Cautionary Statement Regarding Forward Looking Statements

This report contains 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, "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" and words of similar import. Such forward-looking statements relate to future events, our plans, strategies, prospects and future financial performance, and involve known and unknown risks that are difficult to predict, uncertainties and other factors which may cause our actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers should specifically consider the various factors identified in this and other reports filed by us with the SEC, including, but not limited to those discussed in the section entitled "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2011, that could cause actual results to differ. Statements regarding the following subjects are forward-looking by their nature:

? our business or investment strategy;

? our projected operating results;

? our distribution policy;

? our liquidity;

? completion of any pending transactions;

? our ability to obtain future financing arrangements;

? our understanding of our competition;

? market trends; and

? projected capital expenditures.

Forward-looking statements are based on our beliefs, assumptions and expectations, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Readers should not place undue reliance on forward-looking statements. The following factors could cause actual results to vary from our forward-looking statements:

? general volatility of the capital markets and the market price of our common shares;

? changes in our business or investment strategy;

? availability, terms and deployment of capital;

? availability of qualified personnel;

? changes in our industry and the market in which we operate, interest rates, or the general economy;

? the degree and nature of our competition;

? financing risks, including the risk of leverage and the corresponding risk of default on our mortgage loans and other debt and potential inability to refinance or extend the maturity of existing indebtedness;

? the depth and duration of the current economic downturn;

? levels of spending in the business, travel and leisure industries, as well as consumer confidence;

? declines in occupancy, average daily rate and RevPAR and other hotel operating metrics;

? hostilities, including future terrorist attacks, or fear of hostilities that affect travel;

? financial condition of, and our relationships with, our joint venture partners, third-party property managers, franchisors and hospitality joint venture partners;

? the degree and nature of our competition;

? increased interest rates and operating costs;

? risks associated with potential acquisitions, including the ability to ramp up and stabilize newly acquired hotels with limited or no operating history, and dispositions of hotel properties;

? risks associated with our development loan portfolio, including the ability of borrowers to repay outstanding principal and accrued interest at maturity;

? availability of and our ability to retain qualified personnel;

? our failure to maintain our qualification as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended;

? environmental uncertainties and risks related to natural disasters;

? changes in real estate and zoning laws and increases in real property tax rates; and

? the factors discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011 under the heading "Risk Factors" and in other reports we file with the SEC from time to time.

These factors are not necessarily all of the important factors that could cause our actual results, performance or achievements to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors, many of which are beyond our control, also could harm our results, performance or achievements.

All forward-looking statements contained in this report are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and we do not undertake or assume any obligation to update publicly any of these statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

BACKGROUND

As of June 30, 2012, we owned interests in 64 hotels, many of which are located in clusters around major markets in the Northeastern Corridor, including 56 wholly-owned hotels and interests in eight hotels owned through consolidated and unconsolidated joint ventures. Our "Summary of Operating Results" section below contains operating results for 55 consolidated hotel assets and eight hotel assets owned through an unconsolidated joint venture. These results exclude one hotel which is currently undergoing a re-development project. We have elected to be taxed as a REIT for federal income tax purposes, beginning with the taxable year ended December 31, 1999. For purposes of the REIT qualification rules, we cannot directly operate any of our hotels. Instead, we must lease our hotels to a third party lessee or to a TRS, provided that the TRS engages an eligible independent contractor to manage the hotels. As of June 30, 2012, we have leased all of our hotels to a wholly-owned TRS, a joint venture owned TRS, or an entity owned by our wholly-owned TRS. Each of these TRS entities will pay qualifying rent, and the TRS entities have entered into management contracts with qualified independent managers, including HHMLP, with respect to our hotels. We intend to lease all newly acquired hotels to a TRS. The TRS structure enables us to participate more directly in the operating performance of our hotels. The TRS directly receives all revenue from, and funds all expenses relating to, hotel operations. The TRS is also subject to income tax on its earnings.

OVERVIEW

We believe the improvements we made in our equity and debt capitalization and repositioning of our portfolio in 2011 better enables us to capitalize on further improvements in lodging fundamentals. During the first six months of 2012, we have seen continued improvements in ADR, RevPAR and operating margins, led by hotels in our core urban markets of New York, Washington, D.C., Miami, Boston, Los Angeles and Philadelphia. We will continue to seek acquisition opportunities in urban centers and central business districts. In addition, we are looking, and will continue to look, for attractive opportunities to dispose of stabilized properties in tertiary markets at favorable prices, potentially redeploying that capital in our focus markets.

We do not expect to actively pursue acquisitions made through joint ventures; however, we may seek to buy out, or sell our joint venture interest to, select existing joint venture partners. We do not expect to actively pursue additional development loans or land leases. While property joint ventures, development loans and land leases played an important role in our growth in the past, we do not expect them to play the same role in our near-term future.

Although we are planning for continued stabilization and improvement in consumer and commercial spending and lodging demand during 2012, the manner in which the economy will recover is not predictable, and certain core economic metrics, including unemployment, are not rebounding as quickly as many had hoped. In addition, the market for hotel level financing for new hotels is not recovering as quickly as the economy or broader financial markets. As a result, there can be no assurances that we will be able to grow hotel revenues, occupancy, ADR or RevPAR at our properties as we hope. Further, we cannot assure that we will not experience defaults under our development loans. The lack of financing for our borrowers and potential buyers may result in borrower defaults or prevent borrowers or us from disposing of properties held for sale. Factors that might contribute to less-than-anticipated performance include those described under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2011 and other documents that we may file with the SEC in the future. We will continue to cautiously monitor recovery in lodging demand and rates, our third-party hotel managers, our remaining portfolio of hotel development loans and our performance generally

The following table outlines operating results for the Company's portfolio of wholly owned hotels and those owned through joint venture interests (excluding hotel assets classified as discontinued operations and one hotel undergoing a re-development project) that are consolidated in our financial statements for the three and six months ended June 30, 2012 and 2011:

CONSOLIDATED HOTELS:
                            Three Months Ended June 30,                          Six Months Ended June 30,
                                                                   2012                                               2012
                                                                 vs. 2011                                           vs. 2011
                             2012                 2011           Variance          2012               2011          Variance

Occupancy                         81.0 %               79.2 %          1.7 %            73.5 %           71.5 %            2.0 %
Average Daily Rate
(ADR)                   $       167.29       $       157.90            5.9 %   $      156.48       $   147.45              6.1 %
Revenue Per Available
Room (RevPAR)           $       135.42       $       125.11            8.2 %   $      115.01       $   105.38              9.1 %

Room Revenues           $       88,386       $       74,455           18.7 %   $     148,571       $  121,072             22.7 %
Hotel Operating
Revenues                $       96,136       $       77,669           23.8 %   $     160,989       $  126,803             27.0 %

The following table outlines operating results for the three and six months ended June 30, 2012 and 2011 for hotels we own through an unconsolidated joint venture interest (excluding hotel assets classified as discontinued operations). These operating results reflect 100% of the operating results of the property including our interest and the interests of our joint venture partners and other noncontrolling interest holders.

UNCONSOLIDATED JOINT
VENTURES:
                            Three Months Ended June 30,                              Six Months Ended June 30,
                                                                    2012                                                   2012
                                                                  vs. 2011                                               vs. 2011
                             2012                 2011            Variance           2012                2011            Variance

Occupancy                         74.3 %               69.4 %            5.0 %            69.5 %              64.6 %            4.8 %
Average Daily Rate
(ADR)                   $       159.80       $       148.21              7.8 %   $      149.59       $      142.37              5.1 %
Revenue Per Available
Room (RevPAR)           $       118.74       $       102.78             15.5 %   $      103.90       $       92.02             12.9 %

Room Revenues           $       20,886       $       16,826             24.1 %   $      36,834       $      29,963             22.9 %
Total Revenues          $       25,922       $       21,768             19.1 %   $      46,093       $      38,497             19.7 %

RevPAR for the three and six months ended June 30, 2012 increased 8.2% and 9.1%, respectively for our consolidated hotels and increased 15.5% and 12.9%, respectively for our unconsolidated hotels when compared to the same period in 2011. This represents a growth trend in RevPAR experienced during the three and six months ended June 30, 2012 over the same period in 2011. This growth trend in RevPAR is primarily due to improving economic conditions in 2012 and the acquisition of hotel properties consummated since June 30, 2011 that are accretive to RevPAR.

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011
(dollars in thousands, except per share data)

Revenue

Our total revenues for the three months ended June 30, 2012 consisted of hotel operating revenues, interest income from our development loan program and other revenue. Hotel operating revenues were approximately 99.4% and 98.5% of total revenues for the three months ended June 30, 2012 and 2011, respectively. Hotel operating revenues are recorded for wholly owned hotels that are leased to our wholly owned TRS and hotels owned through joint venture interests that are consolidated in our financial statements. Hotel operating revenues increased $18,467, or 23.8%, to $96,136 for the three months ended June 30, 2012 compared to $77,669 for the same period in 2011. This increase in hotel operating revenues was primarily attributable to the acquisition of hotel properties consummated since June 30, 2011.

We acquired interests in the following five consolidated hotels which contributed the following operating revenues for the three months ended June 30, 2012.

                                                                                       Hotel
                                                                                     Operating
                                                                                      Revenues
                                                                                    Three Months
                                                                                   Ended June 30,
        Brand                Location          Acquisition Date       Rooms             2012

Courtyard by Marriott   Miami, FL              November 16, 2011           263              3,815
Sheraton                New Castle, DE         December 28, 2010           192              1,985
The Rittenhouse Hotel   Philadelphia, PA         March 1, 2012             111              5,718
Bulfinch Hotel          Boston, MA                May 7, 2012               80                728
Holiday Inn Express     New York, NY             June 18, 2012             228                557

While we acquired a 100% interest in the Sheraton, New Castle, DE in 2010, the property did not open until December 2011.

Revenues for all hotels were recorded from the date of acquisition as hotel operating revenues. Further, hotel operating revenues for the three months ended June 30, 2012 included revenues for a full quarter related to the two hotels that were purchased during the three months ended June 30, 2011. We acquired interests in the following consolidated hotels during the three months ended June 30, 2011:

                                                                                 Hotel Operating Revenues
                                                                                Three Months Ended June 30,
        Brand               Location       Acquisition Date     Rooms            2012                2011

Capitol Hill Hotel      Washington, DC      April 15, 2011           152     $       2,565               1,762
                        Westside, Los
Courtyard by Marriott   Angeles, CA          May 19, 2011            260             3,115               1,267
                                                                     412     $       5,680               3,029

In addition, our existing portfolio experienced improvement in ADR and occupancy during the three months ended June 30, 2012 when compared to the same period in 2011. Occupancy in our consolidated hotels increased 170 basis points from approximately 79.2% during the three months ended June 30, 2011 to approximately 81.0% for the same period in 2012. ADR improved 5.9%, increasing from $157.90 for the three months ended June 30, 2011 to $167.29 during the same period in 2012. These improvements were due to improvements in lodging trends in the markets in which our hotels are located.

We have invested in hotel development projects by providing mortgage or mezzanine financing to hotel developers and through the acquisition of land that is then leased to hotel developers. Interest income is earned on our development loans at rates ranging between 10.0% and 11.0%. Effective June 1, 2012, we amended the interest rates on two of development loans from 11.0% to 9.0%. Interest income from development loans receivable was $518 for the three months ended June 30, 2012 compared to $1,063 for the same period in 2011.

Of the $33,425 in development loans receivable outstanding as of June 30, 2012, $20,122 or 60.2%, is invested in hotels that are currently operating and generating revenue and $13,303, or 39.8%, is invested in a hotel construction project to develop the Hyatt Union Square in New York, NY, which has made significant progress toward completion. On June 14, 2011, in connection with entering into a purchase and sale agreement to acquire the Hyatt Union Square project, we ceased accruing interest for this development loan.

As hotel developers are engaged in constructing new hotels or renovating existing hotels the hotel properties are typically not generating revenue. It is common for the developers to require construction type loans to finance the projects whereby interest incurred on the loan is not paid currently; rather it is added to the principal borrowed and repaid at maturity. Prior to June 1, 2012, one of our development loans, which is a loan to an entity affiliated with certain of our non-independent trustees and executive officers, allowed the borrower to elect, quarterly, to pay accrued interest in-kind by adding the accrued interest to the principal balance of the loan. As a result, a total of $277 and $641 in accrued interest on these development loans was added to principal for the three months ended June 30, 2012 and 2011, respectively. Effective June 1, 2012, we amended this development loan agreement to not allow the borrower to add accrued interest to the principal balance of the loan. Paid in-kind interest for the three months ended June 30, 2011 also includes accrued interest added to principal on the Hyatt Union Square development loan noted above.

Other revenue consists primarily of fees earned for asset management services provided to properties owned by certain of our unconsolidated joint ventures. These fees are earned as a percentage of the revenues of the unconsolidated joint ventures' hotels. Other revenues were $52 and $85 for the three months ended June 30, 2012 and 2011, respectively.

Expenses

Total hotel operating expenses increased 29.3% to approximately $50,994 for the three months ended June 30, 2012 from $39,444 for the three months ended June 30, 2011. Consistent with the increase in hotel operating revenues, hotel operating expenses increased primarily due to the acquisitions consummated since June 30, 2011, as mentioned above. The acquisitions also resulted in an increase in depreciation and amortization to $14,144 for the three months ended June 30, 2012 from $12,612 for the three months ended June 30, 2011. Similarly, real estate and personal property tax and property insurance increased $308, or 6.3%, in the three months ended June 30, 2012 when compared to the same period in 2011 due to our acquisitions, which was partially offset by reductions resulting from our rigorous management of this expense along with a general overall increase in tax assessments and tax rates as the economy improves.

General and administrative expense increased by approximately $958 from $2,116 in the three months ended June 30, 2011 to $3,074 for the same period in 2012. Expenses increased due to increases in employee headcount and increases in base compensation.

Non-cash stock based compensation expense increased $481 when comparing the three months ended June 30, 2012 to the same period in 2011. Included in stock based compensation for the three months ended June 30, 2012 was $274 of stock based compensation expense related to the issuance of restricted shares in connection with the amendment and restatement of employment agreements with the Company's executive officers. In addition, on April 16, 2012, the Compensation Committee adopted the 2012 Annual LTIP which included $178 of stock based compensation for three months ended June 30, 2012. Please refer to "Note 9 - Share Based Payments" of the notes to the consolidated financial statements for more information about our stock based compensation.

Amounts recorded on our consolidated statement of operations for acquisition and terminated costs will fluctuate from period to period based on our acquisition activities. Acquisition and terminated transaction costs decreased $1,177 from $1,301 for the three months ended June 30, 2011 to $124 for the same period in 2012. For the three months ended June 30, 2012, we incurred acquisition costs of $90 compared to $1,098 for the same period in 2011. Acquisition costs typically consist of transfer taxes, legal fees and other costs associated with acquiring a hotel property. The remaining costs related to transactions that were terminated during the year.

Operating Income

Operating income for the three months ended June 30, 2012 was $20,722 compared to operating income of $16,444 during the same period in 2011. The increase in operating income resulted primarily from improved performance of our portfolio and acquisitions that have occurred subsequent to June 30, 2011.

Interest Expense

Interest expense increased $278 from $10,163 for the three months ended June 30, 2011 to $10,441 for the three months ended June 30, 2012. The increase in interest expense is due primarily to the new debt and associated interest expense for the acquired properties subsequent to June 30, 2011 and an increase in our weighted average balance of our credit facility for the three months ended June 30, 2012 compared to the three months ended June 30, 2011.

Unconsolidated Joint Venture Investments

We recorded income from our investment in unconsolidated joint ventures of $414 and a loss of $198 for the three months ended June 30, 2012 and 2011, respectively. As noted above, we entered into two purchase and sale agreements during 2011 to dispose of 18 non-core hotel properties, four of which were owned in part by the Company through an unconsolidated joint venture. On February 23, 2012, we closed on the sale of three of these properties, and the fourth was sold on May 8, 2012. See "Note 12-Discontinued Operations" for more information. As a result of the remeasurement of our interest in the Hiren Boston, LLC joint venture, we recorded gains of $2,757 during the three months ended June 30, 2011. On June 18, 2012, we purchased the remaining 50% interest in joint venture's ownership rights for the Holiday Inn Express, New York, NY and, as such, the hotel operations are recorded within our consolidated financial statements from that date. Our interest in Metro 29th was remeasured, and as a result, during the three and six months ended June 30, 2012, we recorded a loss of approximately $224.

Discontinued Operations

On February 23, 2012, we closed on the sale of 14 of our previously mentioned non-core hotel properties, and on May 8, 2012, we closed on the sale of the remaining 4 non-core hotel properties. The 18 assets were sold for a total sales price of $155,000, reduced the Company's consolidated mortgage debt by $61,298, and generated a gain on sale of $5,066, including a gain of $1,780 recorded during the three months ended June 30, 2012. See "Note 12 - Discontinued Operations" for more information.

On March 30, 2012, we transferred the title to the Comfort Inn, located in North Dartmouth, to the lender. Previously, we had ceased operations at this property on March 31, 2011. The operating results were reclassified to discontinued operations in the statement of operations for the three and six months ended June 30, 2012 and 2011. The transfer of the title resulted in a gain of $1,216, since the outstanding mortgage loan payable exceeded the net book value of the property.

On April 30, 2012, we closed on the sale of the land parcel and improvements located at 585 Eighth Avenue, New York, NY, to an unaffiliated buyer for a total sale price of $19,250 with a gain on sale of approximately $5,170. This land parcel was acquired by the Company in June 2006. The operating results were reclassified to discontinued operations in the statement of operations for the three and six months ended June 30, 2012 and 2011.

Net Income/Loss

Net income applicable to common shareholders for the three months ended June 30, 2012 was $13,093 compared to net income applicable to common shareholders of $6,590 for the same period in 2011.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(dollars in thousands, except per share data)

Revenue

Our total revenues for the six months ended June 30, 2012 consisted of hotel operating revenues, interest income from our development loan program and other revenue. Hotel operating revenues were approximately 99.2% and 98.2% of total revenues for the six months ended June 30, 2012 and 2011, respectively. Hotel operating revenues increased $34,186, or 27.0%, to $160,989 for the six months ended June 30, 2012 from $126,803 for the same period in 2011. This increase in hotel operating revenues was primarily attributable to the acquisitions consummated in 2012 and 2011 and improved lodging fundamentals in the markets where our hotels are located.

We acquired interests in the following five consolidated hotels which contributed the following operating revenues for the six months ended June 30, 2012.

. . .