UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2008

OR

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock		New York Stock Exchange
Preferred Stock, Series A		New York Stock Exchange
Preferred Stock, Series D		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes     þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes     þ No

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

As of June 30, 2008, the aggregate market value of 115,706,280 shares of the registrant’s common stock held by non-affiliates was approximately $534,563,000.

As of February 25, 2009, the registrant had 79,241,930 shares of common stock issued and outstanding.

Portions of the registrant’s definitive Proxy Statement pertaining to the 2009 Annual Meeting of Stockholders are incorporated herein by reference into Part III of this Form 10-K.

 

 

ASHFORD HOSPITALITY TRUST, INC.
YEAR ENDED DECEMBER 31, 2008
INDEX TO FORM 10-K

		Page
PART I
Item 1. Business			3
Item 1A. Risk Factors			11
Item 1B. Unresolved Staff Comments			27
Item 2. Properties			27
Item 3. Legal Proceedings			29
Item 4. Submission of Matters to a Vote of Security Holders			29
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Maters and Issuer Purchases of Equity Securities			29
Item 6. Selected Financial Data			32
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
Item 7A. Quantitative and Qualitative Disclosure About Market Risk			47
Item 8. Financial Statements and Supplementary Data			49
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			87
Item 9A. Controls and Procedures			87
Item 9B. Other Information			89
PART III
Item 10. Directors, Executive Officers and Corporate Governance			89
Item 11. Executive Compensation			89
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			89
Item 13. Certain Relationships and Related Transactions, and Director Independence			89
Item 14. Principal Accounting Fees and Services			89
PART IV
Item 15. Exhibits, Financial Statement Schedules			89
SIGNATURES
EX-10.3.1.1
EX-10.5.2
EX-10.5.4
EX-10.5.6
EX-10.30.1
EX-10.30.2
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-31.3
EX-32.1
EX-32.2
EX-32.3

     This Annual Report is filed by Ashford Hospitality Trust, Inc., a Maryland corporation (the “Company”). Unless the context otherwise requires, all references to the Company include those entities owned or controlled by the Company. 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.

FORWARD-LOOKING STATEMENTS

     Throughout this Form 10-K and documents incorporated herein by reference, we make forward-looking statements that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans, and objectives. Statements regarding the following subjects are forward-looking by their nature:

	•		our business and investment strategy;
	•		our projected operating results;
	•		completion of any pending transactions;
	•		our ability to obtain future financing arrangements;
	•		our understanding of our competition;
	•		market trends;
	•		projected capital expenditures; and
	•		the impact of technology on our operations and business.

     Such forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance taking into account all information currently known to us. These beliefs, assumptions, and expectations can change as a result of many potential events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, results of operations, plans, and other objectives may vary materially from those expressed in our forward-looking statements. Additionally, the following factors could cause actual results to vary from our forward-looking statements:

	•		factors discussed in this Form 10-K, including those set forth under the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and “Properties;”
	•		general volatility of the capital markets and the market price of our common stock;
	•		changes in our business or investment strategy;
	•		availability, terms, and deployment of capital;
	•		availability of qualified personnel;
	•		changes in our industry and the market in which we operate, interest rates, or the general economy; and
	•		the degree and nature of our competition.

     When we use words or phrases such as “will likely result,” “may,” “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” or similar expressions, we intend to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

PART I

Item 1. Business

GENERAL

     Ashford Hospitality Trust, Inc. and subsidiaries is a self-advised real estate investment trust (“REIT”), which commenced operations in August 2003 with six hotel properties (the “Initial Properties”) when it completed its initial public offering and concurrently consummated certain other formation transactions. We own our lodging investments and conduct our business through Ashford Hospitality Limited Partnership, our operating partnership. Ashford OP General Partner LLC, a wholly-owned subsidiary of the REIT, serves as the sole general partner of our operating partnership.

     We began investing in mezzanine loans in November 2003 and originated our first mortgage loan secured by a hotel property in 2004. During 2004, we acquired 15 hotel properties in seven transactions. In 2005, we closed three purchase transactions, resulting in the acquisition of 43 hotel properties. In 2006, we acquired an additional nine hotel properties in five transactions.

     In April 2007, we acquired a 51-property hotel portfolio (“CNL Portfolio”) from CNL Hotels and Resorts, Inc. (“CNL”). Pursuant to the purchase agreement, we acquired 100% of 33 properties and interests ranging from 70% to 89% in 18 properties through existing joint ventures. In connection with the CNL transaction, we acquired the 15% remaining joint venture interest in one hotel property not owned by CNL at the acquisition and acquired in May 2007 two other hotel properties previously owned by CNL (collectively, the “CNL Acquisition”). In December 2007, we completed an asset swap with Hilton Hotels Corporation (“Hilton”), whereby we surrendered our majority ownership interest in two hotel properties in exchange for Hilton’s minority ownership interest in nine hotel properties. Net of subsequent sales and the asset swap, 43 of these hotels were included in our hotel property portfolio at December 31, 2008.

     As of December 31, 2008, we owned 97 hotel properties directly and six hotel properties through equity investments with joint venture partners, which represented 23,255 total rooms, or 22,913 net rooms excluding those attributable to joint venture partners. Our hotels are operated under the widely recognized upper upscale brands of Crown Plaza, Hilton, Hyatt, Marriott, Sheraton and Westin. All these hotels are located in the United States. As of December 31, 2008, we also owned $212.8 million of mezzanine or first-mortgage loans receivable. In addition, at December 31, 2008, we had a 25% ownership in a joint venture which had $75.2 million of mezzanine loans. See Notes 3 and 6 of Notes to Consolidated Financial Statements included in Item 8.

     For federal income tax purposes, we elected to be treated as a REIT, which imposes limitations related to operating hotels. As of December 31, 2008, 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, such 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. As of December 31, 2008, one hotel property was leased on a triple-net lease basis to a third-party tenant who operates the hotel and we only recognize rental income on this hotel property.

     We do not operate any of our hotels directly; instead we employ hotel management companies to operate them for us under management contracts or operating leases. Remington Lodging & Hospitality, L.P. and Remington Management, L.P. (collectively, “Remington Lodging”), both primary property managers for us, are beneficially wholly owned by Mr. Archie Bennett, Jr., our Chairman, and Mr. Montgomery J. Bennett, our Chief Executive Officer. As of December 31, 2008, Remington Lodging managed 40 of our 103 hotel properties while third-party management companies managed the remaining 63 hotel properties.

SIGNIFICANT TRANSACTIONS IN 2008

     During the year ended December 31, 2008, we completed the following significant transactions:

     Investing in Mezzanine Loans — On January 22, 2008, we formed a joint venture (the “PREI JV”) with Prudential Real Estate Investors (“PREI”) to invest in structured debt and equity hotel investments in the United States. We and PREI have contributed the capital required for each mezzanine investment on a 25%/75% basis,

respectively. We are entitled to annual management and sourcing fees, reimbursement of expenses, and a promoted yield equal to a current 1.3x the venture yield subject to maximum threshold limitations, but further enhanced by an additional promote based upon a total net return to PREI. PREI’s equity is in a senior position on each investment. On February 6, 2008, PREI acquired a 75% interest in our $21.5 million mezzanine loan receivable, which we originated December 5, 2007, and is secured by two hotels maturing January 2018. Simultaneously, we and PREI capitalized the joint venture by contributing this $21.5 million mezzanine loan receivable to the joint venture. We do not control the joint venture, therefore, PREI JV is not consolidated in our financial statements. Subsequently in late 2008, as a result of this loan being in default, we provided an allowance for losses for the entire balance of the note and related deferred loan costs. See Note 6 of Notes to Consolidated Financial Statements included in Item 8.

     In addition, we completed the following mezzanine loans transactions including the loans acquired through PREI JV ($ in thousands):

												Discounted
								Original				Acquisition				Percentage of				Amount
Source		Interest Rate		Maturity		Collateral		Principal				Price				Ownership				Recorded
Company originated		LIBOR + 9%		2011		1 hotel		$	7,056			$	—				100	%		$	7,056
Company acquired		9.66%		2017		1 hotel		$	38,000			$	32,956				100	%		$	32,956
PREI JV acquired (1)		LIBOR + 2.75%		2010		29 hotels		$	84,032			$	69,904				25	%		$	17,476
Company acquired		LIBOR + 2.5%		2009		681 hotels		$	164,000			$	98,400				100	%		$	98,400

     Sales of Properties — During 2008, we completed the sale of nine hotel properties and an office building for an aggregate sales price of $437.1 million. Net proceeds from the sales were $428.5 million and a net gain of $48.5 million was recognized. We repaid a total of $251.9 million of related mortgage debt with the sales proceeds. In connection with the repayments of the debt, we wrote off unamortized loan costs of $1.8 million and debt premiums of $2.1 million.

     Debt Financing and Refinancing — During 2008, we refinanced the following debt:

	•		$73.1 million loan, scheduled to mature in 2008, secured by two hotel properties, which we refinanced with a new $53.4 million interest-only loan bearing an interest rate of LIBOR plus 2%, maturing in 2011. With a subsequent paydown in connection with the sale of one hotel property, the outstanding balance on this loan at December 31, 2008 was $19.7 million.
	•		$127.2 million loan, scheduled to mature in 2009, secured by interests in two hotel properties owned through a joint venture, which was refinanced with a new $160.0 million loan bearing an interest rate of LIBOR plus 2.75%, maturing in 2011, with two one-year extensions.

     In addition, we obtained a $55.0 million loan on a hotel property, bearing an interest rate of LIBOR plus 3.75%, maturing in 2010 with two one-year extensions. In connection with the $160.0 million refinanced loan described above and this $55.0 million loan, the lenders required us to enter interest rate cap agreements with notional amounts totaling $215.0 million to hedge the interest rate risk at a strike rate of 5.0% for two years.

     Additionally, we obtained a $65.0 million loan on another hotel property, bearing interest rate of LIBOR plus 2.5%, maturing in 2011 with two one-year extensions. Along with this refinancing, we entered into an interest rate cap with a notional amount of $52.0 million and a strike rate of 5.75% for three years. The $65.0 million loan was subsequently repaid and the $52.0 million interest rate cap was sold in connection with the sale of the hotel property securing this loan.

     Proceeds from these borrowings were used to pay for the acquisition of a $98.4 million mezzanine loan and for other general corporate purposes.

     Interest Rate Derivatives Transactions - To hedge our asset cash flows, we enter into derivative transactions with major financial institutions. In March 2008, we executed a five-year interest rate swap on $1.8 billion of fixed-rate debt at a weighted average interest rate of 5.84% for a floating interest rate of LIBOR plus 2.64%. In conjunction with the swap execution, we sold a five-year LIBOR floor notional amount of $1.8 billion at 1.25% and purchased a LIBOR cap notional amount of $1.0 billion at 3.75% for the first three years. On September 30, 2008, we entered into an additional LIBOR interest rate cap with $800 million notional amount at 3.75% effective October

14, 2008 for a one year. Subsequently in December 2008, we purchased a one-year $1.8 billion interest flooridor to bring down the LIBOR floor to 0.75%. Under the flooridor, the counterparties will pay us the interest on the $1.8 billion 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 the swap, LIBOR cap, and floor transactions was $8.8 million. The net fair value at December 31, 2008 was $88.5 million. See Notes 11 and 12 of Notes to Consolidated Financial Statements included Item 8.

     Additionally, as noted above, in connection with a $160.0 million debt refinancing and a $55.0 million new loan, we entered into three LIBOR interest rate caps with notional amounts totaling $215.0 million at 5.0% maturing in 2010 and 2011. The cost of these caps was $1.1 million. These interest rate caps are designated as cash flow hedges and had a fair value of $88,000 at December 31, 2008. In addition, in connection with a new $65.0 million financing, we purchased a LIBOR interest rate cap with a notional amount of $52.0 million at 5.75%, maturing in 2011. The cost for this cap was $123,000. The $65.0 million loan was subsequently repaid and the $52.0 million interest rate cap was sold in connection with the sale of the hotel property securing this loan.

      Authorization of Repurchases of Common and Preferred Shares and Debt — In the fourth quarter of 2007, the Board of Directors authorized a $50 million common stock repurchase program. By September 5, 2008, we had completed the repurchase of substantially all of the shares authorized under this program, and the Board of Directors authorized the repurchase of an additional $75 million of our common stock under the program. In November 2008, the Board of Directors modified the share repurchase program to include both common and preferred shares. During the year ended December 31, 2008, we repurchased 34.0 million shares of our common stock for an aggregate purchase price of $96.9 million, 114,500 shares of our Series A preferred stock and 1.6 million shares of our Series D preferred stock for an aggregate purchase price of $9.9 million.

RECENT DEVELOPMENTS

     Due to the current financial market crisis, beginning in late 2008 and continuing into 2009, we have undertaken a series of actions to manage the sources and uses of our funds in an effort to conservatively navigate through challenging market conditions while still pursuing opportunities that can create long-term shareholder value:

     Liquidity — To hedge our asset cash flows, in March 2008, we swapped $1.8 billion of fixed-rate debt for floating-rate debt at a spread of 2.64% over LIBOR with a view that interest rates would decline if RevPAR (revenue per available room) decelerated due to a slowing economy. In connection with this transaction, we purchased a three-year LIBOR cap with a notional amount of $1.0 billion at 3.75% and sold a five-year LIBOR floor with a notional amount of $1.8 billion at 1.25%. In early December 2008, we bought down the LIBOR floor to 0.75% through December 2009 to capitalize on LIBOR’s decline.

     We continue to execute aggressive cost saving measures at the property level that include payroll freezes, vendor contract renegotiation and adjustments to service levels. In addition, corporate level cost containment plans have been implemented which include reductions in overhead from staff layoffs, salary freezes, and reduced benefits and fees along with other cost saving measures.

     Credit Facility Amendments — In December 2008, we amended various terms of our credit facility with Wachovia Bank, National Association, as agent and the 10 other lenders party to that facility agreement. This facility expires in 2012 after extension. The amendments include:

	•		reducing the fixed charge coverage ratio to 1.25x effective from the date of amendment until March 31, 2011, at which time the ratio increases to 1.35x;
	•		reducing the revolver commitment level from $300 million to $250 million;
	•		reducing the maximum leverage ratio from 75% to 65%;
	•		adjusting the previous interest spread of 1.65% to 2.75% upward to a spread of 2.75% to 3.50%; and
	•		suspending the dividend payable to common stockholders through 2009, except to the extent of any minimum dividend required to maintain REIT status.

     Dividend Policy — Effective with the fourth quarter ended December 31, 2008, and in conjunction with the credit facility amendment outlined above, the 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 as permitted under federal income tax laws governing REIT distribution requirements.

     Additional Authorization of Repurchase of Shares and Prepayment of Debt — In January 2009, the Board of Directors authorized an additional $200 million repurchase plan 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.

BUSINESS STRATEGIES

     Our long-term investment strategies focus on the upscale and upper-upscale segments within the lodging industry. However, we also believe that as supply, demand, and capital market cycles change, we will be able to shift our investment strategies to take advantage of newly created lodging-related investment opportunities as they develop. Currently, we do not limit our acquisitions to any specific geographical market. While our current investment strategies are well defined, our Board of Directors may change our investment policies at any time without stockholder approval or notice.

     We intend to continue to invest in a variety of lodging-related assets based upon our evaluation of diverse market conditions. These investments may include: (i) direct hotel investments; (ii) mezzanine financing through origination or acquisition in secondary markets; (iii) first-lien mortgage financing through origination or acquisition in secondary markets; and (iv) sale-leaseback transactions.

     Our strategy is designed to take advantage of current lodging industry conditions and adjust to changes in market conditions over time. In the current market, we are focused on creating long term shareholder value, enhancing liquidity and implementing cost savings measures. Over time, our assessment of market conditions will determine asset reallocation strategies. While we seek to capitalize on favorable market fundamentals, conditions beyond our control may have an impact on overall profitability and our investment returns.

     Our business strategy of combining lodging-related equity and debt investments seeks, among other things, to:

	•		capitalize on both current yield and price appreciation, while simultaneously offering diversification of types of assets within the hospitality industry;
	•		vary investments across an array of hospitality assets to take advantage of market cycles for each asset class; and
	•		offer an attractive liquidity alternative to asset sales (through structure and tax deferral) and traditional financing (due to rate, structure, loan-to-value, and asset class).

     Our investment strategy primarily targets limited and full-service hotels in primary, secondary, and resort markets throughout the United States. To take full advantage of current and future investment opportunities in the lodging industry, we will invest according to the asset allocation strategies described below. Due to ongoing changes in market conditions, we will continually evaluate the appropriateness of our investment strategies. Our Board of Directors may change any or all of these strategies at any time without notice.

     Direct Hotel Investments — In selecting hotels to acquire, we target hotels that either offer a high current return or have the opportunity to increase in value through repositioning, capital investments, market-based recovery, or improved management practices. Our direct hotel acquisition strategy will continue to follow similar investment criteria and will seek to achieve both current income and income from appreciation. In addition, we will continue to assess our existing hotel portfolio and make strategic decisions to sell certain under-performing or non-strategic hotels that do not fit our investment strategy or criteria due to micro or macro market changes.

     Mezzanine Financing — Subordinated loans, or mezzanine loans, that we acquire or originate relate to a diverse segment of hotels with reputable managers that are located across the U.S. These mezzanine loans are secured by junior mortgages on hotels or pledges of equity interests in entities owning hotels. We intend to continue to acquire or originate mezzanine loans. Mezzanine loans that we acquire in the future may be secured by individual assets as well as cross-collateralized portfolios of assets. Although these types of loans generally have greater repayment risks than first mortgages due to the subordinated nature of the loans, we have a disciplined approach in underwriting these assets. We expect this asset class to provide us with attractive returns.

     First Mortgage Financing — From time to time, we acquire or originate junior participations in first mortgages, which we often refer to as mezzanine loans. As the dynamics in the capital markets and the hotel industry make first-mortgage investments more attractive, we intend to acquire, potentially at a discount to par, or originate loans secured by first priority mortgages on hotels. Related to commercial mortgage lenders, we may be subject to certain state-imposed licensing regulations with which we intend to comply. However, because we are not a bank or a federally chartered lending institution, we are not subject to state and federal regulatory constraints imposed on such entities. Also, we expect we will be able to offer more flexible terms than commercial lenders who contribute loans to securitized mortgage pools.

     Sale-Leaseback Transactions — To date, we have not participated in any sale-leaseback transactions. However, if the lodging industry fundamentals shift such that sale-leaseback transactions become more attractive investments, we intend to purchase hotels and lease them back to their existing hotel owners.

BUSINESS SEGMENTS

     We currently operate in two business segments within the hotel lodging industry: direct hotel investments and hotel financing. A discussion of each operating segment is incorporated by reference in Note 20 of Notes to Consolidated Financial Statements set forth in Part II, Item 8. Financial Statements and Supplementary Data.

FINANCING STRATEGY

     We utilize debt to increase returns. When evaluating our future level of indebtedness and making decisions regarding the incurrence of indebtedness, our Board of Directors considers a number of factors, including:

	•		our leverage levels across the portfolio;
	•		the purchase price of our investments to be acquired with debt financing;
	•		impact on financial covenants;
	•		the estimated market value of our investments upon refinancing; and
	•		the ability of particular investments, and our Company as a whole, to generate cash flow to cover expected debt service.

     We may incur debt in the form of purchase money obligations to the sellers of properties, publicly or privately placed debt instruments, or financing from banks, institutional investors, or other lenders. Any such indebtedness may be secured or unsecured by mortgages or other interests in our properties or mortgage loans. This indebtedness may be recourse, non-recourse, or cross-collateralized. If recourse, such recourse may include our general assets or be limited to the particular investment to which the indebtedness relates. In addition, we may invest in properties or loans subject to existing loans secured by mortgages or similar liens on the properties, or we may refinance properties acquired on a leveraged basis. We may use the proceeds from any borrowings for working capital to:

	•		purchase interests in partnerships or joint ventures;
	•		refinance existing indebtedness;

	•		finance the origination or purchase of mortgage investments; or
	•		finance acquisitions, expand, redevelop or improve existing properties, or develop new properties or other uses.

     In addition, if we do not have sufficient cash available, we may need to borrow to meet taxable income distribution requirements under the Internal Revenue Code. No assurances can be given that we will obtain additional financings or, if we do, what the amount and terms will be. Our failure to obtain future financing under favorable terms could adversely impact our ability to execute our business strategy. In addition, we may selectively pursue mortgage financing on our individual properties and mortgage investments.

DISTRIBUTION POLICY

     To maintain our qualification as a REIT, we make annual distributions to our stockholders of at least 90% of our REIT taxable income, excluding net capital gains, (which does not necessarily equal net income as calculated in accordance with generally accepted accounting principles). We have also elected to distribute 100% of our net capital gains to our stockholders rather than retain such gains which subjects the gains to income taxes at the REIT level. We may elect to pay dividends on our common stock in cash or a combination of cash and shares of common stock as permitted under federal income tax laws governing REIT distribution requirements. Distributions are authorized by our Board of Directors and declared by us based upon a variety of factors deemed relevant by our directors. No assurance can be given that our dividend policy will not change in the future. Our ability to pay distributions to our stockholders will depend, in part, upon our receipt of distributions from our operating partnership. This, in turn, may depend upon receipt of lease payments with respect to our properties from indirect, wholly-owned subsidiaries of our operating partnership and the management of our properties by our property managers. Distributions to our stockholders are generally taxable to our stockholders as ordinary income. However, since a portion of our investments are equity ownership interests in hotels, which result in depreciation and non-cash charges against our income, a portion of our distributions may constitute a tax-free return of capital. To the extent that it is consistent with maintaining our REIT status, we may maintain accumulated earnings of Ashford TRS in that entity.

     Our charter allows us to issue preferred stock with a preference on distributions. The partnership agreement of our operating partnership also allows the operating partnership to issue units with a preference on distribution. Such issuance of preferred stock or preferred units, given the dividend preference on this stock or units, could limit our ability to make a dividend distribution to our common stockholders.

COMPETITION

     The hotel industry is highly competitive and the hotels in which we invest are subject to competition from other hotels for guests. Competition is based on a number of factors, most notably convenience of location, brand affiliation, price, range of services, guest amenities or accommodations offered and quality of customer service. Competition is often specific to the individual markets in which our properties are located and includes competition from existing and new hotels. Increased competition could have a material adverse effect on the occupancy rate, average daily room rate and room revenue per available room of our hotels or may require us to make capital improvements that we otherwise would not have to make, which may result in decreases in our profitability.

     Our principal competitors include other hotel operating companies, ownership companies (including hotel REITs) and national and international hotel brands. We face increased competition from providers of less expensive accommodations, such as limited service hotels or independent owner-managed hotels, during periods of economic downturn when leisure and business travelers become more sensitive to room rates.

EMPLOYEES

     At December 31, 2008, we had 66 full-time employees. These employees perform directly or indirectly various acquisition, development, asset management, capital markets, accounting, redevelopment, and corporate management functions. None of our employees are unionized. All persons employed in day-to-day hotel operations are employees of the management companies.

ENVIRONMENTAL MATTERS

     Under various federal, state, and local laws and regulations, an owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on such property. These laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous or toxic substances. Furthermore, a person who arranges for the disposal of a hazardous substance or transports a hazardous substance for disposal or treatment from property owned by another may be liable for the costs of removal or remediation of hazardous substances released into the environment at that property. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner’s ability to sell the affected property or to borrow using the affected property as collateral. In connection with the ownership and operation of our properties, we, our operating partnership, or Ashford TRS may be potentially liable for any such costs. In addition, the value of any lodging property loan we originate or acquire would be adversely affected if the underlying property contained hazardous or toxic substances.

     Phase I environmental assessments, which are intended to identify potential environmental contamination for which our properties may be responsible, have been obtained on each of our properties. Phase I environmental assessments included:

• historical reviews of the properties,

• reviews of certain public records,

• preliminary investigations of the sites and surrounding properties,

• screening for the presence of hazardous substances, toxic substances, and underground storage tanks, and

• the preparation and issuance of a written report.

     Phase I environmental assessments did not include invasive procedures, such as soil sampling or ground water analysis. Phase I environmental assessments have not revealed any environmental liability that we believe would have a material adverse effect on our business, assets, results of operations, or liquidity, and we are not aware of any such liability. To the extent Phase I environmental assessments reveal facts that require further investigation, we would perform a Phase II environmental assessment. However, it is possible that these environmental assessments will not reveal all environmental liabilities. There may be material environmental liabilities of which we are unaware, including environmental liabilities that may have arisen since the environmental assessments were completed or updated. No assurances can be given that (i) future laws, ordinances, or regulations will not impose any material environmental liability, or (ii) the current environmental condition of our properties will not be affected by the condition of properties in the vicinity (such as the presence of leaking underground storage tanks) or by third parties unrelated to us.

     We believe our properties are in compliance in all material respects with all federal, state, and local ordinances and regulations regarding hazardous or toxic substances and other environmental matters. Neither we nor, to our knowledge, any of the former owners of our properties have been notified by any governmental authority of any material noncompliance, liability, or claim relating to hazardous or toxic substances or other environmental matters in connection with any of our properties.

INSURANCE

     We maintain comprehensive insurance, including liability, property, workers’ compensation, rental loss, environmental, terrorism, and, when available on reasonable commercial terms, flood and earthquake insurance, with policy specifications, limits, and deductibles customarily carried for similar properties. Certain types of losses (for example, matters of a catastrophic nature such as acts of war or substantial known environmental liabilities) are either uninsurable or require substantial premiums that are not economically feasible to maintain. Certain types of losses, such as those arising from subsidence activity, are insurable only to the extent that certain standard policy exceptions to insurability are waived by agreement with the insurer. We believe, however, that our properties are adequately insured, consistent with industry standards.

FRANCHISE LICENSES

     We believe that the public’s perception of quality associated with a franchisor is an important feature in the operation of a hotel. Franchisors provide a variety of benefits for franchisees, which include national advertising, publicity, and other marketing programs designed to increase brand awareness, training of personnel, continuous review of quality standards, and centralized reservation systems.

     As of December 31, 2008, we owned an interest in 103 hotels, 101 of which operated under the following franchise licenses or brand management agreements:

     Embassy Suites is a registered trademark of Hilton Hospitality, Inc.

     Doubletree is a registered trademark of Hilton Hospitality, Inc.

     Hilton is a registered trademark of Hilton Hospitality, Inc.

     Hilton Garden Inn is a registered trademark of Hilton Hospitality, Inc.

     Homewood Suites by Hilton is a registered trademark of Hilton Hospitality, Inc.

     Hampton Inn is a registered trademark of Hilton Hospitality, Inc.

     Radisson is a registered trademark of Radisson Hotels International, Inc.

     Marriott is a registered trademark of Marriott International, Inc.

     JW Marriott is a registered trademark of Marriott International, Inc.

     SpringHill Suites is a registered trademark of Marriott International, Inc.

     Residence Inn by Marriott is a registered trademark of Marriott International, Inc.

     Courtyard by Marriott is a registered trademark of Marriott International, Inc.

     Fairfield Inn by Marriott is a registered trademark of Marriott International, Inc.

     TownePlace Suites is a registered trademark of Marriott International, Inc.

     Renaissance is a registered trademark of Marriott International, Inc.

     Hyatt Regency is a registered trademark of Hyatt Corporation.

Sheraton is a registered trademark of Sheraton Hotels and Resorts, a division of Starwood Hotels and Resorts Worldwide, Inc.

Westin is a registered trademark of Westin Hotels and Resorts, a division of Starwood Hotels and Resorts Worldwide, Inc.

     Crowne Plaza is a registered trademark of InterContinental Hotels Group.

     One Ocean is a registered trademark of Remington Hotels LP.

     Our management companies, including Remington Lodging, must operate each hotel pursuant to the terms of the related franchise or brand management agreement, and must use their best efforts to maintain the right to operate each hotel as such. In the event of termination of a particular franchise or brand management agreement, our management companies must operate any affected hotels under another franchise or brand management agreement,

if any, that we enter into. We anticipate that most of the additional hotels we acquire will be operated under franchise licenses or brand management agreements as well.

     Our franchise licenses and brand management agreements generally specify certain management, operational, recordkeeping, accounting, reporting, and marketing standards and procedures with which the franchisee or brand operator must comply, including requirements related to:

	•		training of operational personnel;
	•		safety;
	•		maintaining specified insurance;
	•		types of services and products ancillary to guestroom services that may be provided;
	•		display of signage; and
	•		type, quality, and age of furniture, fixtures, and equipment included in guestrooms, lobbies, and other common areas.

SEASONALITY

     Our properties’ operations historically have been seasonal as certain properties maintain higher occupancy rates during the summer months and some during the winter months. This seasonality pattern can cause fluctuations in our quarterly lease revenue under our percentage leases. To the extent that cash flow from operations is insufficient during any quarter due to temporary or seasonal fluctuations in lease revenue, we expect to utilize other cash on hand or borrowings to make required distributions. However, we cannot make any assurances that we will make distributions in the future.

ACCESS TO REPORTS AND OTHER INFORMATION

     We maintain a website at www.ahtreit.com. On our website, we make available free-of-charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with the Securities and Exchange Commission. In addition, our Code of Business Conduct and Ethics, Code of Ethics for the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, Corporate Governance Guidelines, and Board Committee Charters are also available free-of-charge on our website or can be made available in print upon request.

     All reports filed with the Securities and Exchange Commission may also be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Further information regarding the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. In addition, all of our filed reports can be obtained at the SEC’s website at www.sec.gov.

Item 1A. Risk Factors

RISKS RELATED TO OUR BUSINESS

     In the past, events beyond our control, including an economic slowdown or downturn and terrorism, harmed the operating performance of the hotel industry generally. If these or similar events occur or continue to occur, such as the current financial crisis and general economic downturn, our operating and financial results may be harmed by declines in occupancy, average daily room rates and/or other operating revenues.

     The performance of the lodging industry has traditionally been closely linked with the performance of the general economy and, specifically, growth in the U.S. gross domestic product. A majority of our hotels are classified as upper upscale. In an economic downturn, these types of hotels may be more susceptible to a decrease in revenue, as compared to hotels in other categories that have lower room rates. This characteristic may result from the fact that upper upscale hotels generally target business and high-end leisure travelers. In periods of economic difficulties, business and leisure travelers may seek to reduce travel costs by limiting travel or seeking to reduce costs on their

trips. In addition, the terrorist attacks of September 11, 2001 had a dramatic adverse effect on business and leisure travel, and on the occupancy and average daily rate of our hotels. Future terrorist activities could have a harmful effect on both the industry and us. Likewise, the volatility in the credit and equity markets and the economic recession will continue to have an adverse effect on our business.

     Our lenders may have suffered losses related to the weakening economy and may not be able to fund our borrowings.

     Our lenders, including the lenders participating in our $250.0 million credit facility, may have suffered losses related to their lending and other financial relationships, especially because of the general weakening of the national economy and increased financial instability of many borrowers. As a result, lenders may become insolvent or tighten their lending standards, which could make it more difficult for us to borrow under our credit facility (if at any time in the future there are unfunded commitments) or to obtain other financing on favorable terms or at all. Our financial condition and results of operations would be adversely affected if we were unable to draw funds under our credit facility because of a lender default or to obtain other cost-effective financing.

     Our business strategy depends on our continued growth. We may fail to integrate recent and additional investments into our operations or otherwise manage our planned growth, which may adversely affect our operating results.

     Our business plan contemplates a period of continued growth in the next several years. We cannot assure you that we will be able to adapt our management, administrative, accounting, and operational systems, or hire and retain sufficient operational staff to successfully integrate our recent investments into our portfolio and manage any future acquisitions of additional assets without operating disruptions or unanticipated costs. Acquisitions of any additional portfolios of properties or mortgages would generate additional operating expenses that we will be required to pay. As we acquire additional assets, we will be subject to the operational risks associated with owning new lodging properties. Our failure to successfully integrate our recent acquisitions as well as any future acquisitions into our portfolio could have a material adverse effect on our results of operations and financial condition and our ability to pay dividends to stockholders.

     We may be unable to identify additional real estate investments that meet our investment criteria or to acquire the properties we have under contract.

     We cannot assure you that we will be able to identify real estate investments that meet our investment criteria, that we will be successful in completing any investment we identify, or that any investment we complete will produce a return on our investment. Moreover, we will have broad authority to invest in any real estate investments that we may identify in the future. We also cannot assure you that we will acquire properties we currently have under firm purchase contracts, if any, or that the acquisition terms we have negotiated will not change.

     Conflicts of interest could result in our management acting other than in our stockholders’ best interest.

     Conflicts of interest relating to Remington Lodging may lead to management decisions that are not in the stockholders’ best interest. The Chairman of our Board of Directors, Mr. Archie Bennett, Jr., serves as the Chairman of the Board of Directors of Remington Lodging, and our Chief Executive Officer, Mr. Montgomery Bennett, serves as the Chief Executive Officer of Remington Lodging. Messrs. Archie and Montgomery Bennett own 100% of Remington Lodging, which, as of December 31, 2008, manages 40 of our 103 properties and provides related services, including property management services and project management services.

     Messrs. Archie and Montgomery Bennett’s ownership interests in and management obligations to Remington Lodging present them with conflicts of interest in making management decisions related to the commercial arrangements between us and Remington Lodging and will reduce the time and effort they each spend managing Ashford. Our Board of Directors has adopted a policy that requires all approvals, actions or decisions to which we have the right to make under the management agreements with Remington Lodging be approved by a majority or, in certain circumstances, all of our independent directors. However, given the authority and/or operational latitude to Remington Lodging under the management agreements to which we are a party, Messrs. Archie Bennett and Montgomery Bennett, as officers of Remington Lodging, could take actions or make decisions that are not in the stockholders’ best interest or that are otherwise consistent with their obligations under the management agreement or our obligations under the applicable franchise agreements.

     Holders of units in our operating partnership, including members of our management team, may suffer adverse tax consequences upon our sale of certain properties. Therefore, holders of units, either directly or indirectly, including Messrs. Archie and Montgomery Bennett, Mr. David Brooks, our Chief Operating Officer and General Counsel, Mr. David Kimichik, our Chief Financial Officer, Mr. Mark Nunneley, our Chief Accounting Officer, and Mr. Martin L. Edelman (or his family members), one of our directors, may have different objectives regarding the appropriate pricing and timing of a particular property’s sale. These officers and directors of ours may influence us not to sell or refinance certain properties, even if such sale or refinancing might be financially advantageous to our stockholders, or to enter into tax deferred exchanges with the proceeds of such sales when such a reinvestment might not otherwise be in our best interest.

     In addition, we have agreed to indemnify contributors of properties contributed to us in exchange for operating partnership units, including (indirectly) Messrs. Archie and Montgomery Bennett, Brooks, Kimichik, Nunneley, and Edelman (or his family members), against the income tax they may incur if we dispose of the specified contributed properties. Because of this indemnification, our indemnified management team members may make decisions about selling any of these properties that are not in our stockholders’ best interest.

     We are a party to a master hotel management agreement and an exclusivity agreement with Remington Lodging, which describes the terms of Remington Lodging’s management of our hotels, as well as any future hotels we may acquire that will be managed by Remington Lodging. If we terminate the management agreement as to any of the remaining five hotels we acquired in connection with our initial public offering, which are all subject to the management agreement, because we elect to sell those hotels, we will be required to pay Remington Lodging a substantial termination fee. Remington Lodging may agree to waive the termination fee if a replacement hotel is substituted but is under no contractual obligation to do so. The exclusivity agreement requires us to engage Remington Lodging, unless our independent directors either (i) unanimously vote to hire a different manager or developer, or (ii) by a majority vote, elect not to engage Remington Lodging because they have determined that special circumstances exist or that, based on Remington Lodging’s prior performance, another manager or developer could perform the duties materially better. As the sole owners of Remington Lodging, which would receive any development, management, and management termination fees payable by us under the management agreement, Messrs. Archie and Montgomery Bennett may influence our decisions to sell, acquire, or develop hotels when it is not in the best interests of our stockholders to do so.

     In addition, Ashford Financial Corporation, an affiliate, contributed certain asset management and consulting agreements to us in connection with our initial public offering relating to management and consulting services that Ashford Financial Corporation agreed to perform for hotel property managers with respect to 27 identified hotel properties in which Messrs. Archie and Montgomery Bennett held a minority interest. Ashford Financial Corporation is 100% owned by Messrs. Archie and Montgomery Bennett. The agreements provided for annual payments to us, as the assignee of Ashford Financial Corporation, in consideration for our performance of certain asset management and consulting services. The exact amount of the consideration due to us under the remaining asset management and consulting agreements was initially contingent upon the revenue generated by the hotels underlying the asset management and consulting agreements. Ashford Financial Corporation guaranteed a minimum payment to us of $1.2 million per year, subject to adjustments based on the consumer price index, through August 2008. All of the 27 hotel properties for which we previously provided the asset management and consulting services have been sold, including our acquisition of 21 of the hotel properties in March 2005. We have collected all the guaranteed minimum payment from Ashford Financial Corporation under its guarantee.

     Tax indemnification obligations that apply in the event that we sell certain properties could limit our operating flexibility.

     If we dispose of the four remaining properties that were contributed to us in exchange for units in our operating partnership in connection with our initial public offering, we may be obligated to indemnify the contributors, including Messrs. Archie and Monty Bennett whom have substantial ownership interests, against the tax consequences of the sale. In addition, under the tax indemnification agreements, we have agreed for a period of 10 years to use commercially reasonable efforts to maintain non-recourse mortgage indebtedness in the amount of at least $16.0 million, which will allow the contributors to defer recognition of gain in connection with the contribution of the Las Vegas hotel property as part of our formation.

     Additionally, for certain periods of time, we are prohibited from selling or transferring the Marriott Crystal Gateway in Arlington, Virginia, if as a result, the entity from which we acquired the property would recognize gain for federal tax purposes.

     Further, in connection with our acquisition of certain properties in March 2005 that were contributed to us in exchange for units in our operating partnership, we agreed to certain tax indemnities with respect to 8 additional properties. If we dispose of any of these 8 properties or reduce the debt on these properties in a transaction that results in a taxable gain to the contributors, we may be obligated to indemnify the contributors or their specified assignees against the tax consequences of the transaction.

     In general, our tax indemnities will be equal to the amount of the federal, state, and local income tax liability the contributor or its specified assignee incurs with respect to the gain allocated to the contributor. The terms of the contribution agreements also generally require us to gross up tax indemnity payments for the amount of income taxes due as a result of the tax indemnity.

     While the tax indemnities generally do not contractually limit our ability to conduct our business in the way we desire, we are less likely to sell any of the contributed properties for which we have agreed to the tax indemnities described above in a taxable transaction during the applicable indemnity period. Instead, we would either hold the property for the entire indemnity period or seek to transfer the property in a tax-deferred like-kind exchange. In addition, a condemnation of one of our properties could trigger our tax indemnification obligations.

     Hotel franchise requirements could adversely affect distributions to our stockholders.

     We must comply with operating standards, terms, and conditions imposed by the franchisors of the hotel brands under which our hotels operate. Franchisors periodically inspect their licensed hotels to confirm adherence to their operating standards. The failure of a hotel to maintain standards could result in the loss or cancellation of a franchise license. With respect to operational standards, we rely on our property managers to conform to such standards. Franchisors may also require us to make certain capital improvements to maintain the hotel in accordance with system standards, the cost of which can be substantial. It is possible that a franchisor could condition the continuation of a franchise based on the completion of capital improvements that our management or Board of Directors determines is too expensive or otherwise not economically feasible in light of general economic conditions or the operating results or prospects of the affected hotel. In that event, our management or Board of Directors may elect to allow the franchise to lapse or be terminated, which could result in a change in brand franchising or operation of the hotel as an independent hotel.

     In addition, when the term of a franchise expires, the franchisor has no obligation to issue a new franchise. The loss of a franchise could have a material adverse effect on the operations or the underlying value of the affected hotel because of the loss of associated name recognition, marketing support, and centralized reservation systems provided by the franchisor. The loss of a franchise could also have a material adverse effect on cash available for distribution to stockholders.

     Future terrorist attacks similar in nature to the events of September 11, 2001 may negatively affect the performance of our properties, the hotel industry in general, and our future results of operations and financial condition.

     The terrorist attacks of September 11, 2001, their after-effects, and the resulting U.S.-led military action in Iraq substantially reduced business and leisure travel throughout the United States and hotel industry revenue per available room, or RevPAR, generally during the period following September 11, 2001. We cannot predict the extent to which additional terrorist attacks, acts of war, or similar events may occur in the future or how such events would directly or indirectly impact the hotel industry or our operating results.

     Future terrorist attacks, acts of war, or similar events could have further material adverse effects on the hotel industry at large and our operations in particular.

     Our investments will be concentrated in particular segments of a single industry.

     Our entire business is hotel related. Our current investment strategy is to acquire or develop upscale to upper-upscale hotels, acquire first mortgages on hotel properties, invest in other mortgage-related instruments such as

mezzanine loans to hotel owners and operators, and participate in hotel sale-leaseback transactions. Adverse conditions in the hotel industry will have a material adverse effect on our operating and investment revenues and cash available for distribution to our stockholders.

     We rely on third party property managers, including Remington Lodging, to operate our hotels and for a significant majority of our cash flow.

     For us to continue to qualify as a REIT, third parties must operate our hotels. A REIT may lease its hotels to taxable REIT subsidiaries in which the REIT can own up to a 100% interest. A taxable REIT subsidiary, or TRS, pays corporate-level income tax and may retain any after-tax income. A REIT must satisfy certain conditions to use the TRS structure. One of those conditions is that the TRS must hire, to manage the hotels, an “eligible independent contractor” (“EIC”) that is actively engaged in the trade or business of managing hotels for parties other than the REIT. An EIC cannot (i) own more than 35% of the REIT, (ii) be owned more than 35% by persons owning more than 35% of the REIT, or (iii) provide any income to the REIT (i.e., the EIC cannot pay fees to the REIT, and the REIT cannot own any debt or equity securities of the EIC).

     Accordingly, while we may lease hotels to a TRS that we own, the TRS must engage a third-party operator to manage the hotels. Thus, our ability to direct and control how our hotels are operated is less than if we were able to manage our hotels directly. We have entered into management agreements with Remington Lodging, which is owned 100% by Messrs. Archie and Montgomery Bennett, to manage 40 of our 103 lodging properties owned as of December 31, 2008 and have hired unaffiliated third-party property managers to manage our remaining properties. We do not supervise any of the property managers or their respective personnel on a day-to-day basis, and we cannot assure you that the property managers will manage our properties in a manner that is consistent with their respective obligations under the applicable management agreement or our obligations under our hotel franchise agreements. We also cannot assure you that our property managers will not be negligent in their performance, will not engage in other criminal or fraudulent activity, or will not otherwise default on their respective management obligations to us. If any of the foregoing occurs, our relationships with the franchisors may be damaged, we may be in breach of the franchise agreement, and we could incur liabilities resulting from loss or injury to our property or to persons at our properties. Any of these circumstances could have a material adverse effect on our operating results and financial condition, as well as our ability to pay dividends to stockholders.

     If we cannot obtain additional financing, our growth will be limited.

     We are required to distribute to our stockholders at least 90% of our REIT taxable income, excluding net capital gains, each year to continue to qualify as a REIT. As a result, our retained earnings available to fund acquisitions, development, or other capital expenditures are nominal. As such, we rely upon the availability of additional debt or equity capital to fund these activities. Our long-term ability to grow through acquisitions or development of hotel-related assets will be limited if we cannot obtain additional financing. Market conditions may make it difficult to obtain financing, and we cannot assure you that we will be able to obtain additional debt or equity financing or that we will be able to obtain it on favorable terms. We may elect to pay dividends on our common stock in cash or a combination of cash and shares of common stock as permitted under federal income tax laws governing REIT distribution requirements.

     We may be unable to generate sufficient revenue from operations to pay our operating expenses and to pay dividends to our stockholders.

     As a REIT, we are required to distribute at least 90% of our REIT taxable income each year, excluding net capital gains, to our stockholders. Our ability to make distributions may be adversely affected by the risk factors described herein. We cannot assure you that we will be able to make distributions in the future. In the event of continued or future downturns in our operating results and financial performance, unanticipated capital improvements to our hotels, or declines in the value of our mortgage portfolio, we may be unable to declare or pay distributions to our stockholders. The timing and amount of distributions are in the sole discretion of our Board of Directors, which will consider, among other factors, our financial performance, debt service obligations applicable debt covenants, and capital expenditure requirements. Effective with the fourth quarter ended December 31, 2008, and in conjunction with the credit facility amendment outlined above, the 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 as permitted under federal income tax laws governing REIT distribution requirements.

     We are subject to various risks related to our use of, and dependence on, debt.

     The interest we pay on variable-rate debt increases as interest rates increase, which may decrease cash available for distribution to stockholders. We cannot assure you that we will be able to meet our debt service obligations. If we do not meet our debt service obligations, we risk the loss of some or all of our assets to foreclosure. Changes in economic conditions or our financial results or prospects could (i) result in higher interest rates on variable-rate debt, (ii) reduce the availability of debt financing generally or debt financing at favorable rates, (iii) reduce cash available for distribution to stockholders, and (iv) increase the risk that we could be forced to liquidate assets to repay debt, any of which could have a material adverse affect on us.

     If we violate covenants in any debt agreements, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may prohibit us from borrowing unused amounts under our lines of credit, even if repayment of some or all the borrowings is not required. In any event, financial covenants under our current or future debt obligations could impair our planned business strategies by limiting our ability to borrow beyond certain amounts or for certain purposes. Our governing instruments do not contain any limitation on our ability to incur indebtedness.

     We compete with other hotels for guests. We also face competition for acquisitions of lodging properties and of desirable mortgage investments.

     The mid, upscale, and upper-upscale segments of the hotel business are competitive. Our hotels compete on the basis of location, room rates, quality, service levels, reputation, and reservation systems, among many other factors. New hotels may be constructed and these additions to supply create new competitors, in some cases without corresponding increases in demand for hotel rooms. The result in some cases may be lower revenue, which would result in lower cash available for distribution to stockholders.

     We compete for hotel acquisitions with entities that have similar investment objectives as we do. This competition could limit the number of suitable investment opportunities offered to us. It may also increase the bargaining power of property owners seeking to sell to us, making it more difficult for us to acquire new properties on attractive terms or on the terms contemplated in our business plan.

     We also compete for mortgage asset investments with numerous public and private real estate investment vehicles, such as mortgage banks, pension funds, other REITs, institutional investors, and individuals. Mortgages and other investments are often obtained through a competitive bidding process. In addition, competitors may seek to establish relationships with the financial institutions and other firms from which we intend to purchase such assets. Competition may result in higher prices for mortgage assets, lower yields, and a narrower spread of yields over our borrowing costs.

     Some of our competitors are larger than us, may have access to greater capital, marketing, and other resources, may have personnel with more experience than our officers, may be able to accept higher levels of debt or otherwise may tolerate more risk than us, may have better relations with hotel franchisors, sellers, or lenders, and may have other advantages over us in conducting certain business and providing certain services.

     We may engage in derivative transactions, which can limit our gains and increase exposure to losses.

     We may enter into hedging transactions to protect (i) us from the effects of interest rate fluctuations on floating-rate debt and (ii) our portfolio of mortgage assets from interest rate and prepayment rate fluctuations. Our hedging transactions may include entering into interest rate swap agreements or interest rate cap or floor agreements, purchasing or selling futures contracts, purchasing put and call options on securities or securities underlying futures contracts, or entering into forward rate agreements. Hedging activities may not have the desired beneficial impact on our results of operations or financial condition. No hedging activity can completely insulate us from the risks associated with changes in interest rates and prepayment rates.

     Moreover, interest rate hedging could fail to protect us or adversely affect us because, among other things:

	•		Available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought.
	•		The duration of the hedge may not match the duration of the related liability.
	•		The party owing money in the hedging transaction may default on its obligation to pay.
	•		The credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction.
	•		The value of derivatives used for hedging may be adjusted from time to time in accordance with generally accepted accounting rules to reflect changes in fair value. Downward adjustments, or “mark-to-market losses,” would reduce our stockholders’ equity.

     Hedging involves both risks and costs, including transaction costs, which may reduce our overall returns on our investments. These costs increase as the period covered by the hedging relationship increases and during periods of rising and volatile interest rates. These costs will also limit the amount of cash available for distributions to stockholders. We generally intend to hedge as much of the interest rate risk as management determines is in our best interests given the cost of such hedging transactions. The REIT qualification rules may limit our ability to enter into hedging transactions by requiring us to limit our income and assets from hedges. However, for transactions occurring after July 30, 2008 that we enter into to protect against interest rate risks on debt incurred to acquire qualified REIT assets and for which we identify as hedges for tax purposes, any associated hedging is qualifying REIT income. If we are unable to hedge effectively because of the REIT rules, we will face greater interest rate exposure than may be commercially prudent.

     We may not be able to sell our investments on favorable terms.

     We may decide to sell investments for a variety of reasons. We cannot assure you that we will be able to sell any of our investments on favorable terms or that our investments will not be sold for a loss.

RISKS RELATED TO HOTEL INVESTMENTS

     We are subject to general risks associated with operating hotels.

     Our hotels and hotels underlying our mortgage and mezzanine loans are subject to various operating risks common to the hotel industry, many of which are beyond our control, including the following:

	•		our hotels compete with other hotel properties in their geographic markets and many of our competitors have substantial marketing and financial resources;
	•		over-building in our markets, which adversely affects occupancy and revenues at our hotels;
	•		dependence on business and commercial travelers and tourism; and
	•		adverse effects of general, regional, and local economic conditions and increases in energy costs or labor costs and other expenses affecting travel, which may affect travel patterns and reduce the number of business and commercial travelers and tourists.

     These factors could adversely affect our hotel revenues and expenses, as well as the hotels underlying our mortgage and mezzanine loans, which in turn would adversely affect our ability to make distributions to our stockholders.

     We may have to make significant capital expenditures to maintain our lodging properties.

     Our hotels have an ongoing need for renovations and other capital improvements, including replacements of furniture, fixtures, and equipment. Franchisors of our hotels may also require periodic capital improvements as a

condition of maintaining franchise licenses. Generally, we are responsible for the cost of these capital improvements, which gives rise to the following risks:

	•		cost overruns and delays;
	•		renovations can be disruptive to operations and can displace revenue at the hotels, including revenue lost while rooms under renovation are out of service;
	•		the cost of funding renovations and the possibility that financing for these renovations may not be available on attractive terms; and
	•		the risk that the return on our investment in these capital improvements will not be what we expect.

     If we have insufficient cash flow from operations to fund needed capital expenditures, then we will need to borrow to fund future capital improvements.

     The hotel business is seasonal, which affects our results of operations from quarter to quarter.

     The hotel industry is seasonal in nature. Generally, occupancy rates and hotel revenues are greater in the second and third quarters than in the first and fourth quarters. This seasonality can cause quarterly fluctuations in our revenues.

     Our hotel investments may be subject to risks relating to potential terrorist activity.

     During 2008, approximately 15.5% of total revenue from 11 hotels was generated from hotels located in the Washington D.C. and Baltimore areas, areas considered vulnerable to terrorist attack. Our financial and operating performance may be adversely affected by potential terrorist activity. That may cause in the future, our results to differ materially from anticipated results.

     Our development activities may be more costly than we have anticipated.

     As part of our growth strategy, we may develop additional hotels. Hotel development involves substantial risks, including that:

	•		actual development costs may exceed our budgeted or contracted amounts;
	•		construction delays may prevent us from opening hotels on schedule;
	•		we may not be able to obtain all necessary zoning, land use, building, occupancy, and construction permits;
	•		our developed properties may not achieve our desired revenue or profit goals; and
	•		we may incur substantial development costs and then have to abandon a development project before completion.

RISKS RELATED TO INVESTMENTS IN MORTGAGES AND MEZZANINE LOANS

     Mortgage investments that are not United States government insured and non-investment grade mortgage assets involve risk of loss.

     As part of our business strategy, we originate and acquire lodging-related uninsured and non-investment grade mortgage loans and mortgage assets, including mezzanine loans. While holding these interests, we are subject to risks of borrower defaults, bankruptcies, fraud and related losses, and special hazard losses that are not covered by standard hazard insurance. Also, costs of financing the mortgage loans could exceed returns on the mortgage loans. In the event of any default under mortgage loans held by us, we will bear the risk of loss of principal and non-payment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount of the mortgage loan. To the extent we suffer such losses with respect to our investments in mortgage loans, our value and the price of our securities may be adversely affected.

     We invest in non-recourse loans, which will limit our recovery to the value of the mortgaged property.

     Our mortgage loan assets are generally non-recourse. With respect to our non-recourse mortgage loan assets, in the event of a borrower default, the specific mortgaged property and other assets, if any, pledged to secure the relevant mortgage loan, may be less than the amount owed under the mortgage loan. As to those mortgage loan assets that provide for recourse against the borrower and its assets generally, we cannot assure you that the recourse will provide a recovery in respect of a defaulted mortgage loan greater than the liquidation value of the mortgaged property securing that mortgage loan.

     Investment yields affect our decision whether to originate or purchase investments and the price offered for such investments.

     In making any investment, we consider the expected yield of the investment and the factors that may influence the yield actually obtained on such investment. These considerations affect our decision whether to originate or purchase an investment and the price offered for that investment. No assurances can be given that we can make an accurate assessment of the yield to be produced by an investment. Many factors beyond our control are likely to influence the yield on the investments, including, but not limited to, competitive conditions in the local real estate market, local and general economic conditions, and the quality of management of the underlying property. Our inability to accurately assess investment yields may result in our purchasing assets that do not perform as well as expected, which may adversely affect the price of our securities.

     Volatility of values of mortgaged properties may adversely affect our mortgage loans.

     Lodging property values and net operating income derived from lodging properties are subject to volatility and may be affected adversely by a number of factors, including the risk factors described herein relating to general economic conditions, operating lodging properties, and owning real estate investments. In the event its net operating income decreases, a borrower may have difficulty paying our mortgage loan, which could result in losses to us. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay our mortgage loans, which could also cause us to suffer losses.

     Mezzanine loans involve greater risks of loss than senior loans secured by income-producing properties.

     We make and acquire mezzanine loans. These types of mortgage loans are considered to involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property due to a variety of factors, including the loan being entirely unsecured or, if secured, becoming unsecured as a result of foreclosure by the senior lender. We may not recover some or all of our investment in these loans. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans resulting in less equity in the property and increasing the risk of loss of principal.

RISKS RELATED TO REAL ESTATE INDUSTRY

     Mortgage debt obligations expose us to increased risk of property losses, which could harm our financial condition, cash flow, and ability to satisfy our other debt obligations and pay dividends.

     Incurring mortgage debt increases our risk of property losses because defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans for which we are in default. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on the foreclosure but would not receive any cash proceeds. As a result, we may be required to identify and utilize other sources of cash for distributions to our stockholders of that income.

     In addition, our default under any one of our mortgage debt obligations may result in a default on our other indebtedness. If this occurs, our financial condition, cash flow, and ability to satisfy our other debt obligations or ability to pay dividends may be impaired.

     Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.

     Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties or mortgage loans in our portfolio in response to changing economic, financial, and investment conditions is limited. The real estate market is affected by many factors that are beyond our control, including:

	•		adverse changes in national and local economic and market conditions;
	•		changes in interest rates and in the availability, cost, and terms of debt financing;
	•		changes in governmental laws and regulations, fiscal policies, and zoning and other ordinances, and costs of compliance with laws and regulations;
	•		the ongoing need for capital improvements, particularly in older structures;
	•		changes in operating expenses; and
	•		civil unrest, acts of war, and natural disasters, including earthquakes and floods, which may result in uninsured and underinsured losses.

     We cannot predict whether we will be able to sell any property or loan for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property or loan. Because we intend to offer more flexible terms on our mortgage loans than some providers of commercial mortgage loans, we may have more difficulty selling or participating our loans to secondary purchasers than would these more traditional lenders.

     We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements. In acquiring a property, we may agree to lock-out provisions that materially restrict us from selling that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could have a material adverse effect on our operating results and financial condition, as well as our ability to pay dividends to stockholders.

     The costs of compliance with or liabilities under environmental laws may harm our operating results.

     Our properties and properties underlying our loan assets may be subject to environmental liabilities. An owner of real property, or a lender with respect to a property that exercises control over the property, can face liability for environmental contamination created by the presence or discharge of hazardous substances on the property. We may face liability regardless of:

	•		our knowledge of the contamination;
	•		the timing of the contamination;
	•		the cause of the contamination; or
	•		the party responsible for the contamination.

     There may be environmental problems associated with our properties or properties underlying our loan assets of which we are unaware. Some of our properties or the properties underlying our loan assets use, or may have used in the past, underground tanks for the storage of petroleum-based or waste products that could create a potential for release of hazardous substances. If environmental contamination exists on a property, we could become subject to strict, joint and several liabilities for the contamination if we own the property or if we foreclose on the property or otherwise have control over the property.

     The presence of hazardous substances on a property we own or have made a loan with respect to may adversely affect our ability to sell or foreclose on the property, and we may incur substantial remediation costs. The discovery of environmental liabilities attached to our properties or properties underlying our loan assets could have a material adverse effect on our results of operations, financial condition, and ability to pay dividends to stockholders.

     We have environmental insurance policies on each of our owned properties, and we intend to obtain environmental insurance for any other properties that we may acquire. However, if environmental liabilities are discovered during the underwriting of the insurance policies for any property that we may acquire in the future, we may be unable to obtain insurance coverage for the liabilities at commercially reasonable rates or at all, and we may experience losses. In addition, we generally do not require our borrowers to obtain environmental insurance on the properties they own that secure their loans from us.

     Our properties and the properties underlying our mortgage loans may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem.

     When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold at any of our properties or the properties underlying our loan assets could require us or our borrowers to undertake a costly remediation program to contain or remove the mold from the affected property. In addition, the presence of significant mold could expose us or our borrowers to liability from guests, employees, and others if property damage or health concerns arise.

     Compliance with the Americans with Disabilities Act and fire, safety, and other regulations may require us or our borrowers to make unintended expenditures that adversely impact our operating results.

     All of our properties and properties underlying our mortgage loans are required to comply with the Americans with Disabilities Act, or the ADA. The ADA requires that “public accommodations” such as hotels be made accessible to people with disabilities. Compliance with the ADA requirements could require removal of access barriers and non-compliance could result in imposition of fines by the U.S. government or an award of damages to private litigants, or both. We or our borrowers may be required to expend funds to comply with the provisions of the ADA at our hotels or hotels underlying our loan assets, which could adversely affect our results of operations and financial condition and our ability to make distributions to stockholders. In addition, we and our borrowers are required to operate our properties in compliance with fire and safety regulations, building codes, and other land use regulations as they may be adopted by governmental agencies and bodies and become applicable to our properties. We and our borrowers may be required to make substantial capital expenditures to comply with those requirements, and these expenditures could have a material adverse effect on our operating results and financial condition as well as our ability to pay dividends to stockholders.

     We may experience uninsured or underinsured losses.

     We have property and casualty insurance with respect to our properties and other insurance, in each case, with loss limits and coverage thresholds deemed reasonable by our management (and with the intent to satisfy the requirements of lenders and franchisors). In doing so, we have made decisions with respect to what deductibles, policy limits, and terms are reasonable based on management’s experience, our risk profile, the loss history of our property managers and our properties, the nature of our properties and our businesses, our loss prevention efforts, and the cost of insurance.

     Various types of catastrophic losses may not be insurable or may not be economically insurable. In the event of a substantial loss, our insurance coverage may not cover the full current market value or replacement cost of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations, and other factors might cause insurance proceeds to be insufficient to fully replace or renovate a hotel after it has been damaged or destroyed. Accordingly, there can be no assurance that (i) the insurance coverage thresholds that we have obtained will fully protect us against insurable losses (i.e., losses may exceed coverage limits); (ii) we will not incur large deductibles that will adversely affect our earnings; (iii) we will not incur losses from risks that are not insurable or that are not economically insurable; or (iv) current coverage thresholds will continue to be available at reasonable rates. In the future, we may choose not to maintain terrorism insurance on any of our properties. As a result, one or more large uninsured or underinsured losses could have a material adverse affect on us.

     Each of our current lenders requires us to maintain certain insurance coverage thresholds, and we anticipate that future lenders will have similar requirements. We believe that we have complied with the insurance maintenance requirements under the current governing loan documents and we intend to comply with any such requirements in any future loan documents. However, a lender may disagree, in which case the lender could obtain additional coverage thresholds and seek payment from us, or declare us in default under the loan documents. In the former case, we could spend more for insurance than we otherwise deem reasonable or necessary or, in the latter case, subject us to a foreclosure on hotels collateralizing one or more loans. In addition, a material casualty to one or more hotels collateralizing loans may result in (i) the insurance company applying to the outstanding loan balance insurance proceeds that otherwise would be available to repair the damage caused by the casualty, which would require us to fund the repairs through other sources, or (ii) the lender foreclosing on the hotels if there is a material loss that is not insured.

RISKS RELATED TO OUR STATUS AS A REIT

     If we do not qualify as a REIT, we will be subject to tax as a regular corporation and face substantial tax liability.

     We conduct operations so as to qualify as a REIT under the Internal Revenue Code. However, qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only a limited number of judicial or administrative interpretations exist. Even a technical or inadvertent mistake could jeopardize our REIT status. Furthermore, new tax legislation, administrative guidance, or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT.

     If we fail to qualify as a REIT in any tax year, then:

	•		we would be taxed as a regular domestic corporation, which, among other things, means being unable to deduct distributions to stockholders in computing taxable income and being subject to federal income tax on our taxable income at regular corporate rates;
	•		we would also be subject to federal alternative minimum tax and, possibly, increased state and local taxes;
	•		any resulting tax liability could be substantial and would reduce the amount of cash available for distribution to stockholders; and
	•		unless we were entitled to relief under applicable statutory provisions, we would be disqualified from treatment as a REIT for the subsequent four taxable years following the year that we lost our qualification, and, thus, our cash available for distribution to stockholders would be reduced for each of the years during which we did not qualify as a REIT.

     If we fail to qualify as a REIT, we will not be required to make distributions to stockholders to maintain our tax status. As a result of all of these factors, our failure to qualify as a REIT would impair our ability to raise capital, expand our business, and make distributions to our stockholders and would adversely affect the value of our securities.

     Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.

     Even if we remain qualified for taxation as a REIT, we may be subject to certain federal, state, and local taxes on our income and assets. For example:

	•		We will be required to pay tax on undistributed REIT taxable income.
	•		We may be required to pay the “alternative minimum tax” on our items of tax preference.
	•		If we have net income from the disposition of foreclosure property held primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay tax on that income at the highest corporate rate.
	•		If we sell a property in a “prohibited transaction,” our gain from the sale would be subject to a 100% penalty tax.

	•		Our taxable REIT subsidiary, Ashford TRS, is a fully taxable corporation and will be required to pay federal and state taxes on its income.
	•		We may continue to experience increases in our state and local income tax burden. Over the past several years, certain states have significantly changed their income tax regimes in order to raise revenues. The changes enacted that have increased our state income tax burden include the taxation of modified gross receipts (as opposed to net taxable income) and the taxation of our partnership income at the entity level. Facing mounting budget deficits, more state and local taxing authorities have indicated that they are going to revise their income tax regimes in this fashion and/or eliminate certain federally allowed tax deductions such as the REIT dividends paid deduction.

     Complying with REIT requirements may cause us to forego otherwise attractive opportunities.

     To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders, and the ownership of our stock. We may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. We may elect to pay dividends on our common stock in cash or a combination of cash and shares of common stock as permitted under federal income tax laws governing REIT distribution requirements. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

     Complying with REIT requirements may limit our ability to hedge effectively.

     The REIT provisions of the Internal Revenue Code may limit our ability to hedge mortgage securities and related borrowings by requiring us to limit our income and assets in each year from hedges, together with any other income not generated from qualified real estate assets, to no more than 25% of our gross income. In addition, we must limit our aggregate income from nonqualified hedging transactions, from our provision of services, and from other non-qualifying sources to no more than 5% of our annual gross income. As a result, we may have to limit our use of advantageous hedging techniques. However, for transactions occurring after July 30, 2008 that we enter into to protect against interest rate risks on debt incurred to acquire qualified REIT assets and for which we identify as hedges for tax purposes, any associated hedging is qualifying REIT income. This could result in greater risks associated with changes in interest rates than we would otherwise want to incur. If we were to violate the 25% or 5% limitations, we may have to pay a penalty tax equal to the amount of income in excess of those limitations multiplied by a fraction intended to reflect our profitability. If we fail to satisfy the REIT gross income tests, unless our failure was due to reasonable cause and not due to willful neglect, we could lose our REIT status for federal income tax purposes.

     Complying with REIT requirements may force us to liquidate otherwise attractive investments.

     To qualify as a REIT, we must also ensure that at the end of each calendar quarter at least 75% of the value of our assets consists of cash, cash items, government securities, and qualified REIT real estate assets. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% (25% beginning in 2009) of the value of our total securities can be represented by securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar quarter, we must correct such failure within 30 days after the end of the calendar quarter to avoid losing our REIT status and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments.

     Complying with REIT requirements may force us to borrow to make distributions to stockholders.

     As a REIT, we must distribute at least 90% of our annual REIT taxable income, excluding net capital gains, (subject to certain adjustments) to our stockholders. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws.

     From time to time, we may generate taxable income greater than our net income for financial reporting purposes due to, among other things, amortization of capitalized purchase premiums, or our taxable income may be greater than our cash flow available for distribution to stockholders. If we do not have other funds available in these situations, we could be required to borrow funds, sell investments at disadvantageous prices, or find another alternative source of funds to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity. We may elect to pay dividends on our common stock in cash or a combination of cash and shares of common stock as permitted under federal income tax laws governing REIT distribution requirements. In January 2009, the Internal Revenue Service issued Revenue Procedure 2009-15 which provides guidance on a REIT’s payment of dividends in shares of its common stock. For stock distributions declared for a tax year ending on or before December 31, 2009, the distributions will qualify as part of the 90% distribution requirement if certain conditions are met. These include a requirement to provide each stockholder the opportunity to elect to receive its entire distribution in either cash or stock and any limitation imposed on the amount of cash that may be distributed cannot be less than 10% of the aggregate declared distribution.

     We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our securities.

     At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or our stockholders. On May 28, 2003, the President signed the Jobs and Growth Tax Relief Reconciliation Act of 2003, which we refer to as the Jobs and Growth Tax Act. Effective for taxable years beginning after December 31, 2002, the Jobs and Growth Tax Act reduced the maximum rate of tax applicable to individuals on dividend income from regular C corporations from 38.6% to 15.0%. This reduced substantially the so-called “double taxation” (that is, taxation at both the corporate and stockholder levels) that has generally applied to corporations that are not taxed as REITs. Generally, dividends from REITs will not qualify for the dividend tax reduction. The implementation of the Jobs and Growth Tax Act could ultimately cause individual investors to view stocks of non-REIT corporations as more attractive relative to shares of REITs because the dividends paid by non-REIT corporations would be subject to lower tax rates. We cannot predict whether in fact this will occur or whether, if it occurs, what the impact will be on the value of our securities. Unless extended, the provision allowing for reduction in the tax rate on dividend income from regular C corporations is scheduled to expire after December 31, 2010.

     Your investment in our securities has various federal, state, and local income tax risks that could affect the value of your investment.

     Although the provisions of the Internal Revenue Code relevant to your investment in our securities are generally described in “Federal Income Tax Consequences of Our Status as a REIT,” we strongly urge you to consult your own tax advisor concerning the effects of federal, state, and local income tax law on an investment in our securities because of the complex nature of the tax rules applicable to REITs and their stockholders.

RISKS RELATED TO OUR CORPORATE STRUCTURE

     There are no assurances of our ability to make distributions in the future.

          Effective with the fourth quarter ended December 31, 2008, and in conjunction with the credit facility amendment outlined above, the 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. However, our ability to pay dividends may be adversely affected by the risk factors described herein. All distributions will be made at the discretion of our Board of Directors and will depend upon our earnings, our financial condition, maintenance of our REIT status, and such other factors as our Board of Directors may deem relevant from time to time. There are no assurances of our ability to pay dividends in the future. In addition, some of our distributions may include a return of capital.

     Failure to maintain an exemption from the Investment Company Act would adversely affect our results of operations.

     We believe that we will conduct our business in a manner that allows us to avoid registration as an investment company under the Investment Company Act of 1940, or the 1940 Act. Under Section 3(c)(5)(C) of the 1940 Act, entities that are primarily engaged in the business of purchasing or otherwise acquiring “mortgages and other liens on and interests in real estate” are not treated as investment companies. The SEC staff’s position generally requires us to maintain at least 55% of our assets directly in qualifying real estate interests to be able to rely on this exemption. To constitute a qualifying real estate interest under this 55% requirement, a real estate interest must meet various criteria. Mortgage securities that do not represent all of the certificates issued with respect to an underlying pool of mortgages may be treated as securities separate from the underlying mortgage loans and, thus, may not qualify for purposes of the 55% requirement. Our ownership of these mortgage securities, therefore, is limited by the provisions of the 1940 Act and SEC staff interpretive positions. There are no assurances that efforts to pursue our intended investment program will not be adversely affected by operation of these rules.

     Our charter does not permit ownership in excess of 9.8% of our capital stock, and attempts to acquire our capital stock in excess of the 9.8% limit without approval from our Board of Directors are void.

     For the purpose of preserving our REIT qualification, our charter prohibits direct or constructive ownership by any person of more than 9.8% of the lesser of the total number or value of the outstanding shares of our common stock or more than 9.8% of the lesser of the total number or value of the outstanding shares of our preferred stock unless our Board of Directors grants a waiver. Our charter’s constructive ownership rules are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than 9.8% of the outstanding stock by an individual or entity could cause that individual or entity to own constructively in excess of 9.8% of the outstanding stock, and thus be subject to our charter’s ownership limit. Any attempt to own or transfer shares of our common or preferred stock in excess of the ownership limit without the consent of the Board of Directors will be void, and could result in the shares being automatically transferred to a charitable trust.

     Because provisions contained in Maryland law and our charter may have an anti-takeover effect, investors may be prevented from receiving a “control premium” for their shares.

     Provisions contained in our charter and Maryland general corporation law may have effects that delay, defer, or prevent a takeover attempt, which may prevent stockholders from receiving a “control premium” for their shares. For example, these provisions may defer or prevent tender offers for our common stock or purchases of large blocks of our common stock, thereby limiting the opportunities for our stockholders to receive a premium for their common stock over then-prevailing market prices. These provisions include the following:

	•		Ownership limit: The ownership limit in our charter limits related investors, including, among other things, any voting group, from acquiring over 9.8% of our common stock without our permission.
	•		Classification of preferred stock: Our charter authorizes our Board of Directors to issue preferred stock in one or more classes and to establish the preferences and rights of any class of preferred stock issued. These actions can be taken without soliciting stockholder approval. Our preferred stock issuances could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders’ best interests.

     Maryland statutory law provides that an act of a director relating to or affecting an acquisition or a potential acquisition of control of a corporation may not be subject to a higher duty or greater scrutiny than is applied to any other act of a director. Hence, directors of a Maryland corporation are not required to act in takeover situations under the same standards as apply in Delaware and other corporate jurisdictions.

     Offerings of debt securities, which would be senior to our common stock and any preferred stock upon liquidation, or equity securities, which would dilute our existing stockholders’ holdings be senior to our common stock for the purposes of dividend distributions, may adversely affect the market price of our common stock and any preferred stock.

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

     Securities eligible for future sale may have adverse effects on the market price of our securities.

     We cannot predict the effect, if any, of future sales of securities, or the availability of securities for future sales, on the market price of our outstanding securities. Sales of substantial amounts of common stock, or the perception that these sales could occur, may adversely affect prevailing market prices for our securities.

     We also may issue from time to time additional securities or units of our operating partnership in connection with the acquisition of properties and we may grant additional demand or piggyback registration rights in connection with these issuances. Sales of substantial amounts of our securities or the perception that such sales could occur may adversely affect the prevailing market price for our securities or may impair our ability to raise capital through a sale of additional debt or equity securities.

     We depend on key personnel with long-standing business relationships. The loss of key personnel could threaten our ability to operate our business successfully.

     Our future success depends, to a significant extent, upon the continued services of our management team. In particular, the lodging industry experience of Messrs. Archie and Montgomery Bennett, Kessler, Brooks, Kimichik, and Nunneley and the extent and nature of the relationships they have developed with hotel franchisors, operators, and owners and hotel lending and other financial institutions are critically important to the success of our business. We do not maintain key-person life insurance on any of our officers. Although these officers currently have employment agreements with us, we cannot assure their continued employment. The loss of services of one or more members of our corporate management team could harm our business and our prospects.

     An increase in market interest rates may have an adverse effect on the market price of our securities.

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

     Our major policies, including our policies and practices with respect to investments, financing, growth, debt capitalization, and REIT qualification and distributions, are determined by our Board of Directors. Although we have no present intention to do so, our Board of Directors may amend or revise these and other policies from time to time without a vote of our stockholders. Accordingly, our stockholders will have limited control over changes in our policies and the changes could harm our business, results of operations, and share price.

     Changes in our strategy or investment or leverage policy could expose us to greater credit risk and interest rate risk or could result in a more leveraged balance sheet. We cannot predict the effect any changes to our current operating policies and strategies may have on our business, operating results, and stock price. However, the effects may be adverse.

Item 1B. Unresolved Staff Comments

     None.

Item 2. Properties

     OFFICES. We lease our headquarters located at 14185 Dallas Parkway, Suite 1100, Dallas, Texas 75254.

     HOTEL PROPERTIES. As of December 31, 2008, we owned an interest in 103 hotel properties, which includes direct ownership in 97 hotel properties and between 75-89% in six hotel properties through equity investments with joint venture partners. All these hotel properties are located in the United States.

     The following table presents certain information related to our hotel properties.

				Total				%				Owned				Year Ended December 31, 2008
Hotel Property		Location		Room				Owned				Room				Occupancy				ADR				RevPAR
Fee Simple Properties
Embassy Suites		Austin, TX			150				100	%			150				82.5	%		$	152.38			$	125.68
Embassy Suites		Dallas, TX			150				100	%			150				74.0	%		$	136.44			$	100.97
Embassy Suites		Herndon, VA			150				100	%			150				82.4	%		$	174.69			$	143.98
Embassy Suites		Las Vegas, NV			220				100	%			220				76.1	%		$	151.08			$	115.04
Embassy Suites		Syracuse, NY			215				100	%			215				74.4	%		$	123.55			$	91.86
Embassy Suites		Flagstaff, AZ			119				100	%			119				81.7	%		$	120.33			$	98.29
Embassy Suites		Houston, TX			150				100	%			150				84.4	%		$	167.05			$	140.95
Embassy Suites		West Palm Beach, FL			160				100	%			160				76.4	%		$	139.33			$	106.37
Embassy Suites		Philadelphia, PA			263				100	%			263				62.2	%		$	152.33			$	94.74
Embassy Suites		Walnut Creek, CA			249				100	%			249				69.8	%		$	139.55			$	97.42
Embassy Suites		Arlington, VA			267				100	%			267				81.7	%		$	206.24			$	168.43
Embassy Suites		Portland, OR			276				100	%			276				79.7	%		$	170.65			$	135.97
Embassy Suites		Santa Clara, CA			257				100	%			257				72.1	%		$	166.34			$	119.99
Embassy Suites		Orlando, FL			174				100	%			174				78.5	%		$	134.27			$	105.45
Hilton Garden Inn		Jacksonville, FL			119				100	%			119				68.8	%		$	121.52			$	83.58
Hilton		Houston, TX			243				100	%			243				76.2	%		$	128.45			$	97.88
Hilton		St. Petersburg, FL			333				100	%			333				60.8	%		$	132.36			$	80.52
Hilton		Santa Fe, NM			157				100	%			157				76.0	%		$	149.04			$	113.30
Hilton		Bloomington, MN			300				100	%			300				83.6	%		$	123.92			$	103.59
Hilton		Washington DC			544				75	%			408				83.2	%		$	217.55			$	181.07
Hilton		Costa Mesa, CA			486				100	%			486				74.9	%		$	124.86			$	93.53
Hilton		Tucson, AZ			428				100	%			428				60.6	%		$	159.16			$	96.41
Hilton		Rye Town, NY			446				100	%			446				50.7	%		$	174.50			$	88.50
Hilton		Auburn Hills, MI			224				100	%			224				62.9	%		$	115.01			$	72.34
Homewood Suites		Mobile, AL			86				100	%			86				84.4	%		$	115.66			$	97.65
Hampton Inn		Lawrenceville, GA			86				100	%			86				61.8	%		$	96.67			$	59.74
Hampton Inn		Evansville, IN			141				100	%			141				71.8	%		$	98.49			$	70.75
Hampton Inn		Terre Haute, IN			112				100	%			112				68.9	%		$	95.83			$	66.01
Hampton Inn		Buford, GA			92				100	%			92				76.8	%		$	117.99			$	90.67
Hampton Inn		Houston, TX			176				85	%			150				65.6	%		$	145.18			$	95.27

(Continued on Next Page)

				Total				%				Owned				Year Ended December 31, 2008
Hotel Property		Location		Room				Owned				Room				Occupancy				ADR				RevPAR
Hampton Inn		Jacksonville, FL			118				100	%			118				71.2	%		$	120.93			$	86.13
Marriott		Durham, NC			225				100	%			225				62.7	%		$	147.09			$	92.16
Marriott		Arlington, VA			697				100	%			697				75.0	%		$	186.28			$	139.61
Marriott		Seattle, WA			358				100	%			358				74.0	%		$	209.76			$	155.30
Marriott		Bridgewater, NJ			347				100	%			347				74.2	%		$	175.52			$	130.16
Marriott		Plano, TX			404				100	%			404				71.3	%		$	154.36			$	109.99
Marriott		Dallas, TX			266				100	%			266				67.0	%		$	133.33			$	89.28
SpringHill Suites by Marriott		Jacksonville, FL			102				100	%			102				73.3	%		$	105.92			$	77.67
SpringHill Suites by Marriott		Baltimore, MD			133				100	%			133				75.6	%		$	128.51			$	97.13
SpringHill Suites by Marriott		Kennesaw, GA			90				100	%			90				70.8	%		$	103.49			$	73.25
SpringHill Suites by Marriott		Buford, GA			96				100	%			96				77.0	%		$	113.62			$	87.43
SpringHill Suites by Marriott		Gaithersburg, MD			162				100	%			162				63.9	%		$	130.38			$	83.36
SpringHill Suites by Marriott		Centreville, VA			136				100	%			136				66.1	%		$	106.87			$	70.58
SpringHill Suites by Marriott		Charlotte, NC			136				100	%			136				68.4	%		$	104.72			$	71.64
SpringHill Suites by Marriott		Durham, NC			120				100	%			120				72.0	%		$	99.18			$	71.44
SpringHill Suites by Marriott		Orlando, FL			400				100	%			400				76.0	%		$	96.89			$	73.63
SpringHill Suites by Marriott		Manhattan Beach, CA			164				100	%			164				81.2	%		$	115.72			$	93.98
SpringHill Suites by Marriott		Plymouth Meeting, PA			199				100	%			199				60.4	%		$	126.36			$	76.29
SpringHill Suites by Marriott		Glen Allen, VA			136				100	%			136				66.8	%		$	105.54			$	70.44
Fairfield Inn by Marriott		Kennesaw, GA			87				100	%			87				71.2	%		$	93.03			$	66.25
Fairfield Inn by Marriott		Orlando, FL			388				100	%			388				80.0	%		$	77.61			$	62.07
Courtyard by Marriott		Bloomington, IN			117				100	%			117				70.3	%		$	118.21			$	83.05
Courtyard by Marriott		Columbus, IN			90				100	%			90				71.3	%		$	101.36			$	72.24
Courtyard by Marriott		Louisville, KY			150				100	%			150				63.5	%		$	130.51			$	82.81
Courtyard by Marriott		Crystal City, VA			272				100	%			272				72.7	%		$	166.51			$	120.96
Courtyard by Marriott		Ft. Lauderdale, FL			174				100	%			174				67.9	%		$	117.11			$	79.52
Courtyard by Marriott		Overland Park, KS			168				100	%			168				57.4	%		$	112.11			$	64.38
Courtyard by Marriott		Palm Desert, CA			151				100	%			151				47.8	%		$	122.42			$	58.56
Courtyard by Marriott		Foothill Ranch, CA			156				100	%			156				65.0	%		$	133.56			$	86.87
Courtyard by Marriott		Alpharetta, GA			154				100	%			154				58.8	%		$	117.36			$	68.99
Courtyard by Marriott		Philadelphia, PA			498				89	%			443				79.5	%		$	155.62			$	123.76
Courtyard by Marriott		Seattle, WA			250				100	%			250				72.7	%		$	161.57			$	117.41
Courtyard by Marriott		San Francisco, CA			405				100	%			405				81.5	%		$	188.80			$	153.83
Courtyard by Marriott		Orlando, FL			312				100	%			312				75.6	%		$	102.33			$	77.34
Courtyard by Marriott		Oakland, CA			156				100	%			156				73.7	%		$	128.57			$	94.74
Courtyard by Marriott		Scottsdale, AZ			180				100	%			180				66.6	%		$	115.56			$	76.93
Courtyard by Marriott		Plano, TX			153				100	%			153				72.4	%		$	124.21			$	89.95
Courtyard by Marriott		Edison, NJ			146				100	%			146				71.9	%		$	111.51			$	80.18
Courtyard by Marriott		Newark, CA			181				100	%			181				63.2	%		$	103.92			$	65.71
Courtyard by Marriott		Manchester, CT			90				85	%			77				69.0	%		$	113.32			$	78.23
Courtyard by Marriott		Basking Ridge, NJ			235				100	%			235				69.2	%		$	155.20			$	107.37
Marriott Residence Inn		Lake Buena Vista, FL			210				100	%			210				75.0	%		$	135.09			$	101.38
Marriott Residence Inn		Evansville, IN			78				100	%			78				81.5	%		$	102.37			$	83.38
Marriott Residence Inn		Orlando, FL			350				100	%			350				80.1	%		$	118.95			$	95.23
Marriott Residence Inn		Falls Church, VA			159				100	%			159				76.5	%		$	161.42			$	123.51
Marriott Residence Inn		San Diego, CA			150				100	%			150				76.7	%		$	152.86			$	117.22
Marriott Residence Inn		Salt Lake City, UT			144				100	%			144				71.9	%		$	132.89			$	95.60
Marriott Residence Inn		Palm Desert, CA			130				100	%			130				60.8	%		$	127.41			$	77.47
Marriott Residence Inn		Las Vegas, NV			256				100	%			256				73.1	%		$	135.76			$	99.23
Marriott Residence Inn		Phoenix, AZ			200				100	%			200				66.9	%		$	117.54			$	78.69
Marriott Residence Inn		Plano, TX			126				100	%			126				75.3	%		$	112.47			$	84.66
Marriott Residence Inn		Newark, CA			168				100	%			168				82.0	%		$	93.02			$	76.24
Marriott Residence Inn		Manchester CT			96				85	%			82				84.8	%		$	109.50			$	92.81
Marriott Residence Inn Buckhead)		Atlanta, GA			150				100	%			150				71.8	%		$	109.21			$	78.39
Marriott Residence Inn		Jacksonville, FL			120				100	%			120				81.2	%		$	114.54			$	92.97
TownePlace Suites by Marriott		Manhattan Beach, CA			144				100	%			144				76.4	%		$	108.13			$	82.57
One Ocean (a)		Atlantic Beach, FL			193				100	%			193				24.8	%		$	160.78			$	39.85

(Continued on Next Page)

				Total				%				Owned				Year Ended December 31, 2008
Hotel Property		Location		Room				Owned				Room				Occupancy				ADR				RevPAR
Sheraton Hotel		Langhorne, PA			187				100	%			187				59.5	%		$	122.40			$	72.83
Sheraton Hotel		Minneapolis, MN			222				100	%			222				66.8	%		$	120.10			$	80.25
Sheraton Hotel		Indianapolis, IN			371				100	%			371				68.6	%		$	109.14			$	74.84
Sheraton Hotel		Anchorage, AK			370				100	%			370				67.7	%		$	132.60			$	89.77
Sheraton Hotel		San Diego, CA			260				100	%			260				74.7	%		$	133.87			$	100.02
Hyatt Regency		Detroit, MI			772				100	%			772				60.4	%		$	114.79			$	69.31
Hyatt Regency		Coral Gables, FL			242				100	%			242				73.8	%		$	179.76			$	132.65
Crowne Plaza		Beverly Hills, CA			260				100	%			260				71.2	%		$	175.10			$	124.71
Annapolis Historic Inn		Annapolis, MD			124				100	%			124				59.1	%		$	135.74			$	80.27
Westin		Rosemont, IL			525				100	%			525				68.9	%		$	143.91			$	98.94
Air Rights/Ground Lease Properties
Doubletree Guest Suites (b)		Columbus, OH			194				100	%			194				66.6	%		$	115.60			$	76.96
Hilton (c)		Ft. Worth, TX			294				100	%			294				74.3	%		$	138.91			$	103.23
Hilton (d)		Lo Jolla, CA			394				75	%			296				71.9	%		$	193.47			$	139.18
JW Marriott (d)		San Francisco			338				100	%			338				82.2	%		$	230.16			$	189.29
Crowne Plaza (f)		Key West, FL			160				100	%			160				87.0	%		$	204.72			$	178.02
Renaissance (g)		Tampa, FL			293				100	%			293				70.8	%		$	178.82			$	126.54
Total					23,255								22,913				71.4	%		$	142.99			$	102.03

Item 3. Legal Proceedings

     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, we believe we have adequate insurance in place to cover such litigation.

Item 4. Submission of Matters to a Vote of Security Holders

     There were no matters submitted to our security holders during the fourth quarter ended December 31, 2008.

PART II

Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

(a) Market Price of and Dividends on, Registrant’s Common Equity and Related Stockholder Matters

Market Price and Dividend Information

     Our common stock is listed and traded on the New York Stock Exchange under the symbol “AHT.” On February 20, 2009, there were 97 registered holders of record of our common stock. In order to comply with certain requirements related to our qualification as a REIT, our charter limits the number of shares of capital stock that may be owned by any single person or affiliated group without our permission to 9.8% of the outstanding shares of any class of our capital stock. According to a Schedule 13G/A filed on February 13, 2009, The Vanguard Group has reflected beneficial ownership of 9,128,812 common shares which exceeds the ownership limitation of 9.8%. Ashford has contacted this shareholder and has informed them that the ownership limitation has been exceeded (although Ashford understands that apparently 10 or more separate funds own these shares). No waiver of the ownership limitation has been granted to this shareholder.

     The following table sets forth, for the indicated periods, the high and low sales prices for our common stock as traded on that exchange and cash distributions declared per common share:

		First				Second				Third				Fourth
		Quarter				Quarter				Quarter				Quarter
2008
High		$	7.35			$	6.45			$	5.34			$	4.07
Low		$	5.16			$	4.52			$	3.08			$	0.86
Close		$	5.68			$	4.62			$	4.05			$	1.15
Cash dividends declared per share		$	0.21			$	0.21			$	0.21			$	—
2007
High		$	13.05			$	12.54			$	12.62			$	10.57
Low		$	11.25			$	11.53			$	9.80			$	7.19
Close		$	11.94			$	11.76			$	10.05			$	7.19
Cash dividends declared per share		$	0.21			$	0.21			$	0.21			$	0.21

     In connection with an amendment to our credit facility, in December 2008, we suspended our common stock dividend effective with the fourth quarter ended December 31, 2008. We intend to distribute only the minimum dividend required to maintain REIT status in 2009, which is likely to be determined, if necessary, in the fourth quarter of 2009. To maintain our qualification as a REIT, we intend to make annual distributions to our stockholders of at least 90% of our REIT taxable income, excluding net capital gains (which does not necessarily equal net income as calculated in accordance with generally accepted accounting principles). Distributions will be authorized by our Board of Directors and declared by us based upon a variety of factors deemed relevant by our Directors. Our ability to pay distributions to our stockholders will depend, in part, upon our receipt of distributions from our operating partnership. This, in turn, may depend upon receipt of lease payments with respect to our properties from indirect, wholly-owned subsidiaries of our operating partnership and the management of our properties by our property managers.

Performance Graph

     The following graph compares the percentage change in the cumulative total stockholder return on our common stock with the cumulative total return of the S&P 500 Stock Index, the NAREIT Mortgage Index, and the NAREIT Lodging Resort Index for the period from December 31, 2003, through December 31, 2008, assuming an initial investment of $100 in stock on December 31, 2003 with reinvestment of dividends. The NAREIT Lodging Resorts Index is not a published index; however, we believe the companies included in this index provide a representative example of enterprises in the lodging resort line of business in which we engage. Stockholders who wish to request a list of companies in the NAREIT Lodging Resorts Index may send written requests to Ashford Hospitality Trust, Inc., Attention: Stockholder Relations, 14185 Dallas Parkway, Suite 1100, Dallas, Texas 75254. The stock price performance shown on the graph is not necessarily indicative of future price performance.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Ashford Hospitality Trust, Inc., The S&P 500 Index,
The FTSE NAREIT Mortgage Index And The FTSE NAREIT Lodging & Resorts Index

Fiscal year ending December 31.

(c) Purchases of Equity Securities by the Issuer

     The following table provides the information with respect to purchases of shares of our common and preferred stocks during each of the months in the fourth quarter of 2008:

		Total								Total Number of				Maximum Dollar
		Number				Average				Shares Purchased as				Value of Shares That
		of Shares				Price Paid				Part of Publicly				May Yet Be Purchased
Period		Purchased				Per Share				Announced Plan(1)				Under the Plan
Common stock:
October 1 to October 31			16,229,600			$	2.37				16,229,600			$	22,361,000
November 1 to November 30			5,189,636			$	1.74				5,189,636			$	13,326,000
December 1 to December 31			2,017,100			$	1.70				2,017,100			$	—
Total			23,436,336			$	2.17				23,436,336
Preferred Series A stock:
November 1 to November 30			114,500			$	6.12				114,500			$	12,626,000
Preferred Series D stock:
November 1 to November 30			1,605,653			$	5.72				1,605,653			$	3,438,000

Item 6. Selected Financial Data

     The following sets forth our selected consolidated financial and operating information on a historical basis and should be read together with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto, which are included in “Item 8. Financial Statements and Supplementary Data.”

		Year Ended December 31,
		2008				2007				2006				2005				2004
		(in thousands, except per share amounts)
Statements of Operations Data:
Total revenue		$	1,172,856			$	1,007,801			$	401,222			$	254,638			$	94,391
Total operating expenses		$	1,012,528			$	868,950			$	332,965			$	206,154			$	80,346
Operating income		$	160,328			$	138,851			$	68,257			$	48,484			$	14,045
Income/(loss) from continuing operations		$	80,006			$	(2,907	)		$	27,224			$	3,315			$	2,421
Income/(loss) from discontinued operations		$	49,188			$	33,067			$	10,572			$	6,122			$	(1,002	)
Net income		$	129,194			$	30,160			$	37,796			$	9,437			$	1,419
Net income available to common shareholders		$	102,552			$	6,170			$	26,921			$	134			$	64
Diluted income/(loss) per common share:
Income/(loss) from continuing operations		$	0.48			$	(0.25	)		$	0.26			$	(0.15	)		$	0.04
Income from discontinued operations			0.44				0.31				0.17				0.15				(0.04	)
Net income		$	0.92			$	0.06			$	0.43			$	—			$	—
Weighted average diluted common shares			111,306				105,787				62,128				40,194				25,121

		At December 31,
		2008				2007				2006				2005				2004
Balance Sheets Data:
Investments in hotel properties, net		$	3,568,215			$	3,885,737			$	1,632,946			$	1,106,668			$	427,005
Cash, cash equivalents and restricted cash		$	311,403			$	145,143			$	82,756			$	85,837			$	61,168
Notes receivable		$	212,815			$	94,225			$	102,833			$	107,985			$	79,662
Total assets		$	4,339,682			$	4,380,411			$	2,011,912			$	1,482,486			$	595,945
Total indebtedness — continuing operations		$	2,790,364			$	2,639,546			$	1,015,555			$	782,938			$	292,897
Total stockholders’ equity		$	1,212,219			$	1,285,003			$	641,709			$	358,323			$	218,692

		Year Ended December 31,
		2008				2007				2006				2005				2004
		(in thousands, except per share amounts)
Other Data:
Cash provided by operating activities		$	144,943			$	155,737			$	139,691			$	56,528			$	6,652
Cash provided by/(used in) investing activities		$	168,455			$	(1,872,900	)		$	(565,473	)		$	(652,267	)		$	(310,624	)
Cash (used in)/provided by financing activities		$	(164,072	)		$	1,736,022			$	441,130			$	606,625			$	274,827
Cash dividends declared per common share		$	0.63			$	0.84			$	0.80			$	0.71			$	0.45
EBITDA (unaudited) (1)		$	472,836			$	357,151			$	138,757			$	79,346			$	23,909
Funds From Operations (unaudited) (FFO) (1)		$	240,862			$	147,680			$	84,748			$	32,741			$	11,076

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CRITICAL ACCOUNTING POLICIES

     Our accounting policies are more fully described in Note 2 to our consolidated financial statements. We believe that the following discussion addresses our most critical accounting policies, representing those policies considered most vital to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective, and complex judgments.

     Management Agreements — In connection with our acquisitions of Marriott Crystal Gateway hotel in Arlington, Virginia, on July 13, 2006 and the 51-hotel CNL portfolio on April 11, 2007, we assumed certain existing management agreements. Based on our review of these management agreements, we concluded that the terms of certain management agreements are more favorable to the respective managers than typical current market management agreements. As a result, we recorded unfavorable contract liabilities related to these management agreements of $23.4 million as of the respective acquisition dates based on the present value of expected cash outflows over the initial terms of the related agreements. Such unfavorable contract liabilities are being amortized as non-cash reductions to incentive management fees on a straight-line basis over the initial terms of the related agreements. In evaluating unfavorable contract liabilities, our analysis involves considerable management judgment and assumptions.

     Income Taxes — At December 31, 2008, we increased the valuation allowance to approximately $77.2 million to fully offset our net deferred tax asset. As a result of Ashford TRS losses in 2008 and 2007, and the limitations imposed by the Internal Revenue Code on the utilization of net operating losses of acquired subsidiaries, we believe that it is more likely than not our net deferred tax asset will not be realized, and therefore, have provided a valuation allowance to fully reserve against these amounts. At December 31, 2008, we also recorded a deferred tax liability for the difference in the final purchase price allocation for financial reporting purposes and tax basis for a real estate asset owned in one of our consolidated joint ventures. In addition, at December 31, 2008, Ashford TRS has net operating loss carryforwards for federal income tax purposes of approximately $127.0 million, which are available to offset future taxable income, if any, through 2027. The analysis utilized in determining our deferred tax asset valuation allowance involves considerable management judgment and assumptions.

     In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN No. 48”), effective January 1, 2007. FIN No. 48 prescribes a recognition threshold and measurement attribute for the

recognition and measurement of a tax position taken in a tax return. FIN No. 48 requires that a determination be made as to whether it is “more likely than not” that a tax position taken, based on its technical merits, will be sustained upon examination, including resolution of any appeals and litigation processes. If the more-likely-than-not threshold is met, the related tax position must be measured to determine the amount of provision or benefit, if any, to recognize in the financial statements. FIN No. 48 applies to all tax positions related to income taxes subject to FASB Statement No. 109, “Accounting for Income Taxes,” but does not apply to tax positions related to FASB Statement No. 5, “Accounting for Contingencies.” We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states, and in Canada (2008 is final year for Canadian filings). Tax years 2005 through 2007 remain subject to potential examination by certain federal and state taxing authorities, respectively. No income tax examinations are currently in process. As we determined no material unrecognized tax benefits or liabilities exist, the adoption of FIN No. 48, effective January 1, 2007, did not impact our financial condition or results of operations. We classify interest and penalties related to underpayment of income taxes as income tax expense.

     Investment in Hotel Properties — Hotel properties are generally stated at cost. However, the Initial Properties contributed upon our formation are stated at the predecessor’s historical cost, net of any impairment charges, plus a minority interest partial step-up related to the acquisition of minority interest from third parties associated with four of the Initial Properties. In addition, in connection with the 51-hotel CNL portfolio acquired on April 11, 2007 and subsequent asset swap completed on December 15, 2007, we own between 75%-89% ownership interest in certain hotel properties owned by joint ventures. For these hotel properties, 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 interest in the joint ventures. All improvements and additions which extend the useful life of hotel properties are capitalized.

     Impairment of Investment in Hotel Properties and Hotel Related Intangibles — Hotel properties and hotel related intangibles are reviewed for impairment at each balance sheet date. We test for impairment in several situations, including when current or projected cash flows are less than historical cash flows, when it becomes more likely than not that a hotel property will be sold before its previously estimated useful life expires, and when events or changes in circumstances indicate that a hotel property’s net book value or the carrying value of the related intangibles may not be recoverable. In evaluating the impairment of hotel properties, we make many assumptions and estimates, including projected cash flows, holding period, expected useful life, future capital expenditures, and fair values, which considers capitalization rates, discount rates, and comparable selling prices. If an asset was deemed to be impaired, we would record 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 recognized.

     Depreciation and Amortization Expense — Depreciation expense is based on the estimated useful life of the assets, while amortization expense for leasehold improvements is based on the shorter of the lease term or the estimated useful life of the related assets. Presently, hotel properties are depreciated using the straight-line method over lives which range from 15 to 39 years for buildings and improvements and 3 to 5 years for furniture, fixtures, and equipment. While we believe our estimates are reasonable, a change in estimated lives could affect depreciation expense and net income (loss) as well as resulting gains or losses on potential hotel sales.

     Assets Held For Sale and Discontinued Operations — We classify assets as held for sale when management has obtained a firm commitment from a buyer, and consummation of the sale is considered probable and expected within one year. The related operations of assets held for sale are reported as discontinued if a) such operations and cash flows can be clearly distinguished, both operationally and financially, from the our ongoing operations, b) such operations and cash flows will be eliminated from ongoing operations once the disposal occurs, and c) we will not have any significant continuing involvement subsequent to the disposal.

     Notes Receivable — We provide mezzanine and first-mortgage financing in the form of notes receivable, which are recorded at cost, adjusted for net origination fees and costs. 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. Unpaid interest accrued and discounts amortized are 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 primary beneficiaries if the variable interest entities do not effectively disperse risks among parties involved. Our mezzanine and first-mortgage loan receivables are each secured by various hotel properties or partnership interests in hotel properties and are subordinate to primary loans related to the secured hotels. All such loans receivable are considered to be variable interests in the entities that own the related hotels, which are variable interest entities. 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 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 at each balance sheet date pursuant Statements 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 would record a reserve for loan losses through a charge to income for any shortfall, if any. For example, if a loan is determined to be impaired but based on the present value of the expected cash flow calculation, does not result in any shortfall, no charge is taken. Our assessment of impairment is based on considerable judgment and estimates. Based on our assessment and judgment, no such impairment charges have been recorded for our notes receivable as of December 31, 2008. However, a loss reserve was established for a note receivable held by our unconsolidated joint venture in which we have a 25% ownership. See Note 6 of Notes to Consolidated Financial Statements included in Item 8.

     Investment in Unconsolidated Joint Venture — Investment in a joint venture in which we have a 25% ownership is accounted for under the equity method of accounting by recording the initial investment and our percentage of interest in the joint venture’s net income. The equity accounting method is employed due to the fact that we do not control the joint venture pursuant to the guidance provided by Emerging Issue Task Force (“EITF”) Abstract No. 04-5.

     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) and to hedge our asset cash flows. Interest rate swaps designated as fair value hedges involve the exchange of fixed-rate payments for variable-rate payments over the life of the 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. Because these derivatives are not designated as hedges under SFAS 133, the related interest savings is reported as “Other income” rather than a reduction of interest expense in accordance with GAAP. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, while the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. 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. For derivatives not designated as hedges, changes in the fair value are recognized in earnings. We record all derivatives on the balance sheet at fair value.

     The valuation of these instruments was determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual

terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, and implied volatilities. 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. To comply with the provisions of SFAS No. 157, “Fair Value Measurements”, we incorporate credit valuation adjustments 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 and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations.” SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combinations. SFAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. Accordingly, any business combinations we engage in will be recorded and disclosed following existing accounting principles until January 1, 2009. We expect SFAS 141R will affect our consolidated financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, term and size of the acquisitions, if any, we consummate after the effective date.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” 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 non-controlling interests and classified as a component of equity. SFAS 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, and will impact the recording of minority interest. We do not expect the adoption of SFAS 160 will have an impact on our financial position and results of operations.

     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 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. There will be additional disclosure needed upon adoption of SFAS 161.

     In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” effective 60 days following SEC approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. SFAS 162 identifies sources of accounting principles and a framework for selecting the principles to be used in preparation of financial statements that are prepared in conformity with generally accepted accounting principles in the United States (the GAAP Hierarchy). We do not expect this statement will result in changes to our current practice.

EXECUTIVE OVERVIEW

     We are a real estate investment trust (“REIT”) that commenced operations upon completion of our initial public offering and related formation transactions on August 29, 2003. At December 31, 2008, we owned interests in 103 hotel properties, which included direct ownership in 97 hotel properties and between 75-89% interests in six hotel properties through equity investments with joint venture partners. Of these hotels, 43 were acquired in 2007. In addition, at December 31, 2008, we owned $212.8 million of mezzanine or first-mortgage loans receivable and a 25% interest in a joint venture with Prudential Real Estate Investors (“PREI”) formed in January 2008 (the “PREI JV”). The joint venture owned $75.2 million of mezzanine loans at December 31, 2008.

     Based on our primary business objectives and forecasted operating conditions, our key priorities and financial strategies include, among other things:

	•		preserving capital, enhancing liquidity and implementing cost saving measures;
	•		acquiring hotels with a favorable current yield with an opportunity for appreciation;
	•		implementing selective capital improvements designed to increase profitability;
	•		directing our hotel managers to minimize operating costs and increase revenues;
	•		originating or acquiring mezzanine loans; and
	•		other investments that our Board of Directors deems appropriate.

     Throughout 2008, the sluggish economy in the United States has caused slight declines in RevPAR (revenue per available room) and occupancy throughout the lodging industry. For 2009, forecasts for the lodging industry are considerably bearish.

     To hedge our asset cash flows, we enter into derivative transactions with major financial institutions. In March 2008, we executed a five-year interest rate swap on $1.8 billion of fixed-rate debt at a weighted average interest rate of 5.84% for a floating interest rate of LIBOR plus 2.64%. In conjunction with the swap execution, we sold a five-year LIBOR floor notional amount of $1.8 billion at 1.25% and purchased a LIBOR cap notional amount of $1.0 billion at 3.75% for the first three years. On September 30, 2008, we entered into an additional LIBOR interest rate cap with $800 million notional amount at 3.75% effective October 14, 2008 for one year. Subsequently in December 2008, we purchased a one-year $1.8 billion interest flooridor to bring down the LIBOR floor to 0.75%. Under the flooridor, the counterparties will pay us the interest on the $1.8 billion 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 the swap, LIBOR cap, and floor transactions was $8.8 million. The net fair value at December 31, 2008 was $88.5 million. See Notes 11 and 12 of Notes to Consolidated Financial Statements included Item 8.

RESULTS OF OPERATIONS

     Marriott International, Inc. (“Marriott”) manages 41 of our properties. For these Marriott-managed hotels, the fiscal year reflects twelve weeks of operations for each of the first three quarters of the year and seventeen 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 fourth quarters of 2008, 2007 and 2006 ended January 2, 2009, December 28, 2007 and December 29, 2006, respectively.

     RevPAR is a commonly used measure within the hotel industry to evaluate hotel operations. RevPAR is defined as the product of the average daily room rate (“ADR”) charged and the average daily occupancy achieved. RevPAR does not include revenues from food and beverage or parking, telephone, or other guest services generated by the property. Although RevPAR does not include these ancillary revenues, it is generally considered the leading indicator of core revenues for many hotels. We also use RevPAR to compare the results of our hotels between periods and to analyze results of our comparable hotels (comparable hotels represent hotels we have owned for the entire year). RevPAR improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs. RevPAR improvements attributable to increases in ADR are generally accompanied by increases in limited categories of operating costs, such as management fees and franchise fees.

     In April 2007, we acquired a 51-property hotel portfolio (“CNL Portfolio”) from CNL Hotels and Resorts, Inc. (“CNL”). Pursuant to the purchase agreement, we acquired 100% of 33 properties and interests ranging from 70% to 89% in 18 properties through existing joint ventures. In conjunction with the CNL transaction, we acquired the 15% remaining joint venture interest in one hotel property not owned by CNL at the acquisition and acquired in May 2007 two other hotel properties previously owned by CNL (collectively, the “CNL Acquisition”). In December 2007, we completed an asset swap with Hilton Hotels Corporation (“Hilton”), whereby we surrendered our majority ownership interest in two hotel properties in exchange for Hilton’s minority ownership interest in nine hotel properties. Net of subsequent sales and the asset swap, 43 of these hotels were included in our hotel property portfolio at December 31, 2008. In 2008, we finalized the allocation of the CNL Acquisition purchase price. These

hotels are referred to as non-comparable hotels in comparing the operating results of 2008 to 2007 in the following discussions as we did not own these properties for the entire year of 2007.

     Similarly, in comparing the operating results of 2007 to 2006, 52 hotel properties acquired during 2006 and 2007 are referred as non-comparable hotels.

     The following table summarizes the changes in key line items from our consolidated statements of operations for the years ended December 31, 2008, 2007 and 2006 (in thousands):

														Favorable (Unfavorable) Change
		Year Ended December 31,												2008 Compared to 2007								2007 Compared to 2006
		2008				2007				2006				$ Change				%Change				$ Change				%Change
Total revenue		$	1,172,856			$	1,007,801			$	401,222			$	165,055				16.4	%		$	606,579				151.2	%
Total hotel expenses			753,587				651,434				249,122				(102,153	)			(15.7	)%			(402,312	)			(161.5	)%
Property taxes, insurance and other			62,509				52,409				22,754				(10,100	)			(19.3	)%			(29,655	)			(130.3	)%
Depreciation and amortization			167,730				138,154				40,730				(29,576	)			(21.4	)%			(97,424	)			(239.2	)%
Corporate general and administrative			28,702				26,953				20,359				(1,749	)			(6.5	)%			(6,594	)			(32.4	)%
Operating income			160,328				138,851				68,257				21,477				15.5	%			70,594				103.4	%
Equity loss in unconsolidated joint venture			(2,205	)			—				—				(2,205	)			—	*			—				—	*
Interest income			2,062				3,178				2,917				(1,116	)			(35.1	)%			261				8.9	%
Other income			10,153				—				—				10,153				—	*			—				—	*
Interest expense and amortization of loan costs			(156,383	)			(135,841	)			(42,720	)			(20,542	)			(15.1	)%			(93,121	)			(218.0	)%
Write-off of loan costs and exit fees			(1,226	)			(3,850	)			(101	)			2,624				—	*			(3,749	)			—	*
Unrealized gains (losses) on derivatives			79,620				(211	)			(16	)			79,831				—	*			(195	)			—	*
Income tax (expense)/benefit			(967	)			(3,835	)			2,655				2,868				74.8	*			(6,490	)			—	*
Minority interest in earnings of consolidated joint ventures			(1,444	)			(323	)			—				(1,121	)			—	*			(323	)			—	*
Minority interest in earnings of operating partnership			(9,932	)			(876	)			(3,768	)			(9,056	)			—	*			2,892				76.8	%
Income/(loss) from continuing operations			80,006				(2,907	)			27,224				82,913				—	*			(30,131	)			—	*
Income from discontinued operations, net			49,188				33,067				10,572				16,121				48.8	%			22,495				212.8	%
Net income			129,194				30,160				37,796				99,034				328.4	%*			(7,636	)			(20.2	)%

Comparison of Year Ended December 31, 2008 with Year Ended December 31, 2007

     Income from continuing operations includes the operating results of 60 hotel properties that we have owned throughout the entire 2008 and 2007 (the “comparable hotels”). The following table illustrates the key performance indicators of the comparable hotels for the periods indicated:

		Year Ended
		December 31,
		2008				2007
Total revenue (in thousands)		$	547,531			$	554,185
Total operating income (in thousands)		$	80,564			$	98,120
RevPAR (revenue per available room)		$	98.81			$	100.59
Occupancy			70.71	%			73.80	%
ADR (average daily rate)		$	139.74			$	136.29