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

For the quarterly period ended March 31, 2009

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

For the transition period from                      to                     

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 þ		Accelerated filer o		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		95,479,546
(Class)		Outstanding at May 6, 2009

 

 

ASHFORD HOSPITALITY TRUST, INC
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2009

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)			3
Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008			3
Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008			4
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2009 and 2008			5
Consolidated Statement of Changes in Equity for the Three Months Ended March 31, 2009			6
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008			7
Notes to Consolidated Financial Statements			8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			32
ITEM 4. CONTROLS AND PROCEDURES			32
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			33
ITEM 1A. RISK FACTORS			33
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			33
ITEM 6. EXHIBITS			34
SIGNATURES			35
EX-10.30.3
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

		March 31,				December 31,
		2009				2008
		(Unaudited)
Assets
Investments in hotel properties, net		$	3,545,933			$	3,568,215
Cash and cash equivalents			239,705				241,597
Restricted cash			65,000				69,806
Accounts receivable, net of allowance of $453 and $598, respectively			44,785				41,110
Inventories			3,371				3,341
Notes receivable			215,783				212,815
Investment in unconsolidated joint venture			19,493				19,122
Deferred costs, net			23,122				24,211
Prepaid expenses			11,235				12,903
Interest rate derivatives			115,086				88,603
Other assets			6,829				6,766
Intangible assets, net			3,055				3,077
Due from third-party hotel managers			48,453				48,116
Total assets		$	4,341,850			$	4,339,682
Liabilities and Equity
Liabilities:
Indebtedness		$	2,807,383			$	2,790,364
Capital leases payable			163				207
Accounts payable and accrued expenses			99,987				93,476
Dividends payable			5,527				6,285
Unfavorable management contract liabilities			20,386				20,950
Due to related parties			871				2,378
Due to third-party hotel managers			2,681				3,855
Other liabilities			8,052				8,124
Total liabilities			2,945,050				2,925,639
Commitments and contingencies (Note 13)
Preferred stock, $0.01 par value, Series B-1 Cumulative Convertible Redeemable Preferred Stock, 7,447,865 shares issued and outstanding			75,000				75,000
Redeemable noncontrolling interests in operating partnership			108,560				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 March 31, 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 March 31, 2009 and December 31, 2008			57				64
Common stock, $0.01 par value, 200,000,000 shares authorized, 122,748,859 shares issued; 74,849,783 shares and 86,555,149 shares outstanding at March 31, 2009 and December 31, 2008			1,227				1,227
Additional paid-in capital			1,440,817				1,450,146
Accumulated other comprehensive loss			(964	)			(860	)
Accumulated deficit			(117,955	)			(124,782	)
Treasury stock, at cost, 47,899,076 and 36,193,710 shares at March 31, 2009 and December 31, 2008			(129,755	)			(113,598	)
Total shareholders’ equity of the Company			1,193,442				1,212,219
Noncontrolling interests in consolidated joint ventures			19,798				19,355
Total equity			1,213,240				1,231,574
Total liabilities and equity		$	4,341,850			$	4,339,682

See Notes to Consolidated Financial Statements.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES

		Three Months Ended
		March 31,
		2009				2008
		(Unaudited)
Revenue
Rooms		$	172,754			$	209,493
Food and beverage			47,384				58,599
Rental income from operating leases			1,189				1,347
Other			11,979				12,799
Total hotel revenue			233,306				282,238
Interest income from notes receivable			6,215				3,255
Asset management fees and other			174				522
Total revenue			239,695				286,015
Expenses
Hotel operating expenses:
Rooms			39,140				45,432
Food and beverage			34,008				41,573
Other expenses			74,729				85,883
Management fees			9,251				11,241
Total hotel operating expenses			157,128				184,129
Property taxes, insurance and other			14,390				14,624
Depreciation and amortization			41,419				42,986
Corporate general and administrative			6,846				7,704
Total expenses			219,783				249,443
Operating income			19,912				36,572
Equity in earnings of unconsolidated joint venture			604				526
Interest income			105				546
Other income			10,698				296
Interest expense and amortization of loan costs			(36,548	)			(38,869	)
Write-off of loan costs, premiums and exit fees			930				—
Unrealized gain on derivatives			18,032				4,049
Income from continuing operations before income taxes and redeemable noncontrolling interests			13,733				3,120
Income tax expense			(221	)			(338	)
Income from continuing operations attributable to redeemable noncontrolling interests in operating partnership			(1,558	)			(330	)
Income from continuing operations			11,954				2,452
Income from discontinued operations attributable to controlling interests			—				3,800
Net income			11,954				6,252
Less: Net income attributable to noncontrolling interests in consolidated joint ventures			(297	)			(67	)
Net income attributable to the Company			11,657				6,185
Preferred dividends			(4,830	)			(7,018	)
Net income (loss) attributable to common shareholders		$	6,827			$	(833	)
Income (loss) per share — basic and diluted:
Income (loss) from continuing operations attributable to common shareholders		$	0.08			$	(0.04	)
Income from discontinued operations attributable to common shareholders			—				0.03
Net income (loss) attributable to common shareholders		$	0.08			$	(0.01	)
Weighted average common shares outstanding — basic and diluted			80,530				118,855
Dividends declared per common share		$	—			$	0.21
Amounts attributable to common shareholders:
Income from continuing operations, net of tax		$	11,657			$	2,385
Discontinued operations, net of tax			—				3,800
Preferred dividends			(4,830	)			(7,018	)
Net income (loss) attributable to common shareholders		$	6,827			$	(833	)

See Notes to Consolidated Financial Statements.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES

		Three Months Ended
		March 31,
		2009				2008
		(Unaudited)
Net income		$	11,954			$	6,252
Other comprehensive loss, net of tax:
Change in unrealized loss on derivatives			(144	)			(7	)
Reclassification to interest expense			30				6
Foreign currency translation loss			—				(136	)
Total other comprehensive loss			(114	)			(137	)
Comprehensive income			11,840				6,115
Comprehensive income attributable to the noncontrolling interests in consolidated joint ventures			(287	)			(67	)
Comprehensive income attributable to the Company		$	11,553			$	6,048

See Notes to Consolidated Financial Statements.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES

(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			—				—				—				—				—				—				1,313				—				—				—				—				—				1,313
Purchases of preferred stock			(697	)			(7	)			(727	)			(7	)			—				—				(10,642	)			—				—				—				—				—				(10,656	)
Purchases of treasury shares			—				—				—				—				—				—				—				—				—				(11,705	)			(16,157	)			—				(16,157	)
Net income			—				—				—				—				—				—				—				11,657				—				—				—				297				11,954
Dividends declared – Preferred A shares			—				—				—				—				—				—				—				(795	)			—				—				—				—				(795	)
Dividends declared – Preferred B-1 shares			—				—				—				—				—				—				—				(1,042	)			—				—				—				—				(1,042	)
Dividends declared – Preferred D shares			—				—				—				—				—				—				—				(2,993	)			—				—				—				—				(2,993	)
Unrealized losses on derivatives			—				—				—				—				—				—				—				—				(134	)			—				—				(10	)			(144	)
Reclassification to interest expense			—				—				—				—				—				—				—				—				30				—				—				—				30
Contributions from noncontrolling interests			—				—				—				—				—				—				—				—				—				—				—				156				156
Balance at March 31, 2009			1,488			$	15				5,667			$	57				122,749			$	1,227			$	1,440,817			$	(117,955	)		$	(964	)			(47,899	)		$	(129,755	)		$	19,798			$	1,213,240

See Notes to Consolidated Financial Statements.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES

		Three Months Ended
		March 31,
		2009				2008
		(Unaudited)
Cash Flows from Operating Activities
Net income attributable to the Company		$	11,657			$	6,185
Adjustments to reconcile net income to net cash flow provided by operating activities:
Net income attributable to noncontrolling interests in consolidated joint ventures			297				67
Income attributable to redeemable noncontrolling interests in operating partnership			1,558				631
Depreciation and amortization			41,419				46,326
Equity in earnings of unconsolidated joint venture			(604	)			(526	)
Distributions of earnings from unconsolidated joint venture			233				—
Income from derivatives			(10,767	)			(296	)
Gain on sales of properties			—				(889	)
Amortization of discounts, deferred loan costs and deferred income on notes receivable			(2,968	)			(102	)
Amortization of loan costs			2,058				1,815
Write-off of loan costs, premiums and exit fees			(930	)			(1,862	)
Unrealized gain on derivatives			(18,032	)			(4,049	)
Stock-based compensation			1,556				1,609
Changes in operating assets and liabilities –
Restricted cash			4,806				6,137
Accounts receivable and inventories			(3,705	)			(11,779	)
Prepaid expenses and other assets			1,605				1,938
Accounts payable and accrued expenses			7,852				(11,092	)
Other liabilities			(3,654	)			(6,798	)
Net cash provided by operating activities			32,381				27,315
Cash Flows from Investing Activities
Acquisitions/originations of notes receivable			—				(39,530	)
Proceeds from payments of notes receivable			—				16,165
Investment in unconsolidated joint venture			—				(17,801	)
Improvements and additions to hotel properties			(19,759	)			(32,645	)
Proceeds from sales of discontinued operations			—				79,159
Net cash (used in) provided by investing activities			(19,759	)			5,348
Cash Flows from Financing Activities
Borrowings on indebtedness and capital leases			67,800				75,000
Repayments of indebtedness and capital leases			(49,446	)			(61,363	)
Payments of deferred loan costs			(1,458	)			—
Contributions from noncontrolling interests in consolidated joint ventures			156				137
Payments of dividends			(6,285	)			(35,031	)
Payments for derivatives			(8,611	)			(4,576	)
Cash income from derivatives			10,143				—
Repurchases of treasury stock			(16,157	)			(4,594	)
Repurchases of preferred stock			(10,656	)			—
Other			—				53
Net cash used in financing activities			(14,514	)			(30,374	)
Effect of foreign currency exchange rate on cash			—				(136	)
Net (decrease) increase in cash and cash equivalents			(1,892	)			2,289
Cash and cash equivalents at beginning of year			241,597				92,271
Cash and cash equivalents at end of period		$	239,705			$	94,424
Supplemental Cash Flow Information
Interest paid		$	30,788			$	44,174
Income taxes paid (refunded)		$	29			$	(442	)
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

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 “the Company,” “we,” “us” or “our” mean Ashford Hospitality Trust, Inc. and all entities included in its consolidated financial statements.

     As of March 31, 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 March 31, 2009, we also wholly owned $215.8 million of mezzanine or first-mortgage loans receivable. In addition, at March 31, 2009, we had a 25% ownership in $76.6 million of mezzanine loans 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 March 31, 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 March 31, 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. Montgomery J. Bennett, our Chief Executive Officer. As of March 31, 2009, Remington Lodging managed 40 of our 103 hotel properties, while third-party management companies managed the remaining 63 hotel properties. Beginning April 1, 2009, Remington Lodging manages 44 of the 103 hotel properties, while third-party management companies manage the remaining 59 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.

     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 March 31, 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 first quarters of 2009 and 2008 ended March 27 and March 21, 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 and 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 establish an allowance for losses by recording an impairment charge for the amount that the property’s net book value exceeds its fair value. To date, no such impairment charges have been recorded.

     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 such 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 accruing interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is past due and unpaid interest accrued is reversed.

     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 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 to 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 such 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.

     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 income for any shortfall. Our assessment of impairment is based on considerable judgment and estimates.

     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. Asset management fees, representing primarily asset management services performed on behalf of a related party (including services such as risk management and insurance procurement, tax assistance, franchise agreements, equipment leases negotiations, monitoring loan covenants compliance, capital and operating budgets preparation, and property litigation management), 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 to hedge our asset cash flows. We also use non-hedge derivatives 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. 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 in the consolidated balance sheets and 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 hedges and qualify as fair value 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. Net income attributable to noncontrolling interests in our consolidated joint ventures is reported as a deduction from net income, and we reclassified prior year amounts to reflect this requirement. The adoption of this standard had no effect on our basic and diluted earnings per share. The carrying value of the noncontrolling interests in the operating partnership is based on the accumulated historical cost as the accumulated historical cost ($108.6 million at March 31, 2009) is greater than the redemption value ($22.2 million at March 31, 2009) prescribed by EITF Topic D-98.

     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.

     Recently Issued Accounting Standards – In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” effective for interim reporting periods ending after June 15, 2009. FSP FAS 107-1 and APB 28-1 require disclosures about fair values of financial instruments for interim reporting periods. We do not expect the adoption of this FSP would have a material impact on our financial position and results of operations. However, additional disclosures will be required.

     In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. This statement provides guidance for estimating fair value in accordance with FASB Statement No. 157, “Fair Value Measurements,” when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. We do not expect the adoption of this FSP will have a material impact on our financial position and results of operations.

     Reclassifications – Certain amounts in the consolidated financial statements as of December 31, 2008 and for the three months ended March 31, 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 financial statements for the three months ended March 31, 2008 have been reclassified to reflect the hotel properties disposed of subsequent to March 31, 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

     Interest Rate Derivative Transaction – In March 2009, we entered into a one-year “flooridor” with a major financial institution for the period commencing December 14, 2009 and ending December 13, 2010. The “flooridor” has a LIBOR strike rate of 0.75% on a $3.6 billion notional amount. The flooridor is related to the $1.8 billion interest rate floor arrangement we entered into on March 13, 2008 and effectively funds our obligations under the interest rate floor while LIBOR remains between 1.25% and 0.75%. Under the flooridor, the counterparties will pay us the interest on the notional amount when the interest rates are below the original floor of 1.25% and above the new floor of 0.75%. The upfront cost of this flooridor was $8.5 million. In addition, we purchased a $60.8 million notional amount interest rate cap in conjunction with the refinancing of a mortgage loan described below.

     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 three months ended March 31, 2009, we have purchased 11.7 million shares of our common stock, 697,000

shares of the Series A preferred stock and 727,000 shares of the Series D preferred stock for a total price of $26.8 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 March 31, 2009 and December 31, 2008 (in thousands):

		March 31,				December 31,
		2009				2008
Land		$	531,336			$	531,336
Buildings and improvements			3,073,581				3,065,744
Furniture, fixtures and equipment			371,455				359,397
Construction in progress			10,248				11,121
Total cost			3,986,620				3,967,598
Accumulated depreciation			(440,687	)			(399,383	)
Investment in hotel properties, net		$	3,545,933			$	3,568,215

5. Notes Receivable

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

		March 31,				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			18,200				18,200
Mezzanine loan secured by 105 hotel properties, matures April 2010, with two one-year extension options at an interest rate of LIBOR plus 5%, with interest-only payments through maturity (1)			25,694				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			7,000				7,000
Mezzanine loan secured by one hotel property, matures July 2009, with two one-year extension options, at an interest rate of LIBOR plus 5.75%, with interest-only payments through maturity			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 (2)			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			33,521				33,445
Mezzanine loan with principal balance of $164.0 million secured by 681 extended-stay hotel properties, matures June 2009, with three one-year extension options, at an interest rate of LIBOR plus 2.5%, with interest-only payments through maturity			109,272				106,376
			215,743				212,771
Deferred loan costs, net			40				44
Total notes receivable		$	215,783			$	212,815
Weighted average effective interest rate			11.7	%			16.5	%

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

     We review our mezzanine loans for impairment individually. The principal and accrued interest payments were not made on the $18.2 million junior participation note receivable since October 2008. In accordance with our accounting policy, we discontinued accruing interest on this note. The underlying hotel property in Nevis suffered significant damage by hurricane Omar. The servicer on this loan is in the process of filing a significant insurance claim.

     In addition, the interest payments for the months of March and April 2009 was not made on the $7.1 million junior participation note receivable secured by a hotel property in La Jolla, California. According to our accounting policy, we have ceased accruing interest and related amortization of discount and fees on this note. 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 with regard to potential workout solutions. We performed impairment tests on our

notes receivable at March 31, 2009. Based on our assessment and judgment of the impairment tests, no additional reserve for loan losses have been recorded for our notes receivable for the three months ended March 31, 2009.

     The $164.0 million principal amount mezzanine loan secured by 681 extended stay hotel properties was purchased at a significant discount which is being amortized over the life of the loan including extension periods. As of March 31, 2009, the debt service requirements were met. At March 31, 2009, it was our belief we will receive the full amount of the $164.0 million principal payment and we determined to record the full amount of the discount amortization. As a result, we recognized discount amortization of $2.9 million for the three months ended March 31, 2009. The determination was based on the analysis that requires management’s judgment and estimates. Any changes in estimates could have a material impact on our financial statements.

6. Investment in Unconsolidated Joint Venture

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

		March 31,				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		$	19,141			$	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			(2,033	)			(1,800	)
Equity in earnings since inception before discounts amortization and impairment charge			2,279				2,003
Total		$	19,493			$	19,122

7. Assets Held for Sale and Discontinued Operations

     The following table summarizes the operating results of the discontinued operations for the three months ended March 31, 2008 ($ in thousands):

Number of properties:
Properties classified as held for sale at end of period			7
Properties sold during the period			3
Total properties included in discontinued operations			10
Results of operations:
Operating revenues		$	35,576
Operating expenses			(29,094	)
Operating income			6,482
Gain on sales of properties			889
Depreciation and amortization			(3,339	)
Interest expense and amortization of loan costs			(1,721	)
Write-off of loan costs, premiums and exit fees			1,862
Income from discontinued operations, net of taxes			4,173
Income taxes			(72	)
Income from discontinued operations attributable to noncontrolling interests in operating partnership			(301	)
Income from discontinued operations attributable to controlling interest		$	3,800

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

8. Indebtedness

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

		March 31,				December 31,
		2009				2008
Mortgage loan secured by 25 hotel properties, matures between July 1, 2015 and February 1, 2016, at an average fixed interest rate of 5.42%		$	455,115			$	455,115
Mortgage loan secured by 16 hotel properties, matures between December 11, 2014 and December 11, 2015, at an average fixed interest rate of 5.73%			211,475				211,475
Mortgage loan secured by 28 hotel properties, matures April 11, 2017, at an average fixed interest rate of 5.95%			928,465				928,465
Loan secured by 10 hotel properties, matures May 9, 2009, at an interest rate of LIBOR (1) plus 1.65%, with three one-year extension options (2)			167,202				167,202
Credit facility secured by mezzanine notes receivable, matures April 9, 2010, at an interest of LIBOR (1) plus a range of 2.75% to 3.5%, depending on the indebtedness-to-value ratio, with two one-year extension options			250,000				250,000
Mortgage loan secured by one hotel property, matures December 1, 2017, at interest rate of 7.39%, with a remaining premium of $1.4 million (3)			—				48,790
Mortgage loan secured by one hotel property, matures December 8, 2016, at an interest rate of 5.81%			101,000				101,000
Mortgage loan secured by five hotel properties, matures December 11, 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 1, 2011, at an interest rate of LIBOR (1) plus 2%			19,740				19,740
Mortgage loan secured by one hotel property, matures January 1, 2011, at an interest rate of 8.32%			5,939				5,966
Mortgage loan secured by one hotel property, matures January 1, 2023, at an interest rate of 7.78%			5,567				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 31, 2010, at an interest rate of 5.6%			29,262				29,396
Mortgage loan secured by three hotel properties, matures April 5, 2011, at an interest rate of 5.47%			66,035				66,420
Mortgage loan secured by four hotel properties, matures March 1, 2010, at an interest rate of 5.95%			75,000				75,000
Mortgage loan secured by two hotel properties, matures August 8, 2011 at an interest rate of LIBOR (1) plus 2.75%, with two one-year extension options			158,600				159,000
Mortgage loan secured by one hotel property, matures September 9, 2010, at an interest rate of LIBOR (1) plus 3.75%, with two one-year extension options			55,000				55,000
Mortgage loan secured by one hotel property, matures February 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%			7,000				—
Total		$	2,807,383			$	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%.

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 months ended March 31, 2009 and 2008 (in thousands, except per share amounts):

		Three Months Ended
		March 31,
		2009				2008
Income from continuing operations attributable to the Company		$	11,657			$	2,385
Less: Preferred dividends			(4,830	)			(7,018	)
Income (loss) from continuing operations attributable to common shareholders			6,827				(4,633	)
Income from discontinued operations attributable to common shareholders			—				3,800
Net income (loss) attributable to common shareholders		$	6,827			$	(833	)
Weighted average common shares outstanding			80,530				118,855
Income per share – Basic and Diluted:
Income (loss) from continuing operations attributable to common shareholders		$	0.08			$	(0.04	)
Income from discontinued operations attributable to common shareholders			—				0.03
Net income (loss) attributable to common shareholders		$	0.08			$	(0.01	)

     Due to the anti-dilutive effect, the computation of diluted income (loss) per share does not reflect the adjustments for the following items for the three months ended March 31, 2009 and 2008 (in thousands):

		Three Months Ended
		March 31,
		2009				2008
Income from continuing operations attributable to common shareholders does not reflect:
Dividends to Preferred B-1 shares		$	1,042			$	1,564
Redeemable noncontrolling interests in operating partnership			1,558				330
Total		$	2,600			$	1,894
Weighted average diluted shares does not reflect:
Number of shares from assumed conversion of Preferred B-1 shares			7,448				7,448
Assumed conversion of weighted average outstanding operating partnership units			13,438				13,463
Incremental weighted dilutive shares from restricted stock awards			—				4
Total			20,886				20,915

10. Derivatives and Hedging Activities

     We are exposed to certain risks arising from both our business operations and economic conditions. 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 addition to the interest rate derivatives we entered into in 2008, in March 2009, we entered into a one-year “flooridor” with a major financial institution for the period commencing December 14, 2009 and ending December 13, 2010. The flooridor has a LIBOR strike rate of 0.75% on a $3.6 billion notional amount and is a non-hedge designated derivative. The flooridor is related to the $1.8 billion interest rate floor arrangement we entered into on March 13, 2008 and effectively funds our obligations

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

under the interest rate floor when LIBOR remains between 1.25% and 0.75%. Under the flooridor, the counterparties will pay us the interest on the notional amount when the interest rates are below the original floor of 1.25% and above the new floor of 0.75%. The upfront cost of this flooridor was $8.5 million.

     All derivatives are recorded at fair value 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 in the consolidated balance sheets and 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 $265,000 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 an agreement with a derivative counterparty that incorporates the loan covenant provisions of our senior credit facility with the derivative counterparty 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 March 31, 2009, we are in compliance with all the covenants under the senior credit facility. At March 31, 2009, the fair value of derivatives related to this agreement was an asset of $81.2 million.

     The fair value of our non-hedged designated interest rate derivatives at March 31, 2009 and the effects of these derivatives in the consolidated statement of operations for the three months ended March 31, 2009 are as follows ($ in thousands):

																						Interest
														Fair				Gain or				Savings
														Value				(Loss)				Or (Cost)
Derivative		Notional				Strike								Asset/				Recognized				Recognized
Type		Amount				Rates				Maturity				(Liability)				In Income				In Income
Interest rate swap		$	1,800,000			Pays LIBOR + 2.639%, receives 5.84%					2013			$	106,751			$	7,545			$	11,962
Interest rate cap		$	1,000,000				3.75	%			2011				256				(502	)			—
Interest rate cap		$	800,000				3.75	%			2009				—				—				—
Interest rate floor.		$	1,800,000				1.25	%			2013				(7,439	)			9,728				(3,178	)
Interest rate flooridor		$	1,800,000				1.25% – 0.75	%			2009				5,522				(196	)			1,983
Interest rate flooridor		$	3,600,000				1.25% – 0.75	%			2010				9,909				1,459				—
Interest rate cap		$	35,000				6.25	%			2009				—				—				—
Interest rate cap		$	375,036				6.00	%			2009				—				—				—
Total														$	114,999	(1)		$	18,034	(2)		$	10,767	(3)

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

     The fair value of our hedge-designated interest rate derivatives at March 31, 2009 and the effects of these derivatives in the consolidated statement of operations for the three months ended March 31, 2009 are as follows ($ in thousands):

																						Gain
																						Reclassified
																						From				Loss
														Fair								Accumulated				Recognized
														Value				Loss				OCI into				In Income for
Derivative		Notional				Strike								Asset/				Recognized				Interest				Ineffective
Type		Amount				Rates				Maturity				(Liability)				In OCI				Expense				Portion
Interest rate cap		$	212,000				6.25	%			2009			$	—			$	—			$	33			$	—
Interest rate cap		$	160,000				5.00	%			2010				1				(6	)			1				—
Interest rate cap		$	160,000				5.00	%			2011				43				(34	)			—				(2	)
Interest rate cap		$	55,000				5.00	%			2010				1				(2	)			—				—
Interest rate cap		$	60,800				4.81	%			2012				42				(119	)			—				—
Total														$	87			$	(161	)		$	34			$	(2	)(1)

     The fair values of interest rate derivatives are determined using the market standard methodology of netting the discounted future fixed cash receipts/payments and the discounted expected variable cash payments/receipts. The variable cash payments/receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fell below the strike rate of the floors or rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the floor (cap) are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities (the “Level 2” inputs that are observable at commonly quoted intervals, other than quoted prices). We also incorporate credit valuation adjustments (the “Level 3” inputs that are unobservable typically based on our own assumptions, as there is little, if any, related market activity) to appropriately reflect both our own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of non-performance risk, we have considered the impact of netting any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

     We have determined that when a majority of the inputs used to value our derivatives fall within Level 2 of their value hierarchy, the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. However, when the valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counter-parties, which are significant (10% or more) to the overall valuation of our derivatives, the derivative valuations in their entirety are classified in Level 3 of the fair value hierarchy. For the non-hedge designated interest rate floor valuation and the hedge designated interest rate cap valuation, the Level 3 input relating to the credit spreads represented more than 10% of the fair value at March 31, 2009 and December 31, 2008, which we consider to be significant to the overall valuation of the respective derivatives; therefore, the fair values of these derivatives are reported as Level 3 valuation in their entirety.

     The following table presents our assets and liabilities measured at fair value on a recurring basis as of March 31, 2009 and December 31, 2008, aggregated by the level in the fair value hierarchy within which measurements fall (in thousands):

		March 31, 2009												December 31, 2008
		Level 2				Level 3				Total				Level 2				Level 3				Total
Assets
Non-hedge derivatives:
Interest rate swap		$	106,751			$	—			$	106,751			$	99,206			$	—			$	99,206
Interest rate cap			256				—				256				759				—				759
Interest rate flooridor			15,431				—				15,431				5,718				—				5,718
Hedge derivatives:
Interest rate cap			87				—				87				—				—				—
Subtotal			122,525				—				122,525				105,683				—				105,683
Liabilities
Non-hedge derivatives:
Interest rate floor			—				(7,439	)			(7,439	)			—				(17,168	)			(17,168	)
Hedge derivatives:
Interest rate cap			—				—				—				—				88				88
Subtotal			—				(7,439	)			(7,439	)			—				(17,080	)			(17,080	)
Net		$	122,525			$	(7,439	)		$	115,086			$	105,683			$	(17,080	)		$	88,603

     The reconciliation of the beginning and ending balances of the derivatives that were measured using Level 3 inputs is as follows (in thousands):

		Three Months Ended
		March 31,
		2009				2008
Balance at beginning of period		$	(17,080	)		$	—
Purchases			—				4,676
Unrealized gain included in earnings			9,728				7,245
Transferred out of Level 3			(87	)			—
Balance at end of period		$	(7,439	)		$	11,921

11. Capital Stock and Stock-Based Compensation

      Stock Repurchases – 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 three months ended March 31, 2009, we have repurchased 11.7 million shares of our common stock, 697,000 shares of the Series A preferred stock and 727,000 shares of the Series D preferred stock for a total price of $26.8 million.

      Stock-Based Compensation – During the three months ended March 31, 2009 and 2008, we recognized compensation expense of $1.6 million related to our stock-based compensation plan. As of March 31, 2009, the unamortized amount of the unvested shares of restricted stock was $5.4 million and will be amortized over a period of 2.4 years.

     Dividends – A summary of dividends declared for the three months ended March 31, 2009 and 2008 is as follows (in thousand):

		Three Months Ended
		March 31,
		2009				2008
Common stock related:
Common shares		$	—			$	25,142
Common units			—				2,036
Class B units			697				697
Long-term Incentive Partnership units			—				222
Preferred stock:
Series A preferred stock			795				1,229
Series B-1 preferred stock			1,042				1,564
Series D preferred stock			2,993				4,225
Total dividends declared		$	5,527			$	35,115

     Effective with the fourth quarter ended December 31, 2008, in conjunction with the credit facility amendment, our Board of Directors suspended the common stock dividend. We expect to distribute the minimum dividend required to maintain our REIT status in 2009, which is likely to be determined, if necessary, in the fourth quarter of 2009. We may elect to pay dividends on our common stock in cash or a combination of cash and shares of common stock permitted under federal income tax laws governing REIT distribution requirements.

12. Noncontrolling Interests

     Redeemable noncontrolling interests in the operating partnership represents the limited partners’ proportionate share of equity in earnings/losses of the operating partnership, which is an allocation of net income attributable to the common shareholders based on the weighted average ownership percentage of these limited partners’ common unit holdings throughout the period plus distributions paid to these limited partners’ Class B unit holdings. Redeemable noncontrolling interests in operating partnership at March 31, 2009 and December 31, 2008 were $108.6 million and $107.5 million, which represented ownership of 16.1% and 14.3% in our operating partnership, respectively. Net income attributable to these redeemable noncontrolling interests was $1.6 million and $631,000 for the three months ended March 31, 2009 and 2008, respectively.

     Noncontrolling interests in consolidated joint ventures at March 31, 2009 and December 31, 2008 were $19.8 million and $19.4 million, respectively, which represented ownership ranging from 11% to 25% of six hotel properties held by three joint ventures and is reported in equity in the consolidated balance sheets. Net income attributable to these noncontrolling interests was $297,000 and $67,000 for the three months ended March 31, 2009 and 2008, respectively.

13. Commitments and Contingencies

     Restricted Cash – Under certain management and debt agreements existing at March 31, 2009, we escrow payments required for insurance, real estate taxes, and debt service. In addition, for certain properties based on the terms of the underlying debt agreement, we escrow 4% to 6% of gross revenue for capital improvements.

     Franchise Fees – Under franchise agreements existing at March 31, 2009, we pay franchisor royalty fees between 2.5% and 6% of gross room revenue as well as fees for marketing, reservations, and other related activities aggregating between 1% and 3.75% of gross room revenue. These franchise agreements expire from 2011 through 2027. When a franchise term expires, the franchisor has no obligation to renew the franchise. A franchise termination could have a material adverse effect on the operations or the underlying value of the affected hotel due to loss of associated name recognition, marketing support, and centralized reservation systems provided by the franchisor. A franchise termination could also have a material adverse effect on cash available for distribution to shareholders. In addition, if we terminate a franchise prior to its expiration date, we may be liable for up to three times the average annual franchise fees incurred for that property.

     For the three months ended March 31, 2009 and 2008, we incurred franchise fees of $5.9 million and $7.1 million, respectively, which are included in indirect hotel operating expenses in the accompanying consolidated statements of operations.

     Management Fees – Under management agreements existing at March 31, 2009, we pay a) monthly property management fees equal to the greater of $10,000 (CPI adjusted) or 3% of gross revenues, or in some cases 2% to 8.5% of gross revenues, as well as annual incentive management fees, if applicable, b) market service fees on approved capital improvements, including project management fees of up to 4% of project costs, for certain hotels, and c) other general fees at current market rates as approved by our independent directors, if required. These management agreements expire from 2011 through 2029, with renewal options. If we terminate a management agreement prior to its expiration, we may be liable for estimated management fees through the remaining term, liquidated damages or, in certain circumstances, we may substitute a new management agreement.

     Litigation – We are currently subject to litigation arising in the normal course of our business. In the opinion of management, none of these lawsuits or claims against us, either individually or in the aggregate, is likely to have a material adverse effect on our business, results of operations, or financial condition. In addition, management believes we have adequate insurance in place to cover any such significant litigation.

14. Segment Reporting

     We operate in two business segments within the hotel lodging industry: direct hotel investments and hotel financing. Direct hotel investments refer to owning hotels through either acquisition or new development. We report operating results of direct hotel investments on an aggregate basis as substantially all of our hotel investments have similar economic characteristics and exhibit similar long-term financial performance. Hotel financing refers to owning subordinate hotel-related mortgages through acquisition or origination. We do not allocate corporate-level accounts to our operating segments, including corporate general and administrative expenses, non-operating interest income, interest expense, income tax expense/benefit, and noncontrolling interests.

     For the three months ended March 31, 2009 and 2008, financial information related to our reportable segments was as follows (in thousands):

		Direct Hotel				Hotel
		Investments				Financing				Corporate				Consolidated
Three Months Ended March 31, 2009:
Total revenue		$	233,480			$	6,215			$	—			$	239,695
Total hotel operating expenses			157,128				—				—				157,128
Property taxes, insurance and other			14,390				—				—				14,390
Depreciation and amortization			41,419				—				—				41,419
Corporate general and administrative			—				—				6,846				6,846
Total expenses			212,937				—				6,846				219,783
Operating income (loss)			20,543				6,215				(6,846	)			19,912
Equity in earnings of unconsolidated joint venture			—				604				—				604
Interest income			—				—				105				105
Other income			—				—				10,698				10,698
Interest expense and amortization of loan costs			—				—				(36,548	)			(36,548	)
Write-off of loan costs, premiums and exit fees			—				—				930				930
Unrealized gain on derivatives			—				—				18,032				18,032
Income (loss) from continuing operations before income taxes and redeemable noncontrolling interests			20,543				6,819				(13,629	)			13,733
Income tax expense			—				—				(221	)			(221	)
Income from continuing operations attributable to redeemable noncontrolling interests in operating partnership			—				—				(1,558	)			(1,558	)
Net income (loss)			20,543				6,819				(15,408	)			11,954
Less: Net income attributable to noncontrolling interests in consolidated joint ventures			—				—				(297	)			(297	)
Net income (loss) attributable to the Company		$	20,543			$	6,819			$	(15,705	)		$	11,657
As of March 31, 2009:
Total assets		$	3,763,813			$	237,465			$	340,572			$	4,341,850