) Increase in:
Accounts Payable, Accrued Expenses and Other Liabilities(10,586)2,280 10,719 
Net Cash (Used in) Provided by Operating Activities$(57,465)$103,112 $114,822 
Investing Activities:
Purchase of Hotel Property Assets$$$(41,230)
Deposits on Hotel Acquisitions
Capital Expenditures(26,340)(48,936)(65,629)
Cash Paid for Hotel Development Projects21 (152)(38,754)
Proceeds from Disposition of Hotel Properties19,591 64,880 
Contributions to Unconsolidated Joint Ventures(1,125)(6,100)(1,000)
Proceeds from Insurance Claims6,338 15,806 
Distributions from Unconsolidated Joint Ventures1,622 47,962 
Net Cash Used in Investing Activities$(1,515)$(53,566)$(17,965)
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
63


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS]
Year Ended December 31,
202020192018
Financing Activities:
Borrowings Under Line of Credit$88,000 $38,000 $(6,100)
Repayment of Borrowings Under Line of Credit(2,947)— 
Repayment of Borrowings Under Secured Term Loan(16,395)(18,000)
Principal Repayment of Mortgages and Notes Payable(1,684)(57,418)(1,611)
Proceeds from Mortgages and Notes Payable56,469 28,000 
Cash Paid for Deferred Financing Costs(3,188)(3,198)(409)
Cash Paid for Debt Extinguishment(210)
Repurchase of Common Shares(14,195)(10,833)
Dividends Paid on Common Shares(10,809)(43,760)(44,176)
Dividends Paid on Preferred Shares(6,044)(24,173)(24,174)
Distributions Paid on Common Units and LTIP Units(1,198)(4,768)(4,164)
Other Financing Activities(133)(91)(193)
Net Cash Provided (Used in) by Financing Activities$45,602 $(53,344)$(81,660)
Net (Decrease) Increase in Cash and Cash Equivalents$(13,378)$(3,798)$15,197 
Cash, Cash Equivalents, and Restricted Cash - Beginning of Period36,985 40,783 25,586 
Cash, Cash Equivalents, and Restricted Cash - End of Period$23,607 $36,985 $40,783 
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
64

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hersha Hospitality Trust (“we” or the “Company”) was formed in May 1998 as a self-administered, Maryland real estate investment trust. We have elected to be taxed and expect to continue to elect to be taxed as a real estate investment trust, or REIT, for federal income tax purposes.
The Company owns a controlling general partnership interest in Hersha Hospitality Limited Partnership (“HHLP” or the “Partnership”), which owns a 99% limited partnership interest in various subsidiary partnerships. Hersha Hospitality, LLC (“HHLLC”), a Virginia limited liability company, owns a 1% general partnership interest in the subsidiary partnerships and the Partnership is the sole member of HHLLC.
The Partnership owns a taxable REIT subsidiary (“TRS”), 44 New England Management Company (“44 New England” or “TRS Lessee”), which leases certain of the Company’s hotels.
Hersha’s common shares of beneficial interest trade on the New York Stock Exchange (“the NYSE”) under the ticker symbol "HT," its 6.875% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest trade on the NYSE under the ticker symbol “HT PRC,” its 6.500% Series D Cumulative Redeemable Preferred Shares of Beneficial Interest trade on the NYSE under the ticker symbol “HT PRD,” and it’s 6.500% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest trade on the NYSE under the ticker symbol “HT PRE.”
As of December 31, 2020, the Company, through the Partnership and subsidiary partnerships, wholly owned 37 limited and full service hotels. All of the wholly owned hotel facilities are leased to the Company’s TRS, 44 New England.
In addition to the wholly owned hotel properties, as of December 31, 2020, the Company owned an unconsolidated joint venture interest in 10 properties and a consolidated joint venture interest in 1 property. The properties owned by the joint ventures are leased to a TRS owned by the joint venture or to an entity owned by the joint venture partners and 44 New England. The following table lists the properties owned by these joint ventures:
Joint VentureOwnership InterestPropertyLocationLessee/Sublessee
Consolidated Joint Ventures
Hersha Holding RC Owner, LLC85%Ritz-CarltonCoconut Grove, FLHersha Holding RC Lessee, LLC
Unconsolidated Joint Ventures
Cindat Hersha Owner JV, LLC31.2%Hampton InnHerald Square, New York, NYCindat Hersha Lessee JV, LLC
Hampton InnChelsea, New York, NYCindat Hersha Lessee JV, LLC
Hampton InnTimes Square, New York, NYCindat Hersha Lessee JV, LLC
Holiday Inn ExpressTimes Square, New York, NYCindat Hersha Lessee JV, LLC
Candlewood SuitesTimes Square, New York, NYCindat Hersha Lessee JV, LLC
Holiday InnWall Street, New York, NYCindat Hersha Lessee JV, LLC
Holiday Inn ExpressWater Street, New York, NYCindat Hersha Lessee JV, LLC
SB Partners, LLC50%Holiday Inn ExpressSouth Boston, MASouth Bay Sandeep, LLC
Hiren Boston, LLC50%CourtyardSouth Boston, MASouth Bay Boston, LLC
SB Partners Three, LLC50%Home2 SuitesSouth Boston, MASB Partners Three Lessee, LLC

Subsequent to December 31, 2020, the mezzanine lender to Cindat Hersha Owner JV, LLC foreclosed and took ownership of properties owned by the joint venture. See “Note 2 – Investment in Unconsolidated Joint Venture.”
65

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The properties are managed by eligible independent management companies, including Hersha Hospitality Management, LP (“HHMLP”). HHMLP is owned in part by certain of our trustees and executive officers and other unaffiliated third party investors as defined by the Internal Revenue Code.
Principles of Consolidation and Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and include all of our accounts as well as accounts of the Partnership, subsidiary partnerships and our wholly owned TRS Lessee. All significant inter-company amounts have been eliminated.
Consolidated properties are either wholly owned or owned less than 100% by the Partnership and are controlled by the Company as general partner of the Partnership. Properties owned in joint ventures are also evaluated for consolidation. Entities are consolidated if the determination is made that we are the primary beneficiary in a variable interest entity ("VIE") or we maintain control of the asset through our voting interest or other rights in the operation of the entity. To determine if we are the primary beneficiary of a VIE, we evaluate whether we have a controlling financial interest in that VIE. An enterprise is deemed to have a controlling financial interest if it has i) the power to direct the activities of a variable interest entity that most significantly impacts the entity’s economic performance, and ii) the obligation to absorb losses of the VIE that could be significant to the VIE or the rights to receive benefits from the VIE that could be significant to the VIE. Control can also be demonstrated by the ability of a member to manage day-to-day operations, refinance debt and sell the assets of the partnerships without the consent of the other member and the inability of the members to replace the managing member. Based on our examination, the following entities were determined to be VIE’s:  HHLP; Cindat Hersha Lessee JV, LLC; South Bay Boston, LLC; SB Partners Three Lessee, LLC; Hersha Holding RC Owner, LLC; Hersha Statutory Trust I; and Hersha Statutory Trust II.  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 Lessee JV, LLC is a VIE that leases hotel property. The entity is consolidated by the lessors, the primary beneficiary. Our maximum exposure to losses due to our investment in Cindat Hersha Owner JV, LLC is limited to our investment in the joint venture which is $0 as of December 31, 2020. South Bay Boston, LLC and SB Partners Three Lessee, LLC, are consolidated by the respective lessors, the primary beneficiaries. Hersha Holding RC Owner, LLC is the owner entity of the Ritz Carlton Coconut Grove and is a VIE. HHLP is considered the primary beneficiary of the VIE and consolidates the joint venture with the minority owner interest presented as part of noncontrolling interest within the Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019. Hersha Statutory Trust I and Hersha Statutory Trust II are VIEs but HHLP is not the primary beneficiary in these entities. Accordingly, the accounts of Hersha Statutory Trust I and Hersha Statutory Trust II are not consolidated.
Segment Reporting
We allocate resources and assess operating performance based on individual hotels and consider each one of our hotels to be an operating segment. No operating segment, individually, meets the threshold for a reportable segment as defined within ASC Topic 280 – Segment Reporting, nor do they fully satisfy the requisite aggregation criteria therein. As a result, the Company does not present separate operating segment information within the Notes to the Consolidated Financial Statements.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Although we believe the assumptions and estimates we made are reasonable and appropriate, as discussed in the applicable sections throughout these Consolidated Financial Statements, different assumptions and estimates could materially impact our reported results.
66

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment in Hotel Properties
The Company records the value of hotel properties acquired based on the fair value of the acquired real estate, furniture, fixtures and equipment, and intangible assets and the fair value of liabilities assumed, including debt. The fair value allocations were determined using Level 3 inputs, which are typically unobservable and are based on our own assumptions, as there is little, if any, related market activity. The Company’s investments in hotel properties are carried at cost and are depreciated using the straight-line method over the following estimated useful lives:
Building and Improvements    7 to 40 years
Furniture, Fixtures and Equipment    2 to 7 years
Based on the occurrence of certain events or changes in circumstances, we review the recoverability of the property's carrying value. Such events or changes in circumstances include the following:
a significant decrease in the market price of a long-lived asset;
a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition;
a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator;
an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset;
a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset; and
a current expectation that, it is more likely that not that, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
We review our portfolio on an ongoing basis to evaluate the existence of any of the aforementioned events or changes in circumstances that would require us to test for recoverability. In general, our review of recoverability is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property's use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value expected, as well as the effects of hotel demand, competition and other factors. Other assumptions used in the review of recoverability include the holding period and expected terminal capitalization rate. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. We are required to make subjective assessments as to whether there are impairments in the values of our investments in hotel properties.
We consider a hotel to be held for sale when management and our independent trustees commit to a plan to sell the property, the property is available for sale, management engages in an active program to locate a buyer for the property and it is probable the sale will be completed within a year of the initiation of the plan to sell.
ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business offers guidance when 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 requires capitalization of acquisition costs to the underlying assets. Acquisition-related cost, such as due diligence, legal and accounting fees, are not capitalized or applied in determining the fair value of the above acquired assets in the acquisition of a business.

67

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment in Unconsolidated Joint Ventures
If it is determined that we do not have a controlling interest in a joint venture, either through our financial interest in a VIE or our voting interest in a voting interest entity, the equity method of accounting is used. Under this method, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the affiliates as they occur rather than as dividends or other distributions are received, limited to the extent of our investment in, advances to and commitments for the investee. Pursuant to our joint venture agreements, allocations of profits and losses of some of our investments in unconsolidated joint ventures may be allocated disproportionately as compared to nominal ownership percentages due to specified preferred return rate thresholds.  See Note 3 – Investment in Unconsolidated Joint Ventures for a more detailed explanation of the methodology used in determining the allocation of profits and losses within our joint ventures.
The Company periodically reviews the carrying value of its investment in unconsolidated joint ventures to determine if circumstances indicate impairment to the carrying value of the investment that is other than temporary. When an impairment indicator is present, we will estimate the fair value of the investment. Our estimate of fair value takes into consideration factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors. This determination requires significant estimates by management, including the expected cash flows to be generated by the assets owned and operated by the joint venture. To the extent impairment has occurred and the impairment is considered other than temporary, the loss will be measured as the excess of the carrying amount over the fair value of our investment in the unconsolidated joint venture.
Cash and Cash Equivalents
Cash and cash equivalents represent cash on hand and in banks plus short-term investments with an initial maturity of three months or less when purchased.
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HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Escrow Deposits
Escrow deposits include reserves for debt service, real estate taxes, and insurance and reserves for furniture, fixtures, and equipment replacements, as required by certain mortgage debt agreement restrictions and provisions.
Hotel Accounts Receivable
Hotel accounts receivable consists primarily of meeting and banquet room rental and hotel guest receivables. The Company generally does not require collateral. Ongoing credit evaluations are performed and potential losses from uncollectible accounts are written off against revenue when they are estimated to be uncollectible.
Deferred Financing Costs
Deferred financing costs are recorded at cost and amortized over the terms of the related indebtedness using the effective interest method. Deferred financing costs associated with our line of credit are recorded within the Other Assets line item in our Consolidated Balance Sheets. Deferred financing costs associated with our term loans, mortgage debt, or subordinated notes are recorded as contra-liabilities within each respective line item on our Consolidated Balance Sheets. All amortization of deferred financing costs is presented with in the Interest Expense line on our Consolidated Statements of Operations.
Due from/to Related Parties
Due from/to Related Parties represents current receivables and payables resulting from transactions related to hotel management and project management with affiliated entities. Due from related parties results primarily from advances of shared costs incurred. Due to affiliates results primarily from hotel management and project management fees incurred. Both due to and due from related parties are generally settled within a period not to exceed one year.
Intangible Assets and Liabilities
Intangible assets consist of leasehold intangibles for in-place leases at the time of hotel acquisition and deferred franchise fees. The leasehold intangibles are amortized over the remaining lease term. Deferred franchise fees are amortized using the straight-line method over the life of the franchise agreement. 
Intangible liabilities consist of leasehold intangibles for in-place leases at the time of hotel acquisition. The leasehold intangibles are amortized over the remaining lease term. Intangible liabilities are included in the accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets.
Development Project Capitalization
We have opportunistically engaged in the development and re-development of hotel assets. We capitalize expenditures related to hotel development projects and renovations, including indirect costs such as interest expense, real estate taxes and utilities related to hotel development projects and renovations.
Noncontrolling Interest
Noncontrolling interest in the Partnership represents the limited partner’s proportionate share of the equity of the Partnership. Income (loss) is allocated to noncontrolling interest in accordance with the weighted average percentage ownership of the Partnership during the period. At the end of each reporting period the appropriate adjustments to the income (loss) are made based upon the weighted average percentage ownership of the Partnership during the period. Our ownership interest in the Partnership as of December 31, 2020, 2019 and 2018 was 87.8%, 90.0%, and 91.3%, respectively.
We define a noncontrolling interest as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent.
Such noncontrolling interests are reported on the consolidated balance sheets within equity, but separately from the shareholders’ equity. Revenues, expenses and net income or loss attributable to both the Company and noncontrolling interests are reported on the consolidated statements of operations.
69

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In accordance with US GAAP, we classify securities that are redeemable for cash or other assets at the option of the holder, or not solely within the control of the issuer, outside of permanent equity in the consolidated balance sheet. The Company makes this determination based on terms in applicable agreements, specifically in relation to redemption provisions. Additionally, with respect to noncontrolling interests for which the Company has a choice to settle the contract by delivery of its own shares, the Company considers the guidance in US GAAP to evaluate whether the Company controls the actions or events necessary to issue the maximum number of common shares that could be required to be delivered at the time of settlement of the contract.
We classify the noncontrolling interests of our 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 $49,246 as of December 31, 2020 and $64,144 as of December 31, 2019. As of December 31, 2020, there were 5,392,808 Common Units and LTIP Units collectively outstanding with a fair market value of $42,549, based on the price per share of our common shares on the NYSE on such date.
In accordance with the partnership agreement of the Partnership, holders of these units may redeem them for cash unless we, in our sole and absolute discretion, elect to issue common shares on a 1-for-one basis in lieu of paying cash.
On April 2, 2018, we entered into a joint venture with the party from which we acquired the Ritz-Carlton Coconut Grove, FL. By exercising an option provided to the seller in connection with our purchase of the property in 2017, our joint venture partner will have a noncontrolling equity interest of 15% in the property. Hersha Holding RC Owner, LLC, the owner entity of the Ritz-Carlton Coconut Grove joint venture ("Ritz Coconut Grove"), will distribute income based on cash available for distribution which will be distributed as follows: (1) to us until we receive a cumulative return on our contributed senior common equity interest, currently at 8%, and (2) then to the owner of the noncontrolling interest until they receive a cumulative return on their contributed junior common equity interest, currently at 8%, and (3) then 75% to us and 25% to the owner of the noncontrolling interest until we both receive a cumulative return on our contributed senior common equity interest, currently at 12%, and (4) finally, any remaining operating profit shall be distributed 70% to us and 30% to the owner of the noncontrolling interest. Additionally, the noncontrolling interest in the Ritz Coconut Grove has the right to put their ownership interest to us for cash consideration at any time during the life of the venture. The balance sheet and financial results of the Ritz Coconut Grove are included in our consolidated financial statements and book value of the noncontrolling interest in the Ritz Coconut Grove is classified as temporary equity within our Consolidated Balance Sheet. The noncontrolling interest in the Ritz Coconut Grove was initially measured at fair value upon formation of the joint venture and will be subsequently measured at the greater of historical cost or the put option redemption value. For the years ended December 31, 2020, 2019 and 2018, based on the income allocation methodology described above, the noncontrolling interest in this joint venture was allocated losses of $21, $300 and $3,417, respectively, and is recorded as part of the (Income) Loss Allocated to Noncontrolling Interests line item within the Consolidated Statements of Operations. We reclassified $(3,196) and $488 from Additional Paid in Capital to Noncontrolling Joint Venture Interest to recognize interest at the put option redemption value of $0 and $3,196, at December 31, 2020 and December 31, 2019, respectively.
Net income or loss attributed to Common Units and LTIP Units, as well as the net income or loss related to the noncontrolling interests of our consolidated variable interest entity, is included in net income or loss in the consolidated statements of operations. Net income or loss attributed to the Common Units, LTIP Units, and the noncontrolling interests of our consolidated joint ventures is excluded from net income or loss applicable to common shareholders in the consolidated statements of operations.
70

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Shareholders’ Equity
As of December 31, 2020, we have 14,703,214 Cumulative Redeemable Preferred Shares outstanding consisting of three separate Series issuances. Terms of the Series C, Series D and Series E Preferred Shares outstanding at December 31, 2020 and 2019 are summarized as follows:
Dividend Per Share
Shares Outstanding
Year Ended December 31, (1)
SeriesDecember 31, 2020December 31, 2019Aggregate Liquidation PreferenceDistribution Rate20202019
Series C3,000,000 3,000,000 $75,000 6.875 %$$1.7188 
Series D7,701,700 7,701,700 $192,543 6.500 %$1.6250 
Series E4,001,514 4,001,514 $100,038 6.500 %$1.6250 
Total14,703,214 14,703,214 

(1) As a result of the turmoil in the financial markets resulting from the spread of the novel coronavirus and the global COVID-19 pandemic, on March 19, 2020, in order to preserve liquidity, we revoked our previously announced first quarter 2020 quarterly cash dividends on our common shares, 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. The payment 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 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 sum sufficient for such payment has been set apart for payment for all past dividend periods. Subsequent to December 31, 2020, we entered into amendments to the Credit Agreements which allowed for the payment of 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 and allows us, subject to the discretion and approval of our Board of Trustees, to declare regular quarterly dividends on our preferred shares on an ongoing basis. The total arrearage as of December 31, 2020 of approximately $24,176 was paid on March 26, 2021.

In December 2018, our Board of Trustees authorized a new share repurchase program for up to $50,000 of common shares which commenced on January 1, 2019 and expired on December 31, 2019. For the year ended December 31, 2019, we repurchased 933,436 common shares for an aggregate purchase price of $14,194. Upon repurchase by the Company, these common shares ceased to be outstanding and became authorized but unissued common shares. There was no share repurchase program for the year-ended December 31, 2020.
Stock Based Compensation
We measure the cost of employee service received in exchange for an award of equity instruments based on the grant-date fair value of the award. The compensation cost is amortized on a straight line basis over the period during which an employee is required to provide service in exchange for the award. The compensation cost related to performance awards that are contingent upon market-based criteria being met is recorded at the fair value of the award on the date of the grant and amortized over the performance period.
71

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivatives and Hedging
The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and interest rate caps as part of its cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount. Interest rate caps designated as cash flow hedges limit the Company’s exposure to increased cash payments due to increases in variable interest rates.
Liquidity and Management's Plan
Due to the COVID-19 pandemic and the effects of travel restrictions both globally and in the United States, the hospitality industry has experienced drastic drops in demand. The global impact of the pandemic has been rapidly evolving and, in the United States, certain states and cities, including most of the states and cities where we own properties, have reacted by instituting various restrictive measures such as quarantines, restrictions on travel, school closings, "stay at home" rules and restrictions on types of business that may continue to operate. During the first quarter of 2020 as a result of the impact of the COVID-19 pandemic, we had temporarily closed 21 of our 48 hotels while our remaining hotels operated in a significantly reduced capacity. During the second quarter of 2020 we reopened 5 hotels, during the third quarter of 2020 we reopened 8 hotels, and during the fourth quarter of 2020 we reopened 2 hotels resulting in 6 hotels remaining closed as of December, 2020. We believe the 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.
In February of 2021, we entered into an unsecured notes facility that provided an initial $150,000 and access to an incremental $50,000, which can be drawn through September 30, 2021. Proceeds from the initial $150,000 provided by this facility, along with a portion of the proceeds from asset sales, were used to repay amounts outstanding under our senior secured credit facility and our two secured term loans and allowed us to negotiate amendments to this senior facility. The amendments to the senior secured credit facility and two secured term loans eliminate term loan maturities until August of 2022, waive all financial covenants through March 31, 2022, establish accommodative covenant testing methodology through December 31, 2022, enable the Company to pay down the accrual of the Company's preferred dividends and the ongoing preferred dividend accrual to be kept current, and provide additional liquidity at the Company's discretion.
We cannot assure you that our assumptions used to estimate our liquidity requirements will be correct because the lodging industry has not previously experienced such an abrupt and drastic reduction in hotel demand, and as a consequence, our ability to be predictive is uncertain. In addition, the magnitude, duration, and speed of the pandemic is uncertain and we cannot estimate when travel demand will recover.
72

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
We recognize revenue for all consolidated hotels as hotel operating revenue when earned. Revenues are recorded net of any sales or occupancy tax collected from our guests. We participate in frequent guest programs sponsored by the brand owners of our hotels and we expense the charges associated with those programs, as incurred. Hotel operating revenues are disaggregated on the face of the consolidated statement of operations into the categories of rooms revenue, food and beverage revenue, and other to demonstrate how economic factors affect the nature, amount, timing, and uncertainty of revenue and cash flows.

Room revenue is generated through contracts with customers whereby the customers agree to pay a daily rate for right to use a hotel room. The customer is provided the room and revenue is recognized daily at the contract rate. Payment from the customer is generally secured at the end of the contract upon check-out by the customer from our hotel. The Company records advanced deposits when a customer or group of customers provides a deposit for a future stay at our hotels. Advanced deposits for room revenue are included in the balance of Accounts Payable, Accrued Expenses and Other Liabilities on the consolidated balance sheet. Advanced deposits are recognized as revenue at the time of the guest's stay. The Company notes no significant judgements regarding the recognition of room revenue.

Food and beverage revenue is generated through contracts with customers whereby the customer agrees to pay a contract rate for restaurant dining services or banquet services. The Company's contract performance obligations are fulfilled at the time that the meal is provided to the customer or when the banquet facilities and related dining amenities are provided to the customer. The Company recognizes food and beverage revenue upon the fulfillment of the contract with the customer. The Company records contract liabilities in the form of advanced deposits when a customer or group of customers provides a deposit for a future banquet event at our hotels. Advanced deposits for food and beverage revenue are included in the balance of Accounts Payable, Accrued Expenses and Other Liabilities on the consolidated balance sheet. Advanced deposits for banquet services are recognized as revenue following the completion of the banquet services. The Company notes no significant judgements regarding the recognition of food and beverage revenue.

Other revenues consist primarily of fees earned for asset management services provided to hotels we own through unconsolidated joint ventures. Fees are earned as a percentage of hotel revenue and are recorded in the period earned to the extent of the noncontrolling interest ownership.
73

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes

The Company has elected to be taxed as a REIT under applicable provisions of the Internal Revenue Code of 1986, as amended, or the Code, and intends to continue to qualify as a REIT. In general, under such provisions, a trust which has made the required election and, in the taxable year, meets certain requirements and distributes to its shareholders at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, will not be subject to federal income tax to the extent of the income which it distributes. Earnings and profits, which determine the taxability of dividends to shareholders, differ from net income reported for financial reporting purposes due primarily to differences in depreciation of hotel properties for federal income tax purposes.

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

The Company may recognize a tax benefit from an uncertain tax position when it is more-likely-than-not (defined as a likelihood of more than 50%) that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. If a tax position does not meet the more-likely-than-not recognition threshold, despite the Company’s belief that its filing position is supportable, the benefit of that tax position is not recognized in the statements of operations. The Company recognizes interest and penalties, as applicable, related to unrecognized tax benefits as a component of income tax expense. The Company recognizes unrecognized tax benefits in the period that the uncertainty is eliminated by either affirmative agreement of the uncertain tax position by the applicable taxing authority, or by expiration of the applicable statute of limitation. For the years ended December 31, 2020, 2019 and 2018, the Company did not record any uncertain tax positions. As of December 31, 2020, with few exceptions, the Company is subject to tax examinations by federal, state, and local income tax authorities for years 2003 through 2020.
0New Accounting Pronouncements 
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. As a result of identified structural risks of interbank offered rates, in particular, the LIBOR reference rate reform is underway to identify alternative reference rates that are more observable or transaction based. The update provides guidance in accounting for changes in contracts, hedging relationships, and other transactions as a result of this reference rate reform. The optional expedients and exceptions contained within this update, in general, only apply to contract amendments and modifications entered into prior to January 1, 2023. The provisions of this update that will most likely affect our financial reporting process relate to modifications of contracts with lenders and the related hedging contracts associated with each respective modified borrowing contract. In general, the provisions of the update would impact the Company by allowing, among other things, the following:

allowing modifications of debt contracts with lenders that fall under the guidance of ASC Topic 470 to be accounted for as a non-substantial modification and not be considered a debt extinguishment;
allowing a change to contractual terms of a hedging instrument in conjunction with reference rate reform to not require a dedesignation of the hedging relationship; and
allowing a change to the interest rate used for margining, 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.

We have not entered into any contract modifications yet, as it directly relates to reference rate reform but we anticipate having to undertake such modifications in the future as a majority of our contracts with lenders and hedging counterparties are indexed to LIBOR. While we anticipate the impact of this update to be to the benefit of the Company, we are still evaluating the overall impact to the Company.

74

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In June 2018, the FASB issued ASU No. 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The update will simplify several aspects of the accounting for nonemployee share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this update affects all entities that enter into share-based payment transactions for acquiring goods and services from nonemployees. The provisions of the update were effective for the Company starting January 1, 2019. The adoption of this update did not have a material effect on our consolidated financial statements or the disclosures of share-based payments within Note 9 of these consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The update makes 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 Company adopted the provisions of this update effective January 1, 2019.  The adoption of this update did not have a material effect on our consolidated financial statements or the disclosures related to fair value measurements with Note 8 of these consolidated financial statements.

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. The Company adopted the provisions of the update effective January 1, 2019. As a result, the Company recorded right of use assets and corresponding lease liabilities of $55,515 at January 1, 2019 for leases where we are the lessee. The Company also reclassified $11,050 previously included in intangible assets to the right of use asset, related to purchase accounting adjustments for below market rate leases. Additionally, the Company reclassified $19,627 previously included in accounts payable and accrued expenses to the right of use assets. This reclassification related to amounts recorded for accrued lease expense, as a result of using the straight-line rent method, and intangible liabilities derived from land leases acquired at above market lease rates. Upon adoption, the right of use assets had a weighted average useful life of 64.2 years. We are also a lessor in certain office space and retail lease agreements related to our hotels and the adoption of this ASU did not have a material impact on our accounting for leases where we are the lessor. The adoption of this ASU did not impact revenue recognition policies for the Company. See Note 6 to these consolidated financial statements for further lease disclosures.

75

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 2 – INVESTMENT IN HOTEL PROPERTIES
Investment in hotel properties consists of the following at December 31, 2020 and December 31, 2019:
December 31, 2020December 31, 2019
Land$488,463 $518,243 
Buildings and Improvements1,611,144 1,710,621 
Furniture, Fixtures and Equipment281,440 294,527 
Construction in Progress987 10,202 
2,382,034 2,533,593 
Less Accumulated Depreciation(597,196)(557,620)
Total Investment in Hotel Properties$1,784,838 $1,975,973 
Depreciation expense on hotel properties was $96,216, $95,673 and $88,598 for the years ended December 31, 2020, 2019 and 2018, respectively.
During the years ended December 31, 2020 and December 31, 2019, we acquired 0 hotel properties.
Property Damage from Natural Disaster
During September 2017, all 6 of our hotels located in South Florida incurred property damage and an interruption of business operations as a result of Hurricane Irma. NaN of our hotels, the Courtyard Cadillac Miami and the Parrot Key Hotel & Resort, incurred significant physical damage and were closed due to the disaster. The Courtyard Cadillac Miami opened for business in the third quarter of 2018, and the Parrot Key Hotel & Resort opened for business in the fourth quarter of 2018, respectively. The remaining 4 properties had resumed normal business activities as of December 31, 2018. During the year ended December 31, 2018, we recorded a net gain in excess of estimated insurance recoveries of $12,649. During the year ended December 31, 2020, we resolved this remaining open claim and recorded a net gain in excess of estimated insurance recoveries of $8,147.
76

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)
Hotel Dispositions
During the year ended December 31, 2019, we had no hotel dispositions. During the years ended December 31, 2020, and 2018, we had the following hotel dispositions:
HotelAcquisition
Date
Disposition
Date
ConsiderationGain (Loss) on
Disposition
Sheraton Wilmington South, DE2010-12-212020-12-01$19,500 $1,158 
2020 Total$1,158 
Hyatt House Gaithersburg, MD2006-12-012018-02-16$19,000 $2,441 
Hampton Inn Pearl Street, NY2014-06-012018-03-0632,400 926 
Residence Inn Tysons Corner, VA2006-02-012018-10-3115,700 781 
2018 Total$4,148 

Assets Held For Sale
We have classified 3 assets as held for sale as of December 31, 2020. The sales of the Residence Inn Coconut Grove and Courtyard San Diego hotels closed subsequent to December 31, 2020. During the second quarter of 2020, the Company amended the purchase and sale agreement with the buyer of the Duane Street 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 a $1,069 impairment charge recorded during the second quarter of 2020. The sale of the Duane Street Hotel is expected to close in the first half of 2021. The purchase and sale agreement for the Blue Moon Hotel has expired and we no longer believe sale of the hotel is probable. For this reason, the Blue Moon Hotel was removed from held for sale assets as of December 31, 2020.

The table below shows the balances for the properties that were classified as assets held for sale as of December 31, 2020:
December 31, 2020
Land$28,015 
Buildings and Improvements93,314 
Furniture, Fixtures and Equipment15,469 
136,798 
Less Accumulated Depreciation(40,578)
Assets Held for Sale$96,220 

77

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 2 – INVESTMENT IN HOTEL PROPERTIES (CONTINUED)
Subsequent Events
On January 12, 2021, we entered into a purchase and sale agreement, as amended, to sell the Capitol Hill Hotel to an unrelated third party for a sales price of $51,000. Also on January 12, 2021, we entered into a purchase and sale agreement, as amended, to sell the Holiday Inn Express Cambridge Hotel to the same unrelated third party for a sales price of $32,000. Both transactions closed in the first quarter of 2021 and did not meet the criteria to classify as held for sale as of December 31, 2020.
78

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 3 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
As of December 31, 2020 and December 31, 2019 our investment in unconsolidated joint ventures consisted of the following:
Joint VentureHotel PropertiesPercent OwnedDecember 31, 2020December 31, 2019
Cindat Hersha Owner JV, LLCHilton and IHG branded hotels in NYC31 %$$
Hiren Boston, LLCCourtyard by Marriott, South Boston, MA50 %219 1,434 
SB Partners, LLCHoliday Inn Express, South Boston, MA50 %
SB Partners Three, LLCHome2 Suites, South Boston, MA50 %6,414 7,012 
$6,633 $8,446 

On February 7, 2021, the mezzanine lender to Cindat Hersha Owner JV, LLC foreclosed and took ownership of properties owned by the joint venture. As a result, upon dissolution of the venture, we will no longer maintain an interest in this venture.
On January 3, 2020, we entered into an agreement for our joint venture partner to purchase our membership interests in Hiren Boston, LLC and SB Partners, LLC. Net proceeds from the sale of our interests are anticipated to be approximately $24,000 and this transaction is expected to close during the second quarter of 2021.
Income/Loss Allocation
The Cindat Hersha Owner JV, LLC cash available for distribution will be distributed to (1) Cindat until they receive a return on their contributed $143,650 senior common equity interest, currently at 8%, and (2) then to us until we receive an 8% return on our contributed $64,357 junior common equity interest.  Any cash available for distribution remaining will be split 31% to us and 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.  As of December 31, 2020 and 2019, 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.
For SB Partners, LLC, 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.
Any difference between the carrying amount of any of our investments noted above and the underlying equity in net assets is amortized over the expected useful lives of the properties and other intangible assets.
79

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 3 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)
Income (loss) recognized during the years ended December 31, 2020, 2019 and 2018, for our investments in unconsolidated joint ventures is as follows:
Year Ended December 31,
202020192018
Cindat Hersha Owner JV, LLC$$$
Hiren Boston, LLC(1,741)155 866 
SB Partners, LLC(600)626 218 
SB Partners Three, LLC(597)(90)
(Loss) Income from Unconsolidated Joint Venture Investments$(2,938)$691 $1,084 
The following tables set forth the total assets, liabilities, equity and components of net income or loss, including the Company’s share, related to the unconsolidated joint ventures discussed above as of December 31, 2020 and December 31, 2019 and for the years ended December 31, 2020, 2019 and 2018. 
Balance Sheets
December 31, 2020December 31, 2019
Assets
Investment in Hotel Properties, Net$581,452 $579,287 
Other Assets32,048 33,891 
Total Assets$613,500 $613,178 
Liabilities and Equity
Mortgages and Notes Payable$452,284 $430,282 
Other Liabilities42,197 19,185 
Equity:
Hersha Hospitality Trust5,699 9,588 
Joint Venture Partners113,452 154,998 
Accumulated Other Comprehensive Loss(132)(875)
Total Equity119,019 163,711 
Total Liabilities and Equity$613,500 $613,178 

Statements of Operations
Year Ended December 31,
202020192018
Room Revenue$25,011 $94,384 $98,123 
Other Revenue1,020 2,408 2,350 
Operating Expenses(18,695)(46,175)(46,319)
Lease Expense(770)(693)(658)
Property Taxes and Insurance(12,906)(12,477)(11,882)
General and Administrative(2,638)(5,783)(5,489)
Depreciation and Amortization(16,200)(14,947)(13,403)
Interest Expense(23,908)(28,072)(26,289)
Loss on Debt Extinguishment(7,270)
Net Loss$(49,086)$(11,355)$(10,837)

80

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 3 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)
The following table is a reconciliation of our share in the unconsolidated joint ventures’ equity to our investment in the unconsolidated joint ventures as presented on our balance sheets as of December 31, 2020 and December 31, 2019.
December 31, 2020December 31, 2019
Our share of equity recorded on the joint ventures' financial statements$5,699 $9,588 
Adjustment to reconcile our share of equity recorded on the joint ventures' financial statements to our investment in unconsolidated joint ventures(1)
934 (1,142)
Investment in Unconsolidated Joint Ventures$6,633 $8,446 
(1)    Adjustment to reconcile our share of equity recorded on the joint ventures' financial statements to our investment in unconsolidated joint ventures consists of the following:
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. 

81

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 4 – OTHER ASSETS AND DEPOSITS ON HOTEL ACQUISITIONS
Other Assets
Other Assets consisted of the following at December 31, 2020 and December 31, 2019:
December 31, 2020December 31, 2019
  
Derivative Asset$$2,514 
Deferred Financing Costs2,395 1,330 
Prepaid Expenses5,692 11,279 
Investment in Statutory Trusts1,548 1,548 
Investment in Non-Hotel Property and Inventories2,443 2,987 
Deposits with Unaffiliated Third Parties2,561 2,577 
Deferred Tax Asset, Net of Valuation Allowance of $23,591 and $497, respectively11,390 
Property Insurance Receivable1,788 
Other855 2,764 
$15,494 $38,177 
Derivative Asset - This category represents the Company’s gross asset fair value of interest rate swaps and interest rate caps. Any swaps and caps resulting in a liability to the Company are accounted for separately within Other Liabilities on the Balance Sheet.
Deferred Financing Costs - This category represents financing costs paid by the Company to establish our Line of Credit.  These costs have been capitalized and will amortize to interest expense over the life of the Line of Credit.
Prepaid Expenses - Prepaid expenses include amounts paid for property tax, insurance and other expenditures that will be expensed in the next twelve months.
Investment in Statutory Trusts - We have an investment in the common stock of Hersha Statutory Trust I and Hersha Statutory Trust II. Our investment is accounted for under the equity method.
Investment in Non-Hotel Property and Inventories - This category represents the costs paid and capitalized by the Company for items such as office leasehold improvements, furniture and equipment, and property inventories.
Deposits with Unaffiliated Third Parties - These deposits represent deposits made by the Company with unaffiliated third parties for items such as lease security deposits, utility deposits, and deposits with unaffiliated third party management companies.
Deferred Tax Asset - We have approximately $0 of net deferred tax assets as of December 31, 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 for our deferred tax assets, and we believe that it is more likely than not that we will not be able to realize the net deferred tax assets in the future, and a valuation allowance for the entire deferred tax asset has been recorded.
Property Insurance Receivable – This category represents the amount that we expect to receive from our insurance companies for reimbursement of costs incurred as a result of water damage at The Boxer.

82

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 5 – DEBT
Mortgages
Mortgages payable at December 31, 2020 and December 31, 2019 consisted of the following:
December 31, 2020December 31, 2019
Mortgage Indebtedness$332,264 $333,948 
Net Unamortized Premium354 821 
Net Unamortized Deferred Financing Costs(1,770)(2,489)
Mortgages Payable$330,848 $332,280 
Net Unamortized Deferred Financing Costs associated with entering into mortgage indebtedness are deferred and amortized over the life of the mortgages. Net Unamortized Premiums are also amortized over the remaining life of the loans. Mortgage indebtedness balances are subject to fixed and variable interest rates, which ranged from 2.14% to 6.30% as of December 31, 2020.
Our mortgage indebtedness contains various financial and non-financial covenants customarily found in secured, non-recourse financing arrangements. Our mortgage loans payable typically require that specified debt service coverage ratios be maintained with respect to the financed properties before we can exercise certain rights under the loan agreements relating to such properties. If the specified criteria are not satisfied, the lender may be able to escrow cash flow generated by the property securing the applicable mortgage loan.
At December 31, 2020, we failed our debt service coverage ratio ("DSCR") requirement related to 4 of our mortgage borrowings. NaN of these DSCR failures trigger a cash management provision within their respective mortgages, which results in our respective lenders sweeping cash receipts from the properties into a lockbox to service debt payments. The remaining mortgage for which we failed the DSCR requirement has resulted in an event of default on the mortgage. Subsequent to December 31, 2020, we entered into a purchase and sale agreement for the property securing this mortgage and closed on the sale in the first quarter of 2021. This mortgage was repaid in full with proceeds from the sale of the property.

As of December 31, 2020, the maturity dates for the outstanding mortgage loans ranged from August 2021 to September 2025.
 
83

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 5 – DEBT (CONTINUED)
Credit Facilities
We maintain 3 secured credit agreements which aggregate to $934,506 with Citigroup Global Markets Inc., Wells Fargo Bank, Inc. and various other lenders. One credit agreement ("Credit Agreement") provides for a senior secured credit facility of $452,158 (“Credit Facility”). The Credit Facility consists of a $250,000 senior secured revolving line of credit (“Line of Credit”), and a $202,158 senior secured term loan (“First Term Loan”). The 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.
We maintain another credit agreement which provides for a $292,983 senior secured loan agreement (“Second Term Loan”) and expires on September 10, 2024.
A separate credit agreement provides for a $189,365 senior secured 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.
On April 2, 2020, the Company signed amendments to the Credit Agreements, which, among other things, changed each borrowing facility under the agreements from unsecured to secured. Additionally, the Company received $100,000 in available funds on its Line of Credit. Since the amendment, the Company has drawn a total of $66,000 and repaid $2,947 through December 31, 2020.
As of both December 31, 2020 and 2019, the Company had an outstanding balance on the term loans of $684,506 and $700,900, respectively.  As of December 31, 2020 and 2019, the Company had an outstanding balance on the line of credit of $133,053 and $48,000.
On February 17, 2021, the Company signed amendments to the Credit Agreements, which, among other things, provide for:

an extension of the maturity date of the Third Term Loan to August 10, 2022;
a limited waiver of financial covenants through March 31, 2022; and
the ability to borrow up to $174,729, inclusive of amounts already outstanding, under the Line of Credit, the proceeds of which may only be used to fund certain costs and expenses.

Certain provisions within these amendments were contingent upon, among other things, the following conditions:

The Company must have liquid assets in an aggregate amount of at least $30,000;
The Company must raise at least $75,000 of net cash proceeds through the issuance of subordinated junior capital by March 31, 2021, with proceeds and all future proceeds of subordinated junior capital applied in accordance with defined prepayment waterfalls;
The Company shall raise at least $150,000 of net cash proceeds from asset sales on or prior to June 30, 2021, with net cash proceeds applied in accordance with certain mandatory prepayment waterfalls; and
Certain negative covenants and restrictions that are considered normal and customary.

These conditions, some of which are non-recurring in nature, have been met. Certain conditions, such as minimum liquid assets in an aggregate amount of at least $30,000, and certain negative covenants and restrictions that are considered normal and customary, must be met on a recurring basis as outlined within the amendments.

The amendments to the Credit Agreements make certain other amendments to financial covenants in place beginning in the second quarter of 2022:

a fixed charge coverage ratio of not less than 1.20 to 1.00 (was 1.50 to 1.00);
a maximum leverage ratio of not more than 65% (was 60%); and
a new financial covenant that requires the borrowing base leverage ratio to not exceed 60% at any time.

84

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
The amount that we can borrow at any given time under our Line of Credit, and the First, Second and Third Term Loan (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 December 31, 2020, the following hotel properties were borrowing base assets:
- Courtyard by Marriott Brookline, Brookline, MA- Hampton Inn, Washington, DC
- Holiday Inn Express Cambridge, Cambridge, MA- Ritz-Carlton Georgetown, Washington, DC
- The Envoy Boston Seaport, Boston, MA- Hilton Garden Inn, M Street, Washington, DC
- The Boxer, Boston, MA- Residence Inn Miami Coconut Grove, Coconut Grove, FL
- Hampton Inn Seaport, Seaport, New York, NY- The Winter Haven Hotel Miami Beach, Miami, FL
- The Duane Street Hotel, New York, NY- The Blue Moon Hotel Miami Beach, Miami, FL
- Holiday Inn Express Chelsea, 29th Street, New York, NY- Cadillac Hotel & Beach Club, Miami, FL
- Gate Hotel JFK Airport, New York, NY- The Parrot Key Hotel & Villas, Key West, FL
- Hilton Garden Inn JFK Airport, New York, NY- TownePlace Suites, Sunnyvale, CA
- NU Hotel, Brooklyn, New York, NY- The Ambrose Hotel, Santa Monica, CA
- Hyatt House White Plains, White Plains, NY- Courtyard by Marriott Downtown San Diego, San Diego, CA
- Hampton Inn Center City/ Convention Center, Philadelphia, PA- The Pan Pacific Hotel Seattle, Seattle, WA
- The Rittenhouse, Philadelphia, PA- Mystic Marriott Hotel & Spa, Groton, CT
- Philadelphia Westin, Philadelphia, PA

85

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 5 – DEBT (CONTINUED)
The interest rate for borrowings under the Line of Credit and Term Loans are based on a pricing grid with a range of one month U.S. LIBOR plus a spread. The following table summarizes the balances outstanding and interest rate spread for each borrowing:
Outstanding Balance
BorrowingSpreadDecember 31, 2020December 31, 2019
Line of Credit1.50% to 2.25%$133,053 $48,000 
Secured Term Loan:
First Term Loan1.45% to 2.20%202,158 207,000 
Second Term Loan1.35% to 2.00%292,983 300,000 
Third Term Loan1.45% to 2.20%189,365 193,900 
Deferred Loan Costs$(2,762)(3,717)
Total Secured Term Loan$681,744 $697,183 

Prior to the amendments noted above, the Credit Facility and the Term Loans included 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 $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:

a fixed charge coverage ratio of not less than 1.50 to 1.00;
a maximum leverage ratio of not more than 60%; and
a maximum secured debt leverage ratio of 45%.
The weighted average interest rate on our credit facilities was 4.07%, 4.11% and 3.83% for the years ended December 31, 2020, 2019 and 2018, respectively.
Subordinated Notes Payable
We have 2 junior subordinated notes payable in the aggregate amount of $51,548 to the Hersha Statutory Trusts pursuant to indenture agreements which will mature on July 30, 2035, but may be redeemed at our option, in whole or in part, prior to maturity in accordance with the provisions of the indenture agreements.  The $25,774 notes issued to Hersha Statutory Trust I and Hersha Statutory Trust II, bear interest at a variable rate of LIBOR plus 3% per annum.  This rate resets two business days prior to each quarterly payment.  The face value of the notes payable is offset by $759 and $812 as of December 31, 2020 and 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 2 junior subordinated notes payable during the years ended December 31, 2020, 2019 and 2018 was 3.95%,  5.50% and 5.23%, respectively.  
86

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 5 – DEBT (CONTINUED)
Junior Notes Payable

On February 17, 2021, the Company entered into a note purchase agreement (the “Purchase Agreement”) with several purchasers (the “Purchasers”). The Company agreed to issue and sell to the Purchasers an initial $150,000 aggregate principal amount (the “Initial Notes”) of the Company’s 9.50% Unsecured PIK Toggle Notes due 2026 (the “Notes”), and an incremental $50,000 aggregate principal amount of the Notes that can be drawn at the Company’s discretion, subject to certain conditions, in minimum installments of $25,000 on or prior to September 30, 2021.

The Initial Notes were issued on February 23, 2021. The Notes will mature on February 23, 2026. The Notes bear interest at a rate of 9.50% per year, payable in arrears on June 30, September 30, December 31 and March 31 of each year, beginning on June 30, 2021. For any interest period ending on or prior to March 31, 2022, the Issuer, in its sole discretion may elect to pay interest (a) in cash at a rate per annum equal to 4.75% per annum, and (b) in kind at a rate per annum equal to 4.75% per annum (“PIK Interest”). Any PIK Interest will be paid by increasing the principal amount of the Notes at the end of the applicable interest period by the amount of such PIK Interest.

The Notes may not be redeemed prior to February 23, 2022. The notes may be redeemed during the 12 month period beginning February 23, 2022 and the 12 month period beginning February 23, 2023, at a redemption price equal to 104% and 102% of the principal amount of the Notes being redeemed, respectively. After February 23, 2024, the notes may be redeemed at the principal amount.

The Notes are subject to representations, warranties, covenants, terms and conditions customary for transactions of this type, including limitations on liens, incurrence of debt, investments, mergers and asset dispositions, covenants to preserve corporate existence and comply with laws and default provisions.

The Company may only use the net proceeds from the issuance of the Notes in accordance with the mandatory prepayment waterfalls, which includes the repayment of outstanding borrowings under the Credit Agreement and use for certain other general corporate purposes.

Aggregate annual principal payments for the Company’s credit facility and secured term loan, as amended, mortgages, and subordinated notes payable for the five years following December 31, 2020 and thereafter are as follows:
Year Ending December 31,Amount
2021$406,436 
2022248,599 
202378,139 
2024378,817 
202537,832 
Thereafter51,548 
Net Unamortized Premium354 
$1,201,725 

87

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 5 – DEBT (CONTINUED)
Interest Expense
The table below shows the interest expense incurred by the Company during the twelve months ended December 31, 2020, 2019, and 2018:

Years Ended December 31,
202020192018
Mortgage Loans Payable12,277 15,804 15,050 
Interest Rate Swap Contracts on Mortgages1,895 (453)*(66)*
Unsecured Notes Payable2,037 2,837 2,712 
Credit Facility and Term Loans21,927 33,745 31,189 
Interest Rate Swap Contracts on Credit Facility and Term Loans11,018 (2,630)*(2,839)*
Deferred Financing Costs Amortization3,551 2,241 2,278 
Capitalized Interest(74)*(662)*
Other574 735 829 
     Total Interest Expense$53,279 $52,205 $48,491 
*Negative amount indicates decrease to interest expense.

New Debt/Refinance
On December 4, 2019, we refinanced the outstanding mortgage debt with an original principal balance of $44,325 secured by the Hilton Garden Inn, 52nd Street, NY. The loan was due to mature on February 24, 2020, but will now mature on December 4, 2022. Contemporaneous with the mortgage refinance, we entered into an interest rate swap that matures December 4, 2022 that fixes the interest rate at 3.84% until maturity.
On September 10, 2019, we refinanced our Second Term Loan. We maintained the $300,000 principal balance. The Second Term Loan was due to expire on August 10, 2020 but will now expire on September 10, 2024. The financial covenants on the new loan are substantially the same as the previous loan. Also during September 2019 we entered into new interest rate swap contracts for $700,900 of our Credit Facility and Term Loans. See "Note 8 - Fair Value Measurements and Derivative Instruments" for more information on the interest rate swaps.
On July 25, 2019, we refinanced the outstanding mortgage debt with an original principal balance of $45,000 secured by the Hilton Garden Inn Tribeca, New York, NY. The loan was due to mature on November 13, 2019, but will now mature on July 25, 2024. Contemporaneous with the mortgage refinance, we entered into an interest rate swap that matures July 25, 2024 that fixes the interest rate at 4.02% until maturity.
One June 7, 2019, we refinanced the outstanding mortgage debt with an original principal balance of $56,000 secured by the Hyatt Union Square, New York, NY. The loan was due to mature on June 9, 2019, but will now mature on June 7, 2023. Also on June 7, 2019, we entered into an interest rate swap that matures June 7, 2023. See "Note 8 - Fair Value Measurements and Derivative Instruments" for more information on the interest rate swap.




88

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 6 – LEASES
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 Company adopted the provisions of the update effective January 1, 2019. We elected the modified retrospective transition method upon adoption, which resulted in no cumulative-effect adjustment to the balance of opening retained earnings. As part of our adoption, we elected to utilize the package of practical expedients which allowed us to not reassess existing contracts for embedded leases and not reassess the classification of existing leases. As a result of our adoption, the Company recorded a lease liability and corresponding right of use asset of $55,515 at January 1, 2019 for leases where we are the lessee. Our most significant leases are land leases. We own 5 hotels within our consolidated portfolio of hotels where we do not own the land on which the hotels reside, rather we lease the land from an unrelated third-party lessor. All of our land leases are classified as operating leases and have initial terms, with extension options that range from May 2062 to October 2103. Based on the nature of these leases, the Company assumed that all extension options would be fully executed. For land leases that include variable payments, those include payments that are tied to an index such as the consumer price index or include rental payments based partially on the hotel revenues. NaN additional office space leases are also factored into the lease liability and are classified as operating leases with terms ranging from January 2022 to December 2027. For office space leases that include variable payments, those include payments for the Company's proportionate share of the building's property taxes, insurance, and common area maintenance.

The Company applied judgments related to the determination of the discount rates used to calculate the lease liability upon adoption at January 1, 2019. Since the discount rate implicit in the leases could not be readily determinable, we had to calculate our incremental borrowing rate as defined by ASC Topic 842. In order to calculate our incremental borrowing rate, the Company utilized judgments and estimates regarding the Company's market credit rating, comparable market bond yield curve, and adjustments to market yield curves to determine a securitized rate.

We are also a lessor in certain office space and retail lease agreements related to our hotels and the adoption of this ASU did not have a material impact on our accounting for leases where we are the lessor. The adoption of this ASU did not impact revenue recognition policies for the Company.

We record lease costs incurred from ground leases as expenses as presented within Hotel Ground Rent in the Consolidated Statements of Operations. Lease costs incurred from office leases are recorded to expense and presented within General and Administrative Expense in the Consolidated Statements of Operations. The components of lease costs for the year ended December 31, 2020 and 2019 were as follows:


Year Ended December 31, 2020
Ground LeaseOffice LeaseTotal
Operating lease costs$4,153$483$4,636
Variable lease costs139253392
Total lease costs$4,292$736$5,028


Year Ended December 31, 2019
Ground LeaseOffice LeaseTotal
Operating lease costs$4,195 $483 $4,678 
Variable lease costs386 308 694 
Total lease costs$4,581 $791 $5,372 

For the year ended December 31, 2018 we incurred $4,228 of rent expense payable pursuant to ground leases related to certain hotel properties. For the year ended December 31, 2018, we incurred $785 of rent expense pursuant to office leases.


89

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 6 – LEASES (CONTINUED)

Other information related to leases as of and for the year ended December 31, 2020 and 2019 is as follows:

December 31, 2020December 31, 2019
Cash paid from operating cash flows for operating leases$4,383 $4,851 
Weighted average remaining lease term in years64.264.2
Weighted average discount rate7.86 %7.86 %

Minimum lease payments against lease liabilities are as follows:

Amount
2021$5,001 
20224,463 
20234,445 
20244,473 
20254,515 
Thereafter284,478 
     Total undiscounted lease payments307,375
Less imputed interest(253,523)
     Total lease liability$53,852 



90

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 7 – COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
Management Agreements
Our wholly-owned TRS, 44 New England Management Company, and certain of our joint venture entities engage eligible independent contractors in accordance with the requirements for qualification as a REIT under the Internal Revenue Code of 1986, as amended, including Hersha Hospitality Management Limited Partnership (“HHMLP”), as the property managers for hotels it leases from us pursuant to management agreements. HHMLP is owned, in part, by certain executives and trustees of the Company. Our management agreements with HHMLP provide for five-year terms and are subject to early termination upon the occurrence of defaults and certain other events described therein. As required under the REIT qualification rules, HHMLP must qualify as an “eligible independent contractor” during the term of the management agreements. Under the management agreements, HHMLP generally pays the operating expenses of our hotels. All operating expenses or other expenses incurred by HHMLP in performing its authorized duties are reimbursed or borne by our TRS to the extent the operating expenses or other expenses are incurred within the limits of the applicable approved hotel operating budget. HHMLP is not obligated to advance any of its own funds for operating expenses of a hotel or to incur any liability in connection with operating a hotel. Management agreements with other unaffiliated hotel management companies have similar terms.
For its services, HHMLP receives a base management fee and, if a hotel exceeds certain thresholds, an incentive management fee. The base management fee for a hotel is due monthly and is equal to 3% of gross revenues associated with each hotel managed for the related month. The incentive management fee, if any, for a hotel is due annually in arrears on the ninetieth day following the end of each fiscal year and is based upon the financial performance of the hotels. For the years ended December 31, 2020, 2019 and 2018, base management fees incurred totaled $4,795, $14,123 and $13,309 respectively, and are recorded as Other Hotel Operating Expenses. For the year ended December 31, 2020, 2019 and 2018, incentive management fees incurred totaled $0, $161 and $98 respectively.
Franchise Agreements
Our branded hotel properties are operated under franchise agreements assumed by the hotel property lessee. The franchise agreements have 10 to 20 year terms, but may be terminated by either the franchisee or franchisor on certain anniversary dates specified in the agreements. The franchise agreements require annual payments for franchise royalties, reservation, and advertising services, and such payments are based upon percentages of gross room revenue. These payments are paid by the hotels and charged to expense as incurred. Franchise fee expenses for the years ended December 31, 2020, 2019 and 2018 were $7,237,  $23,389 and $22,802 respectively, and are recorded in Other Hotel Operating Expenses. The initial fees incurred to enter into the franchise agreements are amortized over the life of the franchise agreements.
Accounting and Information Technology Fees
Each of the wholly-owned hotels and consolidated joint venture hotel properties managed by HHMLP incurs a monthly accounting and information technology fee. Monthly fees for accounting services are between $2 and $3 per property and monthly information technology fees range from $1 to $2 per property. For the years ended December 31, 2020, 2019 and 2018, the Company incurred accounting fees of $1,298, $1,261 and $1,235 respectively. For the years ended December 31, 2020, 2019 and 2018, the Company incurred information technology fees of $419, $402 and $402 respectively. Accounting fees and information technology fees are included in Other Hotel Operating Expenses.
Capital Expenditure Fees
HHMLP charges a 5% fee on certain capital expenditures and pending renovation projects at the properties as compensation for procurement services related to capital expenditures and for project management of renovation projects. For the years ended December 31, 2020,  2019 and 2018, we incurred fees of $1,148, $2,525 and $2,511 respectively, which were capitalized with the cost of the related capital expenditures.
91

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 7 – COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)
Acquisitions from Affiliates
We have entered into an option agreement with certain of our officers and trustees such that we obtain a right of first refusal to purchase any hotel owned or developed in the future by these individuals or entities controlled by them at fair market value. This right of first refusal would apply to each party until one year after such party ceases to be an officer or trustee of the Company. Our Acquisition Committee of the Board of Trustees is comprised solely of independent trustees, and the purchase prices and all material terms of the purchase of hotels from related parties are approved by the Acquisition Committee.
Hotel Supplies
For the years ended December 31, 2020, 2019 and 2018, we incurred charges for hotel supplies of $82, $307 and $470 respectively. For the years ended December 31, 2020, 2019 and 2018, we incurred charges for capital expenditure purchases of $1,212, $12,721 and $2,258 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.
Insurance Services
The Company utilizes the services of the Hersha Group, a risk management business owned, in part, by certain executives and trustees of the Company. The Hersha Group provides brokerage services to the Company related to the placement of property and casualty insurance, and general liability insurance for our hotel properties. The total costs of property insurance that we paid through the Hersha Group were $6,968, $5,934, and $4,799 for the years ended December 31, 2020, 2019 and 2018. These amounts paid to the Hersha Group include insurance premiums and brokerage fees as compensation for brokerage services.
Restaurant Lease Agreements with Independent Restaurant Group
The Company enters into lease agreements with a number of restaurant management companies for the lease of restaurants located within our hotels. The Company previously entered into lease agreements with Independent Restaurant Group (“IRG”) for restaurants at 3 of its hotel properties.  Jay H. Shah and Neil H. Shah, executive officers and/or trustees of the Company, collectively own a 70.0% interest in IRG.  The Company’s restaurant lease agreements with IRG generally provide for a term of five years and the payment of base rents and percentage rents, which are based on IRG’s revenue in excess of defined thresholds. Effective April 1, 2020, each of these lease agreements became a management agreement between the Company and IRG, subject to the supervision of HHMLP, as property manager. At the time of the conversion of the lease agreements to management agreements, there was rent due of $103, which was forgiven due to the impact of the COVID-19 pandemic on the operations of our hotels and IRG's restaurants. The total amount of revenue recognized from IRG was $0 and $323 for the years ended December 31, 2020 and 2019, respectively.

Due From Related Parties
The due from related parties balance as of December 31, 2020 and December 31, 2019 was approximately $2,641 and $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.
Due to Related Parties
The balance due to related parties as of December 31, 2020 and December 31, 2019 was $0.
Litigation
We are not presently subject to any material litigation nor, to our knowledge, is any other litigation threatened against us, other than routine actions for negligence or other claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse effect on our liquidity, results of operations or business or financial condition.
92

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 8 – FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS
Fair Value Measurements
Our determination of fair value measurements are based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, we utilize a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liabilities, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
As of December 31, 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 swaps and caps, to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs.
We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and the counterparties. However, as of December 31, 2020 we have assessed the significance of the effect of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Derivative Instruments
The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and interest rate caps as part of its cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount. Interest rate caps designated as cash flow hedges limit the Company’s exposure to increased cash payments due to increases in variable interest rates. The table on the following page presents our derivative instruments as of December 31, 2020 and 2019.
93

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 8 – FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS (CONTINUED)
Estimated Fair Value
Asset / (Liability) Balance
Hedged DebtTypeStrike RateIndexEffective DateDerivative Contract Maturity DateNotional AmountDecember 31, 2020December 31, 2019
Term Loan Instruments:
Secured Credit FacilitySwap1.341 %1-Month LIBOR + 2.20%2019-10-032021-08-02150,000 (1,070)539 
Secured Credit FacilitySwap1.316 %1-Month LIBOR + 2.20%2019-09-032021-08-0243,900 (307)175 
Secured Credit FacilitySwap1.824 %1-Month LIBOR + 2.20%2019-09-032022-08-10103,500 (2,793)(718)
Secured Credit FacilitySwap1.824 %1-Month LIBOR + 2.20%2019-09-032022-08-10103,500 (2,793)(718)
Secured Credit FacilitySwap1.460 %1-Month LIBOR + 2.00%2019-09-102024-09-10300,000 (13,286)1,776 
Mortgages:
Courtyard, LA Westside, Culver City, CASwap1.683 %1-Month LIBOR + 2.75%2017-08-012020-08-0135,000 (8)
Annapolis Waterfront Hotel, MDCap3.350 %1-Month LIBOR + 2.65%2018-05-012021-05-0128,000 
Hyatt, Union Square, New York, NYSwap1.870 %1-Month LIBOR + 2.30%2019-06-072023-06-0756,000 (2,305)(556)
Hilton Garden Inn Tribeca, New York, NYSwap1.768 %1-Month LIBOR + 2.25%2019-07-252024-07-2522,725 (1,222)(169)
Hilton Garden Inn Tribeca, New York, NYSwap1.768 %1-Month LIBOR +2.25%2019-07-252024-07-2522,725 (1,222)(169)
Hilton Garden Inn 52nd Street, New York, NYSwap1.540 %1-Month LIBOR + 2.30%2019-12-042022-12-0444,325 (1,186)23 
Courtyard, LA Westside, Culver City, CASwap0.495 %1-Month LIBOR + 2.75%2020-06-012021-08-0135,000 (75)
$(26,259)$175 
The fair value of certain swaps and our interest rate caps is included in other assets at December 31, 2020 and December 31, 2019 and the fair value of certain of our interest rate swaps is included in accounts payable, accrued expenses and other liabilities at December 31, 2020 and December 31, 2019.

The net change related 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 loss of $22,348, a loss of $3,495, and a gain of $516 for the years ended December 31, 2020, 2019 and 2018, respectively.
94

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 8 – FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS (CONTINUED)

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate derivatives. The change in net unrealized gains/losses on cash flow hedges reflects a reclassification of $4,083, $1,007 and $2,827 of net unrealized gains/losses from accumulated other comprehensive income as an increase/decrease to interest expense during 2020, 2019 and 2018, respectively. During 2021, the Company estimates that an additional $11,508 will be reclassified as an increase to interest expense.

Fair Value of Debt
The Company estimates the fair value of its fixed rate debt and the credit spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of the debt obligation with similar credit policies. Credit spreads take into consideration general market conditions and maturity. The inputs utilized in estimating the fair value of debt are classified in Level 2 of the fair value hierarchy.  As of December 31, 2020, the carrying value and estimated fair value of the Company’s debt were $1,196,434 and $1,176,625, respectively.  As of December 31, 2019, the carrying value and estimated fair value of the Company’s debt were $1,128,199 and $1,098,082, respectively.
95

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 9 – SHARE BASED PAYMENTS
We measure the cost of employee service received in exchange for an award of equity instruments based on the grant-date fair value of the award. The compensation cost is amortized on a straight-line basis over the period during which an employee is required to provide service in exchange for the award. The compensation cost related to performance awards that are contingent upon market-based criteria being met is recorded at the fair value of the award on the date of the grant and amortized over the performance period.  As discussed in Note 1 forfeitures of share-based awards are expensed as they occur.
Our shareholders approved the Hersha Hospitality Trust 2012 Equity Incentive Plan, as amended, (the “2012 Plan”) for the purpose of attracting and retaining executive officers, employees, trustees and other persons and entities that provide services to the Company.
Summary of Share Based Compensation Programs
Executives
The Compensation Committee of our Board of Trustees implements executive compensation strategies that align the interests of the Company’s executives with those of shareholders. It does so through a mix of base salary, the Short Term Incentive Program ("STIP"), and the Long-Term Incentive Program ("LTIP"). The STIP and LTIP are incentive compensation programs that align executive compensation with the performance of the Company. Prior to 2019, executives participated in our legacy incentive compensation programs, the Annual Cash Incentive Program ("ACIP"), the Annual Long Term Equity Incentive Program ("Annual EIP"), and the Multi-Year Long Term Equity Incentive Program ("Multi-Year EIP"). Equity may be awarded under any of these programs in the form of stock awards, LTIP Units, or performance share awards issuable pursuant to the 2012 Plan.
Short Term Incentive Program - On August 3, 2020, the Compensation Committee approved the 2020 STIP, pursuant to which the executive officers are eligible to earn cash and equity awards based on achieving a threshold, target or maximum level of defined performance objectives at the end of the performance period, December 31, 2020. Any amounts earned are satisfied 50% in cash and 50% in equity awards. The Compensation Committee provided the option to the executive officers to elect equity awards in lieu of cash payment for amounts earned under the 2020 STIP. For the 2020 STIP, 2019 STIP and the 2018 ACIP, each executive elected to receive 100% of amounts earned under each program in equity.   Equity issued under the 2020 STIP, 2019 STIP and the 2018 ACIP vest on the two year anniversary following the end of the performance period.
The Company accounts for grants earned under the STIP as performance awards for which the Company assesses the probability of achievement of the performance conditions at the end of each period. Estimates of amounts earned under the STIP are recorded in general and administrative expense on the consolidated statement of operations and a liability is recorded in accounts payable, accrued expenses and other liabilities on the consolidated balance sheet. As of December 31, 2020, no shares or LTIP Units have been issued to the executive officers in settlement of the 2020 STIP.
Long Term Incentive Program - On August 3, 2020, the Compensation Committee approved the 2020 LTIP pursuant to which the executive officers are eligible to earn equity awards based on achieving a threshold, target or maximum level of defined market and performance objectives at the end of the performance period, December 31, 2020. This program has a three-year performance period which commenced on January 1, 2020 and ends December 31, 2022. The shares or LTIP Units issuable under the LTIP or legacy long term incentive programs are based on the Company’s achievement of a certain level of (1) absolute total shareholder return (37.5% of the award), (2) relative total shareholder return as compared to the Company’s peer group (37.5% of the award), and (3) relative growth in revenue per available room ("RevPar") compared to the Company’s peer group (25.0% of the award).
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. As of December 31, 2020, no shares or LTIP Units have been issued to the executive officers in settlement of the 2020 LTIP awards.
96

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 9 – SHARE BASED PAYMENTS (CONTINUED)
Remaining unearned compensation for LTIP Units issued to executives in settlement of awards under the STIP, LTIP or the Company’s legacy incentive compensation programs is recorded in noncontrolling interests on the Company’s consolidated balance sheets and is amortized in general and administrative expense on the consolidated statement of operations over the remaining vesting period.
Trustees
To align the interests of the Company’s trustees with those of shareholders, our trustees receive equity as a component of the compensation for their service on our board of trustees.
Share Awards - Historically, our trustees received biennial share awards that vest immediately upon issuance. For 2020, share awards were granted quarterly and the trustees voluntarily elected share awards to be issued subject to vesting. These shares vested in January 2021.
Trustee Long Term Incentive Program - Trustees receive grants of restricted shares which vest over a three-year period subject to continued service to the Company’s board of trustees.
Board Fee Compensation Elected in Equity - Historically, trustees could 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. Shares issued for board retainer elected in equity vest over the year of service covered by the retainer and shares issued for service as lead director, committee chair and committee membership vest immediately upon issuance. For 2020, these shares were granted quarterly and the trustees voluntarily elected share awards to be issued subject to vesting. These shares vested in January 2021.

For shares issued that are subject to vesting, unearned compensation is recorded in additional paid in capital on the consolidated balance sheet and is amortized in general and administrative expense on the consolidated statement of operations over the vesting period. Share based compensation for shares issued that immediately vest is recorded in general and administrative expense on the consolidated statement of operations.
Employees and Non-Employees
Grants of restricted shares are issued to attract, retain and reward employees and non-employees that are critical to the Company’s success. These restricted shares typically vest over a period of between one and four years subject to continued service to the Company.
97

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 9 – SHARE BASED PAYMENTS (CONTINUED)
Share Based Compensation Activity
A summary of our share based compensation activity from January 1, 2018 to December 31, 2020 is as follows:
LTIP Unit AwardsRestricted Share AwardsShare Awards
Number of UnitsWeighted Average Grant Date Fair ValueNumber of Restricted SharesWeighted Average Grant Date Fair ValueNumber of SharesWeighted Average Grant Date Fair Value
Unvested Balance as of January 1, 2018107,217 $19.63 86,833 $18.58 
Granted589,106 17.91 76,314 19.56 34,752 $19.64 
Vested(245,420)18.59 (70,713)18.38 (34,752)19.64 
ForfeitedN/A(575)18.04 N/A
Unvested Balance as of December 31, 2018450,903 17.95 91,859 19.56 
Granted530,281 18.00 83,805 16.40 42,533 16.01 
Vested(539,983)17.97 (80,924)19.11 (42,533)16.01 
ForfeitedN/A(2,638)19.78 N/A
Unvested Balance as of December 31, 2019441,201 17.99 92,102 17.07 
Granted1,112,862 5.24 189,851 5.34 N/A
Vested(655,937)12.56 (78,962)12.49 N/A
ForfeitedN/A(113)18.00 N/A
Unvested Balance as of December 31, 2020898,126 6.15 202,878 7.87 

98

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 9 – SHARE BASED PAYMENTS (CONTINUED)
The following table summarizes share based compensation expense and unearned compensation for the years ended December 31, 2020, 2019, and 2018 and as of December 31, 2020 and 2019:
Share Based
Compensation Expense
Unearned
Compensation
For the Year EndedAs of
12/31/202012/31/201912/31/201812/31/202012/31/2019
Issued Awards
LTIP Unit Awards6,105 5,646 4,120 1,842 2,878 
Restricted Share Awards2,063 1,495 1,443 276 1,051 
Share Awards680 680 
Unissued Awards
Market Based1,320 1,467 1,120 1,933 2,739 
Performance Based1,515 4,073 
Total$9,488 $10,803 $11,436 $4,051 $6,668 
The weighted-average period of which the unrecognized compensation expense will be recorded is approximately 1.5 years for LTIP Unit Awards and 1.2 years for Restricted Share Awards.
The remaining unvested target units are expected to vest as follows:
202120222023
LTIP Unit Awards898,1260
Restricted Share Awards191,1778,1703,531
1,089,303 8,170 3,531 

99

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 10 – EARNINGS PER SHARE
The following table is a reconciliation of the income or loss (numerator) and the weighted average shares (denominator) used in the calculation of basic and diluted earnings per common share. The computation of basic and diluted earnings per share is presented below.
Twelve Months Ended December 31,
202020192018
NUMERATOR:
Basic and Diluted*
Net (Loss) Income$(189,260)$(5,847)$8,365 
Loss allocated to Noncontrolling Interests22,915 2,178 1,625 
Distributions to Preferred Shareholders(24,176)(24,174)(24,174)
Dividends Paid on Unvested Restricted Shares and LTIP Units(981)(740)
Net Loss from Continuing Operations attributable to Common Shareholders$(190,521)$(28,824)$(14,924)
DENOMINATOR:
Weighted average number of common shares - basic38,613,563 38,907,894 39,383,763 
Effect of dilutive securities:
Restricted Stock Awards and LTIP Units (unvested)
Contingently Issued Shares and Units
Weighted average number of common shares - diluted38,613,563 38,907,894 39,383,763 
*    Income (loss) allocated to noncontrolling interest in HHLP has been excluded from the numerator and Common Units and Vested LTIP Units have been omitted from the denominator for the purpose of computing diluted earnings per share since including these amounts in the numerator and denominator would have no impact.  In addition, potentially dilutive common shares, if any, have been excluded from the denominator if they are anti-dilutive to income (loss) applicable to common shareholders.
100

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 11 – CASH FLOW DISCLOSURES AND NON CASH INVESTING AND FINANCING ACTIVITIES
Interest paid during 2020, 2019 and 2018 totaled $38,170,  $54,158 and $49,148 respectively. Net Cash paid on Interest Rate Derivative contracts during 2020, 2019 and 2018 totaled 7,635, (4,336) and (2,728), respectively.  Cash paid for income taxes during 2020, 2019 and 2018 was $79,  $53 and $1,140, respectively.  The following non-cash investing and financing activities occurred during 2020, 2019 and 2018:
202020192018
Common Shares issued as part of the Dividend Reinvestment Plan$14 $60 $77 
Acquisition of hotel properties:
Deposit paid in prior period towards acquisition which closed in current period1,000 
Conversion of note payable and accrued interest to Non-Controlling Interest3,387 
Conversion of Common Units to Common Shares1,173 
Issuance of share based payments7,259 12,924 13,661 
Accrued payables for fixed assets placed into service658 2,506 2,912 
Cumulative Effect on Equity from the Adoption of ASC Subtopic 610-20129,021 
Adjustment to Record Non-Controlling Interest at Redemption Value(3,196)488 2,708 
Adjustment to Record Right of Use Asset & Lease Liability55,515 
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows for the year ended December 31, 2020, 2019 and 2018:

202020192018
Cash and cash equivalents$16,637 $27,012 $32,598 
Escrowed cash6,970 9,973 8,185 
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows$23,607 $36,985 $40,783 

Amounts included in restricted cash represent those required to be set aside in escrow by contractual agreement with various lenders for the payment of specific items such as property insurance, property tax, and capital expenditures.
101

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 12 – SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS IN PARTNERSHIP
Common Shares
The Company’s outstanding common shares have been duly authorized, and are fully paid and non-assessable. Common shareholders are entitled to receive dividends if and when authorized and declared by the Board of Trustees of the Company out of assets legally available and to share ratably in the assets of the Company legally available for distribution to its shareholders in the event of its liquidation, dissolution or winding up after payment of, or adequate provision for, all known debts and liabilities of the Company.
Preferred Shares
The Declaration of Trust authorizes our Board of Trustees to classify any unissued preferred shares and to reclassify any previously classified but unissued preferred shares of any series from time to time in one or more series, as authorized by the Board of Trustees. Prior to issuance of shares of each series, the Board of Trustees is required by Maryland REIT Law and our Declaration of Trust to set for each such series, subject to the provisions of our Declaration of Trust regarding the restriction on transfer of shares of beneficial interest, the terms, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each such series. Thus, our Board of Trustees could authorize the issuance of additional preferred shares with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control in us that might involve a premium price for holders of common shares or otherwise be in their best interest.
Common Units
Common Units are issued in connection with the acquisition of wholly owned hotels and joint venture interests in hotel properties. The total number of Common Units outstanding as of December 31, 2020, 2019 and 2018 was 2,066,615, 2,066,615 and 2,066,615, respectively. These units can be redeemed for cash or converted to common shares, at the Company’s option, on a 1-for-one basis. The number of common shares issuable upon exercise of the redemption rights will be adjusted upon the occurrence of stock splits, mergers, consolidation or similar pro rata share transactions, that otherwise would have the effect of diluting the ownership interest of the limited partners or our shareholders. During December 31, 2020, 2019 and 2018, 0, 0 and 62,807 Common Units were converted to common shares, respectively. In addition, as noted in “Note 9 – Share Based Payments,” during 2020, the Company issued 1,112,862 LTIP Units.
102

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 13 – INCOME TAXES
The Company elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with its taxable year ended December 31, 1999. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, to its shareholders. It is the Company’s current intention to adhere to these requirements and maintain the Company’s qualification for taxation as a REIT. As a REIT, the Company generally will not be subject to federal corporate income tax on that portion of its net income that is currently distributed to shareholders. If the Company fails to qualify for taxation as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax for taxable years prior to 2018) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income.
Taxable income from non-REIT activities managed through TRSs is subject to federal, state and local income taxes. As a TRS, 44 New England is subject to income taxes at the applicable federal, state and local tax rates.
The provision for income taxes differs from the amount of income tax determined by applying the applicable statutory federal income tax rate (21%) to pretax income from continuing operations as a result of the following differences:
For the year ended December 31,
202020192018
Statutory federal income tax provision$(37,365)$(1,208)$1,813 
Adjustment for nontaxable income for Hersha Hospitality Trust 29,636 1,419 (1,269)
State income taxes, net of federal income tax effect(2,720)456 32 
Non-deductible expenses, tax credits, and other, net(1,317)(575)(309)
Changes in valuation allowance23,095 
Total income tax expense$11,329 $92 $267 

103

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 13 – INCOME TAXES (CONTINUED)
The components of the Company’s income tax expense (benefit) from continuing operations for the years ended December 31, 2020, 2019 and 2018 were as follows:
For the year ended December 31,
202020192018
Income tax expense (benefit):
Current:
Federal$(51)$(60)$(119)
State(10)464 530 
Deferred:
Federal7,688 (302)467 
State3,702 (10)(611)
Total$11,329 $92 $267 
The components of consolidated TRS’s net deferred tax asset as of December 31, 2020 and 2019 were as follows:
As of December 31,
20202019
Deferred tax assets:  
Net operating loss carryforwards$21,569 $9,871 
Accrued expenses and other1,493 1,641 
Tax credit carryforwards355 415 
Depreciation and amortization174 (40)
Total gross deferred tax assets23,591 11,887 
Valuation allowance(23,591)(497)
Total Net deferred tax assets$$11,390 
In assessing the realizability of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based on the level of historical taxable income and projections for future taxable income over which the deferred tax assets are deductible and limitations related to the utilization of certain tax attribute carryforwards, Management believes it is more likely than not that the remaining deferred tax assets will not be realized. The Company recorded an additional valuation allowance of $23,095.
As of December 31, 2020, we have gross federal net operating loss carryforwards of $78,070 of which $34,255 expire over various periods from 2023 through 2036 and $43,815 carries forward indefinitely.  As of December 31, 2020, we have gross state net operating loss carryforwards of $85,355 which expire over various periods from 2023 to 2040.  The Company has tax credits of $355 available which begin to expire in 2032.
104

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 13 – INCOME TAXES (CONTINUED)
Earnings and profits, which will determine the taxability of distributions to shareholders, will differ from net income reported for financial reporting purposes due to the differences for federal tax purposes in the estimated useful lives and methods used to compute depreciation. The following table sets forth certain per share information regarding the Company’s common and preferred share distributions for the years ended December 31, 2020, 2019 and 2018.
202020192018
Preferred Shares - 6.875% Series C
Ordinary income0.00 %100.00 %100.00 %
Return of Capital100.00 %0.00 %0.00 %
Capital Gain Distribution0.00 %0.00 %0.00 %
Preferred Shares - 6.5% Series D
Ordinary income0.00 %100.00 %100.00 %
Return of Capital100.00 %0.00 %0.00 %
Capital Gain Distribution0.00 %0.00 %0.00 %
Preferred Shares - 6.5% Series E
Ordinary income0.00 %100.00 %100.00 %
Return of Capital100.00 %0.00 %0.00 %
Capital Gain Distribution0.00 %0.00 %0.00 %
Common Shares - Class A
Ordinary income0.00 %33.03 %37.91 %
Return of Capital100.00 %66.97 %62.09 %
Capital Gain Distribution0.00 %0.00 %0.00 %

105

HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
[IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS]
NOTE 14 – SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Year Ended December 31, 2020
First QuarterSecond QuarterThird QuarterFourth Quarter
Hotel Operating Revenues:
Room$71,083 $15,139 $27,546 $28,492 
Food & Beverage10,075 136 2,441 2,766 
Other8,780 2,137 3,734 4,114 
Other Revenues235 31 26 10,082 
Hotel Operating Expenses:
Room19,092 3,622 7,436 8,637 
Food & Beverage10,621 721 2,344 2,513 
Other35,806 14,035 17,965 17,464 
Other Expenses54,106 54,471 53,534 59,443 
(Loss) Income from Unconsolidated Joint Ventures(1,018)(502)(669)(749)
Income (Loss) Before Income Taxes(30,470)(55,908)(48,201)(43,352)
Income Tax (Expense) Benefit4,498 (15,872)28 17 
Net Income(25,972)(71,780)(48,173)(43,335)
Income (loss) Allocated to Noncontrolling Interests(2,897)(7,164)(5,032)(4,605)
Income (loss) Allocated to Noncontrolling Interests - Consolidated Joint Venture(3,196)(21)
Preferred Distributions6,044 6,044 6,044 6,044 
Net Income (Loss) applicable to Common Shareholders$(29,119)$(67,464)$(49,185)$(44,753)
Earnings per share:
Basic Net Income (Loss) applicable to Common Shareholders$(0.76)$(1.75)$(1.27)$(1.16)
Diluted Net Income (Loss) applicable to Common Shareholders$(0.76)$(1.75)$(1.27)$(1.16)
Weighted Average Common Shares Outstanding - Basic38,564,099 38,609,922 38,639,048 38,640,604 
Weighted Average Common Shares Outstanding - Diluted38,564,099 38,609,922 38,639,048 38,640,604 
Year Ended December 31, 2019
First QuarterSecond QuarterThird QuarterFourth Quarter
Hotel Operating Revenues:
Room$91,485 $118,980 $108,909 $105,324 
Food & Beverage14,228 18,253 15,870 17,028 
Other8,930 10,280 10,140 10,241 
Other Revenues274 46 142 124 
Hotel Operating Expenses:
Room22,090 24,013 24,000 23,385 
Food & Beverage12,832 13,990 12,605 13,393 
Other40,189 44,607 43,476 42,856 
Other Expenses53,133 55,658 55,062 55,411 
(Loss) Income from Unconsolidated Joint Ventures181 299 38 173 
(Loss) Income Before Income Taxes(13,146)9,590 (44)(2,155)
Income Tax Benefit5,264 (4,031)551 (1,876)
Net (Loss) Income(7,882)5,559 507 (4,031)
(Loss) Income Allocated to Noncontrolling Interests(1,063)(49)(442)(812)
(Loss) Income Allocated to Noncontrolling Interests - Consolidated Joint Ventures140 (292)340 
Preferred Distributions6,044 6,043 6,044 6,043 
Net (Loss) Income applicable to Common Shareholders$(13,003)$(143)$(5,435)$(9,262)
Earnings per share:
Basic Net (Loss) Income applicable to Common Shareholders$(0.34)$(0.01)$(0.15)$(0.24)
Diluted Net (Loss) Income applicable to Common Shareholders$(0.34)$(0.01)$(0.15)$(0.24)
Weighted Average Common Shares Outstanding - Basic39,115,390 39,127,385 38,878,818 38,516,879 
Weighted Average Common Shares Outstanding - Diluted39,115,390 39,127,385 38,878,818 38,516,879 

106


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2020
[IN THOUSANDS]
 Initial CostsCosts Capitalized Subsequent to Acquisition (1)Gross Amounts at which Carried at Close of Period Accumulated DepreciationNet Book Value
DescriptionEncumbrancesLandBuildings & ImprovementsLandBuildings & ImprovementsLandBuildings & ImprovementsTotalBuildings & Improvements*Land, Buildings & ImprovementsDate of Acquisition
Courtyard by Marriott Brookline,
Brookline, MA
047,41405,021052,43552,435(22,329)30,1062005-06-16
Annapolis Waterfront Hotel, Annapolis, MD(28,000)043,25104,112047,36347,363(3,440)43,9232018-03-28
Hilton Garden Inn JFK,
JFK Airport, NY
025,01803,999029,01729,017(12,303)16,7142006-02-16
Holiday Inn Express Cambridge,
Cambridge, MA
1,9569,79305,3281,95615,12117,077(6,454)10,6232006-05-03
Hyatt House White Plains,
White Plains, NY
8,82330,273012,8558,82343,12851,951(16,552)35,3992006-12-28
Hampton Inn Seaport,
Seaport, NY
7,81619,04001,6017,81620,64128,457(7,834)20,6232007-02-01
Gate Hotel JFK Airport,
JFK Airport, NY
027,31502,343029,65829,658(10,660)18,9982008-06-13
Hampton Inn Center City/ Convention Center,
Philadelphia, PA
3,49024,382011,7063,49036,08839,578(18,342)21,2362006-02-15
Duane Street Hotel,
Tribeca, NY
8,21312,86901,2518,21314,12022,333(5,986)16,3472008-01-04
NU Hotel Brooklyn,
Brooklyn, NY
022,04201,978024,02024,020(8,523)15,4972008-01-14
Hilton Garden Inn Tribeca,
Tribeca, NY
(45,450)21,077 42,95501,41721,07744,37265,449(13,462)51,9872009-05-01

107


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2020 (CONTINUED)
[IN THOUSANDS]
Initial CostsCosts Capitalized Subsequent to Acquisition (1)Gross Amounts at which Carried at Close of PeriodAccumulated DepreciationNet Book Value
DescriptionEncumbrancesLandBuildings & ImprovementsLandBuildings & ImprovementsLandBuildings & ImprovementsTotalBuildings & Improvements*Land, Buildings & ImprovementsDate of Acquisition
Hampton Inn Washington, D.C.,
Washington, DC
9,335 58,048 05,0419,33563,08972,424 (16,833)55,591 2010-09-01
The Capitol Hill Hotel
Washington, DC
(25,000)8,095 35,141 5,1488,09540,28948,384 (12,690)35,694 2011-04-15
Courtyard by Marriott Los Angeles Westside,
LA Westside, CA
(35,000)13,489 27,025 4,97213,48931,99745,486 (11,189)34,297 2011-05-19
Cadillac Hotel & Beach Club,
Miami, FL
35,700 55,805 44,39835,700100,203135,903 (26,819)109,084 2011-11-16
The Rittenhouse
Hotel, Philadelphia, PA
7,108 29,556 27,9427,10857,49864,606 (26,293)38,313 2012-03-01
The Boxer Boston,
Boston, MA
1,456 14,954 2,1531,45617,10718,563 (4,854)13,709 2012-05-07
Holiday Inn Express Chelsea,
Manhattan, NY
30,329 57,016 2,16030,32959,17689,505 (13,486)76,019 2012-06-18
Hyatt Union Square,
Union Square, NY
(56,000)32,940 79,300 4,17632,94083,476116,416 (17,736)98,680 2013-04-09
Courtyard by Marriott Downtown San Diego,
San Diego, CA
15,656 51,674 2,15215,65653,82669,482 (11,393)58,089 2013-05-30
Residence Inn Miami Coconut Grove,
Coconut Grove, FL
4,146 17,456 7,9124,14625,36829,514 (9,685)19,829 2013-06-12
The Hotel Milo,
Santa Barbara, CA
(21,693)55,080 4,960060,04060,040 (12,398)47,642 2014-02-28

108


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2020 (CONTINUED)
[IN THOUSANDS]
Initial CostsCosts Capitalized Subsequent to Acquisition (1)Gross Amounts at which Carried at Close of Period Accumulated DepreciationNet Book Value
DescriptionEncumbrancesLandBuildings & ImprovementsLandBuildings & ImprovementsLandBuildings & ImprovementsTotalBuildings & Improvements*Land, Buildings & ImprovementsDate of Acquisition
Hilton Garden Inn Manhattan Midtown East,
Midtown East, NY
(44,325)45,480 60,762 57745,48061,339106,819 (10,270)96,549 2014-05-27
Parrot Key Hotel & Villas,
Key West, FL
57,889 33,959 14,22457,88948,183106,072 (11,295)94,777 2014-05-07
The Winter Haven Hotel Miami Beach,
Miami Beach, FL
5,400 18,147 7075,40018,85424,254 (3,692)20,562 2013-12-20
The Blue Moon Hotel Miami Beach,
Miami Beach, FL
4,874 20,354 1,0394,87421,39326,267 (4,232)22,035 2013-12-20
The St. Gregory Hotel, Dupont Circle, Washington D.C.(22,138)23,764 33,005 7,52923,76440,53464,298 (8,237)56,061 2015-06-16
TownePlace Suites Sunnyvale, Sunnyvale, CA18,999 677019,67619,676 (2,919)16,757 2015-08-25
The Ritz-Carlton Georgetown, Washington D.C.17,825 29,584 4,11417,82533,69851,523 (5,214)46,309 2015-12-29
The Sanctuary Beach Resort, Marina, CA(14,207)20,278 17,319 6,88720,27824,20644,484 (5,166)39,318 2016-01-28
Hilton Garden Inn M Street, Washington D.C.30,793 67,420 24330,79367,66398,456 (8,193)90,263 2016-03-09
The Envoy Boston Seaport, Boston, MA25,264 75,979 3,92825,26479,907105,171 (9,747)95,424 2016-07-21
Courtyard by Marriott Sunnyvale, Sunnyvale, CA(40,451)17,694 53,272 8317,69453,35571,049 (5,611)65,438 2016-10-20
Mystic Marriott Hotel & Spa, Groton, CT1,420 40,440 9,8361,42050,27651,696 (7,342)44,354 2017-01-03
The Ritz-Carlton Coconut Grove, Coconut Grove, FL5,185 30,825 9,9865,18540,81145,996 (6,047)39,949 2017-02-01
The Pan Pacific Hotel Seattle, Seattle, WA13,079 59,255 72813,07959,98373,062 (5,783)67,279 2017-02-21
Philadelphia Westin, Philadelphia, PA19,154 103,406 4,69219,154108,098127,252 (9,706)117,546 2017-06-29
The Ambrose Hotel, Santa Monica, CA18,750 26,839 1,61118,75028,45047,200 (3,301)43,899 2016-12-01
Total Investment in Real Estate$(332,264)$516,478 $1,474,972 $$229,486 $516,478 $1,704,458 $2,220,936 $(396,016)$1,824,920 

109


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2020 (CONTINUED)
[IN THOUSANDS]

(1)Costs capitalized subsequent to acquisition include reductions of asset value due to impairment.    
*    Assets are depreciated over a 7 to 40 year life, upon which the latest income statement is computed.
The aggregate cost of land, buildings and improvements for Federal income tax purposes for the years ended December 31, 2020, 2019 and 2018 is approximately $1,633,467, $1,675,650 and $1,745,577, respectively.
Depreciation is computed for buildings and improvements using a useful life for these assets of 7 to 40 years.
See Accompanying Report of Independent Registered Public Accounting Firm
110


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF December 31, 2020 (CONTINUED)
[IN THOUSANDS]
202020192018
Reconciliation of Real Estate
Balance at beginning of year$2,228,864 $2,206,701 $2,159,282 
Additions during the year17,967 22,163 122,708 
Dispositions/Deconsolidation of consolidated joint venture during the year(25,895)(75,289)
Total Real Estate$2,220,936 $2,228,864 $2,206,701 
Reconciliation of Accumulated Depreciation
Balance at beginning of year$340,499 $277,580 $238,213 
Depreciation for year64,083 62,919 55,496 
Accumulated depreciation on assets sold(8,566)(16,129)
Balance at the end of year$396,016 $340,499 $277,580 

111


Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

Item 9A.    Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A control system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined within Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the processes designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the criteria contained in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on that evaluation, management has concluded that, as of December 31, 2020, the Company’s internal control over financial reporting was effective based on those criteria. The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their attestation report which is included herein.
112


Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees
Hersha Hospitality Trust:
Opinion on Internal Control Over Financial Reporting

We have audited Hersha Hospitality Trust and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated March 29, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Philadelphia, Pennsylvania
March 29, 2021

113


CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    Other Information
None
114


PART III
Item 10.    Trustees, Executive Officers and Corporate Governance
The required information is incorporated herein by reference from our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Annual Report on Form 10-K with respect to our 2021 Annual Meeting of Shareholders.

Item 11.    Executive Compensation
The required information is incorporated herein by reference from our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Annual Report on Form 10-K with respect to our 2021 Annual Meeting of Shareholders.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain of the required information is incorporated herein by reference from our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Annual Report on Form 10-K with respect to our 2021 Annual Meeting of Shareholders.
SECURITIES ISSUABLE PURSUANT TO EQUITY COMPENSATION PLANS
As of December 31, 2020, no options or warrants to acquire our securities pursuant to equity compensation plans were outstanding. The following table sets forth the number of securities to be issued upon exercise of outstanding options, warrants and rights; weighted average exercise price of outstanding options, warrants and rights; and the number of securities remaining available for future issuance under our equity compensation plans as of December 31, 2020:
Plan CategoryNumber of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans(1)
Equity compensation plans approved by security holders--1,198,024
Equity compensation plans not approved by security holders---
Total--1,198,024
(1)    Represents shares issuable under the Company’s 2012 Amended and Restated Equity Incentive Plan. On January 1, 2012, the Company’s 2008 Equity Incentive Plan (the “2008 EIP”) was terminated. Termination of the 2008 EIP does not impact awards issued under the 2008 EIP prior its termination.

Item 13.    Certain Relationships and Related Transactions, and Trustee Independence
The required information is incorporated herein by reference from our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Annual Report on Form 10-K with respect to our 2021 Annual Meeting of Shareholders.

Item 14.    Principal Accountant Fees and Services
The required information is incorporated herein by reference from our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Annual Report on Form 10-K with respect to our 2021 Annual Meeting of Shareholders.

115


PART IV
Item 15.    Exhibits and Financial Statement Schedules
(a)    Documents filed as part of this report.
1.    Financial Statements:
The following financial statements are included in this report on pages 57 to 108:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Equity and Comprehensive Income for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
2.    Financial Statement Schedules:
The following financial statement schedule is included in this report on pages 109 to 113: Schedule III - Real Estate and Accumulated Depreciation for the year ended December 31, 2020.
116


3.    Exhibits
The following exhibits listed are filed as a part of this report:
Exhibit No. 
3.1 
3.2 
4.1 
4.2 
4.3 
4.4 
4.5 
4.6 
4.7 
4.8 
4.9 
4.10 
4.11 
4.12 
4.13 
10.1 

117


Exhibit No. 
10.2 
10.3 
10.4 
10.5 
10.6 
10.7 
10.8 
10.9 
10.10 
10.11 
10.12 
10.13 
10.14 
10.15 
10.16 

118


10.19 
10.20 
10.21 
10.22 
10.23