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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008



| ̈ | 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   ̈

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
definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:



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

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

Number of registrants common shares outstanding as of August 1, 2008: 91,497,263









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Apple REIT Eight, Inc.

FORM 10-Q

INDEX



|                              |  |                                                                                                                                                                                                                                 |  |           
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------
|                              |  |                                                                                                                                                                                                                                 |  | PageNumber
|PART I. FINANCIAL INFORMATION |  |                                                                                                                                                                                                                                
|                              |  |                                                                                                                                                                                                                                
|Item 1.                       |  | Financial Statements (Unaudited)                                                                                                                                                                                                |  |           
|                              |  | Consolidated Balance Sheets  June 30, 2008 and December 31, 2007                                                                                                                                                               |  | 3         
|                              |  | Consolidated Statements of Operations and Comprehensive Income  Three and six months ended June 30, 2008 and three
 months ended June 30, 2007 and Period from January 22, 2007 (initial capitalization) through June 30, 2007 |  | 4         
|                              |  | Consolidated Statements of Cash Flows  Six months ended June 30, 2008 and Period from January 22, 2007 (initial capitalization)
 through June 30, 2007                                                                         |  | 5         
|                              |  | Notes to Consolidated Financial Statements                                                                                                                                                                                      |  | 6         
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                           |  | 16        
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                                                      |  | 26        
|Item 4.                       |  | Controls and Procedures                                                                                                                                                                                                         |  | 26        
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                                                                                                                                
|                              |  |                                                                                                                                                                                                                                
|Item 1.                       |  | Legal Proceedings (not applicable)                                                                                                                                                                                              |  |           
|Item 1A.                      |  | Risk Factors (not applicable)                                                                                                                                                                                                   |  |           
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                                                                     |  | 27        
|Item 3.                       |  | Defaults Upon Senior Securities (not applicable)                                                                                                                                                                                |  |           
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                                                                                                                             |  | 28        
|Item 5.                       |  | Other Information (not applicable)                                                                                                                                                                                              |  |           
|Item 6.                       |  | Exhibits                                                                                                                                                                                                                        |  | 29        
|                              | 
|Signatures                    |  | 30                                                                                                                                                                                                                             

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 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 Hotels Corporation 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.



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Apple REIT Eight, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)



|                                                                                                                               |  |              |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                                                               |  | June 30,2008 |         |   | December 31,2007 |  
|ASSETS                                                                                                                         |  |              |         |   |                  |   |         |  
|Investment in hotels, net of accumulated depreciation of $7,975 and $333                                                       |  | $            | 817,035 |   |                  | $ | 87,310  |  
|Cash and cash equivalents                                                                                                      |  |              | 127,999 |   |                  |   | 562,009 |  
|Restricted cash-furniture, fixtures and other escrows                                                                          |  |              | 8,640   |   |                  |   |        |  
|Due from third party managers, net                                                                                             |  |              | 7,726   |   |                  |   | 370     |  
|Other assets, net                                                                                                              |  |              | 15,721  |   |                  |   | 21,082  |  
|                                                                                                                               |  |              |         |   |                  |   |         |  
|TOTAL ASSETS                                                                                                                   |  | $            | 977,121 |   |                  | $ | 670,771 |  
|                                                                                                                               |  |              |         |   |                  |   |         |  
|LIABILITIES                                                                                                                    |  |              |         |   |                  |   |         |  
|Accounts payable and accrued expenses                                                                                          |  | $            | 4,421   |   |                  | $ | 452     |  
|Intangible liabilities, net                                                                                                    |  |              | 9,868   |   |                  |   |        |  
|Note payable                                                                                                                   |  |              | 96,825  |   |                  |   |        |  
|                                                                                                                               |  |              |         |   |                  |   |         |  
|TOTAL LIABILITIES                                                                                                              |  |              | 111,114 |   |                  |   | 452     |  
|                                                                                                                               |  |              |         |   |                  |   |         |  
|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 91,303,023 and 68,942,756 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 91,303,023 and 68,942,756 shares             |  |              | 900,564 |   |                  |   | 679,361 |  
|Distributions greater than net income                                                                                          |  |              | (32,244 | ) |                  |   | (9,066  | )
|Accumulated other comprehensive loss                                                                                           |  |              | (2,337  | ) |                  |   |        |  
|                                                                                                                               |  |              |         |   |                  |   |         |  
|TOTAL SHAREHOLDERS EQUITY                                                                                                     |  |              | 866,007 |   |                  |   | 670,319 |  
|                                                                                                                               |  |              |         |   |                  |   |         |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                     |  | $            | 977,121 |   |                  | $ | 670,771 |  
|                                                                                                                               |  |              |         |   |                  |   |         |  

See notes to consolidated financial statements.

Note: The Company was initially capitalized on January 22, 2007 and commenced operations November 9, 2007.



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Apple REIT Eight, Inc.

Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

(In thousands, except per share data)



|                                                               |  |                               |        |   |                               |   |           |                             |  |   |                                                                             |   |  |   |           |  
|-------------------------------------------------------------- |  | ----------------------------- | ------ | - | ----------------------------- | - | --------- | --------------------------- |  | - | --------------------------------------------------------------------------- | - |  | - | --------- | -
|                                                               |  | Three monthsendedJune 30,2008 |        |   | Three monthsendedJune 30,2007 |   |           | Six monthsendedJune 30,2008 |  |   | For the periodJanuary 22, 2007 (InitialCapitalization) throughJune 30, 2007 |  
|Revenues:                                                      |  |                               |        |   |                               |   |           |                             |  |   |                                                                             |   |  |   |           |  
|Room revenue                                                   |  | $                             | 30,253 |   |                               | $ |          |                             |  | $ | 41,884                                                                      |   |  | $ |          |  
|Other revenue                                                  |  |                               | 1,966  |   |                               |   |          |                             |  |   | 2,946                                                                       |   |  |   |          |  
|                                                               |  |                               |        |   |                               |   |           |                             |  |   |                                                                             |   |  |   |           |  
|Total revenue                                                  |  |                               | 32,219 |   |                               |   |          |                             |  |   | 44,830                                                                      |   |  |   |          |  
|                                                               |  |                               |        |  
|Expenses:                                                      |  |                               |        |   |                               |   |           |                             |  |   |                                                                             |   |  |   |           |  
|Operating expense                                              |  |                               | 7,685  |   |                               |   |          |                             |  |   | 11,086                                                                      |   |  |   |          |  
|Hotel administrative expense                                   |  |                               | 2,525  |   |                               |   |          |                             |  |   | 3,578                                                                       |   |  |   |          |  
|Sales and marketing                                            |  |                               | 1,906  |   |                               |   |          |                             |  |   | 2,643                                                                       |   |  |   |          |  
|Utilities                                                      |  |                               | 1,112  |   |                               |   |          |                             |  |   | 1,727                                                                       |   |  |   |          |  
|Repair and maintenance                                         |  |                               | 1,495  |   |                               |   |          |                             |  |   | 2,111                                                                       |   |  |   |          |  
|Franchise fees                                                 |  |                               | 1,234  |   |                               |   |          |                             |  |   | 1,687                                                                       |   |  |   |          |  
|Management fees                                                |  |                               | 1,114  |   |                               |   |          |                             |  |   | 1,477                                                                       |   |  |   |          |  
|Taxes, insurance and other                                     |  |                               | 1,419  |   |                               |   |          |                             |  |   | 2,128                                                                       |   |  |   |          |  
|Land lease expense                                             |  |                               | 1,585  |   |                               |   |          |                             |  |   | 3,091                                                                       |   |  |   |          |  
|General and administrative                                     |  |                               | 1,271  |   |                               |   | 68        |                             |  |   | 2,415                                                                       |   |  |   | 68        |  
|Depreciation expense                                           |  |                               | 4,913  |   |                               |   |          |                             |  |   | 7,642                                                                       |   |  |   |          |  
|                                                               |  |                               |        |   |                               |   |           |                             |  |   |                                                                             |   |  |   |           |  
|Total expenses                                                 |  |                               | 26,259 |   |                               |   | 68        |                             |  |   | 39,585                                                                      |   |  |   | 68        |  
|                                                               |  |                               |        |  
|Operating income (loss)                                        |  |                               | 5,960  |   |                               |   | (68       | )                           |  |   | 5,245                                                                       |   |  |   | (68       | )
|                                                               |  |                               |        |  
|Investment income                                              |  |                               | 247    |   |                               |   |          |                             |  |   | 3,000                                                                       |   |  |   |          |  
|Interest income                                                |  |                               | 1,806  |   |                               |   |          |                             |  |   | 5,311                                                                       |   |  |   |          |  
|Interest expense                                               |  |                               | (715   | ) |                               |   | (5        | )                           |  |   | (742                                                                        | ) |  |   | (8        | )
|                                                               |  |                               |        |   |                               |   |           |                             |  |   |                                                                             |   |  |   |           |  
|Net income (loss)                                              |  | $                             | 7,298  |   |                               | $ | (73       | )                           |  | $ | 12,814                                                                      |   |  | $ | (76       | )
|                                                               |  |                               |        |   |                               |   |           |                             |  |   |                                                                             |   |  |   |           |  
|Unrealized loss on investments                                 |  |                               | (2,337 | ) |                               |   |          |                             |  |   | (2,337                                                                      | ) |  |   |          |  
|                                                               |  |                               |        |   |                               |   |           |                             |  |   |                                                                             |   |  |   |           |  
|Comprehensive income (loss)                                    |  | $                             | 4,961  |   |                               | $ | (73       | )                           |  | $ | 10,477                                                                      |   |  | $ | (76       | )
|                                                               |  |                               |        |   |                               |   |           |                             |  |   |                                                                             |   |  |   |           |  
|Basic and diluted earnings (loss) per common share             |  | $                             | 0.08   |   |                               | $ | (7,274.90 | )                           |  | $ | 0.16                                                                        |   |  | $ | (7,613.10 | )
|                                                               |  |                               |        |   |                               |   |           |                             |  |   |                                                                             |   |  |   |           |  
|Weighted average common shares outstanding - basic and diluted |  |                               | 89,814 |   |                               |   | 10        |                             |  |   | 82,605                                                                      |   |  |   | 10        |  
|Distributions declared and paid per common share               |  | $                             | 0.22   |   |                               | $ |          |                             |  | $ | 0.44                                                                        |   |  | $ |          |  
|                                                               |  |                               |        |   |                               |   |           |                             |  |   |                                                                             |   |  |   |           |  

See notes to consolidated financial statements.

Note: The Company was initially capitalized on January 22, 2007 and commenced operations November 9, 2007.



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Apple REIT Eight, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)



|                                                                                        |  |                              |          |   |                                                                             |   |      |  
|--------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | - | --------------------------------------------------------------------------- | - | ---- | -
|                                                                                        |  | Six monthsendedJune 30, 2008 |          |   | For the periodJanuary 22, 2007 (InitialCapitalization) throughJune 30, 2007 |  
|Cash flow from (used in) operating activities:                                          |  |                              |          |   |                                                                             |   |      |  
|Net income/(loss)                                                                       |  | $                            | 12,814   |   |                                                                             | $ | (76  | )
|Adjustments to reconcile net income to cash provided by (used in) operating activities: |  |                              |          |   |                                                                             |   |      |  
|Depreciation and amortization                                                           |  |                              | 7,642    |   |                                                                             |   |     |  
|Stock option expense                                                                    |  |                              | 61       |   |                                                                             |   |      |  
|Net realized gain on sale of investments                                                |  |                              | (2,545   | ) |                                                                             |   |     |  
|Changes in operating assets and liabilities:                                            |  |                              |          |   |                                                                             |   |      |  
|Increase in other assets                                                                |  |                              | (961     | ) |                                                                             |   |     |  
|Increase in funds due from third party managers                                         |  |                              | (7,436   | ) |                                                                             |   |     |  
|Increase in accounts payable and accrued expenses                                       |  |                              | 2,552    |   |                                                                             |   | 67   |  
|                                                                                        |  |                              |          |   |                                                                             |   |      |  
|Net cash provided by (used in) operating activities                                     |  |                              | 12,127   |   |                                                                             |   | (9   | )
|                                                                                        |  |                             
|Cash flow used in investing activities:                                                 |  |                              |          |   |                                                                             |   |      |  
|Increase in capital improvement reserves                                                |  |                              | (448     | ) |                                                                             |   |     |  
|Cash paid for the acquisition of hotel properties                                       |  |                              | (617,961 | ) |                                                                             |   |     |  
|Deposits and other disbursements for the potential acquisition of hotel properties      |  |                              | (2,399   | ) |                                                                             |   |     |  
|Cost of investments in equity securities - available for sale                           |  |                              | (30,562  | ) |                                                                             |   |     |  
|Proceeds from sale of equity securities - available for sale                            |  |                              | 22,692   |   |                                                                             |   |     |  
|Capital improvements                                                                    |  |                              | (1,100   | ) |                                                                             |   |     |  
|                                                                                        |  |                              |          |   |                                                                             |   |      |  
|Net cash used in investing activities                                                   |  |                              | (629,778 | ) |                                                                             |   |     |  
|                                                                                        |  |                             
|Cash flow from financing activities:                                                    |  |                              |          |   |                                                                             |   |      |  
|Net proceeds (cost) related to issuance of common stock                                 |  |                              | 221,142  |   |                                                                             |   | (223 | )
|Cash distributions paid to common shareholders                                          |  |                              | (35,992  | ) |                                                                             |   |     |  
|Mortgage principal payments                                                             |  |                              | (146     | ) |                                                                             |   |     |  
|Proceeds from line of credit                                                            |  |                              |         |   |                                                                             |   | 250  |  
|Deferred financing costs                                                                |  |                              | (1,363   | ) |                                                                             |   |     |  
|                                                                                        |  |                              |          |   |                                                                             |   |      |  
|Net cash provided by financing activities                                               |  |                              | 183,641  |   |                                                                             |   | 27   |  
|                                                                                        |  |                              |          |   |                                                                             |   |      |  
|Net increase/(decrease) in cash and cash equivalents                                    |  |                              | (434,010 | ) |                                                                             |   | 18   |  
|Cash and cash equivalents, beginning of period                                          |  |                              | 562,009  |   |                                                                             |   | 24   |  
|                                                                                        |  |                              |          |   |                                                                             |   |      |  
|Cash and cash equivalents, end of period                                                |  | $                            | 127,999  |   |                                                                             | $ | 42   |  
|                                                                                        |  |                              |          |   |                                                                             |   |      |  
|Non-cash transactions:                                                                  |  |                              |          |   |                                                                             |   |      |  
|Notes payable assumed in acquisitions                                                   |  | $                            | 96,395   |   |                                                                             | $ |     |  
|Intangible liabilities assumed in acquisition                                           |  | $                            | 10,242   |   |                                                                             | $ |     |  

See notes to consolidated financial statements.

Note: The Company was initially capitalized on January 22, 2007 and commenced operations November 9, 2007.



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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 instructions for Article 10 of Regulation S-X. Accordingly, they do
not include all of the information required by accounting principles generally accepted in the United States. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have
been included. These unaudited financials should be read in conjunction with the Companys audited financial statements included in its 2007 Annual Report on Form 10-K. Operating results for the three and six month periods ended June 30,
2008 are not necessarily indicative of the results that may be expected for the period ending December 31, 2008.

Organization

Apple REIT Eight, Inc. (the Company) is a Virginia corporation that intends to qualify 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 share of common stock and one share of Series A preferred stock, were purchased by Apple Eight Advisors, Inc. (A8A), owned by Glade M. Knight, the Companys Chairman and CEO, 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 purchased its first hotel. The Companys fiscal year end is December 31. 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.

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 financial statements and accompanying notes. Actual results could differ from those estimates.

Offering Costs

In April 2008, the Company completed its best-efforts offering of Units by David Lerner Associates, Inc., (the
Managing Dealer), which received a selling commission and a marketing expense allowance based on proceeds of the Units sold. Additionally, the Company incurred other offering costs including costs for legal, accounting and reporting
services. These offering costs are recorded by the Company as a reduction of shareholders equity. From the Companys initial capitalization on January 22, 2007 through the conclusion of the offering, the Company sold
91.1 million Units for gross proceeds of $1.0 billion and proceeds net of offering costs of $899 million.

Investments

The Company owns equity securities that are classified as available-for-sale, in accordance with Statement of Financial Accounting Standards No. 115, Accounting for
CertainInvestments in Debt and Equity Securities, and are included in Other assets, net in the Companys Consolidated Balance Sheets at fair value, with unrealized gains and losses reported as accumulated other comprehensive income or
loss.



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Under Financial Accounting Standards Board Statement No. 157 the investments are classified as Level 1 as the fair value is determined based on quoted
prices of identical investments. Realized gains and losses on the sale of investments, as well as declines in value of a security considered to be other than temporary, are recognized in operations on the specific identification basis. As of
June 30, 2008, the Company owned marketable securities with a cost of $10.4 million and a fair value of approximately $8.1 million. The Company realized gains on sale of equity securities of $2.5 million during the six months ending
June 30, 2008 which are included in Investment income in the Companys Consolidated Statements of Operations. The Company reviews the status of each security quarterly to determine whether an other-than-temporary impairment has occurred.
Based on this review, the Company has concluded none of the available-for-sale securities has experienced an other-than-temporary impairment.

Earnings
Per Common Share

Basic earnings per common share is computed based upon the weighted average number of 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 potential common shares with a dilutive effect for the six months ended 2008 or during the period
January 22, 2007 through June 30, 2007. 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 September 2006, the Financial
Accounting Standards Board (FASB) issued Statement No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair
value measurements. The Statement applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, this Statement does not require any new fair value measurements. In February 2008, the FASB released FASB
Staff Position (FSP) FAS 157-2  Effective Date of FASB Statement No. 157, which defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and liabilities, except
those items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The effective date of the statement related to those items not covered by the deferral (all financial assets and
liabilities or nonfinancial assets and liabilities recorded at fair value on a recurring basis) is for fiscal years beginning after November 15, 2007. The adoption of this statement did not have and is not anticipated to have a material impact
on the Companys results of operations or financial position.

In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities(SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the guidance is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective as of the beginning
of the first fiscal year that begins after November 15, 2007. SFAS 159 is effective for the Company beginning January 1, 2008. The Company has elected not to use the fair value measurement provisions of SFAS 159 and therefore, adoption of
this standard did not have an impact on the financial statements.

In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an Amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entitys derivative
instruments and hedging activities and their effects on the entitys financial position, financial performance, and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). It also applies to non-derivative hedging instruments and all hedged items designated and qualifying as hedges under SFAS 133. SFAS 161 is effective prospectively for financial
statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not currently have any instruments that qualify within the scope of SFAS 133, and therefore the
adoption of this statement is not anticipated to have a material impact on the Companys financial statements.



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In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles
(SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with
generally accepted accounting principles in the United States. SFAS 162 is effective 60 days following the Securities and Exchange Commissions (SEC) approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 162 on its financial statements.

2. Investments in Hotels

The Company has purchased 36 hotels in
2008. The following table sets forth the location, brand, manager, gross purchase price, number of hotel rooms and date of purchase by the Company for each hotel acquired. All dollar amounts are in thousands.



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|                    |  |                      |  |               |  |                    |         |       |       |                 |          
|------------------- |  | -------------------- |  | ------------- |  | ------------------ | ------- | ----- | ----- | --------------- | ---------
|Location            |  | Brand                |  | Manager       |  | GrossPurchasePrice |         | Rooms |       | Date ofPurchase
|Port Wentworth, GA  |  | Hampton Inn          |  | Newport       |  | $                  | 10,780  |       | 106   |                 | 1/2/2008 
|New York, NY        |  | Independent          |  | Marriott      |  |                    | 99,000  |       | 200   |                 | 1/4/2008 
|Marlborough, MA     |  | Residence Inn        |  | True North    |  |                    | 20,200  |       | 112   |                 | 1/15/2008
|Annapolis, MD       |  | Hilton Garden Inn    |  | White         |  |                    | 25,000  |       | 126   |                 | 1/15/2008
|Matthews, NC        |  | Hampton Inn          |  | Newport       |  |                    | 11,300  |       | 92    |                 | 1/15/2008
|Dunn, NC            |  | Hampton Inn          |  | McKibbon      |  |                    | 12,500  |       | 120   |                 | 1/24/2008
|Tallahassee, FL     |  | Hilton Garden Inn    |  | LBA           |  |                    | 13,200  |       | 85    |                 | 1/25/2008
|Rogers, AR          |  | Residence Inn        |  | Intermountain |  |                    | 11,744  |       | 88    |                 | 2/29/2008
|Rogers, AR          |  | Fairfield Inn        |  | Intermountain |  |                    | 8,000   |       | 99    |                 | 2/29/2008
|Westford, MA        |  | Hampton Inn & Suites |  | True North    |  |                    | 15,250  |       | 110   |                 | 3/6/2008 
|Concord, NC         |  | Hampton Inn          |  | Newport       |  |                    | 9,200   |       | 101   |                 | 3/7/2008 
|Sacramento, CA      |  | Hilton Garden Inn    |  | Dimension     |  |                    | 27,630  |       | 154   |                 | 3/7/2008 
|Texarkana, TX       |  | TownePlace Suites    |  | Intermountain |  |                    | 9,057   |       | 85    |                 | 3/7/2008 
|Texarkana, TX       |  | Courtyard            |  | Intermountain |  |                    | 12,924  |       | 90    |                 | 3/7/2008 
|Sanford, FL         |  | SpringHill Suites    |  | LBA           |  |                    | 11,150  |       | 105   |                 | 3/14/2008
|Springdale, AR      |  | Residence Inn        |  | Intermountain |  |                    | 5,606   |       | 72    |                 | 3/14/2008
|Overland Park, KS   |  | SpringHill Suites    |  | True North    |  |                    | 8,850   |       | 102   |                 | 3/17/2008
|Westford, MA        |  | Residence Inn        |  | True North    |  |                    | 14,850  |       | 108   |                 | 4/30/2008
|Cypress, CA         |  | Courtyard            |  | Dimension     |  |                    | 31,164  |       | 180   |                 | 4/30/2008
|Overland Park, KS   |  | Residence Inn        |  | True North    |  |                    | 15,850  |       | 120   |                 | 4/30/2008
|Kansas City, MO     |  | Residence Inn        |  | True North    |  |                    | 17,350  |       | 106   |                 | 4/30/2008
|Fayetteville, NC    |  | Residence Inn        |  | Intermountain |  |                    | 12,201  |       | 92    |                 | 5/9/2008 
|Burbank, CA         |  | Residence Inn        |  | Marriott      |  |                    | 50,500  |       | 166   |                 | 5/13/2008
|Oceanside, CA       |  | Residence Inn        |  | Marriott      |  |                    | 28,750  |       | 125   |                 | 5/13/2008
|Greenville, SC      |  | Residence Inn        |  | McKibbon      |  |                    | 8,700   |       | 78    |                 | 5/19/2008
|Winston-Salem, NC   |  | Courtyard            |  | McKibbon      |  |                    | 13,500  |       | 122   |                 | 5/19/2008
|Birmingham, AL      |  | Homewood Suites      |  | McKibbon      |  |                    | 16,500  |       | 95    |                 | 5/23/2008
|Hilton Head, SC     |  | Hilton Garden Inn    |  | McKibbon      |  |                    | 13,500  |       | 104   |                 | 5/29/2008
|Virginia Beach, VA  |  | Courtyard            |  | Crestline     |  |                    | 27,100  |       | 141   |                 | 6/5/2008 
|Virginia Beach, VA  |  | Courtyard            |  | Crestline     |  |                    | 39,700  |       | 160   |                 | 6/5/2008 
|Carolina Beach, NC  |  | Courtyard            |  | Crestline     |  |                    | 24,214  |       | 144   |                 | 6/5/2008 
|Charlottesville, VA |  | Courtyard            |  | Crestline     |  |                    | 27,900  |       | 137   |                 | 6/5/2008 
|Wichita, KS         |  | Courtyard            |  | Intermountain |  |                    | 8,874   |       | 90    |                 | 6/13/2008
|Tampa, FL           |  | TownePlace Suites    |  | McKibbon      |  |                    | 11,250  |       | 95    |                 | 6/17/2008
|Jacksonville, FL    |  | Homewood Suites      |  | McKibbon      |  |                    | 23,250  |       | 119   |                 | 6/17/2008
|Tulare, CA          |  | Hampton Inn & Suites |  | Inn Ventures  |  |                    | 10,331  |       | 86    |                 | 6/26/2008
|                    |  |                      |  |               |  |                    |         |       |       |                 |          
|                    |  |                      |  |               |  | $                  | 706,875 |       | 4,115 |                 |          
|                    |  |                      |  |               |  |                    |         |       |       |                 |          

No goodwill was recorded in connection with any of the acquisitions.

The Company assumed approximately $96.4 million of mortgage indebtedness during the first half of 2008, associated with 11 of its hotel acquisitions. The following table
summarizes the interest rate, maturity date and principal amount assumed associated with each mortgage. All dollar amounts are in thousands.



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|                  |  |                   |  |              |   |  |              |  |                  |       
|----------------- |  | ----------------- |  | ------------ | - |  | ------------ |  | ---------------- | ------
|Location          |  | Brand             |  | InterestRate |   |  | MaturityDate |  | PrincipalAssumed
|Concord, NC       |  | Hampton Inn       |  | 6.10         | % |  | 3/1/2017     |  | $                | 5,143 
|Westford, MA      |  | Residence Inn     |  | 6.50         | % |  | 11/10/2010   |  |                  | 7,199 
|Overland Park, KS |  | Residence Inn     |  | 5.74         | % |  | 4/1/2015     |  |                  | 7,079 
|Kansas City, MO   |  | Residence Inn     |  | 5.74         | % |  | 11/1/2015    |  |                  | 11,645
|Fayetteville, NC  |  | Residence Inn     |  | 8.12         | % |  | 11/1/2011    |  |                  | 7,204 
|Greenville, SC    |  | Residence Inn     |  | 6.03         | % |  | 2/8/2017     |  |                  | 6,512 
|Winston-Salem, NC |  | Courtyard         |  | 5.94         | % |  | 12/8/2016    |  |                  | 8,000 
|Birmingham, AL    |  | Homewood Suites   |  | 6.03         | % |  | 2/8/2017     |  |                  | 11,815
|Hilton Head, SC   |  | Hilton Garden Inn |  | 6.29         | % |  | 4/11/2016    |  |                  | 6,371 
|Tampa, FL         |  | TownePlace Suites |  | 6.06         | % |  | 2/8/2017     |  |                  | 8,268 
|Jacksonville, FL  |  | Homewood Suites   |  | 6.03         | % |  | 2/8/2017     |  |                  | 17,159
|                  |  |                   |  |              |   |  |              |  |                  |       
|                  |  |                   |  |              |   |  |              |  | $                | 96,395
|                  |  |                   |  |              |   |  |              |  |                  |       

In addition to the gross purchase price for the hotels in New York, New York, Tallahassee, Florida, and Virginia
Beach, Virginia, the Company assumed land leases. The remaining minimum lease payments for the New York lease are $230.4 million and the term runs through August 2046. The remaining minimum lease payments for the Tallahassee lease are $3.2 million
and the term runs through December 2088. The remaining minimum lease payments for the Virginia Beach property are $0.9 million and the term runs through December 31, 2023.

Also, as part of the purchase of the New York, New York hotel, the Company assumed six leases for retail space in the building. The remaining terms of these leases range from five to ten years and the remaining
minimum lease payments to be received are $11.2 million. Rental income from these leases is recorded in Other Revenue in the Companys Consolidated Statements of Operations.

In accordance with Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS 141), the Company allocates the purchase
price of acquired properties to tangible and identified intangible assets and liabilities based on their respective fair values. In conjunction with the Companys acquisition of the hotel in New York, New York in 2008, amounts were identified
and allocated for market lease values and tenant relationships and are included in Intangible liabilities, net in the Companys Consolidated Balance Sheets. These amounts are being amortized to rental income and land lease expense over the
remaining terms of the associated contracts. The total value of these liabilities was $10.2 million.

The purchase price for the hotels, net of debt
assumed, was funded by the Companys cash on hand. Additionally, the Company used cash on hand to pay 2% of the aggregate gross purchase price for the 36 hotels purchased in the first six months of 2008, totaling $14.1 million, as a brokerage
commission to Apple Suites Realty Group, Inc. (ASRG). This entity is wholly-owned by Glade M. Knight, the Companys Chairman and Chief Executive Officer. These costs have been capitalized to Investment in hotels, net.

At June 30, 2008, the Companys investment in real estate consisted of the following (in thousands):



|                                  |  |   |         |  
|--------------------------------- |  | - | ------- | -
|Land                              |  | $ | 70,098  |  
|Building and Improvements         |  |   | 714,362 |  
|Furniture, Fixtures and Equipment |  |   | 40,550  |  
|                                  |  |   |         |  
|                                  |  |   | 825,010 |  
|Less Accumulated Depreciation     |  |   | (7,975  | )
|                                  |  |   |         |  
|Investment in hotels, net         |  | $ | 817,035 |  
|                                  |  |   |         |  

As of June 30, 2008, the Company has entered into purchase contracts for 14 additional hotels. Eight of the
hotels were under construction as of June 30, 2008, with completion expected within the next three to eighteen months. The other six hotels are expected to close in the next four months. Although the



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Company is working towards acquiring these hotels, there are many conditions to closing that have not yet been satisfied and there can be no assurance that
all of the conditions to closing will be satisfied. Contract deposits for these hotels are included in Other assets, net in the Companys Consolidated Balance Sheets as of June 30, 2008, and in Deposits and other disbursements for the
potential acquisition of hotel properties in the Companys Consolidated Statements of Cash Flows. The following table summarizes the location, brand, number of rooms, refundable contract deposits, and gross purchase price for each hotel. All
dollar amounts are in thousands.



|                  |  |                        |  |       |  |              |       |                     |   |         |  
|----------------- |  | ---------------------- |  | ----- |  | ------------ | ----- | ------------------- | - | ------- | -
|Location          |  | Brand                  |  | Rooms |  | DepositsPaid |       | GrossPurchase Price |  
|Columbia, SC      |  | Hilton Garden Inn      |  | 143   |  | $            | 658   |                     | $ | 21,200  |  
|Memphis, TN       |  | Hilton Garden Inn      |  | 120   |  |              | 250   |                     |   | 17,150  |  
|Orlando, FL       |  | Fairfield Inn          |  | 200   |  |              | 500   |                     |   | (a      | )
|Orlando, FL       |  | SpringHill Suites      |  | 200   |  |              | 500   |                     |   | (a      | )
|San Jose, CA      |  | Homewood Suites        |  | 140   |  |              | 125   |                     |   | (b      | )
|Tukwila, WA       |  | Homewood Suites        |  | 106   |  |              | 125   |                     |   | (b      | )
|Baton Rouge, LA   |  | SpringHill Suites      |  | 119   |  |              | 100   |                     |   | 15,100  |  
|Overland Park, KS |  | Fairfield Inn          |  | 110   |  |              | 400   |                     |   | 12,050  |  
|Rochester, MN     |  | Hampton Inn & Suites   |  | 124   |  |              | 100   |                     |   | 14,136  |  
|Chesapeake, VA    |  | Marriott               |  | 226   |  |              |      |                     |   | 38,400  |  
|Wilmington, NC    |  | Fairfield Inn & Suites |  | 122   |  |              |      |                     |   | 14,800  |  
|Suffolk, VA       |  | TownePlace Suites      |  | 72    |  |              | 559   |                     |   | 10,000  |  
|Suffolk, VA       |  | Courtyard              |  | 92    |  |              | 683   |                     |   | 12,500  |  
|Savannah, GA      |  | Hilton Garden Inn      |  | 105   |  |              | 150   |                     |   | 12,500  |  
|                  |  |                        |  |       |  |              |       |                     |   |         |  
|                  |  |                        |  | 1,879 |  | $            | 4,150 |                     | $ | 256,786 |  
|                  |  |                        |  |       |  |              |       |                     |   |         |  



|(a) | These two hotels are covered by the same purchase contract, which provides for a combined gross purchase price of $54,800. The total shown for the table includes this combined
amount.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | These two hotels are covered by the same purchase contract, which provides for a combined gross purchase price of $34,150. The total shown for the table includes this combined
amount.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3. Related Parties

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

The Company has negotiated and entered into, a Property Acquisition and Disposition Agreement with ASRG, to provide brokerage services for the acquisition and
disposition of real estate assets for the Company. 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 June 30, 2008, payments to ASRG for services under the terms of this contract have totaled $15.8 million since inception, which were capitalized as a part of the purchase price of the hotels.

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. Advisory fees and other reimbursable expenses incurred by the
Company under the A8A advisory agreement during the six months ended June 30, 2008 were $1.3 million. These expenses are recorded in General and Administrative expense. For the period January 22, 2007 through June 30, 2007, the
Company incurred $67 thousand for these expenses.

ASRG and A8A are 100% owned by Glade M. Knight, Chairman, Chief Executive Officer and President of the
Company. Mr. Knight is also Chairman and Chief Executive Officer of Apple REIT Six, Inc., Apple



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REIT Seven, Inc. and Apple REIT Nine, Inc. (a newly formed company that intends to qualify as a diversified REIT). Members of the Companys Board of
Directors are also on the Board of Directors of Apple REIT Six, Inc., Apple REIT Seven, Inc. and Apple REIT Nine, Inc.

4. 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. Since inception through June 30, 2008, 177,472 Units were issued under the plan representing approximately $2.0 million.

5. Series B
Convertible Preferred Stock

The Company has issued 240,000 Series B convertible preferred shares to Glade M. Knight, Chairman, Chief Executive Officer
and President of the Company, in exchange for the payment by him of $0.10 per Series B convertible preferred share, or an aggregate of $24,000. The Series B convertible preferred shares are convertible into common shares pursuant to the formula and
on the terms and conditions set forth below.

There are no dividends payable on the Series B convertible preferred shares. Holders of more than two-thirds
of the Series B convertible preferred shares must approve any proposed amendment to the articles of incorporation that would adversely affect the Series B convertible preferred shares.

Upon the Companys liquidation, the holder of the Series B convertible preferred shares is entitled to a priority liquidation payment before any distribution of liquidation proceeds to the holders of the common
shares. However, the priority liquidation payment of the holder of the Series B convertible preferred shares is junior to the holders of the Series A preferred shares distribution rights. The holder of a Series B convertible preferred share is
entitled to a liquidation payment of $11 per number of common shares each Series B convertible preferred share would be convertible into according to the formula described below. In the event that the liquidation of the Companys assets results
in proceeds that exceed the distribution rights of the Series A preferred shares and the Series B convertible preferred shares, the remaining proceeds will be distributed between the common shares and the Series B convertible preferred shares, on an
as converted basis.

Each holder of outstanding Series B convertible preferred shares shall have the right to convert any of such shares into Common Shares
of the Company upon and for 180 days following the occurrence of any of the following events:

(1) substantially all of the Companys
assets, stock or business is sold or transferred through exchange, merger, consolidation, lease, share exchange, sale or otherwise, other than a sale of assets in liquidation, dissolution or winding up of the Company;

(2) the termination or expiration without renewal of the advisory agreement with A8A, or if the Company ceases to use ASRG to provide property acquisition
and disposition services; or

(3) the Companys common shares are listed on any securities exchange or quotation system or in any
established market.

Upon the occurrence of any conversion event, each Series B convertible preferred share may be converted into a number of common shares
based upon the gross proceeds raised through the date of conversion in the Companys $1 billion offering. With the completion of the Companys $1 billion offering in April 2008, each Series B convertible preferred share may be converted
into 24.17104 common shares upon the occurrence of any conversion event.



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In the event that the Company raises additional gross proceeds in a subsequent public offering, each Series B convertible
preferred share may be converted into an additional number of common shares based on the additional gross proceeds raised through the date of conversion in a subsequent public offering according to the following formula: (X/50 million) x 1.20568,
where X is the additional gross proceeds rounded down to the nearest 50 million.

No additional consideration is due upon the conversion of the Series B
convertible preferred shares. The conversion into common shares of the Series B convertible preferred shares will result in dilution of the shareholders interests.

Expense related to the issuance of 240,000 Series B convertible preferred shares to Mr. Knight will be recognized at such time when the number of common shares to be issued for conversion of the Series B shares
can be reasonably estimated and the event triggering the conversion of the Series B shares to common shares occurs. The expense will be measured as the difference between the fair value of the common stock for which the Series B shares can be
converted and the amounts paid for the Series B shares. Although the fair market value cannot be determined at this time, compensation expense could range from $0 to in excess of $63 million (assumes $11 per unit fair market value) which represents
approximately 5.8 million shares of common stock.

6. Segments

The Company separately evaluates the performance of each of its hotel properties. Until the acquisition of the hotel in New York, New York in 2008, each hotel owned was not individually significant; therefore, the
Company consolidated all hotels into one reportable segment. Due to the significance of the New York, New York hotel, the Company now has two reportable segments. The Company does not allocate corporate-level accounts to its operating segments,
including corporate general and administrative expenses, non-operating interest income and interest expense. Dollar amounts are in thousands.



|                                   |  |                                          |         |   |                 |   |         |           |  |              |         |  |   |        
|---------------------------------- |  | ---------------------------------------- | ------- | - | --------------- | - | ------- | --------- |  | ------------ | ------- |  | - | -------
|                                   |  | For the three months ended June 30, 2008
|                                   |  | New York,New YorkHotel                   |         |   | All OtherHotels |   |         | Corporate |  | Consolidated
|Total revenue                      |  | $                                        | 4,642   |   |                 | $ | 27,577  |           |  | $            |        |  | $ | 32,219 
|Hotel operating expenses           |  |                                          | 4,093   |   |                 |   | 15,982  |           |  |              |        |  |   | 20,075 
|                                   |  |                                          |         |   |                 |   |         |           |  |              |         |  |   |        
|Operating income                   |  |                                          | 549     |   |                 |   | 11,595  |           |  |              |        |  |   | 12,144 
|Interest income/(expense)          |  |                                          |        |   |                 |   | (715    | )         |  |              | 1,806   |  |   | 1,091  
|Investment income                  |  |                                          |        |   |                 |   |        |           |  |              | 247     |  |   | 247    
|Depreciation/amortization          |  |                                          | 1,006   |   |                 |   | 3,907   |           |  |              |        |  |   | 4,913  
|General and administrative expense |  |                                          |        |   |                 |   |        |           |  |              | 1,271   |  |   | 1,271  
|                                   |  |                                          |         |   |                 |   |         |           |  |              |         |  |   |        
|Net income/(loss)                  |  | $                                        | (457    | ) |                 | $ | 6,973   |           |  | $            | 782     |  | $ | 7,298  
|                                   |  |                                          |         |   |                 |   |         |           |  |              |         |  |   |        
|Total assets                       |  | $                                        | 112,057 |   |                 | $ | 723,735 |           |  | $            | 141,329 |  | $ | 977,121



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|                                   |  |                                        |         |   |                 |   |         |           |  |              |         |  |   |        
|---------------------------------- |  | -------------------------------------- | ------- | - | --------------- | - | ------- | --------- |  | ------------ | ------- |  | - | -------
|                                   |  | For the six months ended June 30, 2008
|                                   |  | New York,New YorkHotel                 |         |   | All OtherHotels |   |         | Corporate |  | Consolidated
|Total revenue                      |  | $                                      | 7,482   |   |                 | $ | 37,348  |           |  | $            |        |  | $ | 44,830 
|Hotel operating expenses           |  |                                        | 7,462   |   |                 |   | 22,066  |           |  |              |        |  |   | 29,528 
|                                   |  |                                        |         |   |                 |   |         |           |  |              |         |  |   |        
|Operating income                   |  |                                        | 20      |   |                 |   | 15,282  |           |  |              |        |  |   | 15,302 
|Interest income/(expense)          |  |                                        |        |   |                 |   | (742    | )         |  |              | 5,311   |  |   | 4,569  
|Investment income                  |  |                                        |        |   |                 |   |        |           |  |              | 3,000   |  |   | 3,000  
|Depreciation/amortization          |  |                                        | 1,999   |   |                 |   | 5,643   |           |  |              |        |  |   | 7,642  
|General and administrative expense |  |                                        |        |   |                 |   |        |           |  |              | 2,415   |  |   | 2,415  
|                                   |  |                                        |         |   |                 |   |         |           |  |              |         |  |   |        
|Net income/(loss)                  |  | $                                      | (1,979  | ) |                 | $ | 8,897   |           |  | $            | 5,896   |  | $ | 12,814 
|                                   |  |                                        |         |   |                 |   |         |           |  |              |         |  |   |        
|Total assets                       |  | $                                      | 112,057 |   |                 | $ | 723,735 |           |  | $            | 141,329 |  | $ | 977,121

7. Pro Forma Information (unaudited)

The following unaudited pro forma information for the three and six months ended June 30, 2008 is presented as if the acquisitions of the Companys hotels acquired after December 31, 2007 had occurred
on the latter of January 1, 2008 or the opening date of the hotel. The pro forma information does not purport to represent what the Companys results of operations would actually have been if such transactions, in fact, had occurred on
these applicable dates, nor does it purport to represent the results of operations for future periods. Amounts are in thousands, except per share data.



|                                         |  |                                |        |                              |   |       
|---------------------------------------- |  | ------------------------------ | ------ | ---------------------------- | - | ------
|                                         |  | Three monthsendedJune 30, 2008 |        | Six monthsendedJune 30, 2008
|Hotel revenues                           |  | $                              | 44,313 |                              | $ | 79,704
|Net income                               |  | $                              | 9,466  |                              | $ | 15,395
|Net income per share - basic and diluted |  | $                              | 0.10   |                              | $ | 0.18  

The pro forma information reflects adjustments for actual revenues and expenses of the hotels acquired during the
six months ended June 30, 2008 for the respective period owned prior to acquisition by the Company. Net income has been adjusted as follows: (1) interest income and expense has been adjusted to reflect the reduction in cash and cash
equivalents required to fund the acquisitions; (2) interest expense related to prior owners debt which was not assumed has been eliminated; and (3) depreciation has been adjusted based on the Companys basis in the hotels.

8. Subsequent Events

In July 2008, the Company
declared and paid approximately $6.7 million in distributions to its common shareholders, or $0.073334 per outstanding common share.

On July 2, 2008,
the Company closed on the purchase of a Homewood Suites hotel located in San Jose, California. The total purchase price for this hotel, which contains a total of 140 guest rooms, was $21.9 million.

On July 2, 2008, the Company closed on the purchase of a Homewood Suites hotel located in Tukwila, Washington. The total purchase price for this hotel, which
contains a total of 106 guest rooms, was $15.7 million.



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On July 2, 2008, the Company closed on the purchase of a Courtyard hotel located in Suffolk, Virginia. The gross
purchase price for this hotel, which contains a total of 92 guest rooms, was $12.5 million. The Company assumed an existing mortgage loan on the property with a principal balance of $8.6 million, an annual fixed interest rate of 6.03% and a maturity
date in 2017.

On July 2, 2008, the Company closed on the purchase of a TownePlace Suites hotel located in Suffolk, Virginia. The gross purchase price
for this hotel, which contains a total of 72 guest rooms, was $10.0 million. The Company assumed an existing mortgage loan on the property with a principal balance of $6.6 million, an annual fixed interest rate of 6.03% and a maturity date in 2017.

On July 31, 2008, the Company closed on the purchase of a Hilton Garden Inn hotel located in Savannah, Georgia. The gross purchase price for this
hotel, which contains a total of 105 guest rooms, was $12.5 million. The Company assumed an existing mortgage loan on the property with a principal balance of $5.7 million, an annual fixed interest rate of 5.87% and a maturity date in 2017.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operation
|------- | ------------------------------------------------------------------------------------

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 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.

Overview

Apple REIT Eight, Inc. together with its wholly owned subsidiaries (the Company) is a Virginia corporation that intends to qualify as a
real estate investment trust (REIT) for federal income tax purposes. The Company, which owned 42 properties as of June 30, 2008 and has a limited operating history, was formed to invest in hotels, residential apartment communities
and other real estate in selected 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, Chief Executive Officer and President. 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, in general, has met the Companys expectations for the period owned. In evaluating financial condition and operating performance, the most important matters on which the
Company focuses are revenue measurements, such as average occupancy, average daily rate and revenue per available room, and expenses, such as hotel operating expenses, general and administrative and other expenses described below. The following is a
summary of results for the three and six months ended June 30, 2008.



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|                                        |  |                                |        |   |                  |     |   |                              |   |        |                  |  |     |  
|--------------------------------------- |  | ------------------------------ | ------ | - | ---------------- | --- | - | ---------------------------- | - | ------ | ---------------- |  | --- | -
|(in thousands, except statistical data) |  | Three monthsendedJune 30, 2008 |        |   | PercentofRevenue |     |   | Six monthsendedJune 30, 2008 |   |        | PercentofRevenue | 
|Total revenues                          |  | $                              | 32,219 |   |                  | 100 | % |                              | $ | 44,830 |                  |  | 100 | %
|Hotel direct expenses                   |  |                                | 17,071 |   |                  | 53  | % |                              |   | 24,309 |                  |  | 54  | %
|Taxes, insurance and other expense      |  |                                | 1,419  |   |                  | 4   | % |                              |   | 2,128  |                  |  | 5   | %
|Land lease expense                      |  |                                | 1,585  |   |                  | 5   | % |                              |   | 3,091  |                  |  | 7   | %
|General and administrative expense      |  |                                | 1,271  |   |                  | 4   | % |                              |   | 2,415  |                  |  | 5   | %
|Depreciation                            |  |                                | 4,913  |   |                  | 15  | % |                              |   | 7,642  |                  |  | 17  | %
|Interest income, net of expense         |  |                                | 1,091  |   |                  |     |   |                              |   | 4,569  |                  |  |     |  
|Investment income                       |  |                                | 247    |   |                  |     |   |                              |   | 3,000  |                  |  |     |  
|                                        |  |                                |        |  
|Number of hotels                        |  |                                | 42     |   |                  |     |   |                              |   | 42     |                  |  |     |  
|Average Daily Rate (ADR)                |  | $                              | 122    |   |                  |     |   |                              | $ | 120    |                  |  |     |  
|Occupancy                               |  |                                | 77     | % |                  |     |   |                              |   | 73     | %                |  |     |  
|RevPAR                                  |  | $                              | 94     |   |                  |     |   |                              | $ | 88     |                  |  |     |  

Hotels Owned

The following table summarizes the location, brand, manager, date acquired, number of rooms and gross purchase price for each of the 42 hotels the Company owned at June 30, 2008. All dollar amounts are in thousands.



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|                    |  |                      |  |               |  |                     |         |       |       |                 |           
|------------------- |  | -------------------- |  | ------------- |  | ------------------- | ------- | ----- | ----- | --------------- | ----------
|Location            |  | Brand                |  | Manager       |  | GrossPurchase Price |         | Rooms |       | Date ofPurchase
|Somerset, NJ        |  | Courtyard            |  | Newport       |  | $                   | 16,000  |       | 162   |                 | 11/9/2007 
|Greensboro, NC      |  | SpringHill Suites    |  | Newport       |  |                     | 8,000   |       | 82    |                 | 11/9/2007 
|Harrisonburg, VA    |  | Courtyard            |  | Newport       |  |                     | 23,219  |       | 125   |                 | 11/16/2007
|Bowling Green, KY   |  | Hampton Inn          |  | Newport       |  |                     | 18,832  |       | 131   |                 | 12/6/2007 
|Chattanooga, TN     |  | Homewood Suites      |  | LBA           |  |                     | 8,600   |       | 76    |                 | 12/14/2007
|Tulsa, OK           |  | Hampton Inn & suites |  | Western       |  |                     | 10,200  |       | 102   |                 | 12/28/2007
|Port Wentworth, GA  |  | Hampton Inn          |  | Newport       |  |                     | 10,780  |       | 106   |                 | 1/2/2008  
|New York, NY        |  | Independent          |  | Marriott      |  |                     | 99,000  |       | 200   |                 | 1/4/2008  
|Marlborough, MA     |  | Residence Inn        |  | True North    |  |                     | 20,200  |       | 112   |                 | 1/15/2008 
|Annapolis, MD       |  | Hilton Garden Inn    |  | White         |  |                     | 25,000  |       | 126   |                 | 1/15/2008 
|Matthews, NC        |  | Hampton Inn          |  | Newport       |  |                     | 11,300  |       | 92    |                 | 1/15/2008 
|Dunn, NC            |  | Hampton Inn          |  | McKibbon      |  |                     | 12,500  |       | 120   |                 | 1/24/2008 
|Tallahassee, FL     |  | Hilton Garden Inn    |  | LBA           |  |                     | 13,200  |       | 85    |                 | 1/25/2008 
|Rogers, AR          |  | Residence Inn        |  | Intermountain |  |                     | 11,744  |       | 88    |                 | 2/29/2008 
|Rogers, AR          |  | Fairfield Inn        |  | Intermountain |  |                     | 8,000   |       | 99    |                 | 2/29/2008 
|Westford, MA        |  | Hampton Inn & Suites |  | True North    |  |                     | 15,250  |       | 110   |                 | 3/6/2008  
|Concord, NC         |  | Hampton Inn          |  | Newport       |  |                     | 9,200   |       | 101   |                 | 3/7/2008  
|Sacramento, CA      |  | Hilton Garden Inn    |  | Dimension     |  |                     | 27,630  |       | 154   |                 | 3/7/2008  
|Texarkana, TX       |  | TownePlace Suites    |  | Intermountain |  |                     | 9,057   |       | 85    |                 | 3/7/2008  
|Texarkana, TX       |  | Courtyard            |  | Intermountain |  |                     | 12,924  |       | 90    |                 | 3/7/2008  
|Sanford, FL         |  | SpringHill Suites    |  | LBA           |  |                     | 11,150  |       | 105   |                 | 3/14/2008 
|Springdale, AR      |  | Residence Inn        |  | Intermountain |  |                     | 5,606   |       | 72    |                 | 3/14/2008 
|Overland Park, KS   |  | SpringHill Suites    |  | True North    |  |                     | 8,850   |       | 102   |                 | 3/17/2008 
|Westford, MA        |  | Residence Inn        |  | True North    |  |                     | 14,850  |       | 108   |                 | 4/30/2008 
|Cypress, CA         |  | Courtyard            |  | Dimension     |  |                     | 31,164  |       | 180   |                 | 4/30/2008 
|Overland Park, KS   |  | Residence Inn        |  | True North    |  |                     | 15,850  |       | 120   |                 | 4/30/2008 
|Kansas City, MO     |  | Residence Inn        |  | True North    |  |                     | 17,350  |       | 106   |                 | 4/30/2008 
|Fayetteville, NC    |  | Residence Inn        |  | Intermountain |  |                     | 12,201  |       | 92    |                 | 5/9/2008  
|Burbank, CA         |  | Residence Inn        |  | Marriott      |  |                     | 50,500  |       | 166   |                 | 5/13/2008 
|Oceanside, CA       |  | Residence Inn        |  | Marriott      |  |                     | 28,750  |       | 125   |                 | 5/13/2008 
|Greenville, SC      |  | Residence Inn        |  | McKibbon      |  |                     | 8,700   |       | 78    |                 | 5/19/2008 
|Winston-Salem, NC   |  | Courtyard            |  | McKibbon      |  |                     | 13,500  |       | 122   |                 | 5/19/2008 
|Birmingham, AL      |  | Homewood Suites      |  | McKibbon      |  |                     | 16,500  |       | 95    |                 | 5/23/2008 
|Hilton Head, SC     |  | Hilton Garden Inn    |  | McKibbon      |  |                     | 13,500  |       | 104   |                 | 5/29/2008 
|Virginia Beach, VA  |  | Courtyard            |  | Crestline     |  |                     | 27,100  |       | 141   |                 | 6/5/2008  
|Virginia Beach, VA  |  | Courtyard            |  | Crestline     |  |                     | 39,700  |       | 160   |                 | 6/5/2008  
|Carolina Beach, NC  |  | Courtyard            |  | Crestline     |  |                     | 24,214  |       | 144   |                 | 6/5/2008  
|Charlottesville, VA |  | Courtyard            |  | Crestline     |  |                     | 27,900  |       | 137   |                 | 6/5/2008  
|Wichita, KS         |  | Courtyard            |  | Intermountain |  |                     | 8,874   |       | 90    |                 | 6/13/2008 
|Tampa, FL           |  | TownePlace Suites    |  | McKibbon      |  |                     | 11,250  |       | 95    |                 | 6/17/2008 
|Jacksonville, FL    |  | Homewood Suites      |  | McKibbon      |  |                     | 23,250  |       | 119   |                 | 6/17/2008 
|Tulare, CA          |  | Hampton Inn & Suites |  | Inn Ventures  |  |                     | 10,331  |       | 86    |                 | 6/26/2008 
|                    |  |                      |  |               |  |                     |         |       |       |                 |           
|                    |  |                      |  |               |  | $                   | 791,726 |       | 4,793 |                 |           
|                    |  |                      |  |               |  |                     |         |       |       |                 |           

The total gross purchase price for all 42 hotels of $791.7 million less debt assumed of approximately $96.4
million was funded primarily by the Companys best-efforts offering of Units which was completed in April 2008. The Company assumed existing mortgage loans on 11 of its hotel properties purchased. The Company leases all of its hotels to its
wholly-owned taxable REIT subsidiary (or a subsidiary thereof)



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under hotel lease agreements. The Company also used the proceeds of its offering to pay $15.8 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, Chief Executive Officer and President.

Of the Companys 42 hotels owned at June 30, 2008, 36 were purchased during the first half of 2008. The total gross purchase price for these 36 hotels, with a total of 4,115 rooms, was $706.9 million. In
addition to the gross purchase price for the hotels in New York, New York, Tallahassee, Florida, and one property in Virginia Beach, Virginia, the Company assumed land leases. The minimum remaining lease payments for the New York lease are $230.4
million and the term runs through August 2046. The minimum remaining lease payments for the Tallahassee lease are $3.2 million and the term runs through December 2088. The land lease related to the Virginia Beach property was for a parking lot. The
remaining lease payments for this parking lot are $0.9 million and the lease expires in December 2023.

Results of Operations

During the period from the Companys initial formation on January 22, 2007 to November 8, 2007, the company owned no properties, had no revenue exclusive
of interest income, and was primarily engaged in capital formation activities. Operations commenced on November 9, 2007 with the Companys first property acquisition. A comparison of operations for the three and six month periods ended
June 30, 2008 to prior year results is therefore not meaningful. In general, the performance of the Companys hotels during their initial period of ownership has met expectations. Hotel performance is impacted by many factors including
local hotel competition, and local and national economic conditions in the United States. As a result of these factors, there can be no assurance that the Companys operating performance will continue to meet expectations.

The Company separately evaluates the performance of each of its hotel properties. Until the acquisition of its hotel in New York, New York in 2008, the Company had one
reportable segment as each hotel owned was not individually significant. Due to the significance of the New York, New York hotel, the Company now has two reportable segments.

Revenues

The Companys principal source of revenue is hotel room revenue and other related revenue. Hotel
operations included in the consolidated statement of operations are for the Companys 42 hotels acquired through June 30, 2008, for the respective period of ownership for each property. For the three and six month periods ended
June 30, 2008, the Company had total revenue of $32.2 million and $44.8 million. Revenue for the New York hotel was $4.6 million or 14% of total revenue for the second quarter and $7.5 million or 17% of total revenue for the six months ended
June 30, 2008.

For the three month period ended June 30, 2008, the hotels achieved combined average occupancy of approximately 77%, average
daily rate (ADR) of $122 and revenue per available room (RevPAR) of $94. The New York hotel had average occupancy of 83%, ADR of $261 and RevPAR of $215. All other hotels combined had occupancy of 76%, ADR of $114 and RevPAR
of $87. For the six month period ended June 30, 2008, the hotels achieved combined average occupancy of approximately 73%, ADR of $120 and RevPAR of $88. The New York hotel had average occupancy of 71%, ADR of $241 and RevPAR of $172. All other
hotels combined had occupancy of 73%, ADR of $111 and RevPAR of $81. The New York hotels market demands and receives a much higher room rate than the other hotel locations. The Company believes that previous management of the New York hotel
did not monitor or maintain an aggressive pricing strategy. Upon acquisition of the New York hotel, the Company transitioned the day-to-day management to an affiliate of Marriott. As a result, it is anticipated RevPAR will grow through the remainder
of 2008 at this hotel. The rates for the other hotels are comparable with industry and brand averages, given the Companys portfolio of hotel properties at June 30, 2008. ADR is calculated as room revenue divided by the number of rooms
sold, and RevPAR, is calculated as ADR multiplied by the occupancy percentage.



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Expenses

For the
three month period ended June 30, 2008, hotel direct expenses of the Companys hotels totaled $17.1 million or 53% of total revenue. The New York hotel had direct expenses of $2.4 million or 52% of its total revenue for the quarter. For
the six month period ended June 30, 2008, hotel direct expenses were $24.3 million or 54% of total revenue. The New York hotel had direct expenses of $4.2 million or 56% of its total revenue for the six month period. 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.

Taxes, insurance, and other expense for the three and six months ended June 30, 2008 totaled $1.4 million or 4% of total revenues and $2.1 million or 5% of total revenues (of which approximately $164 thousand and
$344 thousand related to the New York hotel).

Land lease expense was $1.6 million and $3.1million for the three and six month periods. This expense
represents the expense incurred by the Company to lease land for four hotel properties. Three of these hotels, one located in New York, New York, one in Tallahassee, Florida, and one in Virginia Beach, Virginia, were acquired in 2008. The fourth
hotel, located in Somerset, New Jersey, was acquired in 2007. Land lease expense for the three and six month periods for the New York hotel was $1.5 million and $2.9 million.

General and administrative expense for the three and six months ended June 30, 2008 was $1.3 million and $2.4 million. The principal components of general and administrative expense are advisory fees, legal fees,
accounting fees and reporting expense.

Depreciation expense was $4.9 million for the second quarter of 2008 and $7.6 million for the six month period.
This expense includes $1.0 million for the New York hotel for the quarter and $2.0 million for the six month period. 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.

For the three and six month periods ended June 30, 2008, the Company recognized
interest income of $1.8 million and $5.3 million. Interest income represents earnings on excess cash invested in short term money market instruments and certificates of deposit. Interest expense during the three and six month periods ended
June 30, 2008 totaled $0.7 million, and primarily represents interest expense incurred on mortgage loans assumed on 11 hotel properties acquired during 2008.

During the first half of 2008, the Company acquired and sold equity securities in several publicly traded Real Estate Investment Trusts, resulting in realized gains and other investment income of $3.0 million and net unrealized losses of
$2.3 million. At June 30, 2008, the Company owned marketable equity securities with a fair value of $8.1 million, and a cost of $10.4 million. These investments are recorded in Other assets, net on the Companys Consolidated Balance Sheet
at June 30, 2008.

Liquidity and Capital Resources

The Company raised capital through a best-efforts offering of Units by David Lerner Associates, Inc. (the Managing Dealer), which received selling commissions and a marketing expense allowance based on proceeds of
the Units sold. Each Unit consists of one common share and one Series A preferred share. The Series A preferred shares have no voting rights, no conversion rights and no distribution rights. The only right associated with the Series A preferred
shares will be a priority distribution upon the sale of the Companys assets. The priority would be equal to $11.00 per Series A preferred share, and no more, before any distributions are made to the holders of any other shares. The Series A
preferred shares are not separately tradable from the common shares to which they relate.

In April 2008, the Company concluded its best-efforts offering
of Units. From the Companys initial capitalization on January 22, 2007 through April 2008, the Company closed on a total of 91.1 million Units representing gross proceeds of $1 billion. The Company incurred costs of approximately
$101.4 million related to its offering. These costs are reflected as a reduction to shareholders equity.



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To maintain its REIT status the Company is required to distribute at least 90% of its ordinary income. Distributions
during the first six months of 2008 totaled $36.0 million and were paid monthly at a rate of $0.073334 per common share, and included a return of capital. For the same period the Companys cash generated from operations was approximately $12.1
million. Due to the inherent delay between raising capital and investing that same capital in income producing real estate, the Company has had significant amounts of cash earning interest at short term money market rates. As a result, the
difference between distributions paid and cash generated from operations has been funded from proceeds from the offering of Units, and this portion of distributions is expected to be treated as a return of capital for federal income tax purposes.
The Company intends to continue paying dividends on a monthly basis, at an annualized dividend rate of $0.88 per common share. Since a portion of distributions has to date been funded with proceeds from the offering of Units, the Companys
ability to maintain its current intended rate of distribution will be based on its ability to fully invest its offering proceeds and thereby increase its cash generated from operations. Since there can be no assurance of the Companys ability
to acquire properties that provide income at this level, or that the properties already acquired will provide income at this level, there can be no assurance as to the classification or duration of distributions at the current rate. Proceeds of the
offering which are distributed are not available for investment in properties.

At June 30, 2008, the Company had cash and cash equivalents totaling
$128.0 million, primarily as a result of its sale of Units through April 2008. The Company intends to use cash on hand to invest in hotels under contract and for capital improvements at certain of its hotels. As of June 30, 2008, the Company
has entered into purchase contracts for 14 hotels. Six of these hotels are expected to close within the next four months. Eight of the hotels are under development and are expected to close in 2008 and 2009. Although the Company is working towards
acquiring these hotels, there are many conditions to closing that have not yet been satisfied and there can be no assurance that all of the conditions to closing will be satisfied. Contract deposits for these hotels are included in Other assets, net
in the Companys consolidated balance sheet as of June 30, 2008.

The following table summarizes the location, brand, number of rooms, contract
deposits and gross purchase price for each hotel for which the Company has entered into purchase contracts. All dollar amounts are in thousands.



|                  |  |                        |  |       |  |              |       |                     |   |         |  
|----------------- |  | ---------------------- |  | ----- |  | ------------ | ----- | ------------------- | - | ------- | -
|Location          |  | Brand                  |  | Rooms |  | DepositsPaid |       | GrossPurchase Price |  
|Columbia, SC      |  | Hilton Garden Inn      |  | 143   |  | $            | 658   |                     | $ | 21,200  |  
|Memphis, TN       |  | Hilton Garden Inn      |  | 120   |  |              | 250   |                     |   | 17,150  |  
|Orlando, FL       |  | Fairfield Inn          |  | 200   |  |              | 500   |                     |   | (a      | )
|Orlando, FL       |  | SpringHill Suites      |  | 200   |  |              | 500   |                     |   | (a      | )
|San Jose, CA      |  | Homewood Suites        |  | 140   |  |              | 125   |                     |   | (b      | )
|Tukwila, WA       |  | Homewood Suites        |  | 106   |  |              | 125   |                     |   | (b      | )
|Baton Rouge, LA   |  | SpringHill Suites      |  | 119   |  |              | 100   |                     |   | 15,100  |  
|Overland Park, KS |  | Fairfield Inn          |  | 110   |  |              | 400   |                     |   | 12,050  |  
|Rochester, MN     |  | Hampton Inn & Suites   |  | 124   |  |              | 100   |                     |   | 14,136  |  
|Chesapeake, VA    |  | Marriott               |  | 226   |  |              |      |                     |   | 38,400  |  
|Wilmington, NC    |  | Fairfield Inn & Suites |  | 122   |  |              |      |                     |   | 14,800  |  
|Suffolk, VA       |  | TownePlace Suites      |  | 72    |  |              | 559   |                     |   | 10,000  |  
|Suffolk, VA       |  | Courtyard              |  | 92    |  |              | 683   |                     |   | 12,500  |  
|Savannah, GA      |  | Hilton Garden Inn      |  | 105   |  |              | 150   |                     |   | 12,500  |  
|                  |  |                        |  |       |  |              |       |                     |   |         |  
|                  |  |                        |  | 1,879 |  | $            | 4,150 |                     | $ | 256,786 |  
|                  |  |                        |  |       |  |              |       |                     |   |         |  



|(a) | These two hotels are covered by the same purchase contract, which provides for a combined gross purchase price of $54,800. The total shown for the table includes this combined
amount.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | These two hotels are covered by the same purchase contract, which provides for a combined gross purchase price of $34,150. The total shown for the table includes this combined
amount.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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, an amount of 5% of gross revenues provided that such amount may be used for the Companys capital expenditures with
respect to the hotels. The Company expects that this amount will be adequate to fund required repair, replacement, and refurbishments and to maintain the Companys hotels in a competitive condition.

Additionally, the Company is converting the hotel in New York to a Renaissance hotel. In order to complete this conversion, the Company anticipates spending
approximately $17 million in capital expenditures. Total capital expenditures for 2008 are anticipated to be approximately $23 million.

Related Party
Transactions

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

The Company has negotiated and entered
into, a Property Acquisition and Disposition Agreement with ASRG, to provide brokerage services for the acquisition and disposition of real estate assets for the Company. 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 June 30, 2008, payments to ASRG for services under the terms of this contract have totaled $15.8 million
since inception, which were capitalized as a part of the purchase price of the hotels.

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. Advisory fees and other reimbursable expenses incurred by the Company under the A8A advisory agreement during the six months ended June 30, 2008 were $1.3 million. These expenses are recorded in General and
Administrative expense. For the period January 22, 2007 through June 30, 2007, the Company incurred $67 thousand in these expenses.

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

Series B Convertible Preferred Stock

The Company has issued 240,000
Series B convertible preferred shares to Glade M. Knight, Chairman, Chief Executive Officer and President of the Company, in exchange for the payment by him of $0.10 per Series B convertible preferred share, or an aggregate of $24,000. The Series B
convertible preferred shares are convertible into common shares pursuant to the formula and on the terms and conditions set forth below.

There are no
dividends payable on the Series B convertible preferred shares. Holders of more than two-thirds of the Series B convertible preferred shares must approve any proposed amendment to the articles of incorporation that would adversely affect the Series
B convertible preferred shares.

Upon the Companys liquidation, the holder of the Series B convertible preferred shares is entitled to a priority
liquidation payment before any distribution of liquidation proceeds to the holders of the common shares. However, the priority liquidation payment of the holder of the Series B convertible preferred shares is junior to the holders of the Series A
preferred shares distribution rights. The holder of a Series B convertible preferred share is entitled to a liquidation payment of $11 per number of common shares each Series B convertible preferred share would be convertible into according to the
formula described below. In the event that the liquidation of the Companys assets results in proceeds that exceed the distribution rights of the Series A preferred shares and the Series B convertible preferred shares, the remaining proceeds
will be distributed between the common shares and the Series B convertible preferred shares, on an as converted basis.



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Each holder of outstanding Series B convertible preferred shares shall have the right to convert any of such shares into
Common Shares of the Company upon and for 180 days following the occurrence of any of the following events:

(1)
substantially all of the Companys assets, stock or business is sold or transferred through exchange, merger, consolidation, lease, share exchange, sale or otherwise, other than a sale of assets in liquidation, dissolution or winding up of the
Company;

(2) the termination or expiration without renewal of the advisory agreement with A8A, or if the Company ceases to
use ASRG to provide property acquisition and disposition services; or

(3) the Companys common shares are listed on
any securities exchange or quotation system or in any established market.

Upon the occurrence of any conversion event, each Series B convertible preferred
share may be converted into a number of common shares based upon the gross proceeds raised through the date of conversion in the Companys $1 billion offering. With the completion of the Companys $1 billion offering in April 2008, each
Series B convertible preferred share may be converted into 24.17104 common shares upon the occurrence of any conversion event.

In the event the Company
raises additional gross proceeds in a subsequent public offering, each Series B convertible preferred share may be converted into an additional number of common shares based on the additional gross proceeds raised through the date of conversion in a
subsequent public offering according to the following formula: (X/50 million) x 1.20568, where X is the additional gross proceeds rounded down to the nearest 50 million.

No additional consideration is due upon the conversion of the Series B convertible preferred shares. The conversion into common shares of the Series B convertible preferred shares will result in dilution of the
shareholders interests.

Expense related to the issuance of 240,000 Series B convertible preferred shares to Mr. Knight will be recognized at
such time when the number of common shares to be issued for conversion of the Series B shares can be reasonably estimated and the event triggering the conversion of the Series B shares to common shares occurs. The expense will be measured as the
difference between the fair value of the common stock for which the Series B shares can be converted and the amounts paid for the Series B shares. Although the fair market value cannot be determined at this time, compensation expense could range
from $0 to in excess of $63 million (assumes $11 per unit fair market value) which represents approximately 5.8 million shares of common stock.

Subsequent Events

In July 2008, the Company declared and paid approximately $6.7 million in distributions to its common shareholders, or
$0.073334 per outstanding common share.

On July 2, 2008, the Company closed on the purchase of a Homewood Suites hotel located in San Jose,
California. The total purchase price for this hotel, which contains a total of 140 guest rooms, was $21.9 million.

On July 2, 2008, the Company
closed on the purchase of a Homewood Suites hotel located in Tukwila, Washington. The total purchase price for this hotel, which contains a total of 106 guest rooms, was $15.7 million.

On July 2, 2008, the Company closed on the purchase of a Courtyard hotel located in Suffolk, Virginia. The gross purchase price for this hotel, which contains a total of 92 guest rooms, was $12.5 million. The
Company assumed an existing mortgage loan on the property with a principal balance of $8.6 million, an annual fixed interest rate of 6.03% and a maturity date in 2017.



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On July 2, 2008, the Company closed on the purchase of a TownePlace Suites hotel located in Suffolk, Virginia. The
gross purchase price for this hotel, which contains a total of 72 guest rooms, was $10.0 million. The Company assumed an existing mortgage loan on the property with a principal balance of $6.6 million, an annual fixed interest rate of 6.03% and a
maturity date in 2017.

On July 31, 2008, the Company closed on the purchase of a Hilton Garden Inn hotel located in Savannah, Georgia. The gross
purchase price for this hotel, which contains a total of 105 guest rooms, was $12.5 million. The Company assumed an existing mortgage loan on the property with a principal balance of $5.7 million, an annual fixed interest rate of 5.87% and a
maturity date in 2017.

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

The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at its hotels may cause quarterly fluctuations in its revenues. 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 to make distributions.

Recent Accounting Pronouncements

In September 2006, the Financial
Accounting Standards Board (FASB) issued Statement No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair
value measurements. The Statement applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, this Statement does not require any new fair value measurements. In February 2008, the FASB released FASB
Staff Position (FSP) FAS 157-2  Effective Date of FASB Statement No. 157, which defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and liabilities, except
those items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The effective date of the statement related to those items not covered by the deferral (all financial assets and
liabilities or nonfinancial assets and liabilities recorded at fair value on a recurring basis) is for fiscal years beginning after November 15, 2007. The adoption of this statement did not have and is not anticipated to have a material impact
on the Companys results of operations or financial position.

In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities(SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the guidance is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective as of the beginning
of the first fiscal year that begins after November 15, 2007. SFAS 159 is effective for the Company beginning January 1, 2008. The Company has elected not to use the fair value measurement provisions of SFAS 159 and therefore, adoption of
this standard did not have an impact on the financial statements.



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In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an
Amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entitys derivative instruments and hedging activities and their
effects on the entitys financial position, financial performance, and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS 133). It also applies to non-derivative hedging instruments and all hedged items designated and qualifying as hedges under SFAS 133. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged. The Company does not currently have any instruments that qualify within the scope of SFAS 133, and therefore the adoption of this statement is not anticipated to have
a material impact on the Companys financial statements.

In May 2008, FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the United States. SFAS 162 is effective 60 days following the Securities and Exchange Commissions (SEC) approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 162 on its financial
statements.



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##### Table of Contents

|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 June 30, 2008, 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 money market rates as it invests the proceeds from sale of Units pending use in acquisitions and renovations. Based on the
Companys cash invested at June 30, 2008, of $128.0 million, every 100 basis points change in interest rates will impact the Companys annual net income by $1.3 million, all other factors remaining the same. As of June 30, 2008,
the Company was exposed to market risk due to equity price risk. At June 30, 2008 the Company owned marketable equity securities, classified as available-for-sale, with a cost of $10.4 million and a market value of $8.1 million, resulting in an
unrealized loss of $2.3 million in the second quarter of 2008. These equity securities were comprised of two publicly traded Real Estate Investment Trusts. There is no assurance that future declines in values will not have a material adverse impact
on the Companys future results of operations. A 10% decrease in the fair values of the Companys equity investments as of June 30, 2008 would decrease their fair values and reduce earnings by approximately $0.8 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.



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##### Table of Contents

PART II. OTHER INFORMATION



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

The
following tables set forth information concerning the Offering and the use of proceeds from the Offering as of June 30, 2008. All amounts are in thousands except per Unit data:

Units Registered:



|            |  |        |  |                       |  |   |          
|----------- |  | ------ |  | --------------------- |  | - | ---------
|            |  | 4,762  |  | Units $10.50 per Unit |  | $ | 50,000   
|            |  | 86,364 |  | Units $11 per Unit    |  |   | 950,000  
|            |  |        |  |                       |  |   |          
|Totals:     |  | 91,126 |  | Units                 |  | $ | 1,000,000
|            |  |        | 
|Units Sold: |  |        |  |                       |  |   |          
|            |  | 4,762  |  | Units $10.50 per Unit |  | $ | 50,000   
|            |  | 86,364 |  | Units $11 per Unit    |  |   | 950,000  
|            |  |        |  |                       |  |   |          
|Totals:     |  | 91,126 |  | Units                 |  | $ | 1,000,000

Expenses of Issuance and Distribution of Units



|                                                                                                                                                              |  |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | -------
|1.      Underwriting discounts and commission                                                                                                                 |  | $ | 100,000
|2.      Expenses of underwriters                                                                                                                              |  |   |       
|3.      Direct or indirect payments to directors or officers of the Company or their associates, to ten percent
shareholders, or to affiliates of the Company |  |   |       
|4.      Fees and expenses of third parties                                                                                                                    |  |   | 1,406  
|                                                                                                                                                              |  |   |        
|Total Expenses of Issuance and Distribution of Common Shares                                                                                                  |  |   | 101,406
|                                                                                                                                                              |  |   |        
|Net Proceeds to the Company                                                                                                                                   |  | $ | 898,594
|                                                                                                                                                              |  |   |        
|1.      Purchase of real estate (net of debt proceeds and repayment)                                                                                          |  | $ | 702,542
|2.      Deposits and other costs associated with potential real estate acquisitions                                                                           |  |   | 5,009  
|3.      Repayment of other indebtedness, including interest expense paid                                                                                      |  |   | 1,148  
|4.      Investment and working capital                                                                                                                        |  |   | 172,117
|5.      Fees to the following (all affiliates of officers of the Company):                                                                                    |  |   |        
|a.      Apple Eight Advisors, Inc.                                                                                                                            |  |   | 1,947  
|b.      Apple Suites Realty Group, Inc.                                                                                                                       |  |   | 15,831 
|6.      Fees and expenses of third parties                                                                                                                    |  |   |       
|7.      Other                                                                                                                                                 |  |   |       
|                                                                                                                                                              |  |   |        
|Total of Application of Net Proceeds to the Company                                                                                                           |  | $ | 898,594
|                                                                                                                                                              |  |   |        



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|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

On May 8,
2008, the Company held an Annual Meeting of Shareholders for the purpose of electing two directors to the Companys Board of Directors. The nominees to the Companys Board of Directors were Glenn W. Bunting and Kent W. Colton, who were
current directors of the Company. Mr. Bunting and Mr. Colton were nominated for additional three-year terms on the Board of Directors. The election was uncontested, and the nominees were elected.

The total number of votes represented at the Annual Meeting of Shareholders was 80,533,855. The voting results were as follows:



|                 |  |            |  |                       
|---------------- |  | ---------- |  | ----------------------
|Nominee          |  | Votes For  |  | Votes Withheld/against
|Glenn W. Bunting |  | 79,897,363 |  | 636,492               
|Kent W. Colton   |  | 79,913,022 |  | 620,833               

The names of the other directors whose terms of office as directors continued after the Annual Meeting of
Shareholders are Glade M. Knight, Robert M. Wily and Michael S. Waters.



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|Item 6. | Exhibits
|------- | --------



|              |  |                                                                                                                                                                                                              
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | 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)
|              | 
|10.51         |  | Assignment and Assumption Agreement dated May 9, 2008 by and between Barcelo Crestline Corporation and Apple Eight Hospitality Ownership, Inc. (FILED HEREWITH).                                             
|              | 
|31.1          |  | Certification of the Companys Chief Executive Officer pursuant to Rule 13a  14(a) and Rule 15d  14(a) of the Securities Exchange Act, as amended (FILED
HEREWITH).                                        
|              | 
|31.2          |  | Certification of the Companys Chief Financial Officer pursuant to Rule 13a  14(a) and Rule 15d  14(a) of the Securities Exchange Act, as amended (FILED
HEREWITH).                                        
|              | 
|32.1          |  | Certification of the Companys Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(FILED HEREWITH). 



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SIGNATURES

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: August 5, 2008
|                       |  | Glade M. Knight,                                                                            |  |  |  |                     
|                       |  | Chairman of the Board, Chief Executive Officer, and President (Principal Executive Officer) |  |  |  |                     
|                       |  |                                                                                             | 
|By:                    |  | /s/ BRYAN PEERY                                                                             |  |  |  | Date: August 5, 2008
|                       |  | Bryan Peery,                                                                                |  |  |  |                     
|                       |  | Chief Financial Officer (Principal Financial and Principal Accounting Officer)              |  |  |  |                     



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