10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2006
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission File Number: 001-31775

ASHFORD HOSPITALITY TRUST, INC.

(Exact name of registrant as specified in its charter)

MARYLAND	86-1062192
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
14185 Dallas Parkway, Suite 1100, Dallas, Texas	75254 (Zip Code)
(Address of principal executive offices)

(972) 490-9600

(Registrant’s telephone number, including area code)

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

Common Stock, $0.01 Par

Preferred Stock, Series A, $0.01 Par

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

None

Indicate by check mark if the registrant is a well-known seasoned issuer (as defined by Rule 405 of the Securities Exchange Act).  Yes þ     No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act.  Yes o      No þ

Indicate by check mark whether the registrant (i) 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 (ii) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act).

Large Accelerated Filer o     Accelerated Filer þ      Non-Accelerated Filer o

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

The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant, computed by reference to the price at which the registrant’s common stock was last sold on the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $690.7 million. As of March 8, 2007, the registrant had issued and outstanding 72,936,841 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant’s definitive Proxy Statement pertaining to the 2007 Annual Meeting of Stockholders (the “Proxy Statement”), filed or to be filed not later than 120 days after the end of the fiscal year pursuant to Regulation 14A, is incorporated herein by reference into Part III.

FORM 10-K INDEX

			Page
PART I
	Item 1.	Business		4
	Item 1A.	Risk Factors		12
	Item 1B.	Unresolved Staff Comments		26
	Item 2.	Properties		27
	Item 3.	Legal Proceedings		29
	Item 4.	Submission of Matters to a Vote of Security Holders		29
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities		29
	Item 6.	Selected Financial Data		32
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		51
	Item 8.	Financial Statements and Supplementary Data		52
	Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure		52
	Item 9A.	Controls and Procedures		52
	Item 9B.	Other Information		54
PART III
	Item 10.	Directors, Executive Officers, and Corporate Governance		54
	Item 11.	Executive Compensation		54
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		54
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		55
	Item 14.	Principal Accounting Fees and Services		55
PART IV
	Item 15.	Financial Statement Schedules and Exhibits		55
		Index to Consolidated Financial Statements		65
Hotel Management Agreement
Purchase and Sale Agreement
Agreement and Plan of Merger
Guaranty Agreement
Contribution and Rights Agreement
Subsidiaries
Consent of Ernst & Young LLP
Certification Required by Rule 13a-14(a)
Certification Required by Rule 13a-14(a)
Certification Required by Rule 13a-14(a)
Certification Required by Rule 13a-14(b)
Certification Required by Rule 13a-14(b)
Certification Required by Rule 13a-14(b)

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Forward-Looking Statements

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

•  our business and investment strategy;

•  our projected operating results;

•  completion of any pending transactions;

•  our ability to obtain future financing arrangements;

•  our understanding of our competition;

•  market trends;

•  projected capital expenditures; and

•  the impact of technology on our operations and business.

Such forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance taking into account all information currently known to us. These beliefs, assumptions, and expectations can change as a result of many potential events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, results of operations, plans, and other objectives may vary materially from those expressed in our forward-looking statements. Additionally, the following factors could cause actual results to vary from our forward-looking statements:

•  factors discussed in this Form 10-K, including those set forth under the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and “Properties;”

•  general volatility of the capital markets and the market price of our common stock;

•  changes in our business or investment strategy;

•  availability, terms, and deployment of capital;

•  availability of qualified personnel;

•  changes in our industry and the market in which we operate, interest rates, or the general economy; and

•  the degree and nature of our competition.

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

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PART I

Item 1.   Business

OUR COMPANY

Ashford Hospitality Trust, Inc. and subsidiaries (the “Company” or “we” or “our”) is a self-advised real estate investment trust (“REIT”), which commenced operations on August 29, 2003 (“inception”) when it completed its initial public offering (“IPO”). We own our lodging investments and conduct our business through Ashford Hospitality Limited Partnership, our operating partnership. Ashford OP General Partner LLC, a wholly-owned subsidiary of ours, serves as the sole general partner of our operating partnership.

The Company elected to be treated as a REIT for federal income tax purposes. As a result of limitations imposed on REITs related to operating hotel properties, each of the Company’s hotel properties is leased or owned by wholly-owned subsidiaries of the Company that are treated as taxable REIT subsidiaries for federal income tax purposes (collectively, such subsidiaries are referred to as “Ashford TRS”). Ashford TRS then engages third-party or affiliated hotel management companies to operate the hotels under management contracts. Remington Lodging & Hospitality, L.P. and Remington Management, L.P. (collectively, “Remington Lodging”), both primary property managers for the Company, are beneficially wholly owned by Mr. Archie Bennett, Jr., the Company’s Chairman, and Mr. Montgomery J. Bennett, the Company’s President and Chief Executive Officer. As of December 31, 2006, Remington Lodging managed 37 of the Company’s 81 hotel properties while unaffiliated management companies managed the remaining 44 hotel properties.

As of December 31, 2006, 72,942,841 shares of common stock, 2,300,000 shares of Series A preferred stock, 7,447,865 shares of Series B preferred stock, and 13,512,425 units of limited partnership interest held by entities other than the Company were outstanding. During the year ended December 31, 2006, the Company completed the following transactions:

•  On January 25, 2006, the Company issued 12,107,623 shares of common stock in a follow-on public offering.

•  On March 28, 2006, the Company issued 642,557 shares of restricted common stock to its executive officers and certain employees of the Company and its affiliates.

•  On May 2, 2006, the Company issued 16,000 shares of common stock to its directors as compensation for serving on the Board of Directors through May 2007.

•  On July 13, 2006, the Company issued 3,814,842 units of limited partnership interest in connection with the acquisition of a hotel property.

•  On July 25, 2006, the Company issued 14,950,000 shares of common stock in a follow-on public offering.

•  On August 1, 2006, the Company issued 3,000 shares of restricted common stock to certain employees of the Company.

•  During the year ended December 31, 2006, the Company issued 1,394,492 shares of common stock in exchange for 1,394,492 units of limited partnership interest.

As of December 31, 2006, we owned 81 hotel properties in 26 states with 15,492 rooms, an office building with nominal operations, and approximately $103.0 million of mezzanine or first-mortgage loans receivable. Our hotel investments are currently focused on the upscale and upper-upscale lodging segments and primarily concentrated among Marriott, Hilton, Hyatt, and Starwood brands.

We maintain a website at www.ahtreit.com. On our website, we make available free-of-charge all our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with the Securities and Exchange Commission. In addition, our Code of Business Conduct and Ethics, Code of Ethics for the Chief Executive Officer, Chief Financial

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Officer, and Chief Accounting Officer, Corporate Governance Guidelines, and Board Committee Charters are also available free-of-charge on our website or can be made available in print upon request.

All reports filed with the Securities and Exchange Commission may also be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Further information regarding the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. In addition, all of our filed reports can be obtained at the SEC’s website at www.sec.gov.

OUR BUSINESS STRATEGIES

We currently focus our investment strategies on the upscale and upper-upscale segments within the lodging industry. However, we also believe that as supply, demand, and capital market cycles change, we will be able to shift our investment strategies to take advantage of newly created lodging-related investment opportunities as they develop. Currently, we do not limit our acquisitions to any specific geographical market. While our current investment strategies are well defined, our Board of Directors may change our investment policies at any time without stockholder approval.

We intend to continue to invest in a variety of lodging-related assets based upon our evaluation of diverse market conditions. These investments may include: (i) direct hotel investments; (ii) mezzanine financing through origination or acquisition in secondary markets; (iii) first-lien mortgage financing through origination or acquisition in secondary markets; and (iv) sale-leaseback transactions.

Our strategy is designed to take advantage of current lodging industry conditions and adjust to changes in market conditions over time. In the current market, we believe we can continue to purchase assets at discounts and acquire or originate debt positions with attractive relative yields. Over time, our assessment of market conditions will determine asset reallocation strategies. While we seek to capitalize on favorable market fundamentals, conditions beyond our control may have an impact on overall profitability and our investment returns.

Our current investment strategy primarily targets limited and full-service hotels in primary, secondary, and resort markets throughout the United States. To take full advantage of current and future investment opportunities in the lodging industry, we will invest according to the asset allocation strategies described below. Due to ongoing changes in market conditions, we will continually evaluate the appropriateness of our investment strategies. Our Board of Directors may change any or all of these strategies at any time.

Direct Hotel Investments — In selecting hotels to acquire, we target hotels that either offer a high current return or have the opportunity to increase in value through repositioning, capital investments, market-based recovery, or improved management practices. We intend to continue to acquire existing hotels and, under appropriate market conditions, may develop new hotels. Our direct hotel acquisition strategy will continue to follow similar investment criteria and will seek to achieve both current income and income from appreciation. In addition, we will continue to assess our existing hotel portfolio and make strategic decisions to sell certain under-performing or smaller hotels that do not fit our investment strategy or criteria.

Mezzanine Financing — Subordinated loans, or mezzanine loans, that we acquire or originate relate to upscale or full-service hotels with reputable managers that are located in established or emerging sub-markets. These mezzanine loans are secured by junior mortgages on hotels or pledges of equity interests in entities owning hotels. We intend to continue to acquire or originate mezzanine loans. Mezzanine loans that we acquire in the future may be secured by individual assets as well as cross-collateralized portfolios of assets. Although these types of loans generally have greater repayment risks than first mortgages due to the subordinated nature of the loans, we have a disciplined approach in underwriting the value of the asset. We expect this asset class to provide us with attractive returns. In addition, subject to restrictions applicable to REITs, we may acquire or originate corporate-level mezzanine loans on an unsecured basis.

First Mortgage Financing — From time to time, we acquire or originate junior participations in first mortgages, which we often refer to as mezzanine loans. As interest rates increase and the dynamics in the hotel industry make first-mortgage investments more attractive, we intend to acquire, potentially at a discount to par, or originate loans secured by first priority mortgages on hotels. We may be subject to certain state-imposed licensing regulations related to commercial mortgage lenders, with which we intend to comply. However, because we are not

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a bank or a federally chartered lending institution, we are not subject to the state and federal regulatory constraints imposed on such entities. Also, we expect we will be able to offer more flexible terms than commercial lenders who contribute loans to securitized mortgage pools. We anticipate that this asset class will provide us with stable, attractive current yields.

Sale-Leaseback Transactions — To date, we have not participated in any sale-leaseback transactions. However, if the lodging industry fundamentals shift such that sale-leaseback transactions become more attractive investments, we intend to purchase hotels and lease them back to their existing hotel owners.

OUR OPERATING SEGMENTS

As addressed in Item 15, Financial Statements Schedules, we currently operate in two business segments within the hotel lodging industry: direct hotel investments and hotel financing. These operating segments are described above along with additional operating segments where we anticipate future participation.

OUR FINANCING STRATEGY

We utilize our borrowing power to leverage future investments. When evaluating our future level of indebtedness and making decisions regarding the incurrence of indebtedness, our Board of Directors considers a number of factors, including:

•  the purchase price of our investments to be acquired with debt financing;

•  the estimated market value of our investments upon refinancing; and

•  the ability of particular investments, and our Company as a whole, to generate cash flow to cover expected debt service.

We may incur debt in the form of purchase money obligations to the sellers of properties, publicly or privately placed debt instruments, or financing from banks, institutional investors, or other lenders. Any such indebtedness may be unsecured or secured by mortgages or other interests in our properties or mortgage loans. This indebtedness may be recourse, non-recourse, or cross-collateralized. If recourse, that recourse may include our general assets or be limited to the particular investment to which the indebtedness relates. In addition, we may invest in properties or loans subject to existing loans secured by mortgages or similar liens on the properties, or we may refinance properties acquired on a leveraged basis. We may use the proceeds from any borrowings for working capital to:

•  purchase interests in partnerships or joint ventures;

•  refinance existing indebtedness;

•  finance the origination or purchase of mortgage investments; or

•  finance acquisitions, expand or redevelop existing properties, or develop new properties.

In addition, we may need to borrow to meet the taxable income distribution requirements under the Internal Revenue Code if we do not have sufficient cash available to meet those distribution requirements. No assurances can be given that we will obtain additional financings or, if we do, what the amount and terms will be. Our failure to obtain future financing under favorable terms could adversely impact our ability to execute our business strategy. In addition, we may selectively pursue mortgage financing on our individual properties and mortgage investments.

OUR DISTRIBUTION POLICY

To maintain our qualification as a REIT, we make annual distributions to our stockholders of at least 90% of our REIT taxable income (which does not necessarily equal net income as calculated in accordance with generally accepted accounting principles). Distributions are authorized by our Board of Directors and declared by us based upon a variety of factors deemed relevant by our directors. No assurance can be given that our dividend policy will not change in the future. Our ability to pay distributions to our stockholders will depend, in part, upon our receipt of distributions from our operating partnership. This, in turn, may depend upon receipt of lease payments with respect to our properties from indirect, wholly-owned subsidiaries of our operating partnership and the management of our

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properties by our property managers. Distributions to our stockholders are generally taxable to our stockholders as ordinary income. However, since a portion of our investments are equity ownership interests in hotels, which result in depreciation and non-cash charges against our income, a portion of our distributions may constitute a tax-free return of capital. To the extent that it is not inconsistent with maintaining our REIT status, we may maintain accumulated earnings of Ashford TRS in that entity.

Our charter allows us to issue preferred stock with a preference on distributions. The partnership agreement of our operating partnership also allows the operating partnership to issue units with a preference on distribution. Such issuance of preferred stock or preferred units, given the dividend preference on this stock or units, could limit our ability to make a dividend distribution to our common stockholders.

OUR RECENT DEVELOPMENTS

During the year ended December 31, 2006, we completed the following significant transactions:

Business Combinations:

On February 24, 2006, the Company acquired the Marriott at Research Triangle Park hotel property in Durham, North Carolina, from Host Marriott Corporation for approximately $28.0 million in cash. The Company used proceeds from its follow-on public offering on January 25, 2006 to fund this acquisition.

On April 19, 2006, the Company acquired the Pan Pacific San Francisco Hotel in San Francisco, California, from W2001 Pac Realty, L.L.C. for approximately $95.0 million in cash. The hotel was immediately re-branded as a JW Marriott. The Company used proceeds from two credit facility draws of approximately $88.9 million and $15.0 million to fund this acquisition.

On July 13, 2006, the Company acquired the Marriott Crystal Gateway hotel in Arlington, Virginia, from EADS Associates Limited Partnership for approximately $107.2 million. The purchase price consisted of the assumption of approximately $53.3 million of mortgage debt, the issuance of approximately $42.7 million worth of limited partnership units, which equates to 3,814,842 units valued at $11.20 per unit, approximately $2.5 million in cash paid in lieu of units, the reimbursement of capital expenditures costs of approximately $7.2 million, and other net closing costs and adjustments of approximately $1.5 million.

On November 9, 2006, the Company acquired the Westin O’Hare hotel property in Rosemont, Illinois, from JER Partners for approximately $125.0 million in cash. To fund this acquisition, the Company used cash available on its balance sheet and a draw on a line of credit, which was paid down with proceeds from a $101.0 million mortgage loan executed on November 16, 2006.

On December 7, 2006, the Company acquired a seven-property hotel portfolio (“MIP Portfolio”) from a partnership of affiliates of Oak Hill Capital Partners, The Blackstone Group, and Interstate Hotels and Resorts for approximately $267.2 million in cash. Of the seven acquired hotels, five are considered core hotels while two are considered non-core hotels, which the Company intends to sell. To fund this acquisition, the Company used cash available on its balance sheet, proceeds from a $25.0 million draw on a credit facility, and proceeds from a $212.0 million mortgage loan executed on December 7, 2006.

Capital Stock:

On January 25, 2006, in a follow-on public offering, the Company issued 12,107,623 shares of its common stock at $11.15 per share, which generated gross proceeds of approximately $135.0 million. However, the aggregate proceeds to the Company, net of underwriters’ discount and offering costs, was approximately $128.1 million. The 12,107,623 shares issued include 1,507,623 shares sold pursuant to an over-allotment option granted to the underwriters. The net proceeds were used for a $60.0 million pay-down on the Company’s $100.0 million credit facility, due August 17, 2008, on January 31, 2006, a $45.0 million pay-down on the Company’s $45.0 million mortgage loan, due October 10, 2007, on February 9, 2006, and the acquisition of the Marriott at Research Triangle Park hotel property on February 24, 2006 for $28.0 million.

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On July 25, 2006, in a follow-on public offering, the Company issued 14,950,000 shares of its common stock at $11.40 per share, which generated gross proceeds of approximately $170.4 million. However, the aggregate proceeds to the Company, net of underwriters’ discount and offering costs, was approximately $162.0 million. The 14,950,000 shares issued include 1,950,000 shares sold pursuant to an over-allotment option granted to the underwriters. On July 25, 2006, the net proceeds were used to pay down the Company’s $30.0 million balance on its $47.5 million credit facility, due October 10, 2007, and pay down its $98.9 million balance on its $100.0 million credit facility, due August 17, 2008.

Discontinued Operations:

On January 17, 2006, the Company sold two hotel properties for approximately $10.7 million, net of closing costs.

On March 24, 2006, the Company sold eight hotel properties for approximately $100.4 million, net of closing costs.

Notes Receivable:

On May 3, 2006, the Company received approximately $7.3 million in full payment of all principal and interest due under its $6.6 million mezzanine loan receivable, due May 2006 under a forbearance agreement.

On June 9, 2006, the Company originated a $26.3 million mezzanine loan receivable, due April 2008.

On June 15, 2006, the Company received approximately $15.2 million in full payment of all principal and interest due under its $15.0 million loan receivable, due January 2007.

On July 21, 2006, the Company received approximately $15.2 million in full payment of all principal and interest due under its $15.0 million loan receivable, due April 2007.

On September 24, 2006, the Company extended the maturity date on its $5.0 million note receivable, originally due October 2006, to October 2007. On December 5, 2006, the Company received approximately $5.1 million related to all principal and interest due under this loan.

On November 17, 2006, the Company received a principal payment of approximately $614,000 related to a portion of its $26.3 million note receivable, due April 2008. As a result of this prepayment, the $26.3 million note receivable, originally secured by 107 hotel properties, became a $25.7 million note receivable, secured by 105 hotel properties.

On December 27, 2006, the Company originated a $7.0 million mezzanine loan receivable, due December 2009.

On December 27, 2006, the Company originated a $4.0 million mezzanine loan receivable, due December 2009.

Indebtedness:

On February 9, 2006, the Company paid down its $45.0 million mortgage loan, due October 10, 2007, at an interest rate of LIBOR plus 2%, to $100. On April 3, 2006, the Company modified this mortgage note payable to a $47.5 million revolving credit facility, with a revolving period through October 11, 2006 and interest rates during the revolving period ranging from LIBOR plus 1% to LIBOR plus 1.5% depending on the outstanding balance. After the revolving period expires, the interest rate resumes its original rate of LIBOR plus 2%. Consistent with the original mortgage, the modified credit facility requires monthly interest-only payments and has three one-year extension options. On April 18, 2006 and June 6, 2006, the Company completed draws of approximately $15.0 million each on this credit facility. On July 25, 2006, the Company repaid the $30.0 million outstanding balance on this credit facility. On July 26, 2006, the Company modified this credit facility to extend both the revolving period and maturity date by one year to October 11, 2007 and October 10, 2008, respectively. As of December 31, 2006, approximately $100 was outstanding on this credit facility.

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On March 24, 2006, in connection with the sale of eight hotel properties for approximately $100.4 million, net of closing costs, the buyer assumed approximately $93.7 million of mortgage debt, which had an interest rate of 5.32% and matured July 1, 2015. This reduced the Company’s $580.8 million mortgage note payable outstanding at December 31, 2005, secured by 40 hotels, with an average interest rate of 5.4%, to $487.1 million outstanding at December 31, 2006, secured by 32 hotels, with an average interest rate of 5.41%. In connection with the buyer’s assumption of this debt, the Company wrote-off unamortized loan costs of approximately $687,000.

On May 30, 2006, the Company repaid its then outstanding $11.1 million balance on its mortgage note payable, due April 1, 2011, which resulted in the write-off of unamortized loan costs of approximately $102,000.

On July 13, 2006, in connection with the acquisition of the Marriott Crystal Gateway hotel in Arlington, Virginia, the Company assumed a mortgage note payable of approximately $53.3 million, due December 1, 2017, at an interest rate of 7.24% through December 31, 2007 and 7.39% thereafter.

On September 8, 2006, the Company modified its $100.0 million credit facility, due August 16, 2008, to increase the capacity to $150.0 million with the ability to be increased to $200.0 million subject to certain conditions and reduced the interest rate from LIBOR plus a range of 1.6% to 1.95% to LIBOR plus a range of 1.6% to 1.85% depending on the loan-to-value ratio. On February 27, 2006, April 18, 2006, July 14, 2006, November 8, 2006, and December 6, 2006, the Company completed draws on this credit facility of $10.0 million, $88.9 million, $25.0 million, $80.0 million, and $25.0 million, respectively. On January 31, 2006, June 28, 2006, July 25, 2006, and November 16, 2006, the Company paid down this credit facility by $60.0 million, $25.0 million, $98.9 million, and $80.0 million, respectively. At December 31, 2006, the Company had an outstanding balance of $25.0 million on this credit facility.

On November 16, 2006, the Company executed a $101.0 million mortgage note payable, due December 8, 2016, at an interest rate of 5.81%, with interest-only payments due monthly for five years plus principal payments thereafter based on a thirty-year amortization schedule.

On December 7, 2006, the Company executed a $247.0 million mortgage note payable, of which $212.0 million was funded immediately with the remaining balance to be funded over the next two years as capital expenditures are incurred by the Company. The loan matures December 11, 2009, with two one-year extension options, bears interest at a rate of LIBOR plus 1.72%, and requires interest-only payments due monthly.

Dividends:

During the year ended December 31, 2006, the Company declared cash dividends of approximately $60.1 million, or $0.20 per diluted share per quarter, related to both common stockholders and common unit holders, of which approximately $51.9 million and $8.3 million related to each, respectively.

During the year ended December 31, 2006, the Company declared cash dividends of approximately $1.4 million, or $0.19 per diluted share per quarter prorated for days outstanding, related to Class B unit holders.

During the year ended December 31, 2006, the Company declared cash dividends of approximately $4.9 million, or $0.5344 per diluted share per quarter, related to Series A preferred stockholders.

During the year ended December 31, 2006, the Company declared cash dividends of approximately $6.0 million, or $0.20 per diluted share per quarter, related to Series B preferred stockholders.

OUR COMPETITION

The hotel industry is highly competitive. All of our hotels are located in developed areas that include other hotel properties. Accordingly, our hotels compete for guests with other full-service or limited-service hotels in their immediate vicinities and, secondarily, with hotels in their geographic markets. The future occupancy, ADR, and RevPAR of any hotel could be materially and adversely affected by an increase in the number or quality of competitive hotel properties in its market area. We believe that brand recognition, location, quality of the hotel and the services provided, and price are the principal competitive factors affecting our hotels.

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OUR EMPLOYEES

At December 31, 2006, we had 43 full-time employees. Such employees perform directly or through our operating partnership various acquisition, development, redevelopment, and corporate management functions. All persons employed in the day-to-day operations of our hotels are employees of the management companies rather than employees of ours.

OUR ENVIRONMENTAL MATTERS

Under various federal, state, and local laws and regulations, an owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on such property. These laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous or toxic substances. Furthermore, a person who arranges for the disposal of a hazardous substance or transports a hazardous substance for disposal or treatment from property owned by another may be liable for the costs of removal or remediation of hazardous substances released into the environment at that property. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner’s ability to sell the affected property or to borrow using the affected property as collateral. In connection with the ownership and operation of our properties, we, our operating partnership, or Ashford TRS may be potentially liable for any such costs. In addition, the value of any lodging property loan we originate or acquire would be adversely affected if the underlying property contained hazardous or toxic substances.

Phase I environmental assessments, which are intended to identify potential environmental contamination for which our properties may be responsible, have been obtained on each of our properties. Phase I environmental assessments included:

•  historical reviews of the properties,

•  reviews of certain public records,

•  preliminary investigations of the sites and surrounding properties,

•  screening for the presence of hazardous substances, toxic substances, and underground storage tanks, and

•  the preparation and issuance of a written report.

Phase I environmental assessments did not include invasive procedures, such as soil sampling or ground water analysis.

Phase I environmental assessments have not revealed any environmental liability that we believe would have a material adverse effect on our business, assets, results of operations, or liquidity, and we are not aware of any such liability. To the extent Phase I environmental assessments reveal facts that require further investigation, we would perform a Phase II environmental assessment. However, it is possible that these environmental assessments will not reveal all environmental liabilities. There may be material environmental liabilities of which we are unaware, including environmental liabilities that may have arisen since the environmental assessments were completed or updated. No assurances can be given that (i) future laws, ordinances, or regulations will not impose any material environmental liability, or (ii) the current environmental condition of our properties will not be affected by the condition of properties in the vicinity (such as the presence of leaking underground storage tanks) or by third parties unrelated to us.

We believe our properties are in compliance in all material respects with all federal, state, and local ordinances and regulations regarding hazardous or toxic substances and other environmental matters. Neither we nor, to our knowledge, any of the former owners of our properties have been notified by any governmental authority of any material noncompliance, liability, or claim relating to hazardous or toxic substances or other environmental matters in connection with any of our properties.

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OUR INSURANCE

We maintain comprehensive insurance, including liability, property, workers’ compensation, rental loss, environmental, terrorism, and, when available on reasonable commercial terms, flood and earthquake insurance, with policy specifications, limits, and deductibles customarily carried for similar properties. Certain types of losses (for example, matters of a catastrophic nature such as acts of war or substantial known environmental liabilities) are either uninsurable or require substantial premiums that are not economically feasible to maintain. Certain types of losses, such as those arising from subsidence activity, are insurable only to the extent that certain standard policy exceptions to insurability are waived by agreement with the insurer. We believe, however, that our properties are adequately insured, consistent with industry standards.

OUR FRANCHISE LICENSES

We believe that the public’s perception of quality associated with a franchisor is an important feature in the operation of a hotel. Franchisors provide a variety of benefits for franchisees, which include national advertising, publicity, and other marketing programs designed to increase brand awareness, training of personnel, continuous review of quality standards, and centralized reservation systems. As of December 31, 2006, the Company owned 81 hotels, 79 of which operated under the following franchise licenses or brand management agreements:

Embassy Suites is a registered trademark of Hilton Hospitality, Inc.

Doubletree is a registered trademark of Hilton Hospitality, Inc.

Hilton is a registered trademark of Hilton Hospitality, Inc.

Hilton Garden Inn is a registered trademark of Hilton Hospitality, Inc.

Homewood Suites by Hilton is a registered trademark of Hilton Hospitality, Inc.

Hampton Inn is a registered trademark of Hilton Hospitality, Inc.

Radisson is a registered trademark of Radisson Hotels International, Inc.

Marriott is a registered trademark of Marriott International, Inc.

JW Marriott is a registered trademark of Marriott International, Inc.

SpringHill Suites is a registered trademark of Marriott International, Inc.

Residence Inn by Marriott is a registered trademark of Marriott International, Inc.

Courtyard by Marriott is a registered trademark of Marriott International, Inc.

Fairfield Inn by Marriott is a registered trademark of Marriott International, Inc.

TownePlace Suites is a registered trademark of Marriott International, Inc.

Hyatt Regency is a registered trademark of Hyatt Corporation.

Sheraton is a registered trademark of Sheraton Hotels and Resorts, a division of Starwood Hotels and Resorts Worldwide, Inc.

Westin is a registered trademark of Westin Hotels and Resorts, a division of Starwood Hotels and Resorts Worldwide, Inc.

Crowne Plaza is a registered trademark of InterContinental Hotels Group.

Our management companies, including Remington Lodging, must operate each hotel pursuant to the terms of the related franchise or brand management agreement, and must use their best efforts to maintain the right to operate each hotel as such. In the event of termination of a particular franchise or brand management agreement, our management companies must operate the affected hotels under another franchise or brand management agreement, if any, that we enter into. We anticipate that most of the additional hotels we acquire will be operated under franchise licenses or brand management agreements as well.

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Our franchise licenses and brand management agreements generally specify certain management, operational, recordkeeping, accounting, reporting, and marketing standards and procedures with which the franchisee or brand operator must comply, including requirements related to:

•  training of operational personnel;

•  safety;

•  maintaining specified insurance;

•  types of services and products ancillary to guestroom services that may be provided;

•  display of signage; and

•  type, quality, and age of furniture, fixtures, and equipment included in guestrooms, lobbies, and other common areas.

OUR SEASONALITY MATTERS

Our properties’ operations historically have been seasonal as certain properties maintain higher occupancy rates during the summer months. This seasonality pattern can cause fluctuations in our quarterly lease revenue under our percentage leases. We anticipate that the cash flow from the operations of our properties will be sufficient to enable us to make quarterly distributions to maintain our REIT status. To the extent that cash flow from operations is insufficient during any quarter due to temporary or seasonal fluctuations in lease revenue, we expect to utilize other cash on hand or borrowings to make required distributions. However, we cannot make any assurances that we will make distributions in the future.

Item 1A.   Risk Factors

Risks Related to Our Business

Our business strategy depends on our continued growth. We may fail to integrate recent and additional investments into our operations or otherwise manage our planned growth, which may adversely affect our operating results.

Our business plan contemplates a period of continued growth in the next several years. We cannot assure you that we will be able to adapt our management, administrative, accounting, and operational systems, or hire and retain sufficient operational staff to successfully integrate our recent investments into our portfolio and manage any future acquisitions of additional assets without operating disruptions or unanticipated costs. Acquisitions of any additional portfolios of properties or mortgages would generate additional operating expenses that we will be required to pay. As we acquire additional assets, we will be subject to the operational risks associated with owning new lodging properties. Our failure to successfully integrate our recent acquisitions as well as any future acquisitions into our portfolio could have a material adverse effect on our results of operations and financial condition and our ability to pay dividends to stockholders.

We may be unable to identify additional real estate investments that meet our investment criteria or to acquire the properties we have under contract.

We cannot assure you that we will be able to identify real estate investments that meet our investment criteria, that we will be successful in completing any investment we identify, or that any investment we complete will produce a return on our investment. Moreover, we will have broad authority to invest in any real estate investments that we may identify in the future. We also cannot assure you that we will acquire properties we currently have under firm purchase contracts, if any, or that the acquisition terms we have negotiated will not change.

Conflicts of interest could result in our management acting other than in our stockholders’ best interest.

Conflicts of interest relating to Remington Lodging may lead to management decisions that are not in the stockholders’ best interest. The Chairman of our Board of Directors, Mr. Archie Bennett, Jr., serves as the Chairman of the Board of Directors of Remington Lodging, and our Chief Executive Officer and President, Mr. Montgomery

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Bennett, serves as the Chief Executive Officer and President of Remington Lodging. Messrs. Archie and Montgomery Bennett own 100% of Remington Lodging, which manages 37 of our 81 properties and provides related services, including property management services and project management services.

Messrs. Archie and Montgomery Bennett’s ownership interests in and management obligations to Remington Lodging present them with conflicts of interest in making management decisions related to the commercial arrangements between us and Remington Lodging and will reduce the time and effort they each spend managing us. Our Board of Directors has adopted a policy that requires all management decisions relating to the management agreements with Remington Lodging be approved by a majority or, in certain circumstances, all of our independent directors.

Holders of units in our operating partnership, including members of our management team, may suffer adverse tax consequences upon our sale of certain properties. Therefore, holders of units, either directly or indirectly, including Messrs. Archie and Montgomery Bennett, Mr. David Brooks, our Chief Legal Officer, Mr. David Kimichik, our Chief Financial Officer, Mr. Mark Nunneley, our Chief Accounting Officer, and Mr. Martin L. Edelman (or his family members), one of our directors, may have different objectives regarding the appropriate pricing and timing of a particular property’s sale. These officers and directors of ours may influence us not to sell or refinance certain properties, even if such sale or refinancing might be financially advantageous to our stockholders, or to enter into tax deferred exchanges with the proceeds of such sales when such a reinvestment might not otherwise be in our best interest. In addition, we have agreed to indemnify contributors of properties contributed to us in exchange for operating partnership units, including (indirectly) Messrs. Archie and Montgomery Bennett, Brooks, Kimichik, Nunneley, and Edelman (or his family members), against the income tax they may incur if we dispose of the specified contributed properties. Because of this indemnification, our indemnified management team members may make decisions about selling any of these properties that are not in our stockholders’ best interest.

We are a party to a master hotel management agreement and an exclusivity agreement with Remington Lodging, which describes the terms of Remington Lodging’s management of our hotels, as well as any future hotels we may acquire that will be managed by Remington Lodging. If we terminate the management agreement as to any of the six hotels we acquired in connection with our initial public offering, which are all subject to the management agreement, because we elect to sell those hotels, we will be required to pay Remington Lodging a substantial termination fee. Remington Lodging may agree to waive the termination fee if a replacement hotel is substituted but is under no contractual obligation to do so. The exclusivity agreement requires us to engage Remington Lodging, unless our independent directors either (i) unanimously vote to hire a different manager or developer, or (ii) by a majority vote, elect not to engage Remington Lodging because they have determined that special circumstances exist or that, based on Remington Lodging’s prior performance, another manager or developer could perform the duties materially better. As the sole owners of Remington Lodging, which would receive any development, management, and management termination fees payable by us under the management agreement, Messrs. Archie and Montgomery Bennett may influence our decisions to sell, acquire, or develop hotels when it is not in the best interests of our stockholders to do so.

In addition, Ashford Financial Corporation, an affiliate, contributed certain asset management and consulting agreements to us in connection with our initial public offering relating to management and consulting services that Ashford Financial Corporation agreed to perform for hotel property managers with respect to 27 identified hotel properties in which Messrs. Archie and Montgomery Bennett held a minority interest. Ashford Financial Corporation is 100% owned by Messrs. Archie and Montgomery Bennett. The agreements provided for annual payments to us, as the assignee of Ashford Financial Corporation, in consideration for our performance of certain asset management and consulting services. The exact amount of the consideration due to us under the remaining asset management and consulting agreements was initially contingent upon the revenue generated by the hotels underlying the asset management and consulting agreements. Ashford Financial Corporation guaranteed a minimum payment to us of $1.2 million per year, subject to adjustments based on the consumer price index, through December 31, 2008. All of the 27 hotel properties for which we previously provided the asset management and consulting services have been sold, including our acquisition of 21 of the hotel properties in March 2005. Accordingly, we anticipate collecting the balance of the guaranteed minimum payment of $1.2 million per year from Ashford Financial Corporation under its guarantee.

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Tax indemnification obligations that apply in the event that we sell certain properties could limit our operating flexibility.

If we dispose of any of the five properties that were contributed to us in exchange for units in our operating partnership in connection with our initial public offering, we may be obligated to indemnify the contributors, including Messrs. Archie and Monty Bennett whom have substantial ownership interests, against the tax consequences of the sale. In addition, under the tax indemnification agreements, we have agreed for a period of 10 years to use commercially reasonable efforts to maintain non-recourse mortgage indebtedness in the amount of at least $16.0 million, which will allow the contributors to defer recognition of gain in connection with the contribution of the Las Vegas hotel property as part of our formation.

Additionally, for certain periods of time, we are prohibited from selling or transferring the Sea Turtle Inn in Atlantic Beach, Florida, and the Marriott Crystal Gateway in Arlington, Virginia, if as a result, the entity from which we acquired the property would recognize gain for federal tax purposes.

Further, in connection with our acquisition of certain properties in March 2005 that were contributed to us in exchange for units in our operating partnership, we agreed to certain tax indemnities with respect to 11 additional properties. If we dispose of any of these 11 properties or reduce the debt on these properties in a transaction that results in a taxable gain to the contributors, we may be obligated to indemnify the contributors or their specified assignees against the tax consequences of the transaction.

In general, our tax indemnities will be equal to the amount of the federal, state, and local income tax liability the contributor or its specified assignee incurs with respect to the gain allocated to the contributor. The terms of the contribution agreements also generally require us to gross up tax indemnity payments for the amount of income taxes due as a result of the tax indemnity.

While the tax indemnities generally do not contractually limit our ability to conduct our business in the way we desire, we are less likely to sell any of the contributed properties for which we have agreed to the tax indemnities described above in a taxable transaction during the applicable indemnity period. Instead, we would either hold the property for the entire indemnity period or seek to transfer the property in a tax-deferred like-kind exchange. In addition, a condemnation of one of our properties could trigger our tax indemnification obligations.

Hotel franchise requirements could adversely affect distributions to our stockholders.

We must comply with operating standards, terms, and conditions imposed by the franchisors of the hotel brands under which our hotels operate. Franchisors periodically inspect their licensed hotels to confirm adherence to their operating standards. The failure of a hotel to maintain standards could result in the loss or cancellation of a franchise license. With respect to operational standards, we rely on our property managers to conform to such standards. Franchisors may also require us to make certain capital improvements to maintain the hotel in accordance with system standards, the cost of which can be substantial. It is possible that a franchisor could condition the continuation of a franchise based on the completion of capital improvements that our management or Board of Directors determines is too expensive or otherwise not economically feasible in light of general economic conditions or the operating results or prospects of the affected hotel. In that event, our management or Board of Directors may elect to allow the franchise to lapse or be terminated, which could result in a change in brand franchising or operation of the hotel as an independent hotel.

In addition, when the term of a franchise expires, the franchisor has no obligation to issue a new franchise. The loss of a franchise could have a material adverse effect on the operations or the underlying value of the affected hotel because of the loss of associated name recognition, marketing support, and centralized reservation systems provided by the franchisor. The loss of a franchise could also have a material adverse effect on cash available for distribution to stockholders.

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Future terrorist attacks similar in nature to the events of September 11, 2001 may negatively affect the performance of our properties, the hotel industry in general, and our future results of operations and financial condition.

The terrorist attacks of September 11, 2001, their after-effects, and the resulting U.S.-led military action in Iraq substantially reduced business and leisure travel throughout the United States and hotel industry revenue per available room, or RevPAR, generally during the period following September 11, 2001. We cannot predict the extent to which additional terrorist attacks, acts of war, or similar events may occur in the future or how such events would directly or indirectly impact the hotel industry or our operating results.

Future terrorist attacks, acts of war, or similar events could have further material adverse effects on the hotel industry at large and our operations in particular.

Our investments will be concentrated in particular segments of a single industry.

Our entire business is hotel related. Our current investment strategy is to acquire or develop upscale to upper-upscale hotels, acquire first mortgages on hotel properties, invest in other mortgage-related instruments such as mezzanine loans to hotel owners and operators, and participate in hotel sale-leaseback transactions. Adverse conditions in the hotel industry will have a material adverse effect on our operating and investment revenues and cash available for distribution to our stockholders.

We rely on third party property managers, including Remington Lodging, to operate our hotels and for a significant majority of our cash flow.

For us to continue to qualify as a REIT, third parties must operate our hotels. A REIT may lease its hotels to taxable REIT subsidiaries in which the REIT can own up to a 100% interest. A taxable REIT subsidiary, or TRS, pays corporate-level income tax and may retain any after-tax income. A REIT must satisfy certain conditions to use the TRS structure. One of those conditions is that the TRS must hire, to manage the hotels, an “eligible independent contractor” (“EIC”) that is actively engaged in the trade or business of managing hotels for parties other than the REIT. An EIC cannot (i) own more than 35% of the REIT, (ii) be owned more than 35% by persons owning more than 35% of the REIT, or (iii) provide any income to the REIT (i.e., the EIC cannot pay fees to the REIT, and the REIT cannot own any debt or equity securities of the EIC).

Accordingly, while we may lease hotels to a TRS that we own, the TRS must engage a third-party operator to manage the hotels. Thus, our ability to direct and control how our hotels are operated is less than if we were able to manage our hotels directly. We have entered into a management agreement with Remington Lodging, which is owned 100% by Messrs. Archie and Montgomery Bennett, to manage 37 of our 81 lodging properties and have hired unaffiliated third — party property managers to manage our remaining properties. We do not supervise any of the property managers or their respective personnel on a day-to-day basis, and we cannot assure you that the property managers will manage our properties in a manner that is consistent with their respective obligations under the applicable management agreement or our obligations under our hotel franchise agreements. We also cannot assure you that our property managers will not be negligent in their performance, will not engage in other criminal or fraudulent activity, or will not otherwise default on their respective management obligations to us. If any of the foregoing occurs, our relationships with the franchisors may be damaged, we may be in breach of the franchise agreement, and we could incur liabilities resulting from loss or injury to our property or to persons at our properties. Any of these circumstances could have a material adverse effect on our operating results and financial condition, as well as our ability to pay dividends to stockholders.

If we cannot obtain additional financing, our growth will be limited.

We are required to distribute to our stockholders at least 90% of our REIT taxable income, excluding net capital gains, each year to continue to qualify as a REIT. As a result, our retained earnings available to fund acquisitions, development, or other capital expenditures are nominal. As such, we rely upon the availability of additional debt or equity capital to fund these activities. Our long-term ability to grow through acquisitions or development of hotel-related assets will be limited if we cannot obtain additional financing. Market conditions may

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make it difficult to obtain financing, and we cannot assure you that we will be able to obtain additional debt or equity financing or that we will be able to obtain it on favorable terms.

We may be unable to generate sufficient revenue from operations to pay our operating expenses and to pay dividends to our stockholders.

As a REIT, we are required to distribute at least 90% of our REIT taxable income each year to our stockholders. We intend to distribute to our stockholders all or substantially all of our taxable income each year so as to qualify for the tax benefits accorded to REITs, but our ability to make distributions may be adversely affected by the risk factors described herein. We cannot assure you that we will be able to make distributions in the future. In the event of continued or future downturns in our operating results and financial performance, unanticipated capital improvements to our hotels, or declines in the value of our mortgage portfolio, we may be unable to declare or pay distributions to our stockholders. The timing and amount of distributions are in the sole discretion of our Board of Directors, which will consider, among other factors, our financial performance, debt service obligations applicable debt covenants, and capital expenditure requirements.

We are subject to various risks related to our use of, and dependence on, debt.

The interest we pay on variable — rate debt increases as interest rates increase, which may decrease cash available for distribution to stockholders. We cannot assure you that we will be able to meet our debt service obligations. If we do not meet our debt service obligations, we risk the loss of some or all of our assets to foreclosure. Changes in economic conditions or our financial results or prospects could (i) result in higher interest rates on variable — rate debt, (ii) reduce the availability of debt financing generally or debt financing at favorable rates, (iii) reduce cash available for distribution to stockholders, and (iv) increase the risk that we could be forced to liquidate assets to repay debt, any of which could have a material adverse affect on us.

If we violate covenants in any debt agreements, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may prohibit us from borrowing unused amounts under our lines of credit, even if repayment of some or all the borrowings is not required. In any event, financial covenants under our current or future debt obligations could impair our planned business strategies by limiting our ability to borrow beyond certain amounts or for certain purposes. Our governing instruments do not contain any limitation on our ability to incur indebtedness.

We compete with other hotels for guests. We also face competition for acquisitions of lodging properties and of desirable mortgage investments.

The mid, upscale, and upper-upscale segments of the hotel business are competitive. Our hotels compete on the basis of location, room rates, quality, service levels, reputation, and reservation systems, among many other factors. New hotels may be constructed and these additions to supply create new competitors, in some cases without corresponding increases in demand for hotel rooms. The result in some cases may be lower revenue, which would result in lower cash available for distribution to stockholders.

We compete for hotel acquisitions with entities that have similar investment objectives as we do. This competition could limit the number of suitable investment opportunities offered to us. It may also increase the bargaining power of property owners seeking to sell to us, making it more difficult for us to acquire new properties on attractive terms or on the terms contemplated in our business plan.

We also compete for mortgage asset investments with numerous public and private real estate investment vehicles, such as mortgage banks, pension funds, other REITs, institutional investors, and individuals. Mortgages and other investments are often obtained through a competitive bidding process. In addition, competitors may seek to establish relationships with the financial institutions and other firms from which we intend to purchase such assets. Competition may result in higher prices for mortgage assets, lower yields, and a narrower spread of yields over our borrowing costs.

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Many of our competitors are larger than us, may have access to greater capital, marketing, and other resources, may have personnel with more experience than our officers, may be able to accept higher levels of debt or otherwise may tolerate more risk than us, may have better relations with hotel franchisors, sellers, or lenders, and may have other advantages over us in conducting certain business and providing certain services.

We may engage in hedging transactions, which can limit our gains and increase exposure to losses.

We may enter into hedging transactions to protect (i) us from the effects of interest rate fluctuations on floating — rate debt and (ii) our portfolio of mortgage assets from interest rate and prepayment rate fluctuations. Our hedging transactions may include entering into interest rate swap agreements or interest rate cap or floor agreements, purchasing or selling futures contracts, purchasing put and call options on securities or securities underlying futures contracts, or entering into forward rate agreements. Hedging activities may not have the desired beneficial impact on our results of operations or financial condition. No hedging activity can completely insulate us from the risks associated with changes in interest rates and prepayment rates. Moreover, interest rate hedging could fail to protect us or adversely affect us because, among other things:

•  Available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought.

•  The duration of the hedge may not match the duration of the related liability.

•  The party owing money in the hedging transaction may default on its obligation to pay.

•  The credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction.

•  The value of derivatives used for hedging may be adjusted from time to time in accordance with generally accepted accounting rules to reflect changes in fair value. Downward adjustments, or “mark-to-market losses,” would reduce our stockholders’ equity.

Hedging involves both risks and costs, including transaction costs, which may reduce our overall returns on our investments. These costs increase as the period covered by the hedging relationship increases and during periods of rising and volatile interest rates. These costs will also limit the amount of cash available for distributions to stockholders. We generally intend to hedge as much of the interest rate risk as management determines is in our best interests given the cost of such hedging transactions. The REIT qualification rules may limit our ability to enter into hedging transactions by requiring us to limit our income from hedges. If we are unable to hedge effectively because of the REIT rules, we will face greater interest rate exposure than may be commercially prudent.

We may not be able to sell our investments on favorable terms.

We may decide to sell investments for a variety of reasons. We cannot assure you that we will be able to sell any of our investments on favorable terms or that our investments will not be sold for a loss.

Risks Related to Hotel Investments

We are subject to general risks associated with operating hotels.

Our hotels and hotels underlying our mortgage and mezzanine loans are subject to various operating risks common to the hotel industry, many of which are beyond our control, including the following:

•  our hotels compete with other hotel properties in their geographic markets and many of our competitors have substantial marketing and financial resources;

•  over-building in our markets, which adversely affects occupancy and revenues at our hotels;

•  dependence on business and commercial travelers and tourism; and

•  adverse effects of general, regional, and local economic conditions and increases in energy costs or labor costs and other expenses affecting travel, which may affect travel patterns and reduce the number of business and commercial travelers and tourists.

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These factors could adversely affect our hotel revenues and expenses, as well as the hotels underlying our mortgage and mezzanine loans, which in turn would adversely affect our ability to make distributions to our stockholders.

We may have to make significant capital expenditures to maintain our lodging properties.

Our hotels have an ongoing need for renovations and other capital improvements, including replacements of furniture, fixtures, and equipment. Franchisors of our hotels may also require periodic capital improvements as a condition of maintaining franchise licenses. Generally, we are responsible for the cost of these capital improvements, which gives rise to the following risks:

•  cost overruns and delays;

•  renovations can be disruptive to operations and can displace revenue at the hotels, including revenue lost while rooms under renovation are out of service;

•  the cost of funding renovations and the possibility that financing for these renovations may not be available on attractive terms; and

•  the risk that the return on our investment in these capital improvements will not be what we expect.

If we have insufficient cash flow from operations to fund needed capital expenditures, then we will need to borrow to fund future capital improvements.

The hotel business is seasonal, which affects our results of operations from quarter to quarter.

The hotel industry is seasonal in nature. Generally, occupancy rates and hotel revenues are greater in the second and third quarters than in the first and fourth quarters. This seasonality can cause quarterly fluctuations in our revenues.

Our development activities may be more costly than we have anticipated.

As part of our growth strategy, we may develop additional hotels. Hotel development involves substantial risks, including that:

•  actual development costs may exceed our budgeted or contracted amounts;

•  construction delays may prevent us from opening hotels on schedule;

•  we may not be able to obtain all necessary zoning, land use, building, occupancy, and construction permits;

•  our developed properties may not achieve our desired revenue or profit goals; and

•  we may incur substantial development costs and then have to abandon a development project before completion.

Risks Relating to Investments in Mortgages and Mezzanine Loans

Mortgage investments that are not United States government insured and non-investment grade mortgage assets involve risk of loss.

As part of our business strategy, we originate and acquire lodging-related uninsured and non-investment grade mortgage loans and mortgage assets, including mezzanine loans. While holding these interests, we are subject to risks of borrower defaults, bankruptcies, fraud and related losses, and special hazard losses that are not covered by standard hazard insurance. Also, costs of financing the mortgage loans could exceed returns on the mortgage loans. In the event of any default under mortgage loans held by us, we will bear the risk of loss of principal and non-payment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount of the mortgage loan. To the extent we suffer such losses with respect to our investments in mortgage loans, our value and the price of our securities may be adversely affected.

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We invest in non-recourse loans, which will limit our recovery to the value of the mortgaged property.

Our mortgage loan assets are generally non-recourse. With respect to our non-recourse mortgage loan assets, in the event of a borrower default, the specific mortgaged property and other assets, if any, pledged to secure the relevant mortgage loan, may be less than the amount owed under the mortgage loan. As to those mortgage loan assets that provide for recourse against the borrower and its assets generally, we cannot assure you that the recourse will provide a recovery in respect of a defaulted mortgage loan greater than the liquidation value of the mortgaged property securing that mortgage loan.

Investment yields affect our decision whether to originate or purchase investments and the price offered for such investments.

In making any investment, we consider the expected yield of the investment and the factors that may influence the yield actually obtained on such investment. These considerations affect our decision whether to originate or purchase an investment and the price offered for that investment. No assurances can be given that we can make an accurate assessment of the yield to be produced by an investment. Many factors beyond our control are likely to influence the yield on the investments, including, but not limited to, competitive conditions in the local real estate market, local and general economic conditions, and the quality of management of the underlying property. Our inability to accurately assess investment yields may result in our purchasing assets that do not perform as well as expected, which may adversely affect the price of our securities.

Volatility of values of mortgaged properties may adversely affect our mortgage loans.

Lodging property values and net operating income derived from lodging properties are subject to volatility and may be affected adversely by a number of factors, including the risk factors described herein relating to general economic conditions, operating lodging properties, and owning real estate investments. In the event its net operating income decreases, a borrower may have difficulty paying our mortgage loan, which could result in losses to us. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay our mortgage loans, which could also cause us to suffer losses.

Mezzanine loans involve greater risks of loss than senior loans secured by income-producing properties.

We make and acquire mezzanine loans. These types of mortgage loans are considered to involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property due to a variety of factors, including the loan being entirely unsecured or, if secured, becoming unsecured as a result of foreclosure by the senior lender. We may not recover some or all of our investment in these loans. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans resulting in less equity in the property and increasing the risk of loss of principal.

Risks Related to the Real Estate Industry

Mortgage debt obligations expose us to increased risk of property losses, which could harm our financial condition, cash flow, and ability to satisfy our other debt obligations and pay dividends.

Incurring mortgage debt increases our risk of property losses because defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans for which we are in default. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on the foreclosure but would not receive any cash proceeds. As a result, we may be required to identify and utilize other sources of cash for distributions to our stockholders of that income.

In addition, our default under any one of our mortgage debt obligations may result in a default on our other indebtedness. If this occurs, our financial condition, cash flow, and ability to satisfy our other debt obligations or ability to pay dividends may be impaired.

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Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.

Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties or mortgage loans in our portfolio in response to changing economic, financial, and investment conditions is limited. The real estate market is affected by many factors that are beyond our control, including:

•  adverse changes in national and local economic and market conditions;

•  changes in interest rates and in the availability, cost, and terms of debt financing;

•  changes in governmental laws and regulations, fiscal policies, and zoning and other ordinances, and costs of compliance with laws and regulations;

•  the ongoing need for capital improvements, particularly in older structures;

•  changes in operating expenses; and

•  civil unrest, acts of war, and natural disasters, including earthquakes and floods, which may result in uninsured and underinsured losses.

We cannot predict whether we will be able to sell any property or loan for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property or loan. Because we intend to offer more flexible terms on our mortgage loans than some providers of commercial mortgage loans, we may have more difficulty selling or participating our loans to secondary purchasers than would these more traditional lenders.

We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements. In acquiring a property, we may agree to lock-out provisions that materially restrict us from selling that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could have a material adverse effect on our operating results and financial condition, as well as our ability to pay dividends to stockholders.

The costs of compliance with or liabilities under environmental laws may harm our operating results.

Our properties and properties underlying our loan assets may be subject to environmental liabilities. An owner of real property, or a lender with respect to a property that exercises control over the property, can face liability for environmental contamination created by the presence or discharge of hazardous substances on the property. We may face liability regardless of:

•  our knowledge of the contamination;

•  the timing of the contamination;

•  the cause of the contamination; or

•  the party responsible for the contamination.

There may be environmental problems associated with our properties or properties underlying our loan assets of which we are unaware. Some of our properties or the properties underlying our loan assets use, or may have used in the past, underground tanks for the storage of petroleum-based or waste products that could create a potential for release of hazardous substances. If environmental contamination exists on a property, we could become subject to strict, joint and several liability for the contamination if we own the property or if we foreclose on the property or otherwise have control over the property.

The presence of hazardous substances on a property we own or have made a loan with respect to may adversely affect our ability to sell or foreclose on the property, and we may incur substantial remediation costs. The discovery

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of environmental liabilities attached to our properties or properties underlying our loan assets could have a material adverse effect on our results of operations, financial condition, and ability to pay dividends to stockholders.

We have environmental insurance policies on each of our owned properties, and we intend to obtain environmental insurance for any other properties that we may acquire. However, if environmental liabilities are discovered during the underwriting of the insurance policies for any property that we may acquire in the future, we may be unable to obtain insurance coverage for the liabilities at commercially reasonable rates or at all, and we may experience losses. In addition, we generally do not require our borrowers to obtain environmental insurance on the properties they own that secure their loans from us.

Our properties and the properties underlying our mortgage loans may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold at any of our properties or the properties underlying our loan assets could require us or our borrowers to undertake a costly remediation program to contain or remove the mold from the affected property. In addition, the presence of significant mold could expose us or our borrowers to liability from guests, employees, and others if property damage or health concerns arise.

Compliance with the Americans with Disabilities Act and fire, safety, and other regulations may require us or our borrowers to make unintended expenditures that adversely impact our operating results.

All of our properties and properties underlying our mortgage loans are required to comply with the Americans with Disabilities Act, or the ADA. The ADA requires that “public accommodations” such as hotels be made accessible to people with disabilities. Compliance with the ADA requirements could require removal of access barriers and non-compliance could result in imposition of fines by the U.S. government or an award of damages to private litigants, or both. We or our borrowers may be required to expend funds to comply with the provisions of the ADA at our hotels or hotels underlying our loan assets, which could adversely affect our results of operations and financial condition and our ability to make distributions to stockholders. In addition, we and our borrowers are required to operate our properties in compliance with fire and safety regulations, building codes, and other land use regulations as they may be adopted by governmental agencies and bodies and become applicable to our properties. We and our borrowers may be required to make substantial capital expenditures to comply with those requirements, and these expenditures could have a material adverse effect on our operating results and financial condition as well as our ability to pay dividends to stockholders.

We may experience uninsured or underinsured losses.

We have property and casualty insurance with respect to our properties and other insurance, in each case, with loss limits and coverage thresholds deemed reasonable by our management (and with the intent to satisfy the requirements of lenders and franchisors). In doing so, we have made decisions with respect to what deductibles, policy limits, and terms are reasonable based on management’s experience, our risk profile, the loss history of our property managers and our properties, the nature of our properties and our businesses, our loss prevention efforts, and the cost of insurance.

Various types of catastrophic losses may not be insurable or may not be economically insurable. In the event of a substantial loss, our insurance coverage may not cover the full current market value or replacement cost of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations, and other factors might cause insurance proceeds to be insufficient to fully replace or renovate a hotel after it has been damaged or destroyed. Accordingly, there can be no assurance that (i) the insurance coverage thresholds that we have obtained will fully protect us against insurable losses (i.e., losses may exceed coverage limits); (ii) we will not incur large deductibles that will adversely affect our earnings; (iii) we will not incur losses from risks that are not insurable or that are not economically insurable; or (iv) current coverage thresholds will continue to be available at reasonable

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rates. In the future, we may choose not to maintain terrorism insurance on any of our properties. As a result, one or more large uninsured or underinsured losses could have a material adverse affect on us.

Each of our current lenders requires us to maintain certain insurance coverage thresholds, and we anticipate that future lenders will have similar requirements. We believe that we have complied with the insurance maintenance requirements under the current governing loan documents and we intend to comply with any such requirements in any future loan documents. However, a lender may disagree, in which case the lender could obtain additional coverage thresholds and seek payment from us, or declare us in default under the loan documents. In the former case, we could spend more for insurance than we otherwise deem reasonable or necessary or, in the latter case, subject us to a foreclosure on hotels collateralizing one or more loans. In addition, a material casualty to one or more hotels collateralizing loans may result in (i) the insurance company applying to the outstanding loan balance insurance proceeds that otherwise would be available to repair the damage caused by the casualty, which would require us to fund the repairs through other sources, or (ii) the lender foreclosing on the hotels if there is a material loss that is not insured.

Risks Related to Our Status as a REIT

If we do not qualify as a REIT, we will be subject to tax as a regular corporation and face substantial tax liability.

We conduct operations so as to qualify as a REIT under the Internal Revenue Code. However, qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only a limited number of judicial or administrative interpretations exist. Even a technical or inadvertent mistake could jeopardize our REIT status. Furthermore, new tax legislation, administrative guidance, or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. If we fail to qualify as a REIT in any tax year, then:

•  we would be taxed as a regular domestic corporation, which, among other things, means being unable to deduct distributions to stockholders in computing taxable income and being subject to federal income tax on our taxable income at regular corporate rates;

•  we would also be subject to federal alternative minimum tax and, possibly, increased state and local taxes;

•  any resulting tax liability could be substantial and would reduce the amount of cash available for distribution to stockholders; and

•  unless we were entitled to relief under applicable statutory provisions, we would be disqualified from treatment as a REIT for the subsequent four taxable years following the year that we lost our qualification, and, thus, our cash available for distribution to stockholders would be reduced for each of the years during which we did not qualify as a REIT.

If we fail to qualify as a REIT, we will not be required to make distributions to stockholders to maintain our tax status. As a result of all of these factors, our failure to qualify as a REIT would impair our ability to raise capital, expand our business, and make distributions to our stockholders and would adversely affect the value of our securities.

Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.

Even if we remain qualified for taxation as a REIT, we may be subject to certain federal, state, and local taxes on our income and assets. For example:

•  We will be required to pay tax on undistributed REIT taxable income.

•  We may be required to pay the “alternative minimum tax” on our items of tax preference.

•  If we have net income from the disposition of foreclosure property held primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay tax on that income at the highest corporate rate.

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•  If we sell a property in a “prohibited transaction,” our gain from the sale would be subject to a 100% penalty tax.

•  Our taxable REIT subsidiary, Ashford TRS, is a fully taxable corporation and will be required to pay federal and state taxes on its income.

Complying with REIT requirements may cause us to forego otherwise attractive opportunities.

To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders, and the ownership of our stock. We may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

Complying with REIT requirements may limit our ability to hedge effectively.

The REIT provisions of the Internal Revenue Code may limit our ability to hedge mortgage securities and related borrowings by requiring us to limit our income in each year from qualified hedges, together with any other income not generated from qualified real estate assets, to no more than 25% of our gross income. In addition, we must limit our aggregate income from nonqualified hedging transactions, from our provision of services, and from other non-qualifying sources to no more than 5% of our annual gross income. As a result, we may have to limit our use of advantageous hedging techniques. This could result in greater risks associated with changes in interest rates than we would otherwise want to incur. If we were to violate the 25% or 5% limitations, we may have to pay a penalty tax equal to the amount of income in excess of those limitations multiplied by a fraction intended to reflect our profitability. If we fail to satisfy the REIT gross income tests, unless our failure was due to reasonable cause and not due to willful neglect, we could lose our REIT status for federal income tax purposes.

Complying with REIT requirements may force us to liquidate otherwise attractive investments.

To qualify as a REIT, we must also ensure that at the end of each calendar quarter at least 75% of the value of our assets consists of cash, cash items, government securities, and qualified REIT real estate assets. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total securities can be represented by securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar quarter, we must correct such failure within 30 days after the end of the calendar quarter to avoid losing our REIT status and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments.

Complying with REIT requirements may force us to borrow to make distributions to stockholders.

As a REIT, we must distribute at least 90% of our annual REIT taxable income (subject to certain adjustments) to our stockholders. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws.

From time to time, we may generate taxable income greater than our net income for financial reporting purposes due to, among other things, amortization of capitalized purchase premiums, or our taxable income may be greater than our cash flow available for distribution to stockholders. If we do not have other funds available in these situations, we could be required to borrow funds, sell investments at disadvantageous prices, or find another alternative source of funds to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity.

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We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our securities.

At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or our stockholders. On May 28, 2003, the President signed the Jobs and Growth Tax Relief Reconciliation Act of 2003, which we refer to as the Jobs and Growth Tax Act. Effective for taxable years beginning after December 31, 2002, the Jobs and Growth Tax Act reduced the maximum rate of tax applicable to individuals on dividend income from regular C corporations from 38.6% to 15.0%. This reduced substantially the so-called “double taxation” (that is, taxation at both the corporate and stockholder levels) that has generally applied to corporations that are not taxed as REITs. Generally, dividends from REITs will not qualify for the dividend tax reduction. The implementation of the Jobs and Growth Tax Act could ultimately cause individual investors to view stocks of non-REIT corporations as more attractive relative to shares of REITs because the dividends paid by non-REIT corporations would be subject to lower tax rates. We cannot predict whether in fact this will occur or whether, if it occurs, what the impact will be on the value of our securities.

Your investment in our securities has various federal, state, and local income tax risks that could affect the value of your investment.

Although the provisions of the Internal Revenue Code relevant to your investment in our securities are generally described in “Federal Income Tax Consequences of Our Status as a REIT,” we strongly urge you to consult your own tax advisor concerning the effects of federal, state, and local income tax law on an investment in our securities because of the complex nature of the tax rules applicable to REITs and their stockholders.

Risk Factors Related to Our Corporate Structure

There are no assurances of our ability to make distributions in the future.

We intend to continue paying quarterly dividends and to make distributions to our stockholders in amounts such that all or substantially all of our taxable income in each year, subject to certain adjustments, is distributed. This, along with other factors, should enable us to qualify for the tax benefits accorded to a REIT under the Internal Revenue Code. However, our ability to pay dividends may be adversely affected by the risk factors described herein. All distributions will be made at the discretion of our Board of Directors and will depend upon our earnings, our financial condition, maintenance of our REIT status, and such other factors as our Board of Directors may deem relevant from time to time. There are no assurances of our ability to pay dividends in the future. In addition, some of our distributions may include a return of capital.

Failure to maintain an exemption from the Investment Company Act would adversely affect our results of operations.

We believe that we will conduct our business in a manner that allows us to avoid registration as an investment company under the Investment Company Act of 1940, or the 1940 Act. Under Section 3(c)(5)(C) of the 1940 Act, entities that are primarily engaged in the business of purchasing or otherwise acquiring “mortgages and other liens on and interests in real estate” are not treated as investment companies. The SEC staff’s position generally requires us to maintain at least 55% of our assets directly in qualifying real estate interests to be able to rely on this exemption. To constitute a qualifying real estate interest under this 55% requirement, a real estate interest must meet various criteria. Mortgage securities that do not represent all of the certificates issued with respect to an underlying pool of mortgages may be treated as securities separate from the underlying mortgage loans and, thus, may not qualify for purposes of the 55% requirement. Our ownership of these mortgage securities, therefore, is limited by the provisions of the 1940 Act and SEC staff interpretive positions. There are no assurances that efforts to pursue our intended investment program will not be adversely affected by operation of these rules.

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Our charter does not permit ownership in excess of 9.8% of our capital stock, and attempts to acquire our capital stock in excess of the 9.8% limit without approval from our Board of Directors are void.

For the purpose of preserving our REIT qualification, our charter prohibits direct or constructive ownership by any person of more than 9.8% of the lesser of the total number or value of the outstanding shares of our common stock or more than 9.8% of the lesser of the total number or value of the outstanding shares of our preferred stock unless our Board of Directors grants a waiver. Our charter’s constructive ownership rules are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than 9.8% of the outstanding stock by an individual or entity could cause that individual or entity to own constructively in excess of 9.8% of the outstanding stock, and thus be subject to our charter’s ownership limit. Any attempt to own or transfer shares of our common or preferred stock in excess of the ownership limit without the consent of the Board of Directors will be void, and could result in the shares being automatically transferred to a charitable trust.

Because provisions contained in Maryland law and our charter may have an anti-takeover effect, investors may be prevented from receiving a “control premium” for their shares.

Provisions contained in our charter and Maryland general corporation law may have effects that delay, defer, or prevent a takeover attempt, which may prevent stockholders from receiving a “control premium” for their shares. For example, these provisions may defer or prevent tender offers for our common stock or purchases of large blocks of our common stock, thereby limiting the opportunities for our stockholders to receive a premium for their common stock over then-prevailing market prices. These provisions include the following:

•  Ownership limit:  The ownership limit in our charter limits related investors, including, among other things, any voting group, from acquiring over 9.8% of our common stock without our permission.

•  Classification of preferred stock:  Our charter authorizes our Board of Directors to issue preferred stock in one or more classes and to establish the preferences and rights of any class of preferred stock issued. These actions can be taken without soliciting stockholder approval. Our preferred stock issuances could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders’ best interests.

Maryland statutory law provides that an act of a director relating to or affecting an acquisition or a potential acquisition of control of a corporation may not be subject to a higher duty or greater scrutiny than is applied to any other act of a director. Hence, directors of a Maryland corporation are not required to act in takeover situations under the same standards as apply in Delaware and other corporate jurisdictions.

Offerings of debt securities, which would be senior to our common stock and any preferred stock upon liquidation, or equity securities, which would dilute our existing stockholders’ holdings be senior to our common stock for the purposes of dividend distributions, may adversely affect the market price of our common stock and any preferred stock.

We may attempt to increase our capital resources by making additional offerings of debt or equity securities, including commercial paper, medium-term notes, senior or subordinated notes, and classes of preferred stock or common stock or classes of preferred units. Upon liquidation, holders of our debt securities or preferred units and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of shares of preferred stock or common stock. Furthermore, holders of our debt securities and preferred stock or preferred units and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common or preferred stock or both. Our preferred stock or preferred units could have a preference on liquidating distributions or a preference on dividend payments that could limit our ability to make a dividend distribution to the holders of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our securities and diluting their securities holdings in us.

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Securities eligible for future sale may have adverse effects on the market price of our securities.

We cannot predict the effect, if any, of future sales of securities, or the availability of securities for future sales, on the market price of our outstanding securities. Sales of substantial amounts of common stock, or the perception that these sales could occur, may adversely affect prevailing market prices for our securities.

We also may issue from time to time additional securities or units of our operating partnership in connection with the acquisition of properties and we may grant additional demand or piggyback registration rights in connection with these issuances. Sales of substantial amounts of our securities or the perception that such sales could occur may adversely affect the prevailing market price for our securities or may impair our ability to raise capital through a sale of additional debt or equity securities.

We depend on key personnel with long-standing business relationships. The loss of key personnel could threaten our ability to operate our business successfully.

Our future success depends, to a significant extent, upon the continued services of our management team. In particular, the lodging industry experience of Messrs. Archie and Montgomery Bennett, Kessler, Brooks, Kimichik, and Nunneley and the extent and nature of the relationships they have developed with hotel franchisors, operators, and owners and hotel lending and other financial institutions are critically important to the success of our business. We do not maintain key — person life insurance on any of our officers. Although these officers currently have employment agreements with us, we cannot assure their continued employment. The loss of services of one or more members of our corporate management team could harm our business and our prospects.

An increase in market interest rates may have an adverse effect on the market price of our securities.

A factor investors may consider in deciding whether to buy or sell our securities is our dividend rate as a percentage of our share or unit price relative to market interest rates. If market interest rates increase, prospective investors may desire a higher dividend or interest rate on our securities or seek securities paying higher dividends or interest. The market price of our securities is likely based on the earnings and return that we derive from our investments, income with respect to our properties, and our related distributions to stockholders and not from the market value or underlying appraised value of the properties or investments themselves. As a result, interest rate fluctuations and capital market conditions can affect the market price of our securities. For instance, if interest rates rise without an increase in our dividend rate, the market price of our common or preferred stock could decrease because potential investors may require a higher dividend yield on our common or preferred stock as market rates on interest-bearing securities, such as bonds, rise. In addition, rising interest rates would result in increased interest expense on our variable — rate debt, thereby adversely affecting cash flow and our ability to service our indebtedness and pay dividends.

Our major policies, including our policies and practices with respect to investments, financing, growth, debt capitalization, and REIT qualification and distributions, are determined by our Board of Directors. Although we have no present intention to do so, our Board of Directors may amend or revise these and other policies from time to time without a vote of our stockholders. Accordingly, our stockholders will have limited control over changes in our policies and the changes could harm our business, results of operations, and share price.

Changes in our strategy or investment or leverage policy could expose us to greater credit risk and interest rate risk or could result in a more leveraged balance sheet. We cannot predict the effect any changes to our current operating policies and strategies may have on our business, operating results, and stock price. However, the effects may be adverse.

Item 1B.   Unresolved Staff Comments

None.

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Item 2.   Properties

As of December 31, 2006, we owned 81 hotel properties located in 26 states with 15,492 rooms. We own our hotels in fee simple except for (a) the Radisson Hotel in Covington, Kentucky, which we own partially in fee simple and partially pursuant to a ground lease that expires in 2070 (including all extensions), (b) the Doubletree Guest Suites in Columbus, Ohio, which was built on an air rights lease above the parking garage that expires in 2045, (c) the Hilton in Ft. Worth, Texas, which we own pursuant to a ground lease which expires in 2040 (including all extensions), (d) the Radisson Hotel in Indianapolis, Indiana, which we own pursuant to a ground lease which expires in 2034 (including all extensions), (e) the Crowne Plaza in Key West, Florida, which we own pursuant to a ground lease that expires in 2084 (including all extensions), and (f) the JW Marriott in San Francisco, California, which we own pursuant to a ground lease that expires in 2083 (including all extensions). Regarding the 81 hotels, 66 are held for investment purposes while 15 are held for sale. All 81 hotels are operated by our managers. The following table sets forth certain descriptive information regarding these hotels as of December 31, 2006:

Hotel Property	Location	Rooms
Embassy Suites	Austin, TX		150
Embassy Suites	Dallas, TX		150
Embassy Suites	Herndon, VA		150
Embassy Suites	Las Vegas, NV		220
Embassy Suites	Phoenix, AZ		229
Embassy Suites	Syracuse, NY		215
Embassy Suites	Flagstaff, AZ		119
Embassy Suites	Houston, TX		150
Embassy Suites	West Palm Beach, FL		160
Embassy Suites	Philadelphia, PA		263
Embassy Suites	Walnut Creek, CA		249
Radisson Hotel	Covington, KY		236	held for sale
Radisson Hotel	Holtsville, NY		188
Radisson Hotel (downtown)	Indianapolis, IN		371
Radisson Hotel	Rockland, MD		127
Radisson Hotel (airport)	Indianapolis, IN		259	held for sale
Radisson Hotel	Milford, MD		173
Doubletree Guest Suites	Columbus, OH		194
Doubletree Guest Suites	Dayton, OH		137	held for sale
Hilton Garden Inn	Jacksonville, FL		119
Hilton	Ft. Worth, TX		294
Hilton	Houston, TX		243
Hilton	St. Petersburg, FL		333
Hilton	Santa Fe, NM		157
Hilton	Bloomington, MN		300
Homewood Suites	Mobile, AL		86
Hampton Inn	Lawrenceville, GA		86
Hampton Inn	Evansville, IN		141
Hampton Inn	Terre Haute, IN		112
Hampton Inn	Horse Cave, KY		101	held for sale
Hampton Inn	Buford, GA		92
Marriott	Durham, NC		225
Marriott	Arlington, VA		697

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Hotel Property	Location	Rooms
Marriott	Trumbull, CT		323	held for sale
JW Marriott	San Francisco, CA		338
SpringHill Suites by Marriott	Jacksonville, FL		102
SpringHill Suites by Marriott	Baltimore, MD		133
SpringHill Suites by Marriott	Kennesaw, GA		90
SpringHill Suites by Marriott	Buford, GA		96
SpringHill Suites by Marriott	Gaithersburg, MD		162
SpringHill Suites by Marriott	Centreville, VA		136
SpringHill Suites by Marriott	Charlotte, NC		136
SpringHill Suites by Marriott	Durham, NC		120
Fairfield Inn by Marriott	Kennesaw, GA		87
Fairfield Inn by Marriott	Evansville, IN		110	held for sale
Fairfield Inn by Marriott	Princeton, IN		73	held for sale
Courtyard by Marriott	Bloomington, IN		117
Courtyard by Marriott	Columbus, IN		90
Courtyard by Marriott	Louisville, KY		150
Courtyard by Marriott	Crystal City, VA		272
Courtyard by Marriott	Ft. Lauderdale, FL		174
Courtyard by Marriott	Overland Park, KS		168
Courtyard by Marriott	Palm Desert, CA		151
Courtyard by Marriott	Foothill Ranch, CA		156
Courtyard by Marriott	Alpharetta, GA		154
Marriott Residence Inn	Lake Buena Vista, FL		210
Marriott Residence Inn	Evansville, IN		78
Marriott Residence Inn	Orlando, FL		350
Marriott Residence Inn	Falls Church, VA		159
Marriott Residence Inn	San Diego, CA		150
Marriott Residence Inn	Salt Lake City, UT		144
Marriott Residence Inn	Palm Desert, CA		130
TownePlace Suites by Marriott	Mt. Laurel, NJ		95	held for sale
TownePlace Suites by Marriott	Scarborough, ME		95	held for sale
TownePlace Suites by Marriott	Miami, FL		95	held for sale
TownePlace Suites by Marriott	Ft. Worth, TX		95	held for sale
TownePlace Suites by Marriott	Miami Lakes, FL		95	held for sale
TownePlace Suites by Marriott	Tewksbury, MA		95	held for sale
TownePlace Suites by Marriott	Newark, CA		127	held for sale
Sea Turtle Inn	Atlantic Beach, FL		193
Sheraton Hotel	Langhorne, PA		187
Sheraton Hotel	Minneapolis, MN		222
Sheraton Hotel	Anchorage, AK		375
Sheraton Hotel	Iowa City, IA		234	held for sale
Sheraton Hotel	San Diego, CA		260
Hyatt Regency	Anaheim, CA		654
Hyatt Regency	Herndon, VA		316

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Hotel Property	Location	Rooms
Crowne Plaza	Beverly Hills, CA		260
Crowne Plaza	Key West, FL		160
Annapolis Inn	Annapolis, MD		124
Westin	Rosemont, IL		525
Total			15,492

Item 3.   Legal Proceedings

We are currently subject to litigation arising in the normal course of our business. In the opinion of management, none of these lawsuits or claims against us, either individually or in the aggregate, is likely to have a material adverse effect on our business, results of operations, or financial condition. In addition, we believe we have adequate insurance in place to cover such litigation.

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

No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2006.

PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Market and Dividend Information

Our common stock is traded on the New York Stock Exchange under the symbol “AHT.” The following table sets forth, for the indicated periods, the high and low sales prices for our common stock as traded on that exchange and cash distributions declared per common share:

					Cash
	Price Range				Distributions
	High		Low		per Share
2005
First quarter	$	10.84	$	9.00	$	0.16
Second quarter	$	10.90	$	9.70	$	0.17
Third quarter	$	12.22	$	10.28	$	0.18
Fourth quarter	$	11.53	$	9.78	$	0.20
2006
First quarter	$	13.06	$	10.66	$	0.20
Second quarter	$	12.62	$	10.38	$	0.20
Third quarter	$	13.00	$	11.49	$	0.20
Fourth quarter	$	13.18	$	11.72	$	0.20

To maintain our qualification as a REIT, we intend to make annual distributions to our stockholders of at least 90% of our REIT taxable income (which does not necessarily equal net income as calculated in accordance with generally accepted accounting principles). Distributions will be authorized by our Board of Directors and declared by us based upon a variety of factors deemed relevant by our Directors, and no assurance can be given that our dividend policy will not change in the future. Our ability to pay distributions to our stockholders will depend, in part, upon our receipt of distributions from our operating partnership. This, in turn, may depend upon receipt of lease payments with respect to our properties from indirect, wholly-owned subsidiaries of our operating partnership and the management of our properties by our property managers.

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Performance Graph

The following graph compares the percentage change in the cumulative total stockholder return on our common stock with the cumulative total return of the S&P 500 Stock Index, the NAREIT Mortgage Index, and the NAREIT Lodging Resort Index for the period August 29, 2003, the date of our initial public offering, through December 31, 2006, assuming an initial investment of $100 on August 29, 2003 in stock or index-including reinvestment of dividends. The NAREIT Lodging Resorts Index is not a published index; however, we believe the companies included in this index provide a representative example of enterprises in the lodging resort line of business in which we engage. Stockholders who wish to request a list of companies in the NAREIT Lodging Resorts Index may send written requests to Ashford Hospitality Trust, Inc., Attention: Stockholder Relations, 14185 Dallas Parkway, Suite 1100, Dallas, Texas 75254. The stock price performance shown on the graph is not necessarily indicative of future price performance.

COMPARISON OF 40 MONTH CUMULATIVE TOTAL RETURN*
Among Ashford Hospitality Trust, Inc., The S & P 500 Index,
The NAREIT Mortgage Index and The NAREIT Lodging & Resorts

* $100 invested on 8/29/03 in stock or index-including reinvestment of dividends. Fiscal year ending December 31.

Copyright^© 2007, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved.

www.researchdategroup.com/S&P.htm

Recent Sales of Unregistered Securities

None during the quarter ended December 31, 2006.

Stockholder Information

As of March 8, 2007, we had approximately 17,100 holders of record of our common stock. In order to comply with certain requirements related to our qualification as a REIT, our charter limits the number of shares of capital stock that may be owned by any single person or affiliated group without our permission to 9.8% of the outstanding shares of any class of our capital stock. In the past, our Board of Directors has granted waivers to three stockholders allowing such stockholders to temporarily exceed the ownership limitation. However, no stockholder currently exceeds the ownership limit.

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Equity Compensation Plans Information

The following table sets forth the number of securities to be issued upon exercise of outstanding options, warrants, and rights; weighted-average exercise price of outstanding options, warrants, and rights; and the number of securities remaining available for future issuance as of December 31, 2006:

	Number of Securities		Weighted-Average
	to be Issued Upon		Exercise Price
	Exercise of Outstanding		of Outstanding		Number of Securities
	Options, Warrants,		Options, Warrants,		Remaining Available
	and Rights		and Rights		for Future Issuance
Equity compensation plans approved by security holders: Restricted common stock		None		NA		2,144,221
Equity compensation plans not approved by security holders		None		None		None

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Item 6.   Selected Financial Data

The following table sets forth consolidated selected historical operating and financial data for the Company beginning with its commencement of operations on August 29, 2003. Prior to that time, this table includes the combined selected historical operating and financial data of certain affiliates of Remington Lodging (the “Predecessor”).

The selected historical consolidated financial information as of December 31, 2006 and 2005 and for each of the three years in the period ended December 31, 2006 were derived from financial statements contained elsewhere herein. The selected historical consolidated and combined financial information as of December 31, 2004 and 2003 and for each of the two years in the period ended December 31, 2003 (as adjusted for discontinued operations) were derived from the Company’s consolidated and combined financial statements and notes thereto for the year ended December 31, 2005, which are included in the Company’s Form 10-K, filed March 14, 2006. The selected historical combined financial information as of December 31, 2002 (as adjusted for discontinued operations) was derived from the Company’s Post-Effective Amendment #1 to Form S-11 (file number 001-31775), filed August 26, 2003.

The information below should be read along with all other financial information and analysis presented elsewhere herein, including the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s consolidated financial statements and related notes thereto.

ASHFORD HOSPITALITY TRUST, INC. AND PREDECESSOR
SELECTED HISTORICAL FINANCIAL AND OTHER DATA

	Years Ended December 31,
	2006			2005			2004			2003			2002
	(Company)			(Company)			(Company)			(Company &			(Predecessor)
										Predecessor)
	(In thousands, except share and per share amounts)
Operating Data:
Revenue:
Hotel revenues
Rooms	$	365,917		$	235,951		$	82,585		$	30,744		$	25,420
Food and beverage		81,081			48,752			12,082			3,864			3,439
Interest income from notes receivable		14,858			13,323			7,549			110			—
Other		18,578			13,320			5,020			1,216			1,033
Total Operating Revenue		480,434			311,346			107,236			35,934			29,892
Expenses:
Hotel operating expenses
Rooms		82,022			53,007			19,000			6,997			5,581
Food and beverage		60,146			36,886			8,980			2,915			2,542
Other direct		8,197			5,165			2,008			822			567
Indirect		137,298			91,531			31,643			12,458			10,265
Management fees, including related parties		17,850			10,889			3,059			1,167			896
Property taxes, insurance, and other		26,286			16,264			6,105			2,459			2,047
Depreciation & amortization		49,564			28,169			9,770			4,265			4,155
Corporate general and administrative		20,359			14,523			11,855			4,003			—
Total Operating Expenses		401,722			256,434			92,420			35,086			26,053
Operating income		78,712			54,912			14,816			848			3,839
Interest income		2,917			1,027			335			289			53
Interest expense and amortization of loan costs		(48,457	)		(38,404	)		(11,101	)		(5,000	)		(6,536	)
Write-off of loan costs and exit fees		(788	)		(5,803	)		(1,633	)		—			—
Loss on debt extinguishment		—			(10,000	)		—			—			—

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	Years Ended December 31,
	2006			2005			2004			2003			2002
	(Company)			(Company)			(Company)			(Company &			(Predecessor)
										Predecessor)
	(In thousands, except share and per share amounts)
Income (loss) before provision for income taxes and minority interest		32,384			1,732			2,417			(3,863	)		(2,644	)
Benefit from (provision for) income taxes		2,920			2,584			(630	)		(133	)		(449	)
Minority interest		(4,274	)		(887	)		(310	)		334			—
Net Income (Loss) From Continuing Operations		31,030			3,429			1,477			(3,662	)		(3,093	)
Income (loss) from discontinued operations, net		6,766			6,008			(58	)		(258	)		—
Net Income (Loss)		37,796			9,437			1,419			(3,920	)		(3,093	)
Preferred dividends		(10,875	)		(9,303	)		(1,355	)		—			—
Net Income (Loss) Available To Common Shareholders	$	26,921		$	134		$	64		$	(3,920	)	$	(3,093	)
Diluted:											(a)
Income (Loss) From Continuing Operations Per Share Available To Common Shareholders	$	0.32		$	(0.15	)	$	0.00		$	(0.07	)
Income (Loss) From Discontinued Operations Per Share	$	0.11		$	0.15		$	(0.00	)	$	—
Net Income (Loss) Per Share Available To Common Shareholders	$	0.43		$	—		$	—		$	(0.07	)
Weighted Average Common Shares Outstanding		62,127,948			40,194,132			25,143,469			24,627,298

(a) For the year ended December 31, 2003, per share and weighted average shares data only relates to the period from inception through December 31, 2003.

	Years Ended December 31,
	2006		2005		2004		2003		2002
	(Company)		(Company)		(Company)		(Company &		(Predecessor)
							Predecessor)
Balance Sheet Data:
Investments in hotel properties, net	$	1,632,946	$	1,106,668	$	427,005	$	173,724	$	85,247
Cash, cash equivalents, and restricted cash		82,756		85,837		61,168		77,628		6,322
Assets held for sale		119,342		117,873		—		—		—
Notes receivable		102,833		107,985		79,662		10,000		—
Total assets		2,011,912		1,482,486		595,945		267,882		95,416
Indebtedness		1,091,150		908,623		300,754		50,202		82,126
Capital leases payable		177		453		313		457		621
Total liabilities		1,185,339		961,194		327,926		57,943		86,105
Total liabilities and owners’ equity		2,011,912		1,482,486		595,945		267,882		95,416

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	Years Ended December 31,
	2006			2005			2004			2003			2002
	(Company)			(Company)			(Company)			(Company &			(Predecessor)
										Predecessor)
Other Data:
Cash Flow:
Provided by operating activities	$	139,691		$	56,528		$	6,652		$	5,735		$	623
Used in investing activities		(565,473	)		(652,267	)		(310,624	)		(89,189	)		(1,080	)
Provided by (used in) financing activities		441,130			606,625			274,827			161,718			(1,726	)
Unaudited:
Total number of rooms at December 31		15,492			13,184			5,095			2,381			1,094
Total number of hotels at December 31		81			80			33			15			6
EBITDA(1)	$	138,757		$	79,346		$	23,909		$	5,508		$	8,224
FFO(2)	$	84,748		$	32,741		$	11,076		$	653		$	1,741
(1) EBITDA Reconciliation (unaudited):
Net income (loss)	$	37,796		$	9,437		$	1,419		$	(3,920	)	$	(3,093	)
Plus depreciation and amortization		52,863			30,291			10,768			4,933			4,834
Plus interest expense & amortization of loan costs		48,457			38,404			11,101			5,000			6,536
Less interest income		(2,917	)		(1,027	)		(335	)		(289	)		(53	)
Plus (benefit from) provision for income taxes		(2,719	)		(184	)		658			142			—
Remove minority interest		5,277			2,425			298			(358	)		—
EBITDA	$	138,757		$	79,346		$	23,909		$	5,508		$	8,224
(2) FFO Reconciliation (unaudited):
Net income (loss) available to common shareholders	$	26,921		$	134		$	64		$	(3,920	)	$	(3,093	)
Plus real estate depreciation and amortization(a)		52,550			30,182			10,714			4,931			4,834
Remove minority interest		5,277			2,425			298			(358	)		—
FFO	$	84,748		$	32,741		$	11,076		$	653		$	1,741

(a)	Includes property-level furniture, fixtures, and equipment.
(1)	EBITDA is defined as net income (loss) or income (loss) before net gain on sale of properties, interest expense, interest income (excluding interest income from mezzanine loans), income taxes, depreciation and amortization, and minority interest. We believe EBITDA is useful to investors as an indicator of our ability to service debt and pay cash distributions. EBITDA, as calculated by us, may not be comparable to EBITDA reported by other companies that do not define EBITDA exactly as we define the term. EBITDA does not represent cash generated from operating activities determined in accordance with genereally accepted accounting principles (“GAAP”), and should not be considered as an alternative to operating income or net income determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as determined by GAAP as an indicator of liquidity.
(2)	The White Paper on Funds From Operations (“FFO”) approved by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”) in April 2002 defines FFO as net income (loss) computed in accordance with generally accepted accounting principles (“GAAP”), excluding gains (or losses)

34

from sales of properties and extraordinary items as defined by GAAP, plus depreciation and amortization of real estate assets, and net of adjustments for the portion of these items related to unconsolidated entities and joint ventures. NAREIT developed FFO as a relative measure of performance of an equity REIT to recognize that income-producing real estate historically has not depreciated on the basis determined by GAAP. We compute FFO in accordance with our interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the NAREIT definition differently than us. FFO does not represent cash generated from operating activities as determined by GAAP and should not be considered an alternative to a) GAAP net income (loss) as an indication of our financial performance or b) GAAP cash flows from operating activities as a measure of our liquidity, nor is it indicative of cash available to fund our cash needs, including our ability to make cash distributions. We believe that to facilitate a clear understanding of our historical operating results, FFO should be considered along with our net income (loss) and cash flows reported in the consolidated financial statements.

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS:

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein. This report contains forward-looking statements within the meaning of the federal securities laws. Ashford Hospitality Trust, Inc. (the “Company” or “we” or “our” or “us”) cautions investors that any forward-looking statements presented herein, or which management may express orally or in writing from time to time, are based on management’s beliefs and assumptions at that time. Throughout this report, words such as “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “result,” and other similar expressions, which do not relate solely to historical matters, are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We caution investors that while forward-looking statements reflect our good-faith beliefs at the time such statements are made, said statements are not guarantees of future performance and are affected by actual events that occur after such statements are made. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which were based on results and trends at the time those statements were made, to anticipate future results or trends.

Some risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, those discussed in Part I, Item 1A, Risk Factors. These risks and uncertainties continue to be relevant to our performance and financial condition. Moreover, we operate in a very competitive and rapidly changing environment where new risk factors emerge from time to time. It is not possible for management to predict all such risk factors, nor can management assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictions of actual results.

EXECUTIVE OVERVIEW:

We are a real estate investment trust (“REIT”) that commenced operations upon completion of our initial public offering (“IPO”) and related formation transactions on August 29, 2003. As of December 31, 2006, we owned 81 hotels and approximately $103.0 million of mezzanine or first-mortgage loans receivable. Of these 81 hotels, six were contributed upon our formation, nine were acquired in the fourth quarter of 2003, 18 were acquired during 2004, 37 were acquired during 2005, and eleven were acquired in 2006. Currently, 15 of these 81 hotels are considered held for sale and included in discontinued operations. The 38 hotel properties acquired since December 31, 2004 that are included in continuing operations contributed approximately $292.3 million and $49.9 million to our total revenue and operating income, respectively, for the year ended December 31, 2006, and approximately

35

$135.7 million and $25.1 million to our total revenue and operating income, respectively, for the year ended December 31, 2005.

Based on our primary business objectives and forecasted operating conditions, our key priorities or financial strategies include, among other things:

•  acquiring hotels with a favorable current yield with an opportunity for appreciation,

•  implementing selective capital improvements designed to increase profitability,

•  directing our hotel managers to minimize operating costs and increase revenues,

•  originating or acquiring mezzanine loans, and

•  other investments that our Board of Directors deems appropriate.

Throughout 2006, strong economic growth in the United States economy combined with improved business demand generated strong RevPar growth throughout the lodging industry. For 2007, forecasts for the lodging industry continue to be favorable.

RESULTS OF OPERATIONS:

Marriott International, Inc. (“Marriott”) manages 24 of the Company’s properties. For these 24 Marriott-managed hotels, the fiscal year reflects twelve weeks of operations for the first three quarters of the year and sixteen weeks for the fourth quarter of the year. Therefore, in any given quarterly period, period-over-period results will have different ending dates. For these 24 Marriott-managed hotels, the fourth quarters of 2006 and 2005 ended December 29^th and December 30^th, respectively.

RevPAR is a commonly used measure within the hotel industry to evaluate hotel operations. RevPAR is defined as the product of the average daily room rate (“ADR”) charged and the average daily occupancy achieved. RevPAR does not include revenues from food and beverage or parking, telephone, or other guest services generated by the property. Although RevPAR does not include these ancillary revenues, it is generally considered the leading indicator of core revenues for many hotels. We also use RevPAR to compare the results of our hotels between periods and to analyze results of our comparable hotels. RevPAR improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs. RevPAR improvements attributable to increases in ADR are generally accompanied by increases in limited categories of operating costs, such as management fees and franchise fees.

The following table illustrates the key performance indicators for the years ended December 31, 2006 and 2005 for the 28 hotel properties included in continuing operations that we owned throughout the entirety of both years presented (“2006 comparable hotels”):

	Years Ended December 31,
	2006			2005
Comparative Hotels (28 properties):
Room revenues (in thousands)	$	138,240		$	129,257
RevPar	$	85.40		$	79.81
Occupancy		75.63	%		74.08	%
ADR	$	112.91		$	107.74

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The following table reflects key line items from our consolidated statements of operations for the years ended December 31, 2006, 2005, and 2004 (in thousands):

	Year Ended			Year Ended			Year Ended			Favorable (Unfavorable)
	December 31,			December 31,			December 31,			Change
	2006			2005			2004			2005 to 2006			2004 to 2005
Total revenue	$	480,434		$	311,346		$	107,236		$	169,088		$	204,110
Total hotel expenses		305,513			197,478			64,690			(108,035	)		(132,788	)
Property taxes, insurance, and other		26,286			16,264			6,105			(10,022	)		(10,159	)
Depreciation and amortization		49,564			28,169			9,770			(21,395	)		(18,399	)
Corporate general and administrative		20,359			14,523			11,855			(5,836	)		(2,668	)
Operating income		78,712			54,912			14,816			23,800			40,096
Interest income		2,917			1,027			335			1,890			692
Interest expense		(46,419	)		(34,448	)		(9,217	)		(11,971	)		(25,231	)
Amortization of loan costs		(2,038	)		(3,956	)		(1,884	)		1,918			(2,072	)
Write-off of loan costs and exit fees		(788	)		(5,803	)		(1,633	)		5,015			(4,170	)
Loss on debt extinguishment		—			(10,000	)		—			10,000			(10,000	)
Benefit from (provision for) income taxes		2,920			2,584			(630	)		336			3,214
Minority interest		(4,274	)		(887	)		(310	)		(3,387	)		(577	)
Income (loss) from discontinued operations, net		6,766			6,008			(58	)		758			6,066
Net income	$	37,796		$	9,437		$	1,419		$	28,359		$	8,018

Comparison of Year Ended December 31, 2006 and Year Ended December 31, 2005

Revenue.  Total revenue for the year ended December 31, 2006 increased approximately $169.1 million or 54.3% to approximately $480.4 million from total revenue of approximately $311.3 million for the year ended December 31, 2005. The increase was primarily due to approximately $156.4 million in incremental revenues attributable to the 38 hotel properties acquired since December 31, 2004 that are included in continuing operations, approximately $1.5 million increase in interest income earned on the Company’s $103.0 million notes receivable portfolio, and approximately $10.9 million increase in revenues for comparable hotels, primarily due to increases in room revenues.

Room revenues at comparable hotels for the year ended December 31, 2006 increased approximately $9.0 million or 6.9% compared to 2005, primarily due to an increase in RevPar from $79.81 to $85.40, which consisted of a 4.8% increase in ADR and a 2.1% increase in occupancy. Due to the continued recovery in the economy and consistent with industry trends, several hotels experienced increases in both ADR and occupancy. In addition to improved market conditions, certain hotels also benefited from the following:

•  renovations were completed at several hotels in 2005, which generated increased occupancy in 2006 as rooms previously under renovations became available, and

•  certain hotels were successful in garnering more favorable group room-night contracts in 2006.

Food and beverage revenues at comparable hotels for the year ended December 31, 2006 increased approximately $1.7 million or 6.8% compared to 2005 primarily due to the overall increase in occupancy.

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Other revenues the year ended December 31, 2006 compared to 2005 increased approximately $5.3 million or 43.5% due to an increase at comparable hotels of approximately $224,000 or 3.2%, primarily resulting from increases in occupancy, and an increase of approximately $5.0 million related to incremental revenues attributable to the 38 hotel properties acquired since December 31, 2004 that are included in continuing operations.

Interest income from notes receivable increased to approximately $14.9 million for the year ended December 31, 2006 compared to approximately $13.3 million for 2005 primarily due to an increase in the average balance outstanding of the notes receivable portfolio and an increase in interest rates.

Asset management fees remained flat at approximately $1.3 million for both the years ended December 31, 2006 and 2005. Asset management fees relate to 27 hotel properties owned by affiliates for which the Company provided asset management and consulting services. The Company acquired 21 of these hotel properties from said affiliates on March 16, 2005, and the affiliates subsequently sold the remaining six hotel properties. However, the affiliates, pursuant to an agreement, will continue to guarantee a minimum annual fee of approximately $1.2 million through December 31, 2008.

Hotel Operating Expenses.  Hotel operating expenses, which consists of room expense, food and beverage expense, other direct expenses, indirect expenses, and management fees, increased approximately $108.0 million or 54.7% for the year ended December 31, 2006 compared to 2005, primarily due to approximately $102.5 million of expenses associated with the 38 hotel properties acquired since December 31, 2004 that are included in continuing operations. In addition, hotel operating expenses at comparable hotels experienced an increase of approximately $5.5 million or 5.2% for the year ended December 31, 2006 compared to 2005 primarily due to increases in rooms, food and beverage, and indirect expenses.

Rooms expense at comparable hotels increased approximately $1.8 million or 6.0% for the year ended December 31, 2006 compared to 2005 primarily due to increased occupancy at most hotels and virtually flat costs at hotels experiencing comparable occupancy due to the fixed nature of maintaining staff. Food and beverage expense at comparable hotels for the year ended December 31, 2006 compared to 2005 also increased approximately $785,000, which is consistent with the increase in food and beverage revenues at most hotels and the overall increase in occupancy. Indirect expenses at comparable hotels increased approximately $2.4 million or 5.0% for the year ended December 31, 2006 compared to 2005. Indirect expenses increased as a result of:

•  increased hotel-level general and administrative expenses due to increased salaries and staffing needs consistent with increased revenues,

•  increased sales and marketing expenses due to increased room availability at certain hotels as a result of rooms undergoing renovations during 2005,

•  increased franchise fees due to increased room revenues at certain hotels in 2006, and

•  increased energy costs due to increased utility rates.

Property Taxes, Insurance, and Other.  Property taxes, insurance, and other increased approximately $10.0 million or 61.6% for the year ended December 31, 2006 compared to 2005 due to approximately $9.6 million of expenses associated with the 38 hotel properties acquired since December 31, 2004 that are included in continuing operations. Aside from additional costs incurred at these acquired hotels, property taxes, insurance, and other expense increased approximately $468,000 in 2006 compared to 2005 primarily resulting from increased property insurance rates, primarily due to 2005 hurricanes, and increased property value tax assessments at certain hotels.

Depreciation and Amortization.  Depreciation and amortization increased approximately $21.4 million or 76.0% for the year ended December 31, 2006 compared to 2005 primarily due to approximately $19.8 million of depreciation associated with the 38 hotel properties acquired since December 31, 2004 that are included in continuing operations. Aside from these additional hotels acquired, depreciation and amortization increased approximately $1.6 million in 2006 compared to 2005 as a result of capital improvements made at several comparative hotels since December 31, 2004.

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Corporate General and Administrative.  Corporate general and administrative expense increased to approximately $20.4 million for the year ended December 31, 2006 compared to approximately $14.5 million for 2005 primarily due to overall company growth and an increase in non-cash expenses associated with stock-based compensation to approximately $5.2 million in 2006 compared to approximately $3.4 million in 2005. As a percentage of total revenue, however, corporate general and administrative expense decreased to approximately 4.2% in 2006 from approximately 4.7% in 2005 due to corporate synergies inherent in overall growth.

Operating Income.  Operating income increased approximately $23.8 million to approximately $78.7 million for the year ended December 31, 2006 from approximately $54.9 million in 2005 as result of the aforementioned operating results.

Interest Income.  Interest income increased approximately $1.9 million to approximately $2.9 million for the year ended December 31, 2006 from approximately $1.0 million in 2005 primarily due to interest earned on funds received from borrowings and equity offerings in 2006 in excess of interest earned on funds received from borrowings and equity offerings in 2005.

Interest Expense and Amortization of Loan Costs.  Interest expense and amortization of loan costs increased approximately $10.1 million to approximately $48.5 million for the year ended December 31, 2006 from approximately $38.4 million in 2005. The increase in interest expense and amortization of loan costs is associated with the higher average debt balance over the course of the two comparative periods and increased interest rates.

Write-off of Loan Costs and Exit Fees.  On March 24, 2006, in connection with the sale of eight hotel properties for approximately $100.4 million, net of closing costs, the buyer assumed approximately $93.7 million of mortgage debt, due July 1, 2015. Related to this assumption, the Company wrote-off unamortized loan costs of approximately $687,000. On May 30, 2006, the Company repaid its then outstanding $11.1 million balance on its mortgage note payable, due April 1, 2011, which resulted in the write-off of unamortized loan costs of approximately $102,000. During the year ended December 31, 2005, the Company completed several debt restructuring transactions to extend its maturities, lower its borrowing costs, and fix its interest rates. On January 20, 2005, the Company repaid its $15.5 million mortgage note payable, due December 31, 2005, and its $7.0 million mortgage note payable, due July 31, 2007, which resulted in the write-off of unamortized loan costs of approximately $151,000. On November 10, 2005, the Company repaid the remaining $18.8 million balance outstanding under its $45.6 million credit facility, due July 13, 2007, which resulted in the write-off of unamortized loan costs of approximately $640,000 and early exit fees of approximately $456,000. On November 14, 2005, the Company repaid its $210.0 million term loan, due October 10, 2006, and its $6.2 million mortgage loan, due January 1, 2006, which resulted in the write-off of unamortized loan costs of approximately $2.5 million and early exit fees of approximately $2.1 million.

Loss on Debt Extinguishment.  During the year ended December 31, 2006, there were no losses on debt extinguishments. During the year ended December 31, 2005, the Company completed several debt restructuring transactions to extend its maturities, lower its borrowing costs, and fix its interest rates. On March 30, 2005, the Company paid down mortgage debt assumed in the 21-property hotel portfolio acquisition on March 16, 2005 by approximately $18.2 million, which generated a loss on early extinguishment of debt of approximately $2.3 million, which is net of the write-off of the related portion of debt premium of approximately $1.4 million. On October 13, 2005, the Company extinguished approximately $98.9 million of this debt, which generated a loss on early extinguishment of debt of approximately $4.3 million, which is net of the write-off of debt premiums associated with these mortgages of approximately $3.0 million. On December 20, 2005, the Company extinguished the remaining $31.0 million of this debt, which generated a loss on early extinguishment of debt of approximately $3.4 million, which is net of the write-off of the debt premium associated with this mortgage of approximately $780,000.

Benefit from Income Taxes.  As a REIT, the Company generally will not be subject to federal corporate income tax on the portion of its net income that does not relate to taxable REIT subsidiaries. However, the Company leases each of its hotel properties to Ashford TRS, which is treated as a taxable REIT subsidiary for federal income tax purposes. For the years ended December 31, 2006 and 2005, the benefit from income taxes related to continuing operations of approximately $2.9 million and $2.6 million, respectively, relates to the net income associated with

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Ashford TRS. For the years ended December 31, 2006 and 2005, an additional provision for income taxes of approximately $201,000 and $2.4 million, respectively, is included in discontinued operations.

Minority Interest.  Minority interest represents a reduction to net income of approximately $4.3 million and $887,000 for the years ended December 31, 2006 and 2005, respectively. Upon formation of the Company on August 29, 2003, minority interest in the operating partnership was established to represent the limited partners’ proportionate share of the equity in the operating partnership. Net income (loss) available to common shareholders is allocated to minority interest based on the weighted-average limited partnership percentage ownership throughout the period.

Income from Continuing Operations.  Income from continuing operations was approximately $31.0 million and $3.4 million for the years ended December 31, 2006 and 2005, respectively, which represents an increase of approximately $27.6 million as a result of the aforementioned operating results.

Income from Discontinued Operations, Net.  On March 16, 2005, the Company acquired 21 hotel properties and an office building for approximately $250.0 million. Soon thereafter, the Company made a strategic commitment to sell eight of these hotel properties, six of which were sold in the second quarter of 2005. On January 17, 2006, the Company sold the remaining two properties. On June 17, 2005, the Company acquired 30 hotel properties for approximately $465.0 million. Soon thereafter, the Company made a strategic commitment to sell eight of these properties, which were sold on March 24, 2006. On December 7, 2006, the Company acquired seven hotel properties for approximately $267.2 million, two of which properties were immediately held for sale. As of December 31, 2006, the Company had secured sales commitments related to these two properties. In late 2006, the Company made a strategic decision to sell 15 hotel properties acquired between 2003 and 2006 and its office building acquired on March 16, 2005. Operating results related to these properties during the periods such properties were owned are included in income from discontinued operations for both the years ended December 31, 2006 and 2005.

Net Income.  Net income was approximately $37.8 million and $9.4 million for the years ended December 31, 2006 and 2005, respectively, which represents an increase of approximately $28.4 million as a result of the aforementioned operating results.

Preferred Dividends.  During the year ended December 31, 2006, the Company declared cash dividends of approximately $4.9 million, or $0.5344 per diluted share per quarter, for Series A preferred stockholders, and approximately $6.0 million, or $0.20 per diluted share per quarter, for Series B preferred stockholders. During the year ended December 31, 2005, the Company declared cash dividends of approximately $4.9 million and $3.4 million, for Series A preferred stockholders and Series B preferred stockholders, respectively. In addition, on June 15, 2005, the Company sold a financial institution its remaining 6,454,816 shares of Series B cumulative convertible redeemable preferred stock for approximately $65.0 million, or $10.07 per share. In connection with this sale, the Company recognized a non-cash preferred dividend of approximately $1.0 million related to the difference in the market value of the Company’s common stock and the $10.07 conversion price on June 6, 2005, which represents the date at which the Company notified the financial institution of its intention to exercise its option to sell the preferred shares.

Net Income Available to Common Shareholders.  Net income available to common shareholders was approximately $26.9 million and $134,000 for the years ended December 31, 2006 and 2005, respectively, which represents an increase of approximately $26.8 million as a result of the aforementioned operating results and preferred dividends.

Comparison of Year Ended December 31, 2005 to Year Ended December 31, 2004

Revenue.  Total revenue for the year ended December 31, 2005 increased approximately $204.1 million or 190.3% to approximately $311.3 million from total revenue of approximately $107.2 million for the year ended December 31, 2004. The increase was primarily due to approximately $192.0 million in incremental revenues attributable to the 44 hotel properties acquired since 2003 that are included in continuing operations, approximately $5.8 million increase in interest income earned on the Company’s $108.3 million mezzanine loans receivable

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portfolio, of which approximately $98.3 million of the portfolio was acquired since 2003, and approximately $6.4 million increase in revenues for comparable hotels, primarily due to increases in room revenues.

Room revenues at comparable hotels for the year ended December 31, 2005 increased approximately $5.5 million or 9.9% compared to 2004, primarily due to an increase in RevPar from $75.5 to $83.2, which consisted of a 6.4% increase in ADR and a 3.6% increase in occupancy. Due to the continued recovery in the economy and consistent with industry trends, several hotels experienced increases in both ADR and occupancy. In addition to improved market conditions, certain hotels also benefited from the following:

•  renovations were completed at the Syracuse Embassy Suites and Phoenix Embassy Suites in 2004, which generated increased occupancy in 2005,

•  the Las Vegas Embassy Suites, the Syracuse Embassy Suites, and the Columbus Doubletree were all successful in increasing room-night contracts in 2005, and

•  the Mobile Homewood Suites in Alabama experienced occupancy increases due to evacuations in nearby hurricane-ravaged areas.

Food and beverage revenues at comparable hotels for the year ended December 31, 2005 increased approximately $1.1 million or 18.3% compared to 2004. Food and beverage revenues increased at several hotels due to increases in occupancy, which is consistent with the increase in room revenues. In addition, the Las Vegas Embassy Suites experienced a significant increase in banquets due to daily lunch-and-dinner events during 2005.

Other revenues at comparable hotels for the year ended December 31, 2005 remained virtually flat compared to 2004.

Interest income from notes receivable increased to approximately $13.3 million for the year ended December 31, 2005 compared to approximately $7.5 million for 2004 due to the notes receivable portfolio of approximately $108.3 million at December 31, 2005, of which approximately $98.3 million of this portfolio was acquired since 2003.

Asset management fees were approximately $1.3 million for both the years ended December 31, 2005 and 2004. Asset management fees relate to 27 hotel properties owned by affiliates for which the Company provided asset management and consulting services. The Company acquired 21 of these hotel properties from said affiliates on March 16, 2005, and the affiliates subsequently sold the remaining six hotel properties. However, the affiliates, pursuant to an agreement, will continue to guarantee a minimum annual fee of approximately $1.2 million through December 31, 2008.

Hotel Operating Expenses.  Hotel operating expenses, which consists of room expense, food and beverage expense, other direct expenses, indirect expenses, and management fees, increased approximately $132.8 million or 205.3% for the year ended December 31, 2005 compared to 2004, primarily due to approximately $128.3 million of expenses associated with the 44 hotel properties acquired since 2003 that are included in continuing operations. In addition, hotel operating expenses at comparable hotels experienced an increase of approximately $4.5 million or 10.6% for the year ended December 31, 2005 compared to 2004 primarily due to increases in rooms, food and beverage, and indirect expenses.

Rooms expense at comparable hotels increased approximately $1.0 million or 8.0% for the year ended December 31, 2005 compared to 2004 primarily due to increased occupancy at most hotels and virtually flat costs at hotels experiencing comparable occupancy due to the fixed nature of maintaining staff. Food and beverage expense at comparable hotels for the year ended December 31, 2005 compared to 2004 also increased, which is consistent with the increase in food and beverage revenues and the overall increase in occupancy. Indirect expenses at comparable hotels increased approximately $2.4 million or 10.9% for the year ended December 31, 2005 compared to 2004. Indirect expenses increased as a result of:

•  increased hotel-level general and administrative expenses due to increased headcount and reserves taken against receivables from airlines that declared bankruptcy during 2005,

•  increased franchise fees due to increased room revenues at certain hotels in 2005,

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•  increased repairs and maintenance expense due to miscellaneous repairs incurred at certain hotels in 2005, and

•  increased energy costs due to increased rates at certain hotels.

Property Taxes, Insurance, and Other.  Property taxes, insurance, and other increased approximately $10.2 million or 166.4% for the year ended December 31, 2005 compared to 2004 due to approximately $10.2 million of expenses associated with the 44 hotel properties acquired since 2003 that are included in continuing operations, which includes approximately $305,000 of insurance costs related to several hurricanes that damaged certain hotels in Florida during the second half of 2005. Aside from additional costs incurred at these acquired hotels, property taxes, insurance, and other expense for the year ended December 31, 2005 decreased approximately $86,000 when compared to 2004 primarily resulting from decreased property insurance rates and decreased insurance claims due to property damage deductibles incurred in 2004 related to several hurricanes that damaged certain hotels in Florida during the third quarter of 2004.

Depreciation and Amortization.  Depreciation and amortization increased approximately $18.4 million or 188.3% for the year ended December 31, 2005 compared to 2004 primarily due to approximately $17.4 million of depreciation associated with the 44 hotel properties acquired since 2003 that are included in continuing operations. Aside from these additional hotels acquired, depreciation and amortization increased approximately $990,000 for the year ended December 31, 2005 compared to 2004 as a result of capital improvements made at several comparative hotels throughout the years ended December 31, 2005 and 2004.

Corporate General and Administrative.  Corporate general and administrative expense increased to approximately $14.5 million for the year ended December 31, 2005 compared to approximately $11.9 million for 2004 primarily resulting from an increase in headcount and the related salaries and benefits due to substantial growth and an increase in non-cash expenses associated with employee stock grants from approximately $2.4 million during 2004 compared to approximately $3.4 million for 2005. As a percentage of total revenue, however, corporate general and administrative expense decreased from approximately 11.1% for 2004 to approximately 4.7% for 2005 due to corporate synergies inherent in overall growth.

Operating Income.  Operating income increased approximately $40.1 million to approximately $54.9 million for the year ended December 31, 2005 from approximately $14.8 million for 2004 as result of the aforementioned operating results.

Interest Income.  Interest income increased approximately $692,000 from approximately $335,000 for the year ended December 31, 2004 to approximately $1.0 million for the year ended December 31, 2005 primarily due to interest earned on funds received from borrowings and equity offerings during 2005 in excess of interest earned on funds received from the Company’s IPO and subsequent borrowings and equity offerings during 2004.

Interest Expense and Amortization of Loan Costs.  Interest expense and amortization of loan costs increased approximately $27.3 million from approximately $11.1 million for the year ended December 31, 2004 to approximately $38.4 million for the year ended December 31, 2005. The increase in interest expense and amortization of loan costs is associated with the higher average debt balance over the course of the two comparative periods and the overall increase in average interest rates incurred.

Write-off of Loan Costs and Early Exit Fees.  During the year ended December 31, 2005, the Company completed several debt restructuring transactions to extend its maturities, lower its borrowing costs, and fix its interest rates. On January 20, 2005, the Company repaid its $15.5 million mortgage note payable, due December 31, 2005, and its $7.0 million mortgage note payable, due July 31, 2007, which resulted in the write-off of unamortized loan costs of approximately $151,000. On November 10, 2005, the Company repaid the remaining $18.8 million balance outstanding under its $45.6 million credit facility, due July 13, 2007, which resulted in the write-off of unamortized loan costs of approximately $640,000 and early exit fees of approximately $456,000. On November 14, 2005, the Company repaid its $210.0 million term loan, due October 10, 2006, and its $6.2 million mortgage loan, due January 1, 2006, which resulted in the write-off of unamortized loan costs of approximately $2.5 million and early exit fees of approximately $2.1 million. On September 2, 2004, the Company executed a $210.0 million term loan, and used the proceeds to repay three mortgage notes payable totaling approximately $57.8 million, pay down its $60.0 million secured credit facility by approximately $57.2 million, and pay down another mortgage note

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payable by approximately $12.6 million. As a result, unamortized loan costs associated with the repaid mortgage notes of approximately $1.6 million were written-off in 2004.

Loss on Debt Extinguishment.  During the year ended December 31, 2005, the Company completed several debt restructuring transactions to extend its maturities, lower its borrowing costs, and fix its interest rates. On March 30, 2005, the Company paid down mortgage debt assumed in the 21-property hotel portfolio acquisition on March 16, 2005 by approximately $18.2 million, which generated a loss on early extinguishment of debt of approximately $2.3 million, which is net of the write-off of the related portion of debt premium of approximately $1.4 million. On October 13, 2005, the Company extinguished approximately $98.9 million of this debt, which generated a loss on early extinguishment of debt of approximately $4.3 million, which is net of the write-off of debt premiums associated with these mortgages of approximately $3.0 million. On December 20, 2005, the Company extinguished the remaining $31.0 million of this debt, which generated a loss on early extinguishment of debt of approximately $3.4 million, which is net of the write-off of the debt premium associated with this mortgage of approximately $780,000. During 2004, there was no loss on debt extinguishments.

Benefit from (Provision for) Income Taxes.  As a REIT, the Company generally will not be subject to federal corporate income tax on the portion of its net income that does not relate to taxable REIT subsidiaries. However, the Company leases each of its hotel properties to Ashford TRS, which is treated as a taxable REIT subsidiary for federal income tax purposes. For the years ended December 31, 2005 and 2004, the benefit from (provision for) income taxes of approximately $2.6 million and $(630,000), respectively, relates to the net (loss) income associated with Ashford TRS. For the years ended December 31, 2005 and 2004, an additional provision for income taxes of approximately $2.4 million and $28,000, respectively, is included in discontinued operations.

Minority Interest.  Minority interest represents reductions to net income of approximately $887,000 and $310,000 for the years ended December 31, 2005 and 2004, respectively. Upon formation of the Company on August 29, 2003, minority interest in the operating partnership was established to represent the limited partners’ proportionate share of the equity in the operating partnership. Net income (loss) available to common shareholders is allocated to minority interest based on the weighted-average limited partnership percentage ownership throughout the period.

Income from Continuing Operations.  Income from continuing operations was approximately $3.4 million and $1.5 million for the years ended December 31, 2005 and 2004, respectively, which represents an increase of approximately $1.9 million as a result of the aforementioned operating results.

Income from Discontinued Operations, Net.  On March 16, 2005, the Company acquired 21 hotel properties and an office building for approximately $250.0 million. Soon thereafter, the Company made a strategic commitment to sell eight of these hotel properties, six of which were sold in the second quarter of 2005. On June 17, 2005, the Company acquired 30 hotel properties for approximately $465.0 million. Soon thereafter, the Company made a strategic commitment to sell eight of these properties. In late 2006, the Company made a strategic decision to sell 13 hotel properties acquired between 2003 and 2005 and its office building acquired on March 16, 2005. Operating results related to these properties during the periods such properties were owned are included in income from discontinued operations for both the years ended December 31, 2005 and 2004.

Net Income.  Net income was approximately $9.4 million and $1.4 million for the years ended December 31, 2005 and 2004, respectively, which represents an increase of approximately $8.0 million as a result of the aforementioned operating results.

Preferred Dividends.  During the year ended December 31, 2005, the Company declared cash dividends of approximately $4.9 million and $3.4 million, for Series A preferred stockholders and Series B preferred stockholders, respectively. In addition, on June 15, 2005, the Company sold a financial institution its remaining 6,454,816 shares of Series B cumulative convertible redeemable preferred stock for approximately $65.0 million, or $10.07 per share. In connection with this sale, the Company recognized a non-cash preferred dividend of approximately $1.0 million related to the difference in the market value of the Company’s common stock and the $10.07 conversion price on June 6, 2005, which represents the date at which the Company notified the financial institution of its intention to exercise its option to sell the preferred shares. On December 17, 2004, the Company declared a cash dividend of approximately $1.4 million for Series A preferred shareholders. In addition, the

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Company recognized Series B preferred stock dividends of approximately $3,300 related to its Series B preferred stock issued on December 30, 2004.

Net Income Available to Common Shareholders.  Net income available to common shareholders was approximately $134,000 and $64,000 for the years ended December 31, 2005 and 2004, respectively, which represents an increase of approximately $70,000 as a result of the aforementioned operating results and preferred dividends.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of funds to meet our cash requirements, including distributions to stockholders, is our share of the operating partnership’s cash flow. The operating partnership’s principal sources of revenue include: (i) cash flow from hotel operations, (ii) interest income from our notes receivable portfolio, and (iii) guaranteed management fees related to our eight asset management and consulting contracts with an affiliate.

Cash flows from hotel operations are subject to all operating risks common to the hotel industry, including but not limited to:

•  Competition for guests from other hotels;

•  Adverse effects of general and local economic conditions;

•  Dependence on demand from business and leisure travelers, which may fluctuate and be seasonal;

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

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

•  Overbuilding in the hotel industry, especially in particular markets; and

•  Actual or threatened acts of terrorism and actions taken against terrorists, which can generate public concern over travel safety.

During the year ended December 31, 2006, we completed the following significant transactions, which did or will impact our cash flow and liquidity:

Business Combinations:

On February 24, 2006, the Company acquired the Marriott at Research Triangle Park hotel property in Durham, North Carolina, from Host Marriott Corporation for approximately $28.0 million in cash. The Company used proceeds from its follow-on public offering on January 25, 2006 to fund this acquisition.

On April 19, 2006, the Company acquired the Pan Pacific San Francisco Hotel in San Francisco, California, from W2001 Pac Realty, L.L.C. for approximately $95.0 million in cash. The hotel was immediately re-branded as a JW Marriott. The Company used proceeds from two credit facility draws of approximately $88.9 million and $15.0 million to fund this acquisition.

On July 13, 2006, the Company acquired the Marriott Crystal Gateway hotel in Arlington, Virginia, from EADS Associates Limited Partnership for approximately $107.2 million. The purchase price consisted of the assumption of approximately $53.3 million of mortgage debt, the issuance of approximately $42.7 million worth of limited partnership units, which equates to 3,814,842 units valued at $11.20 per unit, approximately $2.5 million in cash paid in lieu of units, the reimbursement of capital expenditures costs of approximately $7.2 million, and other net closing costs and adjustments of approximately $1.5 million.

On November 9, 2006, the Company acquired the Westin O’Hare hotel property in Rosemont, Illinois, from JER Partners for approximately $125.0 million in cash. To fund this acquisition, the Company used cash available on its balance sheet and proceeds from a $101.0 million mortgage loan executed on November 16, 2006.

On December 7, 2006, the Company acquired a seven-property hotel portfolio (“MIP Portfolio”) from a partnership of affiliates of Oak Hill Capital Partners, The Blackstone Group, and Interstate Hotels and Resorts for

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approximately $267.2 million in cash. Of the seven acquired hotels, five are considered core hotels while two are considered non-core hotels, which the Company intends to sell. To fund this acquisition, the Company used cash available on its balance sheet, proceeds from a $25.0 million draw on a credit facility, and proceeds from a $212.0 million mortgage loan executed on December 7, 2006.

Capital Stock:

On January 25, 2006, in a follow-on public offering, the Company issued 12,107,623 shares of its common stock at $11.15 per share, which generated gross proceeds of approximately $135.0 million. However, the aggregate proceeds to the Company, net of underwriters’ discount and offering costs, was approximately $128.1 million. The 12,107,623 shares issued include 1,507,623 shares sold pursuant to an over-allotment option granted to the underwriters. The net proceeds were used for a $60.0 million pay-down on the Company’s $100.0 million credit facility, due August 17, 2008, on January 31, 2006, a $45.0 million pay-down on the Company’s $45.0 million mortgage loan, due October 10, 2007, on February 9, 2006, and the acquisition of the Marriott at Research Triangle Park hotel property on February 24, 2006 for $28.0 million.

On July 25, 2006, in a follow-on public offering, the Company issued 14,950,000 shares of its common stock at $11.40 per share, which generated gross proceeds of approximately $170.4 million. However, the aggregate proceeds to the Company, net of underwriters’ discount and offering costs, was approximately $162.0 million. The 14,950,000 shares issued include 1,950,000 shares sold pursuant to an over-allotment option granted to the underwriters. On July 25, 2006, the net proceeds were used to pay down the Company’s $30.0 million balance on its $47.5 million credit facility, due October 10, 2007, and pay down its $98.9 million balance on its $100.0 million credit facility, due August 17, 2008.

Assets Held for Sale and Discontinued Operations:

On January 17, 2006, the Company sold two hotel properties for approximately $10.7 million, net of closing costs.

On March 24, 2006, the Company sold eight hotel properties for approximately $100.4 million, net of closing costs.

Notes Receivable:

On May 3, 2006, the Company received approximately $7.3 million in full payment of all principal and interest due under its $6.6 million mezzanine loan receivable, due May 2006 under a forbearance agreement.

On June 9, 2006, the Company originated a $26.3 million mezzanine loan receivable, due April 2008.

On June 15, 2006, the Company received approximately $15.2 million in full payment of all principal and interest due under its $15.0 million loan receivable, due January 2007.

On July 21, 2006, the Company received approximately $15.2 million in full payment of all principal and interest due under its $15.0 million loan receivable, due April 2007.

On September 24, 2006, the Company extended the maturity date on its $5.0 million note receivable, originally due October 2006, to October 2007. On December 5, 2006, the Company received approximately $5.1 million related to all principal and interest due under this loan.

On November 17, 2006, the Company received a principal payment of approximately $614,000 related to a portion of its $26.3 million note receivable, due April 2008. As a result of this prepayment, the $26.3 million note receivable, originally secured by 107 hotel properties, became a $25.7 million note receivable, secured by 105 hotel properties.

On December 27, 2006, the Company originated a $7.0 million mezzanine loan receivable, due December 2009.

On December 27, 2006, the Company originated a $4.0 million mezzanine loan receivable, due December 2009.

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Indebtedness:

As of December 31, 2006, the Company had approximately $1.1 billion of outstanding debt with an additional $272.5 million available under its existing credit facilities.

On February 9, 2006, the Company paid down its $45.0 million mortgage loan, due October 10, 2007, at an interest rate of LIBOR plus 2%, to $100. On April 3, 2006, the Company modified this mortgage note payable to a $47.5 million revolving credit facility, with a revolving period through October 11, 2006 and interest rates during the revolving period ranging from LIBOR plus 1% to LIBOR plus 1.5% depending on the outstanding balance. After the revolving period expires, the interest rate resumes its original rate of LIBOR plus 2%. Consistent with the original mortgage, the modified credit facility requires monthly interest-only payments and has three one-year extension options. On April 18, 2006 and June 6, 2006, the Company completed draws of approximately $15.0 million each on this credit facility. On July 25, 2006, the Company repaid the $30.0 million outstanding balance on this credit facility. On July 26, 2006, the Company modified this credit facility to extend both the revolving period and maturity date by one year to October 11, 2007 and October 10, 2008, respectively. As of December 31, 2006, approximately $100 was outstanding on this credit facility.

On March 24, 2006, in connection with the sale of eight hotel properties for approximately $100.4 million, net of closing costs, the buyer assumed approximately $93.7 million of mortgage debt, which had an interest rate of 5.32% and matured July 1, 2015. This reduced the Company’s $580.8 million mortgage note payable outstanding at December 31, 2005, secured by 40 hotels, with an average interest rate of 5.4%, to $487.1 million outstanding at December 31, 2006, secured by 32 hotels, with an average interest rate of 5.41%. In connection with the buyer’s assumption of this debt, the Company wrote-off unamortized loan costs of approximately $687,000.

On May 30, 2006, the Company repaid its then outstanding $11.1 million balance on its mortgage note payable, due April 1, 2011, which resulted in the write-off of unamortized loan costs of approximately $102,000.

On July 13, 2006, in connection with the acquisition of the Marriott Crystal Gateway hotel in Arlington, Virginia, the Company assumed a mortgage note payable of approximately $53.3 million, due December 1, 2017, at an interest rate of 7.24% through December 31, 2007 and 7.39% thereafter.

On September 8, 2006, the Company modified its $100.0 million credit facility, due August 16, 2008, to increase the capacity to $150.0 million with the ability to be increased to $200.0 million subject to certain conditions and reduce the interest rate from LIBOR plus a range of 1.6% to 1.95% to LIBOR plus a range of 1.6% to 1.85% depending on the loan-to-value ratio. On February 27, 2006, April 18, 2006, July 14, 2006, November 8, 2006, and December 6, 2006, the Company completed draws on this credit facility of $10.0 million, $88.9 million, $25.0 million, $80.0 million, and $25.0 million, respectively. On January 31, 2006, June 28, 2006, July 25, 2006, and November 16, 2006, the Company paid down this credit facility by $60.0 million, $25.0 million, $98.9 million, and $80.0 million, respectively. At December 31, 2006, the Company had an outstanding balance of $25.0 million on this credit facility.

On November 16, 2006, the Company executed a $101.0 million mortgage note payable, due December 8, 2016, at an interest rate of 5.81%, with interest-only payments due monthly for five years plus principal payments thereafter based on a thirty-year amortization schedule.

On December 7, 2006, the Company executed a $247.0 million mortgage note payable, of which $212.0 million was funded immediately with the remaining balance to be funded over the next two years as capital expenditures are incurred by the Company. The loan matures December 11, 2009, with two one-year extension options, bears interest at a rate of LIBOR plus 1.72%, and requires interest-only payments due monthly.

Dividends:

During the year ended December 31, 2006, the Company declared cash dividends of approximately $60.1 million, or $0.20 per diluted share per quarter, related to both common stockholders and common unit holders, of which approximately $51.9 million and $8.3 million related to each, respectively.

During the year ended December 31, 2006, the Company declared cash dividends of approximately $1.4 million, or $0.19 per diluted share per quarter prorated for days outstanding, related to Class B unit holders.

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During the year ended December 31, 2006, the Company declared cash dividends of approximately $4.9 million, or $0.5344 per diluted share per quarter, related to Series A preferred stockholders.

During the year ended December 31, 2006, the Company declared cash dividends of approximately $6.0 million, or $0.20 per diluted share per quarter, related to Series B preferred stockholders.

Net Cash Flow Provided By Operating Activities.  For the year ended December 31, 2006, net cash flow provided by operating activities increased approximately $83.2 million from cash flow provided of approximately $56.5 million for 2005 to cash flow provided of approximately $139.7 million for 2006. The increase in net cash flow provided by operating activities was primarily attributable to an increase in net income experienced in 2006, which resulted from improved operations at the 33 comparable hotels as well as the 48 hotels acquired since 2004, as well as an increase in depreciation and amortization.

Net Cash Flow Used In Investing Activities.  For the year ended December 31, 2006, net cash flow used in investing activities was approximately $565.5 million, which consisted of approximately $540.6 million related to acquisitions of hotel properties, $37.3 million related to acquisitions or originations of notes receivable, and $47.7 million of improvements to various hotel properties. These cash outlays were somewhat offset by net proceeds of approximately $17.4 million related to the sales of ten hotel properties and $42.8 million related to payments on notes receivable. For the year ended December 31, 2005, net cash flow used in investing activities was approximately $652.3 million, which consisted of approximately $55.5 million of acquisitions or originations of loans receivable, approximately $613.5 million related to hotel property acquisitions, and approximately $38.3 million of improvements to various hotel properties. These cash outlays were somewhat offset by proceeds of approximately $26.9 million related to payments on notes receivable and approximately $28.2 million related to the sales of six hotel properties and an office building.

Net Cash Flow Provided By Financing Activities.  For the year ended December 31, 2006, net cash flow provided by financing activities was approximately $441.1 million, which represents $178.9 million in draws on the Company’s credit facilities, $313.0 million of new debt borrowings to fund acquisitions, and approximately $290.1 million of net proceeds received from the Company’s follow-on public offerings on January 25, 2006 and July 25, 2006, partially offset by approximately $66.1 million of dividends paid, $271.4 million of payments on indebtedness and capital leases, $3.3 million of payments of loan costs, and $53,000 of costs associated with issuing common shares in exchange for units of limited partnership interest. For the year ended December 31, 2005, net cash flow provided by financing activities was approximately $606.6 million, which represents approximately $60.0 million in net draws on the Company’s $100.0 million credit facility, $370.0 million related to a mortgage note completed on June 17, 2005, $172.7 million and $38.1 million received October 13, 2005 and December 20, 2005, respectively, related to a mortgage note modification, $45.0 million related to a mortgage note completed on October 28, 2005, $211.5 million related to a mortgage note completed November 14, 2005, $145.5 million of net proceeds received from the Company’s follow-on public offerings on January 20, 2005 and April 5, 2005, $65.0 million in proceeds received from the issuance of Series B cumulative convertible redeemable preferred stock on June 15, 2005, $18.9 million in proceeds received from the issuance of common stock to a financial institution on July 1, 2005, and $1.6 million received from the termination and sale of derivatives, partially offset by approximately $38.2 million of dividends paid, $459.6 million of payments on indebtedness and capital leases, $10.8 million of payments of loan costs, $2.6 million of loan early exit fees, $10.0 million of loan extinguishment fees, and $582,000 of additional costs related to the issuances of Series B cumulative convertible redeemable preferred stock on December 30, 2004 and June 15, 2005.

In general, we focus exclusively on investing in the hospitality industry across all segments, including direct hotel investments, first mortgages, mezzanine loans, and eventually sale-leaseback transactions. We intend to acquire and, in the appropriate market conditions, develop additional hotels and provide structured financings to owners of lodging properties. We may incur indebtedness to fund any such acquisitions, developments, or financings. We may also incur indebtedness to meet distribution requirements imposed on REITs under the Internal Revenue Code to the extent that working capital and cash flow from our investments are insufficient to make the required distributions.

However, no assurances can be given that we will obtain additional financings or, if we do, what the amount and terms will be. Our failure to obtain future financing under favorable terms could adversely impact our ability to

47

execute on our business strategy. In addition, we may selectively pursue mortgage financing on individual properties and our mortgage investments.

We will acquire or develop additional hotels and invest in structured financings only as suitable opportunities arise, and we will not undertake such investments unless adequate sources of financing are available. Funds for future hotel-related investments are expected to be derived, in whole or in part, from future borrowings under a credit facility or other borrowings or from the proceeds of additional issuances of common stock, preferred stock, or other securities. However, other than the acquisitions discussed herein, we have no formal commitment or understanding to invest in additional assets, and there can be no assurance that we will successfully make additional investments.

Our existing hotels are located in developed areas that contain competing hotel properties. The future occupancy, ADR, and RevPAR of any individual hotel could be materially and adversely affected by an increase in the number or quality of the competitive hotel properties in its market area. Competition could also affect the quality and quantity of future investment opportunities.

INFLATION

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

SEASONALITY

Our properties’ operations historically have been seasonal as certain properties maintain higher occupancy rates during the summer months. This seasonality pattern can cause fluctuations in our quarterly lease revenue under our percentage leases. We anticipate that our cash flows from the operations of our properties will be sufficient to enable us to make quarterly distributions to maintain our REIT status. To the extent that cash flows from operations are insufficient during any quarter due to temporary or seasonal fluctuations in lease revenue, we expect to utilize other cash on hand or borrowings to fund required distributions. However, we cannot make any assurances that we will make distributions in the future.

CRITICAL ACCOUNTING POLCIES

Our accounting policies are more fully described in note 3 to our consolidated financial statements. As disclosed in note 3, the preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. The Company believes that the following discussion addresses the Company’s most critical accounting policies, representing those policies considered most vital to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective, and complex judgments.

Use of Estimates — In connection with the Company’s acquisition of Marriott Crystal Gateway hotel in Arlington, Virginia, on July 13, 2006, the Company assumed the existing management agreement, which expires in 2017 with three ten-year renewal options and provides for a base management fee of 3% of the hotel’s gross revenues plus certain incentive management fees. Based on the Company’s review of this management agreement, the Company concluded that the terms are more favorable to the manager than a typical current market management agreement. As a result, the Company recorded an unfavorable contract liability of approximately $15.8 million related to this management agreement as of the acquisition date based on the present value of expected cash outflows over the initial term of the agreement.

In addition, as of December 31, 2006, the Company’s deferred tax asset valuation allowance of approximately $7.7 million includes approximately $6.2 million related to this unfavorable management contract liability and approximately $1.5 million related to monies received from the hotel manager upon acquisition of the JW Marriott

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hotel in San Francisco, California. The analysis utilized by the Company in determining its deferred tax asset valuation allowance involves considerable management judgment and assumptions.

Investment in Hotel Properties — The initial properties are stated at the predecessor’s historical cost, net of any impairment charges, plus approximately $8.1 million of minority interest partial step-up recorded upon the Company’s formation related to the acquisition of minority interest from unaffiliated parties associated with four of the initial properties. Hotel properties acquired subsequent to the Company’s formation are stated at cost. All improvements and additions which extend the useful life of hotel properties are capitalized.

Impairment of Investment in Hotel Properties — Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that the carrying values of such hotel properties may not be recoverable. The Company tests for impairment in several situations, including when current or projected cash flows are less than historical cash flows, when it becomes more likely than not that a hotel property will be sold before the end of its previously estimated useful life, and when events or changes in circumstances indicate that a hotel property’s net book value may not be recoverable. In evaluating the impairment of hotel properties, the Company makes many assumptions and estimates, including projected cash flows, holding period, expected useful life, future capital expenditures, and fair values, which considers capitalization rates, discount rates, and comparable selling prices. If an asset was deemed to be impaired, the Company would record an impairment charge for the amount that the property’s net book value exceeds its fair value. To date, no such impairment charges have been recognized.

Depreciation and Amortization Expense — Depreciation expense is based on the estimated useful life of the Company’s assets, while amortization expense for leasehold improvements is based on the shorter of the lease term or the estimated useful life of the related assets. Presently, hotel properties are depreciated using the straight-line method over lives which range from 15 to 39 years for buildings and improvements and 3 to 5 years for furniture, fixtures, and equipment. While the Company believes its estimates are reasonable, a change in estimated lives could affect depreciation expense and net income (loss) as well as the gain or loss on the potential sale of any of the Company’s hotels.

Assets Held For Sale and Discontinued Operations — The Company records assets as held for sale when management has committed to a plan to sell the assets, actively seeks a buyer for the assets, and the consummation of the sale is considered probable and is expected within one year. The related operations of assets held for sale are reported as discontinued if a) such operations and cash flows can be clearly distinguished, both operationally and financially, from the ongoing operations of the Company, b) such operations and cash flows will be eliminated from ongoing operations once the disposal occurs, and c) the Company will not have any significant continuing involvement subsequent to the disposal.

Notes Receivable — The Company provides mezzanine and first-mortgage financing in the form of loans. Loans receivable are recorded at cost, adjusted for net origination fees and costs. Premiums, discounts, and net origination fees are amortized or accreted as an adjustment to interest income using the effective interest method. Loans receivable are reviewed for potential impairment at each balance sheet date. A loan receivable is considered impaired when it becomes probable, based on current information, that the Company will be unable to collect all amounts due according to the loan’s contractual terms. The amount of impairment, if any, is measured by comparing the recorded amount of the loan to the present value of the expected cash flows or the fair value of the collateral. If a loan was deemed to be impaired, the Company would record a reserve for loan losses through a charge to income for any shortfall. To date, no such impairment charges have been recognized.

In accordance with Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities,” as revised (“FIN No. 46”), variable interest entities, as defined, are required to be consolidated by their primary beneficiaries if the variable interest entities do not effectively disperse risks among parties involved. The Company’s mezzanine and first-mortgage loans receivable are each secured by various hotel properties or partnership interests in hotel properties and are subordinate to primary loans related to the secured hotels. All of these loans receivable are considered to be variable interests in the entities that own the related hotels, which are variable interest entities. However, the Company is not considered to be the primary beneficiary of these hotel properties as a result of holding these loans. Therefore, the Company does not consolidate such hotels for which it has provided financing. Interests in entities acquired or created in the future will be evaluated based on FIN No. 46

49

criteria, and such entities will be consolidated, if required. The analysis utilized by the Company in evaluating FIN No. 46 criteria involves considerable management judgment and assumptions.

Recent Critical Accounting Pronouncements — In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN No. 48”), effective January 1, 2007. FIN No. 48 prescribes a recognition threshold and measurement attribute for the recognition and measurement of a tax position taken in a tax return. FIN No. 48 requires that a determination be made as to whether it is “more likely than not” that a tax position taken, based on its technical merits, will be sustained upon examination, including resolution of any appeals and litigation processes. If the more-likely-than-not threshold is met, the tax position must be measured to determine the amount of benefit, if any, to recognize in the financial statements. FIN No. 48 applies to all tax positions related to income taxes subject to FASB Statement No. 109, “Accounting for Income Taxes,” but does not apply to tax positions related to FASB Statement No. 5, “Accounting for Contingencies.” The cumulative effect of applying the provisions of FIN No. 48, if any, will be reported as an adjustment to the opening balance of retained earnings on January 1, 2007. The Company does not believe the adoption of FIN No. 48 will have a material effect on its financial condition or results of operations.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

As of December 31, 2006, our contractual obligations and commitments are as follows (in thousands):

	Payments Due by Period
	< 1 Year		2-3 Years		4-5 Years		> 5 Years		Total
Indebtedness payments	$	2,067	$	244,920	$	28,632	$	815,531	$	1,091,150
Capital leases payments		112		47		18		—		177
Operating leases payments		3,595		6,167		5,610		151,473		166,845
Interest payments		66,434		129,091		94,612		172,560		462,697
Total contractual obligations	$	72,208	$	380,225	$	128,872	$	1,139,564	$	1,720,869

At December 31, 2006, our capital commitments were approximately $1.9 million, which relate to general capital improvements.

In addition, we have entered into employment agreements with certain executive officers, which provide for minimum annual base salaries, other fringe benefits, and non-compete clauses as determined by our Board of Directors. These agreements terminate on December 31, 2007, with automatic one-year renewals, unless terminated by either party upon six months’ notice, subject to severance provisions.

SUBSEQUENT EVENTS

On January 18, 2007, the Company entered into a definitive agreement to acquire a 51-property hotel portfolio from CNL Hotels and Resorts, Inc. (“CNL”) for approximately $2.4 billion in cash. Pursuant to this agreement, the Company will own 100% of 33 properties and 70%-89% of 18 properties through existing joint ventures. The acquisition is subject to customary closing conditions including, among other things, approval by a majority of CNL’s outstanding common shareholders. Pursuant to this agreement, the Company and a third party have jointly and severally guaranteed payment of certain performance obligations to CNL of up to approximately $300.0 million. To fund this acquisition, the Company intends to use committed debt and equity financing with a financial institution as well as assumptions of the seller’s existing debt. The components of the committed debt include approximately $1.2 billion of ten-year, fixed-rate debt at an estimated average blended interest rate of 5.95%, approximately $340.0 million of three-year, variable-rate debt with two one-year extension options at an interest rate of LIBOR plus 1.65%, and approximately $325.0 million of one-year, variable-rate debt with a two-year extension option at an interest rate of LIBOR plus 1.5%. The committed equity financing represents the anticipated sale of up to 8.0 million shares of Series C Cumulative Redeemable Preferred Stock for up to approximately $200.0 million at a dividend rate of LIBOR plus 2.5%. The assumed debt includes approximately $463.1 million of fixed-rate debt, representing ten fixed-rate loans with an average blended interest rate of 6.22% and expiration dates ranging from 2008 to 2025. The acquisition is expected to close in the second quarter of 2007.

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On January 30, 2007, the Company completed a $20.0 million draw on its $150.0 million credit facility, due August 16, 2008.

On February 6, 2007, the Company received approximately $8.1 million related to all principal and interest due under its $8.0 million note receivable, due February 2007.

On February 6, 2007, the Company sold its Marriott located in Trumbull, Connecticut, for approximately $28.3 million. As the Company acquired this property on December 7, 2006, no gain or loss was recognized on the sale.

On February 8, 2007, the Company sold its Fairfield Inn in Princeton, Indiana, for approximately $3.2 million. In connection with this sale, the Company expects to recognize a gain of approximately $1.4 million, of which related income tax payments will be deferred through a 1031 like-kind exchange.

On February 9, 2007, the Company reached a definitive agreement to sell its portfolio of seven TownePlace Suites hotels for approximately $57.5 million. As of December 31, 2006, the carrying value of these hotels of approximately $38.4 million is classified as assets held for sale. Consequently, the Company expects to recognize a gain on this sale, of which related income tax payments will be deferred through a 1031 like-kind exchange.

On March 5, 2007, the Company reached a definitive agreement to sell its Doubletree hotel in Dayton, Ohio, for approximately $7.2 million. As of December 31, 2006, the carrying value of this hotel of approximately $6.1 million is classified as assets held for sale. Consequently, the Company expects to recognize a gain on this sale, of which related income tax payments will be deferred through a 1031 like-kind exchange.

On March 8, 2007, the Company paid approximately $60,000 to terminate its $100.0 million credit facility, due December 23, 2008. This credit facility has never had an outstanding balance.

Subsequent to December 31, 2006, Company management made a strategic decision to initiate sales efforts related to its Embassy Suites hotel in Phoenix, Arizona. As a result, the Company will classify assets and operating results related to this hotel as held for sale and discontinued operations, respectively, in 2007.

Item 7A.   Quantitative and Qualitative Disclosures about Market Risk

Our primary market risk exposure consists of changes in interest rates on borrowings under our debt instruments that bear interest at variable rates that fluctuate with market interest rates. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates.

As of December 31, 2006, our $1.1 billion debt portfolio consisted of approximately $854.2 million, or 78%, of fixed-rate debt, with interest rates ranging from 5.41% to 7.24%, and approximately $237.0 million, or 22%, of variable-rate debt. As of December 31, 2005, our $908.6 million debt portfolio consisted of approximately $792.3 million, or 87%, of fixed-rate debt, with interest rates ranging from 5.4% to 5.75%, and approximately $116.3 million, or 13%, of variable-rate debt. Our overall weighted average interest rate at December 31, 2006 and 2005 was 5.93% and 5.59%, respectively.

Periodically, we purchase derivatives to increase stability related to interest expense and to manage our exposure to interest rate movements or other identified risks. To accomplish this objective, we primarily use interest rate swaps and caps as part of our cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount. Interest rate caps provide us with interest rate protection above the strike rate on the cap and result in us receiving interest payments when interest rates exceed the cap strike. As of December 31, 2006 and 2005, we owned the following interest rate caps:

On October 28, 2005, we purchased a 7.0% LIBOR interest rate cap with a $45.0 million notional amount, which matures October 15, 2007, to limit our exposure to rising interest rates on $45.0 million of its variable-rate debt. We designated the $45.0 million cap as a cash flow hedge of our exposure to changes in interest rates on a corresponding amount of variable-rate debt.

On December 6, 2006, we purchased a 6.25% LIBOR interest rate cap with a $212.0 million notional amount, which matures December 11, 2009, to limit our exposure to rising interest rates on $212.0 million of its variable-rate

51

debt. We designated the $212.0 million cap as a cash flow hedge of our exposure to changes in interest rates on a corresponding amount of variable-rate debt.

On December 6, 2006, we purchased a 6.25% LIBOR interest rate cap with a $35.0 million notional amount, which matures December 11, 2009, to limit our exposure to rising interest rates on future variable-rate debt that we intend to draw over the next two years as capital expenditures are incurred. As this cap did not meet applicable hedge accounting criteria, it is not designated as a cash flow hedge.

As of December 31, 2006 and 2005, derivatives with a fair value of approximately $222,000 and $2,000, respectively, were included in other assets.

For the years ended December 31, 2006 and 2005, the impact to our results of operations of a one-point change in interest rate on the outstanding balance of variable-rate debt as of December 31, 2006 and 2005, respectively, would be approximately $2.4 million and $1.2 million, respectively.

As of December 31, 2006, our $103.0 million notes receivable portfolio consisted of approximately $80.0 million of outstanding variable-rate notes and approximately $23.0 million of outstanding fixed-rate notes. As of December 31, 2005, our $108.3 million notes receivable portfolio consisted of approximately $85.3 million of outstanding variable-rate notes and approximately $23.0 million of outstanding fixed-rate notes. For the years ended December 31, 2006 and 2005, the impact to our results of operations of a one-point change in interest rate on the outstanding balance of variable-rate notes receivable as of December 31, 2006 and 2005, respectively, would be approximately $800,000 and $853,000, respectively.

The above amounts were determined based on the impact of hypothetical interest rates on our borrowing and lending portfolios, and assume no changes in our capital structure. As the information presented above includes only those exposures that exist as of December 31, 2006, it does not consider those exposures or positions which could arise after that date. Hence, the information presented herein has limited predictive value. As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on exposures that arise during the period, the hedging strategies at the time, and the related interest rates.

Item 8.   Financial Statements and Supplementary Data

The required financial statements are filed herein as listed in Item 15.

Item 9.   Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2006 based on the

52

framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our internal control over financial reporting was effective as of December 31, 2006.

Our management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of certain acquired businesses, which were excluded from the scope of our assessment, but are included in our 2006 consolidated financial statements. Such acquired businesses are listed below:

MIP Hotels, a portfolio of 7 hotel properties of which 2 are held for sale, and
Westin O’Hare hotel property in Rosemont, Illinois.

These businesses constituted approximately $409.2 million and $399.3 million of total and net assets, respectively, as of December 31, 2006, and approximately $10.2 million, ($310,000), and $17,000 of revenues, operating income (loss), and operating income from discontinued operations, respectively, for the year then ended.

Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included elsewhere herein.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

Ashford Hospitality Trust, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Ashford Hospitality Trust, Inc. (the “Company”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Ashford Hospitality Trust, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made

53

only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of certain acquired businesses, which are included in the 2006 consolidated financial statements of Ashford Hospitality Trust, Inc. and constituted approximately $409.2 million and $399.3 million of total and net assets, respectively, as of December 31, 2006, and approximately $10.2 million, ($310,000), and $17,000 of revenues, operating income (loss), and operating income from discontinued operations, respectively, for the year then ended. Such acquired businesses include the following: MIP Hotels, a portfolio of 7 hotel properties of which 2 are held for sale, and the Westin O’Hare hotel property in Rosemont, Illinois. Our audit of internal control over financial reporting of Ashford Hospitality Trust, Inc. also did not include an evaluation of the internal control over financial reporting of these acquired businesses.

In our opinion, management’s assessment that Ashford Hospitality Trust, Inc. maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Ashford Hospitality Trust, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2006 consolidated financial statements and financial statement schedules of Ashford Hospitality Trust, Inc., and our report dated March 8, 2007 expressed an unqualified opinion thereon.

/s/  Ernst & Young LLP

Dallas, Texas

March 8, 2007

Item 9B.   Other Information

None.

PART III

Item 10.   Directors, Executive Officers, and Corporate Governance

The required information is incorporated by reference from our Proxy Statement to be filed with respect to the Annual Meeting of Shareholders to be held on May 15, 2007.

Item 11.   Executive Compensation

The required information is incorporated by reference from our Proxy Statement to be filed with respect to the Annual Meeting of Shareholders to be held on May 15, 2007.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The required information is incorporated by reference from our Proxy Statement to be filed with respect to the Annual Meeting of Shareholders to be held on May 15, 2007.

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Item 13.   Certain Relationships and Related Transactions, and Director Independence

The required information is incorporated by reference from our Proxy Statement to be filed with respect to the Annual Meeting of Shareholders to be held on May 15, 2007.

Item 14.   Principal Accountant Fees and Services

The required information is incorporated by reference from our Proxy Statement to be filed with respect to the Annual Meeting of Shareholders to be held on May 15, 2007.

PART IV

Item 15.   Financial Statement Schedules and Exhibits

(a) Financial Statements and Schedules

Report of Independent Registered Public Accounting Firm	66
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2006 and 2005	67
Consolidated Statements of Operations for the years ended December 31, 2006, 2005, and 2004	68
Consolidated Statements of Comprehensive Income for years ended December 31, 2006, 2005, and 2004	69
Consolidated Statement of Owners’ Equity for the years ended December 31, 2006, 2005, and 2004	70
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005, and 2004	72
Notes to Consolidated Financial Statements	73
Schedule III — Real Estate and Accumulated Depreciation as of December 31, 2006	113
Schedule IV — Mortgage Loans and Interest Earned on Real Estate as of December 31, 2006	117

All other financial statement schedules have been omitted because such schedules are not required under the related instructions, such schedules are not significant, or the required information has been disclosed elsewhere in the consolidated financial statements and related notes thereto.

(b) Exhibits

Exhibit
Number			Description of Exhibit
	3	.1	Articles of Amendment and Restatement (incorporated by reference to Exhibit 3.1 of Form S-11/A, filed on July 31, 2003)
	3	.2.1	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of Form S-11/A, filed on July 31, 2003)
	3	.2.2	Amendment No. 1 to Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2.2 to the Registrant’s Form 10-K for the year ended December 31, 2003)
	4	.1	Form of Certificate for Common Stock (incorporated by reference to Exhibit 4.1 of Form S-11/A, filed on August 20, 2003)
	4	.2	Articles Supplementary for Series B-1 Convertible Preferred Stock, dated December 28, 2004 (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K, dated January 4, 2005, for the event dated December 28, 2004)
	4	.3	Articles Supplementary for Series B-2 Convertible Preferred Stock, dated December 28, 2004 (incorporated by reference to Exhibit 4.2 to the Registrant’s Form 8-K, dated January 4, 2005, for the event dated December 28, 2004)
	10	.1.1	Amended and Restated Agreement of Limited Partnership of Ashford Hospitality Limited Partnership (incorporated by reference to Exhibit 10.1 of Form 10-Q, filed on November 14, 2003)

55

Exhibit
Number			Description of Exhibit
	10	.1.2	Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of Ashford Hospitality Limited Partnership, dated October 16, 2003 (incorporated by reference to Exhibit 10.3 of Form 10-Q, filed on November 14, 2003)
	10	.1.3	Amended and Restated Exhibit A to Agreement of Limited Partnership of Ashford Hospitality Limited Partnership, dated September 26, 2003 (incorporated by reference to Exhibit 10.2 of Form 10-Q, filed on November 14, 2003)
	10	.2	Registration Rights Agreement among Ashford Hospitality Trust, Inc. and the persons named therein (incorporated by reference to Exhibit 10.2 of Form S-11/A, filed on July 31, 2003)
	10	.3	2003 Stock Incentive Plan of Ashford Hospitality Trust, Inc. (incorporated by reference to Exhibit 10.3 of Form S-11/A, filed on July 31, 2003)
	10	.3.1	Amended and Restated 2003 Stock Incentive Plan of Ashford Hospitality Trust, Inc. (incorporated by reference to Exhibit 10.3.1 to the Registrant’s Form 8-K, dated May 9, 2005, for the event dated May 3, 2005)
	10	.4	Non-Compete Agreement between Ashford Hospitality Trust, Inc. and Archie Bennett, Jr. (incorporated by reference to Exhibit 10.4 of Form S-11/A, filed on July 31, 2003)
	10	.5.1	Employment Agreement between Ashford Hospitality Trust, Inc. and Montgomery J. Bennett (incorporated by reference to Exhibit 10.5 of Form S-11/A, filed on July 31, 2003)
	10	.5.1.1	Employment Agreement Amendment between Ashford Hospitality Trust, Inc. and Montgomery J. Bennett (incorporated by reference to Exhibit 10.5.11 of Form 8-K, filed on April 3, 2006)
	10	.5.2	Employment Agreement between Ashford Hospitality Trust, Inc. and Douglas Kessler (incorporated by reference to Exhibit 10.6 of Form S-11/A, filed on July 31, 2003)
	10	.5.2.1	Employment Agreement Amendment between Ashford Hospitality Trust, Inc. and Douglas Kessler (incorporated by reference to Exhibit 10.5.7 of Form 8-K, filed on April 3, 2006)
	10	.5.3	Employment Agreement between Ashford Hospitality Trust, Inc. and David A. Brooks (incorporated by reference to Exhibit 10.7 of Form S-11/A, filed on July 31, 2003)
	10	.5.3.1	Employment Agreement Amendment between Ashford Hospitality Trust, Inc. and David A. Brooks (incorporated by reference to Exhibit 10.5.9 of Form 8-K, filed on April 3, 2006)
	10	.5.4	Employment Agreement between Ashford Hospitality Trust, Inc. and David Kimichik (incorporated by reference to Exhibit 10.8 of Form S-11/A, filed on July 31, 2003)
	10	.5.4.1	Employment Agreement Amendment between Ashford Hospitality Trust, Inc. and David Kimichik (incorporated by reference to Exhibit 10.5.8 of Form 8-K, filed on April 3, 2006)
	10	.5.6	Employment Agreement between Ashford Hospitality Trust, Inc. and Mark Nunneley (incorporated by reference to Exhibit 10.9 of Form S-11/A, filed on July 31, 2003)
	10	.5.6.1	Employment Agreement Amendment between Ashford Hospitality Trust, Inc. and Mark Nunneley (incorporated by reference to Exhibit 10.5.10 of Form 8-K, filed on April 3, 2006)
	10	.6	Form of Management Agreement between Remington Lodging and Ashford TRS Corporation (incorporated by reference to Exhibit 10.10 of Form S-11/A, filed on July 31, 2003)
	*10	.6.1	Hotel Management Agreement between Remington Management, L.P. and Ashford TRS Corporation
	10	.7	Form of Lease Agreement between Ashford Hospitality Limited Partnership and Ashford TRS Corporation (incorporated by reference to Exhibit 10.11 of Form S-11/A, filed on July 31, 2003)
	10	.8.1	Omnibus Option Agreement between Ashford Hospitality Limited Partnership, Remington Suites Austin, L.P., Remington Suites Dallas, L.P., Remington Suites Dulles, L.P., Remington Suites Las Vegas, L.P., Chicago Illinois Hotel Limited Partnership and Remington Long Island Hotel, L.P., dated as of May 15, 2003 (incorporated by reference to Exhibit 10.12 of Form S-11, filed on May 15, 2003)
	10	.8.2	Option Agreement between Ashford Hospitality Limited Partnership and Ashford Financial Corporation, dated as of May 15, 2003 (incorporated by reference to Exhibit 10.13 of Form S-11, filed on May 15, 2003)

56

Exhibit
Number			Description of Exhibit
	10	.9.1	Asset Management and Consulting Agreement by and between Remington Hospitality, Inc. and Ashford Financial Corporation, dated as of May 15, 2003 (incorporated by reference to Exhibit 10.14 of Form S-11/A, filed on July 2, 2003)
	10	.9.2	Asset Management and Consulting Agreement by and between Remington Indianapolis Employers Corporation and Ashford Financial Corporation, dated as of May 15, 2003 (incorporated by reference to Exhibit 10.15 of Form S-11/A, filed on July 2, 2003)
	10	.9.3	Asset Management and Consulting Agreement by and between Remington Milford Hotel Employers Corporation and Ashford Financial Corporation, dated as of May 15, 2003 (incorporated by reference to Exhibit 10.16 of Form S-11/A, filed on July 2, 2003)
	10	.9.4	Asset Management and Consulting Agreement by and between Remington Suites Hotel Corporation and Ashford Financial Corporation, dated as of May 15, 2003 (incorporated by reference to Exhibit 10.17 of Form S-11/A, filed on July 2, 2003)
	10	.9.5	Asset Management and Consulting Agreement by and between Remington Employers Corporation and Ashford Financial Corporation, dated as of May 15, 2003 (incorporated by reference to Exhibit 10.18 of Form S-11/A, filed on July 2, 2003)
	10	.9.6	Asset Management and Consulting Agreement by and between Remington Employers Management Corporation and Ashford Financial Corporation, dated as of May 15, 2003 (incorporated by reference to Exhibit 10.19 of Form S-11/A, filed on July 2, 2003)
	10	.9.7	Asset Management and Consulting Agreement by and between Remington Orlando Management Corporation and Ashford Financial Corporation, dated as of May 15, 2003 (incorporated by reference to Exhibit 10.20 of Form S-11/A, filed on July 2, 2003)
	10	.9.8	Asset Management and Consulting Agreement by and between Remington Ventura Employers Corporation and Ashford Financial Corporation, dated as of May 15, 2003 (incorporated by reference to Exhibit 10.21 of Form S-11/A, filed on July 2, 2003)
	10	.10.1	Assignment and Assumption of Contract and Contract Rights between Ashford Hospitality Limited Partnership and Ashford Financial Corporation, dated October 7, 2003 (incorporated by reference to Exhibit 10.4 of Form 10-Q, filed on November 14, 2003)
	10	.10.2	Assignment and Assumption of Contract and Contract Rights between Ashford Hospitality Limited Partnership and Ashford Financial Corporation, dated January 4, 2004 Bylaws (incorporated by reference to Exhibit 10.10.2 to the Registrant’s Form 10-K for the year ended December 31, 2003)
	10	.11	Guaranty by Ashford Financial Corporation in favor of Ashford Hospitality Trust Limited Partnership (incorporated by reference to Exhibit 10.26 of Form S-11/A, filed on July 31, 2003)
	10	.12	Mutual Exclusivity Agreement by and between Ashford Hospitality Limited Partnership, Ashford Hospitality Trust, Inc., Remington Hotel Corporation and Remington Lodging and Hospitality, L.P. (incorporated by reference to Exhibit 10.22 of Form S-11/A, filed on July 31, 2003)
	10	.13	Tax Indemnification Agreement between Ashford Hospitality Trust, Inc. and the persons named therein (incorporated by reference to Exhibit 10.25 of Form S-11/A, filed on July 31, 2003)
	10	.14	Hotel Loan Agreement, dated December 24, 2003, among the Registrant and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services, Inc. (incorporated by reference to Exhibit 10.14 to the Registrant’s Form 10-Q for the quarter ended March 31, 2004)
	10	.15	Secured Revolving Credit Facility Agreement, dated February 5, 2004, among the Registrant and Credit Lyonnais New York Branch, as Administrative Agent and Sole Lead Arranger and Book Manager, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services, Inc., as Syndication Agent (incorporated by reference to Exhibit 10.15 to the Registrant’s Form 10-Q for the quarter ended March 31, 2004)
	10	.15.1	First Amendment to Credit Agreement, dated August 17, 2004, among the Registrant, Calyon New York Branch, and Merrill Lynch Capital (incorporated by reference to Exhibit 10.15.1 of the Registrant’s Form 10-Q for the quarter ended September 30, 2004)
	10	.15.2	Third Amendment to Credit Agreement, dated August 24, 2005, among the Registrant, Calyon New York Branch, and Merrill Lynch Capital (incorporated by reference to Exhibit 10.15.2 of the Registrant’s Form 8-K, dated August 26, 2005, for the event dated August 24, 2005)

57

Exhibit
Number			Description of Exhibit
	10	.15.3	Fourth Amendment to Credit Agreement, dated September 8, 2006, among the Registrant, Calyon New York Branch, Merrill Lynch Capital, and Wachovia Bank (incorporated by reference to Exhibit 10.15.3 of the Registrant’s Form 8-K, dated September 12, 2006, for the event dated September 8, 2006)
	10	.16	Loan and Security Agreement, dated July 13, 2004, among the Registrant and CapitalSource Finance LLC Capital (incorporated by reference to Exhibit 10.16 of the Registrant’s Form 10-Q for the quarter ended September 30, 2004)
	10	.17	Loan Agreement, dated September 2, 2004, among the Registrant, Merrill Lynch Mortgage Lending, Inc., and Merrill Lynch Capital (incorporated by reference to Exhibit 10.17 of the Registrant’s Form 10-Q for the quarter ended September 30, 2004)
	10	.17.1	Mezzanine Loan Agreement, dated September 2, 2004, among the Registrant and Merrill Lynch Capital (incorporated by reference to Exhibit 10.17.1 of the Registrant’s Form 10-Q for the quarter ended September 30, 2004)
	10	.17.2	Broker Agreement, dated May 10, 2004, among the Registrant and Secured Capital Corp (incorporated by reference to Exhibit 10.17.2 of the Registrant’s Form 10-Q for the quarter ended September 30, 2004)
	10	.18	Agreement of Purchase and Sale, dated May 19, 2004, among the Registrant, Dunn Hospitality Group, and entities related to Dunn Hospitality Group Corp (incorporated by reference to Exhibit 10.18 of the Registrant’s Form 10-Q for the quarter ended September 30, 2004)
	10	.18.1	First Amendment to Agreement of Purchase and Sale, dated July 1, 2004, among the Registrant, Dunn Hospitality Group, and entities related to Dunn Hospitality Group Corp (incorporated by reference to Exhibit 10.18.1 of the Registrant’s Form 10-Q for the quarter ended September 30, 2004)
	10	.18.2	Second Amendment to Agreement of Purchase and Sale, dated July 23, 2004, among the Registrant, Dunn Hospitality Group, and entities related to Dunn Hospitality Group (incorporated by reference to Exhibit 10.18.2 of the Registrant’s Form 10-Q for the quarter ended September 30, 2004)
	10	.18.3	Third Amendment to Agreement of Purchase and Sale, dated August 4, 2004, among the Registrant, Dunn Hospitality Group, and entities related to Dunn Hospitality Group (incorporated by reference to Exhibit 10.18.3 of the Registrant’s Form 10-Q for the quarter ended September 30, 2004)
	10	.18.4	Fourth Amendment to Agreement of Purchase and Sale, dated September 2, 2004, among the Registrant, Dunn Hospitality Group, and entities related to Dunn Hospitality Group (incorporated by reference to Exhibit 10.18.4 of the Registrant’s Form 10-Q for the quarter ended September 30, 2004)
	10	.19	International Swap Dealers Association, Inc. Master Agreement, dated September 2, 2004, among the Registrant and Calyon New York Branch (incorporated by reference to Exhibit 10.19 of the Registrant’s Form 10-Q for the quarter ended September 30, 2004)
	10	.19.1	International Swap Dealers Association, Inc. Master Agreement, dated September 2, 2004, among the Registrant and SMBC Derivative Products Limited Branch (incorporated by reference to Exhibit 10.19.1 of the Registrant’s Form 10-Q for the quarter ended September 30, 2004)
	10	.19.2	International Swap Dealers Association, Inc. Master Agreement, dated September 2, 2004, among the Registrant and SMBC Derivative Products Limited (incorporated by reference to Exhibit 10.19.2 of the Registrant’s Form 10-Q for the quarter ended September 30, 2004)
	10	.20	Contribution and Purchase and Sale Agreement, dated December 27, 2004, between the Registrant and FGSB Master Corp. (incorporated by reference to Exhibit 10.20 to the Registrant’s Form 8-K, dated December 28, 2004, for the event dated December 27, 2004)
	10	.21	Purchase Agreement, dated December 27, 2004, between the Registrant and Security Capital Preferred Growth Incorporated (incorporated by reference to Exhibit 10.21 to the Registrant’s Form 8-K, dated December 28, 2004, for the event dated December 27, 2004)
	10	.21.1	Form of Registration Rights Agreement, dated December 27, 2004, between the Registrant and Security Capital Preferred Growth Incorporated (incorporated by reference to Exhibit 10.21.1 to the Registrant’s Form 8-K, dated December 28, 2004, for the event dated December 27, 2004)

58

Exhibit
Number			Description of Exhibit
	10	.21.2	Amendment #1 to Purchase Agreement, dated February 8, 2005, between the Registrant and Security Capital Preferred Growth Incorporated (incorporated by reference to Exhibit 10.21.2 to the Registrant’s Form 8-K, dated February 9, 2005, for the event dated February 8, 2005)
	10	.22	Purchase and Sale Agreement, dated July 28, 2004, between the Registrant and Atrium Plaza, LLC. (incorporated by reference to Exhibit 10.22 to the Registrant’s Form 10-K for the year ended December 31, 2004)
	10	.22.1	Amendment #1 to Purchase and Sale Agreement, dated August 26, 2004, between the Registrant and Atrium Plaza, LLC. (incorporated by reference to Exhibit 10.22.1 to the Registrant’s Form 10-K for the year ended December 31, 2004)
	10	.22.2	Amendment #2 to Purchase and Sale Agreement, dated September 28, 2004, between the Registrant and Atrium Plaza, LLC. (incorporated by reference to Exhibit 10.22.2 to the Registrant’s Form 10-K for the year ended December 31, 2004)
	10	.23	Purchase and Sale Agreement, dated April 26, 2005, between the Registrant and CNL Hotels and Resorts, Inc. (incorporated by reference to Exhibit 10.23 to the Registrant’s Form 8-K, dated April 29, 2005, for the event dated April 26, 2005)
	10	.23.1	Purchase and Sale Agreement, dated August 23, 2005, between the Registrant and Dulles Airport Hotel, LLC. (incorporated by reference to Exhibit 10.23.1 to the Registrant’s Form 8-K, dated September 23, 2005, for the event dated September 19, 2005)
	10	.23.2	Loan Agreement, dated October 28, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.23.2 to the Registrant’s Form 8-K, dated November 1, 2005, for the event dated October 28, 2005)
	10	.23.2.1	Amendment No. 2 to Loan Agreement, dated October 28, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.23.2.1 to the Registrant’s Form 8-K, dated July 27, 2006, for the event dated July 26, 2006)
	10	.23.3	$45 Million Rate Protection Agreement, dated October 27, 2005, between the Registrant and SMBC Derivative Products Limited Branch (incorporated by reference to Exhibit 10.23.3 to the Registrant’s Form 8-K, dated November 1, 2005, for the event dated October 28, 2005)
	10	.24	Commitment Letter, dated April 26, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.17.3 to the Registrant’s Form 8-K, dated April 29, 2005, for the event dated April 26, 2005)
	10	.24.1	Early Rate Lock Agreement, dated April 26, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.17.3.1 to the Registrant’s Form 8-K, dated April 29, 2005, for the event dated April 26, 2005)
	10	.24.2	Loan Agreement, dated as of June 17, 2005, by and among Ashford Orlando Sea World Limited Partnership, Ashford Salt Lake Limited Partnership, Ashford Ruby Palm Desert I Limited Partnership, and Ashford Charlotte Limited Partnership, as Borrowers, and Merrill Lynch Mortgage Lending, Inc. as Lender (incorporated by reference to Exhibit 10.24.2 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
	10	.24.2.1	Cross-Collateralization and Cooperation Agreement, dated as of June 17, 2005, by and between Ashford Orlando Sea World Limited Partnership, Ashford Salt Lake Limited Partnership, Ashford Ruby Palm Desert I Limited Partnership, and Ashford Charlotte Limited Partnership, as Borrowers, and Merrill Lynch Mortgage Lending, Inc. as Lender (incorporated by reference to Exhibit 10.24.2.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
	10	.24.3	Loan Agreement, dated as of June 17, 2005, by and among Ashford Falls Church Limited Partnership, Ashford Gaithersburg Limited Partnership, Ashford Mira Mesa San Diego Limited Partnership, Ashford Irvine Spectrum Foothill Ranch Limited Partnership, and Ashford Raleigh Limited Partnership, as Borrowers, and Merrill Lynch Mortgage Lending, Inc. as Lender (incorporated by reference to Exhibit 10.24.3 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)

59

Exhibit
Number			Description of Exhibit
	10	.24.3.1	Cross-Collateralization and Cooperation Agreement, dated as of June 17, 2005, by and between Ashford Falls Church Limited Partnership, Ashford Gaithersburg Limited Partnership, Ashford Mira Mesa San Diego Limited Partnership, Ashford Irvine Spectrum Foothill Ranch Limited Partnership, and Ashford Raleigh Limited Partnership, as Borrowers, and Merrill Lynch Mortgage Lending, Inc. as Lender (incorporated by reference to Exhibit 10.24.3.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
	10	.24.4	Loan Agreement, dated as of June 17, 2005, by and among Ashford Ft. Lauderdale Weston I LLC, Ashford Ft. Lauderdale Weston II LLC, and Ashford Ft. Lauderdale Weston III LLC, as Tenants-in-Common, and Ashford Centerville Limited Partnership, Ashford Crystal City Limited Partnership, Ashford Overland Park Limited Partnership, and Ashford Alpharetta Limited Partnership, as Borrowers, and Merrill Lynch Mortgage Lending, Inc. as Lender (incorporated by reference to Exhibit 10.24.4 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
	10	.24.4.1	Cross-Collateralization and Cooperation Agreement, dated as of June 17, 2005, by and between Ashford Ft. Lauderdale Weston I LLC, Ashford Ft. Lauderdale Weston II LLC, and Ashford Ft. Lauderdale Weston III LLC, as Tenants-in-Common, and Ashford Centerville Limited Partnership, Ashford Crystal City Limited Partnership, Ashford Overland Park Limited Partnership, and Ashford Alpharetta Limited Partnership, as Borrowers, and Merrill (incorporated by reference to Exhibit 10.24.4.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
	10	.24.5	Loan Agreement, dated as of June 17, 2005, by and among Ruby Fishkill Limited Partnership, Ruby Orlando International Limited Partnership, Ruby Ft. Worth River Plaza Limited Partnership, and Ruby Tyler Hotel Limited Partnership, as Borrowers, and Merrill Lynch Mortgage Lending, Inc. as Lender (incorporated by reference to Exhibit 10.24.5 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
	10	.24.5.1	Cross-Collateralization and Cooperation Agreement, dated as of June 17, 2005, by and between Ruby Fishkill Limited Partnership, Ruby Orlando International Limited Partnership, Ruby Ft. Worth River Plaza Limited Partnership, and Ruby Tyler Hotel Limited Partnership, as Borrowers, and Merrill Lynch Mortgage Lending, Inc. as Lender (incorporated by reference to Exhibit 10.24.5.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
	10	.24.6	Loan Agreement, dated as of June 17, 2005, by and among Ruby Sacramento Cal Expo Limited Partnership, Ruby Wilmington Newark Limited Partnership, Ruby Providence Warwick Limited Partnership, and Ruby Ann Arbor Limited Partnership, as Borrowers, and Merrill Lynch Mortgage Lending, Inc. as Lender (incorporated by reference to Exhibit 10.24.6 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
	10	.24.6.1	Cross-Collateralization and Cooperation Agreement, dated as of June 17, 2005, by and between Ruby Sacramento Cal Expo Limited Partnership, Ruby Wilmington Newark Limited Partnership, Ruby Providence Warwick Limited Partnership, and Ruby Ann Arbor Limited Partnership, as Borrowers, and Merrill Lynch Mortgage Lending, Inc. as Lender (incorporated by reference to Exhibit 10.24.6.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
	10	.24.7	Loan Agreement, dated as of June 17, 2005, by and among Ruby Miami Airport Limited Partnership, Ruby Miami Lakes Limited Partnership, Ruby Mt. Laurel Limited Partnership, Ruby Ft. Worth Southwest Limited Partnership, Ruby Newark Limited Partnership, Ruby Portland Scarborough Limited Partnership, and Ruby Boston Tewksbury Limited Partnership d/b/a Ruby Boston Tewksbury Hotel Limited Partnership, as Borrowers, and Merrill Lynch Mortgage Lending, Inc. as Lender (incorporated by reference to Exhibit 10.24.7 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)
	10	.24.7.1	Cross-Collateralization and Cooperation Agreement, dated as of June 17, 2005, by and between Ruby Miami Airport Limited Partnership, Ruby Miami Lakes Limited Partnership, Ruby Mt. Laurel Limited Partnership, Ruby Ft. Worth Southwest Limited Partnership, Ruby Newark Limited Partnership, Ruby Portland Scarborough Limited Partnership, and Ruby Boston Tewksbury Limited Partnership d/b/a Ruby Boston Tewksbury Hotel Limited Partnership, as Borrowers, and Merrill Lynch Mortgage Lending, Inc. as Lender (incorporated by reference to Exhibit 10.24.7.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005)

60

Exhibit
Number			Description of Exhibit
	10	.24.8	Commitment Letter, dated October 5, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.24.8 to the Registrant’s Form 8-K, dated October 19, 2005, for the event dated October 13, 2005)
	10	.24.9	Early Rate Lock Agreement, dated October 5, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.24.9 to the Registrant’s Form 8-K, dated October 19, 2005, for the event dated October 13, 2005)
	10	.24.10	Amended and Restated Loan Agreement, dated as of October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.24.10 to the Registrant’s Form 8-K, dated October 19, 2005, for the event dated October 13, 2005)
	10	.24.10.1	Amended and Restated Cross-Collateralization and Cooperation Agreement, dated October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.24.10.1 to the Registrant’s Form 8-K, dated October 19, 2005, for the event dated October 13, 2005)
	10	.24.11	Loan Agreement, dated as of October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.24.11 to the Registrant’s Form 8-K, dated October 19, 2005, for the event dated October 13, 2005)
	10	.24.11.1	Cross-Collateralization and Cooperation Agreement, dated October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.24.11.1 to the Registrant’s Form 8-K, dated October 19, 2005, for the event dated October 13, 2005)
	10	.24.12	Amended and Restated Loan Agreement, dated as of October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.24.12 to the Registrant’s Form 8-K, dated October 19, 2005, for the event dated October 13, 2005)
	10	.24.12.1	Amended and Restated Cross-Collateralization and Cooperation Agreement, dated October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.24.12.1 to the Registrant’s Form 8-K, dated October 19, 2005, for the event dated October 13, 2005)
	10	.24.13	Amended and Restated Loan Agreement, dated as of October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.24.13 to the Registrant’s Form 8-K, dated October 19, 2005, for the event dated October 13, 2005)
	10	.24.13.1	Amended and Restated Cross-Collateralization and Cooperation Agreement, dated October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.24.13.1 to the Registrant’s Form 8-K, dated October 19, 2005, for the event dated October 13, 2005)
	10	.24.14	Amended and Restated Loan Agreement, dated as of December 20, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.24.14 to the Registrant’s Form 8-K, dated December 22, 2005, for the event dated December 20, 2005)
	10	.24.14.1	Amended and Restated Cross-Collateralization and Cooperation Agreement, dated December 20, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.24.14.1 to the Registrant’s Form 8-K, dated December 22, 2005, for the event dated December 20, 2005)
	10	.25	Mortgage Loan Agreement (Pool 1), dated November 14, 2005, between the Registrant and UBS Real Estate Investments, Inc. (incorporated by reference to Exhibit 10.25 to the Registrant’s Form 8-K, dated November 18, 2005, for the event dated November 14, 2005)
	10	.25.1	Mortgage Loan Agreement (Pool 2), dated November 14, 2005, between the Registrant and UBS Real Estate Investments, Inc. (incorporated by reference to Exhibit 10.25.1 to the Registrant’s Form 8-K, dated November 18, 2005, for the event dated November 14, 2005)
	10	.25.2	Guarantee of Recourse Obligations, dated November 14, 2005, by the Registrant for the benefit of UBS Real Estate Investments, Inc. with respect to Pool 1 (incorporated by reference to Exhibit 10.25.2 to the Registrant’s Form 8-K, dated November 18, 2005, for the event dated November 14, 2005)

61

Exhibit
Number			Description of Exhibit
	10	.25.3	Guarantee of Recourse Obligations, dated November 14, 2005, by the Registrant for the benefit of UBS Real Estate Investments, Inc. with respect to Pool 1 (incorporated by reference to Exhibit 10.25.3 to the Registrant’s Form 8-K, dated November 18, 2005, for the event dated November 14, 2005)
	10	.25.4	Guarantee of Recourse Obligations, dated November 14, 2005, by the Registrant for the benefit of UBS Real Estate Investments, Inc. with respect to Pool 2 (incorporated by reference to Exhibit 10.25.4 to the Registrant’s Form 8-K, dated November 18, 2005, for the event dated November 14, 2005)
	10	.25.5	Guarantee of Recourse Obligations, dated November 14, 2005, by the Registrant for the benefit of UBS Real Estate Investments, Inc. with respect to Pool 2 (incorporated by reference to Exhibit 10.25.5 to the Registrant’s Form 8-K, dated November 18, 2005, for the event dated November 14, 2005)
	10	.25.6	Interest Rate Lock Agreement (Pool 1), dated October 24, 2005, between the Registrant and UBS Real Estate Investments, Inc. (incorporated by reference to Exhibit 10.25.6 to the Registrant’s Form 8-K, dated November 18, 2005, for the event dated November 14, 2005)
	10	.25.7	Interest Rate Lock Agreement (Pool 2), dated October 24, 2005, between the Registrant and UBS Real Estate Investments, Inc. (incorporated by reference to Exhibit 10.25.7 to the Registrant’s Form 8-K, dated November 18, 2005, for the event dated November 14, 2005)
	10	.26	Purchase and Sale Agreement, dated October 12, 2005, between the Registrant and Schuylkill, LLC (incorporated by reference to Exhibit 10.26 to the Registrant’s Form 8-K, dated November 28, 2005, for the event dated November 18, 2005)
	10	.26.1	Amendment No. 1 to Purchase and Sale Agreement, dated November 11, 2005, between the Registrant and Schuylkill, LLC (incorporated by reference to Exhibit 10.26.1 to the Registrant’s Form 8-K, dated November 28, 2005, for the event dated November 18, 2005)
	10	.26.2	Amendment No. 2 to Purchase and Sale Agreement, dated November 18, 2005, between the Registrant and Schuylkill, LLC (incorporated by reference to Exhibit 10.26.2 to the Registrant’s Form 8-K, dated November 28, 2005, for the event dated November 18, 2005)
	10	.27	Revolving Credit Loan And Security Agreement, dated December 23, 2005, between the Registrant and UBS Real Estate Investments, Inc. (incorporated by reference to Exhibit 10.27 to the Registrant’s Form 8-K, dated December 28, 2005, for the event dated December 23, 2005)
	10	.28	Purchase and Sale Agreement, dated February 16, 2006, between the Registrant and W2001 Pac Realty, LLC. (incorporated by reference to Exhibit 10.28 to the Registrant’s Form 8-K, dated February 23, 2006, for the event dated February 16, 2006)
	10	.29	Purchase and Sale Agreement, dated May 18, 2006, between the Registrant and EADS Associates Limited Partnership (incorporated by reference to Exhibit 10.29 to the Registrant’s Form 8-K, dated May 23, 2006, for the event dated May 18, 2006)
	10	.30	Purchase and Sale Agreement, dated September 6, 2006, between the Registrant and JER O’Hare Hotel, LLC (incorporated by reference to Exhibit 10.30 to the Registrant’s Form 8-K, dated September 8, 2006, for the event dated September 6, 2006)
	10	.31	Purchase and Sale Agreement, dated September 15, 2006, between the Registrant and a partnership between Oak Hill Capital Partners, The Blackstone Group, and Interstate Hotels and Resorts (incorporated by reference to Exhibit 10.31 to the Registrant’s Form 8-K, dated September 19, 2006, for the event dated September 15, 2006)
	10	.31.1	Loan Agreement, dated December 7, 2006, between the Registrant and Countrywide Commercial Real Estate Finance, Inc. (incorporated by reference to Exhibit 10.3.1 to the Registrant’s Form 8-K, dated December 6, 2006, for the event dated December 7, 2006)
	10	.31.2	$212 Million Rate Protection Agreement, dated December 6, 2006, between the Registrant and SMBC Derivative Products Limited Branch (incorporated by reference to Exhibit 10.31.2 to the Registrant’s Form 8-K, dated December 6, 2006, for the event dated December 7, 2006)
	10	.31.3	$35 Million Rate Protection Agreement, dated December 6, 2006, between the Registrant and SMBC Derivative Products Limited Branch (incorporated by reference to Exhibit 10.31.3 to the Registrant’s Form 8-K, dated December 6, 2006, for the event dated December 7, 2006)

62

Exhibit
Number			Description of Exhibit
	10	.32	Loan Agreement, dated November 16, 2006, between the Registrant and Morgan Stanley Mortgage Capital, Inc. (incorporated by reference to Exhibit 10.32 to the Registrant’s Form 8-K, dated November 20, 2006, for the event dated November 16, 2006)
	*10	.33	Purchase and Sale Agreement, dated January 18, 2007, between the Registrant and CNL Hotels and Resorts, Inc.
	*10	.33.1	Agreement and Plan of Merger, dated January 18, 2007, between the Registrant, MS Resort Holdings LLC, MS Resort Acquisition LLC, MS Resort Purchase LLC, and CNL Hotels & Resorts, Inc.
	*10	.33.2	Guaranty Agreement, dated January 18, 2007, between the Registrant and Morgan Stanley Real Estate Fund V U.S., L.P. in favor of CNL Hotels and Resorts, Inc.
	*10	.33.3	Contribution and Rights Agreement, dated January 18, 2007, between the Registrant and Morgan Stanley Real Estate Fund V U.S., L.P.
	*21	.1	Registrant’s Subsidiaries Listing as of December 31, 2006
	*23	.1	Consent of Ernst & Young LLP
	*31	.1	Certification of the Chief Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
	*31	.2	Certification of the Chief Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
	*31	.3	Certification of the Chief Accounting Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
	*32	.1	Certification of the Chief Executive Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (In accordance with Sec Release 33-8212, this exhibit is being furnished, and is not being filed as part of this report or as a separate disclosure document, and is not being incorporated by reference into any Securities Act of 1933 registration statement.)
	*32	.2	Certification of the Chief Financial Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (In accordance with Sec Release 33-8212, this exhibit is being furnished, and is not being filed as part of this report or as a separate disclosure document, and is not being incorporated by reference into any Securities Act of 1933 registration statement.)
	*32	.3	Certification of the Chief Accounting Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (In accordance with Sec Release 33-8212, this exhibit is being furnished, and is not being filed as part of this report or as a separate disclosure document, and is not being incorporated by reference into any Securities Act of 1933 registration statement.)

* Filed herewith.

63

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 on March 9, 2007.

ASHFORD HOSPITALITY TRUST, INC.

By:  /s/  MONTGOMERY J. BENNETT

Montgomery J. Bennett

Chief Executive Officer

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below on behalf of the Registrant in the capacities and on the dates indicated.

Signature	Title	Date
/s/  ARCHIE BENNETT, JR. Archie Bennett, Jr.	Chairman of the Board of Directors	March 9, 2007
/s/  MONTGOMERY J. BENNETT Montgomery J. Bennett	President, Chief Executive Officer, and Director (Principal Executive Officer)	March 9, 2007
/s/  DAVID J. KIMICHIK David J. Kimichik	Chief Financial Officer (Principal Financial Officer)	March 9, 2007
/s/  MARK L. NUNNELEY Mark L. Nunneley	Chief Accounting Officer (Principal Accounting Officer)	March 9, 2007
/s/  MARTIN L. EDELMAN Martin L. Edelman	Director	March 9, 2007
/s/  W. D. MINAMI W. D. Minami	Director	March 9, 2007
/s/  W. MICHAEL MURPHY W. Michael Murphy	Director	March 9, 2007
/s/  PHILIP S. PAYNE Philip S. Payne	Director	March 9, 2007
/s/  CHARLES P. TOPPINO Charles P. Toppino	Director	March 9, 2007

64

ASHFORD HOSPITALITY TRUST, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	66
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2006 and 2005	67
Consolidated Statements of Operations for the years ended December 31, 2006, 2005, and 2004	68
Consolidated Statements of Comprehensive Income for years ended December 31, 2006, 2005, and 2004	69
Consolidated Statement of Owners’ Equity for the years ended December 31, 2006, 2005, and 2004	70
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005, and 2004	72
Notes to Consolidated Financial Statements	73
Schedule III — Real Estate and Accumulated Depreciation as of December 31, 2006	113
Schedule IV — Mortgage Loans and Interest Earned on Real Estate as of December 31, 2006	117

All other financial statement schedules have been omitted because such schedules are not required under the related instructions, such schedules are not significant, or the required information has been disclosed elsewhere in the consolidated financial statements and related notes thereto.

65

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

Ashford Hospitality Trust, Inc.

We have audited the accompanying consolidated balance sheets of Ashford Hospitality Trust, Inc. (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, comprehensive income, owners’ equity, and cash flows for each of the three years in the period ended December 31, 2006. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the Standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 8, 2007 expressed an unqualified opinion thereon.

/s/  Ernst & Young LLP

Dallas, Texas

March 8, 2007

66

ASHFORD HOSPITALITY TRUST, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,			December 31,
	2006			2005
	(In thousands, except share and per share amounts)
ASSETS
Investment in hotel properties, net	$	1,632,946		$	1,106,668
Cash and cash equivalents		73,343			57,995
Restricted cash		9,413			27,842
Accounts receivable, net of allowance of $384 and $366, respectively		22,081			21,355
Inventories		2,110			1,186
Assets held for sale		119,342			117,873
Notes receivable		102,833			107,985
Deferred costs, net		14,143			13,975
Prepaid expenses		11,154			9,662
Other assets		7,826			4,014
Intangible assets, net		—			1,181
Due from third-party hotel managers		15,964			12,274
Due from affiliates		757			476
Total assets	$	2,011,912		$	1,482,486
LIABILITIES AND OWNERS’ EQUITY
Indebtedness	$	1,091,150		$	908,623
Capital leases payable		177			453
Accounts payable		16,371			9,984
Accrued expenses		32,591			21,054
Dividends payable		19,975			13,703
Deferred income		294			338
Deferred incentive management fees		3,744			—
Unfavorable management contract liability		15,281			—
Due to third-party hotel managers		1,604			1,385
Due to affiliates		4,152			5,654
Total liabilities		1,185,339			961,194
Commitments and contingencies (see Note 17)
Minority interest		109,864			87,969
Preferred stock, $0.01 par value:
Series B Cumulative Convertible Redeemable Preferred Stock, 7,447,865 issued and outstanding at December 31, 2006 and 2005, respectively		75,000			75,000
Preferred stock, $0.01 par value, 50,000,000 shares authorized:
Series A Cumulative Preferred Stock, 2,300,000 issued and outstanding at December 31, 2006 and 2005, respectively		23			23
Common stock, $0.01 par value, 200,000,000 shares authorized, 72,942,841 and 43,831,394 shares issued and outstanding at December 31, 2006 and 2005, respectively		729			438
Additional paid-in capital		708,420			403,919
Unearned compensation		—			(4,792	)
Accumulated other comprehensive income		111			1,372
Accumulated deficit		(67,574	)		(42,637	)
Total owners’ equity		641,709			358,323
Total liabilities and owners’ equity	$	2,011,912		$	1,482,486

See notes to consolidated financial statements.

67

ASHFORD HOSPITALITY TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,
	2006			2005			2004
	(In thousands, except share and per share amounts)
REVENUE
Rooms	$	365,917		$	235,951		$	82,585
Food and beverage		81,081			48,752			12,082
Other		17,312			12,062			3,702
Total hotel revenue		464,310			296,765			98,369
Interest income from notes receivable		14,858			13,323			7,549
Asset management fees from affiliates		1,266			1,258			1,318
Total Revenue		480,434			311,346			107,236
EXPENSES
Hotel operating expenses
Rooms		82,022			53,007			19,000
Food and beverage		60,146			36,886			8,980
Other direct		8,197			5,165			2,008
Indirect		137,298			91,531			31,643
Management fees — third-party hotel managers		10,944			5,651			933
Management fees — affiliates (see Note 16)		6,906			5,238			2,126
Total hotel expenses		305,513			197,478			64,690
Property taxes, insurance, and other		26,286			16,264			6,105
Depreciation and amortization		49,564			28,169			9,770
Corporate general and administrative		20,359			14,523			11,855
Total Operating Expenses		401,722			256,434			92,420
OPERATING INCOME		78,712			54,912			14,816
Interest income		2,917			1,027			335
Interest expense		(46,419	)		(34,448	)		(9,217	)
Amortization of loan costs		(2,038	)		(3,956	)		(1,884	)
Write-off of loan costs and exit fees		(788	)		(5,803	)		(1,633	)
Loss on debt extinguishment		—			(10,000	)		—
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST		32,384			1,732			2,417
Benefit from (provision for) income taxes		2,920			2,584			(630	)
Minority interest		(4,274	)		(887	)		(310	)
INCOME FROM CONTINUING OPERATIONS		31,030			3,429			1,477
Income (loss) from discontinued operations, net		6,766			6,008			(58	)
NET INCOME		37,796			9,437			1,419
Preferred dividends		10,875			9,303			1,355
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	26,921		$	134		$	64
Income (Loss) From Continuing Operations Per Share Available To Common Shareholders:
Basic	$	0.33		$	(0.15	)	$	0.00
Diluted	$	0.32		$	(0.15	)	$	0.00
Income (Loss) From Discontinued Operations Per Share:
Basic	$	0.11		$	0.15		$	(0.00	)
Diluted	$	0.11		$	0.15		$	(0.00	)
Net Income Per Share Available To Common Shareholders:
Basic	$	0.44		$	0.00		$	0.00
Diluted	$	0.43		$	0.00		$	0.00
Weighted Average Common Shares Outstanding:
Basic		61,713,178			40,194,132			25,120,653
Diluted		62,127,948			40,194,132			25,143,469

See notes to consolidated financial statements.

68

ASHFORD HOSPITALITY TRUST, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,
	2006			2005			2004
	(In thousands)
NET INCOME	$	37,796		$	9,437		$	1,419
Reclassification to Reduce Interest Expense		(1,228	)		(188	)		—
Net Unrealized Gains (Losses) on Derivative Instruments		(33	)		1,006			554
Comprehensive Income	$	36,535		$	10,255		$	1,973

See notes to consolidated financial statements.

69

Ashford Hospitality Trust, Inc.

Consolidated Statement of Owners’ Equity

For the Years Ended December 31, 2006, 2005, and 2004

																Accumulated
	Preferred Stock				Common Stock					Additional						Other
	Number of		$0.01		Number of			$0.01		Paid-In			Unearned			Comprehensive		Accumulated
	Shares		Par Value		Shares			Par Value		Capital			Compensation			Income		Deficit			Total
	(In thousands, except per share amounts)
Balance at December 31, 2003		—	$	—		25,730		$	257	$	179,207		$	(5,565	)	$	—	$	(1,627	)	$	172,272
Amortization of Unearned Compensation		—		—		—			—		—			2,339			—		—			2,339
Issuance of Restricted Common Shares to Employees		—		—		70			1		732			(733	)		—		—			—
Issuance of Common Shares to Directors		—		—		10			—		89			—			—		—			89
Dividends Declared — Common Shares		—		—		—			—		—			—			—		(11,614	)		(11,614	)
Issuance of Preferred Shares — Series A		2,300		23		—			—		54,945			—			—		—			54,968
Dividends Declared — Preferred Shares — Series A		—		—		—			—		—			—			—		(1,352	)		(1,352	)
Dividends Declared — Preferred Shares — Series B		—		—		—			—		—			—			—		(3	)		(3	)
Net Unrealized Gain on Derivative Instruments		—		—		—			—		—			—			554		—			554
Net Income		—		—		—			—		—			—			—		1,419			1,419
Balance at December 31, 2004		2,300	$	23		25,810		$	258	$	234,973		$	(3,959	)	$	554	$	(13,177	)	$	218,672
Amortization of Unearned Compensation		—		—		—			—		—			3,315			—		—			3,315
Issuance of Common Shares in Follow-On Public Offering on January 20, 2005		—		—		10,350			104		94,272			—			—		—			94,376
Issuance of Common Shares in Follow-On Public Offering on April 5, 2005		—		—		5,000			50		49,292			—			—		—			49,342
Issuance of Common Shares Related to Underwriters’ Over-allotment Option on May 4, 2005		—		—		182			2		1,804			—			—		—			1,806
Offering Costs Related to Series B Cumulative Convertible Redeemable Preferred Stock Issuances		—		—		—			—		(582	)		—			—		—			(582	)
Issuance of Common Shares to Financial Institution on July 1, 2005		—		—		2,070			20		18,882			—			—		—			18,902
Issuance of Restricted Common Shares to Employees		—		—		412			4		4,163			(4,167	)		—		—			—
Forfeitures of Restricted Common Shares		—		—		(3	)		—		(19	)		19			—		—			—
Issuance of Common Shares to Directors		—		—		10			—		101			—			—		—			101
Dividends Declared — Common Shares		—		—		—			—		—			—			—		(29,595	)		(29,595	)
Dividends Declared — Preferred Shares — Series A		—		—		—			—		—			—			—		(4,916	)		(4,916	)
Dividends Declared — Preferred Shares — Series B		—		—		—			—		1,033			—			—		(4,386	)		(3,353	)
Net Unrealized Gain on Derivative Instruments		—		—		—			—		—			—			818		—			818
Net Income		—		—		—			—		—			—			—		9,437			9,437
Balance at December 31, 2005		2,300	$	23		43,831		$	438	$	403,919		$	(4,792	)	$	1,372	$	(42,637	)	$	358,323

70

Ashford Hospitality Trust, Inc.

Consolidated Statement of Owners’ Equity — (Continued)

															Accumulated
	Preferred Stock				Common Stock					Additional					Other
	Number of		$0.01		Number of			$0.01		Paid-In			Unearned		Comprehensive			Accumulated
	Shares		Par Value		Shares			Par Value		Capital			Compensation		Income			Deficit			Total
	(In thousands, except per share amounts)
Reclassification of Unearned Compensation		—		—		—			—		(4,792	)		4,792		—			—			—
Amortization of Unearned Compensation		—		—		—			—		5,018			—		—			—			5,018
Forfeitures of Restricted Common Shares		—		—		(2	)		—		—			—		—			—			—
Issuance of Common Shares in Follow-On Public Offering on January 25, 2006		—		—		12,108			121		128,014			—		—			—			128,135
Issuance of Common Shares in Follow-On Public Offering on July 25, 2006		—		—		14,950			150		161,808			—		—			—			161,958
Issuance of Restricted Common Shares to Employees		—		—		646			6		(6	)		—		—			—			—
Issuance of Common Shares to Directors		—		—		16			—		186			—		—			—			186
Issuance of Common Shares in Exchange for Units		—		—		1,394			14		14,273			—		—			—			14,287
Dividends Declared — Common Shares		—		—		—			—		—			—		—			(51,859	)		(51,859	)
Dividends Declared — Preferred Shares — Series A		—		—		—			—		—			—		—			(4,916	)		(4,916	)
Dividends Declared — Preferred Shares — Series B		—		—		—			—		—			—		—			(5,958	)		(5,958	)
Net Unrealized Loss on Derivative Instruments		—		—		—			—		—			—		(33	)		—			(33	)
Reclassification to Reduce Interest Expense		—		—		—			—		—			—		(1,228	)		—			(1,228	)
Net Income		—		—		—			—		—			—		—			37,796			37,796
Balance at December 31, 2006		2,300	$	23		72,943		$	729	$	708,420		$	—	$	111		$	(67,574	)	$	641,709

See notes to consolidated financial statements.

71

ASHFORD HOSPITALITY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,
	2006			2005			2004
	(In thousands)
Cash flows from operating activities:
Net income	$	37,796		$	9,437		$	1,419
Adjustments to reconcile net income to net cash flow provided by operations:
Depreciation and amortization		52,863			30,291			10,768
Loss on reclassification from discontinued to continuing		863			—			—
Amortization of loan costs		2,038			3,956			1,884
Write-off of loan costs and exit fees		788			5,803			1,633
Loss on debt extinguishment		—			10,000			—
Amortization to reduce interest expense from comprehensive income		(1,228	)		(188	)		—
Stock-based compensation		5,204			3,446			2,397
Minority interest		5,277			2,425			298
Changes in assets and liabilities:
Accounts receivable and inventories		5,650			(7,687	)		(3,334	)
Other miscellaneous assets		(3,245	)		2,085			(6,867	)
Restricted cash		22,555			(625	)		(11,718	)
Other miscellaneous liabilities		11,130			(2,415	)		10,172
Net cash flow provided by operating activities		139,691			56,528			6,652
Cash flows from investing activities:
Acquisitions or originations of notes receivable		(37,308	)		(55,494	)		(87,824	)
Proceeds from payments of notes receivable		42,777			26,850			18,085
Acquisitions of hotel properties		(540,638	)		(613,534	)		(226,715	)
Proceeds from sales of discontinued operations		17,445			28,212			—
Improvements and additions to hotel properties		(47,749	)		(38,301	)		(14,170	)
Net cash flow used in investing activities		(565,473	)		(652,267	)		(310,624	)
Cash flows from financing activities:
Payments of dividends		(66,093	)		(38,178	)		(9,512	)
Borrowings on indebtedness and capital leases		491,958			962,275			361,299
Payments on indebtedness and capital leases		(271,444	)		(524,588	)		(133,386	)
Payments of deferred financing costs		(3,330	)		(10,807	)		(8,522	)
Proceeds received from sale of derivatives		—			1,635			—
Payments related to indebtedness early exit fees		—			(2,556	)		—
Payments to extinguish indebtedness		—			(10,000	)		—
Proceeds received from follow-on public offerings		290,092			145,524			—
Proceeds received from common stock sale to financial institution		—			18,902			—
Proceeds received from Series A preferred stock sale		—			—			54,968
Proceeds received from Series B preferred stock sale		—			65,000			10,000
Payments to convert partnership units into common stock		(53	)		—			—
Payments related to Series B preferred stock sale		—			(582	)		(20	)
Net cash flow provided by financing activities		441,130			606,625			274,827
Net change in cash and cash equivalents		15,348			10,886			(29,145	)
Cash and cash equivalents, beginning balance		57,995			47,109			76,254
Cash and cash equivalents, ending balance	$	73,343		$	57,995		$	47,109

See notes to consolidated financial statements.

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ASHFORD HOSPITALITY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2006, 2005, and 2004

1.   Organization and Description of Business

Ashford Hospitality Trust, Inc. and subsidiaries (the “Company”) is a self-advised real estate investment trust (“REIT”), which commenced operations on August 29, 2003 when it completed its initial public offering (“IPO”) and concurrently consummated certain other formation transactions, including the acquisition of six hotels (“initial properties”). The Company owns its lodging investments and conducts its business through Ashford Hospitality Limited Partnership, its operating partnership. Ashford OP General Partner LLC, its wholly-owned subsidiary, serves as the sole general partner of the Company’s operating partnership.

The Company elected to be treated as a REIT for federal income tax purposes. As a result of limitations imposed on REITs related to operating hotel properties, each of the Company’s hotel properties is leased or owned by wholly-owned subsidiaries of the Company that are treated as taxable REIT subsidiaries for federal income tax purposes (collectively, such subsidiaries are referred to as “Ashford TRS”). Ashford TRS then engages third-party or affiliated hotel management companies to operate the hotels under management contracts. Remington Lodging & Hospitality, L.P. and Remington Management, L.P. (collectively, “Remington Lodging”), both primary property managers for the Company, are beneficially wholly owned by Mr. Archie Bennett, Jr., the Company’s Chairman, and Mr. Montgomery J. Bennett, the Company’s President and Chief Executive Officer. As of December 31, 2006, Remington Lodging managed 37 of the Company’s 81 hotel properties while unaffiliated management companies managed the remaining 44 hotel properties.

As of December 31, 2006, 72,942,841 shares of common stock, 2,300,000 shares of Series A preferred stock, 7,447,865 shares of Series B preferred stock, and 13,512,425 units of limited partnership interest held by entities other than the Company were outstanding. During the year ended December 31, 2006, the Company completed the following transactions:

•  On January 25, 2006, the Company issued 12,107,623 shares of common stock in a follow-on public offering.

•  On March 28, 2006, the Company issued 642,557 shares of restricted common stock to its executive officers and certain employees of the Company and its affiliates.

•  On May 2, 2006, the Company issued 16,000 shares of common stock to its directors as compensation for serving on the Board of Directors through May 2007.

•  On July 13, 2006, the Company issued 3,814,842 units of limited partnership interest in connection with the acquisition of a hotel property.

•  On July 25, 2006, the Company issued 14,950,000 shares of common stock in a follow-on public offering.

•  On August 1, 2006, the Company issued 3,000 shares of restricted common stock to certain employees of the Company.

•  During the year ended December 31, 2006, the Company issued 1,394,492 shares of common stock in exchange for 1,394,492 units of limited partnership interest.

As of December 31, 2006, the Company owned 81 hotel properties in 26 states with 15,492 rooms, an office building with nominal operations, and approximately $103.0 million of mezzanine or first-mortgage loans receivable.

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ASHFORD HOSPITALITY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2.   Basis of Presentation

The following items affect the Company’s reporting comparability related to its consolidated financial statements:

•  As of December 31, 2006, Marriott International, Inc. (“Marriott”) manages 24 of the Company’s properties. For Marriott-managed hotels, the fiscal year reflects twelve weeks of operations for the first three quarters of the year and sixteen weeks for the fourth quarter of the year. Therefore, in any given quarterly period, period-over-period results will have different ending dates. For these Marriott-managed hotels, the fourth quarter of 2006 ended December 29th.

•  Certain previously reported amounts have been reclassified to conform to the current presentation.

3.   Significant Accounting Policies Summary

Principles of Consolidation — The Company’s consolidated financial statements include the Company and its majority-owned subsidiaries. All significant intercompany accounts and transactions among the consolidated entities have been eliminated in these consolidated financial statements.

Revenue Recognition — Hotel revenues include room, food, beverage, and ancillary revenues such as long-distance telephone service, laundry, and space rentals. Interest income from notes receivable represents interest earned on the Company’s mezzanine and first-mortgage loans receivable portfolio. Asset management fees relate to asset management services performed on behalf of a related party, including risk management and insurance procurement, assistance with taxes, negotiating franchise agreements and equipment leases, monitoring compliance with loan covenants, preparation of capital and operating budgets, and property litigation management. Revenues are recognized as the related services are delivered.

Use of Estimates — The preparation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

In addition, in connection with the Company’s acquisition of Marriott Crystal Gateway hotel in Arlington, Virginia, on July 13, 2006, the Company assumed the existing management agreement, which expires in 2017 with three ten-year renewal options and provides for a base management fee of 3% of the hotel’s gross revenues plus certain incentive management fees. Based on the Company’s review of this management agreement, the Company concluded that the terms are more favorable to the manager than a typical current market management agreement. As a result, the Company recorded an unfavorable contract liability of approximately $15.8 million related to this management agreement as of the acquisition date based on the present value of expected cash outflows over the initial term of the agreement.

Also, as of December 31, 2006, the Company’s deferred tax asset valuation allowance of approximately $7.7 million includes approximately $6.2 million related to this unfavorable management contract liability and approximately $1.5 million related to monies received from the hotel manager upon acquisition of the JW Marriott hotel in San Francisco, California. The analysis utilized by the Company in determining its deferred tax asset valuation allowance involves considerable management judgment and assumptions.

Investment in Hotel Properties — The initial properties are stated at the predecessor’s historical cost, net of any impairment charges, plus approximately $8.1 million of minority interest partial step-up recorded upon the Company’s formation related to the acquisition of minority interest from unaffiliated parties associated with four of the initial properties. Hotel properties acquired subsequent to the Company’s formation are stated at cost. All improvements and additions which extend the useful life of hotel properties are capitalized.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Impairment of Investment in Hotel Properties — Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that the carrying values of such hotel properties may not be recoverable. The Company tests for impairment in several situations, including when current or projected cash flows are less than historical cash flows, when it becomes more likely than not that a hotel property will be sold before the end of its previously estimated useful life, and when events or changes in circumstances indicate that a hotel property’s net book value may not be recoverable. In evaluating the impairment of hotel properties, the Company makes many assumptions and estimates, including projected cash flows, holding period, expected useful life, future capital expenditures, and fair values, which considers capitalization rates, discount rates, and comparable selling prices. If an asset was deemed to be impaired, the Company would record an impairment charge for the amount that the property’s net book value exceeds its fair value. To date, no such impairment charges have been recognized.

Depreciation and Amortization Expense — Depreciation expense is based on the estimated useful life of the Company’s assets, while amortization expense for leasehold improvements is based on the shorter of the lease term or the estimated useful life of the related assets. Presently, hotel properties are depreciated using the straight-line method over lives which range from 15 to 39 years for buildings and improvements and 3 to 5 years for furniture, fixtures, and equipment. While the Company believes its estimates are reasonable, a change in estimated lives could affect depreciation expense and net income (loss) as well as the gain or loss on the potential sale of any of the Company’s hotels.

Cash and Cash Equivalents — Cash and cash equivalents represent cash on hand and in banks plus short-term investments with an initial maturity of three months or less when purchased.

Restricted Cash — Restricted cash includes reserves for debt service, real estate taxes, and insurance, as well as excess cash flow deposits and reserves for furniture, fixtures, and equipment replacements of approximately 4% to 6% of property revenue for certain hotels, as required by certain management or mortgage debt agreement restrictions and provisions.

Accounts Receivable — Accounts receivable consists primarily of meeting and banquet room rental and hotel guest receivables. The Company generally does not require collateral. Ongoing credit evaluations are performed and an allowance for potential credit losses is provided against the portion of accounts receivable that is estimated to be uncollectible.

Inventories — Inventories, which primarily consist of food, beverages, and gift store merchandise, are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method.

Assets Held For Sale and Discontinued Operations — The Company records assets as held for sale when management has committed to a plan to sell the assets, actively seeks a buyer for the assets, and the consummation of the sale is considered probable and is expected within one year. The related operations of assets held for sale are reported as discontinued if a) such operations and cash flows can be clearly distinguished, both operationally and financially, from the ongoing operations of the Company, b) such operations and cash flows will be eliminated from ongoing operations once the disposal occurs, and c) the Company will not have any significant continuing involvement subsequent to the disposal.

Notes Receivable — The Company provides mezzanine and first-mortgage financing in the form of loans. Loans receivable are recorded at cost, adjusted for net origination fees and costs. Premiums, discounts, and net origination fees are amortized or accreted as an adjustment to interest income using the effective interest method. Loans receivable are reviewed for potential impairment at each balance sheet date. A loan receivable is considered impaired when it becomes probable, based on current information, that the Company will be unable to collect all amounts due according to the loan’s contractual terms. The amount of impairment, if any, is measured by comparing the recorded amount of the loan to the present value of the expected cash flows or the fair value of the collateral. If a loan was deemed to be impaired, the Company would record a reserve for loan losses through a charge to income for any shortfall. To date, no such impairment charges have been recognized.

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ASHFORD HOSPITALITY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In accordance with Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities,” as revised (“FIN No. 46”), variable interest entities, as defined, are required to be consolidated by their primary beneficiaries if the variable interest entities do not effectively disperse risks among parties involved. The Company’s mezzanine and first-mortgage loans receivable are each secured by various hotel properties or partnership interests in hotel properties and are subordinate to primary loans related to the secured hotels. All of these loans receivable are considered to be variable interests in the entities that own the related hotels, which are variable interest entities. However, the Company is not considered to be the primary beneficiary of these hotel properties as a result of holding these loans. Therefore, the Company does not consolidate such hotels for which it has provided financing. Interests in entities acquired or created in the future will be evaluated based on FIN No. 46 criteria, and such entities will be consolidated, if required. The analysis utilized by the Company in evaluating FIN No. 46 criteria involves considerable management judgment and assumptions.

Deferred Costs, Net — Deferred loan costs are recorded at cost and amortized over the terms of the related indebtedness using the effective interest method. Deferred franchise fees are amortized on a straight-line basis over the terms of the related franchise agreements.

Due From Third-Party Hotel Managers — Due from third-party hotel managers primarily consists of amounts due from Marriott related to cash reserves held at the Marriott corporate level related to capital, insurance, real estate taxes, and other items.

Due to/from Affiliates — Due to/from affiliates represents current receivables and payables resulting from transactions related to hotel management and project management with affiliated entities. Due from affiliates results primarily from advances of shared costs incurred. Due to affiliates results primarily from hotel management and project management fees incurred. Both due to and due from affiliates are generally settled within a period not to exceed one year.

Advertising Costs — Advertising costs are charged to expense as incurred. For the years ended December 31, 2006, 2005, and 2004, the Company incurred advertising costs of approximately $2.1 million, $1.2 million, and $425,000, respectively. Advertising costs related to continuing operations are included in indirect expenses in the accompanying consolidated statements of operations.

Indirect Expenses — Indirect expenses primarily include hotel-level general and administrative fees, sales and marketing expenses, repairs and maintenance expenses, franchise fees, and utility costs.

Derivative Instruments and Hedging Activities — Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted (“SFAS No. 133”), establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by SFAS No. 133, the Company records all derivatives on the balance sheet at fair value. Accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in the fair value are recognized in earnings.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company’s objective in using derivatives is to increase stability related to interest expense and to manage its exposure to interest rate movements or other identified risks. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount. Interest rate caps designated as cash flow hedges provide the Company with interest rate protection above the strike rate on the cap and result in the Company receiving interest payments when rates are above the cap strike.

Income Taxes — As a REIT, the Company generally will not be subject to federal corporate income tax on the portion of its net income (loss) that does not relate to taxable REIT subsidiaries. However, Ashford TRS is treated as a taxable REIT subsidiary for federal income tax purposes. In accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” the Company accounts for income taxes for Ashford TRS using the asset and liability method under which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. For the years ended December 31, 2006, 2005, and 2004, the (provision for) benefit from income taxes relates to the net income (loss) associated with Ashford TRS.

Segments — The Company presently operates in two business segments within the hotel lodging industry: direct hotel investments and hotel financing. Direct hotel investments refers to owning hotels through either acquisition or new development. Hotel financing refers to owning subordinate hotel-related mortgage receivables through acquisition or origination.

Stock-based Compensation — The Company accounts for stock-based compensation using the fair-value method. In connection with the Company’s formation, the Company established an employee Incentive Stock Plan (the “Stock Plan”). Under the Stock Plan, the Company periodically issues shares of restricted and non-restricted common stock. All such shares are charged to compensation expense on a straight-line basis over the vesting period based on the Company’s stock price on the date of issuance. Under the Stock Plan, the Company may issue a variety of additional performance-based stock awards, including nonqualified stock options. As of December 31, 2006, no performance-based stock awards aside from the aforementioned stock grants have been issued.

Earnings (Loss) Per Share — Basic earnings (loss) per common share is calculated by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings (loss) per common share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares, whereby such exercise or conversion would result in lower earnings per share. The following table reconciles the amounts used in calculating

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ASHFORD HOSPITALITY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

basic and diluted earnings (loss) per share for the years ended December 31, 2006, 2005, and 2004 (in thousands, except share and per share amounts):

	Years Ended December 31,
	2006		2005			2004
Income (loss) from continuing operations less preferred dividends — basic	$	20,155	$	(5,874	)	$	122
Weighted average common shares outstanding — basic		61,713,178		40,194,132			25,120,653
Incremental diluted shares related to unvested restricted shares		414,770		—			22,816
Weighted average common shares outstanding — diluted		62,127,948		40,194,132			25,143,469
Income (loss) per share from continuing operations — basic	$	0.33	$	(0.15	)	$	—
Income (loss) per share from continuing operations — diluted	$	0.32	$	(0.15	)	$	—

For the year ended December 31, 2006, dividends related to convertible preferred shares of approximately $6.0 million and minority interest of approximately $4.3 million as well as weighted average convertible preferred shares outstanding of approximately 7.4 million and weighted average units of limited partnership interest of approximately 12.3 million are excluded from diluted earnings per share as such shares and units are anti-dilutive.

For the year ended December 31, 2005, dividends related to convertible preferred shares of approximately $4.4 million and minority interest of approximately $887,000 as well as weighted average convertible preferred shares outstanding of approximately 4.5 million, weighted average units of limited partnership interest of approximately 10.1 million, incremental diluted shares related to unvested restricted stock of approximately 270,000, and weighted average incremental diluted shares relating to an option to purchase common stock of approximately 94,000 are excluded from diluted earnings per share as such shares and units are anti-dilutive.

For the year ended December 31, 2004, dividends related to convertible preferred shares of approximately $3,000 and minority interest of approximately $310,000 as well as weighted average convertible preferred shares outstanding of approximately 3,000 and weighted average units of limited partnership interest of approximately 5.8 million are excluded from diluted earnings per share as such shares and units are anti-dilutive.

Recent Accounting Pronouncements — In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”), effective January 1, 2006. SFAS No. 123R is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123R requires the cost of share-based awards to employees to be measured based on an award’s fair value at the grant date, with such cost to be amortized over the appropriate service period. Previously, entities could elect to continue accounting for such awards at their grant date intrinsic value under APB Opinion No. 25, “Accounting for Stock Issued to Employees.” In addition, SFAS No. 123R requires future forfeitures of stock awards to be estimated and accounted for currently rather than as such forfeitures occur. The Company’s adoption of SFAS No. 123R in the first quarter of 2006 using the modified prospective application had no impact on the Company’s results of operations. As required by SFAS No. 123R, the Company reclassified unearned compensation on its balance sheet to additional paid-in capital. Forfeitures of stock grants have been and are expected to continue to be insignificant.

In June 2006, the Emerging Issues Task Force (“EITF”) ratified EITF No. 06-3, “How Taxes Collected from Customers and Remitted to Government Authorities Should be Presented in the Income Statement (That Is, Gross versus Net Presentation).” EITF No. 06-3 is effective for interim and annual periods beginning after December 15,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2006, with earlier application permitted. EITF No. 06-3 relates to taxes assessed by a governmental authority imposed on revenue-producing transactions, such as sales taxes. EITF No. 06-3 states that gross versus net income statement presentation of such taxes is an accounting policy decision requiring disclosure. EITF No. 06-3 further requires disclosure of the amount of such taxes reflected at gross, if any. The Company records all sales net of such taxes.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN No. 48”), effective January 1, 2007. FIN No. 48 prescribes a recognition threshold and measurement attribute for the recognition and measurement of a tax position taken in a tax return. FIN No. 48 requires that a determination be made as to whether it is “more likely than not” that a tax position taken, based on its technical merits, will be sustained upon examination, including resolution of any appeals and litigation processes. If the more-likely-than-not threshold is met, the tax position must be measured to determine the amount of benefit, if any, to recognize in the financial statements. FIN No. 48 applies to all tax positions related to income taxes subject to FASB Statement No. 109, “Accounting for Income Taxes,” but does not apply to tax positions related to FASB Statement No. 5, “Accounting for Contingencies.” The cumulative effect of applying the provisions of FIN No. 48, if any, will be reported as an adjustment to the opening balance of retained earnings on January 1, 2007. The Company does not believe the adoption of FIN No. 48 will have a material effect on its financial condition or results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”), effective for financial statements issued for fiscal years beginning after November 15, 2007. SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. SFAS No. 157 also requires expanded information about the extent to which assets and liabilities are measured at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, and does not expand the use of fair value in any new circumstances. The Company is currently evaluating the effects the adoption of SFAS No. 157 will have on its financial condition or results of operations.

4.   Concentrations of Risk

The Company’s investments are all concentrated within the hotel industry. The Company’s current investment strategy is to acquire or develop upscale to upper-upscale hotels, acquire first mortgages on hotel properties, and to invest in other mortgage-related instruments such as mezzanine loans to hotel owners and operators. At present, all of the Company’s owned hotels are domestically located. In addition, all hotels securing the Company’s loans receivable are domestically located aside from one hotel located in Nevis, West Indies, which secures an $18.2 million loan receivable. Presently, all the Company’s loans receivable are collateralized by either the properties securing them or interest in the first lien on such properties. Accordingly, adverse conditions in the hotel industry will have a material adverse effect on the Company’s operating and investment revenues and cash available for distribution to stockholders.

In addition, the Company expects to originate or acquire additional mezzanine loans receivable. These types of mortgage loans involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property due to a variety of factors, including such loans being entirely unsecured or, if secured, becoming unsecured as a result of foreclosure by the senior lender. The Company may not recover some or all of its investment in these loans. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans resulting in less equity in the property and increasing the risk of loss of principal.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5.   Investment in Hotel Properties

Investment in Hotel Properties consists of the following as of December 31, 2006 and 2005 (in thousands):

	December 31,
	2006			2005
Land	$	217,930		$	163,493
Buildings and improvements		1,379,946			910,332
Furniture, fixtures, and equipment		125,514			87,096
Construction in progress		15,482			7,012
Total cost		1,738,872			1,167,933
Accumulated depreciation		(105,926	)		(61,265	)
Investment in hotel properties, net	$	1,632,946		$	1,106,668

On March 16, 2005, the Company acquired 21 hotel properties and an office building from selling entities controlled by affiliates of Fisher Brothers, Gordon Getty Trust, and George Soros, which collectively owned approximately 78% of the acquired hotels, and certain members of the Company’s senior management, which collectively owned approximately 22% of the acquired hotels, for approximately $250.0 million. For the years ended December 31, 2006 and 2005, operating results related to nine of the 21 acquired hotel properties are included in discontinued operations on the consolidated statements of operations, as discussed below. Considering closing costs, this acquisition generated an increase in Investment in Hotel Properties of approximately $210.9 million with the remainder of the purchase price related to working capital or discontinued operations classified as assets held for sale.

On March 22, 2005, the Company acquired the Hilton Santa Fe hotel property in Santa Fe, New Mexico, for approximately $18.2 million. Considering closing costs, this acquisition generated an increase in Investment in Hotel Properties of approximately $18.6 million.

On June 17, 2005, the Company acquired 30 hotel properties from CNL Hotels and Resorts, Inc. for approximately $465.0 million. For the years ended December 31, 2006 and 2005, operating results related to 15 of the 30 acquired hotel properties are included in discontinued operations on the consolidated statements of operations, as discussed below. Considering closing costs, this acquisition generated an increase in Investment in Hotel Properties of approximately $330.9 million with the remainder of the purchase price related to working capital or discontinued operations classified as assets held for sale.

On October 28, 2005, the Company acquired the Hyatt Dulles hotel property in Herndon, Virginia, for approximately $72.5 million in cash. Considering closing costs, this acquisition generated an increase in Investment in Hotel Properties of approximately $72.9 million.

On February 24, 2006, the Company acquired the Marriott at Research Triangle Park hotel property in Durham, North Carolina, for approximately $28.0 million. Considering closing costs, this acquisition generated an increase in Investment in Hotel Properties of approximately $28.2 million.

On March 26, 2006, the Company completed its $10.5 million renovation and re-branding of the Hilton Ft. Worth hotel property in Ft. Worth, Texas, which was formerly a Radisson hotel property.

On April 1, 2006, the Company reclassified approximately $38.9 million from assets held for sale to investment in hotel properties related to its decision to discontinue sales efforts related to seven hotel properties. See Note 6 for further discussion.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On April 19, 2006, the Company acquired the Pan Pacific San Francisco Hotel in San Francisco, California, for approximately $95.0 million. Considering closing costs, this acquisition generated an increase in Investment in Hotel Properties of approximately $96.4 million.

On July 13, 2006, the Company acquired the Marriott Crystal Gateway hotel in Arlington, Virginia, for approximately $107.2 million. Considering closing costs and the unfavorable contract liability assumed, this acquisition generated an increase in Investment in Hotel Properties of approximately $123.7 million.

On November 9, 2006, the Company acquired the Westin O’Hare hotel property in Rosemont, Illinois, for approximately $125.0 million in cash. Considering closing costs, this acquisition generated an increase in Investment in Hotel Properties of approximately $125.2 million.

On December 7, 2006, the Company acquired a seven-property hotel portfolio (“MIP Portfolio”) for approximately $267.2 million in cash. For the year ended December 31, 2006, operating results related to two of the seven acquired hotel properties are included in discontinued operations on the consolidated statements of operations, as discussed below. Considering closing costs, this acquisition generated an increase in Investment in Hotel Properties of approximately $226.3 million with the remainder of the purchase price related to working capital or discontinued operations classified as assets held for sale of approximately $42.7 million, of which approximately $42.6 million relates to investment in hotel properties and approximately $166,000 relates to franchise fees.

In late 2006, the Company made a strategic decision to sell 13 hotel properties and an office building, which resulted in approximately $72.8 million reclassified from investment in hotel properties to assets held for sale at December 31, 2006.

For the years ended December 31, 2006, 2005, and 2004, the Company recognized depreciation expense, including depreciation of assets under capital leases, of approximately $52.4 million, $29.7 million, and $10.7 million, respectively.

6.   Assets Held for Sale and Discontinued Operations

On January 19, 2005, the Company sold an office building for approximately $2.9 million, which is net of nominal closing costs. The Company had acquired this office building, which had one tenant and nominal operations, on July 7, 2004, in connection with its acquisition of an adjacent hotel property in Philadelphia, Pennsylvania, for approximately $16.7 million in cash. At the time of the acquisition, the Company planned to sell the office building. Consequently, no gain or loss was recognized on this sale.

On March 16, 2005, the Company acquired 21 hotel properties and an office building for approximately $250.0 million. Soon thereafter, the Company made a strategic commitment to sell eight of these properties, six of which were sold prior to December 31, 2005 for approximately $25.3 million, net of closing costs. On January 17, 2006, the Company sold the remaining two properties for approximately $10.7 million, net of closing costs. In addition, in late 2005, the Company made a strategic commitment to sell a portion of one of the other hotel properties acquired in this acquisition, which resulted in approximately $2.4 million of carrying value classified as assets held for sale at December 31, 2006 and 2005. In late 2006, the Company made a strategic commitment to sell the office building acquired in this acquisition, which is discussed below. Operating results related to these properties during the periods such assets were owned are included in income from discontinued operations for the years ended December 31, 2006 and 2005. No significant gain or loss or adverse tax consequences resulted from the sales of these properties.

During the year ended December 31, 2005, the six properties sold for approximately $25.3 million consisted of the following:

•  On April 1, 2005, the Company sold a hotel located in Dallas, Texas, for approximately $1.3 million, which is net of nominal closing costs,

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ASHFORD HOSPITALITY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

•  On April 19, 2005, the Company sold a hotel located in Hyannis, Massachusetts, for approximately $4.6 million, which is net of nominal closing costs,

•  On April 22, 2005, the Company sold a hotel located in Warner Robins, Georgia, for approximately $1.4 million, which is net of nominal closing costs,

•  On June 7, 2005, the Company sold a hotel located in Yarmouth, Massachusetts, for approximately $3.3 million, which is net of nominal closing costs,

•  On June 14, 2005, the Company sold a hotel located in Falmouth, Massachusetts, for approximately $4.4 million, which is net of nominal closing costs, and

•  On June 15, 2005, the Company sold a hotel located in Coral Gables, Florida, for approximately $10.3 million, which is net of nominal closing costs.

On June 17, 2005, the Company acquired 30 hotel properties for approximately $465.0 million. Soon thereafter, the Company made a strategic commitment to sell 15 of these properties. On March 24, 2006, the Company sold eight of these properties for approximately $100.4 million, net of closing costs. Operating results related to these eight hotel properties during the periods such hotels were owned are included in income from discontinued operations for the years ended December 31, 2006 and 2005. No significant gain or loss or adverse tax consequences resulted from the sales of these properties. Subsequent to March 31, 2006, Company management made a strategic decision to discontinue further sales efforts related to the seven remaining hotels. Consequently, assets previously reported as assets held for sale related to these hotels were reclassified to investment in hotel properties. The Company recorded such assets in investment in hotel properties at approximately $38.9 million, which represented the carrying value of such assets (net of depreciation not recognized while said assets were held for sale of approximately $863,000), which is lower than such assets’ estimated fair values.

On December 7, 2006, the Company acquired seven hotel properties for approximately $267.2 million, two of which properties were immediately held for sale. Accordingly, the Company allocated approximately $42.7 million of the total purchase price to these two properties, including approximately $42.6 million related to investment in hotel properties and approximately $166,000 related to franchise fees, which represents the estimated aggregate net sales prices and is classified as assets held for sale at December 31, 2006. Operating results related to these two hotel properties are included in income for discontinued operations for the year ended December 31, 2006. No significant gain or loss or adverse tax consequences are expected to result from the sales of these properties.

In late 2006, the Company made a strategic decision to sell 13 hotel properties acquired throughout 2003 through 2005 and its office building acquired on March 16, 2005. These 13 hotel properties include one hotel property acquired on March 16, 2005 and the seven hotel properties acquired on June 17, 2005, which were initially classified as discontinued operations and assets held for sale. Consequently, the Company classified $72.8 million of carrying value related to these properties as assets held for sale at December 31, 2006. Comparatively, at December 31, 2005, approximately $76.5 million, classified as investment in hotel properties, relates to these properties. In addition, operating results related to these properties are included in income for discontinued operations for the years ended December 31, 2006, 2005, and 2004.

82

ASHFORD HOSPITALITY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For the years ended December 31, 2006, 2005, and 2004, financial information related to the Company’s properties included in discontinued operations was as follows (in thousands):

	Years Ended December 31,
	2006			2005			2004
Total revenues	$	48,067		$	49,106		$	9,689
Operating expenses		35,935			37,039			8,733
Depreciation and amortization		3,299			2,122			998
Loss on reclassification from discontinued to continuing		863			—			—
Operating income (loss)		7,970			9,945			(42	)
Provision for income taxes		(201	)		(2,400	)		(28	)
Minority interest		(1,003	)		(1,537	)		12
Net income (loss)	$	6,766		$	6,008		$	(58	)

7.   Notes Receivable

Notes receivable consists of the following as of December 31, 2006 and 2005 (in thousands):

	December 31,
	2006		2005
$15.0 million mezzanine loan secured by one hotel property, matures January 2007, at an interest rate of LIBOR plus 9%, with interest-only payments through maturity	$	—	$	15,000
$15.0 million mezzanine loan secured by one hotel property, matures April 2007, at an interest rate of LIBOR plus 10.25% with a 1.75% LIBOR floor and 5% LIBOR cap, with interest-only payments through maturity		—		15,000
$6.6 million mezzanine loan secured by one hotel property, matures May 2006, at an interest rate of the greater of 15% or LIBOR plus 13% with a 2% LIBOR floor (LIBOR plus 10% with 2% LIBOR floor pay rate with deferred interest through maturity), with interest-only payments through maturity		—		7,022
$11.0 million mezzanine loan secured by one hotel property, matures September 2011, at an interest rate of 14% (12% pay rate with deferred interest through the first two years), with interest only payments through maturity		11,000		11,000
$5.0 million mezzanine loan secured by one hotel property, matures October 2007, at an interest rate of LIBOR plus 11.35%, with interest-only payments through maturity		—		5,000
$8.0 million mezzanine loan secured by one hotel property, matures February 2007, at an interest rate of LIBOR plus 9.13%, with interest-only payments through maturity		8,000		8,000
$8.0 million mezzanine loan secured by one hotel property, matures May 2010, at an interest rate of 14% which increases 1% annually until reaching an 18% maximum, with interest-only payments through maturity		8,000		8,000
$8.5 million mezzanine loan secured by one hotel property, matures June 2007, at an interest rate of LIBOR plus 9.75%, with interest-only payments through maturity		8,500		8,500

83

ASHFORD HOSPITALITY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	December 31,
	2006			2005
$4.0 million mezzanine loan secured by one hotel property, matures July 2010, at an interest rate of 14%, with interest-only payments through maturity		4,000			4,000
$5.6 million mezzanine loan secured by one hotel property, matures July 2008, at an interest rate of LIBOR plus 9.5%, with interest-only payments through February 2007 plus principal payments thereafter based on a twenty-five-year amortization schedule		5,583			5,583
$3.0 million mezzanine loan secured by one hotel property, matures September 2008, at an interest rate of LIBOR plus 11.15%, with interest-only payments through maturity		3,000			3,000
$18.2 million first-mortgage loan secured by one hotel property, matures October 2008, at an interest rate of LIBOR plus 9%, with interest-only payments through maturity		18,200			18,200
$25.7 million mezzanine loan secured by 105 hotel properties, matures April 2008, at an interest rate of LIBOR plus 5%, with interest-only payments through maturity		25,694			—
$7.0 million mezzanine loan secured by one hotel property, matures December 2009, at an interest rate of LIBOR plus 6.5%, with interest-only payments through maturity		7,000			—
$4.0 million mezzanine loan secured by one hotel property, matures December 2009, at an interest rate of LIBOR plus 5.75%, with interest-only payments through maturity		4,000			—
Gross notes receivable	$	102,977		$	108,305
Deferred income, net		(144	)		(320	)
Net notes receivable	$	102,833		$	107,985

During the year ended December 31, 2005, the Company acquired or originated the $8.0 million, $8.0 million, $8.5 million, $4.0 million, $5.6 million, $3.0 million, and $18.2 million notes receivable, as described sequentially in the above table, on February 8, 2005, April 18, 2005, May 27, 2005, June 21, 2005, July 12, 2005, September 29, 2005, and December 16, 2005, respectively.

On November 10, 2005, the Company received approximately $9.8 million related to all principal and interest due under a $9.9 million note receivable, due August 2006.

During the year ended December 31, 2005, the Company received payments totaling approximately $16.8 million related to all principal and interest due under a $16.9 million note receivable, due July 2006.

As of January 1, 2006, the Company’s $6.6 million note receivable, secured by one hotel, matured and all principal and interest of approximately $7.0 million was due at that time. Effective January 1, 2006, the Company executed an 120-day forbearance on the collection of all amounts due on this loan, allowing the borrower time to sell or refinance the related property. On May 3, 2006, the Company received approximately $7.3 million in full payment of all principal and interest due under this loan.

During the year ended December 31, 2006, the Company originated the $26.3 million, $7.0 million, and $4.0 million notes receivable, as described sequentially in the above table, on June 9, 2006, December 27, 2006, and December 27, 2006, respectively.

On June 15, 2006, the Company received approximately $15.2 million related to all principal and interest due under its $15.0 million note receivable, due January 2007, described in the above table.

84

ASHFORD HOSPITALITY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On July 21, 2006, the Company received approximately $15.2 million related to all principal and interest due under its $15.0 million note receivable, due April 2007, described in the above table.

On September 24, 2006, the Company extended the maturity date on its $5.0 million note receivable, originally due October 2006, to October 2007. On December 5, 2006, the Company received approximately $5.1 million related to all principal and interest due under this loan.

On November 17, 2006, the Company received a principal payment of approximately $614,000 related to a portion of its $26.3 million note receivable, due April 2008. As a result of this prepayment, the $26.3 million note receivable, originally secured by 107 hotel properties, became a $25.7 million note receivable, secured by 105 hotel properties.

For the years ended December 31, 2006, 2005, and 2004, the Company recognized interest income related to notes receivable of approximately $14.9 million, $13.3 million, and $7.5 million, respectively.

In general, the Company’s notes receivable have extension options, prohibit prepayment through a certain period, and require decreasing prepayment penalties through maturity. As of December 31, 2006, all notes receivable balances were current and no reserve for loan losses had been recorded.

8.   Deferred Costs

Deferred costs consist of the following as of December 31, 2006 and 2005 (in thousands):

	December 31,
	2006			2005
Deferred loan costs	$	15,285		$	13,163
Deferred franchise fees		3,439			3,303
Total cost		18,724			16,466
Accumulated amortization		(4,581	)		(2,491	)
Deferred costs, net	$	14,143		$	13,975

In late 2006, the Company made a strategic decision to sell 15 hotel properties and an office building, which resulted in approximately $525,000 reclassified from deferred costs to assets held for sale at December 31, 2006. Comparatively, at December 31, 2005, approximately $381,000 of deferred costs related to these 15 hotel properties.

9.   Intangibles

Intangibles consist of the following as of December 31, 2006 and 2005 (in thousands):

	December 31,
	2006			2005
Gross cost	$	1,402		$	1,367
Accumulated amortization		(395	)		(186	)
Intangibles, net	$	1,007		$	1,181

Intangibles relate to existing tenant leases of an office building, primarily representing market-rate adjustments, occupancy levels, customer relationships, and origination fees. Such costs are amortized over the related remaining lease terms, which expire between 2008 and 2013. For the years ended December 31, 2006 and 2005, amortization expense related to these intangibles was approximately $211,000 and $186,000, respectively.

85

ASHFORD HOSPITALITY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In late 2006, the Company made a strategic decision to sell 15 hotel properties and an office building. As the entire intangibles balance relates to these properties, it was reclassified to assets held for sale at December 31, 2006.

10.   Indebtedness

Indebtedness consists of the following as of December 31, 2006 and 2005 (in thousands):

	December 31,
	2006		2005
$487.1 million mortgage note payable secured by 32 hotel properties, of which $192.5 million matures July 1, 2015 and $294.6 million matures February 1, 2016, at a weighted average fixed interest rate locked at 5.41%, with interest-only payments due monthly plus principal payments based on a twenty-five-year amortization schedule beginning July 10, 2010	$	487,110	$	580,800
$211.5 million term loan secured by 16 hotel properties divided equally into two pools. The first pool for $110.9 million matures December 11, 2014, at a fixed interest rate of 5.75%, with interest-only payments due monthly plus principal payments based on a twenty-five-year amortization schedule beginning December 11, 2009. The second pool for $100.6 million matures December 11, 2015, at a fixed interest rate of 5.7%, with interest-only payments due monthly plus principal payments based on a twenty-five-year amortization schedule beginning December 11, 2010		211,475		211,475
$150.0 million secured credit facility secured by nine hotel properties, matures August 16, 2008, at an interest rate of LIBOR plus a range of 1.6% to 1.85% depending on the loan-to-value ratio, with interest-only payments due monthly, with a commitment fee of 0.2% to 0.35% on the unused portion of the line payable quarterly, with two one-year extension options		25,000		60,000
$100.0 million secured credit facility secured by six mezzanine notes receivable totaling approximately $45.1 million, matures December 23, 2008, at an interest rate of LIBOR plus a range of 1.5% to 2.75% depending on the loan to value ratio and collateral pledged, with interest-only payments due monthly, with a commitment fee of 0.0375% of the average undrawn balance payable quarterly		—		—
$47.5 million secured credit facility secured by 1 hotel property, revolving period through October 11, 2007, matures October 10, 2008, at an interest rate of LIBOR plus 1.0% to 1.5% depending on the outstanding balance through the revolving period and LIBOR plus 2% thereafter, with interest-only payments due monthly		—		45,000
Mortgage note payable secured by one hotel property, matures December 1, 2017, at an interest rate of 7.24% through December 31, 2007 and 7.39% thereafter, with principal and interest payments due monthly of approximately $462,000 through December 31, 2007 and $598,000 thereafter, and including a remaining premium of approximately $2.0 million		54,565		—
Mortgage note payable secured by one hotel property, matures April 1, 2011, at an interest rate of the average weekly yield for 30-day commercial paper plus 3.4%, with principal and interest payments due monthly, with the principal portion escalating from approximately $15,000 to approximately $53,000 by maturity		—		11,348

86

ASHFORD HOSPITALITY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	December 31,
	2006		2005
Mortgage note payable secured by one hotel property, matures December 8, 2016, at an interest rate of 5.81%, with interest-only payments due monthly for five years plus principal payments thereafter based on a thirty-year amortization schedule		101,000		—
Mortgage note payable secured by seven hotel properties, matures December 11, 2009, at an interest rate of LIBOR plus 1.72%, with interest-only payments due monthly		212,000		—
Total	$	1,091,150	$	908,623

At December 31, 2006 and 2005, LIBOR was 5.32% and 4.39%, respectively.

During the year ended December 31, 2004, the Company repaid three mortgage notes payable totaling approximately $57.8 million and paid down another mortgage note payable by approximately $12.6 million. These early debt reductions resulted in the write-off of unamortized loan costs of approximately $1.6 million.

On January 20, 2005, with proceeds generated from its follow-on public offering, the Company repaid the then outstanding $17.8 million balance on its $60.0 million credit facility, due August 17, 2007, a $15.5 million mortgage note payable, due December 31, 2005, and a $7.0 million mortgage note payable, due July 31, 2007. As a result, the Company incurred prepayment penalties associated with the $15.5 million mortgage loan of approximately $78,000 and wrote-off unamortized loan costs associated with both loans of approximately $151,000.

On March 16, 2005, in connection with the acquisition of a 21-property hotel portfolio, the Company assumed approximately $164.7 million in mortgage notes payable, of which approximately $14.7 million was repaid immediately. The Company originally recorded such mortgages at premiums totaling approximately $5.7 million as the fixed interest rates on such debt exceeded current interest rates that the Company would otherwise incur on similar financial instruments. On March 30, 2005, the Company made an $18.2 million principal payment related to this debt, which generated a loss on early extinguishment of debt of approximately $2.3 million, which is net of the write-off of the related portion of the debt premium of approximately $1.4 million. On October 13, 2005, the Company extinguished approximately $98.9 million of this debt, which generated a loss on early extinguishment of debt of approximately $4.3 million, which is net of the write-off of debt premiums associated with these mortgages of approximately $3.0 million. On December 20, 2005, the Company extinguished the remaining $31.0 million of this debt, which generated a loss on early extinguishment of debt of approximately $3.4 million, which is net of the write-off of the debt premium associated with this mortgage of approximately $780,000. While the related debt was outstanding, the debt premiums were amortized as an adjustment to interest expense over the terms of the related debt using the effective interest method, which resulted in a reduction to interest expense of approximately $518,000 during the year ended December 31, 2005.

On June 17, 2005, the Company executed a $370.0 million mortgage loan, which was secured by 30 hotel properties, at a fixed interest rate of 5.32%, maturing July 1, 2015, and required monthly interest-only payments through July 10, 2010 plus monthly principal payments thereafter based on a twenty-five-year amortization schedule. On October 13, 2005, the Company executed a $210.8 million mortgage loan, which was combined with the Company’s existing $370.0 million mortgage loan executed on June 17, 2005. The newly combined $580.8 million loan, now secured by 40 hotel properties, has a weighted-average fixed interest rate of 5.4%, requires monthly interest-only payments through July 10, 2010 plus monthly principal payments thereafter based on a twenty-five-year amortization schedule, and includes certain prepayment restrictions and fees. Of the total $580.8 million loan, approximately $286.2 million matures July 1, 2015 and approximately $294.6 million matures February 1, 2016. Of the newly executed $210.8 million portion of the loan, the Company received proceeds of approximately $172.7 million and $38.1 million on October 13, 2005 and December 20, 2005, respectively.

87

ASHFORD HOSPITALITY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On August 24, 2005, the Company modified its $60.0 million credit facility, due August 16, 2007, to increase the capacity to $100.0 million with the ability to be increased to $150.0 million subject to certain conditions, reduce the interest rate from LIBOR plus a range of 2.0% to 2.3% to LIBOR plus a range of 1.6% to 1.95% depending on the loan-to-value ratio, and extend its maturity one year to August 16, 2008 with two one-year extension options. During the year ended December 31, 2005, the Company completed draws on this credit facility of $15.0 million, $20.0 million, $15.0 million, $10.0 million, $10.0 million, $10.0 million, and $45.0 million on March 16, 2005, March 22, 2005, April 27, 2005, June 2, 2005, August 3, 2005, October 7, 2005, and November 9, 2005, respectively. On April 15, 2005 and October 19, 2005, the Company paid down this credit facility by $20.0 million and $45.0 million, respectively. At December 31, 2005, the Company had an outstanding balance of $60.0 million on this credit facility.

On October 28, 2005, the Company executed a $45.0 million mortgage loan, which is secured by one hotel, at an interest rate of LIBOR plus 2%, matures October 10, 2007, includes three one-year extension options, requires monthly interest-only payments through maturity, and includes certain prepayment restrictions and fees. In connection with this loan, the Company purchased a 7.0% LIBOR interest rate cap with a $45.0 million notional amount, which matures October 15, 2007, to limit its exposure to rising interest rates on its variable-rate debt.

On November 10, 2005, the Company repaid the remaining $18.8 million balance outstanding under its $45.6 million credit facility, due July 13, 2007, which resulted in the write-off of unamortized loan costs of approximately $640,000 and early exit fees of approximately $456,000. Prior to this repayment, the Company made principal payments in 2005 of approximately $13.6 million in connection with partial payoffs of one of the mezzanine notes receivable securing this facility.

On November 14, 2005, the Company executed a $211.5 million mortgage loan, which is secured by 16 hotels divided equally into two pools. The first pool for $110.9 million incurs interest at a fixed rate of 5.75%, matures December 11, 2014, and requires monthly interest-only payments for four years plus monthly principal payments thereafter based on a twenty-five-year amortization schedule. The second pool for $100.6 million incurs interest at a fixed rate of 5.7%, matures December 11, 2015, and requires monthly interest-only payments for five years plus monthly principal payments thereafter based on a twenty-five-year amortization schedule. Both pools include certain prepayment restrictions and fees. The Company used proceeds from the loan to repay its $210.0 million term loan, due October 10, 2006, and assist in the repayment of its $6.2 million mortgage loan, due January 1, 2006. In connection with the repayment of these loans, the Company wrote-off unamortized loan costs of approximately $2.5 million and incurred early exit fees of approximately $2.1 million.

On December 23, 2005, the Company executed a $100.0 million senior secured revolving credit facility with the ability to be increased to $150.0 million subject to certain conditions, of which drawings thereon will initially be secured by certain mezzanine loans receivable, will mature December 23, 2008, will incur interest at LIBOR plus a range of 1.5% to 2.75% depending on the loan-to-value ratio and types of collateral pledged, will require monthly interest-only payments through maturity, will require quarterly commitment fees based on 0.0375% of the average undrawn balance during the quarter, and will include certain prepayment restrictions and fees.

On February 9, 2006, the Company paid down its $45.0 million mortgage loan, due October 10, 2007, at an interest rate of LIBOR plus 2%, to $100. On April 3, 2006, the Company modified this mortgage note payable to a $47.5 million revolving credit facility, with a revolving period through October 11, 2006 and interest rates during the revolving period ranging from LIBOR plus 1% to LIBOR plus 1.5% depending on the outstanding balance. After the revolving period expires, the interest rate resumes its original rate of LIBOR plus 2%. Consistent with the original mortgage, the modified credit facility requires monthly interest-only payments and has three one-year extension options. On April 18, 2006 and June 6, 2006, the Company completed draws of approximately $15.0 million each on this credit facility. On July 25, 2006, the Company repaid the $30.0 million outstanding balance on this credit facility. On July 26, 2006, the Company modified this credit facility to extend both the revolving period and maturity date by one year to October 11, 2007 and October 10, 2008, respectively. As of December 31, 2006, approximately $100 was outstanding on this credit facility.

88

ASHFORD HOSPITALITY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On March 24, 2006, in connection with the sale of eight hotel properties for approximately $100.4 million, net of closing costs, the buyer assumed approximately $93.7 million of mortgage debt, which had an interest rate of 5.32% and matured July 1, 2015. This reduced the Company’s $580.8 million mortgage note payable outstanding at December 31, 2005, secured by 40 hotels, with an average interest rate of 5.4%, to $487.1 million outstanding at December 31, 2006, secured by 32 hotels, with an average interest rate of 5.41%. In connection with the buyer’s assumption of this debt, the Company wrote-off unamortized loan costs of approximately $687,000.

On May 30, 2006, the Company repaid its then outstanding $11.1 million balance on its mortgage note payable, due April 1, 2011, which resulted in the write-off of unamortized loan costs of approximately $102,000.

On July 13, 2006, in connection with the acquisition of the Marriott Crystal Gateway hotel in Arlington, Virginia, the Company assumed a $53.3 million mortgage note payable, due December 1, 2017, at an interest rate of 7.24% through December 31, 2007 and 7.39% thereafter. The Company originally recorded this mortgage at a premium of approximately $2.1 million as the fixed interest rate on this mortgage exceeds current interest rates the Company would otherwise incur on similar financial instruments. The debt premium is amortized as an adjustment to interest expense over the term of the mortgage using the effective interest method, which resulted in a reduction to interest expense of approximately $151,000 for the year ended December 31, 2006.

On September 8, 2006, the Company modified its $100.0 million credit facility, due August 16, 2008, to increase the capacity to $150.0 million with the ability to be increased to $200.0 million subject to certain conditions and reduced the interest rate from LIBOR plus a range of 1.6% to 1.95% to LIBOR plus a range of 1.6% to 1.85% depending on the loan-to-value ratio. On February 27, 2006, April 18, 2006, July 14, 2006, November 8, 2006, and December 6, 2006, the Company completed draws on this credit facility of $10.0 million, $88.9 million, $25.0 million, $80.0 million, and $25.0 million, respectively. On January 31, 2006, June 28, 2006, July 25, 2006, and November 16, 2006, the Company paid down this credit facility by $60.0 million, $25.0 million, $98.9 million, and $80.0 million, respectively. At December 31, 2006, the Company had an outstanding balance of $25.0 million on this credit facility.

On November 16, 2006, the Company executed a $101.0 million mortgage note payable, due December 8, 2016, at an interest rate of 5.81%, with interest-only payments due monthly for five years plus principal payments thereafter based on a thirty-year amortization schedule, and includes certain prepayment restrictions and fees.

On December 7, 2006, the Company executed a $247.0 million mortgage note payable, of which $212.0 million was funded immediately with the remaining balance to be funded over the next two years as capital expenditures are incurred by the Company. The loan matures December 11, 2009, with two one-year extension options, bears interest at a rate of LIBOR plus 1.72%, with interest-only payments due monthly, and includes certain prepayment restrictions and fees. In connection with this loan, the Company purchased two 6.25% LIBOR interest rate caps with a total notional amount of $247.0 million, which both mature December 11, 2009, to limit its exposure to rising interest rates on its variable-rate debt.

Maturities of indebtedness as of December 31, 2006 are as follows (in thousands):

2007	$	2,067
2008		28,838
2009		216,082
2010		10,278
2011		18,354
Thereafter		815,531
Total	$	1,091,150

89

ASHFORD HOSPITALITY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The carrying values of assets collateralizing indebtedness as of December 31, 2006 and 2005 are as follows (in thousands):

		December 31,
Hotel Property	Location	2006			2005
Embassy Suites	Austin, TX	$	9,502	(g)	$	9,669	(a)
Embassy Suites	Dallas, TX		9,697	(g)		9,744	(a)
Embassy Suites	Herndon, VA		9,691	(g)		9,918	(a)
Embassy Suites	Las Vegas, NV		17,395	(g)		17,798	(a)
Embassy Suites	Syracuse, NY		14,651	(g)		15,024	(a)
Embassy Suites	Flagstaff, AZ		6,441	(i)		—
Embassy Suites	Houston, TX		12,612	(f)		12,631	(b)
Embassy Suites	West Palm Beach, FL		25,315	(f)		23,859	(b)
Embassy Suites	Philadelphia, PA		41,368	(j)		—
Embassy Suites	Walnut Creek, CA		43,122	(j)		—
Radisson Hotel (downtown)	Indianapolis, IN		27,482	(f)		26,397	(b)
Hilton Garden Inn	Jacksonville, FL		11,046	(g)		11,025	(a)
Hilton	Ft. Worth, TX		27,322	(f)		25,675	(b)
Hilton	Houston, TX		17,087	(f)		16,570	(b)
Hilton	St. Petersburg, FL		20,394	(f)		18,983	(b)
Hilton	Santa Fe, NM		19,450	(i)		18,477	(c)
Hilton	Bloomington, MN		59,256	(j)		—
Hampton Inn	Lawrenceville, GA		4,527	(i)		4,629	(c)
Hampton Inn	Evansville, IN		8,225	(g)		8,843	(a)
Hampton Inn	Terre Haute, IN		8,792	(g)		9,051	(a)
Hampton Inn	Buford, GA		6,654	(g)		6,832	(a)
Marriott	Durham, NC		27,920	(i)		—
Marriott	Arlington, VA		122,858	(k)		—
Marriott	Trumbull, CT		27,537	(j)		—
SpringHill Suites by Marriott	Jacksonville, FL		9,046	(g)		8,528	(a)
SpringHill Suites by Marriott	Baltimore, MD		15,722	(i)		15,560	(d)
SpringHill Suites by Marriott	Kennesaw, GA		6,719	(i)		6,227	(c)
SpringHill Suites by Marriott	Buford, GA		7,158	(g)		7,373	(a)
SpringHill Suites by Marriott	Gaithersburg, MD		22,294	(f)		21,769	(b)
SpringHill Suites by Marriott	Centreville, VA		14,011	(f)		13,469	(b)
SpringHill Suites by Marriott	Charlotte, NC		8,021	(f)		8,149	(b)
SpringHill Suites by Marriott	Durham, NC		5,110	(f)		5,075	(b)
Fairfield Inn by Marriott	Kennesaw, GA		5,099	(i)		5,194	(c)
Courtyard by Marriott	Bloomington, IN		12,155	(g)		12,593	(a)
Courtyard by Marriott	Columbus, IN		6,190	(g)		5,896	(a)
Courtyard by Marriott	Louisville, KY		13,659	(g)		14,168	(a)
Courtyard by Marriott	Crystal City, VA		45,472	(f)		43,730	(b)
Courtyard by Marriott	Ft. Lauderdale, FL		20,612	(f)		21,061	(b)
Courtyard by Marriott	Overland Park, KS		16,179	(f)		15,799	(b)

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		December 31,
Hotel Property	Location	2006			2005
Courtyard by Marriott	Palm Desert, CA		15,425	(f)		14,603	(b)
Courtyard by Marriott	Foothill Ranch, CA		18,784	(f)		19,234	(b)
Courtyard by Marriott	Alpharetta, GA		15,389	(f)		14,498	(b)
Marriott Residence Inn	Lake Buena Vista, FL		23,249	(g)		23,902	(a)
Marriott Residence Inn	Evansville, IN		7,646	(g)		7,085	(a)
Marriott Residence Inn	Orlando, FL		46,635	(f)		47,664	(b)
Marriott Residence Inn	Falls Church, VA		38,110	(f)		37,369	(b)
Marriott Residence Inn	San Diego, CA		33,206	(f)		32,903	(b)
Marriott Residence Inn	Fishkill, NY		—			20,176	(b)
Marriott Residence Inn	Sacramento, CA		—			19,300	(b)
Marriott Residence Inn	Salt Lake City, UT		17,985	(f)		18,183	(b)
Marriott Residence Inn	Ft. Worth, TX		—			13,558	(b)
Marriott Residence Inn	Palm Desert, CA		14,067	(f)		14,059	(b)
Marriott Residence Inn	Wilmington, DE		—			10,423	(b)
Marriott Residence Inn	Orlando, FL		—			13,805	(b)
Marriott Residence Inn	Warwick, RI		—			10,407	(b)
Marriott Residence Inn	Ann Arbor, MI		—			8,783	(b)
Marriott Residence Inn	Tyler, TX		—			7,528	(b)
TownePlace Suites by Marriott	Mt. Laurel, NJ		7,469	(f)		7,694	(b)
TownePlace Suites by Marriott	Scarborough, ME		6,742	(f)		6,947	(b)
TownePlace Suites by Marriott	Miami, FL		5,398	(f)		5,542	(b)
TownePlace Suites by Marriott	Ft. Worth, TX		5,657	(f)		5,823	(b)
TownePlace Suites by Marriott	Miami Lakes, FL		7,883	(f)		8,142	(b)
TownePlace Suites by Marriott	Tewksbury, MA		2,627	(f)		2,692	(b)
TownePlace Suites by Marriott	Newark, CA		2,634	(f)		2,637	(b)
Sea Turtle	Atlantic Beach, FL		24,040	(i)		22,241	(c)
Sheraton Hotel	Minneapolis, MN		18,369	(f)		18,026	(b)
Sheraton Hotel	Anchorage, AK		39,161	(j)		—
Sheraton Hotel	Iowa City, IA		15,003	(j)		—
Sheraton Hotel	San Diego, CA		42,653	(j)		—
Hyatt Regency	Anaheim, CA		75,720	(i)		78,190	(c)
Hyatt Regency	Herndon, VA		70,204	(l)		72,506	(e)
Crowne Plaza	Beverly Hills, CA		28,995	(f)		28,452	(b)
Crowne Plaza	Key West, FL		28,257	(f)		27,397	(b)
Annapolis Inn	Annapolis, MD		14,030	(f)		12,895	(b)
Westin	Rosemont, IL		124,201	(h)		—
Total		$	1,535,330		$	1,082,380

(a)	Represents collateral for the $211.5 million term loan outstanding at December 31, 2005.
(b)	Represents collateral for the $580.8 million mortgage note payable outstanding at December 31, 2005.

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(c)	Represents collateral for the $150.0 million credit facility with a $60.0 million outstanding balance at December 31, 2005.
(d)	Represents collateral for the $11.3 million mortgage note payable outstanding at December 31, 2005.
(e)	Represents collateral for the $45.0 million mortgage note payable outstanding at December 31, 2005.
(f)	Represents collateral for the $487.1 million mortgage note payable outstanding at December 31, 2006.
(g)	Represents collateral for the $211.5 million term loan outstanding at December 31, 2006.
(h)	Represents collateral for the $101.0 million mortgage note payable outstanding at December 31, 2006.
(i)	Represents collateral for the $150.0 million credit facility with a $25.0 million outstanding balance at December 31, 2006.
(j)	Represents collateral for the $212.0 million mortgage note payable outstanding at December 31, 2006.
(k)	Represents collateral for the $54.6 million mortgage note payable and premium outstanding at December 31, 2006.
(l)	Represents collateral for the $47.5 million credit facility with a $100 outstanding balance at December 31, 2006.

In addition to the above, at December 31, 2006 and 2005, a $100.0 million secured credit facility was secured by six and eight mezzanine notes receivable, respectively, which totaled approximately $45.1 million and $65.1 million, respectively. At December 31, 2006 and 2005, the Company had no outstanding balance on this credit facility.

If the Company violates covenants in any debt agreements, the Company could be required to repay all or a portion of its indebtedness before maturity at a time when the Company might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may result in the Company being unable to borrow unused amounts under a line of credit, even if repayment of some or all borrowings is not required. In any event, financial covenants under the Company’s current or future debt obligations could impair the Company’s planned business strategies by limiting the Company’s ability to borrow (i) beyond certain amounts or (ii) for certain purposes. Presently, the Company’s existing financial debt covenants primarily relate to maintaining minimum debt coverage ratios at certain properties, maintaining an overall minimum net worth, and maintaining an overall minimum total assets.

11.   Derivative Instruments and Hedging Activities

On September 2, 2004, the Company purchased a 6.0% LIBOR interest rate cap with a $210.0 million notional amount to limit its exposure to rising interest rates on $210.0 million of its variable-rate debt. To partially offset the cost of the purchased cap, the Company sold a 6.0% LIBOR interest rate cap with a $105.0 million notional amount with identical terms to the purchased cap. Both interest rate caps matured on October 2, 2006. The Company designated the net purchased option of $105.0 million as a cash flow hedge of its exposure to changes in interest rates on a corresponding amount of variable-rate debt.

On September 7, 2004, the Company entered into a $105.0 million stair-stepped interest rate swap agreement, at an average interest rate of 4.9% over the term of the swap, which matures March 1, 2007. The interest rate swap effectively converts the interest payments on $105.0 million of the Company’s variable-rate debt to a fixed rate and was designated as a cash flow hedge.

On October 28, 2005, the Company purchased a 7.0% LIBOR interest rate cap with a $45.0 million notional amount, which matures October 15, 2007, to limit its exposure to rising interest rates on $45.0 million of its variable-rate debt. The Company designated the $45.0 million cap as a cash flow hedge of its exposure to changes in interest rates on a corresponding amount of variable-rate debt.

On November 14, 2005, the Company executed a $211.5 million mortgage loan, described above, and used the proceeds to repay its hedged variable-rate $210.0 million term loan, due October 10, 2006. In connection with the

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repayment of the $210.0 million loan, the Company sold its net purchased $105.0 million cap and terminated its $105.0 million interest-rate swap for approximately $1.6 million. Accumulated other comprehensive income associated with these cash flow hedges of approximately $1.6 million, which had accumulated over the lives of these hedging relationships, is being reclassified from accumulated other comprehensive income to reduce interest expense over the original terms of these cash flow hedges as interest payments on the new mortgage loan occur. For the years ended December 31, 2006 and 2005, interest expense was reduced by approximately $1.2 million and $188,000, respectively, related to this reclassification.

On December 6, 2006, the Company purchased a 6.25% LIBOR interest rate cap with a $212.0 million notional amount, which matures December 11, 2009, to limit its exposure to rising interest rates on $212.0 million of its variable-rate debt. The Company designated the $212.0 million cap as a cash flow hedge of its exposure to changes in interest rates on a corresponding amount of variable-rate debt.

On December 6, 2006, the Company purchased a 6.25% LIBOR interest rate cap with a $35.0 million notional amount, which matures December 11, 2009, to limit its exposure to rising interest rates on future variable-rate debt that the Company intends to draw over the next two years as capital expenditures are incurred. As this cap did not meet applicable hedge accounting criteria, it is not designated as a cash flow hedge. Therefore changes in the fair value of this derivative are recognized in earnings. For the year ended December 31, 2006, approximately $7,000 was recognized as a reduction in other income related to this cap.

As of December 31, 2006 and 2005, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, the Company does not use derivatives for trading or speculative purposes.

As of December 31, 2006 and 2005, derivatives with a fair value of approximately $222,000 and $2,000, respectively, were included in other assets. For the years ended December 31, 2006, 2005, and 2004, the change in accumulated other comprehensive income of approximately ($1.3 million), $818,000, and $554,000, respectively, for all derivatives is separately disclosed in the consolidated statements of comprehensive income.

For the years ended December 31, 2005 and 2004, no hedge ineffectiveness was recognized. In 2005, the originally hedged $210.0 million loan was effectively refinanced with the new $211.5 million loan, thus no hedge ineffectiveness was recognized related to the original loan’s payoff. However, in 2006, the Company repaid all but $100 of the outstanding balance associated with its 7.0% LIBOR interest rate cap with a $45.0 million notional amount. Consequently, the Company discontinued hedge accounting related to this derivative and recognized hedge ineffectiveness of approximately $9,000 as a reduction in other income.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that approximately $143,000 will be reclassified from accumulated other comprehensive income existing at December 31, 2006 to reduce interest expense.

12.   Employee Stock Grants

All shares issued under the Company’s Stock Plan are charged to compensation expense on a straight-line basis over the vesting period based on the Company’s stock price on the date of each issuance. For the years ended December 31, 2006, 2005, and 2004, the Company recognized compensation expense of approximately $5.2 million, $3.4 million, and $2.4 million, respectively, related to these shares. During the years ended December 31, 2006, 2005, and 2004, 2,225, 2,553, and 0 unvested shares of restricted common stock were forfeited. As of December 31, 2006, the unamortized value of the Company’s unvested shares of restricted stock was approximately $7.8 million, with an average remaining vesting period of approximately 1.08 years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For the years ended December 31, 2006 and 2005, the Company issued the following shares under its Stock Plan:

On March 24, 2005, the Company issued 372,400 shares of restricted common stock to its executives and certain employees. Such shares vest over three years.

On May 12, 2005, the Company issued 10,000 shares of common stock to its directors as compensation for serving on the Board of Directors through May 2006. Such shares vested immediately.

On September 26, 2005, the Company issued 39,000 shares of restricted common stock to certain employees. Such shares vest over three years.

On March 28, 2006, the Company issued 642,557 shares of restricted common stock to its executive officers and certain employees of the Company and its affiliates. Such shares vest over three years.

On May 2, 2006, the Company issued 16,000 shares of common stock to its directors as compensation for serving on the Board of Directors through May 2007. Such shares vested immediately.

On August 1, 2006, the Company issued 3,000 shares of restricted common stock to certain employees of the Company. Such shares vest over three years.

For the year ended December 31, 2006, the following table summarizes information regarding the Company’s Stock Plan:

				Weighted Average
	Share Count			Grant Price
Unvested shares at December 31, 2005		685,553		$	9.77
Shares granted on March 28, 2006		642,557			12.47
Shares granted on May 2, 2006		16,000			11.61
Shares forfeited on June 14, 2006		(2,225	)		12.22
Shares granted on August 1, 2006		3,000			11.51
Shares vested during the year ended December 31, 2006		(405,262	)		9.56
Unvested shares at December 31, 2006		939,623		$	11.74

13.   Capital Stock

Common Stock — On January 20, 2005, in a follow-on public offering, the Company issued 10,350,000 shares of its common stock at $9.62 per share, which generated gross proceeds of approximately $99.6 million. However, the aggregate proceeds to the Company, net of underwriters’ discount and offering costs, was approximately $94.4 million. The 10,350,000 shares issued include 1,350,000 shares sold pursuant to an over-allotment option granted to the underwriters. Of the net proceeds, a portion was used to partially fund the $35.0 million cash portion of the purchase price associated with the acquisition of a 21-property hotel portfolio, which closed on March 16, 2005. The net proceeds were also used for the repayment of approximately $14.7 million of the mortgage debt assumed in the acquisition, repayment of the then outstanding $17.8 million balance on the $60.0 million credit facility, due August 17, 2007, repayment of a $15.5 million mortgage note payable, due December 31, 2005, repayment of a $7.0 million mortgage note payable, due July 31, 2007, and general corporate purposes.

On April 5, 2005, in a follow-on public offering, the Company issued 5,000,000 shares of its common stock at $10.25 per share, which generated gross proceeds of approximately $51.3 million. However, the aggregate proceeds to the Company, net of underwriters’ discount and offering costs, was approximately $49.3 million. On May 4, 2005, the Company issued an additional 182,100 shares of its common stock pursuant to an over-allotment option granted to the underwriters, which generated additional proceeds of approximately $1.8 million. The net proceeds were used for the origination of a mezzanine notes receivable of approximately $8.0 million on April 18, 2005, the

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origination of a mezzanine notes receivable of approximately $8.5 million on May 27, 2005, to partially fund the acquisition of a 30-property hotel portfolio on June 17, 2005, and for general corporate purposes.

On July 1, 2005, the Company issued 2,070,000 shares of its common stock to a financial institution for $9.139 per share, which generated proceeds of approximately $18.9 million. On December 27, 2004, the Company executed the Stock Purchase Agreement, described below, which granted a financial institution certain participation rights with respect to certain sales of equity securities by the Company. Based on these participation rights and the Company’s follow-on common stock offering completed on January 20, 2005, the financial institution had the option to purchase up to 2,070,000 shares of the Company’s common stock for $9.139 per share. The participation rights granted to this financial institution expired July 16, 2005. The proceeds were used for the origination of a mezzanine notes receivable of approximately $5.6 million on July 12, 2005 and for general corporate purposes.

On January 25, 2006, in a follow-on public offering, the Company issued 12,107,623 shares of its common stock at $11.15 per share, which generated gross proceeds of approximately $135.0 million. However, the aggregate proceeds to the Company, net of underwriters’ discount and offering costs, was approximately $128.1 million. The 12,107,623 shares issued include 1,507,623 shares sold pursuant to an over-allotment option granted to the underwriters. The net proceeds were used for a $60.0 million pay-down on the Company’s $100.0 million credit facility, due August 17, 2008, on January 31, 2006, a $45.0 million pay-down on the Company’s $45.0 million mortgage loan, due October 10, 2007, on February 9, 2006, and the acquisition of the Marriott at Research Triangle Park hotel property on February 24, 2006 for $28.0 million.

On February 15, 2006, the Company filed a Form S-3 related to the registration of up to $700.0 million of securities for potential future issuance, including common stock, preferred stock, debt, and warrants.

On July 25, 2006, in a follow-on public offering, the Company issued 14,950,000 shares of its common stock at $11.40 per share, which generated gross proceeds of approximately $170.4 million. However, the aggregate proceeds to the Company, net of underwriters’ discount and offering costs, was approximately $162.0 million. The 14,950,000 shares issued include 1,950,000 shares sold pursuant to an over-allotment option granted to the underwriters. On July 25, 2006, the net proceeds were used to pay down the Company’s $30.0 million balance on its $47.5 million credit facility, due October 10, 2007, and pay down its $98.9 million balance on its $100.0 million credit facility, due August 17, 2008.

Common Stock and Units Dividends — During the year ended December 31, 2005, the Company declared cash dividends of approximately $37.5 million, representing $0.16, $0.17, $0.18, and $0.20 per diluted share for each successive quarter, respectively, related to both common stockholders and common unit holders, of which approximately $29.6 million and $7.9 million related to each, respectively.

During the year ended December 31, 2006, the Company declared cash dividends of approximately $60.1 million, or $0.20 per diluted share per quarter, related to both common stockholders and common unit holders, of which approximately $51.9 million and $8.3 million related to each, respectively. During the year ended December 31, 2006, the Company declared cash dividends of approximately $1.4 million, or $0.19 per diluted share per quarter prorated for days outstanding, related to Class B unit holders.

Preferred Stock — In accordance with the Company’s charter, the Company is authorized to issue 50 million shares of preferred stock, which currently includes both Series A cumulative preferred stock and Series B cumulative convertible redeemable preferred stock.

Series A Cumulative Preferred Stock — As of December 31, 2006 and 2005, the Company had 2,300,000 outstanding shares of 8.55% Series A Cumulative Preferred Stock at $25 per share. Series A preferred stock has no maturity date, and the Company is not required to redeem the shares at any time. Prior to September 22, 2009, Series A preferred stock is not redeemable, except in certain limited circumstances relating to the ownership limitation necessary to preserve the Company’s qualification as a REIT. However, on and after September 22, 2009, Series A preferred stock will be redeemable at the Company’s option for cash, in whole or from time to time in part,

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at a redemption price of $25 per share plus accrued and unpaid dividends, if any, at the redemption date. Series A preferred stock dividends are payable quarterly, when and as declared, at the rate of 8.55% per annum of the $25 liquidation preference (equivalent to an annual dividend rate of $2.1375 per share). In general, the holders of Series A preferred stock have no voting rights.

Series A Preferred Stock Dividends — During the years ended December 31, 2006 and 2005, the Company declared cash dividends of approximately $4.9 million and $4.9 million, respectively, or $0.5344 per diluted share per quarter, related to Series A preferred stockholders.

Series B Cumulative Convertible Redeemable Preferred Stock — As of December 31, 2006 and 2005, the Company had 7,447,865 outstanding shares of Series B Cumulative Convertible Redeemable Preferred Stock. Pursuant to a stock purchase agreement, the Company sold 993,049 and 6,454,816 shares of Series B preferred stock to a financial institution on December 30, 2004 and June 15, 2005, respectively, for $10.0 million and $65.0 million, respectively. In each case, the sales price represents a per-share price of $10.07, which was determined using a 20-day average closing price calculated five business days prior to the stock purchase agreement’s commencement. In connection with the June 15, 2005 sale, the Company recognized a non-cash preferred dividend of approximately $1.0 million related to the difference in the market value of the Company’s common stock and the $10.07 conversion price on June 6, 2005, which represents the date at which the Company notified the financial institution of its intention to exercise its option to sell the preferred shares.

Series B preferred stock is convertible at any time, at the option of the holder, into the Company’s common stock by dividing the preferred stock carrying value by the conversion price then in effect, which is $10.07, subject to certain adjustments, as defined. Series B preferred stock holders are entitled to vote, on an as-converted basis voting as a single class together with the holders of common stock, on all matters to be voted on by the Company’s stockholders.

Series B preferred stock is redeemable for cash at the option of the Company at the liquidation preference, which is set at $10.07, after three years from June 17, 2005 (or two years if the Company’s weighted average common stock price for a period of 30 days is above $11.83 with over 7.5 million shares traded during that period). Series B preferred stock is redeemable for cash at the option of the holder at a specified redemption price, as defined, if certain events occur. Series B preferred stock quarterly dividends are set at the greater of $0.14 per share or the prevailing common stock dividend rate.

Series B Preferred Stock Dividends — During the years ended December 31, 2006 and 2005, the Company declared cash dividends of approximately $6.0 million and $3.4 million, respectively, related to Series B preferred stockholders, which represents $0.20 per diluted share per quarter in 2006 and $0.16, $0.17, $0.18, and $0.20 per diluted share for each successive quarter in 2005.

14.   Income Taxes

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

For the years ended December 31, 2006, 2005, and 2004, the Company’s taxable REIT subsidiary recognized net book (loss) income of approximately ($5.5 million), $13,000, and $724,000, respectively, and a benefit from (provision for) income taxes of approximately $2.7 million, $184,000, and ($658,000), respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table reconciles the benefit from (provision for) income taxes at statutory rates to the actual benefit from (provision for) income taxes recorded for the years ended December 31, 2006, 2005, and 2004 (in thousands):

	Years Ended December 31,
	2006			2005			2004
Benefit from (provision for) income taxes at 35% statutory rate	$	3,340		$	2,118		$	(560	)
State income taxes benefit (provision), net of Federal benefit		430			269			(92	)
Other		629			197			22
Valuation allowance		(1,479	)		—			—
Benefit from (provision for) income taxes from:
Continuing operations		2,920			2,584			(630	)
Discontinued operations		(201	)		(2,400	)		(28	)
Total	$	2,719		$	184		$	(658	)

For the years ended December 31, 2006, 2005, and 2004, components of the benefit from (provision for) income taxes are as follows (in thousands):

	Years Ended December 31,
	2006		2005		2004
Current:
Federal	$	1,635	$	1,554	$	(891	)
State		210		294		(123	)
Total current		1,845		1,848		(1,014	)
Deferred:
Federal		953		509		353
State		122		227		31
Total deferred		1,075		736		384
Benefit from (provision for) income taxes from continuing operations	$	2,920	$	2,584	$	(630	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At December 31, 2006 and 2005, the Company’s deferred tax asset and related valuation allowance consisted of the following (in thousands):

	December 31,
	2006			2005
Allowance for doubtful accounts	$	152		$	144
Unearned income		1,479			—
Unfavorable management contract liability		6,245			—
Federal and state net operating losses		1,673			527
Accrued expenses		1,312			833
Interest expense carryforward		729			—
Tax depreciation in excess of book depreciation		(216	)		(909	)
Gross deferred tax asset		11,374			595
Valuation allowance		(7,724	)		—
Net deferred tax asset	$	3,650		$	595

As of December 31, 2006, the Company’s valuation allowance of approximately $7.7 million includes approximately $6.2 million related to an unfavorable management contract liability assumed upon acquisition of the Marriott Crystal Gateway hotel in Arlington, Virginia, and approximately $1.5 million related to monies received from the hotel manager upon acquisition of the JW Marriott hotel in San Francisco, California. For GAAP purposes, these items represent deferred income and are being amortized into income over the lives of the related management contracts. In addition, as of December 31, 2006, the Company’s taxable REIT subsidiary has net operating loss carryforwards for federal income tax purposes of approximately $4.2 million, which are available to offset future taxable income, if any, through 2026. At December 31, 2006 and 2005, deferred tax assets are included in other assets.

15.   Minority Interest

Minority interest in the operating partnership represents the limited partners’ proportionate share of the equity in the operating partnership. Net income (loss) available to common shareholders is allocated to minority interest based on the weighted average limited partnership percentage ownership throughout the period. Upon formation of the Company on August 29, 2003, and subsequent exercise of the underwriters’ over-allotment option on September 26, 2003, the Company issued 5,657,917 units of limited partnership interest to affiliates. During the years ended December 31, 2004 and 2005, the Company issued 440,008 and 4,994,150 units of limited partnership interest, respectively, in connection with acquisitions of hotel properties. During the year ended December 31, 2006, the Company issued 1,394,492 shares of common stock in exchange for 1,394,492 units of limited partnership interest.

On July 13, 2006, the Company issued 3,814,842 Class B common units of limited partnership interest in connection with the acquisition of the Marriott Crystal Gateway hotel in Arlington, Virginia. Class B common units have a fixed dividend rate of 6.82% in years 1-3 and 7.2% thereafter, and have priority in payment of cash dividends over holders of common units but otherwise have no preference over common units.

As of December 31, 2006, 2005, and 2004, all units of limited partnership interest represent a 15.63%, 20.2%, and 19.11% minority interest ownership, respectively. Beginning one year after issuance, each common unit of limited partnership interest (including each Class B common unit) may be redeemed for either cash or one share of the Company’s common stock at the Company’s discretion, subject to contractual lock-up agreements that prevent holders of Class B common units from redeeming 2/3 of said units before 18 months and 1/3 of said units before two

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years from the issuance date. Beginning ten years after issuance, each Class B common unit of limited partnership interest may be converted into a common unit at either party’s discretion.

16.   Related Party Transactions

Under management agreements with related parties owned by the Company’s Chairman and its Chief Executive Officer, the Company pays such related parties a) monthly property management fees equal to the greater of $10,000 (CPI adjusted) or 3% of gross revenues as well as annual incentive management fees, if certain operational criteria are met, b) market service fees on the approved capital improvements, including project management fees of up to 4% of project costs, and c) other reimbursements as approved by the Company’s independent directors. As of December 31, 2006, these related parties managed 37 of the Company’s 81 hotels while unaffiliated management companies managed the remaining 44 hotel properties.

Under agreements with both related parties and unaffiliated hotel managers, the Company incurred property management fees, including incentive property management fees, of approximately $25.0 million, $15.2 million, and $3.8 million for the years ended December 31, 2006, 2005, and 2004, respectively. Regarding the $25.0 million incurred for the year ended December 31, 2006, approximately $9.1 million and $15.9 million relates to related parties and third parties, respectively. Regarding the $15.2 million incurred for the year ended December 31, 2005, approximately $7.3 million and $8.0 million relates to related parties and third parties, respectively. Regarding the $3.8 million incurred for the year ended December 31, 2004, approximately $2.8 million and $975,000 relates to related parties and third parties, respectively.

Under these agreements with related parties, the Company also incurred market service and project management fees related to capital improvement projects of approximately $5.1 million, $3.3 million, and $1.2 million for the years ended December 31, 2006, 2005, and 2004, respectively.

In addition, these related parties fund certain corporate general and administrative expenses on behalf of the Company, including rent, payroll, office supplies, travel, and accounting. The related parties allocate such charges to the Company based on various methodologies, including headcount and actual amounts incurred. For the years ended December 31, 2006, 2005, and 2004, such costs were approximately $3.6 million, $3.0 million, and $1.6 million, respectively.

Management agreements with related parties include exclusivity clauses that require the Company to engage such related parties, unless the Company’s independent directors either (i) unanimously vote to hire a different manager or developer or (ii) by a majority vote elect not to engage such related party because special circumstances exist or, based on the related party’s prior performance, it is believed that another manager or developer could materially improve the performance of the duties.

On March 16, 2005, the Company acquired 21 hotel properties and an office building from selling entities controlled by affiliates of Fisher Brothers, Gordon Getty Trust, and George Soros, which collectively owned approximately 78% of the acquired properties, and certain members of the Company’s senior management, which collectively owned approximately 22% of the acquired properties, for approximately $250.0 million. The $250.0 million purchase price consisted of approximately $35.0 million in cash, approximately $164.7 million in assumed mortgage debt, and approximately $50.3 million worth of limited partnership units. Company management received 100% of their net consideration for the acquisition in the form of limited partnership units, whereas the third parties received 50% of their consideration in limited partnership units and 50% in cash. The 21 acquired hotels were among the 27 hotel properties for which the Company provided asset management and consulting services for related parties, who subsequently sold the remaining six properties. However, the related parties, pursuant to an agreement, will continue to guarantee a minimum annual fee of approximately $1.2 million through December 31, 2008. In addition, related to this acquisition, the Company’s Board of Directors formed a Special Committee solely comprised of independent directors to evaluate this transaction. In connection with their

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services, the Special Committee retained independent advisors to review, evaluate, and negotiate the transaction, which the Special Committee unanimously approved.

In May 2004, the Company engaged a financial services firm to act as a financial advisor in obtaining permanent financing related to various hotel properties. A Company board member is an employee and principal of this firm, and the engagement of such firm was approved by the Company’s Board of Directors. In September 2004, the Company paid the financial services firm approximately $707,000 related to this agreement.

Upon formation of the Company on August 29, 2003, the Company agreed to indemnify certain related parties, including its Chief Executive Officer and Director and its Chairman, who contributed properties in connection with the Company’s initial public offering in exchange for operating partnership units, against the income tax that such related parties may incur if the Company disposes of one of these properties.

17.   Commitments and Contingencies

Restricted Cash — Under certain management and debt agreements existing at December 31, 2006, the Company escrows payments required for insurance, real estate taxes, and debt service. In addition, for certain properties with underlying debt, the Company escrows 4% to 6% of gross revenue for capital improvements.

Franchise Fees — Under franchise agreements existing at December 31, 2006, the Company pays franchisors royalty fees between 2.5% and 6% of gross room revenue, and fees for marketing, reservations, and other related activities aggregating between 1% and 3.75% of gross room revenue. These franchise agreements expire from 2011 through 2026. When a franchise term expires, the franchisor has no obligation to renew the franchise. A franchise termination could have a material adverse effect on the operations or the underlying value of the affected hotel due to the loss of associated name recognition, marketing support, and centralized reservation systems provided by the franchisor. A franchise termination could also have a material adverse effect on cash available for distribution to stockholders. In addition, if the Company terminates a franchise prior to its expiration date, the Company may be required to pay up to three times the average annual franchise fees incurred for that property.

For the years ended December 31, 2006, 2005, and 2004, the Company incurred franchise fees of approximately $18.0 million, $13.9 million, and $6.7 million, respectively. Franchise fees related to continuing operations are included in indirect hotel operating expenses in the accompanying consolidated statements of operations.

Management Fees — Under management agreements existing at December 31, 2006, the Company pays a) monthly property management fees equal to the greater of $10,000 (CPI adjusted) or 3% of gross revenues, or in some cases 3% to 7% of gross revenues, as well as annual incentive management fees, if applicable, b) market service fees on the approved capital improvements, including project management fees of up to 4% of project costs, for certain hotels, and c) other general fees at current market rates as approved by the Company’s independent directors. These management agreements expire from 2007 through 2026, with renewal options on agreements with related parties of up to 25 additional years. In addition, if the Company terminates a management agreement related to any of its initial properties prior to its expiration due to sale of the property, it may be required to pay all estimated management fees due under the management agreement’s remaining term. This termination fee may be avoided in certain circumstances by substitution of a similar property. If the Company terminates a management agreement related to any of its hotels for reasons other than sale of the property, it may be required to pay estimated management fees ranging from one to six years from the termination date or substitute a new management agreement related to a different hotel. Regarding the 21-property acquisition completed March 16, 2005, the related party managing these hotels waived the management agreement termination fees associated with the eight hotel properties that were sold during the years ended December 31, 2006 and 2005.

Leases — The Company leases certain equipment, land, and facilities under non-cancelable operating leases, which expire between 2007 and 2084, including five ground leases and one air lease related to its hotel properties. Several of these leases are subject to base rent plus contingent rent based on the related property’s financial results. For the years ended December 31, 2006, 2005, and 2004, the Company recognized rent expense of approximately

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$3.9 million, $2.3 million, and $615,000, respectively. Rent expense related to continuing operations is included in indirect hotel operating expenses in the accompanying consolidated statements of operations. The Company also owns equipment acquired under capital leases, included in Investment in Hotel Properties, which expire between 2007 and 2011, and have interest rates ranging between 10.5% and 15.8%.

As of December 31, 2006, future minimum annual commitments for non-cancelable lease agreements are as follows (in thousands):

	Operating		Capital
	Leases		Leases
2007	$	3,595	$	124
2008		3,258		30
2009		2,909		28
2019		2,823		14
2011		2,787		6
Thereafter		151,473		—
Total future minimum lease payments	$	166,845	$	202
Less amounts representing interest				25
Present value of future minimum lease payments			$	177

As of December 31, 2006 and 2005, assets acquired under capital leases consist of the following (in thousands):

	December 31,
	2006			2005
Assets under capital leases	$	1,036		$	1,294
Accumulated depreciation		(609	)		(613	)
Assets under capital leases, net	$	427		$	681

At December 31, 2006, the Company had capital commitments of approximately $1.9 million related to general capital improvements.

Employment Agreements — The Company has entered into employment agreements with certain executive officers, which provide for minimum annual base salaries, other fringe benefits, and non-compete clauses as determined by the Board of Directors. The agreements terminate on December 31, 2007, with automatic one-year renewals, unless terminated by either party upon six months’ notice, subject to severance provisions.

Employee Incentive Plan — Effective December 2003, the Company created an Employee Savings and Incentive Plan (“ESIP”), a nonqualified compensation plan that covers all employees who work at least 25 hours per week. The ESIP allows employees to contribute up to 100% of their compensation to various investment funds. The Company matches 25% of the first 10% each employee contributes. Employee contributions vest immediately whereas Company contributions vest 25% annually. For the years ended December 31, 2006, 2005, and 2004, the Company incurred matching expenses associated with maintaining the ESIP of approximately $34,000, $60,000, and $190,000, respectively.

401(k) Plan — Effective January 1, 2006, the Company created a 401(k) Plan, a qualified contribution retirement plan that covers employees 21 years of age or older who have completed one year of service and work a minimum of 1,000 hours annually. The 401(k) Plan allows eligible employees to defer receipt of up to 100% of their compensation, subject to IRS-imposed limitations, and contribute such amounts to various investment funds. The Company matches 50% of amounts contributed up to 6% of a particular employee’s salary. However, for each

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employee, Company matching only occurs in either the 401(k) Plan or the ESIP, as directed by the employee. Employee contributions vest immediately whereas Company contributions vest 25% annually. For the year ended December 31, 2006, the Company incurred matching expenses associated with maintaining the 401(k) Plan of approximately $73,000.

Litigation — The Company is currently subject to litigation arising in the normal course of its business. In the opinion of management, none of these lawsuits or claims against the Company, either individually or in the aggregate, is likely to have a material adverse effect on the Company’s business, results of operations, or financial condition. In addition, management believes the Company has adequate insurance in place to cover any such significant litigation.

Taxes — If the Company disposes of the five properties contributed in connection with its IPO in exchange for units of operating partnership, the Company may be obligated to indemnify the contributors, including the Company’s Chairman and Chief Executive Officer whom have substantial ownership interests, against the tax consequences of the sale. In addition, the Company agreed to use commercially reasonable efforts to maintain non-recourse mortgage indebtedness of at least $16.0 million, which allows contributors of the Las Vegas hotel property to defer gain recognition in connection with its contribution.

Additionally, for certain periods of time, the Company is prohibited from selling or transferring the Sea Turtle Inn in Atlantic Beach, Florida, and the Marriott Crystal Gateway in Arlington, Virginia, if as a result, the entity from which the Company acquired the property would recognize gain for federal tax purposes.

Further, in connection with the Company’s acquisition of certain properties on March 16, 2005 that were contributed in exchange for units of operating partnership, the Company agreed to certain tax indemnities with respect to 11 of these properties. If the Company disposes of these 11 properties or reduces debt on these properties in a transaction that results in a taxable gain to the contributors, the Company may be obligated to indemnify the contributors or their specified assignees against the tax consequences of the transaction.

In general, tax indemnities equal the federal, state, and local income tax liabilities the contributor or its specified assignee incurs with respect to the gain allocated to the contributor. The contribution agreements’ terms generally require the Company to gross-up tax indemnity payments for the amount of income taxes due as a result of such tax indemnities.

18.   Fair Value of Financial Instruments

As of December 31, 2006, the Company’s $1.1 billion debt portfolio consisted of approximately $237.0 million of variable-rate debt and approximately $854.2 million of fixed-rate debt, with interest rates ranging from 5.41% to 7.24%. As of December 31, 2006, the Company’s $103.0 million portfolio of mezzanine and first-mortgage loans receivable consisted of approximately $80.0 million of variable-rate notes and approximately $23.0 million of fixed-rate notes, with interest rates ranging from 14.0% to 15.0%.

As of December 31, 2005, the Company’s $908.6 million debt portfolio consisted of approximately $116.3 million of variable-rate debt and approximately $792.3 million of fixed-rate debt, with interest rates ranging from 5.4% to 5.72%. As of December 31, 2005, the Company’s $108.3 million portfolio of mezzanine and first-mortgage loans receivable consisted of approximately $85.3 million of variable-rate notes and approximately $23.0 million of fixed-rate notes, all with fixed interest rates of 14%.

As of December 31, 2006 and 2005, the carrying values of cash and cash equivalents, restricted cash, accounts receivable, amounts due from or to affiliates or third-party hotel managers, accounts payable, and accrued expenses approximate their fair values due to the short-term nature of these financial instruments.

As of December 31, 2006 and 2005, the carrying values of variable-rate notes receivable, variable-rate indebtedness, and capital leases payable approximates their fair values because the interest rates on these financial instruments are variable or approximate current interest rates charged on similar financial instruments. However,

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due to the Company’s significant holdings of fixed-rate financial instruments at December 31, 2006 and 2005, carrying values and related estimated fair values of notes receivable and indebtedness as of December 31, 2006 and 2005 are as follows (in thousands):

	December 31, 2006				December 31, 2005
	Carrying Value		Fair Value		Carrying Value		Fair Value
Notes receivable	$	102,977	$	111,048	$	108,305	$	118,145
Indebtedness	$	1,091,150	$	1,099,775	$	908,623	$	915,615

Fair values presented in the above tables are based on estimates that consider the terms of the individual instruments. However, there is not an active market for these instruments. Therefore, the estimated fair values do not necessarily represent the amounts at which these instruments could be purchased, sold, or settled.

On October 28, 2005, the Company purchased a 7.0% LIBOR interest rate cap with a $45.0 million notional amount, which matures October 15, 2007, to limit its exposure to rising interest rates on $45.0 million of its variable-rate debt. The Company designated the $45.0 million cap as a cash flow hedge of its exposure to changes in interest rates on a corresponding amount of variable-rate debt.

On December 6, 2006, the Company purchased a 6.25% LIBOR interest rate cap with a $212.0 million notional amount, which matures December 11, 2009, to limit its exposure to rising interest rates on $212.0 million of its variable-rate debt. The Company designated the $212.0 million cap as a cash flow hedge of its exposure to changes in interest rates on a corresponding amount of variable-rate debt.

On December 6, 2006, the Company purchased a 6.25% LIBOR interest rate cap with a $35.0 million notional amount, which matures December 11, 2009, to limit its exposure to rising interest rates on future variable-rate debt that the Company intends to draw over the next two years as capital expenditures are incurred. As this cap did not meet applicable hedge accounting criteria, it is not designated as a cash flow hedge.

As of December 31, 2006 and 2005, derivatives with a fair value of approximately $222,000 and $2,000, respectively, were included in other assets.

Considerable judgment is required to interpret market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value amounts.

19.   Supplemental Cash Flow Information

For the years ended December 31, 2006, 2005, and 2004, interest paid was approximately $45.0 million, $32.4 million, and $9.6 million, respectively.

For the years ended December 31, 2006, 2005, and 2004, income taxes paid was approximately $1.3 million, $1.9 million, and $475,000, respectively.

During the year ended December 31, 2006, the Company recorded the following non-cash transactions: a) on March 24, 2006, in connection with the sale of eight hotel properties, the buyer assumed approximately $93.7 million of the Company’s mortgage debt, b) on March 28, 2006, the Company issued 642,557 shares of restricted common stock to its executives and certain employees of the Company and its affiliates, c) on May 2, 2006, the Company issued 16,000 shares of common stock to its directors, d) on July 13, 2006, in connection with its acquisition of a hotel property, the Company assumed a mortgage note payable of approximately $53.3 million and recognized a debt premium of approximately $2.1 million, e) on July 13, 2006, in connection with its acquisition of a hotel property, the Company issued 3,814,842 units of limited partnership interest, f) on August 1, 2006, the Company issued 3,000 shares of restricted common stock to certain employees of the Company, and g) during the

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year ended December 31, 2006, the Company issued 1,394,492 shares of common stock in exchange for 1,394,492 units of limited partnership interest.

During the year ended December 31, 2005, the Company recorded the following non-cash transactions: a) on March 16, 2005, the Company assumed approximately $164.7 million in mortgage debt related to the acquisition of a 21-property hotel portfolio and recognized a debt premium of approximately $5.7 million, b) on March 16, 2005, the Company issued 4,994,150 units of limited partnership interest related to the acquisition of a 21-property hotel portfolio, c) on March 24, 2005, the Company issued 372,400 shares of restricted common stock to its executives and certain employees, d) on March 30, 2005, in connection with the early extinguishment of debt, the Company wrote-off the related portion of the debt premium of approximately $1.4 million, e) on May 12, 2005, the Company issued 10,000 shares of common stock to its directors, f) on June 15, 2005, the Company sold a financial institution 6,454,816 shares of Series B cumulative convertible redeemable preferred stock and recognized a preferred dividend of approximately $1.0 million related to the difference in the market value of the Company’s common stock and the $10.07 preferred stock conversion price on June 6, 2005, which represents the date at which the Company notified the financial institution of its intention to exercise its option to sell the preferred stock, g) on September 26, 2005, the Company issued 39,000 shares of restricted common stock to certain employees, and h) on October 13, 2005 and December 20, 2005, in connection with early extinguishments of debt, the Company wrote-off related debt premiums of approximately $3.0 million and $780,000, respectively.

During the year ended December 31, 2004, the Company recorded the following non-cash transactions: a) on March 15, 2004, the Company issued 70,400 shares of restricted common stock to its executives and certain employees, b) on April 1, 2004, the Company assumed approximately $15.7 million in mortgage debt related to the acquisition of a hotel property, c) on April 1, 2004, the Company issued 106,675 units of limited partnership interest related to the acquisition of a hotel property, d) on May 17, 2004, the Company assumed approximately $6.8 million in mortgage debt related to the acquisition of a hotel property, e) on May 19, 2004, the Company issued 10,000 shares of common stock to its directors, and f) on September 2, 2004, the Company issued 333,333 units of limited partnership interest related to the acquisition of nine hotel properties.

20.   Segments Reporting

The Company presently operates in two business segments within the hotel lodging industry: direct hotel investments and hotel financing. Direct hotel investments refers to owning hotels through either acquisition or new development. Hotel financing refers to owning subordinate hotel-related mortgages through acquisition or origination. The Company does not allocate corporate-level accounts to its operating segments, including corporate general and administrative expenses, non-operating interest income, interest expense, provision for income taxes, and minority interest.

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For the year ended December 31, 2006, financial information related to the Company’s reportable segments was as follows (in thousands):

	Direct Hotel		Hotel
	Investments		Financing		Corporate			Consolidated
Total revenues	$	465,576	$	14,858	$	—		$	480,434
Operating expenses		331,799		—		—			331,799
Depreciation and amortization		49,564		—		—			49,564
Corporate general and administrative		—		—		20,359			20,359
Operating income (loss)		84,213		14,858		(20,359	)		78,712
Interest income		—		—		2,917			2,917
Interest expense		—		—		(46,419	)		(46,419	)
Amortization of loan costs		—		—		(2,038	)		(2,038	)
Write-off of loan costs		—		—		(788	)		(788	)
Income (loss) before minority interest and benefit from income taxes		84,213		14,858		(66,687	)		32,384
Benefit from income taxes		—		—		2,920			2,920
Minority interest		—		—		(4,274	)		(4,274	)
Net income (loss) from continuing operations	$	84,213	$	14,858	$	(68,041	)	$	31,030
Income from discontinued operations, net									6,766
Net income								$	37,796

For the year ended December 31, 2005, financial information related to the Company’s reportable segments was as follows (in thousands):

	Direct Hotel		Hotel
	Investments		Financing		Corporate			Consolidated
Total revenues	$	298,023	$	13,323	$	—		$	311,346
Operating expenses		213,742		—		—			213,742
Depreciation and amortization		28,169		—		—			28,169
Corporate general and administrative		—		—		14,523			14,523
Operating income (loss)		56,112		13,323		(14,523	)		54,912
Interest income		—		—		1,027			1,027
Interest expense		—		—		(34,448	)		(34,448	)
Amortization of loan costs		—		—		(3,956	)		(3,956	)
Write-off of loan costs and exit fees		—		—		(5,803	)		(5,803	)
Loss on debt extinguishment		—		—		(10,000	)		(10,000	)
Income (loss) before minority interest and provision for income taxes		56,112		13,323		(67,703	)		1,732
Benefit from income taxes		—		—		2,584			2,584
Minority interest		—		—		(887	)		(887	)
Net income (loss) from continuing operations	$	56,112	$	13,323	$	(66,006	)	$	3,429
Income from discontinued operations, net									6,008
Net income								$	9,437

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For the period from inception through December 31, 2004, financial information related to the Company’s reportable segments was as follows (in thousands):

	Direct Hotel		Hotel
	Investments		Financing		Corporate			Consolidated
Total revenues	$	99,687	$	7,549	$	—		$	107,236
Operating expenses		70,795		—		—			70,795
Depreciation and amortization		9,770		—		—			9,770
Corporate general and administrative		—		—		11,855			11,855
Operating income (loss)		19,122		7,549		(11,855	)		14,816
Interest income		—		—		335			335
Interest expense		—		—		(9,217	)		(9,217	)
Amortization of loan costs		—		—		(1,884	)		(1,884	)
Write-off of loan costs and exit fees		—		—		(1,633	)		(1,633	)
Income (loss) before minority interest and provision for income taxes		19,122		7,549		(24,254	)		2,417
Provision for income taxes		—		—		(630	)		(630	)
Minority interest		—		—		(310	)		(310	)
Net income (loss) from continuing operations	$	19,122	$	7,549	$	(25,194	)	$	1,477
Loss from discontinued operations, net									(58	)
Net income								$	1,419

As of December 31, 2006, 2005, and 2004, aside from the Company’s $103.0 million, $108.3 million, and $79.7 million portfolio of notes receivable, respectively, all assets of the Company primarily relate to the direct hotel investments segment. In addition, for the years ended December 31, 2006, 2005, and 2004, all capital expenditures incurred by the Company relate to the direct hotel investments segment. At December 31, 2006 and 2005, all of the Company’s owned hotels were domestically located. In addition, at December 31, 2006 and 2005, all hotels securing the Company’s notes receivable were domestically located with the exception of one hotel securing an $18.2 million loan receivable, which is located in Nevis, West Indies. At December 31, 2004, all of the Company’s hotel investments, whether owned or securing notes receivable, were domestically located.

21.   Business Combinations

On March 16, 2005, the Company acquired 21 hotel properties and an office building from selling entities controlled by affiliates of Fisher Brothers, Gordon Getty Trust, and George Soros, which collectively owned approximately 78% of the acquired properties, and certain members of the Company’s senior management, which collectively owned approximately 22% of the acquired properties, for approximately $250.0 million. The $250.0 million purchase price consisted of approximately $35.0 million in cash, approximately $164.7 million in assumed mortgage debt, and approximately $50.3 million worth of limited partnership units, which equates to 4,994,150 units based on $10.07 per share, which represents the average market price of the Company’s common stock for the 20-day period ending five business days before executing a definitive agreement to acquire these properties on December 23, 2004. For accounting purposes, these units were valued at approximately $54.1 million or $10.83 per unit, which represents the average market price of the Company’s common stock from five business days before the definitive agreement was executed to five business days after. Company management received their net consideration in the form of limited partnership units, whereas the third parties received 50% of their consideration in limited partnership units and 50% in cash. The Company used proceeds from its sale of Series B cumulative convertible redeemable preferred stock on December 30, 2004, its follow-on public offering on

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January 20, 2005, and its $15.0 million draw on a credit facility on March 16, 2005 to fund this acquisition. In connection with this acquisition, the Company recognized intangible assets of approximately $1.3 million associated with existing tenant leases of the acquired office building, primarily representing market-rate adjustments, occupancy levels, customer relationships, and origination fees.

On March 22, 2005, the Company acquired the Hilton Santa Fe hotel property in Santa Fe, New Mexico, from Santa Fe Hotel Joint Venture for approximately $18.2 million in cash. The Company used proceeds from borrowings and its follow-on public offering on January 20, 2005 to fund this acquisition.

On June 17, 2005, the Company acquired a 30-property hotel portfolio from CNL Hotels and Resorts, Inc. for approximately $465.0 million in cash. To fund this acquisition, the Company used proceeds from several sources, including: a $370.0 million mortgage loan executed on June 17, 2005, approximately $65.0 million from the issuance of 6,454,816 shares of Series B convertible redeemable preferred stock to a financial institution on June 15, 2005, and cash remaining from its follow-on public offering on April 5, 2005.

On October 28, 2005, the Company acquired the Hyatt Dulles hotel property in Herndon, Virginia, from Dulles Airport, LLC for approximately $72.5 million in cash. The Company used proceeds from borrowings to fund this acquisition, including a portion of its $210.8 million mortgage loan executed on October 13, 2005 and its $45.0 million mortgage loan executed on October 28, 2005.

On February 24, 2006, the Company acquired the Marriott at Research Triangle Park hotel property in Durham, North Carolina, from Host Marriott Corporation for approximately $28.0 million in cash. The Company used proceeds from its sale of two hotels on January 17, 2006 and its follow-on public offering on January 25, 2006 to fund this acquisition.

On April 19, 2006, the Company acquired the Pan Pacific San Francisco Hotel in San Francisco, California, from W2001 Pac Realty, L.L.C. for approximately $95.0 million in cash and immediately re-branded the property as a JW Marriott. The Company used proceeds from two credit facility draws of approximately $88.9 million and $15.0 million to fund this acquisition. The Company expects to incur at least $10.0 million to renovate and upgrade the property, of which approximately $587,000 had been incurred as of December 31, 2006. In addition, Marriott contributed $5.0 million related to the re-branding of this property, which the Company recorded net of certain reimbursements to Marriott. The Company recorded this contribution as deferred incentive management fees, which is being amortized as a reduction to management fees on a straight-line basis over the term of the management agreement, which expires in 2026.

On July 13, 2006, the Company acquired the Marriott Crystal Gateway hotel in Arlington, Virginia, from EADS Associates Limited Partnership for approximately $107.2 million. The purchase price consisted of the assumption of approximately $53.3 million of mortgage debt, the issuance of approximately $42.7 million worth of limited partnership units, which equates to 3,814,842 units valued at $11.20 per unit, approximately $2.5 million in cash paid in lieu of units, the reimbursement of capital expenditures costs of approximately $7.2 million, and other net closing costs and adjustments of approximately $1.5 million. The limited partnership units issued represent Class B common units, with a fixed dividend rate of 6.82% in years 1-3 and 7.2% thereafter based on the $11.20 per unit price, and have priority in payment of cash dividends over holders of common units. After ten years, either party may convert these units to common units. For accounting purposes, these units were valued at approximately $40.6 million or $10.64 per unit, which represents the average market price of the Company’s common stock from five business days before the definitive agreement was finalized on May 18, 2006 to five business days after such date. In addition, the Company assumed the existing management agreement which expires in 2017 with three ten-year renewal options. The management agreement provides for a base management fee of 3% of the hotel’s gross revenues plus certain incentive management fees. Based on the Company’s review of this management agreement, the Company concluded that the terms are more favorable to the manager than a typical current-market management agreement. Hence, the Company recorded an unfavorable contract liability of approximately $15.8 million

107

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

related to this management agreement, which is being amortized as a reduction to incentive management fees on a straight-line basis over the initial term of the management agreement.

On November 9, 2006, the Company acquired the Westin O’Hare hotel property in Rosemont, Illinois, from JER Partners for approximately $125.0 million in cash. To fund this acquisition, the Company used cash available on its balance sheet and proceeds from a $101.0 million mortgage loan executed on November 16, 2006.

On December 7, 2006, the Company acquired a seven-property hotel portfolio (“MIP Portfolio”) from a partnership of affiliates of Oak Hill Capital Partners, The Blackstone Group, and Interstate Hotels and Resorts for approximately $267.2 million in cash. Of the seven acquired hotels, five are considered core hotels while two are considered non-core hotels, which the Company intends to sell. To fund this acquisition, the Company used cash available on its balance sheet, proceeds from a $25.0 million draw on a credit facility, and proceeds from a $212.0 million mortgage loan executed on December 7, 2006.

In connection with these acquisitions, the accompanying consolidated financial statements include the results of the acquired hotels since the acquisition dates, all purchase prices were the result of arms-length negotiations, no value was assigned to goodwill or other intangible assets aside from the office building previously discussed, and purchase price allocations related to certain acquisitions completed within the last year are preliminary subject to further internal review and third-party appraisals.

For acquisitions completed during the year ended December 31, 2006, a condensed balance sheet showing the amounts assigned to each major asset or liability caption related to these acquisitions follows (in thousands):

											Finalization
	Marriott at		JW Marriott		Marriott		Westin		MIP		of Purchase
	RTP		Pan Pacific		Gateway		O’Hare		Portfolio		Accounting			Total
Investment in hotel properties	$	28,164	$	96,399	$	123,740	$	125,206	$	226,333	$	5,005		$	604,847
Restricted cash		—		—		3,235		—		891		—			4,126
Assets held for sale		—		—		—		—		42,706		(4,535	)		38,171
Other assets		489		1,490		3,883		2,300		5,842		0			14,004
Intangible assets		—		—		—		—		—		—			—
Total assets acquired	$	28,653	$	97,889	$	130,858	$	127,506	$	275,772	$	470		$	661,148
Indebtedness	$	—	$	—	$	55,427	$	—	$	—	$	—		$	55,427
Other liabilities		120		1,780		17,282		3,215		1,784		312			24,493
Total liabilities assumed		120		1,780		72,709		3,215		1,784		312			79,920
Minority interest		—		—		40,590		—		—		—			40,590
Cash paid, including closing costs		28,533		96,109		17,559		124,291		273,988		158			540,638
Total cash paid, liabilities assumed, and operating partnership units issued	$	28,653	$	97,889	$	130,858	$	127,506	$	275,772	$	470		$	661,148

108

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For acquisitions completed during the year ended December 31, 2005, a condensed balance sheet showing the amounts assigned to each major asset or liability caption related to these acquisitions follows (in thousands):

									Finalization
	FGS		Hilton		CNL		Hyatt		of Purchase
	Portfolio		Santa Fe		Portfolio		Dulles		Accounting			Total
Investment in hotel properties	$	210,948	$	18,636	$	330,889	$	72,950	$	17		$	633,440
Restricted cash		11,804		—		1,354		—		—			13,158
Assets held for sale		38,783		—		142,248		—		(11	)		181,020
Other assets		9,735		169		19,375		248		123			29,650
Intangible assets		1,255		—		—		—		—			1,255
Total assets acquired	$	272,525	$	18,805	$	493,866	$	73,198	$	129		$	858,523
Indebtedness	$	169,814	$	—	$	—	$	—	$	—		$	169,814
Other liabilities		12,914		73		7,291		996		(172	)		21,102
Total liabilities assumed		182,728		73		7,291		996		(172	)		190,916
Minority interest		54,073		—		—		—		—			54,073
Cash paid, including closing costs		35,724		18,732		486,575		72,202		301			613,534
Total cash paid, liabilities assumed, and operating partnership units issued	$	272,525	$	18,805	$	493,866	$	73,198	$	129		$	858,523

109

ASHFORD HOSPITALITY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following unaudited pro forma statements of operations for the years ended December 31, 2006 and 2005 are based on the historical consolidated financial statements of the Company adjusted to give effect to the completion of the aforementioned acquisitions and the related debt and equity offerings to fund these acquisitions as if such transactions occurred at the beginning of the periods presented (in thousands, except share and per share amounts):

	Years Ended December 31,
	2006			2005
	(Unaudited)			(Unaudited)
Total revenues	$	625,079		$	567,915
Operating expenses		527,172			479,386
Operating income		97,907			88,529
Interest income		2,917			1,027
Interest expense and amortization and write-off of loan costs		(67,531	)		(74,464	)
Loss on debt extinguishment		—			(10,000	)
Income before minority interest and income taxes		33,293			5,092
Benefit from income taxes		2,232			1,392
Minority interest		(3,853	)		848
Income from continuing operations		31,672			7,332
Preferred dividends		(10,875	)		(11,907	)
Income (loss) from continuing operations available to common shareholders	$	20,797		$	(4,575	)
Basic and diluted:
Income (loss) from continuing operations per share available to common shareholders	$	0.29		$	(0.06	)
Weighted average shares outstanding		72,004			72,004

110

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

22.   Selected Quarterly Financial Data (Unaudited)

Selected quarterly financial data for the years ended December 31, 2006 and 2005 is below (in thousands, except per share amounts):

		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter			Total
Total revenue	2006	$	103,935	$	116,899	$	116,083	$	143,517		$	480,434
	2005	$	45,955	$	75,129	$	91,382	$	98,880		$	311,346
Total operating expenses	2006	$	85,539	$	93,646	$	98,776	$	123,761		$	401,722
	2005	$	37,177	$	59,457	$	75,423	$	84,377		$	256,434
Operating income	2006	$	18,396	$	23,253	$	17,307	$	19,756		$	78,712
	2005	$	8,778	$	15,672	$	15,959	$	14,503		$	54,912
Net income (loss)	2006	$	7,462	$	11,023	$	8,650	$	10,661		$	37,796
	2005	$	1,451	$	7,064	$	5,922	$	(5,000	)	$	9,437
Net income (loss) available to common shareholders
	2006	$	4,743	$	8,304	$	5,932	$	7,942		$	26,921
	2005	$	63	$	4,438	$	3,352	$	(7,719	)	$	134
Net income (loss) per share available to common shareholders — basic and diluted(a)
	2006	$	0.09	$	0.15	$	0.09	$	0.11		$	0.44
	2005	$	—	$	0.11	$	0.08	$	(0.18	)	$	—

(a) For the three months and year ended December 31, 2006, diluted net income per share available to common shareholders was $0.09 and $0.43, respectively.

As of December 31, 2006 and 2005, Marriott International, Inc. (“Marriott”) managed 24 and 30 of the Company’s properties, respectively. For these Marriott-managed hotels, the fiscal year reflects twelve weeks of operations for the first three quarters of the year and sixteen weeks for the fourth quarter of the year. Therefore, in any given quarterly period, period-over-period results will have different ending dates. For such Marriott-managed hotels, the fourth quarters of 2006 and 2005 ended on December 29^th and December 30^th, respectively.

23.   Subsequent Events (unaudited)

On January 18, 2007, the Company entered into a definitive agreement to acquire a 51-property hotel portfolio from CNL Hotels and Resorts, Inc. (“CNL”) for approximately $2.4 billion in cash. Pursuant to this agreement, the Company will own 100% of 33 properties and 70%-89% of 18 properties through existing joint ventures. The acquisition is subject to customary closing conditions including, among other things, approval by a majority of CNL’s outstanding common shareholders. Pursuant to this agreement, the Company and a third party have jointly and severally guaranteed payment of certain performance obligations to CNL of up to approximately $300.0 million. To fund this acquisition, the Company intends to use committed debt and equity financing with a financial institution as well as assumptions of the seller’s existing debt. The components of the committed debt include approximately $1.2 billion of ten-year, fixed-rate debt at an estimated average blended interest rate of 5.95%, approximately $340.0 million of three-year, variable-rate debt with two one-year extension options at an interest rate of LIBOR plus 1.65%,, and approximately $325.0 million of one-year, variable-rate debt with a two-year extension option at an interest rate of LIBOR plus 1.5%. The committed equity financing represents the anticipated sale of up to 8.0 million shares of Series C Cumulative Redeemable Preferred Stock for up to approximately

111

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$200.0 million at a dividend rate of LIBOR plus 2.5%. The assumed debt includes approximately $463.1 million of fixed-rate debt, representing ten fixed-rate loans with an average blended interest rate of 6.22% and expiration dates ranging from 2008 to 2025. The acquisition is expected to close in the second quarter of 2007.

On January 30, 2007, the Company completed a $20.0 million draw on its $150.0 million credit facility, due August 16, 2008.

On February 6, 2007, the Company received approximately $8.1 million related to all principal and interest due under its $8.0 million note receivable, due February 2007.

On February 6, 2007, the Company sold its Marriott located in Trumbull, Connecticut, for approximately $28.3 million. As the Company acquired this property on December 7, 2006, no gain or loss was recognized on the sale.

On February 8, 2007, the Company sold its Fairfield Inn in Princeton, Indiana, for approximately $3.2 million. In connection with this sale, the Company expects to recognize a gain of approximately $1.4 million, of which related income tax payments will be deferred through a 1031 like-kind exchange.

On February 9, 2007, the Company reached a definitive agreement to sell its portfolio of seven TownePlace Suites hotels for approximately $57.5 million. As of December 31, 2006, the carrying value of these hotels of approximately $38.4 million is classified as assets held for sale. Consequently, the Company expects to recognize a gain on this sale, of which related income tax payments will be deferred through a 1031 like-kind exchange.

On March 5, 2007, the Company reached a definitive agreement to sell its Doubletree hotel in Dayton, Ohio, for approximately $7.2 million. As of December 31, 2006, the carrying value of this hotel of approximately $6.1 million is classified as assets held for sale. Consequently, the Company expects to recognize a gain on this sale, of which related income tax payments will be deferred through a 1031 like-kind exchange.

On March 8, 2007, the Company paid approximately $60,000 to terminate its $100.0 million credit facility, due December 23, 2008. This credit facility has never had an outstanding balance.

Subsequent to December 31, 2006, Company management made a strategic decision to initiate sales efforts related to its Embassy Suites hotel in Phoenix, Arizona. As a result, the Company will classify assets and operating results related to this hotel as held for sale and discontinued operations, respectively, in 2007.

112

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2006

Column A		Column B		Column C				Column D
				Initial Cost				Costs Capitalized Since Acquisition
						FF&E, Buildings				FF&E, Buildings
Hotel Property	Location	Encumbrances		Land		and Improvements		Land		and Improvements
		(In thousands)
Embassy Suites	Austin, TX	$	14,296	$	1,200	$	11,531	$	201	$	2,908
Embassy Suites	Dallas, TX		8,449		1,871		10,960		244		2,827
Embassy Suites	Herndon, VA		26,000		1,298		11,775		282		3,363
Embassy Suites	Las Vegas, NV		32,176		3,300		20,055		404		3,295
Embassy Suites	Phoenix, AZ		—		1,791		13,207		—		3,704
Embassy Suites	Syracuse, NY		12,877		2,839		10,959		—		3,595
Embassy Suites	Flagstaff, AZ		881		1,267		4,873		—		1,377
Embassy Suites	Houston, TX		13,050		1,800		10,547		—		952
Embassy Suites	West Palm Beach, FL		18,525		5,106		18,703		—		2,711
Embassy Suites	Philadelphia, PA		27,313		5,791		35,713
Embassy Suites	Walnut Creek, CA		34,173		7,452		35,826
Radisson Hotel	Covington, KY		—		2,095		10,020		2		1,722
Radisson Hotel	Holtsville, NY		—		5,745		17,014		13		3,592
Radisson Hotel (downtown)	Indianapolis, IN		27,225		3,100		22,481		—		3,584
Radisson Hotel	Rockland, MA		—		585		3,240		—		898
Radisson Hotel (airport)	Indianapolis, IN		—		—		1,891		—		1,141
Radisson Hotel	Milford, MA		—		698		3,996		—		4,159
Doubletree Guest Suites	Columbus, OH		—		—		9,663		—		1,656
Doubletree Guest Suites	Dayton, OH		—		968		4,870		—		1,323
Hilton Garden Inn	Jacksonville, FL		11,098		1,751		9,920		—		667
Hilton	Fort Worth, TX		24,050		5,100		17,084				7,491
Hilton	Houston, TX		15,825		2,200		13,742		—		2,348
Hilton	St. Peterburg, FL		19,565		2,991		14,715		—		4,193
Hilton	Santa Fe, NM		2,557		7,004		11,632		—		1,772
Hilton	Bloomington, MN		46,386		5,685		53,745				—
Homewood Suites	Mobile, AL		—		1,334		7,559		—		463
Hampton Inn	Lawrenceville, GA		556		697		3,951		—		388
Hampton Inn	Evansville, IN		7,155		1,301		5,599		—		2,447
Hampton Inn	Terre Haute, IN		9,466		700		7,745		—		1,172
Hampton Inn	Horse Cave, KY		—		600		1,785		—		861
Hampton Inn	Buford, GA		7,970		1,168		5,502		—		549
Marriott	Durham, NC (RTP)		3,378		1,794		26,370				874
Marriott	Arlington, VA		54,565		20,637		103,103		—		806
Marriott	Trumbull, CT		28,000		4,469		23,068
JW Marriott	San Francisco, CA		—		—		96,399				575
SpringHill Suites by Marriott	Jacksonville, FL		8,168		1,348		7,636		—		1,037
SpringHill Suites by Marriott	Baltimore, MD		1,913		2,502		13,666		—		712
SpringHill Suites by Marriott	Kennesaw, GA		795		1,122		5,279		—		794
SpringHill Suites by Marriott	Buford, GA		8,193		1,132		6,480		—		143
SpringHill Suites by Marriott	Gaithersburg, MD		15,680		2,200		19,827		—		1,141
SpringHill Suites by Marriott	Centerville, VA		9,150		1,806		11,780		—		979
SpringHill Suites by Marriott	Charlotte, NC		6,300		1,235		7,090		—		258

113

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION — (Continued)

Column A		Column B		Column C				Column D
				Initial Cost				Costs Capitalized Since Acquisition
						FF&E, Buildings				FF&E, Buildings
Hotel Property	Location	Encumbrances		Land		and Improvements		Land		and Improvements
		(In thousands)
SpringHill Suites by Marriott	Durham, NC		5,400		1,090		4,051		—		206
Fairfield Inn by Marriott	Kennesaw, GA		650		840		4,489		—		117
Fairfield Inn by Marriott	Evansville, IN		—		800		3,415		—		1,047
Fairfield Inn by Marriott	Princeton, IN		—		401		838		—		539
Courtyard by Marriott	Bloomington, IN		12,323		900		11,034		—		1,326
Courtyard by Marriott	Columbus, IN		6,318		673		5,165		—		890
Courtyard by Marriott	Louisville, KY		15,010		1,352		13,467		—		161
Courtyard by Marriott	Crystal City, VA		34,505		5,411		38,746		—		3,165
Courtyard by Marriott	Ft. Lauderdale, FL		15,000		2,244		19,216		—		420
Courtyard by Marriott	Overland Park, KS		12,620		1,868		14,114		—		835
Courtyard by Marriott	Palm Desert, CA		11,350		2,722		12,071		—		1,237
Courtyard by Marriott	Foothill Ranch, CA		14,000		2,447		17,123		—		264
Courtyard by Marriott	Alpharetta, GA		10,800		2,244		12,422		—		1,351
Marriott Residence Inn	Lake Buena Vista, FL		25,065		2,555		22,887		—		772
Marriott Residence Inn	Evansville, IN		6,911		960		6,285		—		974
Marriott Residence Inn	Orlando, FL		36,470		6,554		41,939		—		803
Marriott Residence Inn	Falls Church, VA		23,850		2,752		35,058		—		1,909
Marriott Residence Inn	San Diego, CA		21,375		3,156		29,589		—		1,971
Marriott Residence Inn	Salt Lake City, UT		14,700		1,897		16,429		—		389
Marriott Residence Inn	Palm Desert, CA		11,750		3,280		10,528		—		849
TownePlace Suites by Marriott	Mt. Laurel, NJ		5,640		945		6,842		—		—
TownePlace Suites by Marriott	Scarborough, ME		4,950		1,170		5,844		—		—
TownePlace Suites by Marriott	Miami, FL		4,778		838		4,790		—		—
TownePlace Suites by Marriott	Ft. Worth, TX		4,625		1,400		4,479		—		—
TownePlace Suites by Marriott	Miami Lakes, FL		5,602		898		7,312		—		—
TownePlace Suites by Marriott	Tewksbury, MA		2,325		964		1,777		—		—
TownePlace Suites by Marriott	Newark, CA		4,075		1,861		868		—		—
Sea Turtle Inn	Altantic Beach, FL		3,534		5,815		17,440		—		3,473
Sheraton Hotel	Langhorne, PA		—		2,037		12,624		—		6,437
Sheraton Hotel	Minneapolis, MN		19,575		2,953		14,753		—		1,867
Sheraton Hotel	Anchorage, AK		24,607		4,023		35,305		—		—
Sheraton Hotel	Iowa City, IA		15,600		2,087		12,916
Sheraton Hotel	San Diego, CA		35,922		7,294		35,498		—		—
Hyatt Regency	Anaheim, CA		10,736		16,242		64,967		—		1,618
Hyatt Regency	Herndon, VA		—		6,753		66,196		—		366
Crowne Plaza	Beverly Hills, CA		32,025		6,510		22,458		—		1,506
Crowne Plaza	Key West, FL		29,474		—		27,746		—		2,059
Annapolis Inn	Annapolis, MD		12,850		3,028		7,962		—		4,037
Westin	Rosemonth, IL		101,000		14,033		111,174				37
Totals		$	1,091,150	$	238,681	$	1,510,814	$	1,145	$	113,102

114

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION — (Continued)

		Column E						Column F		Column G		Column H	Column I
		Gross Carrying Amount at Close of Period											Depreciable Life
				FF&E, Buildings				Accumulated		Construction		Acquisition	in Latest
Hotel Property	Location	Land		and Improvements		Total		Depreciation		Date		Date	Income Statement
		(In thousands)
Embassy Suites	Austin, TX	$	1,401	$	14,439	$	15,840	$	4,753		August 1998		(1), (2),(3)
Embassy Suites	Dallas, TX		2,116		13,787		15,903		4,954		December 1998		(1), (2),(3)
Embassy Suites	Herndon, VA		1,580		15,138		16,718		4,826		December 1998		(1), (2),(3)
Embassy Suites	Las Vegas, NV		3,704		23,350		27,054		7,426		May 1999		(1), (2),(3)
Embassy Suites	Phoenix, AZ		1,791		16,911		18,701		2,807			October 2003	(1), (2),(3)
Embassy Suites	Syracuse, NY		2,839		14,554		17,393		2,742			October 2003	(1), (2),(3)
Embassy Suites	Flagstaff, AZ		1,267		6,250		7,517		1,076			October 2003	(1), (2),(3)
Embassy Suites	Houston, TX		1,800		11,499		13,299		687			March 2005	(1), (2),(3)
Embassy Suites	West Palm Beach, FL		5,106		21,414		26,520		1,204			March 2005	(1), (2),(3)
Embassy Suites	Philadelphia, PA		5,791		35,713		41,504		135			December 2006	(1), (2),(3)
Embassy Suites	Walnut Creek, CA		7,452		35,826		43,278		156			December 2006	(1), (2),(3)
Radisson Hotel	Covington, KY		2,097		11,742		13,839		3,625			November 2000	(1), (2),(3)
Radisson Hotel	Holtsville, NY		5,758		20,606		26,363		5,126			January 2001	(1), (2),(3)
Radisson Hotel (downtown)	Indianapolis, IN		3,100		26,065		29,165		1,682			March 2005	(1), (2),(3)
Radisson Hotel	Rockland, MA		585		4,138		4,723		454			March 2005	(1), (2),(3)
Radisson Hotel (airport)	Indianapolis, IN		—		3,032		3,032		700			March 2005	(1), (2),(3)
Radisson Hotel	Milford, MA		698		8,155		8,853		934			March 2005	(1), (2),(3)
Doubletree Guest Suites	Columbus, OH		—		11,319		11,319		1,846			October 2003	(1), (2),(3)
Doubletree Guest Suites	Dayton, OH		968		6,193		7,161		1,127			October 2003	(1), (2),(3)
Hilton Garden Inn	Jacksonville, FL		1,751		10,587		12,338		1,292			November 2003	(1), (2),(3)
Hilton	Fort Worth, TX		5,100		24,575		29,675		2,353			March 2005	(1), (2),(3)
Hilton	Houston, TX		2,200		16,090		18,290		1,202			March 2005	(1), (2),(3)
Hilton	St. Petersburg, FL		2,991		18,908		21,899		1,505			March 2005	(1), (2),(3)
Hilton	Santa Fe, NM		7,004		13,404		20,407		957			March 2005	(1), (2),(3)
Hilton	Bloomington, MN		5,685		53,745		59,430		174			December 2006	(1), (2),(3)
Homewood Suites	Mobile, AL		1,334		8,022		9,356		928			November 2003	(1), (2),(3)
Hampton Inn	Lawrenceville, GA		697		4,339		5,036		509			November 2003	(1), (2),(3)
Hampton Inn	Evansville, IN		1,301		8,046		9,346		1,121			September 2004	(1), (2),(3)
Hampton Inn	Terre Haute, IN		700		8,917		9,617		826			September 2004	(1), (2),(3)
Hampton Inn	Horse Cave, KY		600		2,646		3,246		380			September 2004	(1), (2),(3)
Hampton Inn	Buford, GA		1,168		6,051		7,219		565			July 2004	(1), (2),(3)
Marriott	Durham, NC		1,794		27,244		29,038		1,118			February 2006	(1), (2),(3)
Marriott	Arlington, VA		20,637		103,909		124,546		1,688			July 2006	(1), (2),(3)
Marriott	Trumbull, CT		4,469		23,068		27,537		—			December 2006	(1), (2),(3)
JW Marriott	San Francisco, CA		—		96,974		96,974		3,559			April 2006	(1), (2),(3)
SpringHill Suites by Marriott	Jacksonville, FL		1,348		8,673		10,021		975			November 2003	(1), (2),(3)
SpringHill Suites by Marriott	Baltimore, MD		2,502		14,378		16,880		1,158			May 2004	(1), (2),(3)
SpringHill Suites by Marriott	Kennesaw, GA		1,122		6,073		7,195		476			July 2004	(1), (2),(3)
SpringHill Suites by Marriott	Buford, GA		1,132		6,623		7,755		597			July 2004	(1), (2),(3)
SpringHill Suites by Marriott	Gaithersburg, MD		2,200		20,968		23,168		874			June 2005	(1), (2),(3)
SpringHill Suites by Marriott	Centerville, VA		1,806		12,759		14,565		554			June 2005	(1), (2),(3)
SpringHill Suites by Marriott	Charlotte, NC		1,235		7,348		8,583		562			June 2005	(1), (2),(3)
SpringHill Suites by Marriott	Durham, NC		1,090		4,257		5,347		237			June 2005	(1), (2),(3)
Fairfield Inn by Marriott	Kennesaw, GA		840		4,606		5,446		347			July 2004	(1), (2),(3)
Fairfield Inn by Marriott	Evansville, IN		800		4,462		5,262		530			September 2004	(1), (2),(3)
Fairfield Inn by Marriott	Princeton, IN		401		1,377		1,779		233			September 2004	(1), (2),(3)
Courtyard by Marriott	Bloomington, IN		900		12,360		13,260		1,105			September 2004	(1), (2),(3)
Courtyard by Marriott	Columbus, IN		673		6,055		6,728		538			September 2004	(1), (2),(3)
Courtyard by Marriott	Louisville, KY		1,352		13,628		14,980		1,321			September 2004	(1), (2),(3)
Courtyard by Marriott	Crystal City, VA		5,411		41,911		47,322		1,850			June 2005	(1), (2),(3)
Courtyard by Marriott	Ft. Lauderdale, FL		2,244		19,636		21,880		1,269			June 2005	(1), (2),(3)
Courtyard by Marriott	Overland Park, KS		1,868		14,949		16,817		638			June 2005	(1), (2),(3)
Courtyard by Marriott	Palm Desert, CA		2,722		13,308		16,030		605			June 2005	(1), (2),(3)
Courtyard by Marriott	Foothill Ranch, CA		2,447		17,387		19,834		1,050			June 2005	(1), (2),(3)
Courtyard by Marriott	Alpharetta, GA		2,244		13,773		16,017		628			June 2005	(1), (2),(3)
Marriott Residence Inn	Lake Buena Vista, FL		2,555		23,659		26,214		2,965			March 2004	(1), (2),(3)
Marriott Residence Inn	Evansville, IN		960		7,259		8,219		573			September 2004	(1), (2),(3)
Marriott Residence Inn	Orlando, FL		6,554		42,742		49,296		2,661			June 2005	(1), (2),(3)
Marriott Residence Inn	Falls Church, VA		2,752		36,967		39,719		1,609			June 2005	(1), (2),(3)
Marriott Residence Inn	San Diego, CA		3,156		31,560		34,716		1,510			June 2005	(1), (2),(3)

115

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION — (Continued)

		Column E						Column F		Column G	Column H	Column I
		Gross Carrying Amount at Close of Period										Depreciable Life
				FF&E, Buildings				Accumulated		Construction	Acquisition	in Latest
Hotel Property	Location	Land		and Improvements		Total		Depreciation		Date	Date	Income Statement
		(In thousands)
Marriott Residence Inn	Salt Lake City, UT		1,897		16,818		18,715		730		June 2005	(1), (2),(3)
Marriott Residence Inn	Palm Desert, CA		3,280		11,377		14,657		590		June 2005	(1), (2),(3)
TownePlace Suites by Marriott	Mt. Laurel, NJ		945		6,842		7,787		318		June 2005	(1), (2),(3)
TownePlace Suites by Marriott	Scarborough, ME		1,170		5,844		7,014		272		June 2005	(1), (2),(3)
TownePlace Suites by Marriott	Miami, FL		838		4,790		5,628		230		June 2005	(1), (2),(3)
TownePlace Suites by Marriott	Ft. Worth, TX		1,400		4,479		5,879		222		June 2005	(1), (2),(3)
TownePlace Suites by Marriott	Miami Lakes, FL		898		7,312		8,210		327		June 2005	(1), (2),(3)
TownePlace Suites by Marriott	Tewksbury, MA		964		1,777		2,741		114		June 2005	(1), (2),(3)
TownePlace Suites by Marriott	Newark, CA		1,861		868		2,729		95		June 2005	(1), (2),(3)
Sea Turtle Inn	Altantic Beach, FL		5,815		20,913		26,728		2,687		April 2004	(1), (2),(3)
Sheraton Hotel	Langhorne, PA		2,037		19,061		21,098		2,299		July 2004	(1), (2),(3)
Sheraton Hotel	Minneapolis, MN		2,953		16,620		19,573		1,204		March 2005	(1), (2),(3)
Sheraton Hotel	Anchorage, AK		4,023		35,305		39,328		167		December 2006	(1), (2),(3)
Sheraton Hotel	Iowa City, IA		2,087		12,916		15,003		—		December 2006	(1), (2),(3)
Sheraton Hotel	San Diego, CA		7,294		35,498		42,792		139		December 2006	(1), (2),(3)
Hyatt Regency	Anaheim, CA		16,242		66,585		82,827		7,106		October 2004	(1), (2),(3)
Hyatt Regency	Herndon, VA		6,753		66,562		73,315		3,112		October 2005	(1), (2),(3)
Crowne Plaza	Beverly Hills, CA		6,510		23,964		30,474		1,479		March 2005	(1), (2),(3)
Crowne Plaza	Key West, FL		—		29,805		29,805		1,548		March 2005	(1), (2),(3)
Annapolis Inn	Annapolis, MD		3,028		11,999		15,027		997		March 2005	(1), (2),(3)
Westin	Rosemonth, IL		14,033		111,211		125,244		1,042		November 2006	(1), (2),(3)
Totals		$	239,826	$	1,623,916	$	1,863,741	$	113,980

(1)	Estimated useful life for buildings is 39 years.
(2)	Estimated useful life for building improvements is 15 years.
(3)	Estimated useful life for furniture and fixtures is 3 to 5 years.

	Years Ended December 31,
	2006			2005			2004
Investment in Real Estate:
Beginning Balance	$	1,284,368		$	457,801		$	194,421
Additions		690,507			859,187			263,380
Disposals		(111,134	)		(32,620	)		—
Ending Balance	$	1,863,741		$	1,284,368		$	457,801
Accumulated Depreciation:
Beginning Balance	$	61,105		$	31,342		$	20,741
Depreciation expense		52,075			29,771			10,601
Loss from reclassification		863
Writeoffs		(63	)		(8	)		—
Ending Balance	$	113,980		$	61,105		$	31,342
Investment in Real Estate, net	$	1,749,761		$	1,223,263		$	426,459

116

SCHEDULE IV — MORTGAGE LOANS AND INTEREST EARNED ON REAL ESTATE

December 31, 2006

						Column D		Column E		Column F		Column G
				Column C		Delinquent		Being		Accrued		Interest Income
Column A				Balance at		Principal at		Foreclosed at		Interest at		During Year Ended
		Column B		December 31,		December 31,		December 31,		December 31,		December 31,
Description		Prior Liens		2006		2006		2006		2006		2006
		(In thousands)
Westin Hotel	Westminster, CO	$	—	$	11,000	$	—	$	—	$	132	$	1,576
Viceroy Santa Monica Hotel	Santa Monica, CA		—		8,000		—		—		55		1,163
Hyatt Regency	Philadelphia, PA		—		8,000		—		—		284		1,315
Embassy Suites	Garden Grove, CA		—		8,500		—		—		82		1,317
Marriott Hotel	Franklin, TN		—		4,000		—		—		33		578
Sheraton Hotel	San Antonio, TX		—		5,583		—		—		71		843
Doubletree Guest Suites	Albuquerque, NM		—		3,000		—		—		43		504
Four Seasons Resort	Nevis, West Indies		—		18,200		—		—		116		2,555
Portfolio: 105 Hotels	Various		—		25,694		—		—		170		1,559
Hilton Suites Galleria	Dallas, Texas		—		7,000		—		—		12		(25	)
Wyndham Dallas North	Dallas, Texas		—		4,000		—		—		6		(14	)
Total		$	—	$	102,977	$	—	$	—	$	1,004	$	11,371

Related to paid-off mortgage receviables		3,487
Total	$	14,858

Balance at January 1, 2006	$	108,305
New mortgage loans		37,307
Principal payments		(42,777	)
Other (describe)		142	accrued interest
Balance at December 31, 2006	$	102,977

117

EX-10.6.1

Exhibit 10.6.1

HOTEL MASTER MANAGEMENT AGREEMENT

by and between

ASHFORD TRS CORPORATION,
a Delaware corporation

and

REMINGTON MANAGEMENT, L.P.,
a Delaware limited partnership

Hotel Master Management Agreement
Ashford TRS Corporation
File No. 145765

TABLE OF CONTENTS

ARTICLE I DEFINITION OF TERMS		1
1.01	Definition of Terms	1
ARTICLE II TERM OF AGREEMENT		1
2.01	Term	1
2.02	Actions to be Taken upon Termination	1
2.03	Early Termination Rights; Liquidated Damages	1
ARTICLE III PREMISES		1
ARTICLE IV APPOINTMENT OF MANAGER		1
4.01	Appointment	1
4.02	Delegation of Authority	1
4.03	Contracts, Equipment Leases and Other Agreements	1
4.04	Alcoholic Beverage/Liquor Licensing Requirements	1
ARTICLE V REPRESENTATIONS AND WARRANTIES		1
5.01	Lessee Representations	1
5.02	Manager Representations	1
ARTICLE VI OPERATION		1
6.01	Name of Premises; Standard of Operation	1
6.02	Use of Premises	1
6.03	Group Services	1
6.04	Right to Inspect	1
ARTICLE VII WORKING CAPITAL AND INVENTORIES		1
7.01	Working Capital and Inventories	1
7.02	Fixed Asset Supplies	1
ARTICLE VIII MAINTENANCE, REPLACEMENT AND CHANGES		1
8.01	Routine and Non-Routine Repairs and Maintenance	1
8.02	Capital Improvement Reserve	1
ARTICLE IX EMPLOYEES		1
9.01	Employee Hiring	1
9.02	Costs; Benefit Plans	1
9.03	Manager’s Employees	1
9.04	Special Projects - Corporate Employees	1
9.05	Termination	1
9.06	Employee Use of Hotel	1
9.07	Non-Solicitation	1
ARTICLE X BUDGET, STANDARDS AND CONTRACTS		1
10.01	Annual Operating Budget	1

Hotel Master Management Agreement
Ashford TRS Corporation
File No. 145765

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10.02	Budget Approval	1
10.03	Operation Pending Approval	1
10.04	Budget Meetings	1
ARTICLE XI OPERATING DISTRIBUTIONS		1
11.01	Management Fee	1
11.02	Accounting and Interim Payment	1
ARTICLE XII INSURANCE		1
12.01	Insurance	1
12.02	Replacement Cost	1
12.03	Increase in Limits	1
12.04	Blanket Policy	1
12.05	Costs and Expenses	1
12.06	Policies and Endorsements	1
12.07	Termination	1
ARTICLE XIII TAXES AND DEBT SERVICE		1
13.01	Taxes	1
13.02	Debt Service; Ground Lease Payments	1
ARTICLE XIV BANK ACCOUNTS		1
ARTICLE XV ACCOUNTING SYSTEM		1
15.01	Books and Records	1
15.02	Monthly Financial Statements	1
15.03	Annual Financial Statements	1
ARTICLE XVI PAYMENT BY LESSEE		1
16.01	Payment of Base Management Fee	1
16.02	Distributions	1
16.03	Payment Option	1
ARTICLE XVII RELATIONSHIP AND AUTHORITY		1
ARTICLE XVIII DAMAGE, CONDEMNATION AND FORCE MAJEURE		1
18.01	Damage and Repair	1
18.02	Condemnation	1
18.03	Force Majeure	1
18.04	Liquidated Damages if Casualty	1
18.05	No Liquidated Damages if Condemnation or Force Majeure	1
ARTICLE XIX DEFAULT AND TERMINATION		1
19.01	Events of Default	1
19.02	Consequence of Default	1
ARTICLE XX WAIVER AND INVALIDITY		1

Hotel Master Management Agreement
Ashford TRS Corporation
File No. 145765

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20.01	Waiver	1
20.02	Partial Invalidity	1
ARTICLE XXI ASSIGNMENT		1
ARTICLE XXII NOTICES		1
ARTICLE XXIII SUBORDINATION; NON-DISTURBANCE		1
23.01	Subordination	1
23.02	Non-Disturbance Agreement	1
ARTICLE XXIV PROPRIETARY MARKS; INTELLECTUAL PROPERTY		1
24.01	Proprietary Marks	1
24.02	Computer Software and Equipment	1
24.03	Intellectual Property	1
24.04	Books and Records	1
ARTICLE XXV INDEMNIFICATION		1
25.01	Manager Indemnity	1
25.02	Lessee Indemnity	1
25.03	Indemnification Procedure	1
25.04	Survival	1
25.05	No Successor Liability	1
ARTICLE XXVI FUTURE HOTELS		1
ARTICLE XXVII GOVERNING LAW VENUE		1
ARTICLE XXVIII MISCELLANEOUS		1
28.01	Rights to Make Agreement	1
28.02	Agency	1
28.03	Failure to Perform	1
28.04	Headings	1
28.05	Attorneys’ Fees and Costs	1
28.06	Entire Agreement	1
28.07	Consents	1
28.08	Eligible Independent Contractor	1
28.09	Environmental Matters	1
28.10	Equity and Debt Offerings	1
28.11	Estoppel Certificates	1
28.12	Confidentiality	1
28.13	Modification	1
28.14	Counterparts	1

Hotel Master Management Agreement
Ashford TRS Corporation
File No. 145765

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HOTEL MASTER MANAGEMENT AGREEMENT

     THIS HOTEL MASTER MANAGEMENT AGREEMENT is made and entered into on this 6th day of October  , 2006,effective as of September 29, 2006 by and between ASHFORD TRS CORPORATION, a Delaware corporation (hereinafter referred to as “Lessee”), REMINGTON MANAGEMENT, L.P., a Delaware limited partnership (hereinafter referred to as “Manager”), and for the limited purposes of Article VIII herein, the Landlords (defined below).

R E C I T A L S:

1. On or about August 29th, 2003, Lessee entered into a Master Management Agreement with Remington Lodging & Hospitality, LP (“Remington”) to manage and operate certain hotels (hereinafter referred to as (“RL&H Agreement”).

2. Remington now desires, with the consent of AHT (defined below), to enter into this new Hotel Master Management Agreement with its affiliate, Remington Management, LP.

3. Lessee is the tenant under the Leases (defined below) covering those certain hotel properties, fully equipped with furniture and fixtures, and more particularly described by address location, franchise name and room number information, on Exhibit “A” attached hereto (the hotels, together with all ancillary facilities, improvements and amenities set forth on Exhibit A attached hereto as such exhibit exists as of the date of this Agreement, herein called the “Initial Hotel”) .

4. Lessee desires to retain Manager to manage and operate the Initial Hotel and any Future Hotels (as defined below), and Manager is willing to perform such services for the account of Lessee, all as more particularly set forth in this Agreement.

A G R E E M E N T S:

     NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:

ARTICLE I
DEFINITION OF TERMS

     1.01 Definition of Terms. The following terms when used in this Agreement shall have the meanings indicated below.

     “Accounting Period” shall mean a calendar month.

     “Agreement” shall mean this Master Management Agreement, and all amendments, modifications, supplements, consolidations, extensions and revisions to this Master Management Agreement approved by Lessee and Manager in accordance with the provisions hereof.

     “AHT” means Ashford Hospitality Trust, Inc., a Maryland corporation.

     “Amendment” shall have the meaning as set forth in Article XXVI.

Hotel Master Management Agreement
Ashford TRS Corporation
File No. 145765

     “Annual Operating Budget” shall have the meaning as set forth in Section 10.01.

     “AOB Objection Notice” shall have the meaning as set forth in Section 10.02.

     “Applicable Standards” shall mean standards of operation for the Premises which are (a) in accordance with the requirements of the applicable Franchise Agreement, this Agreement and all CCRs affecting the Premises and of which true and complete copies have been made available by Lessee to Manager, (b) in accordance with applicable Legal Requirements, (c) in accordance with the terms and conditions of any Hotel Mortgage or Ground Lease to the extent not otherwise inconsistent with the terms of this Agreement (to the extent Lessee has made available to Manager true and complete copies of the applicable loan documents relating to any such Hotel Mortgage and/or the Ground Leases), (d) in accordance with the Leases (to the extent Lessee has made available to Manager a true and complete copy thereof), (e) in accordance with the requirements of any carrier having insurance on the Hotels or any part thereof (to the extent Manager has been given written notice of such requirements or policies and/or has coordinated same on behalf of Lessee), and (f) in accordance with the requirements of Section 856(d)(9)(D) of the Code for qualifying each of the Hotels as a Qualified Lodging Facility.

     “Approval Requirement” shall have the meaning as set forth in Section 8.02I.

     “Base Management Fee” shall have the meaning as set forth in Section 11.01A.

     “Benefit Plans” shall have the meaning as set forth in Section 9.02.

     “Black-Scholes Amount” shall have the meaning as set forth in Section 16.03B.

     “Black-Scholes Model” shall have the meaning as set forth in Section 16.03B.

     “Business Day” shall mean any day excluding (i) Saturday, (ii) Sunday, (iii) any day which is a legal holiday under the laws of the States of New York, Maryland or Texas, and (iv) any day on which banking institutions located in such states are generally not open for the conduct of regular business.

     “Budgeted GOP” shall mean the Gross Operating Profit as set forth in the Annual Operating Budget for the applicable Fiscal Year, as approved by Lessee and Manager pursuant to Article X hereof.

     “CCRs” shall mean those certain restrictive covenants encumbering the Premises recorded in the real property records of the county where such premises are located, as described in the owner policies of title insurance relating to such premises, a copy of which are acknowledged received by the Manager.

     “Capital Improvement Budget” shall have the meaning as set forth in Section 8.02E.

     “Cash Management Agreements” shall mean agreements, if any, entered into by Lessee, Landlord and a Holder for the collection and disbursement of any lease payments by Lessee to Landlord under the applicable Lease with respect to the applicable Premises, which

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Ashford TRS Corporation
File No. 145765

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constitute a part of the loan documents executed and delivered in connection with any Hotel Mortgage by Landlord.

     “Capital Improvement Reserve” shall have the meaning as set forth in Section 8.02A.

     “CIB Objection Notice” shall have the meaning as set forth in Section 8.02E.

     “CPI” means the Consumer Price Index, published for all Urban Consumers for the U.S. City Average for All Items, 1982-84=100 issued by the Bureau of Labor Statistics of the United States Department of Labor, as published in the Wall Street Journal.

     “Code” shall mean the Internal Revenue Code of 1986, as amended.

     “Commencement Date” shall have the meaning as set forth in Section 2.01.

     “Competitive Set” shall initially mean for each Hotel, the hotels situated in the same market segment as such Hotel as noted on Schedule 1 attached hereto, which competitive set shall include the applicable Hotel. The Competitive Set may be changed from time to time by mutual agreement of Lessee and Manager to reasonably and accurately reflect a set within the market of such Hotel that is comparable in rate quality and in operation to such Hotel and directly competitive with such Hotel. The requirements for the Competitive Set are not applicable to any of the Initial Hotels until after the expiration of the base 10 year term of this Agreement.

     “Contract(s)” shall have the meaning as set forth in Section 4.03.

     “Debt Service” shall mean actual scheduled payments of principal and interest, including accrued and cumulative interest, payable by a Landlord with respect to any Hotel Mortgage.

     “Deductions” shall mean the following matters:

1.	Employee Costs and Expenses (including, Employee Claims but excluding Excluded Employee Claims);
2.	Administrative and general expenses and the cost of advertising and business promotion, heat, light, power, communications (i.e., telephone, fax, cable service and internet) and other utilities and routine repairs, maintenance and minor alterations pertaining to the Premises;
3.	The cost of replacing, maintaining or replenishing Inventories and Fixed Asset Supplies consumed in the operation of the Premises;
4.	A reasonable reserve for uncollectible accounts receivable as reasonably determined by Manager and approved by Lessee (such approval not to be unreasonably withheld);
5.	All costs and fees of independent accountants, attorneys or other third parties who perform services related to the Hotels or the operation thereof, including, without

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limitation, an allocation of costs of Manager’s in-house corporate counsel who performs legal services directly for the benefit of the Hotels to be allocated on a fair and equitable cost basis as reasonably determined by Manager and approved by Lessee (such approval not to be unreasonably withheld);

6.	The cost and expense of non-routine technical consultants and operational experts for specialized services in connection with the Premises, including, without limitation, an allocation of costs of Manager’s corporate staff who may perform special services directly related to the Hotels such as sales and marketing, revenue management, training, property tax services, federal, state and/or local tax services, recruiting, and similar functions or services as set forth in Section 9.04, to be allocated on a fair and equitable cost basis as reasonably determined by Manager and approved by Lessee (such approval not to be unreasonably withheld);
7.	Insurance costs and expenses as provided in Article XII;
8.	Real estate and personal property taxes levied or assessed against the Premises by duly authorized taxing authorities and such other taxes, if any, payable by or assessed against Manager or the Premises related to the operation and/or ownership of the Premises;
9.	Franchise fees, royalties, license fees, or compensation or consideration paid or payable to the Franchisor (as hereinafter defined), or any successor Franchisor, pursuant to a Franchise Agreement (as hereinafter defined);
10.	The Premises’ allocable share of the actual costs and expenses incurred by Manager in providing Group Services as provided in Section 6.03 hereof;
11.	The Management Fee;
12.	Rental payments made under equipment leases; and
13.	Other expenses incurred in connection with the maintenance or operation of the Premises not expressly set forth above and authorized pursuant to this Agreement.

     Deductions shall not include: (a) depreciation and amortization, (b) Debt Service, (c) Ground Lease Payments, or (d) payments allocated or made to the Capital Improvement Reserve.

“Designated Fees” shall have the meaning as set forth in Section 16.03.

     “Effective Date” shall mean the date this Agreement is fully executed and delivered.

     “Eligible Independent Contractor” shall have the meaning as set forth in Section 28.08.

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     “Emergency Expenses” shall mean any expenses, regardless of amount, which, in Manager’s reasonable judgment, are immediately necessary to protect the physical integrity or lawful operation of the Hotels or the health or safety of its occupants.

     “Employee Claims” shall mean any claims (including all fines, judgments, penalties, costs, litigation and/or arbitration expenses, attorneys’ fees and expenses, and costs of settlement with respect to any such claim) made by or in respect of an employee or potential hire of Manager against Manager and/or Lessee which are based on a violation or alleged violation of the Employment Laws or alleged contractual obligations.

     “Employee Costs and Expenses” shall have the meaning as set forth in Section 9.03.

     “Employee Related Termination Costs” shall have the meaning as set forth in Section 9.05.

     “Employment Laws” shall mean all applicable federal, state and local laws (including, without limitation, any statutes, regulations, ordinances or common laws) regarding the employment, hiring or discharge of persons.

     “Event(s) of Default” shall have the meaning set forth in Article XIX.

     “Excluded Employee Claims” shall mean any Employee Claims (a) to the extent attributable to a substantial violation by Manager of Employment Laws, or (b) which do not arise from an isolated act of an individual employee but rather is the direct result of corporate policies of Manager which either encourage or fail to discourage the conduct from which such Employee Claim arises.

     “Executive Employees” shall mean each member of the senior executive or Premises level staff and each department head of the Hotels.

     “Expiration Date” shall have the meaning as set forth in Section 2.01.

     “FF&E” shall have the meaning as set forth in Section 8.01.

     “Fiscal Year” shall mean the twelve (12) month calendar year ending December 31, except that the first Fiscal Year and last Fiscal Year of the term of this Agreement may not be full calendar years.

     “Fixed Asset Supplies” shall mean supply items included within “Property and Equipment” under the Uniform System of Accounts, including linen, china, glassware, silver, uniforms, and similar items.

     “Force Majeure” shall mean any act of God (including adverse weather conditions); act of the state or federal government in its sovereign or contractual capacity; war; civil disturbance, riot or mob violence; terrorism; earthquake, flood, fire or other casualty; epidemic; quarantine restriction; labor strikes or lock out; freight embargo; civil disturbance; or similar causes beyond the reasonable control of Manager.

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     “Franchisor” shall mean those certain franchisors and any successor franchisors selected by Lessee (subject to the terms of the Leases) identified on Exhibit “C” attached hereto (as modified from time to time).

     “Franchise Agreement” shall mean those certain license agreements between a Franchisor and Lessee and/or Landlord, as applicable, as such license agreements are amended from time to time, and any other contract hereafter entered into between Lessee and/or Landlord, as applicable, and such Franchisor pertaining to the name and operating procedures, systems and standards for the Hotels, as described on Exhibit “C” attached hereto (as modified from time to time).

     “full replacement cost” shall have the meaning as set forth in Section 12.02.

     “Future Hotels” shall mean any hotel or motel properties leased after the date hereof by Lessee from Affiliates of the Partnership as more particularly described in Article XXVI hereof.

     “GAAP” shall mean generally accepted accounting principles consistently applied as recognized by the accounting industry and standards within the United States.

     “General Manager” or “General Managers” shall have the meanings as set forth in Section 9.07.

     “GOP Test” shall have the meaning as set forth in Section 11.01B.

     “Gross Operating Profit” shall mean the actual gross operating profit of the Premises determined generally in accordance with the Uniform System of Accounts, consistently applied and consistent with the determination thereof in the Annual Operating Budget.

     “Gross Operating Profit Margin” shall mean for any applicable Fiscal Year, the quotient expressed as a percentage, (i) the numerator of which is the Gross Operating Profit, and (ii) the denominator of which is Gross Revenues.

     “Gross Revenues” shall mean all revenues and receipts of every kind received from operating the Premises and all departments and parts thereof, including but not limited to, income from both cash and credit transactions, income from the rental of rooms, stores, offices, banquet rooms, conference rooms, exhibits or sale space of every kind, license, lease and concession fees and rentals (not including gross receipts of licensees, lessees and concessionaires), vending machines, health club membership fees, food and beverage sales, wholesale and retail sales of merchandise, service charges, and proceeds, if any, from business interruption or other loss of income insurance; provided, however, Gross Revenues shall not include (a) gratuities to the Premises’ employees, (b) federal, state or municipal excise, sales or use taxes or similar impositions collected directly from customers, patrons or guests or included as part of the sales prices of any goods or services paid over to federal, state or municipal governments, (c) property insurance or condemnation proceeds (excluding proceeds from business interruption or other loss of income coverage), (d) proceeds from the sale or refinance of assets other than sales in the ordinary course of business, (e) funds furnished by the Lessee, (f) judgments and awards other than for lost business, (g) the amount of all credits, rebates or

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refunds (which shall be deductions from Gross Revenues) to customers, patrons or guests, (h) receipts of licensees, concessionaires, and tenants, (i) payments received at any of the Hotels for hotel accommodations, goods or services to be provided at other hotels, although arranged by, for or on behalf of Manager; (j) the value of complimentary rooms, food and beverages, (k) interest income, (l) lease security deposits, and (m) items constituting “allowances” under the Uniform System of Accounts.

     “Ground Lease Payments” shall mean payments due under any of the Ground Leases and payable by Landlord thereunder.

     “Ground Leases” shall mean any ground lease agreements relating to any of the Hotels, executed by Landlord with any third party landlords.

     “Group Services” shall have the meaning as set forth in Section 6.03.

     “Holder” shall mean the holder of any Hotel Mortgage and the indebtedness secured thereby, and such holder’s successors and assigns.

     “Hotel” shall collectively mean the Initial Hotel and any Future Hotels.

     “Hotel Mortgage” shall mean, collectively, any mortgage or deed of trust hereafter from time to time, encumbering all or any portion of the Premises (or the leasehold interest therein), together with all other instruments evidencing or securing payment of the indebtedness secured by such mortgage or deed of trust and all amendments, modifications, supplements, extensions and revisions of such mortgage, deed of trust, and other instruments.

     “Hotel’s REVPAR Yield Penetration” shall mean, for a Hotel for any applicable Fiscal Year, (i) such Hotel’s actual occupancy rate multiplied by the actual average daily rate, divided by (ii) the Competitive Set’s occupancy rate multiplied by the Competitive Set’s average daily rate for the same Fiscal Period. The determination of the Competitive Set’s occupancy and rate shall be made by reference to the Smith Travel Research reports or its successor or comparable market research reports prepared by another nationally recognized hospitality firm reasonably acceptable to Lessee and Manager.

     “Incentive Fee” shall have the meaning as set forth in Section 11.01B.

     “Indemnifying Party” shall have the meaning as set forth in Section 25.03.

     “Independent Directors” shall mean those directors of AHT who are “independent” within the meaning of the rules of the New York Stock Exchange or such other national securities exchange or interdealer quotation system on which AHT’s common stock is then principally traded.

     “Initial Hotel” shall have the meaning as set forth in Recital 3 .

     “Intellectual Property” shall have the meaning as set forth in Section 24.03.

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     “Inventories” shall mean “Inventories” as defined in the Uniform System of Accounts, such as provisions in storerooms, refrigerators, pantries and kitchens, beverages in wine cellars and bars, other merchandise intended for sale, fuel, mechanical supplies, stationery, and other supplies and similar items.

     “issuing party” shall have the meaning as set forth in Section 28.10.

     “Key Employees” shall have the meaning as set forth in Section 9.07.

     “Landlords” shall mean the landlords under the Leases as described on Exhibit “C” attached hereto (as amended from time to time).

     “Leases” shall mean those certain lease agreements as amended, modified, supplemented, and extended from time to time, as described on Exhibit “B” attached hereto, executed by Lessee as tenant and the Landlords.

     “Legal Requirements” shall mean all laws, statutes, ordinances, orders, rules, regulations, permits, licenses, authorizations, directions and requirements of all governments and governmental authorities, which now or hereafter may be applicable to the Premises and the operation of the Hotels.

     “Lessee” shall have the meaning as set forth in the introductory paragraph of this Agreement.

     “Management Fee” shall collectively mean the Base Management Fee, the Incentive Fee, the Project Management Fee, the Market Service Fee, and any other fees payable to Manager pursuant to the terms of this Agreement.

     “Manager” shall have the meaning as set forth in the introductory paragraph of this Agreement.

     “Manager Affiliate Entity” shall have the meaning as set forth in Article XXI.

     “Market Service Fees” shall have the meaning as set forth in Section 8.02(G).

     “Mutual Exclusivity Agreement” shall mean that certain Mutual Exclusivity Agreement dated the date hereof among the Partnership, AHT, Manager, and Remington Hotel Corporation, a Texas corporation.

     “Necessary Expenses” shall mean any expenses, regardless of amount, which are necessary for the continued operation of the Hotels in accordance with Legal Requirements and the Applicable Standards and which are not within the reasonable control of Manager (including, but not limited to those for taxes, utility charges, approved leases and contracts, licensing and permits).

     “Net Operating Income” shall be equal to Gross Operating Profit less (i) all amounts to be paid or credited to the Capital Improvement Reserve, and (ii) Rental Payments to the extent that such rental payments are not properly chargeable as an operating expense.

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     “Non-Disturbance Agreement” means an agreement, in recordable form in the jurisdiction in which a Hotel is located, executed and delivered by the Holder of a Hotel Mortgage or a Landlord, as applicable, (which agreement shall by its terms be binding upon all assignees of such lender or landlord and upon any individual or entity that acquires title to or possession of a Hotel (referred to as a “Subsequent Owner”), for the benefit of Manager, pursuant to which, in the event such holder (or its assignee) or landlord (or its assignee) or any Subsequent Owner comes into possession of or acquires title to a Hotel, such holder (and its assignee) or landlord (or its assignee) and all Subsequent Owners shall (x) recognize Manager’s rights under this Agreement, and (y) shall not name Manager as a party in any foreclosure action or proceeding, and (z) shall not disturb Manager in its right to continue to manage the Hotels pursuant to this Agreement; provided, however, that at such time, (i) this Agreement has not expired or otherwise been earlier terminated in accordance with its terms, and (ii) there are no outstanding Events of Default by Manager, and (iii) no material event has occurred and no material condition exists which, after notice or the passage of time or both, would entitle Lessee to terminate this Agreement.

     “non-issuing party” shall have the meaning as set forth in Section 28.10.

     “Notice” shall have the meaning as set forth in Article XXII.

     “Operating Account” shall have the meaning as set forth in Article XIV.

     “Partnership” means Ashford Hospitality Limited Partnership, a Delaware limited partnership.

     “Payment Option Request” shall have the meaning as set forth in Section 16.03.

     “Performance Cure Period” shall have the meaning as set forth in Section 2.03(b)(i)(2).

     “Performance Failure” shall have the meaning as set forth in Section 2.03(b)(ii).

     “Performance Test” shall have the meaning as defined in Section 2.03(b)(i).

     “Predecessor Managers” shall have the meaning as set forth in Section 25.05.

     “Premises” shall mean collectively the Lessee’s leasehold interest in the Hotels and the Sites, as both terms are defined herein, pursuant to the terms and conditions of the Leases.

     “Prime Rate” shall have the meaning as set forth in Section 28.03.

     “Project Management Fee” shall have the meaning as set forth in Section 8.02G.

     “Project Related Services” shall have the meaning as set forth in Section 8.02G.

     “Property Service Account” shall have the meaning as set forth in Section 13.02.

     “Proprietary Marks” shall have the meaning as set forth in Section 24.01.

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     “Prospectus” shall have the meaning as set forth in Section 28.10.

     “Qualified Lodging Facility” shall mean a “qualified lodging facility” as defined in Section 856(d)(9)(D) of the Code and means a “Lodging Facility” (defined below), unless wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with such facility. A “Lodging Facility” is a hotel, motel or other establishment more than one-half of the dwelling units in which are used on a transient basis, and includes customary amenities and facilities operated as part of, or associated with, the lodging facility so long as such amenities and facilities are customary for other properties of a comparable size and class owned by other owners unrelated to AHT.

     “Reasonable Working Capital” shall have the meaning as set forth in Section 16.02.

     “Related Person” shall have the meaning as set forth in Section 28.08(e).

     “Rental Payments” shall mean rental payments made under equipment leases permitted pursuant to the terms of this Agreement.

     “REVPAR” shall mean the revenue per available room, determined by taking the actual occupancy rate of the applicable hotel and multiplying such rate by the actual average daily rate of such hotel.

     “Sale” shall mean any sale, assignment, transfer or other disposition, for value or otherwise, voluntary or involuntary of Landlord’s title (whether fee or leasehold) in the Hotel, or of a controlling interest therein, other than a collateral assignment intended to provide security for a loan, and shall include any such disposition through the disposition of the ownership interests in the entity that holds such title and any lease or sublease of the Hotel.

     “Sites” shall collectively mean those certain tracts or parcels of land described in Exhibit “B-1” hereto, as amended from time to time.

     “Software” shall have the meaning as set forth in Section 24.02.

     “Strike Price” shall have the meaning as set forth in Section 16.03.

     “Subject Hotel” shall have the meaning set forth in Section 2.03(b)(i).

     “Targeted REVPAR Yield Penetration” shall mean the Competitive Set’s REVPAR for the applicable Fiscal Year times 80%.

     “Term” shall mean the contractual duration of this Agreement, as defined in Section 2.01.

     “Termination” shall mean the expiration or sooner cessation of this Agreement.

     “Termination Date” shall have the meaning as set forth in Section 2.01.

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     “Uniform System of Accounts” shall mean the Uniform System of Accounts for the Lodging Industry, 9th Revised Edition, as may be modified from time to time by the International Association of Hospitality Accountants.

     “Unrelated Person” shall have the meaning as set forth in Section 28.08(e).

     “Working Capital” shall mean the amounts by which current assets exceed current liabilities as defined by the Uniform System of Accounts which are reasonably necessary for the day-to-day operation of the Premises’ business, including, without limitation, the excess of change and petty cash funds, operating bank accounts, receivables, prepaid expenses and funds required to maintain Inventories, over the amount of accounts payable and accrued current liabilities.

ARTICLE II
TERM OF AGREEMENT

     2.01 Term. The term (“Term”) of this Agreement shall commence on the “Commencement Date” for the Hotel as noted on Exhibit “A” attached hereto and, unless sooner terminated as herein provided, shall continue with respect to such Hotel until the “Termination Date.” For purposes of this Agreement, the “Termination Date” for each of the Hotels shall be the earlier to occur of (i) the Expiration Date applicable to each such Hotels, (ii) termination at the option of Lessee in connection with the bona fide Sale of one or more of the Hotels by Landlord or Lessee to an unaffiliated third party as provided in and subject to the terms of Section 2.03(a) hereof, (iii) termination at the option of Lessee after the Performance Test has not been satisfied pursuant to and subject to the terms and conditions of Section 2.03(b) below, (iv) termination at the option of Lessee for convenience pursuant to and subject to the terms and conditions of Section 2.03(c) below (and subject to Section 2.03(a) with respect to any sale of the Hotels), or (v) termination by either Lessee or Manager pursuant to Article XVIII hereof in connection with a condemnation, casualty or Force Majeure, subject to the terms thereof. The “Expiration Date” with respect to a Hotel shall mean the 10^th anniversary of the Commencement Date applicable to such Hotel, provided that such initial 10-year term may thereafter be renewed by Manager, at its option, on the same terms and conditions contained herein, for three (3) successive periods of seven (7) Fiscal Years each, and thereafter, for a final period of four (4) Fiscal Years; and provided further, that at the time of exercise of any such option to renew, an Event of Default by Manager does not then exist beyond any applicable grace or cure period. If at any time of the exercise of any renewal period, Manager is then in default under this Agreement, then the exercise of the renewal option will be conditional on timely cure of such default, and if such default is not timely cured, then Lessee may terminate this Agreement regardless of the exercise of such renewal period and without the payment of any fee or liquidated damages. If Manager desires to exercise any such option to renew, it shall give Lessee Notice to that effect not less than ninety (90) days prior to the expiration of the then current Term. Notwithstanding the expiration or earlier termination of the Term, Lessee and Manager agree that the obligations of Lessee to pay, remit, reimburse and to otherwise indemnify Manager for any and all expenses and fees incurred or accrued by Manager pursuant to the provisions of this Agreement prior to the expiration or earlier termination of the Term (or actually incurred by Manager after the termination) shall survive Termination, provided such expenses and fees have been incurred consistent with the then current terms of this Agreement

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and the applicable Annual Operating Budget, including, without limitation but only to the extent so consistent, all costs, expenses and liabilities arising from the termination of the Premises’ employees such as accrued vacation and sick leave, severance pay and other accrued benefits, employer liabilities pursuant to the Consolidated Omnibus Budget Reconciliation Act and employer liabilities pursuant to the Worker Adjustment and Retraining Notification Act. In addition, subject to Section 19.02 below and the foregoing sentence, upon Termination of this Agreement, Lessee and Manager shall have no further obligations to one another pursuant to this Agreement, except that Section 2.02, obligations to make payments under Section 2.03 or Section 9.05, Section 9.07, the last sentence of Section 15.01, obligations to make payments of termination fees pursuant to Article XVIII, Article XXIV, Article XXV, Article XXVII and Section 28.12 shall survive Termination.

     2.02 Actions to be Taken upon Termination. Upon a Termination of this Agreement, the following shall be applicable:

A.	Manager shall, within forty-five (45) days after Termination of this Agreement, prepare and deliver to Lessee a final accounting statement with respect to the Hotels, in form and substance consistent with the statements provided pursuant to Section 15.02, along with a statement of any sums due from Lessee to Manager pursuant hereto, dated as of the date of Termination. Within thirty (30) days after the receipt by Lessee of such final accounting statement, the parties will make whatever cash adjustments are necessary pursuant to such final statement. The cost of preparing such final accounting statement shall be a Deduction. Manager and Lessee acknowledge that there may be certain adjustments for which the necessary information will not be available at the time of such final accounting, and the parties agree to readjust such amounts and make the necessary cash adjustments when such information becomes available.
B.	As of the date of the final accounting referred to in subsection A above, Manager shall release and transfer to Lessee any of Lessee’s funds which are held or controlled by Manager with respect to the Hotels, with the exception of funds to be held in escrow pursuant to Section 9.05 and Section 12.07. During the period between the date of Termination and the date of such final accounting, Manager shall pay (or reserve against) all Deductions which accrued (but were not paid) prior to the date of Termination, using for such purpose any Gross Revenues which accrued prior to the date of Termination.
C.	Manager shall make available to Lessee such books and records respecting the Hotels (including those from prior years, subject to Manager’s reasonable records retention policies) as will be needed by Lessee to prepare the accounting statements, in accordance with the Uniform System of Accounts, for the Hotels for the year in which the Termination occurs and for any subsequent year. Such books and records shall not include: (i) employee records which must remain confidential pursuant to either Legal Requirements or confidentiality agreements, or (ii) any Intellectual Property.

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D.	Manager shall (to the extent permitted by Legal Requirements) assign to Lessee, or to any other manager employed by Lessee to operate and manage the Hotels, all operating licenses for the Hotels which have been issued in Manager’s name; provided that if Manager has expended any of its own funds in the acquisition of any of such licenses, Lessee shall reimburse Manager therefor if it has not done so already.
E.	Lessee agrees that hotel reservations and any and all contracts made in connection with hotel convention, banquet or other group services made by Manager in the ordinary and normal course of business consistent with this Agreement, for dates subsequent to the date of Termination and at rates prevailing for such reservations at the time they were made, shall be honored and remain in effect after Termination of this Agreement.
F.	Manager shall cooperate with the new operator of the Hotels as to effect a smooth transition and shall peacefully vacate and surrender the Hotels to Lessee.
G.	Manager and Lessee agree to use best efforts to resolve any disputes amicably and promptly under this Section 2.02 to effect a smooth transition of the Hotels to Lessee and/or Lessee’s new manager.

     2.03 Early Termination Rights; Liquidated Damages.

     (a) Termination Upon Sale. Upon Notice to Manager, Lessee shall have the option to terminate this Agreement with respect to one, more or all of the Hotels effective as of the closing of the Sale of such Hotels to a third party. Such Notice shall be given at least forty-five (45) days’ in advance (unless otherwise required by Legal Requirements, in which case Lessee shall provide such additional notice in order to comply with such Legal Requirements) and shall inform Manager of the identity of the contract purchaser. Manager, at its election, may offer to provide management services to such contract purchaser after the closing of the sale. Lessee shall, in connection with such Sale, by a separate document reasonably acceptable to Lessee and Manager, indemnify and save Manager harmless against any and all losses, costs, damages, liabilities and court costs, claims and expenses, including, without limitation, reasonable attorneys’ fees arising or resulting from the failure of Lessee or such prospective purchaser to provide any of the services contracted for in connection with the business booked for such hotels to, and including, the date of such Termination, in accordance with the terms of this Agreement, including without limitation, any and all business so booked as to which facilities and/or services are to be furnished subsequent to the date of Termination, provided that any settlement by Manager of any such claims shall be subject to the prior written approval of Lessee which shall not be unreasonably withheld, conditioned or delayed. In addition, the following terms shall apply in connection with the sale of any Hotel:

     (i) Sale of Future Hotel. If this Agreement is terminated pursuant to Section 2.03(a) with respect to any of the Hotels prior to the first anniversary of the Commencement Date applicable to such Hotel, then Lessee shall pay to Manager on such termination, a termination fee as liquidated damages and not as

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a penalty (provided that an Event of Default by Manager is not then existing beyond any cure or grace periods set forth in this Agreement) in an amount equal to the estimated Base Management Fee and Incentive Fee that was estimated to be paid to Manager with respect to the Hotels pursuant to the Annual Operating Budget for the remaining Accounting Periods until the first anniversary of the Commencement Date for such Future Hotel (irrespective of the Management Fees paid to Manager prior to the date of the Termination with respect to the Hotels). If this Agreement is terminated pursuant to Section 2.03(a) with respect to any of the Hotels after the first anniversary of the Commencement Date applicable to such Future Hotel, then no termination fees shall be payable by Lessee.

     (b) Termination Due to Failure to Satisfy Performance Test.

     (i) Performance Test. Lessee shall have the right to terminate this Agreement with respect to any Hotel after the base 10-year term of this Agreement applicable to such Hotel (for the purposes of this Section 2.03(b)(i) called “Subject Hotel”), subject to the payment of a termination fee as set forth in subsection (ii) below, in the event of the occurrence of the following (collectively herein called, the “Performance Test”):

     (1) If, commencing with Fiscal Year 2007, and for each Fiscal Year thereafter (a) a Subject Hotel’s Gross Operating Profit Margin for such Fiscal Year is less than seventy-five percent (75%) of the average Gross Operating Profit Margin of comparable hotels in similar markets and geographic locations to the applicable Hotel as reasonably determined by Lessee and Manager, and (b) such Subject Hotel’s REVPAR Yield Penetration is less than the Targeted REVPAR Yield Penetration for such Fiscal Year (herein (a) and (b) collectively called “Performance Failure”); then

     (2) Manager shall have a period of two (2) years, commencing with the next ensuing Fiscal Year (the “Performance Cure Period”), to cure the Performance Failure after Manager’s receipt of Notice from Lessee of such Performance Failure and Lessee’s intent to terminate this Agreement with respect to the Subject Hotel if the Performance Failure is not cured within such Performance Cure Period; and

     (3) If after the first full Fiscal Year during the Performance Cure Period, the Performance Failure remains uncured, then upon written Notice to Manager by Lessee, Manager shall engage a consultant reasonably acceptable to Manager and Lessee (with significant experience in the hotel lodging industry) to make a written determination (within forty-five (45) days of such Notice) as to whether another management company (with comparable breadth of knowledge and experience as any of the hotel management companies owned and/or controlled by Archie Bennett, Jr. and/or Monty Bennett, including with respect to number and type of hotels managed in similar markets and geographical areas) could

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manage the Subject Hotel in a materially more efficient manner. If such consultant determination is in the negative, then Manager will be deemed not to be in default under the Performance Test. If such consultant determination is in the affirmative, then Manager agrees to engage such consultant (such cost and expense to be shared by Lessee and Manager equally) to assist Manager during the second Fiscal Year of the Performance Cure Period with the cure of the Performance Failure; and

     (4) If after the end of the Performance Cure Period, the Performance Failure remains uncured and the consultant again makes a written determination that another management company (with comparable breadth of knowledge and experience as any of the hotel management companies owned and/or controlled by Archie Bennett, Jr. and/or Monty Bennett, including with respect to number and type of hotels managed in similar markets and geographical areas) could manage the Subject Hotel in a materially more efficient manner, then Lessee may, at its election, terminate this Agreement upon forty-five (45) days’ prior Notice to Manager.

     (ii) Termination Fees. If Lessee elects to terminate this Agreement with respect to a Subject Hotel for failure to satisfy the Performance Test, Lessee shall pay to Manager as liquidated damages but not as a penalty, a termination fee (provided that there does not then exist an Event of Default by Manager under this Agreement beyond any applicable cure periods) in the amount equal to 60% of the product obtained by multiplying (A) 65% of the aggregate Base Management Fees and Incentive Fees budgeted in the Annual Operating Budget applicable to the Subject Hotel for the full current Fiscal Year in which such termination is to occur (but in no event less than the Base Management Fees and Incentive Fees for the preceding full Fiscal Year) by (B) nine (9).

     (iii) Finance Reports. Determinations of the performance of the Subject Hotel shall be in accordance with the audited annual financial statements delivered by Lessee’s accountant pursuant to Section 15.03 hereof.

     (iv) Extension of Performance Cure Period. Notwithstanding the foregoing, if at any time during the Performance Cure Period (a) Lessee is in material default under any of its obligations under this Agreement, or (b) Lessee has terminated, terminates or causes a termination of the Franchise Agreement (other than defaults due to Manager) and does not obtain a new franchise agreement with a comparable franchisor, or (c) the operation of the Hotel or the use of the Hotel’s facilities are materially disrupted by casualty, condemnation, or events of Force Majeure that are beyond the reasonable control of Manager, or by major repairs to or major refurbishment of the Hotel, then, for such period, the Performance Cure Period shall be extended.

     (v) Renewal Period. If at the time of Manager’s exercise of a renewal period with respect to any Hotel, such hotel is a Subject Hotel within a

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Performance Cure Period, the exercise of such renewal period shall be conditional upon timely cure of the Performance Failure, and if such Performance Failure is not timely cured, then, notwithstanding the foregoing provisions, Lessee may elect to terminate this Agreement with respect to such Subject Hotel pursuant to the terms of this Section 2.03(b) without payment of any termination fee.

     (c) Termination For Convenience. Lessee may terminate this Agreement for convenience (except if due to a Sale of a Hotel, whereupon Section 2.03(a) shall govern) upon ninety (90) days Notice to Manager, and shall pay to Manager as liquidated damages but not as a penalty, a termination fee (provided that there does not then exist an Event of Default by Manager under this Agreement beyond any applicable cure or grace periods) in an amount equal to the product of (1) 65% of the aggregate Base Management Fees and Incentive Fees budgeted in the Annual Operating Budget applicable to the Hotels for the full current Fiscal Year in which such termination is to occur (but in no event less than the Base Management Fees and Incentive Fees for the preceding full Fiscal Year) by (2) nine (9).

     (d) Payment of Liquidated Damages. WITH RESPECT TO ANY TERMINATION FEES PAYABLE IN CONNECTION WITH ANY EARLY TERMINATION RIGHT SET FORTH IN THIS SECTION 2.03, OR IN SECTION 18.04 BELOW, LESSEE RECOGNIZES AND AGREES THAT, IF THIS AGREEMENT IS TERMINATED WITH RESPECT TO ANY OF THE HOTELS FOR THE REASONS SPECIFIED IN THIS SECTION 2.03 OR IN SECTION 18.04 BELOW, THEREBY ENTITLING MANAGER TO RECEIVE THE TERMINATION FEES AS SET FORTH IN THIS SECTION 2.03 OR IN SECTION 18.04 BELOW, MANAGER WOULD SUFFER AN ECONOMIC LOSS BY VIRTUE OF THE RESULTING LOSS OF MANAGEMENT FEES WHICH WOULD OTHERWISE HAVE BEEN EARNED UNDER THIS AGREEMENT. BECAUSE SUCH FEES VARY IN AMOUNT DEPENDING ON THE TOTAL GROSS REVENUES EARNED AT THE HOTELS AND ACCORDINGLY WOULD BE EXTREMELY DIFFICULT AND IMPRACTICAL TO ASCERTAIN WITH CERTAINTY, THE PARTIES AGREE THAT THE TERMINATION FEES PROVIDED IN THIS SECTION 2.03 AND IN SECTION 18.04 BELOW CONSTITUTE A REASONABLE ESTIMATE OF LIQUIDATED DAMAGES TO MANAGER FOR PURPOSES OF ANY AND ALL LEGAL REQUIREMENTS, AND IT IS AGREED THAT MANAGER SHALL NOT BE ENTITLED TO MAINTAIN A CAUSE OF ACTION AGAINST LESSEE, EXCEPT AS SPECIFICALLY PROVIDED HEREIN, FOR ACTUAL DAMAGES IN EXCESS OF THE TERMINATION FEES IN ANY CONTEXT WHERE THE TERMINATION FEES ARE PROVIDED BY THIS AGREEMENT, AND RECEIPT OF SUCH FEES (TOGETHER WITH ALL OTHER AMOUNTS DUE AND PAYABLE BY LESSEE TO MANAGER WITH RESPECT TO EVENTS OCCURRING PRIOR TO TERMINATION OF THIS AGREEMENT WITH RESPECT TO THE APPLICABLE HOTELS OR AS OTHERWISE PROVIDED HEREIN) SHALL BE MANAGER’S SOLE REMEDY FOR DAMAGES AGAINST LESSEE IN ANY SUCH CASE. The foregoing shall in no way affect any other sums due Manager under this Article II or otherwise hereunder, including, without limitation, the

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Management Fees earned during the Term, or any other rights or remedies, at law or in equity of Manager under this Agreement or under Legal Requirements, including any indemnity obligations of Lessee to Manager under this Agreement.

ARTICLE III
PREMISES

     Manager shall be responsible, at the sole cost and expense of Lessee, for keeping and maintaining the Premises fully equipped in accordance with plans, specifications, construction safety and fire safety standards, and designs pursuant to applicable Legal Requirements, the standards and requirements of a Franchisor pursuant to any applicable Franchise Agreement, any applicable Hotel Mortgage, the Leases and the Capital Improvement Budgets approved pursuant to the terms hereof, subject in all respects to performance by Lessee of its obligations pursuant to this Agreement.

ARTICLE IV
APPOINTMENT OF MANAGER

     4.01 Appointment. Lessee hereby appoints Manager as its sole, exclusive and continuing operator and manager to supervise and direct, for and at the expense of Lessee, the management and operation of the Premises under the terms and conditions hereinafter set forth. In exercising its duties hereunder, Manager shall act as agent and for the account of Lessee. Manager hereby accepts said appointment and agrees to manage the Premises during the Term of this Agreement under the terms and conditions hereinafter set forth.

     4.02 Delegation of Authority. The operation of the Premises shall be under the exclusive supervision and control of Manager who, except as otherwise specifically provided in this Agreement, shall be responsible for the proper and efficient management and operation of the Premises in accordance with this Agreement, the Leases, the Franchise Agreements, the Capital Improvement Budget and the Annual Operating Budget. Subject to the terms of such agreements and budgets, the Manager shall have discretion and control in all matters relating to the management and operation of the Premises, including, without limitation, charges for rooms and commercial space, the determination of credit policies (including entering into agreements with credit card organizations), food and beverage service and policies, employment policies, procurement of inventories, supplies and services, promotion, advertising, publicity and marketing, and, generally, all activities necessary for the operation of the Premises. Manager shall also be responsible for the receipt, holding and disbursement of funds and maintenance of bank accounts in compliance with the Cash Management Agreements, if applicable.

     4.03 Contracts, Equipment Leases and Other Agreements. Manager is hereby authorized to grant concessions, lease commercial space and enter into any other contract, equipment lease, agreement or arrangement pertaining to or otherwise reasonably necessary for the normal operation of the Premises (such concession, lease, equipment lease, contract, agreement or arrangement hereinafter being referred to individually as a “Contract” and collectively as “Contracts”) on behalf of Lessee, as may be necessary or advisable and reasonably prudent business judgment in connection with the operation of the Premises and consistent with the Annual Operating Budget, and subject to any restrictions imposed by the

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Franchise Agreements, Leases or any Hotel Mortgage, and subject to the Lessee’s prior written approval of: (i) any Contract which provides for a term exceeding one (1) year (unless such Contract is thirty day cancellable without cost, premium or penalty exceeding $25,000.00) or (ii) any tenant space lease, license or concession concerning any portion of the public space in or on the Premises for stores, office space, restaurant space, or lobby space. Lessee’s approval of any Contract shall not be unreasonably withheld, delayed or conditioned. Unless otherwise agreed, all Contracts for the Premises shall be entered into in Lessee’s name. Manager shall make available to Lessee, its agents, and employees, at the Premises during business hours, executed counterparts or certified true copies of all Contracts it enters into pursuant to this Section 4.03.

     4.04 Alcoholic Beverage/Liquor Licensing Requirements. With respect to any licenses and permits held by Lessee or any of its subsidiaries for the sale of any liquor and alcoholic beverages at any of the Premises, Manager agrees, as part of its management duties and services under this Agreement, to fully cooperate with any applicable liquor and/or alcoholic beverage authority and to assist Lessee with any documentation and other requests of such authority to the extent necessary to comply with any licensing and/or permitting requirements applicable to the Premises.

ARTICLE V
REPRESENTATIONS AND WARRANTIES

     5.01 Lessee Representations. Lessee, in order to induce Manager to enter into this Agreement, hereby represents and warrants to Manager as follows:

     5.01.1. The execution of this Agreement is permitted by the Articles of Incorporation and Bylaws of Lessee and this Agreement has been duly authorized, executed and delivered on behalf of Lessee and constitutes the legal, valid and binding obligation of Lessee enforceable in accordance with the terms hereof;

     5.01.2. There is no claim, litigation, proceeding or governmental investigation pending, or, to the best knowledge and belief of Lessee, threatened, against or relating to Lessee, the properties or businesses of Lessee or the transactions contemplated by this Agreement which does, or may reasonably be expected to, materially or adversely affect the ability of Lessee to enter into this Agreement or to carry out its obligations hereunder, and, to the best knowledge and belief of Lessee, there is no basis for any such claim, litigation, proceeding or governmental investigation except as has been fully disclosed in writing by Lessee to Manager;

     5.01.3. Neither the consummation of the transactions contemplated by this Agreement on the part of Lessee to be performed, nor the fulfillment of the terms, conditions and provisions of this Agreement, conflicts with or will result in the breach of any of the terms, conditions or provisions of, or constitute a default under, any agreement, indenture, instrument or undertaking to which Lessee is a party or by which it is bound;

     5.01.4. No approval of any third party (including any Landlord or the Holder of any Hotel Mortgage in effect as of the date of this Agreement) is required for Lessee’s

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execution, delivery and performance of this Agreement that has not been obtained prior to the execution hereof;

     5.01.5. Lessee holds all required governmental approvals required (if applicable) to be held by it to lease the Hotels; and

     5.01.6. As of the date of this Agreement there are no defaults under any of the Leases.

     5.02 Manager Representations. Manager, in order to induce Lessee to enter into this Agreement, hereby represents and warrants to Lessee as follows:

     5.02.1. The execution of this Agreement is permitted by the limited partnership agreement of Manager and this Agreement has been duly authorized, executed and delivered on behalf of Manager and constitutes a legal, valid and binding obligation of Manager enforceable in accordance with the terms hereof;

     5.02.2. There is no claim, litigation, proceeding or governmental investigation pending, or, to the best knowledge and belief of Manager, threatened, against or relating to Manager, the properties or business of Manager or the transactions contemplated by this Agreement which does, or may reasonably be expected to, materially or adversely affect the ability of Manager to enter into this Agreement or to carry out its obligations hereunder, and, to the best knowledge and belief of Manager, there is no basis for any such claim, litigation, proceeding or governmental investigation, except as has been fully disclosed in writing by Manager to Lessee;

     5.02.3. Neither the consummation of the transactions contemplated by this Agreement on the part of Manager to be performed, nor the fulfillment of the terms, conditions and provisions of this Agreement, conflicts with or will result in the breach of any of the terms, conditions or provisions of, or constitute a default under, any agreement, indenture, instrument or undertaking to which Manager is a party or by which it is bound;

     5.02.4. No approval of any third party is required for Manager’s execution, delivery and performance of this Agreement that has not been obtained prior to the execution and delivery hereof;

     5.02.5. Manager holds all required governmental approvals required to be held by it to perform its obligations under this Agreement; and

     5.02.6. Manager qualifies as an Eligible Independent Contractor, and during the Term of this Agreement, agrees to continue to qualify as an Eligible Independent Contractor.

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ARTICLE VI
OPERATION

     6.01 Name of Premises; Standard of Operation. During the Term of this Agreement, the Premises shall be known and operated by Manager as hotels licensed with the applicable Franchisor as noted on Exhibit C, with additional identification as may be necessary to provide local identification, provided Manager and/or Lessee have obtained and are successful in continuously maintaining the right to so operate the Premises, which Manager agrees to use its reasonable best efforts to do. Manager agrees to manage the Premises, for the account of Lessee, and so far as is legally possible, in accordance with the Annual Operating Budget and Applicable Standards subject to Force Majeure. In the event of termination of a Franchise Agreement for one or more of the Premises, Manager shall operate such Premises under such other franchise agreement, if any, as Lessee enters into or obtains as franchisee. If the name of a Franchisor’s hotel system is changed, Lessee shall have the right to change the name of the applicable Hotel to conform thereto.

     Notwithstanding the foregoing or any other provision in this Agreement to the contrary, Manager’s obligation with respect to operating and managing the Hotels in accordance with any Hotel Mortgage, Ground Leases, the Leases and the CCRs shall be limited to the extent (i) true and complete copies thereof have been made available to Manager by Lessee reasonably sufficient in advance to allow Manager to manage the Hotels in compliance with such documents, and (ii) the provisions thereof and/or compliance with such provisions by Manager (a) are applicable to the day-to-day management, maintenance and routine repair and replacement of the Hotels, the FF&E or any portion thereof, (b) do not require contribution of funds from Manager, (c) do not materially increase Manager’s obligations hereunder or materially decrease Manager’s rights or benefits hereunder, (d) do not limit or restrict, or attempt to limit or restrict any corporate activity or transaction with respect to Manager or any Manager Affiliate Entity or any other activity, transfer, transaction, property or other matter involving Manager or the Manager Affiliate Entities other than at the Site of the Hotels and (e) are otherwise within the scope of Manager’s duties under this Agreement. Lessee acknowledges and agrees, without limiting the foregoing, that any failure of (i) Lessee to comply with the provisions of any Hotel Mortgage, Ground Leases, the Leases and the CCRs or Legal Requirements or (ii) Manager to comply with the provisions of any such agreements or Legal Requirements arising out of, in the case of both (i) and (ii), (A) the condition of the Hotels, and/or the failure of the Hotels to comply with the provisions of such agreements, prior to the Commencement Date, (B) construction activities at the Hotels prior to the Commencement Date, (C) inherent limitations in the design and/or construction of, location of the Hotels and/or parking at the Hotels prior to the Commencement Date, (D) failure of Lessee to provide funds, from operations or otherwise, sufficient to allow timely compliance with the provisions of the Applicable Standards or the Leases, the Ground Leases, any Hotel Mortgage and/or the CCRs through reasonable and customary business practices, and/or (E) Lessee’s failure to approve any matter reasonably requested by Manager in Manager’s good faith business judgment as necessary or appropriate to achieve compliance with such items, shall not be deemed a breach by Manager of its obligations under this Agreement. Manager and Lessee agree, that Manager may from time to time, so long as Manager is in compliance with the Franchise Agreements and Legal Requirements, provide collateral marketing materials in the rooms of the Hotels which

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advertise other hotels or programs of Manager or its Affiliates (including, through a dedicated television channel in the rooms of the Hotels), at the sole cost and expense of Manager, provided such other hotels or programs being marketed by Manager are not competing directly in the same market with the Hotel where the marketing materials and information are being placed by Manager.

     6.02 Use of Premises. Manager shall use the Premises solely for the operation of the Hotels in accordance with the Applicable Standards and for all activities in connection therewith which are customary and usual to such an operation. Subject to the terms of this Agreement, Manager shall comply with and abide by all applicable Legal Requirements, and the requirements of any insurance companies covering any of the risks against which the Premises are insured, any Hotel Mortgage, the Ground Leases, the Leases, and the Franchise Agreements. If there are insufficient funds in the Operating Account to make any expenditure required to remedy non-compliance with such Legal Requirements or with the requirements of any Hotel Mortgage, the Ground Leases, the Leases, or the Franchise Agreements or applicable insurance, Manager shall promptly notify Lessee of such non-compliance and estimated cost of curing such non-compliance. If Lessee fails to make funds available for the expenditure so requested by Manager within thirty (30) days, Lessee agrees to indemnify and hold Manager harmless from and against any and all costs, expenses and other liabilities incurred by Manager resulting from such non-compliance (which such indemnity shall survive any termination of this Agreement). In no event shall Manager be required to make available or distribute, as applicable, sexually explicit materials or items of any kind, whether through retail stores or gift shops located at the Hotels or through “pay for view” programming in the guest rooms of the Hotels.

     6.03 Group Services. Manager may cause to be furnished to the Premises certain services (“Group Services”) which are furnished generally on a central or regional basis to other hotels managed by Manager or any Manager Affiliate Entity and which benefit each hotel managed by Manager including, by way of example and not by way of limitation, (i) marketing, advertising and promotion; (ii) centralized accounting payroll processing, ADP management, management and administration of accounts payable, accounts receivable and cash management accounting and MIS support services; (iii) the preparation and maintenance of the general ledger and journal entries, internal audit, budgeting and financial statement preparation, (iv) recruiting, training, career development and relocation in accordance with Manager’s or any Manager Affiliate Entities’ relocation plan; (v) employee benefits administration; (vi) engineering and risk management; (vii) information technology; (viii) legal support (such as license and permit coordination, filing and completion, standardized contracts, negotiation and preparation, and similar legal services benefiting the Hotels); (ix) purchasing arising out of ordinary hotel operations not otherwise contemplated in Section 8.02G hereof; (x) internal audit services; (xi) reservation systems; and (xii) such other additional services as are or may be, from time to time, furnished for the benefit of Manager’s or any Manager Affiliate Entities’ hotels or in substitution for services now performed at Manager’s individual hotels which may be more efficiently performed on a group basis. Manager shall assure that the costs and expenses incurred in providing Group Services to the Premises shall have been allocated to the Premises on a pro-rata basis consistent with the method of allocation to all of Manager’s (and any Manager Affiliate Entities’) hotels receiving the same services, shall be incurred at a cost consistent with the Annual Operating Budget and shall constitute Deductions. All Group Services provided by

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Manager shall be at the actual costs (without mark up for fee or profit to Manager or any Manager Affiliate Entity, but including salary and employee benefit costs and costs of equipment used in performing such services and overhead costs) of Group Services for the benefit of all of Manager’s hotels receiving the same services, and shall be of a quality comparable to which Manager could obtain from other providers for similar services.

     6.04 Right to Inspect. Lessee, the beneficial owners of Lessee, the Landlords (to the extent permitted under such Leases), any Holder under any Hotel Mortgage (to the extent permitted under such Hotel Mortgage), and their respective agents, shall have access to the Premises at any and all reasonable times for any purpose. Manager will be available to consult with and advise such parties, at their reasonable request, concerning all policies and procedures affecting all phases of the conduct of business at the Hotels.

ARTICLE VII
WORKING CAPITAL AND INVENTORIES

     7.01 Working Capital and Inventories. The Lessee shall cause funds to be deposited in one or more operating accounts established by Manager, in amounts sufficient to operate the Premises in accordance with the Annual Operating Budget, including the establishment and maintenance of positive Working Capital and Inventories as reasonably determined by Manager. All Working Capital and Inventories are and shall remain the property of Lessee. In the event Lessee fails to advance funds which are necessary in order to maintain positive Working Capital and Inventories at reasonable levels for any of the Hotels, Manager shall have the right to elect to terminate this Agreement upon sixty (60) days’ prior written notice to Lessee with respect to the affected applicable Hotel. During such sixty (60) day period, Lessee and Manager shall use reasonable efforts to resolve the dispute over such Working Capital and Inventory requirements. If such dispute is not resolved, then this Agreement shall terminate with respect to the affected applicable Hotel on the sixtieth (60th) day following Manager’s delivery of written notice of termination as provided above. If such dispute is resolved, then the notice will be deemed rescinded and this Agreement shall not be terminated pursuant to the notice with respect to the affected applicable Hotel. Further, if Manager should so terminate this Agreement with respect to the affected applicable Hotel and if Manager in good faith incurs expenditures, or otherwise accrues liabilities in accordance with the Annual Operating Budget and variances allowed herein, in each case, prior to the date of termination, Lessee agrees to promptly indemnify and hold Manager harmless from and against (i) any and all liabilities, costs and expenses properly incurred by Manager in connection with the operations of the applicable Hotel through the date of Termination of this Agreement with respect to such Hotel, and (ii) any and all liabilities, costs and expenses properly incurred by Manager as a result of Lessee’s failure to perform any obligation or pay any liability arising under any service, maintenance, franchise or other agreements, employment relationships (other than Excluded Employee Claims), leases or contracts pertaining to the applicable Hotel after Termination of this Agreement with respect to such Hotel. Lessee acknowledges that liabilities arising in connection with the operation and management of the applicable Hotel including, without limitation, all Deductions, incurred in accordance with the terms of this Agreement, are and shall remain the obligations of Lessee, and Manager shall have no liability therefor unless otherwise expressly provided herein. In the event of a Termination by Manager pursuant to this Section 7.01, Manager shall be entitled to a

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termination fee as liquidated damages but not as a penalty, as set forth in connection with a termination for convenience as described in Section 2.03(c) and subject to Section 2.03(d) above.

     7.02 Fixed Asset Supplies. Lessee shall provide the funds necessary to supply the Premises initially with Fixed Asset Supplies as reasonably determined by Manager consistent with the cost budgeted therefor in the Annual Operating Budget and otherwise consistent with the intent of the parties that the level of such supplies will be adequate for the proper and efficient operation of the Premises at the Applicable Standards. Fixed Asset Supplies shall remain the property of Lessee.

ARTICLE VIII
MAINTENANCE, REPLACEMENT AND CHANGES

     8.01 Routine and Non-Routine Repairs and Maintenance. Manager, at the expense of Lessee, shall maintain the Premises in good repair and condition as is required by the Applicable Standards. Manager, on behalf of Lessee, shall make or cause to be made such routine maintenance, repairs and minor alterations as Manager from time to time deems reasonably necessary for such purposes, the cost of which: (i) can be expensed under GAAP, (ii) shall be paid from Gross Revenues, and treated as a Deduction, and (iii) are consistent with the Annual Operating Budget. In addition, Lessee shall make or cause to be made such non-routine repairs and maintenance, either to the Premises’ building or its fixtures, furniture, furnishings and equipment (“FF&E”), pursuant to the Capital Improvement Budget approved by Lessee and Landlord, the cost of which shall be paid for in the manner described in Section 8.02. Manager and Lessee shall use their respective best efforts to prevent any liens from being filed against the Premises which arise from any maintenance, changes, repairs, alterations, improvements, renewals or replacements in or to the Premises. Lessee and Manager shall cooperate fully in obtaining the release of any such liens. If the lien arises as a result of the fault of either party, then the party at fault shall bear the cost of obtaining the lien release. All changes, repairs, alterations, improvements, renewals or replacements made pursuant to this Article VIII shall be the property of the Lessee.

     8.02 Capital Improvement Reserve.

A. Manager shall establish (on behalf of Landlord), in respect of each Fiscal Year during the term of this Agreement, a reserve account on each Hotel’s books of account (“Capital Improvement Reserve”) to cover the cost of:

1.

Replacements and renewals to the Premises’ FF&E; and

2.

Certain non-routine repairs and maintenance to the Hotel’s building(s) which are normally capitalized under GAAP such as, but not limited to, exterior and interior repainting, resurfacing, building walls, floors, roofs and parking areas, and replacing folding walls and the like, and major repairs, alterations, improvements, renewals or replacement to the Hotel’s building structure or to its mechanical, electrical, heating, ventilating, air conditioning, plumbing or vertical transportation systems.

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B.	For each Fiscal Year, the Capital Improvement Reserve shall be an amount equal to four percent (4%) of the Hotel’s Gross Revenues for the applicable year (or greater if required by any Landlord, Holder or Franchisor), or in such other amount as agreed to by Landlord, Lessee and Manager.
	Payments of the percentage amounts specified above shall be made on an interim accounting basis as specified in Section 11.02 hereof. Calculations and payments from the Capital Improvement Reserve made with respect to each Accounting Period shall be accounted for cumulatively for each Fiscal Year. After the close of each Fiscal Year, any adjustments required by the Fiscal Year accounting shall be made by Manager. Any proceeds from the sale of the Premises’ FF&E no longer necessary to the operations of the Premises shall also be credited to the Capital Improvement Reserve. All payments from the Capital Improvement Reserve shall be reserved and paid from Gross Revenues. Such payments and sale proceeds shall be placed in an escrow account or accounts consistent with the requirements of the Cash Management Agreements, if any. Any interest earned in said account attributable to funds deposited pursuant to this Agreement shall be added to such Capital Improvement Reserve, thereby reducing the amount required to be placed in the account from Gross Revenues.
C.	Manager shall, in accordance with and subject to the Capital Improvement Budget described in Section 8.02E, from time to time make such substitutions and replacements of or renewals to FF&E and non-routine repairs and maintenance as described in Section 8.01 as it deems necessary to maintain the Hotels as required by this Agreement. Except as hereinafter provided, no expenditures will be made except as otherwise provided in the Capital Improvement Budget without the approval of Lessee and Landlord, and provided further, however, that if any such expenditures which are required by reason of any (i) emergency, or (ii) applicable Legal Requirements, or (iii) the terms of the Franchise Agreement, or (iv) are otherwise required for the continued safe and orderly operation of the Hotels, Manager shall immediately give Lessee and Landlord notice thereof and shall be authorized to take appropriate remedial action without such approval whenever there is a clear and present danger to life, limb or property of the Hotels or its guests or employees. The cost of all such changes, repairs, alterations, improvements, renewals, or replacements will be paid for first from the Capital Improvement Reserve or other monies advanced by Lessee from funds received or owned by Landlord. At the end of each Fiscal Year any amount remaining in the Capital Improvement Reserve in excess of the amounts unspent but contemplated to be spent pursuant to the Capital Improvement Budget for such Fiscal Year or as otherwise approved by Lessee and Landlord may be withdrawn by the Lessee on behalf of Landlord.
D.	All changes, repairs, alterations, improvements, renewals or replacements made pursuant to this Article VIII shall be the property of Landlord.
E.	Manager shall prepare a budget (“Capital Improvement Budget”) of the expenditures necessary for replacement of FF&E and building repairs of the

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nature contemplated by Section 8.01 during the ensuing Fiscal Year and shall provide such Capital Improvement Budget to Lessee and Landlord for approval at the same time Manager submits the Annual Operating Budget. The Capital Improvement Budget shall not be deemed accepted by Lessee and Landlord in the absence of their respective express written approval. Not later than thirty (30) days after receipt by Lessee and Landlord of a proposed Capital Improvement Budget (or such longer period as Lessee and Landlord may reasonably request on Notice to the Manager), Lessee and/or Landlord may deliver a Notice (a “CIB Objection Notice”) to the Manager stating that Lessee and/or Landlord objects to any information contained in or omitted from such proposed Capital Improvement Budget and setting forth the nature of such objections with reasonable specificity. Failure of Lessee and/or Landlord to deliver a CIB Objection Notice shall be deemed rejection of the Manager’s proposed Capital Improvement Budget in its entirety. Upon receipt of any CIB Objection Notice, the Manager shall, after consultation with Lessee and Landlord, modify the proposed Capital Improvement Budget, taking into account Lessee’s and/or Landlord’s objections, and shall resubmit the same to Lessee and Landlord for Lessee’s approval within fifteen (15) days thereafter, and Lessee and/or Landlord may deliver further CIB Objection Notices (if any) within fifteen (15) days thereafter (in which event, the re-submission and review process described above in this sentence shall continue until the proposed Capital Improvement Budget in question is accepted and consented to by Lessee and Landlord). Notwithstanding anything to the contrary set forth herein, Lessee and Landlord shall have the right at any time subsequent to the acceptance and consent with respect to any Capital Improvement Budget, on Notice to the Manager, to revise, with the reasonable approval of Manager, such Capital Improvement Budget or to request that the Manager prepare for Lessee’s and/or Landlord’s approval a revised Capital Improvement Budget, taking into account such circumstances as Lessee and Landlord deem appropriate; provided, however, that the revision of a Capital Improvement Budget shall not be deemed a revocation of the Manager’s authority with respect to such actions as the Manager may have already taken prior to receipt of such revision notice in implementing a previously approved budget or plan. Manager shall have the right and discretion to expend funds from the Capital Improvement Reserve for replacements and renewals of FF&E in the Hotels’ interior public areas and guest rooms and routine maintenance, repairs and minor alterations during the Fiscal Year in question (but not for any other capital expenditures) in accordance with the provisions of the Capital Improvement Budget.

F.

It is the intent of Manager and Lessee to maintain the Premises in conformance with the Applicable Standards. Accordingly, as the Hotels age, if the Capital Improvement Reserve established pursuant to the terms hereof is insufficient to meet such standards, and if the Capital Improvement Budget prepared in good faith by Manager and approved by Lessee and Landlord exceeds the available and anticipated funds in the Capital Improvement Reserve, Lessee, Landlord and Manager will consider the matter and Lessee and Landlord may elect to:

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1.	increase the annual reserve provision to provide the additional funds required; or
2.	obtain financing for the additional funds required.

G. In consideration of the Project Management Fee (as defined below), Manager shall be responsible for managing, coordinating, planning and executing the Capital Improvement Budget and all major repositionings of the Hotels. In addition, Manager shall be paid additional fees at current market rates (determined with reference to other third party providers of such services who are not discounting such fees as result of fees generated from other services) (collectively, the “Market Service Fees”), subject to the Approval Requirement (defined in subparagraph 8.02(I) below), for the following services (the “Project Related Services”) to be provided in accordance with the Applicable Standards (with the understanding that Manager may subcontract for any or all of the following Project Related Services):

1.	Construction Management — Manager shall, on major renovation tasks which involve the selection and engagement of a general contractor, coordinate the selection process with Lessee and/or Landlord, shall assist in the negotiation of construction contracts, manage such construction contracts and related issues, and shall engage separate contractors and subcontractors for specific tasks outside the scope of the general contractor.
2.	Interior Design — With respect to any interior design elements involved in the implementation of the Capital Improvement Budget, Manager shall be responsible for overseeing the development of conceptual plans (consistent with Lessee’s and Landlord’s objectives), shall arrange for preparation of specifications, coordinate and make all fabric, flooring, furniture and wall treatment selections (both colors and finishes), coordinate reselections and document all selections in specification books as required under the terms of the Franchise Agreement and coordinate all related franchise approvals, and will manage the applicable Franchisor process on approval of all selections relating to initial and final selections.
3.	Architectural — Manager shall, if applicable, make recommendations of engagement of architects, negotiate architectural agreements on behalf of Lessee and Landlord (with Lessee’s and Landlord’s approval), manage all architects applicable to the implementation of the Capital Improvement Budget, oversee all conceptual designs and sketches, review all necessary plans, drawings, shop drawings and other matters necessary for the proper implementation of the Capital Improvement Budget, and coordinate and manage all approvals necessary for the implementation of the Capital Improvement Budget such as Franchisor approvals, governmental approvals and Holder approvals.

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4.	FF&E Purchasing — Manager shall be responsible for the evaluation of all specifications and negotiations of all prices associated with the purchasing of FF&E, shall manage and issue all purchase orders and place orders necessary for the proper and timely delivery of all FF&E.
5.	FF&E Expediting/Freight Management — Manager shall be responsible for the expediting of all FF&E contemplated in an applicable Capital Improvement Budget including managing the freight selection and shipping process in a cost effective manner.
6.	FF&E Warehousing — Manager shall be responsible, if applicable, for the management and coordination of all warehousing of goods delivered at the job site, inspection of materials delivered, and the filing of all claims associated with the delivery of defective or damaged goods.
7.	FF&E Installation and Supervision — Manager shall be responsible for the management and oversight of the installation of all FF&E in compliance with specifications and Franchisor standards as required to implement the Capital Improvement Budget.

	Manager shall be paid a project management fee (herein, the “Project Management Fee”) equal to four percent (4%) of the total project costs associated with the implementation of the Capital Improvement Budget (both hard and soft) payable monthly in arrears based upon the prior calendar month’s total expenditures under the Capital Improvement Budget until such time that the Capital Improvement Budget and/or renovation project involves the expenditure of an amount in excess of five percent (5%) of Gross Revenues of the applicable Hotel, whereupon the Project Management Fee shall be reduced to three percent (3%) of the total project costs in excess of the five percent (5%) of Gross Revenue threshold. The Project Management Fee shall be accounted for and documented and consistent with the requirements of Section 11.02 herein. Any onsite or dedicated personnel required for the direct supervision of the implementation of a Capital Improvement Budget or other renovation project will be a direct cost to, and shall be reimbursed by, the Landlord.
H.	Except as otherwise provided herein, in no event shall Manager realize any kick backs, rebates, cash incentives, administration fees, concessions, profit participations, investment rights or similar payments or economic consideration from or in, as applicable, vendors or suppliers of goods or services. Manager agrees that any such amounts or benefits derived shall be held in trust for the benefit of Lessee or Landlord (as applicable).
I.	Any Market Service Fees for the Project Related Services shall be, once approved, reflected in the Capital Improvements Budget (such Market Service Fees subject to any adjustments necessary for then existing market conditions) shall be submitted for approval to Lessee and Landlord with the applicable Capital Improvement Budget, and shall be deemed approved by the Lessee and

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Landlord unless a majority of the Independent Directors of AHT affirmatively vote that such Market Service Fees are not market (determined by reference to fees charged by third party providers who are not hotel managers or who are not discounting such fees as result of fees generated from other services) (herein called the “Approval Requirement”). In the event that the majority of the Independent Directors of AHT affirmatively votes that the Market Service Fees proposed by Manager are not market, the Lessee and Manager agree to engage a consultant reasonably satisfactory to both Lessee and Manager to provide then current market information with respect to the proposed Market Service Fees and a written recommendation as to whether such fees are market or not. If the consultant’s recommendation provides that such Market Service Fees as proposed by Manager are market, then the Landlord agrees to pay any consultant fees incurred by such consultant in making the recommendation. If the consultant’s recommendation does not support the Market Service Fees as proposed by Manager, then Manager agrees to pay the consultant’s fees incurred in connection with the recommendation and agrees to either re-submit Manager’s proposed Market Service Fees consistent with the market research and recommendation of the consultant for approval to Lessee and Landlord, or elect by Notice to Lessee and Landlord that Manager will not provide the Project Related Services.

ARTICLE IX
EMPLOYEES

     9.01 Employee Hiring. Manager will hire, train, promote, supervise, direct the work of and discharge all personnel working on the Premises. Manager shall be the sole judge of the fitness and qualification of such personnel and is vested with absolute discretion in the hiring, discharging, supervision, and direction of such personnel during the course of their employment and in the operation of the Premises.

     9.02 Costs; Benefit Plans. Manager shall fix the employees’ terms of compensation and establish and maintain all policies relating to employment, so long as they are reasonable and in accordance with the Applicable Standards and the Annual Operating Budget. Without limiting the foregoing, Manager may, consistent with the applicable budgets, enroll the employees of the Hotels in pension, medical and health, life insurance, and similar employee benefit plans (“Benefit Plans”) substantially similar to plans reasonably necessary to attract and retain employees and generally remain competitive. The Benefit Plans may be joint plans for the benefit of employees at more than one hotel owned, leased or managed by Manager or Manager Affiliate Entities. Employer contributions to such plans (including any withdrawal liability incurred upon Termination of this Agreement) and reasonable administrative fees (but without further markup by Manager), which Manager may expend in connection therewith, shall be the responsibility of Lessee and shall be a Deduction. The administrative expenses of any joint plans will be equitably apportioned by Manager among properties covered by such plan.

     9.03 Manager’s Employees. It is expressly understood and agreed that all such personnel employed at the Hotels, including the Manager’s acting General Managers for each of the Hotels, will be the employees of Manager for all purposes including, without limitation,

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federal, state and local tax and reporting purposes, but the expense incurred in connection therewith will be a Deduction and for Lessee’s account. A General Manager’s compensation may be allocated to other Hotels on a fair and equitable basis if the General Manager oversees and supervises other Hotel operations. Manager shall use such care when hiring any employees as may be common to the hospitality business and consistent with the Manager’s standards of operation. Lessee acknowledges and agrees that Manager, as the employer of all of the Hotels’ employees, shall be entitled to all federal, state and/or local tax credits or benefits allowed to employers relating to the Hotels’ employees including, without limitation, the Work Opportunity Tax Credit, the Targeted Jobs Tax Credit, and similar tax credits (provided that Manager shall pay all incremental fees, if applicable, to qualify for such tax credits). Manager, in accordance with the Annual Operating Budget, may draw down from Gross Revenues all costs and expenses, of whatever nature, incurred in connection with such employees, including, but not limited to, wages, salaries, on-site staff, bonuses, commissions, fringe benefits, employee benefits, recruitment costs, workmen’s compensation and unemployment insurance premiums, payroll taxes, vacation and sick leave (collectively, “Employee Costs and Expenses”).

     9.04 Special Projects — Corporate Employees. The costs, fees, compensation and other expenses of any persons engaged by Manager to perform duties of a special nature, directly related to the operation of the Premises, including, but not limited to, in-house or outside counsel, accountants, bookkeepers, auditors, employment search firms, marketing and sales firms, and similar firms of personnel, shall be operating expenses, payable from and consistent with the Annual Operating Budget and not the responsibility of the Manager. The costs, fees, compensation and other expenses of those personnel of Manager assigned to special projects for the Hotels shall also be operating expenses payable by the Lessee and not the responsibility of Manager. The daily per diem rate for those personnel shall be based upon the actual costs of Manager in providing its personnel for such special services or projects, without mark-up for fee or profit but including salary and employee benefit costs and costs of equipment used in performing such services, overhead costs, travel costs and long distance telephone. Such special services shall include, but not be limited to, those matters which are not included within the scope of the duties to be performed by Manager hereunder and, if not provided by Lessee, would involve the Lessee’s engagement of a third party to perform such services; for example, special sales or marketing programs, market reviews, assistance in opening new food and beverage facilities, legal services, accounting services, tax services, insurance services, data processing, engineering personnel, and similar services.

     9.05 Termination. At Termination, subject to Section 2.01 above, Lessee shall reimburse Manager for costs and expenses incurred by Manager which arise out of either the transfer or termination of Manager’s employees at the Hotels, such as reasonable transfer costs, compensation in lieu of vacation and sick leave, severance pay (including a reasonable allowance for severance pay for Executive Employees of the Hotels, the amount of such allowance not to exceed an amount equal to Manager’s then current severance benefits for such terminated Executive Employees, unless Lessee otherwise approves), unemployment compensation, employer liability pursuant to the Consolidated Omnibus Budget Reconciliation Act (COBRA liability) and the Worker Adjustment and Retraining Notification Act (WARN Act) and other employment liability costs arising out of the termination of the employment of the Manager’s employees at the Premises (herein collectively called “Employee Related Termination Costs”).

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This reimbursement obligation shall not apply to any corporate personnel of Manager assigned to the Hotels for special projects or who perform functions for Manager at the corporate level. In order to be reimbursable hereunder, any Employee Related Termination Costs must be pursuant to policies of Manager which shall be consistent with those of other managers managing similar hotels in similar markets and geographical locations and which shall be subject to review and reasonable approval of Lessee from time to time upon Notice from Lessee and which review and approval shall occur no more than one time during each Fiscal Year during the term of this Agreement.

     At Termination, an escrow fund shall be established from Gross Revenues (or, if Gross Revenues are not sufficient, with funds provided by Lessee) to reimburse Manager for all reimbursable Employee Related Termination Costs.

     9.06 Employee Use of Hotel. Manager, in its discretion, may (i) provide lodging for Manager’s Executive Employees and corporate staff visiting the Hotels in connection with the performance of Manager’s services hereunder and allow them the use of the facilities of the Hotels, and (ii) provide the management of the Hotels with temporary living quarters within the Hotels and the use of all facilities of the Hotels, in either case at a discounted price or without charge, as the case may be. Manager shall, on a space available basis, provide lodging at the Hotels for Lessee’s employees, officers and directors visiting the Hotels and allow them the use of all facilities of the Hotels in either case without charge, except for recreational facilities for which a charge will apply.

     9.07 Non-Solicitation. During the term of this Agreement and for a period of two (2) years thereafter, unless an Event of Default by Manager exists under this Agreement beyond applicable grace or cure periods, or the Agreement has been terminated as a result of an uncured Event of Default by Manager, Lessee agrees that it (and its Affiliates) will not, without the prior written consent of Manager, either directly or indirectly, alone or in conjunction with any other person or entity, (i) solicit or attempt to solicit any general manager (each a “General Manager” and, collectively, “General Managers”) of the Hotels or any other hotels managed by Manager or any of Manager’s Executive Employees (collectively, the General Manager and Executive Employees are herein called the “Key Employees”) to terminate, alter or lessen Key Employees’ employment or affiliation with Manager or to violate the terms of any agreement or understanding between any such Key Employee and Manager, as the case may be, or (ii) employ, retain, or contract with any Key Employee.

ARTICLE X
BUDGET, STANDARDS AND CONTRACTS

     10.01 Annual Operating Budget. Not less than forty-five (45) days prior to the beginning of each Fiscal Year, Manager shall submit to Lessee for each of the Hotels, a budget (the “Annual Operating Budget”) setting forth in detail an estimated profit and loss statement for the next twelve (12) Accounting Periods, or for the balance of the Fiscal Year in the event of a partial first Fiscal Year, including a schedule of hotel room rentals and other rentals and a marketing and business plan for each of the Hotels, such budget to be substantially in the format of Exhibit “D” attached hereto.

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     10.02 Budget Approval. The Annual Operating Budget submitted to Lessee by Manager shall be subject to the approval of Lessee (such approval not to be unreasonably withheld). The Annual Operating Budget shall not be deemed accepted by Lessee in the absence of its express written approval. Not later than thirty (30) days after receipt by Lessee of a proposed Annual Operating Budget (or such longer period as Lessee may reasonably request on Notice to Manager), Lessee may deliver an AOB Objection Notice with reasonable detail to the Manager stating that Lessee objects to any information contained in or omitted from such proposed Annual Operating Budget and setting forth the nature of such objections with reasonable specificity. Failure of Lessee to deliver an AOB Objection Notice shall be deemed rejection of the Manager’s proposed Annual Operating Budget in its entirety. Upon receipt of any AOB Objection Notice, the Manager shall, after consultation with Lessee, modify the proposed Annual Operating Budget, taking into account Lessee’s objections, and shall resubmit the same to Lessee for Lessee’s approval within fifteen (15) days thereafter, and Lessee may deliver further AOB Objection Notices (if any) within fifteen (15) days thereafter (in which event, the re-submission and review process described above in this sentence shall continue until the proposed Annual Operating Budget in question is accepted and consented to by Lessee). Notwithstanding anything to the contrary set forth herein, Lessee shall have the right at any time subsequent to the acceptance and consent with respect to any Annual Operating Budget, on Notice to the Manager, to revise such Annual Operating Budget or to request that the Manager prepare for Lessee’s approval a revised Annual Operating Budget (with the approval of Manager, such approval not to be unreasonably withheld), taking into account such circumstances as Lessee deems appropriate; provided, however, that the revision of an Annual Operating Budget shall not be deemed a revocation of the Manager’s authority with respect to such actions as the Manager may have already taken prior to receipt of such revision notice in implementing a previously approved budget or plan. Lessee and Manager acknowledge and agree that the Annual Operating Budgets are merely forecasts of operating revenues and expenses for an ensuing year and shall be revised, by agreement of Lessee and Manager, from time to time as business and operating conditions shall demand. However, Manager shall use its reasonable best efforts to operate the Premises in accordance with the Annual Operating Budget. The failure of any of the Hotels to perform in accordance with such Annual Operating Budget shall not constitute a default by Manager of this Agreement, however, the Lessee has a right to terminate this Agreement with respect to a Subject Hotel if such Subject Hotel fails to satisfy the Performance Test as set forth in Section 2.03(c) above.

     10.03 Operation Pending Approval. If the Annual Operating Budget (or any component thereof) has not yet been approved by Lessee prior to any applicable Fiscal Year, then, until approval of such Annual Operating Budget (or such component) by Lessee, Manager shall operate the Hotels substantially in accordance with the prior year’s Annual Operating Budget except for (a) those components of the Annual Operating Budget for the applicable Fiscal Year approved by Lessee, (b) the Necessary Expenses which shall be paid as required, (c) the Emergency Expenses which shall be paid as required, and (d) those expenses that vary in correlation with Gross Revenues and/or occupancy in the aggregate.

     10.04 Budget Meetings. At each budget meeting and at any additional meetings during a Fiscal Year reasonably called by Lessee or Manager, Manager shall consult with Lessee on matters of policy concerning management, sales, room rates, wage scales, personnel, general

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overall operating procedures, economics and operation and other matters affecting the operation of the Hotels.

ARTICLE XI
OPERATING DISTRIBUTIONS

     11.01 Management Fee. As consideration for the services to be rendered by Manager pursuant to this Agreement as manager and operator of the Premises, Manager shall be paid the following Base Management Fee and Incentive Management Fee (as such terms are hereinafter defined), collectively called the “Management Fee”, for each of the Hotels on a property by property basis as follows:

A.

Base Management Fee. The base management fee (“Base Management Fee”) shall be equal to the greater of (i) $10,000 (to be increased annually based on any increases in CPI over the preceding annual period), or (ii) three percent (3%) of the Gross Revenues for each Accounting Period, to be paid monthly in arrears. If this Agreement shall commence or expire on other than the first and last day of a calendar month, respectively, the Base Management Fee shall be apportioned based on the actual number of days of service in the month.

B.

Incentive Fee. The incentive fee (the “Incentive Fee”) shall be equal to the lesser of (i) one percent (1%) of Gross Revenues for each Fiscal Year and (ii) the amount by which the actual Gross Operating Profit exceeds the Budgeted GOP determined on a property by property basis (“GOP Test”). The Incentive Fee shall be payable annually in arrears within ninety (90) days after the end of each Fiscal Year; provided, however, if based on actual operations and revised forecasts from time to time, it is reasonably anticipated that the Incentive Fee is reasonably expected to be earned for such Fiscal Year, Lessee shall reasonably consider payment of the Incentive Fee, pro-rata on a quarterly basis, within twenty (20) days following the end of each calendar quarter, subject to final adjustment within ninety (90) days following the end of the Fiscal Year.

     11.02 Accounting and Interim Payment.

A.

Manager shall submit monthly, pursuant to Section 15.02, an interim accounting to Lessee showing Gross Revenues, Deductions, Gross Operating Profit and Net Operating Income before Debt Service.

B.

Calculations and payments of the Base Management Fee made with respect to each Accounting Period shall be made on an interim accounting basis and shall be accounted for cumulatively for each Fiscal Year. After the end of each Fiscal Year, Manager shall submit to Lessee an accounting for such Fiscal Year, consistent with Section 15.03, which accounting shall be controlling over the interim accountings. Any adjustments required by the Fiscal Year accounting shall be made promptly by the parties.

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C.

The Incentive Fee shall only be calculated and earned based upon the Gross Operating Profit achieving the required GOP Test for any given Fiscal Year or a portion thereof if the period of calculation cannot include the full period from January 1 to December 31.

D.

If Lessee raises no objection for any reason (excluding fraud) within one (1) year from the receipt of annual accounting statements as provided herein (or for fraud within any applicable statute of limitations period, and if no statute of limitations period exists, then in no event to exceed four (4) years from receipt of annual accounting statements as provided herein), such accounting shall be deemed to have been accepted by Lessee as true and correct, and Lessee shall have no further right to question its accuracy. Manager will provide Lessee profit and loss statements for the current period and year-to-date, including actual, budget and last year comparisons, as required by Section 15.03.

ARTICLE XII
INSURANCE

     12.01 Insurance. Manager shall coordinate with Lessee, at all times during any period of development, construction, renovation, furnishing and equipping of the Premises, the procurement and maintenance in amount and scope as available and market for the hotel lodging industry for hotels of similar type and in similar markets and geographical locations as the Hotels, public liability and indemnity and property insurance with minimum limits of liability as required by Lessee, the Landlords, any Holder, or Franchisors, if applicable, to protect Lessee, Landlord, Manager, any Holder, and any Franchisor, if applicable, against loss or damage arising in connection with the development, construction, renovation, furnishing and equipping of the Premises (and pre-opening activities, if applicable), including, without limitation, the following:

     12.01.1. Extended Coverage, Boiler, Business Interruption and Liability Insurance.

     (a) Building insurance on the “Special Form” (formerly “All Risk” form) (including earthquake and flood in reasonable amounts as determined by Lessee) in an amount not less than 100% of the then “full replacement cost” thereof (as defined below) or such other amount which is acceptable to Lessee, and personal property insurance on the “Special Form” in the full amount of the replacement cost thereof;

     (b) Insurance for loss or damage (direct and indirect) from steam boilers, pressure vessels or similar apparatus, now or hereafter installed in the Hotels, in the minimum amount of $5,000,000 or in such greater amounts as are then customary or as may be reasonably requested by Lessee from time to time;

     (c) Loss of income insurance on the “Special Form”, in the amount of one year of the sum of Base Rent plus Percentage Rent (as such terms are defined in and as determined pursuant to the Leases) for the benefit of Landlords, and business interruption insurance on the “Special Form” in the amount of one year of Gross Operating Profit, for

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the benefit of Lessee. All loss of income insurance proceeds shall be part of Gross Revenues;

     (d) Commercial general liability insurance, with amounts not less than $1,000,000 combined single limit for each occurrence and $2,000,000.00 for the aggregate of all occurrences within each policy year, as well as excess liability (umbrella) insurance with limited of at least $35,000,000 per occurrence, covering each of the following: bodily injury, death, or property damage liability per occurrence, personal and advertising injury, general aggregate, products and completed operations, and “all risk legal liability” (including liquor law or “dram shop” liability if liquor or alcoholic beverages are served at the Hotels);

     (e) Automobile insurance on vehicles operating in conjunction with the Hotels with limits of liability of at least $1,000,000.00 combined, single limit coverage; and

     (f) Insurance covering such other hazards and in such amounts as may be customary for comparable properties in the area of the Hotels and is available from insurance companies, insurance pools or other appropriate companies authorized to do business in the State where the Hotels are located at rates which are economically practicable in relation to the risks covered as may be reasonably requested by Lessee and otherwise consistent with the costs allocated therefor in the Annual Operating Budget.

     12.01.2. Operational Insurance.

     (a) Workers’ compensation and employer’s liability insurance as may be required under Legal Requirements and as Manager may deem reasonably prudent covering all of Manager’s employees at the Premises, with such deductible limits or self-insured retentions as may be reasonably established from time to time by Manager;

     (b) Fidelity bonds, with limits and deductibles as may be reasonably requested by Lessee, covering Manager’s employees in job classifications normally bonded under prudent hotel management practices in the United States or otherwise required by law; and

     (c) Such other insurance in amounts as Manager in its reasonable judgment deems advisable for its protection against claims, liabilities and losses arising out of or connected with its performance under this Agreement, and otherwise consistent with the costs allocated therefor in the Annual Operating Budget.

     12.02 Replacement Cost. The term “full replacement cost” as used herein shall mean the actual replacement cost of the Hotels requiring replacement from time to time including an increased cost of construction endorsement, if available, and the cost of debris removal. In the event either party to this Agreement believes that full replacement cost (the then-replacement cost less such exclusions) has increased or decreased at any time during the Term, it shall have the right to have such full replacement cost re-determined.

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     12.03 Increase in Limits. If either party to this Agreement at any time deems the limits of the personal injury or property damage under the comprehensive commercial general liability insurance then carried to be either excessive or insufficient, such parties shall endeavor in good faith to agree on the proper and reasonable limits for such insurance to be carried and such insurance shall thereafter be carried with the limits thus agreed on until further change pursuant to the provisions of this Section.

     12.04 Blanket Policy. Notwithstanding anything to the contrary contained in this Article XII, Manager may include the insurance required hereunder within the coverage of a so-called blanket policy or policies of insurance carried and maintained by Manager; provided, however, that the coverage afforded to the parties as required herein will not be reduced or diminished or otherwise be different from that which would exist under a separate policy meeting all other requirements of this Agreement by reason of the use of such blanket policy of insurance, and provided further that the requirements of this Article XII are otherwise satisfied.

     12.05 Costs and Expenses. Insurance premiums and any costs or expenses with respect to the insurance, including, without limitation, agent’s and consultant’s costs used to place insurance or adjust claims, shall be Deductions. Premiums on policies for more than one year shall be charged pro-rata against Gross Revenues over the period of the policies and to the extent, through blanket policies, cover other hotels managed by Manager or owned by Lessee or any of its Affiliates, shall be allocated based on rooms, number of employees, values or other methods as determined to be reasonable by Manager and Lessee. Any reserves, losses, costs, damages or expenses which are uninsured, self-insured, or fall within deductible limits shall be treated as a cost of insurance and shall be Deductions, subject to Article XXV.

     12.06 Policies and Endorsements.

A.

Where permitted, all insurance provided for under this Article XII shall name Lessee as insured, and Manager, any Holder, the Landlords, and, if required, the Franchisors, as additional insureds. The party procuring such insurance shall deliver to the other party certificates of insurance with respect to all policies so procured, including existing, additional and renewal policies and, in the event of insurance about to expire, shall deliver certificates of insurance with respect to the renewal policies not less than ten (10) days prior to the respective dates of expiration.

B.

All policies of insurance provided for under this Article XII shall, to the extent obtainable, be with insurance companies licensed or authorized to do business in the state in which the Premises are located, with a minimum rating of A or better in the Best’s Insurance Guide and an S&P rating of at least A+V (or such higher rating if so required by any Holder, Landlord or Franchisor), and shall have attached thereto an endorsement that such policy shall not be cancelled or materially changed without at least thirty (30) days’ (and for Texas Hotels, ten (10) days’) prior written notice to Lessee. All insurance policies obtained pursuant to this Article XII shall contain a standard waiver of subrogation endorsement.

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     12.07 Termination. Upon Termination of this Agreement, an escrow fund in an amount reasonably acceptable to Manager shall be established from Gross Revenues (or, if Gross Revenues are not sufficient, with funds provided by Lessee) to cover the amount of any costs which, in Manager’s reasonable business judgment, will likely need to be paid by either Lessee or Manager with respect to pending or contingent claims, including those which arise after Termination for causes arising during the Term of this Agreement. Upon the final disposition of all such pending or contingent claims, any unexpended funds remaining in such escrow shall be paid to Lessee.

ARTICLE XIII
TAXES AND DEBT SERVICE

     13.01 Taxes.

     (a) All real estate and ad valorem property taxes, assessments and similar charges on or relating to the Premises during the Term of this Agreement shall be paid by Manager, on behalf of Lessee, before any fine, penalty, or interest is added thereto or lien placed upon the Premises, unless payment thereof is stayed. All such payments shall be reserved and paid from Gross Revenues and treated as Deductions in determining Net Operating Income. Gross Revenues reserved for such purposes shall be placed in an escrow account or accounts established pursuant to the requirements of any applicable Holder. Interest earned in said account attributable to funds deposited pursuant to this Agreement shall be added to such reserve, thereby reducing the amount required to be placed in the account from Gross Revenues.

     (b) Notwithstanding the foregoing, upon Lessee’s request, Manager shall, as a Deduction, contest the validity or the amount of any such tax or assessment. Lessee agrees to cooperate with Manager and execute any documents or pleadings required for such purpose, provided that Lessee is satisfied that the facts set forth in such documents or pleadings are accurate and that such execution or cooperation does not impose any unreasonable obligations on Lessee, and Lessee agrees to reimburse Manager as a Deduction for all expenses occasioned to Manager by any such contest, provided that such expenses shall be approved by Lessee prior to the time that they are incurred.

     13.02 Debt Service; Ground Lease Payments. In the event of a Hotel Mortgage and/or Ground Lease and upon direction of Lessee, Manager shall establish an account (the “Property Service Account”) to pay Debt Service and/or Ground Lease Payments in such periodic payments as required by any applicable Holder under any applicable Hotel Mortgage and/or landlord under any Ground Lease. The Property Service Account shall be funded by Landlord under the Lease from funds paid by Landlord to Lessee. In the event sufficient funds are unavailable for the payment of Debt Service and/or Ground Lease Payments from the Property Service Account, then Manager shall notify Lessee in writing of such insufficiency who shall in turn advise the Landlord under the applicable Lease to replenish the Property Service Account to provide funds for payment of Debt Service and/or Ground Lease Payments.

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ARTICLE XIV
BANK ACCOUNTS

     All funds made available to Manager by Lessee for operations of the Premises, exclusive of those amounts described in Article VIII, shall be deposited into a banking checking account or accounts to be established in the name of Lessee (the “Operating Account”), consistent with the requirements of any Cash Management Agreements, if any. The Operating Account shall be interest bearing when possible. Subject to the limitation of Manager’s authority set forth herein, both Manager and Lessee shall be authorized to withdraw funds from said Operating Account, except that Lessee may withdraw funds from said account only if an Event of Default by Manager has occurred under this Agreement or an event has occurred that with the passage of time might be an Event of Default by Manager. Prior to any such withdrawal by Lessee, Lessee shall provide Notice of same to Manager, and Manager shall not be liable to Lessee for any checks written by Manager for operating expenses which are returned due to insufficient funds caused by such Lessee withdrawal. From time to time both Manager and Lessee shall designate signatory parties on such account and shall provide written notice of such designation or change in designation to the other party, and the signatures of such persons shall be formally and expressly recognized by the bank in which such account or accounts are maintained. The bank or banks to be utilized shall be selected and approved by Lessee and Manager. All monies received shall be deposited in, including, but not limited to, Gross Revenues, and expenses paid, including, but not limited to, Deductions, shall be paid from such bank checking account(s) except that Manager shall have the right to maintain payroll and petty cash funds and to make payments therefrom as the same are customary and utilized in the lodging business. Such funds shall not be commingled with Manager’s funds. Lessee shall have the right, at its expense, to audit said account or accounts at any reasonable time.

     Manager may establish one or more separate bank accounts for handling payroll costs in the name of Lessee. Such accounts shall be in a bank selected by Manager and approved by Lessee, and shall be handled exclusively by the individuals designated by Manager and approved in writing by Lessee. Funds shall be deposited in the payroll account or accounts from the Operating Account, as needed, in order to meet payroll requirements.

     Until otherwise prescribed by Lessee in writing, the Operating Account shall be under the control of Manager, without prejudice, however, to Manager’s obligation to account to Lessee as and when provided herein. All receipts and income, including without limitation, Gross Revenues shall be promptly deposited in the Operating Account. Checks or other documents of withdrawal shall be signed only by the individual representatives of Manager approved in writing by Lessee and duly recognized for such purpose by the bank or banks in which the referenced accounts are maintained. Manager shall supply Lessee with fidelity bonds or other insurance insuring the fidelity of authorized signatories to such accounts, unless said bonds or other insurance shall have been placed by Lessee and delivered directly by the bonding or insurance company to Lessee. The cost of such fidelity bonds or other insurance shall be a Deduction, at Lessee’s expense, and subject to Lessee’s approval. Neither Lessee nor Manager shall be responsible for any losses occasioned by the failure or insolvency of the bank or banks in which the referenced accounts are maintained. Upon expiration or termination of this Agreement and the payment to Manager of all amounts due Manager hereunder upon such

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expiration or termination, as provided in this Agreement, all remaining amounts in the referenced accounts shall be transferred forthwith to Lessee, or made freely available to Lessee.

     Manager shall not be required to advance funds, and Manager shall not be obligated to incur any liability or obligation for Lessee’s account, without assurance that necessary funds for the discharge thereof will be provided by Lessee.

     All reserve accounts established pursuant to this Agreement shall be placed in segregated interest-bearing accounts in the name of Lessee which interest shall be added to such reserve and serve to reduce the amount required to be placed in such reserve account.

ARTICLE XV
ACCOUNTING SYSTEM

     15.01 Books and Records. Manager shall maintain an adequate and separate accounting system in connection with its management and operation of the Premises. The books and records shall be kept in accordance with GAAP and the Uniform System of Accounts (to the extent consistent with GAAP) and shall be maintained at all times either on the Premises, at the principal office of the Manager, or in storage, for at least three (3) years after the Fiscal Year to which the books and records relate. Lessee, the beneficial owners of Lessee, the Landlords (to the extent permitted under the Leases), any Holder (to the extent permitted under the Hotel Mortgage), any Franchisor (to the extent permitted under any applicable Franchise Agreement), or their respective employees or duly authorized agents, shall have the right and privilege of examining and inspecting the books and records at any reasonable time. Upon termination of this Agreement, all such books and records shall be turned over to Lessee so as to insure the orderly continuance of the operation of the Hotels; provided however, that all such books and records thereafter shall be available to Manager at the Hotels at all reasonable times for inspection, audit, examination and copying for a period of three (3) years.

     15.02 Monthly Financial Statements. Within twenty-five (25) days following each Accounting Period, Manager shall furnish Lessee with respect to each of the Hotels an accrual basis balance sheet on Manager’s standard format in reasonable detail, together with a reasonably detailed accrual basis profit and loss statement for the calendar month next preceding and with a cumulative calendar year accrual basis profit and loss statement to date, including a comparison to the Annual Operating Budget and the Capital Improvements Budget and a statement of cash flows for each monthly and cumulative period for which a profit and loss statement is prepared. Further, from time to time as reasonably requested by Lessee, Manager shall provide a statement of bank account balances, an allocation to reserve accounts, a sources and uses statement, a narrative discussing any of the aforementioned reports and material variances from the Annual Operating Budget and the Capital Improvements Budget, such other reports and financial statements as Lessee may reasonably request and as are customarily provided by managers of similar hotel properties in the area of the Hotels without Manager receiving additional fees to provide same.

     15.03 Annual Financial Statements. Within forty-five (45) days after the end of each Fiscal Year, Manager shall furnish to Lessee year-end financial statements for the Hotels (including a balance sheet, income statement and statement of sources and uses of funds) which

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statements shall be unaudited and shall be prepared in accordance with GAAP and the Uniform System of Accounts (to the extent consistent with GAAP). Lessee will engage an independent national certified public accounting firm with hospitality experience and reasonably acceptable to Lessee to provide audited annual financial statements. Manager shall cooperate in all respects with such accountant in the preparation of such statements, including the delivery of any financial information generated by Manager pursuant to the terms of this Agreement and reasonably required by the Lessee’s accountant to prepare such audited financial statements.

ARTICLE XVI
PAYMENT BY LESSEE

     16.01 Payment of Base Management Fee. On the fifth (5th) day of each month during the term of this Agreement, Manager shall be paid out of the Operating Account, the Base Management Fee for the preceding Accounting Period, as determined from the books and records referred to in Article XV.

     16.02 Distributions. Subject to retention of Reasonable Working Capital (including any amounts as required by the Capital Improvement Budget) and retention of such reserves as may be required under any Hotel Mortgage and/or Ground Lease, as applicable, Manager shall deliver to Lessee from the Operating Account, any excess Working Capital for the preceding Accounting Period on the 25th day of the following month, and such amounts of Lessee’s money in the possession or under the control of Manager as Lessee shall from time to time request. For purposes of this Article “Reasonable Working Capital” shall mean an amount reasonably determined by Manager at the same time as the monthly financial statements are prepared pursuant to Section 15.02 hereof, but in no event to exceed a sum equal to a ratio of current assets to current liabilities of 2:1 (but excluding from such calculation cash restricted or unavailable under any Cash Management Agreement).

     16.03 Payment Option. Management Fees shall be paid in cash, except that subject to the requirements of Section 5.02.6 and Section 28.08 Manager may request, no later than thirty (30) days prior to the payment due date, by Notice to Lessee (such request to be subject to the approval of a majority of the Independent Directors of AHT, in their sole discretion, and to any applicable restrictions of a national securities exchange (including NASDAQ NMS and NASDAQ Small Cap) and to federal and state securities laws), payment of up to one-third (1/3^rd) of its Base Management Fee and up to one hundred percent (100%) of its Incentive Fee, in the form of shares of common stock of AHT priced at the “Strike Price,” or in the form of stock options priced in accordance with the “Black-Scholes Model” (the “Payment Option Request”), as follows:

A. Common Stock at “Strike Price”. The number of shares of common stock of AHT to be issued in lieu of the applicable Base Management Fees and/or Incentive Fee as noted in the Payment Option Request (the “Designated Fees”) shall be based upon the “Strike Price” of such common stock determined as follows: The term “Strike Price” shall be and mean the amount obtained (rounded upward to the next highest cent) by determining the simple average of the daily closing price of the common stock of AHT for the twenty (20) trading days ending on the last trading day of the calendar week immediately preceding

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the applicable payment due date on the New York Stock Exchange or, if the shares of such common stock are not then being traded on the New York Stock Exchange, then on the principal stock exchange (including without limitation NASDAQ NMS or NASDAQ Small Cap) on which such common stock is then listed or admitted to trading as determined by AHT or, if such common stock is not then so listed or admitted to trading the average of the last reported closing bid and asked prices on such days in the over-the-counter market or, if no such prices are available, the fair market value per share of such common stock, as determined by a majority of the Independent Directors of AHT in their sole discretion. The Strike Price shall not be subject to any adjustment as a result of the issuance of any additional shares of common stock by AHT for any purpose, except for stock splits (whether accomplished by stock dividends or otherwise) or reverse stock splits occurring during the 20 trading days referenced in the calculation of the Strike Price. Upon determination of the Strike Price for such common stock (and provided payment in the form of common stock has been approved by the board of directors of AHT), AHT agrees to issue to Manager the number of shares of common stock in AHT determined by dividing the Designated Fees by the Strike Price per share of common stock, and any balance remaining shall be paid to Manager in cash.

B. Options based on Black-Scholes Model. The number of stock options to be issued in lieu of the Designated Fees shall be based upon the “Black-Scholes Model” as follows: The term “Black-Scholes Model” means the Black-Scholes model for valuing the “fair value” of an option calculated based on historical data and calculated probabilities of future stock prices, reasonably applied. Upon determination of the value of an option on the date such options are to be issued, as determined using the Black-Scholes Model (the “Black-Scholes Amount”), provided payment in the form of options has been approved by the board of directors of AHT, AHT agrees to issue to Manager the number of options for common stock of AHT determined by dividing the Designated Fees by the Black-Scholes Amount per option, and any balance remaining shall be paid to Manager in cash. The “Strike Price” for any option (which must be exercised within ten (10) years of issuance), shall have the meaning of the term “Strike Price” as used in subparagraph A above.

ARTICLE XVII
RELATIONSHIP AND AUTHORITY

     Lessee and Manager shall not be construed as partners, joint venturers or as members of a joint enterprise and neither shall have the power to bind or obligate the other except as set forth in this Agreement. Nevertheless, Manager is granted such authority and power as may be reasonably necessary for it to carry out the provisions of this Agreement. This Agreement, either alone or in conjunction with any other documents, shall not be deemed to constitute a lease of any portion of the Premises. Nothing contained herein shall prohibit or restrict Manager or any affiliate of Manager from operating, owning, managing, leasing or constructing any hotel of any nature or description which may in any manner compete with that of the Premises, except as

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otherwise set forth in the Mutual Exclusivity Agreement; provided that Manager agrees to comply with the conflicts policies of AHT. Except as otherwise expressly provided in this Agreement, (a) all debts and liabilities to third persons incurred by Manager in the course of its operation and management of the Hotels in accordance with the provisions of this Agreement shall be the debts and liabilities of Lessee only, and (b) Manager shall not be liable for any such obligations by reason of its management, supervision, direction and operation of the Hotels as agent for Lessee. Manager may so inform third parties with whom it deals on behalf of Lessee and may take any other reasonable steps to carry out the intent of this paragraph.

ARTICLE XVIII
DAMAGE, CONDEMNATION AND FORCE MAJEURE

     18.01 Damage and Repair. If, during the Term hereof, a Hotel is damaged or destroyed by fire, casualty, or other cause, Lessee shall, subject to the requirements of the applicable underlying Lease, repair or replace the damaged or destroyed portion of the Hotel to the same condition as existed previously. In the event the underlying Lease relating to such damaged Hotel is terminated pursuant to the provisions of such Lease, Lessee may terminate this Agreement with respect to such Hotel upon sixty (60) days’ Notice from the date of such damage or destruction, in which case this Agreement shall then terminate with respect to such Hotel sixty (60) days from the date of such notice and neither party shall have any further rights, obligations, liabilities or remedies one to the other hereunder with respect to such Hotel, except as otherwise provided in Article II (provided that no termination fees shall be payable by Lessee pursuant to Article II) and Section 18.04. If this Agreement remains in effect with respect to such damaged Hotel and the damage does not result in a reduction of Gross Revenues at such Hotel, the Management Fee will be unabated. If however, this Agreement remain in effect with respect to such Hotel, but the damage does result in a reduction of Gross Revenues at such Hotel, Lessee shall be entitled to partial, pro rata abatement with respect to the Management Fee until such time as such Hotel is restored.

     18.02 Condemnation.

A.

In the event all or substantially all of a Hotel shall be taken in any eminent domain, condemnation, compulsory acquisition, or similar proceeding by any competent authority for any public or quasi-public use or purpose, this Agreement shall terminate with respect to such Hotel, subject to the requirements of the applicable underlying Lease. However, in any event of such termination, Lessee shall give Manager at least fifteen (15) days prior Notice of such termination. In the event of such termination, neither party shall have any further rights, remedies, obligations or liabilities one to the other hereunder with respect to such Hotel except as otherwise provided in Article II above (provided that no termination fees shall be payable by Lessee pursuant to Article II).

B.

If a portion of the Premises shall be taken by the events described in Section 18.02A or the entire Premises are temporarily affected, the result of either of which is not to make it, in the reasonable business judgment of Lessee, unreasonable to continue to operate the applicable Hotel, subject to the requirements of the applicable underlying Lease, this Agreement shall not

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terminate with respect to such Hotel. However, so much of any award for any such partial taking or condemnation shall be made available to the extent necessary to render the applicable Premises equivalent to its condition prior to such event and the balance shall be paid to Lessee or the Holder, if required by any Hotel Mortgage covering the Premises.

     18.03 Force Majeure. If an event of Force Majeure directly involves a Hotel and has a significant adverse effect upon the continued operations of such Hotel, then Lessee shall be entitled to terminate this Agreement with respect to the applicable Hotel by written Notice within sixty (60) days from the date of such Force Majeure, and this Agreement shall then terminate with respect to the applicable Hotel sixty (60) days from such notice, in which event neither Lessee nor Manager shall have any further rights, remedies, obligations or liabilities, one to the other, hereunder, with respect to the applicable Premises except as otherwise provided in Article II (provided that no termination fees shall be payable by Lessee pursuant to Article II).

     18.04 Liquidated Damages if Casualty.

A. Casualty of Initial Hotel. Notwithstanding anything contained in this Agreement to the contrary, if any of the Initial Hotels is damaged due to a casualty as set forth in Section 18.01 hereof, and Lessee elects, for any reason, not to rebuild the applicable Initial Hotel, Lessee agrees to pay to Manager (provided there does not then exist an Event of Default by Manager under this Agreement, beyond any applicable grace and cure periods), a termination fee as liquidated damages and not as a penalty in an amount as if such Initial Hotel was being sold, as set forth in Section 2.03(a)(ii) above.

B. Casualty of a Future Hotel. Notwithstanding anything contained in this Agreement to the contrary, if any of the Future Hotels is damaged pursuant to a casualty as set forth in Section 18.01 hereof within the first year of the initial 10-year term for such hotel, and Lessee elects, for any reason, not to rebuild such Future Hotel, Lessee agrees to pay Manager (provided there does not then exist an Event of Default by Manager beyond any applicable cure periods), a termination fee, if any, that would be owed if such hotel were then sold, as set forth in Section 2.03(a)(i) above. However, if after the first year of the initial 10-year term for a Future Hotel, such hotel is damaged and Lessee elects not to rebuild such hotel even though sufficient casualty proceeds are available to do so, then Lessee will pay to Manager a termination fee (provided there does not then exist an Event of Default by Manager beyond any applicable cure periods), equal to the product obtained by multiplying (i) 65% of the aggregate Base Management Fee and Incentive Fee estimated to be paid Manager budgeted in the Annual Operating Budget applicable to such Future Hotel (but in no event less than the Base Management Fee and Incentive Fee for the preceding full Fiscal Year) by (ii) nine (9).

     Payment of the termination fees set forth in this Section 18.04 shall be subject to Section 2.03(d) above with respect to liquidated damages.

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     18.05 No Liquidated Damages if Condemnation or Force Majeure. No liquidated damages shall be payable in the event of a condemnation relating to any of the Hotels, provided that Manager shall be entitled to seek recovery from the condemning authority for its loss of contract and this Agreement shall not terminate for that purpose. No liquidated damages shall be payable by Lessee as a result of its termination of this Agreement pursuant to Section 18.03 (Force Majeure).

ARTICLE XIX
DEFAULT AND TERMINATION

     19.01 Events of Default. The following shall constitute events of default (each an “Event of Default”):

A.	The filing of a voluntary petition in bankruptcy or insolvency or a petition for reorganization under any bankruptcy law by Lessee or Manager;
B.	The consent to any involuntary petition in bankruptcy or the failure to vacate, within ninety (90) days from the date of entry thereof, any order approving an involuntary petition by Lessee or Manager;
C.	The entering of an order, judgment or decree by any court of competent jurisdiction, on the application of a creditor, adjudicating Lessee or Manager as bankrupt or insolvent, or approving a petition seeking reorganization or appointing a receiver, trustee, or liquidator of all or a substantial part of such party’s assets, and such order, judgment or decree continues unstayed and in effect for any period of ninety (90) days or more;
D.	The appointment of a receiver for all or any substantial portion of the property of Lessee or Manager;
E.	The failure of Lessee or Manager to make any payment required to be made in accordance with the terms of this Agreement within ten (10) days after receipt of Notice, specifying said default with reasonable specificity, when such payment is due and payable; or
F.	The failure of Lessee or Manager to perform, keep or fulfill any of the other covenants, undertakings, obligations or conditions set forth in this Agreement, and the continuance of such default for a period of thirty (30) days after written notice of said failure; provided, however, if such default cannot be cured within such thirty (30) day period and Lessee or Manager, as the case may be, commences to cure such default within such thirty (30) day period and thereafter diligently and expeditiously proceeds to cure the same, such thirty (30) day period shall be extended so long as it shall require Lessee or Manager, as the case may be, in the exercise of due diligence to cure such default, it being agreed that no such extension (including the original 30 day cure period) shall be for a period in excess of one hundred twenty (120) days.

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G. The Manager does not qualify as an Eligible Independent Contractor.

     H.    An occurrence of an Event of Default under the RL&H Agreement referred to in the Recital 1.

     19.02 Consequence of Default. Upon the occurrence of any Event of Default, the non-defaulting party may give the defaulting party Notice of intention to terminate this Agreement (after the expiration of any applicable grace or cure period provided in Section 19.01), and upon the expiration of thirty (30) days from the date of such notice, this Agreement shall terminate, whereupon the non-defaulting party shall be entitled to pursue all of its rights and remedies, at law or in equity, under this Agreement (including, without limitation, any indemnity obligations which shall survive termination of this Agreement) and any other rights and remedies available under Legal Requirements except as otherwise expressly limited by the terms of Article II. Notwithstanding the foregoing, in the event that an Event of Default is applicable to one or more of the Hotels but not all of the Hotels, such termination shall only be as to such applicable Hotel(s).

ARTICLE XX
WAIVER AND INVALIDITY

     20.01 Waiver. The failure of either party to insist upon a strict performance of any of the terms or provisions of this Agreement or to exercise any option, right or remedy herein contained, shall not be construed as a waiver or as a relinquishment for the future of such term, provision, option, right or remedy, but the same shall continue and remain in full force and effect. No waiver by either party of any term or provision hereof shall be deemed to have been made unless expressed in writing and signed by such party.

     20.02 Partial Invalidity. In the event that any portion of this Agreement shall be declared invalid by order, decree or judgment of a court, this Agreement shall be construed as if such portion had not been inserted herein except when such construction would operate as an undue hardship on the Manager or Lessee or constitute a substantial deviation from the general intent and purpose of said parties as reflected in this Agreement, in which event it shall be terminated.

ARTICLE XXI
ASSIGNMENT

     Subject to the requirements of any Hotel Mortgage, Franchise Agreement, Ground Lease or any of the Leases, neither party shall assign or transfer (by operation of law or otherwise) or permit the assignment or transfer of this Agreement without the prior written consent of the other (which may be withheld in its sole discretion) and any such prohibited assignment or transfer shall be null and void; provided, however, that Manager shall have the right, without such consent, to assign its interest in this Agreement to any “Manager Affiliate Entity”, provided such Manager Affiliate Entity qualifies as an Eligible Independent Contractor as of the date of such transfer. The term “Manager Affiliate Entity” shall mean any entity controlled directly or indirectly by (i) Archie Bennett, Jr. and/or Monty Bennett, (ii) family partnerships or trusts (the sole members or beneficiaries of which are at all times lineal descendants of Archie Bennett, Jr.

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or Monty Bennett (including step-children) and spouses of any of the foregoing), or (iii) by lineal descendants of Archie Bennett, Jr. or Monty Bennett (including step-children) and spouses of any of the foregoing. For purposes hereof, “controlled” shall mean (i) the possession, directly or indirectly of a majority of the voting power and capital stock or ownership interest of such entity, or (ii) the power to direct or cause the direction of the management and policies of such entity in the capacity of chief executive officer, president, chairman, or other similar capacity where they are actively engaged and/or involved in providing such direction or control and spend a substantial amount of time managing such entity. Any such permitted assignee shall be deemed to be the Manager for purposes of this Agreement provided such assignee assumes all of Manager’s future obligations under this Agreement pursuant to an assumption agreement reasonably acceptable to Lessee. Any and all such assignments, however, shall at all times be subject to the prior right, title and interest of Lessee with respect to the Premises. An assignment by Manager or any permitted assignee of its interest in this Agreement, shall not relieve Manager or any such permitted assignee, as the case may be, from their respective obligations under this Agreement, and shall inure to the benefit of, and be binding upon, their permitted successors and assigns. For purposes of this Article XXI any change in the ownership of the Manager or other event that would cause the Manager to fail to be a Manager Affiliate Entity shall be deemed to be a transfer of this Agreement, prohibited by this Article XXI unless first consented to in writing by Lessee.

ARTICLE XXII
NOTICES

     All notices, demands, elections, or other communications that any party this Agreement may desire or be required to be given hereunder shall be in writing and shall be given by hand, by depositing the same in the United States mail, first class, postage prepaid, certified mail, return receipt requested, or by a recognized overnight courier service providing confirmation of delivery, to the addresses set forth below, or at such address as may be designated by the addressee upon written notice to the other party, (herein called “Notice”).

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To Lessee:	Ashford TRS Corporation
	14185 Dallas Parkway, Suite 1100
	Dallas, Texas 75254
	Attn: Chief Financial Officer
	Fax: (972) 490-9605
With a copy to:	Ashford Hospitality Limited Partnership
	14185 Dallas Parkway, Suite 1100
	Dallas, Texas 75254
	Attn: General Counsel
	Fax: (972) 490-9605
To Manager:	Remington Management, L.P.
	14185 Dallas Parkway, Suite 1150
	Dallas, Texas 75254
	Attn: Monty Bennett
	Fax: (972) 980-2705
With a copy to:	Remington Management, L.P.
	14185 Dallas Parkway, Suite 1150
	Dallas, Texas 75254
	Attn: Legal Department
	Fax: (972) 490-9605
To the Landlords:	c/o Ashford Hospitality Limited Partnership
	14185 Dallas Parkway, Suite 1100
	Dallas, Texas 75254
	Attn: General Counsel
	Fax: (972) 490-9605

     All notices given pursuant to this Article XXII shall be deemed to have been given (i) if delivered by hand on the date of delivery or on the date that delivery was refused by the addressee, or (ii) if delivered by certified mail or by overnight courier, on the date of delivery as established by the return receipt or courier service confirmation (or the date on which the return receipt or courier service confirms that acceptance of delivery was refused by the addressee).

ARTICLE XXIII
SUBORDINATION; NON-DISTURBANCE

     23.01 Subordination. This Agreement shall be subject and subordinate to any Hotel Mortgage and Lease, and Manager agrees to enter into a lender-manager or landlord-manager (as applicable) agreement with respect to each Hotel, which agreement shall contain reasonable provisions, including, without limitation, Manager’s acknowledgment that its real estate interest in and to the applicable Hotel, if any, created by this Agreement is subject and subordinate to the applicable Hotel Mortgage or Lease, including providing any purchaser of such Hotel at a foreclosure sale or deed-in-lieu of foreclosure, including the Holder, with the right to terminate this Agreement with respect to the applicable Hotel; provided, however, in no event will

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Manager agree to subordinate or waive its right to receive fees, reimbursements or indemnification payments under this Agreement arising prior to termination (but (a) if this Agreement is terminated by the Holder or such purchaser or Landlord (or its assignee) with respect to such Hotel, Manager shall not look to the Holder for payment of such fees, reimbursements or indemnification payments and Manager’s right to receive such fees, reimbursements or indemnification payments shall be subordinated to the Holder’s rights and (b) if this Agreement is not terminated by the Holder or such purchaser with respect to such Hotel, then such fees, reimbursements or indemnification payments shall be payable by the Holder or such purchaser). Notwithstanding the foregoing, Manager shall in no event be obligated to perform its duties hereunder without payment and/or reasonable assurance of payment of such fees, reimbursements or indemnification payments.

     23.02 Non-Disturbance Agreement. Notwithstanding Section 23.01, Lessee agrees that, prior to obtaining any Hotel Mortgage or executing any Lease, Lessee will use its commercially reasonable efforts to obtain from each prospective Holder or Landlord (as applicable), a Non-Disturbance Agreement pursuant to which Manager’s rights under this Agreement will not be disturbed as a result of a default stemming from non-monetary factors which (i) relate to Lessee and do not relate solely to the applicable Hotel, and (ii) are not defaults by Manager under Section 19.01 of this Agreement. If Lessee desires to obtain a Hotel Mortgage or to execute a Lease, Manager, on written request from Lessee, shall promptly identify those provisions in the proposed Hotel Mortgage or Lease documents which fall within the categories described in clauses (i) and (ii) above, and Manager shall otherwise assist in expediting the preparation of an agreement between the prospective Holder and/or Landlord and Manager which will implement the provisions of this Section 23.02.

ARTICLE XXIV
PROPRIETARY MARKS; INTELLECTUAL PROPERTY

     24.01 Proprietary Marks. During the Term of this Agreement, the name “Remington,” whether used alone or in connection with other another word(s), and all proprietary marks (being all present and future trademarks, trade names, symbols, logos, insignia, service marks, and the like) of Manager or any one of its Manager Affiliate Entities, whether or not registered (“Proprietary Marks”) shall in all events remain the exclusive property of Manager and its Manager Affiliate Entities. Lessee shall have no right to use any Proprietary Mark, except during the term of this Agreement to have signage installed using any Proprietary Mark in conformance with the specifications provided by Manager. Upon Termination, any use of a Proprietary Mark by Lessee under this Agreement shall immediately cease. Upon Termination, Manager shall have the option to purchase, at their then book value, any items of the applicable Hotel’s Inventories and Fixed Asset Supplies as may be marked with a Proprietary Mark. In the event Manager does not exercise such option, Lessee agrees that it will use any such items not so purchased exclusively in connection with Hotels until they are consumed.

     24.02 Computer Software and Equipment. All “Software” (meaning all computer software and accompanying documentation, other than software which is commercially available, which are used by Manager in connection with the property management system, any reservation system and all future electronic systems developed by Manager for use in the Hotels)

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is and shall remain the exclusive property of Manager or any one of its Manager Affiliate Entities (or the licensor of such Software, as the case may be), and Lessee shall have no right to use, or to copy, any Software. Upon Termination, Manager shall have the right to remove from the Hotels, without compensation to Lessee, all Software, and any computer equipment which is utilized as part of a centralized property management system or is otherwise considered proprietary by Manager, excepting any software which is owned by the applicable Franchisor; provided that Manager shall cooperate with Lessee in the transition of the centralized management system to the new manager, including in the change of any Software and computer equipment. If any of such computer equipment is owned by Lessee or Landlord, Manager shall reimburse Lessee for previous expenditures made by Lessee for the purchase of such equipment, subject to a reasonable allowance for depreciation.

     24.03 Intellectual Property. All “Intellectual Property” (meaning all Software and manuals, brochures and directives issued by Manager to its employees at the Hotels regarding procedures and techniques to be used in operating the Hotels) shall at all times be proprietary to Manager or its Affiliates, and shall be the exclusive property of Manager or its Affiliates. Upon Termination, all Intellectual Property shall be removed from the Hotels by Manager, without compensation to Lessee.

     24.04 Books and Records. All Books and Records maintained with respect to the Hotels, including guest records but excluding employee records, shall be the sole property of Lessee but may be used by the Manager during the Term in connection with its management and operation of the Hotels.

ARTICLE XXV
INDEMNIFICATION

     25.01 Manager Indemnity. Manager shall indemnify and hold Lessee (and Lessee’s agents, principals, shareholders, partners, members, officers, directors, attorneys and employees) harmless from and against all liabilities, losses, claims, damages, costs and expenses (including, but not limited to, reasonable attorneys’ fees and expenses) which are not covered by insurance proceeds that may be incurred by or asserted against any such party and that arise from (a) the fraud, willful misconduct or gross negligence of Manager; provided, however, that the act or omission of any employee of Manager who is not an Executive Employee, which act or omission is willful or constitutes fraud or gross negligence on the part of such employee, shall not constitute fraud, gross negligence or willful misconduct on the part of Manager unless Manager’s home office or regional staff, or an Executive Employee, acted with gross negligence in employing, training, supervising or continuing the employment of such employee; (b) the infringement of any of Manager’s intellectual property rights (including trademarks, software, etc.) on the intellectual property rights of any third party; (c) any Excluded Employee Claims; (d) knowing or reckless placing, discharge, leakage, use or storage, of hazardous materials on the Premises or in the Hotels by Manager during the Term of this Agreement as set forth in Section 28.09C; or (e) the breach by Manager of any provision of this Agreement, including, without limitation, any action taken by Manager which is beyond the scope of Manager’s authority under this Agreement, which is not cured within any applicable notice and cure periods. Lessee shall promptly provide Manager with written notice of any claim or suit brought against it by a third party which might result in such indemnification.

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     25.02 Lessee Indemnity. Except with respect to matters for which Manager is obligated to provide indemnification pursuant to Section 25.01, and except with respect to matters that constitute a breach of any of the representations, warranties or agreements made by any of the grantors pursuant to the Omnibus Option Agreement dated May 15, 2003, among the Partnership and the grantors named therein or pursuant to any of the closing documents or other instruments, certificates or agreements delivered in connection therewith, provided that such representations, warranties or agreements are then surviving pursuant to the terms of said Omnibus Option Agreement. Lessee shall indemnify and hold Manager (and Manager’s agents, principals, shareholders, partners, members, officers, directors, attorneys and employees) harmless from and against all liabilities, losses, claims, damages, costs and expenses (including, but not limited to, reasonable attorneys’ fees and expenses) which are not covered by insurance proceeds and that may be incurred by or asserted against such party and that arise from or in connection with (a) the performance of Manager’s services under this Agreement; (b) the condition or use of the Hotels, to the fullest extent permitted by law, including without limitation, any injury to person(s) or damage to property or business by reason of any cause whatsoever in or about the Hotels; (c) any Employee Related Termination Costs, including any liability to which Manager is subjected pursuant to the WARN Act in connection with the termination of this Agreement, provided that Manager has provided notices in the form (other than any reference to the time period) required by the WARN Act within five (5) business days of Manager’s receipt of a notice of the termination of this Agreement (excluding any termination of this Agreement which results from the commission of any theft, embezzlement or other criminal misappropriation of funds of the Hotels or from the Lessee or any fraud or felony by any Executive Employee that relates to or materially affects the operation or reputation of the Hotels); (d) the Employee Costs and Expenses as set forth in Article IX herein above; or (e) any Employee Claims, but excluding any Excluded Employee Claims. Manager shall promptly provide Lessee with written Notice of any claim or suit brought against it by a third party which might result in such indemnification. THIS INDEMNITY PROVISION IS INTENDED TO INDEMNIFY MANAGER (i) AGAINST THE CONSEQUENCES OF ITS OWN NEGLIGENCE OR FAULT WHEN MANAGER IS SOLELY NEGLIGENT OR CONTRIBUTORILY, PARTIALLY, JOINTLY, COMPARATIVELY OR CONCURRENTLY NEGLIGENT WITH LESSEE OR ANY OTHER PERSON (BUT IS NOT GROSSLY NEGLIGENT, HAS NOT COMMITTED AN INTENTIONAL ACT OR MADE INTENTIONAL OMISSION) AND (ii) AGAINST ANY LIABILITY OF MANAGER BASED ON ANY APPLICABLE DOCTRINE OF STRICT LIABILITY.

     25.03 Indemnification Procedure. Any party obligated to indemnify the other party under this Agreement (the “Indemnifying Party”) shall have the right, by Notice to the other party, to assume the defense of any claim with respect to which the other party is entitled to indemnification hereunder. If the Indemnifying Party gives such notice, (i) such defense shall be conducted by counsel selected by the Indemnifying Party and approved by the other party, such approval not to be unreasonably withheld or delayed (provided, however, that the other party’s approval shall not be required with respect to counsel designated by the Indemnifying Party’s insurer); (ii) so long as the Indemnifying Party is conducting such defense with reasonable diligence, the Indemnifying Party shall have the right to control said defense and shall not be required to pay the fees or disbursements of any counsel engaged by the other party for services rendered after the Indemnifying Party has given the Notice provided for above to the other party,

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except if there is a conflict of interest between the parties with respect to such claim or defense; and (iii) the Indemnifying Party shall have the right, without the consent of the other party, to settle such claim, but only provided that such settlement involves only the payment of money, the Indemnifying Party pays all amounts due in connection with or by reason of such settlement and, as part thereof, the other party is unconditionally released from all liability in respect of such claim. The other party shall have the right to participate in the defense of such claim being defended by the Indemnifying Party at the expense of the other party, but the Indemnifying Party shall have the right to control such defense (other than in the event of a conflict of interest between the parties with respect to such claim or defense). In no event shall (i) the other party settle any claim without the consent of the Indemnifying Party so long as the Indemnifying Party is conducting the defense thereof in accordance with this Agreement; or (ii) if a claim is covered by the Indemnifying Party’s liability insurance, take or omit to take any action which would cause the insurer not to defend such claim or to disclaim liability in respect thereof.

     25.04 Survival. The provisions of this Article shall survive the termination of this Agreement with respect to acts, omissions and occurrences arising during the Term.

     25.05 No Successor Liability. Notwithstanding anything herein to the contrary, Manager shall not be liable as a successor employer or entity for any actions Manager’s predecessors may have taken in the employer-employee relationship with Manager’s current or former employees or employees of Manager’s agents before the commencement of the term.

ARTICLE XXVI
FUTURE HOTELS

     Lessee acknowledges and agrees that any motel and/or hotel properties leased by Lessee from any Affiliates of the Partnership (including the Landlords) from and after the Effective Date (“Future Hotels”), may at the election of the parties to the Mutual Exclusivity Agreement either be subject to the terms and provisions of this Agreement effective upon execution of an amendment to this Agreement (the “Amendment”) in the form of Exhibit “E” attached hereto, or pursuant to a management agreement in form and substance substantially similar to the terms of this Agreement with either Manager or an Affiliate of Manager (provided said Affiliate constitutes an Eligible Independent Contractor); provided that there does not then exist an uncured Event of Default by Manager under this Agreement and the independent director approval requirements under the Mutual Exclusivity Agreement have been satisfied. Upon execution of such Amendment (as set forth therein), Exhibit “A” (Hotel Information), Exhibit “B” (Description of Leases), Exhibit “B-1" (Legal Descriptions for Sites), Exhibit “C” (Description of Franchise Agreements and Franchisors), Exhibit “D” (Annual Operating Budget) to this Agreement shall be amended to add the applicable information required by this Agreement with respect to the Future Hotel(s) subject of the Amendment. Effective upon execution of said Amendment, all terms and conditions of this Agreement shall be deemed amended to include and apply to such Future Hotel(s).

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ARTICLE XXVII
GOVERNING LAW VENUE

     This Agreement and its interpretation, validity and performance shall be governed by the laws of the State of Texas without regard to its conflicts of laws principles. In the event any court of law of appropriate judicial authority shall hold or declare that the law of another jurisdiction is applicable, this Agreement shall remain enforceable under the laws of the appropriate jurisdiction. The parties hereto agree that venue for any action in connection herewith shall be proper in Dallas County, Texas. Each party hereto consents to the jurisdiction of any local, state or federal court situated in any of such locations and waives any objection which it may have pertaining to improper venue or forum non conveniens to the conduct of any proceeding in any such court.

ARTICLE XXVIII
MISCELLANEOUS

     28.01 Rights to Make Agreement. Each party warrants, with respect to itself, that neither the execution of this Agreement nor the finalization of the transactions contemplated hereby shall violate any provision of law or judgment, writ, injunction, order or decree of any court or governmental authority having jurisdiction over it; result in or constitute a breach or default under any indenture, contract, other commitment or restriction to which it is a party or by which it is bound; or require any consent, vote or approval which has not been given or taken. Each party covenants that it has and will continue to have throughout the term of this Agreement and any extensions thereof, the full right to enter into this Agreement and perform its obligations hereunder.

     28.02 Agency. Manager’s limited agency established by this Agreement is coupled with an interest and may not be terminated by Lessee until the expiration of the Term of this Agreement except as otherwise provided in this Agreement.

     28.03 Failure to Perform. If Manager or Lessee at any time fails to make any payments as specified or required hereunder or fails to perform any other act required on its part to be made or performed hereunder without limitation, then the other party after thirty (30) days’ written notice to the defaulting party may (but shall not be obligated to) pay any such delinquent amount or perform any such other act on the defaulting party’s part. Any sums thus paid and all costs and expenses incurred in connection with the making of such payment or the proper performance of any such act, together with interest thereon at the lesser of (i) the interest rate allowed by the applicable usury laws or (ii) at the Prime Rate plus three percent (3%), from the date that such payment is made or such costs and expenses incurred, shall constitute a liquidated amount to be paid by the defaulting party under this Agreement to the other party on demand. For the purposes of this Section 28.03, the term “Prime Rate” shall mean the “prime rate” as published in the “Money Rates” section of The Wall Street Journal; however, if such rate is, at any time during the Term of this Agreement, no longer so published, the term “Prime Rate” shall mean the average of the prime interest rates which are announced, from time to time, by the three (3) largest banks (by assets) headquartered in the United States which publish a “prime rate”.

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     28.04 Headings. Headings of Articles and Sections are inserted only for convenience and are in no way to be construed as a limitation on the scope of the particular Articles or Sections to which they refer.

     28.05 Attorneys’ Fees and Costs. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

     28.06 Entire Agreement. This Agreement, together with other writings signed by the parties expressly stated to be supplementary hereto and together with any instruments to be executed and delivered pursuant to this Agreement, constitutes the entire agreement between the parties and supersedes all prior understandings and writings, and may be changed only by a writing signed by the parties hereto.

     28.07 Consents. Whenever the consent or approval of Lessee is required under the terms of this Agreement, unless otherwise stated to the contrary, such consent or approval may be granted or withheld by Lessee in its reasonable discretion.

     28.08 Eligible Independent Contractor. During the Term of this Agreement, Manager shall at all times qualify as an “eligible independent contractor” as defined in Section 856(d)(9) of the Code (“Eligible Independent Contractor”). To that end, during the Term of this Agreement, Manager agrees that:

     (a) Manager shall not conduct wagering activities at any of the Hotels;

     (b) Manager shall not own, directly or indirectly (within the meaning of Section 856(d)(5) of the Code), more than thirty-five percent (35%) of the outstanding stock of AHT;

     (c) no more than thirty-five percent (35%) of the Manager’s partnership interest (in its assets or net profits) shall be owned (within the meaning of Section 856(d)(5) of the Code), directly or indirectly, by one or more persons owning thirty-five percent (35%) (within the meaning of Section 856(d)(5) of the Code) or more of the outstanding stock of AHT;

     (d) neither AHT, the Partnership, the Landlords, nor the Lessee, shall derive any income from the Manager or any of its subsidiaries; and

     (e) Manager (or a person who is a “related person” within the meaning of Section 856(d)(9)(F) of the Code (a “Related Person”) with respect to Manager) shall be actively engaged in the trade or business of operating “qualified lodging facilities” within the meaning of Section 856(d)(9)(D) of the Code (defined below) for one or more persons who are not Related Persons with respect to AHT or Lessee (“Unrelated Persons”). For purposes of determining whether the requirement of this paragraph (e) has been met, Manager shall be treated as being “actively engaged” in such a trade or business if Manager (i) derives at least 10% of both its profits and revenue from operating “qualified

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lodging facilities” within the meaning of Section 856(d)(9)(D) of the Code for Unrelated Persons or (ii) complies with any regulations or other administrative guidance under Section 856(d)(9) of the Code that provide a “safe harbor” rule with respect to the hotel management business with Unrelated Persons that is necessary to qualify as an “eligible independent contractor” within the meaning of such Code section.

     A “qualified lodging facility” is defined in Section 856(d)(9)(D) of the Code and means a “Lodging Facility” (defined below), unless wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is fully authorized to engage in such business at or in connection with such facility. A “Lodging Facility” is a hotel, motel or other establishment more than one-half of the dwelling units in which are used on a transient basis, and includes customary amenities and facilities operated as party of, or associated with, the lodging facility so long as such amenities and facilities are customary for other properties of a comparable size and class owned by other owners unrelated to AHT.

     28.09 Environmental Matters.

A.	For purposes of this Section 28.09, “hazardous materials” means any substance or material containing one or more of any of the following: “hazardous material,” “hazardous waste,” “hazardous substance,” “regulated substance,” “petroleum,” “pollutant,” “contaminant,” or “asbestos,” as such terms are defined in any applicable environmental law, in such concentration(s) or amount(s) as may impose clean-up, removal, monitoring or other responsibility under any applicable environmental law, or which may present a significant risk of harm to guests, invitees or employees of the Hotels.
B.	Regardless of whether or not a given hazardous material is permitted on the Premises under applicable environmental law, Manager shall only bring on the Premises such hazardous materials as are needed in the normal course of business of the Hotels.
C.	In the event of the discovery of hazardous materials (as such term may be defined in any applicable environmental law) on the Premises or in the Hotels during the Term of this Agreement, Lessee shall promptly remove, if required by applicable environmental law, such hazardous materials, together with all contaminated soil and containers, and shall otherwise remedy the problem in accordance with all environmental laws (except to the extent knowingly or recklessly caused by Manager during the Term of this Agreement, whereupon the responsibility to promptly remove and/or remedy the environmental problem shall be that of Manager and at Manager’s sole cost and expense). All costs and expenses of the compliance with all environmental laws shall be paid by Lessee from its own funds (except to the extent knowingly or recklessly caused by Manager during the Term of this Agreement as set forth herein above).

     28.10 Equity and Debt Offerings. Neither Lessee nor Manager (as an “issuing party”) shall make reference to the other party (the “non-issuing party”) or any of its Affiliates

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in any prospectus, private placement memorandum, offering circular or offering documentation related thereto (collectively, referred to as the “Prospectus”), issued by the issuing party, unless the non-issuing party has received a copy of all such references. In no event will the non-issuing party be deemed a sponsor of the offering described in any such Prospectus, nor will it have any responsibility for the Prospectus, and the Prospectus will so state. The issuing party shall be entitled to include in the Prospectus an accurate summary of this Agreement but shall not include any proprietary mark of the non-issuing party without prior written consent of the non-issuing party. The issuing party shall indemnify, defend and hold the non-issuing party and its Affiliates (and their respective directors, officers, shareholders, employees and agents) harmless from and against all loss, costs, liability and damage (including attorneys’ fees and expenses, and the cost of litigation), arising out of any Prospectus or the offering described therein, except for any such losses, costs, liability and damage arising from material misstatements or omissions in a Prospectus based on information provided in writing by the non-issuing party expressly for inclusion in the Prospectus.

     28.11 Estoppel Certificates. Lessee and Manager will, at any time and from time to time within fifteen (15) days of the request of the other party or a Holder, or a Franchisor (if so permitted under the applicable Franchise Agreement), or a Landlord (if so permitted under the applicable Lease), execute, acknowledge, and deliver to the other party and such Holder, Franchisor or Landlord, as applicable, a certificate certifying:

A.	That the Agreement is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating such modifications);
B.	The dates, if any, to which the distributions of excess Working Capital have been paid;
C.	Whether there are any existing Event(s) of Default or events which, with the passage of time, would become an Event of Default, by the other party to the knowledge of the party making such certification, and specifying the nature of such Event(s) of Default or defaults or events which, with the passage of time, would become an Event of Default, if any; and
D.	Such other matters as may be reasonably requested.

     Any such certificates may be relied upon by any party to whom the certificate is directed.

     28.12 Confidentiality. The Manager shall keep confidential all non-public information obtained in connection with the services rendered under this Agreement and shall not disclose any such information or use any such information except in furtherance of its duties under this Agreement and as may be required by any of its lenders or owners (provided said lenders and/or owners, as applicable agree prior to disclosure to keep such information confidential as set forth in this subparagraph 28.12), or as may be required by applicable Legal Requirements or court order, or as may be required under any Franchise Agreement, Hotel Mortgage, Lease or Ground Lease.

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     28.13 Modification. Any amendment, supplement or modification of this Agreement must be in writing signed by both parties hereto.

     28.14 Counterparts. This Agreement may be executed in multiple counterparts, each of which is an original and all of which collectively constitute one instrument.

[Signature Pages to Follow]

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers, as of the Effective Date.

LESSEE:

ASHFORD TRS CORPORATION, a Delaware corporation
By:	/S/ DAVID J. KIMICHIK
	David J. Kimichik
	President

MANAGER:

REMINGTON MANAGEMENT, L.P.,
a Delaware limited partnership
By:	Remington Management GP, LLC,
	a Delaware limited liability company,
	its General Partner
	By:	/S/ MONTY BENNETT Monty Bennett President

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EX-10.33

Exhibit 10.33

Purchase and Sale Agreement

     This Purchase and Sale Agreement (this “Agreement”) is entered into as of the 18th day of January, 2007 by and between CNL HOTELS & RESORTS, INC. and the other owners identified on Schedule A attached hereto and made a part hereof by this reference (collectively, the “Seller”) and ASHFORD SAPPHIRE ACQUISITION LLC (the “Buyer”).

RECITALS

     A. Reference is hereby made to that certain Agreement and Plan of Merger by and among MS Resort Holdings LLC, a Delaware limited liability company (“Parent”), MS Resort Acquisition LLC, a Delaware limited liability company and a wholly-owned subsidiary of Parent, MS Resort Purchaser LLC, a Delaware limited liability company and wholly-owned subsidiary of Parent, Buyer and Seller dated as of the date hereof (the “Merger Agreement”). Capitalized terms used herein without definition shall have the meanings ascribed thereto in the Merger Agreement.

     B. Seller owns (i) the fee or leasehold interest in each of the Properties (as hereinafter defined), and (ii) directly or indirectly, a limited partner interest and the sole general partner interest (collectively, the “Joint Venture Interests”) pursuant a joint venture agreement (each, a "Joint Venture Agreement”) in the joint ventures and in the percentages identified on Schedule A (collectively, the “Joint Ventures”). The Joint Ventures own the eighteen (18) properties identified on Schedule A (each, a “Joint Venture Property” and, collectively, the “Joint Venture Properties”).

     C. Pursuant to the Merger Agreement, Seller desires to sell to Buyer the Properties and the Joint Venture Interests, and Buyer desires to buy the Properties and the Joint Venture Interests from Seller, all on and subject to the terms and conditions set forth in the Merger Agreement and herein.

1. Agreement to Purchase and Sell. In consideration of the undertakings and mutual covenants of the parties set forth in this Agreement, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, Seller hereby agrees to sell all of the Properties and the Joint Venture Interests to Buyer and Buyer, and/or its nominee(s), agree to buy all of the Properties and the Joint Venture Interests from Seller for the Purchase Price (as hereinafter defined), payable as provided below and otherwise on and subject to the terms and conditions contained herein and in the Merger Agreement.

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2.	Description of the Property.
	The Properties consist of the following:
	Each of the hotel and/or resort properties or the leasehold interests therein (the “Land”) as listed on Schedule A attached hereto (other than the Joint Venture Properties) together with (i) all of Seller’s right, title and interest in all rights, privileges and easements appurtenant to the Land, including, without limitation, all minerals, oil, gas, and other hydrocarbon substances on and under the Land, as well as all development rights, air rights, water, water rights and water stock relating to the Land, any rights to any land lying in the bed of any existing dedicated street, road or alley adjoining the Land and to all strips and gores adjoining the Land, and any other easements, rights-of-way, or appurtenances used in connection with the beneficial use and enjoyment of the Land (collectively referred to as the “Appurtenances”); (ii) all of Seller’s right, title and interest in all improvements, fixtures, buildings, and structures presently located on the Land and all apparatus, equipment and appliances affixed to the Land or located within such improvements, buildings, or structures and affixed thereto and used in connection with the operation or occupancy of such improvements, fixtures, buildings and structures including without limitation, heating and air conditioning systems and facilities used to provide any utility services, refrigeration, ventilation, garage disposal, recreation, or other services on or to such improvements, fixtures, buildings and/or structures (collectively, the “Improvements”); (iii) all of Seller’s right, title and interest in all items of tangible personal property consisting of furniture, furnishings, china, glassware, silverware, cutlery, kitchen equipment and utensils, vehicles, inventories of food and beverages in opened or unopened cases, in-use or reserve stock of linens, towels, paper goods, soap, cleaning supplies and the like, and other tangible personal property of every kind and nature located in the Improvements, to the extent assignable (collectively, the “Tangible Personal Property”); and (iv) all of Seller’s right, title, and interest in and to all intangible personal property owned or possessed by Seller and used exclusively in connection with the ownership, lease, or operation of the Improvements, including without limitation all service, supply, operating and maintenance contracts (collectively, the “Service Contracts”), any leases, contracts and agreements pertaining to facilities not located on a Property but that are necessary, beneficial or related to the operation of a Property, including, without limitation, use agreements for local golf courses, parking contracts or leases, garage contracts or leases, storm water management agreements, equipment leases (collectively, the “Equipment Leases”), space leases (collectively, the “Space Leases”), licenses, permits and approvals required by any governmental or quasi-governmental agency (collectively, the “Licenses and Permits”), business records, plans and specifications pertaining to the Improvements and/or the Tangible Personal Property, websites, FTP files, advance bookings and reservations, Management Agreements or Franchise Agreements (as defined in Section 5 hereof), third party warranties and guaranties relating to the Improvements, the Tangible Personal Property, or any part thereof, all to the extent assignable (collectively, the “Intangible Personal Property”). The Land, Appurtenances, Improvements, Tangible Personal Property, and Intangible Personal Property are, with respect to each hotel and/or resort property collectively referred to as a “Property” and all such hotels and/or resort properties are collectively referred to as the “Properties”).

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3.	Purchase Price; Allocations for Tax Purposes. The purchase price (the “Purchase Price”) for the Properties and the Joint Venture Interests is Two Billion Four Hundred One Million Three Hundred Sixteen Thousand One Hundred Twenty-nine Dollars ($2,401,316,129.00), provided, however, that Buyer shall have the right, in its sole discretion, to adjust such Purchase Price, up or down, by up to an aggregate amount of Three Hundred Million Dollars ($300,000,000.00), which adjustment shall not affect the aggregate amount payable to Seller under the Merger Agreement and this Agreement. The Purchase Price (as so adjusted) shall be payable in cash or other good funds at the Closing after credit of an amount equal to the sum of the outstanding principal balances as of the Closing Date of (i) all mortgage indebtedness encumbering any Property, and (ii) Seller’s proportionate share of all mortgage and mezzanine indebtedness secured by a lien encumbering any Joint Venture Property.
	Buyer shall allocate the Purchase Price among the Properties and the Joint Venture Interests, and further with respect to each Property among the Land, Improvements, and Tangible and Intangible Personal Property, and further respect to the Joint Venture Interests, with the related interests of the taxable REIT subsidiaries leasing the Joint Venture Properties. No later than thirty (30) days after the Closing Date (as defined in Section 4 hereof), Buyer shall deliver to Seller a schedule of the Purchase Price allocation (the “Allocation Schedule”) and a copy of IRS Form 8594 prepared in accordance with the Allocation Schedule. Buyer and Seller shall each timely file (i) IRS Form 8594 in the form prepared by Buyer, and (ii) all other tax returns in a manner consistent with such IRS Form 8594 and the Allocation Schedule. Neither Buyer nor Seller shall take any position for federal tax purposes that is inconsistent with such IRS Form 8594 or the Allocation Schedule.
4.	Closing.
	Except as otherwise expressly provided in this Agreement, the consummation of the transaction contemplated in this Agreement (the “Closing”) shall occur through an escrow agent to be selected by Seller and Buyer (the “Escrow Agent”). Closing shall take place at 10:00 a.m. at the offices of Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019 or such other mutually agreed upon location on the date (the “Closing Date”) that is the Final Condition Satisfaction Date under the Merger Agreement. If for any reason the Final Condition Satisfaction Date does not occur pursuant to the Merger Agreement and/or the Merger Agreement is terminated for any reason, then this Agreement shall be void ab initio and of no force or effect, and, except as provided in Section 9 hereof which shall survive the termination of this Agreement, the parties shall have no liability to each other hereunder.
5.	Seller’s Closing Deliveries. On the Closing Date, Seller shall deliver or cause to be delivered at its expense each of the following items to the Escrow Agent:

(i)	For each Property or portion thereof owned in fee by Seller, a special warranty deed duly executed and acknowledged by Seller conveying the relevant Land and Improvements to Buyer, such special warranty deed to be in the form customary in the jurisdiction in which such Land is located;
(ii)	For each Property or portions thereof as to which Seller owns a leasehold interest under a ground lease (each, a “Ground Lease”), a counterpart of an assignment and assumption of Seller’s interest in the Ground Lease (without warranty) (each,

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	a “Ground Lease Assignment”) duly executed and acknowledged by Seller transferring such leasehold interest to Buyer, such Ground Lease Assignment (without warranty) to be in a form satisfying all applicable requirements in the Ground Lease and otherwise in the form customary in the jurisdiction in which such Property is located;
(iii)	For each Joint Venture, a counterpart of an assignment and assumption of the Joint Venture Interests (without warranty) (the “Joint Venture Assignment”) whereby Seller assigns to Buyer all of Seller’s right, title, and interest in the Joint Venture Interests (without warranty) and Buyer assumes all of Seller’s obligations under the Joint Venture arising from and after the Closing Date, such Joint Venture Assignment (without warranty) to be in the form required in the Joint Venture Agreement and otherwise in form and content customary in the jurisdiction where such Joint Venture was formed;
(iv)	For each Joint Venture that has entered into an operating lease (each, an “Operating Lease”) with respect to its Joint Venture Property, if required by Buyer, either (A) an assignment of the interest of the lessee (each, an “Operating Lessee”) in the Operating Lease duly executed by the Operating Lessee (an “Operating Lease Assignment”), or (B) a termination of the Operating Lease, at no cost to Buyer, duly executed by the Joint Venture and the Operating Lessee (each, an “Operating Lease Termination”); provided, however, with respect to the Courtyard Philadelphia Downtown hotel, Seller shall execute and deliver an Operating Lease Assignment with respect to the Operating Lease with City Annex Tenant Corporation;
(v)	For each Property, a bill of sale (without warranty) duly executed by Seller and Operating Lessee conveying to Buyer and/or Buyer’s designated operating lessee, as the case may be, all right, title and interest of Seller and Operating Lessee in and to the Tangible Personal Property, the Intangible Personal Property, and all assignable third party warranties and guaranties relating to the Improvements, the Tangible Personal Property, or any part thereof, such bill of sale (without warranty) to be in form and content customary in the jurisdiction where such Property is located;
(vi)	For each Joint Venture Property for which an Operating Lease Assignment or an Operating Lease Termination is delivered pursuant to this Agreement, a bill of sale (without warranty) duly executed by the Operating Lessee conveying to Buyer or Buyer’s designated operating lessee, as the case may be, all right, title and interest of Operating Lessee, if any, in and to the Tangible Personal Property, the Intangible Personal Property, and all assignable third party warranties and guaranties relating to the Improvements, the Tangible Personal Property, or any part thereof, such bill of sale (without warranty) to be in form and content customary in the jurisdiction where such Joint Venture Property is located;
(vii)	For each Property, an assignment and assumption agreement (without warranty) (each, a “Assignment and Assumption Agreement”) duly executed by Seller and

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	Operating Lessee, whereby Seller and Operating Lessee assigns to Buyer or Buyer’s operating lessee (without warranty) all of their respective right, title, and interest in the Service Contracts, Space Leases, Equipment Leases, and Licenses and Permits, and Buyer and/or Buyer’s designated operating lessee assumes all obligations of Seller and Operating Lessee thereunder arising from and after the Closing Date, such Assignment and Assumption Agreement (without warranty) to be in form and content customary in the jurisdiction where such Property is located;
(viii)	For each Joint Venture Property for which an Operating Lease Assignment or Operating Lease Termination is delivered pursuant to this Agreement, an assignment and assumption agreement (without warranty) an Assignment and Assumption Agreement duly executed by Operating Lessee, whereby Operating Lessee assigns to Buyer or Buyer’s designated operating lessee (without warranty) all of its right, title, and interest in the Service Contracts, Space Leases, Equipment Leases, and Licenses and Permits and Buyer or Buyer’s designated operating lessee assumes all obligations of Operating Lessee thereunder arising from and after the Closing Date, such Assignment and Assumption Agreement (without warranty) to be in form and content customary in the jurisdiction where such Joint Venture Property is located;
(ix)	For each Property that is subject to a management agreement (each, a “Management Agreement”), an assignment and assumption of the Management Agreement (without warranty) (each, a “Management Agreement Assignment”) duly executed by Operating Lessee, whereby Operating Lessee assigns to Buyer or Buyer’s designated operating lessee all right, title, and interest in the Management Agreement (without warranty) and Buyer or Buyer’s designated operating lessee assumes all of Operating Lessee’s obligations thereunder arising from and after the Closing Date, such Management Agreement Assignment to be in form and content customary in the jurisdiction where such Property is located;
(x)	For each Joint Venture Property for which an Operating Lease Assignment or Operating Lease Termination is delivered pursuant to this Agreement and that is subject to a Management Agreement , a Management Agreement Assignment (without warranty) duly executed by Operating Lessee, whereby Operating Lessee assigns to Buyer or Buyer’s designated operating lessee all right, title, and interest in the Management Agreement (without warranty) and Buyer or Buyer’s designated operating lessee assumes all of Operating Lessee’s obligations thereunder arising from and after the Closing Date, such Management Agreement Assignment to be in form and content customary in the jurisdiction where such Joint Venture Property is located;
(xi)	For each Property subject to a franchise agreement (each, a “Franchise Agreement”) (a) an assignment and assumption of the Franchise Agreement (without warranty) (each, a “Franchise Agreement Assignment”) duly executed by Operating Lessee whereby Operating Lessee assigns to Buyer or Buyer’s designated operating lessee all right, title, and interest of Operating Lessee in the

5

	Franchise Agreement (without warranty) and Buyer or Buyer’s designated operating lessee assumes all obligations of Operating Lessee thereunder arising from and after the Closing Date, or (b) if Buyer elects, in Buyer’s sole and absolute discretion, to enter into or cause its designated operating lessee to enter into a replacement franchise agreement, a termination of the Franchise Agreement (each, a “Franchise Agreement Termination”), provided that if Seller or Operating Lessee has obtained franchisor consent to the Franchise Agreement Assignment or as a franchisee under a replacement franchise agreement as required under the Merger Agreement, Buyer may elect to so terminate the Franchise Agreement only if the franchisor waives all claims against Operating Lessee resulting from the Franchise Agreement Termination for termination fees, liquidated damages or similar fees related to such termination or Buyer agrees to indemnify and hold harmless Operating Lessee from all such claims;
(xii)	For each Joint Venture Property for which an Operating Lease Assignment or an Operating Lease Termination is delivered pursuant to this Agreement and that is subject to a Franchise Agreement, (A) a Franchise Agreement Assignment duly executed by Operating Lessee whereby Operating Lessee assigns to Buyer or Buyer’s designated operating lessee all right, title, and interest of Operating Lessee in the Franchise Agreement (without warranty) and Buyer or Buyer’s designated operating lessee assumes all obligations of Operating Lessee thereunder arising from and after the Closing Date, or (B) if Buyer elects, in Buyer’s sole and absolute discretion, to enter into or cause its designated operating lessee to enter into a replacement franchise agreement, a Franchise Agreement Termination, provided that if Seller, the Joint Venture, or Operating Lessee has obtained franchisor consent to the Franchise Agreement Assignment or as a franchisee under a replacement franchise agreement as required under the Merger Agreement, Buyer may elect to so terminate the Franchise Agreement only if the franchisor waives all claims against Operating Lessee resulting from the Franchise Agreement Termination for termination fees, liquidated damages or similar fees related to such termination or Buyer agrees to indemnify and hold harmless Operating Lessee from all such claims;
(xiii)	A certificate or certificates of non-foreign status, each duly executed and acknowledged by Seller, in a form satisfying the requirements under the applicable Treasury Regulations issued pursuant to § 1445 of the Code;
(xiv)	Customary affidavits sufficient for a nationally recognized title insurance company issuing to Buyer and/or Buyer’s mortgagee an owner’s or mortgagee’s policy of title insurance, respectively, for each Property (the “Title Company”) to delete any exceptions for parties in possession (other than tenants under Leases) and mechanic’s or materialmen’s liens and such other customary gap and owner’s affidavits relating to such title insurance policy as the Title Company may reasonably request in a form reasonably acceptable to Seller;
(xv)	Evidence reasonably satisfactory to Buyer and the Title Company of Seller’s authority to convey the Properties or Seller’s interests in the Ground Leases

6

	pursuant to this Agreement in form and substance reasonably satisfactory to Buyer and the Title Company;
(xvi)	Any and all transfer and/or recordation tax returns, declarations of value, affidavits of consideration, or other documents required from Seller under applicable law or regulations or necessary for recordation of the deeds or the Ground Lease Assignments in the land records of the jurisdiction where each Property is located; and
(xvii)	Such other instruments as Buyer may reasonably request to effectuate the transaction contemplated by this Agreement without additional liability or expense to Seller except in a nominal amount.

6. Buyer’s Closing Deliveries. On the Closing Date Buyer shall deliver or cause to be delivered at its expense each of the following to Seller:

(i)	For each Property or portions thereof as to which Seller owns a leasehold interest, a counterpart of the applicable Ground Lease Assignment duly executed and acknowledged by Buyer;
(ii)	For each Property, a counterpart of the applicable Assignment and Assumption Agreement, Management Agreement Assignment, or Franchise Agreement Assignment, duly executed and acknowledged by Buyer;
(iii)	For each Joint Venture, a counterpart of the Joint Venture Assignment, duly executed and acknowledged by Buyer;
(iv)	Any and all transfer and/or recordation tax returns, declarations of value, affidavits of consideration, or other documents required from Buyer under applicable law or regulations or necessary for recordation of the deeds or the Ground Lease Assignment in the land records of the jurisdiction where each Property is located; and
(v)	Such other instruments as Seller may reasonably request to effectuate the transaction contemplated by this Agreement without additional liability or expense to Buyer except in a nominal amount.

7.	Prorations and Adjustments.
	There shall be no adjustment of the Purchase Price based on the proration of revenues or expenses relating to the Properties or the Joint Ventures or for any other reason.

7

8.	Closing Costs.
	Buyer shall pay all city, county, and other stamp, recordation and transfer taxes payable in connection with the sale of the Properties, Joint Venture Interests or Seller’s interest in the Ground Leases. Buyer shall pay the cost of all title insurance premiums, endorsements, and surveys.
9.	Brokerage. Seller and Buyer each mutually represent and warrant to the other that they have not dealt with, and are not obligated to pay, any fees or commissions to any broker in connection with the transaction contemplated by this Agreement except as may be provided in the Merger Agreement. Buyer and Seller hereby agree to indemnify, defend and hold one another harmless from and against all liabilities, costs, damages and expenses (including reasonable attorneys’ fees) arising from any claims for brokerage or finders’ fees, commissions or other similar fees due or alleged to be due as a result of the indemnifying party’s actions in connection with the transaction contemplated by this Agreement. The representations, warranties, covenants and agreements contained in this Section 9 shall survive the termination of this Agreement or the Closing of the transaction contemplated hereunder.
10.	Post-Closing.
	Immediately after Closing, for each Property, Seller shall deliver to Buyer a termination of each lease between Seller (or any subsidiary of Seller) and any taxable REIT subsidiary of Seller (or such subsidiary) relating to one or more assets acquired by Buyer hereunder.
11.	Assignment. Buyer may assign or transfer its rights under this Agreement to one or more nominees, but no such assignment or transfer shall relieve Buyer from any of its obligations under this Agreement and Buyer shall remain primarily liable for the obligations of the Buyer hereunder.
12.	Notices. Any notice required or permitted to be delivered under this Agreement shall be given in accordance with the applicable provisions in the Merger Agreement.
13.	Captions. The captions used in connection with the Sections of this Agreement are for convenience only and shall not be deemed to extend, limit or otherwise define or construe the meaning of the language of this Agreement.

8

14.	Amendments.
	This Agreement may be amended only by a written instrument executed by Seller and Buyer (or Buyer’s permitted assignee or permitted transferee). The parties agree that if any of the properties (each, a “Whitehall Property”) owned by Seller (or a subsidiary of Seller) that are under contract under that certain Marketed Portfolio Purchase and Sale Agreement the “New Century Agreement”) between Seller (or a subsidiary of Seller) and W2005 New Century Hotel Portfolio, L.P. (“New Century”) are not purchased by New Century before the closing under the Merger Agreement, this Agreement shall be amended to include as a Property any such Whitehall Property not so purchased by New Century, and the Purchase Prices under this Agreement shall be increased based on the purchase prices for such Whitehall Properties under the New Century Agreement.
15.	Choice of Law.
	This Agreement shall be construed under and in accordance with the laws of the State of Maryland.
16.	Counterparts.
	This Agreement may be executed in two (2) or more counterparts, each of which shall be an original but such counterparts together shall constitute one and the same instrument notwithstanding that both Buyer and Seller are not signatory to the same counterpart. Facsimile transmission or email transmission of a pdf copy of any signed original document shall be deemed the same as delivery of an original.

[Remainder of Page Intentionally Left Blank]

9

     IN WITNESS WHEREOF, the parties have executed this instrument as of the day and year first set forth above.

SELLER:

CNL HOTELS & RESORTS, INC.,

on behalf of itself and its subsidiaries shown as “owners” of the

Properties and/or Joint Venture Interests

By: /S/ GREERSON G. MCMULLEN

Name: Greerson G. McMullen

Title: Executive Vice President

BUYER:

ASHFORD SAPPHIRE ACQUISITION LLC

By: /S/ DAVID A. BROOKS

Name: David A. Brooks

Title: Chief Legal Officer

10

SCHEDULE A

List of Owners of the Properties and Joint Ventures

PROPERTIES:

Name of Owner	Name/Location of Property Owned	Fee or Leasehold
RFS Partnership, LP	Hilton Birmingham Perimeter Park	Deed — Fee Simple
CNL New Orleans Hotel, LP	JW Marriott New Orleans	Assignment and
		Assumption of
		Ground Lease
CNL Bridgewater Hotel Partnership, LP	Bridgewater Marriott	Fee Simple — Deed
CNL BWI Hotel, LP	Baltimore-Washington International	Fee Simple — Deed
	Airport Marriott
CNL Plano Hotel, LP	Dallas/Plano Marriott at Legacy Town	Fee Simple — Deed
	Center	and Assignment and
		Assumption of Ground Lease
CNL Seattle Waterfront Hotel, LP	Seattle Marriott Waterfront	Fee Simple — Deed
CNL Hotel Investors, Inc.	Marriott Suites Market Center	Fee Simple — Deed
CNL Tampa International Hotel Partnership, LP	Renaissance Tampa at International Plaza	Sub-Ground Leasehold
CY-SF Hotel Partnership, LP	Courtyard San Francisco Downtown	Fee Simple — Deed
RFS Partnership, L.P.	Hyatt Regency Coral Gables	Fee Simple — Deed
Montreal Hotel Jersey Trust	Hyatt Regency Montreal	Fee Simple — Deed
CNL LLC C-Hotel Management, LP	Courtyard Marriott Village at Lake Buena Vista	Fee Simple — Deed
CNL LLB SHS Management, LP	SpringHill Suites Marriott Village at Lake Buena Vista	Fee Simple-— Deed
CNL LLB F-Inn Management, LP	Fairfield Inn Marriott Village at Lake Buena Vista	Fee Simple — Deed
CNL Hotel MMI-4, LP	Courtyard Basking Ridge	Fee Simple — Deed
RFS Partnership, LP	Courtyard Edison — Raritan Center	Fee Simple — Deed

11

Name of Owner	Name/Location of Property Owned	Fee or Leasehold
CNL Hotel MMI-4, LP	Courtyard Newark — Silicon Valley	Fee Simple — Deed
CNL Hotel MMI-4, LP	Courtyard Oakland Airport	Fee Simple — Deed
CNL Hotel Investors, Inc.	Courtyard Dallas Plano in Legacy Park	Fee Simple — Deed
CNL Hotel Investors, Inc.	Courtyard Scottsdale Old Town	Fee Simple — Deed
CNL Hotel Investors, Inc.	Courtyard Seattle Downtown — Lake Union	Fee Simple — Deed
RFS SPE 2 1998 LLC	Residence Inn Kansas City	Fee Simple — Deed
RFS SPE 2000, LLC	Residence Inn Torrance — Redondo Beach	Fee Simple — Deed
CNL Hospitality Partners LP	Residence Inn Atlanta — Buckhead (Lenox Park)	Fee Simple — Deed
CNL Hotel Investors, Inc.	Residence Inn Las Vegas Hughes Center	Fee Simple — Deed
CNL Hotel MMI-4, LP	Residence Inn San Jose — Newark	Fee Simple — Deed
CNL Hotel Investors, Inc.	Residence Inn Phoenix Airport	Fee Simple — Deed
CNL Hotel Investors, Inc.	Residence Inn Dallas Plano	Fee Simple — Deed
RFS SPE 2 2000 LLC	Residence Inn Atlanta Perimeter West	Fee Simple — Deed
CNL Hotel MMI-4, LP	SpringHill Suites Manhattan Beach — Hawthorne	Fee Simple — Deed
CNL Hotel MMI-4, LP	SpringHill Suites Philadelphia — Plymouth Meeting	Fee Simple — Deed
CNL Hotel MMI-4, LP	SpringHill Suites Richmond — Virginia Center	Fee Simple — Deed
CNL Hotel MMI-4, LP	TownePlace Suites Los Angeles — Manhattan Beach	Fee Simple — Deed

12

JOINT VENTURES:

Joint Venture	Name/Location of Properties Owned	Seller’s Ownership Interest
	Courtyard Philadelphia Downtown	89% member interest from
CNL Philadelphia Annex	Annex	CNL Hospitality Partners,
LLC	Philadelphia, PA	LP
	1. Hilton LaJolla Torrey Pines
CNL HHC Partners III, LP	La Jolla, CA	75%
	2. Capital Hilton
	Washington, DC	(74.9% limited partner
		interest from CNL
		Hospitality Partners LP,
		and 0.10% general partner
		interest from CNL HHC III,
		LLC*)
	1. Hilton Dallas -- Lincoln Centre
CNL HHC Partners II, LP	Dallas, TX	75%
	2. Hilton Tucson El Conquistador
	Resort	(74.9% limited partner
	Tucson, AZ	interest from CNL
		Hospitality Partners LP,
	3. Hilton Rye Town	and 0.10% general partner
	Rye Brook, NY	interest from CNL HHC II, LLC)
	4. Embassy Suites Orlando Airport
	Orlando, FL
	5. Embassy Suites Santa Clara
	Santa Clara, CA
	6. Embassy Suites Crystal City
	Arlington, VA
	7. Doubletree Crystal City
	Arlington, VA
	1. Hilton Miami Airport
CNL HHC Partners, LP	Miami, FL	70%
	2. Hilton Suites Auburn Hills	(69.9% limited partner
	Auburn Hill, MI	interest from CNL
		Hospitality Partners LP,
	3. Hilton Costa Mesa	and 0.10% general partner
	Costa Mesa, CA	interest from CNL HHC, LLC*)
	4. Embassy Suites Portland
	Portland, OR

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Joint Venture	Name/Location of Properties Owned	Seller’s Ownership Interest
	1. Courtyard Hartford
CNL IHC Partners, LP	Manchester, CT	85%
	2. Residence Inn Hartford
	Manchester, CT	(84.9% limited partner
		interest from CNL
		Hospitality Partners LP,
		and 0.10% general partner
	3. Hampton Inn Houston Galleria	interest from CNL IHC, LLC*)
	Houston, TX
Dearborn Hotel	Hyatt Regency Dearborn,	85%
Partners, LP	Dearborn, MI
		(84.5% limited partner
		interest from CNL
		Hospitality Partners LP,
		and 0.5% general partner
		interest from Dearborn
		Hotel GP LLC*)

 * Buyer may elect, in its sole discretion, to require Seller to convey to Buyer 100% of the member interests in the general partner of any or all of the Joint Ventures, in lieu of conveying the general partnership interest in such Joint Venture(s).

14

EX-10.33.1

Exhibit 10.33.1

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

MS RESORT HOLDINGS LLC,

MS RESORT ACQUISITION LLC,

MS RESORT PURCHASER LLC,

ASHFORD SAPPHIRE ACQUISITION LLC

AND

CNL HOTELS & RESORTS, INC.

DATED AS OF JANUARY 18, 2007

TABLE OF CONTENTS

	Page
ARTICLE I
DEFINITIONS; INTERPRETATION
Section 1.1 Definitions		2
Section 1.2 Interpretation		11
ARTICLE II
THE MERGER
Section 2.1 The Merger		11
Section 2.2 Closing		11
Section 2.3 Effective Time		12
Section 2.4 Effects of the Merger		12
Section 2.5 Charter and Bylaws; Officers and Directors		12
Section 2.6 Tax Treatment		12
ARTICLE III
EFFECT OF THE MERGER
Section 3.1 Effect on Stock		13
Section 3.2 Paying Agent; Exchange Procedures		14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 Organization; Minute Books		16
Section 4.2 Subsidiaries		17
Section 4.3 Capital Structure		17
Section 4.4 Authority		18
Section 4.5 Consents and Approvals; No Violations		18
Section 4.6 SEC Documents and Other Reports		19
Section 4.7 Absence of Material Adverse Effect		20
Section 4.8 Information Supplied		21
Section 4.9 Compliance with Laws		21
Section 4.10 Tax Matters		21
Section 4.11 Benefit Plans		24
Section 4.12 Litigation		26
Section 4.13 State Takeover Statutes		26
Section 4.14 Intellectual Property		26
Section 4.15 Properties		27
Section 4.16 Environmental Laws		29
Section 4.17 Employment and Labor Matters		30
Section 4.18 Material Contracts		31
Section 4.19 Insurance Policies		33
Section 4.20 Affiliate Transactions		33
Section 4.21 Opinion of the Company’s Financial Advisors		33
Section 4.22 Brokers		34

i

TABLE OF CONTENTS
(continued)

	Page
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT, SUB AND MISSOURI
Section 5.1 Organization		34
Section 5.2 Authority		34
Section 5.3 Consents and Approvals; No Violations		34
Section 5.4 Information Supplied		35
Section 5.5 Litigation		35
Section 5.6 Capitalization of Sub		35
Section 5.7 Financing		35
Section 5.8 Brokers		36
Section 5.9 Certain Tax Matters		36
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF ARIZONA
Section 6.1 Organization		36
Section 6.2 Authority		36
Section 6.3 Consents and Approvals; No Violations		36
Section 6.4 Information Supplied		37
Section 6.5 Litigation		37
Section 6.6 Financing		37
Section 6.7 Brokers		38
ARTICLE VII
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 7.1 Conduct of Business by the Company Pending the Merger		38
Section 7.2 Acquisition Proposals.		42
Section 7.3 Actions by Parent and Conduct of Business of Sub Pending the Merger		45
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 Employee Benefits		45
Section 8.2 Deferred Share Awards		46
Section 8.3 Preparation of Proxy Statement; Stockholder Approval		46
Section 8.4 Access to Information; Confidentiality		47
Section 8.5 Fees and Expenses		48
Section 8.6 Public Announcements		51
Section 8.7 Transfer Taxes		51
Section 8.8 State Takeover Laws		51
Section 8.9 Indemnification; Directors and Officers Insurance		52
Section 8.10 Reasonable Best Efforts		53
Section 8.11 Financing		54
Section 8.12 Notification of Certain Matters		56
Section 8.13 Buyer Party Vote		56

ii

TABLE OF CONTENTS
(continued)

	Page
Section 8.14 Additional Tax Matters.		57
Section 8.15 Certain Litigation Matters		57
Section 8.16 Resignations		57
Section 8.17 Third Party Consents		57
Section 8.18 Suspension or Termination of Reinvestment Plan and Redemption Plan		58
Section 8.19 Asset Sales		58
ARTICLE IX
CONDITIONS PRECEDENT
Section 9.1 Conditions to Each Party’s Obligation to Effect the Transactions		58
Section 9.2 Conditions to the Obligations of the Company to Effect the Transactions		59
Section 9.3 Conditions to the Obligations of the Buyer Parties to Effect the Transactions		59
ARTICLE X
TERMINATION AND AMENDMENT
Section 10.1 Termination		61
Section 10.2 Effect of Termination		62
Section 10.3 Extension; Waiver		62
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Non-Survival of Representations and Warranties and Agreements		63
Section 11.2 Notices		63
Section 11.3 Counterparts		64
Section 11.4 Entire Agreement; No Third-Party Beneficiaries		64
Section 11.5 Assignment		65
Section 11.6 Governing Law; Venue; Waiver of Jury Trial		65
Section 11.7 Severability		65
Section 11.8 Enforcement of this Agreement.		66
Section 11.9 Obligations of Subsidiaries		66
Section 11.10 Interpretation; Construction		66
Section 11.11 Amendment; Consents		67
ARTICLE XII
SALE OF SPECIFIED ASSETS
Section 12.1 Entry into Parent Asset Purchase Agreement		67
Section 12.2 Entry into Arizona Asset Purchase Agreement		67
Section 12.3 Declaration of Special Dividend		68
Section 12.4 Payment of Special Dividend		68
Section 12.5 Right to Structure Asset Sales as Purchase of Ownership Interests		68

iii

EXHIBITS

Exhibit A: Form of Guaranty
Exhibit B: Form of Tax Opinion
Exhibit C: Form of Parent Asset Purchase Agreement
Exhibit D: Form of Arizona Asset Purchase Agreement

iv

AGREEMENT AND PLAN OF MERGER

     AGREEMENT AND PLAN OF MERGER, dated as of January 18, 2007 (this “Agreement”), by and among MS Resort Holdings LLC, a Delaware limited liability company (“Parent”), MS Resort Acquisition LLC, a Delaware limited liability company and a wholly-owned subsidiary of Parent (“Sub”), MS Resort Purchaser LLC, a Delaware limited liability company and wholly-owned subsidiary of Parent (“Missouri”), Ashford Sapphire Acquisition LLC, a Delaware limited liability company (“Arizona”), and CNL Hotels & Resorts, Inc., a Maryland corporation (the “Company”). Except as otherwise set forth herein, capitalized terms used herein shall have the meanings set forth in Section 1.1. Parent, Sub, Missouri and Arizona are hereinafter collectively referred to as the “Buyer Parties”.

W I T N E S S E T H:

     WHEREAS, the board of directors of the Company (the “Board”), has declared that it is advisable and in the best interests of the Company and the stockholders of the Company, to enter into this Agreement to provide for the Merger (as defined below) and Asset Sales (as defined below) on the terms and conditions set forth in this Agreement;

     WHEREAS, on the next day immediately following completion of the Parent Asset Sale and Arizona Asset Sale (each as hereinafter defined) the Company and Sub wish to effect a business combination through a merger of Sub with and into the Company (the “Merger”), in accordance with the Maryland General Corporation Law (the “MGCL”) and the Delaware Limited Liability Company Act (the “DLLCA”), upon the terms and subject to the conditions set forth in this Agreement, whereby each issued and outstanding share of common stock, par value $0.01 per share, of the Company (the “Company Common Stock” or the “Shares”), other than Dissenting Shares (as defined herein) and Shares owned directly or indirectly by Parent, will be converted into the right to receive cash in an amount equal to the Per Share Merger Consideration;

     WHEREAS, the Board approved the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including the Merger, the Parent Asset Sale and the Arizona Asset Sale (collectively, the “Transactions”), in accordance with the MGCL, upon the terms and subject to the conditions contained herein and resolved to recommend approval of the Merger by the stockholders of the Company;

     WHEREAS, the sole member of Parent and Parent, as the sole member of Sub and Missouri, have; (a) approved this Agreement and declared it advisable for Parent, Sub and Missouri to enter into this Agreement and (b) approved the execution, delivery and performance of this Agreement by Parent, Sub and Missouri and the consummation of the transactions contemplated hereby, including the Merger and the Parent Asset Sale, in accordance with the DLLCA, upon the terms and conditions contained herein;

     WHEREAS, the board of managers of Arizona has (a) approved this Agreement and declared it advisable for Arizona to enter into this Agreement and (b) approved the execution,

delivery and performance of this Agreement and the consummation of the Arizona Asset Sale upon the terms and conditions contained herein;

     WHEREAS, concurrently with the execution of this Agreement, the Guarantors have delivered to the Company a joint and several guaranty (the “Guaranty”) of the obligations arising under this Agreement of the Buyer Parties in the form attached as Exhibit A to this Agreement; and

     WHEREAS, the parties intend that for federal, and applicable state and local, income tax purposes the Merger will be treated as a taxable sale of the Shares.

     NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, each of Parent, Sub, Missouri, Arizona and the Company hereby agrees as follows:

ARTICLE I
DEFINITIONS; INTERPRETATION

     Section 1.1 Definitions. As used in this Agreement, the following terms have the meanings specified or referred to in this Section 1.1 and shall be equally applicable to both the singular and plural forms. Any agreement referred to below shall mean such agreement as amended, supplemented or modified from time to time to the extent permitted by the applicable provisions thereof and by this Agreement.

     “Access” shall have the meaning set forth in Section 8.4.

     “Acquisition Proposal” shall have the meaning set forth in Section 7.2(d).

     “Affiliate” means, with respect to any Person, any other Person that, at the time of determination, directly or indirectly Controls, is Controlled by or is under common Control with such Person.

     “Aggregate Award Amount” shall have the meaning set forth in Section 8.2.

     “Agreement” shall have the meaning set forth in the introductory paragraph of this Agreement.

     “Arizona” shall have the meaning set forth in the introductory paragraph of this Agreement.

     “Arizona Asset Purchase Agreement” shall have the meaning set forth in Section 12.2.

     “Arizona Asset Sale” shall have the meaning set forth in Section 12.2.

     “Arizona Commitment Letters” shall have the meaning set forth in Section 6.6.

     “Arizona Debt Financing” shall have the meaning set forth in Section 6.6.

     “Articles of Merger” shall have the meaning set forth in Section 2.3.

2

     “Asset Sale Time” means the time at which the first of the Asset Sales is consummated.

     “Asset Sales” means the Parent Asset Sale and the Arizona Asset Sale.

     “Benefit Plan” means any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, deferred stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical, employee stock purchase, stock appreciation, restricted stock or other employee benefit plan, program, agreement or arrangement as to which the Company or any of its Subsidiaries sponsors, maintains, contributes or is obligated to contribute for the benefit of any current or former employee, officer, director, consultant or independent contractor of the Company or any of its Subsidiaries, including any ERISA Benefit Plan.

     “Board” shall have the meaning set forth in the first recital of this Agreement.

     “Board Recommendation” shall have the meaning set forth in Section 4.4(b).

     “Business Day” means any day other than a Saturday or Sunday or a day on which banks are required or authorized to close in the City of New York.

     “Buyer Parties” shall have the meaning set forth in the introductory paragraph of this Agreement.

     “Certificate” shall have the meaning set forth in Section 3.1(c).

     “Change in Recommendation” shall have the meaning set forth in Section 7.2(e).

     “Closing” shall have the meaning set forth in Section 2.2.

     “Closing Date” shall have the meaning set forth in Section 2.2.

     “Code” means the U.S. Internal Revenue Code of 1986, as amended.

     “Company” shall have the meaning set forth in the introductory paragraph of this Agreement.

     “Company Bylaws” shall have the meaning set forth in Section 4.1(b).

     “Company Charter” shall have the meaning set forth in Section 4.1(b).

     “Company Common Stock” shall have the meaning set forth in the second recital of this Agreement.

     “Company Expenses” shall have the meaning set forth in Section 8.5(c).

     “Company Intellectual Property” shall have the meaning set forth in Section 4.14.

     “Company Letter” means the letter from the Company to the Buyer Parties dated the date hereof, which letter relates to this Agreement and is designated therein as the Company Letter.

3

     “Company Preferred Stock” shall have the meaning set forth in Section 4.3.

     “Company Properties” means, collectively, the Leased Real Property and the Owned Real Property.

     “Company Subsidiary REIT” shall mean CNL Hotel Investors, Inc., a Maryland corporation.

     “Company SEC Documents” shall have the meaning set forth in Section 4.6(a).

     “Company Stock Plan” shall have the meaning set forth in Section 4.3.

     “Company Stockholder Approval” shall have the meaning set forth in Section 8.3(b).

     “Company Title Insurance Policies” means policies of title insurance issued and insuring, as of the effective date of each such policy, the Company’s or its applicable Subsidiary’s title to or leasehold interest in the Company Properties.

     “Confidentiality Agreement” shall have the meaning set forth in Section 8.4.

     “Contract” means any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other binding commitment, instrument or obligation.

     “Control” means, as to any Person, the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. The terms “Controlled by,” “under common Control with” and “Controlling” shall have correlative meanings.

     “Counterproposal” shall have the meaning set forth in Section 7.2(e).

     “Debt Financing” means the Arizona Debt Financing and the Parent Financing.

     “Deferred Share Awards” means deferred shares of Company Common Stock granted under the Company Stock Plan.

     “Delaware Certificate of Merger” shall have the meaning set forth in Section 2.3.

     “Dissenting Shares” shall have the meaning set forth in Section 3.1(d).

     “Dissenting Stockholder” shall have the meaning set forth in Section 3.1(d).

     “DLLCA” shall have the meaning set forth in the second recital of this Agreement.

     “DSOS” shall have the meaning set forth in Section 2.3.

     “Effective Time” shall have the meaning set forth in Section 2.3.

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     “Environmental Laws” means all Laws relating to the protection of the environment, including the soil, subsurface strata, sediment, surface water or groundwater, or relating to the protection of human health from exposure to Hazardous Substances.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, together with the rules and regulations promulgated thereunder.

     “ERISA Benefit Plan” means a Benefit Plan that is also an “employee pension benefit plan” (as defined in Section 3(2) of ERISA) or that is also an “employee welfare benefit plan” (as defined in Section 3(1) of ERISA).

     “Escrowed Amount” shall have the meaning set forth in Section 8.5(e).

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.

     “Exchange Fund” shall have the meaning set forth in Section 3.2(a).

     “Excess Shares” shall have the meaning set forth in Section 4.3.

     “Final Condition Satisfaction Date” shall have the meaning set forth in Section 12.1.

     “GAAP” means United States generally accepted accounting principles and practices as in effect from time to time consistently applied.

     “Governmental Entity” means any federal, state, provincial, local or foreign government, any governmental, regulatory or administrative authority, agency or commission, or any court, tribunal or other judicial body (including any political or other subdivision, department or branch of any of the foregoing).

     “Guaranty” shall have the meaning set forth in the sixth recital of this Agreement.

     “Guarantors” shall mean the guarantors under that certain Guaranty, dated as of the date hereof, the form of which is attached hereto as Exhibit A.

     “Hazardous Substances” means (i) regardless of whether subject to the jurisdiction of a Governmental Entity, those substances defined in or regulated under the following United States federal statutes and their state counterparts and all regulations thereunder, including the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Clean Air Act; the Oil Pollution Act and the Toxic Substances Control Act, (ii) natural gas, petroleum and petroleum products, including crude oil and any fractions thereof and waste oil; (iii) polychlorinated biphenyls, asbestos and radon; and (iv) any other pollutant, contaminant, substance, material, waste or condition regulated by any Governmental Entity pursuant to any Environmental Law.

     “Hotel Contracts” means all material service contracts, material maintenance contracts, and other material contracts or agreements, including material equipment leases capitalized for

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accounting purposes, in each case with respect to the ownership, maintenance, operation, provisioning, or equipping of the Company Properties and material guaranties relating thereto, if any.

     “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

     “Indebtedness” means (a) indebtedness of the Company or any of its Subsidiaries for borrowed money (including the aggregate principal amount thereof and the aggregate amount of any accrued but unpaid interest thereon), (b) obligations of the Company or any of its Subsidiaries evidenced by bonds, notes, debentures, letters of credit or similar instruments and (c) all obligations of the Company or any of its Subsidiaries to guarantee any of the foregoing types of payment obligations on behalf of any Person other than the Company or any of its Subsidiaries.

     “Indemnified Person” shall have the meaning set forth in Section 8.9(a).

     “Intellectual Property” means intellectual property or other proprietary rights of any kind, including (a) all patents, patent applications and patent disclosures, together with all reissuances, continuations, provisionals, continuations-in-part, divisions, revisions, extensions and reexaminations thereof (collectively, “Patents”), (b) all trademarks, service marks, logos, trade names, corporate names, domain names, trade dress, including all goodwill associated therewith, and all applications, registrations and renewals in connection therewith (collectively, “Marks”), (c) all copyrights and copyrightable works and all applications, registrations and renewals in connection therewith (collectively, “Copyrights”), (d) all trade secrets and confidential business and technical information (including research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, methods, schematics, technology, technical data, designs, drawings, flowcharts, block diagrams, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals) (collectively, “Trade Secrets”) and (e) all computer data and software (including databases and related documentation).

     “IRS” means the U.S. Internal Revenue Service.

     “Knowledge” means, (i) with respect to the Company, the actual knowledge of the Company’s chief executive officer; president and chief operating officer; executive vice president, chief financial officer and treasurer; executive vice president of portfolio management & administration; executive vice president, chief general counsel and corporate secretary; and vice president of tax; (ii) with respect to Parent, the actual knowledge of Michael Franco and Michael Quinn; and (iii) with respect to Arizona, the actual knowledge of Ashford Hospitality Trust, Inc.’s chief executive officer; president; chief operating officer; chief financial officer; general counsel; and secretary.

     “Law” means any federal, state, provincial, municipal or local statute, law, ordinance, regulation, rule, code, executive order, injunction, judgment, decree or other order.

     “Lease Documents” shall have the meaning set forth in Section 4.15(b).

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     “Leased Real Property” means all material real property leased or otherwise occupied (as lessee or sublessee) as of the date hereof by the Company or any Subsidiary from a third party other than the Company or any Subsidiary, including the improvements thereon.

     “Liens” means, with respect to any asset, any pledges, claims, liens, mortgages, charges, encumbrances or security interests of any kind in respect of such asset.

     “Major Space Leases” means all leases, subleases, licenses, concessions, and other similar agreements for the use or occupancy of more than 10,000 square feet of any of the Company Properties.

     “Management Agreement Documents” shall have the meaning set forth in Section 4.15(h).

     “Marketed Portfolio Purchase and Sale Agreement” means that certain Agreement of Purchase and Sale made and entered into on December 17, 2006 between W2005 New Century Hotel Portfolio, L.P. and the Sellers identified therein.

     “Marketed Portfolio Sale” means, whether effected directly or indirectly or in one transaction or a series of related transactions, any sale, transfer or other business combination involving the 32 hotel properties owned by the Company and under contract for sale on the date hereof pursuant to the Marketed Portfolio Purchase and Sale Agreement.

     “Material Adverse Effect” means, (I) with respect to the Company, any change, development, circumstance, event or effect that, when considered either individually or in the aggregate together with all other changes, circumstances, developments, events or effects (a “Change”), (a) that would prevent or reasonably be expected to prevent the Company from consummating any of the Transactions or (b) is materially adverse to the properties, business, condition (financial or otherwise), liabilities or results of operations of the Company and its Subsidiaries taken as a whole, excluding any Change to the extent resulting from: (i) the execution or announcement of this Agreement or the performance of obligations under this Agreement, (ii) Changes affecting the United States economy or capital or financial markets generally (including Changes in interest rates) or Changes that are the result of factors generally affecting the industries in which the Company and its Subsidiaries conduct their respective business, except to the extent that such Changes have a materially disproportionate effect on the Company or the Company Properties relative to other similarly situated participants in the business or industry in which the Company operates, (iii) general Changes in conditions in or otherwise affecting hotel real estate properties or hotel operators (including diseases and epidemics), except to the extent that such Changes have a materially disproportionate effect on the Company or the Company Properties relative to other similarly situated participants in the business or industry in which the Company operates (it being understood that the phrase “similarly situated” shall take into account the geographical markets in which the Company operates), (iv) any Changes in applicable Law or GAAP or interpretation or application thereof, (v) earthquakes, hurricanes or other natural disasters, except to the extent that such Changes cause physical damage to a Company Property or have a materially disproportionate effect on the Company or the Company Properties relative to other similarly situated participants in the business or industry in which the Company operates (it being understood that the phrase

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“similarly situated” shall take into account the geographical markets in which the Company operates), (vi) the commencement, occurrence, continuation or escalation of any war, armed hostilities or acts of terrorism involving or affecting the United States, its armed forces or any part thereof, except to the extent that such Changes cause physical damage to a Company Property or have a materially disproportionate effect on the Company or the Company Properties relative to other similarly situated participants in the business or industry in which the Company operates (it being understood that the phrase “similarly situated” shall take into account the geographical markets in which the Company operates) and (vii) any failure, but only in and of itself, by the Company to meet any financial projection of the Company’s revenues, earnings or other financial performance for any period (it being understood that the phrase “but only in and of itself” shall mean that any Change from such failure that could otherwise be described in clause (I)(a) or (b), above, shall constitute a Material Adverse Effect); and (II) when used with respect to any of the Buyer Parties, any change, development, circumstance, event or effect that, when considered either individually or in the aggregate together with all other changes, developments, circumstances, events or effects, would, with the passage of time or otherwise, prevent the consummation of the Transactions following the satisfaction of all other conditions precedent thereto or prevent any of the Buyer Parties from performing their respective obligations under this Agreement.

     “Material Contract” shall have the meaning set forth in Section 4.18(a).

     “Maximum Premium” shall have the meaning set forth in Section 8.9(b).

     “Merger” shall have the meaning set forth in the second recital of this Agreement.

     “MGCL” shall have the meaning set forth in the second recital of this Agreement.

     “Missouri” shall have the meaning set forth in the introductory paragraph of this Agreement.

     “Owned Real Property” means all real property owned by the Company or any Subsidiary as of the date hereof, together with all buildings, structures, other improvements and fixtures located on or under such real property and all easements, rights, and other appurtenances thereto.

     “Parent” shall have the meaning set forth in the introductory paragraph of this Agreement.

     “Parent Asset Purchase Agreement” shall have the meaning set forth in Section 12.1.

     “Parent Asset Sale” shall have the meaning set forth in Section 12.1.

     “Parent Commitment Letter” shall have the meaning set forth in Section 5.7.

     “Parent Debt Financing” shall have the meaning set forth in Section 5.7.

     “Parent Expenses” shall have the meaning set forth in Section 8.5(c).

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     “Parent Financing” shall have the meaning set forth in Section 5.7.

     “Parent Preferred Equity Funding Letter” shall have the meaning set forth in Section 5.7.

     “Paying Agent” shall have the meaning set forth in Section 3.2(a).

     “Per Share Merger Consideration” means (i) $20.50 per Share, minus (ii) the Special Dividend Amount, divided by the number of Shares outstanding, on a fully diluted basis, on the Closing Date.

     “Permits” shall have the meaning set forth in Section 4.9.

     “Permitted Liens” means (a) statutory liens for Taxes, assessments or other charges by Governmental Entities not yet due and payable or the amount or validity of which is being contested in good faith, (b) any matter disclosed in the Company Title Insurance Policies, (c) Liens and obligations under the Material Contracts, Management Agreement Documents, the Third Party Franchise Agreements and Lease Documents, (d) mortgages and deeds of trust granted as security for financings listed or described in the Company Letter or Company SEC Documents, (e) inchoate mechanics’, materialmen’s, carriers’, workmen’s, warehouseman’s, repairmen’s, landlords’ and similar liens granted or which arise in the ordinary course of business, (f) liens, charges, encumbrances and/or title exceptions or imperfections created by or resulting from the acts or omissions of the Buyer Parties or any of their Affiliates, employees, officers, directors, agents, representatives, contractors, invitees or licensees, (g) all matters that may be shown by a current, accurate survey or physical inspection of the Company Properties that do not adversely affect, in a material manner, the value or marketability of such property, (h) any applicable Laws, including building and zoning Laws, now or hereafter in effect and (i) such other easements, rights of way, restrictions, covenants, liens, encumbrances or imperfections that are not material in amount and do not materially detract from the value of or materially impair the existing use of the Company Property affected by such easement, right of way, restriction, covenant, lien, encumbrance or imperfection.

     “Person” means an individual, corporation, partnership, limited partnership, limited liability partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Entity or other entity (including any person as defined in Section 13(d)(3) of the Exchange Act).

     “Proxy Statement” shall have the meaning set forth in Section 4.8.

     “Qualifying Income” shall have the meaning set forth in Section 8.5(e).

     “Redemption Plan” means the Company’s Amended and Restated Redemption Plan, effective as of June 16, 2004, as the same may from time to time be amended or modified.

     “Reinvestment Plan” means the Company’s Amended and Restated Reinvestment Plan, as in effect as of the date hereof.

     “REIT” shall have the meaning set forth in Section 4.10(c).

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     “Release” means any spilling, leaking, pumping, pouring, emitting, discharging, injecting, escaping, leaching, dumping or disposing of a Hazardous Substance into the environment.

     “Representatives” shall have the meaning set forth in Section 7.2(a).

     “Required Vote” shall have the meaning set forth in Section 4.4(a).

     “Retained Employees” shall have the meaning set forth in Section 8.1(a).

     “SDAT” shall have the meaning set forth in Section 2.3.

     “SEC” means the Securities and Exchange Commission.

     “Securities Act” means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.

     “Shares” shall have the meaning set forth in the second recital of this Agreement.

     “Significant Subsidiary” of any Person means a Subsidiary of such Person that would constitute a “significant subsidiary” of such Person within the meaning of Rule 1.02(w) of Regulation S-X as promulgated by the SEC.

     “Special Dividend” shall have the meaning set forth in Section 12.3.

     “Special Dividend Amount” shall have the meaning set forth in Section 12.3.

     “Stockholders’ Meeting” shall have the meaning set forth in Section 8.3(b).

     “Sub” shall have the meaning set forth in the introductory paragraph of this Agreement.

     “Subsidiary” of any Person means another Person, of which at least a majority of the securities or ownership interests having by their terms ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions is owned or controlled, directly or indirectly, by such first Person and/or by one or more of its Subsidiaries.

     “Superior Proposal” shall have the meaning set forth in Section 7.2(d).

     “Surviving Entity” shall have the meaning set forth in Section 2.1.

     “Tax” and “Taxes” means any federal, state, local or foreign income, property, sales, hotel room sales, restaurant sales, excise, franchise, employment, withholding, or other like assessment, together with any interest or penalty, imposed by any Governmental Entity.

     “Tax Protection Agreement” shall have the meaning set forth in Section 4.10(j).

     “Tax Sharing Agreement” shall have the meaning set forth in Section 4.10(j).

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     “Tax Return” means any return, report or similar statement filed or required to be filed with respect to any Tax including any information return, claim for refund, amended return or declaration of estimated Tax.

     “Termination Date” shall have the meaning set forth in Section 10.1(b)(i).

     “Termination Fee” shall have the meaning set forth in Section 8.5(b).

     “Third Party Franchise Agreements” shall have the meaning set forth in Section 4.15(g).

     “Transactions” shall have the meaning set forth in the third recital of this Agreement.

     “Transfer Taxes” shall have the meaning set forth in Section 8.7.

     “Treasury Regulations” means the regulations promulgated by the U.S. Treasury Department pursuant to the Code.

     “Uncertificated Share” shall have the meaning set forth in Section 3.1(c).

     “WARN” shall have the meaning set forth in Section 4.17(d).

     Section 1.2 Interpretation. When a reference is made in this Agreement to an Article, Section or clause, such reference shall be to an Article, Section or clause of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” All references to “dollars” or “$” means United States dollars.

ARTICLE II
THE MERGER

     Section 2.1 The Merger. Upon the terms and subject to the conditions hereof, and in accordance with the DLLCA and the MGCL, Sub shall be merged with and into the Company at the Effective Time. Following the Effective Time, the separate existence of Sub shall cease and the Company shall continue as the surviving entity (the “Surviving Entity”) and shall succeed to and assume all the rights, privileges, franchises, powers and obligations of Sub and the Company in accordance with Subtitle 1 of Title 3 of the MGCL and Section 18-209(g) of the DLLCA. The Company shall cause the opinion described in Section 9.3(d) to be brought down and dated as of the Closing; provided, that the bringdown of such opinion shall not be a condition to the consummation of the Merger.

     Section 2.2 Closing. The closing of the Merger (the “Closing”) will take place at 10:00 a.m. on the day following the consummation of the Asset Sales or such other date as mutually agreed to by Parent and the Company, at the offices of Sidley Austin LLP, 787 Seventh Avenue, New York, New York 10019, unless another date, time or place is agreed to in writing by the parties hereto (the date upon which the Closing occurs shall be referred to herein as the “Closing Date”).

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     Section 2.3 Effective Time. The Merger shall become effective when Articles of Merger (the “Articles of Merger”), executed in accordance with the relevant provisions of the MGCL, are duly filed with and accepted for record by the State Department of Assessments and Taxation in the State of Maryland (the “SDAT”) and a certificate of merger (the “Delaware Certificate of Merger”) has been duly filed with the Secretary of State of Delaware (the “DSOS”) in accordance with the DLLCA, or at such later time (not to exceed 30 days from the date of the acceptance for record of the Articles of Merger) as Sub and the Company shall agree and is specified in the Articles of Merger and the Delaware Certificate of Merger. When used in this Agreement, the term “Effective Time” shall mean the later of the date and time at which the Articles of Merger are duly filed with and accepted for record by the SDAT and the Delaware Certificate of Merger has been filed with the DSOS, or such later time (not to exceed 30 days from the date of the acceptance for record of the Articles of Merger) established by the Articles of Merger and the Delaware Certificate of Merger. The filing of the Articles of Merger and the Delaware Certificate of Merger shall be made at the Closing.

     Section 2.4 Effects of the Merger. The Merger shall have the effects set forth in Section 3-114 of the MGCL, Section 18-209(g) of the DLLCA and this Agreement.

     Section 2.5 Charter and Bylaws; Officers and Directors.

          (a) The Company Charter, as in effect immediately prior to the Effective Time, shall be the charter of the Surviving Entity until thereafter changed or amended as provided therein or by applicable Law.

          (b) The Company Bylaws, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Entity until thereafter changed or amended as provided by the charter or bylaws of the Surviving Entity or by applicable Law.

          (c) The managers of Parent, if any, immediately prior to the Effective Time shall be the directors of the Surviving Entity, until the earlier of their resignation or removal or until their respective successors are duly elected and qualify, as the case may be, in accordance with the Surviving Entity’s charter and bylaws.

          (d) The officers of Parent immediately prior to the Effective Time shall be the officers of the Surviving Entity until the earlier of their resignation or removal or until their respective successors are duly elected and qualify, as the case may be, in accordance with the charter and bylaws of the Surviving Entity.

     Section 2.6 Tax Treatment. The parties hereto (i) intend that for federal, and applicable state and local, income tax purposes, the Merger will be treated as a taxable purchase by Parent of all of the Company’s outstanding Shares and (ii) shall prepare and file their applicable Tax Returns based on such treatment.

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ARTICLE III
EFFECT OF THE MERGER

     Section 3.1 Effect on Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of any of Parent, Sub, the Company or the holders of shares of Company Common Stock or holders of any membership interest in Sub:

          (a) Stock of Sub. Each membership interest of Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Entity.

          (b) Parent Owned Stock. Each Share that is owned by Parent, Sub, Missouri or any other wholly-owned Subsidiary of Parent immediately prior to the Effective Time shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor.

          (c) Conversion of Shares. Subject to Section 3.1(d), each Share issued and outstanding immediately prior to the Effective Time (other than Shares to be cancelled in accordance with Section 3.1(b) and Dissenting Shares) shall be cancelled and be converted into the right to receive in cash, without interest, the Per Share Merger Consideration. As of the Effective Time, all such Shares shall be cancelled in accordance with this Section 3.1(c), and when so cancelled, shall no longer be outstanding and shall automatically cease to exist, and (x) each holder of a certificate (a “Certificate”) representing any such Shares shall cease to have any rights with respect thereto, except the right to receive the Per Share Merger Consideration for each such Share, without interest and (y) each holder of shares of Company Common Stock not represented by a Certificate (each an “Uncertificated Share”) shall thereafter only have the right to receive the Per Share Merger Consideration for each such Uncertificated Share, without interest.

          (d) Shares of Dissenting Stockholders. Notwithstanding anything in this Agreement to the contrary, any issued and outstanding Shares held by a Person who has filed with the Company a written objection to the Merger, has not voted in favor of or consented to the approval of the Merger (a “Dissenting Stockholder”) and has properly exercised and perfected appraisal rights under Title 3, Subtitle 2, of the MGCL (“Dissenting Shares”) shall not be converted into the right to receive the Per Share Merger Consideration as described in Section 3.1(c), but shall be converted into the right to receive such consideration from the Surviving Entity as may be determined to be due to such Dissenting Stockholder pursuant to the procedures set forth in Title 3, Subtitle 2, of the MGCL. If such Dissenting Stockholder withdraws its demand for appraisal or fails to perfect or otherwise loses its right of appraisal and payment, in any case pursuant to the MGCL, such holder’s Shares shall be deemed to be converted as of the Effective Time into the right to receive the Per Share Merger Consideration for each such Share, without interest, and such Shares shall no longer be Dissenting Shares. The Company shall give Parent (i) prompt notice of any demands received by the Company for appraisal of any Shares, withdrawals or such demands and any other instruments served pursuant to Title 3, Subtitle 2, of the MGCL and received by the Company and (ii) the opportunity to participate in all negotiations with respect to demands for appraisals under the MGCL.

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     Section 3.2 Paying Agent; Exchange Procedures.

          (a) Paying Agent. Prior to the consummation of the Asset Sales, Parent shall designate a bank or trust company, that shall be reasonably satisfactory to the Company, to act as paying agent with respect to the Per Share Merger Consideration and the Special Dividend (the “Paying Agent”). At or before the Effective Time, Parent shall deposit, or cause Sub to deposit, with the Paying Agent a cash amount in immediately available funds equal to the product of (x) the Per Share Merger Consideration and (y) the number of Shares issued and outstanding immediately prior to the Effective Time (exclusive of any Dissenting Shares and Shares to be cancelled pursuant to Section 3.1(b)). At or following the consummation of the Asset Sales, the Company shall deposit, or cause the escrow agent under the Parent Asset Purchase Agreement and the Arizona Asset Purchase Agreement to deposit, with the Paying Agent the Special Dividend Amount. The amounts deposited pursuant to the prior two sentences shall be referred to collectively as the “Exchange Fund”. Funds made available to the Paying Agent shall be invested (if at all) by the Paying Agent as directed by Parent or, after the Effective Time, the Surviving Entity; provided, however, that such investments shall only be in obligations of or guaranteed by the United States (it being understood that any and all interest or income earned on funds made available to the Paying Agent pursuant to this Agreement shall become a part of the Exchange Fund, and any amounts in excess of the amounts payable under Section 3.1(c) shall be promptly returned to the Surviving Entity).

          (b) Exchange Procedure. As soon as practicable after the Effective Time (and in any event within four (4) Business Days thereof), the Surviving Entity or Parent shall cause the Paying Agent to mail to each holder of record of one or more Shares (other than holders of Dissenting Shares and Shares to be cancelled pursuant to Section 3.1(b)), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates (or affidavits of loss in lieu thereof) to the Paying Agent and shall be in a form and have such other provisions as Parent and the Company may reasonably agree) and (ii) instructions for use in effecting the surrender of the Certificates (or affidavits of loss in lieu thereof) in exchange for the Per Share Merger Consideration as provided in Section 3.1. Upon surrender of a Certificate (or affidavits of loss in lieu thereof) for cancellation to the Paying Agent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent or, in the case of Uncertificated Shares, at or promptly following the receipt by the Paying Agent of a duly executed letter of transmittal and such other documents as may be required by the Paying Agent, the holder of such Certificate or Uncertificated Shares shall be entitled to receive in exchange therefor the amount of cash (after giving effect to any required Tax withholdings as provided in Section 3.2(g)) equal to (x) the number of Shares held by such stockholder multiplied by (y) the Per Share Merger Consideration, and any Certificates surrendered shall forthwith be cancelled. No interest will be paid or will accrue on the cash payable upon the surrender of any Certificate (or affidavits of loss in lieu thereof) or in exchange for Uncertificated Shares. In the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, payment may be made to a Person other than the Person in whose name the Certificate so surrendered (or affidavits of loss in lieu thereof) is registered, if such Certificate (or affidavits of loss in lieu thereof) shall be properly endorsed or otherwise be in proper form for transfer and the Person requesting such payment shall pay any transfer or other Taxes required by reason of the payment to a Person other than the registered holder of

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such Certificate (or affidavits of loss in lieu thereof) or establish to the satisfaction of the Surviving Entity or the Paying Agent that such Tax has been paid or is not applicable. Until exchanged or surrendered as contemplated by this Section 3.2, Uncertificated Shares and Shares represented by Certificates (other than Shares to be cancelled in accordance with Section 3.1(b) and Dissenting Shares) shall be deemed at any time after the Effective Time to represent only the right to receive upon such exchange or surrender the amount of cash, without interest, into which the Shares theretofore represented shall have been converted pursuant to Section 3.1.

          (c) No Further Ownership Rights in Shares. All Per Share Merger Consideration paid upon the surrender of Certificates (or affidavits of loss in lieu thereof) or in exchange for Uncertificated Shares in accordance with the terms of this Article III shall be deemed to have been paid in full satisfaction of all rights pertaining to such Shares. At the Effective Time, (i) holders of Certificates or Uncertificated Shares shall cease to have any rights as stockholders of the Company, (ii) the stock transfer books of the Company shall be closed and (iii) there shall be no further registration of transfers on the stock transfer books of the Surviving Entity of the Shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Entity or the Paying Agent for any reason, they shall be cancelled and exchanged as provided in this Article III.

          (d) Termination of Exchange Fund. Any portion of the Exchange Fund that remains undistributed to the holders of Shares for nine months after the Effective Time shall be delivered to the Surviving Entity, upon demand, and any holders of Shares (other than Shares to be cancelled in accordance with Section 3.1(b) and Dissenting Shares) who have not theretofore complied with this Article III and the instructions set forth in the letter of transmittal mailed to such holders after the Effective Time shall, after such funds have been delivered to the Surviving Entity, look only to the Surviving Entity (subject to abandoned property, escheat or other similar Laws) for payment of the Per Share Merger Consideration (after giving effect to any required Tax withholdings as provided in Section 3.2(g)) due upon surrender of their Certificates (or affidavits of loss in lieu thereof as provided in Section 3.2(f)) or exchange of their Uncertificated Shares, without any interest thereon.

          (e) No Liability. None of the Buyer Parties, the Company or the Paying Agent or any of their respective officers, employees, stockholders, directors, agents or Affiliates shall be liable to any Person in respect of any Per Share Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.

          (f) Lost, Stolen or Destroyed Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Entity, the posting by such Person of a bond in customary amount and upon such terms as may be required by the Surviving Entity as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent will issue a check in the amount (after giving effect to any required Tax withholdings as provided in Section 3.2(g)) equal to the number of Shares represented by such lost, stolen or destroyed Certificate multiplied by the Per Share Merger Consideration.

          (g) Withholding Rights. The Surviving Entity and the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this

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Agreement to any holder of Shares such amounts as the Surviving Entity or the Paying Agent is required to deduct and withhold with respect to the making of such payment under the Code or under any provision of state, local or foreign Tax Law. To the extent that amounts are so withheld by the Surviving Entity or the Paying Agent, such withheld amounts (i) shall be remitted by the Surviving Entity or the Paying Agent, as applicable, to the applicable Governmental Entity, and (ii) shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares in respect of which such deduction and withholding was made by the Surviving Entity or the Paying Agent, as the case may be. The parties acknowledge that this Section 3.2(g) is not intended to, and shall not, amend the terms of any Deferred Share Award or employment agreement related thereto.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     Except as set forth in the Company Letter (it being agreed that disclosure of any item in any section or subsection of the Company Letter shall be deemed disclosure with respect to any other section or subsection to which the relevance of such item is reasonably apparent), the Company hereby represents and warrants to the Buyer Parties as follows:

     Section 4.1 Organization; Minute Books.

          (a) The Company is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization and has the requisite corporate or similar power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Each of the Company’s Subsidiaries is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization and has the requisite corporate or similar power and authority to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing or to have such corporate or similar power and authority have not had and would not reasonably be expected to have a Material Adverse Effect on the Company. The Company and each of its Subsidiaries are duly qualified or licensed to do business and in good standing in each jurisdiction in which the nature of their business or the ownership or leasing of their properties makes such qualification or licensing necessary, except in such jurisdictions where the failure to be so duly qualified or licensed and in good standing has not had and would not reasonably be expected to have a Material Adverse Effect on the Company.

          (b) The Company has made available to the Buyer Parties complete and correct copies of its Articles of Amendment and Restatement, dated August 7, 2006 (the “Company Charter”), and its Amended and Restated Bylaws, dated August 30, 2006 (the “Company Bylaws”), and has made available to the Buyer Parties the charter and bylaws (or similar organizational documents) of each of its Significant Subsidiaries. The charter and bylaws (or similar organizational documents) of the Company and each of its Subsidiaries are in full force and effect and no dissolution, revocation or forfeiture proceeding regarding the Company or any of its Subsidiaries has been commenced. Neither the Company nor any of its Subsidiaries is in violation of any of the provisions of its charter or bylaws (or similar organizational documents), except, in each case, for such violations that would not have a Material Adverse Effect on the Company.

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          (c) The Company has made available to the Buyer Parties materially correct and complete copies of the minute books of the Company of meetings of the Board and committees of the Board held since January 1, 2004, except that the Company shall not be obligated to make available those portions of any minutes of meetings of the Board or committees of the Board related to the deliberations by the Board or such committee with respect to the consideration of strategic alternatives.

     Section 4.2 Subsidiaries. A correct and complete list of all of the Subsidiaries of the Company, together with the jurisdiction of organization of each such Subsidiary, and the percentage, if any, of the outstanding equity of each such Subsidiary not owned, directly or indirectly, by the Company is set forth in Item 4.2 of the Company Letter. All of the outstanding shares of stock of each Subsidiary of the Company that is a corporation have been duly authorized and validly issued and are fully paid and nonassessable. All of the outstanding shares of stock or equity interests and other ownership interests of each Subsidiary of the Company are owned by the Company, by one or more Subsidiaries of the Company or by the Company and one or more Subsidiaries of the Company, free and clear of all Liens. The Company does not own, directly or indirectly, any stock or other voting or equity securities or interests (or any interests convertible into or exchangeable or exercisable for any equity or similar interests) in any other Person.

     Section 4.3 Capital Structure. The authorized stock of the Company consists of 3,000,000,000 shares of Company Common Stock, 75,000,000 shares of preferred stock, $0.01 par value per share (the “Company Preferred Stock”), and 600,000,000 excess shares, $0.01 par value per share (the “Excess Shares”). At the close of business on January 17, 2007, (a) 156,968,775.0187 shares of Company Common Stock were issued and outstanding, all of which were duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights, (b) 2,872,743 shares of Company Common Stock were reserved for issuance pursuant to Deferred Share Awards granted under the Company’s 2004 Omnibus Long-Term Incentive Plan (the “Company Stock Plan”), (c) no shares of Company Preferred Stock were issued and outstanding, and (d) no Excess Shares were issued and outstanding. As of the date of this Agreement, except as set forth above, no shares of stock of the Company or options, warrants, convertible or exchangeable securities or other rights to purchase stock of the Company are issued, reserved for issuance or outstanding. There are no outstanding bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matter on which the Company’s stockholders may vote. As of the date of this Agreement, except as set forth above, there are no securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company or any of its Subsidiaries is a party or by which any of them is bound obligating the Company or any of its Subsidiaries to issue, deliver or sell or create, or cause to be issued, delivered or sold or created, additional shares of stock or other voting or equity securities or interests of the Company or of any of its Subsidiaries or obligating the Company or any of its Subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking relating to the voting of stock or equity securities or interests of the Company or any of its Subsidiaries. As of the date of this Agreement, other than pursuant to this Agreement, there are no outstanding contractual obligations or rights of the Company or any of its Subsidiaries to register or repurchase, redeem or otherwise acquire, vote, dispose of or otherwise transfer or register

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pursuant to any securities Laws any shares of stock or equity interests of the Company or any of its Subsidiaries. There are no agreements or understandings to which the Company is a party with respect to the voting of any shares of Company Common Stock and, to the Knowledge of the Company, as of the date of this Agreement, there are no third party agreements or understandings with respect to the voting of any shares of Company Common Stock.

     Section 4.4 Authority. (a) The Company has the requisite corporate power and authority to execute and deliver this Agreement and, subject to approval by the Company’s stockholders of the Merger, to consummate the transactions contemplated hereby, including the Asset Sales. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the Merger and the other transactions contemplated hereby, including the Asset Sales, have been duly authorized by all necessary corporate action on the part of the Company, subject to approval of the Merger and the other transactions contemplated hereby, by the holders of a majority of the outstanding Shares entitled to vote thereon (the “Required Vote”). This Agreement has been duly executed and delivered by the Company and (assuming the valid authorization, execution and delivery of this Agreement by the Buyer Parties) constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms.

          (b) The Board, at a meeting duly called and held has unanimously (i) approved and declared advisable and in the best interests of the Company and its stockholders this Agreement, the Merger, the Parent Asset Purchase Agreement, the Arizona Asset Purchase Agreement and the Asset Sales and (ii) resolved to recommend approval by the stockholders of the Company of the Merger and the transactions contemplated by the Merger Agreement, which resolutions, subject to Section 7.2, have not been subsequently rescinded, modified or withdrawn in any way (collectively, the “Board Recommendation”). Approval of the Merger and the other transactions contemplated hereby, by the stockholders of the Company by the Required Vote is the only vote of the holders of any class or series of stock of the Company required to approve the Merger and the transactions contemplated hereby.

     Section 4.5 Consents and Approvals; No Violations. Except (a) for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Securities Act, Exchange Act, the HSR Act, the MGCL, the DLLCA, state securities Laws and other applicable competition Law clearances, if any, and (b) as may be required in connection with the Taxes described in Section 8.7, neither the execution, delivery or performance of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the Company Charter or Company Bylaws or of the similar organizational documents of any of the Significant Subsidiaries, (ii) require any filing with, or permit, authorization, consent or approval of, any Governmental Entity, (iii) conflict with or result in a breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, or result in a loss of benefit under or give rise to a right of purchase, first offer or forced sale under, any of the terms, conditions or provisions of any Contract to which the Company or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound, (iv) violate any Law applicable to the Company, any of its Subsidiaries or any of their properties or assets, (v) result in the creation of any Lien on any properties or assets of the Company or any of its Subsidiaries,

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except for Permitted Liens or (vi) require the Company or any of its Subsidiaries to make any payment to any third Person, except in the case of clause (ii) where the failure to obtain such permits, authorizations, consents or approvals or to make such filings or, in the case of clauses (iii), (iv), (v) or (vi), for breaches, defaults, terminations, amendments, cancellations, accelerations, losses of benefits, violations, Liens or payments that have not had and would not reasonably be expected to have a Material Adverse Effect on the Company.

     Section 4.6 SEC Documents and Other Reports. (a) The Company has filed with the SEC all forms, reports, statements, schedules, certifications, exhibits thereto and other documents required to be filed by it since December 31, 2004 under the Securities Act or the Exchange Act (collectively, the “Company SEC Documents”). As of their respective filing dates, the Company SEC Documents (including any documents or information incorporated by reference therein) complied, and all documents filed by the Company with the SEC under the Securities Act or the Exchange Act between the date of this Agreement and the date of Closing will comply, in each case subject to the accuracy of the representations and warranties set forth in Sections 5.4 and 6.4, in all material respects with the requirements of the Securities Act and the Exchange Act, as the case may be, each as in effect on the date so filed. At the time filed with the SEC, none of the Company SEC Documents (including any documents or information incorporated by reference therein) contained, or, in the case of documents filed on or after the date hereof will contain, in each case subject to the accuracy of the representations and warranties set forth in Sections 5.4 and 6.4, any untrue statement of a material fact or omitted, or, in the case of documents filed on or after the date hereof will omit, in each case subject to the accuracy of the representations and warranties set forth in Sections 5.4 and 6.4, to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of the Company included in the Company SEC Documents (including the related notes and schedules thereto) complied as of their respective dates in all material respects with the then applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP (except in the case of the unaudited statements, as permitted by Form 10-Q under the Exchange Act) during the periods involved (except as may be indicated therein or in the notes thereto) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein).

          (b) The Company has made available to the Buyer Parties correct and complete copies of all material written correspondence between the SEC, on the one hand, and the Company and any of its Subsidiaries, on the other hand, occurring since December 31, 2004 and prior to the date hereof and will, promptly following the receipt thereof, make available to the Buyer Parties any such material correspondence sent or received after the date hereof. To the Knowledge of the Company, none of the Company SEC Documents is the subject of ongoing SEC review or outstanding SEC comment.

          (c) Neither the Company nor any of the Subsidiaries has any liability or obligation of any nature (whether accrued, absolute, contingent or otherwise) which would be required to be reflected, reserved for or disclosed in a consolidated balance sheet of the Company

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and its consolidated Subsidiaries, including the notes thereto, prepared in accordance with GAAP except (i) as reflected, reserved for or disclosed in the consolidated balance sheet of the Company and its consolidated Subsidiaries as of September 30, 2006, including the notes thereto, (ii) as incurred since September 30, 2006 in the ordinary course of business consistent with past practice, (iii) as incurred or to be incurred by the Company or any Subsidiary pursuant to, in connection with, or as a result of, the Merger and the other transactions contemplated by this Agreement, or (iv) as would not, or would not reasonably be expected to, have a Material Adverse Effect on the Company.

          (d) The Company has (i) implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) designed to ensure that material information relating to the Company, including the consolidated Subsidiaries of the Company, is made known to the management of the Company, and (ii) has disclosed, based on its most recent evaluation prior to the date hereof, to the Company’s outside auditors and the audit committee of the Board (A) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial data and (B) any fraud whether or not material, that involves management or other employees who have a significant role in the Company’s or any of Subsidiary of the Company’s internal controls over financial reporting.

          (e) The Company has not identified, based on its most recent evaluation, any material weaknesses in the design or operation of internal controls over financial reporting.

     Section 4.7 Absence of Material Adverse Effect. Since September 30, 2006 and prior to the date hereof, the Company and its Subsidiaries have conducted their respective businesses in all material respects in the ordinary course consistent with past practice, and, other than in connection with the Marketed Portfolio Sale, there has not been (a) any effect, event, development, change or circumstance that, individually or in the aggregate, with all other effects, events, developments and changes, has resulted in a Material Adverse Effect on the Company, (b) except for regular quarterly distributions to the Company’s stockholders with customary record and payment dates, any declaration, setting aside or payment of any dividend or other distribution with respect to its stock or equity interests or, except for regular redemptions of Shares pursuant to the Redemption Plan, any redemption, purchase or other acquisition of any of its stock or equity interests, (c) any change in accounting methods, principles or practices used by the Company or any of its Subsidiaries materially affecting its assets, liabilities or business, except insofar as may have been required by a change in GAAP, (d) any material damage, destruction or loss not covered by insurance to the Owned Real Property, (e) any material amendment of any term of any material outstanding debt or equity security of the Company or any of its Subsidiaries other than in the ordinary course of business, (f) any material amendment of any material employment, consulting, severance, incentive stock, stock option, deferred compensation, bonus, retirement, retention or any other agreement, or the adoption of any material new such agreement, between (i) the Company or any Company Subsidiary, on the one hand and (ii) any officer, trustee or director of the Company or any Company Subsidiary, on the other hand, earning more than $200,000 per year, other than as required by any contract, agreement or Benefit Plan, (g) any incurrence of indebtedness for borrowed money or guarantee for such indebtedness, in each case by the Company or any Subsidiary of the Company in excess

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of $1,000,000, other than (i) to meet the current cash needs of the Company and any Subsidiary of the Company not exceeding the amount contemplated by the Company’s capital budget for such period, a copy of which has been previously provided to the Buyer Parties and (ii) for projects currently under construction in amounts disclosed in the Company’s capital budget for such period, or (h) any agreement by the Company or any of its Subsidiaries involving any of the foregoing since September 30, 2006 and prior to the date hereof, except as disclosed on Item 4.7 of the Company Letter.

     Section 4.8 Information Supplied. None of the information supplied or to be supplied by the Company or any of its Subsidiaries or representatives specifically for inclusion or incorporation by reference in the proxy statement relating to the Stockholders’ Meeting (together with any amendments or supplements thereto and including any related filings required pursuant to the Exchange Act, the “Proxy Statement”) will, at the time the Proxy Statement is first mailed to the Company’s stockholders or at the time of the Stockholders’ Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by any Buyer Party or any of their respective representatives specifically for inclusion or incorporation by reference therein.

     Section 4.9 Compliance with Laws. The businesses and assets of the Company and its Subsidiaries are not and, since December 31, 2005, have not been, conducted or held in violation of any Law of any Governmental Entity, except for any violations that have not had a Material Adverse Effect on the Company. Each of the Company and its Subsidiaries has in effect all federal, state, local and provincial governmental licenses, authorizations, consents, permits and approvals (collectively, “Permits”) necessary for it to own, lease or operate its properties and assets and to carry on its business as now conducted, and no violation or default has occurred under any such Permit, except for the absence of Permits and for violations or defaults under Permits that have not had and would not reasonably be expected to have a Material Adverse Effect on the Company.

     Section 4.10 Tax Matters.

          (a) The Company and each of its Subsidiaries has timely filed or caused to be filed (after taking into account all applicable extensions) all material Tax Returns required to be filed by them, except where the failure to timely file would not reasonably be expected to have a Material Adverse Effect on the Company, and all such Tax Returns are true, correct and complete in all material respects.

          (b) Each of the Company and its Subsidiaries has paid or caused to be paid all material Taxes required to be paid (whether or not shown on any Tax return).

          (c) The Company and the Company Subsidiary REIT (i) for all taxable years commencing in the year in which the Company or the Company Subsidiary REIT, as applicable, first made an election to be subject to taxation as a real estate investment trust within the meaning of Section 856 of the Code (a “REIT”), through the most recent December 31, has

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qualified and been subject to taxation as a REIT and (ii) has operated, and intends to continue to operate until the Effective Time, in such a manner as would permit it to continue to qualify as a REIT, from the most recent December 31 and through the Effective Time, without, however, taking into account the effect on the Company or the Company Subsidiary REIT, as applicable, of any of the Transactions required to be entered into, or distributions required to be made, by the Company or the Company Subsidiary REIT under this Agreement, and without any express or implied representation being made that the Company or the Company Subsidiary REIT will have satisfied as of the Effective Time any requirement to make dividend distributions as a REIT with respect to 2007 that would have existed if the Company’s and the Company Subsidiary REIT’s 2007 taxable years were to have closed at the Effective Time. The Company has no Subsidiary classified as a REIT for federal income tax purposes other than the Company Subsidiary REIT. To the Company’s Knowledge, no challenge to the Company’s or the Company Subsidiary REIT’s status as a REIT is pending or threatened in writing. Each Subsidiary of the Company and each Subsidiary of the Company Subsidiary REIT that is a partnership, joint venture, or limited liability company and that has not elected for federal income tax purposes to be a corporation or a “taxable REIT subsidiary” within the meaning of Section 856 of the Code is treated for federal income tax purposes as a partnership or disregarded entity, as the case may be, and not as a corporation or an association taxable as a corporation. Each Subsidiary of the Company or the Company Subsidiary REIT that is a corporation for federal income tax purposes is a “qualified REIT subsidiary” pursuant to Section 856(i) of the Code, a “taxable REIT subsidiary” pursuant to Section 856(l) of the Code or a corporation which qualifies under the transitional rules set forth in Section 546(b) of the Tax Relief Extension Act of 1999. Neither the Company, the Company Subsidiary REIT nor any of their Subsidiaries holds any assets the disposition of which would be subject to rules similar to Section 1374 of the Code as a result of (A) an election under IRS Notice 88-19 or Treasury Regulations Section 1.337(d)-5 or Section 1.337(d)-6 or (B) the application of Treasury Regulations Section 1.337(d)-7.

          (d) No written requests for waivers of the time to assess any material Taxes of the Company or its Subsidiaries are pending.

          (e) There are no material pending or threatened audits, examinations, investigations or other proceedings in respect of Taxes of the Company or any of its Subsidiaries with respect to which the Company or any of its Subsidiaries has been notified in writing. To the Knowledge of the Company, there are no pending or threatening audits, examinations, investigations or other proceedings in respect of Taxes of the Company or any of its Subsidiaries.

          (f) All Taxes which the Company or any of its Subsidiaries are required by Law to withhold or to collect for payment have been withheld and collected except as would not reasonably be expected to have a Material Adverse Effect on the Company.

          (g) Neither the Company nor any of its Subsidiaries is a party to any agreement, arrangement, understanding or plan that has resulted, or would result in connection with the transactions contemplated by this Agreement or any change in control, in the payment of any amount that would, by operation of Section 280G of the Code, not be deductible by the entity making such payment.

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          (h) Neither the Company nor any Subsidiary has made or is obligated to make any payment that would not be deductible pursuant to Section 162(m) of the Code.

          (i) There are no Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of the Company or any of its Subsidiaries.

          (j) Neither the Company nor any of its Subsidiaries is a party to any Tax Sharing Agreement or Tax Protection Agreement, other than any agreement or arrangement solely between the Company and any of its Subsidiaries, pursuant to which it will have any obligation to make any payments after the Closing. For purposes of this Section 4.10(j), a “Tax Sharing Agreement” means any written agreement for the allocation or payment of Tax liabilities or payment for Tax benefits with respect to a consolidated, combined or unitary Tax Return which Tax Return includes or included the Company or any of its Subsidiaries. For purposes of this Section 4.10(j), a “Tax Protection Agreement” means any written agreement to which the Company or any of its Subsidiaries is a party pursuant to which, in connection with the deferral of income Taxes of a third party partner in any Subsidiary of the Company that is classified as a partnership for federal income Tax purposes, the Company nor any of its Subsidiaries has agreed to (i) maintain a minimum level of debt or provide rights to guarantee debt, (ii) retain or not dispose of assets for a period of time that has not since expired, (iii) make or refrain from making Tax elections, and/or (iv) only dispose of assets in a particular manner.

          (k) Neither the Company nor any Subsidiary (other than a “taxable REIT subsidiary” or a subsidiary of a “taxable REIT subsidiary”) has engaged at any time in any “prohibited transactions” within the meaning of Section 857(b)(6) of the Code. Neither the Company nor any of its Subsidiaries has engaged in any transaction that would give rise to “redetermined rents,” “redetermined deductions” or “excess interest” described in Section 857(b)(7) of the Code.

          (l) To the Knowledge of the Company, no claim has been made in writing by a taxing authority in a jurisdiction where the Company or any of its Subsidiaries does not file Tax Returns that the Company or any such Subsidiary is or may be subject to taxation by that jurisdiction.

          (m) Neither the Company nor any of its Subsidiaries has requested a private letter ruling from the IRS or comparable rulings from other taxing authorities.

          (n) Neither the Company nor any of its Subsidiaries is a party to any “listed transaction” described in Treasury Regulations Section 1.6011-4(b).

          (o) Neither the Company nor any of its Subsidiaries has entered into any “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax Law).

          (p) Neither the Company nor any of its Subsidiaries has recognized taxable gain or loss from the disposition of any property transferred or received in an exchange that was reported as a “like kind exchange” under Section 1031 of the Code.

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          (q) As of the date hereof, neither the Company nor the Company Subsidiary REIT has any earnings and profits attributable to any non-REIT year of the Company or the Company Subsidiary REIT, as applicable, or any other corporation within the meaning of Section 857 of the Code and the Treasury Regulations thereunder.

          (r) The dividends paid deduction of the Company and the Company Subsidiary REIT for each taxable year of each such entity ending with the taxable year ended December 31, 2006, will equal or exceed the sum of (i) the amount determined under Code Section 857(a)(1) with respect to the Company or the Company Subsidiary REIT, as applicable, but computed with the modifications described in the next sentence, and (ii) the net capital gain of the Company or the Company Subsidiary REIT, as applicable, for such taxable year; provided, however, that such dividends paid deduction of the Company for the taxable year ended December 31, 2006 takes into account any Section 858 dividend made by the Company prior to the Closing Date. The amount described under clause (i) above shall be computed by substituting “100%” for “90%” in each place it appears in Code Section 857(a)(1).

          (s) The Special Dividend Amount will equal or exceed the sum of (i) the amount determined under Code Section 857(a)(1) with respect to the Company’s current taxable year, computed with the modifications described in the next sentence and, and (ii) the net capital gain of the Company for such taxable year, assuming for purposes of clauses (i) and (ii) that the current taxable year of the Company will end on the date of the Closing. The amount described under clause (i) above shall be computed by substituting “100%” for “90%” in each place it appears in Code Section 857(a)(1).

          (t) The net proceeds received by the Company Subsidiary REIT from the Asset Sales will equal or exceed the sum of (i) the amount determined under Code Section 857(a)(1) with respect to the Company Subsidiary REIT’s current taxable year, computed with the modifications described in the next sentence and, and (ii) the net capital gain of the Company Subsidiary REIT for such taxable year, assuming for purposes of clauses (i) and (ii) that the current taxable year of the Company will end on the date of the Closing. The amount described under clause (i) above shall be computed by substituting “100%” for “90%” in each place it appears in Code Section 857(a)(1).

          (u) As of the Effective Time, the net operating loss for federal income tax purposes carried over to the Company in its acquisition of KSL Recreation Corp. in April 2004 that remained unused, based on the Company’s information and belief, was not less than $125 million, with the use of such net operating losses in 2007 and thereafter being subject to the limitations of Section 382 of the Code.

     Section 4.11 Benefit Plans. (a) With respect to each Benefit Plan, the Company has made available to the Buyer Parties a true and correct copy of (i) each such Benefit Plan that has been reduced to writing and all amendments thereto and a summary of any unwritten Benefit Plan; (ii) each trust, insurance or administrative agreement or insurance policy or other funding medium relating to each such Benefit Plan; (iii) the most recent written explanation of each Benefit Plan provided to participants, and, if applicable, the most recent summary plan description provided to participants; (iv) if applicable, the three most recent annual reports (Form 5500) filed with the IRS, including all schedules and accountants’ opinions; (v) the most recent

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determination letter and/or application thereof, if any, issued by the IRS with respect to any Benefit Plan intended to be qualified under Section 401(a) of the Code, and (vi) all correspondence to and from any state or federal agency within the last six years with respect to any Benefit Plan. Except as required or deemed advisable by Law, neither the Company nor any of its Subsidiaries has adopted or amended in any material respect any Benefit Plan since September 30, 2006 and copies of any such amendments or Benefit Plans have been provided to Parent.

          (b) Except as would not reasonably be expected to have a Material Adverse Effect on the Company, (i) each Benefit Plan has been maintained in compliance with its terms and, both as to form and in operation, with the requirements of applicable Law and (ii) all employer or employee contributions, premiums and expenses to or in respect of each Benefit Plan have been paid in full or, to the extent not yet due, have been adequately accrued on the applicable financial statements of the Company included in the Company SEC Documents in accordance with GAAP. Each asset held under any such Benefit Plan (other than assets held in the Company’s 401(k) plan for the benefit of the participants) may be liquidated or terminated without the imposition of any redemption fee, surrender charge or comparable liability. There is no Person (other than the Company or any of its Subsidiaries) that together with the Company or any of its Subsidiaries would be treated as a single employer under Section 414 of the Code or Section 4001(b) of ERISA. Neither the Company nor any of its Subsidiaries has at any time during the six-year period preceding the date hereof maintained, contributed to or incurred any liability under any “multiemployer plan” (as defined in Section 3(37) of ERISA) or any ERISA Benefit Plan that is subject to Title IV of ERISA or Section 412 of the Code.

          (c) As of the date of this Agreement there are no pending or, to the Knowledge of the Company, threatened disputes, arbitrations, claims, suits, grievances, governmental proceedings or, to the Knowledge of the Company, investigations involving a Benefit Plan (other than routine claims for benefits payable under any such Benefit Plan) that would reasonably be expected to have a Material Adverse Effect on the Company.

          (d) All Benefit Plans that are intended by their terms to be qualified under Section 401(a) of the Code have been determined by the IRS to be so qualified, or a timely application for such determination is now pending and, except as would not reasonably be expected to have a Material Adverse Effect on the Company, the Company has no Knowledge of any reason why any such Benefit Plan is not so qualified in operation. Except as set forth on Item 4.11 of the Company Letter, neither the Company nor any of its Subsidiaries has any liability or obligation under any welfare plan or agreement to provide benefits after termination of employment or service to any employee, director, consultant or dependent other than as required by Section 4980B of the Code. Each Benefit Plan may be amended, terminated, or otherwise modified by the Company to the greatest extent permitted by applicable Law, including the elimination of any and all future benefit accruals and no employee communications or provision of any relevant document has failed to effectively reserve the right of the Company to so amend, terminate or otherwise modify such Benefit Plan.

          (e) Neither the execution and delivery of this Agreement by the Company nor the consummation of the transactions contemplated hereby will or may (either alone or in connection with the occurrence of any additional or subsequent events) (i) result in the

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acceleration or creation of any rights of any Person to compensation or benefits under any Benefit Plan or other compensatory arrangement, loan forgiveness or result in an obligation to fund benefits with respect to any Benefit Plan or other compensatory arrangement; or (ii) constitute an event under any Benefit Plan or other arrangement that will or may result in any payment of deferred compensation subject to Section 409A of the Code.

          (f) The Company has made available to the Buyer Parties (or as described in Item 4.11(f) of the Company Letter) all of the employment agreements, bonus agreements, severance agreements, severance plans and similar obligations that include amounts that are payable as a result of consummation transactions contemplated hereby. Item 4.11(f) of the Company Letter sets forth a good faith estimate of the amounts that will become payable to employees of the Company under the terms of any employment agreements, bonus agreements, severance agreements, severance plans and similar obligations as a result of the consummation of the transactions contemplated by this Agreement.

     Section 4.12 Litigation. As of the date hereof, there is no outstanding judgment, order, writ, injunction or decree and no suit, claim, audit, action, proceeding, arbitration or investigation pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect on the Company or that seeks to materially delay or prevent the consummation of the transactions contemplated hereby. Except as set forth in Item 4.12 of the Company Letter, none of the Company or any of its Subsidiaries is subject to any order, judgment, writ, injunction or decree, except as would not have a Material Adverse Effect on the Company.

     Section 4.13 State Takeover Statutes. The Company has taken all action required to be taken by it in order to exempt this Agreement, the Parent Asset Purchase Agreement, the Arizona Asset Purchase Agreement and the Merger from, and this Agreement, the Parent Asset Purchase Agreement, the Arizona Asset Purchase Agreement and the Merger are exempt from, the requirements of any “fair price,” “moratorium,” “control share acquisition” or other similar antitakeover statute or regulation enacted under state or federal Laws in the United States, including the Maryland Business Combination Act and the Maryland Control Share Acquisition Act, or any takeover provision in the Company Charter or Company Bylaws.

     Section 4.14 Intellectual Property. Item 4.14 of the Company Letter contains a complete and accurate list of all registered Marks and material unregistered Marks and issued Patents and pending applications for Patents or pending registrations for Marks, in each case owned or purported to be owned by the Company and/or used in the conduct of the business of the Company. The Company and its Subsidiaries own, or are validly licensed or otherwise have the right to use, in each case free and clear of all Liens, except for Permitted Liens, all Intellectual Property purported to be owned by the Company and/or used in the conduct of the business of the Company and its Subsidiaries as currently conducted, except for such Intellectual Property where the failure to so own, be validly licensed or have the right to use would not reasonably be expected to have a Material Adverse Effect on the Company (the “Company Intellectual Property”). Except as would not reasonably be expected to have a Material Adverse Effect on the Company, all registrations and applications filed by the Company or its Subsidiaries with respect to Intellectual Property owned or purported to be owned by the Company or any Subsidiary have been duly maintained (including payment of maintenance fees) and are valid,

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enforceable, subsisting and unexpired. No claims are pending or, to the Knowledge of the Company, threatened, (a) challenging the ownership, enforceability, validity, or use by the Company or any Subsidiary of any Company Intellectual Property, or (b) alleging that the Company or any of its Subsidiaries is violating, misappropriating or infringing or otherwise adversely affecting the rights of any Person with regard to any Company Intellectual Property, other than claims that would not reasonably be expected to have a Material Adverse Effect on the Company. Except as would not reasonably be expected to have a Material Adverse Effect on the Company, (i) to the Knowledge of the Company, no Person is infringing the rights of the Company or any of its Subsidiaries with respect to any Company Intellectual Property and (ii) the operation of the business of the Company and its Subsidiaries as currently conducted does not violate, misappropriate or infringe (or has since December 31, 2004 violated, misappropriated or infringed) the Intellectual Property of any other Person, other than the rights of any other Person under any Patent, and to the Knowledge of the Company, the operation of the business of the Company and its Subsidiaries as currently conducted does not violate, misappropriate or infringe (or has since December 31, 2004 violated, misappropriated or infringed) the Intellectual Property of any other Person under any Patent. To the Knowledge of the Company, no other Person is violating, misappropriating or infringing any of the Company Intellectual Property. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of any Trade Secrets owned by the Company that are used in and material to the conduct of the business of the Company.

     Section 4.15 Properties.

          (a) Item 4.15(a) of the Company Letter sets forth a correct and complete list of all the Owned Real Property owned or held by the Company and its Subsidiaries as of the date of this Agreement.

          (b) Item 4.15(b) of the Company Letter sets forth a correct and complete list as of the date of this Agreement of (i) all the Leased Real Property and (ii) each ground lease with a third party pursuant to which the Company or any of its Subsidiaries is a lessee and, in each case, the Subsidiary of the Company holding the leasehold interest, the date of the lease and each material amendment or guaranty or other material agreement relating thereto (the leases referred to in clauses (i) and (ii), collectively, the “Lease Documents”). True, correct and complete copies of all Lease Documents have been made available to Parent. Each of the Lease Documents is valid, binding and in full force and effect, in all material respects, as against the Company or its applicable Subsidiary and, to the Company’s Knowledge, as against the other party thereto. As of the date hereof, neither the Company nor any of its Subsidiaries or, to the Company’s Knowledge, other party is in material breach or violation of, or material default (in each case, with or without notice or lapse of time or both) under, any of the Lease Documents and none of the Company or any of its Subsidiaries has received or given any written notice of material default under any such agreement which remains uncured.

          (c) Except as would not reasonably be expected to have a Material Adverse Effect on the Company, (i) the Company or one of its Subsidiaries has good fee simple title to all Owned Real Property and valid leasehold estates in all Leased Real Property, free and clear of all Liens, except for Permitted Liens and (ii) there are no pending or, to the Knowledge of the Company, threatened condemnation, eminent domain or similar proceedings or actions affecting

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any portion of the Company Properties, and, neither the Company nor any of its Subsidiaries has received any written notice of the intention of any Governmental Entity or other Person to take or use any of the Company Properties.

          (d) Company Title Insurance Policies have been issued insuring, as of the effective date of each such Company Title Insurance Policy, the Company’s or the applicable Subsidiary’s (or the applicable predecessor’s or acquiror’s) fee simple or leasehold title to the Company Properties, subject only to Permitted Liens, and to the Company’s Knowledge, such policies are, at the date hereof, valid and in full force and effect and no written claim has been made against any such policy. A true, accurate, and complete copy of each Company Title Insurance Policy has been made available to the Buyer Parties.

          (e) Since January 1, 2005, neither the Company nor any of its Subsidiaries has received any written notice to the effect that (i) any rezoning proceedings adversely affecting the current use as a hotel of any of the Company Properties are pending or, to the Knowledge of the Company, threatened with respect to any of the Company Properties, or (ii) any laws including any zoning regulation or ordinance, building or similar Law have been violated for any Company Property, or will be violated by the continued maintenance, operation or use of any buildings or other improvements on any of the Company Properties, that, in the case of clauses (i) and (ii) above, would reasonably be expected to have a Material Adverse Effect on the Company.

          (f) Except as set forth on Item 4.15(f) of the Company Letter, there are no unexpired option agreements or rights of first refusal with respect to the purchase of any real property that is owned or held by the Company or any of its Subsidiaries.

          (g) Item 4.15(g) of the Company Letter lists each franchise, license or other similar agreement providing the right to utilize a brand name or other rights of a hotel chain or system at any Company Property and sets forth the Company or any of its Subsidiary party to such agreement, the date of such agreement and each material amendment, guaranty or other material agreement binding on the Company or any of its Subsidiary and relating thereto (collectively, “Third Party Franchise Agreements”). True, correct and complete copies of each Third Party Franchise Agreement, including so-called property improvement plans required to be completed by the franchisor or any property improvement plans proposed by the franchisor, have been made available to the Buyer Parties. Each Third Party Franchise Agreement is valid, binding and in full force and effect, in all material respects, as against the Company or any of its applicable Subsidiaries, and, to the Knowledge of the Company, as against the other party thereto. Neither the Company nor any of its Subsidiaries is liable for any termination, cancellation or other similar fees or any liquidated damages under any franchise, license or similar agreements providing the right to utilize a brand name or other rights of a hotel chain or system in connection with or relating to any hotel previously owned or leased by the Company or any of its Subsidiaries.

          (h) Item 4.15(h) of the Company Letter lists each management agreement pursuant to which any third party manages or operates any Company Property or material portion thereof on behalf of the Company or any of its Subsidiaries, and identifies the property that is subject to such management agreement, the Company or its Subsidiary that is a party, the date of such management agreement and each material amendment, guaranty or other material

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agreement binding on the Company or any of its Subsidiaries and relating thereto (collectively, the “Management Agreement Documents”). True, correct and complete copies of all Management Agreement Documents have been made available to Parent. Each of the Management Agreement Documents is valid, binding and in full force and effect, in all material respects, as against the Company or its applicable Subsidiary and, to the Company’s Knowledge, as against the other party thereto.

          (i) There are no structural defects or adverse physical conditions affecting any Company Property or the improvements thereon and all building systems are in good working condition, except as would not have a Material Adverse Effect on the Company.

          (j) Item 4.15(j) of the Company Letter sets forth a correct and complete list, as of the date hereof, of all agreements for the pending acquisition, sale, option to sell, right of first refusal, right of first offer or any other contractual right to sell, dispose of, or lease (by merger, purchase or sale of assets or stock or otherwise) any personal property valued at $2,000,000 or more. The Company and each of its Subsidiaries have good and sufficient title, in all material respects, to all the material personal and non-real properties and assets reflected in their books and records as being owned by them, free and clear of all Liens, except for Permitted Liens.

          (k) A true, accurate and complete copy of all material equipment and personal property leases, Major Space Leases, and Hotel Contracts entered into by the Company and each of its Subsidiaries has been made available to the Buyer Parties.

     Section 4.16 Environmental Laws. Except as would not reasonably be expected to have a Material Adverse Effect on the Company:

          (a) Each of the Company and its Subsidiaries is, and at all times during the Company’s and each of its Subsidiaries’ ownership and operation of the Company Properties has been, in compliance with applicable Environmental Laws except for any noncompliance which has been remedied;

          (b) Each of the Company and its Subsidiaries has obtained and currently possesses and maintains in good standing, and has been and is in compliance with the terms and subject to the conditions thereof, all Permits required by Environmental Laws in connection with their ownership or operation of the Company Properties or the development by the Company or its Subsidiaries of the Company Properties; provided, that with respect to any permit required to be obtained by any lessee of a Company Property or any Person other than the Company or its Subsidiaries with respect to the conduct of business on the Company Properties, the representation contained in this subsection (b) is limited to the Knowledge of the Company;

          (c) There are no wetlands (as that term is defined in Section 404 of the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1254, and applicable state laws) at any of the Company Properties, that would reasonably be expected to adversely affect any ongoing development or currently planned development;

          (d) All asbestos or asbestos-containing materials and lead-based paint at any Company Property have been and are managed in accordance with Environmental Laws pursuant to an operations and maintenance program;

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          (e) Neither the Company nor any of its Subsidiaries has received any written notice alleging that the Company or any of its Subsidiaries may be in violation of, or liable under, or a potentially responsible party pursuant to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (or any other Environmental Law) that has not been resolved without further liability to the Company, and to the Knowledge of the Company, there is no basis for any such notice or claim;

          (f) Neither the Company nor any of its Subsidiaries has released, stored, treated or disposed or transported, and to the Knowledge of the Company, no other Person has released, stored, treated or disposed or transported, Hazardous Substances on or from any of the Company Properties in a manner that would reasonably be expected to result in liability under Environmental Laws;

          (g) Neither the Company nor any of its Subsidiaries (i) has entered into or agreed to any consent decree or order or is a party to any judgment, decree or judicial or administrative order relating to compliance with Environmental Laws, Permits or the investigation, sampling, monitoring, treatment, remediation, removal or cleanup of Hazardous Substances and no investigation, litigation or other proceeding is pending or threatened in writing with respect thereto or (ii) has assumed, by contract or operation of Law, any liability under any Environmental Law or relating to any Hazardous Substances or is an indemnitor in connection with any threatened or asserted claim by any third-party indemnitee for any liability under any Environmental Law or relating to any Hazardous Substances.

          (h) No Liens have been imposed or are in effect on any of the Company Properties pursuant to any Environmental Law;

          (i) Underground storage tanks on any Company Property are in compliance with applicable Environmental Laws; and

          (j) The Company has made available to the Buyer Parties true and complete copies of all environmental reports, investigations, assessments audits, Permits and material correspondence relating to compliance under or liability pursuant to Environmental Laws in the possession or within the control of the Company or any of its Subsidiaries.

     Section 4.17 Employment and Labor Matters.

          (a) (i) No employees of the Company or any of its Subsidiaries are represented by any labor organization and neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement; (ii) no labor organization or group of employees of the Company or any of its Subsidiaries or, to the Knowledge of the Company, any third party manager of the Company Properties has made a written demand for recognition or certification; (iii) to the Knowledge of the Company, there are no representation or certification proceedings or petitions seeking a representation proceeding presently filed, or to the Knowledge of the Company, threatened in writing to be brought or filed with the National Labor Relations Board or any other labor relations tribunal or authority concerning any employee of the Company or any of its Subsidiaries; (iv) to the Knowledge of the Company, there are no organizing activities involving the employees of the Company or any of its Subsidiaries pending with any labor

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organization or group of employees of the Company or any of its Subsidiaries, and (v) there is no actual or threatened work stoppage strike or other labor disturbance involving employees of the Company, any of its Subsidiaries or, to the Knowledge of the Company, any third party manager of the Company Properties.

          (b) There are no unfair labor practice charges, grievances or complaints filed or, to the Company’s Knowledge, threatened in writing by or on behalf of any employee or group of employees of the Company or any of its Subsidiaries that have not been settled or remedied that would reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.

          (c) There are no complaints, charges or claims against the Company or any of its Subsidiaries filed or, to the Knowledge of the Company, threatened in writing to be brought or filed, with any federal, state or local Governmental Entity or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment of any individual by the Company, any of its Subsidiaries or third party manager of the Company Properties that have not been settled or remedied that would reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.

          (d) With respect to employees of the Company and its Subsidiaries, the Company and each of its Subsidiaries are in compliance with all laws relating to the employment of labor, including all such laws relating to wages, hours, the Worker Adjustment and Retraining Notification Act (as amended, “WARN”) and any similar state or local “mass layoff” or “plant closing” Law, collective bargaining, discrimination, civil rights, safety and health, workers’ compensation and the collection and payment of withholding and/or social security Taxes and any similar Tax, except for any non-compliance that would not reasonably be expected to have a Material Adverse Effect on the Company; and there has been no “mass layoff” or “plant closing” as defined by WARN with respect to the Company or any of its Subsidiaries within the last six (6) months. To the Knowledge of the Company, with respect to the employees of any third party manager of any Company Property, any such third party manager is in material compliance with all laws relating to the employment of labor, including all such laws relating to wages, hours, WARN and any similar state or local “mass layoff” or “plant closing” Law, collective bargaining, discrimination, civil rights, safety and health, workers’ compensation and the collection and payment of withholding and/or social security Taxes and any similar Tax, except for any non-compliance that would not reasonably be expected to have a Material Adverse Effect on the Company; and, to the Knowledge of the Company, there has been no “mass layoff” or “plant closing” as defined by WARN with respect to any third party manager of any Company Property within the last six (6) months except as would not reasonably be expected to have a Material Adverse Effect on the Company.

     Section 4.18 Material Contracts.

          (a) Except as filed as exhibits to the Company SEC Documents prior to the date of this Agreement, none of the Company or any of its Subsidiaries is a party to or bound by any contract that, as of the date hereof:

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(i) is a “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K under the Securities Act);

(ii) calls for aggregate payments by the Company or any of its Subsidiaries under such contract of more than $12,000,000 over the remaining term of such contract;

(iii) calls for annual aggregate payments by the Company or any of its Subsidiaries under such contract of more than $5,000,000 over the remaining term of such contract;

(iv) contains any non-compete or exclusivity provisions binding on the Company or any of its Subsidiaries with respect to any line of business or geographic area with respect to the Company or any of its Subsidiaries, or that restricts the conduct of any line of business by the Company or any of its Subsidiaries or any geographic area in which the Company or any of its Subsidiary may conduct business;

(v) creates any (x) material partnership, limited liability company agreement, joint venture or other similar agreement entered into with any third party or (y) management, operating, franchise, license or other similar agreement entered into with any third party;

(vi) provides for the purchase, sale or exchange of, or option to purchase, sell or exchange any real property of the Company or any of its Subsidiaries;

(vii) is a contract or agreement pursuant to which the Company or any of its Subsidiaries agrees to indemnify or hold harmless any director or executive officer of the Company or any of its Subsidiaries (other than the organizational documents for the Company or its Subsidiaries);

(viii) is a material loan agreement, guaranty, letter of credit, indenture, note, bond, debenture, mortgage or any other agreement or instrument evidencing a capitalized leased obligation or other indebtedness of, or for the benefit of, the Company or any Subsidiary or any guaranty thereof; or

(ix) is an interest rate cap, interest rate collar, interest rate swap, currency hedging transaction or any other similar agreement to which the Company or any of its Subsidiaries is a party.

     Each contract of the type described in this Section 4.18(a), whether or not set forth in Item 4.18 of the Company Letter, is referred to herein as a “Material Contract.”

          (b) Each Material Contract is valid and binding, in all material respects, on the Company and/or each of its Subsidiaries party thereto, and, to the Knowledge of the Company, each other party thereto.

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          (c) Neither the Company nor any of its Subsidiaries is in default under any Material Contract and no event or circumstance, with or without notice or the passage of time, has occurred pursuant to any Material Contract which would result in a default or acceleration of payment, or forfeiture of any rights, except as would not (i) prevent or materially delay the consummation of the Merger, the Parent Asset Purchase or the Arizona Asset Purchase and the other transactions contemplated by this Agreement or (ii) result in a Material Adverse Effect on the Company. To the Knowledge of the Company, no counterparty of the Company or any of its Subsidiaries, as applicable, under any Material Contract has failed to perform its material obligations thereunder when required to be so performed and each is current in its material obligations to the Company or its Subsidiaries, as applicable, thereunder.

          (d) Prior to the date hereof, the Company has made available true, correct and complete copies of all agreements described in Section 4.18(a).

     Section 4.19 Insurance Policies. Item 4.19 of the Company Letter sets forth as of the date hereof, a correct and complete list of the insurance policies, other than the Company Title Insurance Policies, held by, or for the benefit of, the Company or any of its Subsidiaries, including the underwriter of such policies and the amount of coverage thereunder. Except as would not reasonably be expected to have a Material Adverse Effect on the Company, (a) all insurance policies maintained by the Company and its Subsidiaries are in full force and effect and provide insurance in such amounts and against such risks as the management of the Company reasonably has determined to be prudent in accordance with industry practices and commercially available or as is required by Law, and all premiums due and payable thereon have been paid and (b) neither the Company nor any Subsidiary is in material breach or default of any of the insurance policies, and neither the Company nor any Subsidiary has taken any action or failed to take any action which, with notice or the lapse of time, would constitute such a breach or default or permit termination or material modification of any of the insurance policies currently in effect. The Company has not received any notice of termination or cancellation or denial of coverage with respect to any material insurance policy currently in effect. Except as set forth in Item 4.19 of the Company Letter, such policies will not terminate by their terms as a result of the consummation of the transactions contemplated by this Agreement.

     Section 4.20 Affiliate Transactions. There are no material transactions, agreements, arrangements or understandings between (a) the Company or any of its Subsidiaries, on the one hand, and (b) any officer, director or Affiliate of the Company (other than any of its Subsidiaries), on the other hand, of the type that are required to be disclosed under Item 404 of Regulation S-K under the Securities Act which have not been so disclosed.

     Section 4.21 Opinion of the Company’s Financial Advisors. The Board has received an opinion from each of Banc of America Securities LLC and Houlihan Lokey Howard & Zukin Financial Advisors, Inc. to the effect that, as of the date of such opinions, the $20.50 per share cash consideration to be received by holders of the Company Common Stock (other than the Buyer Parties and their respective Affiliates) is fair, from a financial point of view, to such holders. The Company shall deliver an executed copy of such opinions to Parent solely for informational purposes promptly following the Company’s receipt thereof.

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     Section 4.22 Brokers. No broker, investment banker, financial advisor or other Person, other than Banc of America Securities LLC, UBS Securities LLC and Houlihan Lokey Howard & Zukin Financial Advisors, Inc. (or Hodges Ward Elliot in connection with the Marketed Portfolio Sale), is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. The Company promptly will make available to the Buyer Parties a correct and complete copy of all agreements between the Company and each of Banc of America Securities LLC, UBS Securities LLC, and Houlihan Lokey Howard & Zukin Financial Advisors, Inc.

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT, SUB AND MISSOURI

     Each of Parent, Sub and Missouri, jointly and severally, hereby represents and warrants to the Company as follows:

     Section 5.1 Organization. Each of Parent, Sub and Missouri is a limited liability company duly organized, validly existing and in good standing under the Laws of the jurisdiction of its formation and has the requisite power and authority to carry on its business as now being conducted.

     Section 5.2 Authority. Each of Parent, Sub and Missouri has the requisite power and authority to execute and deliver this Agreement and to consummate the Merger and the other transactions contemplated hereby, including the Parent Asset Sale. The execution, delivery and performance of this Agreement by Parent, Sub and Missouri and the consummation by each of Parent, Sub and Missouri of the Merger and of the other transactions contemplated hereby, including the Parent Asset Sale, have been duly authorized by all necessary action on the part of each of Parent, Sub and Missouri. This Agreement has been duly executed and delivered by each of Parent, Sub and Missouri and (assuming the valid authorization, execution and delivery of this Agreement by the Company and Arizona) constitutes the legal, valid and binding obligation of each of Parent, Sub and Missouri enforceable against each of them in accordance with its terms.

     Section 5.3 Consents and Approvals; No Violations. Except (a) for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Securities Act, the Exchange Act, the HSR Act, the MGCL, the DLLCA, state securities Laws and other applicable competition Law clearances, if any, and (b) as may be required in connection with the Taxes described in Section 8.7, neither the execution, delivery or performance of this Agreement by Parent, Sub and Missouri nor the consummation by Parent, Sub or Missouri of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the respective certificate of formation and other organizational documents of Parent, Sub or Missouri, (ii) require any filing with, or permit, authorization, consent or approval of, any Governmental Entity (except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings has not had and would not reasonably be expected to have a Material Adverse Effect on Parent), (iii) conflict with or result in a breach of, or constitute (with or without due notice or lapse of time or both) a default (or

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give rise to any right of termination, amendment, cancellation or acceleration) under, or result in a loss of benefit under, any of the terms, conditions or provisions of any Contract to which Parent, any of its Subsidiaries or Missouri is a party or by which any of them or any of their properties or assets may be bound, (iv) violate any Law, order, writ, injunction, judgment, decree, statute, rule or regulation applicable to Parent, any of its Subsidiaries, Missouri or any of their properties or assets or (v) require Parent, any of its Subsidiaries (including Sub) or Missouri to make any payment to any third Person, except in the case of clauses (iii), (iv) or (v) for breaches, defaults, terminations, amendments, cancellations, accelerations, losses of benefits, violations or payments that have not had and would not reasonably be expected to have a Material Adverse Effect on Parent.

     Section 5.4 Information Supplied. None of the information supplied or to be supplied by Parent, Sub or Missouri, or any of their representatives, specifically for inclusion or incorporation by reference in the Proxy Statement will, at the time the Proxy Statement is first mailed to the Company’s stockholders or at the time of the Stockholders’ Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading, except that no representation or warranty is made by Parent, Sub or Missouri with respect to statements made or incorporated by reference therein based on information supplied by the Company or Arizona or any of their representatives specifically for inclusion or incorporation by reference therein.

     Section 5.5 Litigation. As of the date hereof, there is no outstanding judgment, order, writ, injunction or decree and no suit, claim, audit, action, proceeding, arbitration or investigation pending or, to the Knowledge of Parent or any of its Subsidiaries (including Sub), threatened against Parent, any of its Subsidiaries (including Sub) or Missouri that has had or would reasonably be expected to have a Material Adverse Effect on Parent.

     Section 5.6 Capitalization of Sub. All of the issued and outstanding membership interests of Sub and Missouri are, and at the Effective Time will be, owned by Parent or a direct or indirect wholly-owned Subsidiary of Parent. Sub and Missouri have not conducted any business prior to the date hereof and have no, and prior to the Effective Time will have no, assets, liabilities or obligations of any nature other than those incident to their formation and pursuant to this Agreement and the Merger and the other transactions contemplated by this Agreement, including the Parent Debt Financing.

     Section 5.7 Financing. Parent has delivered to the Company true and complete copies of (a) an executed commitment letter from Morgan Stanley Asset Funding, Inc. to invest in preferred equity of Parent in an aggregate amount set forth therein (the “Parent Preferred Equity Funding Letter”) and (b) an executed commitment letter (the “Parent Commitment Letter”) from Morgan Stanley Mortgage Capital Inc. to provide debt financing in an aggregate amount set forth therein (the “Parent Debt Financing,” and together with the financing referred to in clause (a) being collectively referred to as the “Parent Financing”). None of the Parent Preferred Equity Funding Letter or the Parent Commitment Letter has been amended or modified prior to the date of this Agreement and the respective commitments contained in such letters have not been withdrawn or rescinded in any respect. Parent has fully paid any and all commitment fees or other fees in connection with the Parent Preferred Equity Funding Letter and the Parent

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Commitment Letter that are payable on or prior to the date hereof, and the Parent Preferred Equity Funding Letter and the Parent Commitment Letter are in full force and effect and are the valid, binding and enforceable obligations of Parent and, to the Knowledge of Parent, the other parties thereto. There are no conditions precedent related to the funding of the full amount of the Parent Financing, other than as set forth in or expressly contemplated by the Parent Preferred Equity Funding Letter or the Parent Commitment Letter. The aggregate proceeds contemplated by the Parent Preferred Equity Funding Letter and the Parent Commitment Letter, together with the amounts funded by the other equity owners of Parent, will be sufficient for Sub to pay the aggregate Per Share Merger Consideration and for Missouri to pay the purchase price for the Parent Asset Sale and for each of them to pay all related fees and expenses. As of the date hereof, no event has occurred which, with or without notice, lapse of time or both, would constitute a default on the part of Parent, Sub or Missouri under the Parent Preferred Equity Funding Letter and the Parent Commitment Letter and, as of the date of this Agreement, Parent does not have any reason to believe that any of the conditions to the Parent Financing will not be satisfied or that the Parent Financing will not be available to Sub at the Closing.

     Section 5.8 Brokers. No broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent, Sub or Missouri.

     Section 5.9 Certain Tax Matters. Parent’s ownership of the Surviving Entity as of and after the Effective Time will not cause the Surviving Entity or any Company Subsidiary REIT to fail to satisfy any requirements for qualification as a REIT for the taxable year that includes the Effective Time.

ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF ARIZONA

     Arizona hereby represents and warrants to the Company as follows:

     Section 6.1 Organization. Arizona is a limited liability company duly organized, validly existing and in good standing under the Laws of the jurisdiction of its formation and has the requisite power and authority to carry on its business as now being conducted.

     Section 6.2 Authority. Arizona has the requisite power and authority to execute and deliver this Agreement and to consummate the Arizona Asset Sale. The execution, delivery and performance of this Agreement by Arizona and the consummation by Arizona of the Arizona Asset Sale have been duly authorized by all necessary action on the part of the board of managers of Arizona. This Agreement has been duly executed and delivered by Arizona and (assuming the valid authorization, execution and delivery of this Agreement by the Company, Parent and Sub) constitutes the legal, valid and binding obligation of Arizona enforceable against Arizona in accordance with its terms.

     Section 6.3 Consents and Approvals; No Violations. Except (a) for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Securities Act, the Exchange Act, the HSR Act, the MGCL, the DLLCA,

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state securities Laws and other applicable competition Law clearances, if any, and (b) as may be required in connection with the Taxes described in Section 8.7, neither the execution, delivery or performance of this Agreement by Arizona nor the consummation by Arizona of the Arizona Asset Sale will (i) conflict with or result in any breach of any provision of the certificate of formation and other organizational documents of Arizona, (ii) require any filing with, or permit, authorization, consent or approval of, any Governmental Entity (except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings has not had and would not reasonably be expected to have a Material Adverse Effect on Arizona), (iii) conflict with or result in a breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, or result in a loss of benefit under, any of the terms, conditions or provisions of any Contract to which Arizona or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound, (iv) violate any Law, order, writ, injunction, judgment, decree, statute, rule or regulation applicable to Arizona, any of its Subsidiaries or any of their properties or assets or (v) require Arizona or any of its Subsidiaries to make any payment to any third Person, except in the case of clauses (iii), (iv) or (v) for breaches, defaults, terminations, amendments, cancellations, accelerations, losses of benefits, violations or payments that have not had and would not reasonably be expected to have a Material Adverse Effect on Arizona.

     Section 6.4 Information Supplied. None of the information supplied or to be supplied by Arizona, or any of their representatives, specifically for inclusion or incorporation by reference in the Proxy Statement will, at the time the Proxy Statement is first mailed to the Company’s stockholders or at the time of the Stockholders’ Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading, except that no representation or warranty is made by Arizona with respect to statements made or incorporated by reference therein based on information supplied by the Company or Parent or any of their representatives specifically for inclusion or incorporation by reference therein.

     Section 6.5 Litigation. As of the date hereof, there is no outstanding judgment, order, writ, injunction or decree and no suit, claim, audit, action, proceeding, arbitration or investigation pending or, to the Knowledge of Arizona or any of its Subsidiaries, threatened against Arizona or any of its Subsidiaries that has had or would reasonably be expected to have a Material Adverse Effect on Arizona.

     Section 6.6 Financing. Arizona has delivered to the Company true and complete copies of executed commitment letters (the “Arizona Commitment Letters”) from Wachovia Capital Markets, LLC to provide debt financing in an aggregate amount set forth therein (being collectively referred to as the “Arizona Debt Financing”). The Arizona Commitment Letters have not been amended or modified prior to the date of this Agreement, no such amendment or modification is contemplated, and the respective commitments contained in such letters have not been withdrawn or rescinded in any respect. Arizona has fully paid any and all commitment fees or other fees in connection with the Arizona Commitment Letters that are payable on or prior to the date hereof, and the Arizona Commitment Letters are in full force and effect and are the valid, binding and enforceable obligations of Arizona and, to the Knowledge of Arizona, the other parties thereto. There are no conditions precedent related to the funding of the full amount

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of the Arizona Debt Financing, other than as set forth in or expressly contemplated by the Arizona Commitment Letters. The aggregate proceeds contemplated by the Arizona Commitment Letters, together with the amounts funded by the equity owner of Arizona, will be sufficient for Arizona to pay the purchase price for the Arizona Asset Sale and any other repayment or refinancing of debt contemplated in the Arizona Commitment Letters or the Arizona Debt Financing and to pay all related fees and expenses. As of the date hereof, no event has occurred which, with or without notice, lapse of time or both, would constitute a default on the part of Arizona under the Arizona Commitment Letters and, as of the date of this Agreement, Arizona does not have any reason to believe that any of the conditions to the Arizona Debt Financing will not be satisfied or that the Arizona Debt Financing will not be available to Arizona at the time of consummation of the Arizona Asset Sale.

     Section 6.7 Brokers. No broker, investment banker, financial advisor or other Person, other than Wachovia Capital Markets LLC and Eastdil Secured, L.L.C., the fees and expenses of which will be paid by Arizona, is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Arizona.

ARTICLE VII
COVENANTS RELATING TO CONDUCT OF BUSINESS

     Section 7.1 Conduct of Business by the Company Pending the Merger. Except as (v) required by applicable Law or by a Governmental Entity, (w) expressly permitted or required by this Agreement, (x) for any action expressly required by the Marketed Portfolio Purchase and Sale Agreement (including the retirement of any Indebtedness in connection therewith), (y) otherwise set forth in the Company Letter or (z) consented to by Parent in writing (which consent shall not be unreasonably withheld, delayed or conditioned), during the period from the date of this Agreement until the Effective Time (or such earlier date on which this Agreement may be terminated in accordance with its terms), the Company shall, and shall cause each of its Subsidiaries to, in all material respects carry on its business in the ordinary course consistent with past practice and, to the extent consistent therewith, the Company and its Subsidiaries shall use their respective reasonable best efforts to preserve substantially intact their business organizations and Intellectual Property and maintain in all material respects, existing relations and goodwill with tenants, management companies, customers, suppliers, officers and employees and others having business dealings with them and, except as provided in clauses (v)-(z) above, during such period, the Company shall not, and shall not permit any of its Subsidiaries to, without the prior written consent of Parent (which consent shall not be unreasonably withheld, delayed or conditioned; provided, that, for purposes of this Section 7.1, a failure of Parent to respond to a request for consent from the Company within five (5) Business Days from the receipt of such request shall be deemed to constitute consent to such request):

          (a) (i) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its stock or equity interests (except to the extent necessary to maintain the Company’s status as a REIT or to eliminate any Taxes otherwise payable (provided that any such dividend or distribution shall require prior consultation with Parent) and dividends paid by any direct or indirect Subsidiary to the Company or to any other direct or indirect Subsidiary of the Company in the ordinary course of business consistent with past practice) or

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(ii) split, combine or reclassify or redeem, purchase or otherwise acquire, directly or indirectly, any of its or its Subsidiaries’ stock or equity interests or securities convertible or exchangeable into or exercisable for any shares of its or its Subsidiaries’ stock or equity interests, or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its or its Subsidiaries’ stock or equity interests or securities convertible or exchangeable into or exercisable for any shares of its or its Subsidiaries’ stock or equity interests, except (x) as required by the terms of such securities issued prior to the date of this Agreement, (y) for any such transaction by a wholly-owned Subsidiary of the Company which remains a wholly-owned Subsidiary after the consummation of such transaction or (z) the acquisition of any Shares tendered by current or former employees or directors in order to pay Taxes in connection with the vesting of Deferred Share Awards outstanding on the date of this Agreement or expressly permitted to be issued under this Agreement, in accordance with the terms of the Deferred Share Awards;

          (b) issue, sell, pledge, dispose of, grant, transfer or encumber, or authorize the issuance, sale, pledge, disposition, grant, transfer or encumbrance of, any shares of its or its Subsidiaries’ stock or equity interests, any other voting securities or any securities convertible or exchangeable into or exercisable for any such shares or interests, or any rights, warrants or options to acquire, any such shares or interests, voting securities or convertible or exchangeable securities, other than the issuance or award of Shares in connection with Deferred Share Awards under the Company Stock Plan outstanding on the date hereof;

          (c) adopt or propose any amendment to the Company Charter, the Company Bylaws (other than to change the Company’s annual stockholder meeting date) or the organizational documents of any Subsidiary;

          (d) acquire (by merger, consolidation, purchase of stock or assets or otherwise), or agree to so acquire, in a single transaction or in a series of related transactions, any Person, entity or division thereof, or otherwise acquire or agree to acquire any assets outside the ordinary course consistent with past practice having a purchase price in excess of $1,000,000 in the aggregate (it being understood that this clause (d) shall not apply to capital expenditures by the Company, which shall be covered by clause (e) below);

          (e) other than as required to avoid a breach of a Contract in effect prior to the date of this Agreement (in which case the Company shall consult with Parent to the extent reasonably requested by Parent), make or agree to make any capital expenditure other than expenditures (i) out of reserves or escrows for furniture, fixtures and equipment included in 2007 property budgets either approved by the Company prior to the date hereof or, if the budget for a property has not been approved prior to the date hereof, as made available to Parent prior to the date hereof, (ii) reasonably required in response to an incident at any Company Property to prevent further damage or injury to such Company Property, following consultation with Parent or (iii) to the extent not covered in clauses (i) or (ii), up to an aggregate amount of $1,000,000;

          (f) dispose of any Company Property or, other than for transactions that are in the ordinary course of business or pursuant to Contracts in effect prior to the date of this Agreement, transfer, sell, lease, license, mortgage, pledge, surrender, encumber, divest, cancel, abandon or allow to lapse or expire or otherwise dispose of (by merger, consolidation, sale of

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stock or assets or otherwise), or agree to transfer, sell, lease, license, mortgage, pledge, surrender, encumber, divest, cancel, abandon or allow to lapse or expire or otherwise dispose of, any entity, business or assets;

          (g) incur, guarantee or modify in any respect material and adverse to the Company, any Indebtedness, other than Indebtedness (i) existing solely between the Company and its wholly-owned Subsidiaries or among such wholly-owned Subsidiaries or (ii) incurred in the ordinary course of business consistent with past practice in an amount not to exceed $2,000,000 for all such incurrences, guarantees and modifications in the aggregate or pursuant to Contracts in effect prior to the execution of this Agreement;

          (h) other than as expressly required by Contracts in effect prior to the date of this Agreement, make any loans, advances or capital contributions to, or investments in, any other Person (other than the Company or any direct or indirect wholly-owned Subsidiary of the Company);

          (i) (i) increase the salary, wages or other compensation payable or to become payable to or the fringe benefits of its directors, officers or employees, except for any increases required under employment agreements existing on the date hereof, and except for increases for employees in the ordinary course of business consistent with past practice; or (ii) enter into any employment, change in control, consulting or severance agreement with, or establish, adopt, enter into or amend any Benefit Plan, bonus, profit sharing, thrift, stock option, restricted stock, pension, retirement, deferred compensation, employment, change in control, termination or severance plan, agreement, policy or arrangement for the benefit of, any director, officer or employee of the Company, except, in each case, in the ordinary course of business consistent with past practice, or as may be required by the terms of any such plan, agreement, policy or arrangement existing on the date hereof and disclosed in the Company Letter or to comply with applicable Law;

          (j) except as may be required by GAAP, as a result of a change in Law or SEC rule, regulation or interpretation, make any material change in its method of accounting;

          (k) other than in the ordinary course of business or to the extent reasonably necessary to maintain the Company’s status as a REIT, (i) make, change or revoke any material Tax election or (ii) settle or compromise any material federal, state, local or foreign Tax liabilities; provided, that in the event the Company takes any such action with respect to Taxes that is permitted under this Section 7.1(k), the Company shall notify Parent of such action;

          (l) waive, release, settle or compromise any pending or threatened suit, action, claim, arbitration, mediation, inquiry, proceeding or investigation against the Company or any of its Subsidiaries, other than where the amounts paid or to be paid either (A) do not exceed $1,000,000 in the aggregate for all such waivers, releases, settlements or compromises or (B) are fully covered by insurance coverage maintained by the Company; provided, in each case that any such waiver, release, settlement or compromise includes a full release of the Company with respect to the matters covered by the subject litigation; provided, further, that no pending or threatened claim brought by or on behalf of the Company’s stockholders may be settled without the prior written consent of Parent;

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          (m) adopt or enter into a plan of complete or partial liquidation, dissolution, restructuring or recapitalization of the Company or any of its Subsidiaries;

          (n) modify or amend in any material respect or terminate any Material Contract, Lease Documents (including ground leases), Third Party Franchise Agreement or Management Agreement Documents or enter into any new contract or agreement that, if entered into prior to the date of this Agreement, would have been required to be listed in Item 4.18 of the Company Letter as a Material Contract or enter into any new Lease Documents (including ground leases), Third Party Franchise Agreement or Management Agreement Documents;

          (o) except as may be required by the terms thereof or in connection with the Marketed Portfolio Sale, pre-pay any long-term debt, which shall be deemed to include pre-payments or elective repayments of revolving credit facilities or other similar lines of credit, payments made in respect of any termination or settlement of any interest rate swap or other similar hedging instrument relating thereto, or repayments of mortgage Indebtedness, or, except in the ordinary course of business consistent with past practice, pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, contingent or otherwise);

          (p) initiate, continue or otherwise engage in any discussions, whether formal or informal, or effect any filing, including administrative relief in the form of a settlement or closing agreement or otherwise, with the IRS, including any discussions relating to the classification of the “goodwill” or “intangibles” of the Company or the ongoing audits of KSL Recreation Corporation with respect to income Taxes;

          (q) take any action that is not in accordance in all material respects with the Marketed Portfolio Purchase and Sale Agreement or take any action that could reasonably be expected to materially frustrate or delay the consummation of the Market Portfolio Sale;

          (r) amend or modify in any material respect or terminate or waive or fail to enforce any material rights of the Subsidiaries of the Company under the Marketed Portfolio Purchase and Sale Agreement;

          (s) fail to maintain in full force and effect the existing insurance policies covering the Company and its Subsidiaries and their respective properties, assets and businesses (unless such coverage cannot be maintained on substantially similar terms, in which case the Company shall consult with Parent);

          (t) adopt, renew, terminate, change or increase in any material respect any liability or other obligations of the Company or any of its Subsidiaries under any operating standards, loyalty programs or amenity packages with the franchisors of any of the properties of the Company or its Subsidiaries;

          (u) modify or amend in any material respect or terminate any Contract with an Affiliate of the Company or modify in any material respect any material relationship between the Company and its Affiliates, including the manner in which the Company and its Affiliates own or holds their respective assets; provided, that for purposes of this clause (u) only, “Affiliates” of the Company shall be deemed to include Persons that were Affiliates of CNL Hospitality Corp.

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immediately prior to the time at which CNL Hospitality Corp. merged with, and became, a Subsidiary of the Company; or

          (v) enter into any Contract to do any of the foregoing.

     Section 7.2 Acquisition Proposals.

          (a) No Solicitation. Neither the Company nor any of its Subsidiaries shall, nor shall any of them authorize or permit any officer, director, employee, or agent or any investment banker, financial advisor, attorney, accountant or other representative (collectively, the “Representatives”) to, directly or indirectly:

     (i) solicit, initiate, or knowingly facilitate or knowingly encourage any inquiries regarding, or the making, submission or reaffirmation of any proposal or offer that constitutes, or that reasonably may be expected to lead to the submission of, any Acquisition Proposal;

     (ii) engage in, continue or otherwise participate in any discussions or negotiations with, or furnish any non-public information or provide access to its books, records or personnel to, any Person in respect of, or otherwise cooperate with respect to, any Acquisition Proposal; or

     (iii) exempt any Person (other than the Buyer Parties) from the restrictions on business combinations contained in Subtitle 6 of Title 3 of the MGCL or from the similar restrictions contained in the Company Charter.

   Without limiting the foregoing, the Company shall be responsible for any failure on the part of its Representatives to comply with this Section 7.2.

          (b) Notwithstanding anything to the contrary in this Section 7.2, nothing contained in this Agreement shall prohibit the Company from, at any time prior to receipt of the Company Stockholder Approval, furnishing any information to, or entering into or participating in discussions or negotiations with, any Person that makes an unsolicited bona fide Acquisition Proposal in writing that did not otherwise result from a breach of this Section 7.2, if (i) the Board determines in good faith after consulting with the Company’s legal counsel and financial advisors that such Acquisition Proposal constitutes or is reasonably likely to result in a Superior Proposal, (ii) prior to furnishing such non-public information to, or entering into discussions or negotiations with, such Person, the Company notifies Parent that it is furnishing information to, or entering into discussions or negotiations with, such Person and (iii) prior to furnishing such non-public information to such Person, the Company (A) provides Parent with the information to be provided to such Person which Parent has not previously been provided, and (B) receives from such Person an executed confidentiality and standstill agreement no less favorable in any material respect to the Company than the Confidentiality Agreement; it being understood that such confidentiality agreement need not prohibit the making, or amendment, of an Acquisition Proposal. The Company will not release any Person from any standstill agreement or similar obligation to the Company or any Subsidiary other than the automatic termination of standstill obligations pursuant to the terms of agreements as in effect as of the date hereof, by virtue of the execution and announcement of this Agreement or otherwise; provided, that if the Company

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receives an Acquisition Proposal from a Person within 30 days from the date of this Agreement, the Company may release such Person from such agreement or obligation but only if the Board determines in good faith after consultation with outside legal counsel that failure to take such action would be reasonably likely to be inconsistent with the directors’ duties under applicable Law; provided, however, that if the Board has not made a determination within 15 days of the release that such Acquisition Proposal is a Superior Proposal, then the waiver of such standstill agreement will be void and of no force or effect.

          (c) The Company shall provide prompt (but in no event more than twenty-four (24) hours following receipt thereof) oral and written notice to Parent of (i) the receipt of any Acquisition Proposal, or any material modification or amendment to any Acquisition Proposal, by the Company, any Subsidiary or any Representative, (ii) a copy of any documents or agreements provided in contemplation of such Acquisition Proposal (including any amendments, supplements or modifications thereto), (iii) the identity of such Person making any such Acquisition Proposal and (iv) the Company’s intention, if any, to furnish information to, or enter into discussions or negotiations with, such Person. The Company shall keep Parent reasonably informed in all material respects of the status and details (including any change to the material terms and conditions thereof) of any such Acquisition Proposal. The Company shall not, and shall cause each of the Subsidiaries not to, enter into any confidentiality agreement with any Person subsequent to the date hereof which prohibits the Company from providing such information to the Buyer Parties.

          (d) For purposes of this Agreement, (i) an “Acquisition Proposal” means (A) any proposal or offer with respect to a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, share exchange, business combination or similar transaction other than the Marketed Portfolio Sale or (B) any other direct or indirect acquisition, in the case of clause (A) or (B), involving 30% or more of the total voting power or of any class of equity securities of the Company, or 30% or more of the consolidated total assets (including, equity securities of its Subsidiaries but excluding the assets associated with the Marketed Portfolio Sale) of the Company, in each case other than the transactions contemplated by this Agreement, and (ii) a “Superior Proposal” means any bona fide Acquisition Proposal, (with all percentages in the definition of Acquisition Proposal increased to 50%) that is on terms that the Board determines in its good faith judgment (after consultation with the Company’s independent financial advisor(s) and outside legal counsel), and after taking into account all of the terms and conditions of such Acquisition Proposal and such other factors as the Board considers to be appropriate (including, without limitation, financing terms, any termination fee or expense reimbursement payable under this Agreement, any conditions to the consummation thereof, the likelihood of the Acquisition Proposal being consummated and the likely timing of consummating the Acquisition Proposal), are more favorable to the Company and its stockholders than the Transactions contemplated hereby.

          (e) Except as set forth in this Section 7.2(e), the Board shall not (i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to either of the Buyer Parties, the Board Recommendation, (ii) approve or recommend, or publicly propose to approve or recommend, any Acquisition Proposal or (iii) enter into any agreement with respect to any Acquisition Proposal (other than a confidentiality agreement referred to in Section 7.2(b)). Notwithstanding the foregoing, at any time prior to receipt of the Company Stockholder

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Approval, (x) if the Board determines in good faith that the failure to do so would be inconsistent with its duties under applicable Law, then the Board may withdraw, or modify or change in a manner adverse to the Buyer Parties, the Board Recommendation (“Change in Recommendation”) and (y) in the case of any Change in Recommendation being made in response to an unsolicited bona fide written Acquisition Proposal (which did not otherwise result from a breach of Section 7.2) that the Board has determined in good faith, after consultation with the Company’s independent financial advisor, is a Superior Proposal, the Board may approve and recommend such Superior Proposal and exempt the Person submitting such Superior Proposal from the restrictions contained in any state takeover or similar laws concurrently with terminating this Agreement pursuant to Section 10.1(e); provided, however, that such actions may only be taken at a time that is after (I) the third (3rd) Business Day following Parent’s receipt of written notice from the Company that the Board is prepared to take such action, and (II) at the end of such period, the Board determines in good faith, after taking into account all amendments or revisions committed to by the Buyer Parties and after consultation with the Company’s independent financial advisors, that such Acquisition Proposal remains a Superior Proposal relative to the transactions contemplated by this Agreement, as supplemented by any Counterproposal (defined below). Any such written notice shall specify the material terms and conditions of such applicable Acquisition Proposal, include the most current version of any agreement relating to such Acquisition Proposal (including any amendments, supplements or modifications thereto), identify the Person making such Acquisition Proposal and state that the Board otherwise intends to make a Change in Recommendation (subject to compliance with this subsection (e)). During any such three (3) Business Day period, the Buyer Parties shall be entitled to deliver to the Company a counterproposal to such Acquisition Proposal (a “Counterproposal”) and Parent and the Company shall negotiate in good faith in respect of any such Counterproposal. For the avoidance of doubt, the parties hereto acknowledge and agree that any amendment to the financial terms or any other material amendment to any material term of an Acquisition Proposal which amendment affects the determination of whether the Acquisition Proposal is a Superior Proposal to any Counterproposal shall be treated as a new Acquisition Proposal for the purposes of this Section 7.2(e) thereby requiring a new written notice by the Company and a new three (3) Business Day period.

          (f) Nothing contained in this Agreement shall prevent the Company or the Board from taking and disclosing to its stockholders a position contemplated by Rule 14d-9 and Rule 14e-2(a) promulgated under the Exchange Act (or any similar communication to stockholders) or from making any legally required disclosure to its stockholders; provided, however, that any action covered by Section 7.2(e) may only be made in compliance with Section 7.2(e). Further, any “stop-look-and-listen” communication by the Company or the Board to the stockholders of the Company pursuant to Rule 14d-9(f) promulgated under the Exchange Act (or any similar communication to the stockholders of the Company) shall not be considered a Change in Recommendation if it is made within ten (10) Business Days of receiving an Acquisition Proposal.

          (g) Upon execution of this Agreement, the Company and its Subsidiaries shall immediately cease and cause to be terminated any and all existing activities, discussions or negotiations with any parties conducted heretofore with respect to an Acquisition Proposal by or on behalf of the Company or any of the Representatives and shall inform each of the Representatives of its obligations under this Section 7.2 and instruct each of them to act in a

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manner consistent with such obligations; provided, however, that the Company may comply with the next sentence. To the extent not previously requested, the Company shall promptly request each Person with whom it has executed a confidentiality agreement within the twelve (12) months prior to the date hereof in connection with its consideration of any Acquisition Proposal to return or destroy all confidential or other non-public information heretofore furnished to such Person by or on behalf of the Company or any of the Representatives.

     Section 7.3 Actions by Parent and Conduct of Business of Sub Pending the Merger. Parent shall not knowingly take or permit any of its Subsidiaries to take any action that is reasonably likely to prevent or delay the consummation of the Merger. During the period from the date of this Agreement through the Effective Time, Sub shall not engage in any activity of any nature except as provided in or contemplated by this Agreement.

ARTICLE VIII
ADDITIONAL AGREEMENTS

     Section 8.1 Employee Benefits. (a) For a period of not less than one (1) year after the Effective Time, Parent shall cause the Surviving Entity to provide all individuals who are employees of the Company or any of its Subsidiaries as of the Effective Time and remain an employee of the Surviving Entity or its successors or assigns or any of their Subsidiaries (including employees who are not actively at work on account of illness, disability or leave of absence) (the “Retained Employees”), while employed by the Surviving Entity or its successors or assigns or any of their Subsidiaries, with base salary and bonus opportunity and benefits (other than those that pertain to equity-based compensation, equity-based benefits and nonqualified deferred compensation programs) that are no less favorable in the aggregate to the base salary and bonus opportunity and benefits provided to such Retained Employees immediately prior to the Effective Time. After the Effective Time, the Surviving Entity may terminate Retained Employees for any lawful reason and nothing contained in this Section 8.1 shall be deemed to grant any employee any right to continued employment after the Effective Time, ensure a continued amount of commission-based compensation or interfere with the Surviving Entity’s right or obligation to make such changes as are necessary to conform to applicable Law. Parent shall take all necessary action so that each Retained Employee shall after the Effective Time continue to be credited with the unused vacation and sick leave credited to such employee through the Effective Time under the applicable vacation and sick leave policies of the Company and its Subsidiaries, and Parent shall permit or cause the Company, the Surviving Entity and their Subsidiaries to permit such employees to use such vacation and sick leave in accordance with such policies. Parent shall take all necessary action so that, for all purposes (except for benefit accrual under any defined benefit plan) under each employee benefit plan maintained by Parent or any of its Subsidiaries in which Retained Employees become eligible to participate as of or after the Effective Time, each such Person shall be given credit for all service with the Company and its Subsidiaries recognized by the Company immediately prior to the Effective Time.

          (b) Except as otherwise provided in this Section 8.1 or in Section 8.2, nothing in this Agreement shall be interpreted as limiting the power of the Surviving Entity to amend or terminate any particular Benefit Plan or any other particular employee benefit plan, program, agreement or policy pursuant to its terms or as requiring the Surviving Entity to continue (other

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than as required by its terms) any written employment contract; provided, however, that no such termination or amendment may impair the rights of any Person with respect to benefits or any other payments already accrued as of the time of such termination or amendment without the consent of such Person.

          (c) Notwithstanding Sections 8.1(a) and (b), Parent shall honor or cause to be honored by the Company, the Surviving Entity and their Subsidiaries all employment agreements, bonus agreements, severance agreements, severance plans and non-competition agreements with the Persons who are, immediately prior to the Effective Time, directors, officers and employees of the Company and its Subsidiaries (it being understood that nothing herein shall be deemed to mean that the Company, the Surviving Entity and their Subsidiaries shall not be required to honor any of their obligations under any such agreement).

          (d) Parent shall, or shall cause the Company and the Surviving Entity to, (i) waive all limitations as to preexisting conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to the Retained Employees and former employees of the Company and its Subsidiaries under any welfare or fringe benefit plan in which such employees and former employees may be eligible to participate after the Effective Time, other than limitations or waiting periods that are in effect with respect to such employees and that have not been satisfied under the corresponding welfare or fringe benefit plan maintained by the Company or its Subsidiaries for the Retained Employees and former employees prior to the Effective Time, and (ii) provide each Retained Employee and former employee with credit under any welfare plans in which such employee or former employee becomes eligible to participate after the Effective Time for any co-payments and deductibles paid by such Retained Employee or former employee for the then current plan year under the corresponding welfare plans maintained by the Company or its Subsidiaries prior to the Effective Time.

     Section 8.2 Deferred Share Awards. The Company shall take all necessary action to ensure that, at the Effective Time, except as otherwise provided in Item 8.2 of the Company Letter, each Deferred Share Award then outstanding, whether or not then fully vested, shall be cancelled by the Company in consideration for which the holder thereof shall thereupon be entitled to receive, at the Effective Time, a cash payment in respect of such cancellation from the Company in an amount equal to (i) the product of (A) the number of shares of Company Common Stock remaining subject to issuance pursuant to such Deferred Share Award and (B) the Per Share Merger Consideration, plus (ii) the product of (A) the number of shares of Company Common Stock remaining subject to issuance pursuant to such Deferred Share Award and (B) the amount of the Special Dividend issued with respect to each Share, minus (iii) all applicable federal, State and local Taxes required to be withheld by the Company (the aggregate amount of all such cash payments the “Aggregate Award Amount”). At or prior to the Effective Time, Parent shall deposit, or shall cause Sub to deposit, with the Company (or, at the Company’s request, the Paying Agent) a cash amount in immediately available funds equal to the Aggregate Award Amount.

     Section 8.3 Preparation of Proxy Statement; Stockholder Approval. (a) The Company shall promptly prepare (in consultation with Parent) and file with the SEC, as soon as practicable following the date of this Agreement, the Proxy Statement in preliminary form. The Company shall use its reasonable efforts to respond as promptly as practicable (in consultation with Parent)

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to any comments of the SEC or its staff, and, to the extent permitted by Law, to cause the definitive Proxy Statement to be mailed to the Company’s stockholders as promptly as practicable after responding to all such comments to the satisfaction of the SEC or its staff. The Company shall, in accordance with Section 8.12, notify Parent promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Proxy Statement or for additional information and will supply Parent with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement or the transactions contemplated by this Agreement. If at any time prior to the Stockholders’ Meeting there shall occur any event that the Company reasonably determines should be set forth in an amendment or supplement to the Proxy Statement, the Company shall promptly prepare (in consultation with Parent) and mail to its stockholders such an amendment or supplement, in each case to the extent required by applicable Law. The Buyer Parties agree that they shall cooperate with the Company in the preparation of the Proxy Statement or any amendment or supplement thereto. Notwithstanding anything to the contrary stated above, prior to filing or mailing the Proxy Statement or filing any other required filings (or, in each case, any amendment or supplement thereto) or responding to any comments of the SEC or its staff with respect thereto, the Company shall provide Parent with an opportunity to review and comment on such document or response and the Company shall include in such document or response all comments from Parent reasonably acceptable to the Company, and to the extent practicable, the Company will provide Parent with the opportunity to participate in any substantive calls between the Company or any of its Representatives and the SEC concerning the Proxy Statement. All of the parties hereto shall cause the Proxy Statement to comply as to form and substance as to such party in all material respects with the applicable requirements of the Exchange Act. The Company and the Buyer Parties agree to include in the Proxy Statement the disclosure set forth on Item 8.3 of the Company Letter.

          (b) The Company shall, promptly (for the avoidance of doubt a forty-five day solicitation period shall be deemed a prompt period of time) after the Proxy Statement is cleared by the SEC for mailing to the Company’s stockholders, in accordance with the Company Charter and Company Bylaws, duly call, give notice of, convene and hold a meeting of its stockholders (the “Stockholders’ Meeting”) for the purpose of obtaining the approval of the Merger and the transactions contemplated hereby, by holders of a majority of the outstanding Shares (the “Company Stockholder Approval”). The Company shall, through the Board (but subject to the right of the Board to make a Change in Recommendation in accordance with Section 7.2), recommend to its stockholders that the Company Stockholder Approval be given.

     Section 8.4 Access to Information; Confidentiality. Upon reasonable notice and subject to the terms of the Confidentiality Agreement, dated October 25, 2006, between Morgan Stanley Real Estate Advisor, Inc. and the Company and the Confidentiality Agreement, dated October 23, 2006, between Ashford Hospitality Trust, Inc. and the Company (collectively, the “Confidentiality Agreements”), the Company shall, and shall cause each of its Subsidiaries to, afford to the Buyer Parties and their respective officers, employees, accountants, financing sources, counsel and other representatives of the Buyer Parties, reasonable access, during normal business hours and upon reasonable advance notice during the period prior to the Effective Time, to all of their respective senior employees, properties and material books, contracts and records reasonably requested by the Buyer Parties (the “Access”) (it being agreed that Access necessary

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for Arizona to prepare financial statements required by Section 3.05 of Regulation S-X shall be deemed reasonable), and during such period, the Company shall (and shall cause each of its Subsidiaries to) furnish promptly to the Buyer Parties all information concerning its business, properties and personnel as may reasonably be requested by the Buyer Parties; provided, however, that such Access and information shall only be provided to the extent that such Access or the provision of such information would not violate applicable Law or any applicable contractual provisions; provided, further, that the foregoing shall not require the Company (i) to permit any inspection, or to disclose any information, that in the reasonable judgment of the Company would result in the disclosure of any trade secrets of third Persons or violate any of its obligations with respect to confidentiality if the Company shall have used reasonable efforts to obtain the consent of such third Person to such inspection or disclosure and such consent was not obtained, (ii) to permit any invasive physical testing, except as agreed to in writing by the Company, which consent shall not be unreasonably withheld or (iii) to disclose any privileged information of the Company or any of its Subsidiaries so long as the Company has taken all reasonable steps to permit inspection of or to disclose information described in this clause (iii) on a basis that does not compromise the Company’s or such Subsidiary’s privilege with respect thereto; and, provided, further, that notwithstanding anything contained herein to the contrary, Buyer Parties shall have full Access with respect to any matters relating to the Company and its Subsidiaries to the extent necessary to confirm the Company’s and the Company Subsidiary REIT’s qualification as a REIT. The parties agree that they shall seek appropriate substitute disclosure arrangements under circumstances in which clause (iii) of the second proviso to the immediately preceding sentence applies. In no event shall the Company be required to disclose to the Buyer Parties, or the Buyer Parties’ respective officers, employees, accountants, counsel or other representatives, any information relating to the indications of interest from, or discussions with, any other potential acquirors of the Company, except to the extent necessary for use in the Proxy Statement or as required by Section 7.2. In the event of a termination of this Agreement for any reason, the Buyer Parties shall promptly return or destroy, or cause to be returned or destroyed, all nonpublic information so obtained from the Company or any of its Subsidiaries and any copies made of such documents for the Buyer Parties. Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries shall be required to provide Access or to disclose information where such Access or disclosure would jeopardize the attorney-client or work product privileges of the Company or its Subsidiaries or contravene any Law or binding agreement entered into prior to the date of this Agreement. All information provided pursuant to this Section 8.4 shall be governed by the terms of the Confidentiality Agreement.

     Section 8.5 Fees and Expenses. (a) The Surviving Entity shall pay all charges and expenses, including those of the Paying Agent, in connection with the transactions contemplated in Article III, and Parent shall, to the extent necessary, reimburse the Surviving Entity for such charges and expenses. Except as otherwise expressly provided herein, all fees and expenses incurred in connection with the Merger, this Agreement and the transactions contemplated hereby shall be paid by the party incurring such fees or expenses, whether or not the Merger is consummated. Costs and expenses incurred in connection with the filing, printing and mailing of the Proxy Statement (including SEC filing fees) and the filing fees for the premerger notification and report forms under the HSR Act, if any, shall be shared 50% by the Buyer Parties and 50% by the Company.

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          (b) The Company shall pay, or cause to be paid, by wire transfer in same day funds to Parent the sum of $145,000,000 (the “Termination Fee”), under the circumstances and at the times set forth as follows:

     (i) if Parent terminates this Agreement under Section 10.1(d) or the Company terminates this Agreement under Section 10.1(e), the Company shall pay, in either case, the Termination Fee on the date of such termination; and

     (ii) if the Company or Parent terminates this Agreement under Section 10.1(b)(iii) or 10.1(c) and prior to such termination or, in the case of a termination under Section 10.1(b)(iii), prior to the Stockholders’ Meeting, any Person or “group” (within the meaning of Section 13(d)(3) of the Exchange Act) (x) shall have made an Acquisition Proposal to the Company or the stockholders of the Company which shall be publicly announced or (y) shall have publicly announced an intention to make an Acquisition Proposal and, in each case, such Acquisition Proposal shall not have been withdrawn prior to such termination or, in the case of a termination under Section 10.1(b)(iii), prior to the Stockholders’ Meeting, then, if, within nine (9) months after such termination, the Company shall enter into a definitive agreement providing for an Acquisition Proposal (with all percentages in the definition of Acquisition Proposal increased to 50%) or an Acquisition Proposal (with all percentages in the definition of Acquisition Proposal increased to 50%) shall be consummated, the Company shall pay the Termination Fee concurrently with the earlier of the entering into of such definitive agreement or the consummation of such Acquisition Proposal.

          (c) If this Agreement is terminated by the Company pursuant to Section 10.1(f), the Buyer Parties shall pay to the Company within three (3) Business Days after the date of termination (i) all reasonable costs and expenses, including the reasonable fees and expenses of lawyers, accountants, consultants, financial advisors and investment bankers, and expenses contemplated by the last sentence of Section 8.5(a), incurred by the Company or its Subsidiaries in connection with the entering into of this Agreement and the carrying out of any and all acts contemplated hereunder up to an aggregate amount of $15,000,000 (the “Company Expenses”). If this agreement is terminated by Parent pursuant to Section 10.1(b)(iii), 10.1(c) or 10.1(d) or by the Company pursuant to Section 10.1(e), the Company shall pay to Parent, within three (3) Business days after the date of termination, all reasonable costs and expenses, including the reasonable fees and expenses of lawyers, accountants, consultants, financial advisors, and investment bankers, and expenses contemplated by the last sentence of Section 8.5(a), incurred by the Buyer Parties in connection with the entering into of this Agreement and the carrying out of any and all acts contemplated hereunder up to an aggregate amount of $15,000,000 (the “Parent Expenses”). Except as set forth in Section 8.5(g), the payment of expenses set forth in this Section 8.5(c) is not an exclusive remedy, but is in addition to any other rights or remedies available to the parties hereto (whether at Law or in equity), and in no respect is intended by the parties hereto to constitute liquidated damages, or be viewed as an indicator of the damages

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payable, or in any other respect limit or restrict damages available in case of any breach of this Agreement.

          (d) Each of the Company and Parent acknowledges that the agreements contained in this Section 8.5(d) are an integral part of the transactions contemplated by this Agreement. In the event that the Company shall fail to pay the Termination Fee or Parent Expenses when due or Parent shall fail to pay the Company Expenses when due, the Company or Parent, as the case may be, shall reimburse the other party for all reasonable costs and expenses actually incurred or accrued by such other party (including reasonable fees and expenses of counsel) in connection with the collection under and enforcement of this Section 8.5(d).

          (e) In the event that the Buyer Parties are obligated to pay the Company Expenses set forth in Section 8.5(c), Parent shall pay to the Company from an amount deposited into escrow (collectively, the “Escrowed Amount”) in accordance with the next sentence, an amount equal to the lesser of (i) the Escrowed Amount and (ii) the sum of (1) the maximum amount that can be paid to the Company without causing the Company to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code determined as if the payment of such amount did not constitute income described in Sections 856(c)(2)(A)-(H) or 856(c)(3)(A)-(I) of the Code (“Qualifying Income”), as determined by the Company’s independent certified public accountants, plus (2) in the event the Company receives either (A) a letter from the Company’s counsel indicating that the Company has received a ruling from the IRS described in Section 8.5(f) or (B) an opinion from the Company’s outside counsel as described in Section 8.5(f), an amount equal to the Escrowed Amount less the amount payable under clause (1) above. To secure the Buyer Parties’ obligation to pay these amounts, the Buyer Parties shall deposit into escrow an amount in cash equal to the Company Expenses with an escrow agent selected by Parent and on such terms (subject to Section 8.5(f)) as shall be mutually agreed upon by the Company, Parent and the escrow agent. The excess of the amount placed in escrow over the amount(s) described in clause (a) and/or (b) above, as applicable, shall be retained in escrow and released from time to time over the five year period beginning on the date Company Expenses are deposited into escrow, subject, in each case, to the Company’s satisfaction of the conditions set forth above. The payment or deposit into escrow of the Escrowed Amount pursuant to Section 8.5(f) shall be made at the time the Parent is obligated to pay the Company such amount pursuant to Section 8.5(f) by wire transfer or bank check.

          (f) The escrow agreement shall provide that the Escrowed Amount in escrow or any portion thereof shall not be released to the Company unless the escrow agent receives any one or combination of the following: (i) a letter from the Company’s independent certified public accountants indicating the maximum amount that can be paid by the escrow agent to the Company without causing the Company to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code determined as if the payment of such amount did not constitute Qualifying Income or a subsequent letter from the Company’s accountants revising that amount, in which case the escrow agent shall release such amount to the Company, or (ii) a letter from the Company’s counsel indicating that the Company received a ruling from the IRS holding that the Escrowed Amount would either constitute Qualifying Income or would be excluded from gross income within the meaning of Sections 856(c)(2) and (3) of the Code (or alternatively, the Company’s outside counsel has rendered a legal opinion to the effect that the receipt by the Company of the Escrowed Amount would constitute Qualifying Income, would be excluded

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from gross income within the meaning of Sections 856(c)(2) and (3) of the Code or would not otherwise disqualify the Company as a REIT), in which case the escrow agent shall release the remainder of the Escrowed Amount to the Company. The Buyer Parties agree to amend this Section 8.5(f) at the request of the Company in order to (x) maximize the portion of the Escrowed Amount that may be distributed to the Company hereunder without causing the Company to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code, (y) improve the Company’s chances of securing a favorable ruling described in this Section 8.5(f) or (z) assist the Company in obtaining a favorable legal opinion from its outside counsel as described in this Section 8.5(f). The escrow agreement shall also provide that any portion of the Company Expenses held in escrow for five years shall be released by the escrow agent to Parent.

          (g) Notwithstanding anything to the contrary in this Agreement but subject to Sections 10.2 and 11.8, the parties hereby acknowledge that, if the Company is obligated to pay the Parent Expenses and Termination Fee pursuant to Sections 8.5(b) and 8.5(c), the right of the Buyer Parties to receive such payments shall be the sole and exclusive remedy of the Buyer Parties for damages against the Company and any of its Subsidiaries and the Company’s and its Subsidiaries’ respective directors, officers, employees, investment bankers, attorneys, accountants and other advisors or representatives for the failure of the transactions contemplated hereby to be consummated, and upon payment of such amounts in accordance with Sections 8.5(b) and 8.5(c), none of the Company, any of its Subsidiaries or any of their respective directors, officers, employees, investment bankers, attorneys, accountants and other advisors or representatives shall have any liability or obligation relating to or arising out of this Agreement or the transactions contemplated hereby.

     Section 8.6 Public Announcements. The Buyer Parties and the Company shall consult with each other before issuing any press release or otherwise making any public statements with respect to the transactions contemplated by this Agreement and shall not issue any such press release or make any such public statement without the prior consent of the other parties (which consent shall not be unreasonably withheld, conditioned or delayed), except as may be required by applicable Law or fiduciary duties and shall provide the other parties with an opportunity to review and comment on any such press release or statement to the extent practicable.

     Section 8.7 Transfer Taxes. The Company and the Buyer Parties shall cooperate in the preparation, execution and filing of all returns, questionnaires, applications or other documents regarding any real property transfer, recordation, or gains, sales, use, license, excise, custom or duty, transfer, value added, stock transfer and stamp Taxes, and transfer, recording, registration and other fees and any similar Taxes that become payable in connection with the transactions contemplated by this Agreement (together with any related interest, penalties or additions to Tax, “Transfer Taxes”) and shall cooperate in attempting to minimize the amount of Transfer Taxes. All Transfer Taxes shall be paid by the Buyer Parties and expressly shall not be a liability of any holder of Shares.

     Section 8.8 State Takeover Laws. If any “fair price,” “moratorium” or “control share acquisition” statute or other similar anti-takeover statute or regulation enacted under state Laws in the United States is or shall become applicable to the Merger or the other transactions contemplated hereby, the Buyer Parties and the Company and their respective boards of directors shall, subject to Section 7.2, use reasonable efforts to grant such approvals and take such actions

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as are necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to minimize the effects of any such statute or regulation on the transactions contemplated hereby.

     Section 8.9 Indemnification; Directors and Officers Insurance. (a) For a period of six years after the Effective Time (unless otherwise required by applicable Law), the charter and bylaws of the Surviving Entity and its Subsidiaries shall contain provisions no less favorable with respect to the exculpation of, indemnification of and advancement of expenses to directors, officers, employees and agents than those set forth in the Company Charter or Company Bylaws (or equivalent organizational documents) of the Company (or the relevant Subsidiary) as in effect on the date hereof; provided, however, that if any claim or claims are asserted against any individual entitled to the protections of such provisions within such six-year period, such provisions shall not be modified until the final disposition of any such claims. Parent and the Surviving Entity shall, jointly and severally, exculpate, indemnify and hold harmless, to the fullest extent provided in the Company Charter or Company Bylaws or the organizational documents of any Subsidiary, as applicable, any indemnification agreement or under any applicable Laws, in each case, as in effect on the date of this Agreement (and Parent shall also advance expenses as incurred to the fullest extent permitted under applicable Law), each present and former director and officer of the Company or any of its Subsidiaries (each, an “Indemnified Person”) against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, obligations, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (formal or informal), in and to the extent of their capacities as such and not as stockholders and/or optionholders of the Company or its Subsidiaries (including rights relating to advancement of expenses and indemnification rights to which such persons are entitled because they are serving as a director or officer of another entity at the request of the Company or any of its Subsidiaries) at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, including the transactions contemplated by this Agreement; provided, however, that any determination required to be made with respect to whether an Indemnified Person’s conduct complies with the standards set forth under the applicable Law, the Company Charter or Company Bylaws or the organizational documents of any Subsidiary, as applicable, or any such agreement, as the case may be, shall be made by independent legal counsel jointly selected by such Indemnified Person and Parent; provided, further, that (i) nothing in this Section 8.9 shall impair any rights of any Indemnified Person and (ii) neither the Surviving Entity nor Parent shall be liable for any settlement effected without the prior written consent of the Surviving Entity (which consent shall not be unreasonably withheld, delayed or conditioned). Without limiting the generality of the preceding sentence, if any Indemnified Person becomes involved in any actual or threatened action, suit, claim, proceeding or investigation covered by this Section 8.9 after the Effective Time, Parent shall, or shall cause the Company to, to the fullest extent permitted by Law, promptly advance to such Indemnified Person his or her legal or other expenses (including the cost of any investigation and preparation incurred in connection therewith), subject to the providing by such Indemnified Person of an undertaking to reimburse all amounts so advanced in the event of a non-appealable determination of a court of competent jurisdiction that such Indemnified Person is not entitled to indemnification.

          (b) Prior to the Effective Time, the Company shall purchase a “tail” insurance policy (which policy by its express terms shall survive the Merger), of at least the same coverage

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and amounts and containing terms and conditions that are no less favorable to the directors and officers of the Company as the Company’s and the Subsidiaries’ existing policy or policies, for the benefit of the current and former officers and directors of the Company and each Subsidiary with a claims period of six (6) years from the Effective Time with respect to directors’ and officers’ liability for claims arising from facts or events that occurred on or prior to the Effective Time; provided, however, that in no event shall the aggregate premium payable for such “tail” insurance policies for its entire period exceed $4,500,000 (such amount being the “Maximum Premium”). If the Company is unable to obtain the “tail” insurance described in the first sentence of this Section 8.9(b) for an amount equal to or less than the Maximum Premium, the Company shall be entitled to obtain as much comparable “tail” insurance as possible for an amount equal to the Maximum Premium.

          (c) If Parent or the Surviving Entity or any of its successors or assigns (i) shall consolidate with or merge into any other corporation or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or shall cease to continue to exist for any reason or (ii) shall transfer all or a majority (measured by value) of its properties and assets to any individual, corporation or other entity, then, and in each such case, proper provisions shall be made so that the successors and assigns of Parent or the Company, as applicable, shall assume all of the obligations set forth in this Section 8.9. In addition, the Surviving Entity shall not distribute, sell, transfer or otherwise dispose of any of its assets in a manner that would reasonably be expected to render the Surviving Entity unable to satisfy its obligations under this Section 8.9.

          (d) The provisions of this Section 8.9 are intended to be for the express benefit of, and shall be enforceable by, each Indemnified Person (who are intended to be third party beneficiaries of this Section 8.9), his or her heirs and his or her personal representatives, shall be binding on all successors and assigns of Parent, the Company and the Surviving Entity and shall not be amended in a manner that is adverse to the Indemnified Persons (including their successors, assigns and heirs) without the prior written consent of the Indemnified Person (including the successors, assigns and heirs) affected thereby. The exculpation and indemnification provided for by this Section shall not be deemed to be exclusive of any other rights to which an Indemnified Person is entitled, whether pursuant to applicable Law, contract or otherwise.

     Section 8.10 Reasonable Best Efforts. Each of the Company and the Buyer Parties agrees to use its reasonable best efforts to effect the consummation of the Transactions as soon as practicable after the date hereof. Without limiting the foregoing, each of the Company and the Buyer Parties (i) agrees to use its reasonable best efforts to take, or cause to be taken, all actions necessary to comply promptly with all legal requirements that may be imposed on itself with respect to the Transactions (which actions shall include furnishing all information required in connection with approvals of or filings with any other Governmental Entity) and shall promptly cooperate with and furnish information to each other in connection with any such requirements imposed upon any of them or any of their Subsidiaries in connection with the Transactions, (ii) shall, and shall cause its Subsidiaries to, use its or their reasonable best efforts to obtain (and shall cooperate with each other in obtaining) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity or other public Person required to be obtained or made by the Buyer Parties, the Company or any of their Subsidiaries in connection with the

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Transactions or the taking of any action contemplated thereby or by this Agreement, the Parent Asset Purchase Agreement and the Arizona Asset Purchase Agreement and (iii) agrees to execute and deliver any additional documents or instruments necessary, proper or advisable to consummate the Transactions contemplated hereby, and to fully carry out the purposes of this Agreement, the Parent Asset Purchase Agreement and the Arizona Asset Purchase Agreement. Subject to applicable Laws relating to the exchange of information, each of the Buyer Parties and the Company shall have the right to review in advance, and to the extent practicable each will consult with the other on and consider in good faith the views of the other in connection with, all of the information relating to the Buyer Parties or the Company, as the case may be, and any of their respective Subsidiaries, that appears in any filing made with, or written materials submitted to, any third Person and/or any Governmental Entity in connection with the Transactions (including the Proxy Statement). In exercising the foregoing rights, the Company and each of the Buyer Parties shall act reasonably and as promptly as practicable.

     Section 8.11 Financing.

          (a) Parent, Sub and Missouri shall use their reasonable best efforts to arrange the Parent Financing on the terms and conditions described in the Parent Preferred Equity Funding Letter and the Parent Commitment Letter (provided that Parent, Sub and Missouri may (x) replace or amend the Parent Commitment Letter to add lenders, lead arrangers, bookrunners, syndication agents or similar entities which had not executed the Parent Commitment Letter as of the date hereof, or otherwise or (y) replace or amend the Parent Preferred Equity Funding Letter to add investors which had not executed the Parent Preferred Equity Funding Letter as of the date hereof, or otherwise, in each case so long as the terms would not reasonably be expected to adversely impact the ability of Parent, Sub or Missouri to consummate the transactions contemplated hereby or the likelihood of consummation of the transactions contemplated hereby), including using reasonable best efforts to (i) maintain in effect the Parent Financing commitments, (ii) satisfy on a timely basis all conditions applicable to Parent, Sub and Missouri to obtaining the Parent Financing set forth therein, and (iii) negotiate and enter into definitive agreements with respect thereto on the terms and conditions contemplated by the Parent Preferred Equity Funding Letter and the Parent Commitment Letter or on other terms that would not adversely impact the ability of Parent, Sub or Missouri to consummate the transactions contemplated hereby or the likelihood of consummation of the transactions contemplated and (iv) consummate the Parent Financing at or prior to the Final Condition Satisfaction Date. If any portion of the Parent Financing becomes unavailable on the terms and conditions contemplated in the Parent Preferred Equity Funding Letter or the Parent Commitment Letter, Parent shall use its reasonable best efforts to arrange to obtain alternative financing from alternative sources on comparable or more favorable terms to Parent (as determined in the reasonable judgment of Parent) in an amount sufficient to consummate the transactions contemplated by this Agreement as promptly as practicable following the occurrence of such event. Parent shall give the Company prompt notice of any material breach or alleged material breach by any party to the Parent Preferred Equity Funding Letter or the Parent Commitment Letter of which Parent, Sub or Missouri becomes aware, or any termination of the Parent Preferred Equity Funding Letter or the Parent Commitment Letter. Parent shall keep the Company informed on a reasonably current basis in reasonable detail of the status of its efforts to arrange the Parent Financing, and shall not permit any material amendment or modification to be made to, or any waiver of any material provision or remedy under, the Parent Preferred Equity Funding Letter or the Parent

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Commitment Letter without first consulting with the Company or, if such amendment would or would be reasonably expected to materially and adversely affect or delay in any material respect the ability of Parent, Sub or Missouri to consummate the transactions contemplated by this Agreement, without first obtaining the Company’s prior written consent (not to be unreasonably withheld or delayed)

          (b) Parent acknowledges and agrees that the consummation of the transactions contemplated by this Agreement is not conditioned upon the receipt by Parent, Sub or Missouri of the proceeds contemplated by the Parent Preferred Equity Funding Letter and the Parent Commitment Letter and that any failure by Parent, Sub or Missouri to have available all funds contemplated by the Parent Preferred Equity Funding Letter and the Parent Commitment Letter on the Final Condition Satisfaction Date shall constitute a material breach by Parent, Sub and Missouri of this Agreement.

          (c) Arizona shall use its reasonable best efforts to arrange the Arizona Financing on the terms and conditions described in the Arizona Commitment Letter (provided that Arizona may replace or amend the Arizona Commitment Letter to add lenders, lead arrangers, bookrunners, syndication agents or similar entities which had not executed the Arizona Commitment Letter as of the date hereof, or otherwise, so long as the terms would not reasonably be expected to adversely impact the ability of Arizona to consummate the transactions contemplated hereby or the likelihood of consummation of the transactions contemplated hereby), including using reasonable best efforts to (i) maintain in effect the Arizona commitments, (ii) satisfy on a timely basis all conditions applicable to Arizona to obtaining the Arizona Financing set forth therein, and (iii) negotiate and enter into definitive agreements with respect thereto on the terms and conditions contemplated by the Arizona Commitment Letter or on other terms that would not adversely impact the ability of Arizona to consummate the transactions contemplated hereby or the likelihood of consummation of the transactions contemplated and (iv) consummate the Arizona Financing at or prior to the Final Condition Satisfaction Date. If any portion of the Arizona Financing becomes unavailable on the terms and conditions contemplated in the Arizona Commitment Letter, Arizona shall use its reasonable best efforts to arrange to obtain alternative financing from alternative sources on comparable or more favorable terms to Arizona (as determined in the reasonable judgment of Arizona) in an amount sufficient to consummate the transactions contemplated by this Agreement as promptly as practicable following the occurrence of such event. Arizona shall give the Company prompt notice of any material breach or alleged material breach by any party to the Arizona Commitment Letter of which Arizona becomes aware, or any termination of the Arizona Commitment Letter. Arizona shall keep the Company informed on a reasonably current basis in reasonable detail of the status of its efforts to arrange the Arizona Financing, and shall not permit any material amendment or modification to be made to, or any waiver of any material provision or remedy under, the Arizona Commitment Letter without first consulting with the Company or, if such amendment would or would be reasonably expected to materially and adversely affect or delay in any material respect the ability of Arizona to consummate the transactions contemplated by this Agreement, without first obtaining the Company’s prior written consent (not to be unreasonably withheld or delayed)

          (d) Arizona acknowledges and agrees that the consummation of the transactions contemplated by this Agreement is not conditioned upon the receipt by Arizona of

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the proceeds contemplated by the Arizona Commitment Letter and that any failure by Arizona to have available all funds contemplated by the Arizona Commitment Letter on the Final Condition Satisfaction Date shall constitute a material breach by Arizona of this Agreement.

          (e) The Company agrees to provide, and shall cause the Subsidiaries and its and their representatives to provide, all reasonable cooperation in connection with the arrangement of the Debt Financing as may be reasonably requested by each of the Buyer Parties (provided that such requested cooperation does not unreasonably interfere with the ongoing operations of the Company and its Subsidiaries and does not require the Company or any of its Representatives to execute and deliver any certificate or opinion to the extent any such certificate or opinion certifies or opines, as applicable, with respect to facts, circumstances or events that will exit after giving effect to the transactions contemplated hereby and the incurrence of any indebtedness of the Company pursuant to the Debt Financing); provided, that none of the Company or any Subsidiary shall be required to pay any fees (including commitment or other similar fees) or incur any other liability in connection with the Debt Financing prior to the Effective Time. Each of the Buyer Parties, as applicable, shall, promptly upon request by the Company, reimburse the Company for all reasonable out-of-pocket costs incurred by the Company or the Subsidiaries in connection with such cooperation. Each of the Buyer Parties shall indemnify and hold harmless the Company, the Subsidiaries and their respective representatives for and against any and all liabilities, losses, damages, claims, costs, expenses, interest, awards, judgments and penalties suffered or incurred by them prior to the Effective Time in connection with the arrangement of the Debt Financing and any information utilized in connection therewith (other than historical information relating to the Company or the Subsidiaries and information provided by the Company, the Subsidiaries or the Representatives).

     Section 8.12 Notification of Certain Matters. Subject to applicable Laws and the instructions of any Governmental Entity, each of the Company and the Buyer Parties shall keep the other apprised of the status of matters relating to completion of the transactions contemplated hereby, including promptly furnishing the other with copies of notices or other communications received by the Buyer Parties or the Company, as the case may be, or any of its Subsidiaries, from any third Person and/or any Governmental Entity with respect to the Merger and the other transactions contemplated by this Agreement. Neither the Company nor any Buyer Party shall permit any of its officers or any other Representatives to participate in any meeting with any Governmental Entity in respect of any filings, investigation or other inquiry unless it consults with the other party in advance and, to the extent permitted by such Governmental Entity, gives the other party the opportunity to attend and participate thereat.

     Section 8.13 Buyer Party Vote. The Buyer Parties shall vote (or consent with respect to) or cause to be voted (or a consent to be given with respect to) any Shares and any voting interests held in Sub beneficially owned by it or any of its Subsidiaries or with respect to which it or any of its Subsidiaries has the power (by agreement, proxy or otherwise) to cause to be voted (or to provide a consent), in favor of the approval of the Merger and the transactions contemplated hereby, at any meeting of stockholders of the Company or members of Sub, respectively, at which the Merger and the transactions contemplated hereby shall be submitted for approval and at all adjournments or postponements thereof (or, if applicable, by any action of stockholders of either the Company or members of Sub by consent in lieu of a meeting).

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     Section 8.14 Additional Tax Matters.

          (a) To the maximum extent permitted by Law, Parent agrees that all Tax Returns of the Company, the Surviving Entity, and the Company Subsidiaries (including withholdings and withholding Tax Returns) shall be prepared on a basis consistent with (i) the Tax Returns filed by them prior to the Closing Date, including as to all continuing elections, characterizations and other matters, (ii) the principle that the Merger constitutes a purchase of stock of the Company by Parent and (iii) subject to the foregoing, in accordance with the other provisions of this Agreement.

          (b) To the maximum extent permitted by Law, Parent shall cause the Surviving Entity and each Company Subsidiary REIT to properly designate any dividends paid prior to the Closing Date as capital gain dividends for purposes of Code Section 857(b)(3).

          (c) Parent and the Surviving Entity will take all actions, and cause each Company Subsidiary to take all actions, necessary to ensure that the Company, the Surviving Entity and each Company Subsidiary REIT will be classified and taxed as a REIT for its taxable year that includes the Effective Time (including obtaining 100 shareholders as necessary for each REIT).

          (d) Parent, the Company and the Surviving Entity agree to treat any gain recognized from the Asset Sales as “net capital gain” of the Company for purposes of Code Sections 1(h) and 857(b)(3)(C) (but subject to the rate designation rules of IRS Notice 97-64, 1997-2 C.B. 323) and to not take any tax position inconsistent with such treatment, except as may be required pursuant to a “determination” within the meaning of Code Section 860(e)(1), (2) or (3).

     Section 8.15 Certain Litigation Matters. Parent, Sub and the Surviving Entity shall fulfill and comply with all of the Company’s obligations under that certain Stipulation of Settlement (Case No. 6:04-cv-1231-Orl-31KRS (Consolidated with 6:04-cv-1341-Orl-19JGG)), including payment on the notes issued by the Company in connection therewith, to the extent not already done so by the Closing Date.

     Section 8.16 Resignations. The Company shall use its reasonable efforts to obtain and deliver to Parent at the Closing evidence reasonably satisfactory to Parent of the resignation, effective as of the Effective Time, of those directors of the Company or any Subsidiary designated by Parent to the Company in writing at least five Business Days prior to the Closing.

     Section 8.17 Third Party Consents. Each of the Buyer Parties on one hand, and the Company on the other hand, shall use their respective reasonable best efforts to obtain any third party consents (i) necessary, proper or advisable to consummate the Transactions, (ii) disclosed in Item 4.5 of the Company Letter or (iii) required to prevent a Material Adverse Effect of the Company from occurring prior to the Effective Time. In the event that the Company shall fail to obtain any third party consent described above, the Company shall use its reasonable best efforts, and shall take such actions as are reasonably requested by Parent, to minimize any adverse effect upon the Company and the Buyer Parties and their respective businesses resulting, or which could reasonably be expected to result, after the Effective Time, from the failure to obtain such

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consent. Notwithstanding anything to the contrary in this Agreement, in connection with obtaining any approval or consent from any Person (other than a Governmental Entity) with respect to any transaction contemplated by this Agreement, (i) without the prior written consent of Parent which shall not be unreasonably withheld, conditioned or delayed, none of the Company or any of its Subsidiaries shall pay or commit to pay to such Person whose approval or consent is being solicited any cash or other consideration, make any commitment or incur any liability or other obligation due to such Person and (ii) none of the Buyer Parties or their respective Affiliates shall be required to pay or commit to pay to such Person whose approval or consent is being solicited any cash or other consideration, make any commitment or incur any liability or other obligation.

     Section 8.18 Suspension or Termination of Reinvestment Plan and Redemption Plan. The Company shall promptly suspend or terminate, in accordance with its terms, and shall not reinstate the Reinvestment Plan. The Company shall promptly suspend or terminate, in accordance with its terms, and will not reinstate the Redemption Plan.

     Section 8.19 Asset Sales. The Company and each of its Subsidiaries agree to take, or cause to be taken, at the Buyer Parties’ sole cost and expense for the Company’s reasonable out-of-pocket costs and expenses, all reasonable actions, and to do or cause to be done all reasonable things as may be necessary to consummate and make effective each of the Asset Sales as set forth in Article XII.

ARTICLE IX
CONDITIONS PRECEDENT

     Section 9.1 Conditions to Each Party’s Obligation to Effect the Transactions. The respective obligations of each party hereto to effect the Merger and the Asset Sales shall be subject to the fulfillment or waiver in writing (to the extent not prohibited by Law) at or prior to the Asset Sale Time of the following conditions:

          (a) Company Stockholder Approval. The Company Stockholder Approval shall have been obtained.

          (b) No Injunction or Restraint. No Governmental Authority in the United States shall have enacted, issued, promulgated, enforced or entered any injunction, order, decree or ruling (whether temporary, preliminary or permanent) which is then in effect and makes consummation of the Merger or the Asset Sales illegal or prohibits consummation of the Merger or the Asset Sales; provided, however, that the party claiming such failure of condition shall have used its reasonable best efforts to prevent the entry of any such injunction or order, including taking such action as is required to comply with Section 8.10, and to appeal as promptly as possible any injunction or other order that may be entered.

          (c) Regulatory Approvals. Any waiting period (and any extension thereof) applicable to the consummation of the Merger and the Asset Sales under the HSR Act shall have expired or been terminated, and any approvals of a Governmental Entity required to be obtained prior to the Effective Time thereunder or otherwise shall have been obtained.

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     Section 9.2 Conditions to the Obligations of the Company to Effect the Transactions. The obligation of the Company to effect the Transactions shall be subject to the fulfillment or waiver in writing (to the extent not prohibited by Law) as of the Asset Sale Time of the following additional conditions:

          (a) Accuracy of Representations and Warranties. The representations and warranties of the Buyer Parties set forth in this Agreement, disregarding all qualifications and exceptions contained therein relating to materiality, Material Adverse Effect or similar standard or qualifications, shall be true and correct as of the date of this Agreement and as of the Asset Sale Time as though made on and as of such date and time (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date) except where the failure of any such representations and warranties to be so true and correct has not had and would not reasonably be likely to have a Material Adverse Effect on Parent. The Company shall have received a certificate signed on behalf of the Buyer Parties by a duly authorized officer of each of the Buyer Parties certifying as to the satisfaction of the condition in the preceding sentence.

          (b) Performance of Obligations. The Buyer Parties shall have performed in all material respects all obligations and complied in all material respects with all agreements and covenants of the Buyer Parties to be performed and complied with by them under this Agreement prior to the Asset Sale Time. The Company shall have received a certificate signed on behalf of the Buyer Parties by a duly authorized officer of each of the Buyer Parties certifying as to the satisfaction of the condition specified in the preceding sentence.

     Section 9.3 Conditions to the Obligations of the Buyer Parties to Effect the Transactions. The obligation of the Buyer Parties to effect the Transactions shall be subject to the fulfillment or waiver in writing (to the extent not prohibited by Law) as of the Asset Sale Time of the following additional conditions:

          (a) Accuracy of Representations and Warranties. (i) Other than with respect to Section 4.3 (Capital Structure), Section 4.4 (Authority), Section 4.13 (State Takeover Statutes) and Section 4.22 (Brokers), the representations and warranties of the Company set forth in this Agreement, disregarding all qualifications and exceptions contained therein relating to materiality, Material Adverse Effect or similar standard or qualifications, shall be true and correct as of the date of this Agreement and as of the Asset Sale Time as though made on and as of such date and time (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date) except where the failure of any such representations and warranties to be so true and correct has not had and would not reasonably be likely to have a Material Adverse Effect on the Company; and (ii) the representations and warranties set forth in Section 4.3 (Capital Structure), Section 4.4 (Authority), Section 4.13 (State Takeover Statutes) and Section 4.22 (Brokers), disregarding all qualifications and exceptions contained therein relating to materiality, Material Adverse Effect or similar standard or qualifications, shall be true and correct in all material respects as of the date of this Agreement and as of the Asset Sale Time as though made on and as of such date and time (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and

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warranty shall be true and correct in all material respects as of such earlier date). Parent shall have received a certificate signed on behalf of the Company by a duly authorized officer of the Company certifying as to the satisfaction of the condition in the preceding sentence. For purposes of this Section 9.3(a) only, a Material Adverse Effect with respect to either (i) the Company Properties not subject to the Arizona Asset Sale, taken as a whole, or (ii) the Company Properties subject to the Arizona Asset Sale, taken as a whole, shall be deemed to constitute a Material Adverse Effect on the Company.

          (b) Performance of Obligations. The Company shall have performed in all material respects all obligations and complied in all material respects with all agreements and covenants of the Company to be performed and complied with by it under this Agreement prior to the Asset Sale Time. Parent shall have received a certificate signed on behalf of the Company by a duly authorized officer of the Company certifying as to the satisfaction of the conditions specified in the preceding sentence.

          (c) No Material Adverse Effect. Since the date of this Agreement, there shall not have been any Material Adverse Effect with respect to the Company that has occurred and is continuing. Parent shall have received a certificate signed on behalf of the Company by a duly authorized officer of the Company certifying as to the satisfaction of the conditions specified in the preceding sentence.

          (d) Tax Opinion. Parent shall have received a tax opinion of Sidley Austin LLP, or other counsel to the Company reasonably satisfactory to Parent, dated as of the date on which the Asset Sales are consummated, substantially in the form attached hereto as Exhibit B (which opinion shall be based upon customary assumptions, exceptions and qualifications, and customary representations made by the Company and its Subsidiaries substantially in the form attached hereto as an exhibit to such tax opinion), to the effect that the Company has been organized and operated in conformity with the requirements for qualification as a REIT under the Code for all taxable periods commencing with the Company’s taxable year ended December 31, 1997 through the time immediately prior to the consummation of the Asset Sales (determined without taking into account, or giving effect to, the Merger, the Asset Sales, the Special Dividend or any other transaction or distribution required to be taken or made by the Company under this Agreement in order to effect the transactions contemplated hereby, and assuming for such purposes that the Company shall satisfy all requirements required to be satisfied upon or after the consummation of the Asset Sales necessary for the Company to qualify as a REIT for the 2007 taxable year including the applicable distribution requirements under the Code for the taxable year including the date of consummation of the Asset Sales) as though the Company’s taxable year ended immediately prior to the consummation of the Asset Sales.

          (e) Special Dividend. The Special Dividend shall have been authorized as set forth in Section 12.3.

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ARTICLE X
TERMINATION AND AMENDMENT

     Section 10.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after the Company Stockholder Approval is obtained, only as follows:

          (a) by mutual written consent of Parent and the Company;

          (b) by either Parent or the Company:

     (i) if the Merger shall not have been consummated on or before July 1, 2007 (the “Termination Date”); provided, however, that the right to terminate this Agreement pursuant to this Section 10.1(b)(i) shall not be available to any party whose failure to fulfill any obligation or other breach under this Agreement has materially contributed to, or resulted in, the failure of the Merger to occur on or before the Termination Date;

     (ii) if any court or other Governmental Entity of competent jurisdiction shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree or ruling or other action shall have become final and nonappealable; provided, however, that the right to terminate this Agreement pursuant to this Section 10.1(b)(ii) shall not be available to any party who has not used its reasonable efforts to cause such order to be lifted or made inapplicable to such transactions or otherwise taken such action as is required to comply with Section 8.10; or

     (iii) if the Company Stockholder Approval shall not have been obtained upon a vote taken thereon (for the avoidance of doubt, not including any vote to adjourn the Stockholders’ Meeting) at the Stockholders’ Meeting or any adjournment or postponement thereof;

          (c) by Parent, if none of the Buyer Parties is in material breach of its obligations under this Agreement, and if (i) any of the representations and warranties of the Company herein are or become untrue or incorrect such that the condition set forth in Section 9.3(a) would be incapable of being satisfied by the Termination Date or (ii) there has been a breach on the part of the Company of any of its covenants or agreements herein such that the condition set forth in Section 9.3(b) would be incapable of being satisfied by the Termination Date;

          (d) by Parent if (i) the Board has effected a Change in Recommendation, (ii) the Company enters into an agreement with respect to an Acquisition Proposal (other than a confidentiality agreement entered into in compliance with Section 7.2(b)), (iii) a tender offer or exchange offer relating to the Company Common Shares shall have been commenced by a third

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party and the Board shall not have recommended that the Company’s stockholders reject such tender or exchange offer within ten (10) Business Days following commencement thereof (including, for these purposes, by taking no position during such ten (10) Business Day period with respect to the acceptance of such tender or exchange offer by the Company’s stockholders, which shall constitute a failure to recommend rejection of such tender or exchange offer), or (iv) the Company publicly announces its intention to do any of the foregoing or makes any public statement inconsistent with the Board Recommendation;

          (e) by the Company prior to the Company Stockholder Approval, if the Board authorizes the Company, subject to complying with the terms of this Agreement to enter into a binding written agreement, concerning a transaction that constitutes a Superior Proposal (other than a confidentiality agreement entered into in compliance with Section 7.2(b)); provided, that for the termination to be effective the Company shall have paid the Termination Fee; or

          (f) by the Company, if it is not in material breach of its obligations under this Agreement, and if (i) any of the representations and warranties of the Buyer Parties herein are or become untrue or incorrect such that the condition set forth in Section 9.2(a) would be incapable of being satisfied by the Termination Date or (ii) there has been a breach on the part of any of the Buyer Parties of any of their respective covenants or agreements herein such that the condition set forth in Section 9.2(b) would be incapable of being satisfied by the Termination Date.

     Section 10.2 Effect of Termination. In the event of a termination of this Agreement by either the Company or Parent as provided in Section 10.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of any party hereto or their respective officers, directors, stockholders or Affiliates except with respect to Section 8.5 (Fees and Expenses), Section 8.6 (Public Announcements), this Section 10.2, Article XI (General Provisions) and the last sentence of Section 8.4 (Access to Information; Confidentiality); provided, however, that nothing herein shall relieve any party for liability for any willful breach of any of its representations or warranties, or any breach of its covenants or agreements set forth in this Agreement prior to or concurrently with such termination.

     Section 10.3 Extension; Waiver. At any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective board of directors or members, as the case may be, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto or (c) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights.

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ARTICLE XI
GENERAL PROVISIONS

     Section 11.1 Non-Survival of Representations and Warranties and Agreements. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time.

     Section 11.2 Notices. All notices, consents, waivers and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

     (a) if to Parent, Sub or Missouri, to:

Morgan Stanley Real Estate Investing – MSREF
1585 Broadway
New York, NY 10036
Telecopier No. (212) 507-4571
Attention: Michael Franco

     with a copy to:

Goodwin Procter LLP
Exchange Place
Boston, MA 02109
Telecopier No: (617) 523-1231
Attention: Gilbert G. Menna, Esq.

     (b) if to the Company, to:

CNL Hotels & Resorts, Inc.
420 South Orange Avenue, Suite 700
Orlando, FL 32801-3313
Attn: Greerson McMullen
Facsimile: (407) 540-2702

     with a copy to:

Sidley Austin LLP
One South Dearborn
Chicago, Illinois 60603
Attn: Thomas A. Cole and Brian J. Fahrney
Facsimile: (312) 853-7036

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     (c) if to Arizona, to:

Ashford Hospitality Trust, Inc.
14185 Dallas Parkway, Suite 1100
Dallas, TX 75254
Fax Line: 972-490-9605
Attn: David A. Brooks,
                     Chief Legal Officer/Head of Transactions

     with a copy to:

Michael E. Dillard, P.C.
Akin Gump Strauss Hauer & Feld LLP
1111 Louisiana Street, Suite 4400
Houston, TX 77002-5200
Fax: 713-236-0822

     Section 11.3 Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.

     Section 11.4 Entire Agreement; No Third-Party Beneficiaries. Except for the Confidentiality Agreements, the Guaranty, the Parent Asset Purchase Agreement and the Arizona Asset Purchase Agreement, this Agreement (together with the Company Letter) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER PARENT AND SUB NOR THE COMPANY OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER REPRESENTATIVES MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER REPRESENTATIVES, WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE OTHER OR THE OTHER’S REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE FOREGOING. Parent, Sub, Missouri, Arizona and the Company hereby agree that their respective representations and warranties set forth herein are solely for the benefit of the other parties hereto, in accordance with and subject to the terms of this Agreement, and this Agreement, except for the provisions of Section 8.9, is not intended to, and does not, confer upon any Person other than the parties hereto any rights or remedies hereunder, including the right to rely upon the accuracy or completeness of the representations and warranties set forth herein.

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     Section 11.5 Assignment. This Agreement shall not be assigned (whether pursuant to a merger, by operation of Law or otherwise), except that each of the Buyer Parties may assign all or any of its rights and obligations hereunder or the Parent Asset Purchase Agreement or the Arizona Asset Purchase Agreement to any of their respective Affiliates; provided, that no such assignment shall relieve the assigning party of its obligations hereunder if such assignee does not perform such obligations

     Section 11.6 Governing Law; Venue; Waiver of Jury Trial. (a) This Agreement shall be governed by, and construed in accordance with, the Laws of the State of Maryland applicable to contracts executed in and to be performed in that State. All actions and proceedings arising out of or relating to this Agreement shall be heard and determined exclusively in any Maryland state or federal court. The parties hereto hereby (a) submit to the exclusive jurisdiction of any Maryland state or federal court for the purpose of any action arising out of or relating to this Agreement brought by any party hereto, and (b) irrevocably waive, and agree not to assert by way of motion, defense, or otherwise, in any such action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the action is brought in an inconvenient forum, that the venue of the action is improper, or that this Agreement or the transactions contemplated by this Agreement may not be enforced in or by any of the above-named courts.

          (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO IT THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.6.

     Section 11.7 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible.

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     Section 11.8 Enforcement of this Agreement.

          (a) Except as otherwise provided in Section 11.8(b) or elsewhere in this Agreement, any and all remedies expressly conferred upon a party to this Agreement shall be cumulative with, and not exclusive of, any other remedy contained in this Agreement, at law or in equity and the exercise by a party to this Agreement of any one remedy shall not preclude the exercise by it of any other remedy. Except as otherwise provided in Section 11.8(b), the Company agrees that, to the extent it or its Subsidiaries have incurred losses or damages in connection with this Agreement, prior to the consummation of either of the Asset Sales, (i) the maximum aggregate liability of the Buyer Parties and the Guarantors for such losses or damages shall be limited to $300,000,000, and the sole and exclusive remedy, (ii) the maximum liability of the Guarantors, directly or indirectly, shall be limited to the respective obligations of such Guarantors under the Guaranty and (iii) in no event shall the Company or the Subsidiaries seek to recover any money damages in excess of such amount in clause (i) from the Buyer Parties or the Guarantors or any of their respective shareholders, partners, members, managers, directors, officers, agents, and Affiliates in connection therewith. Following the consummation of either of the Asset Sales, each of the Buyer Parties shall be jointly and severally liable for any losses or damages incurred by the Company or any of its Subsidiaries arising out of the breach by any of the Buyer Parties of any of their respective covenants to be performed thereafter.

          (b) The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement were not performed by the Company or in accordance with the terms hereof or were otherwise breached and that, prior to the termination of this Agreement pursuant to Section 10.1, the Buyer Parties shall be entitled to specific performance of the terms and provisions of this Agreement or an injunction to prevent any breach of this Agreement, in addition to any other remedy at law or equity. The parties acknowledge that the Company shall not be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the terms and provisions of this Agreement and that the Company’s sole and exclusive remedy with respect to any such breach shall be the remedy set forth in Section 11.8(a); provided, however, that the Company shall be entitled to seek specific performance to prevent any breach by the Buyer Parties of or enforce their compliance with (i) the last sentence of Section 8.4, (ii) Section 8.6 and (iii) those covenants of the Buyer Parties to be performed following the consummation of either of the Asset Sales.

     Section 11.9 Obligations of Subsidiaries. Whenever this Agreement requires any Subsidiary of Parent (including Sub) or of the Company to take any action, such requirement shall be deemed to include an undertaking on the part of Parent or the Company, as the case may be, to cause such Subsidiary to take such action.

     Section 11.10 Interpretation; Construction.

          (a) The parties have participated jointly in negotiating and drafting this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.

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          (b) The fact that any item of information is disclosed in the Company Letter shall not be construed to mean that such information is required to be disclosed by this Agreement.

     Section 11.11 Amendment; Consents. This Agreement may be amended by the parties hereto at any time prior to the Effective Time; provided, however, that, after approval of the Merger by the stockholders of the Company, no amendment may be made without further stockholder approval which the Company determines requires further approval by such stockholders under applicable Laws. The Buyer Parties and the Company agree to amend this Agreement in the manner provided in the immediately preceding sentence to the extent required to continue the status of the Company as a REIT. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. Notwithstanding anything to the contrary contained herein, any provision of this Agreement requiring the consent of any of the Buyer Parties hereunder shall be deemed to be satisfied upon receipt of a consent from Parent.

ARTICLE XII
SALE OF SPECIFIED ASSETS

     Section 12.1 Entry into Parent Asset Purchase Agreement. Concurrently with the execution of this Agreement, the Company and Parent have entered into the asset purchase agreement attached hereto as Exhibit C (the “Parent Asset Purchase Agreement”) which agreement will become effective as provided therein. On the first (1st) Business Day following the Stockholders’ Meeting and the satisfaction (or, to the extent permitted by Law, waiver by the party or parties entitled to the benefits thereof) of the conditions set forth in Article IX (other than Section 9.3(e) which shall be satisfied in accordance with Section 12.3) of this Agreement (such first (1st) Business Day, the “Final Condition Satisfaction Date”; provided, that if the day following such first (1st) Business Day is not also a Business Day, the Final Condition Satisfaction Date shall be delayed until the next Business Day that is also immediately followed by a Business Day), the Parent Asset Purchase Agreement will become effective and Parent and the Company will consummate the transactions contemplated by the Parent Asset Purchase Agreement (the “Parent Asset Sale”). The obligation of the Company to consummate the Parent Asset Sale is subject to the receipt by the Company of a written letter, in form and substance, reasonably satisfactory to the Company from Parent and Sub on the Final Condition Satisfaction Date that confirms that the conditions to the obligations of Parent and Sub to effect the Merger set forth in Section 9.3 have been irrevocably satisfied or waived; and the receipt by the Buyer Parties of a written letter, in form and substance reasonably satisfactory to the Buyer Parties, from the Company on the Final Condition Satisfaction Date that confirms that the conditions to the obligations of the Company to effect the Merger have been irrevocably satisfied or waived. The Company and the Buyer Parties agree that the consummation of the Asset Sales and the payment of the Special Dividend shall be conditions precedent to the Closing of the Merger.

     Section 12.2 Entry into Arizona Asset Purchase Agreement. Concurrently with the execution of this Agreement, the Company and Arizona have entered into the asset purchase agreement attached hereto as Exhibit D (the “Arizona Asset Purchase Agreement”) which agreement will become effective as provided therein. On the first Final Condition Satisfaction Date, the Arizona Asset Purchase Agreement will become effective and Arizona and the Company will consummate the transactions contemplated by the Arizona Asset Purchase

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Agreement (the “Arizona Asset Sale”). The obligation of the Company to consummate the Arizona Asset Sale is subject to the receipt by the Company of a written letter, in form and substance, reasonably satisfactory to the Company from Parent and Sub on the Final Condition Satisfaction Date that confirms that the conditions to the obligations of Parent and Sub to effect the Merger set forth in Section 9.3 have been irrevocably satisfied or waived; and the receipt by Arizona, Parent and Sub of a written letter, in form and substance reasonably satisfactory to Arizona, Parent and Sub, from the Company on the Final Condition Satisfaction Date that confirms that the conditions to the obligations of the Company to effect the Merger have been irrevocably satisfied or waived.

     Section 12.3 Declaration of Special Dividend. Immediately following, and subject to, the consummation of the Asset Sales, the Company shall cause the Board to authorize, and the Company shall declare, a dividend payable to the holders of record of Company Common Shares at the close of business on the Final Condition Satisfaction Date (the “Special Dividend”). The amount of the Special Dividend per Company Common Share shall be equal to the quotient that results from dividing an amount, as reasonably determined by the Company following consultation with Parent, equal to the Company’s current and accumulated earnings and profits through and including the Effective Time (the “Special Dividend Amount”), by the aggregate number of Company Common Shares outstanding at the close of business on the Final Condition Satisfaction Date.

     Section 12.4 Payment of Special Dividend. The Special Dividend shall by payable on the close of business on the day on which the Asset Sales are consummated and prior to the Effective Time. The Per Share Merger Consideration shall be reduced by an amount equal to the Special Dividend.

     Section 12.5 Right to Structure Asset Sales as Purchase of Ownership Interests. Notwithstanding the foregoing provisions of this Article XII, Parent and Arizona each shall have the right to structure all or a portion of the Asset Sales as a purchase of ownership interests in Subsidiaries of the Company that own Company Properties that are the subject of the Asset Sales in order to minimize Transfer Taxes and other transaction costs or to insulate them from liabilities of the general partner of any Subsidiary, so long as such revised structure has no adverse impact on the Company or its stockholders and does not, and would not reasonably be expected to, delay the Closing. The Company shall reasonably cooperate in connection with any such restructuring of the Asset Sales.

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     IN WITNESS WHEREOF, Parent, Sub, Missouri, Arizona and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized all as of the date first written above.

MS RESORT HOLDINGS LLC
By:	/s/ Michael Quinn
	Name:	Michael Quinn
	Title:	Vice President
MS RESORT ACQUISITION LLC
By:	/s/ Michael Quinn
	Name:	Michael Quinn
	Title:	Vice President
MS RESORT PURCHASER LLC
By:	/s/ Michael Quinn
	Name:	Michael Quinn
	Title:	Vice President
ASHFORD SAPPHIRE ACQUISITION LLC
By:	/s/ David A. Brooks
	Name:	David A. Brooks
	Title:	Vice President
CNL HOTELS & RESORTS, INC.
By:	/s/ Greerson G. McMullen
	Name:	Greerson G. McMullen
	Title:	Executive Vice President

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EX-10.33.2

Exhibit 10.33.2

EXECUTION COPY

          THIS GUARANTY is made as of January 18, 2007, jointly and severally by Morgan Stanley Real Estate Fund V U.S., L.P., a Delaware limited partnership (“MSREF V”) and Ashford Hospitality Trust, Inc., a Maryland corporation (“Ashford”), in favor of CNL Hotels & Resorts, Inc., a Maryland corporation (the “Company”). MSREF V and Ashford are individually referred to herein as a “Guarantor” and collectively as the “Guarantors”.

          For value received, and to induce the Company to enter into the Agreement and Plan of Merger, dated as of the date hereof, together with any subsequent amendment or amendments thereto (the “Merger Agreement”), by and among MS Resort Holdings LLC, a Delaware limited liability company (the “Parent”), MS Resort Acquisition LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Parent (“REIT Merger Sub”), MS Resort Purchaser LLC, a Delaware limited liability company and a wholly-owned subsidiary of Parent (“Parent Purchaser Sub”), Ashford Sapphire Acquisition Sub, LLC, a Delaware limited liability company and indirect subsidiary of Arizona (“Ashford Sub” and, together with Parent, REIT Merger Sub and Parent Purchaser Sub, the “Buyer Parties”), and the Company, each of the Guarantors hereby unconditionally and irrevocably jointly and severally guarantees the punctual and complete payment when due of the payment obligations and the timely performance when required of all other obligations of each of the Buyer Parties (if any), or any of their respective successors or assigns, that arise under the Merger Agreement to the Company and/or its Subsidiaries (collectively, the “Obligations”) in an amount, in the aggregate, not to exceed $300,000,000. It is understood and agreed that any payment by any Buyer Party with respect to the Obligations shall not reduce the amount payable by the Guarantors hereunder.

          This Guaranty is an absolute, unconditional and continuing guarantee of the full and punctual payment and performance of the Obligations. This Guaranty is in no way conditioned upon any requirement that the Company first attempt to collect the Obligations from the Buyer Parties or resort to any security or other means of collecting payment. Should the Buyer Parties default in the payment or performance of any of the Obligations, the Guarantors’ obligations hereunder shall become immediately due and payable to the Company. Claims hereunder may be made on one or more occasions. If any payment in respect of any Obligations is rescinded or must otherwise be returned for any reason whatsoever, the Guarantors shall remain liable hereunder with respect to such Obligations as if such payment had not been made. If any amount shall be paid to any Guarantor in violation of the immediately preceding sentence at any time prior to the payment in full in cash of the Obligations and all other amounts payable under this Guaranty, such amount shall be received and held in trust for the benefit of the Company, shall be segregated from other property and funds of the Guarantors and shall forthwith be paid or delivered to the Company in the same form as so received (with any necessary endorsement or assignment) to be credited and applied to the Obligations and all other amounts payable under this Guaranty, in accordance with the terms of the Merger Agreement, whether matured or unmatured, or to be held as collateral for any Obligations or other amounts payable under this Guaranty thereafter arising.

          Each of the Guarantors hereby waives notice of acceptance of this Guaranty and notice of the Obligations, waives presentment, demand for payment, protest, notice of dishonor or nonpayment of the Obligations, notice of acceleration or intent to accelerate the Obligations, and any other notice to the Buyer Parties and waives suretyship defenses generally, and the Company is not obligated to file any suit or take any action, or provide any notice to the Buyer Parties or either of the Guarantors, or others, except as expressly provided in the Merger Agreement or in this Guaranty. Without limiting the generality of the foregoing, each of the Guarantors agrees that its obligations hereunder shall not be released or discharged, in whole or in part, or otherwise affected by: (i) the failure of the Company to assert any claim or demand or to enforce any right or remedy against any of the Buyer Parties with respect to the Obligations, (ii) any extensions or renewals of the Obligations; (iii) any rescissions, waivers, amendments or modifications of the Merger Agreement; (iv) any lack of validity or enforceability of the Merger Agreement against any of the Buyer Parties other than to the extent arising from fraud or bad faith on the part of the Company; (v) the adequacy of any means available to the Company to claim payment or performance of the Obligations; (vi) any change in the limited liability company (or other applicable entity) existence, structure or ownership of any of the Buyer Parties or any other person liable with respect to any of the Obligations; (vii) any insolvency, bankruptcy, reorganization or other similar proceedings affecting any of the Buyer Parties or any other person liable with respect to any of the Obligations; (viii) the existence of any claim, set-off or other rights which the Guarantors may have at any time against any Buyer Party, whether in connection with the Obligations or otherwise; (ix) the adequacy of any other means the Company may have of obtaining repayment of any of the Obligations; (x) except as otherwise provided herein, the addition or release of any person or entities primarily or secondarily liable for the Obligations; or (xi) any other act or omission that might in any means or to any extent vary the risk of the Guarantors or otherwise operate as a release or exchange of the Guarantors, all of which may be done without notice to either of the Guarantors. The Guarantors acknowledge that they will receive substantial direct and indirect benefits from the transactions contemplated by the Merger Agreement and that the waivers set forth in the Guaranty are knowingly made in contemplation of such benefits and after the advice of counsel.

          If any Buyer Party defaults in the payment or performance of any of the Obligations, each of the Guarantors shall make such payment or performance or otherwise cause such payment or performance to be made within ten (10) business days after the receipt by such Guarantor of written notice from the Company of such default under the Merger Agreement; provided that in no event will the total amounts paid by the Guarantors under this Guaranty exceed in the aggregate $300,000,000. A payment or performance demand shall be in writing and shall reasonably specify what amount a Buyer Party has failed to pay or perform, and an explanation of why such payment or performance is due, with a specific statement that the Company is calling upon either or both of the Guarantors to pay or perform under this Guaranty.

          Notwithstanding anything to the contrary contained herein and subject to the limitations set forth in the immediately preceding paragraph, the liabilities of the Guarantors hereunder are limited solely to monetary payments. All sums payable by the Guarantors hereunder shall be made in immediately available funds. Upon payment or performance of the Obligations owing to the Company, the Guarantors shall be

subrogated to the rights of the Company against the Buyer Parties, and the Company agrees to take, at the requesting Guarantor’s expense, such steps as the requesting Guarantor may reasonably request to implement such subrogation. However, the Guarantors unconditionally and irrevocably agree not to exercise any right of subrogation, reimbursement, contribution, indemnification or similar right as to the Buyer Parties until the Obligations are paid and performed in full. If any amount shall be paid to any Guarantor in violation of the immediately preceding sentence at any time prior to the payment in full in cash of the Obligations and all other amounts payable under this Guaranty, such amount shall be received and held in trust for the benefit of the Company, shall be segregated from other property and funds of the Guarantors and shall forthwith be paid or delivered to the Company in the same form as so received (with any necessary endorsement or assignment) to be credited and applied to the Obligations and all other amounts payable under this Guaranty, in accordance with the terms of the Merger Agreement, whether matured or unmatured, or to be held as collateral for any Obligations or other amounts payable under this Guaranty thereafter arising.

          Each of the Guarantors hereby represents and warrants that: (a) the execution, delivery and performance of this Guaranty have been duly authorized by all necessary corporate or limited partnership action and do not contravene any provision of the applicable Guarantor’s charter, bylaws, certificate limited partnership, limited partnership agreement or similar organizational documents or any law, regulation, rule, decree, order, judgment or contractual restriction binding on the applicable Guarantor or any of its assets; (b) all consents, approvals, authorizations, permits of, filings with and notifications to, any governmental authority necessary for the due execution, delivery and performance of this Guaranty by the applicable Guarantor have been obtained or made and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority or regulatory body is required in connection with the execution, delivery or performance of this Guaranty; (c) this Guaranty constitutes a legal, valid and binding obligation of the applicable Guarantor enforceable against the applicable Guarantor in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws affecting creditors’ rights generally, and (ii) general equitable principles (whether considered in a proceeding in equity or at law); (d) the applicable Guarantor has the financial capacity to pay and perform its obligations under this Guaranty, and all funds necessary for the applicable Guarantor to fulfill its Obligations under this Guaranty shall be available to applicable Guarantor for so long as this Guaranty shall remain in effect in accordance with the terms herein; and (e) the Company has required the execution of this Guaranty by the Guarantors as a condition to the execution by the Company of the Merger Agreement and the consummation of the transactions provided for therein.

          Subject to the next sentence, this Guaranty shall remain in full force and effect and shall be binding upon the Guarantors, their successors and assigns, until all amounts payable under this Guaranty have been indefeasibly paid in cash, observed, performed or satisfied in full. Notwithstanding the foregoing, this Guaranty shall terminate and be of no further force and effect and no party may attempt to enforce any rights hereunder upon and after the earliest to occur of (1) the Effective Time (as such term is defined in the Merger Agreement); (2) termination of the Merger Agreement by mutual written consent pursuant to Section 10.1(a) thereof; (3) termination of the Merger

Agreement on or after July 1, 2007 pursuant to Section 10.1(b)(i) of the Merger Agreement; or (4) termination of the Merger Agreement in any other circumstance except where the Buyer Parties have liability to the Company thereunder.

          This Guaranty shall apply in all respects to successors of each of the Guarantors and permitted assigns and inure to the Company and its successors and permitted assigns. No party may assign its rights and obligations hereunder (directly or indirectly) without the prior written consent of the other party hereto.

          THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND APPLICABLE TO AGREEMENTS ENTERED INTO AND PERFORMED ENTIRELY WITHIN SUCH STATE.

          No amendment or waiver of any provision of this Guaranty shall be effective unless the same shall be in writing and signed by the Company and each of the Guarantors. No failure on the part of the Company to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.

          This Guaranty contains the entire agreement of the Guarantors with respect to the matters set forth herein. The rights and remedies herein provided are cumulative and not exclusive of any remedies provided by law. The invalidity or unenforceability of any one or more sections of this Guaranty shall not affect the validity or enforceability of its remaining provisions.

          This Guaranty may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. Facsimile transmission of any signed original document shall be deemed the same as delivery of an original.

          The Guarantors agree to pay the Company, on demand from time to time, the amount of all expenses, including reasonable attorneys’ fees and expenses, paid or incurred by the Company in enforcing any of its rights hereunder against the Guarantors. Any payment by the Guarantors under this paragraph shall not reduce, limit or otherwise affect the other obligations of the Guarantors hereunder or be counted towards the $300,000,000 maximum amount set forth herein.

[Signature Page Follows]

          IN WITNESS WHEREOF, each of the Guarantors has caused this Guaranty to be executed and delivered as of the date first written above by its officer thereunto duly authorized.

GUARANTORS:
MORGAN STANLEY REAL ESTATE FUND V U.S., L.P.
By:	MSREF V U.S.-GP, L.L.C., its General Partner
By:	/S/ GREERSON G. MCMULLEN
	Name: Greerson G. McMullen
	Title: Executive Vice President
ASHFORD HOSPITALITY TRUST, INC.
By:	/S/ DAVID A. BROOKS
	Name: David A. Brooks
	Title: Chief Legal Officer

Accepted and Agreed to:
CNL HOTELS & RESORTS, INC.
By:	/S/ MICHAEL QUINN
	Name: Michael Quinn
	Title: Vice President

EX-10.33.3

Exhibit 10.33.3

EXECUTION COPY

CONTRIBUTION AND RIGHTS AGREEMENT

Dated as of January 18, 2007

TABLE OF CONTENTS

ARTICLE I — AGREEMENTS		2
Section 1.1.	Mutual Reliance	2
Section 1.2.	Guaranty Liability	2
Section 1.3.	Buyer Financing	3
Section 1.4.	Sources and Uses	3
Section 1.5.	Payments Received from CNL	3
Section 1.6.	Corporate Liabilities of CNL	4
Section 1.7.	Company Properties Liabilities	4
Section 1.8.	Marketed Portfolio Purchase and Sale Agreement	4
Section 1.9.	Tax Opinions	5
Section 1.10.	Consummation of Arizona Asset Sale	5
Section 1.11.	Definitions	5
ARTICLE II — APPROVAL RIGHTS		7
Section 2.1.	Closing Conditions of the Merger Agreement	7
Section 2.2.	Conduct of Business Pending Closing	7
Section 2.3.	Acquisition Proposals	8
Section 2.4.	Other Approvals	8
ARTICLE III — TRANSACTION EXPENSES		9
Section 3.1.	Transaction Expenses	9
Section 3.2.	Closing Date Net Working Capital	9
ARTICLE IV — INDEMNIFICATION AND CONTRIBUTION		10
Section 4.1.	Rights of Contribution	10
Section 4.2.	Indemnification	10
ARTICLE V — MISCELLANEOUS		11
Section 5.1.	Amendments; Waivers	11
Section 5.2.	Governing Law	11
Section 5.3.	Notices	11
Section 5.4.	Attorney’s Fees	12
Section 5.5.	Severability	12
Section 5.6.	Counterparts	13
Section 5.7.	Specific Enforcement	13
Section 5.8.	Further Assurances	13

Exhibit I — Sources and Uses
Exhibit II — MSREF Portfolio
Exhibit III — Ashford Portfolio

CONTRIBUTION AND RIGHTS AGREEMENT

     Contribution and Rights Agreement, dated as of January 18, 2007 (this “Agreement”), by and among MORGAN STANLEY REAL ESTATE FUND V U.S., L.P., a Delaware limited partnership (“MSREF”), and ASHFORD HOSPITALITY TRUST, INC., a Maryland corporation (“Ashford”). MSREF and Ashford are referred to herein from time to time individually as a “Party” and collectively as the “Parties”.

WITNESSETH

     WHEREAS, MS Resort Holdings LLC, a Delaware limited liability company (“Parent”), MS Resort Acquisition LLC, a Delaware limited liability company and a wholly-owned subsidiary of Parent (“Sub”), Ashford Sapphire Acquisition LLC, a Delaware limited liability company (“Ashford Acquisition”), MS Resort Purchaser LLC, a Delaware limited liability company and a wholly-owned subsidiary of Parent (“MSREF Purchaser Sub”), and CNL Hotels & Resorts, Inc., a Maryland corporation (“CNL”) have entered into that certain Agreement and Plan of Merger, dated as of January 18, 2007 (the “Merger Agreement”);

     WHEREAS, on the date hereof, MSREF and Ashford have entered into that certain Guaranty in favor of CNL relating to the obligations of Parent, Sub, Ashford Acquisition and MSREF Purchaser Sub under the Merger Agreement;

     WHEREAS, as set forth in Article XII of the Merger Agreement , MSREF Acquisition has entered into that certain Purchase and Sale Agreement, dated as of January 18, 2007 (“Parent Asset Purchase Agreement”), pursuant to which MSREF Purchaser Sub shall acquire the assets set forth on Exhibit II hereto (the “MSREF Acquired Assets”);

     WHEREAS, as set forth in Article XII of the Merger Agreement, Ashford Acquisition has entered into that certain Ashford Asset and Joint Venture Interest Purchase Agreement, dated as of January 18, 2007 (“Ashford Asset Purchase Agreement”, and together with the Parent Asset Purchase Agreement, the “Purchase Agreements”), pursuant to which Ashford Acquisition shall acquire the assets set forth on Exhibit III hereto (the “Ashford Portfolio”);

     WHEREAS, following consummation of the conveyancing transactions pursuant to the Purchase Agreements, the Merger will be consummated and Parent will own the real assets and interests therein held by CNL (such assets, together with the MSREF Acquired Assets, shall be referred to as the “MSREF Portfolio”);

     WHEREAS, each of MSREF and Ashford (and their respective Affiliates) are relying on each other to consummate the Merger, the Arizona Asset Sale, the Parent Asset Sale and the other transactions contemplated by the Merger Agreement (collectively, the “Transactions”) and as Guarantors, they are jointly and severally liable under the Guaranty and their respective Affiliates are jointly and severally liable under the Merger Agreement;

     WHEREAS, it is the general intention of the Parties that on and after the date hereof, the assets and liabilities of CNL shall be shared by the Parties in accordance with the Sharing Percentage, except that the assets and liabilities associated with the individual Company Properties shall inure to, or be borne by, each Party based on their Respective Portfolio; and

     WHEREAS, the purpose of this Agreement is to set forth the rights and obligations of MSREF and Ashford (or their respective Affiliates, as the case may be) with respect to each other as a result of having entered into the Merger Agreement, the Guaranty and other relevant transaction documents.

     NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth herein, the Parties agree as follows:

ARTICLE I — AGREEMENTS

     Section 1.1. Mutual Reliance. MSREF and Ashford hereby agree, severally and not jointly, that, subject to the terms and conditions of this Agreement and the satisfaction or waiver of the conditions precedent set forth in the Merger Agreement, as of the closing of the respective Transactions contemplated by the Merger Agreement, MSREF and Ashford, as the case may be, will contribute (or cause to be contributed) their respective Commitment Amount as more particularly set forth on Exhibit I hereto. MSREF and Ashford each agree that it is relying on the other Party’s (or their Affiliate’s) performance of its obligations under the Merger Agreement, the Guaranty, the Purchase Agreements and this Agreement, and that the failure, in whole or in part, of one of the Parties (or their Affiliates) to perform its obligations under the Merger Agreement, their respective Financing Documents, the Purchase Agreements or any other relevant document relating to the Transactions, would adversely affect the other Party in connection with the Transactions. In those cases, where either Party or its Affiliates has a consent or other right under the Merger Agreement or this Agreement, the Parties shall negotiate in good faith and expeditiously to resolve any differences of opinion relating to the interpretation, enforcement or performance of the matter. The Parties agree that time will be of the essence with respect to the resolution of such differences of opinion.

     Section 1.2. Guaranty Liability.

               (a) Except to the extent otherwise provided in this Agreement, MSREF and Ashford, as the Guarantors under the Guaranty, each agree that its respective share of the Guaranteed Obligations shall be limited to its respective Sharing Percentage of the total amount of such Guaranteed Obligations.

               (b) In the event that either MSREF or Ashford are called upon to satisfy any of the Guaranteed Obligations and the other is not also called or in the event payments are made by MSREF or Ashford in satisfaction of the Guaranteed Obligations other than in accordance with the Sharing Percentage or as otherwise required in this Agreement, Ashford and MSREF each agree that it shall reimburse or indemnify the other Party. Ashford or MSREF, as the case may be, shall promptly pay to the other Party an amount such that,

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following the payment of such amount, the aggregate payments made in respect of the Guaranteed Obligations shall be shared by Ashford and MSREF in accordance with the Sharing Percentage or as otherwise required in this Agreement, plus all reasonable charges, costs and expenses actually incurred by the claiming party in enforcing its rights hereunder against the other, if any.

               (c) If the Guaranteed Obligations arose primarily through the gross negligence of either MSREF or Ashford (or any of their respective Affiliates), whether by act or omission or through the breach of the Merger Agreement, of the Party’s respective Financing Documents, or of the Party’s respective Purchase Agreement, then that Party agrees to be solely responsible for and to satisfy such Guaranteed Obligations (without any reimbursement or indemnification from the other Party) and agrees to reimburse or indemnify the other Party with respect to such Guaranteed Obligations.

               (d) If any Party receives notice requesting payment of any amounts pursuant to the Guaranty (a “Notice of Claim”), such Party shall provide written notice to the other Party within one (1) Business Day of receipt of a Notice of Claim.

     Section 1.3. Buyer Financing. Each of MSREF and Ashford acknowledges that the Parties are relying on the performance of the obligations of the lenders or investors under the Financing Documents and shall use their respective best efforts (or cause their Affiliates to use their best efforts) to enforce their rights under the Financing Documents or obtain alternative financing in an amount necessary to fund the Commitment Amount. Each of MSREF and Ashford acknowledge that the best efforts obligations set forth in this Section 1.3 shall be interpreted in a manner to include, among other requirements, that the Parties shall incur whatever costs and expenses necessary, including, without limitation, the posting of any reserves required by the financing sources, to enforce the obligations under the Funding Documents as if the other Party were a third-party beneficiary of the Financing Documents.

     Section 1.4. Sources and Uses. Each of the Parties hereto agree that the sources and uses for the payments of the amounts necessary to consummate all of the Transactions shall be substantially as set forth on Exhibit I as such sources and uses may be modified based on each Party’s Deemed Net Working Capital Amount pursuant to Section 3.2. Subject to Section 1.3 hereof, neither the Ashford Parties nor the MSREF Parties may materially modify their respective sources and uses from those set forth on Exhibit I without the consent of the other Party hereto, such consent not to be unreasonably withheld.

     Section 1.5. Payments Received from CNL.

               (a) In the event that Parent receives any amounts from CNL pursuant to Section 8.5(b) and/or Section 8.5(c) of the Merger Agreement (collectively, the “Company Payments”), MSREF shall cause Parent to pay to Ashford an amount equal to (i) the Company Payments multiplied by (ii) the Ashford Percentage within two (2) Business Days of receipt.

               (b) MSREF and Ashford hereby agree that all amounts received by Parent, other than in respect of Company Payments, shall be paid to the Parties as follows:

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          (i) If such amounts are paid as the result of events which have occurred on or prior to the date hereof and including, without limitation, amounts received from insurance carriers relating to the settlement of any claims with CNL’s director and officer insurance carriers and any proceeds received from property, casualty and business interruption insurance, such amounts shall be shared by the Parties in accordance with the Sharing Percentage.

          (ii) If such amounts are paid in respect of business interruption, property or casualty insurance claims as the result of events occurring after the date hereof, but prior to the date of the Closing of the Asset Sales, such amounts shall be paid in full to the Party whose Respective Portfolio contains the Company Property that is the subject of such claims.

          (iii) If such amounts are paid, other than in respect of the claims set forth in Section 1.5(b)(ii) above, as a result of events occurring after the date hereof, but prior to the date of the Asset Sales, such amounts shall be shared by the Parties in accordance with the Sharing Percentage.

MSREF shall cause Parent to distribute to Ashford the amounts payable under this Section 1.5(b) within two (2) Business Days of receipt.

     Section 1.6. Corporate Liabilities of CNL.

               (a) MSREF and Ashford agree that, except to the extent set forth in Sections 1.6(b), 1.7 and 3.2 hereof, any and all liabilities, including, without limitation, any contingent liabilities, but expressly excluding any liabilities that may arise as the result of Section 1374 of the Code, of CNL existing at the time of the Closing of the Merger shall be shared by MSREF and Ashford from and after the Closing of the Merger in accordance with the Sharing Percentage. Ashford hereby agrees to reimburse MSREF an amount equal to its Sharing Percentage of any such liabilities within five (5) Business Days of receipt of a request from MSREF for such reimbursement.

               (b) Notwithstanding anything to the contrary contained in Section 1.6(a) hereof, Ashford shall not be obligated to reimburse MSREF for any tax liabilities of CNL that directly result from the failure of CNL to qualify as a REIT as a result of the structuring of the Merger and the Parent Asset Sale. For the avoidance of doubt, Ashford shall be responsible for any liabilities of CNL failing to qualify as a REIT resulting from the Arizona Asset Sale in accordance with the Sharing Percentage.

     Section 1.7. Company Properties Liabilities. Each of the Parties agree that any and all liabilities arising from, or related to, a Company Property shall be borne solely by the Party whose Respective Portfolio contains such Company Property.

     Section 1.8. Marketed Portfolio Purchase and Sale Agreement. The Parties hereto agree that in the event that W2005 New Century Hotel Portfolio, L.P. exercises its rights under

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the Marketed Portfolio Purchase and Sale Agreement not to acquire one of more of the Whitehall Properties and any such Whitehall Property is owned by CNL or its Subsidiaries on the date of the Closing of the Merger, Ashford Acquisition shall acquire such Whitehall Property in accordance with the Ashford Asset Purchase Agreement. Ashford agrees that it shall cause Ashford Acquisition to use commercially reasonable efforts to sell such Whitehall Property as promptly as commercially practicable following the Closing of the Merger at a price to be mutually agreed upon by MSREF and Ashford. The Parties agree that all liabilities in association with the acquisition of any of the Whitehall Properties shall be shared by the Parties in accordance with the Sharing Percentage. The Parties further agree that Ashford Acquisition may transfer or assign such Whitehall Properties to a joint venture that is owned by MSREF and Ashford in accordance with the Sharing Percentage. Ashford shall cause Ashford Acquisition promptly to distribute to each of MSREF and Ashford an amount equal to the net proceeds received from the sale of any Whitehall Property multiplied by their respective Sharing Percentage, and simultaneously therewith, Ashford shall cause Ashford Acquisition to assign to MSREF, and MSREF shall assume from Ashford Acquisition, the MSREF Percentage of all liabilities in association with the acquisition of any such Whitehall Property.

     Section 1.9. Tax Opinions. The Parties agree that if Parent or Sub are entitled to any recovery from Sidley Austin LLP in connection with its tax opinion related to CNL’s qualification as a REIT, each of MSREF and Ashford shall share in such recovery in accordance with the Sharing Percentage. MSREF further agrees that it shall cause Goodwin Procter LLP to include Ashford as a third-party beneficiary of the tax opinion to be issued by Goodwin Procter LLP in connection with the Transactions.

     Section 1.10. Consummation of Arizona Asset Sale. Notwithstanding anything to the contrary contained herein and except as set forth in Sections 1.6, 1.7, 1.8 and 3.1, upon the consummation of the Arizona Asset Sale and the payment in full of the purchase price thereunder to CNL, (i) the obligations of Ashford under the Guaranty shall cease and be of no further force and effect and MSREF shall indemnify Ashford for all Guaranteed Obligations and any expenses incurred by CNL in enforcing its rights thereunder and (ii) the obligations of the Ashford Parties under this Agreement and the rights of the Ashford Parties under Article II of this Agreement shall cease and be of no further force and effect.

     Section 1.11. Definitions. The following terms shall have the meanings indicated or referred to below, inclusive of their singular and plural forms except where the context requires otherwise. Except as otherwise set forth herein, capitalized terms used herein shall have the meanings set forth in the Merger Agreement.

     “Ashford Parties” shall mean Ashford and Ashford Acquisition.

     “Ashford Percentage” shall mean 38.71%.

     “Commitment Amount” shall mean, in the case of MSREF, all of the funds needed by the MSREF Parties to acquire the MSREF Acquired Assets, to pay the Per Share Merger Consideration and to pay its share of the Transaction Expenses, and, in the case of Ashford, all of

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the funds needed by the Ashford Parties to acquire the Ashford Portfolio Assets and to pay its share of the Transaction Expenses.

     “Consolidated Current Assets” shall mean, at the time of determination, the total aggregate assets of CNL and its Subsidiaries which may properly be classified as current assets on a consolidated balance sheet of CNL and its Subsidiaries in accordance with GAAP.

     “Consolidated Current Liabilities” shall mean, at the time of determination, the total aggregate liabilities of CNL and its Subsidiaries which may properly be classified as current liabilities on a consolidated balance sheet of CNL and its Subsidiaries in accordance with GAAP.

     “Deemed Net Working Capital Amount” shall mean, for each Party, such Party’s Sharing Percentage of the Net Working Capital of CNL on the date of the Closing of the Asset Sales as such amount may be modified pursuant to Section 3.2 hereof.

     “Financing Documents” shall mean, in the case of MSREF, the Parent Commitment Letter and the Parent Preferred Equity Funding Letter, and in the case of Ashford, the Ashford Commitment Letters.

     “Guaranteed Obligations” shall mean the “Obligations” as such term is defined in the Guaranty.

     “MSREF Parties” shall mean Parent, Sub, MSREF Purchaser Sub and MSREF.

     “MSREF Percentage” shall mean 61.29%.

     “Net Working Capital of CNL” shall mean at the time of determination, the Consolidated Current Assets of CNL at such time minus the Consolidated Current Liabilities of CNL at such time.

     “Respective Portfolio” shall mean, with respect to MSREF, the MSREF Portfolio and, with respect to Ashford, the Ashford Portfolio.

     “Sharing Percentage” shall mean, in the case of MSREF, the MSREF Percentage, and in the case of Ashford, the Ashford Percentage.

     “Transaction Expenses” shall mean all expenses of CNL in connection with the consummation of the Transactions, including, without limitation, all executive severance and 280G gross-up payments, all expenses relating to the due diligence of CNL as a corporate entity by the Parties, including, without limitation, all accountants’, attorneys’ and advisors’ fees, and all expenses relating to the structuring, analyzing of tax concerns, negotiating, documenting and closing of the Transactions including, without limitation, attorneys’ fees. For the avoidance of doubt, Transaction Expenses shall not include any expenses related to the due diligence conducted on, or the closing costs associated with the acquisition of, the individual Company

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Properties and any fees or expenses related to the transactions contemplated by the Financing Documents, including the costs associated with enforcing Section 1.3 of this Agreement.

     “Whitehall Property” shall mean any of the Company Properties that are subject to sale pursuant to the Marketed Sale Purchase and Sale Agreement.

ARTICLE II — APPROVAL RIGHTS

     Section 2.1. Closing Conditions of the Merger Agreement.

               (a) After consultation with the other Party, MSREF or Ashford, as the case may be, shall, in its good faith discretion, each be permitted to assert that there has occurred a Material Adverse Effect on CNL (a “Company MAE”) and that the closing condition set forth in Section 9.3(c) of the Merger Agreement has not been satisfied at or prior to the Closing of the Merger; provided that the events or occurrences giving rise to the Company MAE relate to its Respective Portfolio and such Party’s Sharing Percentage of such events or occurrences not specifically related to either the Ashford Portfolio or the MSREF Portfolio. The Parties acknowledge that the events or occurrences giving rise to the assertion that there has occurred a Company MAE must meet the definition of a Company MAE even though such Parties’ assertion relates only to its Respective Portfolio and its Sharing Percentage of such events or occurrences not specifically related to either the Ashford Portfolio or the MSREF Portfolio.

               (b) After consultation with the other Party, each of MSREF and Ashford shall have the right, in its good faith discretion, to cause Parent to assert that the condition set forth in Section 9.3(a) of the Merger Agreement is not satisfied with respect to its Respective Portfolio.

               (c) After consultation with the other Party, each of MSREF and Ashford shall have the right, in its good faith discretion, to cause Parent to assert that the condition set forth in Section 9.3(b) of the Merger Agreement is not satisfied.

               (d) MSREF shall not cause or permit Parent to waive any condition to closing under Section 9.3 of the Merger Agreement that relates directly or indirectly to the Ashford Portfolio without the prior written consent of Ashford.

     Section 2.2. Conduct of Business Pending Closing.

               (a) MSREF and Ashford hereby agree that MSREF shall cause Parent to consent to any actions under Section 7.1 of the Merger Agreement as follows:

          (i) if the consent relates solely to one or more Company Properties in the MSREF Portfolio, at the direction of MSREF;

          (ii) if the consent relates solely to one or more Company Properties in the Ashford Portfolio, at the direction of Ashford; and

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          (iii) if the consent relates to either (x) Company Properties in both the MSREF Portfolio and the Ashford Portfolio or (y) the conduct of business of CNL as a whole, MSREF and Ashford shall discuss such consent in good faith and attempt to reach a mutual decision as to whether such consent shall be granted. If the Parties cannot agree as to whether such consent should be granted, Parent shall not grant such consent.

               (b) If in the case of Section 2.2(a)(i) above, MSREF consents to any action related to the MSREF Portfolio and as a result of such consent, CNL expends any amounts or any of CNL’s Subsidiary’s owning the subject Company Property expends any amounts in excess of budgeted reserves, including, without limitation, capital expenditures (including owner-funded capital expenditures), in reliance on such consent related to any Company Properties in the MSREF Portfolio, MSREF’s allocation of Net Working Capital of CNL shall be decreased by such amount and Ashford’s allocation of Net Working Capital of CNL shall be increased by such amount.

               (c) If in the case of Section 2.2(b)(i) above, Ashford consents to any action related to the Ashford Portfolio and as a result of such consent, CNL expends any amounts or any of CNL’s Subsidiary’s owning the subject Company Property expends any amounts in excess of budgeted reserves, including, without limitation, capital expenditures (including owner-funded capital expenditures), in reliance on such consent related to any Company Properties in the Ashford Portfolio, Ashford’s allocation of Net Working Capital of CNL shall be decreased by such amount and MSREF’s allocation of Net Working Capital of CNL shall be increased by such amount.

     Section 2.3. Acquisition Proposals. MSREF shall cause Parent to forward any notice received pursuant to Section 7.2(c) of the Merger Agreement to Ashford as promptly as practicable following actual receipt from CNL. MSREF and Ashford shall discuss in good faith how best to respond to any Superior Proposal and whether Parent shall make a Counterproposal prior to the expiration of the time period set forth in Section 7.2(e) of the Merger Agreement. If either Party desires to submit a Counterproposal, it shall offer the other Party the opportunity to participate in such Counterproposal based on such Party’s Sharing Percentage. If a Party shall not have accepted the offer to participate in the Counterproposal prior to the expiration of the time period set forth in Section 7.2(e) of the Merger Agreement, the offering Party may proceed with such Counterproposal and (i) the Party making the Counterproposal shall promptly repay all actual and documented reasonable out-of-pocket expenses, including attorneys’ fees, of the other Party and (ii) this Agreement and the letter agreement, dated as of January 11, 2007, shall terminate and be of no further force and effect.

     Section 2.4. Other Approvals. Except as otherwise set forth in this Article II, MSREF and Ashford agree that any other consents, approvals or other decisions under the Merger Agreement shall be made by Parent, in its good faith discretion after consultation with Ashford; provided that such consent, approval or other decision may not be made without the prior written consent of Ashford if it materially and adversely affects the rights of the Ashford Parties under the Merger Agreement or the Ashford Portfolio.

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ARTICLE III — TRANSACTION EXPENSES

     Section 3.1. Transaction Expenses. MSREF and Ashford agree that all Transaction Expenses shall be paid by each of MSREF and Ashford in accordance with the Sharing Percentage. If either Party (or its Affiliates) pays any Transaction Expenses on behalf of both Parties, such Party shall provide a detailed accounting of any such Transaction Expenses. Promptly upon written request from the Party paying such Transaction Expenses, the Party that has not previously paid the subject Transaction Expenses shall pay such amounts to the Party that previously paid the subject Transaction Expenses so as to cause such Transaction Expenses to have been paid in accordance with the Sharing Percentage.

     Section 3.2. Closing Date Net Working Capital.

               (a) On the date of the Closing of the Assets Sales, the Net Working Capital of CNL shall be apportioned to each Party as follows:

          (i) First, each Party shall be allocated its Sharing Percentage of the Net Working Capital of CNL;

          (ii) Second, each Party’s allocation of Net Working Capital of CNL shall be increased or decreased, as applicable, in accordance with Sections 2.2(b) and 2.2(c) hereof; and

          (iii) Third, all other amounts paid by CNL in relation to a specific Company Property or group of Company Properties not consented to by a Party pursuant to Section 2.2 hereto, including, without limitation, amounts used to amortize debt securing a Company Property(ies), shall be allocated such as to decrease the allocation of Net Working Capital of CNL to the Party in whose Respective Portfolio such Company Property(ies) is held by such amount and to increase the other Party’s allocation of Net Working Capital of CNL by such amounts.

               (b) The total amount of Net Working Capital allocated to each Party in accordance with Section 3.2(a) above shall be such Party’s “Deemed Net Working Capital Amount”.

               (c) Each of MSREF and Ashford shall provide the other Party with full and complete access to all calculations and supporting information in such Party’s possession that is reasonably requested by the other Party to determine the Net Working Capital of CNL on the date of the Closing of the Asset Sales and each Party’s Deemed Net Working Capital Amount for a period of fifteen (15) days following the Closing of the Merger. If the Parties are unable to agree on each Party’s Deemed Net Working Capital Amount at the end of such fifteen (15) day period, the Parties shall negotiate in good faith to reach agreement on each Party’s Deemed Net Working Capital Amount for a period of thirty (30) days. If following such thirty (30) day period the Parties are unable to agree on each Party’s Deemed Net Working

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Capital Amount, an independent third party reasonably acceptable to both Parties shall determine each Party’s Deemed Net Working Capital Amount and such determination shall be binding on the Parties. All costs and expenses in relation to such determination by an independent third party shall be borne by the Parties in accordance with the Sharing Percentage. The Parties agree that they shall work together in good faith to properly and timely reflect the information provided by third-party franchisors promptly upon receipt of such information from such franchisors.

     (d) If a Party’s Deemed Net Working Capital Amount is positive, the amount required to be funded by such Party in order to satisfy its Commitment Amount shall be reduced by such Party’s Deemed Net Working Capital Amount. If a Party’s Deemed Net Working Capital Amount is negative, the amount required to be funded by such Party in order to satisfy its Commitment Amount shall be in increased by an amount necessary to bring such Party’s Deemed Net Working Capital Amount to zero. Within two (2) Business Days after the date that the Parties’ Deemed Net Working Capital Amount has been finally agreed upon or determined in accordance with Section 3.2(c) above, MSREF shall cause Parent to distribute any amounts required to be paid to Ashford pursuant to Section 3.2 of this Agreement.

ARTICLE IV — INDEMNIFICATION AND CONTRIBUTION

     Section 4.1. Rights of Contribution.

               (a) If either of the MSREF Parties or the Ashford Parties fails to fully perform their obligations under the Merger Agreement or the Purchase Agreements (a “Defaulting Party”), MSREF or Ashford, as applicable (in such case, a “Curing Party”), may, in its sole discretion, perform the obligations of the Defaulting Party under the Merger Agreement and the Purchase Agreements. If a Curing Party shall perform the obligations of a Defaulting Party, the Curing Party shall be entitled to receive damages in an aggregate amount not to exceed $300,000,000.

               (b) Notwithstanding Section 4.1(a), MSREF and Ashford agree that following the consummation of either of the Asset Sales and the payment of the related purchase price thereunder, a Defaulting Party shall be solely liable for all damages to CNL as a result of the failure to fully perform its obligations under the Merger Agreement and the applicable Purchase Agreement.

               (c) Except as set forth in Section 4.1(b) and notwithstanding anything else contained herein to the contrary, in no event shall the obligations of one Party hereunder to the other Party exceed in the aggregate $300,000,000.

     Section 4.2. Indemnification. Each of the Parties hereto agree to indemnify and hold harmless the other Party against any and (subject to the limitations set forth in Section 4.1) all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim)

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caused by the failure of such Party to perform their obligations under the Merger Agreement as set forth in Section 4.1 of this Agreement.

ARTICLE V — MISCELLANEOUS

     Section 5.1. Amendments; Waivers. This Agreement may be amended only by written instrument signed by the Parties hereto. No delay of or omission in the exercise of any right, power or remedy accruing to any Party as a result of any breach or default by any other Party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any such delay, omission nor waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

     Section 5.2. Governing Law. This Agreement shall be governed by and construed in accordance with the Laws of the State of New York without regard to the principles of conflicts of Law. Each party hereby waives its right to trial by jury in connection with any dispute between any of the parties to this Agreement arising out of or relating to this Agreement.

     Section 5.3. Notices. Any and all notices, demands, consents, approvals, elections, requests and other communications required or permitted under this Agreement shall be deemed delivered (i) if delivered by hand; (ii) if delivered by nationally recognized overnight courier service (Federal Express or similar expedited commercial carrier), addressed to the recipient of the notice, with all freight charges prepaid, on the first following Business Day after such delivery to such service; (iii) if given by facsimile, when such facsimile is transmitted to the facsimile number specified below and the appropriate answer back or confirmation is received; and (iv) by e-mail, if provided and the recipient acknowledges receipt thereof by reply e-mail or otherwise; provided that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day.

               (a) if to MSREF, to:

c/o Morgan Stanley Real Estate Investing – MSREF
1585 Broadway
New York, NY 10036
Telecopier No.: (212) 507-4571
Attention: Michael Franco
Email: Michael.Franco@morganstanley.com

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                     with a copy to:

Goodwin Procter LLP
Exchange Place
Boston, MA 02109
Telecopier No: (617) 523-1231
Attention: Gilbert G. Menna, Esq.
                     Suzanne D. Lecaroz, Esq.
Email: gmenna@goodwinprocter.com
           slecaroz@goodwinprocter.com

               (b) if to Ashford, to:

Ashford Hospitality Trust, Inc.
14185 Dallas Parkway, Suite 1100
Dallas, TX 75254
Telecopier No.: (972) 778-9207
Attention: David A. Brooks, Esq.
Email: dbrooks@ahtreit.com

                    with a copy to:

Akin, Gump, Strauss, Hauer & Feld LLP
1111 Louisiana Street, 44^th Floor
Houston, TX 77002
Telecopier No: (713) 236-0822
Attention: Michael E. Dillard, Esq.
Email: mdillard@akingump.com

     Section 5.4. Attorney’s Fees. If any Party seeks to enforce such Party’s rights under this Agreement by legal proceedings or otherwise, the non-prevailing party shall be responsible for all costs and expenses in connection therewith, including reasonable attorneys’ fees and witness fees.

     Section 5.5. Severability. In the event that any provision hereof would, under applicable law, be invalid or unenforceable in any respect, such provision shall be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable Law. The provisions hereof are severable, and in the event any provision hereof should be held invalid or unenforceable in any respect, it shall not invalidate, render unenforceable or otherwise affect any other provision hereof.

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     Section 5.6. Counterparts. This Agreement may be executed in one or more counterparts (including by facsimile), each of which shall be deemed to constitute an original, but all of which together shall constitute one and the same instrument.

     Section 5.7. Specific Enforcement. The Parties expressly agree that they will be irreparably damaged if this Agreement is not specifically enforced. Upon a breach or threatened breach of the terms, covenants or conditions of this Agreement by any Party, the parties shall, in addition to all other remedies, each be entitled to seek a temporary or permanent injunction, without showing any actual damage, and/or a decree for specific performance, in accordance with the provisions hereof.

     Section 5.8. Further Assurances. At any time or from time to time after the date hereof, the parties agree to cooperate with each other, and at the request of any other Party, to execute and deliver any further instruments or documents and to take all such further action as the other Party may reasonably request in order to evidence or effectuate the intent of the Parties hereunder. Either of the Parties may propose an amendment to this Agreement in order to effectuate the intent of the Parties hereunder and the other Party shall consider such amendment in good faith. MSREF agrees to provide Ashford with access during normal business hours to the records of CNL in the possession of MSREF and its Affiliates relating to all times prior to the Closing of the Merger that are reasonably requested by Ashford.

[Remainder of Page Left Blank Intentionally]

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     IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first set forth above.

MORGAN STANLEY REAL ESTATE FUND V U.S., L.P.
By:	MSREF V U.S.-GP, L.L.C., its general partner
By:	/S/ GREERSON G. MCMULLEN
	Name: Greerson G. McMullen
	Title: Executive Vice President
ASHFORD HOSPITALITY TRUST, INC.
By:	/S/ DAVID A. BROOKS
	Name: David A. Brooks
	Title: Chief Legal Officer

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EXHIBIT A

SOURCES AND USES

A-1

EXHIBIT B

MSREF PORTFOLIO

Property	Location
1. Grand Wailea Resort Hotel and Spa	Maui, HI
2. La Quinta Resort & Club	La Quinta, CA
3. Arizona Biltmore Resort & Spa	Phoenix, AZ
4. Doral Golf Resort & Spa	Miami, FL
5. Claremont Resort & Spa	Berkeley, CA
6. JW Marriott Desert Ridge Resort and Spa	Phoenix, AZ
7. Ritz-Carlton, Grande Lakes	Orlando, FL
8. JW Marriott, Grande Lakes	Orlando, FL

B-1

EXHIBIT C

ASHFORD PORTFOLIO

Property	Location
1. Hilton Torrey Pines	La Jolla, CA
2. Hilton Capital	Washington, DC
3. Hilton Lincoln Centre	Dallas, TX
4. Hilton El Conquistador	Tucson, AZ
5. Hilton Rye Town	Rye Brook, NY
6. Embassy Suites Orlando Airport	Orlando, FL
7. Embassy Suites Santa Clara	Santa Clara, CA
8. Embassy Suites Crystal City	Arlington, VA
9. Doubletree Crystal City	Arlington, VA
10. Hilton Miami Airport	Miami, FL
11. Hilton Suites Auburn Hills	Auburn Hills, MI
12. Hilton Costa Mesa	Costa Mesa, CA
13. Embassy Suites Portland	Portland, OR
14. Hilton Birmingham Perimeter Park	Birmingham, AL
15. JW Marriott New Orleans	New Orleans, LA
16. Marriott Bridgewater	Bridgewater. NJ
17. Marriott BWI Airport	Baltimore, MD
18. Marriott Dallas Plano at Legacy Town Center	Plano, TX
19. Marriott Seattle Waterfront	Seattle, WA
20. Marriott Suites Dallas	Dallas, TX
21. Renaissance Tampa Hotel International Plaza	Tampa, FL
22. Courtyard Philadelphia	Philadelphia, PA
23. Courtyard San Francisco	San Francisco, CA
24. Hyatt Coral Gables	Coral Gables, FL
25. Hyatt Dearborn	Dearborn, MI
26. Hyatt Montreal	Montreal, QC
27. Courtyard Marriott Village	Orlando, FL
28. SpringHill Suites Marriott Village	Orlando, FL
29. Fairfield Inn Marriott Village	Orlando, FL
30. Courtyard Basking Ridge	Basking Ridge, NJ
31. Courtyard Edison	Edison, NJ
32. Courtyard Newark	Newark, CA
33. Courtyard Oakland Airport	Oakland, CA
34. Courtyard Plano	Plano, TX
35. Courtyard Scottsdale	Scottsdale, AZ
36. Courtyard Seattle	Seattle, WA
37. Residence Inn — Kansas City	Kansas City, MO
38. Residence Inn — Torrance	Torrance, CA
39. Residence Inn Atlanta Buckhead at Lenox Park	Atlanta, GA

C-1

Property	Location
40. Residence Inn Las Vegas	Las Vegas, NV
41. Residence Inn Newark	Newark, CA
42. Residence Inn Phoenix	Phoenix, AZ
43. Residence Inn Plano	Plano, TX
44. Residence Inn, Perimeter West Atlanta	Atlanta, GA
45. SpringHill Suites Manhattan Beach	Manhattan Beach, CA
46. SpringHill Suites Plymouth Meeting	Plymouth Meeting, PA
47. SpringHill Suites Richmond	Richmond, VA
48. TownePlace Suites Manhattan Beach	Manhattan Beach, CA
49. Courtyard Manchester	Manchester, CT
50. Residence Inn Manchester	Manchester, CT
51. Hampton Inn Houston Galleria	Houston, TX

C-2

EX-21.1

EXHIBIT 21.1

Ashford Hospitality Trust, Inc.
Subsidiaries Listing

Ashford Hospitality Trust, Inc.
Ashford OP General Partner LLC
Ashford OP Limited Partner LLC
Ashford Hospitality Limited Partnership
Ashford Properties General Partner LLC
Ashford Properties General Partner Sub I LLC
Ashford Properties General Partner Sub II LLC
Ashford Properties General Partner Sub III LLC
Ashford Pool I GP LLC
Ashford Pool II GP LLC
Ashford TRS Corporation
Ashford TRS VI Corporation
Ashford TRS I LLC
Ashford TRS II LLC
Ashford TRS III LLC
Ashford TRS IV LLC
Ashford TRS V LLC
Ashford TRS VI LLC
Ashford TRS Lessee LLC
Ashford TRS Lessee I LLC
Ashford TRS Lessee II LLC
Ashford TRS Lessee III LLC
Ashford TRS Lessee IV LLC
Ashford TRS Lessee V LLC
Ashford TRS Pool I LLC
Ashford TRS Pool II LLC
Ashford TRS Nickel LLC
Ashford TRS Chicago LLC
Ashford Hospitality Finance LP
Ashford Hospitality Finance General Partner Corp.
Ashford Hospitality Finance California LP
Ashford Hospitality Finance California General Partner LLC
Ashford Hospitality Finance Gunter LP
Ashford Hospitality Finance Gunter General Partner LLC
Ashford Hospitality Finance Albuquerque LP
Ashford Hospitality Finance Albuquerque General Partner LLC
Ashford Finance Subsidiary I GP LLC
Ashford Finance Subsidiary I LP
Ashford Senior General Partner I LLC
Ashford Senior General Partner II LLC
Ashford Senior General Partner III LLC

Ashford Senior General Partner IV LLC
Ashford Atlantic Beach LP
Ashford Austin LP
Ashford BWI Airport LP
Ashford BWI Borrower LLC
Ashford Bucks County LLC
Bucks County Member LLC
Ashford Buford I LP
Ashford Buford II LP
Ashford Covington LP
Ashford Dallas LP
Ashford Dulles LP
Ashford Holtsville LP
Ashford Kennesaw I LP
Ashford Kennesaw II LP
Ashford Las Vegas LP
Ashford Syracuse LP
Ashford Dayton LP
Ashford Columbus LP
Ashford Phoenix LP
Ashford Flagstaff LP
Ashford Jacksonville I LP
Ashford Jacksonville II LP
Ashford Mobile LP
Ashford Lawrenceville LP
Ashford Buena Vista LP
Ashford Atlantic Beach LP
BC Office Limited Partner LP
BC Office General Partner LLC
Bucks County Office LP
Ashford Anaheim LP
Ashford Santa Fe LP
Ashford Indy Airport Limited Partnership
Ashford Indy Airport GP LLC
Ashford Milford Limited Partnership
Ashford Milford GP LLC
Annapolis Maryland Hotel Limited Partnership
Annapolis Hotel GP LLC
Commack New York Hotel Limited Partnership
Coral Gables Florida Hotel Limited Partnership
Coral Gables Hotel GP LLC
Dallas Texas Hotel Limited Partnership
Dallas Hotel GP LLC
Falmouth Square Inn Limited Partnership
Georgia Peach Hotel Limited Partnership
Georgia Hotel GP LLC

Hyannis Massachusetts Hotel Limited Partnership
Key West Florida Hotel Limited Partnership
Key West Hotel GP LLC
Minnetonka Minnesota Hotel Limited Partnership
Minnetonka Hotel GP LLC
New Beverly Hills Hotel Limited Partnership
New Beverly Hills GP LLC
New Clear Lake Hotel Limited Partnership
New Clear Lake GP LLC
New Fort Tower I Hotel Limited Partnership
New Fort Tower I GP LLC
New Fort Tower II Hotel Limited Partnership
New Fort Tower II GP LLC
New Houston Hotel Limited Partnership
New Houston GP LLC
New Indianapolis Downtown Hotel Limited Partnership
New Indianapolis Downtown GP LLC
Palm Beach Florida Hotel and Office Building Limited Partnership
Palm Beach GP LLC
Rockland Massachusetts Hotel Limited Partnership
Rockland Hotel GP LLC
South Yarmouth Massachusetts Hotel Limited Partnership
Massachusetts Hotel GP LLC
St. Petersburg Florida Hotel Limited Partnership
St. Petersburg GP LLC
Westbury New York Hotel Limited Partnership
FL/NY GP LLC
Ashford 1031 GP LLC
Ruby Senior General Partner I LLC
Ruby Senior General Partner II LLC
Ruby Senior General Partner III LLC
Ashford Credit Holding LLC
Ashford Dulles II LLC
Ashford Alpharetta Limited Partnership
Ashford Centerville Limited Partnership
Ashford Charlotte Limited Partnership
Ashford Crystal City Limited Partnership
Ashford Raleigh Limited Partnership
Ashford Falls Church Limited Partnership
Ashford Irvine Spectrum Foothill Ranch Limited Partnership
Ashford Ft. Lauderdale Weston I LLC
Ashford Ft. Lauderdale Weston II LLC
Ashford Ft. Lauderdale Weston III LLC
Ashford Gaithersburg Limited Partnership
Ashford Orlando Sea World Limited Partnership
Ashford Overland Park Limited Partnership

Ashford Ruby Palm Desert I Limited Partnership
Ashford Salt Lake Limited Partnership
Ashford Mira Mesa San Diego Limited Partnership
Ruby Ann Arbor Limited Partnership
Ruby Fishkill Limited Partnership
Ruby Ft. Worth River Plaza Limited Partnership
Ruby Ft. Worth Southwest Limited Partnership
Ruby Miami Airport Limited Partnership
Ruby Miami Lakes Limited Partnership
Ruby Mt. Laurel Limited Partnership
Ruby Newark Limited Partnership
Ruby Orlando International Limited Partnership
Ruby Sacramento Cal Expo Limited Partnership
Ruby Portland Scarborough Limited Partnership
Ruby Boston Tewksbury Limited Partnership
Ruby Tyler Limited Partnership
Ruby Providence Warwick Limited Partnership
Ruby Wilmington Newark Limited Partnership
Ashford Durham I LLC
Ashford Durham II LLC
Ashford San Francisco GP LLC
Ashford San Francisco LP
Ashford Crystal Gateway GP LLC
Ashford Crystal Gateway LP
Ashford Philly LP
Ashford Anchorage LP
Ashford Minneapolis Airport LP
Ashford MV San Diego LP
Ashford Walnut Creek LP
Ashford Trumbull LP
Ashford Iowa City LP
Ashford Philly GP LLC
Ashford Anchorage GP LLC
Ashford Minneapolis GP LLC
Ashford MV San Diego GP LLC
Ashford Walnut Creek GP LLC
Ashford Trumbull GP LLC
Ashford Iowa City GP LLC
Ashford Chicago O’Hare LP
Ashford Chicago O’Hare GP LLC
Ashford 1031 General Partner II LLC
Ashford 1031 Ground Lessee LLC
Ashford 1031 GP LLC
Ashford Office Unit LLC
Ashford Laundry LLC

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Forms S-3 No. 333-118746, No. 333-124105, No. 333-125423, No. 333-126821, No. 333-128031, and No. 333-131878, and Form S-8 No. 33-132440) of Ashford Hospitality Trust, Inc., of our reports dated March 8, 2007, with respect to the consolidated financial statements and schedules of Ashford Hospitality Trust, Inc., Ashford Hospitality Trust, Inc. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Ashford Hospitality Trust, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2006.

/s/  Ernst & Young LLP

Dallas, Texas

March 8, 2007

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Montgomery J. Bennett, certify that:

1. I have reviewed this annual report of Ashford Hospitality Trust, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  MONTGOMERY J. BENNETT

Montgomery J. Bennett

Chief Executive Officer

Date: March 9, 2007

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, David J. Kimichik, certify that:

1. I have reviewed this annual report of Ashford Hospitality Trust, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  DAVID J. KIMICHIK

David J. Kimichik

Chief Financial Officer

Date: March 9, 2007

EX-31.3

EXHIBIT 31.3

CERTIFICATION

I, Mark L. Nunneley, certify that:

1. I have reviewed this annual report of Ashford Hospitality Trust, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  MARK L. NUNNELEY

Mark L. Nunneley

Chief Accounting Officer

Date: March 9, 2007

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Ashford Hospitality Trust, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Montgomery J. Bennett, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/  MONTGOMERY J. BENNETT

Montgomery J. Bennett

Chief Executive Officer

Dated: March 9, 2007

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Ashford Hospitality Trust, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David J. Kimichik, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/  DAVID J. KIMICHIK

David J. Kimichik

Chief Financial Officer

Dated: March 9, 2007

EX-32.3

EXHIBIT 32.3

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Ashford Hospitality Trust, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark L. Nunneley, Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/  MARK L. NUNNELEY

Mark L. Nunneley

Chief Accounting Officer

Dated: March 9, 2007