SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

--------------

FORM 10-Q

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

For the quarterly period ended September 30, 2004

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

For the transition period from to

Commission file number: 001-14765

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

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

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

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

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 [X] No [ ]

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

As of September 30, 2004, the number of outstanding common shares was
20,289,345.

HERSHA HOSPITALITY TRUST

TABLE OF CONTENTS FOR FORM 10-Q REPORT

ITEM NO. PAGE
- -------- ----

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Balance Sheets as of September 30, 2004 [Unaudited]
and December 31, 2003 (Restated) . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations for the three and nine
months ended September 30, 2004 and 2003 [Unaudited] . . . . . . . . 4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2004 and 2003 [Unaudited]. . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 6

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . 23

Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . . . 32
Item 4. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . 32

PART II. OTHER INFORMATION

Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. . . . . 33
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . 33
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . 33
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . 33
Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

UNAUDITED RESTATED
SEPTEMBER 30, DECEMBER 31,
2004 2003
--------------- --------------

ASSETS:
Cash and cash equivalents $ 33,160 $ 40,707
Investment in Hotel Properties, net
of Accumulated Depreciation 173,314 121,076
Hotel Assets Held for Sale 10,926 -
Notes Receivable - Related Party - 15,000
Notes Receivable 11,067 200
Escrow Deposits 1,818 2,160
Accounts Receivable 2,917 223
Lease Payments Receivable - Related Party - 2,590
Intangibles, net of Accumulated Amortization of $1,035 and $893 1,665 1,322
Due from Related Party 9,871 5,768
Investment in Joint Ventures 8,537 6,576
Other Assets 2,346 946
--------------- --------------

TOTAL ASSETS $ 255,621 $ 196,568
=============== ==============

LIABILITIES AND SHAREHOLDERS' EQUITY:
Mortgages Payable $ 91,161 $ 70,837
Debt Related to Hotel Assets Held for Sale 8,069 -
Notes Payable 1,000 1,000
Capital Lease Payable 530 -
Common Partnership Unit Redemption Payable - 8,951
Advance Deposits 187 -
Dividends and Distributions Payable 4,164 3,407
Due to Related Party 1,350 419
Accounts Payable and Accrued Expenses 4,912 1,523
--------------- --------------

TOTAL LIABILITIES 111,373 86,137
--------------- --------------

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

COMMITMENTS AND CONTINGENCIES

MINORITY INTEREST:
Series A Preferred Units - 17,080
Common Units 17,458 21,891
Joint Venture Interest in Logan Hospitality 2,194 -
--------------- --------------
TOTAL MINORITY INTEREST 19,652 38,971
--------------- --------------

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

Common Shares - Priority Class A, $.01 Par Value, 50,000,000 Shares
Authorized, 20,289,345 and 12,355,075 Shares Issued and Outstanding at
September 30, 2004 and December 31, 2003, Respectively (Aggregate
Liquidation Preference $-0- and $74,130, respectively) 203 124

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

Additional Paid-in Capital 135,457 76,496
Distributions in Excess of Net Earnings (11,064) (5,160)
--------------- --------------

TOTAL SHAREHOLDERS' EQUITY 124,596 71,460
--------------- --------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 255,621 $ 196,568
=============== ==============

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

- ----------------------------------------------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
- ----------------------------------------------------------------------------------------------------------------------

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004 2003
------------ ------------ ------------ ----------

REVENUE:
Percentage Lease Revenues - HHMLP $ - $ 3,566 $ 825 $ 9,108
Percentage Lease Revenues - Other - - 662 960
Hotel Operating Revenues 17,319 1,226 36,988 1,997
Interest 16 - 135 0
Interest - Secured Loans Related Party 257 245 968 456
Interest - Secured Loans 158 - 329 0
Other Revenue 10 13 119 17
------------ ------------ ------------ ----------
TOTAL REVENUE 17,760 5,050 40,026 12,538
------------ ------------ ------------ ----------

EXPENSES:
Interest expense 1,729 1,051 4,536 3,300
Hotel Operating Expenses 10,133 527 22,503 1,415
Land Lease 63 - 350 -
Real Estate and Personal Property
Taxes and Property Insurance 929 312 2,421 828
General and Administrative 676 148 1,856 532
Depreciation and Amortization 1,954 1,039 5,197 3,035
------------ ------------ ------------ ----------
TOTAL EXPENSES 15,484 3,077 36,863 9,110
------------ ------------ ------------ ----------

INCOME FROM UNCONSOLIDATED JOINT VENTURE INVESTMENTS 283 - 452 -
------------ ------------ ------------ ----------

INCOME BEFORE DISTRIBUTION TO PREFERRED
UNITHOLDERS, MINORITY INTEREST AND DISCONTINUED OPERATIONS 2,559 1,973 3,615 3,428
------------ ------------ ------------ ----------

DISTRIBUTIONS TO PREFERRED UNITHOLDERS - 432 499 696
INCOME ALLOCATED TO MINORITY INTEREST IN CONTINUING OPERATIONS 493 1,310 556 2,277
------------ ------------ ------------ ----------
INCOME FROM CONTINUING OPERATIONS 2,066 231 2,560 455
------------ ------------ ------------ ----------

DISCONTINUED OPERATIONS (NOTE 10):
INCOME FROM DISCONTINUED OPERATIONS 296 61 578 181

NET INCOME $ 2,362 $ 292 $ 3,138 $ 636
============ ============ ============ ==========

EARNINGS PER SHARE FROM CONTINUING OPERATIONS
- ---------------------------------------------
BASIC $ 0.12 $ 0.09 $ 0.17 $ 0.18
DILUTED $ 0.12 $ 0.09 $ 0.16 $ 0.18

DISCONTINUED OPERATIONS PER SHARE
- ---------------------------------
BASIC $ 0.02 $ 0.02 $ 0.04 $ 0.07
DILUTED $ 0.02 $ 0.02 $ 0.04 $ 0.07

EARNINGS PER SHARE
- ------------------
BASIC $ 0.14 $ 0.11 $ 0.21 $ 0.25
DILUTED $ 0.14 $ 0.11 $ 0.20 $ 0.25

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
- ------------------------------------------
BASIC 16,621,547 2,579,416 15,082,927 2,578,641
DILUTED 19,464,312 2,579,416 18,148,964 2,578,641

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

- ---------------------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 [UNAUDITED]
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
- ---------------------------------------------------------------------------------------------

SEPT. 30 SEPT. 30
2004 2003
---------- ----------

OPERATING ACTIVITIES:
Net Income $ 3,138 $ 636
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 5,252 3,257
Amortization 142 77
Income Allocated to Minority Interest 674 2,634
Equity in Income of Unconsolidated Joint Ventures (452) (11)
Change in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (2,694) (201)
Escrow and Lease Deposits - (292)
Lease Payments Receivable - Related Party 2,590 (1,696)
Lease Payments Receivable - Other - 233
Other Assets (1,400) (431)
Due from Related Party (1,103) (55)
Increase (Decrease):
Deposits Payable - (1,000)
Due to Related Party 931 104
Preferred Distributions Payable - 432
Advance Deposits 187 -
Accounts Payable and Accrued Expenses 3,389 445
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,654 4,132
---------- ----------

INVESTING ACTIVITIES:
Purchase of Hotel Property Assets (51,898) (1,230)
Capital Expenditures (2,484) -
Franchise Fees Paid - (127)
Development Loans to Related Parties (3,000) (4,700)
Escrow and Lease Deposits 342
Repayment of Notes Receivable 15,133 -
Investment in Notes Receivable (11,000) -
Advances and Capital Contributions to Unconsolidated Joint Ventures (4,509) (4,027)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (57,416) (10,084)
---------- ----------

FINANCING ACTIVITIES:
Proceeds from Borrowings Under Line of Credit 22,541 15,184
Repayment of Borrowings Under Line of Credit (22,541) (18,987)
Principal Repayment of Mortgages Payable (4,897) (7,390)
Proceeds from Mortgages Payable 24,375 6,907
Cash received from Sales of Common Stock, net 38,507 -
Sale of Series A Preferred Units - 17,092
Redemption of Common Partnership Units (8,951) -
Preferred Distributions Paid on Series A Preferred Units (497) -
Dividends Paid on Common Shares (7,615) (1,388)
Distributions Paid on Common Partnership Units (1,707) (2,754)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 39,215 8,664
---------- ----------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (7,547) 2,712
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 40,707 140
---------- ----------

CASH AND CASH EQUIVALENTS - END OF PERIOD $ 33,160 $ 2,852
========== ==========

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

- --------------------------------------------------------------------------------
HERSHA HOSPITALITY TRUST AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 [UNAUDITED]
(CONT.)
[IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS]
- --------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

On April 21, 2003, May 21, 2003 and August 29, 2003, CNL Hospitality
Partnership, LP ("CNL") purchased $10,000, $5,000 and $4,027, respectively,
of convertible preferred units of limited partnership interest in the
Partnership (the "Series A Preferred Units"). Net of offering expenses, the
Partnership received proceeds of $17,023. On April 16, 2004, CNL exercised
its conversion right and redeemed all of its convertible preferred units in
exchange for 2,816,460 shares of common stock. CNL sold 2,500,000 of these
class common shares in a public offering as of April 23, 2004.

On October 21, 2003, we completed a public offering of 9,775,000 common
shares at $8.50 per share. Proceeds to the Company, net of underwriting
discounts and commissions, structuring fees and expenses, were
approximately $77,262. Immediately upon closing the offering, the Company
contributed all of the net proceeds of the offering to the Partnership. Of
the net offering proceeds, approximately $10,400 was used to fund limited
partner redemptions and approximately $24,000 was used to repay
indebtedness. The remaining net proceeds were used principally to fund
acquisitions and for general corporate purposes.

On September 24, 2004, we completed a public offering of 3,500,000 common
shares at $9.37 per share. On September 30, 2004, the underwriter exercised
its over-allotment option on these shares, and we issued an additional
400,000 common shares at $9.37 per share. Proceeds to the Company, net of
underwriting discounts and commissions and expenses, were approximately
$36,451. Immediately upon closing the offering, the Company contributed all
of the net proceeds of the offering to the Partnership in exchange for
additional Partnership interests. Of the net offering proceeds,
approximately $5,000 was used to repay indebtedness. The remaining net
proceeds have been principally allocated to fund secured development loans,
acquisitions and for general corporate purposes.

As of September 30, 2004, the Company, through the Partnership and
subsidiary partnerships, owned twenty-five limited and full service hotels
and a joint venture interest in four properties. The Company terminated
eight leases with Hersha Hospitality Management, LP ("HHMLP"), a
Pennsylvania limited partnership, as of April 1, 2004. Subsequent to this
termination, all of the owned hotel facilities are leased to the Company's
taxable REIT subsidiary ("TRS"), 44 New England. The Hampton Inn,
(Manhattan) Chelsea, NY, owned in a joint venture with CNL, is leased to
Hersha/CNL TRS Inc., a TRS wholly-owned by that joint venture. The Hilton
Garden Inn, Glastonbury, CT owned in a joint venture, is leased to Hersha
PRA TRS, Inc., a TRS wholly-owned by that joint venture. The Sheraton Four
Points, Revere, MA owned in a joint venture, is leased to Revere Hotel
Group, LLC, a TRS owned by that joint venture and the Courtyard by Marriot
in Ewing, NJ owned in a joint venture, is leased to Hersha Inn America TRS
Inc., a TRS owned by that joint venture. We have consolidated the
operations of the joint venture that owns The Sheraton Four Points, Revere,
MA because the Company owns a controlling interest in the venture.

44 New England and the joint venture TRS lessees lease the hotel properties
pursuant to separate percentage lease agreements (the "Percentage Leases")
that provide for percentage rents based on the revenues of the hotels. The
hotels are located principally in the Mid-Atlantic region of the United
States. HHMLP serves as the manager for all of the owned assets and joint
venture assets. HHMLP is owned in part by four of the Company's executive
officers, two of its trustees and other third party investors.

As of September 30, 2004, we owned an 87.71% interest in the Partnership.

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

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

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

Consolidated properties are either wholly owned or owned less than 100% by
the Partnership and are controlled by the Company as general partner of the
Partnership. Properties owned in joint ventures are also consolidated if
the determination is made that we maintain control of the asset through our
voting interest in the entity. Control is demonstrated by the ability of
the general partner to manage day-to-day operations, refinance debt and
sell the assets of the partnerships without the consent of the limited
partners and the inability of the limited partners to replace the general
partner. The minority interest balance in the accompanying balance sheets
represents the limited partners' interest in the net assets of the
Partnership and the joint venture partner's ownership interests in the
consolidated assets. Net operating results of the Partnership are allocated
based on their respective partners' ownership interests. Our ownership
interest in the Partnership as of September 30, 2004 and 2003 was 87.71%
and 28.67%, respectively.

We own a 55% joint venture interest in Logan Hospitality Associates, LLC,
the owner of the Sheraton Four Point, Revere, MA. We have determined that
we have a majority voting interest in this joint venture and that it
qualifies for consolidation.

The Financial Accounting Standards Board issued FASB Interpretation No. 46,
("FIN 46") "Consolidation of Variable Interest Entities (VIE's), an
interpretation of Accounting Research Bulletin No. 51 (ARB No. 51)," in
January 2003 and a further interpretation of FIN 46 in December 2003 ("FIN
46-R" and FIN 46, collectively "FIN 46"). FIN 46 addresses how a business
enterprise should evaluate whether it has a controlling financial interest
in any variable interest entity ("VIE") through means other than voting
rights, and accordingly, should include the VIE in its consolidated
financial statements. We have adopted FIN 46 effective as of March 31,
2004.

In accordance with FIN 46, we have evaluated our investments and
contractual relationships with HHMLP, Logan Hospitality Associates, LLC,
HT/CNL Metro Hotels, LP, PRA Glastonbury, LLC, Inn America Hospitality at
Ewing, LLC and Metro Ten Hotels, LLC to determine whether these entities
meet the guidelines of consolidation per FIN 46. Our examination consisted
of reviewing the sufficiency of equity at risk, controlling financial
interests, voting rights, obligation to absorb expected losses and expected
gains, including residual returns.

We have terminated all of the existing leases with HHMLP, effective April
1, 2004. Due to the termination of the leases and the funding of sufficient
equity by the partners of HHMLP, we have determined that HHMLP is a voting
interest entity and we have no ownership interest in that entity. Therefore
we have not consolidated the financial statements of HHMLP with ours
effective as of April 1, 2004.

All other investments in partnerships and joint ventures represent
non-controlling ownership interests in properties. These investments are
accounted for using the equity method of accounting. These investments are
recorded initially at cost and subsequently adjusted for net equity in
income (loss), which is allocated in accordance with the provisions of the
applicable partnership or joint venture agreements.

We will continue to evaluate each of our investments and contractual
relationships to determine if consolidation is required based upon the
provisions of FIN 46.

Recent Developments
--------------------

On July 1, 2004, we acquired a 50% joint venture interest in the 130 room
Courtyard by Marriott, Ewing-Hopewell, NJ for approximately $1,025 from Inn
America Hospitality, a third party developer. The Courtyard by Marriott,
Ewing-Hopewell, NJ is leased to Hersha Inn America TRS, Inc, a TRS owned by
that joint venture and managed by HHMLP.

On July 16, 2004, we acquired the 120 suite Residence Inn, Greenbelt, MD
for approximately $19,450. Residence Inn, Greenbelt, MD is leased to our
TRS and managed by HHMLP.

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

On July 23, 2004, we acquired the 88 room Hilton Garden Inn, Gettysburg, PA
for $7,660 including the assumption of approximately $5,450 of debt. We
have acquired the Hilton Garden Inn, Gettysburg, PA from a partnership
controlled by several of our executive officers and trustees. The Hilton
Garden Inn, Gettysburg, PA is leased to our TRS and managed by HHMLP.

We entered into an agreement effective April 1, 2004 with HHMLP to
terminate the eight remaining leases for the following properties:

Holiday Inn Express, Long Island City, NY
Doubletree Club, Jamaica, JFK Airport - NY
Mainstay Suites, Frederick, MD
Hampton Inn & Suites, Hershey, PA
Hampton Inn, Danville, PA
Holiday Inn Express & Suites, Harrisburg, PA
Sleep Inn and Mainstay Suites, King of Prussia, PA

All of these properties have entered into leases with 44 New England (our
TRS) effective as of April 1, 2004 and will continue to be managed by
HHMLP. As part of the lease termination, the original sellers of the
properties, HHLP and HHMLP have agreed to waive any and all purchase price
adjustments (See "Note 6- Commitments and Contingencies and Related Party
Transactions") in the original purchase agreements for each of the
properties. There is no contractual liability for any future repricings
with any of our owned properties as of April 1, 2004. We entered into
management agreements with HHMLP for each of these hotels, but did not pay
any other consideration in connection with the lease terminations.

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

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

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

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

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

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

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

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

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

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

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

Minority Interest
------------------

Minority Interest in the Partnership represents the limited partner's
proportionate share of the equity of the Partnership. Income (Loss) is
allocated to minority interest in accordance with the weighted average
percentage ownership of the partnership during the period. At the end of
each reporting period the appropriate adjustments to the income (loss) are
made based upon the weighted average percentage ownership of the
partnership during the period.

We also maintain minority interests for the 45% equity interest in Logan
Hospitality Associates, LLC ("Logan") owned by a third party. We purchased
a 55% joint venture in Logan during March 2004 and have consolidated the
operations of this entity. We allocate this joint venture's income (loss)
to this minority interest account based upon the ownership of the entity.

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

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

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

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

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

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

Under the REIT Modernization Act ("RMA"), which became effective January 1,
2001, the Company is permitted to lease hotels to a wholly owned taxable
REIT subsidiary ("TRS") and may continue to qualify as a REIT provided the
TRS enters into management agreements with an "eligible independent
contractor" who will manage the hotels leased by the TRS. The Company
formed the TRS Lessee in 2003. The TRS Lessee currently leases 25
properties from the Partnership. The TRS Lessee is subject to taxation as a
C-Corporation. The TRS Lessee had an operating loss for financial reporting
purposes for the period ended June 30, 2004. Although the TRS Lessee is
expected to operate at a profit for Federal income tax purposes in future
periods, the value of the deferred tax asset is not able to be quantified
with certainty. Therefore, no deferred tax assets have been recorded as we
have not concluded that it is more likely than not that these deferred tax
assets will be realizable.

NOTE 2 - INVESTMENT IN HOTEL PROPERTIES

Investment in Hotel Properties consist of the following at September 30,
2004 and December 31, 2003

INVESTMENT IN HOTEL PROPERTIES 09/30/2004 12/31/2003
--------------------------------- ------------ ------------
Land $ 15,365 $ 11,710
Buildings and Improvements 153,456 105,615
Furniture, Fixtures and Equipment 30,577 21,797
------------ ------------
199,398 139,122
Less Accumulated Depreciation (26,084) (18,046)
------------ ------------
TOTAL $ 173,314 $ 121,076
============ ============

2004 Transactions

During the nine month period ended September 30, 2004, the Company acquired the
following hotel properties, including closing costs.

FURNITURE FRANCHISE TOTAL
ACQUISITION BUILDINGS AND FIXTURES AND FEES AND PURCHASE ASSUMED
HOTEL LOCATION ROOMS DATE LAND IMPROVEMENTS EQUIPMENT LOAN COSTS PRICE DEBT
- ------------------- -------------- ----- ----------- ------ -------------- ------------- ----------- --------- --------

Holiday Inn Express Hartford, CT 96 01/14/04 $ - $ 2,565 $ 960 $ 12 $ 3,537 $ 500
Residence Inn Framingham, MA 125 03/26/04 $1,325 $ 12,705 $ 1,875 $ 50 $ 15,955 $ -
Comfort Inn Frederick, MD 72 05/27/04 $ 450 $ 4,329 $ 584 $ 50 $ 5,413 $ 3,715
Residence Inn Greenbelt, MD 120 07/16/04 $2,615 $ 14,792 $ 2,040 $ 50 $ 19,497 $ -
Hilton Garden Inn Gettysburg, PA 88 07/23/04 $ 745 $ 6,111 $ 805 $ 60 $ 7,721 $ 5,450
----- ------ -------------- ------------- ----------- --------- --------
TOTAL 501 $5,135 $ 40,502 $ 6,264 $ 222 $ 52,123 $ 9,665

NOTE 2 - INVESTMENT IN HOTEL PROPERTIES

Assets Held for Sale consist of the following at September 30, 2004. There
were no assets held for sale at December 31, 2003.

ASSETS HELD FOR SALE: 09/30/2004
-------------------- ------------
Land $ 1,550
Buildings and Improvements 8,793
Furniture, Fixtures and Equipment 1,263
------------
11,606
Less Accumulated Depreciation (680)
------------
TOTAL $ 10,926
============

The mortgage debt related to the Assets Held for Sale was $8,069 at
September 30, 2004.

Pro Forma Operating Results

The following unaudited pro forma financial information of the Company for the
three and nine month periods ended September 30, 2004 and 2003 gives effect to
the material business acquired from January 1, 2003 through September 30, 2004
as if this transaction had occurred on January 1, 2003.

UNAUDITED UNAUDITED
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004 2003
------------ ------------ ------------ -------

Pro Forma Total Revenues $ 17,991 $ 6,210 $ 42,886 $15,996
Pro Forma Net Income $ 2,427 $ 785 $ 3,914 $ 1,738
Pro Forma Net Income per Common Share - Basic $ 0.15 $ 0.15 $ 0.26 $ 0.34
Pro Forma Net Income per Common Share - Diluted $ 0.14 $ 0.15 $ 0.26 $ 0.34

NOTE 3 - NOTES RECEIVABLE

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

On November 11, 2003, we provided financing to HT/CNL Metro Hotels, our
joint venture with CNL, in the amount of $15,000. This note was fully
repaid in July 2004. The terms of the note called for interest only
payments at 5.0% per annum through maturity. For the three and nine months
ended September 30, 2004, we earned interest income of $43 and $412,
respectively, which is included in "Interest - Secured Loans Related Party"
on the statement of operations.

During March 2004, we provided a first mortgage financing commitment of
$11,000 for the newly constructed Hilton Garden Inn (JFK Airport), NY to
Metro Ten Hotels, LLC, a third party owner of the asset. We have also
acquired an option to purchase a 50% interest in this asset. As of
September 30, 2004, $11,000 of the mortgage has been drawn and is recorded
in our Notes Receivable balance. For the three and nine month periods ended
September 30, 2004, we earned interest income of $158 and $328,
respectively, which is included in "Interest - Secured Loans" on the
statement of operations.

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

On September 26, 2002, in connection with the sale of the Clarion Suites,
Philadelphia, PA, we provided financing in the amount of $200 of which $67
remains outstanding as of September 30, 2004. The terms of the note called
for accrued interest at 10% per annum through maturity on December 31,
2003, when the outstanding balance and accrued interest were due. The note
is unsecured. During June 2004, we extended the due date of the note
through December 31, 2004. We have also accrued interest on the Note from
September 26, 2002 until September 30, 2004 at the rate of 10%. The note
modification also increases our interest rate to 12% from July 1, 2004
until December 31, 2004. We had not been accruing interest in prior periods
due to the uncertainty of collection of this interest. Based upon current
interest and principal payments made during the period and our ongoing
negotiations, we have determined that the interest and principal is fully
collectible. We have recorded accrued interest income from September 2002
until December 31, 2003 during the quarter ending June 30, 2004. For the
three and nine months ended September 30, 2004, we earned interest income
of $8 and $35, respectively, which is included in "Other Revenue" on the
statement of operations.

NOTE 4 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

On August 29, 2003, HT/CNL Metro Hotels, LP purchased the Hampton Inn,
(Manhattan) Chelsea, NY. We own a one-third equity interest in this joint
venture partnership while CNL Hospitality Partners LP owns the remaining
equity interests. HT/CNL Metro Hotels purchased this asset for $28,000 plus
settlement costs of approximately $480 and leased it to Hersha CNL TRS,
Inc., a TRS wholly owned by HT/CNL Metro Hotels. In conjunction with this
transaction, HT/CNL Metro Hotels executed mortgage indebtedness of
approximately $15,400 payable to the Partnership and paid cash of
approximately $14,080. HT/CNL Metro Hotels repaid the entire amount of the
indebtedness to the Partnership in July 2004.

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

On July 1, 2004, we purchased a 50% joint venture interest in Inn America
Hospitality at Ewing, LLC. The only asset owned by this entity is the
Courtyard by Marriott, Ewing-Hopewell, NJ. We purchased our joint venture
interest in this asset for $1,025 including closing costs of approximately
$55 and leased it to Hersha Inn America TRS, Inc., a TRS wholly owned by
Inn America Hospitality at Ewing, LLC.

NOTE 4 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)

As of September 30, 2004 and December 31, 2003 our investment in
unconsolidated joint ventures consists of the following:

Percent (In thousands) (In thousands)
Owned 9/30/2004 12/31/2003
-------- --------------- ---------------

HT/CNL Metro Hotels, LP 33.33% $ 4,665 $ 4,098
PRA Glastonbury, LLC 40.00% 2,686 2,478
Inn American Hospitality at Ewing, LLC 50.00% 1,186 -
--------------- ---------------
$ 8,537 $ 6,576
=============== ===============

The following table sets forth the total assets, liabilities, equity and
components of net income, including the Company's share, related to the
unconsolidated joint ventures discussed above as of September 30, 2004 and
December 31, 2003. We did not have any interests in unconsolidated joint
ventures for the period ended September 30, 2003.

NOTE 4 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)

September 30, December 31,
2004 2003
-------------------------------

Balance Sheet
Assets
Investment in hotel property, net $ 60,725 $ 44,459
Other assets 4,769 1,335
--------------- --------------
Total assets $ 65,494 $ 45,794
=============== ==============

Liabilities and Equity
Mortgages and notes payable $ 37,592 $ 11,158
Note payable - Hersha Hospitality Trust - 15,000
Capital Leases 3,406
Other liabilities 2,301 941
Equity:
Hersha Hospitality Trust 8,537 6,576
Other 13,658 12,119
--------------- --------------

Total liabilities and equity $ 65,493 $ 45,794
=============== ==============

Three and Nine Months Ended
9/30/2004 9/30/2004
-------------------------------
Statement of Operations
Room revenue $ 3,998 $ 8,967
Other revenue 363 731
Operating expenses (2,251) (5,195)
Interest expense (486) (1,112)
Property Taxes (306) (697)
Depreciation, amortization and other (601) (1,491)
--------------- --------------

Net income (loss) $ 717 $ 1,203
=============== ==============

Equity Income (Loss) recognized during three and nine months ended September 30,
2004 for our Equity Investments in Unconsolidated Joint Ventures:

Three and Nine Months Ended
9/30/2004 9/30/2004
------------- ----------

HT/CNL $ 121 $ 247
HT/PRA Glastonbury 58 101
Inn American Hospitality at Ewing, LLC 104 104
------------- ----------

Total equity income $ 283 $ 452
============= ==========

NOTE 5 - DEBT

Mortgages
---------

The total mortgages payable balance at September 30, 2004 and December 31,
2003 was $91,161 and $70,837, respectively, and consisted of mortgages with
fixed and variable interest rates ranging from 4.00% to 9.43%. The
maturities for the outstanding mortgages ranged from July 2007 to January
2032. Aggregate interest expense incurred under the mortgages payable
totaled $4,774, and $3,604 during the nine month periods ended September
30, 2004 and 2003, respectively. Aggregate interest expense incurred under
the mortgages payable totaled $1,816 and $1,147 during the three month
periods ended September 30, 2004 and 2003, respectively. The mortgages are
secured by various hotel properties, land and leasehold improvements with a
combined net book value of $173,314 and $121,076 as of September 30, 2004
and December 31, 2003, respectively.

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

The Company has a revolving line of credit from Sovereign Bank (the "Line
of Credit") in the maximum amount of $35,000. Outstanding borrowings under
the Line of Credit bear interest at the bank's prime rate and the Line of
Credit is collateralized by the Holiday Inn Express and Suites, Harrisburg,
PA and the Mainstay Suites and Sleep Inn, King of Prussia, PA. The interest
rate on borrowings under the Line of Credit at September 30, 2004 and
December 31, 2003 was 4.75% and 4.0%, respectively. On August 31, 2004, the
Company extended the term of the Line of Credit from its scheduled
expiration in December 2004 to its current expiration in 2007. There was no
outstanding principal balance on the Line of Credit at September 30, 2004
and December 31, 2003, respectively.

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

The Company received seller financing of $1,000 from Inn America at
Aviation Plaza, L.L.C. (the "Inn America Note") related to the purchase of
our Hampton Inn, Linden, NJ and Hilton Garden Inn, Edison, NJ. The
principal amount of the Inn America Note is due on December 31, 2004, and
we are accruing interest at 5.0% per annum related to this note. For the
three and nine months ended September 30, 2004, we have incurred interest
expense of $13 and $49, respectively.

Capital Lease Payable
-----------------------

The Company assumed a $500 capital lease obligation as part of its
acquisition of the Holiday Inn Express, Hartford, CT in January 2004. The
six year lease is secured by furniture, fixtures and equipment and the
hotel property and is amortized over a six year period from the acquisition
at a fixed rate of 7.75%. We also assumed a capital lease payable of $108
as part of the acquisition of the Four Point Sheraton, Revere, MA in March
2004.

NOTE 6 - COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS

We are the sole general partner in the Partnership, which is indirectly the
sole general partner of the subsidiary partnerships. The Company does not
anticipate any losses as a result of our obligations as general partner.

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

In June 2004 we entered into an agreement effective April 1, 2004 with
HHMLP to terminate the eight remaining leases for the following properties:

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

All of these properties have entered into leases with 44 New England (our
TRS) effective as of April 1, 2004 and will continue to be managed by
HHMLP. As part of the lease termination, the original sellers of the
properties, HHLP and HHMLP have agreed to waive any and all purchase price
adjustment in the original purchase agreements for each of the properties.
There is no potential liability for any future repricings with any of our
owned properties as of September 30, 2004. We entered into management
agreements with HHMLP for each of these hotels, but did not pay any other
consideration in connection with the lease terminations.

For the nine month period ended September 30, 2004, we earned fixed rents
of $1,222 and earned percentage rents of $662. For the nine month period
ended September 30, 2003, we earned fixed rents of $4,627 and earned
percentage rents of $6,632.

The Company had previously entered into leases with Noble Investment Group
Ltd. ("Noble"), an independent third party management company, to lease and
manage four hotels in the metropolitan Atlanta, Georgia market. Noble
elected not to renew these leases upon expiration of the initial terms of
the leases. The leases for the Hampton Inn, Newman, GA and Hampton Inn,
Peachtree City, GA expired on April 20, 2003 and the leases for the Comfort
Suites, Duluth, GA and Holiday Inn Express, Duluth, GA expired on May 20,
2003. On the respective lease termination dates, the Company leased the
four properties to 44 New England and engaged HHMLP to operate the hotels
under management contracts.

Therefore, the consolidated financial statements as of September 30, 2003,
and thereafter, include the operating results of these four hotels under
the TRS structure from the termination date, Previously, revenues on the
consolidated financial statements were derived primarily from lease
payments which were made out of the net operating income of the properties
pursuant to the Percentage Leases. Under the TRS structure, total revenues
from the hotel properties and the related operating expenses are reported
in the consolidated statements of operations.

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

Beginning in April 2003, 44 New England, our TRS, engaged HHMLP as the
property manager for hotels it leased from us pursuant to management
agreements. Each management agreement provides for a five-year term and is
subject to early termination upon the occurrence of defaults and certain
other events described therein. As required under the REIT qualification
rules, HHMLP must qualify as an "eligible independent contractor" during
the term of the management agreements. Under the management agreements,
HHMLP generally pays the operating expenses of our hotels. All operating
expenses or other expenses incurred by HHMLP in performing its authorized
duties are reimbursed or borne by our TRS to the extent the operating
expenses or other expenses are incurred within the limits of the applicable
approved hotel operating budget. HHMLP is not obligated to advance any of
its own funds for operating expenses of a hotel or to incur any liability
in connection with operating a hotel.

As of September 30, 2004, HHMLP managed all 25 hotels leased to our TRS,
and we consolidated the financial performance of these 25 hotels in these
financial statements. For its services, HHMLP receives a base management
fee, and if a hotel meets and exceeds certain thresholds, an additional
incentive management fee. The base management fee for a hotel is due
monthly and is equal to 3% of gross revenues associated with each hotel
managed for the related month. The incentive management fee, if any, for a
hotel is due annually in arrears on the sixtieth day following the end of
each fiscal year and is equal to an amount determined by our TRS and HHMLP
prior to the commencement of each fiscal year beginning in 2004, generally
based upon the financial performance of the hotel. Due to the uncertainty
related to the calculation of the incentive management fees, we have not
accrued any expense related to these fees during the period ending
September 30, 2004. For the period ended September 30, 2004 and September
30, 2003, management fees incurred totaled $1,049 and $40, respectively,
and are recorded in Hotel Operating Expenses.

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

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

We have executed an administrative services agreement with HHMLP to provide
accounting and securities reporting services for the Company. The terms of
the agreement provide for us to pay HHMLP an annual fee of $10 per property
(prorated from the time of acquisition) for each hotel in our portfolio.
For the nine month periods ended September 30, 2004 and 2003,
administrative services fees of $187 and $129, respectively, are included
in General and Administrative expenses. For the three month periods ended
September 30, 2004 and 2003, administrative services fees of $65 and $45,
respectively, are included in General and Administrative expenses.

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

The hotel properties are operated under franchise agreements assumed by the
hotel property lessee. The franchise agreements have 10 to 20 year terms
but may be terminated by either the franchisee or franchisor on certain
anniversary dates specified in the agreements. The franchise agreements
require annual payments for franchise royalties, reservation, and
advertising services, and such payments are based upon percentages of gross
room revenue. These payments are paid by the lessees and charged to
expenses as incurred. The initial fees incurred to enter into the franchise
agreements are amortized over the life of the franchise agreements.

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

We have acquired from affiliates of certain of our executive officers and
trustees, newly-developed or newly-renovated hotels that do not have an
operating history that would allow us to make purchase price decisions
based on historical performance. In buying these hotels, we previously
utilized, a "re-pricing" methodology that, in effect, adjusted the initial
purchase price for the hotel, one or two years after we initially purchased
the hotel, based on the actual operating performance of the hotel during
the twelve months prior to the repricing. As part of our lease termination
agreement with HHMLP, the original sellers of all of these properties,
HHMLP and the Company have waived their respective rights to any and all
purchase price adjustments for all properties.

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

We have entered into an option agreement with each of our officers and
trustees such that we obtain a first right of refusal to purchase any hotel
owned or developed in the future by these individuals or entities
controlled by them regardless of proximity to our hotels. This right of
first refusal would apply to each party until one year after such party
ceases to be an officer or trustee of our Company. Of the 27 hotel
properties purchased by us since our initial public offering, 15 were
acquired from affiliates, 14 of which were newly-constructed or
substantially renovated. 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
negotiated with the Acquisition Committee. In addition, we have hired an
independent accounting firm to provide our Board of Trustees with an
"Agreed Upon Procedures" report for all acquisitions and dispositions to
related parties.

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

For the nine month periods ended September 30, 2004 and 2003, we incurred
expenses of $1,476 and $9 for hotel supplies from Hersha Hotel Supply, an
unconsolidated related party, which are expenses included in Hotel
Operating Expenses. For the three month periods ended September 30, 2004
and 2003, we incurred expenses of $836 and $9 for hotel supplies from
Hersha Hotel Supply, an unconsolidated related party, which are expenses
included in Hotel Operating Expenses. Approximately $775 is included in
accounts payable at September 30, 2004 to Hersha Hotel Supply.

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

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

As of September 30, 2004 and December 31, 2003, amounts due from related
parties totaled $9,871 and $5,768, respectively. We have approved the
lending of up to $10,000 to entities in which our executive officers and
trustees own an interest to enable such entities to construct hotels and
conduct related improvements on specific hotel projects at interest rates
ranging from 10.0% to 12.0% ("Development Line Funding"). As of September
30, 2004 and December 31, 2003, our due from related party balance
consisted of Development Line Funding of $7,700. Interest income from these
advances included in "Interest - Secured Loans Related Party," was $187 and
$528 for the periods ended September 30, 2004 and 2003, respectively. The
remainder of the due from related party balance as of September 30, 2004
included approximately $1,985 of operating cash from HHMLP and other
operating entities and $186 of interest income from Development Line
Funding.

The due to related party balance as of September 30, 2004 and December 31,
2003, totaled $1,350 and $419, respectively. The due to related party
balance at September 30, 2004, included a $1,000 payable to related parties
in conjunction with the purchase of the Hilton Garden Inn, Gettysburg, PA
and a $350 payable to HHMLP for administrative and management fees. The due
to related party balance at December 31, 2003, includes $128 payable to
HHMLP for administrative and management fees and $313 payable to HHMLP for
furniture, fixtures and equipment reserves.

NOTE 7 - EARNINGS PER SHARE

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

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

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004 2003
------------- ------------- ------------- -----------

NUMERATOR:
Income Before Distribution to Preferred Unitholders, Minority Interest
and Discontinued Operations $ 2,559 $ 1,973 $ 3,615 $ 3,428

Distributions to Preferred Unitholders - (432) (499) (696)

Allocation of (Income) to Minority Interest from
Continuing Operations (353) (1,310) (343) (2,277)
------------- ------------- ------------- -----------

INCOME FROM CONTINUING OPERATIONS 2,206 231 2,773 455
Income from Discontinued Operations 296 61 578 181
Income allocation to Logan Hospitality Joint Venture (140) - (213) -
------------- ------------- ------------- -----------

NUMERATOR FOR BASIC EARNINGS PER SHARE - NET INCOME 2,362 292 3,138 636

Effect of Dilutive Securities:
Minority Interest 404 1,310 461 2,277
Other - - - -
------------- ------------- ------------- -----------

NUMERATOR FOR DILUTED EPS - NET INCOME PLUS INCOME
AVAILABLE TO COMMON UNITHOLDERS $ 2,766 $ 1,602 $ 3,599 $ 2,913
============= ============= ============= ===========

DENOMINATOR:
Denominator for basic earnings per share - weighted
average shares 16,621,875 2,579,416 15,082,927 2,578,641
Effect of Dilutive Securities:
Minority Interest - Common Partnership Units 2,842,437 5,099,723 3,066,037 5,099,723
------------- ------------- ------------- -----------

Dilutive Potential Common Shares 2,842,437 5,099,723 3,066,037 5,099,723
------------- ------------- ------------- -----------

Denominator for diluted earnings per share - weighted average
shares and units outstanding 19,464,312 7,679,139 18,148,964 7,678,364
============= ============= ============= ===========

NOTE 8 - CASH FLOW DISCLOSURES AND NON-CASH INVESTING AND FINANCING ACTIVITIES

Interest paid during the periods ended September 30, 2004 and 2003 totaled
$4,840 and $3,580, respectively.

On July 23, 2004, we acquired the Hilton Garden Inn, Gettysburg, PA. In
conjunction with the acquisition we assumed mortgage indebtedness of $5,450
for this hotel.

The following additional non-cash investing and financing activities
occurred during the period ended September 30, 2004 and 2003:

NINE MONTHS ENDED
SEPTEMBER 30,
2004 2003
---------------------

Conversion of common LP Units to common stock $ 5,514 $ -

Conversion of Series A Preferred Units to common stock $ 17,080 $ -

Adjustment to minority interest as result of the redemption of
common LP Units $ 137 $ -

Adjustment to minority interest as result of the redemption of
Series A Preferred Units $ 266 $ -

Adjustment to minority interest as result of the Issuance of
Common Shares $ 1,752 $ -

Common shares issued as part of the Dividend
Reinvestment Plan $ 17 $ 17

Dividends and distributions payable $ 4,164 $ 3,407

NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS

In accordance with FIN 46, we have evaluated our investments and
contractual relationships with Inn America Hospitality at Ewing, LLC,
HHMLP, Logan Hospitality Associates, LLC, HT/CNL Metro Hotels, LP, PRA
Glastonbury, LLC, and Metro Ten Hotels, LLC to determine whether these
entities meet the guidelines of consolidation in accordance with FIN 46.
Our examination consisted of reviewing the sufficiency of equity at risk,
controlling financial interests, voting rights, obligation to absorb
expected losses and expected gains, including residual returns.

Based upon the termination of all existing leases with HHMLP as of April 1,
2004 and the funding of sufficient equity by the partners of HHMLP, we have
determined that HHMLP is not a variable interest entity of which we are the
primary beneficiary. Therefore we have not consolidated the financial
statements of HHMLP with the financial statements of the Company effective
as of April 1, 2004.

Based upon our review, all other investments in partnerships and joint
ventures represent non-controlling ownership interests in properties. These
investments are accounted for using the equity method of accounting. These
investments are recorded initially at cost and subsequently adjusted for
net equity in income (loss), which is allocated in accordance with the
provisions of the applicable partnership or joint venture agreements.

We will continue to evaluate each of our investments and contractual
relationships to determine if consolidation is required based upon the
provisions of FIN 46.

NOTE 10 - DISCONTINUED OPERATIONS

The Company adopted SFAS No. 144 effective January 1, 2002 which requires,
among other things, that the operating results of certain real estate
assets which have been sold subsequent to January 1, 2002, or otherwise
qualify as held for disposition (as defined by SFAS No. 144), be included
in discontinued operations in the statements of operations for all periods
presented. In May 2004, our Board of Trustees authorized management of the
Company to sell the Doubletree Club, Jamaica, NY which is classified as
"held for sale" on the Company's Consolidated Balance Sheet as of June 30,
2004. The property is currently under a non-binding letter of intent with a
potential purchaser. The operating results for this hotel are included in
discontinued operations in the statements of operations for the three and
nine months ended September 30, 2003 and 2004.

The components of income from discontinued operations are as follows for
the three and six months ended September 30, 2004 and 2003 (in thousands):

NOTE 10 - DISCONTINUED OPERATIONS (CONTINUED)

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004 2003
------------ ------------ ------------ ------

REVENUE:
Percentage Lease Revenues - HHMLP $ - $ 397 $ 397 $1,191
Hotel Operating Revenues 1,122 - 2,110 -
Other Revenues - - - -
------------ ------------ ------------ ------
TOTAL REVENUE 1,122 397 2,507 1,191
------------ ------------ ------------ ------

EXPENSES:
Interest expense 100 96 287 304
Hotel Operating Expenses 660 - 1,283 -
Real Estate and Personal Property
Taxes and Property Insurance 12 16 35 42
General and Administrative 3 3 8 8
Depreciation and Amortization - 99 198 299
------------ ------------ ------------ ------
TOTAL EXPENSES 775 214 1,811 653
------------ ------------ ------------ ------
Income from Discontinued Operations 347 183 696 538
Allocation to Minority Interest 51 122 118 357
------------ ------------ ------------ ------
INCOME FROM DISCONTINUED OPERATIONS $ 296 $ 61 578 $ 181
============ ============ ============ ======

NOTE 11 - SUBSEQUENT EVENTS

The quarterly dividend pertaining to the third quarter of 2004 was paid on
October 15, 2004 at the rate of $0.18 per share and limited partnership
unit, which represents an annualized rate of $0.72 per annum.

On November 1, 2004, we increased our first mortgage financing commitment
of $11,000 to $13,850 for the newly constructed Hilton Garden Inn (JFK
Airport), NY to Metro Ten Hotels, LLC, a third party owner of the asset.

On November 1, 2004, we provided a first mortgage financing commitment of
$5,000 at 8.0% for the renovation of a Holiday Inn Express Lancaster, PA to
HBK Hospitality Associates, L.P., a related party owner of the asset. We
have also acquired an option to purchase this asset.

On November 1, 2004, we provided a first mortgage financing commitment of
$4,100 at 10.0% for the construction of a hotel in Manhattan (Tribeca), New
York to 5544 Associates, LP, a related party owner of the asset. We have
simultaneously cancelled our $2,000 development line funding of this asset.
We have also acquired an option to purchase this asset.

On November 1, 2004, we provided a first mortgage financing commitment of
$4,400 at 10.0% for the construction of a Hampton Inn hotel in Manhattan
(South Street Seaport), New York to HPS Seaport, LLC and BCM, LLC, a
related party owner of the asset. We have simultaneously cancelled our
$3,000 development line funding of this asset. We have also acquired an
option to purchase this asset.

On November 5, 2004, we provided a first mortgage financing commitment of
$7,000 at 8.0% for the construction of a limited service hotel in Manhattan
(Midtown-South), New York to 44 Fifth Avenue, LLC, a related party owner of
the asset. We have also acquired an option to purchase this asset.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

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

GENERAL

As of September 30, 2004, we owned interests in 29 hotels in the eastern United
States including four hotels owned through joint ventures. For purposes of the
REIT qualification rules, we cannot directly operate any of our hotels. Instead,
we must lease our hotels. In 2001, the REIT rules were modified, allowing a
hotel REIT to lease its hotels to a taxable REIT subsidiary, or TRS, provided
that the TRS engages an eligible independent contractor to manage the hotels.
Accordingly, as of September 30, 2004, we have leased 25 of our hotels to a
wholly-owned TRS, which will pay qualifying rent, and the TRS has entered into
management contracts with HHMLP with respect to those hotels. We intend to lease
all newly acquired hotels to a TRS. As of September 30, 2004, we also owned
interests in four hotels through joint ventures, and those hotels are leased to
TRSs that are wholly owned by those joint ventures. The hotels owned by the
joint ventures are managed by HHMLP pursuant to the terms of certain management
agreements.

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

OPERATING RESULTS

The following table outlines operating results for the Company's full portfolio,
including all wholly owned hotels and those owned through a joint venture
interest for the three and nine months ended September 30, 2004 and 2003.

NINE NINE
MONTHS MONTHS
ENDED ENDED PERCENT
9/30/04 9/30/03 INCREASE
------------ ------------ ---------
Rooms Available 713,935 435,730 63.85%
Rooms Occupied 484,729 293,428 65.20%
Occupancy 67.90% 67.34% 0.83%
ADR $ 97.41 $ 83.63 16.48%
RevPar $ 66.14 $ 56.32 17.44%

Room Revenue $47,218,946 $24,539,029 92.42%
Total Revenue $52,545,084 $26,975,150 94.79%

THREE THREE
MONTHS MONTHS PERCENT
ENDED ENDED INCREASE
9/30/04 9/30/03 (DECREASE)
------------ ------------ ----------
Rooms
Available 269,034 150,112 79.22%
Rooms
Occupied 199,630 112,516 77.42%
Occupancy 74.20% 74.95% -1.00%
ADR $ 103.52 $ 92.60 11.79%
RevPar $ 76.82 $ 69.41 10.68%

Room Revenue $20,666,200 $10,419,123 98.35%
Total Revenue $22,721,782 $11,251,237 101.95%

The increase in revenue per available room ("RevPAR") was due primarily to a
rebounding economy; the Company's broadened strategic portfolio focus on
stronger central business districts and primary suburban office parks; the size
of the recent acquisitions as a percentage of the portfolio; franchise
affiliations with stronger brands, such as Hilton Garden Inn, Residence Inn and
Four Points by Sheraton; and a strong focus on improving the average daily rate
("ADR") and controlling costs. The increase in both rooms and total revenue can
be attributed primarily to the eleven hotels acquired since September 30, 2003.

COMPARISON OF THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 TO SEPTEMBER 30,
2003.

HERSHA HOSPITALITY TRUST

REVENUE

Our total revenues for the nine-month period ended September 30, 2004 consisted
substantially of hotel operating revenues for hotels leased to our wholly owned
TRS, 44 New England, and percentage lease revenue recognized pursuant to
percentage leases with HHMLP. Our total revenues were approximately $40,026,000
an increase of $27,488,000 or 219.24% compared to total revenues of $12,538,000
for the nine-month period ended September 30, 2003. The increase in revenue is
primarily attributable to the acquisition of new hotels since the period ended
September 30, 2003 and the direct recording of hotel operating revenues for
hotels leased to our TRS. Under the TRS structure, we recognize gross hotel
operating revenues and gross hotel operating expenses for hotels leased to 44
New England. Under the percentage lease structure, we recorded only percentage
lease revenues that are calculated as a percentage of a hotel's revenues per the
lease agreements.

Hotel operating revenues increased by approximately $34,991,000 as hotels
previously leased to HHMLP through percentage leases were converted to a TRS
structure and were subsequently leased to our TRS, 44 New England. During the
first three months ended March 31, 2004, eight of our hotels were leased to
HHMLP through percentage leases and 14 hotels were leased to our TRS. As of
April 1, 2004, all of our owned hotels were leased to our TRS, and all of our
hotels owned in a joint venture were leased to a TRS owned by the joint venture.

accounted for utilizing the equity method of accounting and our portion of the
net income from these two joint ventures is recorded as "Income from
Unconsolidated Joint Venture Investments" in our Statement of Operations.

Percentage lease revenues decreased from approximately $10,068,000 in 2003 to
$1,487,000 in 2004. This decrease is due to the expiration of six percentage
leases on January 31, 2004 and the transfer of all of our leases to a TRS
structure as of April 1, 2004, as mentioned above.

Interest and other revenue increased to approximately $1,551,000 in 2004 from
$473,000 in 2003. The Company recorded interest revenue of $1,297,000 on its
secured and unsecured development lines for four hotels and a loan to HT/CNL
Metro Hotels, LP during the nine month period ended September 30, 2004. The
loan to HT/CNL Metro Hotels, LP was fully repaid in July 2004. Additionally,
the Company earned interest on short term investments and escrow accounts of
$135,000 in 2004. Other revenue primarily related to asset management fees
received for the Hampton Inn, (Manhattan) Chelsea, NY and loan commitment fees
on our secured lending totaling $119,000.

EXPENSES

Total expenses increased 304.6% to approximately $36,863,000 for the nine month
period ended September 30, 2004 from $9,110,000 for the nine month period ended
September 30, 2003.

Hotel operating expenses increased to approximately $22,503,000 in 2004 from
$1,415,000 in 2003 due to the direct recognition of hotel operating expenses for
hotels leased to 44 New England. Under the TRS structure we recognize gross
hotel operating revenues and gross hotel operating expenses for hotels leased to
44 New England. In addition, we recorded expenses for seven acquisitions and
one joint venture from the date of acquisition.

Depreciation and amortization increased from approximately $3,035,000 in 2003 to
$5,197,000 in 2004, an increase of $2,162,000, due to additional depreciation
expense incurred related to additional property acquisitions.

Interest expense increased approximately $1,236,000 from $3,300,000 in 2003 to
$4,536,000 in 2004. The increase is related to financings related to the
acquisition of additional property acquisitions.

Real estate and personal property taxes and insurance increased by approximately
$1,593,000 from $828,000 in 2003 to $2,421,000 in 2004. The increase is
primarily related to additional property taxes incurred at our hotels acquired
since September 30, 2003.

General and administrative expense increased by approximately $1,324,000 from
$532,000 in 2003 to $1,856,000 in 2004. The increase is primarily related to
the establishment of a formal management compensation plan in 2004. In prior
periods HHMLP was responsible for a majority of the compensation expense related
to our employees. General and administrative expenses also increased due to
increased audit and legal expenses incurred during the period.

The Company assumed land leases on the Hilton Garden Inn, Edison, NJ and the
Holiday Inn Express, Hartford, CT since September 30, 2003, resulting in an
increase of land lease expense by approximately $350,000.

NET INCOME (LOSS)

Net income for the nine month period ended September 30, 2004 was approximately
$3,138,000, compared to 2003 net income of $636,000 for the similar period. As
mentioned above, we converted a majority of our hotels to a TRS structure, in
which we recognize both gross hotel operating revenues and gross hotel operating
expenses. Excluding unconsolidated joint ventures, we own or have a
consolidated joint venture interest in 26 hotels that are leased to a wholly
owned TRS.

On April 16, 2004, CNL converted all of its Series A Preferred Units into common
stock and sold these shares in a secondary offering. Net income available for
common shareholders was positively impacted due to this conversion due to the
fact that there were no distributions to preferred unitholders during the nine
months ended September 30, 2004.

Net income was positively impacted by an increase in income from unconsolidated
joint venture investments of $452,000 and the reduction in income allocated to
minority interest during the period as a result of the October 2003 and
September 2004 common share offerings.

COMPARISON OF THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2004 TO SEPTEMBER 30,
2003.

HERSHA HOSPITALITY TRUST

REVENUE

Our total revenues for the three month period ended September 30, 2004 consisted
substantially of hotel operating revenues for hotels leased to our wholly owned
TRS, 44 New England. Our total revenues were approximately $17,760,000,
representing an increase of $12,710,000 or 251.7% compared to total revenues of
$5,050,000 for the three month period ended September 30, 2003. The increase in
revenue is primarily attributable to the direct recording of hotel operating
revenues for hotels leased to our TRS. Under the TRS structure we recognize
gross hotel operating revenues and gross hotel operating expenses for hotels
leased to 44 New England. Under the percentage lease structure we previously
recorded only percentage lease revenues that are calculated as a percentage of a
hotel's revenues per the lease agreements.

Hotel operating revenues increased by approximately $16,093,000 as hotels
previously leased to HHMLP through percentage leases were converted to a TRS
structure and were subsequently leased to our TRS, 44 New England. As of April
1, 2004, all of our owned hotels were leased to our TRS, and all of our hotels
owned in a joint venture were leased to a TRS owned by the joint venture.

Additionally, since September 30, 2003, the Company has acquired seven hotels
and a joint venture interest in four additional hotels. Revenue for all seven
purchases and one consolidated joint venture was recorded from the date of
acquisition as Hotel Operating Revenues. The remaining three joint ventures are
accounted for utilizing the equity method of accounting, and our portion of the
net income from these three joint ventures is recorded as "Income from
Unconsolidated Joint Venture Investments" in our Statement of Operations.

Percentage lease revenue decreased from approximately $3,566,000 in 2003 to $0
in 2004. This decrease is due to the transfer of all of our existing leases
with HHMLP to a TRS structure as of April 1, 2004, as mentioned above.

Interest and other revenue increased to approximately $441,000 in 2004 from
$258,000 in 2003. The Company recorded interest revenue of $415,000 on its
secured and unsecured development lines for four hotels and a loan to HT/CNL
Metro Hotels, LP during the three month period ended September 30, 2004. The
loan to HT/CNL Metro Hotels, LP was fully repaid in July 2004. Additionally,
the Company earned interest on short term investments and escrow accounts of
$16,000 and had other revenue of $10,000 during the period.

EXPENSES

Total expenses increased to approximately $15,484,000 for the three month period
ended September 30, 2004 from $3,077,000 for the three month period ended
September 30, 2003.

Hotel operating expenses increased to approximately $10,133,000 in 2004 from
$527,000 in 2003 due to the direct recognition of hotel operating expenses for
hotels leased to 44 New England. Under the TRS structure we recognize gross
hotel operating revenues and gross hotel operating expenses for hotels leased to
44 New England. In addition, we recorded expenses for five acquisitions and one
consolidated joint venture from the date of acquisition.

Depreciation and amortization increased from approximately $1,954,000 in 2003 to
$1,039,000 in 2004, an increase of $915,000, due to additional depreciation
expense incurred for additional property acquisitions.

Interest expense increased approximately $678,000 from $1,051,000 in 2003 to
$1,729,000 in 2004. The increase is related to addition financings due to the
acquisition of additional property acquisitions.

Real estate and personal property taxes and insurance increased by approximately
$617,000 from $312,000 in 2003 to $929,000 in 2004. The increase is primarily
related to additional property taxes incurred at our hotels acquired since
September 30, 2003.

General and administrative expense increased by approximately $528,000 from
$148,000 in 2003 to $676,000 in 2004. The increase is primarily related to the
establishment of a formal management compensation plan in 2004. In prior
periods, HHMLP was responsible for a majority of the compensation expense
related to our employees. General and administrative expenses were also
adversely impacted by increased audit and legal fees during the period.

The Company assumed land leases on the Hilton Garden Inn, Edison, NJ and the
Holiday Inn Express, Hartford, CT since June 30, 2003, resulting in an increase
of land lease expense by approximately $63,000 during the period.

NET INCOME (LOSS)

Net income for the three month period ending September 30, 2004 was
approximately $2,362,000 compared to 2003 net income of $292,000 for the similar
period. As mentioned above, we converted a majority of our hotels to a TRS
structure, in which we recognize both gross hotel operating revenues and gross
hotel operating expenses. Excluding unconsolidated joint ventures, we own or
have a consolidated joint venture interest in 26 hotels that are leased to a
wholly owned TRS.

Net income was positively impacted by an increase in income from unconsolidated
joint venture investments of $283,000, the elimination of distributions paid to
Series A Preferred Unitholders during the period and the reduction in income
allocated to minority interest during the period as a result of the October 2003
and September 2004 common share offerings.

LIQUIDITY AND CAPITAL RESOURCES

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

On September 24, 2004, we completed a public offering of 3,500,000 common shares
at $9.37 per share. On September 30, 2004, the underwriter exercised its
over-allotment option on these shares, and we issued an additional 400,000
common shares at $9.37 per share. Proceeds to the Company, net of underwriting
discounts and commissions and expenses, were approximately $36,451. Immediately
upon closing the offering, the Company contributed all of the net proceeds of
the offering to the Partnership in exchange for additional Partnership
interests. Of the net offering proceeds, approximately $5,000 was used to repay
indebtedness. The remaining net proceeds have been principally allocated to
fund secured development loans, acquisitions and for general corporate purposes.

Our cash and cash equivalents balance of $33,160 at September 30, 2004 was
primarily due to the proceeds from this equity offering.

We currently maintain a $35,000,000 line of credit with Sovereign Bank. We may
use the line of credit to fund future acquisitions and for working capital.
Outstanding borrowings under the line of credit bear interest at the bank's
prime rate and are collateralized by certain of our properties. In the future,
we may seek to increase the amount of the line of credit, negotiate additional
credit facilities or issue corporate debt instruments. Any debt incurred or
issued by us may be secured or unsecured, long-term or short-term, fixed or
variable interest rate and may be subject to such other terms as we deem
prudent. As of September 30, 2004, we did not have any outstanding borrowings
on our line of credit and the interest rate on the line of credit was 4.75%.

We have a debt policy that limits our consolidated indebtedness to less than 67%
of the aggregate purchase prices for the hotels in which we have invested, and
our current level is approximately 48.9%. However, our organizational documents
do not limit the amount of indebtedness that we may incur and our Board of
Trustees may modify our debt policy at any time without shareholder approval.
We intend to repay indebtedness incurred under the line of credit from time to
time, for acquisitions or otherwise, out of cash flow and from the proceeds of
issuances of additional common shares and other securities.

We intend to invest in additional hotels only as suitable opportunities arise
and adequate sources of financing are available. Our bylaws require the
approval of a majority of our Board of Trustees, including a majority of the
independent trustees, to acquire any additional hotel in which one of our
trustees or officers, or any of their affiliates, has an interest (other than
solely as a result of his status as our trustee, officer or shareholder). We
expect that future investments in hotels will depend on and will be financed by,
in whole or in part, the proceeds from additional issuances of common shares,
issuances of operating partnership units or other securities or borrowings. We
currently have no agreement or understanding to acquire any hotel, and there can
be no assurance that we will acquire any additional hotels that meet our
investment criteria.

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

Cash Flow Analysis

Net cash provided by operating activities for the nine month periods ended
September 30, 2004 and 2003 was $10,654 and $4,132, respectively. The increase
in net cash provided by operating activities was primarily the result of an
increase in net income, a decrease in income allocated to minority interest, a
decrease in lease payments receivable - related party and an increase in
accounts payable and accrued expenses.

Net cash used in investing activities for the nine month periods ended September
30, 2004 and 2003 was $57,416 and $10,084, respectively. The increase in net
cash used in investing activities was primarily the result of (a) $51,898
related to the purchase of the Holiday Inn Express - Hartford, CT; Residence Inn
- - Framingham, MA; Comfort Inn, Frederick, MD; Residence Inn - Greenbelt, MD;
Hilton Garden Inn - Gettysburg, PA, (b) $2,484 to fund capital improvements in
our hotels, (c) $4,509 utilized for joint venture investments in the Sheraton
Four Points - Revere, MA and the Marriott Courtyard - Ewing, NJ and certain
capital improvements at our existing joint venture properties, (d) $11,000
utilized to fund a development loan to Metro Ten Hotels, LLC, and (e) $3,000 of
development loans to related parties. This was partially offset by $15,000
received from HT/CNL Metro Hotels, LP related to the repayment of indebtedness.

Net cash provided by financing activities for the nine month periods ended
September 30, 2004 and 2003 was $39, 215 and $8,664, respectively. The increase
in net cash provided by financing activities was primarily the result of $38,825
of proceeds related to the issuance of common shares and $24,375 of proceeds
from mortgages payable. This was partially offset by $4,897 of principal
repayment of mortgages payable, $8,951 of redemption of partnership units,
$7,615 of dividends paid on common shares and $1,707 of distributions paid on
common partnership units.

FUNDS FROM OPERATIONS

The National Association of Real Estate Investment Trusts ("NAREIT") developed
Funds from Operations ("FFO") as a relative non-GAAP financial measure of
performance and liquidity of an equity REIT in order to recognize that
income-producing real estate historically has not depreciated on the basis
determined under GAAP. FFO, as defined under the definition adopted by NAREIT is
net income (loss) (computed in accordance with GAAP), excluding sales of
property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. We also adjust FFO for

discontinued operations, minority interest applicable to common units, and
preferred stock distributions to present FFO applicable to the common shares and
common units. FFO does not represent cash flows from operating activities in
accordance with GAAP (which, unlike FFO, generally reflects all cash effects of
transactions and other events in the determination of net income) and should not
be considered an alternative to net income as an indication of our performance
or to cash flow as a measure of liquidity or ability to make distributions. We
consider FFO 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. Comparison of our presentation of FFO to
similarly titled measures for other REITs may not necessarily be meaningful due
to possible differences in the calculations used by such REITs.

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

(in thousands, except per share data)

THREE MONTHS ENDING NINE MONTHS ENDING
9/30/04 9/30/03 9/30/04 9/30/03
------------- ------------- ------------- ----------

Net Income $ 2,362 $ 292 $ 3,138 $ 636
Add:
Income allocated to Common Unitholders 353 1,310 343 2,277
Income allocated to Common Unitholders for Discontinued Operations 51 122 118 357
Distributions to Preferred Unitholders - 432 499 696
Depreciation and Amortization 1,954 1,039 5,197 3,035
Depreciation from Discontinued Operations - 99 198 299
Adjustments for Unconsolidated Joint Ventures 235 - 557 -
------------- ------------- ------------- ----------
FFO applicable to common shareholders and common unitholders $ 4,955 $ 3,294 $ 10,050 $ 7,300
============= ============= ============= ==========

Fully Diluted Weighted Average Common Shares and Units Outstanding 19,464,312 10,113,351 19,248,823 8,994,821

FFO was $10,051,000 for the nine month period ended September 30, 2004, which
was an increase of $2,751,000, or 37.7%, more than FFO in the comparable period
in 2003, which was $7,300,000.

FFO was $4,955,000 for the three month period ended September 30, 2004, which
was an increase of $1,661,000, or 50.4%, more than over FFO in the comparable
period in 2003, which was $3,294,000.

The increase in FFO was primarily a result of a strengthened economy; the
benefits of asset acquisitions since September 30, 2003; the conversion of fixed
and percentage leases with HHMLP to leases with our TRS since April 1, 2004;
continued stabilization and maturation of the existing portfolio; an increase in
business travel and aggressive attention to the average daily rate. Under the
REIT Modernization Act ("RMA"), which became effective January 1, 2001, the
Company is permitted to lease hotels to a wholly owned taxable REIT subsidiary
("TRS") and may continue to qualify as a REIT provided the TRS enters into
management agreements with an "eligible independent contractor" who will manage
the hotels leased by the TRS. The Company formed the TRS Lessee in 2003. As of
September 30, 2004, the TRS leased 25 properties from the Partnership, and is
subject to taxation as a c-corporation. During 2004, all of our fixed and
percentage leases have either expired or been terminated, and the Company now
records the hotel operating revenues and expenses directly on its books.

FFO was negatively impacted by start up costs at hotels that were recently
acquired and are still in the ramp up or stabilization phase. FFO was also
negatively impacted by increases in our General and Administrative expenses
during the three and nine month periods ended September 30, 2004 reflecting the
implementation of a formal management compensation plan and additional legal and
accounting expenses incurred during the periods.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

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

Revenue Recognition.

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

Impairment of Long-Lived Assets.

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

We would record an impairment charge if we believe an investment in hotel
property has been impaired such that future undiscounted cash flows would not
recover the carrying value of the investment in the hotel property. Future
adverse changes in market conditions or poor operating results of underlying
investments could result in losses or an inability to recover the carrying value
of the investments that may not be reflected in an investment's carrying value,
thereby possibly requiring an impairment charge in the future.

IMPACT OF FIN 46

The Financial Accounting Standards Board issued FASB Interpretation No. 46,
("FIN 46") "Consolidation of Variable Interest Entities (VIE's), an
interpretation of Accounting Research Bulletin No. 51 (ARB No. 51)," in January
2003 and a further interpretation of FIN 46 in December 2003 ("FIN 46-R" and FIN
46, collectively "FIN 46"). FIN 46 addresses how a business enterprise should
evaluate whether it has a controlling financial interest in any variable
interest entity ("VIE") through means other than voting rights, and accordingly,
should include the VIE in its consolidated financial statements. We have
adopted FIN 46 as of March 31, 2004.

In accordance with FIN 46, we have evaluated our investments and contractual
relationships with HHMLP, Logan Hospitality Associates, LLC, HT/CNL Metro
Hotels, LP, PRA Glastonbury, LLC, Inn America Hospitality at Ewing, LLC and
Metro Ten Hotels, LLC to determine whether these entities meet the guidelines of
consolidation per FIN 46. Our examination consisted of reviewing the
sufficiency of equity at risk, controlling financial interests, voting rights,
obligation to absorb expected losses and expected gains, including residual
returns.

We have terminated all of the existing leases with HHMLP, effective April 1,
2004. Due to the termination of the leases and the funding of sufficient equity
by the partners of HHMLP, we have determined that HHMLP is a voting interest
entity and we have no ownership interest in that entity. Therefore we have not
consolidated the financial statements of HHMLP with ours effective as of April
1, 2004.

We own a 55% joint venture interest in Logan Hospitality Associates, LLC, the
owner of the Sheraton Four Points, Revere, MA. We have determined that we have
a majority voting interest in this joint venture and that it qualifies for
consolidation.

All other investments in partnerships and joint ventures represent
non-controlling ownership interests in properties. These investments are
accounted for using the equity method of accounting. These investments are
recorded initially at cost and subsequently adjusted for net equity in income
(loss), which is allocated in accordance with the provisions of the applicable
partnership or joint venture agreements and adjusted for any basis differences.

We will continue to evaluate each of our investments and contractual
relationships to determine if consolidation is required based upon the
provisions of FIN 46.

INFLATION

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

SEASONALITY

Our hotels' operations historically have been seasonal in nature, reflecting
higher occupancy rates during the second and third quarters. This seasonality
can be expected to cause fluctuations in our hotel operating revenues earned and
cash flows received from operations.

SUBSEQUENT EVENTS

The quarterly dividend pertaining to the third quarter of 2004 was paid on
October 15, 2004 at the rate of $0.18 per share and limited partnership unit,
which represents an annualized rate of $0.72 per annum.

On November 1, 2004, we increased our first mortgage financing commitment of
$11,000 to $13,850 for the newly constructed Hilton Garden Inn (JFK Airport), NY
to Metro Ten Hotels, LLC, a third party owner of the asset.

On November 1, 2004, we provided a first mortgage financing commitment of $5,000
at 8.0% for the renovation of a Holiday Inn Express Lancaster, PA to HBK
Hospitality Associates, L.P., a related party owner of the asset. We have also
acquired an option to purchase this asset.

On November 1, 2004, we provided a first mortgage financing commitment of $4,100
at 10.0% for the construction of a hotel in Manhattan (Tribeca), New York to
5544 Associates, LP, a related party owner of the asset. We have simultaneously
cancelled our $2,000 development line funding of this asset. We have also
acquired an option to purchase this asset.

On November 1, 2004, we provided a first mortgage financing commitment of $4,400
at 10.0% for the construction of a Hampton Inn hotel in Manhattan (South Street
Seaport), New York to HPS Seaport, LLC and BCM, LLC, a related party owner of
the asset. We have simultaneously cancelled our $3,000 development line funding
of this asset. We have also acquired an option to purchase this asset.

On November 5, 2004, we provided a first mortgage financing commitment of $7,000
at 8.0% for the construction of a limited service hotel in Manhattan
(Midtown-South) to 44 Fifth Avenue, LLC, a related party owner of the asset. We
have also acquired an option to purchase this asset.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risk exposure is to changes in interest rates on our variable
rate Line of Credit and other floating rate debt. At September 30, 2004, we did
not have any amounts outstandings under our Line of Credit. The Line of Credit
borrowings are at a rate of 4.75%. The total floating rate mortgages payable of
$19,691,561 had a current weighted average interest rate of 5.20%. The total
fixed rate mortgages payable of $79,539,001 had a current weighted average
interest rate of 7.40%. The Company believes that all of its fixed rate debt is
at fair value.

Our interest rate risk objectives are to limit the impact of interest rate
fluctuations on earnings and cash flows and to lower our overall borrowing
costs. To achieve these objectives, we manage our exposure to fluctuations in
market interest rates for a portion of our borrowings through the use of fixed
rate debt instruments to the extent that reasonably favorable rates are
obtainable with such arrangements. We may enter into derivative financial
instruments such as interest rate swaps or caps and treasury options or locks to
mitigate our interest rate risk on a related financial instrument or to
effectively lock the interest rate on a portion of our variable rate debt.
Currently, we have no derivative financial instruments. We do not intend to
enter into derivative or interest rate transactions for speculative purposes.

Approximately 80.2% of our outstanding mortgages payable are subject to fixed
rates while approximately 19.8% of our outstanding mortgages payable are subject
to floating rates. The total weighted average interest rate on our debt and Line
of Credit as of September 30, 2004 was approximately 6.97%. If the interest
rate for our Line of Credit and other variable rate debt was 100 basis points
higher or lower during the nine month period ended September 30, 2004, our
interest expense for the nine month period ended September 30, 2004 would have
been increased or decreased by approximately $85,000.

We regularly review interest rate exposure on our outstanding borrowings in an
effort to minimize the risk of interest rate fluctuations. For debt obligations
outstanding at September 30, 2004, the following table presents expected
principal repayments and related weighted average interest rates by expected
maturity dates (in thousands):

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

Fixed Rate Debt $ 282 $1,371 $1,853 $1,987 $2,130 $ 71,915 $79,538
Average Interest Rate 7.41% 7.40% 7.39% 7.39% 7.38% 7.38% 7.39%

Floating Rate Debt $ 125 $ 519 $ 549 $ 581 $ 615 $ 17,303 $19,692
Average Interest Rate 5.20% 5.21% 5.21% 5.22% 5.23% 5.23% 5.22%

The table incorporates only those exposures that existed as of September 30,
2004 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. In addition, the Company maintains a note payable for seller financing of
$1,000 that is due on December 31, 2004.

ITEM 4. CONTROLS AND PROCEDURES

Based on their most recent evaluation, which was completed within 90 days of the
filing of this Form 10-Q, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures (as defined
in Exchange Act Rule 13a-15(e) or Rule 15d-15(e)) are effective to ensure that
the information required to be disclosed in our filings with the SEC under the
Securities Exchange Act of 1934 is accumulated and communicated to our
management, including our principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required
disclosure.

Internal Controls Over Financial Reporting. We are currently undergoing a
comprehensive effort to ensure compliance with Section 404 of the Sarbanes-Oxley
Act of 2002 for our fiscal year ending December 31, 2004. This effort includes
internal control documentation and reviews under the direction of senior
management. During the course of these activities, we have identified certain
internal control issues which management believed would benefit from
improvement. These control issues are, in large part, the result of our
increased size and need for documentation. As part of this review, management
has identified a significant deficiency with respect to the level of resources
required for the prompt evaluation of transactions in accordance with financial
reporting requirements per GAAP. However, we have made improvements to our
internal controls over financial reporting as a result of our review efforts and
will continue to do so. These improvements include formalization of policies and
procedures, improved segregation of duties, and additional monitoring controls.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS.

On September 24, 2004, we completed a public offering of 3,500,000 common shares
at $9.37 per share. On September 30, 2004, the underwriter exercised its
over-allotment option on these shares, and we issued an additional 400,000
common shares at $9.37 per share. Proceeds to the Company, net of underwriting
discounts and commissions and expenses, were approximately $36,451. Immediately
upon closing the offering, the Company contributed all of the net proceeds of
the offering to the Partnership in exchange for additional Partnership
interests. Of the net offering proceeds, approximately $5,000 was used to repay
indebtedness. The remaining net proceeds have been principally allocated to
fund secured development loans, acquisitions and for general corporate purposes.

On April 16, 2004, CNL redeemed 190,266 Series A convertible preferred units of
limited partnership interest in the Partnership into 2,816,460 shares of common
stock. CNL has subsequently liquidated these shares in a secondary offering.
The Company did not receive any proceeds from this secondary offering.

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

None

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

None

ITEM 5. OTHER INFORMATION.

None

ITEM 6. EXHIBITS.

(a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K.

10.1 Loan and Security Agreement made as of August 31, 2004 by
and among 2844 Associates, a Pennsylvania limited
partnership; HHLP Valley Forge Associates, a Pennsylvania
limited partnership and Sovereign Bank

31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002

32.2 Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

HERSHA HOSPITALITY TRUST

November 12, 2004 /s/ Ashish R. Parikh
------------------------------
Ashish R. Parikh
Chief Financial Officer