UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM10-K



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|S |  | Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934    
|  |  | for the fiscal year ended December 31, 2010                                             
|£ |  | Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 000-53175



APPLE REIT EIGHT, INC.(Exact name of registrant as specified in its charter)



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|Virginia(State of Organization)                                                |  | 20-8268625(I.R.S. Employer Identification Number)
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|814 East Main StreetRichmond, Virginia(Address of principal executive offices) |  | 23219(Zip Code)                                  
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|(804) 344-8121(Registrants telephone number, including area code)            



Securities registered pursuant to Section 12(b) of the act: None

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

Units (Each Unit is equal to one common share, no par value and one Series A preferred share)



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

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

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. YesSNo£

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
  amendment to this Form 10-K.S

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

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|Large accelerated filer£                                            |  | Accelerated filer£        
|Non-accelerated filerS(Do not check if a smaller reporting company) |  | Smaller reporting company£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes£NoS

There is currently no established public market on which the Companys common shares are traded. Based upon the price of Apple REIT Eight, Inc.s common equity last sold, which was $11, on June 30, 2010, the aggregate market value of the voting common equity held by non-affiliates of the
  registrant on such date was $1,037,197,000. The Company does not have any non-voting common equity.

The number of common shares outstanding on March 1, 2011 was 94,274,306.

Documents Incorporated by Reference.

The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the registrants definitive proxy statement for the annual meeting of shareholders to be held on May 12, 2011.





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APPLE REIT EIGHT, INC.FORM 10-KIndex
PagePart IItem 1.
    
    Business
    
    2Item 1A.
    
    Risk Factors
    
    6Item 1B.
    
    Unresolved Staff Comments
    
    9Item 2.
    
    Properties
    
    9Item 3.
    
    Legal Proceedings
    
    11Item 4.
    
    (Removed and Reserved)Part IIItem 5.
    
    Market for Registrants Common Equity, Related Shareholder Matters and Issuer
      Purchases of Equity Securities
    
    12Item 6.
    
    Selected Financial Data
    
    14Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of
      Operations
    
    17Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    29Item 8.
    
    Financial Statements and Supplementary Data
    
    30Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure
    
    51Item 9A.
    
    Controls and Procedures
    
    51Item 9B.
    
    Other Information
    
    51Part
      IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    52Item 11.
    
    Executive Compensation
    
    52Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
      Shareholder Matters
    
    52Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    52Item 14.
    
    Principal Accounting Fees and Services
    
    52Part
      IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    53SignaturesThis Form 10-K includes references to certain trademarks or service marks. The SpringHill SuitesÒby Marriott, TownePlace SuitesÒby Marriott, Fairfield InnÒby Marriott, CourtyardÒby Marriott, Residence Inn
Òby Marriott, MarriottÒand RenaissanceÒtrademarks are the property of Marriott International,
  Inc. or one of its affiliates. The Homewood SuitesÒby Hilton, Hilton Garden InnÒ, Hampton InnÒand Hampton Inn & SuitesÒtrademarks are the property of Hilton Worldwide or one or more of its affiliates. For convenience, the applicable trademark or service mark symbol has been omitted but will be
  deemed to be included wherever the above-referenced terms are used.
1

PART I
This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements involve known and unknown risks, uncertainties, and other factors which may
  cause the actual results, performance, or achievements of Apple REIT Eight, Inc. (the Company) to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the ability of the Company
  to implement its acquisition strategy and operating strategy; the Companys ability to manage planned growth; changes in economic cycles and competition within the hotel industry. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are
  reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this Annual Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such
  information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. In addition, the Companys qualification as a real estate investment trust involves the
  application of highly technical and complex provisions of the Internal Revenue Code. Readers should carefully review the Companys financial statements and the notes thereto, as well as the risk factors described in the Companys filings with the Securities and Exchange Commission (SEC) and Item
  1A.
Item 1. Business
Apple REIT Eight, Inc. is a Virginia corporation that was formed to invest in hotels and other income-producing real estate. Initial capitalization occurred on January 22, 2007, when 10 Units, each Unit consisting of one common share and one Series A preferred share were purchased by Apple Eight
  Advisors, Inc. (A8A) and 240,000 Series B convertible shares were purchased by Glade M. Knight, the Companys Chairman and Chief Executive Officer. The Companys first investor closing occurred on July 27, 2007 and the Company acquired its first property on November 9, 2007. As of December
  31, 2010, the Company owned 51 hotel properties operating in nineteen states. 45 hotels were purchased in 2008 and six were purchased in 2007. The Company completed its best efforts-offering of Units in April 2008.
The Company has elected to be treated as a real estate investment trust (REIT) for federal income tax purposes. The REIT Modernization Act, effective January 1, 2001, permits real estate investment trusts to establish taxable businesses to conduct certain previously disallowed business activities.
  The Company has wholly-owned taxable REIT subsidiaries (collectively, the Lessee), which lease all of the Companys hotels from wholly-owned qualified REIT subsidiaries. The hotels are operated and managed by affiliates of Newport Hospitality Group, Inc. (Newport), Larry Blumberg & Associates
  (LBA), Western International (Western), Marriott International, Inc. (Marriott), White Lodging Services Corporation (WLS), Dimension Development Company (Dimension), Inn Ventures, Inc. (Inn Ventures), True North Hotel Group, Inc. (True North), Intermountain Management, LLC
  (Intermountain), MHH Management, LLC (McKibbon) and Crestline Hotels & Resorts, Inc. (Crestline) under separate hotel management agreements.
The Company separately evaluates the performance of each of its hotel properties. Due to the significance of the New York, New York hotel, the Company has two reportable segments. The Company has no foreign operations. The consolidated financial statements include the accounts of the
  Company and its subsidiaries. All inter-company transactions and balances have been eliminated upon consolidation. Refer to Part II, Item 8 of this report, for the consolidated financial statements.
Website Access
The address of the Companys Internet website is www.applereiteight.com. The Company makes available free of charge through its Internet website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished
  pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as practicable after the Company electronically files such material with, or furnishes it to, the SEC.
2

Business Objectives
The Companys primary objective is to enhance shareholder value by increasing funds from operations and cash available for distributions through internal growth and selective hotel renovation. The Companys acquisition strategy, substantially complete as of December 2008, included purchasing
  income producing real estate with strong brand recognition, high levels of customer satisfaction and the potential for cash flow growth. The internal growth strategy includes utilizing the Companys asset management expertise to improve the quality of the Companys properties by renovating existing
  properties, aggressively managing room rates, partnering with industry leaders in management and franchising the hotels with leading brands, thereby improving revenue and operating performance. When cost effective, the Company renovates its properties to increase its ability to compete in particular
  markets. The Company believes its completed acquisitions, planned renovations and strong asset management will improve each hotels performance in its individual market and as a result its portfolio will show improved financial results over the long-term, although there can be no assurance of these
  results.
Financing
The Company has fifteen notes payable which were assumed with the acquisition of hotels. Two of the notes were refinanced in 2010. These notes have a total outstanding balance of $123.8 million at December 31, 2010, have maturity dates ranging from February 2012 to July 2017, and interest rates
  ranging from 5.14% to 6.29%. In October 2010, the Company entered into an unsecured $75.0 million revolving line of credit which matures in October 2012 and has a variable interest rate based on the London InterBank Offered Rate (LIBOR), with a floor of 3.5%. The outstanding balance on the
  line as of December 31, 2010 was $51.9 million and its interest rate was 3.5%. The new line effectively extended the Companys existing line of credit. Also in October 2010, the Company entered into an interest only term loan of $25 million with a maturity date of October 2012 and a variable interest
  rate based on LIBOR, with a floor of 3.5%, the effective interest rate at December 31, 2010. The Company anticipates that cash flow from operations and credit availability will be adequate to meet substantially all of its anticipated liquidity requirements, including capital expenditures, debt service and
  required distributions to shareholders. The Company intends to maintain a relatively stable dividend rate instead of raising and lowering the distribution rate with varying economic cycles. With the depressed financial results of the Company and the lodging industry, the Company may attempt to utilize
  additional financing to achieve this objective. Although the Company has relatively low levels of debt, there can be no assurances it will be successful with this strategy and may need to reduce its distributions to levels required to maintain its REIT status. If the Company was unsuccessful in extending
  maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions. The Companys bylaws require board approval and review of any debt financing obtained by the Company.
Industry and Competition
The hotel industry is highly competitive. Each of the Companys hotels is located in a developed area that includes other hotels and competes for guests primarily with other hotels in the immediate vicinity and secondarily with other hotels in the geographic market. An increase in the number of
  competitive hotels in a particular area could have a material adverse effect on the occupancy, average daily rate (ADR) and revenue per available room (RevPAR) of the Companys hotels in that area. The Company believes that brand recognition, location, price and quality (of both the hotel and
  the services provided) are the principal competitive factors affecting the Companys hotels. Additionally, general economic conditions in a particular market and nationally impact the performance of the hotel industry.
Hotel Operating Performance
At December 31, 2010, the Company owned five Homewood Suites hotels, six Hilton Garden Inn hotels, five Hampton Inn hotels, three Hampton Inn and Suites hotels, ten Residence Inn hotels, eleven Courtyard hotels, three Fairfield Inn & Suites hotels, three SpringHill Suites hotels, three
  TownePlace Suites hotels, one full-service Marriott hotel and one Renaissance hotel. They are located in nineteen states and, in aggregate, consist of 5,909 rooms.
3

Room revenue for these hotels totaled $169.9 million for the year ended December 31, 2010, and the hotels achieved average occupancy of 70%, ADR of $112 and RevPAR of $79. Room revenue for the year ended December 31, 2009 totaled $158.3 million, and the hotels achieved average
  occupancy of 66%, ADR of $112 and RevPAR of $73. Hotel performance is impacted by many factors including the economic conditions in the United States as well as each locality. With the significant decline in economic conditions throughout the United States as compared to 2007 and 2008, overall
  performance of the Companys hotels since acquisition have not met expectations. Although there is no way to predict future general economic conditions, the Companys and industrys revenues and income improved in 2010 as compared to 2009, with industry analysts forecasting 2011 revenue percentage
  growth in the mid-single digits as compared to 2010.
While reflecting the impact of declining economic activity, the Companys hotel performance as compared to other hotels within each individual market has generally met expectations for the period held. The Companys 2010 average RevPAR index was 130, with the market average being 100. The
  RevPAR index compares an individual hotels RevPAR to the average RevPAR of its local market and is provided by Smith Travel Research, Inc.Òan independent company that tracks historical hotel performance in most markets throughout the world.
Management and Franchise Agreements
Each of the Companys 51 hotels are operated and managed, under separate management agreements, by affiliates of one of the following companies: Newport, LBA, Western, Marriott, WLS, Dimension, Inn Ventures, True North, Intermountain, McKibbon and Crestline. The agreements provide for
  initial terms ranging from one to thirty years. Fees associated with the agreements generally include the payment of base management fees, incentive management fees, accounting fees, and other fees for centralized services which are allocated among all of the hotels that receive the benefit of such
  services. Base management fees are calculated as a percentage of gross revenues. Incentive management fees are calculated as a percentage of operating profit in excess of a priority return to the Company, as defined in the management agreements. The Company has the option to terminate the
  management agreements if specified performance thresholds are not satisfied. During the years ended December 31, 2010, 2009 and 2008, the Company incurred approximately $6.3 million, $6.0 million and $4.5 million in management fees.
Newport, LBA, Western, WLS, Dimension, Inn Ventures, True North, Intermountain, McKibbon and Crestline are not affiliated with either Marriott or Hilton, and as a result, the hotels they manage were required to obtain separate franchise agreements with each respective franchisor. The Hilton
  franchise agreements generally provide for initial terms of 10 to 20 years. Fees associated with the agreements generally include the payment of royalty fees and program fees. The Marriott franchise agreements provide for initial terms of 10 to 30 years. Fees associated with the agreements include the
  payment of royalty fees, marketing fees, reservation fees and a communications support fee based on room revenues. During the years ended December 31, 2010, 2009 and 2008, the Company incurred approximately $7.1 million, $6.8 million and $5.2 million in franchise fees.
Maintenance and Renovation
The Companys hotels have an ongoing need for renovation and refurbishment. Under various hotel management agreements, the Company has agreed to fund expenditures for periodic repairs, replacement or refurbishment of furniture, fixtures and equipment for the hotels in an amount equal to a
  certain percentage of gross revenues. In addition, other capital improvement projects may be directly funded by the Company. During 2010 and 2009, the Companys capital expenditures were approximately $5.4 million and $25.2 million.
Employees
The Company does not have any employees. During 2010, all employees involved in the day-to-day operation of the Companys hotels were employed by third party management companies engaged pursuant to the hotel management agreements. The Company utilizes, through an advisory agreement
  for corporate and strategic support, personnel from A8A which in turn utilizes personnel from Apple REIT Six, Inc.
4

Environmental Matters
In connection with each of the Companys hotel acquisitions, the Company obtained a Phase I Environmental Report and additional environmental reports and surveys, as are necessitated by the preliminary report. Based on the reports, the Company is not aware of any environmental situations
  requiring remediation at the Companys properties, which have not been, or are not currently being remediated as necessary. No material remediation costs have occurred or are expected to occur. Under various laws, owners as well as tenants and operators of real estate may be required to investigate
  and clean up or remove hazardous substances present at or migrating from properties they own, lease or operate and may be held liable for property damage or personal injuries that result from hazardous substances. These laws also expose the Company to the possibility that it may become liable to
  reimburse governments for damages and costs they incur in connection with hazardous substances.
Seasonality
The hotel industry historically has been seasonal in nature. Generally, occupancy rates and hotel revenues are greater in the second and third quarters than in the first and fourth quarters. As a result, there may be quarterly fluctuations in results of operations. To the extent that cash flow from
  operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available credit to make distributions.
Related Parties
The Company has, and is expected to continue to engage in, significant transactions with related parties. These transactions cannot be construed to be arms length, and the results of the Companys operations may be different if these transactions were conducted with non-related parties. The
  Companys independent members of the Board of Directors oversee and annually review the Companys related party relationships (which include the relationships discussed in this section) and are required to approve any significant modifications to the contracts, as well as any new significant related
  party transactions. There were no changes to the contracts discussed in this section and no new significant related party transactions in 2010. The Board of Directors is not required to approve each individual transaction that falls under the related party relationships, however, under the direction of the
  Board of Directors, at least one member of the Companys senior management team approves each related party transaction.
The Company has a contract with Apple Suites Realty Group, Inc. (ASRG), a related party, to provide brokerage services for the acquisition and disposition of the Companys real estate assets. In accordance with the contract, ASRG is paid a fee of 2% of the gross purchase price of any
  acquisitions or gross sale price of any dispositions of real estate investments, subject to certain conditions plus certain reimbursable costs. As of December 31, 2010, payments to ASRG for services under the terms of this contract have totaled approximately $19.0 million since inception, which were
  capitalized as a part of the purchase price of the hotels. No fees were incurred by the Company during 2010 and 2009 under this contract.
The Company is party to an advisory agreement with A8A to provide management services to the Company. An annual fee ranging from 0.1% to 0.25% of total equity proceeds received by the Company, in addition to certain reimbursable expenses, are payable for these services. Total advisory fees
  and reimbursable expenses incurred by the Company under the advisory agreement are included in general and administrative expenses and totaled approximately $2.8 million, $3.0 million and $2.7 million for the years ended December 31, 2010, 2009 and 2008, respectively. Of this total expense,
  approximately $1.0 million, $1.0 million and $1.0 million were fees paid to A8A and $1.8 million, $2.0 million and $1.7 million were expenses reimbursed (or paid directly to Apple REIT Six, Inc. (AR6) on behalf of A8A) by A8A to AR6 for the years ended December 31, 2010, 2009 and 2008.
The advisors are staffed with personnel of AR6. AR6 provides similar staffing for Apple Six Advisors, Inc. (A6A), Apple Seven Advisors, Inc. (A7A), Apple Nine Advisors, Inc. (A9A) and Apple Ten Advisors, Inc. (A10A). A6A, A7A, A9A and A10A provide management services to,
  respectively, AR6, Apple REIT Seven, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. Although there is a potential conflict on time allocation of personnel due to the fact that a senior manager, officer or staff member will provide services to more than one company, the Company believes that
  the executives and staff compensation sharing arrangement
5

allows the companies to share costs yet attract and retain superior executives and staff. The cost sharing structure also allows each entity to maintain a much more cost effective structure than having separate staffing arrangements. Amounts reimbursed to AR6 include both compensation for personnel and
  overhead (office rent, utilities, benefits, office supplies, etc.) utilized by the companies. The allocation of costs from AR6 is made by the management of the several REITs and is reviewed at least annually by the Compensation Committees of the several REITs. In making the allocation, management
  and the Compensation Committee, consider all relevant facts related to the Companys level of business activity and the extent to which the Company requires the services of particular personnel of AR6. Such payments are based on actual costs of the services and are not based on formal record keeping
  regarding the time these personnel devote to the Company, but are based on a good faith estimate by the employee and/or his or her supervisor of the time devoted by the employee to the Company. As part of this arrangement, the day to day transactions may result in amounts due to or from the noted
  related parties. To efficiently manage cash disbursements, the individual companies may make payments for any or all of the related companies. The amounts due to or from the related individual companies are reimbursed or collected and are not significant in amount.
Including ASRG, A6A, ASA, A8A, A9A and A10A discussed above, Mr. Knight is also Chairman and CEO of Apple REIT Six, Inc., Apple REIT Seven, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. Members of the Companys Board of Directors are also on the boards of Apple REIT
  Six, Inc., Apple REIT Seven, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc.
The Company is a member of Apple Air Holding, LLC (Apple Air) which owns two Lear jets as of December 31, 2010. The other members of Apple Air are Apple REIT Six, Inc., Apple REIT Seven, Inc. and Apple REIT Nine, Inc.
In October 2010, Apple REIT Nine, Inc. purchased from the Companys third party lender, the note payable secured by the Columbia, South Carolina Hilton Garden Inn. The purchase of the note by Apple REIT Nine, Inc. had no financial effect on the Company. The terms of the note remain the
  same.
Item 1A. Risk Factors
The following describes several risk factors which are applicable to the Company.
Hotel Operations
The Companys hotels are subject to all of the risks common to the hotel industry. These risks could adversely affect hotel occupancy and the rates that can be charged for hotel rooms as well as hotel operating expenses, and generally include:

    
    
    
    increases in supply of hotel rooms that exceed increases in demand;
    
    
    
    increases in energy costs and other travel expenses that reduce business and leisure travel;
    
    
    
    reduced business and leisure travel due to continued geo-political uncertainty, including terrorism;
    
    
    
    adverse effects of declines in general and local economic activity; and
    
    
    
    adverse effects of a downturn in the hotel industry.General Economic Conditions
Changes in general or local economic or market conditions, increased costs of energy, increased costs of insurance, increased costs of products, increased costs and shortages of labor, competitive factors, fuel shortages, quality of management, the ability of a hotel chain to fulfill any obligations to
  operators of its hotel business, limited alternative uses for the building, changing consumer habits, condemnation or uninsured losses, changing demographics, changing traffic patterns, inability to remodel outmoded buildings as required by the franchise or lease agreement and other factors beyond the
  Companys control may reduce the value of properties that the Company owns. As a result, cash available to make distributions to shareholders may be affected.
6

Current General Economic Slowdown in the Lodging Industry
A recessionary environment, and uncertainty over its depth and duration, continues to have a negative impact on the lodging industry. There is some general consensus among economists that the economy in the United States has emerged from the recessionary environment of 2009, but high
  unemployment levels and sluggish business and consumer travel trends were evident in 2010; as a result the Company continues to experience reduced revenue as compared to pre-recessionary periods. Accordingly, financial results have been impacted by the economic slowdown, and future financial results
  and growth could be further harmed until a more expansive national economic environment is prevalent.
Hospitality Industry
The success of the Companys properties will depend largely on the property operators ability to adapt to dominant trends in the hotel industry as well as greater competitive pressures, increased consolidation, industry overbuilding, dependence on consumer spending patterns and changing
  demographics, the introduction of new concepts and products, availability of labor, price levels and general economic conditions. The success of a particular hotel brand, the ability of a hotel brand to fulfill any obligations to operators of its business, and trends in the hotel industry may affect the
  Companys income and the funds it has available to distribute to shareholders.
The hospitality industry could also experience a significant decline in occupancy and average daily rates due to a reduction in both business and leisure travel. General economic conditions, increased fuel costs, natural disasters and terrorist attacks are a few factors that could affect an individuals
  willingness to travel. The Companys property insurance will typically cover losses for property damage due to terrorist attacks or natural disasters. However, the Company is not insured against the potential negative effect a terrorist attack or natural disaster would have on the hospitality industry as a
  whole.
Seasonality
The hotel industry is seasonal in nature. Generally, occupancy rates and hotel revenues are greater in the second and third quarters than in the first and fourth quarters. As a result, there may be quarterly fluctuations in results of operations, and the Company may need to enter into short-term
  borrowing in certain periods in order to offset these fluctuations in revenues and to make distributions to shareholders.
Franchise Agreements
The Companys wholly-owned taxable REIT subsidiaries operate all of the properties pursuant to franchise or license agreements with nationally recognized hotel brands. These franchise agreements contain specific standards for, and restrictions and limitations on, the operation and maintenance of
  the Companys properties in order to maintain uniformity within the franchisor system. These standards could potentially conflict with the Companys ability to create specific business plans tailored to each property and to each market.
Competition
The hotel industry is highly competitive. Each of the Companys hotels is located in a developed area that includes other hotels and competes for guests primarily with other hotels in the Companys immediate vicinity and secondarily with other hotels in the Companys geographic market. An
  increase in the number of competitive hotels in a particular area could have a material adverse effect on the occupancy, average daily rate and revenue per available room of the Companys hotels in that area. In addition, increases in operating costs due to inflation may not be offset by increased room
  rates.
Transferability of Shares
There is and will be no public trading market for the common shares and the Series A preferred shares for an indefinite period of time, if ever. Therefore, the Units are and will be highly illiquid and very difficult to trade. In addition, there are restrictions on the transfer of the common shares. In
  order to qualify as a REIT, the shares must be beneficially owned by 100 or more persons and no more than 50% of the value of the issued and outstanding shares may be owned directly or indirectly by five or fewer individuals. Therefore,
7

the Companys bylaws provide that no person may own more than 9.8% of the issued and outstanding Units. Any purported transfer of the Companys shares that would result in a violation of either of these limits will be declared null and void.
Qualification as a REIT
The rules governing a REIT are highly technical and complex. They require ongoing compliance with and interpretation of a variety of tests and regulations that depend on, among other things, future operations. While the Company expects to satisfy these tests, it cannot ensure it will qualify as a
  REIT for any particular year. There is also the risk that the applicable laws governing a REIT could be changed, which could adversely affect the Company and its shareholders.
Distributions to Shareholders
If the Companys properties do not generate sufficient revenue to meet operating expenses, the Companys cash flow and the Companys ability to make distributions to shareholders may be adversely affected. The Company is subject to all operating risks common to hotels. These risks might
  adversely affect occupancy or room rates. Increases in operating costs due to inflation and other factors may not necessarily be offset by increased room rates. The local, regional and national hotel markets may limit the extent to which room rates may be increased to meet increased operating expenses
  without decreasing occupancy rates. While the Company intends to make monthly distributions to shareholders, there can be no assurance that the Company will be able to make distributions at any particular time or rate, or at all. Further, there is no assurance that a distribution rate achieved for a
  particular period will be maintained in the future. Also, while management may establish goals as to particular rates of distribution or have an intention to make distributions at a particular rate, there can be no assurance that such goals or intentions will be realized.
The Companys objective in setting a distribution rate is to project a rate that will provide consistency over the life of the Company, taking into account acquisitions and capital improvements, ramp up of new properties and varying economic cycles. The Company anticipates that it may need to
  utilize debt, offering proceeds and cash from operations to meet this objective. The Company evaluates the distribution rate on an ongoing basis and may make changes at any time if the Company feels the rate is not appropriate based on available cash resources.
While the Company generally seeks to make distributions from its operating cash flows, distributions may be made (although there is no obligation to do so) in certain circumstances in part from financing proceeds or other sources, such as proceeds from the offering of Units. While distributions from
  such sources would result in the shareholder receiving cash, the consequences to the shareholders would differ from a distribution from the Companys operating cash flows. For example, if financing is the source of a distribution, that financing would have to be repaid, and if proceeds from the offering of
  Units are distributed, those proceeds would not then be available for other uses (such as property acquisitions or improvements).
Financing Risks
Although the Company anticipates maintaining relatively low levels of debt, it may periodically use short-term financing to perform renovations to its properties or make shareholder distributions in periods of fluctuating income from its properties. The debt markets have been volatile and subject to
  increased regulation, and as a result, the Company may not be able to use debt to meet any of its cash requirements.
Debt Terms
The line of credit and term loan entered into in October 2010 contain financial covenants that could require the loans to be prepaid prior to maturity or restrict the amount and timing of distributions to shareholders. The covenants include a minimum net worth, debt service coverage and income to
  debt service and distributions. The secured debt increases the Companys risk of property losses as defaults on the debt may result in foreclosure by the lenders.
8

Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
As of December 31, 2010, the Company owned 51 hotels with an aggregate of 5,909 rooms, consisting of the following:
Brand
    
    Total byBrand
    
    Number ofRoomsHampton Inn
    
    
    
    5
    
    
    
    
    549Hampton Inn & Suites
    
    
    
    3
    
    
    
    
    298Hilton Garden Inn
    
    
    
    6
    
    
    
    
    717Homewood Suites
    
    
    
    5
    
    
    
    
    536Courtyard
    
    
    
    11
    
    
    
    
    1,443Fairfield Inn & Suites
    
    
    
    3
    
    
    
    
    331Marriott
    
    
    
    1
    
    
    
    
    226Residence Inn
    
    
    
    10
    
    
    
    
    1,067SpringHill Suites
    
    
    
    3
    
    
    
    
    289TownePlace Suites
    
    
    
    3
    
    
    
    
    252Renaissance
    
    
    
    1
    
    
    
    
    201Total
    
    
    
    51
    
    
    
    
    5,909The following table includes the location of each hotel, the date of construction, the date acquired, encumbrances (if any), initial acquisition cost, gross carrying value and the number of rooms of each hotel.
9

REAL ESTATE AND ACCUMULATED DEPRECIATIONAs of December 31, 2010(dollars in thousands)
City
    
    State
    
    Brand
    
    Encumbrances
    
    Initial Cost
    
    SubsequentlyCapitalized
    
    TotalGross Cost
    
    AccDeprec
    
    Date ofConstruction
    
    DateAcquired
    
    DepreciableLife
    
    # ofGuestroomsBldgImp. &FF&ELand
    
    Bldg./FF&EBirmingham
    
    AL
    
    Homewood Suites
    
    
    $
    
    11,446
    
    
    
    $
    
    1,180
    
    
    
    $
    
    15,913
    
    
    
    $
    
    307
    
    
    
    $
    
    17,400
    
    
    
    $
    
    (1,405
    )
    
    
    
    
    2005
    
    
    May-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    95Rogers
    
    AR
    
    Fairfield Inn & Suites
    
    
    
    
    
    
    
    
    886
    
    
    
    
    7,389
    
    
    
    
    1,142
    
    
    
    
    9,417
    
    
    
    
    (880
    )
    
    
    
    
    2002
    
    
    February-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    99Rogers
    
    AR
    
    Residence Inn
    
    
    
    
    
    
    
    
    924
    
    
    
    
    11,183
    
    
    
    
    211
    
    
    
    
    12,318
    
    
    
    
    (1,073
    )
    
    
    
    
    2003
    
    
    February-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    88Springdale
    
    AR
    
    Residence Inn
    
    
    
    
    
    
    
    
    451
    
    
    
    
    5,379
    
    
    
    
    1,389
    
    
    
    
    7,219
    
    
    
    
    (794
    )
    
    
    
    
    2001
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    72Burbank
    
    CA
    
    Residence Inn
    
    
    
    12,500
    
    
    
    
    4,229
    
    
    
    
    47,200
    
    
    
    
    34
    
    
    
    
    51,463
    
    
    
    
    (3,798
    )
    
    
    
    
    2007
    
    
    May-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    166Cypress
    
    CA
    
    Courtyard
    
    
    
    
    
    
    
    
    3,242
    
    
    
    
    28,680
    
    
    
    
    591
    
    
    
    
    32,513
    
    
    
    
    (2,564
    )
    
    
    
    
    1988
    
    
    April-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    180Oceanside
    
    CA
    
    Residence Inn
    
    
    
    12,500
    
    
    
    
    3,312
    
    
    
    
    25,964
    
    
    
    
    59
    
    
    
    
    29,335
    
    
    
    
    (2,212
    )
    
    
    
    
    2007
    
    
    May-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    125Sacramento
    
    CA
    
    Hilton Garden Inn
    
    
    
    
    
    
    
    
    2,549
    
    
    
    
    25,759
    
    
    
    
    1,952
    
    
    
    
    30,260
    
    
    
    
    (2,661
    )
    
    
    
    
    1999
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    154San Jose
    
    CA
    
    Homewood Suites
    
    
    
    
    
    
    
    
    6,542
    
    
    
    
    15,882
    
    
    
    
    827
    
    
    
    
    23,251
    
    
    
    
    (1,560
    )
    
    
    
    
    1991
    
    
    July-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    140Tulare
    
    CA
    
    Hampton Inn & Suites
    
    
    
    
    
    
    
    
    1,105
    
    
    
    
    9,490
    
    
    
    
    9
    
    
    
    
    10,604
    
    
    
    
    (927
    )
    
    
    
    
    2008
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    86Jacksonville
    
    FL
    
    Homewood Suites
    
    
    
    16,638
    
    
    
    
    1,550
    
    
    
    
    22,366
    
    
    
    
    608
    
    
    
    
    24,524
    
    
    
    
    (1,897
    )
    
    
    
    
    2005
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    119Sanford
    
    FL
    
    SpringHill Suites
    
    
    
    
    
    
    
    
    937
    
    
    
    
    10,605
    
    
    
    
    319
    
    
    
    
    11,861
    
    
    
    
    (975
    )
    
    
    
    
    2000
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    105Tallahassee
    
    FL
    
    Hilton Garden Inn
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,580
    
    
    
    
    41
    
    
    
    
    13,621
    
    
    
    
    (1,348
    )
    
    
    
    
    2006
    
    
    January-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    85Tampa
    
    FL
    
    TownePlace Suites
    
    
    
    8,019
    
    
    
    
    1,312
    
    
    
    
    10,339
    
    
    
    
    297
    
    
    
    
    11,948
    
    
    
    
    (909
    )
    
    
    
    
    1999
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    95Port Wentworth
    
    GA
    
    Hampton Inn
    
    
    
    
    
    
    
    
    841
    
    
    
    
    10,284
    
    
    
    
    126
    
    
    
    
    11,251
    
    
    
    
    (937
    )
    
    
    
    
    1997
    
    
    January-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    106Savannah
    
    GA
    
    Hilton Garden Inn
    
    
    
    5,403
    
    
    
    
    
    
    
    
    
    15,119
    
    
    
    
    657
    
    
    
    
    15,776
    
    
    
    
    (1,289
    )
    
    
    
    
    2004
    
    
    July-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    105Overland Park
    
    KS
    
    Fairfield Inn & Suites
    
    
    
    
    
    
    
    
    1,578
    
    
    
    
    10,868
    
    
    
    
    4
    
    
    
    
    12,450
    
    
    
    
    (923
    )
    
    
    
    
    2008
    
    
    August-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    110Overland Park
    
    KS
    
    Residence Inn
    
    
    
    6,638
    
    
    
    
    1,527
    
    
    
    
    14,626
    
    
    
    
    347
    
    
    
    
    16,500
    
    
    
    
    (1,354
    )
    
    
    
    
    2000
    
    
    April-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    120Overland Park
    
    KS
    
    SpringHill Suites
    
    
    
    
    
    
    
    
    944
    
    
    
    
    8,209
    
    
    
    
    724
    
    
    
    
    9,877
    
    
    
    
    (783
    )
    
    
    
    
    1999
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    102Wichita
    
    KS
    
    Courtyard
    
    
    
    
    
    
    
    
    1,184
    
    
    
    
    8,006
    
    
    
    
    250
    
    
    
    
    9,440
    
    
    
    
    (861
    )
    
    
    
    
    2000
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    90Bowling Green
    
    KY
    
    Hampton Inn
    
    
    
    
    
    
    
    
    1,486
    
    
    
    
    17,885
    
    
    
    
    99
    
    
    
    
    19,470
    
    
    
    
    (1,719
    )
    
    
    
    
    1989
    
    
    December-07
    
    
    
    3 - 39 yrs.
    
    
    
    
    130Marlborough
    
    MA
    
    Residence Inn
    
    
    
    
    
    
    
    
    2,117
    
    
    
    
    18,586
    
    
    
    
    185
    
    
    
    
    20,888
    
    
    
    
    (1,859
    )
    
    
    
    
    2006
    
    
    January-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    112Westford
    
    MA
    
    Hampton Inn & Suites
    
    
    
    
    
    
    
    
    1,576
    
    
    
    
    14,116
    
    
    
    
    66
    
    
    
    
    15,758
    
    
    
    
    (1,367
    )
    
    
    
    
    2007
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    110Westford
    
    MA
    
    Residence Inn
    
    
    
    6,979
    
    
    
    
    909
    
    
    
    
    14,170
    
    
    
    
    1,003
    
    
    
    
    16,082
    
    
    
    
    (1,440
    )
    
    
    
    
    2000
    
    
    April-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    108Annapolis
    
    MD
    
    Hilton Garden Inn
    
    
    
    
    
    
    
    
    2,446
    
    
    
    
    23,336
    
    
    
    
    38
    
    
    
    
    25,820
    
    
    
    
    (2,228
    )
    
    
    
    
    2007
    
    
    January-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    126Kansas City
    
    MO
    
    Residence Inn
    
    
    
    11,211
    
    
    
    
    1,182
    
    
    
    
    16,148
    
    
    
    
    1,967
    
    
    
    
    19,297
    
    
    
    
    (1,770
    )
    
    
    
    
    1968
    
    
    April-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    106Carolina Beach
    
    NC
    
    Courtyard
    
    
    
    
    
    
    
    
    3,252
    
    
    
    
    21,609
    
    
    
    
    1,731
    
    
    
    
    26,592
    
    
    
    
    (1,933
    )
    
    
    
    
    2003
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    144Concord
    
    NC
    
    Hampton Inn
    
    
    
    4,964
    
    
    
    
    1,248
    
    
    
    
    8,359
    
    
    
    
    61
    
    
    
    
    9,668
    
    
    
    
    (896
    )
    
    
    
    
    1996
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    101Dunn
    
    NC
    
    Hampton Inn
    
    
    
    
    
    
    
    
    548
    
    
    
    
    12,539
    
    
    
    
    71
    
    
    
    
    13,158
    
    
    
    
    (1,324
    )
    
    
    
    
    2006
    
    
    January-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    120Fayetteville
    
    NC
    
    Residence Inn
    
    
    
    7,000
    
    
    
    
    671
    
    
    
    
    12,567
    
    
    
    
    148
    
    
    
    
    13,386
    
    
    
    
    (1,175
    )
    
    
    
    
    2006
    
    
    May-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    92Greensboro
    
    NC
    
    SpringHill Suites
    
    
    
    
    
    
    
    
    667
    
    
    
    
    7,630
    
    
    
    
    74
    
    
    
    
    8,371
    
    
    
    
    (767
    )
    
    
    
    
    2004
    
    
    November-07
    
    
    
    3 - 39 yrs.
    
    
    
    
    82Matthews
    
    NC
    
    Hampton Inn
    
    
    
    
    
    
    
    
    640
    
    
    
    
    10,432
    
    
    
    
    591
    
    
    
    
    11,663
    
    
    
    
    (1,204
    )
    
    
    
    
    1995
    
    
    January-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    92Wilmington
    
    NC
    
    Fairfield Inn & Suites
    
    
    
    
    
    
    
    
    1,848
    
    
    
    
    13,468
    
    
    
    
    
    
    
    
    
    15,316
    
    
    
    
    (979
    )
    
    
    
    
    2008
    
    
    December-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    122Winston-Salem
    
    NC
    
    Courtyard
    
    
    
    7,809
    
    
    
    
    1,444
    
    
    
    
    12,452
    
    
    
    
    30
    
    
    
    
    13,926
    
    
    
    
    (1,134
    )
    
    
    
    
    1998
    
    
    May-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    122Somerset
    
    NJ
    
    Courtyard
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,504
    
    
    
    
    113
    
    
    
    
    16,617
    
    
    
    
    (1,663
    )
    
    
    
    
    2001
    
    
    November-07
    
    
    
    3 - 39 yrs.
    
    
    
    
    162New York
    
    NY
    
    Renaissance
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,870
    
    
    
    
    21,083
    
    
    
    
    132,953
    
    
    
    
    (16,572
    )
    
    
    
    
    1916
    
    
    January-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    201Tulsa
    
    OK
    
    Hampton Inn & Suites
    
    
    
    
    
    
    
    
    904
    
    
    
    
    9,935
    
    
    
    
    50
    
    
    
    
    10,889
    
    
    
    
    (1,142
    )
    
    
    
    
    2007
    
    
    December-07
    
    
    
    3 - 39 yrs.
    
    
    
    
    102Columbia
    
    SC
    
    Hilton Garden Inn
    
    
    
    10,784
    
    
    
    
    1,389
    
    
    
    
    20,495
    
    
    
    
    12
    
    
    
    
    21,896
    
    
    
    
    (1,603
    )
    
    
    
    
    2006
    
    
    September-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    143Greenville
    
    SC
    
    Residence Inn
    
    
    
    6,308
    
    
    
    
    696
    
    
    
    
    8,368
    
    
    
    
    171
    
    
    
    
    9,235
    
    
    
    
    (761
    )
    
    
    
    
    1998
    
    
    May-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    78Hilton Head
    
    SC
    
    Hilton Garden Inn
    
    
    
    6,041
    
    
    
    
    1,099
    
    
    
    
    13,109
    
    
    
    
    1,418
    
    
    
    
    15,626
    
    
    
    
    (1,461
    )
    
    
    
    
    2001
    
    
    May-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    104Chattanooga
    
    TN
    
    Homewood Suites
    
    
    
    
    
    
    
    
    692
    
    
    
    
    8,207
    
    
    
    
    2,109
    
    
    
    
    11,008
    
    
    
    
    (1,278
    )
    
    
    
    
    1997
    
    
    December-07
    
    
    
    3 - 39 yrs.
    
    
    
    
    76Texarkana
    
    TX
    
    Courtyard
    
    
    
    
    
    
    
    
    681
    
    
    
    
    12,653
    
    
    
    
    171
    
    
    
    
    13,505
    
    
    
    
    (1,080
    )
    
    
    
    
    2003
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    90Texarkana
    
    TX
    
    TownePlace Suites
    
    
    
    
    
    
    
    
    617
    
    
    
    
    8,740
    
    
    
    
    293
    
    
    
    
    9,650
    
    
    
    
    (955
    )
    
    
    
    
    2006
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    85Charlottesville
    
    VA
    
    Courtyard
    
    
    
    
    
    
    
    
    2,316
    
    
    
    
    26,432
    
    
    
    
    153
    
    
    
    
    28,901
    
    
    
    
    (2,013
    )
    
    
    
    
    2000
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    137Chesapeake
    
    VA
    
    Marriott Full Service
    
    
    
    
    
    
    
    
    3,264
    
    
    
    
    36,376
    
    
    
    
    30
    
    
    
    
    39,670
    
    
    
    
    (3,229
    )
    
    
    
    
    2008
    
    
    October-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    226Harrisonburg
    
    VA
    
    Courtyard
    
    
    
    
    
    
    
    
    1,687
    
    
    
    
    22,134
    
    
    
    
    100
    
    
    
    
    23,921
    
    
    
    
    (2,054
    )
    
    
    
    
    1999
    
    
    November-07
    
    
    
    3 - 39 yrs.
    
    
    
    
    125Suffolk
    
    VA
    
    Courtyard
    
    
    
    8,226
    
    
    
    
    973
    
    
    
    
    11,679
    
    
    
    
    1
    
    
    
    
    12,653
    
    
    
    
    (1,075
    )
    
    
    
    
    2007
    
    
    July-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    92Suffolk
    
    VA
    
    TownePlace Suites
    
    
    
    6,310
    
    
    
    
    754
    
    
    
    
    9,386
    
    
    
    
    
    
    
    
    
    10,140
    
    
    
    
    (843
    )
    
    
    
    
    2007
    
    
    July-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    72VA Beach
    
    VA
    
    Courtyard
    
    
    
    
    
    
    
    
    7,219
    
    
    
    
    20,692
    
    
    
    
    124
    
    
    
    
    28,035
    
    
    
    
    (1,605
    )
    
    
    
    
    1999
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    141VA Beach
    
    VA
    
    Courtyard
    
    
    
    
    
    
    
    
    9,887
    
    
    
    
    30,972
    
    
    
    
    1,931
    
    
    
    
    42,790
    
    
    
    
    (2,659
    )
    
    
    
    
    2002
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    160Tukwila
    
    WA
    
    Homewood Suites
    
    
    
    
    
    
    
    
    1,393
    
    
    
    
    14,751
    
    
    
    
    1,471
    
    
    
    
    17,615
    
    
    
    
    (1,323
    )
    
    
    
    
    1991
    
    
    July-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    106Construction in Progress
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    
    46
    
    
    
    
    $
    
    148,776
    
    
    
    $
    
    87,898
    
    
    
    $
    
    902,441
    
    
    
    $
    
    45,234
    
    
    
    $
    
    1,035,573
    
    
    
    $
    
    (90,261
    )
    
    
    
    
    
    
    
    
    
    
    5,90910

Investment in hotels at December 31, 2010, consisted of the following (in thousands):
December 31, 2010Land
    
    
    $
    
    87,898Building and Improvements
    
    
    
    875,403Furniture, Fixtures and Equipment
    
    
    
    72,2721,035,573Less Accumulated Depreciation
    
    
    
    (90,261
    )Investment in hotels, net
    
    
    $
    
    945,312For additional information about the Companys properties, refer to Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Legal Proceedings
The Company is not presently subject to any material litigation nor, to the Companys knowledge, is any litigation threatened against the Company or any of its properties, other than routine actions arising in the ordinary course of business, some of which are expected to be covered by liability
  insurance and all of which collectively are not expected to have a material adverse effect on the Companys business or financial condition or results of operations.
11

PART II
Item 5. Market For Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Common Shares
There is currently no established public market in which the Companys common shares are traded. As of December 31, 2010 there were 94.6 million Units outstanding. Each Unit consists of one common share, no par value, and one series A preferred share of the Company. The per share estimated
  market value of common stock is deemed to be the offering price of the shares, which is currently $11.00 per share. This market valuation is supported by the fact that the Company is currently selling shares to the public at a price of $11.00 per share through its Dividend Reinvestment Plan. As of
  December 31, 2010 the Units were held by approximately 19,600 beneficial shareholders.
Dividend Reinvestment Plan
In the second quarter of 2008 the Company instituted a Dividend Reinvestment Plan for its shareholders. The plan provides a convenient and cost effective way to increase shareholder investment in the Company by reinvesting dividends to purchase additional Units of the Company. The uses of the
  proceeds from this plan may include purchasing Units under the Companys Unit Redemption Program, enhancing properties, satisfying financing obligations and other expenses, increasing working capital, funding various corporate operations, and acquiring hotels. The Company has registered 10 million
  Units for potential issuance under the plan. As of December 31, 2010, approximately 6.3 million Units, representing $68.9 million in proceeds to the Company, have been issued under the plan.
Unit Redemption Program
Effective in October 2008, the Company instituted a Unit Redemption Program to provide limited interim liquidity to its shareholders who have held their Units for at least one year. Shareholders may request redemption of Units for a purchase price equal to 92% of the price paid per Unit if the
  Units have been owned for less than three years, or 100% of the price paid per Unit if the Units have been owned more than three years. The maximum number of Units that may be redeemed in any 12-month period will be three percent of the weighted average number of Units outstanding during the
  12-month period immediately prior to the date of redemption. The Company reserves the right to change the purchase price for redemptions, reject any request for redemption, or otherwise amend the terms of, suspend, or terminate the Unit Redemption Program. As of December 31, 2010, the Company
  has redeemed approximately 2.8 million Units in the amount of $29.0 million under the program. The redemptions represent 100% of the redemption requests as of the last scheduled redemption date in 2010, which was October 2010. In January 2011, the first scheduled redemption date of 2011, the
  Company redeemed in accordance with the Unit Redemption Program on a pro-rata basis approximately 61% of the requested redemptions, or a total of $8.0 million. See the Companys complete consolidated statement of cash flows for the years ended December 31, 2010, 2009 and 2008 included in the
  Companys audited financial statements in Item 8 of the Form 10-K for a description of the sources and uses of the Companys cash flows. The following is a summary of redemptions during the fourth quarter of 2010 (no redemptions occurred in November and December 2010):
Issuer Purchases of Equity Securities
Period
    
    (a)
    
    (b)
    
    (c)
    
    (d)Total Numberof UnitsPurchased
    
    Average Price Paidper Unit
    
    Total Number ofUnits Purchased asPart of PubliclyAnnounced Plansor Programs
    
    Maximum Numberof Units that MayYet Be PurchasedUnder the Plans orProgramsOctober 2010
    
    
    
    595,985
    
    
    
    $
    
    10.86
    
    
    
    
    2,775,482
    
    
    
    
    
    (1)

(1)
    
    
    
    The maximum number of Units that may be redeemed in any 12 month period is limited to up to three percent (3.0%) of the weighted average number of Units outstanding from the beginning of the 12 month period, subject to the Companys right to change the number of Units to be redeemed.12

Series A Preferred Shares
The Series A preferred shares have no voting rights and no conversion rights. In addition, the Series A preferred shares are not separately tradable from the common shares to which they relate. The Series A preferred shares do not have any distribution rights except a priority distribution upon the
  sale of the Companys assets. The priority distribution (Priority Distribution) will be equal to $11.00 per Series A preferred share, and will be paid before any distribution will be made to the holders of any other shares. Upon the Priority Distribution the Series A preferred shares will have no other
  distribution rights.
Series B Convertible Preferred Shares
In January 2007 the Company issued 240,000 Series B convertible preferred shares to Glade M. Knight, the Companys Chairman and Chief Executive Officer. There are no dividends payable on the Series B convertible preferred shares. Holders of more than two-thirds of the Series B convertible
  preferred shares must approve any proposed amendment to the Articles of Incorporation that would adversely affect the Series B convertible preferred shares. Upon liquidation, each holder of the Series B convertible preferred shares is entitled to a priority liquidation payment. However the priority
  liquidation payment of the holder of the Series B convertible preferred shares is junior to the holders of the Series A preferred shares distribution rights. The holder of a Series B convertible preferred share is entitled to a liquidation payment of $11 per number of common shares into which each Series
  B convertible preferred share would convert. In the event that the liquidation of the Companys assets results in proceeds that exceed the distribution rights of the Series A preferred shares and the Series B convertible preferred shares, the remaining proceeds will be distributed between the common
  shares and the Series B convertible preferred shares, on an as converted basis. The Series B convertible preferred shares are convertible into common shares upon and for 180 days following the occurrence of any of the following events: (1) substantially all of the Companys assets, stock or business is
  sold or transferred through exchange, merger, consolidation, lease, share exchange, sale or otherwise, other than a sale of assets in liquidation, dissolution or winding up of the Companys business; or (2) the termination or expiration without renewal of the advisory agreement with Apple Eight Advisors,
  Inc., or if the company ceases to use Apple Suites Realty Group, Inc. to provide property acquisition and disposition services; or (3) the Companys common shares are listed on any securities exchange or quotation system or in any established market.
Preferred Shares
The Companys articles of incorporation authorize issuance of up to 15 million additional preferred shares. No preferred shares other than the Series A preferred shares and the Series B convertible preferred shares (discussed above) have been issued. The Company believes that the authorization to
  issue additional preferred shares benefits the Company and its shareholders by permitting flexibility in financing additional growth, giving the Company additional financing options in corporate planning and in responding to developments in business, including financing of additional acquisitions and other
  general corporate purposes. Having authorized preferred shares available for issuance in the future gives the Company the ability to respond to future developments and allows preferred shares to be issued without the expense and delay of a special shareholders meeting. At present, the Company has no
  specific financing or acquisition plans involving the issuance of additional preferred shares and the Company does not propose to fix the characteristics of any series of preferred shares in anticipation of issuing preferred shares other than the Series A preferred shares and Series B convertible preferred
  shares discussed above. The Company cannot now predict whether or to what extent, if any, additional preferred shares will be used or if so used what the characteristics of a particular series may be. The voting rights and rights to distributions of the holders of common shares will be subject to the prior
  rights of the holders of any subsequently-issued preferred shares. Unless otherwise required by applicable law or regulation, the preferred shares would be issuable without further authorization by holders of the common shares and on such terms and for such consideration as may be determined by the
  Board of Directors. The preferred shares could be issued in one or more series having varying voting rights, redemption and conversion features, distribution (including liquidating distribution) rights and preferences, and other rights, including rights of approval of specified transactions. A series of
  preferred shares could be given rights that are superior to rights of holders of common shares and a series having preferential distribution rights could limit common share distributions and reduce the amount holders of common shares would otherwise receive on dissolution.
13

Distribution Policy
To maintain its REIT status the Company is required to distribute at least 90% of its ordinary income. Distributions in 2010 totaled $72.5 million and were paid monthly at a rate of $0.064167 per common share. Distributions totaled $74.9 million in 2009 (paid at a monthly rate of $0.073334 for the
  first four months of 2009 and at a monthly rate of $0.064167 for the remaining eight months of 2009) and $76.4 million in 2008 (paid monthly at a rate of $0.073334). The timing and amounts of distributions to shareholders are within the discretion of the Companys Board of Directors. The amount and
  frequency of future distributions will depend on the Companys results of operations, cash flow from operations, economic conditions, working capital requirements, cash requirements to fund investing and financing activities, capital expenditure requirements, including improvements to and expansions of
  properties and the acquisition of additional properties, as well as the distribution requirements under federal income tax provisions for qualification as a REIT. The Companys line of credit loan agreement has a distribution to income covenant. Therefore, to maintain compliance with the covenant, the
  Company may need to reduce distributions.
Non-Employee Directors Stock Option Plan and Incentive Plan
The Companys Board of Directors has adopted and the Companys shareholders have approved a Non-Employee Directors Stock Option Plan and an Incentive Plan. The options issued under each plan convert upon exercise of the options to Units. Each Unit consists of one common share and one
  Series A preferred share of the Company. As of December 31, 2010, options to purchase 244,468 Units were outstanding with a weighted average exercise price of $11 per Unit under the Directors Plan. No options have been issued under the Incentive Plan. The following is a summary of securities issued
  under the plans as of December 31, 2010:
Plan Category
    
    Number of securities to beissued upon exercise ofoutstanding options,warrants and rights
    
    Weighted-averageexercise price ofoutstanding options,warrants and rights
    
    Number of securitiesremaining available forfuture issuance underequity compensationplansEquity Compensation plans approved by security holdersNon-Employee Directors Stock Option Plan
    
    
    
    244,468
    
    
    
    $
    
    11.00
    
    
    
    
    1,355,077Incentive Plan
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    4,029,318Item 6. Selected Financial Data
The following table sets forth selected financial data for the years ended December 31, 2010, 2009 and 2008 and the period from January 22, 2007 (initial capitalization) through December 31, 2007. Certain information in the table has been derived from the Companys audited financial statements and
  notes thereto. This data should be read in conjunction with Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, and Item 15(1), the Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Annual Report on Form 10-K. During the
  period from the Companys initial capitalization on January 22, 2007 to November 8, 2007, the Company owned no properties, had no revenue exclusive of interest income, and was primarily engaged in capital formation activities. Operations commenced on November 9, 2007 with the Companys first
  property acquisition.
14

For the yearendedDecember 31, 2010
    
    For the yearendedDecember 31, 2009
    
    For the yearendedDecember 31, 2008
    
    For the periodJanuary 22, 2007(initial capitalization)throughDecember 31, 2007(in thousands except per share and statistical data)Revenues:Room revenue
    
    
    $
    
    169,944
    
    
    
    $
    
    158,316
    
    
    
    $
    
    124,208
    
    
    
    $
    
    1,385Other revenue
    
    
    
    12,678
    
    
    
    
    12,569
    
    
    
    
    9,076
    
    
    
    
    100Total revenue
    
    
    
    182,622
    
    
    
    
    170,885
    
    
    
    
    133,284
    
    
    
    
    1,485Expenses:Hotel operating expenses
    
    
    
    108,987
    
    
    
    
    105,091
    
    
    
    
    77,612
    
    
    
    
    886Taxes, insurance and other
    
    
    
    10,089
    
    
    
    
    10,188
    
    
    
    
    6,818
    
    
    
    
    116Land lease expense
    
    
    
    6,386
    
    
    
    
    6,376
    
    
    
    
    6,258
    
    
    
    
    49General and administrative
    
    
    
    5,216
    
    
    
    
    4,523
    
    
    
    
    4,359
    
    
    
    
    1,046Depreciation
    
    
    
    34,979
    
    
    
    
    32,907
    
    
    
    
    22,044
    
    
    
    
    333Investment income, net
    
    
    
    (3,076
    )
    
    
    
    
    (1,071
    )
    
    
    
    
    (2,225
    )
    
    
    
    
    (6,353
    )Interest expense
    
    
    
    9,166
    
    
    
    
    7,366
    
    
    
    
    4,153
    
    
    
    
    10Total expenses
    
    
    
    171,747
    
    
    
    
    165,380
    
    
    
    
    119,019
    
    
    
    
    (3,913
    )Net income
    
    
    $
    
    10,875
    
    
    
    $
    
    5,505
    
    
    
    $
    
    14,265
    
    
    
    $
    
    5,398Per ShareNet income per common share
    
    
    $
    
    0.12
    
    
    
    $
    
    0.06
    
    
    
    $
    
    0.16
    
    
    
    $
    
    0.35Distributions paid to common shareholders
    
    
    $
    
    0.77
    
    
    
    $
    
    0.81
    
    
    
    $
    
    0.88
    
    
    
    $
    
    0.40Weighted-average common shares outstandingbasic and diluted
    
    
    
    94,170
    
    
    
    
    92,963
    
    
    
    
    87,271
    
    
    
    
    15,376Balance Sheet Data (at end of period)Cash and cash equivalents
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    562,009Investment in hotels, net
    
    
    $
    
    945,312
    
    
    
    $
    
    974,773
    
    
    
    $
    
    982,886
    
    
    
    $
    
    87,310Total assets
    
    
    $
    
    962,486
    
    
    
    $
    
    998,851
    
    
    
    $
    
    1,003,048
    
    
    
    $
    
    670,771Notes payable
    
    
    $
    
    200,439
    
    
    
    $
    
    184,175
    
    
    
    $
    
    138,704
    
    
    
    $
    
    Shareholders equity
    
    
    $
    
    736,569
    
    
    
    $
    
    789,099
    
    
    
    $
    
    842,304
    
    
    
    $
    
    670,319Net book value per share
    
    
    $
    
    7.78
    
    
    
    $
    
    8.43
    
    
    
    $
    
    9.11
    
    
    
    $
    
    9.72Other DataCash flow from:Operating activities
    
    
    $
    
    44,249
    
    
    
    $
    
    45,739
    
    
    
    $
    
    39,714
    
    
    
    $
    
    5,563Investing activities
    
    
    $
    
    711
    
    
    
    $
    
    (30,379
    )
    
    
    
    $
    
    (766,854
    )
    
    
    
    $
    
    (108,549
    )Financing activities
    
    
    $
    
    (44,960
    )
    
    
    
    $
    
    (15,360
    )
    
    
    
    $
    
    165,131
    
    
    
    $
    
    664,971Number of hotels owned at end of period
    
    
    
    51
    
    
    
    
    51
    
    
    
    
    51
    
    
    
    
    6Average Daily Rate (ADR)(b)
    
    
    $
    
    112
    
    
    
    $
    
    112
    
    
    
    $
    
    121
    
    
    
    $
    
    95Occupancy
    
    
    
    70
    %
    
    
    
    
    66
    %
    
    
    
    
    69
    %
    
    
    
    
    61
    %Revenue Per Available Room (RevPAR)(c)
    
    
    $
    
    79
    
    
    
    $
    
    73
    
    
    
    $
    
    83
    
    
    
    $
    
    58Total Rooms Sold(d)
    
    
    
    1,515,805
    
    
    
    
    1,414,748
    
    
    
    
    1,027,472
    
    
    
    
    14,626Total Rooms Available(e)
    
    
    
    2,155,648
    
    
    
    
    2,155,621
    
    
    
    
    1,490,606
    
    
    
    
    23,864Funds From Operations Calculation(a)Net income
    
    
    $
    
    10,875
    
    
    
    $
    
    5,505
    
    
    
    $
    
    14,265
    
    
    
    $
    
    5,398Depreciation of real estate owned
    
    
    
    34,979
    
    
    
    
    32,907
    
    
    
    
    22,044
    
    
    
    
    333Funds from operations
    
    
    $
    
    45,854
    
    
    
    $
    
    38,412
    
    
    
    $
    
    36,309
    
    
    
    $
    
    5,73115

(a)
    
    
    
    Funds from operations (FFO) is defined as net income (computed in accordance with generally accepted accounting principlesGAAP) excluding gains and losses from sales of depreciable property, plus depreciation and amortization. The Company considers FFO in evaluating property acquisitions and
      its operating performance and believes that FFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of the Companys activities in accordance with GAAP. The Company considers FFO as a supplemental measure of operating performance in the real
      estate industry, and along with the other financial measures included in this Form 10-K, including net income, cash flow from operating activities, financing activities and investing activities, it provides investors with an indication of the performance of the Company. The Companys definition of FFO is
      not necessarily the same as such terms that are used by other companies. FFO is not necessarily indicative of cash available to fund cash needs.(b)
    
    
    
    Total room revenue divided by number of rooms sold.(c)
    
    
    
    ADR multiplied by occupancy percentage.(d)
    
    
    
    Represents the number of room nights sold during the period.(e)
    
    
    
    Represents the number of rooms owned by the Company multiplied by the number of nights in the period.16

Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements involve known and unknown risks, uncertainties, and other factors which may
  cause the actual results, performance, or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the ability of the Company to implement its acquisition
  strategy and operating strategy; the Companys ability to manage planned growth; changes in economic cycles, and competition within the hotel industry. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the
  assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this Annual Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be
  regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. In addition, the Companys qualification as a real estate investment trust involves the application of highly technical
  and complex provisions of the Internal Revenue Code. Readers should carefully review the Companys financial statements and the notes thereto, as well as the risk factors described in the Companys filings with the Securities and Exchange Commission and Item 1A.
General
The Company was formed and initially capitalized on January 22, 2007, with its first investor closing on July 27, 2007. The Company owned 51 hotels as of December 31, 2010, located within different markets in the United States. The Company is treated as a Real Estate Investment Trust (REIT)
  for federal income tax purposes. The Companys first six hotels were acquired in November and December 2007, and 45 additional hotels were purchased in 2008. Accordingly, the results of operations include only the results of operations of the hotels for the periods owned. Exclusive of interest income,
  the Company had no operating revenues before the first hotel acquisition in November 2007.
Hotel performance can be influenced by many factors including local competition, local and national economic conditions in the United States and the performance of individual managers assigned to each hotel. While the Companys hotels performance as compared to other hotels within each
  individual market has met expectations for the periods held, overall financial results did not meet expectations in 2010, due to the significant decline in economic conditions throughout the United States. It is anticipated the properties financial performance will be below original expectations until general
  economic conditions return to pre-recessionary levels. The Companys and industrys revenues and income improved in 2010 as compared to 2009. Although still expected to be below 2007 and 2008 levels, the Company expects 2011 revenue percentage increases in the mid single digits as compared to
  2010. In evaluating financial condition and operating performance, the most important matters on which the Company focuses are revenue measurements, such as average occupancy, average daily rate (ADR), revenue per available room (RevPAR), and market yield which compares an individual
  hotels results to other hotels in its local market, and expenses, such as hotel operating expenses, general and administrative and other expenses described below.
17

The Company owned the same number of hotels (51) at December 31, 2010 and 2009 (consisting of 5,909 rooms). The following is a summary of results for the years ended December 31, 2010 and 2009.
(in thousands, except statistical data)
    
    Year endedDecember 31, 2010
    
    Percent ofRevenue
    
    Year endedDecember 31, 2009
    
    Percent ofRevenue
    
    PercentChangeTotal revenues
    
    
    $
    
    182,622
    
    
    
    
    100
    %
    
    
    
    $
    
    170,885
    
    
    
    
    100
    %
    
    
    
    
    7
    %Hotel direct expenses
    
    
    
    108,987
    
    
    
    
    60
    %
    
    
    
    
    105,091
    
    
    
    
    61
    %
    
    
    
    
    4
    %Taxes, insurance and other expense
    
    
    
    10,089
    
    
    
    
    6
    %
    
    
    
    
    10,188
    
    
    
    
    6
    %
    
    
    
    
    (1
    )%Land lease expense
    
    
    
    6,386
    
    
    
    
    3
    %
    
    
    
    
    6,376
    
    
    
    
    4
    %
    
    
    
    
    0
    %General and administrative expense
    
    
    
    5,216
    
    
    
    
    3
    %
    
    
    
    
    4,523
    
    
    
    
    3
    %
    
    
    
    
    15
    %Depreciation
    
    
    
    34,979
    
    
    
    
    
    
    32,907
    
    
    
    
    
    
    6
    %Investment income, net
    
    
    
    3,076
    
    
    
    
    
    
    1,071
    
    
    
    
    
    
    187
    %Interest expense
    
    
    
    9,166
    
    
    
    
    
    
    7,366
    
    
    
    
    
    
    24
    %Number of hotels
    
    
    
    51
    
    
    
    
    
    
    51
    
    
    
    
    
    
    0
    %Average RevPAR Index(1)
    
    
    
    130
    
    
    
    
    
    
    130
    
    
    
    
    
    
    0
    %Average Daily Rate (ADR)
    
    
    $
    
    112
    
    
    
    
    
    $
    
    112
    
    
    
    
    
    
    0
    %Occupancy
    
    
    
    70
    %
    
    
    
    
    
    
    66
    %
    
    
    
    
    
    
    6
    %RevPAR
    
    
    $
    
    79
    
    
    
    
    
    $
    
    73
    
    
    
    
    
    
    8
    %

(1)
    
    
    
    Statistics calculated from data provided by Smith Travel Research, Inc.Òand excludes new properties open less than 2 years or under renovation during the applicable period.18

Hotels Owned
As of December 31, 2010, the Company owned 51 hotels, with a total of 5,909 rooms. The following table summarizes the location, brand, manager, date acquired, number of rooms and gross purchase price for each hotel. All dollar amounts are in thousands.
Location
    
    State
    
    Brand
    
    Manager
    
    DateAcquired
    
    Rooms
    
    GrossPurchasePriceBirmingham
    
    AL
    
    Homewood Suites
    
    McKibbon
    
    
    
    5/23/2008
    
    
    
    
    95
    
    
    
    $
    
    16,500Rogers
    
    AR
    
    Fairfield Inn & Suites
    
    Intermountain
    
    
    
    2/29/2008
    
    
    
    
    99
    
    
    
    
    8,000Rogers
    
    AR
    
    Residence Inn
    
    Intermountain
    
    
    
    2/29/2008
    
    
    
    
    88
    
    
    
    
    11,744Springdale
    
    AR
    
    Residence Inn
    
    Intermountain
    
    
    
    3/14/2008
    
    
    
    
    72
    
    
    
    
    5,606Burbank
    
    CA
    
    Residence Inn
    
    Marriott
    
    
    
    5/13/2008
    
    
    
    
    166
    
    
    
    
    50,500Cypress
    
    CA
    
    Courtyard
    
    Dimension
    
    
    
    4/30/2008
    
    
    
    
    180
    
    
    
    
    31,164Oceanside
    
    CA
    
    Residence Inn
    
    Marriott
    
    
    
    5/13/2008
    
    
    
    
    125
    
    
    
    
    28,750Sacramento
    
    CA
    
    Hilton Garden Inn
    
    Dimension
    
    
    
    3/7/2008
    
    
    
    
    154
    
    
    
    
    27,630San Jose
    
    CA
    
    Homewood Suites
    
    Dimension
    
    
    
    7/2/2008
    
    
    
    
    140
    
    
    
    
    21,862Tulare
    
    CA
    
    Hampton Inn & Suites
    
    Inn Ventures
    
    
    
    6/26/2008
    
    
    
    
    86
    
    
    
    
    10,331Jacksonville
    
    FL
    
    Homewood Suites
    
    McKibbon
    
    
    
    6/17/2008
    
    
    
    
    119
    
    
    
    
    23,250Sanford
    
    FL
    
    SpringHill Suites
    
    LBA
    
    
    
    3/14/2008
    
    
    
    
    105
    
    
    
    
    11,150Tallahassee
    
    FL
    
    Hilton Garden Inn
    
    LBA
    
    
    
    1/25/2008
    
    
    
    
    85
    
    
    
    
    13,200Tampa
    
    FL
    
    TownePlace Suites
    
    McKibbon
    
    
    
    6/17/2008
    
    
    
    
    95
    
    
    
    
    11,250Port Wentworth
    
    GA
    
    Hampton Inn
    
    Newport
    
    
    
    1/2/2008
    
    
    
    
    106
    
    
    
    
    10,780Savannah
    
    GA
    
    Hilton Garden Inn
    
    Newport
    
    
    
    7/31/2008
    
    
    
    
    105
    
    
    
    
    12,500Overland Park
    
    KS
    
    SpringHill Suites
    
    True North
    
    
    
    3/17/2008
    
    
    
    
    102
    
    
    
    
    8,850Overland Park
    
    KS
    
    Residence Inn
    
    True North
    
    
    
    4/30/2008
    
    
    
    
    120
    
    
    
    
    15,850Overland Park
    
    KS
    
    Fairfield Inn & Suites
    
    True North
    
    
    
    8/20/2008
    
    
    
    
    110
    
    
    
    
    12,050Wichita
    
    KS
    
    Courtyard
    
    Intermountain
    
    
    
    6/13/2008
    
    
    
    
    90
    
    
    
    
    8,874Bowling Green
    
    KY
    
    Hampton Inn
    
    Newport
    
    
    
    12/6/2007
    
    
    
    
    130
    
    
    
    
    18,832Marlborough
    
    MA
    
    Residence Inn
    
    True North
    
    
    
    1/15/2008
    
    
    
    
    112
    
    
    
    
    20,200Westford
    
    MA
    
    Hampton Inn & Suites
    
    True North
    
    
    
    3/6/2008
    
    
    
    
    110
    
    
    
    
    15,250Westford
    
    MA
    
    Residence Inn
    
    True North
    
    
    
    4/30/2008
    
    
    
    
    108
    
    
    
    
    14,850Annapolis
    
    MD
    
    Hilton Garden Inn
    
    White
    
    
    
    1/15/2008
    
    
    
    
    126
    
    
    
    
    25,000Kansas City
    
    MO
    
    Residence Inn
    
    True North
    
    
    
    4/30/2008
    
    
    
    
    106
    
    
    
    
    17,350Carolina Beach
    
    NC
    
    Courtyard
    
    Crestline
    
    
    
    6/5/2008
    
    
    
    
    144
    
    
    
    
    24,214Concord
    
    NC
    
    Hampton Inn
    
    Newport
    
    
    
    3/7/2008
    
    
    
    
    101
    
    
    
    
    9,200Dunn
    
    NC
    
    Hampton Inn
    
    McKibbon
    
    
    
    1/24/2008
    
    
    
    
    120
    
    
    
    
    12,500Fayetteville
    
    NC
    
    Residence Inn
    
    Intermountain
    
    
    
    5/9/2008
    
    
    
    
    92
    
    
    
    
    12,201Greensboro
    
    NC
    
    SpringHill Suites
    
    Newport
    
    
    
    11/9/2007
    
    
    
    
    82
    
    
    
    
    8,000Matthews
    
    NC
    
    Hampton Inn
    
    Newport
    
    
    
    1/15/2008
    
    
    
    
    92
    
    
    
    
    11,300Wilmington
    
    NC
    
    Fairfield Inn & Suites
    
    Crestline
    
    
    
    12/11/2008
    
    
    
    
    122
    
    
    
    
    14,800Winston-Salem
    
    NC
    
    Courtyard
    
    McKibbon
    
    
    
    5/19/2008
    
    
    
    
    122
    
    
    
    
    13,500Somerset
    
    NJ
    
    Courtyard
    
    Newport
    
    
    
    11/9/2007
    
    
    
    
    162
    
    
    
    
    16,000New York
    
    NY
    
    Renaissance
    
    Marriott
    
    
    
    1/4/2008
    
    
    
    
    201
    
    
    
    
    99,000Tulsa
    
    OK
    
    Hampton Inn & Suites
    
    Western
    
    
    
    12/28/2007
    
    
    
    
    102
    
    
    
    
    10,200Columbia
    
    SC
    
    Hilton Garden Inn
    
    Newport
    
    
    
    9/22/2008
    
    
    
    
    143
    
    
    
    
    21,200Greenville
    
    SC
    
    Residence Inn
    
    McKibbon
    
    
    
    5/19/2008
    
    
    
    
    78
    
    
    
    
    8,700Hilton Head
    
    SC
    
    Hilton Garden Inn
    
    McKibbon
    
    
    
    5/29/2008
    
    
    
    
    104
    
    
    
    
    13,500Chattanooga
    
    TN
    
    Homewood Suites
    
    LBA
    
    
    
    12/14/2007
    
    
    
    
    76
    
    
    
    
    8,600Texarkana
    
    TX
    
    Courtyard
    
    Intermountain
    
    
    
    3/7/2008
    
    
    
    
    90
    
    
    
    
    12,924Texarkana
    
    TX
    
    TownePlace Suites
    
    Intermountain
    
    
    
    3/7/2008
    
    
    
    
    85
    
    
    
    
    9,057Charlottesville
    
    VA
    
    Courtyard
    
    Crestline
    
    
    
    6/5/2008
    
    
    
    
    137
    
    
    
    
    27,900Chesapeake
    
    VA
    
    Marriott
    
    Crestline
    
    
    
    10/21/2008
    
    
    
    
    226
    
    
    
    
    38,400Harrisonburg
    
    VA
    
    Courtyard
    
    Newport
    
    
    
    11/16/2007
    
    
    
    
    125
    
    
    
    
    23,219Suffolk
    
    VA
    
    Courtyard
    
    Crestline
    
    
    
    7/2/2008
    
    
    
    
    92
    
    
    
    
    12,500Suffolk
    
    VA
    
    TownePlace Suites
    
    Crestline
    
    
    
    7/2/2008
    
    
    
    
    72
    
    
    
    
    10,000Virginia Beach
    
    VA
    
    Courtyard
    
    Crestline
    
    
    
    6/5/2008
    
    
    
    
    141
    
    
    
    
    27,100Virginia Beach
    
    VA
    
    Courtyard
    
    Crestline
    
    
    
    6/5/2008
    
    
    
    
    160
    
    
    
    
    39,700Tukwila
    
    WA
    
    Homewood Suites
    
    Dimension
    
    
    
    7/2/2008
    
    
    
    
    106
    
    
    
    
    15,7075,909
    
    
    
    $
    
    950,74519

The Company leased all of its hotels to wholly-owned taxable REIT subsidiaries (collectively, the lessee) under master hotel lease agreements. The Company also used the proceeds of its best-efforts offering to pay 2% of the gross purchase price for these hotels, which equals approximately $19.0
  million, since inception, as a commission to Apple Suites Realty Group, Inc. (ASRG). ASRG is 100% owned by the Companys Chairman and Chief Executive Officer, Glade M. Knight.
No goodwill was recorded in connection with any of the acquisitions.
With the exception of assumed mortgage loans in 2008 on 15 of its hotel properties, substantially all of the purchases were funded with proceeds of the Companys best-efforts offering of Units. The following table summarizes the hotel, current interest rate, maturity date, principal amount assumed
  with each mortgage, and outstanding principal balance as of December 31, 2010. All dollar amounts are in thousands.
Location
    
    Brand
    
    InterestRate
    
    MaturityDate
    
    PrincipalAssumed
    
    PrincipalBalance as ofDec. 31, 2010Columbia, SC
    
    Hilton Garden Inn
    
    
    
    (1
    )
    
    
    
    
    2/1/2012
    
    
    
    $
    
    11,576
    
    
    
    $
    
    10,784Overland Park, KS
    
    Residence Inn
    
    
    
    5.74
    %
    
    
    
    
    4/1/2015
    
    
    
    
    7,079
    
    
    
    
    6,638Westford, MA(3)
    
    Residence Inn
    
    
    
    (2
    )
    
    
    
    
    10/1/2015
    
    
    
    
    7,199
    
    
    
    
    6,979Kansas City, MO
    
    Residence Inn
    
    
    
    5.74
    %
    
    
    
    
    11/1/2015
    
    
    
    
    11,645
    
    
    
    
    11,211Fayetteville, NC(3)
    
    Residence Inn
    
    
    
    5.14
    %
    
    
    
    
    12/1/2015
    
    
    
    
    7,204
    
    
    
    
    7,000Hilton Head, SC
    
    Hilton Garden Inn
    
    
    
    6.29
    %
    
    
    
    
    4/11/2016
    
    
    
    
    6,371
    
    
    
    
    6,041Winston-Salem, NC
    
    Courtyard
    
    
    
    5.94
    %
    
    
    
    
    12/8/2016
    
    
    
    
    8,000
    
    
    
    
    7,809Savannah, GA
    
    Hilton Garden Inn
    
    
    
    5.87
    %
    
    
    
    
    2/1/2017
    
    
    
    
    5,679
    
    
    
    
    5,403Tampa, FL
    
    TownePlace Suites
    
    
    
    6.06
    %
    
    
    
    
    2/8/2017
    
    
    
    
    8,268
    
    
    
    
    8,019Greenville, SC
    
    Residence Inn
    
    
    
    6.03
    %
    
    
    
    
    2/8/2017
    
    
    
    
    6,512
    
    
    
    
    6,308Birmingham, AL
    
    Homewood Suites
    
    
    
    6.03
    %
    
    
    
    
    2/8/2017
    
    
    
    
    11,815
    
    
    
    
    11,446Jacksonville, FL
    
    Homewood Suites
    
    
    
    6.03
    %
    
    
    
    
    2/8/2017
    
    
    
    
    17,159
    
    
    
    
    16,638Concord, NC
    
    Hampton Inn
    
    
    
    6.10
    %
    
    
    
    
    3/1/2017
    
    
    
    
    5,143
    
    
    
    
    4,964Suffolk, VA
    
    TownePlace Suites
    
    
    
    6.03
    %
    
    
    
    
    7/1/2017
    
    
    
    
    6,630
    
    
    
    
    6,310Suffolk, VA
    
    Courtyard
    
    
    
    6.03
    %
    
    
    
    
    7/1/2017
    
    
    
    
    8,644
    
    
    
    
    8,226$
    
    128,924
    
    
    
    $
    
    123,776

(1)
    
    
    
    The interest rate on this mortgage is a variable rate based on 3-month LIBOR. As of December 31, 2010, the current interest rate was 4.97%.(2)
    
    
    
    The interest rate on this mortgage is a variable rate based on 1-month LIBOR. An interest rate swap entered into in October 2010 when this loan was refinanced, results in an effective rate of 5.3%.(3)
    
    
    
    Loan was refinanced in 2010.Management and Franchise Agreements
Each of the Companys 51 hotels are operated and managed, under separate management agreements, by affiliates of one of the following companies: Newport Hospitality Group, Inc. (Newport), Larry Blumberg & Associates (LBA), Western International (Western), Marriott International, Inc.
  (Marriott), White Lodging Services Corporation (WLS), Dimension Development Company (Dimension), Inn Ventures, Inc. (Inn Ventures), True North Hotel Group, Inc. (True North), Intermountain Management, LLC (Intermountain), MHH Management, LLC (McKibbon) and Crestline
  Hotels & Resorts, Inc. (Crestline). The agreements provide for initial terms ranging from one to thirty years. Fees associated with the agreements generally include the payment of base management fees, incentive management fees, accounting fees, and other fees for centralized services which are
  allocated among all of the hotels that receive the benefit of such services. Base management fees are calculated as a percentage of gross revenues. Incentive management fees are calculated as a percentage of operating profit in excess of a priority return to the Company, as defined in the management
  agreements. The Company has the option to terminate the management agreements if specified performance thresholds are not satisfied. During the years ended December 31, 2010, 2009 and 2008, the Company incurred approximately $6.3 million, $6.0 million and $4.5 million in management fees.
20

Newport, LBA, Western, WLS, Dimension, Inn Ventures, True North, Intermountain, McKibbon and Crestline are not affiliated with either Marriott or Hilton, and as a result, the hotels they manage were required to obtain separate franchise agreements with each respective franchisor. The Hilton
  franchise agreements generally provide for initial terms of 10 to 20 years. Fees associated with the agreements generally include the payment of royalty fees and program fees. The Marriott franchise agreements provide for initial terms of 10 to 30 years. Fees associated with the agreements include the
  payment of royalty fees, marketing fees, reservation fees and a communications support fee based on room revenues. During the years ended December 31, 2010, 2009 and 2008 the Company incurred approximately $7.1 million, $6.8 million and $5.2 million in franchise fees.
Results of Operations for Years 2010 and 2009
As of December 31, 2010, the Company owned 51 hotels with 5,909 rooms. The Companys portfolio of hotels owned is unchanged since December 31, 2008. Hotel performance is impacted by many factors including the economic conditions in the United States as well as each locality. During the
  past two years, the overall weakness in the U.S. economy has had a considerable negative impact on both consumer and business travel. As a result, lodging demand in most markets in the United States has declined as compared to pre-recession levels. Economic conditions stabilized and showed modest
  growth in 2010 as compared to 2009 throughout the United States, which led to the Companys improved revenue and income in 2010 as compared to 2009. Although the Company expects continued improvement in 2011, it is not anticipated that revenue and income will reach pre-recessionary levels. The
  Companys hotels have shown results consistent with industry and brand averages for the period of ownership.
The Company separately evaluates the performance of each of its hotel properties. Due to the significance of the New York, New York hotel, the Company has two reportable segments.
Revenues
The Companys principal source of revenue is hotel room revenue and other related revenue. For the year ended December 31, 2010, the Company had total revenue of $182.6 million. Revenue for the New York hotel was $19.6 million or 11% of total revenue for the year. For the year, the hotels
  achieved combined average occupancy of approximately 70%, ADR of $112 and RevPAR of $79. The New York hotel had average occupancy of 85%, ADR of $271 and RevPAR of $229. All other hotels combined had occupancy of 70%, ADR of $105 and RevPAR of $74. RevPAR is calculated as
  ADR multiplied by the occupancy percentage. ADR is calculated as room revenue divided by the number of rooms sold.
For the year ended December 31, 2009, the Company had total revenue of $170.9 million. Revenue for the New York hotel was $14.5 million or 8% of total revenue for the year. For the year, the hotels achieved combined average occupancy of approximately 66%, ADR of $112 and RevPAR of
  $73. The New York hotel had average occupancy of 73%, ADR of $227 and RevPAR of $165. All other hotels combined had occupancy of 65%, ADR of $107 and RevPAR of $70.
As reflected in the Companys occupancy increase (the Company has seen year over year occupancy improvement every month since November 2009), the industry realized an overall increase in demand as compared to 2009. The increase was a result of reduced room rates and the sense that the
  overall economy was stabilizing, generating more business and leisure travelers. While ADR still trailed pre-recession levels, it has stabilized, and it increased in the second half of 2010 as compared to 2009. As a result, the Companys RevPAR increased 8% for 2010 as compared to 2009. The Company
  anticipates mid-single digit percentage increases in RevPAR in 2011 as compared to 2010.
While the revenue rates earned by the Company are consistent with industry and brand averages, the Company continues to focus on improving market share. The Companys properties overall lead their respective markets with an Average RevPAR Index of 130 for 2010 (the market average is 100).
During the first half of 2009, the Company was in the process of completing its conversion of the New York hotel from an unbranded hotel to a Renaissance hotel. While the Company completed the conversion to a Renaissance in late April 2009, there were certain additional renovation
  requirements to complete during the course of the year. Consequently, the hotel had an average of 32 rooms out of service each night for the first half of 2009 and experienced other disruptions to its common areas. As a result of the conversion effort and
21

declines in economic conditions, revenue at the hotel was unusually low for the first half of 2009. The RevPAR Index for the New York hotel was 112 for 2010, an increase of 29% from 2009. Although the hotels revenue increased 35% in 2010 as compared to 2009, the Company believes there continues
  to be opportunity for market penetration and continues to work with Marriott management to increase the RevPAR Index for the New York hotel.
Expenses
For the year ended December 31, 2010, hotel direct expenses of the Companys hotels totaled $109.0 million or 60% of total revenue. The New York hotel had direct expenses of $11.1 million or 57% of its total revenue for the year. For the year ended December 31, 2009, hotel direct expenses were
  $105.1 million or 61% of total revenue. The New York hotel had direct expenses of $10.0 million or 69% of its total revenue for the year. Hotel direct expenses consist of operating expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense,
  franchise fees and management fees.
In 2009 operating expense as a percentage of revenue was negatively impacted by the ramp up of several hotels that opened in the second half of 2008 and by renovations in 2009. The Company had approximately 27,000 room nights out of service due to renovations in 2009. Additionally, hotel
  operational expenses for 2009 reflect the impact of declining revenues at most of the Companys hotels, and the Companys efforts to control costs in such an economic environment. However, certain operating costs such as management costs, certain utility costs and minimum supply and maintenance
  costs are relatively fixed in nature, and cannot be curtailed or eliminated. The Company has been successful in reducing, relative to revenues, certain labor costs, food and supply costs and utility costs by continually monitoring and sharing utilization data across its hotels and management companies. The
  Company will continue to work with its management companies to reduce costs as aggressively as possible.
Taxes, insurance, and other expense for 2010 and 2009 totaled $10.1 million (6% of total revenues for 2010) and $10.2 million (or 6% of total revenues for 2009) of which approximately $680 thousand and $355 thousand related to the New York hotel. Total Company taxes, insurance and other
  expense is anticipated to remain stable in 2011. New York will continue to increase as tax incentives will decline over time.
Land lease expense was $6.4 million for 2010 and $6.4 million for 2009. This expense represents the expense incurred by the Company to lease land for five hotel properties. Land lease expense for the years ended December 31, 2010 and 2009 for the New York hotel was $5.9 million.
General and administrative expense (G&A) for 2010 and 2009 was $5.2 million and $4.5 million. The principal components of general and administrative expense are advisory fees, legal fees, accounting fees, reporting expense and the Companys share of loss from its investment in Apple Air Holding
  LLC. As a public company, the Company is subject to various regulatory oversight. In 2010 the Company incurred approximately $0.5 million in legal and related costs responding to the Securities and Exchange Commission. G&A also increased in 2010 due to an approximately $0.4 million loss related to
  Apple Airs contract to trade-in its two jets for one new jet in 2011.
Depreciation expense was $35.0 million for 2010 and $32.9 million for 2009. This expense includes $6.4 million and $5.9 million for the New York hotel. Depreciation expense represents depreciation expense of the Companys hotel buildings and related improvements, and associated furniture, fixtures
  and equipment, for the respective periods owned. The increase is a result of capital improvements made by the Company in 2009 of approximately $25 million to complete 12 renovations.
In the first quarter of 2010, the Company sold its equity securities in a publicly traded real estate investment trust, resulting in realized gains and other investment income of approximately $3.0 million. For the 2009 year, the Company recognized investment income, net of $1.1 million, comprised of
  interest income (earnings on excess cash invested in short term money market instruments and certificates of deposit) and a realized gain of $1.0 million on the sale of a portion of its investment in equity securities of one public REIT.
Interest expense for 2010 and 2009 totaled $9.2 million and $7.4 million and primarily represents interest expense incurred on mortgage loans assumed on 15 hotel properties acquired during 2008 and the Companys line of credit and term loan, offset by capitalized interest of $0.1 million in 2010 and
  $1.4 million in 2009 in conjunction with renovations.
22

Results of Operations for Years 2009 and 2008
As of December 31, 2009, the Company owned 51 hotels with 5,909 rooms. Forty-five hotels with 5,231 rooms were purchased during 2008. As of December 31, 2007, the Company owned six hotels with 678 rooms. The Companys operations did not commence until November 2007, when the
  Company purchased its first three hotels. As a result of the acquisition activity in 2008, a comparison of operations for 2009 to prior periods is not representative of the results that would have occurred if all hotels had been owned for the entire periods presented.
Revenues
The Companys principal source of revenue is hotel room revenue and other related revenue. For the years ended December 31, 2009 and 2008, the Company had total revenue of $170.9 million and $133.3 million. Revenue for the New York hotel was $14.5 million or 8% of total revenue for 2009
  and $14.4 million or 11% of total revenue for 2008. For the 2009 year, the hotels achieved combined average occupancy of approximately 66%, ADR of $112 and RevPAR of $73. The New York hotel had average occupancy of 73%, ADR of $227 and RevPAR of $165. All other hotels combined had
  occupancy of 65%, ADR of $107 and RevPAR of $70.
For the year ended December 31, 2008, the hotels achieved combined average occupancy of approximately 69%, ADR of $121 and RevPAR of $83. The New York hotel had average occupancy of 66%, ADR of $253 and RevPAR of $166. All other hotels combined had occupancy of 69%, ADR of
  $114 and RevPAR of $79.
As mentioned previously in the comparison of 2010 and 2009 operating results, the Company was impacted in 2009, particularly the first half, by the conversion of the New York hotel from an unbranded hotel to a Renaissance hotel. As a result of the conversion effort and declines in economic
  conditions, revenue at the hotel was unusually low for the first half of 2009.
Expenses
For the year ended December 31, 2009 and 2008, hotel direct expenses of the Companys hotels totaled $105.1 million or 61% of total revenue, and $77.6 million or 58% of total revenue. The New York hotel had direct expenses of $10.0 million or 69% of its total revenue for 2009 and direct
  expenses of $8.4 million or 59% of its total revenue for 2008.
In 2009 operating expense as a percentage of revenue was negatively impacted by the ramp up of several hotels that opened in the second half of 2008 and by renovations in 2009. The Company had approximately 27,000 room nights out of service due to renovations in 2009. Additionally, hotel
  operational expenses for 2009 reflect the impact of declining revenues at most of the Companys hotels, and the Companys efforts to control costs in such an economic environment.
Operating expenses were negatively impacted in 2008 by start up costs associated with several new hotels and transition costs associated with changing managers in several acquisitions.
Taxes, insurance, and other expense for the 2009 year totaled $10.2 million or 6% of total revenues of which approximately $355 thousand related to the New York hotel. Taxes, insurance, and other expense for the 2008 year totaled $6.8 million or 5% of total revenues of which approximately $418
  thousand related to the New York hotel.
Land lease expense was $6.4 million for 2009 and $6.3 million for 2008. Land lease expense for the years ended December 31, 2009 and 2008 for the New York hotel was $5.9 million and $5.8 million.
General and administrative expense for 2009 and 2008 was $4.5 million and $4.4 million.
Depreciation expense was $32.9 million for 2009 and $22.0 million for 2008. This expense includes $5.9 million and $4.3 million for the New York hotel.
For the 2009 year, the Company recognized investment income, net of $1.1 million, comprised of interest income (earnings on excess cash invested in short term money market instruments and certificates of deposit) and a realized gain of $1.0 million on the sale of a portion of its investment in equity
  securities of one public REIT. For the year ended December 31, 2008, the Company had investment income of $2.2 million. This investment income was comprised of $6.1 million of interest income offset by a marketable equity security
23

impairment loss of $4.4 million and other net realized gains of $0.5 million. During 2008 the Company acquired and sold equity securities in several publicly traded Real Estate Investment Trusts (REITs).
Interest expense for 2009 and 2008 totaled $7.4 million and $4.2 million and primarily represents interest expense incurred on mortgage loans assumed on 15 hotel properties acquired during 2008 and the Companys line of credit, offset by capitalized interest of $1.4 million and $0.7 million in 2009
  and 2008 in conjunction with renovations.
Related Party Transactions
The Company has significant transactions with related parties. These transactions cannot be construed to be arms length, and the results of the Companys operations may be different if these transactions were conducted with non-related parties. The Companys independent members of the Board of
  Directors oversee and annually review the Companys related party relationships (which include the relationships discussed in this section) and are required to approve any significant modifications to these contracts, as well as any new significant related party transactions. There were no changes to the
  contracts discussed in this section and no new significant related party transactions during 2010. The Board of Directors is not required to approve each individual transaction that falls under a related party relationship, however under the direction of the Board of Directors, at least one member of the
  Companys senior management team approves each related party transaction.
The Company has a contract with ASRG, a related party, to provide brokerage services for the acquisition and disposition of the Companys real estate assets. In accordance with the contract, ASRG is paid a fee of 2% of the gross purchase price of any acquisitions or gross sale price of any
  dispositions of real estate investments, subject to certain conditions plus certain reimbursable costs. As of December 31, 2010, payments to ASRG for services under the terms of this contract have totaled approximately $19.0 million since inception, which were capitalized as a part of the purchase price of
  the hotels. No fees were incurred by the Company under this contract in 2010 or 2009.
The Company is party to an advisory agreement with Apple Eight Advisors (A8A) to provide management services to the Company. An annual fee ranging from 0.1% to 0.25% of total equity proceeds received by the Company, in addition to certain reimbursable expenses, are payable for these
  services. Total advisory fees and reimbursable expenses incurred by the Company under the advisory agreement are included in general and administrative expenses and totaled approximately $2.8 million, $3.0 million and $2.7 million for the years ended December 31, 2010, 2009 and 2008, respectively. Of
  this total expense, approximately $1.0 million, $1.0 million and $1.0 million were fees paid to A8A and $1.8 million, $2.0 million and $1.7 million were expenses reimbursed (or paid directly to Apple REIT Six, Inc. (AR6) on behalf of A8A) by A8A to AR6 for the years ended December 31, 2010, 2009
  and 2008.
The advisors are staffed with personnel of AR6. AR6 provides similar staffing for Apple Six Advisors, Inc. (A6A), Apple Seven Advisors, Inc. (A7A), Apple Nine Advisors, Inc. (A9A) and Apple Ten Advisors, Inc. (A10A). A6A, A7A, A9A and A10A provide management services to,
  respectively, AR6, Apple REIT Seven, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. Although there is a potential conflict on time allocation of personnel due to the fact that a senior manager, officer or staff member will provide services to more than one company, the Company believes that
  the executives and staff compensation sharing arrangement allows the companies to share costs yet attract and retain superior executives and staff. The cost sharing structure also allows each entity to maintain a much more cost effective structure than having separate staffing arrangements. Amounts
  reimbursed to AR6 include both compensation for personnel and overhead (office rent, utilities, benefits, office supplies, etc.) utilized by the companies. The allocation of costs from AR6 is made by the management of the several REITs and is reviewed at least annually by the Compensation
  Committees of the several REITs. In making the allocation, management and the Compensation Committee, consider all relevant facts related to the Companys level of business activity and the extent to which the Company requires the services of particular personnel of AR6. Such payments are based
  on actual costs of the services and are not based on formal record keeping regarding the time these personnel devote to the Company, but are based on a good faith estimate by the employee and/or his or her supervisor of the time devoted by the employee to the Company. As part of this arrangement,
  the day to day transactions may result in amounts due to or from the noted related parties. To efficiently manage cash disbursements, the individual
24

companies may make payments for any or all of the related companies. The amounts due to or from the related individual companies are reimbursed or collected and are not significant in amount.
In January 2009 the Company purchased a 24% ownership interest in Apple Air Holding, LLC (Apple Air), for $3.2 million in cash. The interest was purchased to allow the Company access to two Lear jets for asset management and renovation purposes. The other members of Apple Air are
  Apple REIT Six, Inc., Apple REIT Seven, Inc. and Apple REIT Nine, Inc. The Companys investment in Apple Air is included in Other assets, net on the Companys Consolidated Balance Sheet. The Company records its share of income and losses of Apple Air under the equity method of accounting
  and adjusts its investment accordingly. The Companys share of Apple Airs loss was approximately $840,000 in 2010 and approximately $460,000 in 2009. The increase in the loss is due to the planned trade-in by Apple Air of the two jets for one new jet in January 2011.
In October of 2010, Apple REIT Nine, Inc. purchased from the Companys third party lender, the note payable secured by the Columbia, South Carolina Hilton Garden Inn. The purchase of the note by Apple REIT Nine, Inc. had no financial effect on the Company.
During the fourth quarter of 2008, the Company entered into a series of assignments of contracts with Apple REIT Nine, Inc. (AR9) to transfer its rights and obligations under three purchase contracts for four hotels which were under construction. Under the terms and conditions of the contracts,
  the Company assigned to AR9 all of its rights and obligations under these purchase contracts. No consideration or fees were paid to the Company for the assignment of the purchase contracts except for the reimbursement of the following payments previously made by the Company: (i) initial deposits
  totaling $1.2 million; and (ii) transactional costs paid to third parties totaling approximately $64,000. These reimbursement payments did not constitute or result in a profit or loss for the Company.
The Company has issued 240,000 Series B convertible preferred shares to Glade M. Knight, Chairman and Chief Executive Officer of the Company, in exchange for the payment by him of $0.10 per Series B convertible preferred share, or an aggregate of $24,000. The Series B convertible preferred
  shares are convertible into common shares pursuant to the formula and on the terms and conditions set forth below.
There are no dividends payable on the Series B convertible preferred shares. Holders of more than two-thirds of the Series B convertible preferred shares must approve any proposed amendment to the articles of incorporation that would adversely affect the Series B convertible preferred shares.
Upon the Companys liquidation, the holder of the Series B convertible preferred shares is entitled to a priority liquidation payment before any distribution of liquidation proceeds to the holders of the common shares. However, the priority liquidation payment of the holder of the Series B
  convertible preferred shares is junior to the holders of the Series A preferred shares distribution rights. The holder of a Series B convertible preferred share is entitled to a liquidation payment of $11 per number of common shares each Series B convertible preferred share would be convertible into
  according to the formula described below. In the event that the liquidation of the Companys assets results in proceeds that exceed the distribution rights of the Series A preferred shares and the Series B convertible preferred shares, the remaining proceeds will be distributed between the common shares
  and the Series B convertible preferred shares, on an as converted basis.
Each holder of outstanding Series B convertible preferred shares shall have the right to convert any of such shares into common shares of the Company upon and for 180 days following the occurrence of any of the following events:
(1)
    
    
    
    substantially all of the Companys assets, stock or business is sold or transferred through exchange, merger, consolidation, lease, share exchange, sale or otherwise, other than a sale of assets in liquidation, dissolution or winding up of the Company;(2)
    
    
    
    the termination or expiration without renewal of the advisory agreement with A8A, or if the Company ceases to use ASRG to provide property acquisition and disposition services; or(3)
    
    
    
    the Companys common shares are listed on any securities exchange or quotation system or in any established market.Upon the occurrence of any conversion event, each Series B convertible preferred share may be converted into 24.17104 common shares. In the event the Company raises additional gross proceeds in a subsequent public offering, each Series B convertible preferred share may be converted into an
  additional number of common shares based on the additional gross proceeds raised through the date of conversion in a subsequent
25

public offering according to the following formula: (X/50 million) x 1.20568, where X is the additional gross proceeds rounded down to the nearest 50 million.
No additional consideration is due upon the conversion of the Series B convertible preferred shares. The conversion into common shares of the Series B convertible preferred shares will result in dilution of the shareholders interests.
Expense related to the issuance of 240,000 Series B convertible preferred shares to Mr. Knight will be recognized at such time when the number of common shares to be issued for conversion of the Series B shares can be reasonably estimated and the event triggering the conversion of the Series B
  shares to common shares occurs. The expense will be measured as the difference between the fair value of the common stock for which the Series B shares can be converted and the amounts paid for the Series B shares. If a conversion event had occurred at December 31, 2010, expense would have
  ranged from $0 to in excess of $63 million (assumes $11 per common share fair market value) which represents approximately 5.8 million shares of common stock.
Liquidity and Capital Resources
The following is a summary of the Companys significant commercial commitments as of December 31, 2010. See Capital Requirements and Resources for a discussion of the Companys liquidity and available capital resources as of December 31, 2010.
Commercial Commitments (000s)
    
    Total
    
    Amount of Commitments Expiring per PeriodLess than1 Year
    
    2-3 Years
    
    4-5 Years
    
    Over5 YearsDebt (including interest of $43.2 million)
    
    
    $
    
    243,834
    
    
    
    $
    
    12,403
    
    
    
    $
    
    107,581
    
    
    
    $
    
    45,328
    
    
    
    $
    
    78,522Ground leases
    
    
    
    236,885
    
    
    
    
    3,916
    
    
    
    
    8,175
    
    
    
    
    8,689
    
    
    
    
    216,105$
    
    480,719
    
    
    
    $
    
    16,319
    
    
    
    $
    
    115,756
    
    
    
    $
    
    54,017
    
    
    
    $
    
    294,627Capital Requirements and Resources
In October 2010 the Company entered into a $75.0 million unsecured revolving line of credit which expires in October 2012. The line of credit, which effectively extended the Companys existing line of credit, will be used for general corporate purposes, including capital expenditures, redemptions and
  distributions. With the availability of this line of credit, the Company maintains little cash on hand, accessing the line as necessary. As a result, cash on hand was $0 at December 31, 2010. The outstanding balance on the line of credit was $51.9 million at December 31, 2010. Also in October 2010 the
  Company entered into a $25 million term loan secured by two hotels. Interest on the loans is due monthly, interest is based on LIBOR with a floor of 3.5%, the interest rate for both loans was 3.5% at December 31, 2010, and the principal is due at maturity which is October 2012. The proceeds from the
  term loan were used to reduce the outstanding balance on the line of credit. Both loans have quarterly financial covenants which the Company was in compliance with at December 31, 2010. Although the Company anticipates maintaining compliance with these covenants, there can be no assurances that a
  default will not occur and the loans become immediately payable.
The Company anticipates that cash flow from operations and the revolving line of credit will be adequate to meet its anticipated liquidity requirements, including required distributions to shareholders (the Company is not required to make distributions at its current rate for REIT purposes), capital
  expenditures and debt service. The Company intends to maintain a relatively stable distribution rate instead of raising and lowering the distribution rate with varying economic cycles. With the depressed financial results of the Company and the lodging industry as compared to pre-recession levels, the
  Company will attempt to utilize additional financing to achieve this objective. Although the Company has relatively low levels of debt, there can be no assurances it will be successful with this strategy and may need to reduce its distributions to required levels. If the Company were unable to extend
  maturing debt or if it were to default on its debt, it may be unable to make distributions.
To maintain its REIT status the Company is required to distribute at least 90% of its ordinary income. The Companys objective in setting a distribution rate is to project a rate that will provide consistency over the life of the Company, taking into account acquisitions, capital improvements, ramp-up
  of new properties and varying economic cycles. Distributions in 2010 totaled $72.5 million and were paid monthly at a rate of
26

$0.064167 per common share. For the same period the Companys cash generated from operations was approximately $44.2 million. This shortfall includes a return of capital and was funded primarily by additional borrowings under the Companys line of credit facility. The Company intends to continue
  paying distributions on a monthly basis. However, since there can be no assurance of the ability of the Companys properties to provide income at this level, there can be no assurance as to the classification or duration of distributions at the current monthly rate. The Board of Directors monitors the
  Companys distribution rate relative to the performance of the hotels on an ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of the Company. In April 2009, the Board of Directors approved a reduction in the Companys
  annual distribution rate from $0.88 to $0.77 per common share. The reduction of the distribution was effective beginning with the May 2009 distribution.
The Company has on-going capital commitments to fund its capital improvements. The Company is required, under all of the hotel management agreements, and under certain loan agreements, to make available, for the repair, replacement, refurbishing of furniture, fixtures, and equipment, a
  percentage of gross revenues provided that such amount may be used for the Companys capital expenditures with respect to the hotels. As of December 31, 2010, the Company held $7.7 million in reserve for capital expenditures. Total capital expenditures in 2010 were $5.4 million, and the Company
  completed three renovations. The amount invested in capital expenditures was less in 2010 than 2009 due to the work performed on the properties when they were acquired, the level of capital expenditures in 2009 and 2008, and the depressed economic environment. The Company anticipates 2011 capital
  improvements to increase from 2010 and to be in the range of $12 to $14 million.
In the second quarter of 2008, the Company instituted a Dividend Reinvestment Plan for its shareholders. The plan provides a convenient and cost effective way to increase shareholder investment in the Company by reinvesting distributions to purchase additional Units of the Company. The uses of
  the proceeds from this plan may include purchasing Units under the Companys Unit Redemption Program, enhancing properties, satisfying financing obligations and other expenses, increasing working capital, funding various corporate operations, and acquiring hotels. The Company has registered 10
  million Units for potential issuance under the plan. Since inception through December 31, 2010, approximately 6.3 million Units were issued under the plan representing approximately $68.9 million, including 2.4 million Units for $26.1 million in 2010 and 2.4 million Units for $26.8 million in 2009.
The Company has a Unit Redemption Program to provide limited interim liquidity to its shareholders who have held their Units for at least one year. Shareholders may request redemption of Units for a purchase price equal to 92% of the price paid per Unit if the Units have been owned less than
  three years or 100% of the price per Unit if the Units have been owned more than three years. The maximum number of Units that may be redeemed in any 12-month period is three percent of the weighted average number of Units outstanding during the 12-month period immediately prior to the date
  of redemption. The Company reserves the right to change the purchase price for redemptions, reject any request for redemption, or otherwise amend the terms of, suspend, or terminate the Unit Redemption Program. As of December 31, 2010, the Company has redeemed approximately 2.8 million Units
  in the amount of $29.0 million under the program, including 1.4 million Units in the amount of $14.7 million in 2010 and 1.3 million Units in the amount of $13.1 million redeemed in 2009.
Subsequent Events
In January 2011, the Company declared and paid $6.1 million or $0.064167 per common share, in a distribution to its common shareholders, of which $2.1 million or 195,270 Units were reinvested under the Companys Dividend Reinvestment Plan.
In January 2011, the Company redeemed 732,647 Units in the amount of $8.0 million under its Unit Redemption Program. As contemplated in the Program, the Company redeemed Units on a pro-rata basis. This redemption was approximately 61% of the requested redemption amount.
In February 2011, the Company declared and paid $6.0 million or $0.064167 per common share, in a distribution to its common shareholders, of which $2.2 million or 196,222 Units were reinvested under the Companys Dividend Reinvestment Plan.
27

In
    March 2011 the Company requested the loans secured by the Winston-Salem,
    North Carolina Courtyard, Tampa, Florida TownePlace Suites, Greenville, South
    Carolina Residence Inn and Suffolk, Virginia TownePlace Suites and Courtyard
    to be placed with a special servicer to negotiate the terms of the loans.
    To have the loans placed with the special servicer the Company did not make
    the scheduled monthly debt payments for March 2011. The Company anticipates
    it will receive default notices and does not know the timing and resolution
    of the anticipated negotiations. The total outstanding balance of the five
    loans at December 31, 2010 was approximately $36.7 million. The net book
    value of the properties securing these loans at December 31, 2010 was approximately
    $53.2 million. If the Company is unable to renegotiate the loans, it may
    be more cost beneficial to pursue a deed in lieu of foreclosure with the
    lender(s). If the Company did pursue a deed in lieu of foreclosure it would
    record an impairment loss of the difference between the propertys carrying
    value and fair value, which could range from $7 million to $11 million based
    on estimated values at December 31, 2010.
Impact of Inflation
Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, limit the operators ability to raise room rates. Currently the Company is not experiencing any material impact from inflation.
Business Interruption
Being in the real estate industry, the Company is exposed to natural disasters both locally and nationally, and although management believes there is adequate insurance to cover this exposure, there can be no assurance that such events will not have a material adverse effect on the Companys
  financial position or results of operations.
Seasonality
The hotel industry historically has been seasonal in nature. Generally, occupancy rates and hotel revenues are greater in the second and third quarters than in the first and fourth quarters. As a result, there may be quarterly fluctuations in results of operations. To the extent that cash flow from
  operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available credit to make distributions.
Critical Accounting Policies
The following contains a discussion of what the Company believes to be critical accounting policies. These items should be read to gain a further understanding of the principles used to prepare the Companys financial statements. These principles include application of judgment; therefore, changes in
  judgments may have a significant impact on the Companys reported results of operations and financial condition.
Capitalization Policy
The Company considers expenditures to be capital in nature based on the following criteria: (1) for a single asset, the cost must be at least $500, including all normal and necessary costs to place the asset in service, and the useful life must be at least one year; (2) for group purchases of 10 or more
  identical assets, the unit cost for each asset must be at least $50, including all normal and necessary costs to place the asset in service, and the useful life must be at least one year; (3) for major repairs to a single asset, the repair must be at least $2,500 and the useful life of the asset must be substantially
  extended.
Impairment Losses Policy
The Company records impairment losses on hotel properties used in operations if indicators of impairment are present, and the sum of the undiscounted cash flows estimated to be generated by the respective properties, based on historical and industry data, is less than the properties carrying
  amounts. Indicators of impairment include a property with current or potential losses from operations, when it becomes more likely than not that a property will be sold before the end of its previously estimated useful life or when events,
28

trends, contingencies or changes in circumstances indicate that a triggering event has occurred and an assets carrying value may not be recoverable. Impairment losses are measured as the difference between the assets fair value and its carrying value. No impairment losses have been recorded to date.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board issued a pronouncement (Accounting Standards Update No. 2009-17) which amends its guidance surrounding a companys analysis to determine whether any of its variable interests constitute controlling financial interests in a variable interest
  entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has both of the following characteristics: (a) the power to direct the activities of a variable interest entity that most significantly impact the entitys economic performance, and (b) the obligation to
  absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to
  ensure that a variable interest entity operates as designed when determining whether it has the power to direct the activities of the variable interest entity that most significantly impact the entitys economic performance. The new pronouncement also requires ongoing assessments of whether an enterprise
  is the primary beneficiary of a variable interest entity and enhanced disclosure about an enterprises involvement with a variable interest entity. This pronouncement was adopted by the Company in the first quarter of 2010. The adoption of this standard did not have a material impact on the Companys
  consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
With the exception of one interest rate swap transaction entered into in October 2010, the Company has not engaged in transactions in derivative financial instruments or derivative commodity instruments. The Company entered into the interest rate swap, with a notional amount of $7.0 million and
  based on the London InterBank Offered Rate (LIBOR), to increase stability related to interest expense on a variable rate loan. The swap is not designated as a hedge, therefore the changes in the fair market value of this transaction are recorded in earnings. The Company recognized a gain of $40,000
  in 2010 from the change in fair value of this derivative.
As of December 31, 2010, the Companys financial instruments were not exposed to significant market risk due to foreign currency exchange risk, commodity price risk or equity price risk. The Company will be exposed to interest rate risk due to possible changes in short term interest rates as it
  invests its cash or borrows on its line of credit and due to its variable interest rate term loans. The Company had an outstanding balance of $51.9 million on its $75 million line of credit at December 31, 2010, and to the extent it utilizes the line of credit, the Company will be exposed to changes in short-
  term interest rates. The outstanding balance on the Companys variable rate term loans was $42.8 million at December 31, 2010. Based on these outstanding balances at December 31, 2010, every 100 basis points change in interest rates will impact the Companys annual net income by $0.9 million, all
  other factors remaining the same. The Companys cash balance at December 31, 2010 was $0.
In addition to its variable rate debt discussed above, the Company has assumed fixed interest rate notes payable to lenders under permanent financing arrangements. The following table summarizes the annual maturities and average interest rates of the Companys notes payable and line of credit
  outstanding at December 31, 2010. All dollar amounts are in thousands.
2011
    
    2012
    
    2013
    
    2014
    
    2015
    
    Thereafter
    
    Total
    
    MarketValueMaturities
    
    
    $
    
    2,335
    
    
    
    $
    
    89,477
    
    
    
    $
    
    2,267
    
    
    
    $
    
    2,405
    
    
    
    $
    
    30,818
    
    
    
    $
    
    73,366
    
    
    
    $
    
    200,668
    
    
    
    $
    
    200,453Average Interest rate
    
    
    
    4.9
    %
    
    
    
    
    5.3
    %
    
    
    
    
    5.9
    %
    
    
    
    
    5.9
    %
    
    
    
    
    5.9
    %
    
    
    
    
    6.0
    %29

Item 8. Financial Statements and Supplementary Data
REPORT OF MANAGEMENTON INTERNAL CONTROL OVER FINANCIAL REPORTING
March 11, 2011To the ShareholdersAPPLEREIT EIGHT, INC.
Management of Apple REIT Eight, Inc. (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission,
  internal control over financial reporting is a process designed by, or under the supervision of the Companys principal executive and principal financial officers and effected by the Companys Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of
  financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles.
The Companys internal control over financial reporting is supported by written policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Companys transactions and dispositions of the Companys assets; (2) provide reasonable
  assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of the Company are being made only in accordance with authorizations of the Companys
  management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
  of compliance with the policies or procedures may deteriorate.
In connection with the preparation of the Companys annual consolidated financial statements, management has undertaken an assessment of the effectiveness of the Companys internal control over financial reporting as of December 31, 2010, based on criteria established in Internal ControlIntegrated
  Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). Managements assessment included an evaluation of the design of the Companys internal control over financial reporting and testing of the operational effectiveness of those controls.
Based on this assessment, management has concluded that as of December 31, 2010, the Companys internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
  accordance with U.S. generally accepted accounting principles.
Ernst & Young LLP, the independent registered public accounting firm that audited the Companys consolidated financial statements included in this report, has issued an attestation report on the Companys internal control over financial reporting, a copy of which appears on the next page of this
  annual report.
/S/ GLADEM. KNIGHTGlade M. KnightChairman and Chief Executive Officer
    
    /S/ BRYANPEERYBRYANPEERYCHIEFFINANCIALOFFICER(PRINCIPALACCOUNTINGOFFICER)30

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNALCONTROL OVER FINANCIAL REPORTING
The Board of Directors and Shareholders ofAPPLEREIT EIGHT, INC.
We have audited Apple REIT Eight, Inc.s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Apple REIT
  Eight, Inc.s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our
  responsibility is to express an opinion on the companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained
  in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
  procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal
  control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
  necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
  assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
  of compliance with the policies or procedures may deteriorate.
In our opinion, Apple REIT Eight, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2010 consolidated financial statements of Apple REIT Eight, Inc. and our report dated March 11, 2011 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Richmond, VirginiaMarch 11, 2011
31

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders ofAPPLEREIT EIGHT, INC.
We have audited the accompanying consolidated balance sheets of Apple REIT Eight, Inc. as of December 31, 2010 and 2009, and the related consolidated statements of operations and comprehensive income, shareholders equity and cash flows for each of the three years in the period ended
  December 31, 2010. Our audits also included the financial statement schedule listed in the Index at Item 15(2). These financial statements and schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and schedule based on our
  audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
  audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
  believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Apple REIT Eight, Inc. at December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period
  ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We
    also have audited, in accordance with the standards of the Public Company
    Accounting Oversight Board (United States), Apple REIT Eight, Inc.s
    internal control over financial reporting as of December 31, 2010, based
    on criteria established in Internal ControlIntegrated Framework issued
    by the Committee of Sponsoring Organizations of the Treadway Commission and
    our report dated March 11, 2011 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Richmond, Virginia
March 11, 2011
32

APPLE REIT EIGHT, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share data)
December 31,2010
    
    2009AssetsInvestment in hotels, net of accumulated depreciation of $90,261 and $55,282
    
    
    $
    
    945,312
    
    
    
    $
    
    974,773Restricted cash-furniture, fixtures and other escrows
    
    
    
    8,934
    
    
    
    
    12,268Due from third party managers, net
    
    
    
    4,031
    
    
    
    
    3,919Other assets, net
    
    
    
    4,209
    
    
    
    
    7,891Total Assets
    
    
    $
    
    962,486
    
    
    
    $
    
    998,851LiabilitiesAccounts payable and accrued expenses
    
    
    $
    
    14,878
    
    
    
    $
    
    14,465Intangible liabilities, net
    
    
    
    10,600
    
    
    
    
    11,112Notes payable
    
    
    
    200,439
    
    
    
    
    184,175Total Liabilities
    
    
    
    225,917
    
    
    
    
    209,752Shareholders EquityPreferred stock, authorized 15,000,000 shares; none issued and outstanding
    
    
    
    
    
    
    
    
    Series A preferred stock, no par value, authorized 200,000,000 shares; issued and outstanding 94,615,462 and 93,643,430 shares
    
    
    
    
    
    
    
    
    Series B convertible preferred stock, no par value, authorized 240,000 shares; issued and outstanding 240,000 shares
    
    
    
    24
    
    
    
    
    24Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 94,615,462 and 93,643,430 shares
    
    
    
    938,733
    
    
    
    
    927,269Distributions greater than net income
    
    
    
    (202,188
    )
    
    
    
    
    (140,598
    )Accumulated other comprehensive income
    
    
    
    
    
    
    
    
    2,404Total Shareholders Equity
    
    
    
    736,569
    
    
    
    
    789,099Total Liabilities and Shareholders Equity
    
    
    $
    
    962,486
    
    
    
    $
    
    998,851See notes to consolidated financial statements.
33

APPLE REIT EIGHT, INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(in thousands, except per share data)
Year ended December 31,2010
    
    2009
    
    2008Revenues:Room revenue
    
    
    $
    
    169,944
    
    
    
    $
    
    158,316
    
    
    
    $
    
    124,208Other revenue
    
    
    
    12,678
    
    
    
    
    12,569
    
    
    
    
    9,076Total revenue
    
    
    
    182,622
    
    
    
    
    170,885
    
    
    
    
    133,284Expenses:Operating expense
    
    
    
    48,064
    
    
    
    
    46,154
    
    
    
    
    34,563Hotel administrative expense
    
    
    
    15,774
    
    
    
    
    16,145
    
    
    
    
    12,314Sales and marketing
    
    
    
    14,109
    
    
    
    
    12,999
    
    
    
    
    8,719Utilities
    
    
    
    8,078
    
    
    
    
    7,828
    
    
    
    
    5,624Repair and maintenance
    
    
    
    9,591
    
    
    
    
    9,129
    
    
    
    
    6,633Franchise fees
    
    
    
    7,108
    
    
    
    
    6,813
    
    
    
    
    5,218Management fees
    
    
    
    6,263
    
    
    
    
    6,023
    
    
    
    
    4,541Taxes, insurance and other
    
    
    
    10,089
    
    
    
    
    10,188
    
    
    
    
    6,818Land lease expense
    
    
    
    6,386
    
    
    
    
    6,376
    
    
    
    
    6,258General and administrative
    
    
    
    5,216
    
    
    
    
    4,523
    
    
    
    
    4,359Depreciation expense
    
    
    
    34,979
    
    
    
    
    32,907
    
    
    
    
    22,044Total expenses
    
    
    
    165,657
    
    
    
    
    159,085
    
    
    
    
    117,091Operating income
    
    
    
    16,965
    
    
    
    
    11,800
    
    
    
    
    16,193Investment income, net
    
    
    
    3,076
    
    
    
    
    1,071
    
    
    
    
    2,225Interest expense
    
    
    
    (9,166
    )
    
    
    
    
    (7,366
    )
    
    
    
    
    (4,153
    )Net income
    
    
    $
    
    10,875
    
    
    
    $
    
    5,505
    
    
    
    $
    
    14,265Unrealized gain on investments
    
    
    
    
    
    
    
    
    2,404
    
    
    
    
    Comprehensive income
    
    
    $
    
    10,875
    
    
    
    $
    
    7,909
    
    
    
    $
    
    14,265Basic and diluted net income per common share
    
    
    $
    
    0.12
    
    
    
    $
    
    0.06
    
    
    
    $
    
    0.16Weighted average common shares outstandingbasic and diluted
    
    
    
    94,170
    
    
    
    
    92,963
    
    
    
    
    87,271See notes to consolidated financial statements.
34

APPLE REIT EIGHT, INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY(in thousands, except per share data)
Common Stock
    
    Class B ConvertiblePreferred Stock
    
    DistributionsGreaterThanNet Income
    
    TotalNumber ofShares
    
    Amount
    
    Number ofShares
    
    AmountBalance at December 31, 2007
    
    
    
    68,943
    
    
    
    $
    
    679,361
    
    
    
    
    240
    
    
    
    $
    
    24
    
    
    
    $
    
    (9,066
    )
    
    
    
    $
    
    670,319Net proceeds from the sale of common shares
    
    
    
    23,637
    
    
    
    
    235,164
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    235,164Common shares redeemed
    
    
    
    (102
    )
    
    
    
    
    (1,066
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,066
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,265
    
    
    
    
    14,265Cash distributions declared to shareholders ($0.88 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,378
    )
    
    
    
    
    (76,378
    )Balance at December 31, 2008
    
    
    
    92,478
    
    
    
    
    913,459
    
    
    
    
    240
    
    
    
    
    24
    
    
    
    
    (71,179
    )
    
    
    
    
    842,304Net proceeds from the sale of common shares
    
    
    
    2,439
    
    
    
    
    26,952
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,952Common shares redeemed
    
    
    
    (1,274
    )
    
    
    
    
    (13,142
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,142
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,909
    
    
    
    
    7,909Cash distributions declared to shareholders ($0.81 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74,924
    )
    
    
    
    
    (74,924
    )Balance at December 31, 2009
    
    
    
    93,643
    
    
    
    
    927,269
    
    
    
    
    240
    
    
    
    
    24
    
    
    
    
    (138,194
    )
    
    
    
    
    789,099Net proceeds from the sale of common shares
    
    
    
    2,372
    
    
    
    
    26,207
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,207Common shares redeemed
    
    
    
    (1,400
    )
    
    
    
    
    (14,743
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,743
    )Realized gain on sale of equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,404
    )
    
    
    
    
    (2,404
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,875
    
    
    
    
    10,875Cash distributions declared to shareholders ($0.77 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72,465
    )
    
    
    
    
    (72,465
    )Balance at December 31, 2010
    
    
    
    94,615
    
    
    
    $
    
    938,733
    
    
    
    
    240
    
    
    
    $
    
    24
    
    
    
    $
    
    (202,188
    )
    
    
    
    $
    
    736,569See notes to consolidated financial statements.
35

APPLE REIT EIGHT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)
Year ended December 31,2010
    
    2009
    
    2008Cash flow from operating activities:Net income
    
    
    $
    
    10,875
    
    
    
    $
    
    5,505
    
    
    
    $
    
    14,265Adjustments to reconcile net income to cash provided by operating activities:Depreciation
    
    
    
    34,979
    
    
    
    
    32,907
    
    
    
    
    22,044Amortization of deferred financing costs, fair value adjustments and other non-cash expenses, net
    
    
    
    505
    
    
    
    
    (182
    )
    
    
    
    
    (718
    )Net realized (gain)/loss on sale of investments
    
    
    
    (3,011
    )
    
    
    
    
    (1,029
    )
    
    
    
    
    362Impairment of equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,397Changes in operating assets and liabilities:Increase (decrease) in other assets
    
    
    
    (325
    )
    
    
    
    
    2,390
    
    
    
    
    (2,296
    )Increase (decrease) in funds due from third party managers
    
    
    
    (112
    )
    
    
    
    
    23
    
    
    
    
    (3,654
    )Increase in accounts payable and accrued expenses
    
    
    
    1,338
    
    
    
    
    6,125
    
    
    
    
    5,314Net cash provided by operating activities
    
    
    
    44,249
    
    
    
    
    45,739
    
    
    
    
    39,714Cash flow from investing activities:(Increase) decrease in capital improvement reserves
    
    
    
    3,578
    
    
    
    
    (1,785
    )
    
    
    
    
    (1,657
    )Cash paid for the acquisition of hotel properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    (747,997
    )Purchase of investments in equity securitiesavailable for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,562
    )Proceeds from sale of equity securitiesavailable for sale
    
    
    
    3,804
    
    
    
    
    1,329
    
    
    
    
    24,711Investment in other assets
    
    
    
    (228
    )
    
    
    
    
    (3,240
    )
    
    
    
    
    Capital improvements
    
    
    
    (6,443
    )
    
    
    
    
    (26,683
    )
    
    
    
    
    (11,349
    )Net cash provided by (used in) investing activities
    
    
    
    711
    
    
    
    
    (30,379
    )
    
    
    
    
    (766,854
    )Cash flow from financing activities:Net proceeds related to issuance of common stock
    
    
    
    26,088
    
    
    
    
    26,834
    
    
    
    
    235,120Redemptions of common stock
    
    
    
    (14,743
    )
    
    
    
    
    (13,142
    )
    
    
    
    
    (1,066
    )Cash distributions paid to common shareholders
    
    
    
    (72,465
    )
    
    
    
    
    (74,924
    )
    
    
    
    
    (76,378
    )Proceeds from line of credit, effective October 2010
    
    
    
    51,894
    
    
    
    
    
    
    
    
    
    Proceeds from notes payable
    
    
    
    39,000
    
    
    
    
    
    
    
    
    
    Net proceeds from (payment of) extinguished line of credit
    
    
    
    (58,348
    )
    
    
    
    
    48,090
    
    
    
    
    10,258Payments of notes payable
    
    
    
    (15,942
    )
    
    
    
    
    (2,218
    )
    
    
    
    
    (967
    )Deferred financing costs
    
    
    
    (444
    )
    
    
    
    
    
    
    
    
    
    (1,836
    )Net cash (used in) provided by financing activities
    
    
    
    (44,960
    )
    
    
    
    
    (15,360
    )
    
    
    
    
    165,131Net change in cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    (562,009
    )Cash and cash equivalents, beginning of period
    
    
    
    
    
    
    
    
    
    
    
    
    
    562,009Cash and cash equivalents, end of period
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    Supplemental information:Interest paid
    
    
    $
    
    8,985
    
    
    
    $
    
    8,564
    
    
    
    $
    
    4,242Non-cash transactions:Notes payable assumed in acquisitions
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    128,924Intangible liabilities assumed in acquisition
    
    
    $
    
    
    
    
    
    $
    
    
    
    
    
    $
    
    12,685See notes to consolidated financial statements.
36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
General Information and Summary of Significant Accounting Policies
Organization
Apple REIT Eight, Inc. (the Company) is a Virginia corporation formed to invest in real estate in select metropolitan areas in the United States. Initial capitalization occurred on January 22, 2007 and operations began on November 9, 2007 when the Company acquired its first hotels. The Company
  has no foreign operations or assets and as of December 31, 2010, its operations include two segments. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.
The Company has elected to be treated as a real estate investment trust (REIT) for federal income tax purposes. The REIT Modernization Act, effective January 1, 2001, permits real estate investment trusts to establish taxable businesses to conduct certain previously disallowed business activities.
  The Company has wholly-owned taxable REIT subsidiaries (collectively, the Lessee), which lease all of the Companys hotels.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original maturities of three months or less. The fair market value of cash and cash equivalents approximates their carrying value. The balances held may at times exceed federal depository insurance limits.
Restricted cash
Restricted cash includes reserves for debt service, real estate taxes, and insurance, as well as excess cash flow deposits and reserves for furniture, fixtures, and equipment replacements of up to 5% of property revenue for certain hotels, as required by certain management or mortgage debt agreement
  restrictions and provisions.
Investment in Hotels and Related Depreciation
The hotels are stated at cost, net of depreciation, and include real estate brokerage commissions paid to Apple Suites Realty Group, Inc. (ASRG), a related party 100% owned by Glade M. Knight, Chairman and Chief Executive Officer of the Company. Repair and maintenance costs are expensed
  as incurred while significant improvements, renovations, and replacements are capitalized. Depreciation is computed using the straight-line method over estimated useful lives of the assets, which are 39 years for buildings, ten years for major improvements and three to seven years for furniture and
  equipment.
The Company considers expenditures to be capital in nature based on the following criteria: (1) for a single asset, the cost must be at least $500, including all normal and necessary costs to place the asset in service, and the useful life must be at least one year; (2) for group purchases of 10 or more
  identical assets, the unit cost for each asset must be at least $50, including all normal and necessary costs to place the asset in service, and the useful life must be at least one year; (3) for major repairs to a single asset, the repair must be at least $2,500 and the useful life of the asset must be substantially
  extended.
The Company records impairment losses on hotel properties used in operations if indicators of impairment are present, and the sum of the undiscounted cash flows estimated to be generated by the respective properties, based on historical and industry data, is less than the properties carrying
  amount. Indicators of impairment include a property with current or potential losses from operations, when it becomes more likely than not that a property will be sold before the end of its previously estimated useful life or when events, trends, contingencies or changes in circumstances indicate that a
  triggering event has occurred and an assets carrying value may not be recoverable. Impairment losses are measured as the difference between the assets fair value and its carrying value. No impairment losses have been recorded to date.
At December 31, 2009 the Company held equity securities classified as available-for-sale, in accordance with the FASBs pronouncement for accounting for certain investments in debt and equity securities. These securities were included in Other assets, net on the Companys consolidated balance
  sheet at December 31,
37

2009 at fair value of $3.2 million. Unrealized gains were reported as accumulated other comprehensive income, $2.4 million at December 31, 2009. In the first quarter of 2010, the Company sold these equity securities, resulting in a realized gain of $3.0 million which is recorded in Investment income, net
  on the Companys consolidated statement of operations.
Revenue Recognition
Revenue is recognized as earned, which is generally defined as the date upon which a guest occupies a room or utilizes the hotels services.
Comprehensive Income
For the year ending December 31, 2009, the Company recorded comprehensive income which resulted from the unrealized gain of $2.4 million from its investment in marketable equity securities. For the years ended December 31, 2010 and 2008, the Company recorded no comprehensive income other
  than net income.
Earnings Per Common Share
Basic earnings per common share is computed based upon the weighted average number of shares outstanding during the year. Diluted earnings per share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the year. There were no shares with a
  dilutive effect for the years ended December 31, 2010, 2009 and 2008. As a result, basic and dilutive outstanding shares were the same. Series B convertible preferred shares are not included in earnings per common share calculations until such time the Series B convertible preferred shares are converted
  to common shares.
Federal Income Taxes
The Company is operated as, and has elected to be taxed as, a REIT under Sections 856 to 860 of the Internal Revenue Code. Earnings and profits, which will determine the taxability of distributions to shareholders, will differ from income reported for financial reporting purposes primarily due to
  the differences for federal income tax purposes in the estimated useful lives used to compute depreciation. The characterization of distributions in 2010 of $0.77 per share for tax purposes were 42% ordinary income and 58% return of capital (unaudited). Distributions in 2009 of $0.81 per share for tax
  purposes were 33% ordinary income and 67% return of capital (unaudited). Distributions in 2008 of $0.88 per share for tax purposes were 53% ordinary income and 47% return of capital (unaudited).
The Lessee, as a taxable REIT subsidiary of the Company, is subject to federal and state income taxes. The taxable REIT subsidiary incurred a loss for the years ended December 31, 2010, 2009 and 2008, and therefore did not have any federal tax expense. No operating loss benefit has been
  recorded in the consolidated balance sheet since realization is uncertain. Total net operating loss carry forward for federal income tax purposes was approximately $36.5 million as of December 31, 2010. The net operating loss carry forward will expire beginning in 2027. There are no material differences
  between the book and tax cost basis of the Companys assets. As of December 31, 2010, the tax years that remain subject to examination by major tax jurisdictions generally include 2007 to 2010.
Sales and Marketing Costs
Sales and marketing costs are expensed when incurred. These costs represent the expense for franchise advertising and reservation systems under the terms of the hotel management and franchise agreements and general and administrative expenses that are directly attributable to advertising and
  promotion.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results may differ from
  those estimates.
38

Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued a pronouncement (Accounting Standards Update No. 2009-17) which amends its guidance surrounding a companys analysis to determine whether any of its variable interests constitute controlling financial interests in a variable
  interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has both of the following characteristics: (a) the power to direct the activities of a variable interest entity that most significantly impact the entitys economic performance, and (b) the obligation
  to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. Additionally, an enterprise is required to assess whether it has an implicit financial responsibility
  to ensure that a variable interest entity operates as designed when determining whether it has the power to direct the activities of the variable interest entity that most significantly impact the entitys economic performance. The new pronouncement also requires ongoing assessments of whether an
  enterprise is the primary beneficiary of a variable interest entity and enhanced disclosure about an enterprises involvement with a variable interest entity. This pronouncement was adopted by the Company in the first quarter of 2010. The adoption of this standard did not have a material impact on the
  Companys consolidated financial statements.
Note 2
Investment in Hotels
As of December 31, 2010, the Company owned 51 hotels, located in nineteen states, consisting of the following:
Brand
    
    Total byBrand
    
    Number ofRoomsHampton Inn
    
    
    
    5
    
    
    
    
    549Hampton Inn & Suites
    
    
    
    3
    
    
    
    
    298Hilton Garden Inn
    
    
    
    6
    
    
    
    
    717Homewood Suites
    
    
    
    5
    
    
    
    
    536Courtyard
    
    
    
    11
    
    
    
    
    1,443Fairfield Inn & Suites
    
    
    
    3
    
    
    
    
    331Marriott
    
    
    
    1
    
    
    
    
    226Residence Inn
    
    
    
    10
    
    
    
    
    1,067SpringHill Suites
    
    
    
    3
    
    
    
    
    289TownePlace Suites
    
    
    
    3
    
    
    
    
    252Renaissance
    
    
    
    1
    
    
    
    
    201Total
    
    
    
    51
    
    
    
    
    5,909Investment in hotels consisted of the following (in thousands):
December 31,2010
    
    December 31,2009Land
    
    
    $
    
    87,898
    
    
    
    $
    
    87,875Building and Improvements
    
    
    
    875,403
    
    
    
    
    874,620Furniture, Fixtures and Equipment
    
    
    
    72,272
    
    
    
    
    67,5601,035,573
    
    
    
    
    1,030,055Less Accumulated Depreciation
    
    
    
    (90,261
    )
    
    
    
    
    (55,282
    )Investment in hotels, net
    
    
    $
    
    945,312
    
    
    
    $
    
    974,77339

The following table summarizes the location, brand, manager, date acquired, number of rooms and gross purchase price for each hotel. All dollar amounts are in thousands.
Location
    
    State
    
    Brand
    
    Manager
    
    DateAcquired
    
    Rooms
    
    GrossPurchasePriceGreensboro
    
    NC
    
    SpringHill Suites
    
    Newport
    
    
    
    11/9/2007
    
    
    
    
    82
    
    
    
    $
    
    8,000Somerset
    
    NJ
    
    Courtyard
    
    Newport
    
    
    
    11/9/2007
    
    
    
    
    162
    
    
    
    
    16,000Harrisonburg
    
    VA
    
    Courtyard
    
    Newport
    
    
    
    11/16/2007
    
    
    
    
    125
    
    
    
    
    23,219Bowling Green
    
    KY
    
    Hampton Inn
    
    Newport
    
    
    
    12/6/2007
    
    
    
    
    130
    
    
    
    
    18,832Chattanooga
    
    TN
    
    Homewood Suites
    
    LBA
    
    
    
    12/14/2007
    
    
    
    
    76
    
    
    
    
    8,600Tulsa
    
    OK
    
    Hampton Inn & Suites
    
    Western
    
    
    
    12/28/2007
    
    
    
    
    102
    
    
    
    
    10,200Port Wentworth
    
    GA
    
    Hampton Inn
    
    Newport
    
    
    
    1/2/2008
    
    
    
    
    106
    
    
    
    
    10,780New York
    
    NY
    
    Renaissance
    
    Marriott
    
    
    
    1/4/2008
    
    
    
    
    201
    
    
    
    
    99,000Marlborough
    
    MA
    
    Residence Inn
    
    True North
    
    
    
    1/15/2008
    
    
    
    
    112
    
    
    
    
    20,200Annapolis
    
    MD
    
    Hilton Garden Inn
    
    White
    
    
    
    1/15/2008
    
    
    
    
    126
    
    
    
    
    25,000Matthews
    
    NC
    
    Hampton Inn
    
    Newport
    
    
    
    1/15/2008
    
    
    
    
    92
    
    
    
    
    11,300Dunn
    
    NC
    
    Hampton Inn
    
    McKibbon
    
    
    
    1/24/2008
    
    
    
    
    120
    
    
    
    
    12,500Tallahassee
    
    FL
    
    Hilton Garden Inn
    
    LBA
    
    
    
    1/25/2008
    
    
    
    
    85
    
    
    
    
    13,200Rogers
    
    AR
    
    Fairfield Inn & Suites
    
    Intermountain
    
    
    
    2/29/2008
    
    
    
    
    99
    
    
    
    
    8,000Rogers
    
    AR
    
    Residence Inn
    
    Intermountain
    
    
    
    2/29/2008
    
    
    
    
    88
    
    
    
    
    11,744Westford
    
    MA
    
    Hampton Inn & Suites
    
    True North
    
    
    
    3/6/2008
    
    
    
    
    110
    
    
    
    
    15,250Sacramento
    
    CA
    
    Hilton Garden Inn
    
    Dimension
    
    
    
    3/7/2008
    
    
    
    
    154
    
    
    
    
    27,630Concord
    
    NC
    
    Hampton Inn
    
    Newport
    
    
    
    3/7/2008
    
    
    
    
    101
    
    
    
    
    9,200Texarkana
    
    TX
    
    Courtyard
    
    Intermountain
    
    
    
    3/7/2008
    
    
    
    
    90
    
    
    
    
    12,924Texarkana
    
    TX
    
    TownePlace Suites
    
    Intermountain
    
    
    
    3/7/2008
    
    
    
    
    85
    
    
    
    
    9,057Springdale
    
    AR
    
    Residence Inn
    
    Intermountain
    
    
    
    3/14/2008
    
    
    
    
    72
    
    
    
    
    5,606Sanford
    
    FL
    
    SpringHill Suites
    
    LBA
    
    
    
    3/14/2008
    
    
    
    
    105
    
    
    
    
    11,150Overland Park
    
    KS
    
    SpringHill Suites
    
    True North
    
    
    
    3/17/2008
    
    
    
    
    102
    
    
    
    
    8,850Cypress
    
    CA
    
    Courtyard
    
    Dimension
    
    
    
    4/30/2008
    
    
    
    
    180
    
    
    
    
    31,164Overland Park
    
    KS
    
    Residence Inn
    
    True North
    
    
    
    4/30/2008
    
    
    
    
    120
    
    
    
    
    15,850Westford
    
    MA
    
    Residence Inn
    
    True North
    
    
    
    4/30/2008
    
    
    
    
    108
    
    
    
    
    14,850Kansas City
    
    MO
    
    Residence Inn
    
    True North
    
    
    
    4/30/2008
    
    
    
    
    106
    
    
    
    
    17,350Fayetteville
    
    NC
    
    Residence Inn
    
    Intermountain
    
    
    
    5/9/2008
    
    
    
    
    92
    
    
    
    
    12,201Burbank
    
    CA
    
    Residence Inn
    
    Marriott
    
    
    
    5/13/2008
    
    
    
    
    166
    
    
    
    
    50,500Oceanside
    
    CA
    
    Residence Inn
    
    Marriott
    
    
    
    5/13/2008
    
    
    
    
    125
    
    
    
    
    28,750Winston-Salem
    
    NC
    
    Courtyard
    
    McKibbon
    
    
    
    5/19/2008
    
    
    
    
    122
    
    
    
    
    13,500Greenville
    
    SC
    
    Residence Inn
    
    McKibbon
    
    
    
    5/19/2008
    
    
    
    
    78
    
    
    
    
    8,700Birmingham
    
    AL
    
    Homewood Suites
    
    McKibbon
    
    
    
    5/23/2008
    
    
    
    
    95
    
    
    
    
    16,500Hilton Head
    
    SC
    
    Hilton Garden Inn
    
    McKibbon
    
    
    
    5/29/2008
    
    
    
    
    104
    
    
    
    
    13,500Carolina Beach
    
    NC
    
    Courtyard
    
    Crestline
    
    
    
    6/5/2008
    
    
    
    
    144
    
    
    
    
    24,214Charlottesville
    
    VA
    
    Courtyard
    
    Crestline
    
    
    
    6/5/2008
    
    
    
    
    137
    
    
    
    
    27,900Virginia Beach
    
    VA
    
    Courtyard
    
    Crestline
    
    
    
    6/5/2008
    
    
    
    
    141
    
    
    
    
    27,100Virginia Beach
    
    VA
    
    Courtyard
    
    Crestline
    
    
    
    6/5/2008
    
    
    
    
    160
    
    
    
    
    39,700Wichita
    
    KS
    
    Courtyard
    
    Intermountain
    
    
    
    6/13/2008
    
    
    
    
    90
    
    
    
    
    8,874Jacksonville
    
    FL
    
    Homewood Suites
    
    McKibbon
    
    
    
    6/17/2008
    
    
    
    
    119
    
    
    
    
    23,250Tampa
    
    FL
    
    TownePlace Suites
    
    McKibbon
    
    
    
    6/17/2008
    
    
    
    
    95
    
    
    
    
    11,250Tulare
    
    CA
    
    Hampton Inn & Suites
    
    Inn Ventures
    
    
    
    6/26/2008
    
    
    
    
    86
    
    
    
    
    10,331San Jose
    
    CA
    
    Homewood Suites
    
    Dimension
    
    
    
    7/2/2008
    
    
    
    
    140
    
    
    
    
    21,862Suffolk
    
    VA
    
    Courtyard
    
    Crestline
    
    
    
    7/2/2008
    
    
    
    
    92
    
    
    
    
    12,500Suffolk
    
    VA
    
    TownePlace Suites
    
    Crestline
    
    
    
    7/2/2008
    
    
    
    
    72
    
    
    
    
    10,000Tukwila
    
    WA
    
    Homewood Suites
    
    Dimension
    
    
    
    7/2/2008
    
    
    
    
    106
    
    
    
    
    15,707Savannah
    
    GA
    
    Hilton Garden Inn
    
    Newport
    
    
    
    7/31/2008
    
    
    
    
    105
    
    
    
    
    12,500Overland Park
    
    KS
    
    Fairfield Inn & Suites
    
    True North
    
    
    
    8/20/2008
    
    
    
    
    110
    
    
    
    
    12,050Columbia
    
    SC
    
    Hilton Garden Inn
    
    Newport
    
    
    
    9/22/2008
    
    
    
    
    143
    
    
    
    
    21,200Chesapeake
    
    VA
    
    Marriott
    
    Crestline
    
    
    
    10/21/2008
    
    
    
    
    226
    
    
    
    
    38,400Wilmington
    
    NC
    
    Fairfield Inn & Suites
    
    Crestline
    
    
    
    12/11/2008
    
    
    
    
    122
    
    
    
    
    14,8005,909
    
    
    
    $
    
    950,74540

The Company leased all of its hotels to wholly-owned taxable REIT subsidiaries under master hotel lease agreements. The Company also used the proceeds of its best-efforts offering to pay 2% of the gross purchase price for these hotels, which equals approximately $19.0 million, as a commission to
  ASRG.
The purchase price of the hotels plus the ASRG commission and other closing costs were allocated to the various components such as land, buildings and improvements, furniture and equipment, and intangible assets based on the fair value of each component. No goodwill was recorded in connection
  with any of the acquisitions. Generally, the Company does not acquire real estate assets that have in-place leases as lease terms for hotel properties are very short term in nature. However, in conjunction with two hotel acquisitions in 2008, one in New York, New York and one in Savannah, Georgia,
  amounts were identified and allocated to Intangible liabilities, net in the Companys Consolidated Balance Sheets. These amounts are being amortized to rental income and land lease expense over the remaining terms of the associated contracts (terms range from 8-46 years). The total value of these
  liabilities was $10.2 million for the New York hotel and $2.4 million for the Savannah, Georgia hotel. The Company has not allocated any purchase price to intangible assets such as management contracts and franchise agreements as such contracts are generally at current market rates and any other value
  attributable to these contracts are not considered material.
Note 3
Notes Payable and Credit Agreements
In conjunction with the acquisition of 15 hotel properties in 2008, the Company assumed mortgage notes payable, secured by the applicable hotel property. The following table summarizes the hotel, current interest rate, maturity date, principal amount assumed and the outstanding balance as of
  December 31, 2010 and December 31, 2009. All dollar amounts are in thousands.
Location
    
    Brand
    
    InterestRate
    
    MaturityDate
    
    PrincipalAssumed
    
    OutstandingPrincipalBalance as ofDec. 31, 2010
    
    OutstandingPrincipalBalance as ofDec. 31, 2009Columbia, SC
    
    Hilton Garden Inn
    
    
    
    (1)
    
    
    
    
    2/1/2012
    
    
    
    $
    
    11,576
    
    
    
    $
    
    10,784
    
    
    
    $
    
    11,101Overland Park, KS
    
    Residence Inn
    
    
    
    5.74
    %
    
    
    
    
    4/1/2015
    
    
    
    
    7,079
    
    
    
    
    6,638
    
    
    
    
    6,812Westford, MA(3)
    
    Residence Inn
    
    
    
    (2)
    
    
    
    
    10/1/2015
    
    
    
    
    7,199
    
    
    
    
    6,979
    
    
    
    
    6,923Kansas City, MO
    
    Residence Inn
    
    
    
    5.74
    %
    
    
    
    
    11/1/2015
    
    
    
    
    11,645
    
    
    
    
    11,211
    
    
    
    
    11,382Fayetteville, NC(3)
    
    Residence Inn
    
    
    
    5.14
    %
    
    
    
    
    12/1/2015
    
    
    
    
    7,204
    
    
    
    
    7,000
    
    
    
    
    7,038Hilton Head, SC
    
    Hilton Garden Inn
    
    
    
    6.29
    %
    
    
    
    
    4/11/2016
    
    
    
    
    6,371
    
    
    
    
    6,041
    
    
    
    
    6,176Winston-Salem, NC
    
    Courtyard
    
    
    
    5.94
    %
    
    
    
    
    12/8/2016
    
    
    
    
    8,000
    
    
    
    
    7,809
    
    
    
    
    7,907Savannah, GA
    
    Hilton Garden Inn
    
    
    
    5.87
    %
    
    
    
    
    2/1/2017
    
    
    
    
    5,679
    
    
    
    
    5,403
    
    
    
    
    5,523Tampa, FL
    
    TownePlace Suites
    
    
    
    6.06
    %
    
    
    
    
    2/8/2017
    
    
    
    
    8,268
    
    
    
    
    8,019
    
    
    
    
    8,124Greenville, SC
    
    Residence Inn
    
    
    
    6.03
    %
    
    
    
    
    2/8/2017
    
    
    
    
    6,512
    
    
    
    
    6,308
    
    
    
    
    6,391Birmingham, AL
    
    Homewood Suites
    
    
    
    6.03
    %
    
    
    
    
    2/8/2017
    
    
    
    
    11,815
    
    
    
    
    11,446
    
    
    
    
    11,596Jacksonville, FL
    
    Homewood Suites
    
    
    
    6.03
    %
    
    
    
    
    2/8/2017
    
    
    
    
    17,159
    
    
    
    
    16,638
    
    
    
    
    16,856Concord, NC
    
    Hampton Inn
    
    
    
    6.10
    %
    
    
    
    
    3/1/2017
    
    
    
    
    5,143
    
    
    
    
    4,964
    
    
    
    
    5,033Suffolk, VA
    
    TownePlace Suites
    
    
    
    6.03
    %
    
    
    
    
    7/1/2017
    
    
    
    
    6,630
    
    
    
    
    6,310
    
    
    
    
    6,448Suffolk, VA
    
    Courtyard
    
    
    
    6.03
    %
    
    
    
    
    7/1/2017
    
    
    
    
    8,644
    
    
    
    
    8,226
    
    
    
    
    8,406$
    
    128,924
    
    
    
    $
    
    123,776
    
    
    
    $
    
    125,716

(1)
    
    
    
    The interest rate on this mortgage is a variable rate based on 3-month LIBOR. As of December 31, 2010, the current interest rate was 4.97%.(2)
    
    
    
    The interest rate on this mortgage is a variable rate based on 1-month LIBOR. An interest rate swap entered into in October 2010 when this loan was refinanced, results in an effective rate of 5.3%.(3)
    
    
    
    Loan was refinanced in 2010.In October 2010, the Company renewed its $75.0 million unsecured line of credit with Branch Banking and Trust Company (BB&T), extending the term for 2 years to October 2012. The interest rate on the loan increased to London InterBank Offered Rate (LIBOR) plus 2.25% with a floor of
  3.5%. Additionally, the Company entered into a $25 million term loan with BB&T. The loan is secured by two properties and matures in October 2012. The loan requires interest only payments monthly at LIBOR plus 2.25% with a floor of 3.5%. Both loans have financial covenants requiring a minimum
  consolidated net worth and debt service charge and a maximum debt to equity and distribution to income ratio. The line of credit continues to contain a negative
41

pledge agreement that requires approval from the lender to materially change the Companys investment in 10 properties including using those 10 properties as security for additional financing. As of December 31, 2010, the Company was in compliance with these covenants. As of December 31, 2010,
  there was $51.9 million outstanding on the line of credit at an interest rate of 3.5%. At December 31, 2009, there was $58.3 million outstanding on the then existing line of credit at an interest rate of 1.98%.
The aggregate amounts of principal payable under the Companys notes payable, for the five years subsequent to December 31, 2010 and thereafter are as follows (in thousands):
Total2011
    
    
    $
    
    2,3352012
    
    
    
    89,4772013
    
    
    
    2,2672014
    
    
    
    2,4052015
    
    
    
    30,818Thereafter
    
    
    
    73,366200,668Fair Value Adjustment of Assumed Debt
    
    
    
    (229
    )Total
    
    
    $
    
    200,439A fair value adjustment was recorded for the assumption of above and below market rate mortgage loans in connection with the Companys hotel acquisitions. These fair value adjustments will be amortized into interest expense over the remaining term of the related indebtedness using a method
  approximating the effective interest rate method. The effective interest rates on the applicable debt obligations assumed ranged from 5.4% to 6.9% at the date of assumption. The total adjustment to interest expense was $340 thousand, $298 thousand and $115 thousand for the years ended December 31,
  2010, 2009 and 2008.
The Company estimates the fair value of its debt by discounting the future cash flows of each instrument at estimated market rates consistent with the maturity of the debt obligation with similar credit policies. Market rates take into consideration general market conditions and maturity. As of
  December 31, 2010, the carrying value and estimated fair value of the Companys debt was $200.4 million and $200.5 million. As of December 31, 2009, the carrying value and estimated fair value of the Companys debt was $184.2 million and $186.0 million.
In 2010 in conjunction with its debt refinancing activities, the Company incurred loan origination costs totaling $444 thousand and in 2008 with the assumption of mortgage obligations on purchased hotels and its previous line of credit facility, the Company incurred loan origination costs totaling $1.8
  million. All such costs are amortized over the period to maturity of the applicable mortgage loan, or to termination of the applicable credit agreement, as an addition to interest expense. Amortization of such costs totaled $398 thousand, $340 thousand and $168 thousand for the years ended December 31,
  2010, 2009 and 2008.
The Companys Interest expense in its Consolidated Statements of Operations and Comprehensive Income is net of capitalized interest of $0.1 million, $1.4 million and $0.7 million for the years ended December 31, 2010, 2009 and 2008. The interest was capitalized in conjunction with hotel
  renovations.
Note 4
Shareholders Equity
The Company concluded its best-efforts offering of Units in April 2008. The Company registered its Units on Registration Statement Form S-11 (File No. 333-140548) filed July 19, 2007. The Company began its best-efforts offering (the Offering) of Units, on July 19, 2007, the same day the
  Registration Statement was declared effective by the Securities and Exchange Commission.
The Series A preferred shares have no voting rights and no conversion rights. In addition, the Series A preferred shares are not separately tradable from the common shares to which they relate. The Series A preferred shares do not have any distribution rights except a priority distribution upon the
  sale of the Companys assets. The priority distribution (Priority Distribution) will be equal to $11.00 per Series A
42

preferred share, and will be paid before any distribution will be made to the holders of any other shares. Upon the Priority Distribution the Series A preferred shares will have no other distribution rights.
The Company has issued 240,000 Series B convertible preferred shares to Glade M. Knight, Chairman and Chief Executive Officer of the Company, in exchange for the payment by him of $0.10 per Series B convertible preferred share, or an aggregate of $24,000. The Series B convertible preferred
  shares are convertible into common shares pursuant to the formula and on the terms and conditions set forth below.
There are no dividends payable on the Series B convertible preferred shares. Holders of more than two-thirds of the Series B convertible preferred shares must approve any proposed amendment to the articles of incorporation that would adversely affect the Series B convertible preferred shares.
Upon the Companys liquidation, the holder of the Series B convertible preferred shares is entitled to a priority liquidation payment before any distribution of liquidation proceeds to the holders of the common shares. However, the priority liquidation payment of the holder of the Series B
  convertible preferred shares is junior to the holders of the Series A preferred shares distribution rights. The holder of a Series B convertible preferred share is entitled to a liquidation payment of $11 per number of common shares each Series B convertible preferred share would be convertible into
  according to the formula described below. In the event that the liquidation of the Companys assets results in proceeds that exceed the distribution rights of the Series A preferred shares and the Series B convertible preferred shares, the remaining proceeds will be distributed between the common shares
  and the Series B convertible preferred shares, on an as converted basis.
Each holder of outstanding Series B convertible preferred shares shall have the right to convert any of such shares into common shares of the Company upon and for 180 days following the occurrence of any of the following events:
(1)
    
    
    
    substantially all of the Companys assets, stock or business is sold or transferred through exchange, merger, consolidation, lease, share exchange, sale or otherwise, other than a sale of assets in liquidation, dissolution or winding up of the Company;(2)
    
    
    
    the termination or expiration without renewal of the advisory agreement with Apple Eight Advisors, Inc. (A8A), or if the Company ceases to use ASRG to provide property acquisition and disposition services; or(3)
    
    
    
    the Companys common shares are listed on any securities exchange or quotation system or in any established market.Upon the occurrence of any conversion event, each Series B convertible preferred share may be converted into 24.17104 common shares. In the event that the Company raises additional gross proceeds in a subsequent public offering, each Series B convertible preferred share may be converted into an
  additional number of common shares based on the additional gross proceeds raised through the date of conversion in a subsequent public offering according to the following formula: (X/50 million) x 1.20568, where X is the additional gross proceeds rounded down to the nearest 50 million.
No additional consideration is due upon the conversion of the Series B convertible preferred shares. The conversion into common shares of the Series B convertible preferred shares will result in dilution of the shareholders interests.
Expense related to issuance of 240,000 Series B convertible preferred shares to Mr. Knight will be recognized at such time when the number of common shares to be issued for conversion of the Series B shares can be reasonably estimated and the event triggering the conversion of the Series B shares
  to common shares occurs. The expense will be measured as the difference between the fair value of the common stock for which the Series B shares can be converted and the amounts paid for the Series B shares. If a conversion event had occurred at December 31, 2010, expense would have ranged from
  $0 to in excess of $63 million (assumes $11 per Unit fair market value) which represents approximately 5.8 million shares of common stock.
In the second quarter of 2008, the Company instituted a Dividend Reinvestment Plan for its shareholders. The plan provides a convenient and cost effective way to increase shareholder investment in the Company by reinvesting distributions to purchase additional Units of the Company. The uses of
  the proceeds from this plan may include purchasing Units under the Companys Unit Redemption Program, enhancing properties, satisfying financing obligations and other expenses, increasing working capital, funding various corporate operations, and acquiring hotels. The Company has registered 10
  million Units for potential issuance under the plan. Since
43

inception through December 31, 2010, approximately 6.3 million Units were issued under the plan representing approximately $68.9 million, including 2.4 million Units for $26.1 million in 2010 and 2.4 million Units for $26.8 million in 2009.
The Company has a Unit Redemption Program to provide limited interim liquidity to its shareholders who have held their Units for at least one year. Shareholders may request redemption of Units for a purchase price equal to 92% of the price paid per Unit if the Units have been owned less than
  three years or 100% of the price per Unit if the Units have been owned more than three years. The maximum number of Units that may be redeemed in any 12-month period is three percent of the weighted average number of Units outstanding during the 12-month period immediately prior to the date
  of redemption. The Company reserves the right to change the purchase price for redemptions, reject any request for redemption, or otherwise amend the terms of, suspend, or terminate the Unit Redemption Program. As of December 31, 2010, the Company has redeemed approximately 2.8 million Units
  in the amount of $29.0 million under the program, including 1.4 million Units in the amount of $14.7 million in 2010 and 1.3 million Units in the amount of $13.1 million redeemed in 2009.
The Companys articles of incorporation authorize issuance of up to 15 million additional preferred shares. No preferred shares other than the Series A preferred shares and the Series B convertible preferred shares (discussed above) have been issued. The Company believes that the authorization to
  issue additional preferred shares benefits the Company and its shareholders by permitting flexibility in financing additional growth, giving the Company additional financing options in corporate planning and in responding to developments in business, including financing of additional acquisitions and other
  general corporate purposes. Having authorized preferred shares available for issuance in the future gives the Company the ability to respond to future developments and allows preferred shares to be issued without the expense and delay of a special shareholders meeting. At present, the Company has no
  specific financing or acquisition plans involving the issuance of additional preferred shares and the Company does not propose to fix the characteristics of any series of preferred shares in anticipation of issuing preferred shares other than the Series A preferred shares and Series B convertible preferred
  shares discussed above. The Company cannot now predict whether or to what extent, if any, additional preferred shares will be used or if so used what the characteristics of a particular series may be. The voting rights and rights to distributions of the holders of common shares will be subject to the prior
  rights of the holders of any subsequently-issued preferred shares. Unless otherwise required by applicable law or regulation, the preferred shares would be issuable without further authorization by holders of the common shares and on such terms and for such consideration as may be determined by the
  Board of Directors. The preferred shares could be issued in one or more series having varying voting rights, redemption and conversion features, distribution (including liquidating distribution) rights and preferences, and other rights, including rights of approval of specified transactions. A series of
  preferred shares could be given rights that are superior to rights of holders of common shares and a series having preferential distribution rights could limit common share distributions and reduce the amount holders of common shares would otherwise receive on dissolution.
The Companys annual distribution rate was $0.77 per common share for the year ended December 31, 2010, for a total $72.5 million and was $0.81 for the year ended December 31, 2009, for a total $74.9 million.
Note 5
Stock Incentive Plans
During 2007, the Board of Directors approved a Non-Employee Directors Stock Option Plan (the Directors Plan) whereby directors, who are not employees of the Company or affiliates, automatically receive the option to purchase Units. Under the Directors Plan, the number of Units authorized
  for issuance is equal to 45,000 plus 1.8% of the number of Units sold in excess of the minimum offering of 4,761,905 Units. This plan currently relates to the initial public offering of 91,125,541 Units. Therefore, the maximum number of Units authorized under the Directors Plan is currently 1,599,545.
Also in 2007, the Board of Directors approved an Incentive Stock Option Plan (the Incentive Plan) whereby incentive awards may be granted to certain personnel of the Company or affiliates. Under the Incentive Plan, the number of Units authorized for issuance is equal to 35,000 plus 4.625% of
  the number of Units sold in the initial offering in excess of 4,761,905. This plan also currently relates to the initial public
44

offering of 91,125,541 Units. The maximum number of Units that can be issued under the Incentive Plan is 4,029,318.
Both plans generally provide, among other things, that options be granted at exercise prices not lower than the market value of the Units on the date of grant. The options expire 10 years from the date of the grant. During 2010, 2009 and 2008, the Company granted options to purchase 75,284, 74,284
  and 72,900 Units under the Directors Plan and granted no options under the Incentive Plan. All of the options issued vested at the date of issuance and have an exercise price of $11 per Unit. Activity in the Companys share option plan during 2010, 2009 and 2008 is summarized in the following table:
Year
            ended
      December 31, 2010
    
    Year
            ended
      December 31, 2009
    
    Year
            ended
      December 31, 2008Outstanding,
          beginning of year:
    
    
    
    169,184
    
    
    
    
    94,900
    
    
    
    
    22,000Granted
    
    
    
    75,284
    
    
    
    
    74,284
    
    
    
    
    72,900Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
          or canceled
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding,
          end of year:
    
    
    
    244,468
    
    
    
    
    169,184
    
    
    
    
    94,900Exercisable,
          end of year:
    
    
    
    244,468
    
    
    
    
    169,184
    
    
    
    
    94,900The
          weighted-average exercise price:
    
    
    $
    
    11.00
    
    
    
    $
    
    11.00
    
    
    
    $
    
    11.00The Company records compensation expense related to the issuance of stock options based on a determination of the fair value of options issued. Compensation expense associated with the issuance of stock options was $118 thousand in 2010 and 2009 and $61 thousand in 2008.
Note 6
Management and Franchise Agreements
Each of the Companys 51 hotels are operated and managed, under separate management agreements, by affiliates of one of the following companies (indicates the number of hotels managed): Newport Hospitality Group, Inc. (Newport) (9), Larry Blumberg & Associates (LBA) (3), Western
  International (Western) (1), Marriott International, Inc. (Marriott) (3), White Lodging Services Corporation (WLS) (1), Dimension Development Company (Dimension) (4), Inn Ventures, Inc. (Inn Ventures) (1), True North Hotel Group, Inc. (True North) (7), Intermountain Management,
  LLC (Intermountain) (7), MHH Management, LLC (McKibbon) (7) and Crestline Hotels & Resorts, Inc. (Crestline) (8). The agreements provide for initial terms ranging from one to thirty years. Fees associated with the agreements generally include the payment of base management fees, incentive
  management fees, accounting fees, and other fees for centralized services which are allocated among all of the hotels that receive the benefit of such services. Base management fees are calculated as a percentage of gross revenues. Incentive management fees are calculated as a percentage of operating
  profit in excess of a priority return to the Company, as defined in the management agreements. The Company has the option to terminate the management agreements if specified performance thresholds are not satisfied. During the years ended December 31, 2010, 2009 and 2008, the Company incurred
  approximately $6.3 million, $6.0 million and $4.5 million in management fees.
Newport, LBA, Western, WLS, Dimension, Inn Ventures, True North, Intermountain, McKibbon and Crestline are not affiliated with either Marriott or Hilton, and as a result, the hotels they manage were required to obtain separate franchise agreements with each respective franchisor. The Hilton
  franchise agreements generally provide for initial terms of 10 to 20 years. Fees associated with the agreements generally include the payment of royalty fees and program fees. The Marriott franchise agreements provide for initial terms of 10 to 30 years with certain agreements having options to renew.
  Fees associated with the agreements include the payment of royalty fees, marketing fees, reservation fees and a communications support fee based on room revenues. During the years ended December 31, 2010, 2009 and 2008 the Company incurred approximately $7.1 million, $6.8 million and $5.2 million
  in franchise fees.
45

Note 7
Derivative Instruments
On October 1, 2010, the Company entered into an interest rate swap agreement that effectively fixes the interest rate on a variable rate mortgage, bearing interest at one month U.S. dollar LIBOR, originated upon the refinance of the debt associated with the Westford Residence Inn in Westford,
  Massachusetts. Under the terms of this interest rate swap, the Company pays a fixed rate interest of 1.80% and receives floating rate interest equal to the one month U.S. dollar LIBOR, effectively fixing the interest at a rate of 5.3%. The notional amount of $7.0 million amortizes in tandem with the
  amortization of the underlying debt and was $7.0 million as of December 31, 2010. The swap matures in October 2015.
This derivative is recorded on the Companys Consolidated Balance Sheets at fair value of $40 thousand at December 31, 2010 in accordance with the applicable authoritative accounting guidance and is included in Other assets, net. The fair value of the interest rate swap is determined using the
  market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments) which is considered a Level 2 measurement within the FASBs fair value hierarchy. The variable cash receipts (or payments) are based on an
  expectation of future interest rates (forward curves) derived from observable market interest rate curves. This derivative is not designated as a hedge, and the changes in the fair value are recognized as Interest expense in the Consolidated Statements of Operations and Comprehensive Income. For the
  year ended December 31, 2010, the change in fair value was $40,000.
Note 8
Related Parties
The Company has significant transactions with related parties. These transactions cannot be construed to be arms length, and the results of the Companys operations may be different if these transactions were conducted with non-related parties. The Companys independent members of the Board of
  Directors oversee and annually review the Companys related party relationships (which include the relationships discussed in this section) and are required to approve any significant modifications to these contracts, as well as any new significant related party transactions. There were no changes to the
  contracts discussed in this section and no new significant related party transactions during 2010. The Board of Directors is not required to approve each individual transaction that falls under a related party relationship, however under the direction of the Board of Directors, at least one member of the
  Companys senior management team approves each related party transaction.
The Company has a contract with ASRG, a related party, to provide brokerage services for the acquisition and disposition of the Companys real estate assets. In accordance with the contract, ASRG is paid a fee of 2% of the gross purchase price of any acquisitions or gross sale price of any
  dispositions of real estate investments, subject to certain conditions plus certain reimbursable costs. As of December 31, 2010, payments to ASRG for services under the terms of this contract have totaled approximately $19.0 million since inception, which were capitalized as a part of the purchase price of
  the hotels. No fees were incurred by the Company under this contract in 2010 or 2009.
The Company is party to an advisory agreement with A8A to provide management services to the Company. An annual fee ranging from 0.1% to 0.25% of total equity proceeds received by the Company, in addition to certain reimbursable expenses, are payable for these services. Total advisory fees
  and reimbursable expenses incurred by the Company under the advisory agreement are included in general and administrative expenses and totaled approximately $2.8 million, $3.0 million and $2.7 million for the years ended December 31, 2010, 2009 and 2008, respectively. Of this total expense,
  approximately $1.0 million, $1.0 million and $1.0 million were fees paid to A8A and $1.8 million, $2.0 million and $1.7 million were expenses reimbursed (or paid directly to Apple REIT Six, Inc. (AR6) on behalf of A8A) by A8A to AR6 for the years ended December 31, 2010, 2009 and 2008.
The advisors are staffed with personnel of AR6. AR6 provides similar staffing for Apple Six Advisors, Inc. (A6A), Apple Seven Advisors, Inc. (A7A), Apple Nine Advisors, Inc. (A9A) and Apple Ten Advisors, Inc. (A10A). A6A, A7A, A9A and A10A provide management services to,
  respectively, AR6, Apple REIT
46

Seven, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. Although there is a potential conflict on time allocation of personnel due to the fact that a senior manager, officer or staff member will provide services to more than one company, the Company believes that the executives and staff
  compensation sharing arrangement allows the companies to share costs yet attract and retain superior executives and staff. The cost sharing structure also allows each entity to maintain a much more cost effective structure than having separate staffing arrangements. Amounts reimbursed to AR6 include
  both compensation for personnel and overhead (office rent, utilities, benefits, office supplies, etc.) utilized by the companies. The allocation of costs from AR6 is made by the management of the several REITs and is reviewed at least annually by the Compensation Committees of the several REITs. In
  making the allocation, management and the Compensation Committee, consider all relevant facts related to the Companys level of business activity and the extent to which the Company requires the services of particular personnel of AR6. Such payments are based on actual costs of the services and are
  not based on formal record keeping regarding the time these personnel devote to the Company, but are based on a good faith estimate by the employee and/or his or her supervisor of the time devoted by the employee to the Company. As part of this arrangement, the day to day transactions may result
  in amounts due to or from the noted related parties. To efficiently manage cash disbursements, the individual companies may make payments for any or all of the related companies. The amounts due to or from the related individual companies are reimbursed or collected and are not significant in
  amount.
The Company has a 24% ownership interest in Apple Air Holding, LLC (Apple Air), purchased by the Company for $3.2 million in cash in January 2009. The other members of Apple Air are Apple REIT Six, Inc., Apple REIT Seven, Inc. and Apple REIT Nine, Inc. The interest was purchased
  to allow the Company access to two Lear jets for asset management and renovation purposes. The Company has recorded its share of income and losses of the entity under the equity method of accounting and adjusted its investment in Apple Air accordingly. The Companys ownership interest was $2.2
  million at December 31, 2010 and $2.8 million at December 31, 2009, and is included in Other assets, net on the Companys Consolidated Balance Sheets. As its share of the net losses of Apple Air, the Company recorded a $840 thousand loss in 2010 and a $460 thousand loss in 2009, which includes the
  depreciation of the aircraft. The increase in the loss is due to the planned trade-in by Apple Air of the two jets for one new jet in January 2011. The Companys share of net losses is included in General and administrative expense in the Companys Consolidated Statements of Operations and
  Comprehensive Income.
In October of 2010, Apple REIT Nine, Inc. purchased from the Companys third party lender, the note payable secured by the Columbia, South Carolina Hilton Garden Inn. The purchase of the note by Apple REIT Nine, Inc. had no financial effect on the Company.
During the fourth quarter of 2008, the Company entered into a series of assignments of contracts with Apple REIT Nine, Inc. (AR9) to transfer its rights and obligations under three purchase contracts for four hotels which were under construction. Under the terms and conditions of the contracts,
  the Company assigned to AR9 all of its rights and obligations under these purchase contracts. No consideration or fees were paid to the Company for the assignment of the purchase contracts except for the reimbursement of the following payments previously made by the Company: (i) initial deposits
  totaling $1.2 million; and (ii) transactional costs paid to third parties totaling approximately $64,000. These reimbursement payments did not constitute or result in a profit or loss for the Company.
Note 9
Pro Forma Information (Unaudited)
The following unaudited pro forma information for the year ended December 31, 2008, is presented as if the acquisitions of the 51 hotels owned at December 31, 2010 had occurred on the latter of January 1, 2008 or the opening date of the hotel. The pro forma information does not purport to
  represent what the Companys results of operations would actually have been if such transactions, in fact, had occurred on these applicable dates, nor does it purport to represent the results of operations for future periods.
The pro forma information reflects adjustments for actual revenues and expenses of the 45 hotels acquired in 2008 for the respective period owned prior to acquisition by the Company. Net income has been adjusted as follows: (1) interest income has been adjusted to reflect the reduction in cash and
  cash equivalents required to fund the acquisitions; (2) interest expense related to prior owners debt which was not assumed has been
47

eliminated; and (3) depreciation has been adjusted based on the Companys basis in the hotels. Amounts are in thousands except per share.
Year endedDecember 31, 2008Hotel revenues
    
    
    $
    
    180,277Net income
    
    
    
    22,010Net income per sharebasic and diluted
    
    
    $
    
    0.24Note 10
Commitments
In connection with the acquisition of five hotels, the Company assumed five land leases. The initial terms of the leases range from approximately 15 to 80 years. One of the leases rent is adjusted periodically for consumer price index increases. Two of the leases have defined escalations over the life
  of the lease and straight-line rent is being recorded to reflect the average rent over the life of the leases. The accrued straight line lease liability balance at December 31, 2010 and 2009 was $8.3 million and $5.6 million and is recorded in Accounts payable and accrued expenses on the Companys
  Consolidated Balance Sheets.
The aggregate amounts of the estimated lease payments pertaining to all land leases, for the five years subsequent to December 31, 2010 and thereafter are as follows (in thousands):
Total2011
    
    
    $
    
    3,9162012
    
    
    
    4,0292013
    
    
    
    4,1462014
    
    
    
    4,2832015
    
    
    
    4,406Thereafter
    
    
    
    216,105Total
    
    
    $
    
    236,885Also, the New York, New York and Somerset, New Jersey hotels have leases for retail space. The remaining terms of these leases range from approximately three to nine years and the remaining minimum lease payments to be received are approximately $8.3 million. The aggregate amount of the
  minimum rentals to be received for the five years subsequent to December 31, 2010 and thereafter are as follows (in thousands):
Total2011
    
    
    $
    
    1,8182012
    
    
    
    1,8482013
    
    
    
    1,3842014
    
    
    
    8652015
    
    
    
    839Thereafter
    
    
    
    1,502Total
    
    
    $
    
    8,256Rental income from these leases is recorded in Other revenue in the Companys Consolidated Statements of Operations and Comprehensive Income.
Note 11
Industry Segments
The Company owns hotel properties throughout the United States that generate rental and other property related income. The Company separately evaluates the performance of each of its hotel properties. Due to the significance of the New York hotel, the Company has two reportable segments.
  The Company does not allocate corporate-level accounts to its operating segments, including corporate general and administrative expenses, non-operating interest income and interest expense. Dollar amounts are in thousands.
48

For the year ended December 31, 2010New York,New YorkHotel
    
    All OtherHotels
    
    Corporate
    
    ConsolidatedTotal revenue
    
    
    $
    
    19,571
    
    
    
    $
    
    163,051
    
    
    
    $
    
    
    
    
    
    $
    
    182,622Hotel operating expenses
    
    
    
    17,685
    
    
    
    
    107,777
    
    
    
    
    
    
    
    
    
    125,462General and administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,216
    
    
    
    
    5,216Depreciation expense
    
    
    
    6,431
    
    
    
    
    28,548
    
    
    
    
    
    
    
    
    
    34,979Operating income/(loss)
    
    
    
    (4,545
    )
    
    
    
    
    26,726
    
    
    
    
    (5,216
    )
    
    
    
    
    16,965Investment income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,076
    
    
    
    
    3,076Interest expense
    
    
    
    
    
    
    
    
    (7,465
    )
    
    
    
    
    (1,701
    )
    
    
    
    
    (9,166
    )Net income/(loss)
    
    
    $
    
    (4,545
    )
    
    
    
    $
    
    19,261
    
    
    
    $
    
    (3,841
    )
    
    
    
    $
    
    10,875Total assets
    
    
    $
    
    118,073
    
    
    
    $
    
    841,987
    
    
    
    $
    
    2,426
    
    
    
    $
    
    962,486For the year ended December 31, 2009New York,New YorkHotel
    
    All OtherHotels
    
    Corporate
    
    ConsolidatedTotal revenue
    
    
    $
    
    14,487
    
    
    
    $
    
    156,398
    
    
    
    $
    
    
    
    
    
    $
    
    170,885Hotel operating expenses
    
    
    
    16,242
    
    
    
    
    105,413
    
    
    
    
    
    
    
    
    
    121,655General and administrative expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,523
    
    
    
    
    4,523Depreciation expense
    
    
    
    5,879
    
    
    
    
    27,028
    
    
    
    
    
    
    
    
    
    32,907Operating income/(loss)
    
    
    
    (7,634
    )
    
    
    
    
    23,957
    
    
    
    
    (4,523
    )
    
    
    
    
    11,800Investment income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,071
    
    
    
    
    1,071Interest (expense)/income
    
    
    
    809
    
    
    
    
    (7,222
    )
    
    
    
    
    (953
    )
    
    
    
    
    (7,366
    )Net income/(loss)
    
    
    $
    
    (6,825
    )
    
    
    
    $
    
    16,735
    
    
    
    $
    
    (4,405
    )
    
    
    
    $
    
    5,505Total assets
    
    
    $
    
    123,248
    
    
    
    $
    
    869,464
    
    
    
    $
    
    6,139
    
    
    
    $
    
    998,851Note 12
Quarterly Financial Data (unaudited)
The following is a summary of quarterly results of operations for the years ended December 31, 2010 and 2009.
2010 (in thousands, except per share data)
    
    FirstQuarter
    
    SecondQuarter
    
    ThirdQuarter
    
    FourthQuarterRevenues
    
    
    $
    
    39,403
    
    
    
    $
    
    49,274
    
    
    
    $
    
    51,937
    
    
    
    $
    
    42,008Net income/(loss)
    
    
    $
    
    1,389
    
    
    
    $
    
    4,411
    
    
    
    $
    
    5,661
    
    
    
    $
    
    (586
    )Basic and diluted income per common share
    
    
    $
    
    0.01
    
    
    
    $
    
    0.05
    
    
    
    $
    
    0.06
    
    
    
    $
    
    (0.01
    )Distributions paid per share
    
    
    $
    
    0.193
    
    
    
    $
    
    0.193
    
    
    
    $
    
    0.193
    
    
    
    $
    
    0.1932009 (in thousands, except per share data)
    
    FirstQuarter
    
    SecondQuarter
    
    ThirdQuarter
    
    FourthQuarterRevenues
    
    
    $
    
    36,960
    
    
    
    $
    
    45,536
    
    
    
    $
    
    48,349
    
    
    
    $
    
    40,040Net income/(loss)
    
    
    $
    
    (1,882
    )
    
    
    
    $
    
    3,328
    
    
    
    $
    
    4,501
    
    
    
    $
    
    (442
    )Basic and diluted income/(loss) per common share
    
    
    $
    
    (0.02
    )
    
    
    
    $
    
    0.04
    
    
    
    $
    
    0.05
    
    
    
    $
    
    Distributions paid per share
    
    
    $
    
    0.220
    
    
    
    $
    
    0.202
    
    
    
    $
    
    0.193
    
    
    
    $
    
    0.193Note 13
Subsequent Events
In January 2011, the Company declared and paid $6.1 million or $0.064167 per common share, in a distribution to its common shareholders, of which $2.1 million or 195,270 Units were reinvested under the Companys Dividend Reinvestment Plan.
49

On January 20, 2011, the Company redeemed 732,647 Units in the amount of $8.0 million under its Unit Redemption Program. As contemplated in the Program, the Company redeemed Units on a pro-rata basis. This redemption was approximately 61% of the requested redemption amount.
In February 2011, the Company declared and paid $6.0 million or $0.064167 per common share, in a distribution to its common shareholders, of which $2.2 million or 196,222 Units were reinvested under the Companys Dividend Reinvestment Plan.
In
    March 2011 the Company requested the loans secured by the Winston-Salem,
    North Carolina Courtyard, Tampa, Florida TownePlace Suites, Greenville, South
    Carolina Residence Inn and Suffolk, Virginia TownePlace Suites and Courtyard
    to be placed with a special servicer to negotiate the terms of the loans.
    To have the loans placed with the special servicer the Company did not make
    the scheduled monthly debt payments for March 2011. The Company anticipates
    it will receive default notices and does not know the timing and resolution
    of the anticipated negotiations. The total outstanding balance of the five
    loans at December 31, 2010 was approximately $36.7 million. The net book
    value of the properties securing these loans at December 31, 2010 was approximately
    $53.2 million. If the Company is unable to renegotiate the loans, it may
    be more cost beneficial to pursue a deed in lieu of foreclosure with the
    lender(s). If the Company did pursue a deed in lieu of foreclosure it would
    record an impairment loss of the difference between the propertys carrying
    value and fair value, which could range from $7 million to $11 million based
    on estimated values at December 31, 2010.
50

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Senior management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Companys disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, the Chief Executive Officer and Chief Financial
  Officer have concluded that the Companys disclosure controls and procedures are effective and that there have been no changes in the Companys internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect,
  the Companys internal control over financial reporting. Since that evaluation process was completed, there have been no significant changes in internal controls or in other factors that could significantly affect these controls.
See Item 8 for the Report of Management on Internal Control over Financial Reporting and the Companys Independent Registered Public Accounting Firms attestation report regarding internal control over financial reporting.
Item 9B. Other Information
None.
51

PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K will be set forth in the Companys 2011 Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 10, the 2011 Proxy Statement is incorporated herein
  by this reference.
Item 11. Executive Compensation
The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K will be set forth in the Companys 2011 Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 11, the 2011 Proxy Statement is incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by Items 201(d) and 403 of Regulation S-K will be set forth in the Companys 2011 Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 12, the 2011 Proxy Statement is incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Items 404 and 407(a) of Regulation S-K will be set forth in the Companys 2011 Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 13, the 2011 Proxy Statement is incorporated herein by this reference.
Item 14. Principal Accounting Fees and Services
This information required by Item 9(e) of Schedule 14A will be set forth in the Companys 2011 Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 14, the 2011 Proxy Statement is incorporated herein by this reference.
52

PART IV
Item 15. Exhibits, Financial Statement Schedules
1. Financial Statements of Apple REIT Eight, Inc.
Report of Management on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control over Financial ReportingErnst & Young LLP
Report of Independent Registered Public Accounting FirmErnst & Young LLP
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Shareholders Equity for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
Notes to Consolidated Financial Statements
These financial statements are set forth in Item 8 of this report and are hereby incorporated by reference.
2. Financial Statement Schedule
Schedule IIIReal Estate and Accumulated Depreciation (Included at the end of this Part IV of this report.)
Financial statement schedules not listed are either omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
3. Exhibits
Incorporated herein by reference are the exhibits listed under Exhibits Index to this Report Available at www.sec.gov.
53

SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATIONAs of December 31, 2010(dollars in thousands)
City
    
    State
    
    Brand
    
    Encumbrances
    
    Initial Cost
    
    SubsequentlyCapitalized
    
    TotalGross Cost(1)
    
    Acc.Deprec.
    
    Date ofConstruction
    
    DateAcquired
    
    DepreciableLife
    
    # ofGuestroomsBldg.Imp. &FF&ELand
    
    Bldg./FF&EBirmingham
    
    AL
    
    Homewood Suites
    
    
    $
    
    11,446
    
    
    
    $
    
    1,180
    
    
    
    $
    
    15,913
    
    
    
    $
    
    307
    
    
    
    $
    
    17,400
    
    
    
    $
    
    (1,405
    )
    
    
    
    
    2005
    
    
    May-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    95Rogers
    
    AR
    
    Fairfield Inn & Suites
    
    
    
    
    
    
    
    
    886
    
    
    
    
    7,389
    
    
    
    
    1,142
    
    
    
    
    9,417
    
    
    
    
    (880
    )
    
    
    
    
    2002
    
    
    February-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    99Rogers
    
    AR
    
    Residence Inn
    
    
    
    
    
    
    
    
    924
    
    
    
    
    11,183
    
    
    
    
    211
    
    
    
    
    12,318
    
    
    
    
    (1,073
    )
    
    
    
    
    2003
    
    
    February-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    88Springdale
    
    AR
    
    Residence Inn
    
    
    
    
    
    
    
    
    451
    
    
    
    
    5,379
    
    
    
    
    1,389
    
    
    
    
    7,219
    
    
    
    
    (794
    )
    
    
    
    
    2001
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    72Burbank
    
    CA
    
    Residence Inn
    
    
    
    12,500
    
    
    
    
    4,229
    
    
    
    
    47,200
    
    
    
    
    34
    
    
    
    
    51,463
    
    
    
    
    (3,798
    )
    
    
    
    
    2007
    
    
    May-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    166Cypress
    
    CA
    
    Courtyard
    
    
    
    
    
    
    
    
    3,242
    
    
    
    
    28,680
    
    
    
    
    591
    
    
    
    
    32,513
    
    
    
    
    (2,564
    )
    
    
    
    
    1988
    
    
    April-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    180Oceanside
    
    CA
    
    Residence Inn
    
    
    
    12,500
    
    
    
    
    3,312
    
    
    
    
    25,964
    
    
    
    
    59
    
    
    
    
    29,335
    
    
    
    
    (2,212
    )
    
    
    
    
    2007
    
    
    May-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    125Sacramento
    
    CA
    
    Hilton Garden Inn
    
    
    
    
    
    
    
    
    2,549
    
    
    
    
    25,759
    
    
    
    
    1,952
    
    
    
    
    30,260
    
    
    
    
    (2,661
    )
    
    
    
    
    1999
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    154San Jose
    
    CA
    
    Homewood Suites
    
    
    
    
    
    
    
    
    6,542
    
    
    
    
    15,882
    
    
    
    
    827
    
    
    
    
    23,251
    
    
    
    
    (1,560
    )
    
    
    
    
    1991
    
    
    July-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    140Tulare
    
    CA
    
    Hampton Inn & Suites
    
    
    
    
    
    
    
    
    1,105
    
    
    
    
    9,490
    
    
    
    
    9
    
    
    
    
    10,604
    
    
    
    
    (927
    )
    
    
    
    
    2008
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    86Jacksonville
    
    FL
    
    Homewood Suites
    
    
    
    16,638
    
    
    
    
    1,550
    
    
    
    
    22,366
    
    
    
    
    608
    
    
    
    
    24,524
    
    
    
    
    (1,897
    )
    
    
    
    
    2005
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    119Sanford
    
    FL
    
    SpringHill Suites
    
    
    
    
    
    
    
    
    937
    
    
    
    
    10,605
    
    
    
    
    319
    
    
    
    
    11,861
    
    
    
    
    (975
    )
    
    
    
    
    2000
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    105Tallahassee
    
    FL
    
    Hilton Garden Inn
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,580
    
    
    
    
    41
    
    
    
    
    13,621
    
    
    
    
    (1,348
    )
    
    
    
    
    2006
    
    
    January-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    85Tampa
    
    FL
    
    TownePlace Suites
    
    
    
    8,019
    
    
    
    
    1,312
    
    
    
    
    10,339
    
    
    
    
    297
    
    
    
    
    11,948
    
    
    
    
    (909
    )
    
    
    
    
    1999
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    95Port Wentworth
    
    GA
    
    Hampton Inn
    
    
    
    
    
    
    
    
    841
    
    
    
    
    10,284
    
    
    
    
    126
    
    
    
    
    11,251
    
    
    
    
    (937
    )
    
    
    
    
    1997
    
    
    January-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    106Savannah
    
    GA
    
    Hilton Garden Inn
    
    
    
    5,403
    
    
    
    
    
    
    
    
    
    15,119
    
    
    
    
    657
    
    
    
    
    15,776
    
    
    
    
    (1,289
    )
    
    
    
    
    2004
    
    
    July-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    105Overland Park
    
    KS
    
    Fairfield Inn & Suites
    
    
    
    
    
    
    
    
    1,578
    
    
    
    
    10,868
    
    
    
    
    4
    
    
    
    
    12,450
    
    
    
    
    (923
    )
    
    
    
    
    2008
    
    
    August-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    110Overland Park
    
    KS
    
    Residence Inn
    
    
    
    6,638
    
    
    
    
    1,527
    
    
    
    
    14,626
    
    
    
    
    347
    
    
    
    
    16,500
    
    
    
    
    (1,354
    )
    
    
    
    
    2000
    
    
    April-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    120Overland Park
    
    KS
    
    SpringHill Suites
    
    
    
    
    
    
    
    
    944
    
    
    
    
    8,209
    
    
    
    
    724
    
    
    
    
    9,877
    
    
    
    
    (783
    )
    
    
    
    
    1999
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    102Wichita
    
    KS
    
    Courtyard
    
    
    
    
    
    
    
    
    1,184
    
    
    
    
    8,006
    
    
    
    
    250
    
    
    
    
    9,440
    
    
    
    
    (861
    )
    
    
    
    
    2000
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    90Bowling Green
    
    KY
    
    Hampton Inn
    
    
    
    
    
    
    
    
    1,486
    
    
    
    
    17,885
    
    
    
    
    99
    
    
    
    
    19,470
    
    
    
    
    (1,719
    )
    
    
    
    
    1989
    
    
    December-07
    
    
    
    3 - 39 yrs.
    
    
    
    
    130Marlborough
    
    MA
    
    Residence Inn
    
    
    
    
    
    
    
    
    2,117
    
    
    
    
    18,586
    
    
    
    
    185
    
    
    
    
    20,888
    
    
    
    
    (1,859
    )
    
    
    
    
    2006
    
    
    January-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    112Westford
    
    MA
    
    Hampton Inn & Suites
    
    
    
    
    
    
    
    
    1,576
    
    
    
    
    14,116
    
    
    
    
    66
    
    
    
    
    15,758
    
    
    
    
    (1,367
    )
    
    
    
    
    2007
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    110Westford
    
    MA
    
    Residence Inn
    
    
    
    6,979
    
    
    
    
    909
    
    
    
    
    14,170
    
    
    
    
    1,003
    
    
    
    
    16,082
    
    
    
    
    (1,440
    )
    
    
    
    
    2000
    
    
    April-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    108Annapolis
    
    MD
    
    Hilton Garden Inn
    
    
    
    
    
    
    
    
    2,446
    
    
    
    
    23,336
    
    
    
    
    38
    
    
    
    
    25,820
    
    
    
    
    (2,228
    )
    
    
    
    
    2007
    
    
    January-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    126Kansas City
    
    MO
    
    Residence Inn
    
    
    
    11,211
    
    
    
    
    1,182
    
    
    
    
    16,148
    
    
    
    
    1,967
    
    
    
    
    19,297
    
    
    
    
    (1,770
    )
    
    
    
    
    1968
    
    
    April-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    106Carolina Beach
    
    NC
    
    Courtyard
    
    
    
    
    
    
    
    
    3,252
    
    
    
    
    21,609
    
    
    
    
    1,731
    
    
    
    
    26,592
    
    
    
    
    (1,933
    )
    
    
    
    
    2003
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    144Concord
    
    NC
    
    Hampton Inn
    
    
    
    4,964
    
    
    
    
    1,248
    
    
    
    
    8,359
    
    
    
    
    61
    
    
    
    
    9,668
    
    
    
    
    (896
    )
    
    
    
    
    1996
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    101Dunn
    
    NC
    
    Hampton Inn
    
    
    
    
    
    
    
    
    548
    
    
    
    
    12,539
    
    
    
    
    71
    
    
    
    
    13,158
    
    
    
    
    (1,324
    )
    
    
    
    
    2006
    
    
    January-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    120Fayetteville
    
    NC
    
    Residence Inn
    
    
    
    7,000
    
    
    
    
    671
    
    
    
    
    12,567
    
    
    
    
    148
    
    
    
    
    13,386
    
    
    
    
    (1,175
    )
    
    
    
    
    2006
    
    
    May-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    92Greensboro
    
    NC
    
    SpringHill Suites
    
    
    
    
    
    
    
    
    667
    
    
    
    
    7,630
    
    
    
    
    74
    
    
    
    
    8,371
    
    
    
    
    (767
    )
    
    
    
    
    2004
    
    
    November-07
    
    
    
    3 - 39 yrs.
    
    
    
    
    82Matthews
    
    NC
    
    Hampton Inn
    
    
    
    
    
    
    
    
    640
    
    
    
    
    10,432
    
    
    
    
    591
    
    
    
    
    11,663
    
    
    
    
    (1,204
    )
    
    
    
    
    1995
    
    
    January-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    92Wilmington
    
    NC
    
    Fairfield Inn & Suites
    
    
    
    
    
    
    
    
    1,848
    
    
    
    
    13,468
    
    
    
    
    
    
    
    
    
    15,316
    
    
    
    
    (979
    )
    
    
    
    
    2008
    
    
    December-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    122Winston-Salem
    
    NC
    
    Courtyard
    
    
    
    7,809
    
    
    
    
    1,444
    
    
    
    
    12,452
    
    
    
    
    30
    
    
    
    
    13,926
    
    
    
    
    (1,134
    )
    
    
    
    
    1998
    
    
    May-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    122Somerset
    
    NJ
    
    Courtyard
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,504
    
    
    
    
    113
    
    
    
    
    16,617
    
    
    
    
    (1,663
    )
    
    
    
    
    2001
    
    
    November-07
    
    
    
    3 - 39 yrs.
    
    
    
    
    162New York
    
    NY
    
    Renaissance
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,870
    
    
    
    
    21,083
    
    
    
    
    132,953
    
    
    
    
    (16,572
    )
    
    
    
    
    1916
    
    
    January-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    201Tulsa
    
    OK
    
    Hampton Inn & Suites
    
    
    
    
    
    
    
    
    904
    
    
    
    
    9,935
    
    
    
    
    50
    
    
    
    
    10,889
    
    
    
    
    (1,142
    )
    
    
    
    
    2007
    
    
    December-07
    
    
    
    3 - 39 yrs.
    
    
    
    
    102Columbia
    
    SC
    
    Hilton Garden Inn
    
    
    
    10,784
    
    
    
    
    1,389
    
    
    
    
    20,495
    
    
    
    
    12
    
    
    
    
    21,896
    
    
    
    
    (1,603
    )
    
    
    
    
    2006
    
    
    September-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    143Greenville
    
    SC
    
    Residence Inn
    
    
    
    6,308
    
    
    
    
    696
    
    
    
    
    8,368
    
    
    
    
    171
    
    
    
    
    9,235
    
    
    
    
    (761
    )
    
    
    
    
    1998
    
    
    May-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    78Hilton Head
    
    SC
    
    Hilton Garden Inn
    
    
    
    6,041
    
    
    
    
    1,099
    
    
    
    
    13,109
    
    
    
    
    1,418
    
    
    
    
    15,626
    
    
    
    
    (1,461
    )
    
    
    
    
    2001
    
    
    May-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    104Chattanooga
    
    TN
    
    Homewood Suites
    
    
    
    
    
    
    
    
    692
    
    
    
    
    8,207
    
    
    
    
    2,109
    
    
    
    
    11,008
    
    
    
    
    (1,278
    )
    
    
    
    
    1997
    
    
    December-07
    
    
    
    3 - 39 yrs.
    
    
    
    
    76Texarkana
    
    TX
    
    Courtyard
    
    
    
    
    
    
    
    
    681
    
    
    
    
    12,653
    
    
    
    
    171
    
    
    
    
    13,505
    
    
    
    
    (1,080
    )
    
    
    
    
    2003
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    90Texarkana
    
    TX
    
    TownePlace Suites
    
    
    
    
    
    
    
    
    617
    
    
    
    
    8,740
    
    
    
    
    293
    
    
    
    
    9,650
    
    
    
    
    (955
    )
    
    
    
    
    2006
    
    
    March-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    85Charlottesville
    
    VA
    
    Courtyard
    
    
    
    
    
    
    
    
    2,316
    
    
    
    
    26,432
    
    
    
    
    153
    
    
    
    
    28,901
    
    
    
    
    (2,013
    )
    
    
    
    
    2000
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    137Chesapeake
    
    VA
    
    Marriott Full Service
    
    
    
    
    
    
    
    
    3,264
    
    
    
    
    36,376
    
    
    
    
    30
    
    
    
    
    39,670
    
    
    
    
    (3,229
    )
    
    
    
    
    2008
    
    
    October-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    226Harrisonburg
    
    VA
    
    Courtyard
    
    
    
    
    
    
    
    
    1,687
    
    
    
    
    22,134
    
    
    
    
    100
    
    
    
    
    23,921
    
    
    
    
    (2,054
    )
    
    
    
    
    1999
    
    
    November-07
    
    
    
    3 - 39 yrs.
    
    
    
    
    125Suffolk
    
    VA
    
    Courtyard
    
    
    
    8,226
    
    
    
    
    973
    
    
    
    
    11,679
    
    
    
    
    1
    
    
    
    
    12,653
    
    
    
    
    (1,075
    )
    
    
    
    
    2007
    
    
    July-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    92Suffolk
    
    VA
    
    TownePlace Suites
    
    
    
    6,310
    
    
    
    
    754
    
    
    
    
    9,386
    
    
    
    
    
    
    
    
    
    10,140
    
    
    
    
    (843
    )
    
    
    
    
    2007
    
    
    July-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    72VA Beach
    
    VA
    
    Courtyard
    
    
    
    
    
    
    
    
    7,219
    
    
    
    
    20,692
    
    
    
    
    124
    
    
    
    
    28,035
    
    
    
    
    (1,605
    )
    
    
    
    
    1999
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    141VA Beach
    
    VA
    
    Courtyard
    
    
    
    
    
    
    
    
    9,887
    
    
    
    
    30,972
    
    
    
    
    1,931
    
    
    
    
    42,790
    
    
    
    
    (2,659
    )
    
    
    
    
    2002
    
    
    June-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    160Tukwila
    
    WA
    
    Homewood Suites
    
    
    
    
    
    
    
    
    1,393
    
    
    
    
    14,751
    
    
    
    
    1,471
    
    
    
    
    17,615
    
    
    
    
    (1,323
    )
    
    
    
    
    1991
    
    
    July-08
    
    
    
    3 - 39 yrs.
    
    
    
    
    106Construction in Progress
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    
    46
    
    
    
    
    $
    
    148,776
    
    
    
    $
    
    87,898
    
    
    
    $
    
    902,441
    
    
    
    $
    
    45,234
    
    
    
    $
    
    1,035,573
    
    
    
    $
    
    (90,261
    )
    
    
    
    
    
    
    
    
    
    
    5,90954

SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION(Continued)As of December 31, 2010(dollars in thousands)
2010
    
    2009
    
    2008
    
    
    
    2010
    
    2009
    
    2008Real estate owned:
    
    
    
    
    
    
    
    
    
    Accumulated depreciation:Balance as of January 1
    
    
    $
    
    1,030,055
    
    
    
    $
    
    1,005,263
    
    
    
    $
    
    87,643
    
    
    Balance as of January 1
    
    
    $
    
    (55,282
    )
    
    
    
    $
    
    (22,377
    )
    
    
    
    $
    
    (333
    )Acquisitions
    
    
    
    83
    
    
    
    
    (389
    )
    
    
    
    
    903,002
    
    
    Depreciation expense
    
    
    
    (34,979
    )
    
    
    
    
    (32,905
    )
    
    
    
    
    (22,044
    )Improvements
    
    
    
    5,435
    
    
    
    
    25,181
    
    
    
    
    14,618Balance at December 31
    
    
    $
    
    1,035,573
    
    
    
    $
    
    1,030,055
    
    
    
    $
    
    1,005,263
    
    
    Balance at December 31
    
    
    $
    
    (90,261
    )
    
    
    
    $
    
    (55,282
    )
    
    
    
    $
    
    (22,377
    )

(1)
    
    
    
    The gross cost basis for Federal Income Tax purposes approximates the basis used in this schedule.55

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
APPLE REIT EIGHT, INC.
By:
    
    /S/ GLADEM. KNIGHT
    
    Glade M. Knight,Chairman of the Board andChief Executive Officer(Principal Executive Officer)
    
    Date:
        March 11, 2011By:
    
    /S/ BRYANPEERY
    
    Bryan Peery,Chief Financial Officer(Principal Financial andPrincipal Accounting Officer)
    
    Date:
        March 11, 2011Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the date indicated.
By:
    
    /S/ GLADEM. KNIGHT
    
    Glade M. Knight, Director
    
    Date:
        March 11, 2011By:
    
    /S/ GLENNW. BUNTING, JR.
    
    Glenn W. Bunting, Jr., Director
    
    Date:
        March 11, 2011By:
    
    /S/ KENTW. COLTON
    
    Kent W. Colton, Director
    
    Date:
        March 11, 2011By:
    
    /S/ MICHAELS. WATERS
    
    Michael S. Waters, Director
    
    Date:
        March 11, 2011By:
    
    /S/ ROBERTM. WILY
    
    Robert M. Wily, Director
    
    Date:
        March 11, 201156

EXHIBIT INDEX
ExhibitNumber
    
    Description of Documents3.1
    
    
    Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1 to the registrants registration statement on Form S-11 (SEC File No. 333-140548) effective July 19, 2007)3.2
    
    
    Bylaws of the Registrant, as amended. (Incorporated by reference to Exhibit 3.2 to amendment no. 1 to the registrants registration statement on Form S-11 (SEC File No. 333-140548) effective July 19, 2007)10.1
    
    
    Advisory Agreement between the Registrant and Apple Eight Advisors, Inc. (Incorporated by reference to Exhibit 10.1 to amendment no. 2 to the registrants registration statement on Form S-11 (SEC File No. 333-140548) effective July 19, 2007)10.2
    
    
    Property Acquisition/Disposition Agreement between the Registrant and Apple Suites Realty Group, Inc. (Incorporated by reference to Exhibit 10.2 to amendment no. 2 to the registrants registration statement on Form S-11 (SEC File No. 333-140548) effective July 19, 2007)10.3
    
    
    Apple REIT Eight, Inc. 2007 Incentive Plan. (Incorporated by reference to Exhibit 10.3 to amendment no. 1 to the registrants registration statement on Form S-11 (SEC File No. 333-140548) effective July 19, 2007)*10.4
    
    
    Apple REIT Eight, Inc. 2007 Non-Employee Directors Stock Option Plan. (Incorporated by reference to Exhibit 10.4 to amendment no. 1 to the registrants registration statement on Form S-11 (SEC File No. 333-140548) effective July 19, 2007)*10.5
    
    
    Purchase Contract dated as of September 4, 2007 among Apple Eight Hospitality Ownership, Inc. and the parties named therein (Incorporated by reference to Exhibit 10.5 to the registrants quarterly report on Form 10Q (SEC File No. 333-140548) filed November 2, 2007)10.6
    
    
    Purchase Contract dated as of September 4, 2007 between Memphis Development A, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.6 to the registrants quarterly report on Form 10Q (SEC File No. 333-140548) filed November 2, 2007)10.7
    
    
    Purchase Contract dated as of September 4, 2007 between Grand Shangrila International, Inc. and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.7 to the registrants quarterly report on Form 10Q (SEC File No. 333-140548) filed November 2, 2007)10.8
    
    
    Purchase Contract dated as of September 17, 2007 between SNS Brothers, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.8 to the registrants quarterly report on Form 10Q (SEC File No. 333-140548) filed November 2, 2007)10.9
    
    
    Purchase Contract dated as of September 26, 2007 between Grove Street Orlando, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.9 to the registrants quarterly report on Form 10Q (SEC File No. 333-140548) filed November 2, 2007)10.10
    
    
    Purchase Contract dated as of September 27, 2007 between Tom Christopoulos and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.10 to the registrants quarterly report on Form 10Q (SEC File No. 333-140548) filed November 2, 2007)10.11
    
    
    Purchase Contract dated as of September 27, 2007 between Amtel Associates, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.11 to the registrants quarterly report on Form 10Q (SEC File No. 333-140548) filed November 2, 2007)10.12
    
    
    Purchase Contract dated as of October 9, 2007 among Columbia Hospitality, Inc., Riva Hospitality, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.12 to the registrants quarterly report on Form 10Q (SEC File No. 333-140548) filed November 2, 2007)10.13
    
    
    Purchase Contract dated as of October 25, 2007 between Marlborough Lodging Partners LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.13 to the registrants quarterly report on Form 10Q (SEC File No. 333-140548) filed November 2, 2007)10.14
    
    
    Purchase Contract dated as of November 2, 2007 between Carlton Hospitality, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.14 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed December 27, 2007)57

ExhibitNumber
    
    Description of Documents10.15
    
    
    Purchase Contract dated as of November 5, 2007 among Apple Eight Hospitality Ownership, Inc. and the parties named therein (Incorporated by reference to Exhibit 10.15 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed December 27, 2007)10.16
    
    
    Management Agreement dated as of November 9, 2007 between Newport Somerset Management, LLC and Apple Eight Hospitality Management, Inc. (Incorporated by reference to Exhibit 10.16 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed
      December 27, 2007)10.17
    
    
    Courtyard by Marriott Relicensing Franchise Agreement dated as of November 9, 2007 between Marriott International, Inc. and Apple Eight Hospitality Management, Inc. (Incorporated by reference to Exhibit 10.17 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File
      No. 333-140548) filed December 27, 2007)10.18
    
    
    Hotel Lease Agreement effective as of November 9, 2007 between Apple Eight Hospitality Ownership, Inc. and Apple Eight Hospitality Management, Inc. (Incorporated by reference to Exhibit 10.18 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548)
      filed December 27, 2007)10.19
    
    
    Management Agreement dated as of November 9, 2007 between Newport Greensboro Management, LLC and Apple Eight Hospitality Management, Inc. (Incorporated by reference to Exhibit 10.19 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed
      December 27, 2007)10.20
    
    
    SpringHill Suites by Marriott Relicensing Franchise Agreement dated as of November 9, 2007 between Marriott International, Inc. and Apple Eight Hospitality Management, Inc. (Incorporated by reference to Exhibit 10.20 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC
      File No. 333-140548) filed December 27, 2007)10.21
    
    
    Hotel Lease Agreement effective as of November 9, 2007 between Apple Eight Hospitality Ownership, Inc. and Apple Eight Hospitality Management, Inc. (Incorporated by reference to Exhibit 10.21 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548)
      filed December 27, 2007)10.22
    
    
    Purchase Contract dated as of November 15, 2007 between 57th Street Owner, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.22 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed December 27, 2007)10.23
    
    
    Management Agreement dated as of November 16, 2007 between Newport Harrisonburg Management, LLC and Apple Eight Hospitality Management, Inc. (Incorporated by reference to Exhibit 10.23 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548)
      filed December 27, 2007)10.24
    
    
    Courtyard by Marriott Relicensing Franchise Agreement dated as of November 16, 2007 between Marriott International, Inc. and Apple Eight Hospitality Management, Inc. (Incorporated by reference to Exhibit 10.24 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File
      No. 333-140548) filed December 27, 2007)10.25
    
    
    Hotel Lease Agreement effective as of November 16, 2007 between Apple Eight Hospitality Ownership, Inc. and Apple Eight Hospitality Management, Inc. (Incorporated by reference to Exhibit 10.25 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548)
      filed December 27, 2007)10.26
    
    
    Purchase Contract dated as of December 6, 2007 between RT Cypress, L.P. and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.26 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed December 27, 2007)10.27
    
    
    Purchase Contract dated as of December 6, 2007 between RT-Natomas Associates, L.P. and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.27 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed December 27, 2007)58

ExhibitNumber
    
    Description of Documents10.28
    
    
    Purchase Contract dated as of December 6, 2007 between RT-WACA Hotels, L.P. and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.28 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed December 27, 2007)10.29
    
    
    Franchise License Agreement dated as of December 6, 2007 between Hampton Inn Franchise LLC and Apple Eight Hospitality Management, Inc. (Incorporated by reference to Exhibit 10.29 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed
      December 27, 2007)10.30
    
    
    Management Agreement dated as of December 6, 2007 between Newport Bowling Green Management, LLC and Apple Eight Hospitality Management, Inc. (Incorporated by reference to Exhibit 10.30 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548)
      filed December 27, 2007)10.31
    
    
    Hotel Lease Agreement effective as of December 7, 2007 between Apple Eight Hospitality Ownership, Inc. and Apple Eight Hospitality Management, Inc. (Incorporated by reference to Exhibit 10.31 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548)
      filed December 27, 2007)10.32
    
    
    Management Agreement dated as of December 14, 2007 between LBAM-Investor, L.L.C. and Apple Eight Hospitality Management, Inc. (Incorporated by reference to Exhibit 10.32 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed December 27,
      2007)10.33
    
    
    Franchise License Agreement dated as of December 14, 2007 between Homewood Suites Franchise LLC and Apple Eight Hospitality Management, Inc. (Incorporated by reference to Exhibit 10.33 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed
      December 27, 2007)10.34
    
    
    Hotel Lease Agreement effective as of December 14, 2007 between Apple Eight Hospitality Ownership, Inc. and Apple Eight Hospitality Management, Inc. (Incorporated by reference to Exhibit 10.34 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548)
      filed December 27, 2007)10.35
    
    
    Purchase Contract dated as of December 14, 2007 between BW Hotels, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.35 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed December 27, 2007)10.36
    
    
    Purchase Contract dated as of December 14, 2007 between Skibo Lodging, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.36 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed December 27, 2007)10.37
    
    
    Purchase Contract dated as of December 14, 2007 between FIS Rogers, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.37 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed December 27, 2007)10.38
    
    
    Purchase Contract dated as of December 14, 2007 between RRI, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.38 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed December 27, 2007)10.39
    
    
    Purchase Contract dated as of December 14, 2007 between WB Hotels, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.39 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed December 27, 2007)10.40
    
    
    Purchase Contract dated as of December 14, 2007 between Texarkana Lodging Limited Partnership and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.40 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed
      December 27, 2007)10.41
    
    
    Purchase Contract dated as of December 14, 2007 between Texarkana Lodging #2 Limited Partnership and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.41 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed
      December 27, 2007)59

ExhibitNumber
    
    Description of Documents10.42
    
    
    Purchase Contract dated as of December 14, 2007 between Viking Fund Urbandale, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.42 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed December 27,
      2007)10.43
    
    
    Purchase Contract dated as of December 14, 2007 between Viking Fund Baton Rouge (LA), LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.43 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed
      December 27, 2007)10.44
    
    
    Purchase Contract dated as of December 26, 2007 among Apple Eight Hospitality Ownership, Inc. and the parties named therein (Incorporated by reference to Exhibit 10.44 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed December 27, 2007)10.45
    
    
    Purchase Contract dated as of December 26, 2007 between Blue Valley Lodging Partners, L.L.C. and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.45 to the registrants Post-Effective Amendment No. 1 to Form S-11 (SEC File No. 333-140548) filed
      December 27, 2007)10.46
    
    
    Purchase Contract dated as of January 16, 2008 between SH Lodging, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.46 to the registrants annual report on Form 10-K (SEC File No. 333-140548) filed March 4, 2008)10.47
    
    
    Purchase Contract dated as of January 25, 2008 between Viking Fund Rochester (MN), LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.47 to the registrants annual report on Form 10-K (SEC File No. 333-140548) filed March 4, 2008)10.48
    
    
    Purchase Contract dated as of January 25, 2008 between Viking Fund St. Charles (MO), LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.48 to the registrants annual report on Form 10-K (SEC File No. 333-140548) filed March 4, 2008)10.49
    
    
    Purchase Contract dated as of April 3, 2008 between First Street Hotels, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.49 to the registrants quarterly report on Form 10-Q (SEC File No. 000-53175) filed May 8, 2008)10.50
    
    
    Purchase Contract dated as of April 3, 2008 between Ocean Ranch Hotels, LLC and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.50 to the registrants quarterly report on Form 10-Q (SEC File No. 000-53175) filed May 8, 2008)10.51
    
    
    Assignment and Assumption Agreement dated May 9, 2008 by and between Barcelo Crestline Corporation and Apple Eight Hospitality Ownership, Inc. (Incorporated by reference to Exhibit 10.51 to the registrants quarterly report on Form 10-Q (SEC File No. 000-53175) filed August 5, 2008)10.52
    
    
    Promissory note and associated agreements between Branch Banking and Trust Company and Apple Eight Hospitality, Inc. (Incorporated by reference to Exhibit 10.52 to the registrants Form 8-K (see file No. 000-53175) filed November 3, 2010)21.1
    
    
    Subsidiaries of Registrant (FILED HEREWITH)23.1
    
    
    Consent of Ernst & Young LLP (FILED HEREWITH)31.1
    
    
    Certification of the Companys Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)31.2
    
    
    Certification of the Companys Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Action of 2002 (FILED HEREWITH)32.1
    
    
    Certification of the Companys Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)

*
    
    
    
    Denotes Compensation Plan.60