Edgar Filing: HERSHA HOSPITALITY TRUST

As filed with the Securities and Exchange Commission on March 2, 2004

Registration No. 333-______

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________

FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

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
(717) 770-2405
(Address, Including Zip Code, and Telephone Number, including
Area Code, of Registrant's Principal Executive Offices)

ASHISH R. PARIK
CHIEF FINANCIAL OFFICER
148 SHERATON DRIVE, BOX A
NEW CUMBERLAND, PENNSYLVANIA 17070
(717) 770-2405
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)
___________

COPIES TO:

CAMERON N. COSBY, ESQ.
RANDALL S. PARKS, ESQ.
HUNTON & WILLIAMS LLP
RIVERFRONT PLAZA, EAST TOWER
951 E. BYRD STREET
RICHMOND, VIRGINIA 23219-4074
(804) 788-8200
(804) 788-8218 (FACSIMILE)
___________

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.[ ]

If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.[X]

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.[ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]

CALCULATION OF REGISTRATION FEE

========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT
AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING OF REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED PER SHARE(1) PRICE FEE(2)
------------------------------------------ ---------------- ------------------ ------------------- -----------------

Common Shares of Beneficial Interest, $.01
par value, issuable upon redemption of
Series A Preferred Units 2,816,460 $ 11.08 $ 31,206,376.80 $ 3,954
========================================================================================================================

(1) Estimated solely for the purpose of determining the registration fee. This amount was calculated in accordance
with Rule 457(c) of the Securities Act of 1933, as amended, based on the average of the high and low sale prices
of the registrant's common shares of beneficial interest as reported on the American Stock Exchange on
February 25, 2004.

(2) Calculated in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

================================================================================
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant files
a further amendment which specifically states that this Registration Statement
will thereafter become effective in accordance with Section 8(a) of the
Securities Act, or until the Registration Statement becomes effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED MARCH 2, 2004

HERSHA HOSPITALITY TRUST

[LOGO]

2,816,460 COMMON SHARES OF BENEFICIAL INTEREST

This prospectus relates to up to 2,816,460 common shares of beneficial
interest which may be offered from time to time by CNL Hospitality Partners,
L.P., or "CNL."

We may issue the 2,816,460 common shares covered by this prospectus to CNL
to the extent that it exchanges Series A preferred units of limited partnership
interest in our operating partnership, Hersha Hospitality Limited Partnership,
for such common shares in accordance with the operating partnership's
partnership agreement. CNL currently owns 190,266 Series A preferred units of
limited partnership interest in our operating partnership, each of which is
exchangeable at any time, at the option of the holder, for (among other
securities) approximately 14.8 common shares, based on an initial exchange price
of $6.7555 per common share. We will not receive any of the proceeds from sales
of common shares issued upon exchange of the Series A Preferred Units.

The registration of the common shares issuable upon exchange of Series A
preferred units does not necessarily mean that any of them will be issued by us.
Common shares resold by CNL under this prospectus may be offered and sold from
time to time in open market or privately-negotiated transactions that may
involve underwriters, brokers or dealers.

Our common shares are listed on the American Stock Exchange under the
symbol "HT." The last reported sale price of our common shares on the American
Stock Exchange on February 25, 2004 was $11.16 per share.

___________________________

INVESTING IN OUR COMMON SHARES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5 FOR CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE
PURCHASING OUR COMMON SHARES.

___________________________

In part so that we can continue to qualify as a "real estate investment
trust" under the federal income tax laws, our declaration of trust generally
does not permit anyone to own more than 9.9% of our outstanding common shares.

___________________________

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

___________________________

The date of this prospectus March __, 2004.

TABLE OF CONTENTS

HOW TO OBTAIN MORE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 1
INCORPORATION OF INFORMATION FILED WITH THE SEC. . . . . . . . . . . . . . . . 1
ABOUT THIS PROSPECTUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
FORWARD LOOKING INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 2
CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
OUR COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SELLING SHAREHOLDER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST . . . . . . . . . . . . . . . . .19
CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR DECLARATION OF TRUST AND
BYLAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
CNL STRATEGIC ALLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
FEDERAL INCOME TAX CONSEQUENCES OF OUR STATUS AS A REIT. . . . . . . . . . . .32
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53

You should rely only on the information contained or incorporated by
reference in this prospectus and any applicable prospectus supplement. We have
not authorized anyone else to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We will not make an offer to sell these securities in any state where the
offer or sale is not permitted. You should assume that the information
appearing in this prospectus, as well as the information we previously filed
with the SEC and incorporated by reference, is accurate only as of the date of
the documents containing the information.

HOW TO OBTAIN MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements, or other information we file with the SEC at its public
reference room in Washington, D.C. (450 Fifth Street, N.W. 20549). Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
room. Our filings are also available to the public on the internet, through a
database maintained by the SEC at http://www.sec.gov. In addition, you can
inspect and copy reports, proxy statements and other information concerning
Hersha Hospitality Trust at the offices of the American Stock Exchange, Inc., 86
Trinity Place, New York, New York 10006, on which our common shares (symbol:
"HT") are listed.

INCORPORATION OF INFORMATION FILED WITH THE SEC

The SEC allows us to "incorporate by reference" into this prospectus the
information we file with the SEC, which means that we can disclose important
business, financial and other information to you by referring you to other
documents separately filed with the SEC. All information incorporated by
reference is part of this prospectus, unless and until that information is
updated and superseded by the information contained in this prospectus or any
information incorporated later. We incorporate by reference the documents
listed below and any future filings we make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), prior to completion of this offering.

We incorporate by reference the documents listed below:

1. Annual Report on Form 10-K for the fiscal year ended December 31,
2002.

2. Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.

3. Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.

4. Quarterly Report on Form 10-Q for the quarter ended September 30,
2003.

5. Definitive Proxy Statement on Schedule 14A filed with the SEC on April
11, 2003.

6. Current Reports on Form 8-K filed with the SEC on July 9, 2003, April
23, 2003 and April 9, 2003.

We also incorporate by reference all future filings we make with the SEC
between the date of this prospectus and the date upon which we sell all of the
securities we offer with this prospectus and any applicable supplement.

You may obtain copies of these documents at no cost by requesting them from
us in writing at the following address: Hersha Hospitality Trust, 148 Sheraton
Drive, Box A, New Cumberland, PA 17070, telephone (717) 770-2405.

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement on Form S-3 that we
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended. This prospectus and any accompanying prospectus supplement do
not contain all of the information included in the registration statement. For
further information, we refer you to the registration statement, including the
exhibits. Statements contained in this prospectus and any accompanying
prospectus supplement about the provisions or contents of any agreement or other
document are not necessarily complete. If the rules and regulations of the
Securities and Exchange Commission require that such agreement or document be
filed as an exhibit to the registration statement, please see such agreement or
document for a complete description of these matters. You should not assume
that the information in this prospectus or any prospectus supplement is accurate
as of any date other than the date on the front of such prospectus or prospectus
supplement.

FORWARD LOOKING INFORMATION

This prospectus and the information incorporated by reference into it
contains certain "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including, without limitation, statements
containing the words "believes," "anticipates," "expects," "estimates,"
"intends," "plans," "projects," "will continue" and words of similar import. We
have based these forward-looking statements on our current expectations and
projections about future events and trends affecting the financial condition of
our business, which may prove to be incorrect. These forward-looking statements
relate to future events and our future financial performance, and involve known
and unknown risks, uncertainties and other factors which may cause our actual
results, performance, achievements or industry results to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. You should specifically consider
the factors identified under the caption "Risk Factors" and the various other
factors identified in or incorporated by reference into this prospectus and any
other documents filed by us with the SEC that could cause actual results to
differ materially from our forward-looking statements.

Except to the extent required by applicable law, we undertake no obligation
to, and do not intend to, update any forward-looking statement or the "Risk
Factors" or to publicly announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments. There are a number of risk factors associated with the conduct of
our business, and the risks discussed in the "Risk Factors" section of this
prospectus may not be exhaustive. New risks and uncertainties arise from time to
time, and it is impossible for us to predict these events or how they may affect
us. All forward-looking statements should be read with caution.

CERTAIN DEFINITIONS

Unless otherwise indicated, the terms "Hersha," "we," "us," "our" and "our
company" refer to Hersha Hospitality Trust and its subsidiaries, including
Hersha Hospitality Limited Partnership.

All brand names, trademarks and service marks appearing in this prospectus
are the property of their respective owners. This prospectus supplement contains
registered trademarks owned or licensed to companies other than us, including
but not limited to Comfort Inn(R), Comfort Suites(R), Courtyard(R) by
Marriott(R), Doubletree Suites(R), Fairfield Inn(R) by Marriott(R), Hampton
Inn(R), Hilton Garden Inn(R), Holiday Inn(R), Homewood Suites by Hilton(R),
Mainstay Suites(R), Residence Inn(R) by Marriott(R) and Sleep Inn(R), none of
which, in any way, are participating in or endorsing this offering and shall not
in any way be deemed an issuer or underwriter of the securities issued under
this prospectus, and shall not have any liability or responsibility for any
financial statements or other financial information contained or incorporated by
reference in this prospectus.

OUR COMPANY

Hersha Hospitality Trust is a self-advised Maryland real estate investment
trust that was organized in 1998 and completed its initial public offering in
January of 1999. We focus primarily on owning and operating high quality,
mid-scale limited service hotels in established markets in the Eastern United
States. Our primary strategy is to continue to acquire high quality, mid-scale
hotels in metropolitan markets with high barriers to entry in the Northeastern
United States. As of February 2004, our portfolio currently consisted of 22
hotels with a total of 2,168 rooms located in Pennsylvania, New York, Maryland,
Georgia and New Jersey, which operate under leading brands, such as Hampton
Inn(R), Hilton Garden Inn(R), Holiday Inn(R), Holiday Inn Express(R),
DoubleTree(R), and Comfort Suites(R).

We are structured as an umbrella partnership REIT, or UPREIT, and we own
our hotels through our operating partnership, Hersha Hospitality Limited
Partnership, for which we serve as general partner. All of our hotels are
managed by Hersha Hospitality Management, L.P., or HHMLP, a private management
company owned by certain of our trustees, officers and other third party
investors. In response to tax law changes, we recently formed a wholly-owned
taxable REIT subsidiary, or TRS, to which we currently lease twelve hotels and
to which we intend to lease all of our hotels, including hotels we may acquire
in the future and hotels currently leased to HHMLP as those leases expire. We
believe that transitioning to this TRS structure positions us to participate
more directly in the operating efficiencies and revenue gains at our hotels.

In April of 2003, we entered into a strategic alliance with CNL Hospitality
Partners, L.P., a subsidiary of CNL Hospitality Properties, Inc. CNL is a public
company which has been one of the most active investors in lodging properties
over the past several years. The strategic alliance positions us as one of CNL's
preferred partners for investing in mid-scale hotels. Our agreement with CNL
provides that it will invest up to $25 million in our operating partnership and
up to $40 million in a newly formed hotel acquisition joint venture. CNL has
currently invested $19 million in our operating partnership and $8 million in
the joint venture, which acquired its first hotel, the Hampton Inn Chelsea, New
York, New York, on August 29, 2003.

We are taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended, or the "Code." REITs are subject to a number
of organizational and operational requirements, including a requirement that
they currently distribute at least 90% of their taxable income (excluding net
capital gains). See "Federal Income Tax Consequences of Our Status as REIT."

The following chart shows the structure of our company as of December 31,
2003:

[GRAPHIC OMITTED]

(1) Our public shareholders own 12,614,712 common shares.
(2) CNL owns 190,266 Series A Convertible Preferred Units in our operating
partnership, which are currently exchangeable for 2,816,460 common limited
partnership units of our operating partnership, or 2,816,460 common shares.
(3) Represents the general partner interest in our operating partnership.
(4) Our officers and trustees own in the aggregate 3,068,549 common limited
partnership units of our operating partnership, which are redeemable for an
equal number of common shares.
(5) Third party investors in our operating partnership own 731,174 common
limited partnership units, which are redeemable for an equal number of
common shares.
(6) CNL's interest in our joint venture is exchangeable for 1,192,141 common
limited partnership units in our operating partnership or the same number
of common shares.
(7) The lessee is HHM Leasehold Interests, Inc., a TRS in which HHMLP owns a
99% equity interest and our operating partnership owns a 1% equity
interest.

RISK FACTORS

Before you invest in our securities, you should carefully consider the
following risks, together with the other information included in this
prospectus, any prospectus supplement and the information incorporated by
reference. If any of the following risks actually occur, our business,
financial condition or results of operations may suffer. As a result, the
trading price of our securities could decline, and you may lose all or part of
your investment.

An investment in our securities involves significant risks, including the
risk of losing your entire investment. In evaluating our business, prospective
investors should carefully consider the following risk factors in addition to
the other information contained in this prospectus.

RISKS RELATING TO OUR BUSINESS AND OPERATIONS

We may be unable to integrate acquired hotels into our operations or
otherwise manage our planned growth, which may adversely affect our operating
results.

We are attempting to acquire a substantial number of hotels. If we are
successful in making these acquisitions, we cannot assure you that we (or HHMLP)
will be able to adapt our management, administrative, accounting and operational
systems and arrangements, or hire and retain sufficient operational staff to
integrate these investments into our portfolio and manage any future
acquisitions of additional assets without operating disruptions or unanticipated
costs. Acquisition of hotels would generate additional operating expenses that
we would be required to pay. As we acquire additional hotels, we will be subject
to the operational risks associated with owning new lodging properties. Our
failure to integrate successfully any future acquisitions into our portfolio
could have a material adverse effect on our results of operations and financial
condition and our ability to pay dividends to shareholders or other payment in
respect of securities issued by us.

ACQUISITION OF HOTELS WITH LIMITED OPERATING HISTORY MAY NOT ACHIEVE DESIRED
RESULTS.

We seek to acquire a substantial number of new hotels. Many of our
acquisitions are likely to be newly developed hotels. Newly-developed or
newly-renovated hotels do not have the operating history that would allow our
management to make pricing decisions in acquiring these hotels based on
historical performance. The purchase prices of these hotels are typically based
upon management's expectations as to the operating results of such hotels,
subjecting us to risks that such hotels may not achieve anticipated operating
results or may not achieve these results within anticipated time frames. As a
result, we may not be able to generate enough cash flow from these hotels to
make debt payments or pay operating expenses. In addition, room revenues may be
less than that required to provide us with our anticipated return on investment.
In either case, the amounts available for distribution to our shareholders could
be reduced.

OUR ACQUISITIONS MAY NOT ACHIEVE EXPECTED PERFORMANCE, WHICH MAY HARM OUR
FINANCIAL CONDITION AND OPERATING RESULTS.

We anticipate that acquisitions will largely be financed with the net
proceeds of securities offerings and through externally generated funds such as
borrowings under credit facilities and other secured and unsecured debt
financing. Acquisitions entail risks that investments will fail to perform in
accordance with expectations and that estimates of the cost of improvements
necessary to acquire and market properties will prove inaccurate, as well as
general investment risks associated with any new real estate investment.
Because we must distribute at least 90% of our taxable income to maintain our
qualification as a REIT, our ability to rely upon income or cash flow from
operations to finance our growth and acquisition activities will be limited.
Accordingly, were we unable to obtain funds from borrowings or the capital
markets to finance our growth and acquisition activities, our ability to grow
could be curtailed, amounts available for distribution to shareholders could be
adversely affected and we could be required to reduce distributions.

WE OWN A LIMITED NUMBER OF HOTELS AND SIGNIFICANT ADVERSE CHANGES AT ONE HOTEL
MAY IMPACT OUR LESSEES' ABILITY TO PAY RENT AND OUR ABILITY TO MAKE
DISTRIBUTIONS TO SHAREHOLDERS.

As of February 2004, we owned only 22 hotels. Significant adverse changes
in the operations of any one hotel could have a material adverse effect on our
lessees' ability to make rent payments and, accordingly, on our ability to make
expected distributions to our shareholders.

WE FOCUS ON ACQUIRING HOTELS OPERATING UNDER A LIMITED NUMBER OF FRANCHISE
BRANDS, WHICH CREATES GREATER RISK AS THE INVESTMENTS ARE MORE CONCENTRATED.

We intend to place particular emphasis in our acquisition strategy on
hotels similar to our current hotels. We invest in hotels operating under a few
select franchises and therefore will be subject to risks inherent in
concentrating investments in a particular franchise brand, which could have an
adverse effect on our lease revenues and amounts available for distribution to
shareholders. These risks include, among others, the risk of a reduction in
hotel revenues following any adverse publicity related to a specific franchise
brand.

MANY OF OUR HOTELS ARE LOCATED IN PENNSYLVANIA, WHICH MAY INCREASE THE EFFECT OF
ANY LOCAL ECONOMIC CONDITIONS.

Eleven of our 22 hotels are located in Pennsylvania. Some of our other
hotels are clustered in metropolitan areas, such as metropolitan New York and
Atlanta. As a result, localized adverse events or conditions, such as an
economic recession around these hotels, could have a significant adverse effect
on our operations, and ultimately on the amounts available for distribution to
shareholders.

WE FACE RISKS ASSOCIATED WITH THE USE OF DEBT, INCLUDING REFINANCING RISK.

At September 30, 2003, we had debt outstanding of $61.0 million. We may
borrow additional amounts from the same or other lenders in the future, or may
issue corporate debt securities in public or private offerings. Some of these
additional borrowings may be secured by our hotels. Our strategy is to maintain
target debt levels of approximately 60% of the total purchase price of our
hotels both on an individual and aggregate basis, and our Board of Trustees'
policy is to limit indebtedness to no more than 67% of the total purchase price
of all our hotels on an aggregate basis. However our declaration of trust (as
amended and restated, our "Declaration of Trust") does not limit the amount of
indebtedness we may incur. We cannot assure you that we will be able to meet
our debt service obligations and, to the extent that we cannot, we risk the loss
of some or all of our hotels to foreclosure. There is also a risk that we may
not be able to refinance existing debt or that the terms of any refinancing will
not be as favorable as the terms of the existing debt. If principal payments
due at maturity cannot be refinanced, extended or repaid with proceeds from
other sources, such as new equity capital or sales of properties, our cash flow
may not be sufficient to repay all maturing debt in years when significant
"balloon" payments come due.

WE DO NOT OPERATE OUR HOTELS AND, AS A RESULT, WE DO NOT HAVE COMPLETE CONTROL
OVER IMPLEMENTATION OF OUR STRATEGIC DECISIONS.

In order for us to satisfy certain REIT qualification rules, we cannot
directly operate any of our hotels. Instead, we must lease our hotels. Eight
of our hotels are leased to an independent management company, HHMLP, as
required by the REIT qualification rules in effect prior to 2001. In addition,
twelve other hotels are managed by HHMLP under management agreements with our
wholly-owned TRS who leases those hotels from us. HHMLP makes and implements
strategic business decisions with respect to our hotels, such as decisions with
respect to the repositioning of a franchise or food and beverage operations and
other similar decisions. Decisions made by HHMLP or any other hotel operator to
whom we may lease our hotels may not be in the best interests of a particular
hotel or of our company. Accordingly, we cannot assure you that our lessees or
HHMLP will operate our hotels in a manner that is in our best interests.

DEPENDENCE ON OUR LESSEES FOR RENT MAY IMPACT DISTRIBUTIONS TO SHAREHOLDERS.

We rely on our lessees to make rent payments in order to make distributions
to shareholders. Obligations under the percentage leases, including the
obligation to make rent payments, are unsecured. HHMLP, the lessee of

eight of our hotels, incurred a net loss of $671,000 for the year ended December
31, 2002, a net loss of $1,104,000 for the year ended December 31, 2001, and a
net loss of $147,000 for the year ended December 31, 2000, and HHMLP had a
partners' deficit of $1,890,000 as of September 30, 2003. Reductions in revenues
from our hotels or in the net operating income of our lessees may adversely
affect the ability of our lessees to make these rent payments and thus our
ability to make anticipated distributions to our shareholders.

WE DEPEND ON KEY PERSONNEL.

We depend on the services of our existing senior management to carry out
our business and investment strategies. As we expand, we will continue to need
to attract and retain qualified additional senior management. We do not have
employment contracts with any of our senior management and they may cease to
provide services to us at any time. The loss of the services of any of our key
management personnel, or our inability to recruit and retain qualified personnel
in the future, could have an adverse effect on our business and financial
results.

WE FACE INCREASING COMPETITION FOR THE ACQUISITION OF HOTEL PROPERTIES AND OTHER
ASSETS, WHICH MAY IMPEDE OUR ABILITY TO MAKE FUTURE ACQUISITIONS OR MAY INCREASE
THE COST OF THESE ACQUISITIONS.

We face competition for investment opportunities in mid-scale hotels from
entities organized for purposes substantially similar to our objectives, as well
as other purchasers of hotels. We compete for such investment opportunities
with entities that have substantially greater financial resources than we do,
including access to capital or better relationships with franchisors, sellers or
lenders. Our competitors may generally be able to accept more risk than we can
manage prudently and may be able to borrow the funds needed to acquire hotels.
Competition may generally reduce the number of suitable investment opportunities
offered to us and increase the bargaining power of property owners seeking to
sell.

RISKS RELATING TO CONFLICTS OF INTEREST

DUE TO CONFLICTS OF INTEREST, MANY OF OUR EXISTING AGREEMENTS MAY NOT HAVE BEEN
NEGOTIATED ON AN ARM'S-LENGTH BASIS AND MAY NOT BE IN OUR BEST INTEREST.

Some of our officers and trustees have ownership interests in HHMLP and in
entities with which we have entered into transactions, including hotel
acquisitions and dispositions and certain financings. Consequently, the terms
of our agreements with those entities, including hotel contribution or purchase
agreements, percentage leases, the Administrative Services Agreement between us
and HHMLP pursuant to which HHMLP provides certain administrative services, the
Option Agreement between the operating partnership and some of the trustees and
officers and our property management agreements with HHMLP may not have been
negotiated on an arm's-length basis and may not be in the best interest of all
our shareholders.

CONFLICTS OF INTEREST WITH OTHER ENTITIES MAY RESULT IN DECISIONS THAT DO NOT
REFLECT OUR BEST INTERESTS.

The following officers and trustees own collectively approximately 81% of
HHMLP: Hasu P. Shah, Jay H. Shah, Neil H. Shah, David L. Desfor and Kiran P.
Patel. The following officers and trustees serve as officers of HHMLP: David L.
Desfor, Kiran P. Patel and K.D. Patel. Conflicts of interest may arise in
respect of the ongoing leasing, acquisition, disposition and operation of our
hotels including, but not limited to, the percentage leases and enforcement of
the contribution and purchase agreements, the Administrative Services Agreement,
the Option Agreement and our property management agreements with HHMLP.
Consequently, the interests of shareholders may not be fully represented in all
decisions made or actions taken by our officers and trustees.

CONFLICTS OF INTEREST RELATING TO SALES OR REFINANCING OF HOTELS ACQUIRED FROM
SOME OF OUR TRUSTEES AND OFFICERS MAY LEAD TO DECISIONS THAT ARE NOT IN OUR BEST
INTEREST.

Some of our trustees and officers have unrealized gains associated with
their interests in the hotels we have acquired from them and, as a result, any
sale of the these hotels or refinancing or prepayment of principal on the
indebtedness assumed by us in purchasing these hotels may cause adverse tax
consequences to such of our trustees

and officers. Therefore, our interests and the interests of these individuals
may be different in connection with the disposition or refinancing of these
hotels.

COMPETING HOTELS OWNED OR ACQUIRED BY SOME OF OUR TRUSTEES AND OFFICERS MAY
HINDER THESE INDIVIDUALS FROM SPENDING ADEQUATE TIME ON OUR BUSINESS.

Some of our trustees and officers own hotels and may develop or acquire new
hotels, subject to certain limitations. Such ownership, development or
acquisition activities may materially affect the amount of time these officers
and trustees devote to our affairs. Some of our trustees and officers operate
hotels that are not owned by us, which may materially affect the amount of time
that they devote to managing our hotels. Pursuant to the Option Agreement, as
amended, we have an option to acquire any hotels developed by our officers and
trustees.

NEED FOR CERTAIN CONSENTS FROM THE LIMITED PARTNERS MAY NOT RESULT IN DECISIONS
ADVANTAGEOUS TO SHAREHOLDERS.

Under our operating partnership's amended and restated partnership
agreement, the holders of at least two-thirds of the interests in the
partnership must approve a sale of all or substantially all of the assets of the
partnership or a merger or consolidation of the partnership. Some of our
officers and trustees will own an approximately 17% interest in the operating
partnership on a fully-diluted basis. Their large ownership percentage may make
it less likely that a merger or sale of our company that would be in the best
interests of our shareholders will be approved.

RISKS RELATING TO OUR CORPORATE STRUCTURE

A MAJOR SHAREHOLDER HAS SIGNIFICANT INFLUENCE OVER OUR AFFAIRS.

CNL, through its ownership of Series A Preferred Units of our operating
partnership owns approximately 14.9% of our common shares on a fully-diluted
basis. In addition, CNL would be able to acquire an additional 5% of our common
shares on a fully-diluted basis upon exchange of its interest in our joint
venture. CNL may also purchase additional Series A Preferred Units and joint
venture interests. Pursuant to the terms of the Series A Convertible Preferred
Units owned by CNL, and the Series A Preferred Shares into which they are
exchangeable, it has a number of special rights, including, but not limited to:

- certain preemptive rights with respect to any issuance by us prior to
April 2006 of common shares;
- certain rights to elect members of our Board of Trustees; and
- certain approval rights including with respect to:
- mergers;
- the sale of all or substantially all of our assets;
- the issuance of equity securities;
- the payment of dividends while in arrears with respect to
dividends relating to CNL's securities;
- certain amendments to our Declaration of Trust;
- filing for bankruptcy; and
- terminating our REIT status.

In addition, for so long as the holders of the Series A Convertible
Preferred Units hold in the aggregate that number of Series A Preferred Units,
common shares and any other class of our equity that represent on an
as-converted or as-exchanged basis at least five percent of the issued and
outstanding common shares on a fully diluted basis, a majority of the Series A
Preferred Units must approve a sale of all or substantially all of the assets of
the operating partnership or a merger or consolidation of the operating
partnership. CNL therefore holds veto power over such extraordinary
transactions, which could result in the disapproval of a transaction that would
be beneficial to our shareholders.

In addition, pursuant to the terms of our joint venture with CNL, until
April 21, 2004, we must present all of our proposed acquisitions to the
investment committee of the joint venture, and we may only acquire such
acquisition directly if the investment committee or CNL fails to approve that
acquisition for the joint venture. This arrangement may make it more difficult
for us to acquire suitable hotels other than through the joint venture.

As a result of its ownership of our securities and the rights described
above, CNL may have significant influence over our affairs. This could
potentially be disadvantageous to other shareholders' interests, which may not
be aligned with the interests of CNL. For a more detailed description of CNL's
rights, see the sections entitled "CNL Strategic Alliance."

OUR OWNERSHIP LIMITATION MAY RESTRICT BUSINESS COMBINATION OPPORTUNITIES.

To qualify as a REIT under the Code, no more than 50% of our outstanding
shares of beneficial interest may be owned, directly or indirectly, by five or
fewer individuals during the last half of each taxable year. To preserve our
REIT qualification, our Declaration of Trust generally prohibits direct or
indirect ownership of more than 9.9% of the number of outstanding shares of any
class of our securities, including the common shares, by any person. Generally,
common shares owned by affiliated owners will be aggregated for purposes of the
ownership limitation. The ownership limitation could have the effect of
delaying, deferring or preventing a change in control or other transaction in
which holders of common shares might receive a premium for their common shares
over the then prevailing market price or which such holders might believe to be
otherwise in their best interests.

THE DECLARATION OF TRUST CONTAINS A PROVISION THAT CREATES STAGGERED TERMS FOR
OUR BOARD OF TRUSTEES.

Our Board of Trustees is divided into two classes. The terms of the first
and second classes expire in 2004 and 2005, respectively. Trustees of each
class are elected for two-year terms upon the expiration of their current terms
and each year one class of trustees will be elected by the shareholders. The
staggered terms of trustees may delay, defer or prevent a tender offer, a change
in control of us or other transaction, even though such a transaction might be
in the best interest of the shareholders.

MARYLAND BUSINESS COMBINATION LAW MAY DISCOURAGE A THIRD PARTY FROM ACQUIRING
US.

Under the Maryland General Corporation Law, as amended (MGCL), as
applicable to real estate investment trusts, certain "business combinations"
(including certain issuances of equity securities) between a Maryland real
estate investment trust and any person who beneficially owns ten percent or more
of the voting power of the trust's shares or an affiliate thereof or any person
who is an affiliate or associate of the trust and was the beneficial owner of
ten percent or more of the voting shares of the trust within the two year period
immediately prior to the date in question, are prohibited for five years after
the most recent date on which this shareholder acquired at least ten percent of
the voting power of the trust's shares. Thereafter, any such business
combination must be approved by two super-majority shareholder votes unless,
among other conditions, the trust's common shareholders receive a minimum price
(as defined in the MGCL) for their shares and the consideration is received in
cash or in the same form as previously paid by the interested shareholder for
its common shares. These provisions could delay, defer or prevent a transaction
or change of control of our company in which our shareholders might otherwise
receive a premium for their shares above then-current market prices or might
otherwise deem to be in their best interests. CNL and some of our trustees and
officers may control a sufficient percentage of the voting power to block a
proposal respecting a business combination under these provisions. As part of
the transaction with CNL, we exempted CNL from the application of these
provisions, which could make us more vulnerable to an unsolicited acquisition
attempt by CNL that would not be advantageous for all shareholders.

THE BOARD OF TRUSTEES MAY CHANGE OUR INVESTMENT AND OPERATIONAL POLICIES WITHOUT
A VOTE OF THE COMMON SHAREHOLDERS.

Our major policies, including our policies with respect to acquisitions,
financing, growth, operations, debt limitation and distributions, are determined
by our Board of Trustees. The Trustees may amend or revise these and other
policies from time to time without a vote of the holders of the common shares.

OUR BOARD OF TRUSTEES MAY ISSUE ADDITIONAL SHARES THAT MAY CAUSE DILUTION OR
PREVENT A TRANSACTION THAT IS IN THE BEST INTERESTS OF OUR SHAREHOLDERS.

Our Declaration of Trust authorizes the Board of Trustees, without
shareholder approval, to:

- amend the Declaration of Trust to increase or decrease the aggregate
number of shares of beneficial interest or the number of shares of
beneficial interest of any class that we have the authority to issue,

- cause us to issue additional authorized but unissued common shares or
preferred shares and

- classify or reclassify any unissued common or preferred shares and to
set the preferences, rights and other terms of such classified or
reclassified shares, including the issuance of additional common
shares or preferred shares that have preference rights over the common
shares with respect to dividends, liquidation, voting and other
matters.

Any one of these events could cause dilution to our common shareholders,
delay, defer or prevent a transaction or a change in control that might involve
a premium price for the common shares or otherwise not be in the best interest
of holders of common shares.

FUTURE OFFERINGS OF DEBT SECURITIES, WHICH WOULD BE SENIOR TO OUR COMMON SHARES
UPON LIQUIDATION, OR EQUITY SECURITIES, WHICH WOULD DILUTE OUR EXISTING
SHAREHOLDERS AND MAY BE SENIOR TO OUR COMMON SHARES FOR THE PURPOSES OF DIVIDEND
DISTRIBUTIONS, MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON SHARES.

In the future, we may attempt to increase our capital resources by making
additional offerings of debt or equity securities, including medium-term notes,
senior or subordinated notes and classes of preferred or common shares. Upon
liquidation, holders of our debt securities and shares of preferred shares and
lenders with respect to other borrowings will receive a distribution of our
available assets prior to the holders of our common shares. Additional equity
offerings may dilute the holdings of our existing shareholders or reduce the
market price of our common shares, or both. Our preferred shares, if issued,
could have a preference on liquidating distributions or a preference on dividend
payments that could limit our ability to make a dividend distribution to the
holders of our common shares. Because our decision to issue securities in any
future offering will depend on market conditions and other factors beyond our
control, we cannot predict or estimate the amount, timing or nature of our
future offerings. Thus, our shareholders bear the risk of our future offerings
reducing the market price of our common shares and diluting their stock holdings
in us.

POSSIBLE ADVERSE EFFECT OF SHARES AVAILABLE FOR FUTURE SALE ON PRICE OF COMMON
SHARES.

At any time, CNL may elect to exchange its Series A Convertible Preferred
Units for up to 2,816,460 common shares and exchange its interest in their joint
venture with us for up to 1,192,141 additional common shares. To the extent CNL
funds additional capital to us or our joint venture, the number of common shares
issuable upon such exchange will increase. Furthermore, there are 3,799,723
outstanding limited partnership units in our operating partnership (other than
the Series A Convertible Preferred Units) which currently are redeemable for
common shares. Upon the exchange of the Series A Convertible Preferred Units or
the redemption of common limited partnership units, the common shares received
therefor may be sold in the public market pursuant to shelf registration
statements that we are obligated to file on behalf of CNL and the limited
partners of our operating partnership, or pursuant to any available exemptions
from registration. Sales of a substantial number of common shares, or the
perception that such sales could occur, could adversely affect prevailing market
prices of the common shares.

THERE ARE NO ASSURANCES OF OUR ABILITY TO MAKE DISTRIBUTIONS IN THE FUTURE.

We intend to pay quarterly dividends and to make distributions to our
shareholders in amounts such that all or substantially all of our taxable income
in each year, subject to certain adjustments, is distributed. However, our
ability to pay dividends may be adversely affected by the risk factors described
in this prospectus. All distributions will be made at the discretion of our
Board of Trustees and will depend upon our earnings, our financial condition,
maintenance of our REIT status and such other factors as our board may deem
relevant from time to time. There are no assurances of our ability to pay
dividends in the future. In addition, some of our distributions may include a
return of capital.

AN INCREASE IN MARKET INTEREST RATES MAY HAVE AN ADVERSE EFFECT ON THE MARKET
PRICE OF OUR SECURITIES.

One of the factors that investors may consider in deciding whether to buy
or sell our securities is our dividend rate as a percentage of our share or unit
price, relative to market interest rates. If market interest rates increase,
prospective investors may desire a higher dividend or interest rate on our
securities or seek securities paying higher dividends or interest. The market
price of our common shares likely will be based primarily on the earnings and
return that we derive from our investments and income with respect to our
properties and our related distributions to shareholders, and not from the
market value or underlying appraised value of the properties or investments
themselves. As a result, interest rate fluctuations and capital market
conditions can affect the market price of our common shares. For instance, if
interest rates rise without an increase in our dividend rate, the market price
of our common shares could decrease because potential investors may require a
higher dividend yield on our common shares as market rates on interest-bearing
securities, such as bonds, rise. In addition, rising interest rates would
result in increased interest expense on our variable rate debt, thereby
adversely affecting cash flow and our ability to service our indebtedness and
pay dividends.

RISKS RELATED TO OUR TAX STATUS

IF WE FAIL TO QUALIFY AS A REIT, OUR DIVIDENDS WILL NOT BE DEDUCTIBLE TO US, AND
OUR INCOME WILL BE SUBJECT TO TAXATION.

We have operated and intend to continue to operate so as to qualify as a
REIT for federal income tax purposes. Our continued qualification as a REIT
will depend on our continuing ability to meet various requirements concerning,
among other things, the ownership of our outstanding shares of beneficial
interest, the nature of our assets, the sources of our income, and the amount of
our distributions to our shareholders. If we were to fail to qualify as a REIT
in any taxable year, we would not be allowed a deduction for distributions to
our shareholders in computing our taxable income and would be subject to federal
income tax (including any applicable alternative minimum tax) on our taxable
income at regular corporate rates. Unless entitled to relief under certain Code
provisions, we also would be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification was lost. As a
result, amounts available for distribution to shareholders would be reduced for
each of the years involved. Although we currently intend to operate in a manner
designed to qualify as a REIT, it is possible that future economic, market,
legal, tax or other considerations may cause the trustees, with the consent of
holders of two-thirds of the outstanding shares, to revoke the REIT election.

FAILURE TO MAKE REQUIRED DISTRIBUTIONS WOULD SUBJECT US TO TAX.

In order to qualify as a REIT, each year we must distribute to our
shareholders at least 90% of our REIT taxable income, other than any net capital
gain. To the extent that we satisfy the distribution requirement, but
distribute less than 100% of our taxable income, we will be subject to federal
corporate income tax on our undistributed income. In addition, we will incur a
4% nondeductible excise tax on the amount, if any, by which our distributions in
any year are less than the sum of:

- 85% of our REIT ordinary income for that year;
- 95% of our REIT capital gain net income for that year; and
- 100% of our undistributed taxable income from prior years.

We have paid out, and intend to continue to pay out, our income to our
shareholders in a manner intended to satisfy the distribution requirement and to
avoid corporate income tax and the 4% nondeductible excise tax. Differences in
timing between the recognition of income and the related cash receipts or the
effect of required debt amortization payments could require us to borrow money
or sell assets to pay out enough of our taxable income to satisfy the
distribution requirement and to avoid corporate income tax and the 4%
nondeductible excise tax in a particular year. In the past we have borrowed,
and in the future we may borrow, to pay distributions to our shareholders and
the limited partners of our operating partnership. Such borrowings subject us
to risks from borrowing as described herein.

RECENT CHANGES IN TAXATION OF CORPORATE DIVIDENDS MAY ADVERSELY AFFECT THE VALUE
OF OUR COMMON SHARES.

The Jobs and Growth Tax Relief Reconciliation Act of 2003, which was
enacted into law on May 28, 2003, among other things, generally reduces to 15%
the maximum marginal rate of tax payable by domestic noncorporate taxpayers on
dividends received from a regular C corporation. This reduced tax rate,
however, will not apply to dividends paid to domestic noncorporate taxpayers by
a REIT on its stock, except for certain limited amounts. Although the earnings
of a REIT that are distributed to its shareholders still generally will be
subject to less federal income taxation than earnings of a non-REIT C
corporation that are distributed to its shareholders net of corporate-level
income tax, this legislation could cause domestic noncorporate investors to view
the stock of regular C corporations as more attractive relative to the stock of
a REIT than was the case prior to the enactment of the legislation, because the
dividends from regular C corporations will generally be taxed at a lower rate
while dividends from REITs will generally be taxed at the same rate as the
individual's other ordinary income. We cannot predict what effect, if any, the
enactment of this legislation may have on the value of the stock of REITs in
general or on our common shares in particular, either in terms of price or
relative to other investments.

RISKS RELATED TO THE HOTEL INDUSTRY

THE VALUE OF OUR HOTELS DEPENDS ON CONDITIONS BEYOND OUR CONTROL.

Our hotels are subject to varying degrees of risk generally incident to the
ownership of hotels. The underlying value of our hotels, our income and ability
to make distributions to our shareholders are dependent upon the ability of our
lessees to operate the hotels in a manner sufficient to maintain or increase
revenues in excess of operating expenses to enable our lessees to make rent
payments. Hotel revenues may be adversely affected by adverse changes in
national economic conditions, adverse changes in local market conditions due to
changes in general or local economic conditions and neighborhood
characteristics, competition from other hotels, changes in interest rates and in
the availability, cost and terms of mortgage funds, the impact of present or
future environmental legislation and compliance with environmental laws, the
ongoing need for capital improvements, particularly in older structures, changes
in real estate tax rates and other operating expenses, adverse changes in
governmental rules and fiscal policies, civil unrest, acts of terrorism, acts of
God, including earthquakes, hurricanes and other natural disasters, acts of war,
adverse changes in zoning laws, and other factors that are beyond our control.
In particular, general and local economic conditions may be adversely affected
by the recent terrorist incidents in New York and Washington, D.C. Our
management is unable to determine the long-term impact, if any, of these
incidents or of any acts of war or terrorism in the United States or worldwide,
on the U.S. economy, on us or our hotels or on the market price of our common
shares.

OUR HOTELS ARE SUBJECT TO GENERAL HOTEL INDUSTRY OPERATING RISKS, WHICH MAY
IMPACT OUR LESSEES' ABILITY TO MAKE RENT PAYMENTS AND ON OUR ABILITY TO MAKE
DISTRIBUTIONS TO SHAREHOLDERS.

Our hotels are subject to all operating risks common to the hotel industry.
The hotel industry has experienced volatility in the past, as have our hotels,
and there can be no assurance that such volatility will not occur in the future.
These risks include, among other things, competition from other hotels;
over-building in the hotel industry that could adversely affect hotel revenues;
increases in operating costs due to inflation and other factors, which may not
be offset by increased room rates; reduction in business and commercial travel
and tourism; strikes and other labor disturbances of hotel employees; increases
in energy costs and other expenses of travel; adverse effects of general and
local economic conditions; and adverse political conditions. These factors
could reduce revenues of the hotels and adversely affect the lessees' ability to
make rent payments, and therefore, our ability to make distributions to our
shareholders.

COMPETITION FOR GUESTS IS HIGHLY COMPETITIVE.

The hotel industry is highly competitive. Our hotels compete with other
existing and new hotels in their geographic markets. Many of our competitors
have substantially greater marketing and financial resources than we do. If
their marketing strategies are effective, our lessees may be unable to make rent
payments and we may be unable to make distributions to our shareholders.

OUR INVESTMENTS ARE CONCENTRATED IN A SINGLE SEGMENT OF THE HOTEL INDUSTRY.

Our current business strategy is to own and acquire hotels primarily in the
mid-scale segment of the hotel industry. We are subject to risks inherent in
concentrating investments in a single industry and in a specific market segment
within that industry. The adverse effect on rent under the percentage leases
and amounts available for distribution to shareholders resulting from a downturn
in the hotel industry in general or the mid-scale segment in particular could be
more pronounced than if we had diversified our investments outside of the hotel
industry or in additional hotel market segments.

THE HOTEL INDUSTRY IS SEASONAL IN NATURE.

The hotel industry is seasonal in nature. Generally, hotel revenues are
greater in the second and third quarters than in the first and fourth quarters.
Our hotels' operations historically reflect this trend. We believe that we will
be able to make distributions necessary to maintain REIT status through cash
flow from operations; but if we are unable to do so, we may not be able to make
the necessary distributions or we may have to generate cash by a sale of assets,
increasing indebtedness or sales of securities to make the distributions.

RISKS OF OPERATING HOTELS UNDER FRANCHISE LICENSES, WHICH MAY BE TERMINATED OR
NOT RENEWED, MAY IMPACT OUR LESSEES' ABILITY TO MAKE RENT PAYMENTS AND OUR
ABILITY TO MAKE DISTRIBUTIONS TO SHAREHOLDERS.

The continuation of the franchise licenses is subject to specified
operating standards and other terms and conditions. All of the franchisors of
our hotels periodically inspect our hotels to confirm adherence to their
operating standards. The failure of our partnership, our lessees or HHMLP to
maintain such standards or to adhere to such other terms and conditions could
result in the loss or cancellation of the applicable franchise license. It is
possible that a franchisor could condition the continuation of a franchise
license on the completion of capital improvements that the trustees determine
are too expensive or otherwise not economically feasible in light of general
economic conditions, the operating results or prospects of the affected hotel.
In that event, the trustees may elect to allow the franchise license to lapse or
be terminated.

There can be no assurance that a franchisor will renew a franchise license
at each option period. If a franchisor terminates a franchise license, we, our
partnership, our lessees and HHMLP may be unable to obtain a suitable
replacement franchise, or to successfully operate the hotel independent of a
franchise license. The loss of a franchise license could have a material adverse
effect upon the operations or the underlying value of the related hotel because
of the loss of associated name recognition, marketing support and centralized
reservation systems provided by the franchisor. Although the percentage leases
require our lessees to maintain the franchise licenses for each hotel, our
lessees' loss of a franchise license for one or more of the hotels could have a
material adverse effect on our partnership's revenues and our amounts available
for distribution to shareholders.

OPERATING COSTS AND CAPITAL EXPENDITURES FOR HOTEL RENOVATION MAY BE GREATER
THAN ANTICIPATED AND MAY ADVERSELY IMPACT RENT PAYMENTS BY OUR LESSEES' AND OUR
ABILITY TO MAKE DISTRIBUTIONS TO SHAREHOLDERS.

Hotels generally have an ongoing need for renovations and other capital
improvements, particularly in older structures, including periodic replacement
of furniture, fixtures and equipment. Under the terms of our leases and
management agreements with HHMLP, we are obligated to pay the cost of
expenditures for items that are classified as capital items under GAAP that are
necessary for the continued operation of our hotels. If these expenses exceed
our estimate, the additional cost could have an adverse effect on amounts
available for distribution to shareholders. In addition, we may acquire hotels
in the future that require significant renovation. Renovation of hotels
involves certain risks, including the possibility of environmental problems,
construction cost overruns and delays, uncertainties as to market demand or
deterioration in market demand after commencement of renovation and the
emergence of unanticipated competition from hotels.

ADJUSTMENTS TO THE PURCHASE PRICE TO OUR HOTELS MAY LEAD TO SUBSTANTIAL
SHAREHOLDER DILUTION.

Five of the hotels currently owned by us were purchased pursuant to
agreements that provide for post-closing purchase price adjustments based on the
hotel's performance in relation to the purchase price. In the event

that any of the purchase prices of these hotels are increased on an adjustment
date and the purchase price adjustment is paid in common limited partnership
units, owners of the common shares at such time will experience dilution.

RISKS RELATED TO REAL ESTATE INVESTMENT GENERALLY

ILLIQUIDITY OF REAL ESTATE INVESTMENTS COULD SIGNIFICANTLY IMPEDE OUR ABILITY TO
RESPOND TO ADVERSE CHANGES IN THE PERFORMANCE OF OUR PROPERTIES AND HARM OUR
FINANCIAL CONDITION.

Real estate investments are relatively illiquid. Our ability to vary our
portfolio in response to changes in operating, economic and other conditions
will be limited. No assurances can be given that the fair market value of any
of our hotels will not decrease in the future.

IF WE SUFFER LOSSES THAT ARE NOT COVERED BY INSURANCE OR THAT ARE IN EXCESS OF
OUR INSURANCE COVERAGE LIMITS, WE COULD LOSE INVESTMENT CAPITAL AND ANTICIPATED
PROFITS.

Each lease specifies comprehensive insurance to be maintained on each of
the our hotels, including liability and fire and extended coverage in amounts
sufficient to permit the replacement of the hotel in the event of a total loss,
subject to applicable deductibles. Leases for hotels subsequently acquired by
us will contain similar provisions. However, there are certain types of losses,
generally of a catastrophic nature, such as earthquakes, floods, hurricanes and
acts of terrorism, that may be uninsurable or not economically insurable.
Inflation, changes in building codes and ordinances, environmental
considerations and other factors also might make it impracticable to use
insurance proceeds to replace the applicable hotel after such applicable hotel
has been damaged or destroyed. Under such circumstances, the insurance proceeds
received by us might not be adequate to restore our economic position with
respect to the applicable hotel. If any of these or similar events occur, it
may reduce the return from the attached property and the value of our
investment.

REITS ARE SUBJECT TO PROPERTY TAXES.

Each hotel is subject to real and personal property taxes. The real and
personal property taxes on hotel properties in which we invest may increase as
property tax rates change and as the properties are assessed or reassessed by
taxing authorities. Many state and local governments are facing budget deficits
which has led many of them, and may in the future lead others to, increase
assessments and/or taxes. If property taxes increase, our ability to make
expected distributions to our shareholders could be adversely affected.

ENVIRONMENTAL MATTERS COULD ADVERSELY AFFECT OUR RESULTS.

Operating costs may be affected by the obligation to pay for the cost of
complying with existing environmental laws, ordinances and regulations, as well
as the cost of future legislation. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances on, under or in such property. Such laws often
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. The cost
of complying with environmental laws could materially adversely affect amounts
available for distribution to shareholders. Phase I environmental assessments
have been obtained on all of our hotels. Nevertheless, it is possible that
these reports do not reveal all environmental liabilities or that there are
material environmental liabilities of which we are unaware.

COSTS ASSOCIATED WITH COMPLYING WITH THE AMERICANS WITH DISABILITIES ACT MAY
ADVERSELY AFFECT OUR FINANCIAL CONDITION AND OPERATING RESULTS.

Under the Americans with Disabilities Act of 1993 (ADA), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While we believe that our hotels are
substantially in compliance with these requirements, a determination that we are
not in compliance with the ADA could result in imposition of fines or an award
of damages to private litigants. In addition, changes in governmental rules and
regulations or enforcement policies affecting the use and operation of the
hotels, including changes to building codes and fire and life-safety codes, may
occur. If we were required to make substantial modifications at

the hotels to comply with the ADA or other changes in governmental rules and
regulations, our ability to make expected distributions to our shareholders
could be adversely affected.

USE OF PROCEEDS

We will not receive any of the proceeds from the sale of the common shares
offered by this prospectus.

SELLING SHAREHOLDER

This prospectus relates to up to 2,816,460 common shares of beneficial
interest which may be offered from time to time by CNL. We may issue the
2,816,460 common shares covered by this prospectus to CNL to the extent that it
exchanges Series A preferred units of limited partnership interest in our
operating partnership for such common shares in accordance with the operating
partnership's partnership agreement. CNL currently owns 190,266 Series A
preferred units of limited partnership interest in our operating partnership,
each of which is exchangeable at any time, at the option of the holder, for
(among other securities) approximately 14.8 common shares, based on an initial
exchange price of $6.7555 per common share. The exchange price is subject to
anti-dilution adjustments upon the occurrence of certain events, including share
splits and combinations, reclassifications, reorganizations, mergers,
consolidations or asset sales, or the sale of common shares or operating
partnership units below 85% of the then effective conversion or exchange price
(initially $5.74).

CNL also owns an interest in our joint venture with CNL, HT/CNL Metro
Hotels, that is exchangeable for up to 1,192,141 common shares. This prospectus
does not relate to any common shares issuable to CNL upon exchange of this joint
venture interest.

At February 18, 2004, there were 12,614,712 common shares outstanding.
Assuming full exchange of all CNL's Series A preferred units and joint venture
interest, they would own approximately 24.1% of the outstanding common shares,
or 7.2% if all of the common shares offered hereby are sold. Because CNL may
exchange all, some or none of their Series A preferred units, we cannot give a
definitive estimate as to the number of common shares or other equity securities
that will be held by CNL after this offering.

We are obligated to file the registration statement of which this
prospectus is a part pursuant to that certain Registration Rights Agreement with
CNL dated April 21, 2003.

DISTRIBUTIONS AND PRICE RANGE OF COMMON SHARES

Since our initial public offering in January of 1999, we have made 18
consecutive quarterly distributions to holders of the common shares of $0.18 per
share, which annualizes to $0.72 per share. We have also paid an equivalent
distribution to holders of our common limited partnership units in our operating
partnership for the same periods. While it is the current policy of our Board
of Trustees to maintain our dividend at this level, future distributions will be
authorized by our Board of Trustees based on a number of factors, including the
amount of funds from operations, our partnership's financial condition, debt
service requirements, capital expenditure requirements for our hotels, the
annual distribution requirements under the REIT provisions of the Code and such
other factors as the trustees deem relevant. Our ability to make distributions
will depend on our receipt of distributions from our operating partnership and
lease payments from our lessees with respect to the hotels. We rely on our
lessees to generate sufficient cash flow from the operation of the hotels to
meet their rent obligations under the percentage leases.

The Series A Convertible Preferred Units rank senior to all common limited
partnership units in our operating partnership, including our general partner
units, and all common shares. Distributions on the Series A Convertible
Preferred Units accrue at a rate of 10.5% of the original issue price. Because
we derive our revenue from distributions from our operating partnership, the
distribution rights of the common shares are effectively subordinate to the
distribution rights of the Series A Convertible Preferred Units. See "CNL
Strategic Alliance."

The hotel business is seasonal in nature and, therefore, revenues from the
hotels in the first and fourth quarters are traditionally lower than those in
the second and third quarters and our lease revenue may be lower in these
quarters. We expect to use excess cash flow from the second and third quarters
to fund distribution shortfalls in the first and fourth quarters. We cannot
assure you that we will be able to continue to make quarterly distributions at
the current rate.

Our common shares trade on the American Stock Exchange under the symbol
"HT." As of February 18, 2004, there were 12,614,712 common shares outstanding
held by approximately 150 persons of record and 2,000

beneficial owners. The following table sets forth the high and low sale prices
of our common shares as reported by the American Stock Exchange and dividends
declared on our common shares for each of the quarters indicated.

CASH
PRICE RANGE DIVIDEND
-------------- ------

PER
HIGH LOW SHARE
------ ------ ------

YEAR ENDED DECEMBER 31, 2004
First quarter (through February 25, 2004 $11.75 $ 9.90 $ -

PER
HIGH LOW SHARE
------ ------ ------
YEAR ENDED DECEMBER 31, 2003
Fourth quarter $10.10 $ 8.41 $ 0.18
Third quarter $ 9.10 $ 7.93 $ 0.18
Second quarter $ 8.25 $ 6.54 $ 0.18
First quarter $ 7.30 $ 6.31 $ 0.18

PER
HIGH LOW SHARE
------ ------ ------
YEAR ENDED DECEMBER 31, 2002
Fourth quarter $ 6.99 $ 5.40 $ 0.18
Third quarter $ 6.55 $ 5.75 $ 0.18
Second quarter $ 6.70 $ 6.00 $ 0.18
First quarter $ 6.70 $ 5.51 $ 0.18

PER
HIGH LOW SHARE
------ ------ ------
YEAR ENDED DECEMBER 31, 2001
Fourth quarter $ 6.25 $ 5.10 $ 0.18
Third quarter $ 6.90 $ 4.25 $ 0.18
Second quarter $ 6.09 $ 4.80 $ 0.18
First quarter $ 6.13 $ 5.50 $ 0.18

DESCRIPTION OF SHARES OF BENEFICIAL INTEREST

The following summary of the terms of our shares of beneficial interest
does not purport to be complete and is subject to and qualified in its entirety
by reference to our Declaration of Trust and Bylaws, copies of which are
exhibits to the Registration Statement of which this Prospectus is a part. See
"Where You Can Find More Information."

GENERAL

Our Declaration of Trust provides that we may issue up to 50,000,000 Class
A common shares of beneficial interest, $0.01 par value per share, 50,000,000
Class B common shares of beneficial interest, $0.01 par value per share, and
10,000,000 preferred shares of beneficial interest, $0.01 par value per share.
As of February 18, 2004, 12,614,712 Class A common shares were issued and
outstanding and no Class B common or preferred shares were issued and
outstanding. Effective as of January 26, 2004, the Class B common shares were
automatically converted into Class A common shares, any differences between the
Class A common shares and Class B common shares disappeared and we now have only
one class of common shares. As permitted by the Maryland REIT Law, our
Declaration of Trust contains a provision permitting our Board of Trustees,
without any action by our shareholders, to amend the Declaration of Trust to
increase or decrease the aggregate number of shares of beneficial interest or
the number of shares of any class of shares of beneficial interest that we have
authority to issue.

Our Declaration of Trust provides that none of our shareholders is
personally liable for any of our obligations solely as a result of his status as
a shareholder. Our Bylaws further provide that we shall indemnify each
shareholder against any claim or liability to which the shareholder, subject to
certain limitations, may become subject by reason of his being or having been a
shareholder or former shareholder and that we shall pay or reimburse each
shareholder or former shareholder for all legal and other expenses reasonably
incurred by him in connection with any claim or liability.

COMMON SHARES

As a holders of common shares, you will receive distributions, or
dividends, on the shares you own if the Board of Trustees authorizes a dividend
out of our legally available assets. Your right to receive those dividends may
be affected, however, by the preferential rights of any other class or series of
shares of beneficial interest and the provisions of our declaration of trust
regarding restrictions on the transfer of shares of beneficial interest. For
example, you may not receive dividends if no funds are available for
distribution after we pay dividends to holders of preferred shares. You will
also be entitled to receive dividends based on our assets available for
distribution to common shareholders if we liquidate, dissolve or wind-up our
operations. The amount you, as a shareholder, would receive in the distribution
would be determined by the amount of your beneficial ownership of us in
comparison with other beneficial owners. Assets will be available for
distribution to shareholders only after we have paid all of our known debts and
liabilities and paid the holders of any preferred shares we may issue which are
outstanding at that time.

Subject to the preferential rights of the Series A Preferred Shares or of
any other shares or series of beneficial interest and to the provisions of our
Declaration of Trust regarding the restriction on the transfer of shares of
beneficial interest, holders of common shares are entitled to receive dividends
on shares if, when and as authorized and declared by our Board of Trustees out
of assets legally available therefor and to share ratably in our assets legally
available for distribution to our shareholders in the event of our liquidation,
dissolution or winding-up after payment of, or adequate provision for, all of
our known debts and liabilities.

Holders of common shares have no preference, sinking fund, redemption or
appraisal rights and have no preemptive rights to subscribe for any of our
securities. Subject to the provisions of our Declaration of Trust regarding the
restriction on transfer of shares of beneficial interest, the common shares have
equal voting, dividend, distribution, liquidation and other rights.

Voting Rights of Common Shares

Subject to the provisions of the Declaration of Trust regarding the
restriction of the transfer of shares of beneficial interest, each outstanding
common share entitles the holder to one vote on all matters submitted to a vote
of shareholders, including the election of trustees. There is no cumulative
voting in the election of trustees, which means that the holders of a majority
of the outstanding common shares, voting as a single class, can elect all of the
trustees then standing for election and the holders of the remaining shares are
not able to elect any trustees.

Under the Maryland REIT Law, a Maryland REIT generally cannot amend its
declaration of trust or merge unless approved by the affirmative vote of
shareholders holding at least two-thirds of the shares entitled to vote on the
matter unless a lesser percentage (but not less than a majority of all the votes
entitled to be cast on the matter) is set forth in the REIT's declaration of
trust subject to the terms of any other class or series of shares of beneficial
interest. Our Declaration of Trust provides for approval by a majority of all
the votes entitled to be cast on the matter in all situations permitting or
requiring action by the shareholders except with respect to: (a) our intentional
disqualification as a REIT or revocation of our election to be taxed as a REIT
(which requires the affirmative vote of two-thirds of the number of common
shares entitled to vote on such matter at a meeting of our shareholders); (b)
the election of trustees (which requires a plurality of all the votes cast at a
meeting of our shareholders at which a quorum is present); (c) the removal of
trustees (which requires the affirmative vote of the holders of two-thirds of
our outstanding voting shares); (d) the amendment or repeal of certain
designated sections of the Declaration of Trust (which require the affirmative
vote of two-thirds of the outstanding shares entitled to vote on such matters);
(e) the amendment of the Declaration of Trust by shareholders (which requires
the affirmative vote of a majority of votes entitled to be cast on the matter,
except under certain circumstances specified in the Declaration of Trust that
require the affirmative vote of two-thirds of all the votes entitled to be cast
on the matter); and (f) our termination (which requires the affirmative vote of
two-thirds of all the votes entitled to be cast on the matter). Under the
Maryland REIT Law, a declaration of trust may permit the trustees by a
two-thirds vote to amend the declaration of trust from time to time to qualify
as a REIT under the Code or the Maryland REIT Law without the affirmative vote
or written consent of the shareholders. Our Declaration of Trust permits such
action by a majority vote of the trustees. As permitted by the Maryland REIT
Law, our Declaration of Trust contains a provision permitting our trustees,
without any action by our shareholders, to amend the Declaration of Trust to
increase or decrease the aggregate number of shares of beneficial interest or
the number of shares of any class of shares of beneficial interest that we have
authority to issue.

PREFERRED SHARES

The Declaration of Trust authorizes our Board of Trustees to classify any
unissued preferred shares and to reclassify any previously classified but
unissued preferred shares of any series from time to time in one or more series,
as authorized by the Board of Trustees. Prior to issuance of shares of each
series, the Board of Trustees is required by the Maryland REIT Law and our
Declaration of Trust to set for each such series, subject to the provisions of
our Declaration of Trust regarding the restriction on transfer of shares of
beneficial interest, the terms, the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such series.
Thus, our Board of Trustees could authorize the issuance of preferred shares
with terms and conditions which could have the effect of delaying, deferring or
preventing a transaction or a change in control in us that might involve a
premium price for holders of common shares or otherwise be in their best
interest.

THE SERIES A PREFERRED SHARES

On April 21, 2003, in connection with the CNL transaction, our Board of
Trustees classified and designated 350,000 preferred shares of beneficial
interest as Series A Preferred Shares of beneficial interest, par value $.01 per
share. The Series A Convertible Preferred Units held by CNL in our operating
partnership are exchangeable for our Series A Preferred Shares on a one for one
basis. As of the date hereof, no preferred shares are outstanding. The Series
A Preferred Shares are senior to the common shares as to payment of dividends,
distributions of assets upon liquidation, dissolution or winding-up, whether
voluntary or involuntary, or otherwise.

The terms of the Series A Preferred Shares are described in more detail
under the heading "CNL Strategic Alliance-Investment in Series A Convertible
Preferred Units of Our Operating Partnership."

CLASSIFICATION OR RECLASSIFICATION OF COMMON SHARES OR PREFERRED SHARES

Our Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued common shares or preferred shares into one or more
classes or series of shares of beneficial interest by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or distributions, qualifications or terms or
conditions of redemption of such new class or series of shares of beneficial
interest.

RESTRICTIONS ON OWNERSHIP AND TRANSFER

Our Declaration of Trust, subject to certain exceptions described below,
provides that no person may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.9% of (i) the number of
outstanding common shares of any class or series of common shares or (ii) the
number of outstanding preferred shares of any class or series of preferred
shares. For this purpose, a person includes a "group" and a "beneficial owner"
as those terms are used for purposes of Section 13(d)(3) of the Exchange Act.
Any transfer of common or preferred shares that would (i) result in any person
owning, directly or indirectly, common or preferred shares in excess of the
ownership limitation, (ii) result in the common and preferred shares being owned
by fewer than 100 persons (determined without reference to any rules of
attribution), (iii) result in us being "closely held" within the meaning of
Section 856(h) of the Code, or (iv) cause us to own, actually or constructively,
10% or more of the ownership interests in a tenant of our or our partnership's
real property, within the meaning of Section 856(d)(2)(B) of the Code, will be
null and void, and the intended transferee will acquire no rights in such common
or preferred shares.

Subject to certain exceptions described below, any common shares or
preferred shares the purported transfer of which would (i) result in any person
owning, directly or indirectly, common shares or preferred shares in excess of
the ownership limitation, (ii) result in the common shares and preferred shares
being owned by fewer than 100 persons (determined without reference to any rules
of attribution), (iii) result in our being "closely held" within the meaning of
Section 856(h) of the Code, or (iv) cause us to own, actually or constructively,
10% or more of the ownership interests in a tenant of our or our partnership's
real property, within the meaning of Section 856(d)(2)(B) of the Code, will be
designated as "shares-in-trust" and transferred automatically to a trust
effective on the day before the purported transfer of such common shares or
preferred shares. The record holder of the common or preferred shares that are
designated as shares-in-trust will be required to submit such number of common
shares or preferred shares to us for registration in the name of the trust. The
trustee will be designated by us, but will not be affiliated with us. The
beneficiary of a trust will be one or more charitable organizations that are
named by us.

Shares-in-trust will remain issued and outstanding common shares or
preferred shares and will be entitled to the same rights and privileges as all
other shares of the same class or series. The trust will receive all dividends
and distributions on the shares-in-trust and will hold such dividends or
distributions in trust for the benefit of the beneficiary. The trust will vote
all shares-in-trust. The trust will designate a permitted transferee of the
shares-in-trust, provided that the permitted transferee (i) purchases such
shares-in-trust for valuable consideration and (ii) acquires such
shares-in-trust without such acquisition resulting in a transfer to another
trust.

The prohibited owner with respect to shares-in-trust will be required to
repay to the record holder the amount of any dividends or distributions received
by the prohibited owner (i) that are attributable to any shares-in-trust and
(ii) the record date of which was on or after the date that such shares became
shares-in-trust. The prohibited owner generally will receive from the record
holder the lesser of (i) the price per share such prohibited owner paid for the
common shares or preferred shares that were designated as shares-in-trust (or,
in the case of a gift or devise, the market price (as defined below) per share
on the date of such transfer) or (ii) the price per share received by the record
holder from the sale of such shares- in-trust. Any amounts received by the
record holder in excess of the amounts to be paid to the prohibited owner will
be distributed to the beneficiary.

The shares-in-trust will be deemed to have been offered for sale to us, or
its designee, at a price per share equal to the lesser of (i) the price per
share in the transaction that created such shares-in-trust (or, in the case of a
gift or devise, the market price per share on the date of such transfer) or (ii)
the market price per share on the date that we, or our designee, accepts such
offer. We will have the right to accept such offer for a period of 90 days after
the later of (i) the date of the purported transfer which resulted in such
shares-in-trust or (ii) the date we determine in good faith that a transfer
resulting in such shares-in-trust occurred.

"Market price" on any date shall mean the average of the last quoted sale
price as reported by the American Stock Exchange for the five consecutive
trading days (as defined below) ending on such date.

Any person who acquires or attempts to acquire common or preferred shares
in violation of the foregoing restrictions, or any person who owned common or
preferred shares that were transferred to a trust, will be required (i) to give
immediately written notice to us of such event and (ii) to provide to us such
other information as we may request in order to determine the effect, if any, of
such transfer on our status as a REIT.

All persons who own, directly or indirectly, more than 5% (or such lower
percentages as required pursuant to regulations under the Code) of the
outstanding common and preferred shares must, within 30 days after December 31
of each year, provide to us a written statement or affidavit stating the name
and address of such direct or indirect owner, the number of common and preferred
shares owned directly or indirectly, and a description of how such shares are
held. In addition, each direct or indirect shareholder shall provide to us such
additional information as we may request in order to determine the effect, if
any, of such ownership on our status as a REIT and to ensure compliance with the
ownership limitation.

The ownership limitation generally does not apply to the acquisition of
common or preferred shares by an underwriter that participates in a public
offering of such shares. In addition, the trustees, upon receipt of advice of
counsel or other evidence satisfactory to the trustees, in their sole and
absolute discretion, may, in their sole and absolute discretion, exempt a person
from the ownership limitation under certain circumstances. The foregoing
restrictions continue to apply until (i) the trustees determine that it is no
longer in our best interests to attempt to qualify, or to continue to qualify,
as a REIT and (ii) there is an affirmative vote of two-thirds of the number of
common and preferred shares entitled to vote on such matter at a regular or
special meeting of our shareholders.

We granted limited waivers of these ownership limitations as follows:

- a limited waiver to CNL allows CNL to own 100% of the outstanding
Series A Preferred Shares and up to 60% of the outstanding common
shares on a fully diluted basis, subject to CNL's compliance with
certain representations and warranties (see "CNL Strategic Alliance");

- a limited waiver to RREEF America L.L.C., Deutche Asset Management,
Inc., and their related mutual funds and accounts, specifically
including Scudder RREEF Real Estate Fund Inc., Scudder RREEF Real
Estate Fund II Inc. and Scudder RREEF Securities Trust (collectively,
the "Scudder RREEF Group") to own 15% of the outstanding common
shares, subject to their compliance with certain representations and
warranties, including that no single person will own more than 9.9% of
the outstanding common shares; and

- a limited waiver to K.G. Redding & Associates, and its managed
accounts to own 15% of the outstanding common shares, subject to their
compliance with certain representations and warranties including that
no single person will own more than 9.9% of the outstanding common
shares.

All certificates representing common or preferred shares bear a legend
referring to the restrictions described above.

This ownership limitation could have the effect of delaying, deferring or
preventing a change in control or other transaction in which holders of some, or
a majority, of shares of common shares might receive a premium for their shares
of common shares over the then prevailing market price or which such holders
might believe to be otherwise in their best interest.

OTHER MATTERS

Our transfer agent and registrar for our common shares is Wachovia
Securities, N.A., Charlotte, North Carolina.

CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR DECLARATION
OF TRUST AND BYLAWS

CLASSIFICATION OF THE BOARD OF TRUSTEES

Our Bylaws provide that the number of our trustees may be established by
the Board of Trustees but may not be fewer than three nor more than nine. As of
August 31, 2003, we have seven trustees. The trustees may increase or decrease
the number of trustees by a vote of at least 80% of the members of the Board of
Trustees, provided that the number of trustees shall never be less than the
number required by Maryland law and that the tenure of office of a trustee shall
not be affected by any decrease in the number of trustees. Any vacancy will be
filled, including a vacancy created by an increase in the number of trustees, at
any regular meeting or at any special meeting called for that purpose, by a
majority of the remaining trustees or, if no trustees remain, by a majority of
our shareholders.

Pursuant to our Declaration of Trust, the Board of Trustees is divided into
two classes of trustees. Trustees of each class are chosen for two-year terms
and each year one class of trustees will be elected by the shareholders. We
believe that classification of the Board of Trustees helps to assure the
continuity and stability of our business strategies and policies as determined
by the trustees. Holders of common shares have no right to cumulative voting in
the election of trustees. Consequently, at each annual meeting of shareholders,
the holders of a majority of the common shares are able to elect all of the
successors of the class of trustees whose terms expire at that meeting.

The classified board provision could have the effect of making the
replacement of incumbent trustees more time consuming and difficult. The
staggered terms of trustees may delay, defer or prevent a tender offer or an
attempt to change control in us or other transaction that might involve a
premium price for holders of common shares that might be in the best interest of
the shareholders.

REMOVAL OF TRUSTEES

The Declaration of Trust provides that a trustee may be removed with or
without cause upon the affirmative vote of at least two-thirds of the votes
entitled to be cast in the election of trustees. This provision, when coupled
with the provision in the Bylaws authorizing the Board of Trustees to fill
vacant trusteeships, precludes shareholders from removing incumbent trustees,
except upon a substantial affirmative vote, and filling the vacancies created by
such removal with their own nominees.

BUSINESS COMBINATIONS

Under Maryland law, certain business combinations between us and any person
who beneficially owns, directly or indirectly, 10% or more of the voting power
of our shares, an affiliate of ours who, at any time within the previous two
years was the beneficial owner of 10% or more of the voting power of our shares
(who the statute terms an "interested shareholder"), or an affiliate of an
interested shareholder, are prohibited for five years after the most recent date
on which they became interested shareholders. The business combinations that
are subject to this law include mergers, consolidations, share exchanges or, in
certain circumstances, asset transfers or issuances or reclassifications of
equity securities. After the five-year period has elapsed, a proposed business
combination must be recommended by the Board of Trustees and approved by the
affirmative vote of at least:

- 80% of our outstanding voting shares; and
- two-thirds of the outstanding voting shares, excluding shares held by
the interested shareholder,

unless, among other conditions, the shareholders receive a fair price, as
defined by Maryland law, for their shares and the consideration is received in
cash or in the same form as previously paid by the interested shareholder for
its shares.

These provisions do not apply, however, to business combinations that the
Board of Trustees approves or exempts before the time that the interested
shareholder becomes an interested shareholder.

Pursuant to a resolution of our Board of Trustees, CNL's ownership of our
securities are exempt from the Maryland Business Combination Statute.

CONTROL SHARE ACQUISITIONS

Maryland law provides that "control shares" acquired in a "control share
acquisition" have no voting rights unless approved by a vote of two-thirds of
our outstanding voting shares, excluding shares owned by the acquiror or by
officers or directors who are employees of ours. "Control shares" are voting
shares which, if aggregated with all other shares previously acquired by the
acquiring person, or in respect of which the acquiring person is able to
exercise or direct the exercise of voting power, other than by revocable proxy,
would entitle the acquiring person to exercise voting power in electing trustees
within one of the following ranges of voting power:

- one-tenth or more but less than one-third;
- one-third or more but less than a majority; or
- a majority of all voting power.

Control shares do not include shares the acquiring person is then entitled
to vote as a result of having previously obtained shareholder approval. A
"control share acquisition" means the acquisition of control shares, subject to
certain exceptions.

A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions, including an undertaking to pay expenses,
may compel our Board of Trustees to call a special meeting of shareholders to be
held within 50 days of demand to consider the voting rights of the shares. If no
request for a meeting is made, we may present the question at any shareholders'
meeting.

If voting rights are not approved at the shareholders' meeting or if the
acquiring person does not deliver the statement required by Maryland law, then,
subject to certain conditions and limitations, we may redeem any or all of the
control shares, except those for which voting rights have previously been
approved, for fair value. Fair value is determined without regard to the absence
of voting rights for the control shares and as of the date of the last control
share acquisition or of any meeting of shareholders at which the voting rights
of the shares were considered and not approved. If voting rights for control
shares are approved at a shareholders' meeting, and as a result thereof the
acquiror may then vote a majority of the shares entitled to vote, all other
shareholders may exercise appraisal rights. The fair value of the shares for
purposes of these appraisal rights may not be less than the highest price per
share paid by the acquiror in the control share acquisition. The control share
acquisition statute does not apply to shares acquired in a merger, consolidation
or share exchange if we are a party to the transaction, nor does it apply to
acquisitions approved or exempted by our Declaration of Trust or Bylaws.

Our Bylaws contain a provision exempting from the control share acquisition
act any and all acquisitions by any person of our shares. There can be no
assurance that this provision will not be amended or eliminated at any time in
the future.

AMENDMENT

Our Declaration of Trust provides that it may be amended with the approval
of at least a majority of all of the votes entitled to be cast on the matter,
but that certain provisions of the Declaration of Trust regarding (i) our Board
of Trustees, including the provisions regarding independent trustee
requirements, (ii) the restrictions on transfer of the common shares and the
preferred shares, (iii) amendments to the Declaration of Trust by the trustees
and our shareholders and (iv) our termination may not be amended, altered,
changed or repealed without the approval of two-thirds of all of the votes
entitled to be cast on these matters. In addition, the Declaration of Trust
provides that it may be amended by the Board of Trustees, without shareholder
approval to (a) increase or decrease the aggregate number of shares of
beneficial interest or the number of shares of any class of beneficial interest
that the Trust has authority to issue or (b) qualify as a REIT under the Code or
under the Maryland REIT law. Our Bylaws may be amended or altered exclusively
by the Board of Trustees.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Our Declaration of Trust limits the liability of our trustees and officers
for money damages, except for liability resulting from:

- actual receipt of an improper benefit or profit in money, property or
services; or
- a final judgment based upon a finding of active and deliberate
dishonesty by the trustees or others that was material to the cause of
action adjudicated.

Our Declaration of Trust authorizes us, to the maximum extent permitted by
Maryland law, to indemnify, and to pay or reimburse reasonable expenses to, any
of our present or former trustees or officers or any individual who, while a
trustee or officer and at our request, serves or has served another entity,
employee benefit plan or any other enterprise as a trustee, director, officer,
partner or otherwise. The indemnification covers any claim or liability against
the person. Our Bylaws and Maryland law require us to indemnify each trustee or
officer who has been successful, on the merits or otherwise, in the defense of
any proceeding to which he or she is made a party by reason of his or her
service to us.

Maryland law permits a Maryland real estate investment trust to indemnify
its present and former trustees and officers against liabilities and reasonable
expenses actually incurred by them in any proceeding unless:

- the act or omission of the trustee or officer was material to the
matter giving rise to the proceeding; and
- was committed in bad faith; or
- was the result of active and deliberate dishonesty; or
- in a criminal proceeding, the trustee or officer had reasonable cause
to believe that the act or omission was unlawful.

However, a Maryland real estate investment trust may not indemnify for an
adverse judgment in a derivative action. Our Bylaws and Maryland law require
us, as a condition to advancing expenses in certain circumstances, to obtain:

- a written affirmation by the trustee or officer of his or her good
faith belief that he or she has met the standard of conduct necessary
for indemnification; and
- a written undertaking to repay the amount reimbursed if the standard
of conduct was not met.

CERTAIN PROVISIONS OF MARYLAND LAW

Maryland law also provides that Maryland real estate investment trust that
are subject to the Exchange Act and have at least three outside trustees can
elect by resolution of the Board of Trustees to be subject to some corporate
governance provisions that may be inconsistent with the real estate investment
trust declaration of trust and bylaws. Under the applicable statute, a board of
trustees may classify itself without the vote of shareholders. A board of
trustees classified in that manner cannot be altered by amendment to the
declaration of trust of the real estate investment trust. Further, the board of
trustees may, by electing into applicable statutory provisions and
notwithstanding the declaration of trust or bylaws:

- provide that a special meeting of shareholders, will be called only at
the request of shareholders, entitled to cast at least a majority of
the votes entitled to be cast at the meeting,
- reserve for itself the right to fix the number of trustees,
- provide that a trustee may be removed only by the vote of the holders
of two-thirds of the shares entitled to vote, and
- retain for itself sole authority to fill vacancies created by the
death, removal or resignation of a trustee.

In addition, a trustee elected to fill a vacancy under this provision will
serve for the balance of the unexpired term instead of until the next annual
meeting of shareholders. A board of trustees may implement all or any of these
provisions without amending the declaration of trust or bylaws and without
shareholder approval. A real estate investment trust may be prohibited by its
declaration of trust or by resolution of its board of trustees from electing any
of the provisions of the statute. We are is not prohibited from implementing
any or all of the statute. If

implemented, these provisions could discourage offers to acquire the our shares
and could increase the difficulty of completing an offer.

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR
DECLARATION OF TRUST AND BYLAWS

The business combination provisions and, if the applicable exemption in the
Bylaws is rescinded, the control share acquisition provisions of the MGCL, the
provisions of our Declaration of Trust on classification of the Board of
Trustees, the removal of trustees and the restrictions on the transfer of shares
of beneficial interest and the advance notice provisions of the Bylaws could
have the effect of delaying, deferring or preventing a transaction or a change
in the control that might involve a premium price for holders of the common
shares or otherwise be in their best interest.

CNL STRATEGIC ALLIANCE

The following summary of the terms of the CNL strategic alliance does not
purport to be complete and is subject to and qualified in its entirety by
reference to the described agreements, which are exhibits to the Registration
Statement of which this Prospectus is a part. See "Where You Can Find More
Information."

In April of 2003, we entered into a strategic alliance with CNL Hospitality
Partners, L.P., a subsidiary of CNL Hospitality Properties, Inc. CNL is a
public company, which has been one of the most active investors in lodging
properties over the past several years. Since its inception in 1996, CNL has
invested over $2.2 billion in hotel properties. The strategic alliance
positions us as one of CNL's preferred partners for investing in mid-scale
hotels. Our agreement with CNL provides that it will invest up to $25 million
in our operating partnership and up to $40 million in a newly formed hotel
acquisition joint venture. CNL has currently invested $19 million in our
operating partnership and $8 million in the joint venture, which acquired its
first hotel, the Hampton Inn Chelsea, New York, New York, on August 29, 2003.

INVESTMENT IN SERIES A CONVERTIBLE PREFERRED UNITS OF OUR OPERATING PARTNERSHIP

On April 21 and May 21, 2003, CNL purchased a total of 150,000 units of a
newly created series of convertible preferred limited partnership units of our
operating partnership (the "Series A Convertible Preferred Units") in exchange
for CNL's payment of $15,000,000 in cash, net of certain transaction costs. CNL
purchased an additional 40,266 Series A Convertible Preferred Units on August
29, 2003, for approximately $4 million. CNL may be obligated to purchase up to
an additional 59,734 Series A Convertible Preferred Units, also at a per unit
price of $100.00.

DIVIDENDS

Each Series A Convertible Preferred Unit provides for a quarterly
cumulative preferred dividend of 10.5% per annum on the $100 original issue
price per share and a liquidation value of $100 per share, plus any accrued but
unpaid dividends.

PREEMPTIVE RIGHTS

Each Series A Convertible Preferred Unit has preemptive rights during the
three-year period after their date of issuance in the event our operating
partnership sells additional partnership units, provided that no such approval
shall be required in the event of (i) an issuance of common operating
partnership units in exchange for a contribution of properties to the operating
partnership approved by our Board of Trustees, (b) the issuance of operating
partnership units in connection with an approved employee benefit plan,
including issuance of partnership units to our company in connection with the
issuance of up to 650,000 common shares pursuant to an approved employee benefit
plan, or (c) the issuance of operating partnership units to our company in
connection with the issuance of common shares pursuant to a dividend
reinvestment plan.

EXCHANGE AND CONVERSION

Each Series A Convertible Preferred Unit is exchangeable or convertible at
the option of its holder for either (i) one Series A Preferred Share or (ii)
approximately 14.8 common shares or ordinary operating partnership units, based
on an initial conversion price of $6.7555 per common share or ordinary operating
partnership unit. The initial conversion price represents the volume weighted
average closing price for the common shares for the 20 trading days preceding
April 21, 2003. The exchange or conversion price is subject to anti-dilution
adjustments upon the occurrence of certain events, including share splits and
combinations, reclassifications, reorganizations, mergers, consolidations or
asset sales, or the sale of common shares or operating partnership units below
85% of the then effective conversion or exchange price (initially $5.74).

REDEMPTION

Upon a vote of a majority of the members of our Board of Trustees, we may
redeem all or any part of the outstanding Series A Convertible Preferred Units
for a per Unit redemption price equal to the sum of the original issue price,
all accrued but unpaid dividends and a premium which is initially $10.50 per
unit and declines annually on a straight line basis over a ten-year period. A
Series A Convertible Preferred Unit holder who has received a redemption notice
will have the opportunity in lieu of redemption to exchange or convert its
Series A Convertible Preferred Units into Series A Preferred Shares, common
shares or ordinary operating partnership units.

VOTING RIGHTS

The holders of Series A Convertible Preferred Units have the right to vote
as a single class with holders of ordinary operating partnership interests on
all matters upon which they are entitled to vote. The holders of operating
partnership units are entitled to a number of votes equal to the number of
common shares for which their units would then be exchangeable.

APPROVAL RIGHTS

We must obtain the approval of the holders of a majority of the Series A
Convertible Preferred Units to effect the following actions:

- any creation, or increase in number of, securities senior to the
Series A Convertible Preferred Units;

- the issuance of any class or series of equity interest in our
operating partnership prior to the first to occur of (i) the issuance
of an aggregate of 250,000 Series A Convertible Preferred Units in
accordance with the terms of the CNL strategic alliance or (ii)
certain terminating events defined in the agreement pursuant to which
CNL purchased its Series A Convertible Preferred Units; provided that
no such approval shall be required in the event of (i) an issuance of
common operating partnership units in exchange for a contribution of
properties to the operating partnership approved by our Board of
Trustees, (b) the issuance of operating partnership units in
connection with an approved employee benefit plan, including issuance
of partnership units to our company in connection with the issuance of
up to 650,000 common shares pursuant to an approved employee benefit
plan, or (c) the issuance of operating partnership units to our
company in connection with the issuance of common shares pursuant to a
dividend reinvestment plan;

- during any period when distributions with respect to the Series A
Convertible Preferred Units are in arrears, any purchase, redemption
or other acquisition for value (or payment into or setting aside as a
sinking fund for such purpose) of any operating partnership units
junior to the Series A Convertible Preferred Units;

- during any period when distributions with respect to the Series A
Convertible Preferred Units are in arrears, any action that results in
the declaration or payment of distributions, direct or indirect on
account of any junior units;

- any action that results in any amendment, alteration, or repeal (by
merger or consolidation or otherwise) of any provisions of the
amendment to the operating partnership agreement designating the

Series A Convertible Preferred Units, any provisions of our
Declaration of Trust, as amended, or our By-laws which eliminates,
amends or affects any term (adversely or otherwise) of the Series A
Preferred Shares and/ or the common shares or shares of any series
ranking senior to the Series A Preferred Shares, including, without
limitation, the redemption, dividend, voting, preemptive,
anti-dilution and other powers, rights and preferences of such shares
or adversely affects any holder thereof;

- any action where our company or the operating partnership or any of
our or its material subsidiaries files any voluntary, or consents to
the filing of any involuntary, petition for relief under title 11 of
the United States Code or any successor statute or under any
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law with respect to our company, the
operating partnership or any of our or its subsidiaries;

- any action where our company, the operating partnership or any of our
material subsidiaries appoints or consents to, or acquiesces in, the
appointment of a receiver, conservator, trustee or other similar
official charged with the administration, control, management,
operation, liquidation, dissolution or valuation of our company, the
operating partnership or any of our or its material subsidiaries, or
any of their respective businesses or assets; and

- any agreement to do any of the transactions set forth above.

We are also required to obtain the approval of the holders of a majority of
the Series A Convertible Preferred Units to effect the following actions, but
only for so long as the holders of Series A Convertible Preferred Units hold in
the aggregate that number of Series A Convertible Preferred Units, common shares
and any other class or series of our equity that represents, on an as converted
or exchanged basis, at least five percent of the common shares then outstanding
on a fully diluted basis, assuming the conversion or exchange for common shares
of all convertible or exchangeable securities of our company and our operating
partnership:

- any action where our company or the operating partnership merges with
or into or consolidates with any other entity, but excluding any
merger effected exclusively for the purpose of changing the domicile
of our company or the operating partnership;

- any action where the operating partnership or any of its subsidiaries
directly or indirectly sells, leases, transfers, conveys or assigns
(whether in a single transaction or series of related transactions)
all or substantially all of its assets, other than transactions
involving leases by the operating partnership of its hotel properties
in the ordinary course of its business;

- all transactions involving our company or the operating partnership of
the type referred in paragraph (a) of Rule 145 under the Securities
Act of 1933, as amended, and all transactions involving our company or
the operating partnership constituting a change-in-control within the
meaning of Rule 14(f) under the Securities Exchange Act of 1934, as
amended;

- any action where our company, the operating partnership or any of our
or its subsidiaries, or HHMLP, on the one hand, engages in any
transaction with an affiliate of our company or the operating
partnership on the other hand, provided, however, to the extent such
transactions are of the type which, but for their affiliated nature,
would fall within the ordinary course of business and day-to-day
affairs of the operating partnership, such actions need not be
approved on a transaction-by-transaction basis but may be entered into
pursuant to annual budgets and purchase plans approved by the holders
of the Series A Convertible Preferred Units. For purposes of these
provisions, "affiliate" has the meaning set forth in Rule 12b-2 of the
Exchange Act and includes, without limitation, (a) the trustees and
senior officers of our company, the operating partnership or any of
our or its subsidiaries, his or her spouse, parent, sibling,
mother-in-law, father-in-law, brother-in-law, sister-in-law, aunt,
uncle, or first cousin, (b) any person directly or indirectly owning,
controlling or holding the power to vote 5% or more of the outstanding
voting securities of our company, the operating partnership or any of
our or its subsidiaries, and (c) any person 5% or more of whose
outstanding voting securities are directly

or indirectly owned, controlled or held with power to vote by our
company, the operating partnership or any of our or its subsidiaries;

- for our company, the operating partnership or any of our or its
subsidiaries to engage in any business where either the operation of
such business or ownership of the assets related to such business will
result in our company failing to satisfy the provisions of Section 856
of the Internal Revenue Code;

- conducting any business activities or the ownership of any asset of
our company (other than operating partnership interests) in each case
other than through the operating partnership or one or more subsidiary
partnerships as contemplated by the operating partnership agreement;
and

- admission of a substitute or additional general partner of the
operating partnership.

We are not required to obtain the approval of the Series A Convertible
Preferred Unit holders regarding any of the foregoing actions if such action
provides that all holders of Series A Convertible Preferred Units shall as a
result of and simultaneously with such action receive no less than the
liquidation preference plus the applicable premium to which such Units are
entitled under the operating partnership agreement.

SERIES A PREFERRED SHARES

The Series A Preferred Shares, into which the Series A Convertible
Preferred Units are exchangeable, entitle the holders thereof to substantially
similar rights as those attendant to the Series A Convertible Preferred Units in
our operating partnership with respect to dividends, preemptive rights and
redemption by us. In addition, holders of the Series A Preferred Shares have
substantially similar approval rights as those held by holders of the Series A
Convertible Preferred Units.

Each Series A Preferred Share is convertible at the option of its holder
into approximately 14.8 common shares, based on an initial conversion price of
$6.7555 per common share and subject to anti-dilution adjustments upon the
occurrence of certain events, including share splits and combinations,
reclassifications, reorganizations, mergers, consolidations or asset sales, or
the sale of common shares or limited partnership units below 85% of the then
effective conversion price (initially $5.74).

Subject to the terms of the standstill agreement described below, holders
of Series A Preferred Shares have the right to vote, on an as converted basis,
and as a single class, with holders of our common shares on all matters other
than the designation, election or removal of trustees. The holders of a
majority of the outstanding Series A Preferred Shares have the right to nominate
an observer to our Board of Trustees. For so long as the holders of Series A
Preferred Shares hold at least five percent of the common shares on an
as-converted and fully diluted basis, a majority of the Series A Preferred Share
holders will have the right, voting as a separate class, to nominate and elect
at least one member of our Board of Trustees, and in no event less than 11.1% of
the total members of the Board of Trustees, if (i) they receive a favorable
ruling from the Internal Revenue Service which permits CNL to continue to
qualify as a REIT under certain circumstances, (ii) there is a change in the law
providing for relief comparable to that sought from the IRS as described in
clause (i) above, (iii) they receive an opinion of counsel consistent with such
relief or (iv) there is a transfer of the Series A Convertible Preferred Units
whereby the holder of a majority of the Series A Preferred Shares was a
transferee of Series A Convertible Preferred Units which were converted into
Series A Preferred Shares and could hold such shares without causing such holder
to violate certain IRS rules relating to qualifying as a REIT. In addition,
upon the failure of our company or our operating partnership to pay two
consecutive dividends or distributions on the Series A Preferred Shares or the
Series A Convertible Preferred Units, or our failure to maintain its status as a
REIT, the holders of the Series A Preferred Shares will have the right to
nominate and elect 40% of the members of our Board of Trustees.

EXCEPTED HOLDER AGREEMENT

In connection with the strategic alliance, we and CNL entered into an
Excepted Holder Agreement pursuant to which we exempted CNL from compliance with
the 9.9% ownership limitation regarding any class or series of our equity
securities set forth in our Declaration of Trust. Under the Excepted Holder
Agreement, and in

compliance with its terms, CNL may own up to 100% of the outstanding Series A
Preferred Shares and up to 60% of the outstanding common shares (assuming
redemption of the outstanding common limited partnership units for common
shares), provided that the 60% ownership limit will rise to 100% if our company
or our operating partnership fails to pay in full for two consecutive calendar
quarters the dividends or distributions due on the Series A Preferred Shares and
Series A Convertible Preferred Units or if we fail to maintain our status as a
real estate investment trust.

STANDSTILL AGREEMENT

We have entered into a Standstill Agreement with CNL pursuant to which CNL
and its affiliates have agreed not to acquire any additional securities of ours
other than as contemplated by the CNL transaction, participate in any
solicitation of proxies, call meetings of our shareholders, seek representation
on our Board of Trustees or vote its securities in excess of 40% of the total
issued and outstanding voting shares. Securities of ours owned by CNL in excess
of the 40% limit are voted by proxy in the same manner and proportion as the
common shares held by all other holders. The Standstill Agreement provides that
it will remain in effect until April 21, 2009 unless terminated earlier by CNL
upon:

- the failure by our company or our operating partnership to pay two
consecutive quarterly dividends or distributions on the Series A
Preferred Shares or the Series A Convertible Preferred Units;

- our failure to maintain our status as a REIT;

- another person acquiring beneficial ownership in excess of 9.9% of our
equity shares that are issued and outstanding;

- our Board of Trustees authorizing certain business combinations
involving us;

- another person's submission of a proposal to us relating to such
business combinations that is not rejected by our Board as not in the
best interests of our shareholders;

- in connection with any business combination, our removal of any
impediments in our Declaration of Trust or Bylaws to any business
combination;

- CNL's ownership of our securities, on a fully diluted basis, decreases
to less than 9.9% of the common shares then outstanding, on a fully
diluted basis and the termination of the Excepted Holder Agreement or
other exception to the ownership limit set forth in our Declaration of
Trust applicable to CNL and its affiliates; and

- the material failure by our company or our operating partnership to
comply with any of the terms of the Series A Preferred Shares or the
Series A Convertible Preferred Units.

Upon the occurrence of any of the aforementioned events, the 60% ownership
limit on CNL's ability to acquire common shares set forth in the Excepted Holder
Agreement and the restrictions set forth in the Standstill Agreement on CNL's
ability to acquire additional securities of our company will terminate and CNL
will be permitted to acquire any amount of additional securities of our company
or our operating partnership.

REGISTRATION RIGHTS

We have also entered into a Registration Rights Agreement with CNL pursuant
to which CNL may, subject to certain cutbacks and restrictions, cause us to
register the common shares and Series A Preferred Shares owned by CNL under the
Securities Act of 1933, as amended, and under state securities laws of any
jurisdiction requested by CNL.

HOTEL ACQUISITION JOINT VENTURE

We have also have formed a joint venture limited partnership with CNL, in
which our operating partnership is serving as the sole general partner and in
which CNL is the sole limited partner. The joint venture agreement provides
that CNL will invest up to $40 million, and HT will invest up to $20 million in
the joint venture to acquire hotel real estate assets approved by an investment
committee comprised of an equal number of representatives from Hersha and CNL.
The investments in the joint venture will be subject to satisfaction of the
conditions to closing set forth in the joint venture agreement.

On August 29, 2003, the joint venture made its first acquisition, the
Chelsea Hampton Inn, New York, New York and accepted a $4 million capital
contribution from us and an $8 million capital contribution from CNL.

Net cash flow from operations of the joint venture will be distributed:
first, to CNL to provide a 10.5% per annum return on its unreturned capital
contributions; second, to us to provide an annual administrative fee of .35% of
the cost of the joint venture's assets; third, to us to provide a 13% per annum
return on our unreturned capital contributions; and thereafter to CNL and us in
proportion to our respective capital contributions to the joint venture.
Proceeds from a sale of a joint venture property or other capital event for the
joint venture will be distributed: first, to CNL to return its capital
contributions; second, to us to return our capital contributions; third, to CNL
to provide a 10.5% annual return on its unreturned capital contributions;
fourth, to us to provide a 13% annual return on our unreturned capital
contributions; and thereafter to CNL and us according to our respective capital
contributions.

CNL's limited partnership interest in the joint venture generally will be
exchangeable, at CNL's option, for common limited partnership units of our
operating partnership or common shares, based on an initial exchange price of
$6.7555 per share, subject to adjustment.

As part of the joint venture, until April 21, 2004, we must present all of
our proposed acquisitions to the investment committee of the joint venture, and
we may only acquire such acquisition directly if the investment committee or CNL
fails to approve that acquisition for the joint venture.

FEDERAL INCOME TAX CONSEQUENCES OF OUR STATUS AS A REIT

This section summarizes the federal income tax issues that you, as a
shareholder, may consider relevant. Hunton & Williams LLP has acted as our
counsel, has reviewed this summary and is of the opinion that the discussion
contained herein fairly summarizes the federal income tax consequences that are
likely to be material to a holder of common shares. Because this section is a
summary, it does not address all of the tax issues that may be important to you.
In addition, this section does not address the tax issues that may be important
to certain types of our shareholders that are subject to special treatment under
the federal income tax laws, such as insurance companies, tax-exempt
organizations (except to the extent discussed in "Taxation of Tax-Exempt
Shareholders" below), financial institutions or broker-dealers, and non-U.S.
individuals and foreign corporations (except to the extent discussed in
"Taxation of Non-U.S. Shareholders" below).

The statements in this section and the opinion of Hunton & Williams LLP are
based on the current federal income tax laws governing qualification as a REIT.
We cannot assure you that new laws, interpretations of law or court decisions,
any of which may take effect retroactively, will not cause any statement in this
section to be inaccurate.

WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO YOU OF INVESTING IN OUR COMMON SHARES AND OF OUR ELECTION TO BE
TAXED AS A REIT. SPECIFICALLY, YOU SHOULD CONSULT YOUR OWN TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH
INVESTMENT AND ELECTION, AND REGARDING POTENTIAL CHANGES IN APPLICABLE TAX LAWS.

TAXATION OF OUR COMPANY

We elected to be taxed as a REIT under the federal income tax laws
beginning with our taxable year ended December 31, 1999. We believe that we
have operated in a manner qualifying us as a REIT since our election and intend
to continue to so operate. This section discusses the laws governing the
federal income tax treatment of a REIT and its shareholders. These laws are
highly technical and complex.

In the opinion of Hunton & Williams LLP, we qualified to be taxed as a REIT
under the federal income tax laws for our taxable years ended December 31, 2000
through December 31, 2003, and our organization and current and proposed method
of operation will enable us to continue to qualify as a REIT for our taxable
year ending December 31, 2004 and in the future. You should be aware that the
opinion is based on current law and is not binding on the Internal Revenue
Service or any court. In addition, the opinion is based on customary
assumptions and on our representations as to factual matters, all of which are
described in the opinion. Our qualification as a REIT depends on our ability to
meet, on a continuing basis, qualification tests in the federal tax laws. Those
qualification tests involve the percentage of income that we earn from specified
sources, the percentages of our assets that fall within specified categories,
the diversity of our share ownership and the percentage of our earnings that we
distribute. Hunton & Williams LLP will not review our compliance with those
tests on a continuing basis. Accordingly, no assurance can be given that the
actual results of our operation for any particular taxable year will satisfy
such requirements. For a discussion of the tax consequences of our failure to
qualify as a REIT, see "-Failure to Qualify."

If we qualify as a REIT, we generally will not be subject to federal income
tax on the taxable income that we distribute to our shareholders. The benefit
of that tax treatment is that it avoids the "double taxation," or taxation at
both the corporate and shareholder levels, that generally results from owning
shares in a corporation. However, we will be subject to federal tax in the
following circumstances:

- We will pay federal income tax on taxable income, including net
capital gain, that we do not distribute to shareholders during, or
within a specified time period after, the calendar year in which the
income is earned.

- We may be subject to the "alternative minimum tax" on any items of tax
preference that we do not distribute or allocate to shareholders.

- We will pay income tax at the highest corporate rate on:

- net income from the sale or other disposition of property
acquired through foreclosure ("foreclosure property") that we
hold primarily for sale to customers in the ordinary course of
business, and

- other non-qualifying income from foreclosure property.

- We will pay a 100% tax on net income from sales or other dispositions
of property, other than foreclosure property, that we hold primarily
for sale to customers in the ordinary course of business.

- If we fail to satisfy the 75% gross income test or the 95% gross
income test, as described below under "Requirements for
Qualification-Income Tests," and nonetheless continue to qualify as a
REIT because we meet other requirements, we will pay a 100% tax on:

- the gross income attributable to the greater of (1) the amount by
which we fail the 75% gross income test, and (2) the amount by
which 90% of our gross income exceeds the amount of income
qualifying under the 95% gross income test, in each case,
multiplied by

- a fraction intended to reflect our profitability.

- If we fail to distribute during a calendar year at least the sum of:

- 85% of our REIT ordinary income for the year,

- 95% of our REIT capital gain net income for the year, and

- any undistributed taxable income from earlier periods,

we will pay a 4% nondeductible excise tax on the excess of the
required distribution over the amount we actually distributed.

- We may elect to retain and pay income tax on our net long-term capital
gain. In that case, a U.S. shareholder would be taxed on its
proportionate share of our undistributed long-term capital gain (to
the extent that we made a timely designation of such gain to the
shareholders) and would receive a credit or refund for its
proportionate share of the tax we paid.

- We will be subject to a 100% excise tax on transactions with a taxable
REIT subsidiary that are not conducted on an arm's-length basis.

- If we acquire any asset from a C corporation, or a corporation that
generally is subject to full corporate-level tax, in a merger or other
transaction in which we acquire a basis in the asset that is
determined by reference either to the C corporation's basis in the
asset or to another asset, we will pay tax at the highest regular
corporate rate applicable if we recognize gain on the sale or
disposition of the asset during the 10-year period after we acquire
the asset provided no election is made for the transaction to be
taxable on a current basis. The amount of gain on which we will pay
tax is the lesser of:

- the amount of gain that we recognize at the time of the sale or
disposition, and

- the amount of gain that we would have recognized if we had sold
the asset at the time we acquired it.

REQUIREMENTS FOR QUALIFICATION

A REIT is a corporation, trust, or association that meets each of the
following requirements:

1. It is managed by one or more trustees or directors.

2. Its beneficial ownership is evidenced by transferable shares, or by
transferable certificates of beneficial interest.

3. It would be taxable as a domestic corporation, but for the REIT
provisions of the federal income tax laws.

4. It is neither a financial institution nor an insurance company subject
to special provisions of the federal income tax laws.

5. At least 100 persons are beneficial owners of its shares or ownership
certificates.

6. Not more than 50% in value of its outstanding shares or ownership
certificates is owned, directly or indirectly, by five or fewer
individuals, which the federal income tax laws define to include
certain entities, during the last half of any taxable year.

7. It elects to be a REIT, or has made such election for a previous
taxable year, and satisfies all relevant filing and other
administrative requirements established by the Internal Revenue
Service that must be met to elect and maintain REIT status.

8. It meets certain other qualification tests, described below, regarding
the nature of its income and assets and the amount of its
distributions to shareholders.

We must meet requirements 1 through 4 during our entire taxable year and
must meet requirement 5 during at least 335 days of a taxable year of 12 months,
or during a proportionate part of a taxable year of less than 12 months. If we
comply with all the requirements for ascertaining the ownership of our
outstanding shares in a taxable year and have no reason to know that we violated
requirement 6, we will be deemed to have satisfied requirement 6 for that
taxable year. For purposes of determining share ownership under requirement 6,
an "individual" generally includes a supplemental unemployment compensation
benefits plan, a private foundation, or a portion of a trust permanently set
aside or used exclusively for charitable purposes. An "individual," however,
generally does not include a trust that is a qualified employee pension or
profit sharing trust under the federal income tax laws, and beneficiaries of
such a trust will be treated as holding our shares in proportion to their
actuarial interests in the trust for purposes of requirement 6. We have issued
sufficient common shares with sufficient diversity of ownership to satisfy
requirements 5 and 6. In addition, our Declaration of Trust restricts the
ownership and transfer of our shares of beneficial interest so that we should
continue to satisfy these requirements.

A corporation that is a "qualified REIT subsidiary" (i.e., a corporation
that is 100% owned by a REIT with respect to which no TRS election has been
made) is not treated as a corporation separate from its parent REIT. All
assets, liabilities, and items of income, deduction, and credit of a "qualified
REIT subsidiary" are treated as assets, liabilities, and items of income,
deduction, and credit of the REIT. A "qualified REIT subsidiary" is a
corporation, all of the capital stock of which is owned by the REIT. Thus, in
applying the requirements described herein, any "qualified REIT subsidiary" that
we own will be ignored, and all assets, liabilities, and items of income,
deduction, and credit of such subsidiary will be treated as our assets,
liabilities, and items of income, deduction, and credit.

An unincorporated domestic entity, such as a limited liability company,
that has a single owner, generally is not treated as an entity separate from its
parent for federal income tax purposes. An unincorporated domestic entity with
two or more owners is generally treated as a partnership for federal income tax
purposes. In the case of a REIT that is a partner in a partnership that has
other partners, the REIT is treated as owning its proportionate share of the
assets of the partnership and as earning its allocable share of the gross income
of the partnership for purposes of the applicable REIT qualification tests.
Thus, our proportionate share of the assets, liabilities and items of income of

our operating partnership and any other partnership, joint venture, or limited
liability company that is treated as a partnership for federal income tax
purposes in which we have acquired or will acquire an interest, directly or
indirectly (a "subsidiary partnership"), will be treated as our assets and gross
income for purposes of applying the various REIT qualification requirements.

A REIT may own up to 100% of the stock of one or more "taxable REIT
subsidiaries," or TRSs. A TRS is a fully taxable corporation that may earn
income that would not be qualifying income if earned directly by the parent
REIT. However, a TRS may not directly or indirectly operate or manage any
hotels or health care facilities or provide rights to any brand name under which
any hotel or health care facility is operated. The subsidiary and the REIT must
jointly elect to treat the subsidiary as a TRS. A TRS will pay income tax at
regular corporate rates on any income that it earns. In addition, the TRS rules
limit the deductibility of interest paid or accrued by a TRS to its parent REIT
to assure that the TRS is subject to an appropriate level of corporate taxation.
Further, the rules impose a 100% excise tax on transactions between a TRS and
its parent REIT or the REIT's tenants that are not conducted on an arm's-length
basis. We currently have four TRSs, (i) 44 New England Management Company,
which leases four of our hotels, (ii) HHM Leasehold Interests, Inc., which
leases 14 of our hotels, (iii) Hersha CNL TRS, Inc., which is owned by our joint
venture with CNL and leases the one hotel owned by that joint venture, and (iv)
Hersha PRA TRS, Inc., which is owned by our joint venture with PRA Glastonbury,
LLC and leases the hotel owned by that joint venture. See "-Taxable REIT
Subsidiaries."

INCOME TESTS

We must satisfy two gross income tests annually to maintain our
qualification as a REIT. First, at least 75% of our gross income for each
taxable year must consist of defined types of income that we derive, directly or
indirectly, from investments relating to real property or mortgages on real
property or qualified temporary investment income. Qualifying income for
purposes of that 75% gross income test generally includes:

- rents from real property;

- interest on debt secured by mortgages on real property, or on
interests in real property;

- dividends or other distributions on, and gain from the sale of, shares
in other REITs;

- gain from the sale of real estate assets; and

- income derived from the temporary investment of new capital that is
attributable to the issuance of our stock or a public offering of our
debt with a maturity date of at least five years and that we receive
during the one-year period beginning on the date on which we received
such new capital.

Second, in general, at least 95% of our gross income for each taxable year
must consist of income that is qualifying income for purposes of the 75% gross
income test, other types of interest and dividends, gain from the sale or
disposition of stock or securities, income from hedging instruments or any
combination of these. Gross income from our sale of property that we hold
primarily for sale to customers in the ordinary course of business is excluded
from both the numerator and the denominator in both income tests. The following
paragraphs discuss the specific application of the gross income tests to us.

Rents from Real Property. Rent that we receive from our real property will
qualify as "rents from real property," which is qualifying income for purposes
of the 75% and 95% gross income tests, only if the following conditions are met:

- First, the rent must not be based, in whole or in part, on the income
or profits of any person, but may be based on a fixed percentage or
percentages of receipts or sales.

- Second, neither we nor a direct or indirect owner of 10% or more of
our shares may own, actually or constructively, 10% or more of a
tenant from whom we receive rent other than a TRS. If the tenant is a
TRS, such TRS may not directly or indirectly operate or manage the
related property. Instead, the

property must be operated on behalf of the TRS by a person who
qualifies as an "independent contractor" and who is, or is related to
a person who is, actively engaged in the trade or business of
operating lodging facilities for any person unrelated to us and the
TRS. See "-Taxable REIT Subsidiaries."

- Third, if the rent attributable to personal property leased in
connection with a lease of real property is 15% or less of the total
rent received under the lease, then the rent attributable to personal
property will qualify as rents from real property. However, if the 15%
threshold is exceeded, the rent attributable to personal property will
not qualify as rents from real property.

- Fourth, we generally must not operate or manage our real property or
furnish or render services to our tenants, other than through an
"independent contractor" who is adequately compensated and from whom
we do not derive revenue. However, we need not provide services
through an "independent contractor," but instead may provide services
directly to our tenants, if the services are "usually or customarily
rendered" in connection with the rental of space for occupancy only
and are not considered to be provided for the tenants' convenience. In
addition, we may provide a minimal amount of "noncustomary" services
to the tenants of a property, other than through an independent
contractor, as long as our income from the services does not exceed 1%
of our income from the related property.

Pursuant to percentage leases, our lessees lease the land, buildings,
improvements, furnishings and equipment comprising our hotels, for terms of five
years, with options to renew for terms of five years. The percentage leases
provide that the lessees are obligated to pay (1) the greater of a minimum base
rent or percentage rent and (2) "additional charges" or other expenses, as
defined in the leases. Percentage rent is calculated by multiplying fixed
percentages by gross room revenues and gross food and beverage revenues for each
of the hotels. Both base rent and the thresholds in the percentage rent
formulas are adjusted for inflation. Base rent and percentage rent accrue and
are due monthly or quarterly.

In order for the base rent, percentage rent and additional charges to
constitute "rents from real property," the percentage leases must be respected
as true leases for federal income tax purposes and not treated as service
contracts, joint ventures or some other type of arrangement. The determination
of whether the percentage leases are true leases depends on an analysis of all
the surrounding facts and circumstances. In making such a determination, courts
have considered a variety of factors, including the following:

- the intent of the parties;

- the form of the agreement;

- the degree of control over the property that is retained by the
property owner, or whether the lessee has substantial control over the
operation of the property or is required simply to use its best
efforts to perform its obligations under the agreement; and

- the extent to which the property owner retains the risk of loss with
respect to the property, or whether the lessee bears the risk of
increases in operating expenses or the risk of damage to the property
or the potential for economic gain or appreciation with respect to the
property.

In addition, federal income tax law provides that a contract that purports to be
a service contract or a partnership agreement will be treated instead as a lease
of property if the contract is properly treated as such, taking into account all
relevant factors, including whether or not:

- the service recipient is in physical possession of the property;

- the service recipient controls the property;

- the service recipient has a significant economic or possessory
interest in the property, or whether the property's use is likely to
be dedicated to the service recipient for a substantial portion of the
useful life of the property, the recipient shares the risk that the
property will decline in value, the recipient shares in any
appreciation in the value of the property, the recipient shares in
savings in the property's operating costs or the recipient bears the
risk of damage to or loss of the property;

- the service provider bears the risk of substantially diminished
receipts or substantially increased expenditures if there is
nonperformance under the contract;

- the service provider uses the property concurrently to provide
significant services to entities unrelated to the service recipient;
and

- the total contract price substantially exceeds the rental value of the
property for the contract period.

Since the determination whether a service contract should be treated as a lease
is inherently factual, the presence or absence of any single factor will not be
dispositive in every case.

Hunton & Williams LLP is of the opinion that the percentage leases will be
treated as true leases for federal income tax purposes. Such opinion is based,
in part, on the following facts:

- we and the lessees intend for our relationship to be that of a lessor
and lessee and such relationship is documented by lease agreements;

- the lessees have the right to the exclusive possession, use and quiet
enjoyment of the hotels during the term of the percentage leases;

- the lessees bear the cost of, and are responsible for, day-to-day
maintenance and repair of the hotels, other than the cost of
maintaining underground utilities, structural elements and capital
improvements, and generally dictate how the hotels are operated,
maintained and improved;

- the lessees bear the costs and expenses of operating the hotels,
including the cost of any inventory used in their operation, during
the term of the percentage leases, other than real estate and personal
property taxes and property and casualty insurance premiums;

- the lessees benefit from any savings in the cost of operating the
hotels during the term of the percentage leases;

- the lessees generally have indemnified us against all liabilities
imposed on us during the term of the percentage leases by reason of
(1) injury to persons or damage to property occurring at the hotels,
(2) the lessees' use, management, maintenance or repair of the hotels,
(3) any environmental liability caused by acts or grossly negligent
failures to act of the lessees, (4) taxes and assessments in respect
of the hotels that are the obligations of the lessees or (5) any
breach of the percentage leases or of any sublease of a hotel by the
lessees;

- the lessees are obligated to pay substantial fixed rent for the period
of use of the hotels;

- the lessees stand to incur substantial losses or reap substantial
gains depending on how successfully they operate the hotels;

- we cannot use the hotels concurrently to provide significant services
to entities unrelated to the lessees; and

- the total contract price under the percentage leases does not
substantially exceed the rental value of the hotels for the term of
the percentage leases.

Investors should be aware that there are no controlling Treasury
regulations, published rulings or judicial decisions involving leases with terms
substantially the same as the percentage leases that discuss whether such leases
constitute true leases for federal income tax purposes. If the percentage
leases are characterized as service contracts or partnership agreements, rather
than as true leases, part or all of the payments that our operating partnership
and its subsidiaries receive from the lessees may not be considered rent or may
not otherwise satisfy the various requirements for qualification as "rents from
real property." In that case, we likely would not be able to satisfy either the
75% or 95% gross income test and, as a result, would lose our REIT status unless
we qualify for relief, as described below under "Failure to Satisfy Gross Income
Tests".

As described above, in order for the rent that we receive to constitute
"rents from real property," several other requirements must be satisfied. One
requirement is that the percentage rent must not be based in whole or in part on
the income or profits of any person. The percentage rent, however, will qualify
as "rents from real property" if it is based on percentages of receipts or sales
and the percentages:

- are fixed at the time the percentage leases are entered into;

- are not renegotiated during the term of the percentage leases in a
manner that has the effect of basing percentage rent on income or
profits; and

- conform with normal business practice.

More generally, the percentage rent will not qualify as "rents from real
property" if, considering the percentage leases and all the surrounding
circumstances, the arrangement does not conform with normal business practice,
but is in reality used as a means of basing the percentage rent on income or
profits. Since the percentage rent is based on fixed percentages of the gross
revenue from the hotels that are established in the percentage leases, and we
have represented that the percentages (1) will not be renegotiated during the
terms of the percentage leases in a manner that has the effect of basing the
percentage rent on income or profits and (2) conform with normal business
practice, the percentage rent should not be considered based in whole or in part
on the income or profits of any person. Furthermore, we have represented that,
with respect to other hotel properties that we acquire in the future, we will
not charge rent for any property that is based in whole or in part on the income
or profits of any person, except by reason of being based on a fixed percentage
of gross revenues, as described above.

Second, we must not own, actually or constructively, 10% or more of the
stock or the assets or net profits of any lessee (a "related party tenant")
other than a TRS. The constructive ownership rules generally provide that, if
10% or more in value of our shares is owned, directly or indirectly, by or for
any person, we are considered as owning the stock owned, directly or indirectly,
by or for such person. We do not own any stock or any assets or net profits of
any lessee directly or indirectly, other than indirect ownership of our TRS
lessees, 44 New England Management Company, HHM Leasehold Interests, Inc.,
Hersha CNL TRS, Inc., and Hersha PRA TRS, Inc. In addition, our Declaration of
Trust prohibits transfers of our shares that would cause us to own actually or
constructively, 10% or more of the ownership interests in a lessee (other than a
TRS). Based on the foregoing, we should never own, actually or constructively,
10% or more of any lessee other than a TRS. Furthermore, we have represented
that, with respect to other hotel properties that we acquire in the future, we
will not rent any property to a related party tenant (other than a TRS).
However, because the constructive ownership rules are broad and it is not
possible to monitor continually direct and indirect transfers of our shares, no
absolute assurance can be given that such transfers or other events of which we
have no knowledge will not cause us to own constructively 10% or more of a
lessee other than a TRS at some future date.

As described above, we may own up to 100% of the stock of one or more TRSs.
A TRS is a fully taxable corporation that is permitted to lease hotels from the
related REIT as long as it does not directly or indirectly operate or manage any
hotels or health care facilities or provide rights to any brand name under which
any hotel or health care facility is operated. However, rent that we receive
from a TRS will qualify as "rents from real property" as long as the property is
operated on behalf of the TRS by an "independent contractor" who is adequately
compensated, who does not, directly or through its stockholders, own more than
35% of our shares, taking into account certain ownership attribution rules, and
who is, or is related to a person who is, actively engaged in the trade or
business of operating "qualified lodging facilities" for any person unrelated to
us and the TRS lessee (an "eligible

independent contractor"). A "qualified lodging facility" is a hotel, motel, or
other establishment more than one-half of the dwelling units in which are used
on a transient basis, unless wagering activities are conducted at or in
connection with such facility by any person who is engaged in the business of
accepting wagers and who is legally authorized to engage in such business at or
in connection with such facility. A "qualified lodging facility" includes
customary amenities and facilities operated as part of, or associated with, the
lodging facility as long as such amenities and facilities are customary for
other properties of a comparable size and class owned by other unrelated owners.
See "-Taxable REIT Subsidiaries."

We have formed several TRSs to lease our hotels. Our TRSs have engaged an
"eligible independent contractor," HHMLP, to operate the related hotels on
behalf of such TRSs. Furthermore, we have represented that, with respect to
properties that we lease to our TRSs in the future, each such TRS will engage an
"eligible independent contractor" to manage and operate the hotels leased by
such TRS.

Third, the rent attributable to the personal property leased in connection
with the lease of a hotel must not be greater than 15% of the total rent
received under the lease. The rent attributable to the personal property
contained in a hotel is the amount that bears the same ratio to total rent for
the taxable year as the average of the fair market values of the personal
property at the beginning and at the end of the taxable year bears to the
average of the aggregate fair market values of both the real and personal
property contained in the hotel at the beginning and at the end of such taxable
year (the "personal property ratio"). With respect to each hotel, we believe
either that the personal property ratio is less than 15% or that any rent
attributable to excess personal property will not jeopardize our ability to
qualify as a REIT. There can be no assurance, however, that the Internal
Revenue Service would not challenge our calculation of a personal property
ratio, or that a court would not uphold such assertion. If such a challenge
were successfully asserted, we could fail to satisfy the 75% or 95% gross income
test and thus potentially lose our REIT status.

Fourth, we cannot furnish or render noncustomary services to the tenants of
our hotels, or manage or operate our hotels, other than through an independent
contractor who is adequately compensated and from whom we do not derive or
receive any income. However, we need not provide services through an
"independent contractor," but instead may provide services directly to our
tenants, if the services are "usually or customarily rendered" in connection
with the rental of space for occupancy only and are not considered to be
provided for the tenants' convenience. Provided that the percentage leases are
respected as true leases, we should satisfy that requirement, because we do not
perform any services other than customary ones for the lessees. In addition, we
may provide a minimal amount of "noncustomary" services to the tenants of a
property, other than through an independent contractor, as long as our income
from the services does not exceed 1% of our income from the related property.
Finally, we may own up to 100% of the stock of one or more TRSs, which may
provide noncustomary services to our tenants without tainting our rents from the
related hotels. We will not perform any services other than customary ones for
our lessees, unless such services are provided through independent contractors
or TRSs. Furthermore, we have represented that, with respect to other hotel
properties that we acquire in the future, we will not perform noncustomary
services for the lessee of the property to the extent that the provision of such
services would jeopardize our REIT status.

If a portion of the rent that we receive from a hotel does not qualify as
"rents from real property" because the rent attributable to personal property
exceeds 15% of the total rent for a taxable year, the portion of the rent that
is attributable to personal property will not be qualifying income for purposes
of either the 75% or 95% gross income test. Thus, if such rent attributable to
personal property, plus any other income that is nonqualifying income for
purposes of the 95% gross income test, during a taxable year exceeds 5% of our
gross income during the year, we would lose our REIT status. If, however, the
rent from a particular hotel does not qualify as "rents from real property"
because either (1) the percentage rent is considered based on the income or
profits of the related lessee, (2) the lessee either is a related party tenant
or fails to qualify for the exception to the related party tenant rule for
qualifying TRSs or (3) we furnish noncustomary services to the tenants of the
hotel, or manage or operate the hotel, other than through a qualifying
independent contractor or a TRS, none of the rent from that hotel would qualify
as "rents from real property." In that case, we might lose our REIT status
because we would be unable to satisfy either the 75% or 95% gross income test.
In addition to the rent, the lessees are required to pay certain additional
charges. To the extent that such additional charges represent either (1)
reimbursements of amounts that we are obligated to pay to third parties, such as
a lessee's proportionate share of a property's operational or capital expenses,
or (2) penalties for nonpayment or late payment of such amounts, such charges
should qualify as "rents from real

property." However, to the extent that such charges do not qualify as "rents
from real property," they instead will be treated as interest that qualifies for
the 95% gross income test.

Interest. The term "interest" generally does not include any amount
received or accrued, directly or indirectly, if the determination of such amount
depends in whole or in part on the income or profits of any person. However, an
amount received or accrued generally will not be excluded from the term
"interest" solely by being based on a fixed percentage or percentages of
receipts or sales. Furthermore, to the extent that interest from a loan that is
based on the profit or net cash proceeds from the sale of the property securing
the loan constitutes a "shared appreciation provision," income attributable to
such participation feature will be treated as gain from the sale of the secured
property.

Prohibited Transactions. A REIT will incur a 100% tax on the net income
derived from any sale or other disposition of property, other than foreclosure
property, that the REIT holds primarily for sale to customers in the ordinary
course of a trade or business. We believe that none of our assets are held
primarily for sale to customers and that a sale of any of our assets will not be
in the ordinary course of our business. Whether a REIT holds an asset
"primarily for sale to customers in the ordinary course of a trade or business"
depends, however, on the facts and circumstances in effect from time to time,
including those related to a particular asset. Nevertheless, we will attempt to
comply with the terms of safe-harbor provisions in the federal income tax laws
prescribing when an asset sale will not be characterized as a prohibited
transaction. We cannot assure you, however, that we can comply with the
safe-harbor provisions or that we will avoid owning property that may be
characterized as property that we hold "primarily for sale to customers in the
ordinary course of a trade or business."

Foreclosure Property. We will be subject to tax at the maximum corporate
rate on any income from foreclosure property, other than income that otherwise
would be qualifying income for purposes of the 75% gross income test, less
expenses directly connected with the production of that income. However, gross
income from foreclosure property will qualify under the 75% and 95% gross income
tests. Foreclosure property is any real property, including interests in real
property, and any personal property incident to such real property:

- that is acquired by a REIT as the result of the REIT having bid on
such property at foreclosure, or having otherwise reduced such
property to ownership or possession by agreement or process of law,
after there was a default or default was imminent on a lease of such
property or on indebtedness that such property secured;

- for which the related loan was acquired by the REIT at a time when the
default was not imminent or anticipated; and

- for which the REIT makes a proper election to treat the property as
foreclosure property.

We have no foreclosure property as of the date of this prospectus. Property
generally ceases to be foreclosure property at the end of the third taxable year
following the taxable year in which the REIT acquired the property, or longer if
an extension is granted by the Secretary of the Treasury. However, this grace
period terminates and foreclosure property ceases to be foreclosure property on
the first day:

- on which a lease is entered into for the property that, by its terms,
will give rise to income that does not qualify for purposes of the 75%
gross income test, or any amount is received or accrued, directly or
indirectly, pursuant to a lease entered into on or after such day that
will give rise to income that does not qualify for purposes of the 75%
gross income test;

- on which any construction takes place on the property, other than
completion of a building or any other improvement, where more than 10%
of the construction was completed before default became imminent; or

- which is more than 90 days after the day on which the REIT acquired
the property and the property is used in a trade or business which is
conducted by the REIT, other than through an independent contractor
from whom the REIT itself does not derive or receive any income.

Hedging Transactions. From time to time, we or our operating partnership
may enter into hedging transactions with respect to one or more of our assets or
liabilities. Our hedging activities may include entering into interest rate
swaps, caps, and floors, options to purchase such items, and futures and forward
contracts. To the extent that we or our operating partnership enters into an
interest rate swap or cap contract, option, futures contract, forward rate
agreement, or any similar financial instrument to hedge our indebtedness
incurred to acquire or carry "real estate assets," any periodic income or gain
from the disposition of such contract should be qualifying income for purposes
of the 95% gross income test, but not the 75% gross income test. To the extent
that we or our operating partnership hedges with other types of financial
instruments, or in other situations, it is not entirely clear how the income
from those transactions will be treated for purposes of the gross income tests.
We intend to structure any hedging transactions in a manner that does not
jeopardize our status as a REIT.

Failure to Satisfy Gross Income Tests. If we fail to satisfy one or both
of the gross income tests for any taxable year, we nevertheless may qualify as a
REIT for that year if we qualify for relief under certain provisions of the
federal income tax laws. Those relief provisions generally will be available
if:

- our failure to meet such tests is due to reasonable cause and not due
to willful neglect;

- we attach a schedule of the sources of our income to our tax return;
and

- any incorrect information on the schedule was not due to fraud with
intent to evade tax.

We cannot predict, however, whether in all circumstances we would qualify
for the relief provisions. In addition, as discussed above in "Taxation of Our
Company," even if the relief provisions apply, we would incur a 100% tax on the
gross income attributable to the greater of (1) the amount by which we fail the
75% gross income test and (2) the amount by which 90% of our income exceeds the
amount of income qualifying under the 95% gross income test, in each case,
multiplied by a fraction intended to reflect our profitability.

ASSET TESTS

To maintain our qualification as a REIT, we also must satisfy the following
asset tests at the end of each quarter of each taxable year. First, at least
75% of the value of our total assets must consist of:

- cash or cash items, including certain receivables;

- government securities;

- interests in real property, including leaseholds and options to
acquire real property and leaseholds;

- interests in mortgages on real property;

- stock in other REITs; and

- investments in stock or debt instruments during the one-year period
following our receipt of new capital that we raise through equity
offerings or offerings of debt with at least a five-year term.

Second, of our investments not included in the 75% asset class, the value
of our interest in any one issuer's securities may not exceed 5% of the value of
our total assets.

Third, we may not own more than 10% of the voting power or value of any one
issuer's outstanding securities.

Fourth, no more than 20% of the value of our total assets may consist of
the securities of one or more TRSs.

Fifth, no more than 25% of the value of our total assets may consist of the
securities of TRSs and other non-TRS taxable subsidiaries and other assets that
are not qualifying assets for purposes of the 75% asset test.

For purposes of the second and third asset tests, the term "securities"
does not include stock in another REIT, equity or debt securities of a qualified
REIT subsidiary or TRS, mortgage loans that constitute real estate assets, or
equity interests in a partnership. The term "securities," however, generally
includes debt securities issued by a partnership or another REIT, except that
certain "straight debt" securities are not treated as "securities" for purposes
of the 10% value test (for example, qualifying debt securities of a partnership
or REIT in which neither we nor any TRS of ours owns an equity interest or of a
partnership if we own at least a 20% profits interest in the partnership).

We believe that our existing assets are qualifying assets for purposes of
the 75% asset test. We also believe that any additional real property that we
acquire and temporary investments that we make generally will be qualifying
assets for purposes of the 75% asset test. We will monitor the status of our
acquired assets for purposes of the various asset tests and will manage our
portfolio in order to comply at all times with such tests. If we fail to
satisfy the asset tests at the end of a calendar quarter, we will not lose our
REIT status if:

- we satisfied the asset tests at the end of the preceding calendar
quarter; and

- the discrepancy between the value of our assets and the asset test
requirements arose from changes in the market values of our assets and
was not wholly or partly caused by the acquisition of one or more
non-qualifying assets.

If we did not satisfy the condition described in the second item, above, we
still could avoid disqualification by eliminating any discrepancy within 30 days
after the close of the calendar quarter in which it arose.

DISTRIBUTION REQUIREMENTS

Each taxable year, we must distribute dividends, other than capital gain
dividends and deemed distributions of retained capital gain, to our shareholders
in an aggregate amount at least equal to:

- the sum of

- 90% of our "REIT taxable income," computed without regard to the
dividends paid deduction and our net capital gain or loss, and

- 90% of our after-tax net income, if any, from foreclosure
property, minus

- the sum of certain items of non-cash income.

We must pay such distributions in the taxable year to which they relate, or
in the following taxable year if we declare the distribution before we timely
file our federal income tax return for the year and pay the distribution on or
before the first regular dividend payment date after such declaration.

We will pay federal income tax on taxable income, including net capital
gain, that we do not distribute to shareholders. Furthermore, if we fail to
distribute during a calendar year, or by the end of January following the
calendar year in the case of distributions with declaration and record dates
falling in the last three months of the calendar year, at least the sum of:

- 85% of our REIT ordinary income for such year,

- 95% of our REIT capital gain income for such year, and

- any undistributed taxable income from prior periods,

we will incur a 4% nondeductible excise tax on the excess of such required
distribution over the amounts we actually distribute. We may elect to retain
and pay income tax on the net long-term capital gain we receive in a taxable
year. See "-Taxation of Taxable U.S. Shareholders." If we so elect, we will be
treated as having distributed any such retained amount for purposes of the 4%
nondeductible excise tax described above. We have made, and we intend to
continue to make, timely distributions sufficient to satisfy the annual
distribution requirements and to avoid corporate income tax and the 4%
nondeductible excise tax.

It is possible that, from time to time, we may experience timing
differences between the actual receipt of income and actual payment of
deductible expenses and the inclusion of that income and deduction of such
expenses in arriving at our REIT taxable income. For example, we may not deduct
recognized capital losses from our "REIT taxable income." Further, it is
possible that, from time to time, we may be allocated a share of net capital
gain attributable to the sale of depreciated property that exceeds our allocable
share of cash attributable to that sale. As a result of the foregoing, we may
have less cash than is necessary to distribute taxable income sufficient to
avoid corporate income tax and the excise tax imposed on certain undistributed
income or even to meet the 90% distribution requirement. In such a situation,
we may need to borrow funds or issue additional common or preferred shares.

Under certain circumstances, we may be able to correct a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to our
shareholders in a later year. We may include such deficiency dividends in our
deduction for dividends paid for the earlier year. Although we may be able to
avoid income tax on amounts distributed as deficiency dividends, we will be
required to pay interest to the Internal Revenue Service based upon the amount
of any deduction we take for deficiency dividends.

TAXABLE REIT SUBSIDIARIES

As described above, we may own up to 100% of the stock of one or more TRSs.
A TRS is a fully taxable corporation that may earn income that would not be
qualifying income if earned directly by us. A TRS may provide services to our
lessees and perform activities unrelated to our lessees, such as third-party
management, development, and other independent business activities. However, a
taxable REIT subsidiary may not directly or indirectly operate or manage any
hotels or health care facilities or provide rights to any brand name under which
any hotel or health care facility is operated.

We and our corporate subsidiary must elect for the subsidiary to be treated
as a TRS. A corporation of which a qualifying TRS directly or indirectly owns
more than 35% of the voting power or value of the stock will automatically be
treated as a TRS. Overall, no more than 20% of the value of our assets may
consist of securities of one or more TRSs, and no more than 25% of the value of
our assets may consist of the securities of TRSs and other taxable subsidiaries
and other assets that are not qualifying assets for purposes of the 75% asset
test.

Rent that we receive from our TRSs will qualify as "rents from real
property" as long as the property is operated on behalf of the TRS by a person
who qualifies as an "independent contractor" and who is, or is related to a
person who is, actively engaged in the trade or business of operating "qualified
lodging facilities" for any person unrelated to us and the TRS lessee (an
"eligible independent contractor"). A "qualified lodging facility" is a hotel,
motel, or other establishment more than one-half of the dwelling units in which
are used on a transient basis, unless wagering activities are conducted at or in
connection with such facility by any person who is engaged in the business of
accepting wagers and who is legally authorized to engage in such business at or
in connection with such facility. A "qualified lodging facility" includes
customary amenities and facilities operated as part of, or associated with, the
lodging facility as long as such amenities and facilities are customary for
other properties of a comparable size and class owned by other unrelated owners.

We have formed four TRSs to lease hotels in which we own interests. We
lease four of our hotels to 44 New England Management Company, a TRS owned by
our operating partnership. A subsidiary of HHMLP, HHM Leasehold Interests,
Inc., which is a TRS in which HHMLP owns a 99% interest and in which our
operating partnership owns a 1% interest, leases 14 of our hotels. Our joint
venture with CNL has formed Hersha CNL TRS, Inc., which is one of our TRSs and
leases the hotel owned by that joint venture. Similarly, our joint venture with
PRA Glastonbury, LLC has formed Hersha PRA TRS, Inc., which is one of our TRSs
and leases the hotel owned by that joint venture. We may form new TRSs in the
future. Each of these existing TRSs has engaged HHMLP, an

"eligible independent contractor," to operate the related hotels on its behalf.
Furthermore, we have represented that, with respect to properties that we lease
to our TRSs in the future, each such TRS will engage an "eligible independent
contractor" to manage and operate the hotels leased by such TRS.

The TRS rules limit the deductibility of interest paid or accrued by a TRS
to us to assure that the TRS is subject to an appropriate level of corporate
taxation. Further, the rules impose a 100% excise tax on certain transactions
between a TRS and us or our tenants that are not conducted on an arm's-length
basis. We believe that all transactions between us and each of our existing
TRSs have been and will be conducted on an arm's-length basis.

RECORDKEEPING REQUIREMENTS

We must maintain certain records in order to qualify as a REIT. In
addition, to avoid a monetary penalty, we must request on an annual basis
information from our shareholders designed to disclose the actual ownership of
our outstanding shares of beneficial interest. We have complied, and we intend
to continue to comply, with these requirements.

FAILURE TO QUALIFY

If we fail to qualify as a REIT in any taxable year, and no relief
provision applies, we would be subject to federal income tax and any applicable
alternative minimum tax on our taxable income at regular corporate rates. In
calculating our taxable income in a year in which we fail to qualify as a REIT,
we would not be able to deduct amounts paid out to shareholders. In fact, we
would not be required to distribute any amounts to shareholders in that year.
In such event, to the extent of our current and accumulated earnings and
profits, distributions to most domestic non-corporate shareholders would
generally be taxable at capital gains tax rates. Subject to certain limitations
of the federal income tax laws, corporate shareholders might be eligible for the
dividends received deduction. Unless we qualified for relief under specific
statutory provisions, we also would be disqualified from taxation as a REIT for
the four taxable years following the year during which we ceased to qualify as a
REIT. We cannot predict whether in all circumstances we would qualify for such
statutory relief.

TAXATION OF TAXABLE U.S. SHAREHOLDERS

The term "U.S. shareholder" means a holder of common shares that, for
United States federal income tax purposes, is:

- a citizen or resident of the United States,

- a corporation or partnership (including an entity treated as a
corporation or partnership) for U.S. federal income tax purposes
created or organized under the laws of the United States or a
political subdivision of the United States,

- an estate whose income from sources outside the United States is
includible in gross income for United States federal income tax
purposes regardless of its source, or

- any trust with respect to which

- a United States court is able to exercise primary supervision
over its administration, and

- one or more United States persons have the authority to control
all of its substantial decisions.

As long as we qualify as a REIT, a taxable "U.S. shareholder" must
generally take into account as ordinary income distributions made out of our
current or accumulated earnings and profits that we do not designate as capital
gain dividends or retained long-term capital gain. A U.S. shareholder will not
qualify for the dividends received deduction generally available to
corporations. In addition, dividends paid to a U.S. shareholder generally will
not qualify for the new 15% tax rate for "qualified dividend income." The Jobs
and Growth Tax Relief Reconciliation Act of 2003 reduced the maximum tax rate
for qualified dividend income from 38.6% to 15% for tax years 2003

through 2008. Without future congressional action, the maximum tax rate on
qualified dividend income will move to 35% in 2009 and 39.6% in 2011. Qualified
dividend income generally includes dividends paid to most U.S. noncorporate
taxpayers by domestic C corporations and certain qualified foreign corporations.
Because we are not generally subject to federal income tax on the portion of our
REIT taxable income distributed to our shareholders (see "Taxation of Our
Company" above), our dividends generally will not be eligible for the new 15%
rate on qualified dividend income. As a result, our ordinary REIT dividends will
continue to be taxed at the higher tax rate applicable to ordinary income.
Currently, the highest marginal individual income tax rate on ordinary income is
35%. However, the 15% tax rate for qualified dividend income will apply to our
ordinary REIT dividends (i) attributable to dividends received by us from
non-REIT corporations, such as our TRSs, and (ii) to the extent attributable to
income upon which we have paid corporate income tax (e.g., to the extent that we
distribute less than 100% of our taxable income). In general, to qualify for the
reduced tax rate on qualified dividend income, a shareholder must hold our
common shares for more than 60 days during the 120-day period beginning on the
date that is 60 days before the date on which our common shares become
ex-dividend.

A U.S. shareholder generally will take into account distributions that we
designate as capital gain dividends as long-term capital gain without regard to
the period for which the U.S. shareholder has held our common shares. A
corporate U.S. shareholder, however, may be required to treat up to 20% of
certain capital gain dividends as ordinary income.

A U.S. shareholder will not incur tax on a distribution in excess of our
current and accumulated earnings and profits if the distribution does not exceed
the adjusted basis of the U.S. shareholder's common shares. Instead, the
distribution will reduce the adjusted basis of such common shares. A U.S.
shareholder will recognize a distribution in excess of both our current and
accumulated earnings and profits and the U.S. shareholder's adjusted basis in
his or her common shares as long-term capital gain, or short-term capital gain
if the shares of common shares have been held for one year or less, assuming the
common shares are a capital asset in the hands of the U.S. shareholder. In
addition, if we declare a distribution in October, November, or December of any
year that is payable to a U.S. stockholder of record on a specified date in any
such month, such distribution shall be treated as both paid by us and received
by the U.S. stockholder on December 31 of such year, provided that we actually
pay the distribution during January of the following calendar year.

Shareholders may not include in their individual income tax returns any of
our net operating losses or capital losses. Instead, these losses are generally
carried over by us for potential offset against our future income. Taxable
distributions from us and gain from the disposition of the common shares will
not be treated as passive activity income and, therefore, shareholders generally
will not be able to apply any "passive activity losses," such as losses from
certain types of limited partnerships in which the shareholder is a limited
partner, against such income. In addition, taxable distributions from us and
gain from the disposition of common shares generally will be treated as
investment income for purposes of the investment interest limitations. We will
notify shareholders after the close of our taxable year as to the portions of
the distributions attributable to that year that constitute ordinary income,
return of capital and capital gain.

TAXATION OF U.S. SHAREHOLDERS ON THE DISPOSITION OF COMMON SHARES

In general, a U.S. shareholder who is not a dealer in securities must treat
any gain or loss realized upon a taxable disposition of his or her common shares
as long-term capital gain or loss if the U.S. shareholder has held the common
shares for more than one year and otherwise as short-term capital gain or loss.
However, a U.S. shareholder must treat any loss upon a sale or exchange of
common shares held by such shareholder for six-months or less as a long-term
capital loss to the extent of capital gain dividends and other distributions
from us that such U.S. shareholder treats as long-term capital gain. All or a
portion of any loss that a U.S. shareholder realizes upon a taxable disposition
of the common shares may be disallowed if the U.S. shareholder purchases other
common shares within 30 days before or after the disposition.

CAPITAL GAINS AND LOSSES

The tax rate differential between capital gain and ordinary income for
non-corporate taxpayers may be significant. A taxpayer generally must hold a
capital asset for more than one year for gain or loss derived from its sale or
exchange to be treated as long-term capital gain or loss. The highest marginal
individual income tax rate

currently is 35%. The maximum tax rate on long-term capital gain applicable to
most domestic non-corporate taxpayers currently is 15% for sales and exchanges
of assets held for more than one year. A 20% rate applies to sales and exchanges
of capital assets after December 31, 2008. The maximum tax rate on long-term
capital gain from the sale or exchange of "section 1250 property," or
depreciable real property, is 25% to the extent that such gain would have been
treated as ordinary income if the property were "section 1245 property." With
respect to distributions that we designate as capital gain dividends and any
retained capital gain that we are deemed to distribute, we generally may
designate whether such a distribution is taxable to our non-corporate
shareholders at a 15% or 25% rate. In addition, the characterization of income
as capital gain or ordinary income may affect the deductibility of capital
losses. A non-corporate taxpayer may deduct capital losses not offset by capital
gains against its ordinary income only up to a maximum annual amount of $3,000.
A non-corporate taxpayer may carry forward unused capital losses indefinitely. A
corporate taxpayer must pay tax on its net capital gain at ordinary corporate
rates. A corporate taxpayer can deduct capital losses only to the extent of
capital gains, with unused losses being carried back three years and forward
five years.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING

We will report to our shareholders and to the Internal Revenue Service the
amount of distributions we pay during each calendar year, and the amount of tax
we withhold, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at a rate of up to 28% with respect to
distributions unless the holder:

- is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact; or

- provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with the
applicable requirements of the backup withholding rules.

A shareholder who does not provide us with its correct taxpayer
identification number also may be subject to penalties imposed by the Internal
Revenue Service. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. In addition, we may be required
to withhold a portion of capital gain distributions to any shareholders who fail
to certify their non-foreign status to us. For a discussion of the backup
withholding rules as applied to non-U.S. shareholders. See "-Taxation of
Non-U.S. Shareholders."

TAXATION OF TAX EXEMPT SHAREHOLDERS

Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts, generally are exempt from
federal income taxation. However, they are subject to taxation on their
unrelated business taxable income. While many investments in real estate
generate unrelated business taxable income, the Internal Revenue Service has
issued a ruling that dividend distributions from a REIT to an exempt employee
pension trust do not constitute unrelated business taxable income so long as the
exempt employee pension trust does not otherwise use the shares of the REIT in
an unrelated trade or business of the pension trust. Based on that ruling,
amounts that we distribute to tax-exempt shareholders generally should not
constitute unrelated business taxable income. However, if a tax-exempt
shareholder were to finance its acquisition of common shares with debt, a
portion of the income that it receives from us would constitute unrelated
business taxable income pursuant to the "debt-financed property" rules.
Furthermore, social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans that are
exempt from taxation under special provisions of the federal income tax laws are
subject to different unrelated business taxable income rules, which generally
will require them to characterize distributions that they receive from us as
unrelated business taxable income. Finally, in certain circumstances, a
qualified employee pension or profit sharing trust that owns more than 10% of
our shares must treat a percentage of the dividends that it receives as
unrelated business taxable income. Such percentage is equal to the gross income
we derive from an unrelated trade or business, determined as if we were a
pension trust, divided by our total gross income for the year in which we pay
the dividends. That rule applies to a pension trust holding more than 10% of
our shares only if:

- the percentage of our dividends that the tax-exempt trust must treat
as unrelated business taxable income is at least 5%;

- we qualify as a REIT by reason of the modification of the rule
requiring that no more than 50% of our shares of beneficial interest
be owned by five or fewer individuals that allows the beneficiaries of
the pension trust to be treated as holding our shares of beneficial
interest in proportion to their actuarial interests in the pension
trust; and

- either

- one pension trust owns more than 25% of the value of our shares
of beneficial interest; or

- a group of pension trusts each individually holding more than 10%
of the value of our shares of beneficial interest collectively
own more than 50% of the value of our shares of beneficial
interest.

TAXATION OF NON-U.S. SHAREHOLDERS

The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders are complex. This section is only a summary of such rules. We urge
non-U.S. shareholders to consult their own tax advisors to determine the impact
of federal, state, and local income tax laws on ownership of the common shares,
including any reporting requirements.

A non-U.S. shareholder that receives a distribution that is not
attributable to gain from our sale or exchange of U.S. real property interests,
as defined below, and that we do not designate as a capital gain dividend or
retained capital gain will recognize ordinary income to the extent that we pay
the distribution out of our current or accumulated earnings and profits. A
withholding tax equal to 30% of the gross amount of the distribution ordinarily
will apply unless an applicable tax treaty reduces or eliminates the tax.
However, if a distribution is treated as effectively connected with the non-U.S.
shareholder's conduct of a U.S. trade or business, the non-U.S. shareholder
generally will be subject to federal income tax on the distribution at graduated
rates, in the same manner as U.S. shareholders are taxed on distributions and
also may be subject to the 30% branch profits tax in the case of a corporate
non-U.S. shareholder. We plan to withhold U.S. income tax at the rate of 30% on
the gross amount of any distribution paid to a non-U.S. shareholder unless
either:

- a lower treaty rate applies and the non-U.S. shareholder files an IRS
Form W-8BEN evidencing eligibility for that reduced rate with us, or

- the non-U.S. shareholder files an IRS Form W-8ECI with us claiming
that the distribution is effectively connected income.

A non-U.S. shareholder will not incur tax on a distribution in excess of
our current and accumulated earnings and profits if the distribution does not
exceed the adjusted basis of its common shares. Instead, the distribution will
reduce the adjusted basis of those common shares. A non-U.S. shareholder will be
subject to tax on a distribution that exceeds both our current and accumulated
earnings and profits and the adjusted basis of its common shares, if the
non-U.S. shareholder otherwise would be subject to tax on gain from the sale or
disposition of its common shares, as described below. Because we generally
cannot determine at the time we make a distribution whether or not the
distribution will exceed our current and accumulated earnings and profits, we
normally will withhold tax on the entire amount of any distribution at the same
rate as we would withhold on a dividend. However, a non-U.S. shareholder may
obtain a refund of amounts that we withhold if we later determine that a
distribution in fact exceeded our current and accumulated earnings and profits.
We must withhold 10% of any distribution that exceeds our current and
accumulated earnings and profits. Consequently, although we intend to withhold
at a rate of 30% on the entire amount of any distribution to a non-U.S.
shareholder, to the extent that we do not do so, we will withhold at a rate of
10% on any portion of a distribution not subject to withholding at a rate of
30%.

For any year in which we qualify as a REIT, a non-U.S. shareholder will
incur tax on distributions that are attributable to gain from our sale or
exchange of "U.S. real property interests" under special provisions of the
federal income tax laws known as "FIRPTA." The term "U.S. real property
interests" includes interests in real property and shares in corporations at
least 50% of whose assets consist of interests in real property during a
specified period. Under those rules, a non-U.S. shareholder is taxed on
distributions attributable to gain from sales of U.S. real property interests as
if the gain were effectively connected with a U.S. business of the non-U.S.
shareholder. A non-U.S. shareholder thus would be taxed on this distribution at
the normal capital gain rates applicable to U.S. shareholders, subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of a nonresident alien individual. A non-U.S. corporate shareholder not
entitled to treaty relief or exemption also may be subject to the 30% branch
profits tax on such a distribution. We must withhold 35% of any distribution
that we could designate as a capital gain dividend. A non-U.S. shareholder may
receive a credit against its tax liability for the amount we withhold.

A non-U.S. shareholder generally will not incur tax under FIRPTA as long as
at all times non-U.S. persons hold, directly or indirectly, less than 50% in
value of our shares of beneficial interest. We cannot assure you that that test
will be met. However, a non-U.S. shareholder that owned, actually or
constructively, 5% or less of the common shares at all times during a specified
testing period will not incur tax under FIRPTA if the common shares are
"regularly traded" on an established securities market. Because our common
shares are regularly traded on an established securities market, a non-U.S.
shareholder will not incur tax under FIRPTA unless it owns more than 5% of the
common shares. If the gain on the sale of the common shares were taxed under
FIRPTA, a non-U.S. shareholder would be taxed on that gain in the same manner as
U.S. shareholders subject to applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals, and the
possible application of the 30% branch profits tax in the case of non-U.S.
corporations. Furthermore, a non-U.S. shareholder generally is not subject to
FIRPTA if:

- the gain is effectively connected with the non-U.S. shareholder's U.S.
trade or business, in which case the non-U.S. shareholder will be
subject to the same treatment as U.S. shareholders with respect to
such gain, or

- the non-U.S. shareholder is a nonresident alien individual who was
present in the U.S. for 183 days or more during the taxable year and
has a "tax home" in the United States, in which case the non-U.S.
shareholder will incur a 30% tax on his or her capital gains.

TAX ASPECTS OF OUR INVESTMENTS IN OUR OPERATING PARTNERSHIP AND THE SUBSIDIARY
PARTNERSHIPS

The following discussion summarizes certain federal income tax
considerations applicable to our direct or indirect investments in our operating
partnership and any subsidiary partnerships or limited liability companies that
we form or acquire (each individually a "Partnership" and, collectively, the
"Partnerships"). The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.

Classification as Partnerships. We are entitled to include in our income
our distributive share of each Partnership's income and to deduct our
distributive share of each Partnership's losses only if such Partnership is
classified for federal income tax purposes as a partnership (or an entity that
is disregarded for federal income tax purposes if the entity has only one owner
or member) rather than as a corporation or an association taxable as a
corporation. An unincorporated entity with at least two owners or members will
be classified as a partnership, rather than as a corporation, for federal income
tax purposes if it:

- is treated as a partnership under the Treasury regulations relating to
entity classification (the "check-the-box regulations"); and

- is not a "publicly traded" partnership.

Under the check-the-box regulations, an unincorporated entity with at least
two owners or members may elect to be classified either as an association
taxable as a corporation or as a partnership. If such an entity fails to make
an election, it generally will be treated as a partnership (or an entity that is
disregarded for federal income tax

purposes if the entity has only one owner or member) for federal income tax
purposes. Each Partnership intends to be classified as a partnership for federal
income tax purposes and no Partnership will elect to be treated as an
association taxable as a corporation under the check-the-box regulations.

A publicly traded partnership is a partnership whose interests are traded
on an established securities market or are readily tradable on a secondary
market or the substantial equivalent thereof. A publicly traded partnership
will not, however, be treated as a corporation for any taxable year if 90% or
more of the partnership's gross income for such year consists of certain
passive-type income, including real property rents, gains from the sale or other
disposition of real property, interest, and dividends (the "90% passive income
exception"). Treasury regulations (the "PTP regulations") provide limited safe
harbors from the definition of a publicly traded partnership. Pursuant to one
of those safe harbors (the "private placement exclusion"), interests in a
partnership will not be treated as readily tradable on a secondary market or the
substantial equivalent thereof if (1) all interests in the partnership were
issued in a transaction or transactions that were not required to be registered
under the Securities Act of 1933, as amended, and (2) the partnership does not
have more than 100 partners at any time during the partnership's taxable year.
In determining the number of partners in a partnership, a person owning an
interest in a partnership, grantor trust, or S corporation that owns an interest
in the partnership is treated as a partner in such partnership only if (1)
substantially all of the value of the owner's interest in the entity is
attributable to the entity's direct or indirect interest in the partnership and
(2) a principal purpose of the use of the entity is to permit the partnership to
satisfy the 100-partner limitation. Each Partnership qualifies for the private
placement exclusion. We have not requested, and do not intend to request, a
ruling from the Internal Revenue Service that the Partnerships will be
classified as partnerships for federal income tax purposes.

If for any reason a Partnership were taxable as a corporation, rather than
as a partnership, for federal income tax purposes, we likely would not be able
to qualify as a REIT. See "Federal Income Tax Consequences of Our Status as a
REIT-Requirements for Qualification-Income Tests" and "-Requirements for
Qualification-Asset Tests." In addition, any change in a Partnership's status
for tax purposes might be treated as a taxable event, in which case we might
incur tax liability without any related cash distribution. See "Federal Income
Tax Consequences of Our Status as a REIT-Requirements for
Qualification-Distribution Requirements." Further, items of income and
deduction of such Partnership would not pass through to its partners, and its
partners would be treated as shareholders for tax purposes. Consequently, such
Partnership would be required to pay income tax at corporate rates on its net
income, and distributions to its partners would constitute dividends that would
not be deductible in computing such Partnership's taxable income.

INCOME TAXATION OF THE PARTNERSHIPS AND THEIR PARTNERS

Partners, Not the Partnerships, Subject to Tax. A partnership is not a
taxable entity for federal income tax purposes. Rather, we are required to take
into account our allocable share of each Partnership's income, gains, losses,
deductions, and credits for any taxable year of such Partnership ending within
or with our taxable year, without regard to whether we have received or will
receive any distribution from such Partnership.

Partnership Allocations. Although a partnership agreement generally will
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of the federal income tax laws governing partnership allocations. If an
allocation is not recognized for federal income tax purposes, the item subject
to the allocation will be reallocated in accordance with the partners' interests
in the partnership, which will be determined by taking into account all of the
facts and circumstances relating to the economic arrangement of the partners
with respect to such item. Each Partnership's allocations of taxable income,
gain, and loss are intended to comply with the requirements of the federal
income tax laws governing partnership allocations.

Tax Allocations With Respect to Contributed Properties. Income, gain,
loss, and deduction attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in the partnership must
be allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such
unrealized gain or unrealized loss ("built-in gain" or "built-in loss") is
generally equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution (a "book-tax difference"). Such
allocations are solely for federal income tax purposes and

do not affect the book capital accounts or other economic or legal arrangements
among the partners. The U.S. Treasury Department has issued regulations
requiring partnerships to use a "reasonable method" for allocating items with
respect to which there is a book-tax difference and outlining several reasonable
allocation methods.

Under our operating partnership's partnership agreement, depreciation or
amortization deductions of our operating partnership generally will be allocated
among the partners in accordance with their respective interests in our
operating partnership, except to the extent that our operating partnership is
required under the federal income tax laws governing partnership allocations to
use a method for allocating tax depreciation deductions attributable to
contributed properties that results in our receiving a disproportionate share of
such deductions. In addition, gain or loss on the sale of a property that has
been contributed, in whole or in part, to our operating partnership will be
specially allocated to the contributing partners to the extent of any built-in
gain or loss with respect to such property for federal income tax purposes.

Basis in Partnership Interest. Our adjusted tax basis in our partnership
interest in our operating partnership generally is equal to:

- the amount of cash and the basis of any other property contributed by
us to our operating partnership;

- increased by our allocable share of our operating partnership's income
and our allocable share of indebtedness of our operating partnership;
and

- reduced, but not below zero, by our allocable share of our operating
partnership's loss and the amount of cash distributed to us, and by
constructive distributions resulting from a reduction in our share of
indebtedness of our operating partnership.

If the allocation of our distributive share of our operating partnership's loss
would reduce the adjusted tax basis of our partnership interest below zero, the
recognition of such loss will be deferred until such time as the recognition of
such loss would not reduce our adjusted tax basis below zero. To the extent
that our operating partnership's distributions, or any decrease in our share of
the indebtedness of our operating partnership, which is considered a
constructive cash distribution to the partners, reduce our adjusted tax basis
below zero, such distributions will constitute taxable income to us. Such
distributions and constructive distributions normally will be characterized as
long-term capital gain.

Depreciation Deductions Available to Our Operating Partnership. To the
extent that our operating partnership acquired its hotels in exchange for cash,
its initial basis in such hotels for federal income tax purposes generally was
or will be equal to the purchase price paid by our operating partnership. Our
operating partnership depreciates such depreciable hotel property for federal
income tax purposes under the modified accelerated cost recovery system of
depreciation ("MACRS"). Under MACRS, our operating partnership generally
depreciates furnishings and equipment over a seven-year recovery period using a
200% declining balance method and a half-year convention. If, however, our
operating partnership places more than 40% of its furnishings and equipment in
service during the last three months of a taxable year, a mid-quarter
depreciation convention must be used for the furnishings and equipment placed in
service during that year. Recently enacted tax legislation provides a
first-year "bonus" depreciation deduction equal to 50% of the adjusted basis of
qualified property placed in service after May 5, 2003, which includes qualified
leasehold improvement property and property with a recovery period of less than
20 years, such as furnishings and equipment at our hotels. "Qualified leasehold
improvement property" generally includes improvements made to the interior of
nonresidential real property that are placed in service more than three years
after the date the building was placed in service. Under MACRS, our operating
partnership generally depreciates buildings and improvements over a 39-year
recovery period using a straight line method and a mid-month convention. Our
operating partnership's initial basis in hotels acquired in exchange for units
in our operating partnership should be the same as the transferor's basis in
such hotels on the date of acquisition by our operating partnership. Although
the law is not entirely clear, our operating partnership generally depreciates
such depreciable hotel property for federal income tax purposes over the same
remaining useful lives and under the same methods used by the transferors. Our
operating partnership's tax depreciation deductions are allocated among the
partners in accordance with their respective interests in our operating
partnership, except to the extent that our operating partnership is required
under the federal income tax laws governing partnership allocations to use a
method for

allocating tax depreciation deductions attributable to contributed properties
that results in our receiving a disproportionate share of such deductions.

SALE OF A PARTNERSHIP'S PROPERTY

Generally, any gain realized by a Partnership on the sale of property held
by the Partnership for more than one year will be long-term capital gain, except
for any portion of such gain that is treated as depreciation or cost recovery
recapture. Any gain or loss recognized by a Partnership on the disposition of
contributed properties will be allocated first to the partners of the
Partnership who contributed such properties to the extent of their built-in gain
or loss on those properties for federal income tax purposes. The partners'
built-in gain or loss on such contributed properties will equal the difference
between the partners' proportionate share of the book value of those properties
and the partners' tax basis allocable to those properties at the time of the
contribution. Any remaining gain or loss recognized by the Partnership on the
disposition of the contributed properties, and any gain or loss recognized by
the Partnership on the disposition of the other properties, will be allocated
among the partners in accordance with their respective percentage interests in
the Partnership.

Our share of any gain realized by a Partnership on the sale of any property
held by the Partnership as inventory or other property held primarily for sale
to customers in the ordinary course of the Partnership's trade or business will
be treated as income from a prohibited transaction that is subject to a 100%
penalty tax. Such prohibited transaction income also may have an adverse effect
upon our ability to satisfy the income tests for REIT status. See "Federal
Income Tax Consequences of Our Status as a REIT-Requirements for
Qualification-Income Tests." We, however, do not presently intend to acquire or
hold or to allow any Partnership to acquire or hold any property that represents
inventory or other property held primarily for sale to customers in the ordinary
course of our or such Partnership's trade or business.

STATE AND LOCAL TAXES

We and/or you may be subject to taxation by various states and localities,
including those in which we or a shareholder transacts business, owns property
or resides. The state and local tax treatment may differ from the federal
income tax treatment described above. Consequently, you should consult their
own tax advisors regarding the effect of state and local tax laws upon an
investment in our common shares.

PLAN OF DISTRIBUTION

This prospectus covers the resale of shares of common shares by CNL and its
pledgees, donees, assignees and other successors in interest. The common shares
offered by CNL may be issued to it by us upon exchange of Series A preferred
units in our operating partnership. These common shares may be issued to CNL
pursuant to an exemption from the registration provisions of the Securities Act.
We are registering the common shares to which this prospectus relates to provide
CNL with freely tradable securities, but registration of these shares does not
necessarily mean that any of these shares will be issued by us or offered or
sold by CNL. CNL may sell its common shares on the American Stock Exchange or
through any other facility on which the shares are traded, or in private
transactions. These sales may be at market prices or at negotiated prices. CNL
may use the following methods when selling common shares:

- ordinary brokerage transactions and transactions in which the broker
or dealer solicits purchasers;

- block trades in which the broker or dealer attempts to sell the common
shares as agent, but may position and resell a portion of the block as
principal to facilitate the transaction;

- purchases by a broker or dealer as principal and resale by the broker
or dealer for its account pursuant to this prospectus;

- privately negotiated transactions;

- any combination of these methods of sale; or

- any other legal method.

CNL may engage in short sales of the common shares and deliver common
shares to close out their short positions. CNL may also enter into put or call
options or other transactions with broker-dealers or others which require
delivery to those persons of common shares covered by this prospectus.

Brokers, dealers or other agents participating in the distribution of the
common shares may receive compensation in the form of discounts or commissions
from CNL, as well as the purchaser if they act as agent for the purchaser. The
discount or commission in a particular transaction could be more than the
customary amount. We know of no existing arrangements between CNL and any
underwriter, broker, dealer or agent relating to the sale or distribution of the
common shares.

CNL and any brokers or dealers that participate in the sale of the common
shares may be deemed to be "underwriters" within the meaning of the Securities
Act. Any discounts, commissions or other compensation received by these persons
and any profit on the resale of the common shares by them as principals might be
deemed to be underwriters' compensation. CNL may agree to indemnify any broker,
dealer or agent that participates in the sale of the common shares against
various liabilities, including liabilities under the Securities Act of 1933, as
amended.

To the extent required by law, at the time a particular offer of common
shares is made, we will file a supplement to this prospectus which identifies
the number of common shares being offered, the name of any participating broker
or dealer, the amount of discounts and commissions, and any other material
information.

CNL and any other person participating in a distribution will be subject to
the applicable provisions of the Exchange Act and its rules and regulations.
For example, the anti-manipulative provisions of Regulation M may limit the
ability of CNL or others to engage in stabilizing and other market making
activities.

This offering will terminate upon the earlier of:

- the date that all of the common shares under this prospectus may be
sold in accordance with Rule 144 under the Securities Act of 1933, as
amended; or

- the date on which all shares offered hereby have been sold by CNL.

CNL may also sell the common shares from time to time pursuant to Rule 144
under the Securities Act, rather than pursuant to this prospectus, so long as
they meet the criteria and conform to the requirements of the rule.

We will not receive any of the proceeds from the sale of the common shares
by CNL. We will pay the registration and other offering expenses related to
this offering, but CNL will pay all underwriting discounts and brokerage
commissions incurred in connection with the offering. We have agreed to
indemnify CNL against various liabilities, including liabilities under the
Securities Act.

In order to comply with some states' securities laws, if applicable, the
common shares will be sold in those states only through registered or licensed
brokers or dealers. In addition, in some states the common shares may not be
sold unless they have been registered or qualified for sale or an exemption from
registration or qualification is available and is satisfied.

EXPERTS

Our consolidated balance sheets as of December 31, 2002 and 2001 and our
consolidated statements of operations, cash flows and shareholders' equity for
each of the years ended December 31, 2002, 2001 and 2000 incorporated by
reference in this prospectus, have been audited by Moore Stephens, P.C.,
independent certified public accountants, whose reports are incorporated by
reference in this prospectus and given upon their authority as experts in
accounting and auditing. The consolidated balance sheets of Hersha Hospitality
Management L.P. as of December 31, 2002 and 2001, and the related statements of
operations, partners' capital, and cash flows for each of the three years in the
period ended December 31, 2002, incorporated by reference in this prospectus
have been audited by Moore Stephens, P.C., independent certified public
accountants, whose reports are incorporated by reference in this prospectus and
given upon their authority as experts in accounting and auditing.

LEGAL MATTERS

Certain legal matters in connection with this offering will be passed upon
for us by Hunton & Williams LLP. In addition, the summary of legal matters
contained in the section of this Prospectus under the heading "Federal Income
Tax Consequences of Our Status as a REIT" is based on the opinion of Hunton &
Williams LLP.

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expense, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the securities being registered. All amounts are estimates.

AMOUNT TO BE PAID
------------------

SEC registration fee $ 3,954
Printing and mailing expenses $ 0
Legal fees and expenses* $ 20,000
Accounting fees and expenses* $ 10,000
Transfer agent and custodian fees* $ 0
Miscellaneous $ 6,046
------------------
Total $ 40,000
==================

*Estimated

ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

The Declaration of Trust and Bylaws of the Registrant provide that the
Registrant shall indemnify its directors, officers and certain other parties to
the fullest extent permitted from time to time by the Maryland General
Corporation Law (the "MGCL"). The MGCL permits a corporation to indemnify its
directors, officers and certain other parties against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service to or at the request of the Registrant, unless it is established
that the act or omission of the indemnified party was material to the matter
giving rise to the proceeding and (i) the act or omission was committed in bad
faith or was the result of active and deliberate dishonesty, or (ii) in the case
of any criminal proceeding, the indemnified party had reasonable cause to
believe that the act or omission was unlawful.

Maryland law permits a Maryland real estate investment trust to include in
its Declaration of Trust a provision limiting the liability of its trustees and
officers to the trust and its shareholders for money damages except for
liability resulting from (a) actual receipt of an improper benefit or profit in
money, property or services or (b) active and deliberate dishonesty established
by a final judgment and which is material to the cause of action. Our
Declaration of Trust contains such a provision which eliminates trustees' and
officers' liability to the maximum extent permitted by Maryland law.

Our Declaration of Trust authorizes us, to the maximum extent permitted by
Maryland law, to indemnify any present or former trustee or officer or any
individual who, while a trustee of the Trust and at the request of the Trust,
serves or has served another trust, real estate investment trust, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
trustee, officer, partner or trustee, from and against any claim or liability to
which that person may become subject or which that person may incur by reason of
his or her status as a present or former trustee or officer of the Trust and to
pay or reimburse their reasonable expenses in advance of final disposition of a
proceeding. Our Bylaws obligate us, to the maximum extent permitted by Maryland
law, to indemnify any present or former trustee or officer or any individual
who, while a trustee of the Trust and at the request of the Trust, serves or has
served another corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise as a trustee, officer,
partner or trustee and who is made a party to the proceeding by reason of his
service in that capacity from and against any claim or liability to which that
person may become subject or which that person may incur by reason of his or her
status as a present or former trustee or officer of the Trust and to pay or
reimburse their reasonable expenses in advance of final disposition of a
proceeding. The Declaration of Trust and Bylaws also permit the Trust to
indemnify and advance expenses to any person who served a predecessor of the
Trust in any of the capacities described above and any employee or agent of the
Trust or a predecessor of the Trust.

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Maryland law permits a Maryland real estate investment trust to indemnify
and advance expenses to its trustees, officers, employees and agents to the same
extent as permitted for directors and officers of Maryland corporations.
Maryland law permits a corporation to indemnify its present and former directors
and officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under Maryland law, a Maryland corporation
may not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In accordance with Maryland law, our Bylaws require
us, as a condition to advancing expenses, to obtain (a) a written affirmation by
the trustee or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification and (b) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed if it is ultimately determined
that the standard of conduct was not met.

ITEM 16. EXHIBITS.

(a) Financial Statements included in the prospectus.

(b) Exhibits

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10.9 Purchase Agreement, dated December 4, 2001, between Metro Two Hotel, LLC, as Seller, and
HHLP Hunters Point, LLC, as Purchaser (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on December 7, 2001)
10.10 Securities Purchase Agreement, dated as of April 21, 2003, among CNL Hospitality Partners,
L.P., Hersha Hospitality Trust and Hersha Hospitality Limited Partners (filed as Exhibit 10.1 to
the Form 8-K filed on April 23, 2003 (SEC File No. 001-14765))
10.11 Second Amendment to the Amended and Restated Agreement of Limited Partnership of Hersha
Hospitality Limited Partnership, dated as of April 21, 2003 (filed as Exhibit 10.2 to the Form 8-
K filed on April 23, 2003 (SEC File No. 001-14765))
10.12 Standstill Agreement, dated as of April 21, 2003, by and among Hersha Hospitality Trust,
Hersha Hospitality Limited Partnership, CNL Hospitality Partners, L.P. and CNL Financial
Group, Inc. (filed as Exhibit 10.3 to the Form 8-K filed on April 23, 2003 (SEC File No. 001-
14765))
10.13 Registration Rights Agreement, dated April 21, 2003, between CNL Hospitality Partners, L.P.
and Hersha Hospitality Trust (filed as Exhibit 10.4 to the Form 8-K filed on April 23, 2003
(SEC File No. 001-14765))
10.14 Limited Partnership Agreement of HT/CNL Metro Hotels, LP, dated as of April 21, 2003 (filed
as Exhibit 10.5 to the Form 8-K filed on April 23, 2003 (SEC File No. 001-14765))
10.15 Second Amendment to Option Agreement (filed as Exhibit 10.15 to the Registration Statement
on Form S-3 filed on February 24, 2004 (File No. 333-113061)).
21 List of Subsidiaries of the Registrant***
23.1 Consent of Moore Stephens, P.C.***
23.2 Consent of Hunton & Williams LLP (included in Exhibit 5.1)
24 Power of Attorney (included on signature page of the Registration Statement)

* Filed with the SEC as an exhibit to Hersha Hospitality Trust's registration statement on Form S-11,
as amended, Registration No. 333-56087, and incorporated herein by reference.

** Filed with the SEC as an exhibit to the registration statement on Form S-2, Registration No. 333-109100,
filed on September 25, 2003, and incorporated herein by reference.

*** Filed herewith.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post- effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and

II-3

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in this
registration statement;

provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act that are incorporated
by reference in the registration statement.

(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

(d) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(e) To file an application for the purpose of determining the
eligibility of the trustee to act under subsection (a) of Section 310 of the
Trust Indenture Act in accordance with the rules and regulations prescribed by
the Commission under Section 305(b)(2) of the Act.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused to this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New Cumberland, State of Pennsylvania, on February
27, 2004.

HERSHA HOSPITALITY TRUST

(Registrant)

By: /s/ Hasu P. Shah
-------------------------------
Hasu P. Shah
Chief Executive Officer

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on February 27, 2004. Each of the directors and/or
officers of Hersha Hospitality Trust whose signature appears below hereby
appoints each of Jay H. Shah and Ashish R. Parikh, as his attorney-in-fact to
sign in his name and behalf, in any and all capacities stated below and to file
with the Securities and Exchange Commission, any and all amendments, including
post-effective amendments to this registration statement, making such changes in
the registration statement as appropriate, and generally to do all such things
in their behalf in their capacities as officers and directors to enable Hersha
Hospitality Trust to comply with the provisions of the Securities Act of 1933,
and all requirements of the Securities and Exchange Commission.

SIGNATURE TITLE
--------- -----

/s/ Hasu P. Shah Chairman, Chief Executive Officer and Trustee
--------------------------------- (Principal Executive Officer)
Hasu P. Shah

/s/ Jay H. Shah President and Chief Operating Officer
---------------------------------
Jay H. Shah

/s/ Ashish R. Parikh Chief Financial Officer
--------------------------------- (Principal Financial and Accounting Officer)
Ashish R. Parikh

/s/ K.D. Patel Trustee
---------------------------------
K.D. Patel

/s/ John M. Sabin Trustee
---------------------------------
John M. Sabin

/s/ Michael A. Leven Trustee
---------------------------------
Michael A. Leven

/s/ William Lehr, Jr. Trustee
---------------------------------
William Lehr, Jr.

/s/ Thomas S. Capello Trustee
---------------------------------
Thomas S. Capello

/s/ Donald J. Landry Trustee
---------------------------------
Donald J. Landry

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EXHIBIT INDEX

3.1 Amended and Restated Declaration of Trust of the Registrant.**
3.2 Articles Supplementary of Hersha Hospitality Trust which classify and designate 350,000 preferred
shares of beneficial interest as Series A Preferred Shares of beneficial interest, par value $.01 per share
(filed as Exhibit 3.1 to the Form 8-K filed on April 23, 2003 (SEC File No. 001-14765))
3.3 Bylaws of the Registrant.*
4.1 Form of Common Share Certificate*
4.2 Excepted Holder Agreement, dated April 21, 2003, by and among CNL Hospitality Properties, Inc.,
CNL Hospitality Partners, L.P., Hersha Hospitality Trust and Hersha Hospitality Limited Partnership
(filed as Exhibit 4.1 to the Form 8-K filed on April 23, 2003 (SEC File No. 001-14765))
5.1 Opinion of Hunton & Williams LLP***
8.1 Opinion of Hunton & Williams LLP with respect to tax matters***
10.1 Amended and Restated Agreement of Limited Partnership of Hersha Hospitality Limited Partnership*
10.2 Option Agreement dated as of June 3, 1998, among Hasu P. Shah, Jay H. Shah, Neil H, Shah, Bharat
C. Mehta, K.D. Patel, Rajendra O. Gandhi, Kiran P. Patel, David L. Desfor, Madhusudan I. Patni
and Manhar Gandhi, and the Partnership*
10.3 Amendment to Option Agreement dated December 4, 1998*
10.4 Contribution Agreement, dated June 3, 1998, between Shree Associates, Devi Associates, Shreeji
Associates, Madhusudan I. Patni and Shreenathji Enterprises, Ltd., as Contributor, and Hersha
Hospitality Limited Partnership, as Acquiror*
10.5 Contribution Agreement, dated June 3, 1998, between Shree Associates, as Contributor, and Hersha
Hospitality Limited Partnership, as Acquiror*
10.6 Purchase Leaseback Agreement entered into as of May 19, 2000 between Hersha Hospitality Limited
Partnership and each of Noble Investments Newnan, LLC, Millennium Two Investments Duluth, LLC,
Noble Investments RMD, LLC and Embassy Investments Duluth, LLC, entities owned by Noble
Investment Group, Ltd. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed on June 5, 2000)
10.7 Form of Percentage Lease*
10.8 Administrative Services Agreement, dated January 26, 1999, between Hersha Hospitality Trust and
Hersha Hospitality Management, L.P.*
10.9 Purchase Agreement, dated December 4, 2001, between Metro Two Hotel, LLC, as Seller, and HHLP
Hunters Point, LLC, as Purchaser (incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on December 7, 2001)
10.10 Securities Purchase Agreement, dated as of April 21, 2003, among CNL Hospitality Partners, L.P.,
Hersha Hospitality Trust and Hersha Hospitality Limited Partners (filed as Exhibit 10.1 to the Form 8-
K filed on April 23, 2003 (SEC File No. 001-14765))
10.11 Second Amendment to the Amended and Restated Agreement of Limited Partnership of Hersha
Hospitality Limited Partnership, dated as of April 21, 2003 (filed as Exhibit 10.2 to the Form 8-K filed
on April 23, 2003 (SEC File No. 001-14765))
10.12 Standstill Agreement, dated as of April 21, 2003, by and among Hersha Hospitality Trust, Hersha
Hospitality Limited Partnership, CNL Hospitality Partners, L.P. and CNL Financial Group, Inc. (filed
as Exhibit 10.3 to the Form 8-K filed on April 23, 2003 (SEC File No. 001-14765))
10.13 Registration Rights Agreement, dated April 21, 2003, between CNL Hospitality Partners, L.P. and
Hersha Hospitality Trust (filed as Exhibit 10.4 to the Form 8-K filed on April 23, 2003 (SEC File No.
001-14765))
10.14 Limited Partnership Agreement of HT/CNL Metro Hotels, LP, dated as of April 21, 2003 (filed as
Exhibit 10.5 to the Form 8-K filed on April 23, 2003 (SEC File No. 001-14765))
10.15 Second Amendment to Option Agreement (filed as Exhibit 10.15 to the Registration Statement on Form
S-3 filed on February 24, 2004 (File No. 333-113061)).
21 List of Subsidiaries of the Registrant***
23.1 Consent of Moore Stephens, P.C.***
23.2 Consent of Hunton & Williams LLP (included in Exhibit 5.1)
24 Power of Attorney (included on signature page of the Registration Statement)

II-1

* Filed with the SEC as an exhibit to Hersha Hospitality Trust's registration statement on Form S-11, as
amended, Registration No. 333-56087, and incorporated herein by reference.

** Filed with the SEC as an exhibit to the registration statement on Form S-2, Registration No. 333-109100,
filed on September 25, 2003, and incorporated herein by reference.

*** Filed herewith.

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