##### Table of Contents

---

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



---

FORM 10-Q



---

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended
September 30, 2006

Commission file number: 001-32279



---

EAGLE HOSPITALITY PROPERTIES
TRUST, INC.

(Exact name of registrant specified in its charter)



---



|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Maryland                                                       |  | 55-0862656                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)

100 E. RiverCenter Blvd., Suite 480, Covington, KY

(Address of principal executive office)

41011

(Zip Code)

(859) 581-5900

(Registrants telephone number, including area code)



---

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



|                                                                      |  |                                     
|--------------------------------------------------------------------- |  | ------------------------------------
|Title of Each Class                                                   |  | Outstanding as of September 30, 2006
|Common stock, $.01 par value                                          |  | 17,754,664                          
|                                                                      | 
|81/4% Series A Cumulative Redeemable Preferred Shares, $.01 par value |  | 4,000,000                           



---

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. Yes X No

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, or a non-accelerated filer. See definition of large accelerated filer and accelerated filer in
Rule 12b-2 of the Securities Exchange Act (check one):

Large Accelerated Filer ̈Accelerated Filer  x            Non-Accelerated Filer ̈

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



---



---

##### Table of Contents

EAGLE HOSPITALITY PROPERTIES TRUST, INC.

QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 2006

TABLE OF CONTENTS



|                                                                                                                                  |  |                                                                                       |  |     
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                  |  |                                                                                       |  | Page
|PART I                                                                                                                            |  |                                                                                      
|                                                                                                                                  | 
|ITEM 1.
Financial Statements                                                                                                      |  |                                                                                      
|                                                                                                                                  | 
|Consolidated Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005                                            |  | 3                                                                                    
|                                                                                                                                  | 
|Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended September 30, 2006 and 2005 (unaudited) |  | 4                                                                                    
|                                                                                                                                  | 
|Consolidated Statements of Operations and Comprehensive Income for the Nine Months Ended September 30, 2006 and 2005 (unaudited)  |  | 5                                                                                    
|                                                                                                                                  | 
|Consolidated Statement of Shareholders Equity for the Nine Months Ended September 30, 2006 (unaudited)                           |  | 6                                                                                    
|                                                                                                                                  | 
|Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005 (unaudited)                           |  | 7                                                                                    
|                                                                                                                                  | 
|Notes to Consolidated Financial Statements                                                                                        |  | 8                                                                                    
|                                                                                                                                  |  |                                                                                      
|ITEM 2.                                                                                                                           |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 16  
|                                                                                                                                  |  |                                                                                      
|ITEM 3.                                                                                                                           |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 27  
|                                                                                                                                  |  |                                                                                      
|ITEM 4.                                                                                                                           |  | Controls and Procedures                                                               |  | 28  
|                                                                                                                                  | 
|PART II                                                                                                                           |  |                                                                                      
|                                                                                                                                  |  |                                                                                      
|ITEM 1.                                                                                                                           |  | Legal Proceedings                                                                     |  | 28  
|                                                                                                                                  |  |                                                                                      
|ITEM 1A.                                                                                                                          |  | Risk Factors                                                                          |  | 28  
|                                                                                                                                  |  |                                                                                      
|ITEM 2.                                                                                                                           |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 28  
|                                                                                                                                  |  |                                                                                      
|ITEM 3.                                                                                                                           |  | Defaults Upon Senior Securities                                                       |  | 28  
|                                                                                                                                  |  |                                                                                      
|ITEM 4.                                                                                                                           |  | Submission of Matters to a Vote of Security Holders                                   |  | 28  
|                                                                                                                                  |  |                                                                                      
|ITEM 5.                                                                                                                           |  | Other Information                                                                     |  | 28  
|                                                                                                                                  |  |                                                                                      
|ITEM 6.                                                                                                                           |  | Exhibits                                                                              |  | 29  
|                                                                                                                                  | 
|SIGNATURES                                                                                                                        |  | 29                                                                                   



2



---

##### Table of Contents

PART I

Item 1. Financial Statements.

EAGLE HOSPITALITY PROPERTIES TRUST, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited, $000s omitted)



|                                                                                                                                                                                |  |                               |         |   |                   |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                                |  | (Unaudited)September 30, 2006 |         |   | December 31, 2005 |  
|ASSETS                                                                                                                                                                          |  |                               |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                                                       |  | $                             | 5,173   |   |                   | $ | 8,628   |  
|Restricted cash - real estate tax escrows                                                                                                                                       |  |                               | 846     |   |                   |   | 1,623   |  
|Restricted replacement reserves                                                                                                                                                 |  |                               | 2,264   |   |                   |   | 5,436   |  
|Accounts receivable, net                                                                                                                                                        |  |                               | 5,833   |   |                   |   | 6,026   |  
|Inventories                                                                                                                                                                     |  |                               | 626     |   |                   |   | 620     |  
|Deferred income taxes                                                                                                                                                           |  |                               | 2,533   |   |                   |   | 3,323   |  
|Deferred franchise fees and loan fees, net                                                                                                                                      |  |                               | 3,059   |   |                   |   | 3,517   |  
|Prepaid expenses and other assets                                                                                                                                               |  |                               | 1,472   |   |                   |   | 1,948   |  
|Investment in hotel properties, net                                                                                                                                             |  |                               | 442,198 |   |                   |   | 394,990 |  
|                                                                                                                                                                                |  |                               |         |   |                   |   |         |  
|Total assets                                                                                                                                                                    |  | $                             | 464,004 |   |                   | $ | 426,111 |  
|                                                                                                                                                                                |  |                               |         |   |                   |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                            |  |                               |         |   |                   |   |         |  
|                                                                                                                                                                                |  |                              
|LIABILITIES:                                                                                                                                                                    |  |                               |         |   |                   |   |         |  
|                                                                                                                                                                                |  |                              
|Notes payable                                                                                                                                                                   |  | $                             | 254,934 |   |                   | $ | 211,427 |  
|Capital lease obligations                                                                                                                                                       |  |                               | 61      |   |                   |   | 112     |  
|Income tax payable                                                                                                                                                              |  |                               | 274     |   |                   |   | 565     |  
|Accounts payable                                                                                                                                                                |  |                               | 2,858   |   |                   |   | 2,272   |  
|Due to (from) affiliates, net                                                                                                                                                   |  |                               | 78      |   |                   |   | (32     | )
|Dividends and distributions payable                                                                                                                                             |  |                               | 4,157   |   |                   |   | 4,135   |  
|Accrued expenses                                                                                                                                                                |  |                               | 11,182  |   |                   |   | 8,649   |  
|Advance deposits                                                                                                                                                                |  |                               | 1,720   |   |                   |   | 2,098   |  
|                                                                                                                                                                                |  |                               |         |   |                   |   |         |  
|Total liabilities                                                                                                                                                               |  | $                             | 275,264 |   |                   | $ | 229,226 |  
|                                                                                                                                                                                |  |                               |         |   |                   |   |         |  
|Minority interest                                                                                                                                                               |  |                               | 10,800  |   |                   |   | 13,661  |  
|                                                                                                                                                                                |  |                              
|SHAREHOLDERS EQUITY                                                                                                                                                            |  |                               |         |   |                   |   |         |  
|                                                                                                                                                                                |  |                              
|Preferred stock, $0.01 par value, 10,000,000 shares authorized, 8.25% Series A - 4,000,000 issued and outstanding at September 30, 2006
and December 31, 2005                   |  | $                             | 40      |   |                   | $ | 40      |  
|Common stock, $0.01 par value, 100,000,000 shares authorized, 17,757,664 and 17,382,385 shares issued and outstanding at September 30,
2006 and December 31, 2005, respectively |  |                               | 177     |   |                   |   | 174     |  
|Additional paid-in capital                                                                                                                                                      |  |                               | 196,286 |   |                   |   | 196,847 |  
|Deferred compensation                                                                                                                                                           |  |                               |        |   |                   |   | (1,700  | )
|Accumulated other comprehensive income                                                                                                                                          |  |                               |        |   |                   |   | 9       |  
|(Dividends in excess of accumulated earnings)                                                                                                                                   |  |                               | (18,563 | ) |                   |   | (12,146 | )
|                                                                                                                                                                                |  |                               |         |   |                   |   |         |  
|Total shareholders equity                                                                                                                                                      |  | $                             | 177,940 |   |                   | $ | 183,224 |  
|                                                                                                                                                                                |  |                               |         |   |                   |   |         |  
|Total liabilities and shareholders equity                                                                                                                                      |  | $                             | 463,963 |   |                   | $ | 426,111 |  
|                                                                                                                                                                                |  |                               |         |   |                   |   |         |  

See notes to consolidated financial statements



3



---

##### Table of Contents

EAGLE HOSPITALITY PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS and COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005

(unaudited, 000s omitted, except per share amounts)



|                                                                  |  |      |        |   |      |   |        |  
|----------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                                  |  | 2006 |        |   | 2005 |  
|Revenues:                                                         |  |      |        |   |      |   |        |  
|Rooms department                                                  |  | $    | 27,199 |   |      | $ | 23,015 |  
|Food and beverage department                                      |  |      | 7,998  |   |      |   | 7,529  |  
|Lease income                                                      |  |      | 1,398  |   |      |   | 1,350  |  
|Other operating departments                                       |  |      | 1,650  |   |      |   | 1,312  |  
|                                                                  |  |      |        |   |      |   |        |  
|Total revenue                                                     |  |      | 38,245 |   |      |   | 33,206 |  
|Expenses:                                                         |  |      |        |   |      |   |        |  
|Rooms department                                                  |  |      | 6,514  |   |      |   | 5,598  |  
|Food and beverage department                                      |  |      | 5,603  |   |      |   | 5,122  |  
|Other operating departments                                       |  |      | 837    |   |      |   | 760    |  
|Selling, general and administrative expense                       |  |      | 12,879 |   |      |   | 10,710 |  
|Depreciation and amortization                                     |  |      | 4,804  |   |      |   | 4,358  |  
|Corporate general and administrative                              |  |      | 1,134  |   |      |   | 2,001  |  
|                                                                  |  |      |        |   |      |   |        |  
|Total operating expenses                                          |  |      | 31,771 |   |      |   | 28,549 |  
|                                                                  |  |      |        |   |      |   |        |  
|Net Operating Income                                              |  |      | 6,474  |   |      |   | 4,657  |  
|                                                                  |  |      |        |   |      |   |        |  
|Interest expense                                                  |  |      | (3,746 | ) |      |   | (3,151 | )
|Interest income                                                   |  |      | 87     |   |      |   | 129    |  
|Other income                                                      |  |      |       |   |      |   | 8      |  
|                                                                  |  |      |        |   |      |   |        |  
|Income before provision for income taxes and minority interest    |  |      | 2,815  |   |      |   | 1,643  |  
|                                                                  |  |      |        |   |      |   |        |  
|Income tax expense (benefit)                                      |  |      | 211    |   |      |   | (723   | )
|Minority interest expense                                         |  |      | 137    |   |      |   | 77     |  
|                                                                  |  |      |        |   |      |   |        |  
|Net income                                                        |  | $    | 2,467  |   |      | $ | 2,289  |  
|Distributions to preferred shareholders                           |  |      | 2,063  |   |      |   | 2,062  |  
|                                                                  |  |      |        |   |      |   |        |  
|Net income available to common shareholders                       |  | $    | 404    |   |      | $ | 227    |  
|Unrealized (loss) gain on marketable securities                   |  |      | (15    | ) |      |   | 8      |  
|                                                                  |  |      |        |   |      |   |        |  
|COMPREHENSIVE INCOME                                              |  | $    | 389    |   |      | $ | 235    |  
|                                                                  |  |      |        |   |      |   |        |  
|Basic income per share                                            |  | $    | 0.02   |   |      | $ | 0.01   |  
|Diluted income per share                                          |  | $    | 0.02   |   |      | $ | 0.01   |  
|Weighted average basic shares outstanding                         |  |      | 17,573 |   |      |   | 17,170 |  
|Weighted average diluted shares and partnership units outstanding |  |      | 23,577 |   |      |   | 23,167 |  

See notes to consolidated financial statements



4



---

##### Table of Contents

EAGLE HOSPITALITY PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS and COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005

(unaudited, 000s omitted, except per share amounts)



|                                                                  |  |      |         |   |      |   |        |  
|----------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | -
|                                                                  |  | 2006 |         |   | 2005 |  
|Revenues:                                                         |  |      |         |   |      |   |        |  
|Rooms department                                                  |  | $    | 77,252  |   |      | $ | 59,013 |  
|Food and beverage department                                      |  |      | 25,375  |   |      |   | 20,005 |  
|Lease income                                                      |  |      | 4,873   |   |      |   | 1,395  |  
|Other operating departments                                       |  |      | 4,417   |   |      |   | 3,264  |  
|                                                                  |  |      |         |   |      |   |        |  
|Total revenue                                                     |  |      | 111,917 |   |      |   | 83,677 |  
|Expenses:                                                         |  |      |         |   |      |   |        |  
|Rooms department                                                  |  |      | 18,462  |   |      |   | 14,479 |  
|Food and beverage department                                      |  |      | 16,988  |   |      |   | 12,892 |  
|Other operating departments                                       |  |      | 2,450   |   |      |   | 1,833  |  
|Selling, general and administrative expense                       |  |      | 36,313  |   |      |   | 27,576 |  
|Depreciation and amortization                                     |  |      | 13,009  |   |      |   | 10,166 |  
|Corporate general and administrative                              |  |      | 4,190   |   |      |   | 5,705  |  
|                                                                  |  |      |         |   |      |   |        |  
|Total operating expenses                                          |  |      | 91,412  |   |      |   | 72,651 |  
|                                                                  |  |      |         |   |      |   |        |  
|Net Operating Income                                              |  |      | 20,505  |   |      |   | 11,026 |  
|                                                                  |  |      |         |   |      |   |        |  
|Interest expense                                                  |  |      | (9,610  | ) |      |   | (7,628 | )
|Interest income                                                   |  |      | 281     |   |      |   | 393    |  
|Other income                                                      |  |      | 2       |   |      |   | 22     |  
|                                                                  |  |      |         |   |      |   |        |  
|Income before provision for income taxes and minority interest    |  |      | 11,178  |   |      |   | 3,813  |  
|                                                                  |  |      |         |   |      |   |        |  
|Income tax expense (benefit)                                      |  |      | 1,120   |   |      |   | (2,213 | )
|Minority interest expense                                         |  |      | 976     |   |      |   | 911    |  
|                                                                  |  |      |         |   |      |   |        |  
|Net income                                                        |  | $    | 9,082   |   |      | $ | 5,115  |  
|Distributions to preferred shareholders                           |  |      | 6,188   |   |      |   | 2,475  |  
|                                                                  |  |      |         |   |      |   |        |  
|Net income available to common shareholders                       |  | $    | 2,894   |   |      | $ | 2,640  |  
|Unrealized loss on marketable securities                          |  |      | (9      | ) |      |   | (7     | )
|                                                                  |  |      |         |   |      |   |        |  
|COMPREHENSIVE INCOME                                              |  | $    | 2,885   |   |      | $ | 2,633  |  
|                                                                  |  |      |         |   |      |   |        |  
|Basic income per share                                            |  | $    | 0.16    |   |      | $ | 0.14   |  
|Diluted income per share                                          |  | $    | 0.16    |   |      | $ | 0.14   |  
|Weighted average basic shares outstanding                         |  |      | 17,541  |   |      |   | 17,102 |  
|Weighted average diluted shares and partnership units outstanding |  |      | 23,505  |   |      |   | 23,096 |  

See notes to consolidated financial statements



5



---

##### Table of Contents

EAGLE HOSPITALITY PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006

(unaudited, $000s omitted)



|                                                    |  |                |    |             |   |                           |  |   |                      |   |  |                                      |        |   |                                           |   |    |       |  |   |         |   |  |   |         |  
|--------------------------------------------------- |  | -------------- | -- | ----------- | - | ------------------------- |  | - | -------------------- | - |  | ------------------------------------ | ------ | - | ----------------------------------------- | - | -- | ----- |  | - | ------- | - |  | - | ------- | -
|                                                    |  | PreferredStock |    | CommonStock |   | AdditionalPaid-In Capital |  |   | DeferredCompensation |   |  | AccumulatedOther ComprehensiveIncome |        |   | Dividends inExcess of AccumulatedEarnings |   |    | Total | 
|Balance at December 31, 2005                        |  | $              | 40 |             | $ | 174                       |  | $ | 196,847              |   |  | $                                    | (1,700 | ) |                                           | $ | 9  |       |  | $ | (12,146 | ) |  | $ | 183,224 |  
|Common dividends paid or declared, $0.525 per share |  |                |    |             |   |                           |  |   |                      |   |  |                                      |        |   |                                           |   |    |       |  |   | (9,311  | ) |  |   | (9,311  | )
|Preferred dividends paid, $1.5469 per share         |  |                |    |             |   |                           |  |   |                      |   |  |                                      |        |   |                                           |   |    |       |  |   | (6,188  | ) |  |   | (6,188  | )
|OP unit redemption                                  |  |                |   |             |   | 3                         |  |   | 703                  |   |  |                                      |        |   |                                           |   |   |       |  |   |        |   |  |   | 706     |  
|Stock-based compensation                            |  |                |   |             |   |                          |  |   | 436                  |   |  |                                      |        |   |                                           |   |   |       |  |   |        |   |  |   | 436     |  
|Reclassify for FAS 123(R) adoption                  |  |                |    |             |   |                           |  |   | (1,700               | ) |  |                                      | 1,700  |   |                                           |   |    |       |  |   |         |   |  |   |        |  
|Unrealized gain on investments                      |  |                |   |             |   |                          |  |   |                     |   |  |                                      |        |   |                                           |   | (9 | )     |  |   |        |   |  |   | (9      | )
|Net income                                          |  |                |   |             |   |                          |  |   |                     |   |  |                                      |        |   |                                           |   |   |       |  |   | 9,082   |   |  |   | 9,082   |  
|                                                    |  |                |    |             |   |                           |  |   |                      |   |  |                                      |        |   |                                           |   |    |       |  |   |         |   |  |   |         |  
|Balance at September 30, 2006                       |  | $              | 40 |             | $ | 177                       |  | $ | 196,286              |   |  | $                                    |       |   |                                           | $ |   |       |  | $ | (18,563 | ) |  | $ | 177,940 |  
|                                                    |  |                |    |             |   |                           |  |   |                      |   |  |                                      |        |   |                                           |   |    |       |  |   |         |   |  |   |         |  

See notes to consolidated financial statements



6



---

##### Table of Contents

EAGLE HOSPITALITY PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended September 30, 2006 and 2005

(unaudited, $000s omitted)



|                                                                                  |  |      |         |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | -------- | -
|                                                                                  |  | 2006 |         |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |      |         |   |      |   |          |  
|Net income                                                                        |  | $    | 9,082   |   |      | $ | 5,115    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |         |   |      |   |          |  
|Deferred income taxes                                                             |  |      | 790     |   |      |   | (2,611   | )
|Depreciation                                                                      |  |      | 12,490  |   |      |   | 9,790    |  
|Amortization of deferred loan fees and franchise rights                           |  |      | 540     |   |      |   | 354      |  
|Stock based compensation                                                          |  |      | 436     |   |      |   | 2,013    |  
|Minority interest                                                                 |  |      | 976     |   |      |   | 911      |  
|Changes in assets and liabilities:                                                |  |      |         |   |      |   |          |  
|Accounts receivables                                                              |  |      | 443     |   |      |   | (2,557   | )
|Inventory, prepaid expenses, and other assets                                     |  |      | 555     |   |      |   | 656      |  
|Due to affiliates                                                                 |  |      | 110     |   |      |   | (537     | )
|Accounts payable, accrued expenses and advance deposits                           |  |      | 2,338   |   |      |   | 10,513   |  
|                                                                                  |  |      |         |   |      |   |          |  
|Net cash provided by operating activities                                         |  | $    | 27,760  |   |      | $ | 23,647   |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |      |         |   |      |   |          |  
|Acquisition of hotel properties                                                   |  | $    | (51,559 | ) |      | $ | (172,172 | )
|Capital expenditures                                                              |  |      | (8,422  | ) |      |   | (11,427  | )
|Restricted cash                                                                   |  |      | 3,940   |   |      |   | 1,524    |  
|                                                                                  |  |      |         |   |      |   |          |  
|Net cash used in investing activities                                             |  | $    | (56,041 | ) |      | $ | (182,075 | )
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |      |         |   |      |   |          |  
|Proceeds from financing                                                           |  | $    |        |   |      | $ | 195,200  |  
|Cash paid for financing fees                                                      |  |      |        |   |      |   | (929     | )
|Debt principal payments                                                           |  |      | (948    | ) |      |   | (91,636  | )
|Credit facility borrowings                                                        |  |      | 68,700  |   |      |   |         |  
|Credit facility payments                                                          |  |      | (24,245 | ) |      |   |         |  
|Proceeds from preferred stock offering                                            |  |      |        |   |      |   | 100,000  |  
|Cost of preferred stock offering                                                  |  |      |        |   |      |   | (3,543   | )
|Payment of related party loan                                                     |  |      |        |   |      |   | (23,391  | )
|Payment on capital lease obligations                                              |  |      | (51     | ) |      |   | (48      | )
|Payments of preferred dividends                                                   |  |      | (6,188  | ) |      |   | (2,475   | )
|Payments of common dividends and distributions                                    |  |      | (12,442 | ) |      |   | (16,345  | )
|Adjustments to opening balance sheet                                              |  |      |        |   |      |   | (567     | )
|                                                                                  |  |      |         |   |      |   |          |  
|Net cash provided by financing activities                                         |  | $    | 24,826  |   |      | $ | 156,266  |  
|                                                                                  |  |      |         |   |      |   |          |  
|NET DECREASE CASH AND CASH EQUIVALENTS                                            |  | $    | (3,455  | ) |      | $ | (2,162   | )
|CASH AND CASH EQUIVALENTS, beginning of year                                      |  |      | 8,628   |   |      |   | 15,661   |  
|                                                                                  |  |      |         |   |      |   |          |  
|CASH AND CASH EQUIVALENTS, end of period                                          |  | $    | 5,173   |   |      | $ | 13,499   |  
|                                                                                  |  |      |         |   |      |   |          |  

See notes to consolidated financial statements



7



---

##### Table of Contents

EAGLE HOSPITALITY PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006 (unaudited)

1.
BACKGROUND

Eagle Hospitality Properties Trust, Inc., a Maryland corporation (together with its subsidiaries Eagle,
Company, We, Us or Our), is a self-advised real estate investment trust (REIT) formed to pursue investment opportunities in the full-service and all-suites hotel industry. As of
September 30, 2006, Eagles portfolio consists of thirteen full-service and all-suites hotels under the Embassy Suites, Marriott, Hilton and Hyatt brands.

The Company commenced its operations effective as of October 1, 2004 when it completed its initial public offering (IPO) and acquired a 100% interest in eight hotels and a 49% interest in one other
hotel (Embassy Suites CincinnatiRiverCenter), all of which were previously owned or controlled by Corporex Companies LLC (Corporex or Predecessor). Because we had the right and obligation to acquire the remaining 51%
interest in the entity that owned the Embassy Suites Cincinnati-RiverCenter from William P. Butler, the Companys Chairman, no later than January 31, 2006 in exchange for 427,485 operating partnership units, the assets, liabilities and
operations of such entity are included in our consolidated financial statements in accordance with the provisions in Financial Interpretation 46(R). The remaining 51% in this hotel was acquired on December 5, 2005 for 427,485 operating
partnership units.

Our operating partnership, EHP Operating Partnership, L.P. (EHP OP or the operating
partnership), was organized as a limited partnership under the laws of the state of Maryland. The Company is the sole general partner of and owns approximately 75% of the limited partnership units in EHP OP. Limited partners (including certain
of our officers and directors) own the remaining operating partnership units. After one year from the date the units are issued, limited partners may generally redeem each unit for the cash value of one share of our common stock or, at our sole
option, one share of common stock.

Taxable REIT Subsidiaries

EHP TRS Holding Co., Inc. (EHP TRS), our taxable REIT subsidiary, was incorporated as a Maryland corporation. Each of our hotel properties, except the Embassy Suites San Juan Hotel, is leased to a wholly
owned subsidiary of EHP TRS, which engages independent hotel management companies to manage and operate the hotels under management contracts. Lease revenue from EHP TRS and its wholly owned subsidiaries is eliminated in consolidation. Under
applicable REIT tax rules, neither we nor our operating partnership can directly undertake the daily management activities of our hotels. Therefore, our principal source of funds will be dependent on EHP TRSs ability to generate cash flow from
the operation of the hotels. EHP TRS will pay income taxes at regular corporate rates on its taxable income. The Embassy Suites San Juan is leased to an unaffiliated lessee and the only income that we recognize in relation to this hotel is the lease
income paid by the lessee.

2. BUSINESS COMBINATIONS

On February 24, 2005, we completed the acquisition of the 270-room Embassy Suites Phoenix-Scottsdale for $33.1 million. This acquisition was funded through a combination of cash and the proceeds from a $22.1
million three-year, full recourse loan having an interest rate of 215 basis points over 30-day LIBOR that was collateralized by the hotel. This $22.1 million loan was paid off in December 2005 through funds drawn on our credit facility. This hotel
is managed by Commonwealth Hotels, Inc. (Commonwealth Hotels).

On June 23, 2005, we completed the acquisition of the
351-room Hilton Glendale in Glendale, California (Hilton Glendale) for $80.0 million. This acquisition was funded through a combination of cash and the proceeds from a $53.1 million bridge loan. The bridge loan was repaid on July 7,
2005 with the proceeds from a $53.1 million seven-year, interest only loan having a fixed interest rate of 5.21%. The previous owner of the Hilton Glendale had a loan with the Glendale Redevelopment Agency (GRA). This loan had a
participating feature in which the GRA would receive 1.5% of revenues above certain thresholds through 2018 and 2.0%, thereafter. The loan was paid off by the previous owner at the time we purchased the hotel and the intent was that the
previous owner would enter into a cash buyout agreement of the participating feature of the loan with the GRA. This agreement was not finalized and in accordance with the hotel purchase agreement the previous owner refunded $2.5
million of the initial purchase price to us on April 13, 2006. We remain subject to the participating feature though we do not anticipate the participation payments to materially affect our financial statements in the near term.



8



---

##### Table of Contents

On June 28, 2005, we completed the acquisition of the 299-room Embassy Suites San Juan Hotel and
Casino in Isla Verde Carolina, Puerto Rico for $60.2 million. This acquisition was funded with existing cash. This hotel is leased to a third party tenant who pays a monthly base rent of $450,000, plus additional rent based upon hotel revenues. This
hotel is managed by Hilton Hotels Corporation.

On July 21, 2006, we completed the acquisition of the 273-room Embassy Suites Boston
at Logan International Airport for $53.4 million. The hotel is subject to a 90-year ground lease. This hotel is managed by Prism Hotels & Resorts. The allocation of the purchase price is preliminary. This acquisition was funded via our $110
million unsecured credit facility, having an interest rate of 200 basis points over 30-day LIBOR. The credit facility was also amended to delay the phase-in of a stricter financial covenant to provide us with balance sheet flexibility during 2006
and the first quarter of 2007. Effective with this amendment, our senior unsecured credit facility now requires that the ratio of our total liabilities to total asset value as defined in the agreement not exceed 58% through December 31, 2006,
55% from the period January 1, 2007 through March 31, 2007 and 53% thereafter.

The accompanying consolidated financial
statements include the results of the acquired hotels since the dates of acquisition. The purchase prices were the result of arms length negotiations, and Eagle did not assign any value to goodwill or other intangible assets. However, the
purchase price allocation for the Embassy Suites Boston at Logan International Airport is preliminary and subject to further internal review. Additional adjustments are unlikely to have a material impact.

The following pro forma selected financial data was derived in accordance with Statement of Financial Accounting Standards No. 141 (FAS
141). The selected financial data, in accordance with FAS 141, assumes that the acquisition of the Embassy Suites Boston at Logan International Airport occurred on January 1, 2005, as opposed to the actual acquisition date ($000s, except
earnings per share):



|                                            |  |      |         |   |      |   |        |  
|------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | -
|Three Months Period Ending September 30     |  | 2006 |         |   | 2005 |  
|Net Revenues                                |  | $    | 42,177  |   |      | $ | 37,016 |  
|Net Income Available to Common Shareholders |  |      | (623    | ) |      |   | (185   | )
|Earnings per share  diluted                |  | $    | (0.04   | ) |      | $ | (0.01  | )
|                                            |  |     
|Nine Months Period Ending September 30      |  | 2006 |         |   | 2005 |  
|Net Revenues                                |  | $    | 122,113 |   |      | $ | 93,037 |  
|Net Income Available to Common Shareholders |  |      | 245     |   |      |   | 298    |  
|Earnings per share  diluted                |  | $    | 0.01    |   |      | $ | 0.02   |  

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Included in the consolidated financial statements are Eagles operating entities (TRS), the limited liability companies that own the
hotel properties and EHP OP.

These financial statements have been prepared in accordance with U.S. generally accepted accounting
principles (GAAP) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted
accounting principles for complete financial statements. Eagle believes that all adjustments, consisting of normal recurring adjustments and accruals, considered necessary for a fair presentation have been included. In addition, Eagles
operations have historically been seasonal as certain properties experience higher occupancy rates during the different months of the year. This seasonality pattern can be expected to cause fluctuations in Eagles operating results.
Consequently, operating results for the three months and nine months ended September 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

Revenue Recognition Hotel revenues, including room, food, beverage and other hotel revenues, are recognized as the related
services are delivered. We generally consider accounts receivable to be fully collectible. If we determine that amounts are uncollectible, which would generally be the result of a customers bankruptcy or other economic downturn, such amounts
will be charged against operations when that determination is made. The lease income generated by the lease on the Embassy Suites San Juan is recognized as earned.



9



---

##### Table of Contents

Investment in Hotel Properties  The initial nine hotel properties are stated at the
Predecessors historical cost, plus an approximate $42.5 million minority interest partial step-up recorded upon formation of Eagle on October 1, 2004, related to the acquisition of minority interest from unaffiliated parties related
to seven of the initial properties. Improvements and additions which extend the life of the property are capitalized and depreciated over the estimated useful life.

Impairment of Investment in Hotel Properties  Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate the carrying value of the hotel properties may not be
recoverable (i.e., the future undiscounted cash flows for the hotel are projected to be less than the net book value of the hotel). We test for impairment in several situations, including when current or projected cash flows are less than historical
cash flows, when it becomes more likely than not that a hotel will be sold before the end of its previously estimated useful life, and when events or changes in circumstances indicate that a hotels net book value may not be recoverable. In the
evaluation of the impairment of our hotels, we make many assumptions and estimates, including projected cash flows, holding period, expected useful life, future capital expenditures, and fair values, including consideration of capitalization rates,
discount rates, and comparable selling prices. To date, no such impairment charges have been recognized. If an asset were deemed to be impaired, we would record an impairment charge for the amount the propertys net book value exceeds its fair
value.

Stock-Based Compensation  The 2004 Long-Term Incentive Plan (the LTIP) was adopted by the board of
directors and approved by Eagles stockholders prior to the initial public offering. The purpose of the incentive plan is to promote Eagles success and enhance the value of Eagles common stock by linking the personal interests of
participants to those of the stockholders, and by providing such persons with an incentive to achieve outstanding performance. The incentive plan authorizes the governance and compensation committee and Eagles board of directors to grant
awards to employees, officers, consultants (including, but not limited to, Corporex and its employees) and directors.

Eagle accounts for
stock-based compensation in accordance with SFAS No. 123(R), Share-Based Payment. In connection with Eagles formation, Eagle established the LTIP. The Company has issued a net total of 511,180 shares of restricted stock
under the LTIP to its executives, directors, and certain employees of the Company, the Predecessor and its affiliates. The vesting periods for these shares range from one to five years. Such shares are charged to compensation expense on a
straight-line basis over the requisite service period based on the price on the date of issuance. For the nine-month periods ending September 30, 2006 and 2005, respectively, the Company incurred total compensation expense of $0.4 million and
$2.0 million related to these restricted shares. For the three month periods ending September 30, 2006 and 2005, respectively, the Company incurred total compensation expense of $0.1 million and $0.7 million related to these restricted shares.
The higher expense in 2005 was mostly the result of the 208,332 shares issued to the Predecessor that fully vested in October 2005. Under the LTIP, the Company may issue a variety of performance-based stock awards, including nonqualified stock
options. At September 30, 2006, no performance-based stock awards have been issued other than the restricted stock discussed above. The amount of shares available for issuance under this plan increased by 125,245 shares on January 1, 2006,
pursuant to the provisions of the plan. At September 30, 2006, the Company had approximately 608,832 remaining shares available for future issuance under the LTIP. As required upon the adoption of SFAS No. 123(R), the contra equity balance
in unearned compensation on restricted stock of $1.7 million as of January 1, 2006 was reversed (i.e. netted into additional paid-in capital) in the Consolidated Balance Sheet for the period ending March 31, 2006.

A summary of the Companys nonvested shares as of September 30, 2006 is as follows:



|                                |  |                 |   |  |                                        |     
|------------------------------- |  | --------------- | - |  | -------------------------------------- | ----
|                                |  | Number ofShares |   |  | Weighted-Average Grant-Date Fair Value
|Nonvested at January 1, 2006    |  | 191,108         |   |  | $                                      | 9.69
|Granted                         |  | 52,168          |   |  |                                        | 8.63
|Vested                          |  | (4,760          | ) |  |                                        | 9.52
|Forfeited                       |  | (6,000          | ) |  |                                        | 9.03
|                                |  |                 |   |  |                                        |     
|Nonvested at September 30, 2006 |  | 232,516         |   |  | $                                      | 9.48
|                                |  |                 |   |  |                                        |     



10



---

##### Table of Contents

Segments  Eagle presently operates in one business segment within the hotel lodging
industry: direct hotel investments. Direct hotel investments refers to owning hotels through either acquisition or new development.

4. PREFERRED
STOCK OFFERING

On June 13, 2005, the Company closed an underwritten public offering of 4,000,000 shares of its 8.25% Series A
Cumulative Redeemable Preferred Stock (Preferred Shares). The Preferred Shares have a liquidation value of $25.00 per share and will be redeemable at the option of the Company on or after June 14, 2010. The annual distribution for
the Preferred Shares will be $2.0625 per share. Dividends on the Preferred Shares will be payable quarterly in arrears on the last calendar day of March, June, September and December.

The net proceeds of the public offering of the Preferred Shares were $96.5 million, after underwriters discounts and other offering expenses. The
proceeds were used in the acquisitions of the Hilton Glendale and the Embassy Suites San Juan, as well as for other general corporate and working capital purposes.

5. EARNINGS PER SHARE

The limited partners outstanding limited partnership units in the operating partnership
(which may be redeemed for common stock upon notice from the limited partner and following our election to redeem the units for stock rather than cash) have been excluded from the diluted earnings per share calculation as there would be no effect on
the amounts since the limited partners share of income would also be added back to net income. The computation of basic and diluted earnings per common share is presented below:



|                                                                                                  |  |                                       |            |   |                                       |   |            |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ---------- | - | ------------------------------------- | - | ---------- | -
|                                                                                                  |  | Nine Months EndedSeptember 30, 2006   |            |   | Nine Months EndedSeptember 30, 2005   |  
|Numerator:                                                                                        |  |                                       |            |   |                                       |   |            |  
|Net income available to common shareholders before dividends paid on unvested restricted shares   |  | $                                     | 2,894      |   |                                       | $ | 2,640      |  
|Dividends paid on unvested restricted shares                                                      |  |                                       | (110       | ) |                                       |   | (233       | )
|                                                                                                  |  |                                       |            |   |                                       |   |            |  
|Net income available to common shareholders after dividends paid on unvested restricted shares    |  | $                                     | 2,784      |   |                                       | $ | 2,407      |  
|                                                                                                  |  |                                       |            |   |                                       |   |            |  
|Denominator:                                                                                      |  |                                       |            |   |                                       |   |            |  
|Weighted average number of common shares - basic                                                  |  |                                       | 17,541,071 |   |                                       |   | 17,101,729 |  
|Dilutive effect of unvested restricted shares                                                     |  |                                       | 2,083      |   |                                       |   | 630        |  
|                                                                                                  |  |                                       |            |   |                                       |   |            |  
|Weighted average number of common shares - diluted                                                |  |                                       | 17,543,154 |   |                                       |   | 17,102,359 |  
|                                                                                                  |  |                                       |            |   |                                       |   |            |  
|Basic Earnings Per Common Share:                                                                  |  | $                                     | 0.16       |   |                                       | $ | 0.14       |  
|                                                                                                  |  |                                       |            |   |                                       |   |            |  
|Diluted Earnings Per Common Share:                                                                |  | $                                     | 0.16       |   |                                       | $ | 0.14       |  
|                                                                                                  |  |                                       |            |   |                                       |   |            |  
|                                                                                                  |  |                                      
|                                                                                                  |  | Three Months Ended September 30, 2006 |            |   | Three Months Ended September 30, 2005 |  
|Numerator:                                                                                        |  |                                       |            |   |                                       |   |            |  
|Net income available to common shareholders before dividends paid on unvested restricted shares   |  | $                                     | 404        |   |                                       | $ | 227        |  
|Dividends paid on unvested restricted shares                                                      |  |                                       | (41        | ) |                                       |   | (78        | )
|                                                                                                  |  |                                       |            |   |                                       |   |            |  
|Net income available to common shareholders after dividends paid to on unvested restricted shares |  | $                                     | 363        |   |                                       | $ | 149        |  
|                                                                                                  |  |                                       |            |   |                                       |   |            |  
|Denominator:                                                                                      |  |                                       |            |   |                                       |   |            |  
|Weighted average number of common shares - basic                                                  |  |                                       | 17,573,336 |   |                                       |   | 17,170,329 |  
|Dilutive effect of unvested restricted shares                                                     |  |                                       | 2,514      |   |                                       |   | 2,872      |  
|                                                                                                  |  |                                       |            |   |                                       |   |            |  
|Weighted average number of common shares - diluted                                                |  |                                       | 17,575,850 |   |                                       |   | 17,173,201 |  
|                                                                                                  |  |                                       |            |   |                                       |   |            |  
|Basic Earnings Per Common Share:                                                                  |  | $                                     | 0.02       |   |                                       | $ | 0.01       |  
|                                                                                                  |  |                                       |            |   |                                       |   |            |  
|Diluted Earnings Per Common Share:                                                                |  | $                                     | 0.02       |   |                                       | $ | 0.01       |  
|                                                                                                  |  |                                       |            |   |                                       |   |            |  



11



---

##### Table of Contents

6. MINORITY INTEREST

Minority interest in the operating partnership represents the limited partners proportionate share of the equity in the operating partnership. Net income (loss) is allocated to minority interest based on limited
partnership percentage ownership for the period. Upon formation of the Company on October 1, 2004, the Company issued 5,566,352 units of limited partnership interest to affiliates, plus another 427,485 partnership units were issued on
December 5, 2005 in exchange for the remaining 51% of the Embassy Suites Hotel Cincinnati  RiverCenter. An additional 250,000 partnership units were issued to the former owners of the Embassy Suites Hotel Denver International Airport on
December 5, 2005, in compliance with the earn-out provisions in the original purchase agreement. An additional 83,333 partnership units were issued to the former owner of the Embassy Suites Hotel Columbus/Dublin on July 24, 2006, in
compliance with the earnout provisions of the original purchase agreement. After a one-year holding period from the date of issuance, partnership units may be redeemed for the cash value of one share of our common stock or, at our sole option, one
share of common stock. During the nine month periods ended September 30, 2006 and 2005, respectively, 326,111 and 0 partnership units were redeemed in exchange for an equal number of shares of our common stock. During the three month periods
ended September 30, 2006 and 2005, no partnership units were redeemed in exchange for an equal number of shares of our common stock. As of September 30, 2006 there are 6,001,059 partnership units outstanding which represent an approximate
minority interest ownership of 25%. These exchanges are non-cash items.

7. DEBT

Eagles notes payable as of September 30, 2006 are as follows:



|                                                                                                                       |  |        |         |               |       |  
|---------------------------------------------------------------------------------------------------------------------- |  | ------ | ------- | ------------- | ----- | -
|Properties Collateralized                                                                                              |  | Amount |         | Interest Rate |      
|Cincinnati Landmark Marriott, Embassy Suites Hotel Cleveland/Rockside and Embassy Suites Hotel Tampa Airport/Westshore |  | $      | 57,446  |               | 5.43  | %
|Hyatt Regency Rochester                                                                                                |  |        | 15,436  |               | 7.28  | %
|Embassy Suites Hotel & Casino San Juan                                                                                 |  |        | 38,200  |               | 5.14  | %
|Van Loan                                                                                                               |  |        | 20      |               | 5.10  | %
|Hilton Glendale                                                                                                        |  |        | 53,100  |               | 5.21  | %
|                                                                                                                       |  |        |         |               |       |  
|Fixed Debt                                                                                                             |  |        | 164,202 |               | 5.46  | %
|                                                                                                                       |  |        |         |               |       |  
|Cincinnati Landmark Marriott, Embassy Suites Hotel Cleveland/Rockside and Embassy Suites Hotel Tampa Airport/Westshore |  |        | 23,732  |               | 7.07  | %
|US Bank Credit Facility                                                                                                |  |        | 67,000  |               | 7.32  | %
|                                                                                                                       |  |        |         |               |       |  
|Variable Debt                                                                                                          |  |        | 90,732  |               | 7.26  | %
|                                                                                                                       |  |        |         |               |       |  
|Total Debt and Wgt Avg Cost of Debt                                                                                    |  | $      | 254,934 |               | 6.10  | %
|                                                                                                                       |  |        |         |               |       |  
|LIBOR 30-day rate at 9/30/06                                                                                           |  |        |         |               | 5.323 | %



12



---

##### Table of Contents

Total debt maturities, including capital lease obligations, as of September 30, 2006 were as follows
($000s):



|           |  |   |        
|---------- |  | - | -------
|2006       |  | $ | 685    
|2007       |  |   | 2,073  
|2008       |  |   | 84,001 
|2009       |  |   | 2,529  
|2010       |  |   | 76,558 
|Thereafter |  |   | 89,149 
|           |  |   |        
|Total      |  | $ | 254,995
|           |  |   |        

8. RELATED PARTY TRANSACTIONS

Hotel Management Agreements - Nine of our hotels are subject to management agreements with Commonwealth Hotels. Under these agreements, Eagle is
obligated to pay monthly management fees equal to 2.50% of gross revenues in 2005, 2.75% in 2006, and 3.00% of gross revenues in 2007 and the years thereafter. Incentive fees may also be earned upon meeting certain net operating income thresholds.
These management agreements have ten-year terms, with a renewal option for one additional five-year period. If Eagle terminates a management agreement on any of the properties prior to its expiration, due to sale of the property, Eagle may be
required to pay a substantial termination fee. Eagles Chairman is the majority shareholder in Commonwealth Hotels. Management fees earned by Commonwealth Hotels for the nine months ending September 30, 2006 and 2005, respectively, were
$2.1 million and $1.6 million. The management fees earned for the three months ending September 30, 2006 and 2005, respectively, were $0.7 million and $0.6 million. At September 30, 2006 and December 31, 2005, Eagle owed Commonwealth
Hotels $0.2 million in management fees payable.

Strategic Alliance Agreement  Eagle has entered into a Strategic Alliance
Agreement (SAA) with Corporex and affiliated parties. The SAA provides Eagle with the right of first refusal for development opportunities with Corporex and affiliates, as well as a non-compete clause for markets in which we own or have
an investment. The agreement expires October 1, 2014. Corporex received 208,332 shares of common stock in conjunction with the SAA. The shares vested October 6, 2005. For the nine months and three months, respectively, ended
September 30, 2005, Eagle incurred approximately $1.5 million and $0.5 million, respectively, in expense as a result of the amortization of these shares.

Leased Office Space - Eagles headquarters are located in an office building that is owned by a limited partnership in which Eagles Chairman and Chief Executive Officer are limited partners. We
entered into a lease for this office space subsequent to our IPO at terms approximating the fair market value. We are obligated to pay $0.6 million in rent over a ten-year period, or on average, approximately $5,000 per month. The expense of this
lease is being recognized on a straight-line basis. In addition to the rent payments, we will also be subject to a common area maintenance fee allocation related to this office space of approximately $2,000 per month. Eagle believes the lease
payments do not exceed market value.

9. STATEMENT OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES

On March 8, 2006, Eagle declared a dividend of $0.175 per common share and operating partnership unit. This dividend was paid on April 17, 2006,
to holders of record as of March 31, 2006. The total amount of the dividends paid to holders of our common stock was $3.1 million and $1.0 million was paid to holders of operating partnership units.

On March 8, 2006, Eagle declared a quarterly dividend of $0.515625 per 8.25% Series A Cumulative Redeemable Preferred Share for the period ended
March 31, 2006 to holders of record as of March 16, 2006. The total amount of dividends paid to holders of the preferred shares was $2.1 million and was paid on March 31, 2006.

On June 2, 2006, Eagle declared a dividend of $0.175 per common share and operating partnership unit. This dividend was paid on July 14, 2006,
to holders of record as of June 30, 2006. The total amount of the dividends paid to holders of our common stock was $3.1 million and $1.0 million was paid to holders of operating partnership units.



13



---

##### Table of Contents

On June 2, 2006, Eagle declared a quarterly dividend of $0.515625 per 8.25% Series A Cumulative
Redeemable Preferred Share for the period ended June 30, 2006 to holders of record as of June 15, 2006. The total amount of dividends paid to holders of the preferred shares was $2.1 million and was paid on June 30, 2006.

On September 1, 2006, Eagle declared a dividend of $0.175 per common share and operating partnership unit. This dividend was paid on
October 16, 2006, to holders of record as of September 29, 2006. The total amount of the dividends paid to holders of our common stock was $3.1 million and $1.1 million was paid to holders of operating partnership units.

On September 1, 2006, Eagle declared a quarterly dividend of $0.515625 per 8.25% Series A Cumulative Redeemable Preferred Share for the period ended
September 30, 2006 to holders of record as of September 14, 2006. The total amount of dividends paid to holders of the preferred shares was $2.1 million and was paid on September 29, 2006.

During the nine months ended September 30, 2006, 326,111 operating partnership units were redeemed for an equal number of common shares. No
operating partnership units were redeemed during the three months ended September 30, 2006. These redemptions are non-cash items. As of September 30, 2006, there were 6,001,059 operating partnership units outstanding.

Interest paid by Eagle during the nine months ended September 30, 2006 and 2005, respectively, was $8.4 million and $7.1 million. Interest paid
during the three months ended September 30, 2006 and 2005, respectively, was $2.5 million and $2.8 million.

During the nine months
and three months, respectively, ended September 30, 2006, Eagle granted approximately 52,000 shares and 0 shares of restricted stock, valued at approximately $450,000 and $0, respectively, under its LTIP. Approximately 6,000 shares of
restricted stock due to employee resignations, valued at approximately $54,000, were cancelled during the nine months ended September 30, 2006, and 3,000 shares, valued at approximately $24,000, were cancelled during the three months ended
September 30, 2006. During the nine months and three months, respectively, ended September 30, 2005, Eagle granted 26,715 shares and 2,915 shares, valued at approximately $251,000 and $30,000, under its LTIP. There were 21,683 shares
cancelled due to employee resignations during the nine months ended September 30, 2005, valued at approximately $211,000 and 850 shares valued at approximately $8,000 were cancelled during the three months ended September 30, 2005.

10. INCOME TAXES

The Company
has elected to be taxed as a REIT under the Internal Revenue Code. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that the Company distributes at least 90% of the
Companys taxable income to the Companys shareholders. The Company currently intends to adhere to these requirements and maintain the Companys REIT status. If the Company fails to qualify as a REIT in any taxable year, the Company
will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not qualify as a REIT for four subsequent taxable years. If the Company qualifies for taxation as a REIT, the Company may
be subject to certain state and local taxes on the Companys income as well as to federal income and excise taxes on the Companys undistributed taxable income.

The Company had a net tax expense(benefit) of $1,120 and $(2,213), respectively, for the nine month periods ending September 30, 2006 and 2005.



|                                    |  |      |       |      |   |        |  
|----------------------------------- |  | ---- | ----- | ---- | - | ------ | -
|                                    |  | 2006 |       | 2005 |  
|Current                             |  |      |       |      |   |        |  
|State and local income tax expense  |  | $    | 330   |      | $ | 398    |  
|Federal income tax expense          |  |      |      |      |   |       |  
|                                    |  |      |       |      |   |        |  
|                                    |  |      | 330   |      |   | 398    |  
|                                    |  |     
|Deferred                            |  |      |       |      |   |        |  
|State and local income tax expense  |  |      | 140   |      |   |       |  
|Federal income tax expense(benefit) |  |      | 650   |      |   | (2,611 | )
|                                    |  |      |       |      |   |        |  
|Net income tax expense (benefit)    |  | $    | 1,120 |      | $ | (2,213 | )
|                                    |  |      |       |      |   |        |  



14



---

##### Table of Contents

The Company had a net tax expense (benefit) of $211 and $(723), respectively, for the three month periods
ending September 30, 2006 and 2005.



|                                     |  |      |     |      |   |      |  
|------------------------------------ |  | ---- | --- | ---- | - | ---- | -
|                                     |  | 2006 |     | 2005 |  
|Current                              |  |      |     |      |   |      |  
|State and local income tax expense   |  | $    | 107 |      | $ | 181  |  
|Federal income tax expense           |  |      |    |      |   |     |  
|                                     |  |      |     |      |   |      |  
|                                     |  |      | 107 |      |   | 181  |  
|                                     |  |     
|Deferred                             |  |      |     |      |   |      |  
|State and local income tax expense   |  |      | 81  |      |   |     |  
|Federal income tax expense (benefit) |  |      | 23  |      |   | (904 | )
|                                     |  |      |     |      |   |      |  
|Net income tax expense (benefit)     |  | $    | 211 |      | $ | (723 | )
|                                     |  |      |     |      |   |      |  

The Companys deferred tax asset related to its taxable REIT subsidiary (TRS)
consisted of the following for the periods ending September 30, 2006 and December 31, 2005:



|                           |  |                   |       |   |                  |   |       |  
|-------------------------- |  | ----------------- | ----- | - | ---------------- | - | ----- | -
|                           |  | September 30,2006 |       |   | December 31,2005 |  
|State deferred tax asset   |  | $                 | 343   |   |                  | $ | 360   |  
|Federal deferred tax asset |  |                   | 2,388 |   |                  |   | 3,038 |  
|Gross deferred tax asset   |  |                   | 2,731 |   |                  |   | 3,398 |  
|Valuation allowance        |  |                   | (198  | ) |                  |   | (75   | )
|                           |  |                   |       |   |                  |   |       |  
|Net deferred tax asset     |  | $                 | 2,533 |   |                  | $ | 3,323 |  
|                           |  |                   |       |   |                  |   |       |  

The Company had an income tax payable of $274 and $565, respectively as of September 30, 2006
and December 31, 2005.



|                                   |  |                   |     |                  |   |    
|---------------------------------- |  | ----------------- | --- | ---------------- | - | ---
|                                   |  | September 30,2006 |     | December 31,2005
|State and local income tax payable |  | $                 | 274 |                  | $ | 565
|Federal income tax payable         |  |                   |    |                  |   |   
|                                   |  |                   |     |                  |   |    
|Income tax payable                 |  | $                 | 274 |                  | $ | 565
|                                   |  |                   |     |                  |   |    

11. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 is an
interpretation of FASB Statement No. 109, Accounting for Income Taxes, and it seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. In addition, FIN
48 requires expanded disclosure with respect to the uncertainty in income taxes and is effective as of the beginning of our 2007 fiscal year. We do not anticipate the adoption of this pronouncement to have a material effect on our consolidated
financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior
Year Misstatements When Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 seeks to clarify the manner in which registrants should view prior year errors in order to determine whether the errors are
of a material nature and need to be adjusted. SAB 108 requires registrants to view the prior year errors from both a balance sheet and income statement perspective to determine materiality. SAB 108 is effective as of the beginning of our 2007 fiscal
year. We do not anticipate the adoption of this pronouncement to have a material effect on our consolidated financial statements.

12. COMMITMENTS
AND CONTINGENCIES

Restricted Cash  Under certain existing mortgage loan and hotel management agreements, Eagle is
obligated to escrow payments for insurance, real estate taxes and 4% to 5% of gross revenue of certain properties for capital improvements.



15



---

##### Table of Contents

Contingent Consideration  At the time we acquired our initial hotels, we agreed to make
earn-out payments totaling in the aggregate up to 833,333 additional operating partnership units, which are payable to the original contributors of the Embassy Suites Hotel Columbus/Dublin, the Embassy Suites Hotel Cleveland/Rockside and the Embassy
Suites Hotel Denver-International Airport only if certain operating measurements are achieved on any trailing 12-month basis within three years from the contribution. For the 12-month period ended September 30, 2005, the Embassy Suites Hotel
Denver-International Airport exceeded the operating measurements required to receive the additional 250,000 operating partnership units pursuant to the earn-out provisions of the original contribution agreement. These operating partnership units
were issued to the former owners of that hotel on December 5, 2005. For the 12-month period ended June 30, 2006, the Embassy Suites Hotel Columbus/Dublin exceeded the operating measurements required to receive the additional 83,333
operating partnership units pursuant to the earn-out provisions of the original contribution agreement. These operating partnership units were issued to the former owner of that hotel on July 24, 2006.

Franchise Fees  All of our hotels, except the Hyatt Regency Rochester, operate under franchise agreements. In conjunction with these
franchise agreements, Eagle is obligated to pay the franchisors royalty fees between 4% and 6% of gross room revenue, and under certain agreements, fees for marketing, reservations, and other related activities aggregating between 1% and 4% of gross
room revenue. In addition, the Marriott hotels are obligated to pay between 2% and 3% for food and beverage revenues. Franchise fees are included in the Selling, general and administrative line of the accompanying consolidated statements
of operations.

Litigation  We are subject to various legal proceedings and claims that arise in the ordinary course of
business. In our opinion, the amount of any ultimate liability with respect to these actions will not materially affect our financial position, results of operations or liquidity.

Taxes  Under tax indemnification agreements with the contributors of certain initial hotels, Eagle has agreed to provide tax
indemnification to the original contributors against certain tax consequences of a sale. We have agreed to pay the contributors tax liability with respect to gain allocated to the contributor under Section 704(C) of the Internal Revenue
Code if we dispose of a property contributed by the contributor in a taxable transaction during a protected period, which continues until the earlier of: a) October 1, 2014, or b) the date on which the contributor no longer owns, in
the aggregate, at least 25% of the units we issued to the contributor at the time of its contribution of property to our operating partnership.

13.
COMPREHENSIVE INCOME

For the nine months ended September 30, 2006 and 2005, respectively, comprehensive income was $2,885,000
and $2,633,000. For the three months ended September 30, 2006 and 2005, respectively, comprehensive income was $389,000 and $235,000. As of September 30, 2006 and December 31, 2005, Eagles accumulated other comprehensive income
was $0 and $9,000, respectively. The change in accumulated other comprehensive income was entirely due to Eagles unrealized gains on its marketable securities.

14. SUBSEQUENT EVENTS

None.

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking
Statements

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



| |  |  | Our business and investment strategy;
| | - |  | -------------------------------------



16



---

##### Table of Contents

| |  |  | Our projected operating results;
| | - |  | --------------------------------



| |  |  | Our ability to obtain future financing arrangements;
| | - |  | ----------------------------------------------------



| |  |  | Our understanding of our competition;
| | - |  | -------------------------------------



| |  |  | Market trends;
| | - |  | --------------



| |  |  | Projected capital expenditures; and
| | - |  | -----------------------------------



| |  |  | The impact of technology on our operations and business.
| | - |  | --------------------------------------------------------

The forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance taking into account all information currently available to us. These beliefs, assumptions, and expectations can change as a
result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, and results of operations may vary materially from those expressed in our forward-looking statements. You
should carefully consider this risk when you make an investment decision concerning our common stock. Additionally, the following factors could cause actual results to vary from our forward-looking statements:



| |  |  | The factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2005, including those set forth under the sections titled Risk Factors,
Managements Discussion and Analysis of Financial Conditions and Results of Operations, Business, and Properties;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | General volatility of the capital markets and the market price of our common stock;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | Changes in our business or investment strategy;
| | - |  | -----------------------------------------------



| |  |  | Availability, terms, and deployment of capital;
| | - |  | -----------------------------------------------



| |  |  | Availability of qualified personnel;
| | - |  | ------------------------------------



| |  |  | Changes in our industry and the market in which we operate, interest rates, or the general economy; and
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | The degree and nature of our competition.
| | - |  | -----------------------------------------

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



17



---

##### Table of Contents

RESULTS OF OPERATIONS

OVERVIEW

Eagle Hospitality Properties Trust, Inc., a Maryland corporation (together with its subsidiaries Eagle
or Company), is a self-advised real estate investment trust (REIT) formed to pursue investment opportunities in the full-service and all-suites hotel industry. As of September 30, 2006, Eagles portfolio consists of
thirteen full-service and all-suites hotels under the Embassy Suites, Marriott, Hilton and Hyatt brands.

Our goal is to generate strong
risk-adjusted returns on invested capital for our stockholders by consistently paying attractive dividends and achieving long-term appreciation in full-service and all-suites hotel investments. The Company seeks to fund a substantial percentage of
new investments with capital recycled from the disposition of owned assets. Assets may be disposed of when potential acquisitions present themselves offering higher returns on the capital employed than the assets currently owned by the
Company.

During the first nine months of 2006 virtually all geographic regions experienced year over year growth with an aggressive rate
growth strategy and favorable market conditions leading the way.

For the third quarter of 2006, the Company had net income available to
common shareholders of $0.4 million, or $0.02 per diluted share. FFO was $5.1 million and EBITDA was $11.4 million. RevPAR was $93.63.

For
the first nine months of 2006, the Company had net income available to common shareholders of $2.9 million, or $0.16 per diluted share. FFO was $16.3 million and EBITDA was $33.8 million. RevPAR was $93.82.

FIRST NINE MONTH HIGHLIGHTS AND OUTLOOK FOR THE REMAINDER OF 2006

Refer to the Results of Operations section below for discussion of our first nine months and third quarter 2006 results compared to 2005 results.

In the hotel industry many categories of operating costs do not vary directly with the volume of sales, the exceptions being franchise, management,
credit card fees and the costs of the food and beverages served. Because of this operating leverage, changes in sales volume disproportionately impact operating results. Room revenue is the most important category of revenue and drives other revenue
categories such as food and beverage and telephone. There are three key performance indicators used in the hotel industry to measure room sales:



| |  |  | Occupancy, or the number of rooms sold, usually expressed as a percentage of total rooms available;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | Average Daily Rate (ADR), which is total room revenue divided by the number of rooms sold; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | RevPAR (room revenue per available room), which is the product of the occupancy percentage and ADR.
| | - |  | ---------------------------------------------------------------------------------------------------

Due to aggressive rate management and favorable market conditions, our hotels saw RevPAR increase by 15.8%, from $81.00 for the first nine months of 2005
to $93.82 for the first nine months of 2006. The hotel occupancy improved by 4.8% to 72.4% and the ADR improved 10.5% to $129.63. For the third quarter of 2006, our hotels saw RevPAR increase by 10.2%, to $93.63 from $84.98 for the third quarter of
2005. The hotel occupancy improved by 0.1% to 72.6% and the ADR improved 10.1% to $129.00. Most of our hotels enjoyed a strong third quarter in 2006 with those located in Arizona and Ohio leading the way.

On March 8, 2006, Eagle declared a dividend of $0.175 per common share and operating partnership unit. This dividend was paid on April 17,
2006, to holders of record as of March 31, 2006. The total amount of the dividends paid to holders of our common stock was $3.1 million and $1.0 million was paid to holders of operating partnership units.

On March 8, 2006, Eagle declared a quarterly dividend of $0.515625 per 8.25% Series A Cumulative Redeemable Preferred Share for the period ended
March 31, 2006 to holders of record as of March 16, 2006. The total amount of dividends paid to holders of the preferred shares was $2.1 million and was paid on March 31, 2006.

On June 2, 2006, Eagle declared a dividend of $0.175 per common share and operating partnership unit. This dividend was paid on July 14, 2006,
to holders of record as of June 30, 2006. The total amount of the dividends paid to holders of our common stock was $3.1 million and $1.0 million was paid to holders of operating partnership units.



18



---

##### Table of Contents

On June 2, 2006, Eagle declared a quarterly dividend of $0.515625 per 8.25% Series A Cumulative
Redeemable Preferred Share for the period ended June 30, 2006 to holders of record as of June 15, 2006. The total amount of dividends paid to holders of the preferred shares was $2.1 million and was paid on June 30, 2006.

On July 21, 2006, we completed the acquisition of the 273-room Embassy Suites Boston at Logan International Airport for $53.4 million. This
acquisition is part of our stated strategy to diversify the geography of our portfolio. In addition, we may sell one or more of our other hotels in the next 90 days. In that event, we have identified the Embassy Suites Boston at Logan-International
Airport as a replacement property under Section 1031 of the Internal Revenue Code, which may enable us to structure any such future dispositions as tax-free exchanges assuming the other requirements of Section 1031 are met. No
assurances can be given that we will sell any of our hotels on favorable terms, if at all, or that we will satisfy the requirements under Section 1031 for a tax-free exchange.

For the 12-month period ended June 30, 2006, the Embassy Suites Hotel Columbus/Dublin exceeded the operating measurements required to receive the
additional 83,333 operating partnership units pursuant to the earn-out provisions of the original contribution agreement. These operating partnership units were issued to the former owner of that hotel on July 24, 2006.

On September 1, 2006, Eagle declared a dividend of $0.175 per common share and operating partnership unit. This dividend was paid on
October 16, 2006, to holders of record as of September 29, 2006. The total amount of the dividends paid to holders of our common stock was $3.1 million and $1.1 million was paid to holders of operating partnership units.

On September 1, 2006, Eagle declared a quarterly dividend of $0.515625 per 8.25% Series A Cumulative Redeemable Preferred Share for the period ended
September 30, 2006 to holders of record as of September 14, 2006. The total amount of dividends paid to holders of the preferred shares was $2.1 million and was paid on September 29, 2006.

Interest paid by Eagle during the nine months ended September 30, 2006 and 2005, respectively, was $8.4 million and $7.1 million. Interest paid
during the three months ended September 30, 2006 and 2005, respectively, was $2.5 million and $2.8 million.

During the nine months
ended September 30, 2006, Eagle granted approximately 52,000 shares of restricted stock, valued at approximately $450,000 under its LTIP. No shares of restricted stock were issued during the three months ended September 30, 2006.
Approximately 6,000 shares of restricted stock, valued at approximately $54,000, were cancelled due to employee resignations during the nine months ended September 30, 2006, and 3,000 shares, valued at approximately $24,000, were cancelled
during the three months ended September 30, 2006. During the nine months and three months, respectively, ended September 30, 2005, Eagle granted 26,715 shares and 2,915 shares, valued at approximately $251,000 and $30,000, under its LTIP.
There were 21,683 shares cancelled due to employee resignations during the nine months ended September 30, 2005, valued at approximately $211,000 and 850 shares valued at approximately $8,000 were cancelled during the three months ended
September 30, 2005.

During the nine month periods ended September 30, 2006 and 2005, respectively, 326,111 and 0 partnership
units were redeemed in exchange for an equal number of shares of our common stock. These exchanges are non-cash items. During the three month periods ended September 30, 2006 and 2005, no partnership units were redeemed. As of
September 30, 2006, there are 6,001,059 partnership units outstanding which represent an approximate minority interest ownership of 25%.

Management expects revenues will be higher for the fourth quarter of 2006 than the fourth quarter of 2005. However, we anticipate that the rate of growth is likely to be lower in the fourth quarter of 2006 than it was in the
first nine months of 2006. Net income for the fourth quarter of 2006 is expected to be lower than the fourth quarter of 2005, largely as a result of incurring income tax expense in 2006, as opposed to the income tax benefit recognized in 2005.
Management expects to see revenue increases in the fourth quarter of 2006 over the same period last year for the following reasons:



| |  |  | Improved market conditions, especially in the Midwest.
| | - |  | ------------------------------------------------------



19



---

##### Table of Contents

| |  |  | Continued strong operating revenues of the hotels acquired in 2005.
| | - |  | -------------------------------------------------------------------



| |  |  | Gains in market share for the Chicago Marriott Southwest at Burr Ridge.
| | - |  | -----------------------------------------------------------------------



| |  |  | Aggressive asset and revenue management.
| | - |  | ----------------------------------------



| |  |  | Acquisition of the Embassy Suites Boston at Logan International Airport.
| | - |  | ------------------------------------------------------------------------



| |  |  | Completion of capital improvements.
| | - |  | -----------------------------------

It should be noted
that despite the positive trends and events noted above, our hotels, especially those in the Midwest, are vulnerable to downturns brought on by seasonal weather issues.

This foregoing forward-looking statement is subject to risks and uncertainties. For more information, see the introductory paragraphs of Managements Discussion and Analysis of Financial Condition and
Results of Operations located on page 17.

CRITICAL ACCOUNTING POLICIES

There were no changes to the critical accounting policies and estimates made by management in the three months ended September 30, 2006. For a more
detailed description of our critical accounting policies, see Managements Discussion and Analysis of Financial Conditions and Results of Operations in our 2005 Annual Report on Form 10-K.

FINANCIAL CONDITION

Quarter Ended September 30, 2006
Compared to December 31, 2005

Total notes payable debt increased $43.5 million from $211.4 million to $254.9 million, or 20.6%.
The increase was largely the result of the funds drawn on our credit facility to acquire the Embassy Suites Boston at Logan International Airport.

Total assets increased $37.9 million, the result of the acquisition of the Embassy Suites Boston at Logan International Airport (Embassy Boston), somewhat offset by depreciation and amortization, reduced restricted replacement
reserves used, hotel capital expenditures and reduced unrestricted cash.

The unrestricted cash balance decreased $3.5 million from
December 31, 2005. This decrease is the result of $18.6 million in dividends and distributions paid to the preferred and common shareholders, acquisition of the Embassy Boston and $8.5 million of hotel capital expenditures, largely offset by a
net credit facility draw of $44.4 million and cash generated by hotel operations.

RESULTS OF OPERATIONS

Quarter Ended September 30, 2006 Compared to Quarter Ended September 30, 2005



|                                            |  |      |        |      |   |       
|------------------------------------------- |  | ---- | ------ | ---- | - | ------
|(000s)                                     |  | 2006 |        | 2005
|Total Revenue                               |  | $    | 38,245 |      | $ | 33,206
|Operating Expense                           |  |      | 31,771 |      |   | 28,549
|Net Operating Income                        |  |      | 6,474  |      |   | 4,657 
|Net Income Available to Common Shareholders |  |      | 404    |      |   | 227   

Revenue.Total revenues increased $5.0 million, or 15.1%, from $33.2 million
in the third quarter of 2005 to $38.2 million in the third quarter of 2006. $3.1 million of the increase was the result of the Embassy Boston acquisition in July 2006. In addition, the revenues at the Chicago Marriott Southwest at Burr Ridge
increased by $0.5 million in the third quarter of 2006 as this hotel continues to gain market share after having opened in August 2004. The Embassy Suites Hotel Dublin saw quarterly revenue gains of $0.3 million.

Our portfolio RevPAR increased from $84.98 for the third quarter of 2005 to $93.63 for the third quarter of 2006, or a 10.2% increase. Aside from the
Chicago Marriott Southwest at Burr Ridge, which opened in August 2004 and showed a 38.3% third quarter RevPAR improvement, the largest RevPAR increases occurred at the Embassy Suites Hotel Phoenix/Scottsdale and the Embassy Suites Hotel
Cleveland/Rockside.



20



---

##### Table of Contents

It is important to note that virtually all of our third quarter RevPAR growth resulted from gains in ADR.
A key part of our asset management strategy is to focus on the growth of ADR as a more sustainable revenue strategy than to simply boost occupancy through underpricing the competition.

Operating Expenses. Total operating expenses increased by $3.2 million, or 11.2%, from $28.5 million during the third quarter of 2005 to
$31.8 million in the third quarter of 2006. Of this increase, approximately $2.3 million was related to the Embassy Boston acquired in July 2006. Another $0.5 million of increases were seen in the areas of energy, insurance and real estate taxes.
The remainder of the increase was largely due to items that vary directly with an increase in revenues, such as housekeeping expense and franchise, management and credit card fees. The extent of these expenses was somewhat offset by a reduction in
corporate expense of $0.8 million, largely the result of the $0.5 million of stock-based compensation expense incurred in 2005 as part of the strategic alliance agreement.

Depreciation and Amortization Expense. Total depreciation and amortization expense increased by $0.4 million, or 9.1%, from $4.4 million in
the third quarter of 2005 to $4.8 million during the same period in 2006. This increase is related to $0.6 million of depreciation expense for the Embassy Boston, somewhat offset by declining depreciation amounts at our existing hotels as certain
assets, in particular, furniture and fixtures, become fully depreciated.

Operating Income. Net operating income increased by
$1.8 million, or 38.3%, to $6.5 million in the third quarter of 2006 from $4.7 million during the third quarter of 2005. The increase was the result of the net operating income provided by the existing hotels as a result of the increased revenues
and a decrease of $0.8 million in corporate expense.

Interest Expense. Total interest expense increased in the third quarter
of 2006 by approximately $0.5 million, or 15.6%, to $3.7 million from $3.2 million in 2005. The increase is the result of the debt incurred related to the acquisition of the Embassy Boston and rising interest rates offset to some extent by the
refinancings that occurred in 2005 that both lowered our weighted average borrowing rates and increased the portion of the debt that is at a fixed rate.

Income Tax Expense. A net income tax expense of $0.2 million was booked for the three month period ending September 30, 2006 as compared to a net income tax benefit of $(0.7) million for the same
period in 2005. This was the result of higher taxable income in 2006 as compared to 2005 and amendments to the TRS leases that were effective January 1, 2006.

Minority Interest. Minority interest in the operating partnership represents the limited partners proportionate share of the equity in the operating partnership. Income is allocated to minority
interest based on the weighted average percentage ownership during the quarter. For the three month period ending September 30, 2006, the weighted average percentage of the limited partners ownership was approximately 25%. As a result of
this ownership percentage, the portion of the income earned during the third quarters of 2006 and 2005 and allocated to the minority interest was $0.1 million.

Distributions to Preferred Shareholders. During the three-month periods ended September 30, 2006 and 2005, the Company made distributions in the amount of the $2.1 million related to the Series A
Preferred Shares. These shares were issued as the result of a public offering that closed on June 13, 2005.

Net Income
Available to Common Shareholders. The net income available to common shareholders of approximately $0.4 million in the third quarter of 2006 represented an increase of approximately $0.2 million, or 100%, from the $0.2 million recognized in
the third quarter of 2005. The increase was due to the increased income generated by our hotels and decreased corporate expenses, largely offset by the increased interest expense and income tax expense.

Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005



|                                            |  |      |         |      |   |       
|------------------------------------------- |  | ---- | ------- | ---- | - | ------
|(000s)                                     |  | 2006 |         | 2005
|Total Revenue                               |  | $    | 111,917 |      | $ | 83,677
|Operating Expense                           |  |      | 91,412  |      |   | 72,651
|Net Operating Income                        |  |      | 20,505  |      |   | 11,026
|Net Income Available to Common Shareholders |  |      | 2,894   |      |   | 2,640 



21



---

##### Table of Contents

Revenue.Total revenues increased $28.2 million, or 33.7%, from $83.7 million for
the first nine months of 2005 to $111.9 million for the first nine months of 2006. $18.3 million of the increase was related to the hotels acquired in 2005. Another $3.1 million was the result of the July 2006 acquisition of the Embassy Suites
Boston at Logan International Airport (Embassy Boston). In addition, the revenues at the Chicago Marriott Southwest at Burr Ridge increased by $1.5 million in the nine months of 2006 compared to 2005, as this hotel continues to gain
market share after having opened in August 2004. All of our remaining hotels showed revenue gains of $0.2 million to $1.0 million, largely due to our aggressive rate growth strategy and an improving market.

Our portfolio RevPAR increased from $81.00 for the first nine months of 2005 to $93.82 for the first nine months of 2006, or a 15.8% increase. The
Chicago Marriott Southwest at Burr Ridge showed a 40.6% RevPAR improvement as this hotel which opened in August 2004 continues to establish itself in the market. All of our other hotels showed year over year RevPAR increases with the largest
occurring at the Embassy Suites Hotel Phoenix/Scottsdale and the Embassy Suites Hotel Cleveland/Rockside.

Of particular encouragement is
the fact that almost 70% of the RevPAR increase is the result of rate growth. Our management team feels this is a more sustainable and profitable approach to revenue management. It is especially important to note the RevPAR increase of almost 10% at
the Embassy Suites Hotel Cincinnati-RiverCenter as this hotel showed a net RevPAR decrease for the second half of 2005. Hotel renovations in 2005 adversely affected occupancy.

Operating Expenses. Total operating expenses increased by $18.7 million, or 25.7%, from $72.7 million during the first nine months of 2005,
to $91.4 million in the first nine months of 2006. Of this increase, approximately $10.4 million was related to the hotels acquired in 2005. Approximately $2.3 million was related to the Embassy Boston acquired in July 2006. Due to changes in brand
standards there was increased linen expense of $0.4 million in the first nine months of 2006. Our hotels incurred $0.9 million in increased real estate tax, insurance and energy expense. Slightly offsetting these increased expenses was a decrease in
corporate expense of $1.5 million related to the stock-based compensation expense incurred in 2005 as part of the strategic alliance agreement.

Depreciation and Amortization Expense. Total depreciation and amortization expense increased by $2.8 million, or 27.5%, from $10.2 million in 2005 to $13.0 million during the first nine months in 2006. Virtually all of this
increase is related to the depreciation of the hotels acquired in 2005 and the July 2006 acquisition of the Embassy Boston.

Operating Income. Net operating income increased by $9.5 million, or 86.4%, to $20.5 million in the first nine months of 2006 from $11.0 million during the first nine months of 2005. The increase was the result of the $7.9
million increase in net operating income provided by the 2005 hotel acquisitions, the increases shown by the existing hotels and a decrease of $1.5 million in corporate expense. Somewhat offsetting these increases was the increased depreciation and
amortization expense of $2.8 million.

Interest Expense. Total interest expense increased in the first nine months of 2006 by
approximately $2.0 million, or 26.3%, to $9.6 million from $7.6 million in 2005. The increase is largely the result of the debt incurred related to the acquisitions of the Embassy Suites Hotel Phoenix/Scottsdale, Hilton Glendale, the Embassy Suites
Hotel & Casino San Juan and the Embassy Suites Hotel Boston at Logan International Airport, offset to some extent by the refinancings that occurred in 2005.

Income Tax Expense. A net income tax expense of $1.1 million was booked for the nine-month period ending September 30, 2006 as compared to a net income tax benefit of $(2.2) million for the same
period in 2005. This was the result of higher taxable income in 2006 as compared to 2005 and amendments to the TRS leases that were effective January 1, 2006.

As of September 30, 2006, the Company had a net deferred tax asset of $2.5 million due to prior year losses by the TRS. Management believes that it is more likely than not that this deferred tax asset will be
realized. There is a valuation allowance of $0.2 million for the state portion of this deferred asset because the realization is deemed to be less likely due to tax law changes.



22



---

##### Table of Contents

Minority Interest.Minority interest in the operating partnership represents the limited
partners proportionate share of the equity in the operating partnership. Income is allocated to minority interest based on the weighted average percentage ownership during the quarter. For the nine month period ending September 30, 2006,
the weighted average percentage of the limited partners ownership was approximately 25%. As a result of this ownership percentage, the portion of the income earned during the first nine months of 2006 and allocated to the minority interest was
$1.0 million as compared to $0.9 million for the same period in 2005.

Distributions to Preferred Shareholders. During the
nine month period ended September 30, 2006, the Company made distributions in the amount of the $6.2 million related to the Series A Preferred Shares. These shares were issued as the result of a public offering that closed on June 13,
2005. The prorated distributions in the same period for 2005 were $2.5 million.

Net Income Available to Common Shareholders.
The net income available to common shareholders of approximately $2.9 million in the first nine months of 2006 represented an increase of approximately $0.3 million, or 11.5%, from the $2.6 million recognized in the first nine months of 2005. The
increase was due to the increased income generated by our hotels, in particular, the 2005 acquisitions and the reduced corporate expense, largely offset by the preferred share distribution and income tax expense.

NON-GAAP FINANCIAL MEASURES

FUNDS FROM OPERATIONS

The White Paper on Funds From Operations (FFO) approved by the Board of Governors of the National Association of Real
Estate Investment Trusts (NAREIT) in April 2002 defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of previously depreciated operating real estate assets and extraordinary
items as defined by GAAP, plus certain items such as real estate related depreciation and amortization, and after adjustment for any minority interest deriving from unconsolidated entities and joint ventures. Historical cost accounting for real
estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and
analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that
excludes historical cost depreciation, among other items, from GAAP net income. Management believes that the use of FFO, combined with the required primary GAAP presentations, has improved the understanding of operating results of REITs among the
investing public and made comparisons of REIT operating results more meaningful. Management considers FFO to be a useful measure of adjusted earnings for reviewing comparative operating and financial performance (although FFO should be reviewed in
conjunction with net income (loss), which remains the primary measure of performance) because by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and
amortization, FFO assists in comparing the operating performance of a companys real estate between periods or as compared to different companies.

We compute FFO in accordance with our interpretation of standards established by NAREIT which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT
definition or that interpret the NAREIT definition differently than us. FFO does not represent cash generated from operating activities as determined by GAAP and should not be considered as an alternative to GAAP net income as an indication of our
financial performance or to cash flow from operating activities as determined by GAAP as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions. FFO may include
funds that may not be available for the Companys discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions, and other commitments and uncertainties.



23



---

##### Table of Contents

The following is a reconciliation between net income and FFO for the three months and nine months ended
September 30, 2006 and 2005, respectively (in thousands, except share amounts):

NET INCOME TO FFO RECONCILIATION

(All amounts 000s)



|                                                                        |  |          |        |   |          |   |        |  
|----------------------------------------------------------------------- |  | -------- | ------ | - | -------- | - | ------ | -
|                                                                        |  | Q3 2006  |        |   | Q3 2005  |  
|Net income available to common shareholders                             |  | $        | 404    |   |          | $ | 227    |  
|Gain on sale of assets                                                  |  |          |       |   |          |   | (8     | )
|Minority interest                                                       |  |          | 137    |   |          |   | 77     |  
|Real estate related depreciation                                        |  |          | 4,623  |   |          |   | 4,143  |  
|                                                                        |  |          |        |   |          |   |        |  
|FFO                                                                     |  | $        | 5,164  |   |          | $ | 4,439  |  
|                                                                        |  |          |        |   |          |   |        |  
|Fully diluted weighted average shares and partnership units outstanding |  |          | 23,577 |   |          |   | 23,167 |  
|                                                                        |  |          |        |   |          |   |        |  
|                                                                        |  |         
|                                                                        |  | YTD 2006 |        |   | YTD 2005 |  
|Net income available to common shareholders                             |  | $        | 2,894  |   |          | $ | 2,640  |  
|Gain on sale of assets                                                  |  |          | (2     | ) |          |   | (22    | )
|Minority interest                                                       |  |          | 976    |   |          |   | 911    |  
|Real estate related depreciation                                        |  |          | 12,470 |   |          |   | 9,771  |  
|                                                                        |  |          |        |   |          |   |        |  
|FFO                                                                     |  | $        | 16,338 |   |          | $ | 13,300 |  
|                                                                        |  |          |        |   |          |   |        |  
|Fully diluted weighted average shares and partnership units outstanding |  |          | 23,505 |   |          |   | 23,096 |  
|                                                                        |  |          |        |   |          |   |        |  

EBITDA

EBITDA herein is defined as net income (loss) before interest expense, taxes, depreciation and amortization. We believe that EBITDA is helpful to investors and management as a measure of the performance of the Company
because it provides an indication of the operating performance of the properties within the portfolio and is not impacted by the capital structure of the REIT. EBITDA does not represent cash generated from operating activities as determined by GAAP
and should not be considered as an alternative to GAAP net income as an indication of our financial performance or to cash flow from operating activities as determined by GAAP as a measure of our liquidity, nor is it indicative of funds available to
fund our cash needs, including our ability to make cash distributions. EBITDA may include funds that may not be available for the Companys discretionary use due to functional requirements to conserve funds for capital expenditures and property
acquisitions, and other commitments and uncertainties.

The following is a reconciliation between net income and EBITDA for the three
months and nine months ended September 30, 2006 and 2005, respectively (in thousands):

NET INCOME TO EBITDA RECONCILIATION

(All amounts $000s)



|                              |  |          |        |          |   |        |  
|----------------------------- |  | -------- | ------ | -------- | - | ------ | -
|                              |  | Q3 2006  |        | Q3 2005  |  
|Net income                    |  | $        | 2,467  |          | $ | 2,289  |  
|Minority interest             |  |          | 137    |          |   | 77     |  
|Income tax expense (benefit)  |  |          | 211    |          |   | (723   | )
|Depreciation and amortization |  |          | 4,804  |          |   | 4,358  |  
|Interest expense              |  |          | 3,746  |          |   | 3,151  |  
|                              |  |          |        |          |   |        |  
|EBITDA                        |  | $        | 11,365 |          | $ | 9,152  |  
|                              |  |          |        |          |   |        |  
|                              |  |         
|                              |  | YTD 2006 |        | YTD 2005 |  
|Net income                    |  | $        | 9,082  |          | $ | 5,115  |  
|Minority interest             |  |          | 976    |          |   | 911    |  
|Income tax expense (benefit)  |  |          | 1,120  |          |   | (2,213 | )
|Depreciation and amortization |  |          | 13,009 |          |   | 10,166 |  
|Interest expense              |  |          | 9,610  |          |   | 7,628  |  
|                              |  |          |        |          |   |        |  
|EBITDA                        |  | $        | 33,797 |          | $ | 21,607 |  
|                              |  |          |        |          |   |        |  



24



---

##### Table of Contents

Key Hotel Operating Statistics

The following table illustrates key operating statistics of our portfolio for the three months and nine months ended September 30, 2006. This table
assumes that the third party lessee structure for the Embassy San Juan Hotel & Casino does not exist:



|                                      |  |      |        |   |      |   |        |  
|------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|Three Months Ended September 30, 2006 |  | 2006 |        |   | 2005 |  
|13 hotels                             |  |      |        |   |      |   |        |  
|Room revenues                         |  | $    | 31,921 |   |      | $ | 29,818 |  
|RevPAR (1)                            |  | $    | 98.68  |   |      | $ | 92.18  |  
|Occupancy                             |  |      | 74.0   | % |      |   | 74.6   | %
|Average daily rate (2)                |  | $    | 133.42 |   |      | $ | 123.56 |  
|                                      |  |     
|Nine Months Ended September 30, 2006  |  | 2006 |        |   | 2005 |  
|13 hotels                             |  |      |        |   |      |   |        |  
|Room revenues                         |  | $    | 96,272 |   |      | $ | 87,463 |  
|RevPAR (1)                            |  | $    | 100.30 |   |      | $ | 91.12  |  
|Occupancy                             |  |      | 73.6   | % |      |   | 72.1   | %
|Average daily rate (2)                |  | $    | 136.20 |   |      | $ | 126.39 |  

---

|(1) | RevPar is the product of the occupancy percentage and ADR.
|--- | ----------------------------------------------------------

|(2) | Average daily rate is total room revenue divided by the number of rooms sold.
|--- | -----------------------------------------------------------------------------

For comparative purposes this schedule includes the Embassy Suites Hotel Phoenix, which was acquired on February 24, 2005, the Hilton Glendale, which was acquired on June 23, 2005, the Embassy Suites
Hotel & Casino San Juan, which was acquired on June 28, 2005 and the Embassy Suites Boston at Logan International Airport, which was acquired on July 21, 2006 for the entire three and nine month periods ending September 30,
2006 and 2005.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of funds to meet our cash requirements, including distributions to stockholders, is our share of the operating partnerships cash flow. The operating partnerships principal source of revenue is the cash flow
provided by the hotel operations. We also plan to recycle capital by disposing of stabilized assets when attractive opportunities are available.

Below is a comparison of the cash flows for the nine months ended September 30, 2006 and 2005, respectively (000s):



|                                          |  |      |         |   |      |   |          |  
|----------------------------------------- |  | ---- | ------- | - | ---- | - | -------- | -
|                                          |  | 2006 |         |   | 2005 |  
|Net cash provided by operating activities |  | $    | 27,760  |   |      | $ | 23,647   |  
|Net cash used in investing activities     |  |      | (56,041 | ) |      |   | (182,075 | )
|Net cash provided by financing activities |  |      | 24,826  |   |      |   | 156,266  |  
|                                          |  |      |         |   |      |   |          |  
|Net decrease in cash and cash equivalents |  | $    | (3,455  | ) |      | $ | (2,162   | )
|                                          |  |      |         |   |      |   |          |  

Cash flow from hotel operations is subject to all operating risks common to the hotel industry,
including:



| |  | Competition for guests from other hotels;
|- |  | -----------------------------------------



| |  | Adverse effects of general and local economic conditions;
|- |  | ---------------------------------------------------------



| |  | Dependence on demand from business and leisure travelers, which may fluctuate and be seasonal;
|- |  | ----------------------------------------------------------------------------------------------



25



---

##### Table of Contents

| |  | Increases in energy costs, airline fares, and other expenses related to travel, which may deter traveling;
|- |  | ----------------------------------------------------------------------------------------------------------



| |  | Increases in operating costs related to inflation and other factors, including wages, benefits, insurance, and energy;
|- |  | ----------------------------------------------------------------------------------------------------------------------



| |  | Overbuilding in the hotel industry, especially in particular markets; and
|- |  | -------------------------------------------------------------------------



| |  | Actual or threatened acts of terrorism and actions taken against terrorists, which often cause public concern about travel safety.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------

Recurring capital expenditures and debt service are the most significant short-term liquidity requirements. During the remainder of 2006, we expect
capital expenditures will be substantially funded by our replacement reserve accounts and cash provided by hotel operations.

We expect to
set aside 4% of certain future hotel revenues (5% with respect to the Hyatt Regency Rochester) in our replacement reserve accounts to fund capital expenditures. Throughout the remainder of 2006 we expect to make approximately $2.5 to $5.5 million in
capital expenditures with the majority of the expenditures occurring at the Hyatt Regency Rochester, Embassy Suites Hotel & Casino San Juan, Hilton Glendale and the Embassy Suites Hotel Tampa Airport/Westshore. We anticipate that these
expenditures will be funded from existing restricted cash reserves and cash provided by hotel operations.

We may seek to negotiate
additional credit facilities, replacement credit facilities, or we may issue debt instruments. Any debt incurred or issued by us may be secured or unsecured, long-term, medium-term or short-term, bear interest at a fixed or variable rate, and be
subject to such other terms as the Board of Directors considers prudent. However, we cannot assure you that we would be able to obtain such financings on favorable terms, if at all.

We have considered our short-term (defined as one-year or less) liquidity needs and the adequacy of our estimated cash flow from operations and other
expected liquidity sources to meet these needs. We expect our principal short-term liquidity needs will be to fund normal recurring expenses, debt service requirements, and any distributions on our outstanding common shares, Series A Preferred
Shares and operating partnership units. We anticipate that these needs will be met with cash flows provided by operating activities and proceeds from additional financings.

We expect to meet long-term (defined as greater than one year) liquidity requirements such as property acquisitions, scheduled debt maturities, major
renovations, development projects and other nonrecurring capital improvements utilizing cash flow from operations, additional debt financings and preferred or common equity offerings. We expect to acquire additional hotel properties as suitable
opportunities arise.

Capital Projects

During the nine months ended September 30, 2006, we spent approximately $8.5 million, on capital improvements.

Below is a
table depicting the significant capital expenditures by hotel for the nine months ended September 30, 2006:



|                                             |  |                           |            
|-------------------------------------------- |  | ------------------------- | -----------
|Hotel                                        |  | 2006 Capital Expenditures
|Hyatt Regency Rochester                      |  | $                         | 1.9 million
|Hilton Glendale                              |  |                           | 1.9 million
|Embassy Suites Hotel & Casino San Juan       |  |                           | 1.8 million
|Embassy Suites Hotel Tampa Airport/Westshore |  |                           | 1.4 million



26



---

##### Table of Contents

Off Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Cash Distribution Policy

We have elected to be taxed as a REIT commencing with our taxable year ended December 31, 2004. To qualify as a REIT, we will be required to make
annual distributions to our shareholders of at least 90% of our REIT taxable income (which is determined without regard to the dividends paid deduction and by excluding net capital gain and which does not necessarily equal net income as calculated
in accordance with generally accepted accounting principles). The amount, timing and frequency of distributions will be authorized by our board of directors and declared by us based upon a variety of factors deemed relevant by our directors, and no
assurance can be given that our distribution policy will not change in the future. Our ability to pay distributions to our stockholders will depend, in part, upon the management of our properties by our independent hotel managers. Distributions to
our stockholders will generally be taxable to our stockholders as ordinary income; however, because a portion of our investments will be equity ownership interests in hotels, which will result in depreciation and non-cash charges against our income,
a portion of our distributions may constitute a tax-free return of capital. To the extent not inconsistent with maintaining our REIT status, our TRS may retain any after-tax earnings.

Inflation

We rely entirely on the performance of our properties and the ability of the
properties managers to increase revenues to keep pace with inflation. Hotel operators can generally increase room rates rather quickly, but competitive pressures may limit their ability to raise rates faster than inflation. Our general and
administrative costs, such as real estate and personal property taxes, wages, property and casualty insurance, and utilities are also subject to inflationary pressures.

Seasonality

Virtually all of our properties operations are subject to the peaks and valleys
associated with seasonal occupancy. The seasonality pattern nevertheless can be expected to cause fluctuations in our revenue. We anticipate that our cash flow from the operation of the properties will be sufficient to enable us to make quarterly
distributions to maintain our REIT status. To the extent that cash flow from operations is insufficient during any quarter due to temporary or seasonal fluctuations in revenue, we expect to utilize other cash on hand or borrowings to make required
distributions. However, we cannot make any assurances that we will make distributions in the future.

Geographic Concentration

Three of our hotels are located in the Northern Kentucky/Greater Cincinnati, Ohio metropolitan area. Economic and real estate conditions in this area
significantly affect our revenues. Business layoffs, downsizing, industry slowdowns, demographic changes and other similar factors may adversely affect the economic climate in this locale. Any resulting oversupply or reduced demand for hotels in the
area would adversely affect revenues and net income.

Competition and Other Economic Factors

Our hotels are located in developed areas that contain other hotel properties. The future occupancy, average daily rate and RevPAR of any hotel could be
materially and adversely affected by an increase in the number of or quality of the competitive hotel properties in its market area. Competition could also affect the quality and quantity of future investment opportunities, and our ability to sell
existing properties.

As a portion of the lodging industrys sales are based upon business, commercial and leisure travel, changes in
general economic conditions, demographics, or changes in local business economics, could affect these and other travel segments. This may affect demand for rooms, which would affect hotel revenues.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risk exposure
consists of changes in interest rates on borrowings under our debt instruments that bear interest at variable rates that fluctuate with market interest rates. Our variable rate debt as of September 30, 2006 is $90.7 million, or approximately
36%, of our debt.



27



---

##### Table of Contents

We have entered into both variable and fixed rate debt arrangements to allow us to optimize the balance
of using variable rate debt versus fixed rate debt. The weighted average interest rate of our variable rate debt and total debt as of September 30, 2006 was 7.26% and 6.10%, respectively.

We do not believe that changes in market interest rates will have a material impact on the performance or fair value of our hotel portfolio because the
value of our hotel portfolio is based primarily on the operating cash flow of the hotels, before interest expense charges. However, a change of 1/4% in the index rate to which our variable rate debt is tied would change our annual interest expense
incurred by $0.2 million, based upon the debt outstanding at September 30, 2006.

ITEM 4. CONTROLS AND PROCEDURES

As of September 30, 2006, an evaluation was performed under the
supervision and with the participation of the principal executive and financial officers regarding the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e)). Based upon the evaluation,
they concluded that our disclosure controls and procedures were effective in ensuring that material information required to be disclosed in this Quarterly Report was recorded, processed, summarized and reported on a timely basis.

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2006 that materially affected or are
reasonably likely to materially affect our internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

We are subject to various legal proceedings and claims that arise in the
ordinary course of business. In our opinion, the amount of any ultimate liability with respect to these actions will not materially affect our financial position, results of operations or liquidity.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in the
Risk Factors section of the Companys Annual Report on Form 10-K for the year ended December 31, 2005.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On July 24, 2006, the operating
partnership issued an aggregate of 83,333 operating partnership units to Corporex Realty & Investment, LLC, the original contributor of the entity that owns the Embassy Suites Hotel Columbus/Dublin, in a private offering pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the Securities Act). Corporex Realty & Investment, LLC, which is beneficially owned by William P. Butler, our chairman, is an institutional accredited investor under
Rule 501 of the Securities Act. Such units were issued pursuant to the earn-out provisions of the original contribution agreement dated as of May 4, 2004, which provided for the issuance of an aggregate of 83,333 operating partnership units in
the event that EBITDA (as defined in the agreement) at the Embassy Suites Hotel Columbus/Dublin exceeded $4,088,900 for any 12-month trailing period prior to October 6, 2007. During the 12-month period ended June 30, 2006, EBITDA at the
Embassy Suites Hotel Columbus/Dublin exceeded $4,088,900.

After one year, limited partners may generally redeem each unit for the cash
value of one share of our common stock or, at our sole option, one share of common stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.



28



---

##### Table of Contents

ITEM 6. EXHIBITS

(a) Exhibits



|     |  |                                                                                                                                                                                      
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Amendment to amended and restated Senior Credit Agreement dated July 21, 2006, incorporated by reference to Exhibit 10.1 of the Current Report filed on Form 8-K dated July 21,
2006.
|     | 
|10.2 |  | Purchase Agreement dated as of June 15, 2006 between BPG/CGV Hotel Partners IX LLC and EHP Operating Partnership, L.P.                                                               
|     | 
|31.1 |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act                                                                                                                      
|     | 
|31.2 |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act                                                                                                                      
|     | 
|32.1 |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act                                                                                                                      
|     | 
|32.2 |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act                                                                                                                      

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



EAGLE HOSPITALITY PROPERTIES TRUST,
INC.By:

/s/ J. William BlackhamJ. William BlackhamPresident and Chief Executive OfficerDATED: NOVEMBER 1, 2006By:

/s/ Raymond D. MartzRaymond D. MartzChief Financial Officer, Secretary and Treasurer(Principal Accounting Officer)DATED: NOVEMBER 1, 2006




29