UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2008

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

For the transition period from                      to                     

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

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

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

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

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

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

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

Common Stock, $0.01 par value per share		119,739,972
(Class)		Outstanding at August 5, 2008

 

 

ASHFORD HOSPITALITY TRUST, INC
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)			3
Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007			3
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2008 and 2007			4
Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2008 and 2007			5
Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2008 and 2007			6
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007			7
Notes to Consolidated Financial Statements			8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			33
ITEM 4. CONTROLS AND PROCEDURES			34
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			34
ITEM 1A. RISK FACTORS			34
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			34
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			35
ITEM 6. EXHIBITS			35
SIGNATURES			36
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
Certification of Chief Accounting Officer Pursuant to Rule 13a-14(a)
Certification of Chief Executive Officer Pursuant to Section 1350
Certification of Chief Financial Officer Pursuant to Section 1350
Certification of Chief Accounting Officer Pursuant to Section 1350

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES

		June 30,				December 31,
		2008				2007
		(Unaudited)
Assets
Investments in hotel properties, net		$	3,688,913			$	3,885,737
Cash and cash equivalents			112,524				92,271
Restricted cash			50,733				52,872
Accounts receivable, net of allowance of $745 and $1,458, respectively			62,475				51,314
Inventories			3,943				4,100
Notes receivable			113,030				94,225
Investment in unconsolidated joint venture			24,917				—
Assets held for sale			11,908				75,739
Deferred costs, net			22,507				25,714
Prepaid expenses			16,601				20,223
Other assets			8,692				6,027
Intangible assets, net			3,122				13,889
Due from third-party hotel managers			51,030				58,300
Total assets		$	4,170,395			$	4,380,411
Liabilities and Stockholders’ Equity
Liabilities:
Indebtedness — continued operations		$	2,540,906			$	2,639,546
Indebtedness — discontinued operations			11,134				61,229
Capital leases payable			291				498
Accounts payable and accrued expenses			106,354				124,696
Dividends payable			35,178				35,031
Unfavorable management contract liabilities			22,267				23,396
Due to related parties			793				2,732
Due to third-party hotel managers			8,324				4,699
Interest rate derivatives			47,299				—
Other liabilities			8,287				8,514
Total liabilities			2,780,833				2,900,341
Commitments and contingencies (Note 13)
Minority interests in consolidated joint ventures			21,809				19,036
Minority interests in operating partnership			93,985				101,031
Preferred stock, $0.01 par value, Series B Cumulative Convertible Redeemable Preferred Stock, 7,447,865 shares issued and outstanding			75,000				75,000
Shareholders’ equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized —
Series A Cumulative Preferred Stock, 2,300,000 issued and outstanding			23				23
Series D Cumulative Preferred Stock, 8,000,000 issued and outstanding			80				80
Common stock, $0.01 par value, 200,000,000 shares authorized, 122,754,192 shares issued and 119,739,972 shares outstanding at June 30, 2008 and 122,765,691 shares issued and 120,376,055 shares outstanding at December 31, 2007			1,228				1,228
Additional paid-in capital			1,458,262				1,455,917
Accumulated other comprehensive loss			(149	)			(115	)
Accumulated deficit			(238,307	)			(153,664	)
Treasury stock, at cost, 3,014,220 and 2,389,636 shares, respectively			(22,369	)			(18,466	)
Total shareholders’ equity			1,198,768				1,285,003
Total liabilities and shareholders’ equity		$	4,170,395			$	4,380,411

See Notes to Consolidated Financial Statements.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSDIARIES

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
		(Unaudited)
Revenue
Rooms		$	231,296			$	213,034			$	448,165			$	321,818
Food and beverage			67,305				63,585				131,706				93,111
Rental income from operating leases			1,526				1,184				2,872				1,184
Other			14,094				13,324				27,440				18,213
Total hotel revenue			314,221				291,127				610,183				434,326
Interest income from notes receivable			3,216				2,866				6,472				6,221
Asset management fees and other			921				331				1,442				663
Total revenue			318,358				294,324				618,097				441,210
Expenses
Hotel operating expenses:
Rooms			49,901				46,304				97,510				70,297
Food and beverage			45,872				44,007				90,907				65,356
Other expenses			89,882				82,499				178,753				125,815
Management fees			12,142				10,950				23,783				16,217
Total hotel expenses			197,797				183,760				390,953				277,685
Property taxes, insurance and other			16,802				15,184				32,047				22,972
Depreciation and amortization			40,077				50,075				84,121				66,055
Corporate general and administrative			8,365				7,148				16,069				11,741
Total expenses			263,041				256,167				523,190				378,453
Operating Income			55,317				38,157				94,907				62,757
Equity earnings in unconsolidated joint venture			1,287				—				1,813				—
Interest income			351				975				897				1,473
Other income			2,569				—				2,865				—
Interest expense and amortization of loan costs			(38,090	)			(39,122	)			(77,055	)			(54,869	)
Write-off of loan costs and exit fees			—				(3,585	)			—				(4,075	)
Unrealized (losses)/gains on derivatives			(55,438	)			66				(51,389	)			31
(Loss)/Income before Income Taxes, Minority Interests and Discontinued Operations			(34,004	)			(3,509	)			(27,962	)			5,317
Income tax (expense)/benefit			(319	)			162				(729	)			1,156
Minority interests in (earnings)/losses of consolidated joint ventures			(2,718	)			523				(2,784	)			523
Minority interests in (earnings)/losses of operating partnership			2,891				137				2,351				(1,298	)
(Loss)/Income from Continuing Operations			(34,150	)			(2,687	)			(29,124	)			5,698
Income from discontinued operations			7,646				23,771				8,805				26,877
Net (Loss)/Income			(26,504	)			21,084				(20,319	)			32,575
Preferred dividends			(7,018	)			(7,033	)			(14,036	)			(9,826	)
Net (Loss)/Income Available to Common Shareholders		$	(33,522	)		$	14,051			$	(34,355	)		$	22,749
(Loss)/Income Available to Common Shareholders Per Share:
Basic —
Loss from continuing operations		$	(0.34	)		$	(0.09	)		$	(0.36	)		$	(0.05	)
Income from discontinued operations			0.06				0.22				0.07				0.30
Net (loss)/income		$	(0.28	)		$	0.13			$	(0.29	)		$	0.25
Diluted —
Loss from continuing operations		$	(0.34	)		$	(0.09	)		$	(0.36	)		$	(0.05	)
Income from discontinued operations			0.06				0.22				0.07				0.30
Net (loss)/income		$	(0.28	)		$	0.13			$	(0.29	)		$	0.25
Weighted average common shares outstanding —
Basic			118,911				108,138				118,870				90,275
Diluted			118,911				108,138				118,870				90,275
Dividends Declared Per Common Share		$	0.21			$	0.21			$	0.42			$	0.42

See Notes to Consolidated Financial Statements.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES

		Six Months Ended June 30,
		2008								2007
		Shares				Amounts				Shares				Amounts
		(Unaudited)
Preferred Stocks
Series A, $0.01 par value
Balance at end of period			2,300			$	23				2,300			$	23
Series C, $0.01 par value
Balance at beginning of period			—				—				—				—
Issuance			—				—				8,000				80
Balance at end of period			—				—				8,000				80
Series D, $0.01 par value
Balance at end of period			8,000				80				—				—
Common Stock
Balance at beginning of year			122,766				1,228				72,943				729
Shares issued in follow-on public offering			—				—				48,875				489
Issuance of restricted shares under stock-based compensation plan			81				—				855				8
Restricted shares issued from treasury shares			(81	)			—				(37	)			—
Forfeitures of restricted shares under stock-based compensation plan			(12	)			—				(2	)			—
Balance at end of period			122,754				1,228				122,634				1,226
Additional Paid-in Capital
Balance at beginning of year							1,455,917								708,420
Shares issued in follow-on public offering							—								547,760
Issuance of Series C preferred stock							—								193,239
Dividends declared on Series C preferred stock							—								705
Issuance of restricted shares under stock-based compensation plan							(627	)							(268	)
Stock-based compensation							2,972								2,773
Balance at end of period							1,458,262								1,452,629
Accumulated Deficit
Balance at beginning of year							(153,664	)							(67,574	)
Net (loss)/income							(20,319	)							32,575
Dividends declared — common shares							(50,288	)							(41,233	)
Dividends declared — Series A preferred stock							(2,458	)							(2,458	)
Dividends declared — Series B preferred stock							(3,128	)							(3,128	)
Dividends declared — Series C preferred stock							—								(4,240	)
Dividends declared — Series D preferred stock							(8,450	)							—
Balance at end of period							(238,307	)							(86,058	)
Accumulated Other Comprehensive Income/(Loss)
Balance at beginning of year							(115	)							111
Reclassified to interest expense							21								(150	)
Change in unrealized loss on derivative instruments							14								3
Foreign currency translation adjustment							(126	)							22
Reclassification resulting from sale of property							57								—
Balance at end of period							(149	)							(14	)
Treasury Stock
Balance at beginning of year			2,390				(18,466	)			—				—
Purchases of treasury shares			705				(4,622	)			58				(700	)
Reissuance of treasury shares			(81	)			719				(37	)			453
Balance at end of period			3,014				(22,369	)			21				(247	)
Total Shareholders’ Equity						$	1,198,768							$	1,367,639

See Notes to Consolidated Financial Statements.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSDIARIES

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
		(Unaudited)
Net (Loss)/Income		$	(26,504	)		$	21,084			$	(20,319	)		$	32,575
Other Comprehensive Income/(Loss)
Reclassification to interest expense			15				1				21				(150	)
Net unrealized gains/(losses) on derivative instruments			21				83				14				3
Foreign currency translation adjustment			10				22				(126	)			22
Other comprehensive income/(loss)			46				106				(91	)			(125	)
Total Comprehensive (Loss)/Income		$	(26,458	)		$	21,190			$	(20,410	)		$	32,450

See Notes to Consolidated Financial Statements.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES

		Six Months Ended
		June 30,
		2008				2007
		(Unaudited)
Cash Flows from Operating Activities
Net (loss)/income		$	(20,319	)		$	32,575
Adjustments to reconcile net (loss)/income to net cash flow provided by operating activities:
Depreciation and amortization			87,529				77,409
Equity in earnings of unconsolidated joint venture			(1,813	)			—
Gains on sales of properties			(6,903	)			(34,706	)
Amortization of loan costs			3,509				2,923
Write-off of loan costs, premiums and exit fees			(1,347	)			5,966
Unrealized losses/(gains) on derivatives			51,389				(31	)
Stock-based compensation			3,469				2,966
Minority interests in consolidated joint ventures and operating partnership			1,190				3,283
Changes in operating assets and liabilities —
Restricted cash			2,139				(26,041	)
Accounts receivable and inventories			(9,962	)			(17,423	)
Prepaid expenses and other assets			582				(22,331	)
Accounts payable and accrued expenses			(22,397	)			30,638
Other liabilities			(4,853	)			(8,874	)
Net cash provided by operating activities			82,213				46,354
Cash Flows from Investing Activities
Acquisitions/originations of notes receivable			(39,530	)			—
Proceeds from sale of notes receivable			16,165				30,046
Investment in unconsolidated joint venture			(17,769	)			—
Acquisitions of hotel properties			—				(2,043,067	)
Improvements and additions to hotel properties			(76,989	)			(44,923	)
Proceeds from sales of discontinued operations			282,605				143,907
Net cash provided by/(used in) investing activities			164,482				(1,914,037	)
Cash Flows from Financing Activities
Borrowings on indebtedness and capital leases			185,900				1,903,587
Repayments of indebtedness and capital leases			(332,509	)			(637,572	)
Payments of deferred loan costs			(856	)			(14,376	)
Payments of dividends			(70,087	)			(41,014	)
Repurchases of treasury stock			(4,594	)			(700	)
Payments for derivatives			(4,576	)			—
Proceeds received from follow-on public offerings			—				548,249
Proceeds received from issuance of Series C preferred stock			—				193,319
Other			280				—
Net cash (used in)/provided by financing activities			(226,442	)			1,951,493
Effect of foreign currency exchange rate on cash			—				22
Net increase in cash and cash equivalents			20,253				83,810
Cash and cash equivalents at beginning of year			92,271				73,343
Cash and cash equivalents at end of period		$	112,524			$	157,175
Supplemental Cash Flow Information
Interest paid		$	83,032			$	52,029
Income taxes paid		$	574			$	1,818
Supplemental Disclosure of Investing and Financing Activities
Note receivable contributed to unconsolidated joint venture		$	5,230			$	—
Hotel properties and capital leases acquired		$	—			$	2,706,925
Net other liabilities acquired (net of other assets acquired and cash received)		$	—			$	101,803
Debt assumed in acquisition		$	—			$	562,055
Non-cash dividends on Series C preferred stock		$	—			$	705

See Notes to Consolidated Financial Statements.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES

1. Organization and Description of Business

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

     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 asset swap, 43 of these hotels were included in our hotel property portfolio at June 30, 2008.

     As of June 30, 2008, we owned 101 hotel properties directly and six hotel properties through equity investments with joint venture partners, which represents 24,402 total rooms, or 24,060 net rooms excluding those attributable to joint venture partners. All of these hotel properties are located in the United States. As of June 30, 2008, we also wholly owned $113.0 million of mezzanine or first-mortgage loans receivable. In addition, at June 30, 2008, we had a 25% ownership in $94.1 million of mezzanine loans held in a joint venture. See Notes 3 and 6.

     For federal income tax purposes, we elected to be treated as a real estate investment trust (“REIT”), which imposes limitations related to operating hotels. As of June 30, 2008, 106 of our hotel properties were leased or owned by our wholly-owned subsidiaries that are treated as taxable REIT subsidiaries for federal income tax purposes (collectively, these subsidiaries are referred to as “Ashford TRS”). Ashford TRS then engages third-party or affiliated hotel management companies to operate the hotels under management contracts. Hotel operating results related to these properties are included in the consolidated results of operations. As of June 30, 2008, one hotel property was leased on a triple-net lease basis to a third-party tenant who operates the hotel. Rental income from this operating lease is included in the consolidated results of operations.

     Remington Lodging & Hospitality, L.P. and Remington Management, L.P. (collectively, “Remington Lodging”), our primary property managers, are beneficially wholly owned by Mr. Archie Bennett, Jr., our Chairman, and Mr. Montgomery J. Bennett, our Chief Executive Officer. As of June 30, 2008, Remington Lodging managed 43 of our 107 hotel properties while third-party management companies managed the remaining 64 hotel properties.

2. Significant Accounting Policies

     Basis of Presentation — The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These consolidated financial statements include the accounts of Ashford, its majority-owned subsidiaries and its majority-owned joint ventures in which it has a controlling interest. All significant intercompany accounts and transactions between consolidated entities have been eliminated in these consolidated financial statements.

     These financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our 2007 Annual Report on Form 10-K to Shareholders.

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

     Certain amounts in the consolidated financial statements for the three and six months ended June 30, 2007 have been reclassified to conform to the presentation format adopted in 2008. These reclassifications have no effect on the net income or financial position previously reported.

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

	•		The operations of our hotels have historically been seasonal. This seasonality pattern causes fluctuations in the operating results. Consequently, operating results for the three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.
	•		Marriott International, Inc. (“Marriott”) manages 41 of our properties. For these 41 Marriott-managed hotels, the fiscal year reflects twelve weeks of operations for the first three quarters of the year and sixteen weeks for the fourth quarter of the year. Therefore, in any given quarterly period, period-over-period results will have different ending dates. For Marriott-managed hotels, the second quarters of 2008 and 2007 ended June 13 and June 15, respectively.

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

     Revenue Recognition — Hotel revenues, including room, food, beverage, and ancillary revenues such as long-distance telephone service, laundry, and space rentals, are recognized when services have been rendered. Rental income, representing income from leasing hotel properties to third-party tenants on triple-net operating leases, is recognized on a straight-line basis over the lease terms. Interest income, representing interest on the mezzanine and first mortgage loan portfolio, is recognized when earned. Asset management fees, representing primarily asset management services performed on behalf of a related party (including services such as risk management and insurance procurement, tax assistance, franchise agreements and equipment leases negotiations, monitoring loan covenants compliance, capital and operating budgets preparation, and property litigation management), are recognized when services are rendered. Taxes collected from customers and submitted to taxing authorities are not recorded in revenue.

     Investments in Hotel Properties — Hotel properties are generally stated at cost. However, the initial properties contributed upon the Ashford’s formation are stated at the predecessor’s historical cost, net of any impairment charges, if any, plus a 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 acquisition of the 51-hotel property portfolio from CNL Hotels and Resorts, Inc. (the “CNL Portfolio”) on April 11, 2007, and subsequent asset swap completed on December 15, 2007, we own between 75% to 89% ownership interests 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 interests in the joint ventures. All improvements and additions which extend the useful life of the hotel properties are capitalized.

     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.

     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. Loans acquired are recorded at cost, net of any impairment charges, if any. 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. Loans receivable are reviewed for potential impairment at each balance sheet date. A loan receivable is considered impaired when it becomes probable, based on current information, that we will be unable to collect all amounts due according to the loan’s contractual terms. The amount of impairment, if any, is measured by comparing the recorded amount of the loan to the present value of the

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

expected future cash flows or the fair value of the collateral. If a loan was deemed to be impaired, we would record a reserve for loan losses through a charge to income for any shortfall. To date, no such impairment charges have been recognized.

     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 the 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.

     Derivative Financial Instruments and Hedges — We enter into interest rate swap, floor and cap agreements to increase stability related to interest expense and to manage our exposure to interest rate movements or other identified risks. To accomplish this objective, we primarily use interest rate swaps and caps within our cash flow hedging strategy. We also uses 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 enhance dividend coverage. 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. 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.

     Recently Adopted Accounting Standards - In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements,” which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS No. 157 establishes a common definition of fair value, provides a framework for measuring fair value under accounting principles generally accepted in the United States and expands disclosure requirements about fair value measurements. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 to delay the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This standard permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 must be applied prospectively, and the effect of the first remeasurement to fair value, if any, should be reported as a cumulative - effect adjustment to the opening balance of retained earnings.

     We adopted these statements as of January 1, 2008 and the adoption did not have a material impact on our financial position and results of operations. Additional disclosures in accordance with SFAS No. 157 have been included in Note 15. We did not elect to measure additional items at fair value under SFAS No. 159.

     Recently Issued Accounting Standards — In December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), “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,

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

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 No. 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 No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, and will impact the recording of minority interest. We are currently evaluating the effects the adoption of SFAS No. 160 will have 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 No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 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.

     In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” effective 60 days following the Securities and Exchange Commission’s (the “SEC”) approval of the Public Company Accounting Oversight Board (“PCAOB”) amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. SFAS No. 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 a change in current practice.

3. Summary of 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. The PREI JV, which will be funded over the next two years, may ultimately be capitalized with up to $300 million from investors in a fund managed by PREI and $100 million from us. We and PREI contribute 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, the PREI JV is not consolidated in our financial statements. See Note 6.

     In addition, during the six months ended June 30, 2008, we completed the following mezzanine loans transactions including the loans acquired through the PREI JV ($ in thousands):

														Original				Discounted				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		LIBOR + 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

     Subsequent to June 30, 2008, we acquired a 100% ownership in a mezzanine loan with a principal amount of $164.0 million and an interest rate of LIBOR plus 2.5% for $98.4 million plus accrued interest.

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

     Sales of Properties — During the six months ended June 30, 2008, we completed the sale of five hotel properties and an office building for an aggregate sales price of $288.9 million. Net proceeds from the sales were $282.6 million and a net gain of $6.9 million was recorded. Based on the portfolio refinancing agreement, we were required to repay a total of $332.5 million in outstanding debt with the sales proceeds and some corporate funds. In connection with the repayments of the debt, we wrote off unamortized loan costs of $739,000 and debt premiums of $2.1 million.

     In July 2008, we completed the sale of two other hotel properties that were classified as held for sale at June 30, 2008.

     Interest Rate Swap Transactions — During the first quarter of 2008, we changed our debt strategy to capitalize on the historical correlation between changes in LIBOR and RevPAR and to enhance dividend coverage. In connection with this strategy, 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. The upfront cost of the swap, LIBOR cap, and floor transactions was $4.6 million. During the second quarter of 2008, the counter party sold a portion of the interest rate swap and interest rate cap notional amounts of $325.0 million and $180.6 million, respectively, to a third party and refunded $484,000 of the transaction price in July 2008. The net fair value at June 30, 2008 was a liability of $47.2 million. See Note 11.

4. Investments in Hotel Properties

     Investments in hotel properties consisted of the following at June 30, 2008 and December 31, 2007 (in thousands):

		June 30,				December 31,
		2008				2007
Land		$	553,336			$	567,438
Buildings and improvements			3,110,661				3,226,708
Furniture, fixtures and equipment			345,921				278,598
Construction in progress			10,827				68,569
Total cost			4,020,745				4,141,313
Accumulated depreciation			(331,832	)			(255,576	)
Investment in hotel properties, net		$	3,688,913			$	3,885,737

     During the six months ended June 30, 2008, an intangible asset of $10.7 million relating to advance bookings preliminarily recorded in connection with the CNL Acquisition was reclassified to buildings as a result of a third-party valuation. We finalized the allocation of the CNL Acquisition purchase price in the second quarter of 2008 based on the final appraisals performed by a third-party appraiser.

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

5. Notes Receivable

     Notes receivable consisted of the following at June 30, 2008 and December 31, 2007 (in thousands):

		June 30,				December 31,
		2008				2007
Mezzanine loan secured by various mortgage-backed securities sponsored by government agencies, matures September 2011, at an interest rate of 14% (12% pay rate with deferred interest through the first two years), with interest-only payments through maturity		$	11,000			$	11,000
Mezzanine loan secured by one hotel property, matures July 2010, at an interest rate of 14%, with interest-only payments through maturity			4,000				4,000
Mezzanine loan secured by one hotel property, matures September 2008, with a one-year extension option, at an interest rate of LIBOR plus 11.15%, with interest-only payments through maturity			3,000				3,000
First mortgage loan secured by one hotel property, matures October 2008, with two one-year extension options, at an interest rate of LIBOR plus 9%, with interest-only payments through maturity			18,200				18,200
Mezzanine loan secured by 105 hotel properties, matures April 2009, at an interest rate of LIBOR plus 5%, with interest-only payments through maturity			25,694				25,694
Mezzanine loan secured by one hotel property, matures December 2009, at an interest rate of LIBOR plus 6.5%, with interest-only payments through maturity			7,000				7,000
Mezzanine loan secured by one hotel property, matures December 2009, at an interest rate of LIBOR plus 5.75%, with interest-only payments through maturity			4,000				4,000
Mezzanine loan secured by two hotel properties, matures January 2018, at an interest rate of 14%, with interest-only payments through maturity (1)			—				21,500
Mezzanine loan secured by one hotel property, matures January 2011, at an interest rate of LIBOR plus 9%, with interest-only payments through maturity			7,056				—
Mezzanine loan secured by one hotel property, matures June 2017, at an interest rate of LIBOR plus 9.66%, with interest-only payments through maturity			33,172				—
Gross notes receivable			113,122				94,394
Deferred income, net			(92	)			(169	)
Net notes receivable		$	113,030			$	94,225
Weighted average interest rate			11.2	%			12.4	%

     In general, our notes receivable have extension options, prohibit prepayment through a certain period, and require decreasing prepayment penalties through maturities. We expect that the $4.0 million note due July 2010, at an interest rate of 14%, will be repaid in August 2008. At June 30, 2008, all notes receivable were current and no reserves for loan losses were recorded.

     In July 2008, we acquired a mezzanine loan with a principal amount of $164.0 million and at an interest rate of LIBOR plus 2.5% for $98.4 million plus accrued interest.

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

6. Investment in Unconsolidated Joint Venture

     We have a 25% of ownership in the PREI JV which invests in mezzanine loans (see Note 3). At June 30, 2008, our investment in the PREI JV (see Note 3) consisted of the following (in thousands):

25% of a mezzanine loan at par value secured by two hotel properties, matures January 2018, at an interest rate of 14%, with interest-only payments through maturity		$	5,356
25% of a mezzanine loan acquired at discounted price (face value of $84,032), secured by 29 hotel properties, matures August 2010 with two one-year extension options, at an interest rate of LIBOR plus 2.75%, and with interest-only payments through maturity			18,167
Others, net			(419	)
Equity earnings in joint venture			1,813
Total		$	24,917

7. Assets Held for Sale and Discontinued Operations

     The following table summarizes the operating results of the discontinued operations for the three and six months ended June 30, 2008 and 2007 ($ in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Number of properties:
Properties designated as held for sale at end of period			2				17				2				17
Properties sold during the period			3				12				6				14
Total included in discontinued operations			5				29				8				31
Results of operations:
Operating revenues		$	21,520			$	64,754			$	43,373			$	87,233
Operating expenses			16,316				46,955				35,761				64,421
Operating income			5,204				17,799				7,612				22,812
Depreciation and amortization			(1,125	)			(10,138	)			(3,407	)			(11,354	)
Gain on sales of properties			6,015				33,317				6,903				34,706
Interest expense and amortization of loan costs			(1,058	)			(6,347	)			(2,684	)			(7,338	)
Write-off of loan costs, premiums and exit fees			(515	)			(1,679	)			1,347				(1,891	)
Income before income taxes and minority interest			8,521				32,952				9,771				36,935
Provision for income taxes			(209	)			(7,065	)			(209	)			(7,550	)
Minority interest in earnings of operating partnership			(666	)			(2116	)			(757	)			(2,508	)
Income from discontinued operations		$	7,646			$	23,771			$	8,805			$	26,877

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

8. Indebtedness

     Indebtedness consisted of the following at June 30, 2008 and December 31, 2007 (in thousands):

		June 30,				December 31,
		2008				2007
Mortgage loan secured by 25 hotel properties, matures between July 1, 2015 and February 1, 2016, at an average interest rate of 5.42%		$	455,115			$	455,115
Mortgage loan secured by 16 hotel properties, matures between December 11, 2014 and December 11, 2015, at an average interest rate of 5.73%			211,475				211,475
Mortgage loan secured by 28 hotel properties, matures April 11, 2017, at an average fixed interest rate of 5.95%			928,465				928,465
Loan secured by 13 hotel properties, matures May 2009, at an interest rate of LIBOR* plus 1.65%, with three one-year extension options			213,889				213,889
Secured credit facility secured by mezzanine notes receivable, matures April 9, 2010, at an interest rate of LIBOR* plus a range of 1.55% to 1.95% depending on the loan-to-value ratio, with two one-year extension options			65,000				65,000
Term loan secured by one hotel property, matures October 2008, at an interest rate of LIBOR* plus 2.0%, with three one-year extension options(1)			—				47,450
Mortgage loan secured by one hotel property, matures December 1, 2017, at interest rates of 7.39% at June 30, 2008 and 7.24% at December 31, 2007, with a remaining premium of approximately $1.5 million			50,430				52,474
Mortgage loan secured by one hotel property, matures December 8, 2016, at an interest rate of 5.81%			101,000				101,000
Mortgage loan secured by five hotel properties, matures December 11, 2009, at an interest rate of LIBOR* plus 1.72%, with two one-year extension options			185,900				184,000
Mortgage loan secured by one hotel property, matures August 1, 2010, at an interest rate of 8.08%			—				45,752
Mortgage loan secured by one hotel property, matures June 1, 2011, at an interest rate of LIBOR* plus 2%			19,740				42,185
Mortgage loan secured by one hotel property, matures July 1, 2008, at an interest rate of 5.67%			—				31,670
Mortgage loan secured by one hotel property, matures January 1, 2011, at an interest rate of 8.32%			6,034				6,102
Mortgage loan secured by one hotel property, matures January 1, 2023, at an interest rate of 7.78%			8,076				8,187
TIF loan secured by one hotel property, matures June 30, 2018, at an interest rate of 12.85%			7,783				7,783
Mortgage loan secured by one hotel property, matures April 1, 2009, at an interest rate of 5.6%			29,758				30,118
Mortgage loan secured by one hotel property, matures April 5, 2011, at an interest rate of 5.47%			67,175				67,910
Mortgage loan secured by one hotel property, matures March 1, 2010, at an interest rate of 5.95%			75,000				75,000
Mortgage loan secured by two hotel properties, matures January 1, 2009, at an interest rate of 5.5%			127,200				127,200
Total			2,552,040				2,700,775
Indebtedness related to assets held for sale			(11,134	)			(61,229	)
Indebtedness related to continuing operations		$	2,540,906			$	2,639,546

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

     On August 6, 2008, we refinanced the $127.2 million mortgage loan maturing in 2009 secured by two hotel properties with a new $160.0 million loan. The new loan has an interest rate of LIBOR plus 2.75% and is for a three year term with two one-year extension options.

9. Minority Interests

     Minority Interest in Consolidated Joint Ventures — Minority joint venture partners had ownership ranging from 11% to 25% of six hotel properties at June 30, 2008.

     Minority Interest in Operating Partnership — During the six months ended June 30, 2008, we issued 1,056,000 operating partnership units in the form of long term incentive partnership units (“LTIP”) for $0.05 per unit to our executives. These units are vesting at specified rates between 2008 and 2012. Upon vesting, each LTIP unit can be redeemed for one unit of the operating partnership which then can be settled in Ashford’s common share or cash at Ashford’s discretion. These units had an aggregate value of $6.6 million at the date of grant and which is being amortized over the vesting period. We recognized compensation expense of $362,000 and $405,000 for the three and six months ended June 30, 2008, respectively, related to the units granted. The unamortized value of the LTIP units was $6.2 million at June 30, 2008 with a weighted average remaining vesting period of approximately 3.1 years.

     During the six months ended June 30, 2008, we declared cash dividends of $444,000, or $0.21 per unit per quarter, related to the LTIP units that were recorded as a reduction of the minority interest in operating partnership.

     At June 30, 2008 and December 31, 2007, operating partnership unit holders represented minority ownership of 10.74% and 9.98% in the operating partnership, respectively.

10. Income/(Loss) Per Share

     Basic income/(loss) per common share is calculated by dividing net income/(loss) available to common shareholders by the weighted average common shares outstanding during the period. Diluted income/(loss) per common share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares, whereby such exercise or conversion would result in lower income per share. The following table reconciles the amounts used in calculating basic and diluted income/(loss) per share for the three and six months ended June 30, 2008 and 2007 (in thousands, except per share amounts):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
(Loss)/income from continuing operations		$	(34,150	)		$	(2,687	)		$	(29,124	)		$	5,698
Less: Preferred dividends			(7,018	)			(7,033	)			(14,036	)			(9,826	)
(Loss) from continuing operations available to common shareholders			(41,168	)			(9,720	)			(43,160	)			(4,128	)
Income from discontinued operations			7,646				23,771				8,805				26,877
Net (loss)/income available to common shareholders		$	(33,522	)		$	14,051			$	(34,355	)		$	22,749
Total weighted average basic and diluted shares			118,911				108,138				118,870				90,275
(Loss)/income per share:
Basic —
(Loss) from continuing operations		$	(0.34	)		$	(0.09	)		$	(0.36	)		$	(0.05	)
Income from discontinued operations			0.06				0.22				0.07				0.30
Net (loss)/income		$	(0.28	)		$	0.13			$	(0.29	)		$	0.25
Diluted —
(Loss) from continuing operations		$	(0.34	)		$	(0.09	)		$	(0.36	)		$	(0.05	)
Income from discontinued operations			0.06				0.22				0.07				0.30
Net (loss)/income		$	(0.28	)		$	0.13			$	(0.29	)		$	0.25

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

     Due to their anti-dilutive effect, the computation of diluted income/(loss) per share does not reflect the adjustments for the following items for the three and six months ended June 30, 2008 and 2007 (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
(Loss)/income from continuing operations available to common shareholders:
Minority interest in (loss)/income of operating partnership		$	(2,891	)		$	(137	)		$	(2,351	)		$	1,298
Dividends to Preferred B shares			1,564				1,564				3,128				3,128
Total		$	(1,327	)		$	1,427			$	777			$	4,426
Diluted shares:
Number of shares from assumed conversion of Preferred B shares			7,448				7,448				7,448				7,448
Assumed conversion of weighted outstanding operating partnership units			14,394				13,512				13,928				13,512
Incremental dilutive shares from restricted stock awards			6				66				5				464
Total			21,848				21,026				21,381				21,424

11. Derivatives and Hedging Activities

     We enter into interest rate swaps to manage the impact of interest rate fluctuations on our results of operations and cash flows. We also use non-hedge derivatives to capitalize on the historical correlation between changes in LIBOR and RevPAR and to enhance dividend coverage. In March 2008, we executed a five-year interest swap on $1.8 billion of our existing fixed-rate debt at a weighted average interest rate of 5.84% for floating-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. We paid $4.1 million to enter into these transactions (after a $484,000 refund in July 2008, from the counter party for selling notional amounts of $325.0 million of the interest rate swap and $180.6 million of the interest rate cap to another third party.) These derivatives are reported net in our consolidated balance sheets in accordance with FASB Interpretation No. 39 (“FIN 39”), “Offsetting Amounts Related to Certain Contract.” At June 30, 2008, the net fair value of these derivatives was a liability of $47.3 million. Because these derivatives were not designated and did not qualify as hedges, the gains or losses from changes in fair value are recognized in earnings. For the three and six months ended June 30, 2008, unrealized losses of $55.4 million and $51.4 million were recognized for the fair value changes.

     In addition to the above, we had seven interest rate caps with a notional amount totaling $669.5 million and interest rates ranging from 6.0% to 7.0%. Of these interest rate caps, $212.0 million was designated as cash flow hedges and the remaining $457.5 million did not meet the applicable hedge accounting criteria. At June 30, 2008, these derivatives had a fair value of $37,000, which is included in “Other assets” on the consolidated balance sheet. For the three and six months ended June 30, 2008, unrealized gains of $8,000 and $2,000, respectively, were recognized for the fair value changes. For the three and six months ended June 30, 2007, unrealized gains of $66,000 and $31,000, respectively, were recognized for the fair value changes. During the next twelve months, we expect $105,000 of accumulated other comprehensive loss will be reclassified to interest expense.

12. Capital Stock and Stock-Based Compensation

     Common Stock Repurchases — Pursuant to our stock repurchase plan, we repurchased 700,800 shares of our common stock for approximately $4.6 million during the six months ended June 30, 2008. In addition, we acquired 4,854 shares of our common stock as partial tax payments for shares issued under our stock-based compensation plan.

     Stock Related Grants and Stock-Based Compensation — During the six months ended June 30, 2008, we granted 81,070 shares of our common stock to our directors, executive officers and certain employees under our restricted stock-based compensation plan. These shares had a weighted average grant date value of $6.16 per share.

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

     During the three and six months ended June 30, 2008, we recognized compensation expense of $1.9 million and $3.5 million, respectively, related to our stock-based compensation plan. During the three and six months ended June 30, 2007, we recognized such expense of $1.9 million and $3.0 million, respectively. As of June 30, 2008, the unamortized value of the unvested shares of restricted stock was $9.0 million with an average remaining vesting period of approximately 2.2 years.

     Dividends — Common stock and unit dividends. During the six months ended June 30, 2008, we declared cash dividends of $54.4 million, or $0.21 per share per quarter, to both common shareholders and common unit holders.

     Series A Cumulative Preferred dividends. During the six months ended June 30, 2008, we declared cash dividends of $2.5 million, or $0.5344 per share per quarter, to Series A preferred stockholders.

     Series B Preferred dividends. During the six months ended June 30, 2008, we declared cash dividends of $3.1 million, or $0.21 per share per quarter, to Series B preferred stockholders. We also declared cash dividends of $1.4 million to Series B unit holders.

     Series D Cumulative Preferred dividends. During the six months ended June 30, 2008, we declared cash dividends of $8.5 million, or $0.528125 per share per quarter, to Series D preferred stockholders.

13. Commitments and Contingencies

     Restricted Cash — Under certain management and debt agreements existing at June 30, 2008, we escrow payments required for insurance, real estate taxes, and debt service. In addition, for certain properties based on the terms of the underlying debt agreement, we escrow 4% to 6% of gross revenue for capital improvements.

     Franchise Fees — Under franchise agreements existing at June 30, 2008, we pays franchisors royalty fees between 2.5% and 6% of gross room revenue as well as fees for marketing, reservations, and other related activities aggregating between 1% and 3.75% of gross room revenue. These franchise agreements expire from 2011 through 2027. When a franchise term expires, the franchisor has no obligation to renew the franchise. A franchise termination could have a material adverse effect on the operations or the underlying value of the affected hotel due to loss of associated name recognition, marketing support, and centralized reservation systems provided by the franchisor. A franchise termination could also have a material adverse effect on cash available for distribution to stockholders. In addition, if we terminate a franchise prior to its expiration date, we may be liable for up to three times the average annual franchise fees incurred for that property.

     Management Fees — Under management agreements existing at June 30, 2008, we pay a) monthly property management fees equal to the greater of $10,000 (CPI adjusted) or 3% of gross revenues, or in some cases 3% to 7% of gross revenues, as well as annual incentive management fees, if applicable, b) market service fees on approved capital improvements, including project management fees of up to 4% of project costs, for certain hotels, and c) other general fees at current market rates as approved by our independent directors, if required. These management agreements expire from 2008 through 2027, with renewal options. If we terminate a management agreement prior to its expiration, we may be liable for estimated management fees through the remaining term, liquidated damages or, in certain circumstances, we may substitute a new management agreement.

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

14. Segment Reporting

     We presently operate in two business segments within the hotel lodging industry: direct hotel investing and hotel financing. Direct hotel investing refers to owning hotels through either acquisition or new development. Management reports operating results of direct hotel investments on an aggregate basis as substantially all of our hotel investments have similar economic characteristics and exhibit similar long-term financial performance. Hotel financing refers to

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

owning subordinate hotel-related mortgages through acquisition or origination. We do not allocate corporate-level accounts to our operating segments, including corporate general and administrative expenses, non-operating interest income, interest expense, income taxes, and minority interest.

     For the three and six months ended June 30, 2008 and 2007, financial information related to our reportable segments was as follows (in thousands):

		Direct Hotel				Hotel
		Investing				Financing				Corporate				Consolidated
Three Months Ended June 30, 2008:
Total revenues		$	315,142			$	3,216			$	—			$	318,358
Total hotel expenses			197,797				—				—				197,797
Property taxes, insurance and other			16,802				—				—				16,802
Depreciation and amortization			40,077				—				—				40,077
Corporate general and administrative			—				—				8,365				8,365
Total expenses			254,676				—				8,365				263,041
Operating income/(loss)			60,466				3,216				(8,365	)			55,317
Equity earnings of unconsolidated joint venture			—				1,287				—				1,287
Interest income			—				—				351				351
Other income			—				—				2,569				2,569
Interest expense and amortization of loan costs			—				—				(38,090	)			(38,090	)
Unrealized losses on derivatives			—				—				(55,438	)			(55,438	)
Income/(loss) before income taxes, minority interests and discontinued operations			60,466				4,503				(98,973	)			(34,004	)
Income tax expense			—				—				(319	)			(319	)
Minority interests in earnings of consolidated joint ventures			—				—				(2,718	)			(2,718	)
Minority interests in losses of operating partnership			—				—				2,891				2,891
Income/(loss) from continuing operations		$	60,466			$	4,503			$	(99,119	)		$	(34,150	)
Three Months Ended June 30, 2007:
Total revenues		$	291,458			$	2,866			$	—			$	294,324
Total hotel expenses			183,760				—				—				183,760
Property taxes, insurance and other			15,184				—				—				15,184
Depreciation and amortization			50,075				—				—				50,075
Corporate general and administrative			—				—				7,148				7,148
Total expenses			249,019				—				7,148				256,167
Operating income/(loss)			42,439				2,866				(7,148	)			38,157
Interest income			—				—				975				975
Interest expense and amortization of loan costs			—				—				(39,122	)			(39,122	)
Write-off of loan costs			—				—				(3,585	)			(3,585	)
Unrealized gains on derivatives			—				—				66				66
Income/(loss) before income taxes, minority interests and discontinued operations			42,439				2,866				(48,814	)			(3,509	)
Income tax benefit			—				—				162				162
Minority interests in losses of consolidated joint ventures			—				—				523				523
Minority interests in losses of operating partnership			—				—				137				137
Income/(loss) from continuing operations		$	42,439			$	2,866			$	(47,992	)		$	(2,687	)