NOTE 3 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

As of December 31, 2013 and December 31, 2012 our investment in unconsolidated joint ventures consisted of the following:



		Percent	Preferred		December 31,		December 31,
Joint Venture	Hotel Properties	Owned	Return		2013		2012

SB Partners, LLC	Holiday Inn Express, South Boston, MA	50.0%	N/A	$	1,057	$	1,292
Hiren Boston, LLC	Courtyard by Marriott, South Boston, MA	50.0%	N/A		4,777		4,964
Mystic Partners, LLC	Hilton and Marriott branded hotels in CT	8.8%-66.7%	8.5% non-cumulative		6,210		9,751
				$	12,044	$	16,007

In 2013, we recorded an impairment loss of $1,813 related to the Courtyard, Norwich, CT, one of the properties owned by Mystic Partners, LLC. Mystic Partners, LLC is currently in discussions to transfer title to the property to the lender. As we do not anticipate recovering our investment balance in this asset, we have reduced the portion of our Mystic Partners, LLC investment related to this property to $0 as of December 31, 2013.

On February 1, 2013, the Company closed on the sale of its interest in one of the unconsolidated joint venture properties owned in part by Mystic Partners, LLC to its joint venture partner. As our investment in this unconsolidated joint venture equated the net proceeds distributed to us, we did not record a gain or loss in connection with the sale of this hotel.

As noted in “Note 2 – Investment in Hotel Properties,” on August 13, 2012, the Company purchased the remaining 50% ownership interest in Inn America Hospitality at Ewing, the lessee of the Courtyard by Marriot, Ewing, NJ. As such, we ceased to account for our investment in Inn America Hospitality at Ewing under the equity method of accounting as of August 13, 2012 because it became a consolidated subsidiary. Our interest in Inn America Hospitality at Ewing, which consisted of our investment in Inn America Hospitality at Ewing and a receivable, was remeasured and as a result based on the appraised value of the hotel, we recorded a loss of approximately $1,668 during the twelve months ended December 31, 2012.

As noted in “Note 2 – Investment in Hotel Properties,” on June 18, 2012, the Company purchased the remaining 50% ownership interest in Metro 29th, the lessee of the Holiday Inn Express, Manhattan, New York, NY. As such, we ceased to account for our investment in Metro 29th under the equity method of accounting as of June 18, 2012 because it became a consolidated subsidiary. Our interest in Metro 29th was remeasured, and as a result, we recorded a loss of approximately $224.

Fair value for our previously held investments in Inn America Hospitality at Ewing and Metro 29th was determined through the use of an income approach and was measured using Level 3 inputs. The income approach estimates an income stream for a hotel property (typically 5 years) and discounts this income plus a reversion (presumed sale) into a present value at a risk adjusted rate. RevPAR growth assumptions utilized in this approach are derived from market transactions as well as other financial and industry data. The terminal cap rate and discount rate are significant inputs to this valuation. The fair value measurements determined during the year included RevPAR growth assumptions ranging between 3% and 8%, terminal cap rates ranging between 8.5% and 9.5%, and discount rates of 10.5%. Changes in these inputs could result in a significant change in the valuation of our original joint venture investments and a change in the loss from remeasurement of investment in unconsolidated joint venture recognized during the period.

On August 15, 2011, the Company entered into two purchase and sale agreements to dispose of a portfolio of 18 non-core hotel properties, four of which are owned in part by the Company through an unconsolidated joint venture. As a result of entering into these purchase and sale agreements, during the twelve months ended December 31, 2011, we recorded an impairment loss of approximately $1,677 for those hotel properties for which our investment in the unconsolidated joint venture did not exceed the net proceeds distributable to us on the sale of the hotel properties held by the joint venture based on the purchase price. On February 23, 2012, the Company closed on the sale of 14 of these non-core hotel properties, including three of the unconsolidated joint venture hotel properties. On May 8, 2012, the Company closed on the remaining four non-core hotel properties, including one of the unconsolidated joint venture hotel properties. As our investment in these unconsolidated joint ventures equated the net proceeds distributed to us, we did not record a gain or loss in connection with the sale of these hotel properties. See “Note 12 – Discontinued Operations” for more information.

NOTE 3 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)

Income or loss from our unconsolidated joint ventures is allocated to us and our joint venture partners consistent with the allocation of cash distributions in accordance with the joint venture agreements. Any difference between the carrying amount of these investments and the underlying equity in net assets is amortized over the expected useful lives of the properties and other intangible assets.

Income (loss) recognized during the years ended December 31, 2013, 2012, and 2011, for our investments in unconsolidated joint ventures is as follows:




	Year Ended December 31,
		2013		2012		2011
SB Partners, LLC	$	264	$	85	$	(171)
Hiren Boston, LLC		113		230		158
Mystic Partners, LLC		(399)		(433)		(364)
Inn American Hospitality at Ewing LLC		-		-		(28)
Metro 29th Street Associates, LLC		-		(114)		615
(Loss) Income from Unconsolidated Joint Venture Investments		(22)		(232)		210
Impairment from Unconsolidated Joint Ventures		(1,813)		-		(1,677)
(Loss) Gain from Remeasurement of Investment in Unconsolidated Joint Ventures		-		(1,892)		2,757
(Loss) Income from Unconsolidated Joint Venture Investments	$	(1,835)	$	(2,124)	$	1,290

On June 20, 2011, Hiren Boston, LLC refinanced its debt with a third party institutional lender and, as a result, our mortgage interest in the property was terminated and the outstanding principal balance of $13,750 was repaid to us in full. We have determined that we were no longer the primary beneficiary of Hiren Boston, LLC and it is no longer a consolidated subsidiary of the Company and we have begun to account for our investment in Hiren Boston, LLC under the equity method of accounting. Our interest in Hiren Boston, LLC has been remeasured and, as a result, we have recorded a gain of approximately $2,757 for the twelve months ended December 31, 2011. The fair value of our interest in Hiren Boston, LLC was based on a third party appraisal, which utilized the market approach.

The Mystic Partners, LLC joint venture agreement provides for an 8.5% non-cumulative preferred return based on our contributed equity interest in the venture. Cash distributions will be made from cash available for distribution, first, to us to provide an 8.5% annual non-compounded return on our unreturned capital contributions and then to our joint venture partner to provide an 8.5% annual non-compounded return of their unreturned contributions. Any remaining cash available for distribution will be distributed to us 10.5% with respect to the net cash flow from the Hartford Marriott, 7.0% with respect to the Hartford Hilton and 56.7%, with respect to the remaining two properties. Mystic Partners, LLC allocates income to us and our joint venture partner consistent with the allocation of cash distributions in accordance with the joint venture agreements.

Each of the Mystic Partners, LLC hotel properties, except the Hartford Hilton, is under an Asset Management Agreement with 44 New England to provide asset management services. Fees for these services are paid monthly to 44 New England and recognized as income in the amount of 1% of operating revenues, except for the Hartford Marriott which is 0.25% of operating revenues.

The Company and our joint venture partner in Mystic Partners, LLC jointly and severally guarantee the performance of the terms of a loan to Adriaen’s Landing Hotel, LLC, owner of the Hartford Marriott, in the amount of $50,000, and 315 Trumbull Street Associates, LLC, owner of the Hartford Hilton, in the amount of $27,000, if at any time during the term of the note and during such time as the net worth of Mystic Partners falls below the amount of the guarantee. We have determined that the probability of incurring loss under this guarantee is remote and the value attributed to the guarantee is de minimis.

NOTE 3 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)

The following tables set forth the total assets, liabilities, equity and components of net income or loss, including the Company’s share, related to the unconsolidated joint ventures discussed above as of December 31, 2013 and December 31, 2012 and for the years ended December 31, 2013, 2012, and 2011.



Balance Sheets
		December 31,		December 31,
		2013		2012
Assets
Investment in Hotel Properties, Net	$	114,221	$	118,506
Other Assets		19,146		20,709
Assets Held For Sale		-		5,875
Total Assets	$	133,367	$	145,090

Liabilities and Equity
Mortgages and Notes Payable	$	112,654	$	119,236
Other Liabilities		37,464		36,292
Liabilities Related to Assets Held For Sale		-		6,071
Equity:
Hersha Hospitality Trust		26,230		28,581
Joint Venture Partner(s)		(42,981)		(45,090)
Total Equity		(16,751)		(16,509)

Total Liabilities and Equity	$	133,367	$	145,090



Statements of Operations

	Year Ended December 31,
		2013		2012		2011
Room Revenue	$	58,273	$	62,058	$	63,896
Other Revenue		22,606		22,306		21,945
Operating Expenses		(55,179)		(57,131)		(56,607)
Interest Expense		(7,526)		(7,650)		(7,272)
Lease Expense		(996)		(3,729)		(5,505)
Property Taxes and Insurance		(3,034)		(3,438)		(4,280)
General and Administrative		(5,794)		(5,904)		(5,680)
Depreciation and Amortization		(6,697)		(6,533)		(6,034)
Loss Allocated to Noncontrolling Interests		(179)		(2,614)		(44)

Net Income from Continuing Operations		1,474		(2,635)		419
(Loss) Income from Discontinued Operations		(55)		121		1,503
Gain on Disposition of Hotel Properties		1,161		25,131		-

Net Income	$	2,580	$	22,617	$	1,922

NOTE 3 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)

The following table is a reconciliation of the Company’s share in the unconsolidated joint ventures’ equity to the Company’s investment in the unconsolidated joint ventures as presented on the Company’s balance sheets as of December 31, 2013 and December 31, 2012.



		December 31,		December 31,
		2013		2012
Company's share of equity recorded on the joint ventures' financial statements	$	26,230	$	28,581
Adjustment to reconcile the Company's share of equity recorded on the joint ventures' financial statements to our investment in unconsolidated joint ventures(1)		(14,186)		(12,574)
Investment in Unconsolidated Joint Ventures	$	12,044	$	16,007

(1) Adjustment to reconcile the Company's share of equity recorded on the joint ventures' financial statements to our investment in unconsolidated joint ventures consists of the following:

cumulative impairment of the Company’s investment in joint ventures not reflected on the joint ventures' financial statements;

the Company’s basis in the investment in joint ventures not recorded on the joint ventures' financial statements; and

accumulated amortization of the Company’s equity in joint ventures that reflects the Company’s portion of the excess of the fair value of joint ventures' assets on the date of our investment over the carrying value of the assets recorded on the joint ventures financial statements (this excess investment is amortized over the life of the properties, and the amortization is included in Income (Loss) from Unconsolidated Joint Venture Investments on the Company’s consolidated statement of operations).