FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with the unaudited financial statements and notes thereto appearing elsewhere herein. This report contains forward-looking statements within the meaning of the federal securities laws. Ashford Hospitality Trust, Inc. (the "Company" or "we" or "our" or "us") cautions investors that any forward-looking statements presented herein, or which management may express orally or in writing from time to time, are based on management's beliefs and assumptions at that time. Throughout this report, words such as "anticipate," "believe," "expect," "intend," "may," "might," "plan," "estimate," "project," "should," "will," "result," and other similar expressions, which do not relate solely to historical matters, are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We caution investors that while forward-looking statements reflect our good-faith beliefs at the time such statements are made, said statements are not guarantees of future performance and are affected by actual events that occur after such statements are made. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which were based on results and trends at the time those statements were made, to anticipate future results or trends.
Some risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, those discussed in our Form 10-K as filed with the Securities and Exchange Commission on March 2, 2009. These risks and uncertainties continue to be relevant to our performance and financial condition. Moreover, we operate in a very competitive and rapidly changing environment where new risk factors emerge from time to time. It is not possible for management to predict all such risk factors, nor can management assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as indicators of actual results.
EXECUTIVE OVERVIEW
General
The U.S. economy has been in a gradually deepening recession since December 2007 caused by the deteriorating global credit crisis and declining GDP, employment, business investment, corporate profits and consumer spending. As a result of the dramatic downturn in the economy, lodging demand in the U.S. has declined significantly throughout the first six months of 2009. We have experienced significant declines in demand for hotel rooms associated with leisure, group, business and transient. Although we anticipate that lodging demand will improve when the current economy trends reverse, we do not believe such improvements will occur during 2009, and we expect lodging demand and forecasts for the remainder of 2009 will be considerably bearish. In addition, the outbreak of the H1N1 virus in 2009 has also had an adverse effect on our operating results.
At June 30, 2009, we owned interests in 103 hotel properties, which included direct ownership in 97 hotel properties and between 75% to 89% interests in six hotel properties through majority-owned investments in joint ventures which represents 23,255 total rooms, or 22,913 net rooms excluding those attributable to noncontrolling joint venture partners. In addition, at June 30, 2009, we owned $86.4 million of mezzanine or first-mortgage loans receivable and a 25% interest in a joint venture with Prudential Real Estate Investors ("PREI") formed in January 2008 (the "PREI JV"). The joint venture owned a $77.9 million mezzanine loan at June 30, 2009.
Based on our primary business objectives and forecasted operating conditions, our key priorities and financial strategies include, among other things:
• preserving capital, enhancing liquidity and implementing cost saving measures;

• implementing selective capital improvements designed to increase profitability;

• implementing asset management strategies to minimize operating costs and increase revenues;

• repurchasing capital stock subject to limitations and our Board of Directors' authorization;

• financing or refinancing hotels on competitive terms;

• utilizing hedges and derivatives to mitigate risks; and

• making other investments that our Board of Directors deems appropriate.

2009 Developments
When we implemented our mezzanine loan investment strategy, we performed the underwriting stress test based on worst case scenarios similar to what the hotel industry experienced post 9/11. However, the magnitude of the current economic downturn far exceeds our underwriting sensitivity. If the current economic downturn continues and the underlying hotel properties of our mezzanine loan portfolio are unable to generate enough cash flows for the scheduled payments, there is a chance that the remaining mezzanine loan portfolio could be written off in its entirety. The remaining balance of our mezzanine loan portfolio was $105.9 million at June 30, 2009, including our 25% ownership in a mezzanine held by the PREI JV. If this write-off were to occur, it would impact our interest income by up to $9.3 million annually.
The $164.0 million principal amount mezzanine loan secured by 681 Extended Stay hotel properties was purchased at a significant discount which was amortized over the life of the loan through March 31, 2009. In June 2009, the issuer of this note filed for Chapter 11 bankruptcy protection from its creditors. We anticipate that the issuer, through its bankruptcy filing, may attempt to impose a plan of reorganization which could extinguish our investment. Accordingly, we recorded a valuation allowance of $109.4 million for the full amount of the book value of the note. Prior to the bankruptcy filing, all payments on this loan were current. We recorded income from this loan of $4.7 million for the five months ended May 31, 2009.
Principal and interest payments were not made since October 2008 on the $18.2 million junior participation note receivable secured by a hotel property in Nevis. The underlying hotel property suffered significant damage by Hurricane Omar. In accordance with our accounting policy, we discontinued recording interest on this note beginning in October 2008. The servicer on this loan is adjusting the loss with the insurance underwriter and overseeing the renovation to facilitate the reopening of the hotel. During the quarter ended June 30, 2009, we were made aware that full recovery of the cost from insurance may not occur as certain necessary expenditures of approximately $8.6 million may not be covered by the insurance proceeds. As a result, we recorded a valuation allowance of $9.1 million to reflect our concerns regarding the collectability of our investment.
The borrower of the $4.0 million junior participation loan collateralized by Sheraton Dallas, Texas due in July 2009 has been in default since May 2009. Based on a most recent appraisal of the property from a third party, it is unlikely that we will be able to recover our full investment due to our junior status. As a result, we recorded a valuation of allowance for the full amount of the note receivable.
The $7.0 million loan collateralized by the Le Meridien hotel property in Dallas, Texas was also evaluated for impairment at June 30, 2009. The property is no longer in a position to service its debt payments in the absence of cash infusion from the borrower. It is likely that we will be unable to recover the full value of our investment due to our junior status. As a result, we recorded a valuation allowance for the full amount of the note receivable.
Beginning in June 2009, we ceased making payments on the note payable of $29.1 million secured by the Hyatt Regency Dearborn hotel property, due to the fact that the operating cash flows from the hotel property are not anticipated to cover the principal and interest payments on the note and the related capital expenditures on the property. The lender issued a notice of default and an acceleration notice. We have not cured the notice of default and intend to fully settle the debt via a deed-in-lieu of foreclosure or foreclosure of the hotel property. As a result, we wrote down the hotel property to its estimated fair value at June 30, 2009 and recorded an impairment charge of $10.9 million. In determining the fair value of the property, we obtained a market analysis based on eight recent hotel sales in the Midwest region provided by a third party, those sales ranged from a low of $33,000 per key to a high of $125,000 per

key. We evaluated the analysis and determined that the current note payable balance on the Dearborn hotel property of $29.1 million, or $38,000 per key, is within the range and approximates the fair value of the property.
While the depth and length of the economic downturn is difficult to predict, our current strategy is to preserve capital and enhance liquidity, balanced with taking advantage of buying back our capital stock. As a result, we suspended work on many renovation and improvement projects. In that regard, we did not expense the total costs capitalized on certain incomplete projects of approximately $600,000 as we expect to continue those projects in the future once the economic environment improves. However, if we decide not to move forward with those projects in the future, we will expense these costs.
In March 2009, in order to take advantage of the declining LIBOR rates, we entered into a one-year "flooridor" with a financial institution for the period commencing December 14, 2009 and ending December 13, 2010 for a notional amount of $3.6 billion. The flooridor establishes a new floor rate of 0.75% for the original $1.8 billion interest rate floor we entered into on March 13, 2008. Under this new flooridor, the counterparty will pay us interest on the notional amount when the interest rates are below the original floor of 1.25% up to a maximum of 50 basis points on the notional amount. The upfront cost of this flooridor was $8.5 million. In addition, for the six months ended June 30, 2009, we entered into seven interest rate caps with total notional amounts of $283.0 million to cap the interest rates on mortgage loans with an aggregate principal amount of $283.0 million (aggregate principal balance at June 30, 2009 was $280.5 million) between 4.81% and 6%. Total price for these hedges was $233,000. These interest rate caps were designated as cash flow hedges.
On July 1, 2009, we purchased two one-year flooridors for an upfront cost of $22.3 million. The first flooridor, which is for a notional amount of $1.8 billion, is for the period commencing December 14, 2009 and ending December 13, 2010. Under the first flooridor, the counterparties will pay us interest on the notional amount when LIBOR rates are below 1.75% up to a maximum of 50 basis points. The second flooridor, also for a notional amount of $1.8 billion, is for a period commencing December 13, 2010 and ending December 13, 2011. Under the second flooridor, the counterparty will pay us interest on the notional amount when LIBOR rates are below 2.75% up to a maximum of 250 basis points. We have no further liability under these flooridors to the counterparties.
In January 2009, the Board of Directors authorized an additional $200 million repurchase plan authorization (excluding fees, commissions and all other ancillary expenses) for: (i) the repurchase of shares of our common stock, Series A preferred stock, Series B-1 preferred stock and Series D preferred stock and/or (ii) the prepayment of our outstanding debt obligations, including debt secured by our hotel assets and debt senior to our mezzanine or loan investments. During the six months ended June 30, 2009, we have repurchased 17.4 million shares of our common stock, 697,600 shares of the Series A preferred stock and 727,550 shares of the Series D preferred stock for a total price of $44.2 million (excluding commissions).
We would like to emphasize that just because certain items and comments are emphasized in a particular quarter with regard to our investments, interest rate derivatives and liquidity, the reader should not assume that such items and comments are not equally important for the current quarter and going forward.
CRITICAL ACCOUNTING POLICIES
As of January 1, 2009, we adopted the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 160, Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51. SFAS 160 states that accounting and reporting for minority interests will be re-characterized as noncontrolling interests and classified as a component of equity subject to the provisions of EITF Topic D-98. SFAS 160 also modifies the presentation of net income by requiring earnings and other comprehensive income to be attributed to controlling and noncontrolling interests. To comply with SFAS 160, we have reclassified the noncontrolling interests in our consolidated joint ventures from the mezzanine section of our balance sheets to equity. Noncontrolling interests in our operating partnership will continue to be classified in the mezzanine section of the balance sheet as these redeemable operating units do not meet the requirements for equity classification under EITF Topic D-98. The redemption feature requires the delivery of cash or registered shares. The carrying value of the noncontrolling interests in the operating partnership is based on the accumulated historical cost as the accumulated historical cost ($85.4 million at June 30, 2009) is greater than the redemption value ($40.4 million at June 30, 2009) prescribed by EITF Topic D-98. Net income attributable to noncontrolling interests in our consolidated joint ventures is no longer included in the determination of net income, and we reclassified prior year amounts to reflect this requirement. The adoption of this standard has no effect on our basic and diluted earnings per share.

As of January 1, 2009, we adopted SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities." SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. There is no financial impact from the adoption and disclosures about our derivative instruments that are presented in accordance with the requirements of SFAS 161.
In April 2009, the FASB issued FASB Staff Position ("FSP") FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments." FSP FAS 107-1 and APB 28-1 require disclosures about fair values of financial instruments for interim reporting periods. Accordingly, the fair values of financial instruments have been disclosed in Note 15 of Notes to Consolidated Financial Statements. The adoption of this FSP did not have an impact on our financial position and results of operations.
In May 2009, the FASB issued SFAS No. 165, "Subsequent Events." This statement sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This statement is effective for interim and annual periods ending after June 15, 2009. We adopted this statement in the quarter ended June 30, 2009. Upon the adoption, subsequent events were evaluated through the time we issued our financial statements on August 7, 2009.
There have been no other significant new accounting policies employed during the six months ended June 30, 2009. See our Annual Report on Form 10-K for the year ended December 31, 2008 for further discussion of critical accounting policies.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2009, the FASB issued SFAS No. 166, "Accounting for Transfers of Financial Assets-an amendment of FASB Statement No. 140." SFAS 166 is effective at the beginning of the first annual reporting period beginning after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. SFAS 166 limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial assets. In addition, SFAS 166 defines the term participating interest to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale and requires that a transferor recognize and initially measure at fair value all assets obtained (including a transferor's beneficial interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a sale. The impact of adopting SFAS 166 when effective will depend upon the nature, term and size of the assets transferred, if any, that we consummate after the effective date.
In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)."SFAS 167 is effective at the beginning of first annual reporting period beginning after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. SFAS 167 redefines the characteristics of the primary beneficiary to be indentified when an enterprise performs analysis to determine whether the enterprise variable interest give it a controlling financial interest in a variable interest entity (VIE). SFAS 167 requires an enterprise to asses whether is has an implicit financial responsibility to ensure that a VIE operates as designed and ongoing reassessments of whether it is the primary beneficiary of a VIE. SFAS 167 also amends certain guidance in Interpretation 46(R) for determining whether an entity is a VIE and eliminates the quantitative approach previously required for determining the primary beneficiary of a VIE. We are currently evaluating the effects the adoption of SFAS 167 will have on our financial condition and results of operations.
In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162"(the Codification"). SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. On the effective date of SFAS 168, the codification will become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange

Commission under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. References to GAAP pronouncements in the financial statements will be changed from authoritative accounting standards to Codification references. The adoption of FAS 168 will not change our accounting practices.

RESULTS OF OPERATIONS
   The following table summarizes the changes in key line items from our
consolidated statements of operations for the three and six months ended
June 30, 2009 and 2008 (in thousands):

                                   Three Months Ended                                                                   Six Months Ended
                                        June 30,                           Favorable/(Unfavorable)                          June 30,                           Favorable/(Unfavorable)
                                2009                 2008                $ Change             %Change               2009                 2008                $ Change             %Change
Total revenue               $  239,949           $  306,510           $    (66,561 )            (21.7 )%        $  479,644           $  592,525           $   (112,881 )            (19.1 )%
Total hotel expenses        $ (159,618 )         $ (189,735 )         $     30,117               15.9 %         $ (316,746 )         $ (373,864 )               57,118               15.3 %
Property taxes,
insurance and other         $  (16,189 )         $  (16,234 )         $         45                0.3 %         $  (30,579 )         $  (30,858 )                  279                0.9 %
Depreciation and
amortization                $  (38,573 )         $  (39,013 )         $        440                1.1 %         $  (79,992 )         $  (81,999 )                2,007                2.4 %
Impairment charges          $ (140,327 )         $        -           $   (140,327 )                - *         $ (140,327 )         $        -               (140,327 )                - *
Corporate general and
administrative              $   (6,911 )         $   (8,365 )         $      1,454               17.4 %         $  (13,757 )         $  (16,069 )                2,312               14.4 %
Operating
(loss) income               $ (121,669 )         $   53,163           $   (174,832 )           (328.9 )%        $ (101,757 )         $   89,735               (191,492 )           (213.4 )%
Equity in earnings of
unconsolidated joint
venture                     $      617           $    1,287           $       (670 )            (52.1 )%        $    1,221           $    1,813                   (592 )            (32.7 )%
Interest income             $       92           $      351           $       (259 )            (73.8 )%        $      197           $      897                   (700 )            (78.0 )%
Other income                $   11,214           $    2,569           $      8,645              336.5 %         $   21,912           $    2,865                 19,047              664.8 %
Interest expense and
amortization of loan
costs                       $  (36,570 )         $  (38,031 )         $      1,461                3.8 %         $  (73,118 )         $  (76,900 )                3,782                4.9 %
Write-off of loan
costs and exit fees         $        -           $        -           $          -                  -           $      930           $        -                    930                  - *
Unrealized losses on
derivatives                 $  (37,723 )         $  (55,438 )         $     17,715               32.0 %         $  (19,691 )         $  (51,389 )               31,698               61.7 %
Income tax expense          $     (172 )         $     (319 )         $        147               46.1 %         $     (393 )         $     (657 )                  264               40.2 %
Loss from continuing
operations
attributable to
redeemable
noncontrolling
interests in
operating partnership       $   22,702           $    3,059           $     19,643                  - *         $   21,144           $    2,729                 18,415                  - *
Loss from continuing
operations                  $ (161,509 )         $  (33,359 )         $   (128,150 )           (384.2 )%        $ (149,555 )         $  (30,907 )             (118,648 )           (383.9 )%
Income from
discontinued
operations
attributable to
controlling interests       $        -           $    9,572           $     (9,572 )                - *         $        -           $   13,372                (13,372 )                - *
Net loss                    $ (161,509 )         $  (23,787 )         $   (137,722 )           (579.0 )%        $ (149,555 )         $  (17,535 )             (132,020 )           (752.9 )%
Loss (income) from
consolidated joint
ventures attributable
to noncontrolling
interests                   $      450           $   (2,717 )         $      3,167                  - *         $      153           $   (2,784 )                2,937                  - *
Net loss attributable
to the Company              $ (161,059 )         $  (26,504 )         $   (134,555 )           (507.7 )%        $ (149,402 )         $  (20,319 )             (129,083 )           (635.3 )%

* Not meaningful.

Income from continuing operations includes the operating results of 103 hotel properties that we have owned throughout the entirety of both the three and six months ended June 30, 2009 and 2008. The following table illustrates the key performance indicators of these hotels for the three and six months ended June 30, 2009 and 2008:

                                           Three Months Ended           Six Months Ended
                                                June 30,                    June 30,
                                           2009          2008          2009          2008
  Total hotel revenue (in thousands)    $ 237,323     $ 302,373     $ 470,629     $ 584,611
  Room revenue (in thousands)           $ 176,405     $ 223,915     $ 349,159     $ 433,408
  RevPAR (revenue per available room)   $   87.92     $  111.64     $   87.31     $  108.03
  Occupancy                                 68.00 %       76.65 %       65.10 %       73.34 %
  ADR (average daily rate)              $  129.29     $  145.65     $  134.12     $  147.31

Comparison of the Three Months Ended June 30, 2009 with Three Months Ended June 30, 2008
Revenue. Room revenues decreased $47.5 million, or 21.2%, during the three months ended June 30, 2009, (the "2009 quarter") compared to the three months ended June 30, 2008 (the "2008 quarter"). Occupancy declined by 865 basis points from 76.65% to 68.00%. ADR declined by $16.36 to $129.29. Decline in market demand placed tremendous pressure on rates to maintain occupancy levels. Food and beverage experienced a similar decline of $15.6 million due to lower volume on catering and banquet events. Other hotel revenue which consists of ancillary revenues such as telecommunication, parking, spa, golf fees, and phone charges also saw a $1.9 million decline due to lower occupancy.

Rental income from operating leases represents rental income recognized on a straight-line basis associated with a hotel property that is leased to a third-party tenant on a triple-net basis. Rental income experienced a small decline of $121,000 primarily due to the lower occupancy and ADR during the 2009 quarter. . . .