NOTE 3 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

As of December 31, 2011 and December 31, 2010 our investment in unconsolidated joint ventures consisted of the following:

		Percent			Preferred		December 31,		December 31,
Joint Venture	Hotel Properties	Owned			Return		2011		2010

Inn American Hospitality at Ewing, LLC	Courtyard by Marriott, Ewing, NJ		50.0	%	11.0% cumulative		$	-	$	28
SB Partners, LLC	Holiday Inn Express, South Boston, MA		50.0	%		N/A		1,681		1,852
Hiren Boston, LLC	Courtyard by Marriott, South Boston, MA		50.0	%		N/A		5,035		-
Mystic Partners, LLC	Hilton and Marriott branded hotels in CT and RI		8.8%-66.7	%	8.5% non-cumulative			23,762		25,935
Metro 29th Street Associates, LLC	Holiday Inn Express, New York, NY		50.0	%		N/A		8,361		7,746
							$	38,839	$	35,561

On April 13, 2010, we purchased a mortgage loan secured by the Courtyard by Marriott, South Boston, MA from Hiren Boston, LLC's lender for a purchase price of $13,750. As a result of the purchase of this mortgage loan, we determined that we were the primary beneficiary of Hiren Boston, LLC and, as such, we ceased to account for our investment in Hiren Boston, LLC under the equity method of accounting and began accounting for Hiren Boston, LLC as a consolidated subsidiary. Our interest in Hiren Boston, LLC was remeasured, and as a result, during the twelve months ended December 31, 2010 we recorded a gain of approximately $2,190.

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 are 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.

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, we have recorded an impairment loss of approximately $1,677 for those assets for which our investment in the unconsolidated joint venture did not exceed the net proceeds distributable to us based on the purchase price. These purchase and sale agreements provide that sales of the individual properties may close at different times, and ultimately not all properties may transfer. Any recognized gain will be recorded upon the disposition. See “Note 12 – Discontinued Operations” for more information.

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, 2011, 2010, and 2009, for our Investments in Unconsolidated Joint Ventures is as follows:

	Twelve Months Ended December 31,
	2011			2010			2009
PRA Glastonbury, LLC	$	-		$	-		$	(77	)
Inn American Hospitality at Ewing, LLC		(28	)		(331	)		(127	)
Hiren Boston, LLC		158			-			(460	)
SB Partners, LLC		(171	)		(83	)		(156	)
Mystic Partners, LLC		(364	)		(1,650	)		(1,686	)
PRA Suites at Glastonbury, LLC		-			-			(6	)
Metro 29th Street Associates, LLC		615			313			(137	)
		210			(1,751	)		(2,649	)
Impairment from Unconsolidated Joint Ventures		(1,677	)		-			(4,541	)
Gain from Remeasurement of Investment in Unconsolidated Joint Venture		2,757			4,008			-

Income (Loss) from Unconsolidated Joint Venture Investments	$	1,290		$	2,257		$	(7,190	)

On January 1, 2010, we acquired our joint venture partner's 52.0% membership interest in PRA Glastonbury, LLC, the owner of the Hilton Garden Inn, Glastonbury, CT, and this hotel became one of our wholly-owned hotels. Due to the increase in our ownership interest in PRA Glastonbury, LLC, the value of our existing 48.0% interest was remeasured resulting in a $1,818 gain which was recorded upon our acquisition of the remaining interests in the Hilton Garden Inn, Glastonbury, CT.

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 seven 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.

The following tables set 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 December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011, 2010, and 2009.

Balance Sheets

	December 31,			December 31,
	2011			2010
Assets
Investment in hotel properties, net	$	140,550		$	144,675
Other Assets		33,142			27,970
Assets Held For Sale		19,308			-
Total Assets	$	193,000		$	172,645

Liabilities and Equity
Mortgages and notes payable	$	139,032		$	156,976
Other liabilities		40,583			37,797
Liabilities Related to Assets Held For Sale		31,219			-
Equity:
Hersha Hospitality Trust		43,140			38,394
Joint Venture Partner(s)		(60,974	)		(60,522	)
Total Equity		(17,834	)		(22,128	)

Total Liabilities and Equity	$	193,000		$	172,645

Statements of Operations

	Twelve Months Ended December 31,
	2011			2010			2009
Room Revenue	$	69,945		$	62,297		$	69,654
Other Revenue		22,574			20,844			21,975
Operating Expenses		(60,844	)		(56,165	)		(61,706	)
Interest Expense		(8,378	)		(9,899	)		(14,378	)
Loss on Impairment of Building and Equipment		1			-			(7	)
Lease Expense		(5,505	)		(5,363	)		(5,647	)
Property Taxes and Insurance		(4,913	)		(6,128	)		(5,983	)
General and Administrative		(5,963	)		(6,163	)		(6,443	)
Loss Allocated to Noncontrolling Interests		(44	)		608			814
Depreciation and Amortization		(7,144	)		(9,056	)		(13,037	)

Net (loss) From Continuing Operations		(271	)		(9,025	)		(14,758	)
Income from Discontinued Operations		2,193			1,128			888

Net Income (Loss)		1,922			(7,897	)		(13,870	)

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, 2011 and 2010.

	December 31,			December 31,
	2011			2010
Company's share of equity recorded on the joint ventures' financial statements	$	43,140		$	38,394
Adjustment to reconcile the Company's share of equity recorded on the joint ventures' financial statements to our investment in unconsoldiated joint ventures(1)		(4,301	)		(2,833	)
Investment in Unconsolidated Joint Ventures	$	38,839		$	35,561

(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 our investment in joint ventures not reflected on the joint ventures' financial statements,

our basis in the investment in joint ventures not recorded on the joint ventures' financial statements, and

accumulated amortization of our equity in joint ventures that reflects our 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 our consolidated statement of operations.