UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

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

Commission file number: 001-31775

ASHFORD HOSPITALITY TRUST, INC.

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

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

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

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

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act):

     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		51,125,469
(Class)		Outstanding at August 6, 2010

 

 

ASHFORD HOSPITALITY TRUST, INC
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2010

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1.				FINANCIAL STATEMENTS (Unaudited)			3
				Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009			3
				Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009			4
				Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2010 and 2009			5
				Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2010			6
				Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009			7
				Notes to Consolidated Financial Statements			8
ITEM 2.				MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			29
ITEM 3.				QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			39
ITEM 4.				CONTROLS AND PROCEDURES			39
PART II. OTHER INFORMATION
ITEM 1.				LEGAL PROCEEDINGS			40
ITEM 1A.				RISK FACTORS			40
ITEM 2.				UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			40
ITEM 6.				EXHIBITS			40
SIGNATURES							41
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

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

		June 30,				December 31,
		2010				2009
		(Unaudited)
Assets
Investments in hotel properties, net		$	3,323,468			$	3,383,759
Cash and cash equivalents			174,852				165,168
Restricted cash			72,230				77,566
Accounts receivable, net of allowance of $584 and $492, respectively			43,270				31,503
Inventories			2,923				2,975
Notes receivable			35,627				55,655
Investment in unconsolidated joint ventures			21,666				20,736
Asset held for sale			5,100				—
Deferred costs, net			20,259				20,960
Prepaid expenses			16,143				13,234
Interest rate derivatives			124,884				94,645
Other assets			3,034				3,471
Intangible assets, net			2,944				2,988
Due from third-party hotel managers			40,731				41,838
Total assets		$	3,887,131			$	3,914,498
Liabilities and Equity
Liabilities:
Indebtedness		$	2,769,024			$	2,772,396
Capital leases payable			60				83
Accounts payable and accrued expenses			107,549				91,387
Dividends payable			5,566				5,566
Unfavorable management contract liabilities			17,375				18,504
Due to related parties			1,431				1,009
Due to third-party hotel managers			2,723				1,563
Other liabilities			7,786				7,932
Total liabilities			2,911,514				2,898,440
Commitments and contingencies (Note 14)
Preferred stock, $0.01 par value, Series B-1 Cumulative Convertible Redeemable Preferred Stock, 7,447,865 shares issued and outstanding			75,000				75,000
Redeemable noncontrolling interests in operating partnership			102,771				85,167
Equity:
Shareholders’ equity of the Company:
Preferred stock, $0.01 par value, 50,000,000 shares authorized —
Series A Cumulative Preferred Stock, 1,487,900 shares issued and outstanding at June 30, 2010 and December 31, 2009			15				15
Series D Cumulative Preferred Stock, 5,666,797 shares issued and outstanding at June 30, 2010 and December 31, 2009			57				57
Common stock, $0.01 par value, 200,000,000 shares authorized, 123,026,246 and 122,748,859 shares issued at June 30, 2010 and December 31, 2009; 51,137,900 and 57,596,878 shares outstanding at June 30, 2010 and December 31, 2009			1,230				1,227
Additional paid-in capital			1,439,819				1,436,009
Accumulated other comprehensive loss			(908	)			(897	)
Accumulated deficit			(431,428	)			(412,011	)
Treasury stock, at cost, 71,888,346 and 65,151,981 shares at June 30, 2010 and December 31, 2009			(228,296	)			(186,424	)
Total shareholders’ equity of the Company			780,489				837,976
Noncontrolling interests in consolidated joint ventures			17,357				17,915
Total equity			797,846				855,891
Total liabilities and equity		$	3,887,131			$	3,914,498

See Notes to Consolidated Financial Statements.

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
		(Unaudited)
Revenue
Rooms		$	178,685			$	171,551			$	341,007			$	340,915
Food and beverage			47,862				44,188				89,485				89,544
Rental income from operating leases			1,454				1,405				2,542				2,594
Other			10,993				11,360				21,543				22,971
Total hotel revenue			238,994				228,504				454,577				456,024
Interest income from notes receivable			346				2,421				683				8,636
Asset management fees and other			137				205				212				379
Total revenue			239,477				231,130				455,472				465,039
Expenses
Hotel operating expenses:
Rooms			40,879				38,953				79,077				76,667
Food and beverage			32,134				30,734				61,907				62,611
Other expenses			74,713				73,435				143,267				145,510
Management fees			9,461				9,107				18,289				18,208
Total hotel operating expenses			157,187				152,229				302,540				302,996
Property taxes, insurance and other			14,079				15,547				28,996				29,331
Depreciation and amortization			36,129				38,169				73,205				78,494
Impairment charges			(1,188	)			129,456				(1,957	)			129,456
Corporate general and administrative			8,323				6,911				14,981				13,757
Total expenses			214,530				342,312				417,765				554,034
Operating income (loss)			24,947				(111,182	)			37,707				(88,995	)
Equity in earnings of unconsolidated joint ventures			664				617				1,322				1,221
Interest income			51				92				112				197
Other income			15,652				11,214				31,171				21,912
Interest expense and amortization of loan costs			(37,897	)			(36,007	)			(75,459	)			(71,977	)
Write-off of loan costs, premiums and exit fees, net			—				—				—				930
Unrealized gain (loss) on derivatives			16,534				(37,723	)			30,442				(19,691	)
Income (loss) from continuing operations before income taxes			19,951				(172,989	)			25,295				(156,403	)
Income tax expense			(424	)			(91	)			(409	)			(259	)
Income (loss) from continuing operations			19,527				(173,080	)			24,886				(156,662	)
Loss from discontinued operations			(12,025	)			(11,131	)			(12,159	)			(14,037	)
Net income (loss)			7,502				(184,211	)			12,727				(170,699	)
Loss from consolidated joint ventures attributable to noncontrolling interests			427				450				1,129				153
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership			(1,129	)			22,702				(1,921	)			21,144
Net income (loss) attributable to the Company			6,800				(161,059	)			11,935				(149,402	)
Preferred dividends			(4,831	)			(4,831	)			(9,661	)			(9,661	)
Net income (loss) attributable to common shareholders		$	1,969			$	(165,890	)		$	2,274			$	(159,063	)
Income (loss) per share — basic:
Income (loss) from continuing operations attributable to common shareholders		$	0.23			$	(2.20	)		$	0.23			$	(1.94	)
Loss from discontinued operations attributable to common shareholders			(0.19	)			(0.14	)			(0.19	)			(0.16	)
Net income (loss) attributable to common shareholders		$	0.04			$	(2.34	)		$	0.04			$	(2.10	)
Income (loss) per share — diluted:
Income (loss) from continuing operations attributable to common shareholders		$	0.22			$	(2.20	)		$	0.23			$	(1.94	)
Loss from discontinued operations attributable to common shareholders			(0.16	)			(0.14	)			(0.19	)			(0.16	)
Net income (loss) attributable to common shareholders		$	0.06			$	(2.34	)		$	0.04			$	(2.10	)
Weighted average common shares outstanding — basic			50,716				70,882				51,953				75,685
Weighted average common shares outstanding — diluted			72,981				70,882				51,953				75,685
Dividends declared per common share		$	—			$	—			$	—			$	—
Amounts attributable to common shareholders:
Income (loss) from continuing operations, net of tax		$	16,821			$	(151,304	)		$	22,070			$	(137,067	)
Loss from discontinued operations, net of tax			(10,021	)			(9,755	)			(10,135	)			(12,335	)
Preferred dividends			(4,831	)			(4,831	)			(9,661	)			(9,661	)
Net income (loss) attributable to common shareholders		$	1,969			$	(165,890	)		$	2,274			$	(159,063	)

See Notes to Consolidated Financial Statements.

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
		(Unaudited)
Net income (loss)		$	7,502			$	(184,211	)		$	12,727			$	(170,699	)
Other comprehensive income, net of tax:
Change in unrealized loss on derivatives			(84	)			222				(254	)			61
Reclassification to interest expense			164				34				275				68
Total other comprehensive income			80				256				21				129
Comprehensive income (loss)			7,582				(183,955	)			12,748				(170,570	)
Less: Comprehensive loss attributable to noncontrolling interests in consolidated joint ventures			402				414				1,096				127
Less: Comprehensive (income) loss attributable to redeemable noncontrolling interests in operating partnership			(1,138	)			22,675				(1,920	)			21,130
Comprehensive income (loss) attributable to the Company		$	6,846			$	(160,866	)		$	11,924			$	(149,313	)

See Notes to Consolidated Financial Statements.

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
SIX MONTHS ENDED JUNE 30 2010
(in thousands)

																																																						Redeemable
																																		Accumulated												Noncontrolling								Noncontrolling
		Preferred Stock																								Additional								Other												Interests in								Interests in
		Series A								Series D								Common Stock								Paid-in				Accumulated				Comprehensive				Treasury Stock								Consolidated								Operating
		Shares				Amounts				Shares				Amounts				Shares				Amounts				Capital				Deficit				Loss				Shares				Amounts				Joint Ventures				Total				Partnership
Balance at January 1, 2010			1,488			$	15				5,667			$	57				122,749			$	1,227			$	1,436,009			$	(412,011	)		$	(897	)			(65,152	)		$	(186,424	)		$	17,915			$	855,891			$	85,167
Repurchases of treasury shares			—				—				—				—				—				—				—				—				—				(7,158	)			(45,087	)			—				(45,087	)			—
Forfeiture of restricted shares			—				—				—				—				—				—				17				—				—				(46	)			(321	)			—				(304	)			—
Issuance of restricted shares/units under stock/unit-based compensation plan			—				—				—				—				—				—				(3,536	)			—				—				468				3,536				—				—				54
Stock/unit-based compensation expense			—				—				—				—				—				—				2,080				—				—				—				—				—				2,080				1,161
Net income (loss)			—				—				—				—				—				—				—				11,935				—				—				—				(1,129	)			10,806				1,921
Dividends declared — Preferred A shares			—				—				—				—				—				—				—				(1,590	)			—				—				—				—				(1,590	)			—
Dividends declared — Preferred B-1 shares			—				—				—				—				—				—				—				(2,086	)			—				—				—				—				(2,086	)			—
Dividends declared — Preferred D shares			—				—				—				—				—				—				—				(5,985	)			—				—				—				—				(5,985	)			—
Change in unrealized losses on derivatives			—				—				—				—				—				—				—				—				(202	)			—				—				(14	)			(216	)			(38	)
Reclassification to interest expense			—				—				—				—				—				—				—				—				191				—				—				47				238				37
Contributions from noncontrolling interests			—				—				—				—				—				—				—				—				—				—				—				1,034				1,034				—
Distributions to noncontrolling interests			—				—				—				—				—				—				—				—				—				—				—				(181	)			(181	)			(1,471	)
Deferred compensation to be settled in shares			—				—				—				—				—				—				3,263				—				—				—				—				—				3,263				—
Redemption/conversion of operating partnership units			—				—				—				—				277				3				1,986				(41	)			—				—				—				—				1,948				(5,710	)
Adjustment to reflect redemption value			—				—				—				—				—				—				—				(21,650	)			—				—				—				—				(21,650	)			21,650
Other			—				—				—				—				—				—				—				—				—				—				—				(315	)			(315	)			—
Balance at June 30, 2010			1,488			$	15				5,667			$	57				123,026			$	1,230			$	1,439,819			$	(431,428	)		$	(908	)			(71,888	)		$	(228,296	)		$	17,357			$	797,846			$	102,771

See Notes to Consolidated Financial Statements.

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

		Six Months Ended
		June 30,
		2010				2009
		(Unaudited)
Cash Flows from Operating Activities
Net income (loss)		$	12,727			$	(170,699	)
Adjustments to reconcile net income (loss) to net cash flow provided by operating activities:
Depreciation and amortization			73,478				79,992
Impairment charges			10,111				140,327
Equity in earnings of unconsolidated joint venture			(1,322	)			(1,221	)
Distributions of earnings from unconsolidated joint venture			414				455
Income from derivatives			(31,241	)			(21,924	)
Amortization of discounts, deferred loan costs and deferred income on notes receivable			—				(3,042	)
Amortization of loan costs			2,998				4,042
Write-off of loan costs, premiums and exit fees, net			—				(930	)
Unrealized (gain) loss on derivatives			(30,442	)			19,691
Stock/unit-based compensation expense			3,239				2,757
Changes in operating assets and liabilities —
Restricted cash			5,336				2,523
Accounts receivable and inventories			(11,658	)			(1,918	)
Prepaid expenses and other assets			(2,783	)			(3,494	)
Accounts payable and accrued expenses			24,018				15,889
Due to/from related parties			400				(577	)
Due to/from third-party hotel managers			2,267				(1,340	)
Other liabilities			(745	)			(1,236	)
Net cash provided by operating activities			56,797				59,295
Cash Flows from Investing Activities
Repayments of notes receivable			21,984				6
Improvements and additions to hotel properties			(33,491	)			(33,491	)
Net cash used in investing activities			(11,507	)			(33,485	)
Cash Flows from Financing Activities
Borrowings on indebtedness			—				67,800
Repayments of indebtedness and capital leases			(5,426	)			(53,484	)
Payments of deferred loan costs			(2,465	)			(1,821	)
Contributions from noncontrolling interests in consolidated joint ventures			1,034				—
Distributions to noncontrolling interests in consolidated joint ventures			(181	)			—
Payments of dividends			(11,133	)			(11,812	)
Payments for derivatives			(52	)			(8,683	)
Cash income from derivatives			31,413				21,715
Repurchases of treasury stock			(45,087	)			(33,936	)
Redemption of operating partnership units			(3,763	)			—
Repurchases of preferred stock			—				(10,656	)
Other			54				47
Net cash used in financing activities			(35,606	)			(30,830	)
Net increase (decrease) in cash and cash equivalents			9,684				(5,020	)
Cash and cash equivalents at beginning of year			165,168				241,597
Cash and cash equivalents at end of period		$	174,852			$	236,577
Supplemental Cash Flow Information
Interest paid		$	67,147			$	69,381
Income taxes paid		$	1,163			$	493
Supplemental Disclosure of Non-Cash Investing and Financing Activity
Accrued interest added to principal of indebtedness		$	2,031			$	—

See Notes to Consolidated Financial Statements.

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

1. Organization and Description of Business

     Ashford Hospitality Trust, Inc., together with its subsidiaries (“Ashford”), is a self-advised real estate investment trust (“REIT”). We commenced operations in August 2003 with the acquisition of six hotels (the “Initial Properties”) in connection with our initial public offering. 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 Ashford, serves as the sole general partner of our operating partnership. In this report, the terms “the Company,” “we,” “us” or “our” mean Ashford Hospitality Trust, Inc. and all entities included in its consolidated financial statements.

     As of June 30, 2010, we owned 96 hotel properties directly and six hotel properties through majority-owned investments in joint ventures, which represents 22,483 total rooms, or 22,141 net rooms excluding those attributable to joint venture partners. The directly owned Hilton Suites in Auburn Hills, Michigan is classified as an asset held for sale. All of these hotel properties are located in the United States. At June 30, 2010, we also wholly owned $35.6 million of mezzanine or first-mortgage loan receivables. In addition, we had a 25% ownership interest in a joint venture which had $84.0 million of mezzanine loans and an 18% subordinated interest in a joint venture that was formed to hold a hotel property collateralizing a junior participation loan receivable that was foreclosed in March 2010.

     For federal income tax purposes, we elected to be treated as a REIT, which imposes limitations related to operating hotels. As of June 30, 2010, 101 of our 102 hotel properties were leased or owned by our wholly-owned subsidiaries that are treated as taxable REIT subsidiaries for federal income tax purposes (collectively, these subsidiaries are referred to as “Ashford TRS”). Ashford TRS then engages third-party or affiliated hotel management companies to operate the hotels under management contracts. Hotel operating results related to these properties are included in the consolidated statements of operations. As of June 30, 2010, one hotel property was leased on a triple-net lease basis to a third-party tenant who operates the hotel. Rental income from this operating lease is included in the consolidated results of operations.

     Remington Lodging & Hospitality, LLC (“Remington Lodging”), our primary property manager, is beneficially wholly owned by Mr. Archie Bennett, Jr., our Chairman, and Mr. Monty J. Bennett, our Chief Executive Officer. As of June 30, 2010, Remington Lodging managed 46 of our 102 hotel properties, while third-party management companies managed the remaining 56 hotel properties.

2. Significant Accounting Policies

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

     These financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our 2009 Annual Report to Shareholders on Form 10-K.

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

	•		Some of our properties’ operations have historically been seasonal. This seasonality pattern causes fluctuations in the operating results. Consequently, operating results for the six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.
	•		Marriott International, Inc. (“Marriott”) manages 41 of our properties. For these Marriott-managed hotels, the fiscal year reflects twelve weeks of operations in each of the first three quarters of the year and sixteen weeks for the fourth quarter of the year. Therefore, in any given quarterly period, period-over-period results will have

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

different ending dates. For Marriott-managed hotels, the second quarters of 2010 and 2009 ended June 18 and June 19, 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.

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

     Impairment of Investment in Hotel Properties — Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We test impairment by using current and projected cash flows over the estimated holding period of the asset. In evaluating the impairment of hotel properties, we make many assumptions and estimates, including projected cash flows, expected holding period and expected useful life. We may also use fair values of comparable assets. If an asset is deemed to be impaired, we record an impairment charge for the amount that the property’s net book value exceeds its estimated fair value. During the quarter ended June 30, 2010, we classified the Hilton Suites in Auburn Hills, Michigan as an asset held for sale as it is currently under a contract for sale and recorded a $12.1 million impairment charge for the difference between the property’s net book value and market value less cost to sell. For the quarter ended June 30, 2009 we recorded a $10.9 million impairment charge on the Hyatt Regency Dearborn hotel property that was placed in receivership and deconsolidated effective December 3, 2009.

     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. In addition, we deconsolidate a property when it becomes subject to the control of a government, court, administrator or regulator and we effectively lose control of the property/subsidiary. When deconsolidating a property/subsidiary, we recognize a gain or loss in net income measured as the difference between the fair value of any consideration received and the carrying amount of the former property/subsidiary. 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. At June 30, 2010, the Hilton Suites in Auburn Hills, Michigan was classified as an asset held for sale and its operating results were classified as discontinued operations for all periods presented. For the three and six months ended June 30, 2009, discontinued operations also include the operating results of the Hyatt hotel property in Dearborn, Michigan.

     Notes Receivable — We provide mezzanine and first-mortgage financing in the form of notes receivable. These loans are held for investment and are intended to be held to maturity and accordingly, are recorded at cost, net of unamortized loan origination costs and fees, loan purchase discounts and net of the allowance for losses when a loan is deemed to be impaired. Premiums, discounts, and net origination fees are amortized or accreted as an adjustment to interest income using the effective interest method over the life of the loan. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is not received. Payments received on impaired nonaccrual loans are recorded as reductions to the note receivable balance. The net carrying amount of the impaired notes receivable is adjusted to reflect the net present value of the future cash flows with the adjustment recorded in impairment charges.

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

     Our mezzanine and first-mortgage notes receivable are each secured by various hotel properties or partnership interests in hotel properties and are subordinate to the senior holders in the secured hotel properties. All such notes receivable are considered to be variable interests in the entities that own the related hotels. Variable Interest Entities (“VIE”), as defined by authoritative accounting guidance, must be consolidated by a reporting entity if the reporting entity is the primary beneficiary that has: (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance, (ii) an implicit financial responsibility to ensure that a VIE operates as designed, and (iii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. Because we do not have the power and financial responsibility to direct the mezzanine loan VIEs’ activities and operations, we are not considered to be the primary beneficiary of these hotel properties as a result of holding these loans. Therefore, we do not consolidate the hotels for which we have provided financing. We assess our interests in those entities on an ongoing basis to determine whether such entities should be consolidated. In evaluating VIE, our analysis involves considerable management judgment and assumptions.

     Impairment of Notes Receivable — We review notes receivable for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms. We apply normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment.

     When a loan is impaired, we measure impairment based on the present value of expected cash flows discounted at the loan’s effective interest rate against the value of the asset recorded on the balance sheet. We may also measure impairment based on a loan’s observable market price or the fair value of collateral if the loan is collateral dependent. If a loan is deemed to be impaired, we record a valuation allowance through a charge to earnings for any shortfall. Our assessment of impairment is based on considerable judgment and estimates. No such impairment charges were recorded for the six months ended June 30, 2010. However, during the quarter ended June 30, 2010, a previously fully reserved note receivable was settled for a cash payment of $1.1 million and we recorded a credit to impairment charge for the settlement. See Notes 3 and 5. During the quarter and six months ended June 30, 2009, we recorded a valuation allowance of $129.5 million on four notes receivable in our mezzanine loan portfolio.

     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 represents income from leasing hotel properties to third-party tenants on triple-net operating leases. Base rent on the triple-net lease is recognized on a straight-line basis over the lease terms and variable rent is recognized when earned. Interest income, representing interest on the mezzanine and first mortgage loan portfolio (including accretion of discounts on certain loans using the effective interest method), is recognized when earned. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is not received. Asset management fees are recognized when services are rendered. Taxes collected from customers and submitted to taxing authorities are not recorded in revenue. For the hotel leased to a third party, we report deposits into our escrow accounts for capital expenditure reserves as income.

     Derivative Financial Instruments and Hedges — We primarily use interest rate derivatives in order to capitalize on the historical correlation between changes in LIBOR (London Interbank Offered Rate) and RevPAR (Revenue per Available Room). The interest rate derivatives include swaps, caps, floors, flooridors and corridors. All derivatives are recorded net on the consolidated balance sheets at fair value in accordance with the applicable authoritative accounting guidance and reported as “Interest rate derivatives.” Accrued interest on the nonhedge-designated derivatives is included in “Accounts receivable, net” on the consolidated balance sheets. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value is reported as a component of “Accumulated Other Comprehensive Income (Loss)” (“OCI”) in the equity section of the consolidated balance sheets. The amount recorded in OCI is reclassified to interest expense in the same period or periods during which the hedged transaction affects earnings, while the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations. For derivatives that are not designated as cash flow hedges, the changes in the fair value are recognized in earnings as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations. We assess the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. Derivatives subject to master netting arrangements are reported net in the consolidated balance sheets.

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

     Recently Adopted Accounting Standards — In June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative accounting guidance to redefine the characteristics of the primary beneficiary to be identified when an enterprise performs an analysis to determine whether the enterprise’s variable interest gives it a controlling financial interest in a VIE. This accounting guidance became effective at the beginning of the first annual reporting period beginning after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The new guidance requires an enterprise to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed and ongoing reassessments of whether it is the primary beneficiary of a VIE. It also amends certain previous guidance for determining whether an entity is a VIE and eliminates the quantitative approach previously required for determining the primary beneficiary of a VIE. As of January 1, 2010, we adopted this new guidance and the adoption of the new guidance did not have a material effect on our financial condition and results of operations.

     In January 2010, the FASB issued an accounting standard update to require additional disclosures for transfers in and out of levels 1 and 2 of the fair value input hierarchy and the activity in level 3 fair value measurements. The accounting update also requires disclosures about inputs and valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about the level 3 activity that are effective for fiscal periods beginning after December 15, 2010, and for interim periods within those fiscal years. We adopted the disclosure requirements as of January 1, 2010 and the required disclosures are presented in the related footnotes. The adoption of these accounting rules did not have a material impact on our financial position and results of operations.

     Reclassifications — Certain amounts in the consolidated financial statements for the three and six months ended June 30, 2009 have been reclassified as a result of the adoption of the authoritative accounting guidance related to noncontrolling interests and reclassification related to discontinued operations. These reclassifications have no effect on the previously reported results of operations and financial position.

3. Summary of Significant Transactions and Development

     Pending Sale of Hotel Property — In June 2010, we entered into an agreement to sell the Hilton Suites in Auburn Hills, Michigan for $5.1 million subject to the buyer’s diligence period and customary conditions to closure. We expect the sale to close in the third quarter of 2010. Based on the sales price, we recorded an impairment charge of $12.1 million for the expected loss on the sale. This hotel property has been reclassified as an asset held for sale in the consolidated balance sheet and the operating results, including the impairment charge, for all periods presented have been reported as discontinued operations in the consolidated statements of operations.

     Settlement of Notes Receivable — In May 2010, the senior mortgage lender foreclosed on the loan secured by the Four Seasons hotel property in Nevis in which we had a junior participation interest of $18.2 million. Our entire principal amount was fully reserved in 2009. As a result of the foreclosure, our interest in the senior mortgage was converted to a 14.4% subordinate beneficial interest in the equity of the trust that holds the hotel property.

     In May 2010, the mezzanine loan secured by the Le Meridien hotel property in Dallas, Texas was settled with a cash payment of $1.1 million. The loan was fully reserved during the second quarter of 2009 as the borrower ceased making debt service payments on the loan. As a result of the settlement, the $1.1 million was recorded as a credit to impairment charges in accordance with authoritative accounting guidance for impaired loans.

     In February 2010, the $23.0 million net carrying value mezzanine loan receivable secured by the Ritz-Carlton hotel property in Key Biscayne, Florida, was restructured for a cash payment of $20.2 million and a $4.0 million note receivable. The interest payments and the valuation adjustments to the net carrying amount of this note are recorded as a credit to impairment charges. See Note 5.

     In February 2010, we and the senior note holder of the participation note receivable formed a joint venture (the “Redus JV”) for the purposes of holding, managing or disposing of the Sheraton hotel property in Dallas, Texas, which collateralized the senior note participation and our $4.0 million junior participating note receivable. The note receivable was fully reserved in 2009. We have an 18% subordinated interest in Redus JV. In March 2010, the foreclosure was

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

completed and the estimated fair value of the property was $14.2 million based on a third-party appraisal. However, because (i) pursuant to the operating agreement of Redus JV, as a junior lien holder of the original participation note receivable, we are only entitled to receive our share of distributions after the original senior note holder has recovered its original investment of $18.4 million and (ii) Redus JV intends to sell the hotel property in the next 12 months, it is unlikely that the senior holder will be able to recover its original investment. Therefore, no cash flows were projected from Redus JV for the projected holding period. Under the applicable authoritative accounting guidance, we recorded a zero value for our 18% subordinated interest in Redus JV.

     Debt Modifications — In July 2010, we modified the mortgage loan secured by the JW Marriott hotel property in San Francisco, California, to change the initial maturity date to its full extended maturity of March 2013 in exchange for a principal payment of $5.0 million.

     Effective April 1, 2010, we completed the modification of the $156.2 million mortgage loan secured by two hotel properties in Washington D.C. and La Jolla, California. Pursuant to the modified loan agreement, we obtained the full extension of the loan to August 2013 without any extension tests in exchange for a $5.0 million paydown, of which $2.5 million was paid at closing and the remaining $2.5 million is payable quarterly in four consecutive installments of $625,000 each with the first installment due in three months after the closing date of April 1, 2010. We paid a modification fee of $1.5 million in lieu of the future extension fees. The modification also modifies covenant tests to minimize the likelihood of additional cash being trapped.

     In March 2010, we elected to cease making payments on the $5.8 million mortgage note payable maturing January 2011, secured by a hotel property in Manchester, Connecticut, because the anticipated operating cash flows from the underlying hotel property would be insufficient to cover the principal and interest payments on the note. As of the date of the report, the loan has been transferred to a special servicer. We are currently working with the loan servicer for an extension or restructure of the mortgage note.

     Repurchases of Common Shares and Units of Operating Partnership — During the three and six months ended June 30, 2010, we repurchased 2.1 million and 7.2 million shares of our common stock for a total cost of $16.0 million and $45.1 million, respectively. We have ceased the repurchase of our preferred stock indefinitely. During the three months ended June 30, 2010, 519,000 operating partnership units were redeemed at $7.25 per unit, we elected the option to pay cash, instead of common shares, of $3.8 million to the unit holders.

4. Investments in Hotel Properties

     Investments in hotel properties consisted of the following at June 30, 2010 and December 31, 2009 (in thousands):

		June 30,				December 31,
		2010				2009
Land		$	516,210			$	520,180
Buildings and improvements			3,003,566				3,002,249
Furniture, fixtures and equipment			409,600				394,246
Construction in progress			9,468				10,984
Total cost			3,938,844				3,927,659
Accumulated depreciation			(615,376	)			(543,900	)
Investment in hotel properties, net		$	3,323,468			$	3,383,759

     In June 2010, we entered into an agreement to sell the Hilton Suites in Auburn Hills, Michigan for $5.1 million subject to the buyer’s diligence period and customary conditions to closure. We expect the sale to close in the third quarter of 2010. Based on the sales price, we recorded an impairment charge of $12.1 million for the expected loss on the sale. This hotel property has been reclassified as an asset held for sale in the consolidated balance sheet and the operating results, including the impairment charge, for all periods presented have been reported as discontinued operations in the consolidated statements of operations.

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

     Because the anticipated operating cash flows would be insufficient to cover the debt service payment on the mortgage note payable secured by the hotel property in Manchester, Connecticut, we elected to cease making payments on the $5.8 million mortgage note maturing January 2011. We are currently working with the loan servicer for an extension or a restructure of the mortgage note payable. Because the projected operating cash flows for our intended holding period exceed the current carrying value of the hotel property, no impairment was recorded.

     The Westin O’Hare hotel property in Chicago, Illinois that secures a $101.0 million mortgage loan with a carrying value of $49.4 million at June 30, 2010, is currently in the process of being deeded to the lender. We anticipate the convergence will be completed in the third quarter of 2010. Upon completion of the process, the hotel property will be deconsolidated from our financial statements.

5. Notes Receivable

     Notes receivable consisted of the following at June 30, 2010 and December 31, 2009 ($ in thousands):

		June 30,				December 31,
		2010				2009
Mezzanine loan secured by 105 hotel properties, matures April 2011, with a one-year extension option, at an interest rate of LIBOR plus 5%, with interest-only payments through maturity		$	25,688			$	25,688
Mezzanine loan secured by one hotel property, matures January 2011, with two one-year extension options, at an interest rate of LIBOR plus 9%, with interest-only payments through maturity			7,056				7,056
Mezzanine loan with principal balance of $38,000 secured by one hotel property, matures in June 2017, at an interest rate of 9.66% through restructuring, and the balance before valuation allowance at December 31, 2009 was $33,684. The loan was restructured for a $20,181 cash payment and a $4,000 note at an interest rate of 6.09%, with interest-only payments through maturity			2,927				22,955
Mezzanine loan with principal balance of $164,000 secured by 681 extended-stay hotel properties, matured June 2009, with three one-year extension options, at an interest rate of LIBOR plus 2.5%, with interest-only payments through maturity, the balance before valuation allowance was $109,272			—				—
			35,671				55,699
Deferred loan costs, net			(44	)			(44	)
Total notes receivable		$	35,627			$	55,655
Weighted average effective interest rate			3.9	%			2.4	%

     In evaluating possible loan impairments, we analyze our notes receivable individually and collectively for possible loan losses in accordance with applicable authoritative accounting guidance. Based on the analysis, if we conclude that no loans are individually impaired, we then further analyze the specific characteristics of the loans, based on other authoritative guidance to determine if there would be probable losses in a group of loans with similar characteristics.

     The loans in our portfolio are collateralized by hotel properties. Some loans are collateralized by single hotel properties and others by hotel portfolios. The hotel properties are in different geographic locations, have different ages and a few of the properties have recently completed significant renovations which have a significant impact on the value of the underlying collateral. The hotel properties include independent and nationally recognized brands in all segments and classes including luxury, economy, extended-stay, full service, and select service. In addition, our loan assets can vary by position in the related borrower’s capital structure, ranging from junior mortgage participations to mezzanine loans. The terms of our notes or participations were structured based on the different features of the related collateral and the priority in the borrower’s capital structure. Based on our analyses, no additional impairment charges were recorded for the three and six months ended June 30, 2010.

     In May 2010, the mezzanine loan secured by the Le Meridien hotel property in Dallas, Texas was settled with a cash payment of $1.1 million. The loan was fully reserved during the second quarter of 2009 as the borrower ceased making debt service payments on the loan. As a result of the settlement, the $1.1 million was recorded as a credit to impairment charges in accordance with authoritative accounting guidance for impaired loans.

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

     In May 2010, the senior mortgage lender foreclosed on the loan secured by the Four Seasons hotel property in Nevis in which we had a junior participation interest of $18.2 million. Our entire principal amount was fully reserved in 2009. As a result of the foreclosure, our interest in the senior mortgage was converted to a 14.4% subordinate beneficial interest in the equity of the trust that holds the hotel property. Due to our junior status in the trust, we recorded a zero value for our beneficial interest at June 30, 2010.

     The borrower of the $7.1 million junior participation note receivable maturing January 2011 secured by a hotel property in La Jolla, California was placed in default in 2009 for failure to make the payments as well as other reasons. The first mortgage holder also placed the borrower in default. We are in discussions with the borrower and the first mortgage holder with regard to potential workout solutions. No valuation allowance was recorded on this note because (i) we obtained personal guaranties from the principals of the borrower and the guarantors have tentatively agreed to stipulated judgment on the guaranties; (ii) the borrower has reached a tentative restructuring agreement for the restructuring of both the senior loan and the mezzanine loan, which involves the injection of new capital into the borrower; and (iii) the tentative restructuring agreement specifically does not contemplate any reduction in the principal amount of the mezzanine loan held by us. According to the preliminary restructuring plan, we expect to receive $850,000 in cash at closing for the defaulted interest payments and the interest rate of our junior participation note will be reduced to 8% for the remainder of the loan.

     In February 2010, the mezzanine loan with a principal amount of $38.0 million and a net carrying value of $23.0 million at December 31, 2009 was restructured. We received a cash payment of $20.2 million and a $4.0 million note receivable. The restructured note bears an interest rate of 6.09% and matures in June 2017 with interest only payments through maturity. The note was recorded at its net present value of $2.9 million based on its future cash flows. The interest payments and the valuation adjustments to the net carrying amount of this note are recorded as a credit to impairment charges.

     In February 2010, we and the senior note holder of the participation note receivable formed Redus JV for the purposes of holding, managing or disposing of the Sheraton hotel property in Dallas, Texas, which collateralized our $4.0 million principal amount junior participating note receivable that matured in July 2009. The note receivable was fully reserved in 2009. We have an 18% subordinated interest in Redus JV. In March 2010, the foreclosure was completed and the estimated fair value of the property was $14.2 million based on a third-party appraisal. However, because (i) pursuant to the operating agreement of Redus JV, as a junior lien holder of the original participation note receivable, we are only entitled to receive our share of distributions after the original senior note holder has recovered its original investment of $18.4 million and (ii) Redus JV intends to sell the hotel property in the next 12 months, it is unlikely that the senior holder will be able to recover its original investment. Therefore, no cash flows were projected from Redus JV for the projected holding period. Under the applicable authoritative accounting guidance, we recorded a zero value for our 18% subordinated interest in Redus JV.

     At June 30, 2010, the impaired loans in our portfolio had a zero carrying value and no income was recognized on those impaired loans during the quarter and six months ended June 30, 2010. During the quarter and six months ended June 30, 2009, we recorded impairment charges on our notes receivable totaling $129.5 million. The average recorded investment in the impaired loans and the related interest income recognized for the three and six months ended June 30, 2009 were as follows (in thousands):

		Three				Six
		Months				Months
		Ended				Ended
		June 30,				June 30,
		2009				2009
Average investment in impaired loans		$	106,379			$	119,328
Interest income recognized on impaired loans		$	674			$	4,994
Interest income recognized on impaired loans using cash-basis		$	—			$	—

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

6. Investment in Unconsolidated Joint Ventures

     As described in the previous notes, we have an 18% subordinated interest in Redus JV and a 14.4% subordinated beneficial interest in a trust that hold the Four Seasons hotel property in Nevis, both of which have a zero carrying value. In addition, we have a 25% ownership interest in a joint venture which invests in mezzanine loans. The investment in the mezzanine loan joint venture consisted of the following ($ in thousands):

		June 30,				December 31,
		2010				2009
25% of a mezzanine loan acquired at a discounted price (principal balance of $21,000), secured by 29 hotel properties, matures August 2010 with two one-year extension options, at an interest rate of LIBOR plus 2.75%, and with interest-only payments through maturity		$	20,997			$	20,221
25% of a mezzanine loan at par value (principal balance of $5,375), secured by two hotel properties, matures January 2018, at an interest rate of 14%, with interest-only payments through maturity			5,461				5,461
Allowance for loan losses			(5,461	)			(5,461	)
Other, net			129				106
Distributions			(3,087	)			(2,673	)
Equity in earnings since inception before discount amortization and impairment charge			3,627				3,082
Total		$	21,666			$	20,736

     The mezzanine loan secured by the 29 hotel portfolio remained current until the July 2010 payment, at which time there was a payment default on our loan. At this point we are pursuing our remedies under the loan documents as well as continuing discussions with the borrower and other lenders in the capital structure about possible consensual restructuring of the loan. There is not enough information at this time for us and our joint venture partner to take a position to provide a reserve against this loan.

7. Asset Held for Sale and Discontinued Operations

     During June 2010, we entered into an agreement to sell our Hilton Suites in Auburn Hills, Michigan. The sale is expected to close in the third quarter of 2010. The asset of the Hilton Suites is classified as an asset held for sale. The operating results of the Hilton Suites are classified as discontinued operations for all the periods presented. For the 2009 periods, discontinued operations also include the operating results of the Hyatt Dearborn hotel property. Effective December 3, 2009, as a receiver appointed by the State of Michigan circuit court completed taking possession and full control of the Hyatt Dearborn hotel property, the hotel property was deconsolidated and its operating results were classified as discontinued operations. The following table summarizes the operating results of the discontinued hotel properties (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Hotel revenue		$	1,142			$	8,819			$	2,158			$	14,605
Hotel operating expenses			(794	)			(7,389	)			(1,654	)			(13,750	)
Operating income			348				1,430				504				855
Property taxes, insurance and other			(152	)			(642	)			(310	)			(1,248	)
Depreciation and amortization			(141	)			(404	)			(273	)			(1,498	)
Impairment charges			(12,068	)			(10,871	)			(12,068	)			(10,871	)
Interest expense and amortization of loan costs			—				(563	)			—				(1,141	)
Loss from discontinued operations before income tax expense			(12,013	)			(11,050	)			(12,147	)			(13,903	)
Income tax expense			(12	)			(81	)			(12	)			(134	)
Loss from discontinued operations attributable to redeemable noncontrolling interests in operating partnership			2,004				1,376				2,024				1,702
Loss from discontinued operations attributable to Company		$	(10,021	)		$	(9,755	)		$	(10,135	)		$	(12,335	)

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

8. Indebtedness

     Indebtedness consisted of the following at June 30, 2010 and December 31, 2009 (in thousands):

								June 30,				December 31,
Indebtedness		Collateral		Maturity		Interest Rate		2010				2009
Mortgage loan		5 hotels		December 2010(1)		LIBOR(2) + 1.72%		$	203,400			$	203,400
Mortgage loan		1 hotel		January 2011		8.32%			5,775				5,816
Senior credit facility		Notes receivable		April 2011(1)		LIBOR(2) + 2.75% to 3.5%(3)			250,000				250,000
Mortgage loan		10 hotels		May 2011(1)		LIBOR(2) + 1.65%			167,202				167,202
Mortgage loan		1 hotel		March 2012(4)		LIBOR(2) + 4%			60,800				60,800
Mortgage loan		1 hotel		March 2013(5)		Greater of 6.25% or LIBOR(2) + 3.75%			52,500				52,500
Mortgage loan		2 hotels		August 2013(6)		LIBOR(2) + 2.75%			153,100				156,600
Mortgage loan		1 hotel		December 2014		Greater of 5.5% or LIBOR(2) + 3.5%			19,740				19,740
Mortgage loan		8 hotels		December 2014		5.75%			109,925				110,899
Mortgage loan		1 hotel		January 2015		7.78%			4,057				4,345
Mortgage loan		10 hotels		July 2015		5.22%			160,490				160,490
Mortgage loan		8 hotels		December 2015		5.70%			100,576				100,576
Mortgage loan		5 hotels		December 2015		12.26%			142,573				141,402
Mortgage loan		5 hotels		February 2016		5.53%			115,645				115,645
Mortgage loan		5 hotels		February 2016		5.53%			95,905				95,905
Mortgage loan		5 hotels		February 2016		5.53%			83,075				83,075
Mortgage loan		1 hotel		December 2016		5.81%(7)			101,000				101,000
Mortgage loan		1 hotel		April 2017		5.91%			35,000				35,000
Mortgage loan		2 hotels		April 2017		5.95%			128,251				128,251
Mortgage loan		3 hotels		April 2017		5.95%			260,980				260,980
Mortgage loan		5 hotels		April 2017		5.95%			115,600				115,600
Mortgage loan		5 hotels		April 2017		5.95%			103,906				103,906
Mortgage loan		5 hotels		April 2017		5.95%			158,105				158,105
Mortgage loan		7 hotels		April 2017		5.95%			126,466				126,466
TIF loan		1 hotel		June 2018		12.85%			8,098				7,783
Mortgage loan		1 hotel		April 2034		Greater of 6% or Prime + 1%			6,855				6,910
Total indebtedness								$	2,769,024			$	2,772,396

     In July 2010, we modified the mortgage loan secured by the JW Marriott hotel property in San Francisco, California, to change the initial maturity date to its full extended maturity of March 2013 in exchange for a principal payment of $5.0 million and an extension fee of $119,000 to be paid in March 2012.

     Effective April 1, 2010, we completed the modification of the $156.2 million mortgage loan secured by two hotel properties in Washington D.C. and La Jolla, California. Pursuant to the modified loan agreement, we obtained the full extension of the loan to August 2013 without any extension tests in exchange for a $5.0 million paydown, of which $2.5 million was paid at closing and the remaining $2.5 million is payable quarterly in four consecutive installments of $625,000 each with the first installment due in three months after the closing date of April 1, 2010. We paid a modification fee of $1.5 million in lieu of future extension fees. The modification also modifies covenant tests to minimize the likelihood of additional cash being trapped.

     In March 2010, we elected to cease making payments on the $5.8 million mortgage note payable maturing January 2011, secured by a hotel property in Manchester, Connecticut, because the anticipated operating cash flows from the underlying hotel property would be insufficient to cover the principal and interest payments on the note. As of the date of this report, the loan has been transferred to a special servicer. We are currently working with the loan servicer for an extension or restructure of the mortgage note.

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

     Beginning in December 2009, we elected to cease making payments on the $101.0 million note payable secured by the Westin O’Hare hotel property because the anticipated operating cash flows from the underlying hotel property were inadequate to cover the debt service payments. We are currently working with the lender for a deed-in-lieu of foreclosure. We anticipate the deed-in-lieu transaction will be completed in the third quarter of 2010.

9. Income (Loss) Per Share

     Basic income per common share is calculated using the two-class method by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted income 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 per share (in thousands, except per share amounts):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Income (loss) per share — Basic
Income (loss) from continuing operations attributable to the Company		$	16,821			$	(151,304	)		$	22,070			$	(137,067	)
Less: Dividends to preferred stocks			(4,831	)			(4,831	)			(9,661	)			(9,661	)
Less: Income from continuing operations allocated to unvested shares			(309	)			—				(279	)			—
Income (loss) from continuing operations to common shareholders		$	11,681			$	(156,135	)		$	12,130			$	(146,728	)
Loss from discontinued operations attributable to the Company		$	(10,021	)		$	(9,755	)		$	(10,135	)		$	(12,335	)
Less: Loss from discontinued operations allocated to unvested shares			259				—				228				—
Loss from discontinued operations allocated to common shareholders		$	(9,762	)		$	(9,755	)		$	(9,907	)		$	(12,335	)
Weighted average common shares outstanding			50,716				70,882				51,953				75,685
Income (loss) from continuing operations allocated to common shareholders per share		$	0.23			$	(2.20	)		$	0.23			$	(1.94	)
Loss from discontinued operations allocated to common shareholders per share			(0.19	)			(0.14	)			(0.19	)			(0.16	)
Net income (loss) allocated to common shareholders per share		$	0.04			$	(2.34	)		$	0.04			$	(2.10	)

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Income (loss) per share — Diluted
Income (loss) from continuing operations allocated to common shareholders		$	11,681			$	(156,135	)		$	12,130			$	(146,728	)
Add back: Dividends distributed to Series B-1 convertible preferred stock			1,042				—				—				—
Add back: Income from continuing operations attributable to operating partnership units			3,133				—				—				—
Add back: Income from continuing operations allocated to unvested shares			309				—				—				—
Less: Income from continuing operations reallocated to unvested shares			(215	)			—				—				—
Income (loss) from continuing operations allocated to common shareholders		$	15,950			$	(156,135	)		$	12,130			$	(146,728	)
Loss from discontinued operations allocated to common shareholders		$	(9,762	)		$	(9,755	)		$	(9,907	)		$	(12,335	)
Add back: Loss from discontinued operations allocated to operating partnership units			(2,004	)			—				—				—
Add back: Loss from discontinued operations allocated to unvested shares			(259	)			—				—				—
Less: Loss from discontinued operations reallocated to unvested shares			180				—				—				—
Loss from discontinued operations allocated to common shareholders		$	(11,845	)		$	(9,755	)		$	(9,907	)		$	(12,335	)
Weighted average common shares outstanding			50,716				70,882				51,953				75,685
Effect of assumed conversion of Series B-1 preferred stock			7,448				—				—				—
Effect of assumed conversion of operating partnership units			14,817				—				—				—
Total weighted average diluted shares			72,981				70,882				51,953				75,685
Income (loss) from continuing operations allocated to common shareholders per share		$	0.22			$	(2.20	)		$	0.23			$	(1.94	)
Loss from discontinued operations attributable to common shareholders			(0.16	)			(0.14	)			(0.19	)			(0.16	)
Net income (loss) allocated to common shareholders per share		$	0.06			$	(2.34	)		$	0.04			$	(2.10	)