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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington,
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 SEPTEMBER 30, 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 as specified in its charter)

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

|                                                    
|----------------------------------------------------
|(804) 344-8121                                      
|(Registrants
telephone number, including area code)

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

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

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


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

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

Number of registrants
common shares outstanding as of November 1, 2010: 94,221,139

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Apple REIT Eight, Inc.
FORM 10-Q
INDEX

|                               |                                                                                                                            |  |             
|------------------------------ | -------------------------------------------------------------------------------------------------------------------------- |  | ------------
|                               |                                                                                                                            |  | Page
 Number
|                               |                                                                                                                            |  |             
|PART I.
 FINANCIAL INFORMATION
|                               |                                                                                                                            |  |             
|Item 1.                        | Financial Statements (Unaudited)                                                                                           |  |             
|                               | Consolidated Balance Sheets September 30,
 2010 and December 31, 2009                                                     |  | 3           
|                               | Consolidated Statements of Operations and
 Comprehensive Income  Three and nine months ended September 30, 2010 and
 2009 |  | 4           
|                               | Consolidated Statements of Cash Flows  Nine
 months ended September 30, 2010 and 2009                                     |  | 5           
|                               | Notes to Consolidated Financial Statements                                                                                 |  | 6           
|Item 2.                        | Managements
 Discussion and Analysis of Financial Condition and Results of Operations                                     |  | 12          
|Item 3.                        | Quantitative
 and Qualitative Disclosures About Market Risk                                                                |  | 20          
|Item 4.                        | Controls and
 Procedures                                                                                                   |  | 20          
|                               |                                                                                                                            |  |             
|PART II. OTHER INFORMATION    
|                               |                                                                                                                            |  |             
|Item 2.                        | Unregistered
 Sales of Equity Securities and Use of Proceeds                                                               |  | 21          
|Item 6.                        | Exhibits                                                                                                                   |  | 22          
|                               |                                                                                                                            |  |             
|Signatures                     |                                                                                                                            |  | 23          

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

2

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Apple REIT Eight, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)

|                                                                                                                                 |  |                   |          |                  |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | ---------------- | - | -------- | -
|                                                                                                                                 |  | September 30,2010 |          | December 31,2009 |  
|                                                                                                                                 |  |                   |          |                  |  
|ASSETS                                                                                                                           |  |                   |          |                  |   |          |  
|Investment in hotels, net of accumulated depreciation
 of $81,472 and $55,282                                                    |  | $                 | 953,643  |                  | $ | 974,773  |  
|Cash and cash equivalents                                                                                                        |  |                   | 501      |                  |   |         |  
|Restricted cash-furniture, fixtures and
 other escrows                                                                           |  |                   | 10,178   |                  |   | 12,268   |  
|Due from third party managers, net                                                                                               |  |                   | 6,597    |                  |   | 3,919    |  
|Other assets, net                                                                                                                |  |                   | 4,452    |                  |   | 7,891    |  
|                                                                                                                                 |  |                   |          |                  |   |          |  
|TOTAL ASSETS                                                                                                                     |  | $                 | 975,371  |                  | $ | 998,851  |  
|                                                                                                                                 |  |                   |          |                  |   |          |  
|                                                                                                                                 |  |                   |          |                  |   |          |  
|LIABILITIES                                                                                                                      |  |                   |          |                  |   |          |  
|Accounts payable and accrued expenses                                                                                            |  | $                 | 16,597   |                  | $ | 14,465   |  
|Intangible liabilities, net                                                                                                      |  |                   | 10,816   |                  |   | 11,112   |  
|Notes payable                                                                                                                    |  |                   | 192,668  |                  |   | 184,175  |  
|                                                                                                                                 |  |                   |          |                  |   |          |  
|TOTAL LIABILITIES                                                                                                                |  |                   | 220,081  |                  |   | 209,752  |  
|                                                                                                                                 |  |                   |          |                  |   |          |  
|                                                                                                                                 |  |                   |          |                  |   |          |  
|SHAREHOLDERS EQUITY                                                                                                             |  |                   |          |                  |   |          |  
|Preferred stock, authorized 15,000,000
 shares; none issued and outstanding                                                      |  |                   |         |                  |   |         |  
|Series A preferred stock, no par value,
 authorized 200,000,000 shares; issued and outstanding 94,619,378 and
 93,643,430 shares |  |                   |         |                  |   |         |  
|Series B convertible preferred stock, no
 par value, authorized 240,000 shares; issued and outstanding 240,000 shares            |  |                   | 24       |                  |   | 24       |  
|Common stock, no par value, authorized
 200,000,000 shares; issued and outstanding 94,619,378 and 93,643,430 shares              |  |                   | 938,693  |                  |   | 927,269  |  
|Distributions greater than net income                                                                                            |  |                   | (183,427 | )                |   | (140,598 | )
|Accumulated other comprehensive income                                                                                           |  |                   |         |                  |   | 2,404    |  
|                                                                                                                                 |  |                   |          |                  |   |          |  
|TOTAL SHAREHOLDERS EQUITY                                                                                                       |  |                   | 755,290  |                  |   | 789,099  |  
|                                                                                                                                 |  |                   |          |                  |   |          |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                       |  | $                 | 975,371  |                  | $ | 998,851  |  
|                                                                                                                                 |  |                   |          |                  |   |          |  

See notes to consolidated financial
statements.

3

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|                                                               
|---------------------------------------------------------------
|Apple REIT Eight, Inc.                                         
|Consolidated
 Statements of Operations and Comprehensive Income
|(Unaudited)                                                    
|(In thousands, except per share data)                          

|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|--------------------------------------------------------------- |  | ---------------------------------- | ------ | ---------------------------------- | - | --------------------------------- | - | --------------------------------- | ------- | - | - | ------- | -
|                                                                |  | Three monthsendedSeptember 30,2010 |        | Three monthsendedSeptember 30,2009 |   | Nine monthsendedSeptember 30,2010 |   | Nine monthsendedSeptember 30,2009 |        
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |        
|Revenues:                                                       |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|Room revenue                                                    |  | $                                  | 48,418 |                                    | $ | 44,953                            |   | $                                 | 131,057 |   | $ | 121,472 |  
|Other revenue                                                   |  |                                    | 3,519  |                                    |   | 3,396                             |   |                                   | 9,557   |   |   | 9,373   |  
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|Total revenue                                                   |  |                                    | 51,937 |                                    |   | 48,349                            |   |                                   | 140,614 |   |   | 130,845 |  
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|Expenses:                                                       |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|Operating expense                                               |  |                                    | 12,940 |                                    |   | 12,591                            |   |                                   | 36,293  |   |   | 34,787  |  
|Hotel administrative expense                                    |  |                                    | 4,024  |                                    |   | 4,064                             |   |                                   | 11,747  |   |   | 12,210  |  
|Sales and marketing                                             |  |                                    | 3,795  |                                    |   | 3,367                             |   |                                   | 10,646  |   |   | 9,699   |  
|Utilities                                                       |  |                                    | 2,441  |                                    |   | 2,274                             |   |                                   | 6,228   |   |   | 6,058   |  
|Repair and maintenance                                          |  |                                    | 2,686  |                                    |   | 2,412                             |   |                                   | 7,292   |   |   | 6,779   |  
|Franchise fees                                                  |  |                                    | 2,093  |                                    |   | 1,974                             |   |                                   | 5,565   |   |   | 5,348   |  
|Management fees                                                 |  |                                    | 1,864  |                                    |   | 1,729                             |   |                                   | 4,918   |   |   | 4,652   |  
|Taxes, insurance and other                                      |  |                                    | 2,558  |                                    |   | 2,596                             |   |                                   | 7,844   |   |   | 7,615   |  
|Land lease expense                                              |  |                                    | 1,597  |                                    |   | 1,596                             |   |                                   | 4,791   |   |   | 4,777   |  
|General and administrative                                      |  |                                    | 1,164  |                                    |   | 1,033                             |   |                                   | 3,900   |   |   | 3,393   |  
|Depreciation expense                                            |  |                                    | 8,791  |                                    |   | 8,355                             |   |                                   | 26,190  |   |   | 24,330  |  
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|Total expenses                                                  |  |                                    | 43,953 |                                    |   | 41,991                            |   |                                   | 125,414 |   |   | 119,648 |  
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|Operating income                                                |  |                                    | 7,984  |                                    |   | 6,358                             |   |                                   | 15,200  |   |   | 11,197  |  
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|Investment income, net                                          |  |                                    | 5      |                                    |   | 16                                |   |                                   | 3,028   |   |   | 33      |  
|Interest expense                                                |  |                                    | (2,328 | )                                  |   | (1,873                            | ) |                                   | (6,767  | ) |   | (5,283  | )
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|Net income                                                      |  | $                                  | 5,661  |                                    | $ | 4,501                             |   | $                                 | 11,461  |   | $ | 5,947   |  
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|Unrealized gain on investments                                  |  |                                    |       |                                    |   | 618                               |   |                                   |        |   |   | 2,195   |  
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|Comprehensive income                                            |  | $                                  | 5,661  |                                    | $ | 5,119                             |   | $                                 | 11,461  |   | $ | 8,142   |  
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|Basic and diluted net income
 per common share                  |  | $                                  | 0.06   |                                    | $ | 0.05                              |   | $                                 | 0.12    |   | $ | 0.06    |  
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  
|Weighted average common shares
 outstanding - basic and diluted |  |                                    | 94,381 |                                    |   | 93,105                            |   |                                   | 94,075  |   |   | 92,812  |  
|                                                                |  |                                    |        |                                    |   |                                   |   |                                   |         |   |   |         |  

See notes to
consolidated financial statements.

4

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|                                      
|--------------------------------------
|Apple REIT Eight, Inc.                
|Consolidated
 Statements of Cash Flows
|(Unaudited)                           
|(In thousands)                        

|                                                                                                   |  |                                    |         |                                    |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ---------------------------------- | ------- | ---------------------------------- | - | ------- | -
|                                                                                                   |  | Nine monthsendedSeptember 30, 2010 |         | Nine monthsendedSeptember 30, 2009 |  
|                                                                                                   |  |                                    |         |                                    |  
|Cash flow from operating activities:                                                               |  |                                    |         |                                    |   |         |  
|Net income                                                                                         |  | $                                  | 11,461  |                                    | $ | 5,947   |  
|Adjustments to reconcile net income to cash
 provided by operating activities:                     |  |                                    |         |                                    |   |         |  
|Depreciation                                                                                       |  |                                    | 26,190  |                                    |   | 24,330  |  
|                                                                                                   |  |                                    |         |                                    |   |         |  
|Amortization of deferred financing costs,
 fair value adjustments and other non-cash expenses, net |  |                                    | 268     |                                    |   | (461    | )
|Net realized gain on sale of investments                                                           |  |                                    | (3,011  | )                                  |   |        |  
|Changes in operating assets and
 liabilities:                                                      |  |                                    |         |                                    |   |         |  
|(Increase)/decrease in other assets                                                                |  |                                    | (1,054  | )                                  |   | 2,264   |  
|Increase in funds due from third party
 managers                                                   |  |                                    | (2,678  | )                                  |   | (3,202  | )
|Increase in accounts payable and accrued
 expenses                                                 |  |                                    | 2,956   |                                    |   | 7,145   |  
|                                                                                                   |  |                                    |         |                                    |   |         |  
|Net cash provided by operating activities                                                          |  |                                    | 34,132  |                                    |   | 36,023  |  
|                                                                                                   |  |                                    |         |                                    |   |         |  
|Cash flow from investing activities:                                                               |  |                                    |         |                                    |   |         |  
|Decrease/(increase) in capital improvement
 reserves                                               |  |                                    | 2,788   |                                    |   | (1,056  | )
|Proceeds from sale of equity securities -
 available for sale                                      |  |                                    | 3,804   |                                    |   |        |  
|Investment in other assets                                                                         |  |                                    |        |                                    |   | (3,240  | )
|Capital improvements                                                                               |  |                                    | (5,884  | )                                  |   | (22,404 | )
|                                                                                                   |  |                                    |         |                                    |   |         |  
|Net cash provided by (used in) investing
 activities                                               |  |                                    | 708     |                                    |   | (26,700 | )
|                                                                                                   |  |                                    |         |                                    |   |         |  
|Cash flow from financing activities:                                                               |  |                                    |         |                                    |   |         |  
|Net proceeds related to issuance of Units                                                          |  |                                    | 19,576  |                                    |   | 20,334  |  
|Redemptions of Units                                                                               |  |                                    | (8,271  | )                                  |   | (10,193 | )
|Cash distributions paid to common
 shareholders                                                    |  |                                    | (54,290 | )                                  |   | (56,955 | )
|Net proceeds from line of credit                                                                   |  |                                    | 10,320  |                                    |   | 39,055  |  
|Payments of notes payable                                                                          |  |                                    | (1,674  | )                                  |   | (1,564  | )
|                                                                                                   |  |                                    |         |                                    |   |         |  
|Net cash used in financing activities                                                              |  |                                    | (34,339 | )                                  |   | (9,323  | )
|                                                                                                   |  |                                    |         |                                    |   |         |  
|Net change in cash and cash equivalents                                                            |  |                                    | 501     |                                    |   |        |  
|                                                                                                   |  |                                    |         |                                    |   |         |  
|Cash and cash equivalents, beginning of
 period                                                    |  |                                    |        |                                    |   |        |  
|                                                                                                   |  |                                    |         |                                    |   |         |  
|                                                                                                   |  |                                    |         |                                    |   |         |  
|Cash and cash equivalents, end of period                                                           |  | $                                  | 501     |                                    | $ |        |  
|                                                                                                   |  |                                    |         |                                    |   |         |  

See notes to consolidated financial
statements.

5

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APPLE REIT EIGHT, INC.

Notes to
Consolidated Financial Statements

1. General Information and Summary of
Significant Accounting Policies

Basis of Presentation

The
accompanying unaudited consolidated financial statements have been prepared in
accordance with the rules and regulations for reporting on Form 10-Q.
Accordingly, they do not include all of the information required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. These unaudited financial statements should be read in conjunction
with the Companys audited financial statements included in its 2009 Annual
Report on Form 10-K. Operating results for the three and nine months ended
September 30, 2010 are not necessarily indicative of the results that may be
expected for the period ending December 31, 2010.

Organization

Apple REIT
Eight, Inc., together with its wholly owned subsidiaries, (the Company) is a
Virginia corporation 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 assets in selected metropolitan areas in the United States. Initial
capitalization occurred on January 22, 2007, when 10 Units, each Unit
consisting of one common share and one Series A preferred share, were purchased
by Apple Eight Advisors, Inc. (A8A), owned by Glade M. Knight, the Companys
Chairman and Chief Executive Officer, and 240,000 Series B convertible shares
were also purchased individually by Glade M. Knight. The Company began
operations on November 9, 2007 when it acquired its first hotels. The Company
completed its best efforts offering of Units in April 2008. The Companys
fiscal year end is December 31. As of September 30, 2010, the Company owned 51
hotels. 45 of the hotels were acquired in 2008 and six in late 2007. The
Company has no foreign operations or assets and its operating structure
includes two segments. The consolidated financial statements include the
accounts of the Company and its subsidiaries. All intercompany accounts and
transactions have been eliminated.

Distributions

The Companys
annual distribution rate as of September 30, 2010 was $0.77 per common share
payable monthly. For the nine months ended September 30, 2010 and 2009 the
Company made distributions of $0.58 and $0.61 per common share for a total
$54.3 million and $57.0 million. For the three months ended September 30, 2010
and 2009 the Company made distributions of $0.19 and $0.19 per common share for
a total $18.2 million and $17.9 million.

Significant Accounting Policies

Use of Estimates

The
preparation of the financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

Earnings Per Common Share

Basic earnings
per common share is computed as net income divided by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is calculated after giving effect to all potential common shares that
were dilutive and outstanding for the period. There were no shares with a
dilutive effect for the three and nine months ended September 30, 2010 or 2009.
As a result, basic and

6

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dilutive
outstanding shares were the same. Series B convertible preferred shares are not
included in earnings per common share calculations until such time the Series B
convertible preferred shares are converted to common shares.

Recent Accounting Pronouncements

In June 2009,
the Financial Accounting Standards Board (FASB) issued a pronouncement
(Accounting Standards Update No. 2009-17) which amends its guidance surrounding
a companys analysis to determine whether any of its variable interests
constitute controlling financial interests in a variable interest entity. This
analysis identifies the primary beneficiary of a variable interest entity as
the enterprise that has both of the following characteristics: (a) the power to
direct the activities of a variable interest entity that most significantly
impact the entitys economic performance, and (b) the obligation to absorb
losses of the entity that could potentially be significant to the variable
interest entity or the right to receive benefits from the entity that could
potentially be significant to the variable interest entity. Additionally, an
enterprise is required to assess whether it has an implicit financial
responsibility to ensure that a variable interest entity operates as designed
when determining whether it has the power to direct the activities of the
variable interest entity that most significantly impact the entitys economic
performance. The new pronouncement also requires ongoing assessments of whether
an enterprise is the primary beneficiary of a variable interest entity and
enhanced disclosure about an enterprises involvement with a variable interest
entity. This pronouncement was adopted by the Company in the first quarter of
2010. The adoption of this standard did not have a material impact on the
Companys consolidated financial statements.

2. Other Assets

Included in
Other assets, net on the Companys consolidated balance sheet is a 24%
ownership interest in Apple Air Holding, LLC (Apple Air), purchased by the
Company for $3.2 million in cash in 2009. The other members of Apple Air are
Apple REIT Six, Inc., Apple REIT Seven, Inc. and Apple REIT Nine, Inc. The
interest was purchased to allow the Company access to two Lear jets for asset
management and renovation purposes. The Company has recorded its share of
income and losses of the entity under the equity method of accounting and
adjusted its investment in Apple Air accordingly. The Companys ownership
interest was $2.4 million at September 30, 2010 and $2.8 million at December
31, 2009. For the three months ended September 30, 2010 and 2009, the Company
recorded a loss of approximately $0.1 million in each period as its share of
the net loss of Apple Air. For the nine months ended September 30, 2010 and
2009, the Company recorded a loss of approximately $0.3 million in each period
as its share of the net loss of Apple Air. This loss primarily relates to
depreciation of the aircraft, and is included in General and Administrative
expense on the Companys consolidated statements of operations.

At December
31, 2009 the Company held equity securities classified as available-for-sale,
in accordance with the FASBs pronouncement for accounting for certain
investments in debt and equity securities. These securities were included in
Other assets, net on the Companys consolidated balance sheet at December 31,
2009 at fair value of $3.2 million. Unrealized gains were reported as
accumulated other comprehensive income, $2.4 million at December 31, 2009. In
the first quarter of 2010, the Company sold these equity securities, resulting
in a realized gain of $3.0 million which is recorded in Investment income, net
on the Companys consolidated statement of operations.

3. Notes Payable

In November
2008, the Company entered into a $75 million unsecured line of credit with a
commercial bank. The applicable interest rate is equal to LIBOR (the London
Interbank Offered Rate, 0.26% at September 30, 2010) plus 1.75% annually.
Interest payments are due monthly. The principal must be paid by the maturity
date of November 2010, and may be prepaid without penalty. At September 30,
2010, the credit line had an outstanding principal balance of $68.7 million. At
December 31, 2009, the credit line had an outstanding principal balance of
$58.3 million. The line of credit is unsecured, however does contain a negative
pledge agreement that requires approval from the lender to materially change
the Companys investment in 10 properties including using those 10 properties
as security for additional financing.

7

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4. Fair Value of Financial Instruments

The Company
estimates the fair value of its fixed rate debt by discounting the future cash
flows of each instrument at estimated market rates consistent with the maturity
of the debt obligation with similar credit policies. Market rates take into
consideration general market conditions and maturity. As of September 30, 2010,
the carrying value and estimated fair value of the Companys debt was $192.7
million and $197.6 million. As of December 31, 2009, the carrying value and
estimated fair value of the Companys debt was $184.2 million and $186.0
million. The carrying value of the Companys other financial instruments
approximates fair value due to the short-term nature of these financial instruments.

5. Related Parties

The Company
has significant transactions with related parties. These transactions cannot be
construed to be arms length, and the results of the Companys operations may
be different if these transactions were conducted with non-related parties.

The Company is
party to an advisory agreement with A8A, pursuant to which A8A provides
management services to the Company. An annual fee ranging from 0.1% to 0.25% of
total equity proceeds received by the Company, in addition to certain
reimbursable expenses, are payable for these services. A8A utilizes Apple REIT
Six, Inc. to provide these services. Total expenses related to this agreement
totaled $2.3 million for the first nine months of 2010 and $2.1 million for the
same period in 2009. Of these total expenses, $0.8 million were fees paid to
A8A for each of the nine months ended September 30, 2010 and 2009 and $1.5
million and $1.4 million were expenses reimbursed by A8A to Apple REIT Six,
Inc. for the nine months ended September 30, 2010 and 2009. These expenses are
recorded in General and Administrative expense.

A8A is 100%
owned by Glade M. Knight, Chairman and Chief Executive Officer of the Company.
Mr. Knight is also Chairman and Chief Executive Officer of Apple REIT Six,
Inc., Apple REIT Seven, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. (a
newly formed REIT). Members of the Companys Board of Directors are also on the
boards of Apple REIT Six, Inc., Apple REIT Seven, Inc., Apple REIT Nine, Inc.
and Apple REIT Ten, Inc.

6. Shareholders Equity

In the second
quarter of 2008, the Company instituted a Dividend Reinvestment Plan for its
shareholders. The plan provides a convenient and cost effective way to increase
shareholder investment in the Company by reinvesting dividends to purchase
additional Units of the Company. The uses of the proceeds from this plan may
include purchasing Units under the Companys Unit Redemption Program, enhancing
properties, satisfying financing obligations and other expenses, increasing
working capital, funding various corporate operations, and acquiring hotels.
The Company has registered 10 million Units for potential issuance under the
plan. During the first nine months of 2010, approximately 1.8 million Units
were issued under the plan representing approximately $19.6 million. For the
nine months ending September 30, 2009, approximately 1.8 million Units were
issued under the plan representing approximately $20.3 million. Since inception
of the plan through September 30, 2010, the Company has issued approximately
5.7 million Units representing approximately $62.4 million.

The Company
has a Unit Redemption Program to provide limited interim liquidity to its
shareholders who have held their Units for at least one year. Shareholders may
request redemption of Units for a purchase price equal to 92% of the price paid
per Unit if the Units have been owned for less than three years, or 100% of the
price paid per Unit if the Units have been owned more than three years. The
maximum number of Units that may be redeemed in any 12-month period is three
percent of the weighted average number of Units outstanding during the 12-month
period immediately prior to the date of redemption. The Company reserves the
right to change the purchase price for redemptions, reject any request for
redemption, or otherwise amend the terms of, suspend, or terminate the Unit
Redemption Program. During the nine months ended September 30, 2010, the
Company redeemed approximately 804 thousand Units in the amount of $8.3 million
under the program. For the first nine months of 2009, the Company redeemed

8

---



approximately
989 thousand Units in the amount of $10.2 million. Since inception of the
program through September 30, 2010, the Company has redeemed approximately 2.2
million Units representing approximately $22.5 million.

7. Segments

The Company
has two reportable segments (the New York hotel and all other hotels). The
Company does not allocate corporate-level accounts to its operating segments,
including corporate general and administrative expenses, non-operating interest
income and interest expense. Dollar amounts are in thousands.

9

---



|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|---------------------------------- |  | --------------------------------------------- | ------- | ----------------- | - | --------- | - | ------------ | ------ | - | - | --------- | -
|                                   |  | For the three months ended September 30,
2010 |        
|                                   |  |                                               |        
|                                   |  | New York,
New York 
Hotel                     |         | All Other 
Hotels |   | Corporate |   | Consolidated |       
|                                   |  |                                               |         |                   |   |           |   |              |       
|Total
revenue                      |  | $                                             | 4,555   |                   | $ | 47,382    |   | $            |       |   | $ | 51,937    |  
|Hotel
operating expenses           |  |                                               | 4,541   |                   |   | 29,457    |   |              |       |   |   | 33,998    |  
|General and
administrative expense |  |                                               |        |                   |   |          |   |              | 1,164  |   |   | 1,164     |  
|Depreciation
expense               |  |                                               | 1,627   |                   |   | 7,164     |   |              |       |   |   | 8,791     |  
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|Operating
income/(loss)            |  |                                               | (1,613  | )                 |   | 10,761    |   |              | (1,164 | ) |   | 7,984     |  
|Investment
income, net             |  |                                               |        |                   |   |          |   |              | 5      |   |   | 5         |  
|Interest
expense                   |  |                                               |        |                   |   | (1,939    | ) |              | (389   | ) |   | (2,328    | )
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|Net
income/(loss)                  |  | $                                             | (1,613  | )                 | $ | 8,822     |   | $            | (1,548 | ) | $ | 5,661     |  
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|Total assets                       |  | $                                             | 119,231 |                   | $ | 853,057   |   | $            | 3,083  |   | $ | 975,371   |  
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|                                   |  | For the nine months ended September 30,
2010  |        
|                                   |  |                                               |        
|                                   |  | New York,
New York 
Hotel                     |         | All Other 
Hotels |   | Corporate |   | Consolidated |       
|                                   |  |                                               |         |                   |   |           |   |              |       
|Total
revenue                      |  | $                                             | 13,363  |                   | $ | 127,251   |   | $            |       |   | $ | 140,614   |  
|Hotel
operating expenses           |  |                                               | 13,023  |                   |   | 82,301    |   |              |       |   |   | 95,324    |  
|General and
administrative expense |  |                                               |        |                   |   |          |   |              | 3,900  |   |   | 3,900     |  
|Depreciation
expense               |  |                                               | 4,822   |                   |   | 21,368    |   |              |       |   |   | 26,190    |  
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|Operating
income/(loss)            |  |                                               | (4,482  | )                 |   | 23,582    |   |              | (3,900 | ) |   | 15,200    |  
|Investment
income, net             |  |                                               |        |                   |   |          |   |              | 3,028  |   |   | 3,028     |  
|Interest
expense                   |  |                                               |        |                   |   | (5,672    | ) |              | (1,095 | ) |   | (6,767    | )
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|Net
income/(loss)                  |  | $                                             | (4,482  | )                 | $ | 17,910    |   | $            | (1,967 | ) | $ | 11,461    |  
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|Total assets                       |  | $                                             | 119,231 |                   | $ | 853,057   |   | $            | 3,083  |   | $ | 975,371   |  
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|                                   |  | For the three months ended September 30,
2009 |        
|                                   |  |                                               |        
|                                   |  | New York,
New York 
Hotel                     |         | All Other 
Hotels |   | Corporate |   | Consolidated |       
|                                   |  |                                               |         |                   |   |           |   |              |       
|Total
revenue                      |  | $                                             | 3,929   |                   | $ | 44,420    |   | $            |       |   | $ | 48,349    |  
|Hotel
operating expenses           |  |                                               | 4,351   |                   |   | 28,252    |   |              |       |   |   | 32,603    |  
|General and
administrative expense |  |                                               |        |                   |   |          |   |              | 1,033  |   |   | 1,033     |  
|Depreciation
expense               |  |                                               | 1,536   |                   |   | 6,819     |   |              |       |   |   | 8,355     |  
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|Operating
income/(loss)            |  |                                               | (1,958  | )                 |   | 9,349     |   |              | (1,033 | ) |   | 6,358     |  
|Investment
income, net             |  |                                               |        |                   |   |          |   |              | 16     |   |   | 16        |  
|Interest
(expense)/income          |  |                                               | 168     |                   |   | (1,782    | ) |              | (259   | ) |   | (1,873    | )
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|Net
income/(loss)                  |  | $                                             | (1,790  | )                 | $ | 7,567     |   | $            | (1,276 | ) | $ | 4,501     |  
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|Total assets                       |  | $                                             | 123,119 |                   | $ | 876,348   |   | $            | 6,288  |   | $ | 1,005,755 |  
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|                                   |  | For the nine months ended September 30,
2009  |        
|                                   |  |                                               |        
|                                   |  | New York,
New York 
Hotel                     |         | All Other 
Hotels |   | Corporate |   | Consolidated |       
|                                   |  |                                               |         |                   |   |           |   |              |       
|Total
revenue                      |  | $                                             | 8,901   |                   | $ | 121,944   |   | $            |       |   | $ | 130,845   |  
|Hotel
operating expenses           |  |                                               | 11,470  |                   |   | 80,455    |   |              |       |   |   | 91,925    |  
|General and
administrative expense |  |                                               |        |                   |   |          |   |              | 3,393  |   |   | 3,393     |  
|Depreciation
expense               |  |                                               | 4,279   |                   |   | 20,051    |   |              |       |   |   | 24,330    |  
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|Operating
income/(loss)            |  |                                               | (6,848  | )                 |   | 21,438    |   |              | (3,393 | ) |   | 11,197    |  
|Investment
income, net             |  |                                               |        |                   |   |          |   |              | 33     |   |   | 33        |  
|Interest
(expense)/income          |  |                                               | 809     |                   |   | (5,455    | ) |              | (637   | ) |   | (5,283    | )
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|Net
income/(loss)                  |  | $                                             | (6,039  | )                 | $ | 15,983    |   | $            | (3,997 | ) | $ | 5,947     |  
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|                                   |  |                                               |         |                   |   |           |   |              |        |   |   |           |  
|Total assets                       |  | $                                             | 123,119 |                   | $ | 876,348   |   | $            | 6,288  |   | $ | 1,005,755 |  

10

---



8. Subsequent Events

In October 2010 the following
events occurred:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company declared and
paid approximately $6.1 million in distributions to its common shareholders,
or $0.064167 per outstanding common share. Under the Companys Dividend
Reinvestment Plan, $2.2 million were reinvested, resulting in the issuance of
approximately 198,000 Units.                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The Company redeemed
approximately 596,000 Units in the amount of $6.5 million under its Unit
Redemption Program.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The Company refinanced its
mortgage note payable on its Westford Residence Inn property. The new
mortgage note has a principal balance of $7.0 million with an interest rate
of 5.3%. The loan calls for monthly payments of principal and interest of
approximately $40,000, with the balance of $6.3 million due at maturity
(October 1, 2015).                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The Company effectively
renewed its $75 million unsecured line of credit with Branch Banking and
Trust Company (BB&T), extending the term for 2 years to October 2012.
The interest rate on the loan increased to LIBOR plus 2.25% with a floor of
3.5%. Additionally, the Company entered into a secured $25 million term loan
with BB&T. The loan is secured by two properties and matures in October
2012. The loan requires interest only payments monthly at LIBOR plus 2.25%
with a floor of 3.5%. Both loans have financial covenants requiring a minimum
consolidated net worth and debt service charge and a maximum debt to equity
and distribution to income ratio.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Apple REIT Nine, Inc.
purchased from the Companys third party lender, the note payable secured by
the Columbia Hilton Garden Inn. The purchase of the note by Apple REIT Nine,
Inc. had no financial effect on the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                    

11

---



Item 2. Managements Discussion
and Analysis of Financial Condition and Results of Operations

This quarterly report
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance, or achievements of the Company to be materially different from
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, but are not limited to, the
ability of the Company to implement its acquisition strategy and operating
strategy; the Companys ability to manage planned growth; changes in economic
cycles, including the current economic recession throughout the United States,
and competition within the hotel industry. Although the Company believes that
the assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore there can
be no assurance that such statements included in the quarterly report will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the results or conditions described in such statements or the objectives
and plans of the Company will be achieved. In addition, the Companys
qualification as a real estate investment trust involves the application of
highly technical and complex provisions of the Internal Revenue Code. Readers
should carefully review the Companys financial statements and the notes
thereto, as well as the risk factors described in the Companys filings with
the Securities and Exchange Commission. Any forward-looking statement that the
Company makes speaks only as of the date of this report. The Company undertakes
no obligation to publically update or revise any forward-looking statements or
cautionary factors, as a result of new information, future events, or
otherwise, except as required by law.

Overview

Apple REIT Eight, Inc.
together with its wholly owned subsidiaries (the Company) is a Virginia
corporation 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
September 30, 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 and other real estate in select metropolitan areas in the
United States. Initial capitalization occurred on January 22, 2007, when 10
Units, each Unit consisting of one share of common stock and one share of
Series A preferred stock were purchased by Apple Eight Advisors, Inc. (A8A)
and 240,000 shares of Series B Preferred shares were purchased by Mr. Glade M.
Knight, the Companys Chairman and Chief Executive Officer. The Company
completed 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 and its subsidiaries. All intercompany transactions
and balances have been eliminated upon consolidation.

Although hotel performance
can be influenced by many factors, including local competition, local and
general economic conditions in the United States and the performance of
individual managers assigned to each hotel, performance of the hotels as
compared to other hotels within their respective local market, in general, has
met the Companys expectations for the period owned. With the significant
decline in economic conditions throughout the United States, overall
performance of the Companys hotels since acquisition have not met
expectations. Although there is no way to predict future general economic
conditions, the Companys and industrys revenues and income are improving as
compared to 2009, with industry estimates for the full year 2010 for revenue
percentage increases in the low single digits as compared to 2009.
Additionally, industry analysts are forecasting 2011 revenue percentage growth
in the mid-single digits as compared to 2010.

In evaluating financial
condition and operating performance, the most important indicators on which the
Company focuses are revenue measurements, such as average occupancy, average
daily rate (ADR), revenue per available room (RevPAR), and Market Yield
which compares an individual hotels results to other hotels in its local
market, and expenses, such as hotel operating expenses, general and
administrative and other expenses described below. Although it is not possible
to predict if or how quickly general economic conditions will improve or their
impact on the hotel industry, with the significant number of

12

---



renovations (15) of existing
properties by the Company in 2009, the number of hotels that were new (9) when
acquired by the Company, and the expected industry improvement, the Company
anticipates moderate growth for the remainder of 2010 as compared to 2009 for
the Companys hotels and continued growth in 2011. Additionally, with the
overall economic declines, the Company continues to focus on improving market
share. The Companys properties overall are revenue leaders in their respective
markets with an Average RevPAR Index (a comparison of a propertys RevPAR to
the market average) of 132 for the first nine months of 2010, a 3% increase
from the same period in 2009 for comparable hotels.

The following is a summary of
the Companys results:

|                                        |  |                    |         |                    |  |         |   |                    |         |                |  |         |   |                    |     |         |   |                    |   |                |     |   |   |           |   |  |     |   |  |     |  
|--------------------------------------- |  | ------------------ | ------- | ------------------ |  | ------- | - | ------------------ | ------- | -------------- |  | ------- | - | ------------------ | --- | ------- | - | ------------------ | - | -------------- | --- | - | - | --------- | - |  | --- | - |  | --- | -
|                                        |  | Three months ended |         | Nine months ended  | 
|                                        |  |                    |         |                    | 
|(in
thousands, except statistical data) |  | 9/30/10            |         | Percent of
Revenue |  | 9/30/09 |   | Percent of
Revenue |         | Percent
Change |  | 9/30/10 |   | Percent of
Revenue |     | 9/30/09 |   | Percent of
Revenue |   | Percent
Change |    
|                                        |  |                    |         |                    |  |         |   |                    |         |                |  |         |   |                    |     |         |   |                    |   |                |    
|Total revenues                          |  | $                  | 51,937  |                    |  | 100     | % | $                  | 48,349  |                |  | 100     | % |                    | 7   | %       | $ | 140,614            |   |                | 100 | % | $ | 130,845   |   |  | 100 | % |  | 7   | %
|Hotel direct expenses                   |  |                    | 29,843  |                    |  | 57      | % |                    | 28,411  |                |  | 59      | % |                    | 5   | %       |   | 82,689             |   |                | 59  | % |   | 79,533    |   |  | 61  | % |  | 4   | %
|Taxes, insurance and other expense      |  |                    | 2,558   |                    |  | 5       | % |                    | 2,596   |                |  | 5       | % |                    | -1  | %       |   | 7,844              |   |                | 6   | % |   | 7,615     |   |  | 6   | % |  | 3   | %
|Land lease expense                      |  |                    | 1,597   |                    |  | 3       | % |                    | 1,596   |                |  | 3       | % |                    |    | %       |   | 4,791              |   |                | 3   | % |   | 4,777     |   |  | 4   | % |  |    | %
|General and administrative expense      |  |                    | 1,164   |                    |  | 2       | % |                    | 1,033   |                |  | 2       | % |                    | 13  | %       |   | 3,900              |   |                | 3   | % |   | 3,393     |   |  | 3   | % |  | 15  | %
|Depreciation                            |  |                    | 8,791   |                    |  |         |   |                    | 8,355   |                |  |         |   |                    | 5   | %       |   | 26,190             |   |                |     |   |   | 24,330    |   |  |     |   |  | 8   | %
|Investment income, net                  |  |                    | 5       |                    |  |         |   |                    | 16      |                |  |         |   |                    | -69 | %       |   | 3,028              |   |                |     |   |   | 33        |   |  |     |   |  | N/A |  
|Interest expense                        |  |                    | (2,328  | )                  |  |         |   |                    | (1,873  | )              |  |         |   |                    | 24  | %       |   | (6,767             | ) |                |     |   |   | (5,283    | ) |  |     |   |  | 28  | %
|                                        |  |                    |         |                    |  |         |   |                    |         |                |  |         |   |                    |     |         |   |                    |   |                |     |   |   |           |   |  |     |   |  |     |  
|Average RevPAR Index(1)                 |  |                    | 131     |                    |  |         |   |                    | 131     |                |  |         |   |                    |    | %       |   | 132                |   |                |     |   |   | 128       |   |  |     |   |  | 3   | %
|Number of hotels                        |  |                    | 51      |                    |  |         |   |                    | 51      |                |  |         |   |                    |    | %       |   | 51                 |   |                |     |   |   | 51        |   |  |     |   |  |    | %
|Average Daily Rate (ADR)                |  | $                  | 117     |                    |  |         |   | $                  | 116     |                |  |         |   |                    | 1   | %       | $ | 112                |   |                |     |   | $ | 112       |   |  |     |   |  |    | %
|Occupancy                               |  |                    | 76      | %                  |  |         |   |                    | 71      | %              |  |         |   |                    | 7   | %       |   | 72                 | % |                |     |   |   | 67        | % |  |     |   |  | 7   | %
|RevPAR                                  |  | $                  | 89      |                    |  |         |   | $                  | 82      |                |  |         |   |                    | 9   | %       | $ | 81                 |   |                |     |   | $ | 75        |   |  |     |   |  | 8   | %
|Total Rooms Sold (2)                    |  |                    | 408,262 |                    |  |         |   |                    | 381,769 |                |  |         |   |                    | 7   | %       |   | 1,155,759          |   |                |     |   |   | 1,073,603 |   |  |     |   |  | 8   | %
|Total Rooms Available (3)               |  |                    | 539,516 |                    |  |         |   |                    | 539,524 |                |  |         |   |                    |    | %       |   | 1,602,300          |   |                |     |   |   | 1,602,321 |   |  |     |   |  |    | %

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


(2)Represents the
number of room nights sold during the period.


(3)Represents the
number of rooms owned by the Company multiplied by the number of nights in the
period.


|
|
|

Hotels Owned

The following table
summarizes the location, brand, manager, date acquired, number of rooms and
gross purchase price for each of the 51 hotels the Company owned at September
30, 2010. All dollar amounts are in thousands.

13

---



|                |  |  |       |  |  |                        |  |  |               |  |  |                |  |  |       |  |                        |         | 
|--------------- |  |  | ----- |  |  | ---------------------- |  |  | ------------- |  |  | -------------- |  |  | ----- |  | ---------------------- | ------- | 
|Location        |  |  | State |  |  | Brand                  |  |  | Manager       |  |  | Date 
Acquired |  |  | Rooms |  | Gross 
Purchase 
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 | 
|                |  |  |       |  |  |                        |  |  |               |  |  |                |  |  |       |  |                        |         | 
|                |  |  |       |  |  |                        |  |  |               |  |  |                |  |  |       |  |                        |         | 

14

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With the
exception of assumed mortgage loans in 2008 on 15 of its hotel properties,
substantially all of the purchases were funded with proceeds of the Companys
best-efforts offering of Units, which was completed in April 2008. The Company
leases all of its hotels to its wholly-owned taxable REIT subsidiaries under
hotel lease agreements. The Company also used the proceeds of its offering to
pay $19.0 million, representing 2% of the gross purchase price for these
hotels, as a commission to Apple Suites Realty Group, Inc. (ASRG), 100% owned
by Glade M. Knight, the Companys Chairman and Chief Executive Officer. No
hotels have been purchased since December 2008, and there are no outstanding
purchase contracts for additional hotels as of September 30, 2010.

Of the
Companys 51 hotels owned at September 30, 2010, six were purchased in 2007 and
45 were purchased in 2008.

Results of Operations

As of September 30, 2010,
the Company owned 51 hotels with 5,908 rooms. The Companys portfolio of hotels
owned is unchanged since 2008. Hotel performance is impacted by many factors,
including economic conditions in the United States, as well as each locality.
During the past two years, the overall weakness in the U.S. economy has had a
considerable negative impact on both consumer and business travel. As a result,
lodging demand in most markets in the United States has declined as compared to
pre-recession levels. Although economic conditions have begun to improve, the
Company expects demand for the industry as a whole to improve modestly and be
below pre-recession levels until general economic conditions become more
stable. The Company does anticipate moderate revenue and income improvements
for the remainder of the year as compared to 2009 due to industry improvements,
the significant number of renovations (15) in 2009 and the significant number
of newly opened properties acquired by the Company in 2008 (9) which were in a
ramp up stage in 2009. This improvement is expected to continue into 2011. The
Companys hotels have shown results consistent with industry and brand averages
for the period of ownership.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|The Companys principal
 source of revenue is hotel room revenue and other related revenue. For the
 three months ended September 30, 2010 and 2009, the Company had total revenue
 of $51.9 million and $48.3 million. Revenue for the hotel located in New
 York, New York (the New York hotel) was $4.6 million or 9% of total revenue
 for the third quarter of 2010 and $3.9 million or 8% of total revenue for the
 third quarter of 2009. For the three months ended September 30, 2010, the
 hotels achieved combined average occupancy of approximately 76%, ADR of $117
 and RevPAR of $89. The New York hotel had average occupancy of 82%, ADR of
 $257 and RevPAR of $211. For the three months ended September 30, 2009, the
 hotels achieved combined average occupancy of approximately 71%, ADR of $116
 and RevPAR of $82. For the same period, the New York hotel had average
 occupancy of 80%, ADR of $221 and RevPAR of $176.

For the nine months ended
September 30, 2010 and 2009, the Company had total revenue of $140.6 million
and $130.8 million. Revenue for the New York hotel was $13.4 million or 10% of
total revenue for the nine months of 2010 and $8.9 million or 7% of total
revenue for the first nine months of 2009. For the nine months ended September
30, 2010, the hotels achieved combined average occupancy of approximately 72%,
ADR of $112 and RevPAR of $81. The New York hotel had average occupancy of 85%,
ADR of $244 and RevPAR of $207. For the nine months ended September 30, 2009,
the hotels achieved combined average occupancy of approximately 67%, ADR of
$112 and RevPAR of $75. For the same period, the New York hotel had average
occupancy of 67%, ADR of $190 and RevPAR of $128.

As reflected in the
Companys occupancy increase (the Company has seen year over year occupancy
improvement every month since November 2009), the industry is beginning to
realize an overall increase in demand as compared to 2009. The increase is a
result of reduced room rates and the sense that the overall economy is
stabilizing, generating more business and leisure travelers. While ADR still
trails pre-recession levels, it has stabilized, and increased in the third
quarter, as compared to 2009. As a result, the Companys RevPAR has increased
8% year to date as compared to the same period in 2009. The Company anticipates

15

---



similar continued RevPAR
improvement throughout the remainder of 2010 and mid-single digit percentage
increases in 2011.

While the revenue rates
earned by the Company are consistent with industry and brand averages, the
Company continues to focus on improving market share. The Companys properties
overall lead their respective markets with an Average RevPAR Index (a
comparison of a propertys RevPAR to the market average, 100) of 132
year-to-date, a 3% increase from 2009 for comparable properties.

During the first half of
2009, the Company was in the process of completing its conversion of the New
York hotel from an unbranded hotel to a Renaissance hotel. Consequently, the
hotel had an average of 32 rooms out of service each night for the first half
of 2009 and experienced other disruptions to its common areas. As a result of
the conversion effort and declines in economic conditions, revenue at the hotel
was unusually low for the first half of 2009. The Company completed the
conversion to a Renaissance in late April 2009. The RevPAR Index for the New
York hotel was 112 for the nine months ending September 30, 2010, an increase
of 43% from 78 for the first nine months of 2009. Although the hotels revenue
has increased 50% in the first nine months of 2010 as compared to the same
period in 2009, the Company believes there continues to be opportunity for
market penetration and continues to work with Marriott management to increase
the RevPAR Index for the New York hotel.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|For the three months ended
 September 30, 2010, hotel direct expenses of the Companys hotels totaled
 $29.8 million or 57% of total revenue (the New York hotel had direct expenses
 of $2.9 million or 60% of its total revenue for the quarter) and for the
 three months ended September 30, 2009 direct expenses were $28.4 million or
 59% of total revenue (the New York hotel had direct expenses of $2.8 million
 or 72% of its total revenue for the quarter). For the nine months ended
 September 30, 2010 and 2009, hotel direct expenses of the Companys hotels
 totaled $82.7 million or 59% of total revenue, and 79.5 million or 61% of
 total revenue (the New York hotel had direct expenses of $8.1 million or 60%
 of its total revenue for the 2010 nine-month period and direct expenses of
 $6.8 million or 77% of its total revenue for the first nine months of 2009).
 Hotel direct expenses consist of operating expense, hotel administrative
 expense, sales and marketing expense, utilities expense, repair and
 maintenance expense, franchise fees and management fees. Operating expenses
 in 2009 were negatively impacted due to the significant number of renovations
 and the ramp up of newly opened hotels in late 2008.

The Company continues its
efforts to control costs, however, certain operating costs such as management
costs, certain utility costs and minimum supply and maintenance costs are
relatively fixed in nature, and cannot be curtailed or eliminated. The Company
has been successful in reducing, relative to revenues, certain labor costs,
food and supply costs and utility costs by continually monitoring and sharing
utilization data across its hotels and management companies.

Taxes, insurance, and other
expense for the three months ended September 30, 2010 and 2009 totaled $2.6
million, or 5% of total revenues in both years (of which approximately $186
thousand and $46 thousand related to the New York hotel). For the nine months
ended September 30, 2010 and 2009, taxes, insurance, and other expenses were
$7.8 million and $7.6 million, or 5% of total revenues (of which approximately
$531 thousand and $221 thousand related to the New York hotel).

Land lease expense was $1.6
million for the three months ended September 30, 2010 and September 30, 2009
and was $4.8 million for the nine months ended September 30, 2010 and 2009.
This expense represents the expense incurred by the Company to lease land for
five hotel properties. Land lease expense for the New York hotel was $1.5
million for the third quarters of 2010 and 2009 and was $4.4 million for the
nine months ended September 30, 2010 and 2009.

General and administrative
expense for the three months ended September 30, 2010 and 2009 was $1.2 million
and $1.0 million. For the nine months ended September 30, 2010 and 2009,
general and administrative expense was $3.9 million and $3.4 million. The
principal components of general and administrative expense are advisory fees,
legal fees, accounting fees, reporting expense, and the Companys share of loss
from its investment in Apple Air Holding LLC.

16

---



Depreciation expense was
$8.8 million for the third quarter of 2010 and $8.4 million for the third
quarter of 2009. For the nine months ended September 30, 2010 and 2009,
depreciation expense was $26.2 million and $24.3 million. These expenses
include $1.6 million and $1.5 million for the New York hotel for the quarterly
periods and $4.8 million and $4.3 million for the nine month periods ended
September 30, 2010 and 2009. Depreciation expense represents depreciation
expense of the Companys hotel buildings and related improvements, and
associated furniture, fixtures and equipment, for the respective periods owned.
The increase is a result of capital improvements made by the Company in 2009 of
approximately $25 million to complete 12 renovations.

In the first quarter of
2010, the Company sold its equity securities in a publicly traded real estate
investment trust, resulting in realized gains and other investment income of
$3.0 million.

Interest expense for the
third quarter and nine months ended September 30, 2010 was $2.3 million and
$6.8 million. Interest expense for both periods includes interest expense on 15
mortgages assumed in 2008 and the Companys line of credit offset by
capitalized interest of $101 thousand in the first quarter of 2010 related to
the renovation of 2 hotels. Interest expense for the same periods in 2009 was
$1.9 million and $5.3 million, which is offset by capitalized interest of $275
thousand for the three months of 2009 related to five hotels under renovation
and $1.2 million for the nine month period in 2009, related to the renovation
of 12 hotel properties.

Liquidity and Capital Resources

In November
2008, the Company entered into a $75.0 million revolving line of credit with an
original term expiring in November 2010 (see Subsequent Events). The line of
credit was obtained to meet short-term cash needs as the Company planned on
completing a significant number of hotel renovations, and newly opened
properties have a period of ramp up to normal operating status. Through
September 30, 2010, substantially all of the planned renovation work was
completed. With the availability of this line of credit,the Company maintains little cash on
hand, accessing the line as necessary. Cash on hand was $0.5 million at
September 30, 2010. The outstanding balance on the line of credit was $68.7
million at September 30, 2010 and its interest rate was 2.01%. The Company
anticipates that cash flow from operations and the revolving line of credit
will be adequate to meet its liquidity requirements, including required
distributions to shareholders (the Company is not required to make any
distributions at this time), capital expenditures and debt service. As discussed
further in Subsequent Events, the Company has extended its existing line of
credit and entered into a $25 million term loan so that it can make
distributions in excess of required amounts to maintain its REIT status. The
Company intends to maintain a relatively stable distribution rate instead of
raising and lowering the distribution rate with varying economic cycles. With
the depressed financial results of the Company and the lodging industry as
compared to pre-recession levels, the Company will attempt to utilize
additional financing to achieve this objective. Although the Company has
relatively low levels of debt, there can be no assurances it will be successful
with this strategy and may need to reduce its distributions to required levels.
If the Company were unsuccessful in extending its maturing debt in 2011 or if
it were to default on its debt, it may be unable to make distributions.

To maintain its REIT status
the Company is required to distribute at least 90% of its ordinary income.
Distributions in the first nine months of 2010 totaled $54.3 million and were
paid monthly at a rate of $0.064167 per common share. For the same nine month
period, the Companys cash generated from operations was approximately $34.1
million. This shortfall includes a return of capital and was funded primarily
by additional borrowings under the Companys line of credit facility. The
Company intends to continue paying distributions on a monthly basis. However,
since there can be no assurance of the ability of the Companys properties to
provide income at this level, there can be no assurance as to the
classification or duration of distributions at the current monthly rate. In
consideration of the weakness in economic conditions throughout the United
States, the Board of Directors monitors the Companys distribution rate
relative to the performance of the hotels on an ongoing basis and may make
adjustments to the distribution rate as determined to be prudent in relation to
other cash requirements of the Company. In April 2009, the Board of Directors
approved a reduction in the Companys annual distribution rate from $0.88 to
$0.77 per common share. The reduction of the distribution was effective
beginning with the May 15, 2009 distribution.

17

---



The Company has on-going
capital commitments to fund its capital improvements. The Company is required,
under all of the hotel management agreements, to make available, for the
repair, replacement, refurbishing of furniture, fixtures, and equipment, a
percentage of gross revenues provided that such amount may be used for the
Companys capital expenditures with respect to the hotels. As of September 30,
2010, the Company held $8.5 million in reserve for capital expenditures. Total
capital expenditures in the first nine months of 2010 were $5.1 million. Total
capital expenditures for 2010 are anticipated to be approximately $6-8 million.
The Company completed 12 renovations throughout 2009. In 2010 the Company
anticipates the completion of three renovations, thus substantially reducing capital
expenditures as compared to 2009.

In
the second quarter of 2008, the Company instituted a Dividend Reinvestment Plan for its shareholders. The plan
provides a convenient and cost effective way to increase shareholder investment
in the Company by reinvesting distributions to purchase additional Units of the
Company. The uses of the proceeds from this plan may include purchasing Units
under the Companys Unit Redemption Program, enhancing properties, satisfying
financing obligations and other expenses, increasing working capital, funding
various corporate operations, and acquiring hotels. The Company has registered
10 million Units for potential issuance under the plan. During the first
nine months of 2010, approximately 1.8 million Units were issued under the plan
representing approximately $19.6 million. For the nine months ending September
30, 2009, approximately 1.8 million Units were issued under the plan
representing approximately $20.3 million. Since inception of the plan through
September 30, 2010, the Company has issued approximately 5.7 million Units
representing approximately $62.4 million.

The Company
has a Unit Redemption Program to provide limited interim liquidity to its
shareholders who have held their Units for at least one year. Shareholders may
request redemption of Units for a purchase price equal to 92% of the price paid
per Unit if the Units have been owned for less than three years, or 100% of the
price paid per Unit if the Units have been owned more than three years. The
maximum number of Units that may be redeemed in any 12-month period is three
percent of the weighted average number of Units outstanding during the 12-month
period immediately prior to the date of redemption. The Company reserves the
right to change the purchase price for redemptions, reject any request for
redemption, or otherwise amend the terms of, suspend, or terminate the Unit
Redemption Program. During the nine months ended September 30, 2010, the
Company redeemed approximately 804 thousand Units in the amount of $8.3 million
under the program. For the first nine months of 2009, the Company redeemed
approximately 989 thousand Units in the amount of $10.2 million. Since
inception of the program through September 30, 2010, the Company has redeemed
approximately 2.2 million Units representing approximately $22.5 million.

Related Party Transactions

The
Company has significant transactions with related parties. These transactions
cannot be construed to be arms length, and the results of the Companys
operations may be different if these transactions were conducted with
non-related parties.

The Company has a contract
with Apple Suites Realty Group (ASRG), to provide brokerage services for the
acquisition and disposition of the Companys real estate assets. In accordance
with the contract, ASRG is paid a fee of 2% of the gross purchase price of any
acquisitions or gross sale price of any dispositions of real estate
investments, subject to certain conditions. As of September 30, 2010 payments
to ASRG for services under the terms of this contract have totaled $19.0
million since inception, which were capitalized as a part of the purchase price
of the hotels. No brokerage services were provided by ASRG in the first nine
months of 2010 or in 2009.

The Company is party to an advisory
agreement with A8A, pursuant to which A8A provides management services to the
Company. An annual fee ranging from 0.1% to 0.25% of total equity proceeds
received by the Company, in addition to certain reimbursable expenses, are
payable for these services. A8A utilizes Apple REIT Six, Inc. to provide these
services. Total expenses related to this agreement totaled $2.3

18

---



million for the first nine
months of 2010 and $2.1 million for the same period in 2009. Of these total
expenses, $0.8 million were fees paid to A8A for each of the nine months ended
September 30, 2010 and 2009 and $1.5 million and $1.4 million were expenses
reimbursed by A8A to Apple REIT Six, Inc. for the nine months ended September
30, 2010 and 2009. These expenses are recorded in General and Administrative
expense.

ASRG and A8A are 100% owned
by Glade M. Knight, Chairman and Chief Executive Officer of the Company.
Mr. Knight is also Chairman and Chief Executive Officer of Apple REIT Six,
Inc., Apple REIT Seven, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. (a
newly formed REIT). Members of the Companys Board of Directors are also on the
boards of Apple REIT Six, Inc., Apple REIT Seven, Inc., Apple REIT Nine, Inc.
and Apple REIT Ten, Inc.

Subsequent Events

In October
2010 the following events occurred:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company
 declared and paid approximately $6.1 million in distributions to its common
 shareholders, or $0.064167 per outstanding common share. Under the Companys
 Dividend Reinvestment Plan, $2.2 million were reinvested, resulting in the
 issuance of approximately 198,000 Units.                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The Company redeemed
 approximately 596,000 Units in the amount of $6.5 million under its Unit
 Redemption Program.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The Company refinanced its
 mortgage note payable on its Westford Residence Inn property. The new
 mortgage note has a principal balance of $7.0 million with an interest rate
 of 5.3%. The loan calls for monthly payments of principal and interest of
 approximately $40,000, with the balance of $6.3 million due at maturity
 (October 1, 2015).                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The Company effectively
 renewed its $75 million unsecured line of credit with Branch Banking and
 Trust Company (BB&T), extending the term for 2 years to October 2012.
 The interest rate on the loan increased to LIBOR plus 2.25% with a floor of
 3.5%. Additionally, the Company entered into a secured $25 million term loan
 with BB&T. The loan is secured by two properties and matures in October
 2012. The loan requires interest only payments monthly at LIBOR plus 2.25%
 with a floor of 3.5%. Both loans have financial covenants requiring a minimum
 consolidated net worth and debt service charge and a maximum debt to equity
 and distribution to income ratio.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Apple REIT Nine, Inc.
 purchased from the Companys third party lender, the note payable secured by
 the Columbia Hilton Garden Inn. The purchase of the note by Apple REIT Nine,
 Inc. had no financial effect on the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                          

Impact of Inflation

Operators
of hotels, in general, possess the ability to adjust room rates daily to
reflect the effects of inflation. Competitive pressures may, however, limit the
operators ability to raise room rates. Currently the Company is not
experiencing any material impact from inflation.

Business Interruption

Being in the
real estate industry, the Company is exposed to natural disasters on both a
local and national scale. Although management believes there is adequate
insurance to cover this exposure, there can be no assurance that such events
will not have a material adverse effect on the Companys financial position or
results of operations.

Seasonality

19

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

Recent Accounting Pronouncements

In June 2009, the Financial
Accounting Standards Board issued a pronouncement (Accounting Standards Update
No. 2009-17) which amends its guidance surrounding a companys analysis to
determine whether any of its variable interests constitute controlling
financial interests in a variable interest entity. This analysis identifies the
primary beneficiary of a variable interest entity as the enterprise that has
both of the following characteristics: (a) the power to direct the activities
of a variable interest entity that most significantly impact the entitys
economic performance, and (b) the obligation to absorb losses of the entity
that could potentially be significant to the variable interest entity or the
right to receive benefits from the entity that could potentially be significant
to the variable interest entity. Additionally, an enterprise is required to
assess whether it has an implicit financial responsibility to ensure that a
variable interest entity operates as designed when determining whether it has
the power to direct the activities of the variable interest entity that most
significantly impact the entitys economic performance. The new pronouncement
also requires ongoing assessments of whether an enterprise is the primary
beneficiary of a variable interest entity and enhanced disclosure about an
enterprises involvement with a variable interest entity. This pronouncement
was adopted by the Company in the first quarter of 2010. The adoption of this
standard did not have a material impact on the Companys consolidated financial
statements.

|        |                                                            
|------- | -----------------------------------------------------------
|Item 3. | Quantitative
 and Qualitative Disclosures About Market Risk

The Company does not engage
in transactions in derivative financial instruments or derivative commodity
instruments. As of September 30, 2010, the Companys financial instruments were
not exposed to significant market risk due to foreign currency exchange risk or
commodity price risk. The Company will be exposed to interest rate risk due to
possible changes in short term interest rates as it invests its cash or borrows
on its line of credit and due to its variable interest rate mortgage on its
Columbia, South Carolina hotel. The Company had an outstanding balance of $68.7
million on its $75 million line of credit at September 30, 2010, and to the
extent it utilizes the line of credit, the Company will be exposed to changes
in short-term interest rates. The outstanding balance of the Companys variable
rate mortgage was $10.9 million at September 30, 2010. Based on these
outstanding balances at September 30, 2010, every 100 basis point change in
interest rates will impact the Companys annual net income by $0.8 million, all
other factors remaining the same. The Companys cash balance at September 30,
2010 was $0.5 million.

|        |                         
|------- | ------------------------
|Item 4. | Controls
 and Procedures

Senior management, including
the Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the Companys disclosure controls and procedures as of the end
of the period covered by this report. Based on this evaluation process, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Companys disclosure controls and procedures are effective and that there have
been no changes in the Companys internal control over financial reporting that
occurred during the last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over
financial reporting. Since that evaluation process was completed there have
been no significant changes in internal controls or in other factors that could
significantly affect these controls.

20

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PART II. OTHER INFORMATION

|        |                                                            
|------- | -----------------------------------------------------------
|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds

Unit Redemption Program

The Company
has a Unit Redemption Program to provide limited interim liquidity to its
shareholders who have held their Units for at least one year. Shareholders may
request redemption of Units for a purchase price equal to 92% of the price paid
per Unit if the Units have been owned for less than three years, or 100% of the
price paid per Unit if the Units have been owned more than three years. The
maximum number of Units that may be redeemed in any 12-month period is three
percent of the weighted average number of Units outstanding during the 12-month
period immediately prior to the date of redemption. The Company reserves the
right to change the purchase price for redemptions, reject any request for
redemption, or otherwise amend the terms of, suspend, or terminate the Unit
Redemption Program. The following is a summary of redemptions during the third
quarter of 2010 (no redemption occurred in August and September 2010).

|                                      |  |                               |         |                            |  |                                                                                     |  |                                                                                   |           |  |  |     | 
|------------------------------------- |  | ----------------------------- | ------- | -------------------------- |  | ----------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------- | --------- |  |  | --- | 
|Issuer Purchases of Equity Securities
|                                     
|                                      |  | (a)                           |         | (b)                        |  | (c)                                                                                 |  | (d)                                                                               |          
|                                      |  |                               |         |                            |  |                                                                                     |  |                                                                                   |           |  |  |     | 
|Period                                |  | Total Numberof UnitsPurchased |         | Average Price Paidper 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 |          
|                                      |  |                               |         |                            |  |                                                                                     |  |                                                                                   |          
|July 2010                             |  |                               | 274,454 |                            |  | $10.26                                                                              |  |                                                                                   | 2,179,497 |  |  | (1) | 

(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.

21

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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). 

22

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SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

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

23

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