Hersha Announces 3Q '08 Earnings

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. November 07, 2008

NOVEMBER 6, 2008.

Year-over-Year Third Quarter 2008

Recurring Adjusted FFO ("AFFO") of $0.40 Per Diluted Share/Unit excluding $0.015 per Share/Unit of non-recurring items

Consolidated RevPAR Grew 1.4%

Consolidated Hotel EBITDA Increased 6.9% to $28.7 Million

Consolidated Same Store RevPAR Grew 2.1%

Company Updates Guidance

Hersha Hospitality Trust (NYSE: HT) owner of upscale hotels in major metropolitan markets, today announced earnings for the third quarter ended September 30, 2008.

Financial Highlights for the Third Quarter 2008

For the third quarter ending September 30, 2008, Adjusted Funds From Operations (AFFO) increased 5.3% to $21.9 million, compared to $20.8 million in the third quarter of 2007. AFFO per diluted common share and unit was $0.39 compared to $0.44 for the same quarter of 2007.

The 6.6 million share offering that the Company completed during the second quarter which increased our share count by 15%, and the additional 2.5 million operating partnership units issued for acquisitions during the first two quarters of 2008 both negatively impacted AFFO per share/unit. Also reducing AFFO was the Company's decision to stop recognizing interest income related to its Gold Street development loan, a mixed use residential, retail and hotel development project in Brooklyn, NY. For the third quarter, this interest represents AFFO of $0.75 million, or approximately $0.015 per share/unit. AFFO per share/unit for the quarter would have been $0.40 if interest income on this development loan had been recognized during the quarter.

Net income applicable to common shareholders for the third quarter of 2008 was $5.1 million, or $0.11 per diluted share, versus $7.3 million, or $0.18 per diluted share, in the third quarter of 2007. The decrease in net income on a year-over-year basis resulted from higher depreciation and amortization expense as well as a debt extinguishment charge recognized in the third quarter of 2008. Net income per share was also affected by a higher number of common shares and operating partnership units as mentioned above. A reconciliation of AFFO to net income applicable to common shares, the most directly applicable U.S. GAAP measure, is included at the end of this release.

For the three-month period ended September 30, 2008, total consolidated hotel operating revenues increased 10.8% to $72.7 million from $65.6 million in the third quarter of 2007. This increase was primarily driven by the growth in same-store room revenues and revenue contributions from acquisitions completed in prior periods. Revenue per available room (RevPAR) for the Company's consolidated hotels (61 hotels) increased 1.4% on a year-over-year basis to $109.87, which was driven by an average daily rate (ADR) increase of 4.6% to $141.08. During the quarter, the Company's hotel managers chose to aggressively maintain rate levels in order to optimize operating margins, resulting in a decline in occupancy, which fell to 77.88% from 80.33%.

Hotel earnings before interest, taxes, depreciation and amortization (Hotel EBITDA) for Hersha's consolidated hotels grew 6.9% to $28.7 million for the third quarter of 2008 compared to the third quarter of 2007. Hotel EBITDA margins of 39.5% for the third quarter of 2008 decreased from 40.9% in the third quarter of 2007. Hotel EBITDA margins were impacted by lower margins from newly opened hotels that were recently acquired. Additionally, but less significantly, hotel EBITDA margins were negatively impacted by increases in utilities, franchise brand initiatives and guest reward program expenses.

On a same-store basis for Hersha's consolidated hotels (55 hotels), RevPAR for the third quarter of 2008 increased 2.1% on a year-over-year basis to $110.68, which was driven by a 3.3% increase in ADR to $139.40. Occupancy fell to 79.40% from 80.33%. Same-store consolidated Hotel EBITDA for the third quarter of 2008 increased 1.3% to $27.2 million from $26.9 million. The Company's same-store Hotel EBITDA margin declined 34 basis points to 40.6% for the third quarter of 2008, as compared to the third quarter of 2007 for the reasons discussed above.

During the third quarter the consolidated portfolio outperformed across several key markets based on Smith Travel Research data. In New York City, the Company's hotels generated RevPAR growth of 13.1% versus market growth of 8.4%. The Company's Washington, D.C. properties grew RevPAR by 3.4% compared to RevPAR growth of 1.9% for the market. In metro-Philadelphia, Company RevPAR increased 1.3%, versus market RevPAR growth of -5.5%. In Boston, urban property RevPAR increased 2.9%, versus market RevPAR growth of -2.2%.

Mr. Jay H. Shah, Chief Executive Officer, commented, "Our portfolio performed admirably during the third quarter given the ongoing deterioration in the economy and lodging fundamentals. While we experienced some margin erosion, our portfolio continues to perform above industry average. Despite what appears to be a challenging outlook for the lodging industry, supply in our markets remains benign, and our portfolio of young, high quality assets should continue to gain market share."

"While we acknowledge we cannot control external events, our portfolio of predominantly urban limited service hotels located in high barrier to entry Northeast and Mid-Atlantic markets is well positioned to sustain its operating fundamentals in this challenging environment. Additionally, one-third of our portfolio now consists of upscale extended stay hotels, which typically are more resistant to market volatility than traditional transient hotels. The recent renewal of our line of credit strengthened our balance sheet, significantly reducing our refinancing risk for the company through 2013, which, along with our emphasis on market share and our ongoing cost reduction initiatives, will position Hersha well during these challenging times," concluded Jay Shah.

Other Highlights

In July, Hersha opened the NU Hotel in Brooklyn, New York, a 93-room independent boutique hotel. The Company purchased a four-story shell for approximately $17.3 million from a third-party developer and Hersha designed and completed the upfit of the hotel for an additional $6.0 million. The NU Hotel in Brooklyn and the Duane Street Hotel in Tribeca serve as the foundation of Hersha's collection of independent hotels operating in the vibrant metro-New York City market.

Subsequent Events

In October, the Company secured a $135 million line of credit that can be increased by an additional $40 million with a three-year term. We expect this credit facility will significantly reduce refinancing risk for the Company through 2013.

In October, the Company closed on the sale of its Holiday Inn in New Cumberland, Pennsylvania for approximately $6.5 million. The sale of this asset was not included in the Company's operating statistics because it was leased to a third party.

Balance Sheet

The Company ended the third quarter of 2008 with approximately $82.8 million in development loans and approximately $23.4 million in land leases outstanding to 13 hotel development projects.

At September 30, 2008, Hersha Hospitality Trust had approximately $731.9 million of total consolidated debt outstanding, which included approximately $51.5 million of trust preferred securities and approximately $51.4 million outstanding on the Company's line of credit. Fixed rate debt, including variable rate debt fixed by an interest rate swap, amounted to approximately 87.3% of total consolidated debt. For the third quarter of 2008, the weighted average interest rate on all of the Company's fixed and floating rate debt was approximately 6.0% and 4.9%, respectively. The weighted average life to maturity of the Company's debt, excluding the credit line, was approximately 7.9 years. Total common shares and units of limited partnership interest of Hersha Hospitality Limited Partnership outstanding at September 30, 2008 were approximately 48.3 million and 8.7 million, respectively.

Dividend

For the third quarter of 2008, Hersha Hospitality Trust declared common share and limited partnership unit dividends of $0.18 per common share and unit. The Board of Trustees also declared a third quarter cash dividend of $0.50 per Series A Preferred Share.

Hersha's forecasted AFFO for the full year ended December 31, 2008, less recurring capital expenditure reserves, is expected to exceed its annualized dividend of $0.72 per common share by 1.5 times, providing both coverage for its current dividend and internally generated funds for investment.

Financial Outlook for 2008

The Company is revising its previous financial outlook for the full year ended December 31, 2008, as compared to the full year ended December 31, 2007, due to a downturn in the U.S. economy. This downturn has forced reductions in travel capacity from airlines, driven consumer confidence to a record low and dampened corporate profits; all giving rise to expectations of lower demand for lodging services from business and leisure travelers in the second half of 2008.

"There is no question that our RevPAR growth for the second half of 2008 has and will continue to slow in comparison to the strong results we posted in the first half of 2008 and the second half of 2007. Although our results are on pace to outperform the general lodging industry, our portfolio performance is forecasted to be impacted by the significant volatility in the financial sector and sharp reduction in GDP forecasts for the fourth quarter of 2008. But because all but one of our hotels are franchised with best in class operators versus being brand managed, we believe we can still manage our portfolio with a focus on market share, and manage costs effectively. Our revised guidance still represents similar results in AFFO per share for the full year 2008 as compared to 2007, which should further support our strong cash dividend and provide meaningful value to our investors," Jay Shah added.