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

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		67,818,732
(Class)		Outstanding at August 7, 2009

 

 

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

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)			3
Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008			3
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008			4
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2009 and 2008			5
Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2009			6
Consolidated Statements of Cash Flows for the Six Months Ended June 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			29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			40
ITEM 4. CONTROLS AND PROCEDURES			40
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			41
ITEM 1A. RISK FACTORS			41
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			41
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			42
ITEM 6. EXHIBITS			42
SIGNATURES			43
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

		June 30,				December 31,
		2009				2008
		(Unaudited)
Assets
Investments in hotel properties, net		$	3,509,856			$	3,568,215
Cash and cash equivalents			236,577				241,597
Restricted cash			67,283				69,806
Accounts receivable, net of allowance of $467 and $598, respectively			43,088				41,110
Inventories			3,281				3,341
Notes receivable			86,395				212,815
Investment in unconsolidated joint venture			19,888				19,122
Deferred costs, net			21,427				24,211
Prepaid expenses			17,818				12,903
Interest rate derivatives			77,657				88,603
Other assets			5,340				6,766
Intangible assets, net			3,033				3,077
Due from third-party hotel managers			49,127				48,116
Total assets		$	4,140,770			$	4,339,682
Liabilities and Equity
Liabilities:
Indebtedness		$	2,803,383			$	2,790,364
Capital leases payable			125				207
Accounts payable and accrued expenses			107,975				93,476
Dividends payable			5,527				6,285
Unfavorable management contract liabilities			19,821				20,950
Due to related parties			1,040				2,378
Due to third-party hotel managers			4,287				3,855
Other liabilities			7,981				8,124
Total liabilities			2,950,139				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			85,433				107,469
Equity:
Shareholders’ 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 June 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 June 30, 2009 and December 31, 2008			57				64
Common stock, $0.01 par value, 200,000,000 shares authorized, 122,748,859 shares issued; 70,194,803 shares and 86,555,149 shares outstanding at June 30, 2009 and December 31, 2008			1,227				1,227
Additional paid-in capital			1,433,420				1,450,146
Accumulated other comprehensive loss			(771	)			(860	)
Accumulated deficit			(283,845	)			(124,782	)
Treasury stock, at cost, 52,554,056 and 36,193,710 shares at June 30, 2009 and December 31, 2008			(139,181	)			(113,598	)
Total shareholders’ equity of the Company			1,010,922				1,212,219
Noncontrolling interests in consolidated joint ventures			19,276				19,355
Total equity			1,030,198				1,231,574
Total liabilities and equity		$	4,140,770			$	4,339,682

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(Unaudited)
Revenue
Rooms		$	176,405			$	223,915			$	349,159			$	433,408
Food and beverage			47,850				63,410				95,234				122,009
Rental income from operating leases			1,405				1,526				2,594				2,873
Other			11,663				13,522				23,642				26,321
Total hotel revenue			237,323				302,373				470,629				584,611
Interest income from notes receivable			2,421				3,216				8,636				6,471
Asset management fees and other			205				921				379				1,443
Total revenue			239,949				306,510				479,644				592,525
Expenses
Hotel operating expenses:
Rooms			40,607				47,840				79,747				93,272
Food and beverage			33,527				43,196				67,535				84,769
Other expenses			76,151				86,903				150,880				172,786
Management fees			9,333				11,796				18,584				23,037
Total hotel operating expenses			159,618				189,735				316,746				373,864
Property taxes, insurance and other			16,189				16,234				30,579				30,858
Depreciation and amortization			38,573				39,013				79,992				81,999
Impairment charges			140,327				—				140,327				—
Corporate general and administrative			6,911				8,365				13,757				16,069
Total expenses			361,618				253,347				581,401				502,790
Operating (loss) income			(121,669	)			53,163				(101,757	)			89,735
Equity in earnings of unconsolidated joint venture			617				1,287				1,221				1,813
Interest income			92				351				197				897
Other income			11,214				2,569				21,912				2,865
Interest expense and amortization of loan costs			(36,570	)			(38,031	)			(73,118	)			(76,900	)
Write-off of loan costs, premiums and exit fees			—				—				930				—
Unrealized loss on derivatives			(37,723	)			(55,438	)			(19,691	)			(51,389	)
Loss from continuing operations before income taxes and redeemable noncontrolling interests			(184,039	)			(36,099	)			(170,306	)			(32,979	)
Income tax expense			(172	)			(319	)			(393	)			(657	)
Loss from continuing operations attributable to redeemable noncontrolling interests in operating partnership			22,702				3,059				21,144				2,729
Loss from continuing operations			(161,509	)			(33,359	)			(149,555	)			(30,907	)
Income from discontinued operations attributable to controlling interests			—				9,572				—				13,372
Net loss			(161,509	)			(23,787	)			(149,555	)			(17,535	)
Loss (income) from consolidated joint ventures attributable to noncontrolling interests			450				(2,717	)			153				(2,784	)
Net loss attributable to the Company			(161,059	)			(26,504	)			(149,402	)			(20,319	)
Preferred dividends			(4,831	)			(7,018	)			(9,661	)			(14,036	)
Net loss attributable to common shareholders		$	(165,890	)		$	(33,522	)		$	(159,063	)		$	(34,355	)
Income (loss) per share — basic and diluted:
Loss from continuing operations attributable to common shareholders		$	(2.34	)		$	(0.36	)		$	(2.10	)		$	(0.40	)
Income from discontinued operations attributable to common shareholders			—				0.08				—				0.11
Net loss attributable to common shareholders		$	(2.34	)		$	(0.28	)		$	(2.10	)		$	(0.29	)
Weighted average common shares outstanding — basic and diluted			70,882				118,911				75,685				118,870
Dividends declared per common share		$	—				0.21			$	—				0.42
Amounts attributable to common shareholders:
Loss from continuing operations, net of tax		$	(161,059	)		$	(36,076	)		$	(149,402	)		$	(33,691	)
Income from discontinued operations, net of tax			—				9,572				—				13,372
Preferred dividends			(4,831	)			(7,018	)			(9,661	)			(14,036	)
Net loss attributable to common shareholders		$	(165,890	)		$	(33,522	)		$	(159,063	)		$	(34,355	)

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands, except per share amounts)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(Unaudited)
Net loss		$	(161,509	)		$	(23,787	)		$	(149,555	)		$	(17,535	)
Other comprehensive income (loss), net of tax:
Change in unrealized loss on derivatives			199				21				55				14
Reclassification to interest expense			30				15				60				21
Foreign currency translation adjustments			—				10				—				(126	)
Total other comprehensive income (loss)			229				46				115				(91	)
Comprehensive loss			(161,280	)			(23,741	)			(149,440	)			(17,626	)
Comprehensive loss (income) attributable to noncontrolling interests in consolidated joint ventures			414				(2,717	)			127				(2,784	)
Comprehensive loss attributable to the Company		$	(160,866	)		$	(26,458	)		$	(149,313	)		$	(20,410	)

See Notes to Consolidated Financial Statements.

     

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
SIX MONTHS ENDED JUNE 30, 2009
(in thousands)
(Unaudited)

																																		Accumulated												Noncontrolling
		Preferred Stock																								Additional								Other												Interests in
		Series A								Series D								Common Stock								Paid-in				Accumulated				Comprehensive				Treasury Stock								Consolidated
		Shares				Amounts				Shares				Amounts				Shares				Amounts				Capital				Deficit				Income (Loss)				Shares				Amounts				Joint Ventures				Total
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
Stock-based compensation expense			¯				—				—				—				—				—				2,192				—				—				—				—				—				2,192
Purchases of preferred stock			(697	)			(7	)			(727	)			(7	)			—				—				(10,642	)			—				—				—				—				—				(10,656	)
Purchases of treasury shares			¯				—				—				—				—				—				—				—				—				(17,440	)			(33,936	)			—				(33,936	)
Issuance of restricted shares under stock-based compensation plan			¯				—				—				—				—				—				(8,276	)			—				—				1,080				8,353				—				77
Net loss			¯				—				—				—				—				—				—				(149,402	)			—				—				—				(153	)			(149,555	)
Dividends declared — Preferred A shares			¯				—				—				—				—				—				—				(1,590	)			—				—				—				—				(1,590	)
Dividends declared — Preferred B-1 shares			¯				—				—				—				—				—				—				(2,085	)			—				—				—				—				(2,085	)
Dividends declared — Preferred D shares			¯				—				—				—				—				—				—				(5,986	)			—				—				—				—				(5,986	)
Change in unrealized losses on derivatives			¯				—				—				—				—				—				—				—				30				—				—				25				55
Reclassification to interest expense			¯				—				—				—				—				—				—				—				59				—				—				1				60
Contributions from noncontrolling interests			¯				—				—				—				—				—				—				—				—				—				—				281				281
Distributions to noncontrolling interests			¯				—				—				—				—				—				—				—				—				—				—				(233	)			(233	)
Balance at June 30, 2009			1,488			$	15				5,667			$	57				122,749			$	1,227			$	1,433,420			$	(283,845	)		$	(771	)			(52,554	)		$	(139,181	)		$	19,276			$	1,030,198

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		Six Months Ended
		June 30
		2009				2008
		(Unaudited)
Cash Flows from Operating Activities
Net loss		$	(149,555	)		$	(17,535	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Net loss attributable to redeemable noncontrolling interests in operating partnership.			(21,144	)			(1,594	)
Depreciation and amortization			79,992				87,529
Impairment charges			140,327				—
Equity in earnings of unconsolidated joint venture			(1,221	)			(1,813	)
Distributions of earnings from unconsolidated joint venture			455				—
Income from derivatives			(21,924	)			(2,865	)
Gain on sales of properties			—				(6,903	)
Amortization of discounts, deferred loan costs and deferred income on notes receivable			(3,042	)			(671	)
Amortization of loan costs and write-off of loan costs, premiums and exit fees			4,042				3,509
Write-off of loan costs, premiums and exit fees, net			(930	)			(1,347	)
Unrealized loss on derivatives			19,691				51,389
Stock-based compensation			2,757				3,469
Changes in operating assets and liabilities —
Restricted cash			2,523				2,139
Accounts receivable and inventories			(1,918	)			(9,606	)
Prepaid expenses and other assets			(3,494	)			582
Accounts payable and accrued expenses			15,889				(22,397	)
Other liabilities			(3,153	)			(4,182	)
Net cash provided by operating activities			59,295				79,704
Cash Flows from Investing Activities
Acquisitions/originations of notes receivable			—				(39,530	)
Proceeds from payments of notes receivable			6				16,165
Investment in unconsolidated joint venture			—				(17,769	)
Improvements and additions to hotel properties			(33,491	)			(76,989	)
Proceeds from sales of discontinued operations			—				282,605
Net cash (used in) provided by investing activities			(33,485	)			164,482
Cash Flows from Financing Activities
Borrowings on indebtedness and capital leases			67,800				185,900
Repayments of indebtedness and capital leases			(53,484	)			(332,509	)
Payments of deferred loan costs			(1,821	)			(856	)
Payments of dividends			(11,812	)			(70,087	)
Payments for derivatives			(8,683	)			(4,576	)
Cash income from derivatives			21,715				2,509
Repurchases of treasury stock			(33,936	)			(4,594	)
Repurchases of preferred stock			(10,656	)			—
Other			47				280
Net cash used in financing activities			(30,830	)			(223,933	)
Net (decrease) increase in cash and cash equivalents			(5,020	)			20,253
Cash and cash equivalents at beginning of year			241,597				92,271
Cash and cash equivalents at end of period		$	236,577			$	112,524
Supplemental Cash Flow Information
Interest paid		$	69,381			$	83,032
Income taxes paid		$	493			$	574
Supplemental Disclosure of Non-Cash Investing Activity
Note receivable contributed to unconsolidated joint venture		$	—			$	5,230

See Notes to Consolidated Financial Statements.

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 June 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 June 30, 2009, we also wholly owned $86.4 million of mezzanine or first-mortgage loans receivable. In addition, at June 30, 2009, we had a 25% ownership in a $77.9 million of mezzanine loan held in a joint venture. See Note 6.

     For federal income tax purposes, we elected to be treated as a real estate investment trust (“REIT”), which imposes limitations related to operating hotels. As of June 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 June 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 June 30, 2009, Remington Lodging managed 45 of our 103 hotel properties, while third-party management companies managed the remaining 58 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”) for interim financial information and with 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 financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our 2008 Annual Report on Form 10-K to Shareholders.

     In the preparation of the accompanying unaudited consolidated financial statements, management has evaluated events that have occurred after June 30, 2009, through the time we issued our financial statements on August 7, 2009.

     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 months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

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

•

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 second quarters of 2009 and 2008 ended June 19 and June 13, 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 the Ashford’s formation are stated at the predecessor’s historical cost, net of any 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, 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 quarter ended June 30, 2009, we recorded an impairment of $10.9 million on one hotel property. See 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.

     In accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities,” as revised (“FIN No. 46(R)”), variable interest entities, as defined, 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 loans 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 loans 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. Interests in entities acquired or created in the future will be evaluated based on FIN No. 46(R) criteria, and such entities will be consolidated, if required. In evaluating FIN No. 46(R) criteria, our analysis involves considerable management judgment and assumptions.

     Impairment of Notes Receivable — We review notes receivables for impairment in each reporting period pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 114, “Accounting by Creditors for Impairment of a Loan—an amendment of FASB Statements No. 5 and 15.” 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 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.

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

     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 reserve for loan losses through a charge to earnings for any shortfall. Our assessment of impairment is based on considerable judgment and estimates. During the quarter ended June 30, 2009, we recorded a valuation allowance of $129.5 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. However, 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 floor, we pay our counterparty interest when the variable interest rate index is below the strike rate. Under the interest rate flooridors, the counterparty pays us the interest when the interest rates are below the original floor strike rate up to the new floor strike rate. We account for the interest rate derivatives in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” All derivatives are recorded on the balance sheet 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 “Other income” 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 “Other income” 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 — In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51,” effective for financial statements issued for fiscal years beginning after December 15, 2008. SFAS 160 states that accounting and reporting for minority interests will be re-characterized as noncontrolling interests and classified as a component of equity subject to the provisions of Emerging Issues Task Force (“EITF”) Topic D-98. SFAS 160 also modifies the presentation of net income by requiring earnings and other comprehensive income to be attributed to controlling and noncontrolling interests. To comply with SFAS No. 160, we have reclassified the noncontrolling interests in our consolidated joint ventures from the mezzanine section of our balance sheets to equity. Noncontrolling interests in our operating partnership will continue to be classified in the mezzanine section of the balance sheet as these redeemable operating units do not meet the requirements for equity classification under EITF Topic D-98. 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 accumulated historical cost as the accumulated historical cost ($85.4 million at June 30, 2009) is greater than the redemption value ($40.4 million at June 30, 2009) prescribed by EITF Topic D-98. Net income attributable to noncontrolling interests in our consolidated joint ventures is reported as a deduction from net income, and we reclassified prior period amounts to reflect this requirement. The adoption of this standard had no effect on our basic and diluted earnings per share.

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

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) 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 is no financial impact from the adoption and disclosures about our derivative instruments are presented in accordance with the requirements of SFAS 161. See Note 10.

     In June 2008, the FASB issued Staff Position (“FSP”) EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” which provides guidance for the calculation of earnings per share under SFAS 128 for share-based payment awards with rights to dividends or dividend equivalents. We adopted the FSP EITF 03-6-1 as of January 1, 2009. The adoption of this statement did not have a material impact on our earnings (loss) per share.

     In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. Effective January 1, 2009, we adopted SFAS No. 162, and the adoption did not have any impact on our financial statements and did not result in changes to our accounting practice.

     In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” FSP FAS 107-1 and APB 28-1 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 FSP did not have an impact on our financial position and results of operations.

     In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” This statement sets forth: 1) 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; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This statement is effective for interim and annual periods ending after June 15, 2009. We adopted this statement in the quarter ended June 30, 2009. Upon the adoption, subsequent events were evaluated through the time we issued our financial statements on August 7, 2009.

     Recently Issued Accounting Standards — In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140.” SFAS 166 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. SFAS 166 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, SFAS 166 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 assets accounted for as a sale. The impact of adopting SFAS 166 when effective will depend upon the nature, term and size of the assets transferred, if any, that we consummate after the effective date.

     In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R).” SFAS 167 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. SFAS 167 redefines the characteristics of the primary beneficiary to be identified when an enterprise performs analysis to determine whether the enterprise’s variable interest give it a controlling financial interest in a variable interest entity (VIE). SFAS 167 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. SFAS 167 also amends certain guidance in

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

Interpretation 46(R) 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 SFAS 167 will have on our financial condition and results of operations.

     In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (the “Codification”). SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Therefore, we will adopt this statement in the third quarter of 2009. On the effective date of SFAS 168, the codification will 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 under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Upon effectiveness, references to GAAP pronouncements in the financial statements will be changed from authoritative accounting standards to Codification references. The adoption of FAS 168 will not change our accounting practices.

     Reclassifications — Certain amounts in the consolidated financial statements as of December 31, 2008 and for the three and six months ended June 30, 2008 have been reclassified to conform to the presentation format adopted in 2009 as a result of the adoption of SFAS No. 160. In addition, certain amounts in the consolidated statements of operations for the three and six months ended June 30, 2008 have been reclassified to reflect the hotel properties disposed of subsequent to June 30, 2008 in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” 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 (book value as of March 31, 2009 was $109.4 million) 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. Additional valuation allowance totaling $20.1 million was recorded on three 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 quarter ended June 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 flooridor establishes a new floor rate of 0.75% for the original $1.8 billion interest rate floor we entered into on March 13, 2008. Under this new flooridor, the counterparty will pay us interest on the notional amount when the interest 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. In addition, during the six months ended June 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 June 30, 2009 was $280.5 million) between 4.81% and 6%. 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.

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

During the six months ended June 30, 2009, we have purchased 17.4 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 $44.6 million.

     Debt Financing and Refinancing — In February 2009, we refinanced the $47.4 million loan (excluding premium of $1.4 million) secured by a hotel property in Arlington, VA, with a $60.8 million loan at an interest rate of LIBOR plus 4% for three years with two one-year extensions. In conjunction with the refinancing, we purchased an interest rate cap with 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 June 30, 2009 and December 31, 2008 (in thousands):

		June 30,				December 31,
		2009				2008
Land		$	530,480			$	531,336
Buildings and improvements			3,064,810				3,065,744
Furniture, fixtures and equipment			370,789				359,397
Construction in progress			15,180				11,121
Total cost			3,981,259				3,967,598
Accumulated depreciation			(471,403	)			(399,383	)
Investment in hotel properties, net		$	3,509,856			$	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 at June 30, 2009 and recorded an impairment charge of $10.9 million. 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 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)

5. Notes Receivable

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

		June 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 at June 30, 2009)			9,100				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, matures 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 at June 30, 2009)			—				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 at June 30, 2009)			—				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			33,601				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 at June 30, 2009)			—				106,376
			86,445				212,771
Deferred loan costs and deferred income, net			(50	)			44
Total notes receivable		$	86,395			$	212,815
Weighted average effective interest rate			8.0	%			16.5	%

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

     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 ceased recording interest and recording income amortization of fees on this note beginning in March of 2009. We put the borrower in default for failure to make the payments as well as other reasons. 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 borrower, no valuation allowance was recorded on this note.

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

     Principal and interest payments were not made since October 2008, on the $18.2 million junior participation note receivable secured by a hotel property in Nevis. The underlying hotel property suffered significant damage by Hurricane Omar. In accordance with our accounting policy, we discontinued recording interest on this note beginning in October 2008. The servicer on this loan is adjusting the loss with the insurance underwriter and overseeing the renovation to facilitate the reopening of the hotel. During the quarter ended June 30, 2009, we were made aware that full recovery of the cost from insurance may not occur as certain necessary expenditures of approximately $8.6 million may not be covered by the insurance proceeds. As a result, we recorded a valuation allowance of $9.1 million to reflect our concerns regarding the collectability of our investment, which is included in the “impairment charges” in the consolidated statements of operations.

     The borrower of the $4.0 million junior participation loan collateralized by Sheraton Dallas, Texas due in July 2009 has been in default since May 11, 2009. Based on a most 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 which is included in the “impairment charges” in the consolidated statements of operations.

     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 for the full amount of the book value of the note, which is included in the “impairment charges” in the consolidated statements of operations. Prior to the bankruptcy filing, all payments on this loan were current. We recorded income from this loan of $4.7 million for the five months ended May 31, 2009.

     The $7.0 million loan collateralized by the Le Meridien hotel property in Dallas, Texas was also evaluated for impairment at June 30, 2009. The property is no longer in a position to service its debt payments in the absence of 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 for the full amount of the note receivable which is included in the “impairment charges” in the consolidated statements of operations.

     The process of evaluating the collectability of our notes receivable involves significant judgment. Therefore, there is at least a reasonable possibility that a change in our estimates regarding collectability will occur in the future.

6. Investment in Unconsolidated Joint Venture

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

		June 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		$	19,486			$	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			(2,255	)			(1,800	)
Equity in earnings since inception before discount amortization and impairment charge			2,551				2,003
Total		$	19,888			$	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 six months ended June 30, 2008 ($ in thousands):

		Three				Six
		Months				Months
		Ended				Ended
		June 30,				June 30,
		2008				2008
Number of properties:
Properties classified as held for sale at end of period			4				4
Properties sold during the period			3				6
Total properties included in discontinued operations			7				10
Results of operations:
Hotel revenues		$	33,369			$	68,945
Total operating expenses			(24,946	)			(54,040	)
Operating income			8,423				14,905
Gain on sales of properties			6,014				6,903
Depreciation and amortization			(2,190	)			(5,529	)
Interest expense and amortization of loan costs			(1,117	)			(2,838	)
Write-off of loan costs, premiums and exit fees			(515	)			1,347
Income from discontinued operations, net of taxes			10,615				14,788
Income taxes			(209	)			(281	)
Income from discontinued operations attributable to noncontrolling interests in operating partnership			(834	)			(1,135	)
Income from discontinued operations attributable to controlling interest		$	9,572			$	13,372

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

8. Indebtedness

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

		June 30,				December 31,
		2009				2008
Mortgage loan secured by ten hotel properties, matures July 2015, at an interest rate of 5.22%		$	160,490			$	160,490
Mortgage loan secured by five hotel properties, matures February 2016, at an interest rate of 5.53%			115,645				115,645
Mortgage loan secured by five hotel properties, matures February 2016, at an interest rate of 5.53%			95,905				95,905
Mortgage loan secured by five hotel properties, matures February 2016, at an interest rate of 5.53%			83,075				83,075
Mortgage loan secured by eight hotel properties, matures December 2014 at an interest rate of 5.75%			110,899				110,899
Mortgage loan secured by eight hotel properties, matures December 2015, at an interest rate of 5.70%			100,576				100,576
Mortgage loan secured by five hotel properties, matures April 2017, at an interest rate of 5.95%			115,600				115,600
Mortgage loan secured by seven hotel properties, matures April 2017, at an interest rate of 5.95%			126,466				126,466
Mortgage loan secured by two hotel properties, matures April 2017, at an interest rate of 5.95%			128,408				128,408
Mortgage loan secured by five hotel properties, matures April 2017, at an interest rate of 5.95%			103,906				103,906
Mortgage loan secured by five hotel properties, matures April 2017, at an interest rate of 5.95%			158,105				158,105
Mortgage loan secured by three hotel properties, matures April 2017, at an interest rate of 5.95%			260,980				260,980
Mortgage loan secured by one hotel property, matures April 2017, at an interest rate of 5.91%			35,000				35,000
Mortgage loan secured by ten hotel properties, matures May 2010, at an interest rate of LIBOR (1) plus 1.65%, with two one-year extension options			167,202				167,202
Credit facility secured by mezzanine notes receivable, matures April 2010, at an interest of LIBOR (1) plus a range of 2.75% to 3.5%, depending on the debt-to-value ratio, with two one-year extension options			250,000				250,000
Mortgage loan secured by one hotel property, matures December 2017, at an interest rate of 7.39%, with a remaining premium of $1.4 million (2)			—				48,790
Mortgage loan secured by one hotel property, matures December 2016, at an interest rate of 5.81%			101,000				101,000
Mortgage loan secured by five hotel properties, matures December 2009, at an interest rate of LIBOR (1) plus 1.72%, with two one-year extension options			203,400				203,400
Mortgage loan secured by one hotel property, matures June 2011, at an interest rate of LIBOR(1) plus 2%			19,740				19,740
Mortgage loan secured by one hotel property, matures January 2011, at an interest rate of 8.32%			5,904				5,966
Mortgage loan secured by one hotel property, matures January 2023, at an interest rate of 7.78%			5,240				6,612
TIF loan secured by one hotel property, matures June 30, 2018, at an interest rate of 12.85%			7,783				7,783
Mortgage loan secured by one hotel property, matures March 2010, at an interest rate of 5.6% (3)			29,135				29,396
Mortgage loan secured by three hotel properties, matures April 2011, at an interest rate of 5.47%			65,644				66,420
Mortgage loan secured by four hotel properties, matures March 2010, at an interest rate of 5.95%			75,000				75,000
Mortgage loan secured by two hotel properties, matures August 2011 at an interest rate of LIBOR (1) plus 2.75%, with two one-year extension options			158,000				159,000
Mortgage loan secured by one hotel property, matures March 2011, at an interest rate of LIBOR (1) plus 3.75% with a LIBOR floor of 2.5% and two one-year extension options			52,500				55,000
Mortgage loan secured by one hotel property, matures March 2012, at an interest rate of LIBOR (1) plus 4.0%, with two one-year extension options			60,800				—
Mortgage loan secured by one hotel property, matures April 2034, bearing an interest rate at the greater of 6% or prime plus 1%			6,980				—
Total		$	2,803,383			$	2,790,364

     In February 2009, we refinanced the $47.4 million loan (excluding premium of $1.4 million) secured by a hotel property in Arlington, VA, with a $60.8 million loan at an interest rate of LIBOR plus 4% for three years with two one-year extensions. In conjunction with the refinancing, we purchased an interest rate cap with 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.

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

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.

9. Income (Loss) Per Share

     Basic income (loss) per common share is calculated by dividing net income (loss) attributable to common shareholders by the weighted average common shares outstanding during the period. 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. The following table reconciles the amounts used in calculating basic and diluted income (loss) per share for the three and six months ended June 30, 2009 and 2008 (in thousands, except per share amounts):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Loss from continuing operations attributable to the Company		$	(161,059	)		$	(36,076	)		$	(149,402	)		$	(33,691	)
Less: Preferred dividends			(4,831	)			(7,018	)			(9,661	)			(14,036	)
Loss from continuing operations attributable to common shareholders			(165,890	)			(43,094	)			(159,063	)			(47,727	)
Income from discontinued operations attributable to common shareholders			—				9,572				—				13,372
Net loss attributable to common shareholders		$	(165,890	)		$	(33,522	)		$	(159,063	)		$	(34,355	)
Weighted average common shares outstanding			70,882				118,911				75,685				118,870
Income (loss) per share — Basic and Diluted:
Loss from continuing operations attributable to common shareholders		$	(2.34	)		$	(0.36	)		$	(2.10	)		$	(0.40	)
Income from discontinued operations attributable to common shareholders			—				0.08				—				0.11
Net loss attributable to common shareholders		$	(2.34	)		$	(0.28	)		$	(2.10	)		$	(0.29	)

     Due to the anti-dilutive effect, the computation of diluted income (loss) per share does not reflect the adjustments for the following items (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Loss from continuing operations attributable to common shareholders does not reflect:
Dividends to Preferred B-1 shares		$	1,043			$	1,564			$	2,085			$	3,128
Loss from continuing operations attributable to redeemable noncontrolling interests in operating partnership			(22,702	)			(3,059	)			(21,144	)			(2,729	)
Total		$	(21,659	)		$	(1,495	)		$	(19,059	)		$	399
Weighted average diluted shares does not reflect:
Incremental weighted dilutive shares from restricted stock awards			516				6				258				5
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			13,439				14,394				13,439				13,928
Total			21,403				21,848				21,145				21,381

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

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 new floor rate of 0.75% for the original $1.8 billion interest rate floor we entered into on March 13, 2008. Under this new flooridor, the counterparty will pay us interest on the notional amount when the interest 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. In addition, during the six months ended June 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 June 30, 2009 was $280.5 million) between 4.81% and 6%. 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 as “Interest rate derivatives” in the consolidated balance sheets. 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 “Other income” in the consolidated statements of operations. During the next twelve months, we expect $400,000 of accumulated comprehensive loss will be reclassified to interest expense. For derivatives that are not designated as hedges, the changes in the fair value are recognized in earnings as “Unrealized gain on derivatives” in the consolidated statements of operations.

     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 June 30, 2009, we were in compliance with all the covenants under the senior credit facility. At June 30, 2009, the fair value of derivatives related to this agreement was an asset of $51.8 million.

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

																Gain or (Loss)								Interest Savings or (Cost)
																Recognized in Income								Recognized in Income
																Three				Six				Three				Six
												Fair				Months				Months				Months				Months
												Value				Ended				Ended				Ended				Ended
Derivative		Notional				Strike						Asset/				June 30,				June 30,				June 30,				June 30,
Type		Amount				Rate		Maturity				(Liability)				2009				2009				2009				2009
						Pays LIBOR
Interest rate swap		$	1,800,000			plus 2.639%,			2013			$	73,922			$	(32,829	)		$	(25,284	)		$	12,706			$	24,668
						receives 5.84%
Interest rate cap		$	1,000,000			3.75%			2011				945				689				187				—				—
Interest rate cap		$	800,000			3.75%			2009				—				—				—				—				—
Interest rate floor		$	1,800,000			1.25%			2013				(11,521	)			(4,082	)			5,646				(3,824	)			(7,002	)
Interest rate flooridor		$	1,800,000			1.25% – 0.75%			2009				4,030				(1,491	)			(1,687	)			2,275				4,258
Interest rate flooridor		$	3,600,000			1.25% – 0.75%			2010				9,894				(16	)			1,443				—				—
Interest rate cap		$	35,000			6.25%			2009				—				—				—				—				—
Total												$	77,270	(1)		$	(37,729	)(2)		$	(19,695	)(2)		$	11,157	(3)		$	21,924	(3)

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

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

																										Reclassified from								Gain Recognized
																		Income (Loss)								Accumulated OCI								In Income for
																		Recognized in OCI								into Interest Expense								Ineffective Portion
																		Three				Six				Three				Six				Three				Six
														Fair				Months				Months				Months				Months				Months				Months
														Value				Ended				Ended				Ended				Ended				Ended				Ended
		Notional				Strike								Asset/				June 30,				June 30,				June 30,				June 30,				June 30,				June 30,
Derivative Type		Amount				Rates				Maturity				(Liability)				2009				2009				2009				2009				2009				2009
Interest rate cap		$	212,000				6.25	%			2009			$	—			$	29			$	29			$	29			$	62			$	—			$	—
Interest rate cap		$	160,000				5.00	%			2010				6				9				4				4				5				—				—
Interest rate cap		$	160,000				5.00	%			2011				184				136				102				—				—				6				4
Interest rate cap		$	55,000				5.00	%			2010				3				2				—				1				1				—				—
Interest rate cap		$	55,000				5.00	%			2011				19				(25	)			(25	)			—				—				—				—
Interest rate cap		$	60,800				4.81	%			2012				175				133				14				—				—				—				—
Interest rate cap		$	167,212				6.00	%			2010				—				(28	)			(28	)			—				—				—				—
Total														$	387			$	256			$	96			$	34			$	68			$	6	(1)		$	4	(1)