10-Q 1 a09-32724_110q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number 000-53175

Apple REIT Eight, Inc.

(Exact name of registrant as specified in its charter)

Virginia		20- 8268625
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

814 East Main Street
Richmond, Virginia		23219
(Address of principal executive offices)		(Zip Code)

(804) 344-8121

(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer o	Accelerated filer o

Non-accelerated filer x	Smaller reporting company o

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

Number of registrant’s common shares outstanding as of November 1, 2009: 93,249,112

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Apple REIT Eight, Inc.

FORM 10-Q

INDEX

		Page Number
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets — September 30, 2009 and December 31, 2008	3
	Consolidated Statements of Operations and Comprehensive Income — Three and nine months ended September 30, 2009 and 2008	4
	Consolidated Statements of Cash Flows — Nine months ended September 30, 2009 and 2008	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings (not applicable)
Item 1A.	Risk Factors (not applicable)
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities (not applicable)
Item 4.	Submission of Matters to a Vote of Security Holders (not applicable)
Item 5.	Other Information (not applicable)
Item 6.	Exhibits	23

Signatures		24

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

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Apple REIT Eight, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

	September 30,			December 31,
	2009			2008
ASSETS
Investment in hotels, net of accumulated depreciation of $46,704 and $22,377	$	978,143		$	982,886
Cash and cash equivalents	—			—
Restricted cash-furniture, fixtures and other escrows	12,163			10,720
Due from third party managers, net	7,144			3,942
Other assets, net	8,305			5,500
TOTAL ASSETS	$	1,005,755		$	1,003,048

LIABILITIES
Accounts payable and accrued expenses	$	14,535		$	10,126
Intangible liabilities, net	11,313			11,914
Notes payable	176,157			138,704
TOTAL LIABILITIES	202,005			160,744

SHAREHOLDERS’ EQUITY
Preferred stock, authorized 15,000,000 shares; none issued and outstanding	—			—
Series A preferred stock, no par value, authorized 200,000,000 shares; issued and outstanding 93,337,402 and 92,478,078 shares	—			—
Series B convertible preferred stock, no par value, authorized 240,000 shares; issued and outstanding 240,000 shares	24			24
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 93,337,402 and 92,478,078 shares	923,718			913,459
Distributions greater than net income	(122,187		)	(71,179		)
Accumulated other comprehensive income	2,195			—
TOTAL SHAREHOLDERS’ EQUITY	803,750			842,304
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,005,755		$	1,003,048

See notes to consolidated financial statements.

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

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Apple REIT Eight, Inc.

Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

(In thousands, except per share data)

	Three months			Three months			Nine months			Nine months
	ended			ended			ended			ended
	September 30,			September 30,			September 30,			September 30,
	2009			2008			2009			2008
Revenues:
Room revenue	$	44,953		$	46,011		$	121,472		$	87,895
Other revenue	3,396			3,107			9,373			6,053
Total revenue	48,349			49,118			130,845			93,948

Expenses:
Operating expense	12,591			11,987			34,787			23,073
Hotel administrative expense	4,064			3,738			12,210			7,316
Sales and marketing	3,367			3,050			9,699			5,693
Utilities	2,274			2,153			6,058			3,880
Repair and maintenance	2,412			2,228			6,779			4,339
Franchise fees	1,974			1,966			5,348			3,653
Management fees	1,729			1,944			4,652			3,421
Taxes, insurance and other	2,596			2,372			7,615			4,500
Land lease expense	1,596			1,583			4,777			4,674
General and administrative	1,033			1,023			3,393			3,438
Depreciation expense	8,355			6,825			24,330			14,467
Total expenses	41,991			38,869			119,648			78,454

Operating income	6,358			10,249			11,197			15,494

Investment income, net	16			963			33			9,274
Interest expense	(1,873		)	(1,752		)	(5,283		)	(2,494		)

Net income	$	4,501		$	9,460		$	5,947		$	22,274

Unrealized gain/(loss) on investments	618			(1,136		)	2,195			(3,473		)

Comprehensive income	$	5,119		$	8,324		$	8,142		$	18,801

Basic and diluted net income per common share	$	0.05		$	0.10		$	0.06		$	0.26

Weighted average common shares outstanding - basic and diluted	93,105			91,604			92,812			85,627

Distributions declared and paid per common share	$	0.19		$	0.22		$	0.61		$	0.66

See notes to consolidated financial statements.

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

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Apple REIT Eight, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Nine months			Nine months
	ended			ended
	September 30, 2009			September 30, 2008

Cash flow from operating activities:
Net income	$	5,947		$	22,274
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	24,330			14,467
Amortization of deferred financing costs, fair value adjustments and other non-cash expenses, net	(461		)	(490		)
Net realized gain on sale of investments	—			(2,545		)
Changes in operating assets and liabilities:
Decrease/(increase) in other assets	2,264			(1,033		)
Decrease/(increase) in funds due from third party managers	(3,202		)	(6,250		)
Increase in accounts payable and accrued expenses	7,145			4,660
Net cash provided by operating activities	36,023			31,083

Cash flow used in investing activities:
Increase in capital improvement reserves	(1,056		)	(1,040		)
Cash paid for the acquisition of hotel properties	—			(694,041		)
Deposits and other disbursements for the potential acquisition of hotel properties	—			(378		)
Purchase of investments in equity securities - available for sale	—			(30,562		)
Proceeds from sale of equity securities - available for sale	—			22,692
Investment in other assets	(3,240		)	—
Capital improvements	(22,404		)	(3,836		)
Net cash used in investing activities	(26,700		)	(707,165		)

Cash flow from financing activities:
Net proceeds related to issuance of common stock	20,334			227,879
Redemptions of common stock	(10,193		)	—
Cash distributions paid to common shareholders	(56,955		)	(56,123		)
Net proceeds from line of credit	39,055			—
Payments of notes payable	(1,564		)	(497		)
Deferred financing costs	—			(1,722		)
Net cash provided by (used in) financing activities	(9,323		)	169,537

Net decrease in cash and cash equivalents	—			(506,545		)

Cash and cash equivalents, beginning of period	—			562,009

Cash and cash equivalents, end of period	$	—		$	55,464

Non-cash transactions:
Notes payable assumed in acquisitions	$	—		$	128,924
Intangible liabilities assumed in acquisition	$	—		$	12,685

See notes to consolidated financial statements.

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

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APPLE REIT EIGHT, INC.

Notes to Consolidated Financial Statements

1. General Information and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Article 10 of Regulation S-X. Accordingly, they do not include all of the information required by accounting principles generally accepted in the United States. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financials should be read in conjunction with the Company’s audited financial statements included in its 2008 Annual Report on Form 10-K. Operating results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the period ending December 31, 2009.

Organization

Apple REIT Eight, Inc. (the “Company”) is a Virginia corporation that has elected to be treated as a real estate investment trust (“REIT”) for federal income tax purposes. The Company was formed to invest in hotels, residential apartment communities and other income-producing real estate assets in selected metropolitan areas in the United States. Initial capitalization occurred on January 22, 2007, when 10 Units, each Unit consisting of one share of common stock and one share of Series A preferred stock, were purchased by Apple Eight Advisors, Inc. (“A8A”), owned by Glade M. Knight, the Company’s Chairman and Chief Executive Officer, and 240,000 Series B convertible shares were also purchased individually by Glade M. Knight. The Company began operations on November 9, 2007 when it acquired its first hotels. The Company’s fiscal year end is December 31. As of September 30, 2009, the Company owned 51 hotels. 45 of the hotels were acquired in 2008 and six in late 2007. The Company has no foreign operations or assets and its operating structure includes two segments. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated.

Significant Accounting Policies

Use of Estimates

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

Investment in Equity Securities

In 2008, the Company purchased equity securities that are classified as available-for-sale, in accordance with the Financial Accounting Standards Board’s (“FASB”) pronouncement for accounting for certain investments in debt and equity securities, and are included in Other assets, net in the Company’s Consolidated Balance Sheets at fair value, with unrealized gains and losses reported as accumulated other comprehensive income or loss. Under the FASB’s pronouncement, the investments are classified as Level 1 as the fair value is determined based on quoted prices of identical investments. Realized gains and losses on the sale of investments, as well as declines in value of a security considered to be other than temporary, are recognized in operations on the specific identification basis. As of September 30, 2009, the Company owned marketable securities with a cost of $1.1 million and a fair value of approximately $3.3 million. As of September 30, 2008, the Company’s marketable securities had a cost of $10.4 million and a fair value of approximately $6.9 million. During the first nine months of 2008, the Company realized gains on the sale of equity securities of $2.5 million which are included in Investment income, net in the Company’s Consolidated Statements of Operations.

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The Company reviews the status of each security quarterly to determine whether an other-than-temporary impairment has occurred. Based on this review, the Company has concluded none of the available-for-sale securities have experienced an other-than-temporary impairment during the first nine months of 2009. The Company will continue to review the investment for impairment on a quarterly basis.

Earnings Per Common Share

Basic earnings per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted earnings per share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the period. There were no potential common shares with a dilutive effect for the nine months ended September 30, 2009 or 2008. Series B convertible preferred shares are not included in earnings per common share calculations until such time the Series B convertible preferred shares are converted to common shares.

Recent Accounting Pronouncements

Accounting Standards Codification

In June 2009, the FASB issued a pronouncement establishing the FASB Accounting Standards Codification™ as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with United States generally accepted accounting principles (“GAAP”). The standard explicitly recognizes rules and interpretive releases of the Securities Exchange Commission (“SEC”) under federal securities laws as authoritative GAAP for SEC registrants. This standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Noncontrolling Interests

In June 2009, the FASB issued a pronouncement which amends its guidance surrounding a company’s analysis to determine whether any of its variable interests constitute controlling financial interests in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has both of the following characteristics: (a) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and (b) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to ensure that a variable interest entity operates as designed when determining whether it has the power to direct the activities of the variable interest entity that most significantly impact the entity’s economic performance. The new pronouncement also requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity and enhanced disclosure about an enterprise’s involvement with a variable interest entity. This pronouncement will be applied prospectively and will be effective for interim and annual reporting periods beginning after November 15, 2009. The adoption of this standard is not anticipated to have a material impact on the Company’s consolidated financial statements.

Subsequent Events

In May 2009, the FASB issued a pronouncement which sets forth general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. Although there is new terminology, this pronouncement is based on the same principles as those that currently exist in the auditing standards. This pronouncement, which includes a required disclosure of the date through which an entity has evaluated subsequent events, was effective for the Company beginning June 30, 2009. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

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Assets Acquired or Liabilities Assumed in a Business Combination

In April 2009, the FASB issued a pronouncement which amends its guidance for all assets acquired and all liabilities assumed in a business combination that arise from contingencies. This pronouncement states that the acquirer will recognize such an asset or liability if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If it cannot be determined during the measurement period, then the asset or liability should be recognized as of the acquisition date if the following criteria are met: (1) information available before the end of the measurement period indicates that it is probable that an asset existed or that a liability had been incurred at the acquisition date, and (2) the amount of the asset or liability can be reasonably estimated. This pronouncement was adopted by the Company in the first quarter of 2009. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Interim Disclosures about Fair Value of Financial Instruments

In April 2009, the FASB issued a pronouncement which requires fair value disclosures for financial instruments that are not reflected in the condensed consolidated balance sheets at fair value. Prior to the issuance of this pronouncement, the fair values of those assets and liabilities were disclosed only once each year. With the issuance of this pronouncement, this information will be required to be disclosed on a quarterly basis, providing quantitative and qualitative information about fair value estimates for all financial instruments not measured in the condensed consolidated balance sheets at fair value. This pronouncement was adopted by the Company in the second quarter of 2009 and did not have a material impact on the Company’s consolidated financial statements.

2. Line of Credit

In November 2008, the Company entered into a $75 million unsecured line of credit with a commercial bank. The applicable interest rate is equal to LIBOR (the London Interbank Offered Rate, 0.25% at September 30, 2009) plus 1.75%. Interest payments are due monthly. The principal must be paid by the maturity date of November 2010, and may be prepaid without penalty. At September 30, 2009, the credit line had an outstanding principal balance of $49.3 million. At December 31, 2008, the credit line had an outstanding principal balance of $10.3 million.

3. Fair Value of Financial Instruments

The Company estimates the fair value of its fixed rate debt and the credit spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of the debt obligation with similar credit policies. Credit spreads take into consideration general market conditions and maturity. As of September 30, 2009, the carrying value and estimated fair value of the Company’s debt was $176.2 million and $180.0 million. As of December 31, 2008, the carrying value and estimated fair value of the Company’s debt was $138.7 million and $148.4 million. The carrying value of the Company’s other financial instruments approximates fair value due to the short-term nature of these financial instruments.

4. Other Assets

In January 2009, the Company purchased a 24% ownership interest in Apple Air Holding, LLC (“Apple Air”), for $3.2 million in cash. The Company has recorded its share of income and losses of the entity under the equity method of accounting and adjusted its investment in Apple Air accordingly. The other members of Apple Air are Apple REIT Six, Inc., Apple REIT Seven, Inc. and Apple REIT Nine, Inc. The interest was purchased to allow the Company access to two Lear jets for asset management and renovation purposes. The investment is included in Other assets, net in the Company’s Consolidated Balance Sheet.

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5. Related Parties

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

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

The Company is party to an advisory agreement with A8A, pursuant to which A8A provides management services to the Company. An annual fee ranging from 0.1% to 0.25% of total equity proceeds received by the Company, in addition to certain reimbursable expenses, are payable for these services. A8A utilizes Apple REIT Six, Inc. to provide these services. Advisory fees and other reimbursable expenses incurred by the Company under the A8A advisory agreement during the nine months ended September 30, 2009 and 2008 were $2.1 million and $2.0 million. These expenses are recorded in General and Administrative expense.

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

6. Shareholder’s Equity

In the second quarter of 2008, the Company instituted a Dividend Reinvestment Plan for its shareholders. The plan provides a convenient and cost effective way to increase shareholder investment in the Company by reinvesting dividends to purchase additional Units of the Company. The uses of the proceeds from this plan may include purchasing Units under the Company’s Unit Redemption Program, enhancing properties, satisfying financing obligations and other expenses, increasing working capital, funding various corporate operations, and acquiring hotels. The Company has registered 10 million Units for potential issuance under the plan. During the first nine months of 2009, approximately 1.8 million Units were issued under the plan representing approximately $20.3 million. For the nine months ending September 30, 2008, approximately 0.8 million Units were issued under the plan representing approximately $8.7 million.

The Company has a Unit Redemption Program to provide limited interim liquidity to its shareholders who have held their Units for at least one year. Shareholders may request redemption of Units for a purchase price equal to 92% of the price paid per Unit if the Units have been owned for less than three years, or 100% of the price paid per Unit if the Units have been owned more than three years. The maximum number of Units that may be redeemed in any 12-month period will be three percent of the weighted average number of Units outstanding during the 12-month period immediately prior to the date of redemption. The Company reserves the right to change the purchase price for redemptions, reject any request for redemption, or otherwise amend the terms of, suspend, or terminate the Unit Redemption Program. During the nine months ended September 30, 2009, the Company redeemed approximately 989 thousand Units in the amount of $10.2 million under the program. No shares were redeemed in the nine months ending September 30, 2008 as October 2008 was the initial redemption date.

7. Segments

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

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	For the three months ended September 30, 2009
	New York,
	New York			All Other
	Hotel			Hotels			Corporate			Consolidated
Total revenue	$	3,929		$	44,420		$	—		$	48,349
Hotel operating expenses	4,351			28,252			—			32,603
General and administrative expense	—			—			1,033			1,033
Depreciation expense	1,536			6,819			—			8,355
Operating income/(loss)	(1,958		)	9,349			(1,033		)	6,358
Investment income, net	—			—			16			16
Interest (expense)/income	168			(1,782		)	(259		)	(1,873		)
Net income/(loss)	$	(1,790	)	$	7,567		$	(1,276	)	$	4,501

Total assets	$	123,119		$	876,348		$	6,288		$	1,005,755

	For the nine months ended September 30, 2009
	New York,
	New York			All Other
	Hotel			Hotels			Corporate			Consolidated
Total revenue	$	8,901		$	121,944		$	—		$	130,845
Hotel operating expenses	11,470			80,455			—			91,925
General and administrative expense	—			—			3,393			3,393
Depreciation expense	4,279			20,051			—			24,330
Operating income/(loss)	(6,848		)	21,438			(3,393		)	11,197
Investment income, net	—			—			33			33
Interest (expense)/income	809			(5,455		)	(637		)	(5,283		)
Net income/(loss)	$	(6,039	)	$	15,983		$	(3,997	)	$	5,947

Total assets	$	123,119		$	876,348		$	6,288		$	1,005,755

	For the three months ended September 30, 2008
	New York,
	New York			All Other
	Hotel			Hotels			Corporate			Consolidated
Total revenue	$	3,710		$	45,408		$	—		$	49,118
Hotel operating expenses	3,708			27,313			—			31,021
General and administrative expense	—			—			1,023			1,023
Depreciation expense	1,059			5,766			—			6,825
Operating income/(loss)	(1,057		)	12,329			(1,023		)	10,249
Investment income, net	—			—			963			963
Interest (expense)/income				(1,923		)	171			(1,752		)
Net income/(loss)	$	(1,057	)	$	10,406		$	111		$	9,460

Total assets	$	113,490		$	833,225		$	62,494		$	1,009,209

	For the nine months ended September 30, 2008
	New York,
	New York			All Other
	Hotel			Hotels			Corporate			Consolidated
Total revenue	$	11,192		$	82,756		$	—		$	93,948
Hotel operating expenses	11,170			49,379			—			60,549
General and administrative expense	—			—			3,438			3,438
Depreciation expense	3,058			11,409			—			14,467
Operating income/(loss)	(3,036		)	21,968			(3,438		)	15,494
Investment income, net	—			—			9,274			9,274
Interest (expense)/income	—			(2,665		)	171			(2,494		)
Net income/(loss)	$	(3,036	)	$	19,303		$	6,007		$	22,274

Total assets	$	113,490		$	833,225		$	62,494		$	1,009,209

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8. Pro Forma Information (unaudited)

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

	Three months		Nine months
	ended		ended
	September 30, 2008		September 30, 2008

Hotel revenues	$	50,494	$	140,941
Net income	$	9,370	$	24,970
Net income per share - basic and diluted	$	0.10	$	0.28

The pro forma information reflects adjustments for actual revenues and expenses of the 45 hotels acquired during 2008 for the respective period owned prior to acquisition by the Company. Net income has been adjusted as follows: (1) interest income and expense have been adjusted to reflect the reduction in cash and cash equivalents required to fund the acquisitions; (2) interest expense related to prior owners’ debt which was not assumed has been eliminated; and (3) depreciation has been adjusted based on the Company’s basis in the hotels.

9. Subsequent Events

The Company has evaluated subsequent events through November 4, 2009, the date these financial statements were filed with the Securities and Exchange Commission.

In October 2009, the Company declared and paid approximately $6.0 million in distributions to its common shareholders, or $0.064167 per outstanding common share. Under the Company’s Dividend Reinvestment Plan, $2.2 million were reinvested, resulting in the issuance of approximately 197,000 Units.

In October 2009, the Company redeemed 285,000 Units in the amount of $2.9 million under its Unit Redemption Program.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

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

Overview

Apple REIT Eight, Inc. together with its wholly owned subsidiaries (the “Company”) is a Virginia corporation that has elected to be treated as a real estate investment trust (“REIT”) for federal income tax purposes. The Company, which owned 51 properties as of September 30, 2009 and has a limited operating history with its first hotel acquired on November 9, 2007, was formed to invest in hotels, residential apartment communities and other real estate in selected metropolitan areas in the United States. Initial capitalization occurred on January 22, 2007, when 10 Units, each Unit consisting of one share of common stock and one share of Series A preferred stock were purchased by Apple Eight Advisors, Inc. (“A8A”) and 240,000 shares of Series B Preferred shares were purchased by Mr. Glade M. Knight, the Company’s Chairman and Chief Executive Officer. The Company’s fiscal year end is December 31. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.

Although hotel performance can be influenced by many factors including local competition, local and general economic conditions in the United States and the performance of individual managers assigned to each hotel, performance of the hotels within their respective markets, in general, has met the Company’s expectations for the period owned. Due to the significant economic decline in the United States, overall results for the Company’s hotels and the hotel industry, in general, have been worse than expected. Although there is no way to predict general economic conditions, the Company anticipates revenue and income declines for comparable hotels for the remainder of 2009 as compared to the same periods in 2008. Current industry forecasts for 2010 predict 0% - 5% revenue declines as compared to comparable periods in 2009. Due to the significant renovations of existing properties and the ramp up of new properties owned by the Company in 2009, the Company anticipates modest revenue growth in 2010 for the Company’s hotels. The Company is working with its management companies to reduce costs to offset revenue declines as much as possible. In evaluating financial condition and operating performance, the most important matters on which the Company focuses are revenue measurements, such as average occupancy, average daily rate (“ADR”), revenue per available room (“RevPAR”), and Market Yield which compares an individual hotel’s results to other hotels in its local market, and expenses, such as hotel operating expenses, general and administrative and other expenses described below.

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

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	Three months ended September 30,												Nine months ended September 30,
				% of					% of		Percent					% of					% of		Percent
(in thousands, except statistical data)	2009			Revenue		2008			Revenue		Change		2009			Revenue		2008			Revenue		Change
Total revenues	$	48,349		100	%	$	49,118		100	%	-2	%	$	130,845		100	%	$	93,948		100	%	39	%
Hotel direct expenses	28,411			59	%	27,066			55	%	5	%	79,533			61	%	51,375			55	%	55	%
Taxes, insurance and other expense	2,596			5	%	2,372			5	%	9	%	7,615			6	%	4,500			5	%	69	%
Land lease expense	1,596			3	%	1,583			3	%	1	%	4,777			4	%	4,674			5	%	2	%
General and administrative expense	1,033			2	%	1,023			2	%	1	%	3,393			3	%	3,438			4	%	-1	%
Depreciation	8,355					6,825					22	%	24,330					14,467					68	%
Investment income, net	16					963					N/A		33					9,274					N/A
Interest expense	(1,873		)			(1,752		)			7	%	(5,283		)			(2,494		)			112	%

Number of hotels	51					49					4	%	51					49					4	%
Average Daily Rate (ADR)	$	116				$	125				-7	%	$	112				$	123				-9	%
Occupancy	71		%			75		%			-5	%	67		%			74		%			-9	%
RevPAR	$	82				$	94				-13	%	$	75				$	91				-18	%

Hotels Owned

The following table summarizes the location, brand, manager, date acquired, number of rooms and gross purchase price for each of the 51 hotels the Company owned at September 30, 2009. All dollar amounts are in thousands.

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Gross

Date

Purchase

Location

State

Brand

Manager

Acquired

Rooms

Price

Birmingham

Homewood Suites

McKibbon

5/23/2008

16,500

Rogers

Fairfield Inn & Suites

Intermountain

2/29/2008

8,000

Rogers

Residence Inn

Intermountain

2/29/2008

11,744

Springdale

Residence Inn

Intermountain

3/14/2008

5,606

Sacramento

Hilton Garden Inn

Dimension

3/7/2008

154

27,630

Cypress

Courtyard

Dimension

4/30/2008

180

31,164

Burbank

Residence Inn

Marriott

5/13/2008

166

50,500

Oceanside

Residence Inn

Marriott

5/13/2008

125

28,750

Tulare

Hampton Inn & Suites

Inn Ventures

6/26/2008

10,331

San Jose

Homewood Suites

Dimension

7/2/2008

140

21,862

Tallahassee

Hilton Garden Inn

LBA

1/25/2008

13,200

Sanford

SpringHill Suites

LBA

3/14/2008

105

11,150

Jacksonville

Homewood Suites

McKibbon

6/17/2008

119

23,250

Tampa

TownePlace Suites

McKibbon

6/17/2008

11,250

Port Wentworth

Hampton Inn

Newport

1/2/2008

106

10,780

Savannah

Hilton Garden Inn

Newport

7/31/2008

105

12,500

Overland Park

SpringHill Suites

True North

3/17/2008

102

8,850

Overland Park

Residence Inn

True North

4/30/2008

120

15,850

Wichita

Courtyard

Intermountain

6/13/2008

8,874

Overland Park

Fairfield Inn & Suites

True North

8/20/2008

110

12,050

Bowling Green

Hampton Inn

Newport

12/6/2007

131

18,832

Marlborough

Residence Inn

True North

1/15/2008

112

20,200

Westford

Hampton Inn & Suites

True North

3/6/2008

110

15,250

Westford

Residence Inn

True North

4/30/2008

108

14,850

Annapolis

Hilton Garden Inn

White

1/15/2008

126

25,000

Kansas City

Residence Inn

True North

4/30/2008

106

17,350

Greensboro

SpringHill Suites

Newport

11/9/2007

8,000

Matthews

Hampton Inn

Newport

1/15/2008

11,300

Dunn

Hampton Inn

McKibbon

1/24/2008

120

12,500

Concord

Hampton Inn

Newport

3/7/2008

101

9,200

Fayetteville

Residence Inn

Intermountain

5/9/2008

12,201

Winston-Salem

Courtyard

McKibbon

5/19/2008

122

13,500

Carolina Beach

Courtyard

Crestline

6/5/2008

144

24,214

Wilmington

Fairfield Inn & Suites

Crestline

12/11/2008

122

14,800

Somerset

Courtyard

Newport

11/9/2007

162

16,000

New York

Renaissance

Marriott

1/4/2008

200

99,000

Tulsa

Hampton Inn & Suites

Western

12/28/2007

102

10,200

Greenville

Residence Inn

McKibbon

5/19/2008

8,700

Hilton Head

Hilton Garden Inn

McKibbon

5/29/2008

104

13,500

Columbia

Hilton Garden Inn

Newport

9/22/2008

143

21,200

Chattanooga

Homewood Suites

LBA

12/14/2007

8,600

Texarkana

Courtyard

Intermountain

3/7/2008

12,924

Texarkana

TownePlace Suites

Intermountain

3/7/2008

9,057

Harrisonburg

Courtyard

Newport

11/16/2007

125

23,219

Charlottesville

Courtyard

Crestline

6/5/2008

137

27,900

Virginia Beach

Courtyard

Crestline

6/5/2008

141

27,100

Virginia Beach

Courtyard

Crestline

6/5/2008

160

39,700

Suffolk

Courtyard

Crestline

7/2/2008

12,500

Suffolk

TownePlace Suites

Crestline

7/2/2008

10,000

Chesapeake

Marriott

Crestline

10/21/2008

226

38,400

Tukwila

Homewood Suites

Dimension

7/2/2008

106

15,707

5,909

950,745

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With the exception of assumed mortgage loans in 2008 on 15 of its hotel properties, substantially all of the purchases were funded with proceeds of the Company’s best-efforts offering of Units, which was completed in April 2008. The Company leases all of its hotels to its wholly-owned taxable REIT subsidiaries under hotel lease agreements. The Company also used the proceeds of its offering to pay $19.0 million, representing 2% of the gross purchase price for these hotels, as a commission to Apple Suites Realty Group, Inc. (“ASRG”), 100% owned by Glade M. Knight, the Company’s Chairman and Chief Executive Officer. No hotels have been purchased since December 2008, and there are no outstanding purchase contracts for additional hotels as of September 30, 2009.

Of the Company’s 51 hotels owned at September 30, 2009, six were purchased in 2007 and 45 were purchased in 2008, with 43 of these acquired during the first nine months of 2008.

Results of Operations

During the period from the Company’s initial formation on January 22, 2007 to November 8, 2007, the company owned no properties, had no revenue exclusive of interest income, and was primarily engaged in capital formation activities. Operations commenced on November 9, 2007 with the Company’s first property acquisition. As of September 30, 2009, the Company owned 51 hotels with 5,909 rooms. At September 30, 2008 the Company owned 49 hotels (43 of which were purchased during the first nine months of 2008), with a total of 5,561 rooms. As a result of this activity, a comparison of operations for the three and nine month periods ended September 30, 2009 is not representative of the results that would have occurred if all hotels had been owned for the entire periods presented.

Hotel performance is impacted by many factors including local hotel competition, and local and national economic conditions in the United States. Due to a general decline in economic conditions throughout the United States, the financial results of the Company’s hotels did not meet expectations during the first nine months of 2009. The Company’s hotels’ performance as compared to other hotels within each individual market has met expectations for the period held. It is anticipated the properties’ financial performance will be below original expectations until general economic conditions improve. The Company will continue to aggressively pursue market opportunities to improve revenue and cost controls to improve results during and after the economic downturn.

Revenues

The Company’s principal source of revenue is hotel room revenue and other related revenue. For the three months ended September 30, 2009 and 2008, the Company had total revenue of $48.3 million and $49.1 million. Revenue for the hotel located in New York, New York (the “New York hotel”) was $3.9 million or 8% of total revenue for the third quarter of 2009 and $3.7 million or 8% of total revenue for the third quarter of 2008.

For the three months ended September 30, 2009, the hotels achieved combined average occupancy of approximately 71%, ADR of $116 and RevPAR of $82. The New York hotel had average occupancy of 80%, ADR of $221 and RevPAR of $176. For the three months ended September 30, 2008, the hotels achieved combined average occupancy of approximately 75%, ADR of $125 and RevPAR of $94. For the same period, the New York hotel had average occupancy of 73%, ADR of $247 and RevPAR of $180.

For the nine months ended September 30, 2009 and 2008, the Company had total revenue of $130.8 million and $93.9 million. Revenue for the New York hotel was $8.9 million or 7% of total revenue for the first nine months of 2009 and $11.2 million for the first nine months of 2008. For the nine months ended September 30, 2009, the hotels achieved combined average occupancy of approximately 67%, ADR of $112 and RevPAR of $75. The New York hotel had average occupancy of 67%, ADR of $190 and RevPAR of $128. For the nine months ended September 30, 2008, the hotels achieved combined average occupancy of approximately 74%, ADR of $123 and RevPAR of $91. For the same period, the New York hotel had average occupancy of 72%, ADR of $244 and RevPAR of $175.

The revenue rates earned by the Company are consistent with industry and brand averages. As supply of hotel rooms in the markets the Company serves met demand, and general economic conditions weakened in

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late 2008, the Company’s revenues at some individual hotels have experienced declines from anticipated results. The Company expects this trend to continue for the remainder of 2009. The Company expects the declines in occupancy levels, ADR and RevPAR to moderate in 2010 and turn slightly positive versus comparable periods in 2009. Although it is not possible to predict when economic conditions will improve or their impact on the hotel industry, with the significant number of renovations (12) by the Company and the number of hotels that were new (9) when acquired by the Company, the Company anticipates slight revenue growth in 2010 as compared to an anticipated slight decline for the industry as a whole. Additionally, with the overall economic declines, the Company continues to focus on improving market share. The Company’s properties overall lead their respective markets with an Average RevPAR Index (a comparison of a property’s RevPAR to the market average) of 129 year-to-date, a 4% increase from 2008.

During the majority of 2009, the Company was in the process of completing its conversion of the New York hotel from an unbranded hotel to a Renaissance hotel. Consequently, the hotel had an average of 26 rooms out of service each night for the first nine months of the year and experienced other disruptions to its common areas. As a result of the conversion effort and declines in economic conditions, revenue at the hotel was unusually low for the nine months ended September 30, 2009. The Company completed the conversion to a Renaissance in late April 2009, and although there are certain additional renovation requirements to complete, the Company anticipates improvement in revenue over the remainder of the year, subject to general economic conditions in the United States and New York. The RevPAR Index for the New York hotel was 79 for the nine months ending September 30, 2009. The Company is aggressively working with Marriott management to increase the RevPAR Index and realized an index of 100 for the three months ending September 30, 2009.

Expenses

For the three months ended September 30, 2009 and 2008, hotel direct expenses of the Company’s hotels totaled $28.4 million or 59% of total revenue (the New York hotel had direct expenses of $2.8 million or 72% of its total revenue for the quarter) and $27.1 million or 55% of total revenue (the New York hotel had direct expenses of $2.1 million or 56% of its total revenue for the quarter).

For the nine months ended September 30, 2009, hotel direct expenses were $79.5 million or 61% of total revenue (the New York hotel had direct expenses of $6.8 million or 77% of its total revenue). For the nine months ended September 30, 2008, hotel direct expenses were $51.4 million or 55% of total revenue (the New York hotel had direct expenses of $6.3 million or 56% of its revenue for this period). Hotel direct expenses consist of operating expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees.

Operating expenses as a percentage of revenue have been negatively impacted by the ramp up of several hotels that opened in the second half of 2008 and by renovations in 2009. The Company has had approximately 23,000 room nights out of service due to renovations in 2009. The Company has been successful in reducing certain labor costs, food and supply costs and utility costs by continually monitoring and sharing utilization data across its hotels and management companies. While the Company continues to aggressively work with its managers to reduce operating costs of its hotels where possible, it is not anticipated that cost reductions will offset revenue decline in the short term.

Taxes, insurance, and other expense for the three months ended September 30, 2009 and 2008 totaled $2.6 million, or 5% of total revenues, and $2.4 million, or 5% of total revenues (of which approximately $46 thousand and $149 thousand related to the New York hotel). For the nine months ended September 30, 2009 and 2008, taxes, insurance, and other expense totaled $7.6 million, or 6% of total revenues, and $4.5 million, or 5% of total revenues (of which approximately $221 thousand and $493 thousand related to the New York hotel).

Land lease expense was $1.6 million for both three months ended September 30, 2009 and 2008. For the nine months ended September 30, 2009 and 2008, land lease expense was $4.8 million and $4.7 million. This expense represents the expense incurred by the Company to lease land for five hotel properties. Land lease expense for the New York hotel was $1.5 million for both the third quarter of 2009 and 2008 and $4.4 million for the first nine months of both 2009 and 2008.

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General and administrative expense for the three months ended September 30, 2009 and 2008 was $1.0 million in both periods. The expense for the nine months in both periods was $3.4 million. The principal components of general and administrative expense are advisory fees, legal fees, accounting fees and reporting expense.

Depreciation expense was $8.4 million for the third quarter of 2009 and $6.8 million for the third quarter of 2008. These expenses include $1.5 million and $1.1 million for the New York hotel. For the first nine months of 2009 and 2008, depreciation expense was $24.3 million and $14.5 million. These expenses include $4.3 million and $3.1 million for the New York hotel. Depreciation expense represents depreciation expense of the Company’s hotel buildings and related improvements, and associated furniture, fixtures and equipment, for the respective periods owned.

For the nine months ended September 30, 2009, the Company recognized investment income of $33 thousand. For the same period in 2008, the Company had investment income of $9.3 million. In the first nine months of 2008, the Company acquired and sold equity securities in several publicly traded Real Estate Investment Trusts, resulting in realized gains and other investment income of $3.3 million. Additionally, the Company recognized interest income of $6.0 million for the same period of 2008 from excess cash invested in short term money market instruments and certificates of deposit.

Interest expense for the third quarter of 2009 and the nine months ended September 30, 2009 was $1.9 million and $5.3 million. Interest expense for the quarter includes $2.2 million of interest expense on 15 mortgages assumed in 2008 and the Company’s line of credit, offset by capitalized interest of $275 thousand, related to the renovation of five hotel properties. Interest for the nine month period includes $6.5 million of interest on the 15 mortgages and the line of credit, offset by capitalized interest of $1.2 million related to the renovation of 12 hotel properties. Interest expense for the same periods in 2008 was for interest expense on 15 mortgages, $1.8 million for the quarter ended September 30, 2008, and $2.5 million for the nine months ended September 30, 2008.

Liquidity and Capital Resources

In November 2008, the Company entered into a $75.0 million revolving line of credit which expires in November 2010. The line of credit was obtained to meet short-term cash needs as the Company plans on completing approximately 12 renovations in 2009, and newly opened properties will have a period of ramp up to normal operating status. During the first nine months of the year, all of the planned renovations were in progress or completed. With the availability of this line of credit, the Company maintains little cash on hand, accessing the line as necessary. As a result, cash on hand was $0 at September 30, 2009. The outstanding balance on the line of credit was $49.3 million at September 30, 2009. The Company anticipates that cash flow from operations and the revolving line of credit will be adequate to meet its anticipated liquidity requirements, including anticipated distributions to shareholders, capital expenditures and debt service.

To maintain its REIT status the Company is required to distribute at least 90% of its ordinary income. Distributions during the first nine months of 2009 totaled $57.0 million, included a return of capital, and were paid monthly at a rate of $0.073334 per common share for the first four months of the year, and were subsequently reduced to a monthly rate of $0.064167 per common share. For the same period the Company’s cash generated from operations was approximately $36.0 million. The reduction in the distribution rate came as a result of the weakness in economic conditions throughout the United States and its impact on the Company. In April 2009, the Company’s Board of Directors approved the reduction in the annual distribution rate from $0.88 to $0.77 per common share. Since there can be no assurance of the ability of the Company’s properties to provide income at this level, there can be no assurance as to the classification or duration of distributions at the new monthly rate of $0.064167 per common share.

The Company has on-going capital commitments to fund its capital improvements. The Company is required, under all of the hotel management agreements, to make available, for the repair, replacement, refurbishing of furniture, fixtures, and equipment, a percentage of gross revenues provided that such

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amount may be used for the Company’s capital expenditures with respect to the hotels. As of September 30, 2009, the Company held $10.6 million in reserve for capital expenditures.

Additionally, the Company completed the conversion of the hotel in New York to a Renaissance franchised hotel in April 2009. Through September 30, 2009, the Company had spent approximately $19 million on the conversion. The Company also had other renovations in process during the first nine months of 2009. Total capital expenditures in the first nine months of 2009 for all renovations and items recurring in nature were $19.6 million. Total capital expenditures for 2009 are anticipated to be approximately $27 million.

Related Party Transactions

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2008 were $2.1 million and $2.0 million. These expenses are recorded in General and Administrative expense.

Subsequent Events

In October 2009, the Company redeemed 285,000 Units in the amount of $2.9 million under its Unit Redemption Program.

Impact of Inflation

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

Business Interruption

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

Seasonality

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

Recent Accounting Pronouncements

Accounting Standards Codification

In June 2009, the Financial Accounting Standards Board (“FASB”) issued a pronouncement establishing the FASB Accounting Standards Codification™ as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with United States generally accepted accounting principles (“GAAP”). The standard explicitly recognizes rules and interpretive releases of the Securities Exchange Commission (“SEC”) under federal securities laws as authoritative GAAP for SEC registrants. This standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Noncontrolling Interests

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variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has both of the following characteristics: (a) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and (b) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to ensure that a variable interest entity operates as designed when determining whether it has the power to direct the activities of the variable interest entity that most significantly impact the entity’s economic performance. The new pronouncement also requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity and enhanced disclosure about an enterprise’s involvement with a variable interest entity. This pronouncement will be applied prospectively and will be effective for interim and annual reporting periods beginning after November 15, 2009. The adoption of this standard is not anticipated to have a material impact on the Company’s consolidated financial statements.

Subsequent Events

Assets Acquired or Liabilities Assumed in a Business Combination

Interim Disclosures about Fair Value of Financial Instruments

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company does not engage in transactions in derivative financial instruments or derivative commodity instruments. As of September 30, 2009, the Company’s financial instruments were not exposed to significant market risk due to foreign currency exchange risk or commodity price risk. The Company will be exposed to interest rate risk due to possible changes in short term interest rates as it invests its cash or borrows on its line of credit and due to its variable interest rate mortgage on its Columbia, South Carolina hotel. The Company had an outstanding balance of $49.3 million on its $75 million line of credit at September 30, 2009, and to the extent it utilizes the line of credit, the Company will be exposed to changes in short-term interest rates. The outstanding balance of the Company’s variable rate mortgage was $11.3 million at September 30, 2009. Based on these outstanding balances at September 30, 2009, every 100 basis point change in interest rates will impact the Company’s annual net income by $0.6 million, all other factors remaining the same. The Company’s cash balance at September 30, 2009 was $0.

As of September 30, 2009, the Company was exposed to market risk due to equity price risk. At September 30, 2009, the Company owned marketable equity securities, classified as available-for-sale, with a carrying value of $1.1 million and a market value of $3.3 million, resulting in an unrealized gain of $2.2 million in the first nine months of 2009. These equity securities were comprised of one publicly traded Real Estate Investment Trust. There is no assurance that future declines in values will not have an adverse impact on the Company’s future results of operations.

Item 4. Controls and Procedures

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

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PART II. OTHER INFORMATION

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

Unit Redemption Program

The Company has a Unit Redemption Program to provide limited interim liquidity to its shareholders who have held their Units for at least one year. Shareholders may request redemption of Units for a purchase price equal to 92% of the price paid per Unit if the Units have been owned for less than three years, or 100% of the price paid per Unit if the Units have been owned more than three years. The maximum number of Units that may be redeemed in any 12-month period will be three percent of the weighted average number of Units outstanding during the 12-month period immediately prior to the date of redemption. The Company reserves the right to change the purchase price for redemptions, reject any request for redemption, or otherwise amend the terms of, suspend, or terminate the Unit Redemption Program. The following is a summary of redemptions during the third quarter of 2009.

Issuer Purchases of Equity Securities

	(a)	(b)		(c)	(d)
Period	Total Number of Units Purchased	Average Price Paid per Unit		Total Number of Units Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Units that May Yet Be Purchased Under the Plans or Programs
July 2009	293,475	$	10.37	1,090,982	(1)

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

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Item 6. Exhibits

Exhibit Number		Description of Documents

3.1		Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1 to the registrant’s registration statement on Form S-11 (SEC File No. 333-140548) effective July 19, 2007)

3.2		Bylaws of the Registrant, as amended. (Incorporated by reference to Exhibit 3.2 to amendment no. 1 to the registrant’s registration statement on Form S-11 (SEC File No. 333-140548) effective July 19, 2007)

31.1		Certification of the Company’s Chief Executive Officer pursuant to Rule 13a — 14(a) and Rule 15d — 14(a) of the Securities Exchange Act, as amended (FILED HEREWITH).

31.2		Certification of the Company’s Chief Financial Officer pursuant to Rule 13a — 14(a) and Rule 15d — 14(a) of the Securities Exchange Act, as amended (FILED HEREWITH).

32.1		Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH).

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SIGNATURES

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

Apple REIT Eight, Inc.

By:	/s/ GLADE M. KNIGHT	Date: November 4, 2009
	Glade M. Knight,
	Chairman of the Board, and Chief Executive Officer (Principal Executive Officer)

By:	/s/ BRYAN PEERY	Date: November 4, 2009
	Bryan Peery,
	Chief Financial Officer (Principal Financial and Principal Accounting Officer)