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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, 2022
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
1


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.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).
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, 2022, was approximately $387.6 million.
As of February 23, 2023, the number of Class A common shares outstanding was 39,735,400 and there were no 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.

2


HERSHA HOSPITALITY TRUST
Table of Contents
Item No.Form 10-K
Page
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 9C.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.

3


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,” "could," "will," "would," "forecast," "project," "potential," "likely," and words of similar import. Such forward-looking statements relate to future events, our plans, strategies, prospects and future financial performance, and involve known and unknown risks that are difficult to predict, uncertainties and other factors 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 inflation and the change in interest rates;
the effects of COVID-19 and its variants and other infectious disease outbreaks;
the supply and demand factors in our markets or sub-markets, or a potential recessionary environment;
our access to capital on the terms and timing we expect;
the restoration of public confidence in domestic and international travel;
permanent structural changes in demand for conference centers by business and leisure clientele; and
our ability to dispose of selected hotel properties on the terms and timing we expect, if at all.

Forward-looking statements are based on our beliefs, assumptions and expectations, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Readers should not place undue reliance on forward-looking statements.
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.
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;
4


changes in our industry and the market in which we operate, interest rates, or the general economy;
decreased international travel because of geopolitical events, including terrorism, and current U.S. government policies, such as immigration policies, border closings, and travel bans related to COVID-19;
widespread adoption of teleconference and virtual meeting technologies could reduce the number of in person business meetings and demand for travel and our services;
uncertainty surrounding the financial stability of the United States, Europe and China;
the degree and nature of our competition;
financing risks, including (i) the risk of leverage and the corresponding risk of default on our mortgage loans and other debt, including default with respect to applicable covenants, (ii) potential inability to obtain waivers of covenants or refinance or extend the maturity of existing indebtedness and (iii) our ability to negotiate with lenders;
levels of spending in the business, travel and leisure industries, as well as consumer confidence;
declines in occupancy, average daily rate and RevPAR and other hotel operating metrics;
hostilities, including future terrorist attacks, or fear of hostilities that affect travel;
financial condition of, and our relationships with, our joint venture partners, third-party property managers, and franchisors;
increased interest rates and operating costs and the impact of inflation;
ability to complete development and redevelopment projects;
risks associated with potential dispositions of hotel properties;
availability of and our ability to retain qualified personnel;
decreases in tourism due to pandemics, geopolitical instability or changes in foreign exchange rates;
our failure to maintain our qualification as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the "Code";
environmental uncertainties and risks related to natural disasters and increases in costs to insure against those risks;
changes in real estate and zoning laws and increases in real property tax rates;
the uncertainty and economic impact of pandemics, epidemics, or other public health emergencies or fear of such events, 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, 2022 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.
5


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 California. Our primary strategy is to continue to own high quality luxury, upscale, and upper midscale 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.
We create value through our ability to source capital and identify high growth acquisition targets.  We seek acquisition candidates located in markets with economic, demographic and supply dynamics favorable to hotel owners and operators. Through our due diligence process, we select 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. To drive sustainable shareholder value, we also seek 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.
Our operations and strategy have evolved, and adapted to the ongoing effects of the COVID-19 pandemic. Due to the COVID-19 pandemic and the effects of travel restrictions and precautions both globally and in the United States, the hospitality industry experienced drastic drops in demand. As such, we have focused on operating efficiently at reduced occupancies, executing expense mitigation strategies, and shoring up liquidity through strategic capital raising and hotel dispositions to address our various debt obligations.
As of December 31, 2022, our portfolio consisted of 22 wholly-owned limited and full service properties with a total of 3,392 rooms, 1 hotel owned through a consolidated joint venture with a total of 115 rooms, and interests in 2 limited service properties owned through joint venture investments with a total of 304 rooms. These 25 properties, with a total of 3,811 rooms, are located in California, Connecticut, District of Columbia, Florida, Maryland, Massachusetts, New York, and Pennsylvania, and operate under leading brands owned by Marriott International, Inc. (“Marriott”), Hilton Worldwide, Inc. (“Hilton”), InterContinental Hotels Group (“IHG”), and Hyatt Corporation (“Hyatt”). In addition, some of our hotels operate as independent hotels.
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, 2022, we owned an approximate 85.1% 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 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
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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

Our operating strategy focuses on increasing hotel performance for our portfolio. The key elements of this strategy are:
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.
ACQUISITIONS
When acquisitions are within our operating strategy, we selectively acquire high quality branded luxury, upper-upscale, upscale, and upper-midscale hotels in metropolitan and resort 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 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.
We acquired no hotel properties in the year ended December 31, 2022 and 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 completed several hotel dispositions to enhance our liquidity to address our various debt obligations and limit capital expenditures. During the year ended December 31, 2020, we disposed of the
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Sheraton Wilmington. During the year ended December 31, 2021, we sold the Residence Inn Coconut Grove, the Courtyard San Diego, the Capitol Hill Hotel, the Holiday Inn Express Cambridge Hotel and the Duane Street Hotel. During the year ended December 31, 2022, we sold the Courtyard Brookline, the Hampton Inn Washington, DC, the Hilton Garden Inn M Street Washington, DC, the Hampton Inn - Philadelphia, the TownePlace Suites Sunnyvale, the Courtyard Sunnyvale, the Courtyard Los Angeles Westside, Hotel Milo Santa Barabara, Pan Pacific Seattle, and the Gate hotel JFK Airport.

For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” 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 credit facilities, term loans, mortgage debt on certain hotel properties, and subordinated notes payable. We may use 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. When purchasing hotel properties, we may issue common and preferred limited partnership interests in our operating partnership as full or partial consideration to sellers.
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 hospitality 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 2021 and 2022, Hersha ranked first among U.S. lodging peers in the Global Real Estate Sustainability Benchmark (GRESB) Public Disclosure. 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 in 2021, 2022, and 2023 by Newsweek.

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-related Financial Disclosures (TCFD).

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:
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FranchisorFranchises
Marriott InternationalRitz-Carlton, Marriott, Westin, Courtyard by Marriott, Autograph Collection
Hilton Hotels CorporationHilton Garden Inn, Hampton Inn
Hyatt Hotels CorporationHyatt, Hyatt House
IHGHoliday Inn Express
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 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 3.8% and 9.5% 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, 2022:
Wholly OwnedJoint VenturesTotal
ManagerHotelsRoomsHotelsRoomsHotelsRooms
Hersha Hospitality Management, L.P.21 3,306 — — 21 3,306 
South Bay Boston Management, Inc.— — 304 304 
Marriott Management86 115 201 
Total22 3,392 419 25 3,811 

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. 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. As hotels are renovated, we may incorporate certain energy and water efficient improvements as part of our EarthView initiatives discussed above. We maintain a capital expenditures policy by which replacements and renovations are monitored to determine whether they qualify as capital improvements.

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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 quarterly operating revenues, profitability, and cash flow.
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. We believe that hotels, such as our hotels, that are affiliated with leading national brand families, such as Marriott, Hilton, Hyatt, or IHG, 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, 2022, we had 27 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:
33% of our workforce is women
30% of our workforce identifies as a member of a minority group
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22% of our workforce is under the age of 30, while 56% of our workforce is between the ages of 30 and 50
In 2017, our CEO signed the CEO Action for Diversity and Inclusion Pledge, joining others across all industries, and furthering our commitment to these essential principles in the workplace and boardroom.
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.
Our efforts have been consistently recognized, with the Company being named in Newsweek's list of America's Most Responsible Companies in 2021, 2022, and 2023.

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.
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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.
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.
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 interest expense as a result of the phase out of LIBOR.

RISKS RELATED TO THE HOTEL INDUSTRY
Our hotels are subject to general hotel industry operating risks.
Our hotels are geographically concentrated in a limited number of markets.
Difficult economic conditions may continue to adversely affect the hotel industry.
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.
The growing use of non-franchisor lodging distribution channels could adversely affect the business and profitability.
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.

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RISKS RELATED TO OUR BUSINESS AND OPERATIONS
Noncompliance with environmental laws and regulations could result in fines and liabilities which could adversely affect operating results.
Costs of compliance with or liabilities under environmental laws could significantly reduce our profitability.
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.
The impact of the Russian invasion of Ukraine on the global economy is uncertain.
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.
Inflation and price volatility in the global economy could negatively impact our business and results of operations.
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.
Labor shortages and increased employee-related costs may impact operating results.

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
Certain 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.

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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.
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.


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 deteriorated, and (ii) we experienced a period of economic weakness. However, we have subsequently experienced consistent signs of improvement in the Company’s occupancy rates, revenues and profitability. Other macroeconomic factors, such as consumer confidence and conditions which negatively shape public perception of travel, may 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, at the onset of the COVID-19 pandemic, business and leisure travelers reduced travel costs by limiting travel or seeking to reduce costs on their trips. In the event of a resurgence of COVID-19 or other change in economic conditions, these travelers may continue to reduce their travel costs by limiting travel or seeking price reductions. In addition, profitability may 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
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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 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, or FCA, which regulates LIBOR, announced that all LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023. As of December 31, 2021, the IBA ceased publication of most non-USD LIBOR settings. IBA also previously announced its intention to cease publication of remaining U.S. dollar LIBOR ("USD LIBOR") settings immediately after June 30, 2023; however, in November 2022 the U.K. Financial Conduct Authority, which regulates IBA, announced a public consultation regarding whether it should compel IBA to continue publishing “synthetic” USD LIBOR settings from June 2023 to the end of September 2024. Further, on March 15, 2022, the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act, or LIBOR Act, was signed into law in the U.S. This legislation establishes a uniform benchmark replacement process for financial contracts maturing after June 30, 2023 that do not contain clearly defined or practicable fallback provisions. Under the LIBOR Act, such contracts will automatically transition as a matter of law to a Secured Overnight Financing Rate, or SOFR, based replacement rate identified by the Board of Governors of the Federal Reserve System, or Federal Reserve. The legislation also creates a safe harbor that shields lenders from litigation if they choose to utilize a replacement rate recommended by the Federal Reserve. In July 2022, the Federal Reserve issued a notice of proposed rulemaking implementing the LIBOR Act. As of December 31, 2022, no regulations have been promulgated. The Federal Reserve, in conjunction with the Alternative Reference Rates Committee, or ARRC, a steering committee composed of large U.S. financial institutions, identified SOFR, a new index calculated using short-term repurchase agreements backed by Treasury securities, as its preferred alternative rate for USD LIBOR. According to the ARRC, data from the cash and derivatives markets show continued momentum in the transition from LIBOR to SOFR, and SOFR is currently predominant across cash and derivatives markets. The FCA's announcement coincides with the March 5, 2021, announcement of LIBOR's administrator, the ICE Benchmark Administration Limited, or 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, 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 and assets that mature beyond June 30, 2023 need to be converted to alternative interest rates. In addition, any of our new borrowings after December 31, 2021, will be and have been done at alternative rates.
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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. When 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 results.

US regulators and the ARRC have recommended that all LIBOR-based instruments include robust fallback language dictating what rate will apply when LIBOR ends. The fallbacks recommended by the ARRC are different for various non-derivative instruments, and not all USD-LIBOR-based instruments will incorporate the recommended fallbacks. The International Swaps and Derivatives Association (“ISDA”) has implemented fallback language and a protocol that will ensure USD-LIBOR-based derivatives amongst protocol participants fallback to compounded SOFR. However, the variations in fallback language in different financial instruments and the adoption of different replacement rates or methodologies in such fallback language could result in unexpected differences between our USD-LIBOR-based assets and our USD-LIBOR-based interest rate hedges. In addition, we may incur costs amending instruments not covered by the ISDA protocol or by clearinghouse rulebooks to implement fallbacks recommended by the ARRC. We may also decide not to amend, in which case we may bear the cost and risk of litigation. Some instruments, particularly consumer-facing adjustable-rate mortgages, are impractical to amend. With respect to those instruments, we may bear the cost and risk of litigation. Our lenders may be less willing to extend credit secured by assets that do not include robust fallbacks.

It is expected that switching existing financial instruments and hedging transactions from LIBOR to SOFR will include a spread adjustment. ISDA has described the spread calculation methodology that will apply to derivatives that adopt the ISDA recommendations for derivatives, and the ARRC has recommended the same methodology for all non-consumer financial instruments. The adjustment calculation is intended to minimize value transfer between counterparties, borrowers, and lenders, but there is no assurance that the calculated spread adjustment will be fair and accurate or that it will not result in higher interest costs.

We and other market participants have less experience understanding and modeling SOFR-based assets and liabilities than LIBOR-based assets and liabilities, increasing the difficulty of investing, hedging, and risk management. Because the impact of USD-LIBOR cessation is dependent on unknown future facts, the language of individual contracts, and the outcome of potential future litigation, it is not currently practical for our valuation models to account for the cessation of LIBOR. We use service providers to validate the fair values of certain financial instruments. We are not aware of those service providers accounting for the cessation of LIBOR in their pricing models.

The process of transition involves operational risks. References to USD-LIBOR may be embedded in computer code or models, and we may not identify and correct all of those references. Because compounded SOFR is backward-looking rather than forward-looking, parties making or receiving USD-LIBOR-based payments may be unable to calculate payment amounts until the day that payment is due. Proposed mechanisms to solve the operational timing issue may result in a payment amount that does not fully reflect interest rates during the calculation period.

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, labor shortages 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, or increase operating expenses of our hotels, which has adversely affected, and may continue to adversely affect, our ability to make distributions to our shareholders.

Our hotels are geographically concentrated in a limited number of markets and, accordingly, we could be disproportionately harmed by adverse changes to these markets, natural disasters, climate change and related regulations, or terrorist attacks.
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A significant portion of our room count is located in a concentrated number of markets that exposes us to greater risk to local economic or business conditions, changes in hotel supply in these markets, and other conditions than more geographically diversified hotel companies. An economic downturn, an increase in hotel supply, a force majeure event, a natural disaster, changing weather patterns and other physical effects of climate change (including supply chain disruptions), a terrorist attack or similar event in any one of these markets likely would cause a decline in the hotel market and adversely affect occupancy rates, the financial performance of our hotels in these markets and our overall results of operations, which could be material, and could significantly increase our costs.

Over time, our hotel properties located in coastal markets and other areas that may be impacted by climate change are expected to experience increases in storm intensity and rising sea-levels causing damage to our hotel properties, while hotels in other markets may experience prolonged variations in temperature or precipitation that may limit access to the water needed to operate our hotel properties, increasing operating costs at our hotels, such as the cost of water or energy, and requiring us to expend funds as we seek to repair and protect our hotels against such risks. The effects of climate change may also affect our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable in areas most vulnerable to such events. There can be no assurance that climate change will not have a material adverse effect on our hotels, operations or business.

Difficult economic conditions may continue to adversely affect the hotel industry.

Our financial performance is subject to global and regional economic conditions and their impact on levels of discretionary business and consumer spending. Some of the factors that have an impact on discretionary spending include general economic conditions, GDP growth, worldwide or regional recession, corporate earnings and investment, unemployment, consumer debt, reductions in net worth, taxation, inflation, energy prices, interest rates, consumer confidence, tariffs, and other macroeconomic factors. Downturns in worldwide or regional economic conditions, such as fluctuation in interest rates, have led to a general decrease in transient business, group business, leisure travel and travel spending, and similar downturns in the future may materially adversely impact demand for our hotels and resorts. A continuing shift in consumer behavior would materially adversely affect our business, results of operations, and financial condition.

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.

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

Our primary business strategy is to continue to acquire high quality, upper-upscale, and upscale limited service in metropolitan markets with high barriers to entry including New York, Washington DC, Boston, Philadelphia, South Florida, and California, 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.

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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 U.S. generally accepted accounting principles ("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, third quarter, and fourth quarters than in the first quarter. 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 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
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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.

The growing use of non-franchisor lodging distribution channels could adversely affect the Company's business and profitability.

Although a majority of rooms sold are sold through the hotel franchisors' distribution channels, a growing number of the Company's hotel rooms are sold through other channels or intermediaries. Rooms sold through non-franchisors' channels are generally less profitable (after associated fees) than rooms sold through franchisors' channels. Although the Company's franchisors may have established agreements with many of these alternative channels or intermediaries that limit transaction fees for hotels, there can be no assurance that the Company's franchisors will be able to renegotiate such agreements upon their expiration with terms as favorable as the provisions that exist today. Moreover, alternative channels or intermediaries may employ aggressive marketing strategies, including expending significant resources for online and television advertising campaigns to drive consumers to their websites. As a result, consumers may develop brand loyalties to the intermediaries' offered brands, websites and reservations systems rather than to those of the Company's franchisors. If this happens, the Company's business and profitability may 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 adverse effects on our financial condition, results of operations, cash flows and performance. 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 had a severe and negative impact on both the U.S. economy and the global economy. Financial markets experienced significant volatility during 2020, 2021, and 2022 which may continue over upcoming quarters. Globally and throughout the United States, federal, state, and local governments 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 had a severe impact on the U.S. lodging industry. Many of our hotels suspended operations while others operated 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 certain of our hotels while our remaining hotels operated in a significantly reduced capacity. All of our hotels were reopened or disposed of by the end of the second quarter of 2021; however, future significant decreases in demand may lead to future closings.

The following factors should be considered because the COVID-19 pandemic significantly adversely affected the ability of our hotel managers to successfully operate our hotels and had a significant adverse effect on our financial condition, results of operations and cash flows due to, among other factors:
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a complete suspension or significant reduction of operations at many of our properties, including our largest concentration of properties in New York City, which was disproportionately adversely affected by COVID-19;
a variety of factors related to the coronavirus caused 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 be in the future, 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;
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 when temporary restrictions are not in place;
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 one mortgage;
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, previously caused the indefinite suspension of dividends and could impact our ability to pay dividends to our stockholders at expected levels in the future.

An outbreak of another disease or similar public health threat, similar to the COVID-19 pandemic, 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.

RISKS RELATED TO OUR BUSINESS AND OPERATIONS

Noncompliance with environmental laws and regulations could subject us to fines and liabilities which could adversely
affect our operating results.

Our hotel properties are subject to various federal, state and local environmental laws. Under these laws, courts and
government agencies have the authority to require us, as an owner of a contaminated property, to clean up the property, even if we did not know of or were not responsible for the contamination. These laws also apply to persons who owned a property at the time it became contaminated, and therefore it is possible we could incur cleanup costs even after we sell some of the properties we acquire. In addition to cleanup costs, environmental contamination can affect the value of a property and, therefore, an owner's ability to borrow funds using the property as collateral or to sell the property. Under
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environmental laws, courts and government agencies also have the authority to require that a person who sent waste to a waste disposal facility, such as a landfill or an incinerator, pay for the clean-up of that facility if it becomes contaminated and threatens human health or the environment. A person that arranges for the disposal or transports for disposal or treatment of a hazardous substance at a property owned by another may be liable for the costs of removal or remediation of hazardous substances released into the environment at that property.

Furthermore, various court decisions have established that third parties may recover damages for injury caused by
property contamination. For instance, a person exposed to asbestos while staying in a hotel may seek to recover damages if they suffer injury from the asbestos. Also, some of these environmental laws restrict the use of a property or place conditions on various activities. An example would be laws requiring a business to use chemicals (such as swimming pool chemicals at a hotel property) to manage them carefully and notify local officials that the chemicals are being used.

We could be responsible for any of the costs discussed above. The costs to clean up a contaminated property, to defend
against a claim, or to comply with environmental laws could be material and could adversely affect our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders. As a result, we may become subject to material environmental liabilities. We can make no assurances that future laws or regulations will not impose material environmental liabilities or that the current environmental condition of our hotel properties will not be affected by the condition of the properties in the vicinity of our hotel properties (such as the presence of leaking underground storage tanks) or by third parties unrelated to us.

The costs of compliance with or liabilities under environmental laws could significantly reduce our profitability.

Operating expenses at our hotels could be higher than anticipated due to the cost of complying with existing or future environmental laws and regulations. In addition, an owner of real property can face liability for environmental contamination created by the presence or discharge of hazardous substances on the property. We may face liability regardless of: our lack of knowledge of the contamination; the timing of the contamination; the cause of the contamination; or the party responsible for the contamination of the property. Environmental laws also impose ongoing compliance requirements on owners and operators of real property. Environmental laws potentially affecting us address a wide variety of matters, including, but not limited to, asbestos-containing building materials ("ACBMs"), storage tanks, storm water and wastewater discharges, lead-based paint, mold/mildew and hazardous wastes. Failure to comply with these laws could result in fines and penalties and/or expose us to third-party liability. Some of our properties may have conditions that are subject to these requirements, and we could be liable for such fines or penalties and/or liable to third parties. Certain hotel properties we own or may own in the future may contain, or may have contained, ACBMs. Environmental laws require that ACBMs be properly managed and maintained and may impose fines and penalties on building owners and operators for failure to comply with these requirements. Also, certain properties may be adjacent or near other properties that have contained or currently contain storage tanks for the storage of petroleum products or other hazardous or toxic substances. These operations create a potential for the release of petroleum products or other hazardous or toxic substances. Third parties may be permitted by law to seek recovery from owners or operators for property damage and/or personal injury associated with exposure to contaminants, including, but not limited to, petroleum products, hazardous or toxic substances and asbestos fibers. Material environmental conditions, liabilities or compliance concerns may arise after the future laws, ordinances or regulations may impose material additional environmental liability. We cannot assure you that costs of future environmental compliance will not affect our ability to make distributions to our shareholders or that such costs or other remedial measures will not be material to us. The presence of hazardous substances on a property may limit our ability to sell the property on favorable terms or at all, and we may incur substantial remediation costs. The discovery of material environmental liabilities at our properties could subject us to unanticipated significant costs, which could significantly reduce our profitability and the cash available for distribution to our shareholders.

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

At December 31, 2022, we had outstanding debt of approximately $633,281. 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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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. 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.

Additionally, our 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 (even at unfavorable prices), 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. Although we currently believe that we have effective internal controls, 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 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.

The impact of the Russian invasion of Ukraine on the global economy is uncertain, but may prove to negatively impact our business and operations.

While the Company does not have any material business, operations or assets in Russia, Belarus or Ukraine, and has not been materially impacted by the actions of the Russian government at this time, the short and long-term implications of Russia's invasion of Ukraine are difficult to predict. We continue to monitor any adverse impact that the outbreak of war in Ukraine and the subsequent institution of sanctions against Russia by the United States and several European and Asian countries may have on the global economy in general, on our business and operations and on the businesses and operations of our suppliers and customers. To the extent the war in Ukraine may adversely affect our business, it may also have the
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effect of heightening many of the other risks described herein, such as those relating to information technology and market conditions, any of which could negatively affect our business and financial condition.

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, 2022, 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 may be and in some cases in the past have been 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.
[
As of December 31, 2022, New York City continues to be significantly adversely impacted by the COVID-19 pandemic disproportionately compared to other cities in the U.S. and across the globe. 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, 2022, our portfolio consisted of 22 wholly-owned limited and full service properties with a total of 3,811 rooms, 1 hotel owned through a consolidated joint venture with a total of 115 rooms, and interests in 2 limited service properties owned through joint venture investments with a total of 304 rooms. However, certain larger hotels or hotels in certain locations disproportionately impact our performance. Accordingly, significant adverse changes in the operations of
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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.

Inflation and price volatility in the global economy could negatively impact our business and results of operations.

General inflation in the United States has risen to levels not experienced in recent decades, including rising energy prices, prices for consumer goods, interest rates, wages, and currency volatility and downgrades by rating agencies to the U.S. government's credit rating or concerns about its credit and deficit levels in general, could cause interest rates and borrowing costs to rise. These increases and any fiscal or other policy interventions by the U.S. government in reaction to such events could negatively impact our business by increasing our operating costs and our borrowing costs as well as decreasing the capital. Although we have the ability to pass on these increased costs associated with providing services by adjusting room rates, the cost to operate and maintain the hotel properties could increase faster or at a rate greater than our ability to increase room rates, which could adversely affect our results of operations. Additionally, the U.S. government's credit and deficit concerns, the European sovereign debt crisis, and the potential trade war with China, could cause interest rates to be volatile, which may negatively impact our ability to access the debt markets on favorable terms.

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, 2022, 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
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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;
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. Some of our hotel managers carry cyber insurance policies to protect and offset a portion of potential costs incurred from a security breach. Additionally, we currently have cyber insurance policies to provide supplemental coverage. Despite various precautionary steps to protect our hotels from losses resulting from cyber-attacks, any cyber-attack occurrence could still result in losses at our properties, which could affect our results of operations. We are not aware of any cyber incidents that we believe to be material or that 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. In addition, existing and future environmental regulations may require significant capital expenditures beyond our planned capital expenditures in order to comply with regulations enacted to address climate change.
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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.

We could experience significant increases to our operating costs or decreases in operating revenues due to labor shortages and increased employee-related costs.

The Company has experienced and may continue to experience increased operating costs due to increased labor costs. A number of factors contribute to increased labor costs, which may continue, such as a shortage of hospitality workers, increased dependence on contract workers, the loss of unvaccinated employees in jurisdictions requiring vaccination, federal unemployment subsidies, including unemployment benefits offered in response to the COVID-19 pandemic, and other government regulations, which include laws and regulations related to workers’ health and safety. These labor shortages have become more pronounced as a result of the COVID-19 pandemic. Further, increased turnover rates within the employee base at the hotels and in our corporate offices can lead to decreased efficiency and increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees. Significant labor shortages could prohibit us from operating at our hotels at full capacity which would result in a decrease in operating revenues. Labor cost increases may continue in the future and, as a result, our profitability could decline.

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.
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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 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 11% of HHMLP: 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
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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.

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, 2022, 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
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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. 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.

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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.

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
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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 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 a publicly offered REIT, as long as at least 20% 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). This threshold has been temporarily reduced in the past and may be reduced in the future by IRS guidance. 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.

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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.

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.

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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.

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 22 hotels we wholly-owned and 1 hotel owned within our consolidated joint venture as of December 31, 2022, 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 
Mystic Marriott Hotel & SpaGroton, CT2001285 
    
California The Ambrose Hotel, Santa MonicaSanta Monica, CA201577 
The Sanctuary Beach ResortMonterey Bay, CA201460 
    
NYC UrbanHyatt Union SquareUnion Square, New York, NY2013178 
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 
Nu Hotel, BrooklynBrooklyn, New York, NY200893 
NY-NJ MetroHyatt House White PlainsWhite Plains, NY2000187 
PhiladelphiaThe Rittenhouse HotelPhiladelphia, PA2004118 
Philadelphia WestinPhiladelphia, PA1990294 
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 
Parrot Key Hotel & VillasKey West, FL2013148 
Washington D.C.The Ritz-Carlton, GeorgetownGeorgetown, DC201486 
The St. Gregory Hotel, Dupont CircleWashington, DC2014156 
Annapolis Waterfront HotelAnnapolis, MD (1)1968150 
TOTAL ROOMS3,507 
(1) Our interests in these hotels are subject to ground leases which require monthly rental payment as determined by the applicable ground lease agreement. The Hilton Garden Inn JFK and Annapolis Waterfront Hotel ground lease agreements have initial terms of 99 and 50 years, including extension options, respectively, and have remaining lease terms of 78 and 42 years, respectively.
The following table sets forth certain information with respect to the 2 hotels we owned through unconsolidated joint ventures with third parties as of December 31, 2022.
MarketNameLocationYear OpenedNumber of RoomsHHLP Ownership
in Asset
BostonHoliday Inn ExpressSouth Boston, MA (1)1998174 50 %
Home2 SuitesSouth Boston, MA (1)2020130 50 %
TOTAL ROOMS304 
(1) The joint ventures interests in these hotels are subject to ground leases which require monthly rental payment as determined by the applicable ground lease agreements. The Holiday Inn Express South Boston and Home2 Suites South Boston ground lease agreements both have an initial term of 90 years, including extension options. The Holiday Inn Express South Boston has a remaining lease term of 69 years and the Home2 Suites South Boston has a remaining lease term of 88 years.
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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, 2022 we had approximately 153 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 28 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.    

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 Statements and Notes thereto. This section includes discussion of financial information as of and for the year ended December 31, 2022 and provides comparisons to the same information as of and for the year ended December 31, 2021. Comparisons of 2021 financial information to the same information for 2020 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, 2021 as filed with the Securities and Exchange Commission on February 24, 2022.
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, 2022, we owned interests in 25 hotels in major urban gateway markets including New York, Washington DC, Boston, Philadelphia, and Miami, as well as Santa Monica, Monterey Bay, and Key West. Our portfolio consists of 22 wholly-owned hotels, 1 hotel through our interest in a consolidated joint venture, and interests in 2 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, 2022, 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
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. We have remained focused on executing expense mitigation measures and shoring up our liquidity position as we continue to face a challenging operating environment. In February 2021, the Company entered into an unsecured notes facility that provided net proceeds of $144.8 million at closing. The initial net proceeds of $144.8 million provided by this facility, along with a portion of the proceeds from asset sales, were used to repay amounts outstanding under our credit agreements, allowing us to amend our credit agreements on February 17, 2021, eliminating maturities under the credit agreements until August of 2022. On August 4, 2022, we entered into a new credit agreement which provided for a secured term loan of $400.0 million and revolving line of credit with capacity of $100,000. The proceeds from the $400.0 million term loan were used to pay off and terminate the previous credit agreement. Also on August 4, 2022, using a portion of the proceeds from hotel dispositions discussed below, we paid off the unsecured notes facility, payable at a redemption price of 104%.
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.
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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, 2022, and 2021. 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, 2022, there are 23 comparable consolidated hotels.

For the comparison of December 31, 2022 to December 31, 2021, comparable hotel operating results contain results from our consolidated hotels owned as of December 31, 2022, excluding the results of all hotels sold during the years ended December 31, 2022 and 2021.

COMPARABLE CONSOLIDATED HOTELS:
(Includes 23 hotels in both years)
Year Ended December 31, 2022Year Ended December 31, 2021
2022 vs. 2021 Change
(dollars in thousands except ADR and RevPAR)
Occupancy68.7 %57.6 %1,111 bps
Average Daily Rate (ADR)$295.65 $242.62 21.9%
Revenue Per Available Room (RevPAR)$203.24 $139.82 45.4%
Room Revenues$260,152 $178,982 45.4%
Hotel Operating Revenues$339,837 $229,247 48.2%
Overall, our comparable hotel portfolio experienced meaningful recovery in 2022 from the significant disruptions in 2021 and 2020 as a result of the COVID-19 pandemic. This increase in demand across the entire hotel industry resulted in 2022 operating results far above 2021. RevPAR for the year ended December 31, 2022 increased 45.4% for our comparable consolidated hotels when compared to 2021.
Comparison of the Year Ended December 31, 2022 to December 31, 2021
(dollars in thousands)
Revenue
Our total revenues for the years ended December 31, 2022 and 2021 consisted of hotel operating revenues and other revenue. Hotel operating revenues are recorded for wholly-owned hotels that are leased to our wholly owned TRS and one hotel owned through a joint venture that is consolidated in our financial statements. Hotel operating revenues increased $109,679, or 37.1%, to $405,545 for the year ended December 31, 2022 compared to $295,866 for the same period in 2021. This increase is attributable to an increase in RevPAR across our portfolio in 2022 as compared to 2021 as our hotels continue to recover from the decrease in demand caused by the COVID-19 pandemic. The increase in demand is partially offset by a reduction in hotel operating revenue attributable to the sale of ten hotels during the year ended December 31, 2022 and the sale of five hotels during the year ended December 31, 2021.
Expenses

Total hotel operating expenses were $237,221 for the year ended December 31, 2022 compared to $178,156 for the year ended December 31, 2021. The increase in hotel operating expenses is due to increased operations at our hotels for the year ended December 31, 2022 as a result of the increase in demand as the markets in which we have operations continue to
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recover from the decrease in demand caused by the COVID-19 pandemic. This increase in hotel operating expense is partially offset by a reduction of hotel operating expenses of $4,525 as a result of the sale of hotels noted above.
Real estate and personal property tax and property insurance decreased $6,155, or 16.7%, for the year ended December 31, 2022 when compared to 2021. Real estate and personal property taxes decreased $5,710, which is primarily due to the sale of hotels noted above, as well as a decrease in real estate tax assessments, specifically in the New York City market. In general, our property insurance costs continue to rise annually, which was partially offset by a reduction in expense due to the dispositions noted above.
Depreciation and amortization decreased by 22.0%, or $18,343, to $64,966 for the year ended December 31, 2022 from $83,309 for the year ended December 31, 2021. The decrease in depreciation and amortization is primarily as a result of the 2022 and 2021 hotel dispositions noted above, as well as assets that fully depreciated during 2021.
General and administrative expense increased by $3,450 to $26,477 for the year ended December 31, 2022 from $23,027 for the year ended December 31, 2021.  General and administrative expense includes expenses related to payroll, rents, and other corporate level administrative costs as well as non-cash share based payments issued as compensation to the Company’s trustees, executives, and employees. Expenses related to non-cash share based compensation increased $2,351 when comparing the year ended December 31, 2022 to 2021. This increase resulted primarily from an increase in the valuation of certain market based award programs and a difference in the timing of share based compensation recognition.  Please refer to “Note 9 – Share Based Payments” of the notes to the consolidated financial statements for more information about our stock based compensation.
Loss on Impairment of Assets
During the year ended December 31, 2022, the Company determined that the carrying value of the Gate hotel JFK Airport exceeded the anticipated net proceeds from sale, resulting in a $10,113 loss on impairment of assets recorded during the year ended December 31, 2022. During the year ended December 31, 2021, we incurred an impairment charge of $222 which primarily relates to an impairment charge incurred prior to the disposition of the Duane Street hotel during the year ended December 31, 2021.
Insurance Recoveries in Excess of Property Loss
During the year ended December 31, 2022, the Company recorded a gain from insurance recoveries in the amount of $933 compared to a gain from insurance recoveries of $711 during the comparable period in 2021. During the year ended December 31, 2022, the Company received net proceeds of $958 related to property damage incurred for a 2021 claim at our Hampton Inn Philadelphia hotel. During the year ended December 31, 2021, we received net proceeds of $961 from COVID-19 business interruption claims, which was partially offset by a $250 deductible at our Hampton Inn Philadelphia hotel.
Operating Income (Loss)
Operating income for the year ended December 31, 2022 was $33,045, which is an improvement of $62,637 compared to operating loss of $29,592 during the same period in 2021. The change in operating income (loss) is primarily due to an increase in demand during the year ended December 31, 2022 as compared to the same period in 2021. Increases in hotel operating revenues during the period outpaced increases in hotel operating expense, contributing to improvement in operating margins, as the markets in which we operate continued to recover from the decrease in demand caused by the COVID-19 pandemic.
Interest Income
Interest income increased $1,501 from $15 for the year ended December 31, 2021 to $1,516 for the year ended December 31, 2022. The increase in interest income is primarily driven by an increase in cash and cash equivalents as a result of the hotel dispositions noted above, and a corresponding increase in interest rates on the interest income earned on cash and cash equivalents.
Interest Expense
Interest expense decreased $7,636 from $56,059 for the year ended December 31, 2021 to $48,423 for the year ended December 31, 2022. The balance of our borrowings, excluding discounts and deferred costs, have decreased by $496,749 in total between December 31, 2021 and December 31, 2022. The decrease in interest expense is primarily driven by the pay down of the amount drawn under the prior Line of Credit of $118,684 on August 4, 2022, the decrease in the principal term loan balance of $97,481 after the credit refinancing on August 4, 2022, and the pay off of the Junior Notes on August 4, 2022 which had a principal balance of $158,094.
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Gain on Disposition of Hotel Properties
During the year ended December 31, 2022, we closed on the sale of the seven urban select service hotels, Hotel Milo Santa Barbara, and the Pan Pacific hotel, resulting in gains of $197,505 for the year ended December 31, 2022. During the year ended December 31, 2021, the Company sold the Residence Inn Coconut Grove, the Courtyard San Diego, the Capitol Hill Hotel, the Holiday Inn Express Cambridge Hotel and the Duane Street Hotel. The sale of these hotels, excluding the Duane Street Hotel, resulted in gains totaling $48,352 for the year ended December 31, 2021.
Loss on Debt Extinguishment
During the year ended December 31, 2022, we incurred a loss on debt extinguishment of $18,049. This consists primarily of $13,726 of debt extinguishment losses upon redemption of the Junior Notes on August 4, 2022, and $4,302 of debt modification and extinguishment losses as a result of refinancing our credit facilities on August 4, 2022. During the year ended December 31, 2021, we incurred a loss on debt extinguishment of $3,069, which is primarily related to the February 2021 amendments to the prior credit facilities.
Unconsolidated Joint Venture Investments
The loss from unconsolidated joint ventures consists of our interest in the operating results of the properties we own in joint ventures. Loss from our unconsolidated joint ventures decreased by $2,239 to a loss of $53 for the year ended December 31, 2022 compared to loss of $2,292 during the same period in 2021. This reduction in losses relates to the net operating losses of our joint venture properties for the year ended December 31, 2022 compared to 2021. In addition, on November 30, 2022, we sold our membership interest in the Hiren Boston, LLC joint venture, and recognized a gain of $5,167 as the net proceeds exceeded our investment in the joint venture.
Income Tax Expense
During the year ended December 31, 2022, the Company recorded income tax expense of $4,800 compared to income tax expense of $838 for the year ended December 31, 2021.  The increase is primarily driven by state income tax incurred as a result of gains on hotel dispositions recognized for the year ended December 31, 2022.
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, 2022, it is not more likely than not that we will be able to realize our net deferred tax asset and therefore, maintained the full valuation allowance that was established during the second quarter of 2020. As a result, the balance of our net deferred tax asset at December 31, 2022 is $0. 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 Income (Loss) Applicable to Common Shareholders
Net income applicable to common shareholders for the year ended December 31, 2022 was $122,548 compared to a net loss of $63,005 during the same period in 2021.  This improvement is primarily related to an increase in gain on hotel dispositions of $149,153, as well as an improvement in operating income of $62,637, partially offset by an increase in loss on debt extinguishment of $14,980.
Comprehensive Income (Loss) Applicable to Common Shareholders
Comprehensive income applicable to common shareholders for the year ended December 31, 2022 was $144,972 compared to comprehensive loss of $47,819 for the same period in 2021. This change can be attributed to the items affecting Net Loss Applicable to Common Shareholders as more fully described above, as well as an increase in Other Comprehensive Income of $8,531 which is driven by an increase in the change of the fair value of our derivative instruments.
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
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market conditions for REITs and market perceptions related to the Company’s ability to generate cash flow and positive returns on its investments.
In addition, our mortgage indebtedness contains various financial and non-financial covenants customarily found in secured, nonrecourse financing arrangements. If the specified criteria are not satisfied, the lender may be able to escrow cash flow generated by the property securing the applicable mortgage loan. Future deterioration in market conditions could cause restrictions in our access to the cash flow of additional properties.
In addition to the incurrence of debt and the offering of equity securities, dispositions of property may serve as additional capital resources and sources of liquidity. We may recycle capital from stabilized assets or from sales of 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.

Junior Unsecured Notes Facility
In February 2021, the Company entered into a junior unsecured notes facility (“Junior Notes”) that provided net proceeds of $144,750 at closing. The Junior Notes bore interest at a rate of 9.50%, of which half, or 4.75%, was paid in cash through March 31, 2022, with the remaining half added to the principal of the note through March 31, 2022. During the three months ended June 30, 2022, interest at a rate of 9.50% was paid in cash. The original maturity date under the Junior Notes was February of 2026 and the notes were non-callable through February 2022. The Junior Notes were callable at 104% beginning February of 2022.

On August 4, 2022, using the proceeds from the disposition of the Courtyard Brookline, MA; the Hampton Inn Washington, DC; Hilton Garden Inn M Street, Washington, DC; Hampton Inn Philadelphia, PA; TownePlace Suites Sunnyvale, CA and the Courtyard Los Angeles Westside, CA, we paid off the Junior Notes at a redemption price of 104%, or $164,418, as well as the Prior Facilities, discussed below.

Credit Facility and Term Loans

Prior to the credit refinancing on August 4, 2022, our secured debt facilities aggregated to $747,481 and were comprised of a $442,404 senior credit facility and two term loans totaling $305,077. The credit facility (“Prior Credit Facility”) contained a $192,404 term loan (“Prior First Term Loan”) and a $250,000 revolving line of credit (“Prior Line of Credit”), and was set to expire on August 10, 2022. Prior to the refinancing, we had $118,684 outstanding under the Line of Credit. Our two additional term loan balances were $278,846 (“Prior Second Term Loan”) and $26,231 (“Prior Third Term Loan”) with an original maturity date of September 10, 2024 and August 10, 2022, respectively.
On August 4, 2022, we entered into a credit agreement (the "Credit Agreement"), with certain lenders, for whom Citibank, N.A. ("Citibank") acted as the administrative agreement and collateral agent, Wells Fargo Bank, N.A. and Manufacturers and Traders Trust Company acted as the co-syndication agents, and Citibank, Wells Fargo Securities, LLC, and Manufacturers and Traders Trust Company acted as joint lead arrangers and joint book running managers. The Credit Agreement provided for a new secured term loan of $400,000 and secured revolving line of credit with capacity of $100,000 which mature in August of 2024. Immediately upon entering into the Credit Agreement, proceeds from the $400,000 new term loan, along with a portion of the proceeds from the dispositions discussed in Note 2 – Investment in Hotel Properties, were used to pay off and terminate all borrowings under the Prior Facilities.

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

Common Share Repurchase Plan
There was no share repurchase program for the year-ended December 31, 2022.
Acquisitions
During the year ended December 31, 2022, we acquired no hotel properties. 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
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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
On August 4, 2022 and October 26, 2022, we closed in two related closings on the sale of a total of seven hotels to an unaffiliated buyer for a purchase price of $505,000. These seven hotels included the Courtyard Brookline; the Hampton Inn Washington, DC; Hilton Garden Inn M Street Washington, DC; Hampton Inn Philadelphia; TownePlace Suites Sunnyvale; Courtyard Sunnyvale; and the Courtyard Los Angeles Westside. The proceeds from the sale were used to pay off the Junior Notes at a redemption price of 104%, or $164,418, and the Prior Facilities. The mortgage loan amount of $39,309 secured by the Courtyard Sunnyvale hotel was assumed by the buyer and we paid off the Courtyard Los Angeles mortgage with a principal balance of $35,000 at closing.
On October 6, 2022, we closed on the sale of the Hotel Milo Santa Barbara for a sales price of $55,000 and paid off the outstanding mortgage of $20,696 at closing. On October 19, 2022, we closed on the sale of the Pan Pacific Seattle for a sales price of $70,000, and a portion of the proceeds were used to pay down the Term Loan in the amount of $22,380. On November 2, 2022, we closed on the sale of the Gate hotel JFK Airport for a sales price of $11,000, and a portion of the proceeds were used to pay down the Term Loan in the amount of $4,767.
Operating Liquidity and Capital Expenditures

Our short-term liquidity requirements generally consist of funds necessary to pay our scheduled debt service and operating expenses and capital expenditures directly associated with our hotels. We expect to meet our short-term liquidity requirements generally through net cash provided by operations, existing cash balances and, if necessary, short-term borrowings under the Line of Credit.

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

At December 31, 2022, we were in compliance with our debt service coverage ratio ("DSCR") requirements for our mortgage borrowings. It is possible that we could fail certain financial covenants within certain property-level mortgage borrowings. The lenders' remedy of a covenant failure would be a requirement to escrow funds for the purpose of meeting our future debt payment obligations.

Spending on capital improvements during the year ended December 31, 2022 increased when compared to spending on capital improvements during the year ended December 31, 2021. During the year ended December 31, 2022, we spent $23,587 on capital expenditures to renovate, improve or replace assets at our hotels. This compares to $10,873 during the same period in 2021. These capital expenditures were undertaken to comply with brand mandated improvements and to initiate projects that we believe will generate a return on investment. We may spend additional amounts, if necessary, to comply with the requirements of any franchise license under which any of our hotels operate and otherwise to the extent we deem such expenditures to be prudent. We are also obligated to fund the cost of certain capital improvements to our hotels.

We expect to use operating cash flow, and if necessary, borrowings under the Line of Credit, proceeds from issuances of our securities and hotel dispositions, to pay for the cost of capital improvements and furniture, fixture and equipment requirements.

CASH FLOW ANALYSIS 
(dollars in thousands)

Comparison of the Years Ended December 31, 2022 and December 31, 2021
Net cash provided by operating activities increased by $59,336 from net cash provided by operating activities of $16,232 for the year ended December 31, 2021 to net cash provided by operating activities of $75,568 for the year ended December 31, 2022. The increase in cash flow is primarily attributable to an increase in hotel property cash flow as a result of an increase in demand since the onset of the COVID-19 pandemic.
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Net cash provided by investing activities for the year ended December 31, 2022 was $510,241 compared to net cash provided by investing activities of $151,471 for the year ended December 31, 2021. The increase is primarily attributable to proceeds of $526,828 received during the year ended December 31, 2022 for the sale of the seven urban select service hotels, Hotel Milo Santa Barbara, Pan Pacific Seattle, and the Gate JFK Airport, compared to proceeds of $163,583 from the sale of the Courtyard San Diego, the Capitol Hill Hotel, the Holiday Inn Express Cambridge, the Residence Inn Coconut Grove, and the Duane Street Hotel during the year ended December 31, 2021. This was partially offset by an increase of $12,714 for capital expenditures for the year ended December 31, 2022 compared to 2021 as we have resumed certain selective capital expenditure projects during the year ended December 31, 2022. We had a decrease of $1,004 in contributions related to unconsolidated joint ventures as we contributed a total of $485 to the Hiren Boston and SB Partners joint ventures during the year ended December 31, 2022 compared to contributions of $1,489 to the Hiren Boston and SB Partners unconsolidated joint ventures during the year ended December 31, 2021. We received insurance proceeds of $1,294 during the year ended December 31, 2022 related to property damage incurred for a 2021 claim at our Hampton Inn Philadelphia hotel. Lastly, we received proceeds of $6,191 related to the sale of our membership interest in Hiren Boston, LLC during the year ended December 31, 2022.
Net cash used in financing activities for the year ended December 31, 2022 was $440,734 compared to net cash used in financing activities for the year ended December 31, 2021 of $106,365. The following items are the major contributing factors for the change in financing cash flow:  

The primary use of cash in 2021 was the payment of $187,024 of outstanding borrowings under the Prior Term Loan agreements and net repayments of $14,369 on our Prior Line of Credit. We received net proceeds of $144,750 from the issuance of the Junior Notes, a portion of which, in addition to the proceeds received from the hotel dispositions noted above, were used to pay down the Term Loans. Our primary use of cash in 2022 was the repayment of the Prior Term Loans of $497,481 and the Prior Line of Credit of $118,684, as well as the pay down of the Junior Notes of $158,094. We used proceeds from the hotel dispositions noted above, as well as proceeds of $400,000 from the new Term Loan to repay these debt obligations;
Payment of $10,636 of deferred financing costs and debt extinguishment for the year ended December 31, 2022 which primarily relates to the new Credit Agreement and premium paid to redeem the junior notes, as compared to the payment of $6,231 during the year ended December 31, 2021 which primarily relates to the Junior Notes issuance noted above;
A decrease in cash payments of $15,806 related to dividends paid. During the year ended December 31, 2021, our executed amendments to the Prior Facilities allowed for the payment of the total arrearage of unpaid cash dividends for the periods ended April 15, 2020, July 15, 2020, October 15, 2020 and January 15, 2021 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, which was paid on March 26, 2021, as the well as the dividends paid on April 15, 2021 and July 15, 2021. During the year ended December 31, 2022 we paid dividends of $24,174 on these preferred shares and $2,325 on our Common Shares, Common Units and LTIP Units.





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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, 2022December 31, 2021December 31, 2020
Net income (loss) applicable to common shareholders$122,548 $(63,005)$(189,165)
Income (loss) allocated to noncontrolling interests19,338 (4,524)(19,560)
(Income) loss from unconsolidated joint ventures(5,114)2,292 2,938 
Gain on disposition of hotel properties(197,505)(48,352)(1,158)
Loss from impairment of depreciable assets10,113 222 1,069 
Depreciation and amortization64,966 83,309 96,958 
Funds from consolidated hotel operations
applicable to common shareholders and Partnership units
14,346 (30,058)(108,918)
Income (loss) from Unconsolidated Joint Ventures5,114 (2,292)(2,938)
Gain from sale of interest in unconsolidated joint ventures(5,167)— — 
Unrecognized pro rata interest in loss (1)
(436)(1,053)(1,417)
Depreciation and amortization of difference between purchase price
and historical cost (2)
82 94 83 
Interest in depreciation and amortization of unconsolidated joint ventures (3)
2,466 2,508 1,828 
Funds from unconsolidated joint ventures operations
applicable to common shareholders and Partnership units
2,059 (743)(2,444)
Funds from Operations
applicable to common shareholders and Partnership units
$16,405 $(30,801)$(111,362)
Weighted Average Common Shares and Units Outstanding
Basic39,368,952 39,089,987 38,613,563 
Diluted46,393,487 44,172,521 44,066,289 
(1) For U.S. GAAP reporting purposes, our interest in the joint venture's loss is not recognized since our U.S. GAAP basis in the joint venture has been reduced to $0. Our interest in FFO from the joint venture equals our percentage ownership in the venture.
(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. The Company’s largest expenses are labor related costs. Wage and other expenses increase during periods of inflation and when labor shortages occur in the marketplace. There can be no guarantee we will not experience increases in the cost of labor, as the need for hospitality employees is expected to grow. In addition, suppliers pass along rising costs to us in the form of higher prices. We have the ability to pass on these increased costs associated with providing services by adjusting room rates.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results of operations and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain, especially in light of the current economic environment due to the COVID-19 pandemic. The estimates and assumptions made by management in applying critical accounting policies have not changed materially during 2022 and 2021 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.



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Investment in Hotel Properties

We review our portfolio on an on-going basis to evaluate the existence of any of the aforementioned events or changes in circumstances that would require us to test for recoverability. In general, our review of recoverability is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition.

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

If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. As of December 31, 2022, we have determined that the estimated future cash flow of each of the properties in our portfolio is sufficient to recover its carrying value. Asset impairment charges are discussed in Note 2, Investment in Hotel Properties, to the consolidated financial statements included in Item 8 of Part II of this 10-K.

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, 2022, we are exposed to interest rate risk with respect to variable rate borrowings under our Credit Agreement and certain variable rate mortgages and notes payable. As of December 31, 2022, we had total variable rate debt outstanding of $173,846 with a weighted average interest rate of 6.73%. The effect of a 100 basis point increase or decrease in the interest rate on our variable rate debt outstanding as of December 31, 2022 would be an increase or decrease in our interest expense for the twelve months ended December 31, 2022 of $1,878.
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, 2022, we have an interest rate cap related to the debt on Hilton Garden Inn, 52nd Street, New York, NY, and we have five interest rate swaps related to debt on Hyatt Union Square, New York, NY; Hilton Garden Inn Tribeca, New York, NY; and our Credit Agreements. We do not intend to enter into derivative or interest rate transactions for speculative purposes.
As of December 31, 2022, approximately 73% of our outstanding consolidated long-term indebtedness is subject to fixed rates or effectively capped, while 27% of our outstanding long term indebtedness is subject to floating rates. The majority of our floating rate debt and any corresponding derivative instruments are indexed to various tenors of LIBOR or SOFR.
On March 5, 2021, the Financial Conduct Authority (“FCA”) announced that USD LIBOR will no longer be published after June 30, 2023. This announcement has several implications, including setting the spread that may be used to automatically convert contracts from LIBOR to the Secured Overnight Financing Rate ("SOFR"). Additionally, banks discontinued new LIBOR debt issuances by December 31, 2021. However, the ICE Benchmark Administration, in its capacity as administrator of LIBOR,
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has announced that it intends to extend publication of LIBOR (other than one-week and two-month tenors) by 18 months to June 2023.
Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form. In anticipation of the cessation of LIBOR, we may need to renegotiate credit facilities and any credit agreements extending beyond 2022 that utilize LIBOR as a factor in determining the interest rate or rely on certain fallback provisions that could cause interest rates to shift to a base rate plus a margin. Any such renegotiations may have a material adverse effect on our business.

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, 2022 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, 2022 to be approximately $604,657 and a 100 basis point decrease in market interest rates would cause the fair value of our fixed-rate debt outstanding at December 31, 2022 to be approximately $616,241.
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, 2022, the following table presents expected principal repayments and related weighted average interest rates by expected maturity dates:
20231 - 3 years4 - 5 yearsThereafterTotal
     
Fixed Rate Debt$100,622 $358,813 $— $— $459,435 
Weighted Average Interest Rate3.99 %3.93 %N/AN/A3.96 %
     
Floating Rate Debt$23,372 $98,926 $— $51,548 $173,846 
Weighted Average Interest Rate7.01 %7.11 %N/A7.33 %7.29 %
     
$123,994 $457,739 $— $51,548 $633,281 
The table incorporates only those exposures that existed as of December 31, 2022, 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

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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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, 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, 2022, 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 February 23, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

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.
51



Assessment of estimated holding periods for hotel properties

As discussed in Notes 1 and 2 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. Investment in hotel properties, net of accumulated depreciation, was $1,189 million, or 80% of total assets at December 31, 2022.

We identified the assessment of the estimated holding periods for the Company’s hotel properties as a critical audit matter. A high degree of subjective and complex auditor judgment was required in assessing the events or changes in circumstances used by the Company to evaluate the estimated holding periods. A shortened estimated holding period could indicate a potential impairment.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of an internal control related to the Company’s determination of the estimated holding periods for its hotel properties. We evaluated the relevant events or changes in circumstances that the Company used to evaluate its estimated holding periods by:
inspecting documents such as meeting minutes of the board of trustees to assess the likelihood that a property will be sold before the end of its previously estimated holding period
reading certain publicly available information to identify information regarding potential sales of the Company’s hotel properties
inquiring of Company officials, including those in the organization who are responsible for, and have authority over, disposition activities
obtaining representations from the Company regarding the status of potential plans to dispose of hotel properties.

/s/ KPMG LLP
We have served as the Company’s auditor since 2004.
Philadelphia, Pennsylvania
February 23, 2023
52


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
December 31, 2022December 31, 2021
Assets:
Investment in Hotel Properties, Net of Accumulated Depreciation$1,189,239 $1,665,097 
Investment in Unconsolidated Joint Ventures4,989 5,580 
Cash and Cash Equivalents224,955 72,238 
Escrow Deposits5,065 12,707 
Hotel Accounts Receivable8,922 8,491 
Due from Related Parties245 2,495 
Intangible Assets, Net of Accumulated Amortization of $1,211 and $6,944
684 1,335 
Right of Use Assets16,226 43,442 
Other Assets38,552 21,759 
Total Assets$1,488,877 $1,833,144 
Liabilities and Equity:
Line of Credit$— $118,684 
Secured Term Loans, Net of Unamortized Deferred Financing Costs (Note 5)370,636 496,085 
Unsecured Notes Payable, Net of Unamortized Deferred Financing Costs (Note 5)50,895 198,490 
Mortgages Payable, Net of Unamortized Premium and Unamortized Deferred Financing Costs208,354 304,614 
Lease Liabilities19,003 53,691 
Accounts Payable, Accrued Expenses and Other Liabilities44,148 43,207 
Dividends and Distributions Payable31,694 6,044 
Due to Related Parties2,610 1,723 
Total Liabilities$727,340 $1,222,538 
Redeemable Noncontrolling Interests - Consolidated Joint Venture (Note 12)5,076 2,310 
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, 2022 and December 31, 2021, 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, 2022 and December 31, 2021; 39,697,451 and 39,325,025 Shares Issued and Outstanding at December 31, 2022 and December 31, 2021, respectively
398 394 
Common Shares: Class B, $.01 Par Value, 1,000,000 Shares Authorized, None Issued and Outstanding at December 31, 2022 and December 31, 2021
— — 
Accumulated Other Comprehensive Income (Loss)16,213 (6,211)
Additional Paid-in Capital1,157,057 1,155,034 
Distributions in Excess of Net Income(490,815)(592,314)
Total Shareholders' Equity683,000 557,050 
Noncontrolling Interests (Note 1):73,461 51,246 
Total Equity756,461 608,296 
Total Liabilities, Redeemable Noncontrolling Interests, and Equity$1,488,877 $1,833,144 
The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.

53


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)
Year Ended December 31,
202220212020
Revenue:
Hotel Operating Revenues:
Room$317,640 $237,988 $142,260 
Food & Beverage55,813 31,778 15,418 
Other Operating Revenues32,092 26,100 18,765 
Other Revenues329 123 217 
Total Revenues405,874 295,989 176,660 
Operating Expenses:
Hotel Operating Expenses:
Room67,740 51,885 38,787 
Food & Beverage44,133 24,756 16,199 
Other Operating Expenses125,348 101,515 85,270 
Hotel Ground Rent4,353 4,400 4,301 
Real Estate and Personal Property Taxes and Property Insurance30,632 36,787 40,928 
General and Administrative (including Share Based Payments of $14,384, $12,033, and $9,488 for the years ended December 31, 2022, 2021, and 2020, respectively)
26,477 23,027 20,078 
Acquisition and Terminated Transaction Costs— 391 4,419 
Loss on Impairment of Assets10,113 222 1,069 
Depreciation and Amortization64,966 83,309 96,958 
Insurance Recoveries in Excess of Property Loss(933)(711)(8,960)
Total Operating Expenses372,829 325,581 299,049 
Operating Income (Loss)33,045 (29,592)(122,389)
Interest Income1,516 15 39 
Interest Expense(48,423)(56,059)(51,785)
Other Income (Expense)152 128 (522)
Gain on Disposition of Hotel Properties197,505 48,352 1,158 
Loss on Debt Extinguishment(18,049)(3,069)— 
Income (Loss) Before Results from Unconsolidated Joint Venture Investments and Income Taxes165,746 (40,225)(173,499)
Loss from Unconsolidated Joint Ventures(53)(2,292)(2,938)
Gain from Sale of Interest in Unconsolidated Joint Venture5,167 — — 
Income (Loss) from Unconsolidated Joint Venture Investments5,114 (2,292)(2,938)
Income (Loss) Before Income Taxes170,860 (42,517)(176,437)
Income Tax Expense(4,800)(838)(11,329)
Net Income (Loss)166,060 (43,355)(187,766)
(Income) Loss Allocated to Noncontrolling Interests - Common Units(16,572)6,676 19,560 
(Income) Loss Allocated to Noncontrolling Interests - Consolidated Joint Venture(2,766)(2,152)3,217 
Preferred Distributions(24,174)(24,174)(24,176)
Net Income (Loss) Applicable to Common Shareholders$122,548 $(63,005)$(189,165)
The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.
54


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(IN THOUSANDS, EXCEPT SHARE/UNIT AND PER SHARE AMOUNTS)
Year Ended December 31,
202220212020
Earnings Per Share:
BASIC
Loss from Continuing Operations Applicable to Common Shareholders$3.08 $(1.61)$(4.90)
DILUTED
Loss from Continuing Operations Applicable to Common Shareholders$2.95 $(1.61)$(4.90)
Weighted Average Common Shares Outstanding:
Basic39,368,952 39,089,987 38,613,563 
Diluted*41,190,628 39,089,987 38,613,563 
*    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,
 202220212020
Common Units and Vested LTIP Units5,202,859 4,298,045 3,926,767 
Unvested Stock Awards and LTIP Units Outstanding— 395,446 971,287 
Contingently Issuable Share Awards— 389,043 554,672 
Total Potentially Dilutive Securities Excluded from the Denominator5,202,859 5,082,534 5,452,726 
The Accompanying Notes Are an Integral Part of These Consolidated Financial Statements.
55


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(IN THOUSANDS)
Year Ended December 31,
202220212020
Net Income (Loss)$166,060 $(43,355)$(187,766)
Change in Fair Value of Derivative Instruments26,651 17,980 (26,431)
Reclassification Adjustment for Change in Fair Value of Derivative Instruments Included in Net Income (Loss)(1,264)(1,124)2,589 
Total Other Comprehensive Income (Loss)$25,387 $16,856 $(23,842)
Comprehensive Income (Loss)191,447 (26,499)(211,608)
Less: Comprehensive (Income) Loss Applicable to Noncontrolling Interests - Common Units(19,535)5,006 21,761 
Less: Comprehensive (Income) Loss Applicable to Noncontrolling Interests - Consolidated Joint Venture(2,766)(2,152)3,217 
Less: Preferred Distributions(24,174)(24,174)(24,176)
Comprehensive Income (Loss) Applicable to Common Shareholders$144,972 $(47,819)$(210,806)
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
56


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
Redeemable Noncontrolling Interests Shareholders' EquityNoncontrolling Interests
Consolidated Joint Venture ($)Common SharesClass A Common Shares ($)Class B Common Shares ($)Preferred SharesPreferred Shares ($)Additional Paid-In Capital ($)Accumulated Other Comprehensive (Loss) Income ($)Distributions in Excess of Net Income ($)Total Shareholders' Equity ($)Common Units and LTIP UnitsCommon Units and LTIP Units ($)Total Equity ($)
Balance at December 31, 20212,310 39,325,025 394 — 14,703,214 147 1,155,034 (6,211)(592,314)557,050 6,926,253 51,246 608,296 
Unit Conversions— 180,627 — — — 1,375 — — 1,376 (180,627)(1,376)— 
Issuance Costs/Other— — — — — — (57)— — (57)— — (57)
Dividends and Distributions declared:
Common Shares ($0.60 per share)
— — — — — — — — (23,815)(23,815)— — (23,815)
Preferred Shares— — — — — — — — (24,174)(24,174)— — (24,174)
Common Units ($0.60 per share)
— — — — — — — — — — — (1,053)(1,053)
LTIP Units ($0.60 per share)
— — — — — — — — — — — (3,113)(3,113)
Dividend Reinvestment Plan— 847 — — — — — — — — 
Share Based Compensation:
Grants (Forfeitures)— 190,952 — — — (154)— — (151)194,427 (506)(657)
Amortization— — — — — — 3,619 — — 3,619 — 8,728 12,347 
Change in Fair Value of Derivative Instruments— — — — — — — 22,424 — 22,424 — 2,963 25,387 
Adjustment to Record Noncontrolling Interest at Redemption Value2,766 — — — — — (2,766)— — (2,766)— — (2,766)
Net Income— — — — — — — — 149,488 149,488 — 16,572 166,060 
Balance at December 31, 20225,076 39,697,451 398 — 14,703,214 147 1,157,057 16,213 (490,815)683,000 6,940,053 73,461 756,461 
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
57


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
Redeemable Noncontrolling InterestsShareholders' EquityNoncontrolling Interests
Consolidated Joint Venture ($)Common SharesClass A Common Shares ($)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 ($)Total Equity ($)
Balance at December 31, 2020— 38,843,482 389 — 14,703,214 147 1,150,985 (21,249)(507,445)622,827 5,392,808 49,422 672,249 
Unit Conversion— 241,545 — — — 3,024 — — 3,026 (241,545)(3,026)— 
Dividends and Distributions declared:
Preferred Shares— — — — — — — — (48,348)(48,348)— — (48,348)
Share Based Compensation:
Grants— 239,998 — — — 355 — — 358 1,774,990 — 358 
Amortization— — — — — — 2,980 — — 2,980 — 9,708 12,688 
Equity Contribution to Consolidated Joint Venture158 — — — — — — — — — — — — 
Change in Fair Value of Derivative Instruments— — — — — — — 15,038 — 15,038 — 1,818 16,856 
Adjustment to Record Noncontrolling Interest at Redemption Value2,310 — — — — — (2,310)— — (2,310)— — (2,310)
Net Loss(158)— — — — — — — (36,521)(36,521)— (6,676)(43,197)
Balance at December 31, 20212,310 39,325,025 394 — 14,703,214 147 1,155,034 (6,211)(592,314)557,050 6,926,253 51,246 608,296 
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
58


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
Redeemable Noncontrolling InterestsShareholders' EquityNoncontrolling Interests 
Consolidated Joint Venture ($)Common SharesClass A Common Shares ($)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 ($)Total Equity ($)
Balance at December 31, 20193,196 38,652,650 387 — 14,703,214 147 1,144,808 530 (338,253)807,619 4,279,946 64,182 871,801 
Issuance Costs— — — — — — (137)— — (137)— — (137)
Dividends and Distributions declared:
Preferred Shares— — — — — — — — (1,007)(1,007)— — (1,007)
Dividend Reinvestment Plan— 1,094 — — — — 14 — — 14 — — 14 
Share Based Compensation:
Grants— 189,738 — — — (2)— — — 1,112,862 — — 
Amortization— — — — — — 3,106 — — 3,106 — 6,863 9,969 
Equity Contribution to Consolidated Joint Venture21 — — — — — — — — — — — — 
Change in Fair Value of Derivative Instruments— — — — — — — (21,779)— (21,779)— (2,063)(23,842)
Adjustment to Record Noncontrolling Interest at Redemption Value(3,196)— — — — — 3,196 — — 3,196 — — 3,196 
Net Loss(21)— — — — — — — (168,185)(168,185)— (19,560)(187,745)
Balance at December 31, 2020— 38,843,482 389 — 14,703,214 147 1,150,985 (21,249)(507,445)622,827 5,392,808 49,422 672,249 
The Accompanying Notes are an Integral Part of These Consolidated Financial Statement
59


HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(IN THOUSANDS)
Year Ended December 31,
202220212020
Operating Activities:
Net Income (Loss)$166,060 $(43,355)$(187,766)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:
Gain on Disposition of Hotel Properties(197,505)(48,352)(1,158)
Gain from Sale of Interest in Unconsolidated Joint Ventures(5,167)— — 
Loss on Impairment of Assets10,113 222 5,488 
Insurance Recoveries in Excess of Property Loss(933)(711)(8,960)
Junior Note PIK Interest Added to Principal1,855 6,239 — 
Deferred Taxes— — 11,290 
Depreciation64,715 82,973 96,527 
Amortization4,657 5,314 3,540 
Loss on Debt Extinguishment14,312 634 — 
Equity in Loss of Unconsolidated Joint Ventures53 2,292 2,938 
(Gain) Loss Recognized on Change in Fair Value of Derivative Instrument(1,264)(1,124)2,590 
Share Based Compensation Expense14,384 12,033 9,488 
Proceeds Received for Business Interruption Insurance Claims, net— — 4,411 
Change in Assets and Liabilities:
(Increase) Decrease in:
Hotel Accounts Receivable(431)(2,801)