Chatham Lodging Trust (the “Company”) was formed as a Maryland real estate investment trust (“REIT”) on October 26, 2009 and intends to elect to qualify as a REITreal estate investment trust (“REIT”) for U.S. Federal Income Taxfederal income tax purposes beginning with its short taxable year endingended December 31, 2010. The Company isWe are internally-managed and waswere organized to invest primarily in premium-branded upscale extended-stay and select-service hotels.

          The CompanyWe completed itsour initial public offering (the “IPO”) on April 21, 2010. The IPO resulted in the sale of 8,625,000 common shares at a $20.00 price per share, generating $172.5 million in gross proceeds. Net proceeds, after underwriters’ discounts and commissions and other offering costs, paid or payable to third parties as of September 30, 2010, were approximately $158.7 million. Concurrently with the closing of the IPO, in a separate private placement pursuant to Regulation D under the Securities Act of 1933, as amended (the “Securities Act”), the Companywe sold 500,000 of itsour common shares to Jeffrey H. Fisher, the Company’sour Chairman, President and Chief Executive Officer, at the public offering price of $20.00 per share, for proceeds to the Company of $10$10.0 million.

          The CompanyOn February 8, 2011, we completed a public offering that resulted in the sale of 4,600,000 common shares at $16.00 per share, generating $73.6 million in gross proceeds. Net proceeds, after underwriters’ discounts and commissions and other offering costs, were approximately $69.4 million.

          We had no operations prior to the consummation of the IPO. Following the closing of the IPO, the Companywe contributed the net proceeds from the IPO and the concurrent private placement, together with the proceeds of our February 2011 offering, to Chatham Lodging, L.PL.P. (the “Operating Partnership”) in exchange for partnership interests in the Operating Partnership. Substantially all of the Company’sour assets are held by and all of itsour operations are conducted through the Operating Partnership. The CompanyChatham Lodging Trust is the sole general partner of the Operating Partnership and currently owns 100% of the common units of the limited partnership interest in the Operating Partnership at September 30, 2010. As discussed in Note 10 — Equity Incentive Plan, certainPartnership. Certain of the Company’sour executive officers hold unvested long-term incentive plan units in the Operating Partnership, which are presented as noncontrolling interests on the accompanying consolidated balance sheet.

          As of September 30, 2010, the CompanyMarch 31, 2011, we owned 1113 hotels with an aggregate of 1,3811,650 rooms located in 89 states. For the Company toTo qualify as a REIT, itwe cannot operate the hotels. Therefore, the Operating Partnership and its subsidiaries lease the hotels to the Company’s wholly owned lessee subsidiaries of our taxable REIT subsidiaries (the “TRS”(“TRS Lessees”). Each hotel is leased to a TRS under a percentage lease that provides for rental payments equal to the greater of (i) a fixed base rent amount or (ii) a percentage rent based on hotel room revenue. The initial term of each of the TRS leases is 5 years. Lease revenue from each TRS and its wholly-owned subsidiariesLessee is eliminated in consolidation. Our TRS Lessees have entered into management agreements with third party management companies that provide day-to-day management for our hotels. Island Hospitality Management Inc. (“IHM”), a related party,which is 90% owned by Mr. Fisher, manages 35 hotels, Homewood Suites Management LLC (“IAH Manager”), a subsidiary of Hilton Worldwide Inc. (“Hilton”) manages 6 hotels and Concord Hospitality Enterprises Company (“Concord”) manages 2 hotels.

          Basis of Presentation

          The accompanying unaudited interim financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. These unaudited consolidated financial statements, in the opinion of management, include all adjustments considered necessary for a fair presentation of the consolidated balance sheets, consolidated statements of operations, consolidated statements of equity, and consolidated statement of cash flows for the periods presented. Interim results are not necessarily indicative of full year performance due to seasonal and other factors.

consolidated financial statements should be read in conjunction with the consolidated balance sheetaudited financial statements prepared in accordance with US GAAP, and the related notes thereto as of December 31, 20092010, which are included in Amendment No. 7 tothe Company’s Annual Report on Form S-11, which was filed with10-K for the SEC on April 5,fiscal year ended December 31, 2010.

          Use of Estimates

          The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

          The Company allocatesIn December 2010, the purchase prices of hotel properties acquired based onFASB issued updated accounting guidance to clarify that pro forma disclosures should be presented as if a business combination occurred at the fair valuebeginning of the acquired real estate, furniture, fixtures and equipment, identifiable intangible assets and assumed liabilities. In making estimates of fair valueprior annual period for purposes of allocatingpreparing both the purchase price, the Company utilizes a number of sources of information that are obtained in connection with the acquisition of a hotel property, including valuations performed by independent third parties and information obtained about each hotel property resulting from pre-acquisition due diligence. Hotel property acquisition costs, such as transfer taxes, title insurance, environmental and property condition reviews, and legal and accounting fees, are expensed in thecurrent reporting period incurred.

          The Company assumedestimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates. Rates take into consideration general market conditions and maturity. The estimated fair value of the Company’s debt as of March 31, 2011 and December 31, 2010 was $12,461 and $12,574, respectively.

           On October 12, 2010, we entered into a $7.0 million loan onsenior secured revolving credit facility to fund future acquisition, redevelopment and expansion activities. At March 31, 2011, we had no outstanding borrowings under this credit facility. At March 31, 2011, there were eleven properties in the Altoona hotelborrowing base under the credit agreement and a $5.4 million loan on the Washington hotel in connection with their acquisition. Each loan is collateralized bymaximum borrowing availability under the hotel and requires a minimum debt service coverage ratio andrevolving credit facility was $67.1 million.

          As of March 31, 2011, the Company was in compliance with these covenants at September 30, 2010. Key information regarding the loans isall of its financial covenants. Future scheduled principal payments of debt obligations as of March 31, 2011 are as follows (in thousands):

          The Company declared common share dividends of $0.175 per share and distributions on LTIP units of $0.175 per LTIP unit for the three months ended September 30, 2010.March 31, 2011. The dividends and distributions were paid on October 29, 2010April 15, 2011 to common shareholders and LTIP unit holdersunitholders of record on October 15, 2010.March 31, 2011. The Company did not pay anypaid dividends duringdeclared for the three months ended September 30, 2010.fourth quarter of 2010 on January 14, 2011.

          The Company is authorized to issue up to 500,000,000 common shares of beneficial interest (“common shares”), $.01 par value per share. Each outstanding common share entitles the initial Declarationholder to one vote on all matters submitted to a vote of Trustshareholders. Holders of the Company’s common shares are entitled to receive dividends when authorized by our board of trustees.

          The Company is authorized to issue up to 100,000,000 preferred shares, $.01 par value per share.

           When issued, holders of Operating Partnership common units will have certain redemption rights, which will enable the totalunit holders to cause the Operating Partnership to redeem their units in exchange for, at the Company’s option, cash per unit equal to the market price of the Company’s common shares, at the time of redemption or for the Company’s common shares on a one-for-one basis. The number of shares initially authorized for issuance was 1,000 common shares. On October 30, 2009, the Company issued the sole shareholderissuable upon exercise of the redemption rights will be adjusted upon the occurrence of share splits, mergers, consolidations or similar pro-rata share transactions, which otherwise would have the effect of diluting the ownership interests of our limited partners or our shareholders. As of March 31, 2011 and December 31, 2010, there were no Operating Partnership common units held by unaffiliated third parties. At March 31, 2011, an aggregate of 257,775 LTIP units are held by executive officers. The LTIP units are entitled to receive per unit distributions equal to the per share distributions paid on common shares.

          The Company 1,000completed a public offering of common shares at $10.00 per share. Following the close of the IPO, the Company repurchased the 1,000 shares in October 2009 at his cost of $10.00 per share.

          A summary of the Company’s restricted share awards for the ninethree months ended September 30, 2010March 31, 2011 is as follows:

          Hotel Ground Rent

          The Altoona hotel is subject to a ground lease with an expiration date of April 30, 2029 with an extension option of up to 12 additional terms of five years each. Monthly payments are determined by the quarterly average room occupancy of the hotel as follows with base renthotel. Rent is equal to $5,500approximately $6 per month which shall bewhen monthly occupancy is less than 85% and can increase up to approximately $20 per month if occupancy is 100%, with minimum rent increased on an annual basis by two and one-half percent (2.5%):.

The following is a schedule of the minimum future obligation payments required under the ground lease (in thousands):

          Completion of these transactions is pursuant to the Sellers’ Plan of Reorganization for the five hotels and contingent upon satisfaction of certain conditions, including the entry of a Confirmation Order by the Bankruptcy Court with respect to such plan. The Credit Agreement contains representations, warranties, covenants, termsSeller will file a motion with the Bankruptcy Court seeking the approval of the break-up fees and conditions customaryexpense reimbursements totaling $2.5 million which would be payable to the Company, if, among other reasons, the Seller terminates the purchase agreement. The Seller has scheduled a hearing to approve the Plan of Reorganization for transactionsJune 23, 2011, and assuming the Confirmation Order is entered into at such time, the Company would expect to close shortly thereafter.

          All but one of this type, includingthe 69 hotels to be owned by the joint venture or the Company will continue to be managed after closing by Island Hospitality Management, a maximumhotel management company 90 percent-owned by Jeff Fisher.

          The Company also amended its $85 million secured revolving credit facility effective May 2011. The amendment provides for an increase to the allowable consolidated leverage ratio to 60 percent through 2012, reducing to 55 percent in 2013; and a minimumdecrease to the consolidated fixed charge coverage ratio from 2.3x to 1.7x through March 2012, increasing to 1.75x through December 2012 and minimum net worth financial covenants, limitations on (i) liens, (ii) incurrence of debt, (iii) investments, (iv) distributions, and (v) mergers and asset dispositions, covenants2.0x in 2013. Subject to preserve corporate existence and comply with laws, covenants on the use of proceeds ofcertain conditions, the credit facility and default provisions, including defaults for non-payment, breach of representations and warranties, insolvency, non-performance of covenants, cross-defaults and guarantor defaults. The occurrence ofstill has an event of default under the Credit Agreement could result in all loans and other obligations becoming immediately due and payable and the credit facility being terminated and allow the Lenders to exercise all rights and remedies available to them with respect to the collateral.

          The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report.

          The following information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended or the Exchange Act. These forward-looking statements include information about possible or assumed future results of the lodging industry, our business, financial condition, liquidity, results of operations, cash flow and plans and objectives. These statements generally are characterized by the use of the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such a difference include the following: the current global economic downturn, increased direct competition, changes in government regulations or accounting rules, changes in local, national and global real estate conditions, declines in the lodging industry, seasonality of the lodging industry, our ability to obtain lines of credit or permanent financing on satisfactory terms, changes in interest rates, availability of proceeds from offerings of our common shares,equity securities, our ability to identify suitable investments, our ability to close on identified investments and inaccuracies of our accounting estimates. Given these uncertainties, undue reliance should not be placed on such statements. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events. The forward-looking statements should be read in light of the risk factors identified in the “Risk Factors” section of our Registration Statementin the Company’s Annual Report on Form S-11,10-K for the year ended December 31, 2010, as filed with the Securities and Exchange Commission, or the “SEC”.updated elsewhere in this report.

          We are a self-advised hotel investment company organized in October 2009. We raised gross proceeds of $172.5 million upon completion of our initial public offering of common shares (“IPO”) on April 21, 2010. We raised an additional $10 million through a concurrent private placement of our common shares with Jeffrey H. Fisher, our Chairman, President and Chief Executive Officer. We had no operating assets on the date of our IPO.

          AsWe focus on premium-branded, select-service hotels in high growth markets with high barriers to entry concentrated primarily in the 25 largest MSAs. We believe the opportunities to acquire our target hotels are very attractive based on the belief that we are in the early stages of September 30, 2010,a lodging recovery.

          In February, we completed a $73.6 million follow-on common share equity offering, adding further strength and flexibility to our balance sheet. With the funds we have financed all 11available for investment, we have developed an active pipeline with well over $200 million in potential acquisitions.

          Our goal is to maintain our long-term leverage at a ratio of our acquisitions with proceeds of our IPO and the assumption of $12.4 million ofnet debt on two of our hotels. We financed the acquisitionto investment in hotels (at cost) at less than 35 percent. However, at this early stage of the two hotels acquired subsequentlodging cycle recovery, we may temporarily increase our leverage to September 30, 2010 withtake advantage of available opportunities. In the remaining proceeds from2011 second quarter, our IPO and borrowings underBoard of Trustees approved the increase in our recently completed credit facility. On October 28, 2010, we filed a Registration Statement on Form S-11targeted leverage to issue additional common shares in an underwritten public offering. Proceeds from this offeringless than 55 percent.

           Future growth through acquisitions will be used to pay downfunded by both issuances of common and preferred shares, draw-downs under our credit facility, fund future acquisitions, capital improvementsas well as the incurrence or assumption of individually secured hotel debt at our hotelsinterest rates which we believe are at historically low levels.

          We believe 2011 and other general corporate purposes.beyond will be excellent growth years for the industry and for Chatham. We expectintend to fund subsequent acquisitions from both debtacquire quality assets at attractive prices, improve their returns through knowledgeable asset management and equity sources.seasoned, proven hotel management while remaining prudently leveraged.

          We intend to elect to qualify for treatment as a real estate investment trust (“REIT”) for federal income tax purposes. In order to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), we cannot operate the hotels that we acquire. Therefore, our operating partnership, Chatham Lodging, L.P. (the “Operating Partnership”), and its

          Total revenue was $8.4 million and $13.0$12.5 million for the quarter and year to date, respectively.quarter. Since all of our hotels are select service or limited service hotels, room revenue is the primary revenue source as these hotels do not have a meaningful food and beverage sourcerevenue or large group conference facilities. As such, room revenue was $8.1 million and $12.7$12.1 million for the quarter, and year to date, respectively, which revenue comprised 97% of total revenue for the quarter and year to date.quarter. Other operating revenue, comprised of meeting room, gift shop, in-room movie and other ancillary amenities revenue, was $0.2 million and $0.3$0.4 million for the quarter and year to date, respectively.quarter.

           Since room revenue is the primary component of total revenue, the Company’sour revenue results are dependent on maintaining and improving occupancy, ADR and RevPAR at our hotels. Occupancy, ADR, and RevPAR results are presented in the following table based on the period since our acquisition of the hotels:

          Interest income on cash and cash equivalents was $0.1 million$6 for the quarter and year to date, respectively.three months ended March 31, 2011.

          Interest expense was $19 thousand$0.8 million for the quarter and year to date, respectively.three months ended March 31, 2011. In connection with the acquisition of two hotels during the quarter, we assumed two loans with a principal balance ofbalances aggregating approximately $12.4��$12.3 million. The weighted average interest rate of the two fixed rate loans is 5.9%. annually. Interest expense includes amortization of deferred financing fees of $0.3 million.

          Income tax expense was $0 and $46 thousand$2 for the quarter and year to date, respectively.three months ended March 31, 2011. Our TRS’sTRS are subject to income taxes and this expense is based on the taxable income of theone of our two TRS for the periodsholding companies at a tax rate of approximately 40%. Our other TRS holding company had a net loss for the year and income tax expense was zero since we established a valuation allowance for the deferred tax asset associated with the net loss.

          We are not aware of any material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either the capital resources or the revenues or income to be derived from the acquisition and operation of properties, loans and other permitted investments, other than those referred to in the risk factors identified in the “Risk Factors” section of our Registration Statementannual report on Form S-11,10-K, as filed with the SEC.

          We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our operating performance: (1) FFO, (2) Adjusted FFO, (3) EBITDA, and (4) Adjusted EBITDA. These non-GAAP financial measures could be considered along with, but not as alternatives to, net income or loss as a measure of our operating performance.performance prescribed by GAAP.

          FFO, Adjusted FFO, EBITDA and Adjusted EBITDA do not represent cash generated from operating activities as determined by GAAP and should not be considered as alternatives to net income or loss, cash flows from operations or any other operating performance measure prescribed by GAAP. FFO, Adjusted FFO, EBITDA and Adjusted EBITDA are not measures of our liquidity, nor are FFO, Adjusted FFO, EBITDA and Adjusted EBITDA indicative of funds available to fund our cash needs, including our ability to make cash distributions. These measurements do not reflect cash expenditures for long-term assets and other items that have been and will be incurred. FFO, Adjusted FFO, EBITDA and Adjusted EBITDA may include funds that may not be available for management’s discretionary use due to functional requirements to conserve funds for capital expenditures, property acquisitions, and other commitments and uncertainties.

          We calculate FFO in accordance with standards established by the National Association of Real Estate Investment

          We calculate EBITDA as net income or loss excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; and (3) depreciation and amortization. We considerbelieve EBITDA is useful to an investorinvestors in evaluating and facilitating comparisons ofour operating performance because it helps investors compare our operating performance between periods and between REITs by removing the impact of our capital structure (primarily expense) and asset base (primarily depreciation and amortization) from our operating results. In addition, we use EBITDA is used as one measure in determining the value of hotel acquisitions and dispositions.

          We further adjust EBITDA for certain additional recurring and non-recurring items, such asincluding hotel property acquisition costs, amortization of non-cash share-based compensation and costs associated with the departure of our former CFOchief financial officer, which are referred to as “other charges” below.“Other charges included in general and administrative expenses” below and which we believe are not indicative of the performance of our underlying hotel properties. We believe that Adjusted EBITDA provides investors with another financial measure that canmay facilitate comparisons of operating performance between periods and between REITs.REITs that report similar measures.

          Our principal sources of cash include net cash from operations and proceeds from debt and equity issuances. Our principal uses of cash include acquisitions, capital expenditures, operating costs, corporate expenditures, debt repayments and distributions to equity holders.

          For the ninethree months ended September 30, 2010,March 31, 2011, net cash flows provided by operations were $0.9 million, as our net loss of $19 was due in significant part to non-cash expenses, including $1.7 million driven by EBITDA of $1.0depreciation and amortization and $0.2 million as well asof share-based compensation expense. In addition, changes in operating assets and liabilities due to the timing of cash receipts and payments from our hotels.hotels resulted in net cash outflow of $1.0 million. Net cash flows used in investing activities were $148.6$4.6 million, which represents the acquisition of the eleven hotels as well as additional improvements in thoseto the thirteen hotels of $0.9$4.2 million and $5.7$0.4 million of funds placed into escrows for future acquisitions and lender or manager required escrows. Net cash flows provided by financing activities were $173.7$29.9 million, comprised primarily fromof proceeds generated from the IPO and our concurrent private placement ofFebruary common shares to our Chief Executive Officer,share offering net of underwriting fees and offering costs paid or payable to third parties of $173.9$69.4 million, offset by payments on our secured credit facility of $37.8 and distributions to shareholders of $1.7 million.

          As of September 30, 2010,March 31, 2011, we had cash and cash equivalents of approximately $26.8$30.9 million. Subsequent to September 30, 2010, we used $19.0 million of cash and cash equivalents and $2.0 million of restricted cash on the acquisition of the Residence Inn New Rochelle, New York and paid $5.2 million of deferred underwriting fees once we had invested 85% of the IPO proceeds in hotel properties. Payment of the deferred underwriting fees was made on October 21, 2010. On October 29, 2010,April 15, 2011, we paid $1.7$2.5 million in thirdfirst quarter dividends on our common shares and distributions on our LTIP units. We intend to use available cash and borrowings under our revolving secured line of credit to fund the cash requirements related to our six pending hotel acquisitions as well as our pending joint venture investments.

          We intend to limit the outstanding principal amount of our consolidated indebtedness, net of cash, to not more than 35% of the investment in our hotel properties at cost (defined as our initial acquisition price plus the gross amount of any subsequent capital investment and excluding any impairment charges), measured at the time thewe incur debt, is incurred, and a subsequent decrease in hotel property values will not necessarily cause us to repay debt to comply with this limitation. Our board of trustees may modify or eliminate this policy at any time without the approval of our shareholders. Following completionAt this early stage of a lodging cycle recovery, we may temporarily increase our leverage. In the hotel acquisitions described2011 second quarter, our Board of Trustees approved the increase in Note 13our targeted leverage to our financial statements, we have fully invested the net proceeds of our IPO and the concurrent private placement of common shares to our Chief Executive Officer in hotel properties.less than 55 percent.

          We expect to meet our short-term liquidity requirements generally through net cash provided by operations, existing cash balances and, if necessary, short-term borrowings under our revolving credit facility (see Note 13 to our financial statements).facility. We believe that our net cash provided by operations will be adequate to fund operating requirements,obligations, pay interest on any borrowings and fund dividends in accordance with the requirements for qualification as a REIT under the U.S. Federal Tax Code. We expect to meet our long-term liquidity requirements, whether in relation to investments insuch as hotel properties or scheduledproperty acquisitions and debt maturities or repayments through the net proceeds from additional issuances of common and preferred shares, issuances of units of limited partnership interest in the Operating Partnership or long-term secured and unsecured borrowings. The successborrowings and the issuance of our acquisition strategy may depend, in part, on our ability to access additional capital through issuances of equity or debt securities.

          On October 12, 2010, the REIT, as parent guarantor and the Operating Partnership, as borrower (the “Borrower”),we entered into a $85.0 million, three-year,senior secured revolving credit agreement (the “Credit Agreement”) with the lenders party

          On October 12, 2010, the REIT,The following table sets forth our contractual obligations as parent guarantorof March 31, 2011, and the Operating Partnership, as borrower (the “Borrower”),effect these obligations are expected to have on our liquidity and cash flow in future periods (in thousands). We had no other material off-balance sheet arrangements at March 31, 2011.

           On January 31, 2011, we entered into a $85.0contract to purchase a hotel located in the greater Pittsburgh, Pennsylvania area for a total purchase price of approximately $24.9 million, three-year, secured revolving credit agreement (the “Credit Agreement”) withwhich includes the lenders party thereto, Barclays Capitalassumption of approximately $7.3 million in debt on the property. The acquisition of this hotel is subject to customary closing requirements and Regions Capital Markets as joint lead arrangers, Barclays Bank PLC as administrative agent, Regions Bank as syndication agent, Credit Agricole Corporate and Investment Bank, UBS Securities and US Bank National Association acting as co-documentation agents.

          Demand in the lodging industry is affected by IHM pursuantrecurring seasonal patterns. Generally, we expect that we will have lower revenue, operating income and cash flow in the first and fourth quarters and higher revenue, operating income and cash flow in the second and third quarters. These general trends are, however, expected to a 5-year management agreement. On November 3, 2010,be greatly influenced by overall economic cycles and the Company acquiredgeographic locations of the 145-room Homewood Suites by Hilton Carlsbad in Carlsbad, California for $32 million, plus customary pro-rated amounts and closing costs, from Royal Hospitality Washington, LLC and Lee Estates, LLC. The hotel will be managed by IHM pursuant to a 5-year management agreement.hotels we acquire.

          We consider the following policies critical because they require estimates about matters that are inherently uncertain, involve various assumptions and require management judgment. The preparation of theOur consolidated financial statements have been prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the balance sheet date of our financial statements and the reported amounts of revenues and expenses during the reporting period. ActualWhile we do not believe the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results maycould differ from these estimates. We evaluate our estimates and assumptions.judgments on an ongoing basis. We base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances. All of our significant accounting policies, including certain critical accounting policies, are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010.

          Investment in Hotel PropertiesRecently Issued Accounting Standards

          The Company allocatesIn December 2010, the purchase prices of hotel properties acquired based onFASB issued updated accounting guidance to clarify that pro forma disclosures should be presented as if a business combination occurred at the fair valuebeginning of the acquired real estate, furniture, fixtures and equipment, identifiable intangible assets and assumed liabilities. In making estimates of fair valueprior annual period for purposes of allocatingpreparing both the purchase price, the Company utilizes a number of sources of information that are obtained in connection with the acquisition of a hotel property, including valuations performed by independent third parties and information obtained about each hotel property resulting from pre-acquisition due diligence. Hotel property acquisition costs, such as transfer taxes, title insurance, environmental and property condition reviews, and legal and accounting fees, are expensed in the period incurred.

declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, management will perform an analysis to determine if the estimated undiscounted future cash flows, without interest charges, from operationscurrent reporting period and the proceeds fromprior reporting period pro forma financial information. These disclosures should be accompanied by a narrative description about the ultimate dispositionnature and amount of a hotel property exceed its carrying value. Ifmaterial, nonrecurring pro forma adjustments. The new accounting guidance is effective for business combinations consummated in periods beginning after December 14, 2010, and should be applied prospectively as of the estimated undiscounted future cash flows are less thandate of adoption. Early adoption is permitted. We have adopted the carrying amount, an adjustment to reduce the carrying amount to the related hotel property’s estimated fair market value is recorded and an impairment loss recognized.new disclosures as of January 1, 2011. We do not believe that there are any facts or circumstances indicating impairment in the carrying valueadoption of any ofthis guidance will have a material impact on our hotel properties.