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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 
| **x**                                                                                                                                                                                    | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                               | ** **                                                                                                |
| **FOR THE QUARTERLY PERIOD ENDED  MARCH 31, 2010**                                                                                                                                  |
|                                                                                                                                                                                     |                                                                                                      |
| **o**                                                                                                                                                                                    | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
| ** **                                                                                                                                                                               | ** **                                                                                                |
| **FOR THE TRANSITION PERIOD FROM                TO            ** |

 

**Commission File Number 000-53175**

 

**Apple REIT Eight, Inc.**

(Exact name of registrant asspecified in its charter)

 
| **Virginia**                                                  | **20-  8268625**                 |
|---------------------------------------------------------------|----------------------------------|
| (State or other jurisdictionof incorporation or organization) | (IRS EmployerIdentification No.) |
|                                                          |                             |
| **814  East Main Street**                                     |                             |
| **Richmond,  Virginia**                                       | **23219**                        |
| (Address of principal executive offices)                      | (Zip Code)                       |

 

**(804)344-8121**

(Registrant’stelephone number, including area code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x  No o

 

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

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act:

 
| Large  accelerated filer o | Accelerated  filer o   |
|---------------------------------|-----------------------------|
|                            |                        |
| Non-accelerated  filer x   | Smaller reporting company o |

 

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

 

Numberof registrant’s common shares outstanding as of May 1, 2010:  93,904,658

 

 

 

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**Apple REITEight, Inc.**

**FORM 10-Q**

**INDEX**

 
| ** **                                                      | ** **                                                                                                                     | ** ** | **Page********Number** |
|-----------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|
| **PART I.     FINANCIAL  INFORMATION** |                                                                                                                           |       |
|                                                            |                                                                                                                           |       |                   |
| Item  1.                                                        | Financial Statements  (Unaudited)                                                                                              |       |                   |
|                                                            | Consolidated  Balance Sheets —March 31, 2010 and December 31, 2009                                              |       | 3                      |
|                                                            | Consolidated  Statements of Operations and Comprehensive Income (Loss) — Three months ended  March 31, 2010 and 2009 |       | 4                      |
|                                                            | Consolidated  Statements of Cash Flows — Three months ended March 31, 2010 and 2009                                  |       | 5                      |
|                                                            | Notes to Consolidated Financial Statements                                                                                     |       | 6                      |
| Item 2.                                                         | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                    |       | 10                     |
| Item 3.                                                         | Quantitative  and Qualitative Disclosures About Market Risk                                                                    |       | 17                     |
| Item 4.                                                         | Controls and  Procedures                                                                                                       |       | 17                     |
|                                                            |                                                                                                                           |       |                   |
| **PART II.      OTHER INFORMATION**    | ** **                                                                                                                     | ** ** |
|                                                            |                                                                                                                           |       |                   |
| Item  1.                                                        | Legal Proceedings (not  applicable)                                                                                            |       |                   |
| Item 1A.                                                   | Risk Factors (not  applicable)                                                                                                 |       |                   |
| Item 2.                                                         | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                   |       | 18                     |
| Item  3.                                                        | Defaults Upon Senior  Securities (not applicable)                                                                              |       |                   |
| Item  4.                                                        | (Removed and Reserved)                                                                                                         |       |                   |
| Item  5.                                                        | Other Information (not  applicable)                                                                                            |       |                   |
| Item 6.                                                         | Exhibits                                                                                                                       |       | 19                     |
|                                                            |                                                                                                                           |       |                   |
| Signatures                                                      |                                                                                                                           |       | 20                     |

 

This Form 10-Q includes references to certain trademarks or servicemarks. The SpringHill Suites® by Marriott, TownePlace Suites® by Marriott,Fairfield Inn® byMarriott, Residence Inn® byMarriott, Courtyard® byMarriott, Marriott®, and Renaissance® trademarks arethe property of Marriott International, Inc. or one of its affiliates. TheHomewood Suites® byHilton, Hilton Garden Inn®, Hampton Inn® and Hampton Inn& Suites® trademarks are the property of HiltonWorldwide or one or more of its affiliates. For convenience, the applicabletrademark or service mark symbol has been omitted but will be deemed to beincluded wherever the above referenced terms are used.

 

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**Apple REIT Eight, Inc.**

**Consolidated Balance Sheets**

**(Unaudited)**

**(In thousands, except share data)**

 
| ** **                                                                                                                           | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                           | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| **ASSETS**                                                                                                                           |       |               |       |                  |       |
| Investment  in hotels, net of accumulated depreciation of $63,934 and $55,282                                                        |       | $                  | 968,524    |                  | $          | 974,773 |   |
| Restricted  cash-furniture, fixtures and other escrows                                                                               |       | 12,463             |       | 12,268                |       |
| Due  from third party managers, net                                                                                                  |       | 7,067              |       | 3,919                 |       |
| Other  assets, net                                                                                                                   |       | 4,955              |       | 7,891                 |       |
| **TOTAL ASSETS**                                                                                                                     |       | $                  | 993,009    |                  | $          | 998,851 |   |
|                                                                                                                                 |       |               |       |                  |       |
| **LIABILITIES**                                                                                                                      |       |               |       |                  |       |
| Accounts  payable and accrued expenses                                                                                               |       | $                  | 15,634     |                  | $          | 14,465 |   |
| Intangible liabilities, net                                                                                                          |       | 10,912             |       | 11,112                |       |
| Notes payable                                                                                                                        |       | 192,144            |       | 184,175               |       |
| **TOTAL LIABILITIES**                                                                                                                |       | 218,690            |       | 209,752               |       |
|                                                                                                                                 |       |               |       |                  |       |
| **SHAREHOLDERS’ EQUITY**                                                                                                        |       |               |       |                  |       |
| Preferred  stock, authorized 15,000,000 shares; none issued andoutstanding                                                           |       | —             |       | —                |       |
| Series A  preferred stock, no par value, authorized 200,000,000 shares;issued and outstanding 94,019,755 and  93,643,430 shares |       | —             |       | —                |       |
| Series B  convertible preferred stock, no par value, authorized 240,000shares; issued and outstanding 240,000  shares           |       | 24                 |       | 24                    |       |
| Common  stock, no par value, authorized 200,000,000 shares;issued and outstanding 94,019,755 and  93,643,430 shares                  |       | 931,541            |       | 927,269               |       |
| Distributions  greater than net income                                                                                               |       | (157,246           | )          | (140,598              | )          |
| Accumulated  other comprehensive income                                                                                              |       | —             |       | 2,404                 |       |
| **TOTAL SHAREHOLDERS’ EQUITY**                                                                                                  |       | 774,319            |       | 789,099               |       |
| **TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                  |       | $                  | 993,009    |                  | $          | 998,851 |   |

 

**See notes to consolidated financialstatements.**

 

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**AppleREIT Eight, Inc.**

**Consolidated Statements of Operationsand Comprehensive Income (Loss)**

**(Unaudited)**

**(Inthousands, except per share data)**

 
| ** **                                                      | ** ** | **Three months**   | ** ** | **Three months**   | ** ** |
|-----------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                                      | ** ** | **ended**          | ** ** | **ended**          | ** ** |
| ** **                                                      | ** ** | **March 31,** | ** ** | **March 31,** | ** ** |
| ** **                                                      | ** ** | **2010**           | ** ** | **2009**           | ** ** |
| Revenues:                                                       |       |               |       |               |       |
| Room revenue                                               |       | $                  | 36,555     |               | $          | 34,179 |   |
| Other  revenue                                                  |       | 2,848              |       | 2,781              |       |
| Total  revenue                                                  |       | 39,403             |       | 36,960             |       |
|                                                            |       |               |       |               |       |
| Expenses:                                                       |       |               |       |               |       |
| Operating  expense                                              |       | 11,025             |       | 10,444             |       |
| Hotel  administrative expense                                   |       | 3,736              |       | 3,982              |       |
| Sales  and marketing                                            |       | 3,114              |       | 3,026              |       |
| Utilities                                                       |       | 1,930              |       | 1,970              |       |
| Repair  and maintenance                                         |       | 2,185              |       | 2,119              |       |
| Franchise  fees                                                 |       | 1,507              |       | 1,501              |       |
| Management  fees                                                |       | 1,379              |       | 1,327              |       |
| Taxes,  insurance and other                                     |       | 2,575              |       | 2,424              |       |
| Land  lease expense                                             |       | 1,597              |       | 1,591              |       |
| General  and administrative                                     |       | 1,197              |       | 1,062              |       |
| Depreciation  expense                                           |       | 8,652              |       | 7,865              |       |
| Total  expenses                                                 |       | 38,897             |       | 37,311             |       |
|                                                            |       |               |       |               |       |
| Operating  income (loss)                                        |       | 506                |       | (351               | )          |
|                                                            |       |               |       |               |       |
| Investment  income, net                                         |       | 3,016              |       | 12                 |       |
| Interest  expense                                               |       | (2,133             | )          | (1,543             | )          |
|                                                            |       |               |       |               |       |
| Net  income (loss)                                              |       | $                  | 1,389      |               | $          | (1,882 | ) |
|                                                            |       |               |       |               |       |
| Unrealized  gain on investments                                 |       | —             |       | 371                |       |
|                                                            |       |               |       |               |       |
| Comprehensive  income (loss)                                    |       | $                  | 1,389      |               | $          | (1,511 | ) |
|                                                            |       |               |       |               |       |
| Basic  and diluted net income per common share                  |       | $                  | 0.01       |               | $          | (0.02 | ) |
|                                                            |       |               |       |               |       |
| Weighted  average common shares outstanding - basic and diluted |       | 93,769             |       | 92,500             |       |
|                                                            |       |               |       |               |       |
| Distributions  declared and paid per common share               |       | $                  | 0.19       |               | $          | 0.22 |   |

 

**See notes to consolidated financialstatements.**

 

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**AppleREIT Eight, Inc.**

**Consolidated Statements of Cash Flows**

**(Unaudited)**

**(Inthousands)**

 
| ** **                                                                                        | ** ** | **Three months**        | ** ** | **Three months**        | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                                                                        | ** ** | **ended**               | ** ** | **ended**               | ** ** |
| ** **                                                                                        | ** ** | **March 31, 2010** | ** ** | **March 31, 2009** | ** ** |
|                                                                                              |       |                    |       |                    |       |
| **Cash flow from operating activities:**                                                          |       |                    |       |                    |       |
| Net  income (loss)                                                                                |       | $                       | 1,389      |                    | $          | (1,882 | ) |
| Adjustments  to reconcile net income (loss) to cash providedby operating activities:              |       |                    |       |                    |       |
| Depreciation                                                                                      |       | 8,652                   |       | 7,865                   |       |
| Amortization  of deferred financing costs, fair value adjustmentsand other non-cash expenses, net |       | (64                     | )          | (159                    | )          |
| Net  realized gain on sale of investments                                                         |       | (3,011                  | )          | —                  |       |
| Changes  in operating assets and liabilities:                                                     |       |                    |       |                    |       |
| Increase  (decrease) in other assets                                                              |       | (567                    | )          | 1,249                   |       |
| Increase  in funds due from third party managers                                                  |       | (3,148                  | )          | (1,659                  | )          |
| Increase  in accounts payable and accrued expenses                                                |       | 1,297                   |       | 820                     |       |
|                                                                                              |       |                    |       |                    |       |
| Net  cash provided by operating activities                                                        |       | 4,548                   |       | 6,234                   |       |
|                                                                                              |       |                    |       |                    |       |
| **Cash flow from investing activities:**                                                          |       |                    |       |                    |       |
| Increase  in capital improvement reserves                                                         |       | (84                     | )          | (541                    | )          |
| Proceeds  from sale of equity securities - available for sale                                     |       | 3,804                   |       | —                  |       |
| Investment  in other assets                                                                       |       | —                  |       | (3,240                  | )          |
| Capital  improvements                                                                             |       | (2,531                  | )          | (9,333                  | )          |
| Net  cash provided by (used in) investing activities                                              |       | 1,189                   |       | (13,114                 | )          |
|                                                                                              |       |                    |       |                    |       |
| **Cash flow from financing activities:**                                                          |       |                    |       |                    |       |
| Net  proceeds related to issuance of Units                                                        |       | 6,520                   |       | 7,287                   |       |
| Redemptions  of Units                                                                             |       | (2,248                  | )          | (4,015                  | )          |
| Cash  distributions paid to common shareholders                                                   |       | (18,037                 | )          | (20,338                 | )          |
| Net  proceeds from line of credit                                                                 |       | 8,610                   |       | 24,500                  |       |
| Payments  of notes payable                                                                        |       | (582                    | )          | (554                    | )          |
| Net  cash (used in) provided by financing activities                                              |       | (5,737                  | )          | 6,880                   |       |
|                                                                                              |       |                    |       |                    |       |
| Net  change in cash and cash equivalents                                                          |       | —                  |       | —                  |       |
|                                                                                              |       |                    |       |                    |       |
| Cash  and cash equivalents, beginning of period                                                   |       | —                  |       | —                  |       |
|                                                                                              |       |                    |       |                    |       |
| Cash  and cash equivalents, end of period                                                         |       | $                       | —     |                    | $          | — |   |

 

**Seenotes to consolidated financial statements.**

 

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**APPLEREIT EIGHT, INC.**

 

**Notes toConsolidated Financial Statements**

 

**1.  General Informationand Summary of Significant Accounting Policies**

 

*Basis of Presentation*

 

The accompanyingunaudited consolidated financial statements have been prepared in accordancewith the instructions for Article 10 of Regulation S-X. Accordingly, theydo not include all of the information required by accounting principlesgenerally accepted in the United States. In the opinion of management, alladjustments (consisting of normal recurring accruals) considered necessary fora fair presentation have been included. These unaudited financial statementsshould be read in conjunction with the Company’s audited financial statementsincluded in its 2009 Annual Report on Form 10-K.  Operating results for the three months ended March 31,2010 are not necessarily indicative of the results that may be expected for theperiod ending December 31, 2010.

 

*Organization*

 

Apple REIT Eight, Inc.,together with its wholly owned subsidiaries, (the “Company”) is a Virginiacorporation that has elected to be treated as a real estate investment trust (“REIT”)for federal income tax purposes. The Company was formed to invest in hotels,residential apartment communities and other income-producing real estate assetsin selected metropolitan areas in the United States. Initial capitalizationoccurred on January 22, 2007, when 10 Units, each Unit consisting of oneshare of common stock and one share of Series A preferred stock, werepurchased by Apple Eight Advisors, Inc. (“A8A”), owned by Glade M. Knight,the Company’s Chairman and Chief Executive Officer, and 240,000 Series Bconvertible shares were also purchased individually by Glade M. Knight. TheCompany began operations on November 9, 2007 when it acquired its firsthotels.  The Company completed its bestefforts offering of Units in April 2008. The Company’s fiscal year end is December 31. As of March 31,2010, the Company owned 51 hotels.  45 ofthe hotels were acquired in 2008 and six in late 2007.  The Company has no foreign operations orassets and its operating structure includes two segments. The consolidatedfinancial statements include the accounts of the Company and its subsidiaries.All intercompany accounts and transactions have been eliminated.

 

**Significant Accounting Policies**

 

*Use of Estimates*

 

The preparation of thefinancial statements in conformity with United States generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the amounts reported in the financial statements and accompanyingnotes. Actual results could differ from those estimates.

 

*Earnings Per Common Share*

 

Basic earnings per commonshare is computed based upon the weighted average number of shares outstandingduring the period. Diluted earnings per share is calculated after giving effectto all potential common shares that were dilutive and outstanding for theperiod. There were no potential common shares with a dilutive effect for thethree months ended March 31, 2010 or 2009. As a result, basic and diluted outstanding shares were the same.  Series B convertible preferred sharesare not included in earnings per common share calculations until such time the Series Bconvertible preferred shares are converted to common shares.

 

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*Recent Accounting Pronouncements*

 

In June 2009, theFinancial Accounting Standards Board (“FASB”) issued a pronouncement(Accounting Standards Update No. 2009-17) which amends its guidancesurrounding a company’s analysis to determine whether any of its variableinterests constitute controlling financial interests in a variable interestentity.  This analysis identifies theprimary beneficiary of a variable interest entity as the enterprise that hasboth of the following characteristics:  (a) thepower to direct the activities of a variable interest entity that mostsignificantly impact the entity’s economic performance, and (b) theobligation to absorb losses of the entity that could potentially be significantto the variable interest entity or the right to receive benefits from theentity that could potentially be significant to the variable interestentity.  Additionally, an enterprise isrequired to assess whether it has an implicit financial responsibility toensure that a variable interest entity operates as designed when determiningwhether it has the power to direct the activities of the variable interestentity that most significantly impact the entity’s economic performance. Thenew pronouncement also requires ongoing assessments of whether an enterprise isthe primary beneficiary of a variable interest entity and enhanced disclosureabout an enterprise’s involvement with a variable interest entity.  This pronouncement was adopted by the Companyin the first quarter of 2010.  Theadoption of this standard did not have a material impact on the Company’sconsolidated financial statements.

 

**2.  Other Assets**

 

The Company has a 24% ownership interest in AppleAir Holding, LLC (“Apple Air”), purchased by the Company for $3.2 million incash in 2009.  The interest was purchasedto allow the Company access to two Lear jets for asset management andrenovation purposes.  The Company hasrecorded its share of income and losses of the entity under the equity methodof accounting and adjusted its investment in Apple Air accordingly. Thisinvestment is included in Other assets, net on the Company’s ConsolidatedBalance Sheets.  The Company’s ownershipinterest was $2.7 million at March 31, 2010 and $2.8 million at December 31,2009.  For the three months ended March 31,2010 and 2009, the Company recorded a loss of approximately $0.1 million ineach period as its share of the net loss of Apple Air, which primarily relatesto depreciation of the aircraft, and is included in General and Administrativeexpense in the Company’s Consolidated Statements of Operations.  The other members of Apple Air are Apple REITSix, Inc., Apple REIT Seven, Inc. and Apple REIT Nine, Inc.

 

At December 31, 2009the Company held equity securities classified as available-for-sale, inaccordance with the FASB’s pronouncement for accounting for certain investments in debt and equitysecurities.  These securities wereincluded in Other assets, net on the Company’s Consolidated Balance Sheet at December 31,2009 at fair value of $3.2 million. Unrealized gains were reported as accumulated other comprehensiveincome, $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 Investmentincome, net on the Company’s Consolidated Statement of Operations.

 

**3.  Line of Credit**

 

In November 2008,the Company entered into a $75 million unsecured line of credit with acommercial bank. The applicable interest rate is equal to LIBOR (the LondonInterbank Offered Rate, 0.25% at March 31, 2010) plus 1.75% annually.Interest payments are due monthly. The principal must be paid by the maturitydate of November 2010, and may be prepaid without penalty. At March 31,2010, the credit line had an outstanding principal balance of $67.0 million. AtDecember 31, 2009, the credit line had an outstanding principal balance of$58.3 million.  The line of credit isunsecured, however does contain a negative pledge agreement that requiresapproval from the lender to materially change the Company’s investment in 10properties including using those 10 properties as security for additionalfinancing.

 

**4.  Fair Value of Financial Instruments**

 

The Company estimates thefair value of its fixed rate debt by discounting the future cash flows of eachinstrument at estimated market rates consistent with the maturity of the debtobligation with similar credit policies. Market rates take into considerationgeneral market conditions and maturity. As of March 31, 

 

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2010, the carrying valueand estimated fair value of the Company’s debt was $192.1 million and $189.7million.  As of December 31, 2009,the carrying value and estimated fair value of the Company’s debt was $184.2million and $186.0 million. The carrying value of the Company’s other financialinstruments approximates fair value due to the short-term nature of thesefinancial instruments.

 

**5.  Related Parties**

 

The Company has significant transactions withrelated parties.  These transactionscannot be construed to be arm’s length, and the results of the Company’soperations may be different if these transactions were conducted withnon-related parties.

 

The Company is party toan advisory agreement with A8A, pursuant to which A8A provides managementservices to the Company. An annual fee ranging from 0.1% to 0.25% of totalequity proceeds received by the Company, in addition to certain reimbursableexpenses, are payable for these services. A8A utilizes Apple REIT Six, Inc.to provide these services.  Totalexpenses related to this agreement totaled $0.8 million in the first threemonths of 2010 and $0.7 million for the same three months of 2009.  Of this total expense, $0.3 million and $0.2million were fees paid to A8A and $0.5 million were expenses reimbursed by A8Ato Apple REIT Six, Inc. in both first quarters.  These expenses are recorded in General andAdministrative expense.

 

A8A is 100% owned by GladeM. Knight, Chairman and Chief Executive Officer of the Company. Mr. Knightis also Chairman and Chief Executive Officer of Apple REIT Six, Inc.,Apple REIT Seven, Inc. and Apple REIT Nine, Inc.  Members of the Company’s Board of Directorsare also on the boards of Apple REIT Six, Inc., Apple REIT Seven, Inc.and Apple REIT Nine, Inc.

 

**6.  Shareholder’sEquity**

 

Inthe second quarter of 2008, the Company instituted a Dividend Reinvestment Plan for itsshareholders. The plan provides a convenient and cost effective way to increaseshareholder investment in the Company by reinvesting dividends to purchaseadditional Units of the Company. The uses of the proceeds from this plan mayinclude purchasing Units under the Company’s Unit Redemption Program, enhancingproperties, satisfying financing obligations and other expenses, increasingworking capital, funding various corporate operations, and acquiring hotels.The Company has registered 10 million Units for potential issuance underthe plan. During the first three months of 2010, approximately 0.6 millionUnits were issued under the plan representing approximately $6.5 million.  For the three months ending March 31,2009, approximately 0.7 million Units were issued under the plan representingapproximately $7.3 million.  Sinceinception of the plan through March 31, 2010, the Company has issuedapproximately 4.5 million Units representing approximately $49.3 million.

 

The Company has a UnitRedemption Program to provide limited interim liquidity to its shareholders whohave held their Units for at least one year. Shareholders may request redemption of Units for a purchase price equalto 92% of the price paid per Unit if the Units have been owned for less thanthree years, or 100% of the price paid per Unit if the Units have been ownedmore than three years.  The maximumnumber of Units that may be redeemed in any 12-month period will be threepercent of the weighted average number of Units outstanding during the 12-monthperiod immediately prior to the date of redemption.  The Company reserves the right to change thepurchase price for redemptions, reject any request for redemption, or otherwiseamend the terms of, suspend, or terminate the Unit Redemption Program.  During the three months ended March 31,2010, the Company redeemed approximately 216 thousand Units in the amount of$2.2 million under the program.  For thefirst three months of 2009, the Company redeemed approximately 387 thousandUnits in the amount of $4.0 million. Since inception of the program through March 31, 2010, the Companyhas redeemed approximately 1.6 million Units representing approximately $16.5million.

 

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**7.  Segments**

 

The Company has tworeportable segments (the New York hotel and all other hotels).  The Company does not allocate corporate-levelaccounts to its operating segments, including corporate general andadministrative expenses, non-operating interest income and interestexpense.  Dollar amounts are inthousands.

 
| ** **                          | ** ** | **For the three months ended March 31, 2010** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|
| ** **                          | ** ** | **New York,**                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **New York**                                       | ** ** | **All Other** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **Hotel**                                          | ** ** | **Hotels** | ** ** | **Corporate** | ** ** | **Consolidated** | ** ** |
| Total  revenue                      |       | $                                                  | 3,948      |   | $ | 35,455 |   | $ | — |   | $ | 39,403 |   |
| Hotel  operating expenses           |       | 4,074                                              |       | 24,974 |   | — |   | 29,048 |   |
| General  and administrative expense |       | —                                             |       | — |   | 1,197 |   | 1,197 |   |
| Depreciation  expense               |       | 1,593                                              |       | 7,059 |   | — |   | 8,652 |   |
| Operating  income/(loss)            |       | (1,719                                             | )          | 3,422 |   | (1,197 | ) | 506 |   |
| Investment  income, net             |       | —                                             |       | — |   | 3,016 |   | 3,016 |   |
| Interest  expense                   |       | —                                             |       | (1,805 | ) | (328 | ) | (2,133 | ) |
| Net  income/(loss)                  |       | $                                                  | (1,719     | ) | $ | 1,617 |   | $ | 1,491 |   | $ | 1,389 |   |
|                                |       |                                               |       |   |   |   |   |   |   |
| Total  assets                       |       | $                                                  | 121,925    |   | $ | 868,255 |   | $ | 2,829 |   | $ | 993,009 |   |

 
| ** **                          | ** ** | **For the three months ended March 31, 2009** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|
| ** **                          | ** ** | **New York,**                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **New York**                                       | ** ** | **All Other** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **Hotel**                                          | ** ** | **Hotels** | ** ** | **Corporate** | ** ** | **Consolidated** | ** ** |
| Total  revenue                      |       | $                                                  | 1,823      |   | $ | 35,137 |   | $ | — |   | $ | 36,960 |   |
| Hotel  operating expenses           |       | 3,351                                              |       | 25,033 |   | — |   | 28,384 |   |
| General  and administrative expense |       | —                                             |       | — |   | 1,062 |   | 1,062 |   |
| Depreciation  expense               |       | 1,311                                              |       | 6,554 |   | — |   | 7,865 |   |
| Operating  income/(loss)            |       | (2,839                                             | )          | 3,550 |   | (1,062 | ) | (351 | ) |
| Investment  income, net             |       | —                                             |       | — |   | 12 |   | 12 |   |
| Interest  (expense)/income          |       | 336                                                |       | (1,729 | ) | (150 | ) | (1,543 | ) |
| Net  income/(loss)                  |       | $                                                  | (2,503     | ) | $ | 1,821 |   | $ | (1,200 | ) | $ | (1,882 | ) |
|                                |       |                                               |       |   |   |   |   |   |   |
| Total  assets                       |       | $                                                  | 119,651    |   | $ | 882,048 |   | $ | 4,026 |   | $ | 1,005,725 |   |

 

**8.  Subsequent Events**

 

In April 2010, theCompany declared and paid approximately $6.0 million in distributions to itscommon shareholders, or $0.064167 per outstanding common share.  Under the Company’s Dividend ReinvestmentPlan, $2.2 million were reinvested, resulting in the issuance of approximately198,000 Units.

 

In April 2010, theCompany redeemed approximately 313,000 Units in the amount of $3.2 millionunder its Unit Redemption Program.

 

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**Item 2.    Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

This quarterly reportcontains forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. Such statements involve known andunknown risks, uncertainties, and other factors which may cause the actualresults, performance, or achievements of the Company to be materially differentfrom future results, performance or achievements expressed or implied by suchforward-looking statements. Such factors include, but are not limited to,the ability of the Company to implement its acquisition strategy and operatingstrategy; the Company’s ability to manage planned growth; changes in economiccycles, including the current economic recession throughout the United States,and competition within the hotel industry. Although the Company believesthat the assumptions underlying the forward-looking statements contained hereinare reasonable, any of the assumptions could be inaccurate, and therefore therecan be no assurance that such statements included in the quarterly report willprove to be accurate. In light of the significant uncertainties inherentin the forward-looking statements included herein, the inclusion of suchinformation should not be regarded as a representation by the Company or anyother person that the results or conditions described in such statements or theobjectives and plans of the Company will be achieved. In addition, theCompany’s qualification as a real estate investment trust involves theapplication of highly technical and complex provisions of the Internal RevenueCode. Readers should carefully review the Company’s financial statementsand the notes thereto, as well as the risk factors described in the Company’sfilings with the Securities and Exchange Commission.  Any forward-looking statement that theCompany makes speaks only as of the date of this report.  The Company undertakes no obligation topublically update or revise any forward-looking statements or cautionary factors,as a result of new information, future events, or otherwise, except as requiredby law.

 

**Overview**

 

Apple REIT Eight, Inc.together with its wholly owned subsidiaries (the “Company”) is a Virginiacorporation that has elected to be treated as a real estate investment trust (“REIT”)for federal income tax purposes. The Company, which owned 51 properties as of March 31,2010 and has a limited operating history with its first hotel acquired on November 9,2007, was formed to invest in hotels, residential apartment communities andother real estate in selected metropolitan areas in the United States. Initialcapitalization occurred on January 22, 2007, when 10 Units, each Unitconsisting of one share of common stock and one share of Series Apreferred stock were purchased by Apple Eight Advisors, Inc. (“A8A”) and240,000 shares of Series B Preferred shares were purchased by Mr. Glade M.Knight, the Company’s Chairman and Chief Executive Officer. The Companycompleted its best-efforts offering of Units in April 2008.  The Company’s fiscal year end is December 31.The consolidated financial statements include the accounts of the Company andits subsidiaries.  All intercompanytransactions and balances have been eliminated upon consolidation.

 

Hotel performance can beinfluenced by many factors including local competition, local and nationaleconomic conditions in the United States and the performance of individualmanagers assigned to each hotel.  Whilethe Company’s hotels’ performance as compared to other hotels within eachindividual market has met expectations for the periods held, overall financialresults did not meet expectations in 2009 and in the first quarter of 2010, dueto the significant decline in economic conditions throughout the UnitedStates.  It is anticipated the properties’financial performance will be below pre-recession levels until general economicconditions improve.  Many industryanalysts believe the hotel industry will see revenue stabilize in 2010 ascompared to 2009, with increases occurring in 2011 once the general economy improves.  In evaluating financial condition andoperating performance, the most important matters on which the Company focusesare revenue measurements, such as average occupancy, average daily rate (“ADR”),revenue per available room (“RevPAR”), and Market Yield which compares anindividual hotel’s results to other hotels in its local market, and expenses,such as hotel operating expenses, general and administrative and other expensesdescribed below. Although it is not possible to predict when general economicconditions will improve or their impact on the hotel industry, with thesignificant number of renovations (15) of existing properties by the Company in2009, the number of hotels that were new (9) when acquired by the Company,and the expected industry stabilization, the Company anticipates moderategrowth in 2010 as compared to 2009 for the Company’s hotels.  Additionally, with the overall economic 

 

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declines, the Companycontinues to focus on improving market share. The Company’s properties overall are revenue leaders in their respectivemarkets with an Average RevPAR Index (a comparison of a property’s RevPAR tothe market average) of 135 for the first three months of 2010, a 4% increasefrom the same period in 2009 for comparable hotels.

 

The following is asummary of the Company’s results for the first three months of 2010 and 2009:

 
| ** **                                  | ** ** | **Three months ended**  | ** ** | **Percent of** | ** ** | **Three months ended**  | ** ** | **Percent of** | ** ** | **Percent** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|----------------|------------|-------------------------|------------|----------------|------------|-------------|------------|
| **(in thousands, except statistical data)** | ** ** | **March 31, 2010** | ** ** | **Revenue**    | ** ** | **March 31, 2009** | ** ** | **Revenue**    | ** ** | **Change**  | ** ** |
| ** **                                  | ** ** | ** **              | ** ** | ** **     | ** ** | ** **              | ** ** | ** **     |       |        |       |
| Total  revenues                             |       | $                       | 39,403     |           | 100        | %                       | $          | 36,960         |       | 100         | %          | 7 | % |
| Hotel  direct expenses                      |       | 24,876                  |       | 63             | %          | 24,369                  |       | 66             | %          | 2           | %          |
| Taxes,  insurance and other expense         |       | 2,575                   |       | 7              | %          | 2,424                   |       | 7              | %          | 6           | %          |
| Land  lease expense                         |       | 1,597                   |       | 4              | %          | 1,591                   |       | 4              | %          | —      | %          |
| General  and administrative expense         |       | 1,197                   |       | 3              | %          | 1,062                   |       | 3              | %          | 13          | %          |
|                                        |       |                    |       |           |       |                    |       |           |       |        |       |
| Depreciation                                |       | $                       | 8,652      |           |       |                    | $          | 7,865          |       |        |       | 10 | % |
| Investment  income, net                     |       | 3,016                   |       |           |       | 12                      |       |           |       | N/A         |       |
| Interest  expense                           |       | (2,133                  | )          |           |       | (1,543                  | )          |           |       | 38          | %          |
|                                        |       |                    |       |           |       |                    |       |           |       |        |       |
| Number  of hotels                           |       | 51                      |       |           |       | 51                      |       |           |       | —      | %          |
| Average  RevPAR Index(1)                    |       | 135                     |       |           |       | 130                     |       |           |       | 4           | %          |
| ADR                                         |       | $                       | 105        |           |       |                    | $          | 108            |       |        |       | -3 | % |
| Occupancy                                   |       | 65                      | %          |           |       | 60                      | %          |           |       | 8           | %          |
| RevPAR                                      |       | $                       | 68         |           |       |                    | $          | 64             |       |        |       | 6 | % |

 

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(1)Statisticscalculated from data provided by Smith Travel Research, Inc.® and excludesnew properties open less than 2 years.

 

**HotelsOwned**

 

The following tablesummarizes the location, brand, manager, date acquired, number of rooms andgross purchase price for each of the 51 hotels the Company owned at March 31,2010.  All dollar amounts are inthousands.

 

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| ** **      | ** ** | ** ** | ** ** | ** **                       | ** ** | ** **    | ** ** | ** **   | ** ** | ** ** | ** ** | **Gross**    | ** ** |
|-----------------|------------|------------|------------|----------------------------------|------------|---------------|------------|--------------|------------|------------|------------|--------------|------------|
| ** **      | ** ** | ** ** | ** ** | ** **                       | ** ** | ** **    | ** ** | **Date**     | ** ** | ** ** | ** ** | **Purchase** | ** ** |
| **Location**    | ** ** | **State**  | ** ** | **Brand**                        | ** ** | **Manager**   | ** ** | **Acquired** | ** ** | **Rooms**  | ** ** | **Price**    | ** ** |
| Birmingham      |       | AL         |       | Homewood Suites                  |       | McKibbon      |       | 5/23/2008    |       | 95         |       | $            | 16,500     |   |
| Rogers          |       | AR         |       | Fairfield  Inn & Suites |       | Intermountain |       | 2/29/2008    |       | 99         |       | 8,000        |       |
| Rogers          |       | AR         |       | Residence Inn                    |       | Intermountain |       | 2/29/2008    |       | 88         |       | 11,744       |       |
| Springdale      |       | AR         |       | Residence Inn                    |       | Intermountain |       | 3/14/2008    |       | 72         |       | 5,606        |       |
| Sacramento      |       | CA         |       | Hilton Garden Inn                |       | Dimension     |       | 3/7/2008     |       | 154        |       | 27,630       |       |
| Cypress         |       | CA         |       | Courtyard                        |       | Dimension     |       | 4/30/2008    |       | 180        |       | 31,164       |       |
| Burbank         |       | CA         |       | Residence Inn                    |       | Marriott      |       | 5/13/2008    |       | 166        |       | 50,500       |       |
| Oceanside       |       | CA         |       | Residence Inn                    |       | Marriott      |       | 5/13/2008    |       | 125        |       | 28,750       |       |
| Tulare          |       | CA         |       | Hampton Inn &  Suites   |       | Inn Ventures  |       | 6/26/2008    |       | 86         |       | 10,331       |       |
| San  Jose       |       | CA         |       | Homewood Suites                  |       | Dimension     |       | 7/2/2008     |       | 140        |       | 21,862       |       |
| Tallahassee     |       | FL         |       | Hilton Garden Inn                |       | LBA           |       | 1/25/2008    |       | 85         |       | 13,200       |       |
| Sanford         |       | FL         |       | SpringHill Suites                |       | LBA           |       | 3/14/2008    |       | 105        |       | 11,150       |       |
| Jacksonville    |       | FL         |       | Homewood Suites                  |       | McKibbon      |       | 6/17/2008    |       | 119        |       | 23,250       |       |
| Tampa           |       | FL         |       | TownePlace Suites                |       | McKibbon      |       | 6/17/2008    |       | 95         |       | 11,250       |       |
| Port  Wentworth |       | GA         |       | Hampton Inn                      |       | Newport       |       | 1/2/2008     |       | 106        |       | 10,780       |       |
| Savannah        |       | GA         |       | Hilton Garden Inn                |       | Newport       |       | 7/31/2008    |       | 105        |       | 12,500       |       |
| Overland  Park  |       | KS         |       | SpringHill Suites                |       | True North    |       | 3/17/2008    |       | 102        |       | 8,850        |       |
| Overland  Park  |       | KS         |       | Residence Inn                    |       | True North    |       | 4/30/2008    |       | 120        |       | 15,850       |       |
| Wichita         |       | KS         |       | Courtyard                        |       | Intermountain |       | 6/13/2008    |       | 90         |       | 8,874        |       |
| Overland  Park  |       | KS         |       | Fairfield  Inn & Suites |       | True North    |       | 8/20/2008    |       | 110        |       | 12,050       |       |
| Bowling  Green  |       | KY         |       | Hampton Inn                      |       | Newport       |       | 12/6/2007    |       | 130        |       | 18,832       |       |
| Marlborough     |       | MA         |       | Residence Inn                    |       | True North    |       | 1/15/2008    |       | 112        |       | 20,200       |       |
| Westford        |       | MA         |       | Hampton Inn &  Suites   |       | True North    |       | 3/6/2008     |       | 110        |       | 15,250       |       |
| Westford        |       | MA         |       | Residence Inn                    |       | True North    |       | 4/30/2008    |       | 108        |       | 14,850       |       |
| Annapolis       |       | MD         |       | Hilton Garden Inn                |       | White         |       | 1/15/2008    |       | 126        |       | 25,000       |       |
| Kansas  City    |       | MO         |       | Residence Inn                    |       | True North    |       | 4/30/2008    |       | 106        |       | 17,350       |       |
| Greensboro      |       | NC         |       | SpringHill Suites                |       | Newport       |       | 11/9/2007    |       | 82         |       | 8,000        |       |
| Matthews        |       | NC         |       | Hampton Inn                      |       | Newport       |       | 1/15/2008    |       | 92         |       | 11,300       |       |
| Dunn            |       | NC         |       | Hampton Inn                      |       | McKibbon      |       | 1/24/2008    |       | 120        |       | 12,500       |       |
| Concord         |       | NC         |       | Hampton Inn                      |       | Newport       |       | 3/7/2008     |       | 101        |       | 9,200        |       |
| Fayetteville    |       | NC         |       | Residence Inn                    |       | Intermountain |       | 5/9/2008     |       | 92         |       | 12,201       |       |
| Winston-Salem   |       | NC         |       | Courtyard                        |       | McKibbon      |       | 5/19/2008    |       | 122        |       | 13,500       |       |
| Carolina  Beach |       | NC         |       | Courtyard                        |       | Crestline     |       | 6/5/2008     |       | 144        |       | 24,214       |       |
| Wilmington      |       | NC         |       | Fairfield  Inn & Suites |       | Crestline     |       | 12/11/2008   |       | 122        |       | 14,800       |       |
| Somerset        |       | NJ         |       | Courtyard                        |       | Newport       |       | 11/9/2007    |       | 162        |       | 16,000       |       |
| New  York       |       | NY         |       | Renaissance                      |       | Marriott      |       | 1/4/2008     |       | 200        |       | 99,000       |       |
| Tulsa           |       | OK         |       | Hampton Inn &  Suites   |       | Western       |       | 12/28/2007   |       | 102        |       | 10,200       |       |
| Greenville      |       | SC         |       | Residence Inn                    |       | McKibbon      |       | 5/19/2008    |       | 78         |       | 8,700        |       |
| Hilton  Head    |       | SC         |       | Hilton Garden Inn                |       | McKibbon      |       | 5/29/2008    |       | 104        |       | 13,500       |       |
| Columbia        |       | SC         |       | Hilton Garden Inn                |       | Newport       |       | 9/22/2008    |       | 143        |       | 21,200       |       |
| Chattanooga     |       | TN         |       | Homewood Suites                  |       | LBA           |       | 12/14/2007   |       | 76         |       | 8,600        |       |
| Texarkana       |       | TX         |       | Courtyard                        |       | Intermountain |       | 3/7/2008     |       | 90         |       | 12,924       |       |
| Texarkana       |       | TX         |       | TownePlace Suites                |       | Intermountain |       | 3/7/2008     |       | 85         |       | 9,057        |       |
| Harrisonburg    |       | VA         |       | Courtyard                        |       | Newport       |       | 11/16/2007   |       | 125        |       | 23,219       |       |
| Charlottesville |       | VA         |       | Courtyard                        |       | Crestline     |       | 6/5/2008     |       | 137        |       | 27,900       |       |
| Virginia  Beach |       | VA         |       | Courtyard                        |       | Crestline     |       | 6/5/2008     |       | 141        |       | 27,100       |       |
| Virginia  Beach |       | VA         |       | Courtyard                        |       | Crestline     |       | 6/5/2008     |       | 160        |       | 39,700       |       |
| Suffolk         |       | VA         |       | Courtyard                        |       | Crestline     |       | 7/2/2008     |       | 92         |       | 12,500       |       |
| Suffolk         |       | VA         |       | TownePlace Suites                |       | Crestline     |       | 7/2/2008     |       | 72         |       | 10,000       |       |
| Chesapeake      |       | VA         |       | Marriott                         |       | Crestline     |       | 10/21/2008   |       | 226        |       | 38,400       |       |
| Tukwila         |       | WA         |       | Homewood Suites                  |       | Dimension     |       | 7/2/2008     |       | 106        |       | 15,707       |       |
|            |       |       |       |                             |       |          |       |         |       | 5,908      |       | $            | 950,745    |   |

 

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With the exception of assumed mortgage loans in 2008 on 15 of its hotelproperties, substantially all of the purchases were funded with proceeds of theCompany’s best-efforts offering of Units, which was completed in April 2008.  The Company leases all of its hotels to itswholly-owned taxable REIT subsidiaries under hotel lease agreements. TheCompany also used the proceeds of its offering to pay $19.0 million, representing2% of the gross purchase price for these hotels, as a commission to AppleSuites Realty Group, Inc. (“ASRG”), 100% owned by Glade M. Knight, theCompany’s Chairman and Chief Executive Officer. No hotels have been purchased since December 2008, and there are nooutstanding purchase contracts for additional hotels as of March 31, 2010.

 

Of the Company’s 51hotels owned at March 31, 2010, six were purchased in 2007 and 45 werepurchased in 2008.

 

**Resultsof Operations**

 

As of March 31,2010, the Company owned 51 hotels with 5,908 rooms.  The Company’s portfolio of hotels owned isunchanged since 2008.  Hotel performanceis impacted by many factors, including economic conditions in the UnitedStates, as well as each locality.  Due toa continuing recessionary economic environment throughout the United States,the financial results of the Company’s hotels were below pre-recessionarylevels, however they did show modest improvement from results for the sameperiod in 2009.  Although it isanticipated the properties’ performance will continue to be below comparablepre-recession operating periods until general economic conditions improve, theCompany does anticipate moderate revenue and income improvement as compared to2009 due to the significant number of renovations (12) completed in 2009 andthe significant number of newly opened properties acquired by the Company in2008 (9) which were in a ramp up stage in 2009.  The Company will continue to aggressivelypursue market opportunities to improve revenue and aggressively pursue costcontrols to improve results during and after the economic downturn.  Although it is not possible to predict wheneconomic conditions will improve or their impact on the hotel industry, many analystsforecast RevPAR to stabilize in 2010 as compared to 2009.

 

Revenues

 

The Company’s principalsource of revenue is hotel room revenue and other related revenue.  For the three months ended March 31,2010 and 2009, the Company had total revenue of $39.4 million and $37.0million.  Revenue for the hotel locatedin New York, New York (the “New York hotel”) was $3.9 million or 10% of totalrevenue for the first quarter of 2010 and $1.8 million or 5% of total revenuefor the first quarter of 2009.

 

For the three monthsended March 31, 2010, the hotels achieved combined average occupancy ofapproximately 65%, ADR of $105 and RevPAR of $68.  The New York hotel had average occupancy of82%, ADR of $211 and RevPAR of $173.  Forthe three months ended March 31, 2009, the hotels achieved combined averageoccupancy of approximately 60%, ADR of $108 and RevPAR of $64.  For the same period, the New York hotel hadaverage occupancy of 53%, ADR of $137 and RevPAR of $72.  As reflected in the Company’s occupancyincrease, the industry is beginning to realize an increase in demand.  The increase is a result of reduced roomrates and the sense that the overall economy is stabilizing, generating morebusiness and leisure travelers.

 

While the revenue ratesearned by the Company are consistent with industry and brand averages, theCompany continues to focus on improving market share.  The Company’s properties overall lead theirrespective markets with an Average RevPAR Index (a comparison of a property’sRevPAR to the market average) of 135 year-to-date, a 4% increase from 2009 forcomparable properties.

 

During the first quarterof 2009, the Company was in the process of completing its conversion of the NewYork hotel from an unbranded hotel to a Renaissance hotel.  Consequently, the hotel had an average of 35rooms out of service each night for the first three months of 2009 andexperienced other disruptions to its common areas.  As a result of the conversion effort anddeclines in economic conditions, revenue at the hotel was unusually low for thefirst quarter of 2009.  The Companycompleted the conversion to a Renaissance in late April 2009.  The RevPAR Index for the New York hotel was115 for the three months 

 

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ending March 31,2010, an increase of 130% from 50% for the first three months of 2009.  The Company believes there continues to beopportunity for market penetration and continues to work with Marriottmanagement to increase the RevPAR Index for the New York hotel.

 

Expenses

 

For the three monthsended March 31, 2010 and 2009, hotel direct expenses of the Company’shotels totaled $24.9 million or 63% of total revenue (the New York hotel haddirect expenses of $2.5 million or 62% of its total revenue for the quarter)and $24.4 million or 66% of total revenue (the New York hotel had directexpenses of $1.7 million or 96% of its total revenue for the quarter).  Hotel direct expenses consist of operatingexpense, hotel administrative expense, sales and marketing expense, utilitiesexpense, repair and maintenance expense, franchise fees and managementfees.  Operating expenses in 2009 werenegatively impacted due to the significant number of renovations and the rampup of newly opened hotels in late 2008.

 

The Company continues itsefforts to control costs, however, certain operating costs such as managementcosts, certain utility costs and minimum supply and maintenance costs arerelatively fixed in nature, and cannot be curtailed or eliminated.  The Company has been successful in reducingcertain labor costs, food and supply costs and utility costs by continuallymonitoring and sharing utilization data across its hotels and managementcompanies.

 

Taxes, insurance, and otherexpense for the three months ended March 31, 2010 and 2009 totaled $2.6million, or 7% of total revenues, and $2.4 million, or 7% of total revenues (ofwhich approximately $137 thousand and $133 thousand related to the New Yorkhotel).

 

Land lease expense was$1.6 million for both three months ended March 31, 2010 and 2009.  This expense represents the expense incurredby the Company to lease land for five hotel properties.  Land lease expense for the New York hotel was$1.5 million for both the first quarter of 2010 and 2009.

 

General andadministrative expense for the three months ended March 31, 2010 and 2009was $1.2 million and $1.1 million.  Theprincipal components of general and administrative expense are advisory fees,legal fees, accounting fees, reporting expense, and the Company’s share of lossfrom its investment in Apple Air Holding LLC.

 

Depreciation expense was$8.7 million for the first quarter of 2010 and $7.9 million for the firstquarter of 2009.  These expenses include$1.6 million and $1.3 million for the New York hotel.  Depreciation expense represents depreciationexpense of the Company’s hotel buildings and related improvements, andassociated furniture, fixtures and equipment, for the respective periodsowned.  The increase is a result ofcapital improvements made by the Company in 2009 of approximately $25 millionto complete its 12 renovations in 2009.

 

In the first quarter of2010, the Company sold its equity securities in a publicly traded real estateinvestment trust, resulting in realized gains and other investment income of$3.0 million.  For the same period in2009, the Company had investment income of $12 thousand.

 

Interest expense for thefirst quarter of 2010 and 2009 was $2.1 million and $1.5 million.  Interest expense for both periods includesinterest expense on 15 mortgages assumed in 2008 and the Company’s line ofcredit, offset by capitalized interest of $101 thousand in 2010, related to therenovation of two hotel properties and capitalized interest of $571 thousand inthe first quarter of 2009 related to the renovation of eight hotel properties.

 

**Liquidityand Capital Resources**

 

In November 2008,the Company entered into a $75.0 million revolving line of credit which expiresin November 2010.  The line ofcredit was obtained to meet short-term cash needs as the Company planned oncompleting a significant number of hotel renovations, and newly openedproperties have a period of ramp up to normal operating status.  Through March 31, 2010, substantiallyall of the planned renovation work was completed.  With the availability of this line of credit,the Company maintains little cash on hand,

 

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accessing the line asnecessary.  As a result, cash on hand was$0 at March 31, 2010.  Theoutstanding balance on the line of credit was $67.0 million at March 31,2010 and its interest rate was 2.0%.  TheCompany anticipates that cash flow from operations and the revolving line ofcredit will be adequate to meet its liquidity requirements, including requireddistributions to shareholders, capital expenditures and debt service.  The Company is pursuing extending itsexisting debt that is due in 2010 and additional financing in 2010 so that itcan make distributions in excess of required amounts to maintain its REITstatus.  The Company intends to maintaina relatively stable dividend rate instead of raising and lowering thedistribution rate with varying economic cycles. With the depressed financial results of the Company and the lodgingindustry, the Company will attempt to utilize additional financing to achieve thisobjective.  Although the Company hasrelatively low levels of debt, there can be no assurances it will be successfulwith this strategy and may need to reduce its distributions to required levels.

 

To maintain its REITstatus the Company is required to distribute at least 90% of its ordinaryincome.  Distributions in the first threemonths of 2010 totaled $18.0 million and were paid monthly at a rate of$0.064167 per common share.  For the samethree month period, the Company’s cash generated from operations wasapproximately $4.5 million.  This shortfall includes a return of capitaland was funded primarily by additional borrowings under the Company’s line ofcredit facility.  The Company intends tocontinue paying distributions on a monthly basis.  However, since there can be no assurance ofthe ability of the Company’s properties to provide income at this level, therecan be no assurance as to the classification or duration of distributions atthe current monthly rate.  Inconsideration of the weakness in economic conditions throughout the UnitedStates, the Board of Directors monitors the Company’s distribution raterelative to the performance of the hotels on an ongoing basis and may makeadjustments to the distribution rate as determined to be prudent in relation toother cash requirements of the Company. In April 2009, the Board of Directors approved a reduction in theCompany’s annual distribution rate from $0.88 to $0.77 per common share.  The reduction of the dividend was effectivebeginning with the May 15, 2009 distribution.

 

The Company has on-goingcapital commitments to fund its capital improvements. The Company is required,under all of the hotel management agreements, to make available, for therepair, replacement, refurbishing of furniture, fixtures, and equipment, apercentage of gross revenues provided that such amount may be used for theCompany’s capital expenditures with respect to the hotels.  As of March 31, 2010, the Company held$11.4 million in reserve for capital expenditures.  Total capital expenditures in the first threemonths of 2010 for all renovations and items recurring in nature were $2.4million.  Total capital expenditures for2010 are anticipated to be approximately $11 million.  The Company completed 12 renovations throughout2009.  In 2010 the Company anticipatesthe completion of three renovations, thus substantially reducing capitalexpenditures as compared to 2009.

 

Inthe second quarter of 2008, the Company instituted a Dividend Reinvestment Plan for itsshareholders. The plan provides a convenient and cost effective way to increaseshareholder investment in the Company by reinvesting dividends to purchaseadditional Units of the Company. The uses of the proceeds from this plan mayinclude purchasing Units under the Company’s Unit Redemption Program, enhancingproperties, satisfying financing obligations and other expenses, increasingworking capital, funding various corporate operations, and acquiring hotels.The Company has registered 10 million Units for potential issuance underthe plan. During the first three months of 2010, approximately 0.6 millionUnits were issued under the plan representing approximately $6.5 million.  For the three months ending March 31,2009, approximately 0.7 million Units were issued under the plan representingapproximately $7.3 million.  Sinceinception of the plan through March 31, 2010, the Company has issuedapproximately 4.5 million Units representing approximately $49.3 million.

 

The Company has a UnitRedemption Program to provide limited interim liquidity to its shareholders whohave held their Units for at least one year. Shareholders may request redemption of Units for a purchase price equalto 92% of the price paid per Unit if the Units have been owned for less thanthree years, or 100% of the price paid per Unit if the Units have been ownedmore than three years.  The maximumnumber of Units that may be redeemed in any 12-month period will be threepercent of the weighted average number of Units outstanding during the 12-monthperiod immediately prior to the date of redemption.  The Company reserves the right to change thepurchase price for redemptions, reject any 

 

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request for redemption,or otherwise amend the terms of, suspend, or terminate the Unit RedemptionProgram.  During the three months ended March 31,2010, the Company redeemed approximately 216 thousand Units in the amount of$2.2 million under the program.  For thefirst three months of 2009, the Company redeemed approximately 387 thousandUnits in the amount of $4.0 million. Since inception of the program through March 31, 2010, the Companyhas redeemed approximately 1.6 million Units representing approximately $16.5million.

 

**RelatedParty Transactions**

 

The Company has significant transactions withrelated parties.  These transactionscannot be construed to be arm’s length, and the results of the Company’soperations may be different if these transactions were conducted withnon-related parties.

 

The Company has acontract with Apple Suites Realty Group (“ASRG”), to provide brokerage servicesfor the acquisition and disposition of the Company’s real estate assets. In accordancewith the contract, ASRG is paid a fee of 2% of the gross purchase price of anyacquisitions or gross sale price of any dispositions of real estateinvestments, subject to certain conditions. As of March 31, 2010 payments to ASRG for services under the termsof this contract have totaled $19.0 million since inception, which werecapitalized as a part of the purchase price of the hotels.  No brokerage services were provided by ASRGin the first quarter of 2010 or in 2009.

 

The Company is party to anadvisory agreement with A8A, pursuant to which A8A provides management servicesto the Company. An annual fee ranging from 0.1% to 0.25% of total equityproceeds received by the Company, in addition to certain reimbursable expenses,are payable for these services. A8A utilizes Apple REIT Six, Inc. toprovide these services.  Total expensesrelated to this agreement totaled $0.8 million in the first three months of2010 and $0.7 million for the same three months of 2009.  Of this total expense, $0.3 million and $0.2million were fees paid to A8A and $0.5 million were expenses reimbursed by A8Ato Apple REIT Six, Inc. in both first quarters.  These expenses are recorded in General andAdministrative expense.

 

ASRG and A8A are 100%owned by Glade M. Knight, Chairman and Chief Executive Officer of the Company. Mr. Knightis also Chairman and Chief Executive Officer of Apple REIT Six, Inc.,Apple REIT Seven, Inc. and Apple REIT Nine, Inc.  Members of the Company’s Board of Directorsare also on the boards of Apple REIT Six, Inc., Apple REIT Seven, Inc.and Apple REIT Nine, Inc.

 

**SubsequentEvents**

 

In April 2010, theCompany declared and paid approximately $6.0 million in distributions to itscommon shareholders, or $0.064167 per outstanding common share.  Under the Company’s Dividend ReinvestmentPlan, $2.2 million were reinvested, resulting in the issuance of approximately198,000 Units.

 

In April 2010, theCompany redeemed approximately 313,000 Units in the amount of $3.2 millionunder its Unit Redemption Program.

 

**Impact of Inflation**

 

### **Operators of hotels, in general, possess the abilityto adjust room rates daily to reflect the effects of inflation.  Competitive pressures may, however, limit theoperators’ ability to raise room rates. Currently the Company is not experiencing any material impact frominflation.**

### ** **

**Business Interruption**

 

Being in the real estateindustry, the Company is exposed to natural disasters on both a local andnational scale.  Although managementbelieves there is adequate insurance to cover this exposure, there can be noassurance that such events will not have a material adverse effect on theCompany’s financial position or results of operations.

 

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**Seasonality**

 

The hotel industryhistorically has been seasonal in nature. Generally, occupancy rates and hotel revenues are greater in the secondand third quarters than in the first and fourth quarters.  As a result, there may be quarterlyfluctuations in results of operations. To the extent that cash flow from operations is insufficient during anyquarter, due to temporary or seasonal fluctuations in revenue, the Companyexpects to utilize cash on hand or available credit to make distributions.

 

**RecentAccounting Pronouncements**

 

In June 2009, theFinancial Accounting Standards Board issued a pronouncement (AccountingStandards Update No. 2009-17) which amends its guidance surrounding acompany’s analysis to determine whether any of its variable interestsconstitute controlling financial interests in a variable interest entity.  This analysis identifies the primarybeneficiary of a variable interest entity as the enterprise that has both ofthe following characteristics:  (a) thepower to direct the activities of a variable interest entity that mostsignificantly impact the entity’s economic performance, and (b) theobligation to absorb losses of the entity that could potentially be significantto the variable interest entity or the right to receive benefits from theentity that could potentially be significant to the variable interestentity.  Additionally, an enterprise isrequired to assess whether it has an implicit financial responsibility toensure that a variable interest entity operates as designed when determiningwhether it has the power to direct the activities of the variable interestentity that most significantly impact the entity’s economic performance. Thenew pronouncement also requires ongoing assessments of whether an enterprise isthe primary beneficiary of a variable interest entity and enhanced disclosureabout an enterprise’s involvement with a variable interest entity.  This pronouncement was adopted by the Companyin the first quarter of 2010.  Theadoption of this standard did not have a material impact on the Company’sconsolidated financial statements.

 

**Item 3.****                                   ****Quantitative andQualitative Disclosures About Market Risk**

 

The Company does notengage in transactions in derivative financial instruments or derivativecommodity instruments. As of March 31, 2010, the Company’s financialinstruments were not exposed to significant market risk due to foreign currencyexchange risk or commodity price risk. The Company will be exposed to interest rate risk due to possiblechanges in short term interest rates as it invests its cash or borrows on itsline of credit and due to its variable interest rate mortgage on its Columbia,South Carolina hotel.  The Company had anoutstanding balance of $67.0 million on its $75 million line of credit at March 31,2010, and to the extent it utilizes the line of credit, the Company will beexposed to changes in short-term interest rates.  The outstanding balance of the Company’svariable rate mortgage was $11.0 million at March 31, 2010.  Based on these outstanding balances at March 31,2010, every 100 basis point change in interest rates will impact the Company’sannual net income by $0.8 million, all other factors remaining the same.  The Company’s cash balance at March 31,2010 was $0.

 

**Item 4.****                                   ****Controls and Procedures**

 

Senior management,including the Chief Executive Officer and Chief Financial Officer, evaluatedthe effectiveness of the Company’s disclosure controls and procedures as of theend of the period covered by this report. Based on this evaluation process, theChief Executive Officer and Chief Financial Officer have concluded that theCompany’s disclosure controls and procedures are effective and that there havebeen no changes in the Company’s internal control over financial reporting thatoccurred during the last fiscal quarter that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.  Since thatevaluation process was completed there have been no significant changes ininternal controls or in other factors that could significantly affect thesecontrols.

 

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**PART II. OTHER INFORMATION**

 

**Item 2.****                                   ****Unregistered Sales ofEquity Securities and Use of Proceeds**

 

*Unit Redemption Program*

 

The Company has a UnitRedemption Program to provide limited interim liquidity to its shareholders whohave held their Units for at least one year. Shareholders may request redemption of Units for a purchase price equalto 92% of the price paid per Unit if the Units have been owned for less thanthree years, or 100% of the price paid per Unit if the Units have been ownedmore than three years.  The maximumnumber of Units that may be redeemed in any 12-month period will be threepercent of the weighted average number of Units outstanding during the 12-monthperiod immediately prior to the date of redemption.  The Company reserves the right to change thepurchase price for redemptions, reject any request for redemption, or otherwiseamend the terms of, suspend, or terminate the Unit Redemption Program.  The following is a summary of redemptionsduring the first quarter of 2010.

 

**Issuer Purchases of Equity Securities**

 
| ** **        | ** ** | **(a)**                               | ** ** | **(b)**                          | ** ** | **(c)**                                                                                      | ** ** | **(d)**                                                                               | ** ** |
|-------------------|------------|---------------------------------------|------------|----------------------------------|------------|----------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| **Period**        | ** ** | **Total Number  of Units  Purchased** | ** ** | **Average Price Paid  per Unit** | ** ** | **Total Number of  Units Purchased as  Part of Publicly  Announced Plans  or Programs** | ** ** | **Maximum Number  of Units that May  Yet Be Purchased  Under the Plans or  Programs** | ** ** |
| January 2010 |       | 216,358                               |       | $                                | 10.39      |                                                                                         | 1,592,179  |                                                                                  |       | (1) |
|                   |            |                                       |            |                                  |            |                                                                                              |            |                                                                                       |            |  |

 

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(1)  The maximum number of Units that may be redeemed in any 12 month period is limited to three percent (3.0%) of the weighted average number of Units outstanding from the beginning of the 12 month period.

 

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**Item 6.  Exhibits**

 
| **Exhibit  Number** | ** ** | **Description  of Documents**                                                                                                                                                                                                             |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                                                                                                                                                |
| 3.1                 |       | 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) |
|                |       |                                                                                                                                                                                                                                      |
| 31.1                |       | Certification of the  Company’s Chief Executive Officer pursuant to Rule 13a – 14(a) and  Rule 15d – 14(a) of the Securities Exchange Act, as amended (**FILED HEREWITH**).                            |
|                |       |                                                                                                                                                                                                                                      |
| 31.2                |       | Certification of the  Company’s Chief Financial Officer pursuant to Rule 13a – 14(a) and  Rule 15d – 14(a) of the Securities Exchange Act, as amended (**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**).        |

 

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SIGNATURES

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
| Apple  REIT Eight, Inc. |                                                                                       |   |
|------------------------------|--------------------------------------------------------------------------------------------|--------|
|                         |                                                                                       |   |   |
| By:                          | /s/    GLADE  M. KNIGHT                                                |   | Date: May 5, 2010 |
|                         | **Glade M. Knight,**                                                                       |   |   |
|                         | **Chairman of the Board, and****Chief Executive Officer****(Principal Executive Officer)** |   |   |
|                         | ** **                                                                                 |   |   |
|                         |                                                                                       |   |   |
| By:                          | /s/    BRYAN  PEERY                                                    |   | Date: May 5, 2010 |
|                         | **Bryan Peery,**                                                                           |   |   |
|                         | **Chief Financial Officer****(Principal Financial and Principal Accounting  Officer)**     |   |   |

 

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