UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-31775

(Exact name of registrant as specified in its charter)

Maryland		86-1062192
(State or other jurisdiction of incorporation or organization)		(IRS employer identification number)
14185 Dallas Parkway, Suite 1100
Dallas, Texas		75254
(Address of principal executive offices)		(Zip code)

(972) 490-9600
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.01 par value per share		61,771,139
(Class)		Outstanding at November 6, 2009

 

 

ASHFORD HOSPITALITY TRUST, INC
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2009

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1.		FINANCIAL STATEMENTS (Unaudited)			3
		Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008			3
		Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008			4
		Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2009 and 2008			5
		Consolidated Statement of Changes in Equity for the Nine Months Ended September 30, 2009			6
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008			7
		Notes to Consolidated Financial Statements			8
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			30
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			43
ITEM 4.		CONTROLS AND PROCEDURES			43
PART II. OTHER INFORMATION
ITEM 1.		LEGAL PROCEEDINGS			44
ITEM 1A.		RISK FACTORS			44
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			45
ITEM 6.		EXHIBITS			46
SIGNATURES					47
EX-10.5.2
EX-10.5.4
EX-10.5.6
EX-10.5.9
EX-10.5.10
EX-10.5.11
EX-10.5.12
EX-10.14.1
EX-10.25.4.3
EX-10.25.4.3A
EX-10.25.4.4
EX-10.25.4.4A
EX-10.25.4.6
EX-10.25.4.6A
EX-10.26.1
EX-10.26.2
EX-10.30.4
EX-10.30.5
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

		September 30,				December 31,
		2009				2008
		(Unaudited)
Assets
Investments in hotel properties, net		$	3,489,746			$	3,568,215
Cash and cash equivalents			197,920				241,597
Restricted cash			65,270				69,806
Accounts receivable, net of allowance of $541 and $598, respectively			39,471				41,110
Inventories			3,132				3,341
Notes receivable			66,652				212,815
Investment in unconsolidated joint venture			20,319				19,122
Deferred costs, net			19,458				24,211
Prepaid expenses			18,250				12,903
Interest rate derivatives			105,516				88,603
Other assets			4,520				6,766
Intangible assets, net			3,011				3,077
Due from third-party hotel managers			52,428				48,116
Total assets		$	4,085,693			$	4,339,682
Liabilities and Equity
Liabilities:
Indebtedness		$	2,801,824			$	2,790,364
Capital leases payable			105				207
Accounts payable and accrued expenses			115,335				93,476
Dividends payable			5,527				6,285
Unfavorable management contract liabilities			19,257				20,950
Due to related parties			1,403				2,378
Due to third-party hotel managers			2,024				3,855
Other liabilities			7,908				8,124
Total liabilities			2,953,383				2,925,639
Commitments and contingencies (Note 14)
Series B-1 cumulative convertible redeemable preferred stock, $0.01 par value, 7,447,865 shares issued and outstanding			75,000				75,000
Redeemable noncontrolling interests in operating partnership			84,947				107,469
Equity:
Stockholders’ equity of the Company:
Preferred stock, $0.01 par value, 50,000,000 shares authorized —
Series A Cumulative Preferred Stock, 1,487,900 shares and 2,185,500 shares issued and outstanding at September 30, 2009 and December 31, 2008			15				22
Series D Cumulative Preferred Stock, 5,666,797 shares and 6,394,347 shares issued and outstanding at September 30, 2009 and December 31, 2008			57				64
Common stock, $0.01 par value, 200,000,000 shares authorized, 122,748,859 shares issued; 63,890,831 shares and 86,555,149 shares outstanding at September 30, 2009 and December 31, 2008			1,227				1,227
Additional paid-in capital			1,434,161				1,450,146
Accumulated other comprehensive loss			(732	)			(860	)
Accumulated deficit			(321,853	)			(124,782	)
Treasury stock, at cost, 58,858,028 and 36,193,710 shares at September 30, 2009 and December 31, 2008			(158,430	)			(113,598	)
Total stockholders’ equity of the Company			954,445				1,212,219
Noncontrolling interests in consolidated joint ventures			17,918				19,355
Total equity			972,363				1,231,574
Total liabilities and equity		$	4,085,693			$	4,339,682

See Notes to Consolidated Financial Statements.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
		(Unaudited)
Revenue
Rooms		$	167,494			$	208,856			$	516,653			$	642,264
Food and beverage			38,630				53,143				133,864				175,153
Rental income from operating leases			1,236				1,367				3,830				4,239
Other			11,298				12,604				34,940				38,924
Total hotel revenue			218,658				275,970				689,287				860,580
Interest income from notes receivable			1,761				8,801				10,397				15,273
Asset management fees and other			173				510				552				1,953
Total revenue			220,592				285,281				700,236				877,806
Expenses
Hotel operating expenses:
Rooms			40,680				47,258				120,427				140,530
Food and beverage			30,284				39,468				97,819				124,237
Other expenses			73,357				86,836				224,237				259,623
Management fees			8,649				10,690				27,233				33,726
Total hotel operating expenses			152,970				184,252				469,716				558,116
Property taxes, insurance and other			16,023				14,918				46,602				45,776
Depreciation and amortization			38,935				44,406				118,927				126,405
Impairment charges			19,816				—				160,143				—
Corporate general and administrative			9,257				8,834				23,014				24,903
Total expenses			237,001				252,410				818,402				755,200
Operating (loss) income			(16,409	)			32,871				(118,166	)			122,606
Equity in earnings of unconsolidated joint venture			642				491				1,863				2,304
Interest income			56				697				253				1,594
Other income			13,228				3,379				35,140				6,244
Interest expense and amortization of loan costs			(36,545	)			(39,870	)			(109,663	)			(116,771	)
Write-off of loan costs, premiums and exit fees, net			—				(1,226	)			930				(1,226	)
Unrealized gain (loss) on derivatives			5,525				12,528				(14,166	)			(38,861	)
(Loss) income from continuing operations before income taxes			(33,503	)			8,870				(203,809	)			(24,110	)
Income tax expense			(193	)			(421	)			(585	)			(1,150	)
(Loss) income from continuing operations			(33,696	)			8,449				(204,394	)			(25,260	)
Income from discontinued operations			—				1,329				—				15,909
Net (loss) income			(33,696	)			9,778				(204,394	)			(9,351	)
Loss (income) from consolidated joint ventures attributable to noncontrolling interests			476				(123	)			629				(2,907	)
Net loss (income) attributable to redeemable noncontrolling interests in operating partnership			4,424				(856	)			25,567				738
Net (loss) income attributable to the Company			(28,796	)			8,799				(178,198	)			(11,520	)
Preferred dividends			(4,831	)			(7,018	)			(14,492	)			(21,054	)
Net (loss) income attributable to common stockholders		$	(33,627	)		$	1,781			$	(192,690	)		$	(32,574	)
Income (loss) per share — basic and diluted:
(Loss) income from continuing operations attributable to common stockholders		$	(0.52	)		$	—			$	(2.67	)		$	(0.40	)
Income from discontinued operations attributable to common stockholders			—				0.01				—				0.12
Net (loss) income attributable to common stockholders		$	(0.52	)		$	0.01			$	(2.67	)		$	(0.28	)
Weighted average common shares outstanding — basic			65,266				115,819				72,167				117,828
Weighted average common shares outstanding — diluted			65,266				115,819				72,167				117,828
Dividends declared per common share		$	—				0.21			$	—				0.63
Amounts attributable to common stockholders:
(Loss) income from continuing operations, net of tax		$	(28,796	)		$	7,579			$	(178,198	)		$	(26,180	)
Income from discontinued operations, net of tax			—				1,220				—				14,660
Preferred dividends			(4,831	)			(7,018	)			(14,492	)			(21,054	)
Net (loss) income attributable to common stockholders		$	(33,627	)		$	1,781			$	(192,690	)		$	(32,574	)

See Notes to Consolidated Financial Statements.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
						(Unaudited)
Net (loss) income		$	(33,696	)		$	9,778			$	(204,394	)		$	(9,351	)
Other comprehensive income (loss), net of tax:
Change in unrealized loss on derivatives			(6	)			(71	)			55				(57	)
Reclassification to interest expense			55				17				123				38
Foreign currency translation adjustments			—				—				—				(126	)
Total other comprehensive income (loss)			49				(54	)			178				(145	)
Comprehensive (loss) income			(33,647	)			9,724				(204,216	)			(9,496	)
Less: Comprehensive loss (income) attributable to noncontrolling interests in consolidated joint ventures			472				(123	)			599				(2,907	)
Less: Comprehensive loss (income) attributable to redeemable noncontrolling interests in operating partnership			4,418				(856	)			25,547				738
Comprehensive (loss) income attributable to the Company		$	(28,757	)		$	8,745			$	(178,070	)		$	(11,665	)

See Notes to Consolidated Financial Statements.

     

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2009
(in thousands)

																																																						Redeemable
																																		Accumulated												Noncontrolling								Noncontrolling
		Preferred Stock																								Additional								Other												Interests in								Interests in
		Series A								Series D								Common Stock								Paid-in				Accumulated				Comprehensive				Treasury Stock								Consolidated								Operating
		Shares				Amounts				Shares				Amounts				Shares				Amounts				Capital				Deficit				Income (Loss)				Shares				Amounts				Joint Ventures				Total				Partnership
Balance at January 1, 2009			2,185			$	22				6,394			$	64				122,749			$	1,227			$	1,450,146			$	(124,782	)		$	(860	)			(36,194	)		$	(113,598	)		$	19,355			$	1,231,574			$	107,469
Repurchases of preferred stock			(697	)			(7	)			(727	)			(7	)			—				—				(10,642	)			—				—				—				—				—				(10,656	)			—
Repurchases of treasury shares			—				—				—				—				—				—				—				—				—				(23,764	)			(53,335	)			—				(53,335	)			—
Issuance of restricted shares under stock-based compensation plan			—				—				—				—				—				—				(8,426	)			—				—				1,100				8,503				—				77				—
Stock/unit-based compensation expense			—				—				—				—				—				—				3,083				—				—				—				—				—				3,083				735
Net loss			—				—				—				—				—				—				—				(178,198	)			—				—				—				(629	)			(178,827	)			(25,567	)
Dividends declared — Preferred A shares			—				—				—				—				—				—				—				(2,385	)			—				—				—				—				(2,385	)			—
Dividends declared — Preferred B-1 shares			—				—				—				—				—				—				—				(3,128	)			—				—				—				—				(3,128	)			—
Dividends declared — Preferred D shares			—				—				—				—				—				—				—				(8,979	)			—				—				—				—				(8,979	)			—
Change in unrealized losses on derivatives			—				—				—				—				—				—				—				—				25				—				—				25				50				5
Reclassification to interest expense			—				—				—				—				—				—				—				—				103				—				—				5				108				15
Contributions from noncontrolling interests			—				—				—				—				—				—				—				—				—				—				—				281				281				—
Distributions to noncontrolling interests			—				—				—				—				—				—				—				—				—				—				—				(1,119	)			(1,119	)			(2,091	)
Adjustment to reflect redemption value			—				—				—				—				—				—				—				(4,381	)			—				—				—				—				(4,381	)			4,381
Balance at September 30, 2009			1,488			$	15				5,667			$	57				122,749			$	1,227			$	1,434,161			$	(321,853	)		$	(732	)			(58,858	)		$	(158,430	)		$	17,918			$	972,363			$	84,947

See Notes to Consolidated Financial Statements.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		Nine Months Ended
		September 30,
		2009				2008
		(Unaudited)
Cash Flows from Operating Activities
Net loss		$	(204,394	)		$	(9,351	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			118,927				133,040
Impairment charges			160,143				—
Equity in earnings of unconsolidated joint venture			(1,863	)			(2,304	)
Distributions of earnings from unconsolidated joint venture			667				1,415
Income from derivatives			(33,203	)			(6,244	)
Gain on sales of properties			—				(8,315	)
Amortization of discounts, deferred loan costs and deferred income on notes receivable			(3,128	)			(4,705	)
Amortization of loan costs			5,883				4,990
Write-off of loan costs, premiums and exit fees, net			(930	)			115
Unrealized loss on derivatives			14,166				38,861
Stock-based compensation			3,896				5,188
Changes in operating assets and liabilities —
Restricted cash			4,536				(11,940	)
Accounts receivable and inventories			2,128				3,655
Prepaid expenses and other assets			(3,322	)			3,306
Accounts payable and accrued expenses			22,731				(15,833	)
Due to/from related parties			(975	)			(1,660	)
Due to/from third-party hotel managers			(6,143	)			(3,779	)
Other liabilities			(2,240	)			(2,395	)
Net cash provided by operating activities			76,879				124,044
Cash Flows from Investing Activities
Acquisitions/originations of notes receivable			—				(138,040	)
Proceeds from payments of notes receivable			6				20,165
Investment in unconsolidated joint venture			—				(17,859	)
Improvements and additions to hotel properties			(51,734	)			(102,679	)
Proceeds from sales of assets/properties			858				317,426
Net cash (used in) provided by investing activities			(50,870	)			79,013
Cash Flows from Financing Activities
Borrowings on indebtedness and capital leases			67,800				704,570
Repayments of indebtedness and capital leases			(55,063	)			(613,921	)
Payments of deferred loan costs			(1,822	)			(6,300	)
Payments of dividends			(17,341	)			(105,206	)
Payments for derivatives			(31,022	)			(6,427	)
Cash income from derivatives			32,871				5,673
Repurchases of treasury stock			(53,334	)			(45,954	)
Repurchases of preferred stock			(10,656	)			—
Other			(1,119	)			53
Net cash used in financing activities			(69,686	)			(67,512	)
Net (decrease) increase in cash and cash equivalents			(43,677	)			135,545
Cash and cash equivalents at beginning of year			241,597				92,271
Cash and cash equivalents at end of period		$	197,920			$	227,816
Supplemental Cash Flow Information
Interest paid		$	99,983			$	118,552
Income taxes paid		$	380			$	736
Supplemental Disclosure of Non-Cash Investing Activity
Note receivable contributed to unconsolidated joint venture		$	—			$	5,230

See Notes to Consolidated Financial Statements.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

     Ashford Hospitality Trust, Inc. (“Ashford”) is a self-advised real estate investment trust (“REIT”) which commenced operations on August 29, 2003 when it completed its initial public offering (“IPO”) and concurrently consummated certain other formation transactions, including the acquisition of six hotels (“Initial Properties”). We began investing in mezzanine loans in November 2003 and originated our first mortgage loan secured by a hotel property in 2004. Ashford owns its lodging investments and conducts its business through Ashford Hospitality Limited Partnership, the operating partnership. Ashford OP General Partner LLC, a wholly-owned subsidiary of the REIT, serves as the sole general partner of our operating partnership. In this report, the terms “Ashford”, “the Company,” “we,” “us” or “our” mean Ashford Hospitality Trust, Inc. and all entities included in its consolidated financial statements.

     As of September 30, 2009, we owned 97 hotel properties directly and six hotel properties through majority-owned investments in joint ventures, which represents 23,255 total rooms, or 22,913 net rooms excluding those attributable to joint venture partners. All of these hotel properties are located in the United States. As of September 30, 2009, we also wholly-owned $66.7 million of mezzanine or first-mortgage loans receivable. In addition, at September 30, 2009, we had a 25% ownership in a $79.4 million mezzanine loan held in a joint venture. See Note 6.

     For federal income tax purposes, we elected to be treated as a REIT, which imposes limitations related to operating hotels. As of September 30, 2009, 102 of our hotel properties were leased or owned by our wholly-owned subsidiaries that are treated as taxable REIT subsidiaries for federal income tax purposes (collectively, these subsidiaries are referred to as “Ashford TRS”). Ashford TRS then engages third-party or affiliated hotel management companies to operate the hotels under management contracts. Hotel operating results related to these properties are included in the consolidated statements of operations. As of September 30, 2009, one hotel property was leased on a triple-net lease basis to a third-party tenant who operates the hotel. Rental income from this operating lease is included in the consolidated results of operations.

     Remington Lodging & Hospitality, LLC (“Remington Lodging”), our primary property manager, is beneficially wholly owned by Mr. Archie Bennett, Jr., our Chairman, and Mr. Monty J. Bennett, our Chief Executive Officer. As of September 30, 2009, Remington Lodging managed 46 of our 103 hotel properties, while third-party management companies managed the remaining 57 hotel properties.

2. Significant Accounting Policies

     Basis of Presentation — The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) issued by the Financial Accounting Standards Board (“FASB”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These consolidated financial statements include the accounts of Ashford, its majority-owned subsidiaries and its majority-owned joint ventures in which it has a controlling interest. All significant inter-company accounts and transactions between consolidated entities have been eliminated in these consolidated financial statements. These consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our Current Report on Form 8-K filed on September 11, 2009 (the Form 8-K). The Form 8-K reflects retrospective application of our accounting for noncontrolling interests and the computation of income/loss per share using the two-class method under new accounting guidance issued by the FASB which were adopted on January 1, 2009, as required.

     In the preparation of the accompanying unaudited consolidated financial statements, management has evaluated events that have occurred after September 30, 2009, through the time we issued our financial statements on November 6, 2009.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     The following items affect our reporting comparability related to our consolidated financial statements:

•

The operations of our hotels have historically been seasonal. This seasonality pattern causes fluctuations in the operating results. Consequently, operating results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

•

Marriott International, Inc. (“Marriott”) manages 41 of our properties. For these Marriott-managed hotels, the fiscal year reflects twelve weeks of operations in each of the first three quarters of the year and sixteen weeks for the fourth quarter of the year. Therefore, in any given quarterly period, period-over-period results will have different ending dates. For Marriott-managed hotels, the third quarters of 2009 and 2008 ended September 11 and September 5, respectively.

     Use of Estimates — The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

     Investments in Hotel Properties — Hotel properties are generally stated at cost. However, the Initial Properties contributed upon Ashford’s formation are stated at the predecessor’s historical cost, net of impairment charges, if any, plus a noncontrolling interest partial step-up related to the acquisition of noncontrolling interests from third parties associated with four of the Initial Properties. For hotel properties owned through our majority-owned joint ventures, the carrying basis attributable to the joint venture partners’ minority ownership is recorded at the predecessor’s historical cost, net of any impairment charges, while the carrying basis attributable to our majority ownership is recorded based on the allocated purchase price of our ownership interests in the joint ventures. All improvements and additions which extend the useful life of the hotel properties are capitalized.

     Impairment of Investment in Hotel Properties — Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We test impairment by using current or projected cash flows over the estimated useful life of the asset. In evaluating the impairment of hotel properties, we make many assumptions and estimates, including projected cash flows, expected holding period and expected useful life. We may also use fair values of comparable assets. If an asset is deemed to be impaired, we record an impairment charge for the amount that the property’s net book value exceeds its estimated fair value. During the nine months ended September 30, 2009, we recorded an impairment of $10.9 million on one hotel property. See the detailed discussion in Notes 4 and 11.

     Notes Receivable — We provide mezzanine and first-mortgage financing in the form of notes receivable. These loans are held for investment and are intended to be held to maturity and accordingly, are recorded at cost, net of unamortized loan origination costs and fees, loan purchase discounts and net of the allowance for losses when a loan is deemed to be impaired. Premiums, discounts, and net origination fees are amortized or accreted as an adjustment to interest income using the effective interest method over the life of the loan. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is not received.

     Variable interest entities, as defined by authoritative accounting guidance, must be consolidated by their controlling interest beneficiaries if the variable interest entities do not effectively disperse risks among the parties involved. Our mezzanine and first-mortgage notes receivable are each secured by various hotel properties or partnership interests in hotel properties and are subordinate to the controlling interest in the secured hotel properties. All such notes receivable are considered to be variable interests in the entities that own the related hotels. However, we are not considered to be the primary beneficiary of these hotel properties as a result of holding these loans. Therefore, we do not consolidate the hotels for which we have provided financing. We will evaluate the interests in entities acquired or created in the future to determine whether such entities should be consolidated. In evaluating variable interest entities, our analysis involves considerable management judgment and assumptions.

     Impairment of Notes Receivable — We review notes receivables for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts recorded as assets on the balance sheet according to the

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

contractual terms of the loan agreement. We apply normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment.

     When a loan is impaired, we measure impairment based on the present value of expected cash flows discounted at the loan’s effective interest rate against the value of the asset recorded on the balance sheet. We may also measure impairment based on a loan’s observable market price or the fair value of collateral if the loan is collateral dependent. If a loan is deemed to be impaired, we record a valuation allowance through a charge to earnings for any shortfall. Our assessment of impairment is based on considerable judgment and estimates. During the nine months ended September 30, 2009, we recorded a valuation allowance of $149.3 million for our mezzanine loan portfolio. See Notes 5 and 11.

     Revenue Recognition — Hotel revenues, including room, food, beverage, and ancillary revenues such as long-distance telephone service, laundry, and space rentals, are recognized when services have been rendered. Rental income, representing income from leasing hotel properties to third-party tenants on triple-net operating leases, is recognized on a straight-line basis over the lease terms. Interest income, representing interest on the mezzanine and first mortgage loan portfolio (including accretion of discounts on certain loans using the effective interest method), is recognized when earned. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is not received. Asset management fees are recognized when services are rendered. Taxes collected from customers and submitted to taxing authorities are not recorded in revenue. For the hotel leased to a third party, we report deposits into our escrow accounts for capital expenditure reserves as income.

     Derivative Financial Instruments and Hedges — We primarily use interest rate derivatives in order to capitalize on the historical correlation between changes in LIBOR (London Interbank Offered Rate) and RevPAR (Revenue per Available Room). Interest rate swaps involve the exchange of fixed-rate payments for variable-rate payments over the life of the derivative agreements without exchange of the underlying principal amount. Interest rate caps designated as cash flow hedges provide us with interest rate protection above the strike rate on the cap and result in us receiving interest payments when actual rates exceed the cap strike. For interest rate floors, we pay our counterparty interest when the variable interest rate index is below the strike rate. The interest rate flooridor combines two interest rate floors, structured such that the purchaser simultaneously buys an interest rate floor at a strike rate X and sells an interest rate floor at a lower strike rate Y. The purchaser of the flooridor is paid when the underlying interest rate index (for example, LIBOR) resets below strike rate X during the term of the flooridor. Unlike a standard floor, the flooridor limits the benefit the purchaser can receive as the related interest rate index falls. Once the underlying index falls below strike Y, the sold floor offsets the purchased floor. There is no liability to us other than the purchase price associated with the flooridor.

     We account for the interest rate derivatives at fair value in accordance with the applicable authoritative accounting guidance. All derivatives are recorded on the balance sheets at fair value and reported as “Interest rate derivatives.” For derivatives designated as cash flow hedges, the effective portion of changes in the fair value is reported as a component of “Accumulated other comprehensive income (loss)” (OCI) in the equity section of the consolidated balance sheets. The amount recorded in OCI is reclassified to interest expense in the same period or periods during which the hedged transaction affects earnings, while the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations. For derivatives that are not designated as cash flow hedges, the changes in the fair value are recognized in earnings as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations. We assess the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.

     Recently Adopted Accounting Standards — We adopted authoritative accounting guidance issued in December 2007 that was effective as of January 1, 2009, which states that accounting and reporting for minority interests should be re-characterized as noncontrolling interests and classified as a component of equity. However, noncontrolling interests that are redeemable for cash or other assets are to be classified outside of equity if they are redeemable (i) at a fixed or determinable price on a fixed or a determinable date; (ii) at the option of the holder; or (iii) upon the occurrence of an event that is not solely within the control of the issuer. The guidance also requires net income and other comprehensive income to be attributed to controlling and noncontrolling interests. To comply with these accounting rules, we have reclassified the noncontrolling interests in our consolidated joint ventures from the mezzanine section of our balance sheets to equity. Redeemable noncontrolling interests in our operating partnership will continue

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

to be classified in the mezzanine section of the balance sheets as these redeemable operating units do not meet the requirements for equity classification because the redemption feature requires the delivery of cash or registered shares. The carrying value of the noncontrolling interests in the operating partnership is based on the greater of the accumulated historical cost or the redemption value. Income/loss from consolidated joint ventures attributable to noncontrolling interests in our consolidated joint ventures and net income/loss attributable to redeemable noncontrolling interests in the operating partnership are reported as deductions/additions from net income/loss. Comprehensive income/loss attributable to these noncontrolling interests is reported as deductions/additions from comprehensive income/loss. We reclassified prior period amounts to reflect these requirements. The adoption of this standard had no effect on our basic and diluted income/loss per share.

     In March 2008, the FASB issued authoritative accounting guidance to enhance the disclosures about derivative instruments and hedging activities. Under the new guidance, entities are required to provide enhanced disclosures about (i) how and why an entity uses derivative instruments; (ii) how derivative instruments and related hedged items are accounted for under the applicable authoritative guidance; and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. We adopted this statement beginning January 1, 2009. There was no financial impact from the adoption of this accounting guidance and disclosures about our derivative instruments are presented in accordance with the requirements of the accounting guidance. See Note 10.

     In June 2008, the FASB issued authoritative accounting guidance to require non-vested shares that contain non-forfeitable rights to dividends or dividend equivalents to be considered participating securities, and therefore be included in computing earnings per share using the two-class method. We adopted this guidance as of January 1, 2009. Income (loss) per share has been computed using the two-class method for all periods presented and there has been no material impact on the income (loss) per share amount from the adoption of this accounting guidance.

     In April 2009, the FASB issued authoritative accounting guidance effective for interim reporting periods ending after June 15, 2009, to require disclosures about fair values of financial instruments for interim reporting periods. Accordingly, the fair values of financial instruments have been disclosed in Note 15. The adoption of this accounting guidance did not have an impact on our financial position and results of operations.

     In May 2009, the FASB issued accounting guidance effective for interim or annual financial periods ending after June 15, 2009, to modify the definition and disclosures of subsequent events. The guidance sets forth: (i) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. Subsequent events for the reporting period ended September 30, 2009 were evaluated through the time we issued our financial statements on November 6, 2009.

     In June 2009, the FASB issued an accounting standards update effective for financial statements issued for interim and annual periods ending after September 15, 2009. At the effective date, the accounting standards codification issued by the FASB has become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (the “SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The adoption of these authoritative accounting rules for the quarter ended September 30, 2009 did not change our accounting practices.

     Recently Issued Accounting Standards — In June 2009, the FASB issued authoritative accounting guidance to modify existing accounting guidance on transfers of financial assets. The new guidance is effective at the beginning of the first annual reporting period beginning after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The new authoritative guidance limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial assets. In addition, the guidance defines the term participating interest to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale and requires that a transferor recognize and initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of a transfer of financial

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

assets accounted for as a sale. The impact of adopting this new guidance when effective will depend upon the nature, term and size of the assets transferred, if any.

     In June 2009, the FASB issued authoritative accounting guidance to redefine the characteristics of the primary beneficiary to be identified when an enterprise performs an analysis to determine whether the enterprise’s variable interest gives it a controlling financial interest in a variable interest entity (VIE). This accounting guidance is effective at the beginning of the first annual reporting period beginning after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The new guidance requires an enterprise to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed and ongoing reassessments of whether it is the primary beneficiary of a VIE. It also amends certain previous guidance for determining whether an entity is a VIE and eliminates the quantitative approach previously required for determining the primary beneficiary of a VIE. We are currently evaluating the effects the adoption of the new guidance will have on our financial condition and results of operations.

     In August 2009, the FASB issued an accounting standard update, effective for the first reporting period (including interim periods) beginning after the issuance date, to provide guidance on measuring liabilities at fair value when no observable data are available. The update clarifies that when measuring fair value of liabilities in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using either (i) the quoted price of an identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets; or (ii) the present value technique or a market approach based on the amount at the measurement date the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability. We do not expect a material impact from the adoption of this accounting guidance.

     Reclassifications — Certain amounts in the consolidated financial statements as of December 31, 2008 and for the three and nine months ended September 30, 2008 have been reclassified to conform to the presentation format adopted in 2009 as a result of the adoption of the authoritative accounting guidance issued in December 2007 related to noncontrolling interests. In addition, certain amounts in the consolidated statements of cash flows have been reclassified to conform to the current year presentation. These reclassifications have no effect on the results of operations or financial position previously reported.

3. Summary of Significant Transactions and Development

     Material Impairments — In June 2009, Extended Stay Hotels, LLC (“ESH”), the issuer of our $164 million mezzanine loan receivable secured by 681 hotels with initial maturity in June 2009, filed for Chapter 11 bankruptcy protection from its creditors. We anticipate that ESH, through its bankruptcy filing, may attempt to impose a plan of reorganization which could extinguish our investment. Accordingly, we recorded a valuation allowance of $109.4 million in earnings for the full amount of the book value of the note. An additional valuation allowance totaling $39.9 million was recorded on four other mezzanine loans. See Notes 5 and 11.

     Beginning in June 2009, we ceased making payments on the note payable of $29.1 million secured by the Hyatt Regency Dearborn hotel property. Due to the effect of market conditions in the region, the operating cash flows from the hotel property are not anticipated to cover the principal and interest payments on the note and the related capital expenditures on the property. The lender issued a notice of default and an acceleration notice. We have not cured the notice of default and intend to fully settle the debt via a deed-in-lieu of foreclosure or foreclosure of the hotel property. As a result, we recorded an impairment charge of $10.9 million during the nine months ended September 30, 2009 to write down the carrying amount of the hotel property to its estimated fair value. See Notes 4 and 11.

     Interest Rate Derivative Transactions — In March 2009, in order to take advantage of the declining LIBOR rates, we entered into a one-year flooridor with a financial institution for the period commencing December 14, 2009 and ending December 13, 2010 for a notional amount of $3.6 billion. The $3.6 billion flooridor establishes a floor rate of 0.75%. Under the new flooridor, the counterparty will pay us interest on the notional amount when LIBOR rates are below the original floor of 1.25% up to a maximum of 50 basis points on the notional amount. The upfront cost of this flooridor was $8.5 million. On July 1, 2009, we purchased two one-year term flooridors, each with a notional amount of $1.8 billion, for an upfront cost of $22.3 million. Under the first flooridor, the counterparty will pay us interest on the notional amount for the period commencing December 14, 2009 and ending December 13, 2010 when LIBOR rates are

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

below 1.75% up to a maximum of 50 basis points on the notional amount. Under the second flooridor, the counterparty will pay us interest on the notional amount for the period commencing December 13, 2010 and ending December 13, 2011 when LIBOR rates are below 2.75% up to a maximum of 225 basis points on the notional amount. We have no further liability under these flooridors to the counterparties. For the nine months ended September 30, 2009, we recognized total income of $33.2 million on our interest rate derivatives.

     In addition, during the nine months ended September 30, 2009, we entered into seven interest rate caps with total notional amounts of $283.0 million to cap the interest rates on our mortgage loans with an aggregate principal amount of $283.0 million (aggregate principal balance at September 30, 2009 was $280.5 million) with strike rates between 4.81% and 6%. The total price for these hedges was $233,000. These interest rate caps were designated as cash flow hedges.

     Authorization of Repurchases of Common and Preferred Shares and Prepayment of Outstanding Debt Obligations — In January 2009, the Board of Directors approved an additional $200.0 million authorization (excluding fees, commissions and all other ancillary expenses) for: (i) the repurchase of shares of our common stock, Series A preferred stock, Series B-1 preferred stock and Series D preferred stock and/or (ii) the prepayment of our outstanding debt obligations, including debt secured by our hotel assets and debt senior to our mezzanine or loan investments. During the nine months ended September 30, 2009, we have purchased 23.8 million shares of our common stock, 697,600 shares of the Series A preferred stock and 727,550 shares of the Series D preferred stock for a total price of $64.0 million, including $564,000 of commissions.

     Debt Financing and Refinancing — In February 2009, we refinanced the $47.4 million mortgage loan (excluding a premium of $1.4 million) secured by a hotel property in Arlington, Virgina, with a $60.8 million mortgage loan at an interest rate of LIBOR plus 4% for three years with two one-year extension options. In conjunction with the refinancing, we purchased an interest rate cap with a notional amount of $60.8 million and a strike rate of 4.81% for $161,000. In addition, in March 2009, we obtained a $7.0 million mortgage loan on a hotel property in Jacksonville, Florida. The loan matures April 2034 and bears an interest rate at the greater of 6% or prime plus 1%.

4. Investments in Hotel Properties

     Investments in hotel properties consisted of the following at September 30, 2009 and December 31, 2008 (in thousands):

		September 30,				December 31,
		2009				2008
Land		$	530,302			$	531,336
Buildings and improvements			3,073,513				3,065,744
Furniture, fixtures and equipment			383,349				359,397
Construction in progress			18,381				11,121
Total cost			4,005,545				3,967,598
Accumulated depreciation			(515,799	)			(399,383	)
Investment in hotel properties, net		$	3,489,746			$	3,568,215

     Beginning in June 2009, we ceased making payments on the note payable of $29.1 million secured by the Hyatt Regency Dearborn hotel property, due to the fact that the operating cash flows from the hotel property are not anticipated to cover the principal and interest payments on the note and the related capital expenditures on the property. The lender issued a notice of default and an acceleration notice. We have not cured the notice of default and intend to fully settle the debt via a deed-in-lieu of foreclosure or foreclosure of the hotel property. As a result, we wrote down the hotel property to its estimated fair value and recorded an impairment charge of $10.9 million in the quarter ended June 30, 2009. In determining the fair value of the property, we obtained a market analysis based on eight recent hotel sales in the Midwest region provided by a third party. Those sales ranged from a low of $33,000 per key to a high of $125,000 per key. We evaluated the analysis and determined that the current note payable balance on the Hyatt Regency Dearborn hotel property of $29.1 million, or $38,000 per key, is within the range and approximates the fair value of the property.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     Investments in hotel properties are reviewed for impairment at the end of each quarter, taking into account the latest operating cash flows and market conditions and their impact on future projections. Based on our analysis, the hotel properties’ estimated future undiscounted cash flows were in excess of the properties’ carrying values. As a result, no impairment other than the impairment related to Hyatt Regency Dearborn was recorded for the nine months ended September 30, 2009.

5. Notes Receivable

      Notes receivable consisted of the following at September 30, 2009 and December 31, 2008 (in thousands):

		September 30,				December 31,
		2009				2008
Mezzanine loan secured by various mortgage-backed securities sponsored by government agencies, matures September 2011, at an interest rate of 14% (12% pay rate with deferred interest through the first two years), with interest-only payments through maturity		$	11,000			$	11,000
First mortgage loan secured by one hotel property, matured October 2008, with two one-year extension options, at an interest rate of LIBOR plus 9%, with interest-only payments through maturity (the balance before valuation allowance was $18,200)			—				18,200
Mezzanine loan secured by 105 hotel properties, matures April 2010, with a one-year extension option at an interest rate of LIBOR plus 5%, with interest-only payments through maturity			25,688				25,694
Mezzanine loan secured by one hotel property, matured September 2009, with two one-year extension options, at an interest rate of LIBOR plus 6.5%, with interest-only payments through maturity (the balance before valuation allowance was $7,000)			—				7,000
Mezzanine loan secured by one hotel property, matured July 2009, with two one-year extension options, at an interest rate of LIBOR plus 5.75%, with interest-only payments through maturity (the balance before valuation allowance was $4,000)			—				4,000
Mezzanine loan secured by one hotel property, matures January 2011, with two one-year extension options, at an interest rate of LIBOR plus 9%, with interest-only payments through maturity			7,056				7,056
Mezzanine loan with principal balance of $38.0 million secured by one hotel property, matures June 2017, at an interest rate of 9.66%, with interest-only payments through maturity (the balance before valuation allowance was $33,684)			22,980				33,445
Mezzanine loan with principal balance of $164.0 million secured by 681 Extended-Stay Hotel properties, matured June 2009, with three one-year extension options, at an interest rate of LIBOR plus 2.5%, with interest-only payments through maturity (the balance before valuation allowance was $109,272)			—				106,376
			66,724				212,771
Deferred loan costs and deferred income, net			(72	)			44
Total notes receivable		$	66,652			$	212,815
Weighted average effective interest rate			4.3	%			16.5	%

     In general, our notes receivable have extension options, prohibit prepayment through a certain period, and require decreasing prepayment penalties through maturities.

     Notes receivable in our portfolio are evaluated for collectability individually and collectively for each reporting period. The process of evaluating the collectability involves significant judgment. Therefore, there is at least a

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

reasonable possibility that a change in our estimates regarding collectability will occur in the future. Valuation allowances recorded for loans impaired according to our analysis are included in the “impairment charges” in the consolidated statements of operations.

     Interest payments since March of 2009 have not been made on the $7.1 million junior participation note receivable maturing January 2011 secured by a hotel property in La Jolla, California. In accordance with our accounting policy, we have discontinued recording interest on this note beginning in March of 2009. We put the borrower in default for failure to make the payments and the failure to maintain liquidity and net worth covenants as required under the loan guaranty. The first mortgage holder also put the borrower in default. We are in discussions with the borrower and the first mortgage holder with regard to potential workout solutions. Because we obtained personal guaranties from the principals of the borrower and a new investor has agreed to a possible restructuring of the loan that does not reduce principal on our mezzanine loan position while bringing the loan current, no valuation allowance was recorded on this note.

     Principal and interest payments have not been made since October 2008 on the $18.2 million junior participation note receivable secured by a hotel property in Nevis, West Indies. The underlying hotel property suffered significant damage by Hurricane Omar in 2008. In accordance with our accounting policy, we discontinued recording interest on this note beginning in October 2008. During the quarter ended June 30, 2009, we were made aware that insurance recoveries for the damages from the hurricane were not adequate to fully fund the repairs of the property and further delays in the reopening of the property were likely. As a result, we recorded a valuation allowance of $9.1 million to reflect our concerns regarding the collectability of our investment. Since June 30, 2009, more information became available indicating that additional uninsured and deferred costs could potentially exceed our loan principal and further delay the foreclosure process and eventual reopening. As a result of these factors along with the fact that pursuant to a settlement with a more senior participant, we relinquished our controlling holder status under the participation agreement, we recorded an additional valuation allowance of $9.1 million in the quarter ended September 30, 2009, for the remaining carrying amount of the note.

     The borrower of the $4.0 million junior participation loan collateralized by the Sheraton hotel property in Dallas, Texas which was due in July 2009 has been in default since May 11, 2009. Based on a recent appraisal of the property from a third party, it is unlikely that we will be able to recover our full investment due to our junior status. As a result, we recorded a valuation allowance for the full amount of the note receivable in the second quarter ended June 30, 2009.

     The $164.0 million principal amount mezzanine loan secured by 681 Extended Stay Hotel properties was purchased at a significant discount which was amortized over the life of the loan through March 31, 2009. In June 2009, the issuer of this note filed for Chapter 11 bankruptcy protection from its creditors. We anticipate that the issuer, through its bankruptcy filing, may attempt to impose a plan of reorganization which could extinguish our investment. Accordingly, we recorded a valuation allowance of $109.4 million in the second quarter ended June 30, 2009, for the full amount of the book value of the note. Prior to the bankruptcy filing, all payments on this loan were current.

     The $7.0 million loan collateralized by the Le Meridien hotel property in Dallas, Texas is no longer in a position to service its debt payments in the absence of a cash infusion from the borrower. It is likely that we will be unable to recover the full value of our investment due to our junior status. As a result, we recorded a valuation allowance in the quarter ended June 30, 2009, for the full amount of the note receivable.

     Due to the fact that the Ritz-Carlton hotel property in Key Biscayne, Florida collateralizing the $38.0 million principal amount loan is not generating sufficient cash flow for debt service, we have entered into definitive agreements, subject to servicer consent, with the borrower and a third party investor. Under the agreements, the third party investor, subject to certain conditions, has committed to funding equity to execute either a discounted payoff or a direct purchase of our loan for consideration of $20.0 million in cash and a $4.0 million note. Based on the net present value of the future cash flows of the definitive agreements, we recorded a valuation allowance of $10.7 million in the quarter ended September 30, 2009. See Note 11.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     The average recorded investment in the impaired loans and the related interest income recognized for the three and nine months ended September 30, 2009 were as follows (in thousands):

		Three				Nine
		Months				Months
		Ended				Ended
		September 30,				September 30,
		2009				2009
Average investment in impaired loans		$	37,786			$	117,840
Interest income recognized on impaired loans		$	1,017			$	8,003
Interest income recognized on impaired loans using cash-basis		$	—				—

6. Investment in Unconsolidated Joint Venture

     We have a 25% ownership interest in a joint venture which invests in mezzanine loans. At September 30, 2009 and December 31, 2008, our investment in the joint venture consisted of the following (in thousands):

		September 30,				December 31,
		2009				2008
25% of a mezzanine loan acquired at a discounted price (principal balance of $21,000), secured by 29 hotel properties, matures August 2010 with two one-year extension options, at an interest rate of LIBOR plus 2.75%, and with interest-only payments through maturity		$	19,847			$	18,813
25% of a mezzanine loan at par value secured by two hotel properties, matures January 2018, at an interest rate of 14%, with interest-only payments through maturity			5,461				5,461
Allowance for loan losses			(5,461	)			(5,461	)
Other, net			106				106
Distributions			(2,467	)			(1,800	)
Equity in earnings since inception before discount amortization and allowance for loan losses			2,833				2,003
Total		$	20,319			$	19,122

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Assets Held for Sale and Discontinued Operations

     The following table summarizes the operating results of the discontinued operations for the three and nine months ended September 30, 2008 ($ in thousands):

		Three				Nine
		Months				Months
		Ended				Ended
		September 30,				September 30,
		2008				2008
Number of properties:
Properties classified as held for sale at end of period			1				1
Properties sold during the period			3				9
Total properties included in discontinued operations			4				10
Results of operations:
Hotel revenues		$	11,909			$	80,854
Total operating expenses			(10,022	)			(64,062	)
Operating income			1,887				16,792
Gain on sales of properties			1,411				8,315
Depreciation and amortization			(1,106	)			(6,635	)
Interest expense and amortization of loan costs			(627	)			(3,465	)
Write-off of loan costs, premiums and exit fees, net			(236	)			1,112
Income from discontinued operations before income taxes			1,329				16,119
Income taxes			—				(210	)
Income from discontinued operations			1,329				15,909
Income from discontinued operations attributable to redeemable noncontrolling interests in operating partnership			(109	)			(1,249	)
Income from discontinued operations attributable to the Company.		$	1,220			$	14,660

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Indebtedness

     Indebtedness consisted of the following at September 30, 2009 and December 31, 2008 (in thousands):

								September 30,				December 31,
Indebtedness		Collateral		Maturity		Interest Rate		2009				2008
Mortgage loan		10 hotels		July 2015		5.22%		$	160,490			$	160,490
Mortgage loan		5 hotels		February 2016		5.53%			115,645				115,645
Mortgage loan		5 hotels		February 2016		5.53%			95,905				95,905
Mortgage loan		5 hotels		February 2016		5.53%			83,075				83,075
Mortgage loan		8 hotels		December 2014		5.75%			110,899				110,899
Mortgage loan		8 hotels		December 2015		5.70%			100,576				100,576
Senior credit facility		Notes receivable		April 2010(1)		LIBOR(2) + 2.75% to 3.5%(3)			250,000				250,000
Mortgage loan		1 hotel		December 2016		5.81%			101,000				101,000
Mortgage loan		5 hotels		December 2009(1)		LIBOR (2) + 1.72%			203,400				203,400
Mortgage loan		5 hotels		April 2017		5.95%			115,600				115,600
Mortgage loan		7 hotels		April 2017		5.95%			126,466				126,466
Mortgage loan		2 hotels		April 2017		5.95%			128,251				128,408
Mortgage loan		5 hotels		April 2017		5.95%			103,906				103,906
Mortgage loan		5 hotels		April 2017		5.95%			158,105				158,105
Mortgage loan		3 hotels		April 2017		5.95%			260,980				260,980
Mortgage loan		1 hotel		April 2017		5.91%			35,000				35,000
Mortgage loan		10 hotels		May 2010(1)		LIBOR(2) + 1.65%			167,202				167,202
Mortgage loan		1 hotel		December 2017(4)		7.39%			—				48,790
Mortgage loan		1 hotel		January 2011		8.32%			5,867				5,966
Mortgage loan		1 hotel		January 2023		7.78%			4,900				6,612
TIF loan		1 hotel		June 2018		12.85%			7,783				7,783
Mortgage loan		1 hotel		March 2010(5)		5.6%			29,135				29,396
Mortgage loan		3 hotels		April 2011		5.47%			65,248				66,420
Mortgage loan		4 hotels		March 2010		5.95%			75,000				75,000
Mortgage loan		1 hotel		June 2011		LIBOR (2) + 2%			19,740				19,740
Mortgage loan		2 hotels		August 2011(1)		LIBOR (2) + 2.75%			157,400				159,000
Mortgage loan		1 hotel		March 2011(1)		LIBOR (2) + 3.75%			52,500				55,000
Mortgage loan		1 hotel		March 2012(1)		LIBOR (2) + 4%			60,800				—
Mortgage loan		1 hotel		April 2034		Greater of 6% or Prime + 1%			6,951				—
Total indebtedness								$	2,801,824			$	2,790,364

     In February 2009, we refinanced the $47.4 million loan (excluding a premium of $1.4 million) secured by a hotel property in Arlington, Virgina, with a $60.8 million loan at an interest rate of LIBOR plus 4% for three years with two one-year extension options. In conjunction with the refinancing, we purchased an interest rate cap with a notional amount of $60.8 million and a strike rate of 4.81% for $161,000. In addition, in March 2009, we obtained a $7.0 million mortgage loan on a hotel property in Jacksonville, Florida. The loan matures April 2034 and bears an interest rate at the greater of 6% or prime plus 1%.

     Beginning in June 2009, we ceased making payments on the note payable of $29.1 million secured by the Hyatt Regency Dearborn hotel property, due to the fact that the operating cash flows from the hotel property are not anticipated to cover the principal and interest payments on the note and the related capital expenditures on the property. The lender issued a notice of default and an acceleration notice. We have not cured the notice of default and intend to fully settle the debt via a deed-in-lieu of foreclosure or foreclosure of the hotel property. See Notes 4 and 11.

     The main covenants of our $250.0 million senior credit facility with 10 banks, which expires in April 2010 with two one-year extension options that takes it to April 2012, include (i) the minimum fixed charge coverage ratio, as defined, of 1.25x through March 31, 2011 (1.60x at September 30, 2009), and 1.35x thereafter until expiration; and (ii)

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the maximum leverage ratio, as defined, of 65% (57.8% at September 30, 2009). The only requirement to extend the credit facility is that the facility be in a non-default status with regards to the covenants.

     The articles governing our Series B-l preferred stock require us to maintain certain covenants. The impairment charges recorded during the quarter ended June 30, 2009 could have prevented us from satisfying one financial ratio. However, the holder of the Series B-l preferred stock reviewed the specific impairment charges and agreed to exclude the impairment charges incurred in the second quarter as they impact the financial ratio calculations for the affected periods. At September 30, 2009, we are in compliance with all covenants required under the articles governing the Series B-l preferred stock.

9. Income (Loss) Per Share

     Basic income (loss) per common share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average common shares outstanding during the period using the two-class method prescribed by applicable authoritative accounting guidance. Diluted income (loss) per common share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares, whereby such exercise or conversion would result in lower income per share under the two-class method. The following table reconciles the amounts used in calculating basic and diluted income (loss) per share for the three and nine months ended September 30, 2009 and 2008 (in thousands, except per share amounts):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
(Loss) income from continuing operations attributable to the Company		$	(28,796	)		$	7,579			$	(178,198	)		$	(26,180	)
Less: Dividends to preferred stocks			(4,831	)			(7,018	)			(14,492	)			(21,054	)
Less: Dividends to common stock			—				(22,513	)			—				(72,837	)
Less: Dividends to unvested shares			—				(582	)			—				(545	)
Undistributed loss from continuing operations attributable to the Company		$	(33,627	)		$	(22,534	)		$	(192,690	)		$	(120,616	)
Income from discontinued operations allocated to common shares		$	—			$	1,220			$	—			$	14,660
Income from discontinued operations allocated to unvested restricted shares			—				—				—				—
Total income from discontinued operations attributable to the Company		$	—			$	1,220			$	—			$	14,660
Weighted average common shares — Basic			65,266				115,819				72,167				117,828
Income from continuing operations distributed to common shares		$	—			$	22,513			$	—			$	72,837
Undistributed loss from continuing operations allocated to common shares			(33,627	)			(22,534	)			(192,690	)			(120,616	)
Total distributed and undistributed loss from continuing operations to common shares			(33,627	)			(21	)			(192,690	)			(47,779	)
Income from discontinued operations allocated to common shares			—				1,220				—				14,660
Total distributed and undistributed (loss) income to common shares		$	(33,627	)		$	1,199			$	(192,690	)		$	(33,119	)
Basic and diluted (loss) income per share:
Distributed (loss) income from continuing operations		$	—			$	0.19			$	—			$	0.62
Undistributed loss from continuing operations			(0.52	)			(0.19	)			(2.67	)			(1.02	)
Total loss from continuing operations			(0.52	)			—				(2.67	)			(0.40	)
Income from discontinued operations			—				0.01				—				0.12
Basic and diluted net (loss) income attributable to common shares		$	(0.52	)		$	0.01			$	(2.67	)		$	(0.28	)

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     Due to the anti-dilutive effect, the weighted average diluted shares do not reflect the adjustments for the following items (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Number of shares from assumed conversion of Preferred B-1 shares			7,448				7,448				7,448				7,448
Assumed conversion of weighted average outstanding operating partnership units			13,492				14,390				13,456				14,082
Total			20,940				21,838				20,904				21,530

10. Derivatives and Hedging Activities

     We are exposed to risks arising from our business operations, economic conditions and financial markets. To manage the risks, we primarily use interest rate derivatives to hedge our asset cash flows. We also use non-hedge derivatives to capitalize on the historical correlation between changes in LIBOR and RevPAR. We entered into these interest rate derivatives and believe that the counterparties’ nonperformance risk is limited. In March 2009, in order to take advantage of the declining LIBOR rates, we entered into a one-year “flooridor” with a financial institution for the period commencing December 14, 2009 and ending December 13, 2010 for a notional amount of $3.6 billion. The flooridor establishes a floor rate of 0.75%. Under this flooridor, the counterparty will pay us interest on the notional amount when LIBOR rates are below the original floor of 1.25% up to a maximum of 50 basis points on the notional amount. The upfront cost of this flooridor was $8.5 million. On July 1, 2009, we purchased two one-year term flooridors, each with a notional amount of $1.8 billion, for an upfront cost of $22.3 million. Under the first flooridor, the counterparty will pay us interest on the notional amount for the period commencing December 14, 2009 and ending December 13, 2010 when LIBOR rates are below 1.75% up to a maximum of 50 basis points on the notional amount. Under the second flooridor, the counterparty will pay us interest on the notional amount for the period commencing December 13, 2010 and ending December 13, 2011 when LIBOR rates are below 2.75% up to a maximum of 225 basis points on the notional amount. We have no further liability under these flooridors to the counterparties.

     In addition, during the nine months ended September 30, 2009, we entered into seven interest rate caps with total notional amounts of $283.0 million to cap the interest rates on mortgage loans with an aggregate principal amount of $283.0 million (aggregate principal balance at September 30, 2009 was $280.5 million) with strike rates between 4.81% and 6%. The total price for these hedges was $233,000. These interest rate caps were designated as cash flow hedges.

     All derivatives are recorded at their fair values and reported net as “Interest rate derivatives” in the consolidated balance sheets in accordance with authoritative accounting guidance. For derivatives that are not designated as hedges, the changes in the fair value are recognized in earnings as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value is reported as a component of “Accumulated other comprehensive income (loss)” (OCI) in the equity section of the consolidated balance sheets. The amount recorded in OCI is reclassified to interest expense in the same period or periods during which the hedged transaction affects earnings, while the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations. During the next twelve months, we expect $502,000 of accumulated comprehensive loss will be reclassified to interest expense.

     We have a derivative agreement that incorporates the loan covenant provisions of our senior credit facility requiring us to maintain certain minimum financial covenant ratios on our indebtedness. Failure to comply with the covenant provisions would result in us being in default on any derivative instrument obligations covered by the agreement. At September 30, 2009, we were in compliance with all the covenants under the senior credit facility. At September 30, 2009, the fair value of derivatives related to this agreement was an asset of $50.4 million.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     The fair value of our non-hedge designated interest rate derivatives at September 30, 2009 and the effects of these derivatives on the consolidated statement of operations for the three and nine months ended September 30, 2009 are as follows ($ in thousands):

														Gain or (Loss)								Interest Savings or (Cost)
														Recognized in Income								Recognized in Income
														Three				Nine				Three				Nine
										Fair				Months				Months				Months				Months
										Value				Ended				Ended				Ended				Ended
Derivative		Notional				Strike				Asset/				September 30,				September 30,				September 30,				September 30,
Type		Amount				Rate		Maturity		(Liability)				2009				2009				2009				2009
Interest rate cap		$	1,000,000			3.75% Pays LIBOR		2011		$	707			$	(239	)		$	(52	)		$	—			$	—
Interest rate swap		$	1,800,000			plus 2.639%, receives 5.84%		2013			80,318				6,396				(18,888	)			13,432				38,100
Interest rate floor		$	1,800,000			1.25%		2013			(19,425	)			(7,904	)			(2,258	)			(4,453	)			(11,455	)
Interest rate flooridor		$	1,800,000			1.25% — 0.75%		2009			1,848				(2,182	)			(3,870	)			2,300				6,558
Interest rate flooridor		$	3,600,000			1.25% — 0.75%		2010			14,099				4,205				5,649				—				—
Interest rate flooridor		$	1,800,000			1.75% — 1.25%		2010			7,875				781				781				—				—
Interest rate flooridor		$	1,800,000			2.75% — 0.50%		2011			19,719				4,474				4,474				—				—
Total										$	105,141	(1)		$	5,531	(2)		$	(14,164	)(2)		$	11,279	(3)		$	33,203	(3)